Full Year Results

RNS Number : 0386R

CML Microsystems PLC

12 June 2018

 

12 June 2018

CML Microsystems Plc

("CML" or the "Group")

Full Year Results

CML Microsystems Plc, which designs, manufactures and markets mixed-signal and RF semiconductors, primarily for global communication and solid state storage markets, announces its Full Year Results for the year ended 31 March 2018.

Financial Highlights

·      Group revenues increased 14% to £31.67m (2017: £27.74m)

·      Gross profit up 12% to £22.24m (2017: £19.82m)

·      Profit before tax up 9% to £4.58m (2017: £4.21m)

·      Basic EPS up 6% to 24.52p (2017: 23.09p)

·      Total cash balances were a record £13.82m (2017: £12.45m) after dividend payments of £1.58m (2017: £1.13m)

·      Recommended final dividend of 5.8p equates to 7.8p for the year (2017: 7.4p)

Operational Highlights

·      Storage 49% of Group revenue

o  Revenue up 22% to £15.43m (2017: £12.69m)

o  Full market launch of new class-leading CompactFlash controller

o  Enlarged product range now includes CompactFlash, SD, MMC, USB and SATA host interface standards

·      Communications 51% of Group revenue

o  Revenue up 10% to £16.17m (2017: £14.64m)

o  Enlarged RF product range now encompasses operation at frequencies up to 3.6GHz

o  DMR, M2M/IIoT recorded strong gains against the prior year

o  RF semiconductors posted a revenue gain of over 30%

o  Released 5 new products

Chris Gurry, Group Managing Director of CML Microsystems commented on the results: "I am pleased to report on another year of continued progress across the Group. Our revenue and EBITDA performances are at all-time highs, as is the year end cash position. These results, achieved whilst continuing to invest in the business, are further validation of the continuing success of our strategy."

"The revenue growth we are seeing today is the result of the continuous research and development investments that we make to deliver the products our customers need. Group products released three to four years ago are now entering the growth phase amongst the customer base and we envisage a repeat of this cycle with our recently released products and those under development, providing us with a long and sustainable sales opportunity pipeline."

"Whilst we cannot predict any issues that may arise in the wider market, the Board believes that CML is well positioned to deliver steady, sustained and profitable growth."

CML Microsystems Plc Chris Gurry, Group Managing Director Neil Pritchard, Group Financial Director	www.cmlmicroplc.com Tel: [phone]
Cenkos Securities plc Max Hartley (Corporate Finance) Russell Kerr (Sales)	Tel: [phone]
SP Angel Corporate Finance LLP Jeff Keating	Tel: [phone]
Alma PR Josh Royston Caroline Forde Robyn Fisher	Tel: [phone] Tel: [phone] Tel: [phone]

About CML Microsystems PLC

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

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

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

CHAIRMAN'S STATEMENT

Introduction

I am delighted to report on another year of positive progress, delivering against many of our strategic and financial objectives. Pleasingly, the year has seen the business deliver a number of record financial metrics, with the growth in revenue and profit providing us with the means to continue to invest in the business to ensure we have the right structure and product suite to maintain long-term, sustainable growth. While profit growth in the year has been dampened due to the planned increase in overheads, it is this investment that will ensure CML has the capability to drive through to the next stage of growth.

Results and Dividend

Results for the year were positive, with revenues increasing by 14% to a record £31.67m (2017: £27.74m), profit before taxation rising by 9% and basic EPS by 6%. Operating cash generation, always considered of high importance, continues to be very healthy. Total cash balances at 31 March 2018 were a record £13.82m (2017: £12.45m) after dividend payments of £1.58m (2017: £1.13m) relating to the prior financial year and a maiden interim dividend introduced at the half year. The cash generation is particularly pleasing given the levels of ongoing investment in the Group, with another record investment in research and development being made during the year.

The Board is pleased to recommend an increased total dividend payment for the year, with a final dividend of 5.8p raising the total dividend for the year to 7.8p (2017: 7.4p). If approved, this will be paid on 6 August 2018 to shareholders whose names appear on the register at the close of business on 6 July 2018 with an ex-dividend date of 5 July 2018. The dividend is in line with the Company's progressive policy and reflects the performance for the year, coupled with our confidence for the future whilst retaining a strong balance sheet and sufficient cash to take advantage of opportunities that may present themselves. 

