Half Yearly Report

RNS Number : 4850S

CML Microsystems PLC

22 November 2011

 



CML Microsystems Plc

INTERIM RESULTS

CML Microsystems Plc ("CML"), which designs, manufactures and markets a broad range of semiconductor products, primarily for the global communication and data storage markets, announces Interim Results for the six months ended 30 September 2011.

Financial Highlights:

·     Revenues up 9% to £12.29m (2010 H1: £11.21m)

·     Gross profit up 8% to £8.51m (2010 H1: £7.83m)

·     Profit before tax up 59% to £2.02m (2010 H1: £1.27m)

·     Basic EPS up 63% of 9.87p (2010 H1: 6.05p)

·     Net cash position of £4.37m (2010 H1: £553k) - with bank borrowings reduced by £1.5m to £3m

Operational Highlights:

·     Strong revenue growth globally

·     Stable cost base and margins within targets

·     Solid cash flow, improved net cash position

·     Maintained investment levels for key new product development programs

Regarding Outlook, Chris Gurry, Managing Director of CML, said:

"Trading performance through the first half year was encouraging and reflected the Group's established multi-year strategy for sustainable growth.

"Within our three major market areas of wireless, storage and wireline telecom, we continue to see growth opportunities within existing customer product portfolios in addition to general expansion of the overall customer base.

"Following the period end, overall order book levels have remained healthy although it is possible that the general economic climate in some regions may affect customer buying patterns or investment decisions. Despite this, the Board currently anticipates positive trading conditions to prevail through what is traditionally a slightly weaker second half."

Enquiries:

CML Microsystems Plc	www.cmlmicroplc.com
Chris Gurry, Managing Director	Tel: [phone]
Nigel Clark, Financial Director
Cenkos Securities plc
Jeremy Warner Allen (Sales)	Tel: [phone]
Stephen Keys (Corporate Finance)
Walbrook PR Ltd	Tel: [phone]
Paul McManus	Mob: [phone] or [e-mail]
Helen Westaway	Mob: [phone] or [e-mail]

Chairman's Statement

I am pleased to report that your Company continued to improve its performance through the opening six-month period of the present trading year, with increased sales revenue, pre-tax profit and earnings-per-share the outcome for that period.

Group sales rose to £12.29m (2010: £11.21m), with gains posted for each of the principal product market areas, while a gross profit of £8.51m (2010: £7.83m) reflects a materially unchanged gross profit margin.

Profit before tax grew to £2.02m (2010: £1.27m), while diluted EPS show an increase to 9.78p per share on the enlarged share capital (2010: 5.99p).

The Company has continued with steps to re-balance its debt/asset cash position, resulting in net cash of £4.37m (2010: £553k) at the end of the period and a reduction in the outstanding bank loan to £3m (2010: £4.5m).

In the period post 30 September the Company sold one of the USA based properties held for sale for approximately $1m.  The proceeds will be subject to appropriate taxes.

The uncertainties and negative factors that presently affect many business areas are not helpful to near-term growth, but I nevertheless believe that subject to unforeseen circumstances, your Company's results for the current full trading year will meet present market expectations.

On behalf of your Directors I once again express our appreciation and thanks to the Group's employees for their efforts and commitment towards its success.

G W Gurry

Chairman                                                                                                                         

21 November 2011

Operating and Financial Review

Group revenues for the six months to 30 September 2011 rose to £12.29m representing a 9% increase over the comparable half year period (2010: £11.21m). Semiconductor shipments increased in each of the three major geographical regions, with the Americas showing the highest percentage growth, the Far East maintaining its position as the single largest region and Europe contributing solid growth.

Group products for use within wireless and storage applications contributed approximately 83% of overall Group revenues whilst products sold into wireline telecom markets accounted for close to 12%.

Within the target wireless markets, dominant end applications continued to include voice and/or data transmission within two-way radio products, control and data acquisition systems, regional transport and infrastructure systems, and marine safety systems.

