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CML Microsystems PLC
20 November 2018
 

20 November 2018

CML Microsystems Plc

("CML" or the "Group")

Half Year Results

 

CML Microsystems Plc, which designs, manufactures and markets semiconductor solutions primarily for global communication and solid state storage markets, announces results for the six months ended 30 September 2018.

 

Financial Highlights

·      Group revenues down 6% to £15.05m (H1 2017: £16.02m)

·      Gross profit down 5% to £10.72m (H1 2017: £11.23m), with Gross Margin as a percentage of sales up 1%

·      Profit before tax up 2% to £2.36m (H1 2017: £2.31m)

·      Adjusted EBITDA increased by 6% to £5.18m (H1 2017: £4.90m)

·      Basic EPS up 8% to 12.65p (H1 2017: 11.74p)

·      No borrowings and net cash of £13.54m (31 March 2018: £13.82m) after a £0.99m dividend payment

·      Interim dividend maintained at 2.0p per ordinary share

 

Operational Highlights

·      Strong results against a difficult backdrop

·      Order intake across wider customer base mitigating impact of supply difficulties

·      Product mix supported profitability

·      Increased purchasing of raw materials to address constraints on supply chain

·      Three new products launched

·      Continued focus on R&D to drive long term, sustainable profitability

·      Growing pipeline of opportunity

 

Chris Gurry, Group Managing Director of CML Microsystems commented on the results:

 

"Despite the well-publicised global supply constraints, I am pleased to be able to report a strong set of results for the first half of the year."

"With a growing number of customer products reaching production, the Board is confident that meaningful advances will be made as end market dynamics normalise and remains excited about the Group's future prospects."

 

 

CML Microsystems Plc

Chris Gurry, Group Managing Director

Neil Pritchard, Group Financial Director

 

www.cmlmicroplc.com
Tel: +44 (0)1621 875 500

Cenkos Securities plc

Max Hartley (Corporate Finance)

Russell Kerr (Sales)

 

Tel: +44 (0)20 7397 8900

SP Angel Corporate Finance LLP

Jeff Keating

 

Tel: +44 (0)20 3470 0470 

Alma PR

Josh Royston

Caroline Forde

Robyn Fisher

 

 

Tel: +44 (0)7780 901979

 

 

 

About CML Microsystems PLC

CML designs and develops semiconductors for the industrial storage and communications markets. The Group utilises a combination of in-house and outsourced manufacturing and has trading operations in Europe, the Far East and USA. CML targets niche markets with strong growth profiles and high barriers to entry. It has secured a diverse, blue chip customer base, including some of the world's leading telecoms equipment providers and industrial product manufacturers.

 

The spread of its customers and products largely protects the business from the cyclicality usually associated with the semiconductor industry. Growth in its end markets is being driven by factors such as the ever increasing trend towards solid state storage devices in the commercial and industrial sectors, the upgrading of telecoms infrastructure around the world and the growing prevalence of private commercial communications networks for voice and/or data communications linked to the industrial internet of things (IIoT).

 

The Group is cash-generative, has no borrowings and is dividend paying.

 

 

 

 

Chairman's statement

I am pleased to report on another period of continued progress for CML. It has long been our stated objective to achieve long-term, sustainable growth and these results demonstrate the effectiveness of our strategy, delivering impressive returns despite challenging market conditions. The strategies implemented by the management team to manage the extended raw material lead times and disruptive purchasing patterns following NAND flash capacity constraints have mitigated their impact on our current trading position and the underlying business indicators have grown.

 

The solid financial performance reflects the R&D investments made in previous years and the breadth of the business, with sales of newer products offsetting some of the impact of the market issues. We will continue to maintain our levels of investment into the business and R&D activities, to provide the pipeline for our future growth.

 

The end markets in which we operate remain robust, and while the NAND flash-related issues have impacted short-term order inflow within our storage division we have seen continued design wins across both divisions. There are firm underlying growth drivers in each of these markets, and future drivers, such as IIoT within Communications and the transition to 5G within Storage, present exciting long-term prospects.

