TIDMCML
RNS Number : 9667D
CML Microsystems PLC
27 June 2023
27 June 2023
CML Microsystems Plc
("CML", the "Company" or the "Group")
Full Year Results
CML Microsystems Plc, which develops mixed-signal, RF and
microwave semiconductors for global communications markets ,
announces its Full Year Results for the year ended 31 March
2023.
Financial
-- Revenues increased by 22% to GBP20.64m (FY22: GBP16.96m)
-- Profit from operations GBP4.99m including exceptional item
of GBP2.06m (FY22: GBP1.21m)
-- Profit before taxation GBP5.22m including exceptional item
of GBP2.06m (FY22: GBP1.79m)
-- Diluted earnings per share increased to 29.93p (FY22: 7.35p)
-- Cash balances at period end of GBP22.26m (31 March 2022:
net cash of GBP25.04m) following significant share buyback,
investments in R&D and dividend payments, together totalling
GBP10.81m
-- Recommended final dividend of 6.0p per share (FY22: 5.0p
per share)
Operational
-- Revenue growth broad based with resilient end-markets
-- 25% of revenues invested in R&D
-- Seven new products released
-- Continued customer adoption of the expanding product
range
-- Entry into broadcast sector through low-power DRM
receiver solution
-- Initial disposal of excess land following grant of
planning permission at Oval Park
Chris Gurry, Group Managing Director of CML Microsystems
commented on the results :
"This has been a strong performance for CML with trading for the
period ahead of initial expectations. As market drivers within the
mission critical communications sector benefit the Group, we are
pleased to report continued progression against our financial and
operational KPIs.
The positive momentum built over previous years alongside our
clear strategy , robust business model and investment in our
product roadmap have allowed us to take advantage of the expanding
market opportunity and position the Company for continued growth
over the coming period."
Enquiries:
CML Microsystems Plc www.cmlmicroplc.com
Chris Gurry, Group Managing Director Tel: +44 (0) 1621 875 500
Nigel Clark, Executive Chairman
Shore Capital (Nominated Adviser Tel: +44 (0) 20 7408 4090
and Broker)
Toby Gibbs
James Thomas
John More
Lucy Bowden
Fiona Conroy (Corporate Broking)
Alma PR Tel: +44 (0)20 3405 0205
Josh Royston
Andy Bryant
Matthew Young
About CML Microsystems PLC
CML develops mixed-signal, RF and microwave semiconductors for
global communications markets. The Group utilises a combination of
outsourced manufacturing and in-house testing with trading
operations in the UK, Asia and USA. CML targets sub-segments within
Communication markets with strong growth profiles and high barriers
to entry. It has secured a diverse, blue chip customer base,
including some of the world's leading commercial and industrial
product manufacturers.
The spread of its customers and diversity of the product range
largely protects the business from the cyclicality usually
associated with the semiconductor industry. Growth in its end
markets is being driven by factors such as the appetite for data to
be transmitted faster and more securely, the upgrading of telecoms
infrastructure around the world and the growing prevalence of
private commercial wireless networks for voice and/or data
communications linked to the industrial internet of things
(IIoT).
The Group is cash-generative, has no debt and is dividend
paying.
CHAIRMAN'S STATEMENT
Introduction
I am extremely pleased with the performance of CML over the last
few years and my colleagues throughout the whole Group should be
justly proud of their achievements against a very challenging
backdrop. This has been a transformational time for the Company,
set against a period of numerous macro headwinds including
COVID-19, Brexit, the conflict in Ukraine and increased economic
and geopolitical uncertainty. It is therefore encouraging to see
the business moving forward in such a positive manner.
The communications semiconductor market is one in which we have
operated for over 50 years. It is a market we understand, where we
have good customer relationships and see tremendous growth
opportunities, as explained within the Strategic Report that
follows. I am pleased to report that our strategy of concentrating
our efforts on this market and expanding the sub-sectors we address
is working well. Our focus on organic growth supplemented with
appropriate acquisitions is beginning to yield the anticipated
results.
We are still in the process of securing the exciting opportunity
for the proposed acquisition of Microwave Technology, Inc ("MwT")
which we announced on 17 January 2023. This is currently subject to
the US regulatory clearance process, and we are in the final
stages. Once completed, we will have substantially expanded the
Group's product portfolio, strengthened and enhanced our support
resources, and increased our R&D capabilities. Additionally,
this will add to the Group's expertise through expanding our system
level understanding, product manufacturing and packaging
techniques, allowing us to capitalise on the market opportunity
more effectively.
Results
Our financial focus is on constantly improving results in a
number of areas, including revenues, operating profit, balance
sheet strength and cash. While it is pleasing to show significant
pre-tax profit growth in the income statement, we strongly believe
that it is the operating profit line (excluding exceptional items)
which most effectively demonstrates how the underlying business is
performing. Exceptional items tend to be non-recurring, such as
this year's profit on the disposal of excess land. That said, this
extra profit is an important supplement to the progress being made
and is obviously cash generative.
I am delighted with the strong organic growth achieved this
year. Revenues increased 22% year-on-year to GBP20.64m (FY22:
GBP16.96m), reflecting good progress across the established product
range alongside the newer products which are already starting to
make meaningful progress. The gross profit margin was maintained on
the revenue increase but with inflationary pressures, a general
increase in global business activity levels and acquisition related
costs, expenses increased. Profit from operations before
exceptional items increased to GBP2.93m (FY22: GBP1.21m), an
advance of 142%. The growth in profit before tax to GBP5.22m (FY22:
GBP1.74m) was assisted by the completion on the sale of the first
parcel of excess land at Oval Park, yielding a GBP2.06m profit and
occurring just prior to the year-end. Adjusted EBITDA improved 37%
to GBP5.90m (FY22: GBP4.31m). Despite the share buyback programme
and dividend payments, net assets per share grew 7% to 319.65p
(FY22: 299.81p) and the Group's cash position remained healthy at
GBP22.6m with no debt (FY22: GBP25.04m).