Flash memory controller chips for use within removable and embedded solid state storage media dominated revenues from the storage sector. The Group benefited from the combined effects of increased shipment volumes to established customers along with a higher contribution from more recent customer design wins.

Group semiconductor products for telecom applications experienced high single-digit percentage sales growth across a range of end applications including point-of-payment terminals, security alarm panels and medical monitoring devices.

Sales at the Group's equipment division, RDT, increased 17% to £415k (2010: £354k) largely as a result of higher export sales of telemetry and control products for transport applications. Entry into the M2M market was initiated with the launch of a GPRS modem and router for industrial users.

The gross margin was maintained at 69% delivering a reported gross profit of £8.51m (2010: £7.83m). Distribution and administration costs of £6.52m were very slightly down (2010: 6.64m) and this helped to deliver an operational profit (before other income, share-based payments and finance costs) of £1.99m against a comparable period figure of £1.19m.

Income from other operating activities, principally rental proceeds from group owned industrial properties fell from £169k to £89k due to a lower occupancy rate through the period.

Net finance costs amounted to £37k (2009: £68k) and a profit before tax of £2.02m was recorded (2010: £1.27m).

A combination of improved revenue levels, static gross margin and tight cost control resulted in positive cash flow of £2.04m through the six months under review. At the period end the Group had cash reserves of £7.38m and reduced bank borrowings of £3.01m.

Summary and outlook

Trading performance through the first half year was encouraging and reflected the Group's established multi-year strategy for sustainable growth.

Within our three major market areas of wireless, storage and wireline telecom, we continue to see growth opportunities within existing customer product portfolios in addition to general expansion of the overall customer base.

Important new engineering development activities and partnership programs, some of which were announced in the prior financial year, will be sampled through the remainder of the current trading year. These products are expected to commence meaningful revenue contributions starting next financial year.

Following the period end, overall order book levels have remained healthy although it is possible that the general economic climate in some regions may affect customer buying patterns or investment decisions. Despite this, the Board currently anticipates positive trading conditions to prevail through what is traditionally a slightly weaker second half.

C A Gurry

Managing Director                                                                                                                     

21 November 2011

Condensed Consolidated Income Statement

	Unaudited	Unaudited	Audited
	six months end	six months end	Year end
	30/09/11	30/09/10	31/03/11
	£'000	£'000	£'000
Continuing operations
Revenue	12,293	11,209	22,122
Cost of sales	(3,785)	(3,380)	(6,754)
Gross profit	8,508	7,829	15,368
Distribution and administration costs	(6,521)	(6,641)	(12,729)
	1,987	1,188	2,639
Other operating income	89	169	389
Profit before share-based payments	2,076	1,357	3,028
Share-based payments	(24)	(22)	(43)
Profit after share-based payments	2,052	1,335	2,985
Revaluation of investment properties	-	-	(400)
Finance costs	(41)	(74)	(271)
Finance income	4	6	11
Profit before taxation	2,015	1,267	2,325
Income tax (expense)/credit	(489)	(363)	360
Profit for period attributable to equity owners of the parent	1,526	904	2,685
Earnings per share
Basic	9.87p	6.05p	17.87p
Diluted	9.78p	5.99p	17.64p

Condensed Consolidated Statement of Comprehensive Income

	Unaudited	Unaudited	Audited
	six months end	six months end	Year end
	30/09/11	30/09/10	31/03/10
	£'000	£'000	£'000
Profit for the period	1,526	904	2,685
Other comprehensive income:
Foreign exchange differences	56	(11)	(48)
Actuarial gain on retirement benefit obligations	-	-	2,811
Income tax on actuarial loss	-	-	(800)
Other comprehensive income for the period net of tax	56	(11)	1,963
Total comprehensive income for the period net of tax attributable to equity owners of the business	1,582	893	4,648