Employees

Following the successful integration of Sicomm, we now have over 220 employees around the world. It is their skill and commitment which forms the basis of the continued success of CML and, on behalf of the Board, I would like to thank them for their ongoing dedication and commitment to excellence.

Prospects and Outlook

Our strategy continues to be to invest in the development of products within areas that we know and understand and where the quality of our products and our competitive advantages enable us to achieve acceptable gross margins. The growth achieved in the year demonstrates the success of this strategy and with new product launches feeding into the pipeline we are confident in our ability to deliver long-term sustainable growth. Following the acquisition and integration of Sicomm, acquisitions will continue to form part of our strategy, coupled with a strong focus on organic growth, and the Board remains alert to opportunities that meet our strict criteria. 

The Company has long held an outstanding reputation for the quality of its engineering and development teams, and this is now supported by a clear strategy, depth of management and a strengthened global sales team. With record net assets of over £41m and net cash of almost £14m we have a strong balance sheet on which to drive the Company forward.

In what is CML's 50^th year as a business, we are confident that the Company is in good shape to deliver our objective of long-term, sustainable growth.

Nigel Clark

Group Non-Executive Chairman 

OPERATIONAL AND FINANCIAL REVIEW

Introduction

I am pleased to be able to report on another year of continued progress across the Group. Our revenue and adjusted EBITDA performances are at all-time highs, as is the year end cash position. These results, achieved whilst continuing to invest in the business, are further validation of our strong commitment to research and development and the success of working closely with our customers to design and deliver the products that they need to meet commercial requirements.

Particularly pleasing is that this steady growth remains in line with the expectations that we set out three years ago when the current strategy was communicated and we embarked upon a number of investment and organisational initiatives to position the Company for long-term success. The Group has experienced top line growth of 45% through that period although we are yet to see the full operational benefits given the time it takes for early stage customer engagements to become revenue generating.

We have been delighted by the increase in orders across our customer base and product range. The growth in revenues has been derived largely through improved sales to our existing customers, with the majority of our top 40 customers posting a year on year increase. Importantly, we have also seen a selection of relatively new customers reach a meaningful level of sales, indicating their products have passed through the often lengthy qualification period and gained market acceptance.

During the course of the year, we continued our planned resource investment programme into the business and this is now largely complete. While we will carry on our high level of research and development spend, we now have an appropriate operational structure to manage our business and deliver growth over the medium term. Pleasingly, we are already seeing the impact made by these investments into extra resources, particularly in sales and marketing, with our potential sales pipeline growing well, and a healthy level of new design wins being secured. We are experiencing an underlying uplift in our sales opportunity metrics, which bodes well for further sustainable growth.

Financial Review

Group turnover for the year to 31 March 2018 was £31.67m representing an increase of 14% against the prior full year (2017: £27.74m). Revenues were higher across both of the main market areas addressed, namely Communications and Storage, with the shipment of products into Asian and European countries being the driver behind that growth. That said, it is important to note that annual revenue comparisons by region can be misleading as some customers can and do alter their manufacturing locations periodically. A fuller revenue analysis at the market application area level is covered later in this report.

Sales in the second half of the year were slightly lower than the first six-months, with extended raw material lead times and currency headwinds being contributing factors. Revenues in the second half were ahead 7% on the comparable period.

Gross profit improved by 12% to £22.24m (2017: £19.82m) with margins slightly reduced due to product mix.

The year under review represents the first full year of trading following the acquisition of Sicomm in August 2016.  As a result of the high levels of investment in research and development and personnel that have been made in the intervening period, distribution and administration costs increased by 15% to £18.52m (2017: £16.12m). It is noteworthy to report that within these costs, the Group recorded a £0.4m foreign exchange loss which, when compared to the gains made in the prior financial year represents a £1.2m negative swing. The overall increase in distribution and administration expenditure was also impacted by higher amortisation of development costs at £4.75m (2017: £4.10m).

As expected, research and development costs for the year remained at elevated levels, totaling £6.87m (2017: £6.82m). Of this amount, £1.19m was expensed (2017: £1.06m) and £5.68m was capitalised under the Group's research and development policy (2017: £5.76m).