Property
Following our announcement on 17 February 2023 regarding the
grant of planning permissions on excess land at the Group's Essex
Headquarters site, Oval Park, as stated in the results section, I
am pleased to note that we completed the sale of the first parcel
of land just prior to the year-end. Following this transaction,
circa 15 acres remain available for disposal.
Additionally, the Group has commercial property in Fareham,
Hampshire, that is excess to operational needs and therefore held
for sale. Negotiations are currently in progress regarding this
site.
The Board's objective of raising cash from its excess property
interests remains important as this will help to yield funds for
future acquisition opportunities and/or allow the return of
additional monies to shareholders. I must again stress these
property transactions are separate from, and additional to, the
Group's planned operational profits growth.
Share Buyback and dividend
Through the year, GBP3.65m net was spent on the share buyback
programme (GBP4.77m purchased net of GBP1.12m issued in
satisfaction of employee share options) and, following the
financial year end in April a further GBP1.75m was spent on an
additional buyback. This shows the Board's continued commitment to
returning funds to shareholders and enhancing earnings where
possible.
The Board continues to maintain its progressive dividend policy
whilst ensuring it has adequate cash to cover its growth
objectives, including strong R&D investments, and the
completion of the MwT acquisition. The interim dividend was
increased from 4p to 5p per share and the Board is recommending an
increased final dividend of 6p per share, taking the full year
dividend to 11p per share (FY22: 9p per share). This is an increase
for the full year dividend of 22% and reflects the Board's
confidence in the future. Subject to shareholder approval, the
dividend will be paid to shareholders on 18 August 2023 whose names
appear on the register at close of business on 4 August 2023.
ESG
The Company has an Environment, Social and Governance ("ESG")
strategy that is supporting sustainable and inclusive economic
growth. We believe that it is important to focus our efforts on
areas where our actions can "make a difference", rather than simply
paying lip service to the topic. Full disclosure of how we address
this subject can be found in the Group's Annual Report and
Accounts.
Employees
Clearly the life blood and success of any company is
attributable to its workforce, and on behalf of the Board I would
like to thank every one of our employees for their energy,
enthusiasm and commitment which is evident to all and much
appreciated.
Outlook
As a business, we are confident that the strategy we are
following is going to yield the sustainable long-term growth we are
looking to achieve and these results are a clear endorsement of
this. That said, it is important not to underestimate the ongoing
challenges facing the Group, not only within our market sector, but
the global economy in general. Whilst headwinds do persist, I
believe the Group is well placed to navigate these challenges
effectively and continue our growth trajectory.
We have exciting opportunities ahead of us, an expanding product
line and a robust ongoing R&D programme. In addition to this,
we have the planned assimilation of MwT into the Group with the
expected benefits from the combined business helping to expand
expertise, increase operational efficiencies and scale alongside
the market. Whilst this will be another busy year for the Group, we
look to the future with confidence that further progress will be
made against our strategic objectives.
Nigel G Clark
Executive Chairman
OPERATIONAL AND FINANCIAL REVIEW
Introduction
For the year to 31 March 2023, our ambition was to deliver a
firm improvement in the Group's financial and operational
performance. It is very satisfying to report that those objectives
were accomplished despite a challenging macroeconomic backdrop and
prolonged electronic component supply chain challenges amongst the
Group's customer base.
According to a number of industry commentators, t he
semiconductor market as a whole grew by 3-4% for the calendar year
to December 2022, with the second half weaker than the first. In
comparison, the Group's full year revenues to 31 March 2023
advanced by 22% with the second six-month period delivering a
stronger performance than the first. This highlights the resilience
of the Group's end markets where the focus is currently weighted
towards industrial and critical communications application areas in
contrast to the memory, personal computer and consumer markets
which tend to exhibit more volatility.
The improvement in profitability for the year is further
validation of the Group's pivotal decision to divest our Storage
Division in 2021 in favour of an increased focus on global
communications markets, with expansion into end-applications
requiring microwave and millimetre wave ("mmWave") products a key
major objective.
Good progress is being made in this area, with the Group
continuing to invest heavily in research and development activities
targeted at products for application areas that are expected to
drive growth over the coming years, along with the investment in
the personnel and equipment required for the business to maintain a
competitive edge.
Strategy
The Group's vision is to be the first-choice semiconductor
partner to technology innovators, together transforming how the
world communicates.
Our focus is on the definition, development and marketing of
standard integrated circuit ("IC") products that deliver compelling
technical and commercial benefits to our customers. In turn, our
customers utilise these solutions to develop and subsequently
market end-products that are essential for the efficient and
reliable transportation of voice and/or data across a predominantly
wireless medium.
The global communications market is huge, with a myriad of
end-application areas ranging from mobile/cellular networks to
precise positioning systems to short-range remote-control devices.
Within this vast landscape of opportunity, CML is actively
participating in a number of sub-markets that play to our strengths
and have excellent growth potential on a sustainable basis. These
markets include mission critical communications, wireless networks
and satellite, Industrial Internet of Things ("IIoT") and more
recently, broadcast radio. The addressable market in terms of
semiconductor content easily exceeds $1 billion.
Continued investment in research and development is essential to
allow CML to take full advantage of the large market opportunity
available. The Group's product portfolio is evolving to support
customer requirements for size, cost and performance enhancements
whilst also encompassing new technologies that will permit entry
into markets that were previously not addressable.
Our strategy for allocating capital to R&D comprises four
main areas of investment; "Defend & Grow" revenues in core CML
markets, expand into adjacent markets (SuRF product range),
innovative product initiatives aimed at new high-growth markets and
an element of internal research and innovation that could benefit
any or all of the aforementioned categories .