As anticipated, revenue in the period fell to £15.05m (H1 2017: £16.02m), against a strong comparative half. Gross margins were positively impacted due to the sales mix. Pre-tax profits marginally improved to £2.36m (H1 2017: £2.31m) being bolstered by tight cost control and an improvement in other income which included profit on the sale of an investment property. Profit after tax was £2.16m (H1 2017: £1.98m) due to improved tax rates, as anticipated. Cash levels, which are always a key management focus, remained high at £13.54m (31 March 2018: £13.82m). The reduction reflected a requirement to increase raw material levels in the face of supply issues, significantly higher R&D spend at £3.77m (H1 2017: £3.13m) and the dividend payment of £0.99m. We continue to have no borrowings.

Organic growth is the cornerstone of our stated strategy, but we continue to monitor acquisition opportunities to support our growth.

This year marks CML's 50th anniversary as a business. I have been part of the Company for over 38 years and I am pleased to say that though we are currently navigating difficult conditions, due to short term external market forces, I believe we have the best management team we have ever had in place to address these challenges. This gives me confidence that meaningful growth will be achieved as soon as our market conditions improve.

In the light of this environment and based on our customers' current buying patterns, we believe that whilst revenues for the full year may be weaker than expected,  management's stewardship and changes in the product mix give us confidence of meeting profit expectations. We introduced an interim dividend for the first time last year and despite the challenging environment, I am pleased to say this will be maintained at the same level, supported by on-going cash generation and profitable trading. An interim dividend of 2.0p per share will be paid on 14 December 2018 to shareholders on the register on 30 November 2018.

Finally what must never be forgotten is that a major key to our progress is, of course, our loyal and dedicated staff, a number of whom have been with us for many years. I would once again like to take this opportunity to thank them for their continued commitment and support.

N G Clark

Group Non-Executive Chairman

19 November 2018

 

 

 

 

Operational and financial review

Introduction

Despite the well-publicised global supply constraints in the semiconductor industry, I am pleased to be able to report a strong set of results for the first half of the financial year. While some of our customers have been impacted by raw material supply difficulties, we have seen a growing number of orders coming through across the wider customer base, particularly for newer products. The resulting product mix had a positive impact on our profit margin and supported improved our first half profitability. 

To partially mitigate the overall supply chain impact on the Group's results, we have been purchasing increased quantities of raw materials and expect this policy to continue for the remainder of the financial year.

Our investment into R&D continues to deliver the desired results. The product range has continued to grow with three new products launched in the period and the new design wins from recent years are starting to enter their ramp phases as expected.

Financial Review

Group revenues for the first half of the financial year were £15.05m representing a decline of 6% compared to the strong first half of the prior year (H1 2017: £16.02m). Gross margin as a percentage increased due to a favourable product mix, generating gross profit of £10.72m (H1 2017: £11.23m).

Given the general market conditions, a keen focus on non-R&D spending helped reduce distribution and administration costs to £8.81m (H1 2017: £9.25m). Other reasons for the improvement included lower direct staff costs following reorganisation expenditure in the prior year comparable period along with a gain on foreign exchange amounting to £0.25m (H1 2017: loss on exchange of £0.17m).

Excluding other operating income, profit from operations equated to £1.90m (H1 2017: £1.98m).

Non-operating income rose to £0.51m (H1 2017: £0.38m) enhanced by the sale of a non-operational property asset which generated a one-off gain of £0.22m.

At the pre-tax level, profit amounted to £2.36m (H1 2017: £2.31m).

Cash balances at 30 September 2018 totalled £13.54m (31 March 2018: £13.82m) following payment of a £0.99m dividend in respect of the previous year and a continued high level of R&D cash spend in the period of £3.77m (H1 2017: £3.13m). For reasons previously given, inventory levels rose to £2.66m (31 March 2018: £2.35m).

Adjusted EBITDA grew by 6% to £5.18m (H1 2017: £4.90m) and, assisted by an improved tax rate, basic earnings per share increased to 12.65p (H1 2017: 11.74p). 

Strategy Overview

Our business remains focused on two important markets, namely industrial Communications and industrial Storage, where our proprietary IP along with the quality and reliability of our technology sets us apart from our peers and makes us an integral part of our customers' products. We have developed a strong reputation in both of these markets and we continue to supply a growing world class customer base. This, coupled with an extensive sales network and expanded presence globally, will enable us to scale further.

Growth in both markets is continually being driven by the persistent demand for increasing amounts of data to be delivered faster and stored more reliably and securely. We remain committed to generating a diverse revenue stream across a broad range of customers.  We are a single-source supplier to our customers, meaning that once designed in, the displacement of our chips would require our customers to undertake an element of product redesign.