Other income consists of three main elements; amounts received from the commercial rental of Group-owned property assets that are now surplus to operational requirements; regional grant income associated with specific engineering development activities and an element of royalty income associated with the sale of third party technology. The amount recorded this year was £0.83m (2017: £0.61m).

Profit from operations increased by 6% to £4.55m compared to a figure of £4.31m for the prior year. After accounting for share-based payments, net finance income and a small uplift in the value of the Group's investment property assets of £0.14m, a profit before tax of £4.58m was recorded (2017: £4.21m), equating to growth of 9%.

Customer dependency for the year reflected some movement against the prior year. Contribution from the top two customers fell slightly to a combined contribution of approximately 28%, although only one of these customers was above the 10% threshold. All other customers remained below the 6% level.

The Group continued to benefit from UK tax credits associated with some of its research and development activities and that is the primary driver behind the lower than average rate of taxation achieved. An income tax expense of £0.44m was posted against a prior year figure of £0.34m.

Profit after tax amounted to £4.14m (2017: £3.87m), an improvement of 7%, with Basic EPS rising 6% to 24.52p (2017: 23.09p) despite a higher number of ordinary shares in issue.

The Group's cash reserves at 31 March 2018 stood at £13.82m, delivering an increase of £1.37m when compared to the same cut-off date one year earlier (31 March 2017: £12.45m). The balance reported follows a research and development spend of £6.87m, dividend payments totaling £1.58m and the payment of a warranty retention associated with the Sicomm acquisition of £0.32m. Included in the cash balance is a conditional customer prepayment of £1.15m made against future product purchases.

The semiconductor industry as a whole has been experiencing extended lead times for raw materials due to capacity constraints. The Group communicated a general tone of caution around the issue at the interim stage and continues to act appropriately to minimize the effects on the business. Against this backdrop, inventory levels at the year-end totaled £2.35m (2017: £2.15m), with all of the increase attributable to raw materials and work in progress. Finished goods stock levels were lower year on year.

The Group has a historic final salary pension scheme that has been closed to both new members and future accruals for many years. Along with the Company, the trustees and their professional advisers have worked diligently in recent years towards achieving the right balance between adequate scheme funding and business growth objectives. As a result, the scheme funding position has improved and for the year under review a deficit of £2.07m has been recorded under accounting rule IAS19 (2017: £3.08m). Separately, the most recent triennial actuarial valuation carried out by an independent professionally qualified actuary, as at 31 March 2017, resulted in a net pension surplus of £1.89m (1 April 2014: net deficit of £1.54m). This actuarial valuation showed that the scheme assets were sufficient to cover 111% of the benefits accrued to members, after allowing for future increases in these benefits.

Strategy Overview

The Group's strategy today remains consistent with that previously communicated. Our semiconductor business continues to be focused on two important niche market areas, industrial storage and industrial communications, where our proprietary IP, along with the quality and reliability of our technology, sets us apart from our peers and makes us an integral part of our customers' products. We have a strong and growing reputation in each of these market areas and have a world-class customer base as well as an established sales network which has been improved further through adding resources and the appointment of complementary distributors and representatives in specific regions.

The on-going demand for increasing amounts of data to be delivered faster and stored more reliably and securely continues to drive demand for our products. We have succeeded in generating a diverse revenue stream across a broad range of customers and products and will continue to expand this further. We are, to our customers, a single-source supplier, meaning that once designed in, the displacement of our chips would require some element of end-product redesign.

Ongoing investment in research and development remains a key pillar of our growth strategy and the benefits continue to be seen. This focus on developing new products should lead to design wins with both new and existing customers. This will enable us to improve our market share as well as increase our total addressable market and deliver significant, profitable revenue generation. We continue to seek acquisition opportunities which meet our strict criteria to complement our ongoing organic growth.

Storage

Our strategy for the Storage market continues to be investment into the expansion of the product range towards increasing our share of existing customer product portfolios whilst simultaneously widening the customer base. Our focus continues to be on strengthening our product portfolio to include all major interface standards used within our intended end-markets and interoperation with all relevant third-party NAND Flash devices from top tier global memory suppliers.

Our enlarged flash memory controller product range now includes CompactFlash, SD, MMC, USB and SATA host interface standards, complemented by an Application Programmers Interface ("API") that our customers are using to develop their own proprietary security or IIoT solutions. A pleasing number of customers have adopted our API through the year and we started to see the resulting end-products launched to market.

