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CML MICROSYSTEMS PLC
Earnings Release • Nov 23, 2021
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Earnings Release
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National Storage Mechanism | Additional information 
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 Chris Gurry, Group Managing Director Nigel Clark, Executive Chairman |
www.cmlmicroplc.com Tel: +44(0)1621 875 500 |
| Shore Capital Toby Gibbs James Thomas John More |
Tel: +44(0)20 7408 4090 |
| SP Angel Corporate Finance LLP Jeff Keating |
Tel: +44(0)203 463 2260 |
| Alma PR Josh Royston Caroline Forde Andy Bryant Matthew Young |
Tel: +44 (0)20 3405 0212 |
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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 EBITDA1 | 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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 attributable to the equity holders of the parent | 410 | 123 | (2,139) | |
| Total comprehensive income for the period attributable to the equity holders of the parent | 1,219 | 914 | 21,425 |
| 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 30/09/21 £'000 |
Unaudited 30/09/20 £'000 |
Audited 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 PPP loan) | (190) | 90 | 201 |
| 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 capital £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Treasury shares £'000 |
Share- based payments £'000 |
Foreign exchange reserve £'000 |
Retained earnings £'000 |
Total £'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 capital £'000 |
Share premium £'000 |
Capital redemption reserve £'000 |
Treasury shares £'000 |
Share- based payments £'000 |
Foreign exchange reserve £'000 |
Retained earnings £'000 |
Total £'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 £'000 |
Rest of Europe £'000 |
Americas £'000 |
Far East £'000 |
Total £'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 £'000 |
Rest of Europe £'000 |
Americas £'000 |
Far East £'000 |
Total £'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 £'000 |
Rest of Europe £'000 |
Americas £'000 |
Far East £'000 |
Total £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 number |
Diluted 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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/21 £'000 |
Unaudited 6 months end 30/09/20 Restated £'000 |
Audited year end 31/03/21 £'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 6 months end 30/09/20 £'000 |
Audited year end 31/03/21 £'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 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.
16 Approvals
The Directors approved this Half Yearly Report on 23 November 2021.
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