R&D is a key tenet of our growth strategy. Our focus is on developing products which will lead to design wins with new and existing customers that we believe have the potential to develop into long-term, significant revenue generators. The Company has a proven track record of successful acquisitions and will continue to seek further appropriate opportunities to complement our organic growth.

Communications

Our strategic objectives are to grow customer share and expand the customer base through new product introductions that increase the functionality that our IC's deliver and serve to widen the addressable market.

In recent years we have introduced a number of new products that have been conceived to operate either on a 'stand alone' basis or as part of an optimised CML chip set. The consolidated product portfolio now offers customers a greater selection of technical functionality whilst improving commercial competitiveness.

Operating through a backdrop of extended raw material lead times, progress for the first six months of the year has been good. Revenues improved to £7.97m representing a 1% increase against a particularly strong prior year first half period (H1 2017: £7.86m).

Semiconductor solutions targeted at applications for voice and data-centric customer products demanding high performance RF technology were the main revenue generators across the period. This included use within Real-Time Kinematic (RTK) products for enhanced GPS positioning end uses along with a strong contribution from digital radio, for both commercial and public safety markets.

New product releases were focussed around two main areas; reference designs aimed at assisting our customers to accelerate the development of their own products and, post the half year end, the launch of a highly integrated, ultra low-power voice codec targeted at an array of voice communication end applications including security alarm panels and voice controlled equipment.

The Communications market 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 data throughput requirements from terrestrial and satellite communications applications. The latter is required to meet the needs of the growing Machine-to-Machine (M2M) and Industrial Internet of Things sectors (IIoT).

Storage

The key objectives of our strategy within Storage are to increase the penetration of our existing customers' product portfolios whilst simultaneously adding new customers through the timely introduction of innovative new products that will enlarge the serviceable market. Our focus continues to be the expansion of the product range to include all major interface standards used within our target industrial end markets and ensure interoperation with the relevant Flash Memory devices produced by the major suppliers.

In recent years, we have transitioned from a narrow 'Controller' product portfolio with only CompactFlash as the available interface, to an enlarged product range that now also includes USB, SD, SATA & MMC interface technologies.

During the period under review, revenue derived from Storage semiconductor products was £7.02m (H1 2017: £8.09m). Shipments continued to be impacted by the hangover from pricing and supply dynamics associated with NAND flash memory technology itself, which sits alongside our controllers in all customer end products. This impacted the majority of our customers.

Notable markets included a pleasing contribution from telecoms infrastructure projects based upon more recently released controller products and a selection of industrial automation end-applications. Despite the decline in sales against what was a very strong prior year first half, the product mix differed significantly and favoured those solutions commanding a higher selling price.

R&D spend through the period was simultaneously focussed on enhancements and roadmap developments for the Group's HyMap controller firmware along with progressing a key silicon development that is scheduled for release during financial Q4.

Operationally, enhancements were made to the third-party sales channels that expand our routes to market within Asia.

The industrial data storage market has several specific areas which are exhibiting exciting opportunities for which we have either secured design wins or are at the somewhat earlier stage of qualifying products with our customers. These areas include the telecoms/network infrastructure market, industrial automation and an increasing number of security-related applications where the Group's proprietary technology offers our customers greater levels of comfort. Many major original equipment manufacturers (OEMs) are either starting or continuing to utilise our storage solutions meaning we are well positioned to benefit from growing demand as NAND flash market dynamics normalise.

Market Development

The underlying growth trends within our two main industrial application areas continue to strengthen and underpin confidence in our strategy. The persistent demand for increasing amounts of data to be transmitted and stored more quickly and securely remains and through our strong focus on R&D, we have a relevant and growing suite of products to meet these needs.

We continue to add customers to our already impressive list of leading OEMs and the diversification of our customer base has helped us to deliver these results in difficult market conditions.

Operational Developments

The investments in and adjustments to headcount in prior years is bearing fruit as we continue to see growth in the pipeline of opportunities being worked globally. These investments have enabled us to strengthen our sales efforts in certain territories as well as improve our routes to market.

As a result, the Company has a growing Total Addressable Market in which to sell its increasing suite of products.