Storage revenue for the year amounted to £15.43m (2017: £12.69m) representing an increase of 22% with the main contributors being increased shipments into the automotive, industrial automation and telecom infrastructure markets. The gain made is evidence that our focus on sustainable growth opportunities has traction. Product mix differed from expectations at the beginning of the year with a higher contribution from products shipped in silicon wafer form, resulting in a negative skew to average selling prices. As has been the case for some time, a number of customers reported being affected by continually tight levels of NAND flash supply coupled with elevated pricing although it is not possible to judge the overall impact on the numbers being reported.

It was a busy year in terms of operational progress. In August 2017 the full market launch of a new class-leading CompactFlash controller took place, enabling customers to use more recently available flash memory technologies within their CompactFlash-based storage products and benefit from the advantages they offer. A raised level of promotional activities occurred around industry-specific exhibitions in the US, China and Europe, supplemented by white papers and conference presentations designed to raise awareness of the technical superiority and reliability of our semiconductor solutions. Customer facing resources were enhanced further and a new EU-based distribution agreement was announced.

Encouragingly, the level of interest being generated through promotion of the enlarged product portfolio increased and a number of customer designs from prior years passed through the qualification phase and have begun shipping in production quantities. It was pleasing to record a design win for one of the world's largest server manufacturers. With servers typically containing a number of storage devices, each with a different host interface, the server market represents an additional growth area for the Group.

Overall, our progress with Storage activities was pleasing and the underlying sales opportunity pipeline grew well.

Communications

Our strategy within Communications is to grow customer share and expand the customer base through the development and marketing of products that offer increased functionality within the customers' end product. This includes expanding the product portfolio to include semiconductors with performance characteristics that are expected to widen the addressable market.

The enlarged product range now offers the ability for a single customer product to incorporate up to five separate CML devices. This has the added benefit of generating increased efficiency across our sales and marketing activities and, with the aid of focused demonstration platforms, helps our customers get to market faster and at lower overall cost.

The encouraging progress made in the first six months is reflected in a solid full year performance, with revenues rising 10% to £16.17m (2017: £14.64m). This figure is even more satisfying given the need to navigate through selected third-party raw material supplier delays as the year progressed. This increase is delivered as a growing number of individual customer projects reach production status and is against a particularly strong performance in the prior year.

In terms of products categories, strong increases were made with the sale of baseband processors for use within voice-centric digital radios, particularly those that operate to the DMR global standard. The Group's Data Modems for "Machine-to-Machine ("M2M") / "Industrial Internet of Things" ("IIoT") applications also recorded strong gains against the prior year, as did the sale of RF semiconductors, posting a revenue gain of over 30%.

In total we released five new products across the year targeted at end markets including marine AIS and VDES, where a technology partnership led to release of a module for a new high-speed data exchange system targeting industry adoption over the coming years. Expansion of the RF product range to field products that operate at frequencies >1GHz has been a well communicated focus and the first two products were released to market. These IC's are suitable for use in satellite communications and other more general applications. A second RF power amplifier IC capable of higher output power was also launched.

The various organisational reporting changes and resource level improvements made in the prior year along with the first full year contribution from the acquisition of Sicomm, all collectively served to drive business forward within what is now a scalable operating structure. A new sales channel agreement was signed in the USA during the year and our manufacturer's representative network was bolstered.

As reported at the interim stage, we experienced strong growth across the focus product groups and a high proportion of the opportunities being worked are for multiple CML IC's within each customer end-product. All things considered, it has been another pleasing year.

Market Developments

The long-term trends that we have consistently highlighted within our two niche industrial application areas remain as strong today as ever. The principal factor for both remains the persistent demand for increasing amounts of data to be transmitted and stored more quickly and securely.

Performance for the full year could have been stronger but for well publicised global constraints in the supply of silicon. The semiconductor market as a whole is in a growth phase at the moment and the knock-on effect of that is for a general tone of caution around raw material lead times. We continue to monitor the situation and act appropriately to minimise any effect this might have on the business. It is particularly pleasing to note that the business delivered against expectations, despite this issue and a negative impact from currency movements in the year, demonstrating the strength of our business model.