Markets
The mission critical communications sector is a multi-billion
dollar market that is estimated to grow at a CAGR of close to 9%
over the next five years. Applications include public safety,
government agencies, transportation, energy and utilities, mining
and others. Growth is being driven by the increased adoption from
energy and utility sectors, rising investment by defence sectors
and trends within the transportation industry where real-time data
is being used to support dynamic decision-making. Mission critical
communications has been a cornerstone of CML's global business for
many years and the year under review was no exception. An overall
increase in revenues from the Group's top customers who are active
in this sector contributed well to the Group's underlying
performance. Outside of mission critical end markets, revenues from
customers producing similar products for industrial and commercial
business users, also grew well and overall, the two sectors
combined to deliver a very pleasing performance across the
year.
One area where the Group sees great potential is the rapid
development of 5G and satellite-based communications. Advancements
in this area are propelling us towards a future where faster,
cheaper, and more accessible internet connectivity becomes a
reality for all. 5G's high-speed, low-latency capabilities,
combined with satellite technology's wide coverage and reach,
enable a bridging of the digital divide, connecting remote regions,
enabling faster communication and empowering industries. To build
this new reality, a vast 5G network of base stations, small cells
and other mmWave infrastructure will be required.
Using our expertise in advanced compound semiconductor IC
design, CML has begun producing high performance Radio Frequency
ICs ("RFICs") and Monolithic Microwave ICs ("MMICs") that are
relatively simple to use from a customer perspective but have the
technical characteristics and commercial competitiveness required
to be successful in these mass-market applications areas. FY23
represented the first full year period of availability for a number
of new products that are marketed under CML's SuRF brand. Prior
year product releases have started generating income and, over
time, the flow of revenue from this portfolio of IC's is expected
to constitute a very sizeable proportion of the Group's total
revenues.
CML has a long history in supporting IIoT & M2M
applications, with decades of experience in helping to solve
customers' design problems. Our semiconductor solutions include
off-the-shelf baseband modem ICs, offering engineers a fast time to
market by avoiding unnecessary software development. These products
typically provide high performance with relatively low-power
consumption and are highly integrated, targeting application areas
including M2M, automatic meter reading ("AMR"), advanced metering
infrastructure ("AMI"), asset tracking and, more recently, Radio
Frequency Identification ("RFID"). Combined product shipments into
the Group's top customers active in these sectors was slightly
weaker than the prior year due in part to the unusual purchasing
patterns that some customers employed whilst navigating through
their own supply chain disruptions across the last two years.
Towards the end of the financial year, a key R&D initiative
that fits the "innovative product for new high growth markets"
category reached the stage of development whereby it could be
released to early adopters. This new product represents a first for
CML in that it paves the way for entry into the broadcast radio
market which, although invented more than 100 years ago, remains a
highly important media. In many parts of the world radio remains
the method whereby large populations get their trusted news and
information and in times of natural disaster provides a vital
service when other infrastructure has been compromised.
Digital Radio Mondiale ("DRM") is a digital radio broadcast
standard that has been adopted for wide area broadcasting in China,
India and Pakistan whilst being targeted for deployment in several
other emerging nations in the near term. In India, near national
area coverage is achieved from 35 transmitting sites. The DRM
service provides high quality stereo audio across long distances
and wide areas. DRM is an "open standard" to ensure a wide
diversity of equipment, receivers, and IP suppliers. The radio
spectrum is a limited natural resource, DRM uses that resource more
cost effectively than analogue or other digital broadcast methods
whilst the infrastructure required for DRM is both low cost and low
power - offering a 10:1 power consumption advantage over equivalent
analogue FM transmissions.
Current DRM IC solutions are targeted at the automotive market
where low-power operation is less of a necessity and they are
therefore not well suited to portable receivers. CML has developed
a highly integrated Software Defined Radio ("SDR") tuner IC
targeted at the market for DRM receivers. To complement the IC, CML
has worked with Cambridge Consultants Limited to produce a
miniature module, seen as a core component to implement a full DRM
capable broadcast receiver covering all transmission bands. The IC
will be sampled during the first half of this financial year with
full launch of the module planned for the second half.
The Group's market exposure is evolving in tandem with a number
of new and emerging growth sectors that have something in common, a
fundamental need for semiconductor solutions that CML has the
inherent capability to produce.
Operations
During the year, the Group formally launched seven new products
to market. The majority of these are for use in microwave or mmWave
applications across a number of the previously mentioned market
sectors. Customer adoption of the Group's products marketed under
the SuRF brand continues to gather pace, and progress during the
first full year of production has been very encouraging.
One of our guiding principles is to foster a culture of quality
with a sense of urgency. Operationally, the CML team continued to
excel in that regard, despite the increased demands that an ongoing
and rapid expansion of the product range places upon personnel and
systems. Our future success depends upon the skills and dedication
of our employees, and it is important to recognise the exceptional
efforts being made by the whole team in that regard.
The growing product range, coupled with a simultaneous expansion
into new and adjacent market sectors places a great deal of
emphasis on ensuring that the Group's routes to market remain
appropriate for the direction of travel that the business is
taking. The process is one of evolution and refinement over time,
and during the year a number of enhancements were made, including
territorial changes within Europe and new partners in the Americas
and South Africa .
Following travel and tradeshow restrictions due to the pandemic,
the Company participated at a number of trade shows relevant to the
sectors and industries being targeted. These included European
Microwave week (London), IMS2022 (Denver) and BES Expo (New Delhi).
These activities have led to an increase in associated costs that
is further explained in the financial review that follows. However,
they are an important ingredient for success given the strategy
being followed and another year of strong investment is
planned.
The Group's orderbook climbed significantly across the last two
and a half years as customers placed longer term scheduled orders
amidst concerns about the general supply situation for
semiconductors that was extensively reported on at the time. It is
apparent that the supply situation has improved and some customers
are becoming more relaxed about product availability leading to
adjustments to their ordering patterns. The Group's order book
remains healthy, at a level more than double that prior to the
pandemic and stretching well into 2024. A 'new normal' will be
established following the unusual market dynamics of the last three
years and the growth of the customer base as we continue to expand
into wider markets.