Outlook

Profits grew through the first half year period and an underlying indicator for future growth, namely the pipeline of opportunity, has risen nicely. The combined effects of extended raw material lead times and NAND flash market dynamics along with customer purchasing patterns uncertainty created around ongoing trade issues between China and the USA, continues to affect progress.   The Group is focussed on operational activities to mitigate some of these effects where possible.

It currently looks challenging for second half revenues to show material improvement over the first six months although at the profit before tax level, the impact is expected to be less pronounced due to the anticipated product mix. Therefore, a full year advance in profitability remains likely, in-line with market expectations.

With a growing number of customer products reaching production, the Board is confident that meaningful advances will be made as end market dynamics normalise and remains excited about the Group's future prospects.

C A Gurry

Group Managing Director

19 November 2018

 

 

 

 

 

Condensed consolidated income statement

for the six months ended 30 September 2018

 

 

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Continuing operations

 

 

 

Revenue

15,052

16,016

31,674

Cost of sales

(4,336)

(4,782)

(9,438)

Gross profit

10,716

11,234

22,236

Distribution and administration costs

(8,813)

(9,253)

(18,518)

 

1,903

1,981

3,718

Other operating income

290

385

829

Profit from operations

2,193

2,366

4,547

Share-based payments

(81)

(71)

(143)

Profit after share-based payments

2,112

2,295

4,404

Profit on disposal of property

222

-

-

Revaluation of investment properties

-

-

140

Finance income

22

16

39

Profit before taxation

2,356

2,311

4,583

Income tax expense

(195)

(336)

(444)

Profit after taxation

2,161

1,975

4,139

Profit after taxation for period attributable to equity owners of the parent

2,161

1,975

4,139

 


 


Basic earnings per share


 


From profit for the period

12.65p

11.74p

24.52p

Diluted earnings per share

 

 

 

From profit for the period

12.46p

11.56p

23.95p

 

 

 

 

Adjusted EBITDA1

5,175

4,902

9,998

1.    See Note 10 for definition and reconciliation.

 

 

 

 

 

Condensed consolidated statement of total comprehensive income

for the six months ended 30 September 2018

 

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Profit for the period

2,161

1,975

4,139

Other comprehensive income, net of tax:

 

 

 

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

 

 

 

Actuarial gain on retirement benefit obligations

-

-

911

Deferred tax on actuarial gain

-

-

(155)

Items reclassified subsequently to profit or loss upon derecognition:

 

 

 

Foreign exchange differences

94

(57)

(84)

Other comprehensive income/(expense) for the period net of taxation attributable to equity holders of the parent

94

(57)

672

Total comprehensive income for the period attributable to the equity holders of the parent

2,255

1,918

4,811

 

 

 

 

Condensed consolidated statement of financial position 

As at 30 September 2018

 

 

 

Unaudited

Unaudited

Audited

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Assets

 

 

 

Non-current assets

 

 

 

Goodwill

9,097

9,134

9,190

Other intangible assets

1,635

1,242

1,570

Property, plant and equipment

5,393

5,371

5,410

Investment properties

3,170

3,550

3,690

Investment

81

82

83

Development costs

13,710

12,053

12,542

Deferred tax assets

1,101

1,352

1,068

 

34,187

32,784

33,553

Current assets


 


Inventories

2,660

2,154

2,351

Trade receivables and prepayments

4,149

2,607

3,112

Current tax assets

1,088

1,085

675

Cash and cash equivalents

13,542

12,716

13,816

 

21,439

18,562

19,954

Total assets

55,626

51,346

53,507

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

5,575

5,163

5,292

Current tax liabilities

250

446

48

Provision - current

194

142

181

 

6,019

5,751

5,521

Non-current liabilities

 

 

 

Deferred tax liabilities

4,210

3,813

3,950

Retirement benefit obligation

2,070

3,084

2,070

Provision - non current

114

299

196

 

6,394

7,196

6,216

Total liabilities

12,413

12,947

11,737

Net assets

43,213

38,399

41,770

 


 


Capital and reserves attributable to equity owners of the parent


 


Share capital

857

843

856

Share premium

9,164

8,338

9,068

Capital redemption reserve

9

9

9

Treasury shares - own share reserve

(190)

(190)

(190)