Within industrial data storage there are several exciting opportunities in which we are securing a growing number of design wins following successful product qualifications. The automotive sector has performed well again this year and continues to present opportunities for continued growth. Again, it is pleasing to note that progression is in keeping with the dynamics that we had foreseen some years ago. Other areas include industrial automation, the telecoms/network infrastructure market and various security related applications. A number of the major original equipment manufacturers ("OEMs") or tier one suppliers to those OEMs are our customers, meaning we are well positioned to benefit from the ever-growing demand.

The Communications market is exhibiting a number of growth areas including the transition to higher-capacity digital networks within voice-centric markets and, in data-centric markets, the increasing data throughput requirements from terrestrial and satellite communications applications. The latter is required to meet the needs of the growing M2M and IIoT sectors. Ancillary markets continue to develop which serves to maintain the very fragmented nature of the Group's communications markets. New product releases over the last few of years should serve to capture a higher share of a growing market over time.

Again, we are already suppliers to, or working with, many of the leading OEMs in these areas and the Board believes we are well placed for future growth.

Operational Developments

The investment made in senior people towards the end of the prior year and early into this year has created the necessary capacity and skill set to facilitate the Group's continued growth. This process is now largely complete. Whilst our fixed cost base has increased, the benefits are already being seen with the additions in sales, marketing and customer support functions leading to an improved sales opportunity pipeline.

The other significant investment in the year has been in a new enterprise research planning ("ERP") system which is on track to go-live in the second half of this current financial year. Given the increasing scale and global nature of the business, the ERP system will unify our operating systems across different geographies, which will not only create efficiencies but also improve decision making.

Outlook

The business has continued to perform in line with expectations, which gives us confidence in the future. The lead times and sales cycles on our products are long and the revenue growth we are seeing today is the result of the continuous research and development investments that we make to deliver the products our customers need. Group products released three to four years ago are now entering the growth phase amongst the customer base and we envisage a repeat of this cycle with our recently released products and those under development, providing us with a long and sustainable pipeline of sales opportunities

Both market areas addressed are delivering a satisfying performance and continue to be well placed for future growth. Our focus on research and development investment will remain, whilst other spending initiatives will benefit the business in future years.

Clearly it is not possible to predict issues that may arise in the wider market, but a note of caution needs to be conveyed given one or two raw material supplier issues that were a feature of the latter part of the year to 31 March 2018. These events have the potential to affect customer purchasing patterns and, as a result, we currently expect revenue and profit progress for the year ahead to be weighted towards the second half.

The Board believes that CML is well positioned to deliver steady, sustained growth and expectations are for a further advance in profitability for the year to 31 March 2019.

Chris Gurry

Group Managing Director

 

 

Consolidated income statement for the year ended 31 March 2018

		Unaudited	Audited
		2018	2017
	Notes	£'000	£'000
Continuing operations
Revenue	1,2	31,674	27,737
Cost of sales		(9,438)	(7,922)
Gross profit		22,236	19,815
Distribution and administration costs		(18,518)	(16,116)
		3,718	3,699
Other operating income		829	614
Profit from operations		4,547	4,313
Share‑based payments		(143)	(139)
Profit after share‑based payments		4,404	4,174
Revaluation of investment properties	7	140	-
Finance income		39	34
Profit before taxation		4,583	4,208
Income tax expense	4	(444)	(341)
Profit after taxation		4,139	3,867
Profit after taxation attributable to equity owners of the parent		4,139	3,867
Basic earnings per share
From profit for year	5	24.52p	23.09p
Diluted earnings per share
From profit for year	5	23.95p	22.84p

Adjusted EBITDA
Adjusted EBITDA for year	6	9,998	8,840

 

Consolidated statement of total comprehensive income for the year ended 31 March 2018

		Unaudited	Unaudited	Audited	Audited
		2018	2018	2017	2017
		£'000	£'000	£'000	£'000
Profit for the year			4,139		3,867
Other comprehensive income, net of tax:
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on retirement benefit obligations		911		(1,048)
Deferred tax on actuarial (gain)/loss		(155)		178
Items reclassified subsequently to profit or loss upon derecognition:
Foreign exchange differences		(84)		1,068
Other comprehensive income for the year net of taxation attributable to equity owners of the parent			672		198
Total comprehensive income for the year attributable to the equity holders of the parent			4,811		4,065

 