Acquisition of Microwave Technology, Inc
On 17 January 2023 we announced the entering of a definitive
agreement to acquire Silicon Valley based semiconductor company
Microwave Technology, Inc. ("MwT"). Founded in 1982, MwT is a
recognised leader in the design, manufacturing and marketing of
GaAs and GaN based MMICs, Discrete Devices, and Hybrid Amplifier
Products for commercial wireless communication, defence, space, and
medical (MRI) applications.
The proposed acquisition expands the Group's product portfolio,
strengthens its support resources and increases its R&D
capabilities. MwT's products are complementary to CML's and the
majority of its focus and client concentration remains within the
USA. The CML Board believes there is a significant opportunity to
increase market share by internationalising MwT's products.
Currently, the transaction remains subject to US regulatory
approval. Expectations were for the transaction to complete during
the first half of 2023, however, the nature of the technology that
MwT possesses along with the constitution of its customer base has
necessitated extended discussions with the relevant US authorities
whose remit it is to protect national security interests. Whilst a
definitive date for completion is not yet available, we are in
regular contact with the relevant departments and expect a
conclusion to be reached in the coming weeks. A further
announcement will be made at the appropriate time.
Outlook
Market expansion through the addition of microwave/millimetre
wave ICs to the Group's product portfolio is now delivering
tangible results, with good growth expected for the year ahead. A
high level of R&D investment continues to ensure the Group is
well placed to capture new opportunities within the markets that
dominate the current revenue stream, whilst making appropriate
investment into exciting new markets with strong growth
potential.
Clearly the world has its issues, not least geo-political
uncertainties, an inflationary environment and economic
uncertainty. Whilst remaining mindful of the backdrop and
risk-aware, CML is focussed on growth, with a confidence supported
by our resilient existing markets, a healthy orderbook and an
evolving presence in new and emerging growth sectors.
As is evident, the business continues to make good progress and
has the appropriate blend of experience, enthusiasm and skills to
continue to achieve its objectives. Subject to unforeseen
circumstances the period to 31 March 2024 is expected to be a
further year of improvement, with solid growth in revenues and
operational profitability.
FINANCIAL REVIEW
Revenue
Group full year revenues of GBP20.64m (FY22: GBP16.96m) slightly
exceeded market expectations that had been raised at the time of
the interim results, after factoring in the positive momentum being
achieved. This increase in revenues represented growth of 22% over
the prior year and was assisted by a foreign exchange tailwind.
Currency effects are less pronounced at the gross profit level
where the Group has a somewhat natural hedge, due to a significant
amount of raw material procurement being conducted in US
Dollars.
The revenue advances were broad-based across the three main
geographical areas addressed, with the Far East (+25%) and Americas
(+35%) delivering the strongest gains whilst Europe was 8% higher.
It is important to note that annual revenue comparisons by region
can be misleading because customers can and do alter their
manufacturing locations periodically. From a customer perspective,
close to 80% of the top 25 customers grew their business with CML
year-on-year, with the dominant sectors addressed encompassing
narrowband voice communications and mission critical data
applications.
Gross Profit
Gross profit for the year was GBP15.61m (FY22: GBP12.80m),
representing a 21% increase. This is a pleasing outcome given the
raw material price rises encountered and the need to impose
increased prices across the Group's product range on more than one
occasion. At the start of the year, higher inventory costs were
anticipated, and allowances were factored into managements' growth
expectations, nevertheless, the operational teams responsible
deserve much credit for achieving the targeted outcome.
Distribution and Administration costs
D&A expenses increased by 9% to GBP12.64m (FY22: GBP11.56m).
One driver was the resumption of certain business activities such
as travel, marketing and exhibition costs as countries around the
world eased their COVID-19 restrictions. There was an increased
need to support the workforce in navigating a high inflationary
period through a combination of salary rises and cost of living
payments, whilst higher energy prices, acquisition related costs
and the amortisation of development costs also added to the overall
increase.
The Group continued with a strong level of R&D investment
focussed at capitalising on the secular growth expected from the
market and application areas being targeted. R&D expenditure
for the year was slightly up in absolute terms at GBP5.13m (FY22:
GBP4.79m) but expressed as a percentage of sales, fell to 25%
(FY22: 28%). Of this amount, GBP0.68m was expensed (FY22: GBP1.26m)
with the balance capitalised under the Group's research and
development policy .
Operating profit
As per the previous financial year, a strong sales performance
supported by stable gross margins drove the Group's profit from
operations before exceptional items to GBP2.93m (FY22: GBP1.21m)
with other operating income contributing GBP0.20m (FY22: GBP0.08m).
This results in a doubling of the operating margin before
exceptional items to 14% (FY22: 7%) and is particularly pleasing
given the industry-specific headwinds over recent years along with
the prevailing inflationary climate.
Profit before tax
Excluding the exceptional profit realised from the sale of
excess land at the Group's Oval Park Headquarters, profit before
tax and exceptional items improved by 77% to GBP3.16m and included
net finance and other income of GBP0.23m (FY22: GBP0.57m).
As reported in recent years, the Group has been actively
engaging with the local authority and interested parties to obtain
planning permission on and subsequently dispose of excess land at
the CML Group headquarters in Essex, UK. During the period leading
up to the financial year end, detailed planning permission was
obtained on two separate parcels of land along with outline
planning permission for a business park on a third plot. One land
parcel was successfully divested during March 2023 and the profit
from that transaction amounted to GBP2.06m. While there is no
certainty on the timing for realising value from the remaining
excess land, the Company continues to engage with interested
parties and currently expects to conclude the disposals during the
next 12 months.
The total profit before tax recorded for the year was GBP5.22m
(FY22: GBP1.74m).
Profit after tax
The Group continued to benefit from the R&D tax credit
scheme that has existed for some years in the UK. For the year
under review, tax assessed for the period is lower than the 19%
standard rate of corporation tax in the UK, providing an effective
tax rate of 7.8%.
EPS
Excluding the exceptional property transaction previously
mentioned, fully diluted earnings per share for the year climbed by
161% to 19.20p (FY22: 7.35p). When profits from the land sale are
included, diluted earnings per share equated to 29.93p (FY22:
7.35p).