Share-based payments reserve

496

558

443

Foreign exchange reserve

1,396

1,329

1,302

Accumulated profits reserve

31,481

27,512

30,282

Total shareholders' equity

43,213

38,399

41,770

 

 

 

 

Condensed consolidated cash flow statement

for the six months ended 30 September 2018

 

 

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Operating activities

 

 

 

Profit for the period before taxation

2,356

2,311

4,583

Adjustments for:

 

 

 

Depreciation

202

195

411

Amortisation of development costs

2,481

2,263

4,745

Amortisation of intangibles recognised on acquisition

77

78

155

Profit on disposal of property

(222)

-

-

Revaluation of investment properties

-

-

(140)

Movement in non-cash items (pension)

-

-

(103)

Share-based payments

81

71

143

Movement in provisions

(95)

-

(48)

Finance income

(22)

(16)

(39)

Movement in working capital

(1,222)

(504)

(874)

Cash flows from operating activities

3,636

4,398

8,833

Income tax received/(paid)

1

(33)

309

Net cash flows from operating activities

3,637

4,365

9,142

Investing activities


 


Payment of warranty retention

-

-

(320)

Purchase of property, plant and equipment

(177)

(233)

(488)

Investment in development costs

(3,530)

(2,692)

(5,680)

Proceeds from disposal of property

750

-

-

Investment in intangibles

(159)

-

(392)

Finance income

22

16

39

Net cash flows used in investing activities

(3,094)

(2,909)

(6,841)

Financing activities

 

 

 

Issue of ordinary shares

97

19

762

Dividends paid to shareholders

(990)

(1,244)

(1,581)

Net cash flows used in financing activities

(893)

(1,225)

(819)

(Decrease)/increase in cash and cash equivalents

(350)

231

1,482

 


 


Movement in cash and cash equivalents:


 


At start of period/year

13,816

12,447

12,447

(Decrease)/increase in cash and cash equivalents

(350)

231

1,482

Effects of exchange rate changes

76

38

(113)

At end of period

13,542

12,716

13,816

Cash flows presented exclude sales taxes. 

 

 

 

 

Condensed consolidated statement of changes in equity

for the six months ended 30 September 2018

 

 

 

 

Capital

 

Share-

Foreign

Accumulated

 

 

Share

Share

redemption

Treasury

based

exchange

Profits

 

 

capital

premium

reserve

shares

payments

reserve

reserve

Total

Unaudited

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 31 March 2017

843

8,319

9

(190)

504

1,386

26,764

37,635

Profit for period

 

 

 

 

 

 

1,975

1,975

Other comprehensive income net of taxes

 

 

 

 

 

 

Foreign exchange differences

 

 

 

 

 

(57)

 

(57)

Total comprehensive income for the period

-

-

-

-

-

(57)

1,975

1,918

Transactions with owners in their capacity
as owners

 

 

 

 

-

-

Dividend paid

 

 

 

 

 

 

(1,244)

(1,244)

Issue of ordinary shares

-

19

 

 

 

 

 

19

Total of transactions with owners in their capacity

 

 

 

 

 

 

as owners

-

               19

-

-

-

-

(1,244)

(1.225)

Share-based payments

 

 

 

 

71

 

 

71

Cancellation/exercise of

 

 

 

 

 

 

 

 

share-based payments

 

 

 

 

(17)

 

17

-

At 30 September 2017

843

8,338

9

(190)

558

1,329

27,512

38,399

Profit for period

 

 

 

 

 

 

2,164

2,164

Other comprehensive income net of taxes

 

 

 

 

 

 

Foreign exchange differences

 

 

 

 

 

(27)

 

(27)

Net actuarial loss on retirement benefit obligation

 

 

 

 

 

 

911

911

Deferred tax movement on actuarial loss

 

 

 

 

 

 

(155)

(155)

Total comprehensive income

 

 

 

 

 

 

 

 

for the period

843

8,338

9

(190)

558

1,302

30,432

41,292

Transactions with owners in their

capacity as owners

 

 

 

 

 

 

Issue of ordinary shares

13

730

 

 

 

 

 

743

Dividend paid

 

 

 

 

 

 

(337)

(337)

Total of transactions with owners in

 

 

 

 

 

 

their capacity as owners

13

730

-

-

-

-

(337)

406

Share-based payments

 

 

 

 

72

 

 

72

Cancellation/exercise of share-based payments

 

 

 

 