Consolidated statement of financial position as at 31 March 2018

		Unaudited	Unaudited	Audited	Audited
		2018	2018	2017	2017
		£'000	£'000	£'000	£'000
Assets
Non‑current assets
Goodwill			9,190		9,306
Other intangible assets			1,570		1,339
Property, plant and equipment			5,410		5,330
Investment properties			3,690		3,550
Investments			83		85
Development costs			12,542		11,401
Deferred tax assets			1,068		1,419
			33,553		32,430
Current assets
Inventories		2,351		2,154
Trade receivables and prepayments		3,112		2,697
Current tax assets		675		971
Cash and cash equivalents		13,816		12,447
			19,954		18,269
Total assets			53,507		50,699
Liabilities
Current liabilities
Trade and other payables			5,292		5,757
Current tax liabilities			48		57
Provision - current			181		51
			5,521		5,865
Non‑current liabilities
Deferred tax liabilities		3,950		3,692
Retirement benefit obligation		2,070		3,084
Provision - non current		196		423
			6,216		7,199
Total liabilities			11,737		13,064
Net assets			41,770		37,635
Capital and reserves attributable to equity owners of the parent
Share capital			856		843
Share premium			9,068		8,319
Capital redemption reserve			9		9
Treasury shares - own share reserve			(190)		(190)
Share‑based payments reserve			443		504
Foreign exchange reserve			1,302		1,386
Accumulated profits			30,282		26,764
Total shareholders' equity			41,770		37,635

 

Consolidated cash flow statement for the year ended 31 March 2018

		Unaudited		Audited
		2018		2017
		£'000		£'000
Operating activities
Profit for the year before taxation		4,583		4,208
Adjustments for:
Depreciation		411		325
Amortisation of development costs		4,745		4,100
Amortisation of intangibles recognised on acquisition		155		102
Revaluation of investment properties		(140)		-
Movement in non-cash items (pension)		(103)		(31)
Share‑based payments		143		139
Movement in provisions		(48)		474
Finance income		(39)		(34)
Movement in working capital		(874)		1,745
Cash flows from operating activities		8,833		11,028
Income tax received/(paid)		309		(224)
Net cash flows from operating activities		9,142		10,804
Investing activities
Purchase of acquisition, net of cash acquired		-		(3,576)
Payment of warranty retention		(320)		-
Receipt of escrow cash deposit		-		385
Purchase of property, plant and equipment		(488)		(450)
Investment in development costs		(5,680)		(5,763)
Investment in intangibles		(392)		-
Disposal of property, plant and equipment		-		17
Finance income		39		34
Net cash flows from investing activities		(6,841)		(9,353)
Financing activities
Issue of ordinary shares		762		25
Purchase of own shares for cancellation		-		(669)
Dividends paid to shareholders		(1,581)		(1,134)
Net cash flows from financing activities		(819)		(1,778)
Increase/(decrease) in cash and cash equivalents		1,482		(327)
Movement in cash and cash equivalents:
At start of year		12,447		13,596
Increase/(decrease) in cash and cash equivalents		1,482		(327)
Effects of exchange rate changes		(113)		(822)
At end of year		13,816		12,447

 

Consolidated statement of changes in equity for the year ended 31 March 2018

	Share	Share	Capital	Treasury	Share‑based	Foreign	Accumulated
	capital	premium	redemption	Shares	Payments	exchange	profits
			reserve	reserve	reserve	reserve		Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31 March 2016 - audited	813	5,700	-	(190)	388	318	25,547	32,576
Profit for year							3,867	3,867
Other comprehensive income net of taxes
Foreign exchange differences						1,068		1,068
Net actuarial gain recognised directly to equity							(1,048)	(1,048)
Deferred tax on actuarial gain							178	178
Total comprehensive income for year	-	-	-	-	-	1,068	2,997	4,065
	813	5,700	-	(190)	388	1,386	28,544	36,641
Transactions with owners in their capacity as owners Issue of ordinary shares re acquisition	39	2,594						2,633
Issue of ordinary shares	-	25						25
Dividend paid							(1,134)	(1,134)
Share purchase for cancellation	(9)		9				(669)	(669)
Total transactions with owners in their capacity as owners	30	2,619	9	-	-	-	(1,803)	855
Share‑based payments in year					139			139
Cancellation/transfer of share‑based payments					(23)		23	-
At 31 March 2017 - audited	843	8,319	9	(190)	504	1,386	26,764	37,635
Profit for year							4,139	4,139
Other comprehensive income net of taxes
Foreign exchange differences						(84)		(84)
Net actuarial gain recognised directly to equity							911	911
Deferred tax on actuarial gain							(155)	(155)
Total comprehensive income for year	-	-	-	-	-	(84)	4,895	4,811
	843	8,319	9	(190)	504	1,302	31,659	42,446
Transactions with owners in their capacity as owners
Issue of ordinary shares	13	749						762
Dividend paid							(1,581)	(1,581)
Total transactions with owners in their capacity as owners	13	749	-	-	-	-	(1,581)	(819)
Share‑based payments in year					143			143
Cancellation/transfer of share‑based payments					(204)		204	-
At 31 March 2018 - unaudited	856	9,068	9	(190)	443	1,302	30,282	41,770