Condensed Consolidated Statement of Financial Position

	Unaudited	Unaudited	Audited
	30/09/11	30/09/10	31/03/11
	£'000	£'000	£'000
Assets
Non-current assets
Property, plant and equipment	5,165	5,266	5,231
Investment properties	3,450	3,850	3,450
Development costs	4,385	3,820	3,624
Goodwill	3,512	3,512	3,512
Deferred tax asset	2,608	2,920	2,534
	19,120	19,368	18,351
Current assets
Inventories	1,686	1,689	1,666
Trade receivables and prepayments	1,104	2,833	1,513
Current tax assets	-	5	5
Cash and cash equivalents	7,383	5,101	6,246
	10,173	9,628	9,430
Non-current assets classified as held for sale - properties	430	426	420
Total assets	29,723	29,422	28,201
Liabilities
Current liabilities
Bank loans and overdrafts	3,014	4,548	3,919
Trade and other payables	3,375	3,799	2,525
Current tax liabilities	276	149	49
	6,665	8,496	6,493
Non-current liabilities
Deferred tax liabilities	1,816	2,160	1,577
Retirement benefit obligation	2,607	5,728	2,607
	4,423	7,888	4,184
Total liabilities	11,088	16,384	10,677
Net assets	18,635	13,038	17,524
Capital and reserves attributable to equity owners of the parent
Share capital	788	747	785
Share premium	4,872	4,148	4,820
Share-based payments reserve	69	277	298
Foreign exchange reserve	382	363	326
Accumulated profits	12,524	7,503	11,295
Shareholders' equity	18,635	13,038	17,524

Condensed Consolidated Cash Flow Statement

	Unaudited	Unaudited	Audited
	six months end	six months end	Year end
	30/09/11	30/09/10	31/03/11
	£'000	£'000	£'000
Operating activities
Profit for the period before income taxes	2,015	1,267	2,325
Adjustments for:
Depreciation	94	101	321
Amortisation of development costs	1,460	1,557	3,276
Revaluation of  investment properties	-	-	400
Movement in pensions deficit	-	-	(437)
Share-based payments	24	22	43
Interest expense	41	74	144
Interest income	(4)	(6)	(11)
Decrease in working capital	1,239	1,049	926
Cash flows from operating activities	4,869	4,064	6,987
Income tax (paid)/refunded	(118)	43	(328)
Net cash flows from operating activities	4,751	4,107	6,659
Investing activities
Purchase of property, plant and equipment	(33)	(69)	(253)
Investment in development costs	(2,247)	(1,253)	(2,786)
Disposals of property, plant and equipment	2	30	32
Interest income	4	6	11
Net cash flows from investing activities	(2,274)	(1,286)	(2,996)
Financing activities
Issue of ordinary shares	55	-	710
Decrease in bank loans and short-term borrowings	(905)	(1,273)	(2,049)
Dividend paid to Group shareholders	(550)	-	-
Finance cost	(41)	(74)	(144)
Net cash flows from financing activities	(1,441)	(1,347)	(1,483)
Increase in cash and cash equivalents	1,036	1,474	2,180
Movement in cash and cash equivalents:
At start of year	6,246	3,883	3,883
Increase in cash and cash equivalents	1,036	1,474	2,180
Effects of exchange rate changes	101	(256)	183
At end of year	7,383	5,101	6,246

Condensed Consolidated Statement of Changes in Equity

	Share capital	Share premium	Share-based payments	Foreign exchange reserve	Accumulated profits	Total
Unaudited	£'000	£'000	£'000	£'000	£'000	£'000
At 1 April 2010	747	4,148	255	374	6,599	12,123
Profit for period					904	904
Other comprehensive income:
Foreign exchange differences				(11)		(11)
Total comprehensive income for the period	-	-	-	(11)	904	893
Transactions with owners in their capacity as owners:
Share-based payments			22			22
At 30 September 2010	747	4,148	277	363	7,503	13,038
Profit for period					1,781	1,781
Other comprehensive income:
Foreign exchange differences				(37)		(37)
Net actuarial profits recognised directly to equity					2,811	2,811
Deferred tax on actuarial losses					(800)	(800)
Total comprehensive income for the period	-	-	-	(37)	3,792	3,755
Transactions with owners in their capacity as owners:
Issue of ordinary shares	38	672				710
Share-based payments			21			21
At 31 March 2011	785	4,820	298	326	11,295	17,524
Profit for period					1,526	1,526
Other comprehensive income:
Foreign exchange differences				56		56
Total comprehensive income for the period	-	-	-	56	1,526	1,582
Transactions with owners in their capacity as owners:
Dividend paid					(550)	(550)
Issue of ordinary shares	3	52				55
Share-based payments transferred on cancellation			(253)		253	-
Share-based payments			24			24
At 30 September 2011	788	4,872	69	382	12,524	18,635