(187)

 

187

-

At 31 March 2018

856

9,068

9

(190)

443

1,302

30,282

41,770

Profit for period

 

 

 

 

 

 

2,161

2,161

Other comprehensive income net of taxes

 

 

 

 

 

 

 

 

Foreign exchange differences

 

 

 

 

 

94

 

94

Total comprehensive income

-

-

-

-

-

94

2,161

2,255

for the period

 

 

 

 

 

 

 

 

Transactions with owners in their capacity as owners

 

 

 

 

 

 

 

 

Dividend paid

 

 

 

 

 

 

(990)

(990)

Issue of ordinary shares

1

96

 

 

 

 

 

97

Total of transactions with owners in their capacity as owners

1

96

-

-

-

-

(990)

(893)

Share-based payments

 

 

 

 

81

 

 

81

Cancellation/exercise of share-based payments

 

 

 

 

(28)

 

28

-

At 30 September 2018

857

9,164

9

(190)

496

1,396

31,481

43,213

 

 

 

 

Notes to the consolidated financial statements

for the six months ended 30 September 2018

 

1 Segmental analysis

Information about revenue, profit/loss, assets and liabilities

 

 

Unaudited

6 months end 30/09/18

Unaudited

6 months end 30/09/17

Audited

Year end 31/03/18

 

 

Semi-conductor

 

Semi-conductor

 

Semi-conductor

 

 

components

Group

components

Group

components

Group

 

£'000

£'000

£'000

£'000

£'000

£'000

Total segmental revenue

15,052

15,052

16,016

16,016

31,674

31,674

Profit

 

 

 

 

 

 

Segmental result

2,112

2,112

2,295

2,295

4,404

4,404

Finance income

 

22

 

16

 

39

Profit on disposal of property

 

222

 

-

 

-

Revaluation of investment properties

 

-

 

-

 

140

Income tax expense

 

                (195)

 

(336)

 

(444)

Profit after taxation

 

2,161

 

1,975

 

4,139

Assets and liabilities

 

 

 

 

 

 

Segmental assets

50,267

50,267

45,359

45,359

48,074

48,074

Unallocated corporate assets

 

 

 

 

 

 

Investment properties

 

3,170

 

3,550

 

3,690

Deferred tax assets

 

1,101

 

1,352

 

1,068

Current tax assets

 

1,088

 

1,085

 

675

Consolidated total assets

 

55,626

 

51,346

 

53,507

Segmental liabilities

5,883

5,883

5,604

5,604

5,669

5,669

Unallocated corporate liabilities

 

 

 

 

 

 

Deferred tax liabilities

 

4,210

 

3,813

 

3,950

Current tax liabilities

 

250

 

446

 

48

Retirement benefit obligation

 

2,070

 

3,084

 

2,070

Consolidated total liabilities

 

12,413

 

12,947

 

11,737

 

Other segmental information

 

Unaudited

6 months end 30/09/18

Unaudited

6 months end 30/09/17

Audited

Year end 31/03/18

 

 

Semi-conductor

 

Semi-conductor

 

Semi-conductor

 

 

Components

Group

components

Group

components

Group

 

£'000

£'000

£'000

£'000

£'000

£'000

Property, plant and

 

 

 

 

 

 

equipment additions

177

177

233

233

488

488

Development cost additions

3,530

3,530

2,692

2,692

5,680

5,680

Intangible asset additions

159

159

-

-

392

392

Depreciation

202

202

195

195

411

411

Amortisation of development costs

2,481

2,481

2,263

2,263

4,745

4,745

Amortisation of acquired intangibles

77

77

78

78

155

155

Other non-cash income

-

-

-

-

103

103

 

 

Geographical segments

 

UK

Rest
of Europe

Americas

Far East

Total

Unaudited

£'000

£'000

£'000

£'000

£'000

Six months ended 30 September 2018

 

 

 

 

 

Revenue to third parties

3,539

3,447

3,045

5,021

15,052

Property, plant and equipment

4,997

270

80

46

5,393

Investment properties

                3,170

-

-

-

3,170

Development costs

5,201

8,509

-

-

13,710

Intangible assets - software

551

-

-

-

551

Goodwill

-

3,512

-

5,585

9,097

Other intangible assets arising on acquisition

-

-

-

1,083

1,083

Total assets

24,837

16,497

2,149

12,143

55,626

 