Dividend
The Board is proposing a final dividend of 6p (FY22: 5p), giving
a full year dividend of 11p (FY22: 9p) as communicated in the
Chairman's Statement.
Cash
The Group's cash reserves as at 31 March 2023 were GBP22.26m,
including short-term cash deposits of GBP1.22m. This represents a
reduction of GBP2.78m from the prior year equivalent date (31 March
2022: GBP25.04m) primarily due to R&D cash spend of GBP5.13m,
net share buybacks totalling GBP3.65m, dividend payments of
GBP1.59m and a GBP0.93m investment in capital equipment. Whilst the
total net cash inflow from operating activities was GBP5.99m and
from investing activities the sale of land at GBP2.50m.
I nventories
Raised inventory levels have been an intentional element of the
Group's approach to addressing semiconductor supply chain
disruptions that have been a feature in recent years and in support
of an expanding product range. At 31 March 2023, inventories were
valued at GBP2.43m (FY22: GBP2.26m) with 38% being held as raw
material (FY22: 39%) and the balance either work In progress or as
finished goods.
Pension schemes
The Group operates several pension schemes globally, mostly of a
defined contribution nature. In the UK, the Company historically
operated a defined benefit scheme that was closed to new members on
1 April 2002 and to future accruals in 2009. The funding position
of this scheme improved through the year when calculated under IAS
19 methodology, with a deficit of GBP1.20m being recorded (FY22:
GBP2.44m).
Separately, the most recent actuarial estimate carried out by an
independent professionally qualified actuary, as at 31 March 2023
and based upon existing funding principles, indicated a net pension
surplus with the funding level at 112%. 2023 is an actuarial
valuation year with the formal triennial valuation not expected to
be published until early 2024.
All administrative expenses of running the scheme are met
directly by the scheme along with pension protection fund
levies.
Chris Gurry
Group Managing Director
Consolidated income statement for the year ended 31 March
2023
2023 2022
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
Revenue 1,2 20,643 - 20,643 16,964 - 16,964
Cost of sales (5,032) - (5,032) (4,169) - (4,169)
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
Gross profit 15,611 - 15,611 12,765 - 12,795
Distribution and
administration
costs (12,644) - (12,644) (11,562) - (11,562)
Share-based payments (234) - (234) (98) - (98)
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
2,733 - 2,733 1,135 - 1,135
Profit on sale of fixed
asset - 2,058 2,058 - - -
Other operating income 199 - 199 79 - 79
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
Profit from operations 2,932 2,058 4,990 1,214 - 1,214
Other income 18 - 18 216 284 500
Loss on sale of investment
property - - - - (50) (50)
Finance income 255 - 255 106 - 106
Finance expense (47) - (47) (33) - (33)
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
Profit before taxation 3,158 2,058 5,216 1,503 234 1,737
Income tax charge 4 (71) (335) (406) (499) - (499)
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
Profit after taxation
attributable to equity
owners of the parent 3,087 1,723 4,810 1,004 234 1,238
---------------------------- ------- ----------------- ----------- -------- ------------ ----------- --------
A ll f inancial information presented relates to continuing
activities.
Earnings per share for
profit attributable to
the ordinary equity holders
of the Company:
Basic earnings per share 5 30.29p 7.45p
Diluted earnings per share 5 29.93p 7.35p
------------------------------ ------- ------
The following measure is considered an alternative performance
measure not a generally accepted accounting principle. This ratio
is useful to ensure that the level of borrowings in the business
can be supported by the cashflow in the business. For definition
and reconciliation see note 6.
Adjusted EBITDA 6 5,901 4,308
----------------- ------ ------
Consolidated statement of total comprehensive income for the
year ended 31 March 2023
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ------- ------- -------
Profit for the year 4,810 1,238
Other comprehensive income/(expense):
Items that will not be reclassified
subsequently to profit or loss:
Re-measurement of defined benefit
obligation 1,393 3,307
Deferred tax on actuarial loss (348) (827)
Change in deferred tax rate on
defined benefit obligation - 345
Items reclassified subsequently
to profit or loss upon derecognition:
Foreign exchange differences (140) 880
---------------------------------------- ------- ------- ------- -------
Other comprehensive income for
the year net of taxation attributable
to equity owners of the parent 905 3,705
---------------------------------------- ------- ------- ------- -------
Total comprehensive income for
the year attributable to the equity
owners of the parent 5,715 4,943
---------------------------------------- ------- ------- ------- -------
Consolidated statement of financial position as at 31 March
2023
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- -------- ------- ------- -------
Assets
Non -- current assets
Goodwill 7,429 7,531
Other intangible assets 984 1,119
Development costs 13,801 11,197
Property, plant and equipment 5,249 5,593
Right-of-use assets 1,022 458
Deferred tax assets 766 1,550
--------------------------------------- -------- ------- ------- -------
29,251 27,448
Current assets
Property, plant and equipment
- held for sale 485 -
Investment properties - held
for sale 1,975 1,975
Inventories 2,425 2,258
Trade receivables and prepayments 2,413 2,199
Current tax assets 1,659 409
Cash and cash equivalents 21,041 19,084
Short term cash deposits 1,218 5,958
--------------------------------------- -------- ------- ------- -------
31,216 31,883
-------------------------------------- -------- ------- ------- -------
Total assets 60,467 59,331
--------------------------------------- -------- ------- ------- -------
Liabilities
Current liabilities
Trade and other payables 3,036 2,827
Lease liabilities 210 230
Current tax liabilities 78 42
--------------------------------------- -------- ------- ------- -------
3,324 3,099
-------------------------------------- -------- ------- ------- -------
Non -- current liabilities