Notes to the Condensed Financial Statements

1.            Segmental analysis

Business segments

	Unaudited			Unaudited			Audited
	six months end			six months end			Year End
	30/09/11			30/09/10			31/03/11
	Equipment	Semi-conductor components	Group	Equipment	Semi-conductor components	Group	Equipment	Semi-conductor components	Group
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue
By origination	415	21,444	21,859	354	18,141	18,495	769	34,998	35,767
Inter-segmental revenue	-	(9,566)	(9,566)	-	(7,286)	(7,286)	-	(13,645)	(13,645)
Segmental revenue	415	11,878	12,293	354	10,855	11,209	769	21,353	22,122
Profit/(loss)
Segmental result	4	2,048	2,052	(12)	1,347	1,335	7	2,978	2,985
Revaluation of investment properties			-			-			(400)
Net financial income			(37)			(68)			(260)
Income tax			(489)			(363)			360
Profit after taxation			1,526			904			2,685
Assets and liabilities
Segmental assets	22,629	606	23,235	626	21,595	22,221	687	21,105	21,792
Unallocated corporate assets
Investment property (Including held for sale)			3,880			4,276			3,870
Deferred taxation			2,608			2,920			2,534
Current tax receivable			-			5			5
Consolidated total assets			29,723			29,422			28,201
Segmental liabilities	3,284	91	3,375	39	3,760	3,799	113	2,412	2,525
Unallocated corporate assets
Deferred taxation			1,816			2,160			1,577
Current tax liability			276			149			49
Bank loans and overdrafts			3,014			4,548			3,919
Retirement benefit obligation			2,607			5,728			2,607
Consolidated total liabilities			11,088			16,384			10,677
Other segmental information
Property, plant and equipment additions	32	1	33	-	69	69	-	253	253
Development  cost additions	2,206	41	2,247	33	1,220	1,253	71	2,715	2,786
Depreciation	90	4	94	4	97	101	8	313	321
Amortisation	1,427	33	1,460	32	1,525	1,557	72	3,204	3,276
Other significant non-cash (income)/expenses	-	-	-	-	-	-	-	(37)	(37)

Geographical segments

	UK	Germany	Americas	Far East	Total
	£'000	£'000	£'000	£'000	£'000
Unaudited
6 month ended 30 September 2011
Revenue by origination	7,182	6,275	2,887	5,515	21,859
Inter-segmental revenue	(4,244)	(5,295)	-	(27)	(9,566)
Revenue to third parties	2,938	980	2,887	5,488	12,293
Property, plant and equipment	5,062	67	16	20	5,165
Investment properties including held for sale	3,450	-	430	-	3,880
Goodwill	-	3,512	-	-	3,512
Development cost	2,321	2,064	-	-	4,385
Total assets	21,495	4,920	1,770	1,538	29,723
Unaudited
6 month ended 30 September 2010
Revenue by origination	6,878	4,514	2,657	4,446	18,495
Inter-segmental revenue	(3,271)	(4,014)	-	(1)	(7,286)
Revenue to third parties	3,607	500	2,657	4,445	11,209
Property, plant and equipment	5,103	84	52	27	5,266
Investment properties including held for sale	3,850	-	426	-	4,276
Goodwill	-	3,512	-	-	3,512
Development cost	2,390	1,430	-	-	3,820
Total assets	20,764	4,950	1,835	1,873	29,422
Audited
Year ended 31 March 2011
Revenue by origination	13,089	8,481	5,089	9,108	35,767
Inter-segmental revenue	(6,263)	(7,374)	-	(8)	(13,645)
Revenue to third parties	6,826	1,107	5,089	9,100	22,122
Property, plant and equipment	5,110	81	21	19	5,231
Investment properties including held for sale	3,450	-	420	-	3,870
Goodwill	-	3,512	-	-	3,512
Development cost	2,029	1,595	-	-	3,624
Total assets	21,027	4,364	1,573	1,237	28,201