 

 

UK

Rest
of Europe

Americas

Far East

Total

Unaudited

£'000

£'000

£'000

£'000

£'000

Six months ended 30 September 2017

 

 

 

 

 

Revenue to third parties

3,865

3,737

2,868

5,546

16,016

Property, plant and equipment

4,989

314

31

37

5,371

Investment properties

3,550

-

-

-

3,550

Development costs

4,148

7,905

-

-

12,053

Goodwill

-

3,512

-

5,622

9,134

Other intangible assets arising on acquisition

-

-

-

1,242

1,242

Total assets

21,216

16,496

1,804

11,830

51,346

 

 

 

UK

Rest
of Europe

Americas

Far East

Total

Audited

£'000

£'000

£'000

£'000

£'000

Year ended 31 March 2018

 

 

 

 

 

Revenue to third parties

5,073

7,355

5,848

13,398

31,674

Property, plant and equipment

5,024

290

65

31

5,410

Investment properties

3,690

-

-

-

3,690

Development costs

4,424

8,118

-

-

12,542

Intangible assets - software

392

-

-

-

392

Goodwill

-

3,512

-

5,678

9,190

Other intangible assets arising on acquisition

-

-

-

1,178

1,178

Total assets

23,915

15,556

2,582

11,454

53,507

 

Segmental reporting is, in accordance with IFRS 8, based on internal management reporting information that is regularly reviewed by the chief operating decision maker. The measurement policies the Group uses for segmental reporting under IFRS 8 are the same as those used in its full year financial statements.

 

Revenue

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

 

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Europe

3,890

4,823

9,477

Far East

7,940

8,006

15,764

Americas

3,068

2,918

5,919

Other

154

269

514

 

15,052

16,016

31,674

 

 

 

2 Dividend paid and interim dividend

 

The Board is declaring an interim dividend of 2.0p per 5p ordinary share for the half year ended 30 September 2018, payable on 14 December 2018 to shareholders on the Register on 30 November 2018.

 

A final dividend of 5.8p per 5p ordinary share was paid on 6 August 2018 and an interim dividend of 2.0p per 5p ordinary share was paid on 15 December 2017, totalling 7.8p per 5p ordinary share paid for the year ended 31 March 2018  (2017: 7.4p per 5p ordinary share in respect of the year ended 31 March 2017).

 

 

3 Income tax expense

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

UK income tax credit

(300)

(272)

(551)

Overseas income tax charge

296

508

614

Total current tax (credit)/charge

(4)

236

63

Deferred tax charge

199

100

381

Reported income tax expense

195

336

444

 

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.

 

 

4 Earnings per share

 

Unaudited

Unaudited

Audited

 

6 months end

6 months end

Year end

 

30/09/18

30/09/17

31/03/18

Basic earnings per share


 

 

From profit for the period

12.65p

11.74p

24.52p

Diluted earnings per share

 

 

 

From profit for the period

12.46p

11.56p

23.95p

 

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 2018

17,084,130

17,342,440

Six months ended 30 September 2017

16,815,949

17,087,298

Year ended 31 March 2018

16,876,684

17,279,032

 

On 8 December 2017, the staff exercised 233,026 staff options under the terms of the staff share option schemes at a price of 500p per share.

 

 

5 Investment properties

Investment properties are revalued at each discrete year end by the Directors and every third year by independent Chartered Surveyors on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement. At 31 March 2018 the investment properties were professionally valued by Everett Newlyn, Chartered Surveyors and Commercial Property Consultants, on an open market basis, for which an investment value of £3,690,000 was advised.

 

On the 12 September 2018, the Company disposed of one its investment properties, Burghey Brook Farm, for a consideration of £750,000, previously held with a carrying value of £520,000 by the Company, and before incidental transaction costs.

 

 

 

 

6 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.

 

 

7 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. Furthermore, the Group does however have significant Euro‑denominated fixed costs. Additionally, though the Group has a very diverse customer base in certain market sectors, key customers can represent a significant amount of revenue though their end‑customers may be a diversified portfolio. Key customer relationships are closely monitored, however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.

 

Key risks of a non-financial nature

The Group is a small player operating in a highly competitive global market that is undergoing continual and geographical change. The Group's ability to respond to many competitive factors including, but not limited to, pricing, technological innovations, product quality, customer service, raw material availabilities, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers' products since the Group is a component supplier.