Deferred tax liabilities 4,343 3,702
Lease liabilities 842 238
Retirement benefit obligation 1,204 2,439
--------------------------------------- -------- ------- ------- -------
6,389 6,379
-------------------------------------- -------- ------- ------- -------
Total liabilities 9,713 9,478
--------------------------------------- -------- ------- ------- -------
Net assets 50,754 49,853
--------------------------------------- -------- ------- ------- -------
Capital and reserves attributable to equity owners
of the parent
Share capital 796 865
Share premium 2,462 1,362
Capital redemption reserve 8,372 8,285
Treasury shares - own share
reserve (324) (1,670)
Share -- based payments reserve 488 490
Foreign exchange reserve 1,042 1,182
Accumulated profits reserve 37,918 39,339
--------------------------------------- -------- ------- ------- -------
Total shareholders' equity 50,754 49,853
--------------------------------------- -------- ------- ------- -------
Consolidated cash flow statement for the year ended 31 March
2023
2023 2022
GBP'000 GBP'000
------------------------------------------ -------------------- ----------
Operating activities
Profit for the year before taxation 5,216 1,737
Adjustments for:
Depreciation - on property, plant
and equipment 367 375
Depreciation - on right-of-use assets 300 258
Impairment of development costs - 123
Amortisation of development costs 1,826 1,507
Amortisation of intangibles recognised
on acquisition and purchased 224 283
Profit on disposal of fixed assets (2,058) -
Loss on disposal of investment properties - 50
Rental income - (215)
Forgiveness US PPP loan - (284)
Employee retention credit - US 110 -
Movement in non-cash items (Retirement
benefit obligation) 158 176
Share -- based payments 234 98
Finance income (255) (106)
Finance expense 47 33
Movement in working capital (653) (1,025)
------------------------------------------ -------------------- ----------
Cash flows from operating activities 5,516 3,010
Income tax (paid) / received (104) 905
------------------------------------------ -------------------- ----------
Net cash flows from operating activities 5,412 3,915
------------------------------------------ -------------------- ----------
Investing activities
Proceeds from sale of fixed assets 2,500 -
Proceeds from sale of investment - 1,750
Purchase of property, plant and equipment (932) (1,105)
Investment in development costs (4,455) (3,532)
Repayment in fixed term deposits 4,740 4,192
Repayment of Investment loan note - 293
Investment in intangibles (98) -
Rental income - 215
Finance income 255 106
Net cash flows from investing activities 2,010 1,919
------------------------------------------ -------------------- ----------
Financing activities
Lease liability repayments (321) (287)
Issue of ordinary shares 1,118 329
Purchase of own shares for treasury (4,767) -
Dividends paid to shareholders (1,589) (8,964)
Net cash flows used in financing
activities (5,559) (8,922)
------------------------------------------ -------------------- ----------
Increase / (decrease) in cash and
cash equivalents 1,863 (3,088)
------------------------------------------ -------------------- ----------
Movement in cash, cash equivalents
and fixed term deposits:
At start of year 19,084 22,046
Increase / (decrease) in cash, cash
equivalents and fixed term deposits 1,863 (3,088)
Effects of exchange rate changes 94 126
------------------------------------------ -------------------- ----------
At end of year 21,041 19,084
------------------------------------------ -------------------- ----------
Cash flows presented exclude sales taxes.
Consolidated statement of changes in equity for the year ended
31 March 2023
Share- Foreign
Share Share Redemption Treasury based exchange Retained
capital premium reserve shares payments reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 March 2021 859 1,039 8,285 (1,670) 570 302 44,062 53,447
Profit for year 1,238 1,238
Other comprehensive
income
Foreign exchange
differences 880 880
Net actuarial gain
recognised directly
to equity on
retirement benefit
obligations 3,307 3,307
Deferred tax on
actuarial gain (827) (827)
Change in deferred tax
rate on defined
benefit obligation 345 345
Total comprehensive
income for year
capacity as owners - - - - - 880 4,063 4,943
Transactions with
owners in their
capacity as owners 859 1,039 8,285 (1,670) 570 1,182 48,125 58,390
Issue of ordinary
shares 6 323 329
Dividend paid (8,964) (8,964)
Total transactions
with owners in their
capacity as owners 6 323 - - - - (8,964) (8,635)
Share -- based
payments in year 98 98
Cancellation/transfer
of share -- based
payments (178) 178 --
At 31 March 2022 865 1,362 8,285 (1,670) 490 1,182 39,339 49,853
Profit for year 4,810 4,810
Other comprehensive
income
Foreign exchange
differences (140) (140)
Net actuarial gain
recognised directly
to equity on
retirement benefit
obligations 1,393 1,393
Deferred tax on
actuarial gain (348) (348)
Total comprehensive
income for year
capacity as owners - - - - - (140) 5,855 5,715
Transactions with
owners
in their capacity as
owners 865 1,362 8,285 (1,670) 490 1,042 45,194 55,568
Issue of ordinary
shares - exercise of
share options 18 1,100 1,118
Purchase of own shares
- treasury (4,767) (4,767)
Cancellation of
treasury shares (87) 87 6,113 (6,113) -
Dividend paid (1,589) 1,589)
Total transactions
with owners in their
capacity as owners (69) 1,100 87 1,346 - - (7,702) (5,238)
Share -- based payment
charge 234 234
Deferred tax on share
based payments 190 190
Cancellation/transfer
of share -- based
payments (236) 236 -
At 31 March 2023 796 2,462 8,372 (324) 488 1,042 37,918 50,754
1 Segmental analysis
Reported segments and their results in accordance with IFRS 8,
are based on internal management reporting information that is
regularly reviewed by the chief operating decision maker (C. A.
Gurry). The measurement policies the Group uses for segmental
reporting under IFRS 8 are the same as those used in its financial
statements.
The Group is focused for management purposes on one operating
segment, which is reported as the semiconductor segment, with
similar economic characteristics, risks and returns, and the
Directors therefore consider there to be one single segment, being
semiconductor components for the communications industry.