 

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.

Information about revenue, profit/loss, assets and liabilities

	Unaudited 2018		Audited 2017
	Semiconductor		Semiconductor
	components	Group	components	Group
	£'000	£'000	£'000	£'000
Total segmental revenue	31,674	31,674	27,737	27,737
Profit
Segmental result	4,404	4,404	4,174	4,174
Finance income		39		34
Revaluation of investment properties		140		-
Income tax expense		(444)		(341)
Profit after taxation		4,139		3,867
Assets and liabilities
Segmental assets	48,074		44,759
Unallocated corporate assets		48,074		44,759
Investment properties		3,690		3,550
Deferred tax assets		1,068		1,419
Current tax assets		675		971
Consolidated total assets		53,507		50,699
Segmental liabilities	5,669		6,231
Unallocated corporate liabilities		5,669		6,231
Deferred tax liabilities		3,950		3,692
Current tax liabilities		48		57
Retirement benefit obligation		2,070		3,084
Consolidated total liabilities		11,737		13,064

Other segmental information

	Unaudited 2018		Audited 2017
	Semiconductor		Semiconductor
	components	Group	components	Group
	£'000	£'000	£'000	£'000
Property, plant and equipment additions	488	488	450	450
Development cost additions	5,680	5,680	5,763	5,763
Intangible additions	392	392	-	-
Depreciation	411	411	325	325
Amortisation of development costs	4,745	4,745	4,100	4,100
Amortisation of acquired intangibles	155	155	102	102
Other non‑cash income	103	103	31	31

 

Geographical information (by origin)

	UK	Rest of Europe	Americas	Far East	Total
	£'000	£'000	£'000	£'000	£'000
Year ended 31 March 2018 - unaudited
Revenue to third parties - by origin	5,073	7,355	5,848	13,398	31,674
Property, plant and equipment	5,024	290	65	31	5,410
Investment properties	3,690	-	-	-	3,690
Development costs	4,424	8,118	-	-	12,542
Intangibles - software	392	-	-	-	392
Goodwill	-	3,512	-	5,678	9,190
Other intangible assets arising on acquisition	-	-	-	1,178	1,178
Total assets	23,915	15,556	2,582	11,454	53,507
Year ended 31 March 2017 - audited
Revenue to third parties - by origin	6,744	4,856	6,047	10,090	27,737
Property, plant and equipment	5,056	243	16	15	5,330
Investment properties	3,550	-	-	-	3,550
Development costs	3,827	7,574	-	-	11,401
Goodwill	-	3,512	-	5,794	9,306
Other intangible assets arising on acquisition	-	-	-	1,339	1,339
Total assets	35,192	11,482	1,969	2,056	50,699

2 Revenue

The geographical classification of business turnover (by destination) is as follows:
	Unaudited		Audited
	2018		2017
Continuing business	£'000		£'000
Europe	9,477		7,600
Far East	15,764		13,460
Americas	5,919		6,117
Others	514		560
	31,674		27,737

3 Dividend - paid and proposed

During the year a final dividend of 7.4p per ordinary share of 5p was paid in respect of the year ended 31 March 2017.  A maiden interim dividend of 2.0p per ordinary was paid on 15 December 2017 to shareholders on the Register on 1 December 2017. 

It is proposed to pay a final dividend of 5.8p per ordinary share of 5p, taking the total dividend amount in respect of the year ended 31 March 2018 to 7.8p.  It is proposed to pay the final dividend of 5.8p, if approved, on 6 August 2018 to shareholders registered on 6 July 2018 (2017: 7 August 2017 to shareholders registered on 7 July 2017).