 

A substantial proportion of the Group's revenue and earnings are derived from outside the UK and so the Group's ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements (including the UK's withdrawal from the European Union, or "Brexit"), political risk, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics.

 

8 Directors' statement pursuant to the Disclosure and Transparency Rules

The Directors confirm that, to the best of their knowledge:

 

·     Except as described in Note 9, these condensed set of financial statements have been prepared on a consistent basis with the financial statements for the year ended 31 March 2018 and should be read in conjunction with the FY18 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; and 

·     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.

 

 

9 Basis of preparation

The basis of preparation and accounting policies used in preparation of this Half Yearly Report have been prepared in accordance with  the same accounting policies set out in the year ended 31 March 2018 financial statements with the exception of the adoption of IFRS 15 - Revenue from Contracts with Customers and IFRS 9 - Financial Instruments. The impact of the adoption is set out below:

 

(i) IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 - Revenue from Contracts with Customers establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It has replaced existing revenue recognition guidance, including IAS 18 Revenue. IFRS 15 sets out the requirements for recognising revenue from contracts with customers. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model (identification of contracts; performance obligations; transaction prices; allocation of price to performance obligations; and recognition of revenue). Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. It has replaced existing revenue recognition guidance, including IAS 18 Revenue.  IFRS 15 is effective for annual periods beginning on or after 1 January 2018.

 

Following a high level review and an impact assessment of this standard it was concluded that the Group's revenue streams are currently recognised at the point of its performance obligation and at a determined transaction price and therefore under IFRS 15, there was no material change in the timing and recognition of its revenue.  Microchips involve both hardware and embedded software within a chip product, and revenues are recognised when invoices are raised and chip products are despatched.  The group recognises its revenue in any given period in accordance with these measures and therefore does not recognise future revenues within current revenue. Therefore, there is no requirement to restate prior year revenue recognised from contracts in the statement of comprehensive income.

 

Contract balances relate to customer pricing agreements which are less than one year in duration and therefore there are no requirements to disclose customer contract balances separately in the financial position.  While many of our companies have warranty arrangements with their customers, having reviewed the details of the warranty arrangements, these have been determined to be of an assurance nature and as such there is no material change in accounting required by IFRS 15.

 

(ii) IFRS 9 'Financial Instruments'

IFRS 9 'Financial Instruments' determines the basis of the financial instrument and how a financial asset should be classified and measured. It also provides a forward-looking expected losses impairment model for financial assets, including trading receivables, and includes amendments to classification and measurement of financial instruments.  It has replaced existing standard IAS 39 'Financial Instruments: Recognition and Measurement'. IFRS 9 is effective for annual periods beginning on or after 1 January 2018.

 

Following a high level review and further impact assessment, it was concluded that the Group's use of financial instruments is limited to short term trading balances such as receivables and payables. The Group has no financial borrowings and does not have complex financial instruments in place in relation to foreign exchange. Given the straightforward nature of the financial assets for the Group, it is not anticipated that there will be a material change in any level of impairment recognised compared to that based on current procedures and there have been no material changes arising from the adoption of the expected losses impairment model.  Therefore, there is no requirement to restate prior year balances in the statement of comprehensive income.

 

 

10 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

 

30/09/18

30/09/17

31/03/18

 

£'000

£'000

£'000

Profit after taxation (earnings)

                2,161

1,975

4,139

Adjustments for:

 

 

 

Finance income

(22)

(16)

(39)

Income tax expense

195

336

444

Depreciation

202

195

411

Amortisation of development costs

2,481

2,263

4,745

Amortisation of intangibles recognised on acquisition

77

78

155

Share-based payments

81

71

143

Adjusted EBITDA

5,175

4,902

9,998

 

 

 

 

11 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 7 above.

 

This Half Yearly Report includes a fair review of the information required by DTR 4.2.7/8 (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year).

 

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 2018.

 

The financial information contained in this Half Yearly Report has been prepared on a basis which is consistent with International Financial Reporting Standards as adopted by the European Union. 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 2018 is based on the statutory accounts for the financial year ended 31 March 2018 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: www.cmlmicroplc.com.

 

 

12 Approvals

The Directors approved this Half Yearly Report on 19 November 2018.


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