Geographical information (by origin)
UK Americas Far East Total
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ -------- --------- ---------
Year ended 31 March 2023
------------------------------------------- -------- -------- --------- ---------
Revenue to third parties - by
origin 5,024 3,413 12,206 20,643
------------------------------------------- -------- -------- --------- ---------
Property, plant and equipment 5,074 80 95 5,249
------------------------------------------- -------- -------- --------- ---------
Right-of-use assets 473 330 219 1,022
------------------------------------------- -------- -------- --------- ---------
Property, plant and equipment
- held for sale 485 - - 485
------------------------------------------- -------- -------- --------- ---------
Investment properties - held
for sale 1,975 - - 1,975
------------------------------------------- -------- -------- --------- ---------
Development costs 12,416 - 1,385 13,801
------------------------------------------- -------- -------- --------- ---------
Intangibles - software and intellectual
property 320 - 80 400
------------------------------------------- -------- -------- --------- ---------
Goodwill 1,531 - 5,898 7,429
------------------------------------------- -------- -------- --------- ---------
Other intangible assets arising
on acquisition 159 - 425 584
------------------------------------------- -------- -------- --------- ---------
Total assets 47,151 1,575 11,741 60,467
------------------------------------------- -------- -------- --------- ---------
Year ended 31 March 2022
Revenue to third parties - by
origin (restated) 4,569 2,572 9,823 16,964
------------------------------------------- -------- -------- --------- ---------
Property, plant and equipment 5,504 12 77 5,593
------------------------------------------- -------- -------- --------- ---------
Right-of-use assets 227 60 171 458
------------------------------------------- -------- -------- --------- ---------
Investment properties - held
for sale 1,975 - - 1,975
------------------------------------------- -------- -------- --------- ---------
Development costs 9,714 - 1,483 11,197
------------------------------------------- -------- -------- --------- ---------
Intangibles - software and intellectual
property 243 - 96 339
------------------------------------------- -------- -------- --------- ---------
Goodwill 1,531 - 6,000 7,531
------------------------------------------- -------- -------- --------- ---------
Other intangible assets arising
on acquisition 184 - 596 780
------------------------------------------- -------- -------- --------- ---------
Total assets 46,024 1,163 12,144 59,331
------------------------------------------- -------- -------- --------- ---------
2 Revenue
The geographical classification of business turnover
(by destination) is as follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------------- ---------- --------
Europe 4,009 3,705
Far East 12,036 9,603
Americas 3,910 2,901
Others 688 755
-------------------------------------------------- ---------- --------
20,643 16,964
-------------------------------------------------- ---------- --------
3 Dividend - paid and proposed
During the year a final dividend of 5.0p per ordinary share of
5p was paid in respect of the year ended 31 March 2022. An interim
dividend of 5.0p per ordinary share was paid on 16 December 2022 to
shareholders on the Register on 2 December 2022.
It is proposed to pay a final dividend of 6.0p per ordinary
share of 5p, taking the total dividend amount in respect of the
year ended 31 March 2023 to 11.0p. It is proposed to pay the final
dividend of 6.0p, if approved, on 18 August 2023 to shareholders
registered on 4 August 2023 (2022: paid 19 August 2022 to
shareholders registered on 5 August 2022).
4 Income tax expense
The Directors consider that tax will be payable at varying rates
according to the country of incorporation of a subsidiary and have
provided on that basis.
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- -------
Current tax
UK corporation tax on results of the year (809) (415)
Adjustment in respect of previous years (372) (6)
----------------------------------------------------- -------- -------
(1,183) (421)
Foreign tax on results of the year 319 121
Total current tax (864) (300)
----------------------------------------------------- -------- -------
Deferred tax
Deferred tax - Origination and reversal of temporary
differences 683 6
Change in deferred tax rate 103 833
Adjustments to deferred tax charge in respect of
previous years 484 (40)
----------------------------------------------------- -------- -------
Total deferred tax 1,270 799
----------------------------------------------------- -------- -------
Tax expense on profit on ordinary activities 406 499
----------------------------------------------------- -------- -------
5 Earnings per share
2023 2022
----------------------------------------------------------- ------ -----
Earnings per share for profit from continuing operations
attributable to the ordinary equity holders of the
Company:
Basic earnings per share 30.29p 7.45p
Diluted earnings per share 29.93p 7.35p
The calculation of basic and diluted earnings per share is based
on the profit attributable to ordinary shareholders, divided by the
weighted average number of shares in issue during the year, as
shown below:
2023 2022
--------------------------------- -----------------------------------
Weighted Weighted
average average
number of Earnings number of Earnings
Profit shares per share Profit shares per share
Basic earnings per share GBP'000 Number p GBP'000 Number p
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Basic earnings per share
- from profit for year 4,810 15,878,401 30.29 1,238 16,628,301 7.45
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Basic earnings per share 4,810 15,878,401 30.29 1,238 16,628,301 7.45
Dilutive effect of share
options - 194,043 (0.36) - 219,95 (0.10)
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
* from profit for year 4,810 16,072,444 29.93 1,238 16,848,252 7.35
---------------------------- ------- ------------ ---------- ------- ------------ ------------
6 Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and
amortisation ('Adjusted EBITDA') is defined as profit from
operations before all interest, tax, depreciation and amortisation
charges, exceptional items and before share-based payments. The
following is a reconciliation of the Adjusted EBITDA for the years
presented:
2023 2022
GBP'000 GBP'000
--------------------------------------------------- ------- -------
Profit before taxation (earnings) 5,216 1,737
Adjustments for:
Finance income (255) (106)
Finance expense 47 33
Depreciation 367 375
Depreciation - right-of-use assets 300 258
Impairment of development costs - 123
Amortisation of development costs 1,826 1,507
Amortisation of acquired and purchased intangibles
recognised on acquisition 224 283
Share-based payments 234 98
Profit on sale of fixed asset (2,058) -
--------------------------------------------------- ------- -------
Adjusted EBITDA 5,901 4,308
--------------------------------------------------- ------- -------
7 Cash, cash equivalents and fixed term deposits
2023 2022
GBP'000 GBP'000
-------------------------------------------------- ---------- --------
Cash on deposit 13 10,275
Cash at bank 21,038 8,809
-------------------------------------------------- ---------- --------
21,041 19,084
Short term cash deposits 1,218 5,958
-------------------------------------------------- ---------- --------
22,259 25,042
-------------------------------------------------- ---------- --------
8 Investment properties
The investment property was reclassified on 31 March 2022 as
held for sale as the property became vacant with no prospective
tenant in place and is held based upon the current market valuation
methodology. The property is currently expected to sell within the
next twelve months. Investment properties held for sale
GBP1,975,000 (2022: GBP1,975,000).