 

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. 

	Unaudited	Audited
	2018	2017
	£'000	£'000
Current tax
UK corporation tax on results of the year	(595)	(419)
Adjustment in respect of previous years	44	(1)
	(551)	(420)
Foreign tax on results of the year	626	511
Foreign tax - adjustment in respect of previous years	(12)	-
Total current tax	63	91
Deferred tax
Current period movement	387	272
Adjustments to deferred tax charge in respect of previous years	(6)	(22)
Total deferred tax	381	250
Tax charge on profit on ordinary activities	444	341

5 Earnings per share

	Unaudited	Audited
	2018	2017
Basic earnings per share
From profit for year	24.52p	23.09p
Diluted earnings per share
From profit for year	23.95p	22.84p

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:

	Unaudited 2018			Audited 2017
	Profit	Weighted average number of shares	Earnings    per share	Profit	Weighted average number of shares	Earnings   per share
Basic earnings per share	£'000	Number	p	£'000	Number	p
Basic earnings per share  - from profit for year	4,139	16,876,684	24.52	3,867	16,745,457	23.09
Diluted earnings per share
Basic earnings per share	4,139	16,876,684	24.52	3,867	16,745,457	23.09
Dilutive effect of share options	-	402,348	(0.57)	-	183,699	(0.25)
Diluted earnings per share - from profit for year	4,139	17,279,032	23.95	3,867	16,929,156	22.84

 

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 and before share-based payments. The following is a reconciliation of the Adjusted EBITDA for the years presented:

	Unaudited	Audited
	2018	2017
	£'000	£'000
Profit after taxation (earnings)	4,139	3,867
Adjustments for:
Finance income	(39)	(34)
Income tax expense	444	341
Depreciation	411	325
Amortisation of development costs	4,745	4,100
Amortisation of intangibles recognised on acquisition	155	102
Share-based payments	143	139
Adjusted EBITDA	9,998	8,840

7 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 leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement.  Everett Newlyn, Chartered Surveyors and Commercial Property Consultants professionally valued the investment properties on the basis of open market value as at 31 March 2018, for which the valuation of £3,690,000 has been advised (2017: £3,550,000). 

8 Principal risks and uncertainties

Key risks of a financial nature

The principal risks and uncertainties facing the Group are with foreign currencies and customer dependency. With the majority of the Group's earnings being linked to the US Dollar, a decline in this currency will have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. Furthermore, the Group does however have significant Euro-denominated fixed costs. Additionally, though the Group has a very diverse customer base in certain market sectors, key customers can represent a significant amount of revenue though their end-customers may be a diversified portfolio. Key customer relationships are closely monitored; however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.

Key risks of a non-financial nature

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

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

9 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 2017 financial statements. 

10 General

The results for the year have been prepared using the recognition and measurement principles of international financial reporting standards as adopted by the EU.  Whilst the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), as adopted for use in the EU, this announcement does not itself contain sufficient information to comply with IFRSs. 

The audited financial information for the year ended 31 March 2017 is based on the statutory accounts for the financial year ended 31 March 2017 that has 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 2018 are expected to be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and signed following approval by the Board of Directors on 22 June 2018 and delivered to the Registrar of Companies following the Company's Annual General Meeting on 1 August 2018.

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 March 2018 or 2017 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.

11 Approval

The Directors approved this annual results announcement on 11 June 2018.

 

Glossary

AIS                   Automatic Identification System

API                   Application Programmers Interface

EBITDA            Earnings before interest, tax, depreciation and amortisation

EU                    European Union

DMR                 Digital Mobile Radio

IAS                   International Accounting Standard

IC                     Integrated Circuit

IFRS                 International Financial Reporting Standards

IIoT                        Industrial Internet of Things

IP                      Intellectual Property

M2M                 Machine‑to‑machine

MMC                Multimedia Card

NAND               Not And

OEM                 Original Equipment Manufacturer

R&D                  Research and Development

RF                     Radio Frequency

SATA                Serial ATA interface

SD                    Secure Digital

USB                  Universal Serial Bus

VDES                VHF Data Exchange System

 

END

 

 

FR FMGMVRMKGRZM