9 Principal risks and uncertainties
Key risks of a financial nature
Foreign exchange
With the majority of the Group's earnings being linked to the US
Dollar, a decline in this currency will have a direct effect on
revenue, although since the majority of the cost of sales are also
linked to the US Dollar, this risk is reduced at the gross profit
line.
Customer dependency
The Group has a very diverse customer base generally, however in
certain market sectors, key customers can represent a significant
amount of revenue. Key customer relationships are closely
monitored; however, changes in buying patterns of key customers
could have an adverse effect on the Group's performance.
Supply chain dependency, interruption and cost inflation
The Group has a number of key supplier relationships, which are
closely maintained to minimise the impact from any potential supply
chain disruption. Some of the raw materials used within the Group's
semiconductor products are sole sourced from highly specialised
suppliers on a global basis. To partially mitigate unexpected but
temporary raw material delivery delays, an appropriate level of
excess inventory is held. If a key raw material supplier was unable
to continue supply on a permanent basis, then the Group would need
to invest the R&D effort and associated costs to replace the
supplier, subject to that being considered commercially viable.
Supplier prices, currency exchange rates and gross margins are
continually monitored which can lead to pricing adjustments with
customers.
IT system - failure or malicious damage
The Group has a standardised systematic approach to maintaining
and operating its IT systems globally consisting of an internal
team supported by a number of world class external partners. The
backup and recovery of its global IT systems has been real-time
tested. The threat from malicious cyber activity is an
ever-increasing risk with awareness and responsibility at Board
level and appropriate investments being made.
Cost-of-living crisis
During 2023, a cost-of-living crisis has been triggered due to
the combined impact of COVID 19 and the various economic effects of
the Russian invasion of Ukraine. Rising energy prices and supply
chain dependency are contributing to significant price inflation
and associated rises in interest rates. The Group understands that
this is impacting all aspects of day-to-day living and placing real
pressure on the current market and are continuing to monitor the
impact.
Key risks of a non -- financial nature
Customer product demand
The Group is a small player operating in a highly competitive
global market that is undergoing continual and geographical change.
The Group's ability to respond to many competitive factors
including, but not limited to, pricing, technological innovations,
product quality, customer service, raw material availabilities,
manufacturing capabilities and employment of qualified personnel
will be key in the achievement of its objectives. The Group's
ultimate success will depend on the demand for its customers'
products, since the Group is a component supplier.
Legal requirements
A substantial proportion of the Group's revenue and earnings are
derived from outside the UK and so the Group's ability to achieve
its financial objectives could be impacted by risks and
uncertainties associated with local legal requirements (including
the UK's withdrawal from the European Union, or "Brexit"),
political risk, the enforceability of laws and contracts, changes
in the tax laws, terrorist activities, natural disasters or health
epidemics.
Understanding of the development, performance or position of the
Company's business
The Directors do not believe that environmental matters
(including the impact of the Company's business on the
environment), details of the Company's employees (including gender)
and social, community and human rights issues are needed for an
understanding of the development, performance or position of the
Company's business and accordingly have not included these within
the Strategic Report, but have added these to the Directors' Report
and Environment, social and governance sections of this Annual
Report.
10 Post balance sheet events
Share Buyback Programme
In April 2023, a GBP1,750,000 Share Buyback Programme was put in
place for the principal purpose of reducing the share capital of
the Company and returning funds to shareholders. During April, the
GBP1,750,000 had been used in its entirety to repurchase 337,900
ordinary shares and these shares were taken into treasury.
Acquisition of Microwave Technology, Inc.
On 17 January 2023, CML Microsystems Plc entered into a
definitive agreement to acquire a Silicon Valley based
semiconductor company, Microwave Technology, Inc (MwT), which is
subject to US regulatory clearance.
The acquisition will expand the Group's product portfolio,
strengthen and enhance its support resources and increase its
R&D capabilities, providing essential knowhow and experience in
system level understanding, product manufacturing and packaging
techniques.
Directly attributable acquisition costs include external legal
and accounting costs incurred in compiling the acquisition legal
contracts and the performance of due diligence activity and amount
to GBP464,000. These costs have been charged in distribution and
administrative expenses in the Consolidated Income Statement.
11 Significant accounting policies
The accounting policies used in preparation of the annual
results announcement are the same accounting policies set out in
the year ended 31 March 2023 financial statements.
12 General
These Condensed Consolidated Financial Statements have been
prepared in accordance with UK adopted International Accounting
Standards and are in conformity with the requirements of the
Companies Act 2006. They do not include all of the information
required for full annual statements and should be read in
conjunction with the 2023 Annual Report.
The comparative figures for the financial year 31 March 2022
have been extracted from the Group's statutory accounts for that
financial year. The statutory accounts for the year ended 31 March
2022 have been filed with the registrar of Companies. The auditor
reported on those accounts: their report was (i) unqualified, (ii)
did not include references to any matters to which the auditor drew
attention by way of emphasis without qualifying the reports and
(iii) did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
The statutory accounts for the year ended 31 March 2023 were
approved by the Board of Directors on 26 June 2023 and will be
delivered to the Registrar of Companies following the Company's
Annual General Meeting on 9 August 2023.
The financial information contained in this announcement does
not constitute statutory accounts for the year ended 31 March 2023
or 2022 as defined by Section 434 of the Companies Act 2006.
A copy of this announcement can be viewed on the company website
http://www.cmlmicroplc.com .
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FR GZGZVLVGGFZM
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