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

2.            Dividend paid and proposed

A dividend of 3.5p per 5p ordinary share in respect of the year end 31 March 2011 was paid on 5 August 2011 (2010: £Nil per ordinary share of 5p in respect of the year ended 31 March 2010).  No dividend is proposed in respect of the six months period ended 30 September 2011(2010: £Nil per ordinary share of 5p in respect of the period end 30 September 2010).

3.            Income tax

The Directors consider that tax will be payable at varying rates according to the country of incorporation of its subsidiary and have provided on that basis.

	Unaudited	Unaudited	Audited
	six months end	six months end	Year end
	30/09/11	30/09/10	31/03/11
	£'000	£'000	£'000
UK income tax charge	170	83	294
Overseas income tax charge	175	140	186
Total current tax charge	345	223	480
Deferred tax charge/(credit)	144	140	(840)
Reported income tax charge/(credit)	489	363	(360)

4.            Earnings per share

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.

	Ordinary 5p shares
	Weighted average number	Diluted number
Six months end 30 September 2011	15,467,789	15,600,977
Six months end 30 September 2010	14,947,626	15,091,370
Year end 31 March 2011	15,023,279	15,217,456

5.            Investment properties

Investment properties are revalued at each discrete period end by the Directors and every third year by independent Chartered Surveyors on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement. At  31 March 2009 the investment properties were professionally valued by Everett Newlyn, Chartered Surveyors and Commercial Property Consultants on an open market basis.

6.            Analysis of cash flow movement in net debt

	Net debt at	6m end	Net cash at	6m end	Net cash at	6m end	Net cash at
	01/04/10	30/09/10	30/09/10	31/03/11	31/03/11	30/09/11	30/09/11
		Cash flow		Cash flow		Cash flow
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	3,883	1,218	5,101	1,145	6,246	1,137	7,383
Bank loans and overdrafts	(5,968)	1,420	(4,548)	629	(3,919)	905	(3,014)
	(2,085)	2,638	553	1,774	2,327	2,042	4,369

The cash flow above is a combination of the actual cash flow and the exchange movement.

7.            Retirement benefit obligations

The directors have not obtained an actuarial report in respect of the defined benefit pension scheme for the purpose of this Half Yearly Report.

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 would have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. Additionally, though the Group has a very diverse customer base in certain market segments, key customers can represent a significant amount of revenue. Key customer relationships are closely monitored, however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.

Key risks of a non-financial nature

The Group is a small player operating in a highly-competitive global market, which 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, 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, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics.

9.            Directors' statement pursuant to the Disclosure and Transparency Rules

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

a.            the condensed financial statements, prepared in accordance with IFRS as adopted by the EU give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and

b.            the condensed set of financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting"; and

c.            the Chairman's statement and operating and financial review includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole together with a description of the principal risks and uncertainties that they face.

The Directors are also responsible for the maintenance and integrity of the CML Microsystems Plc website. Legislation in the UK governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

10.          Basis of preparation

The basis of preparation and accounting policies used in preparation of the Half Yearly Financial Report are the same accounting policies set out in the year ended 31 March 2011 financial statements.

11.          General

Other than already stated within the Chairman's statement and the operating and financial review there have been no important events during the first six months of the financial year that have impacted this Half Yearly Report.

There have been no related party transactions or changes in related party transactions described in the latest Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the financial year.

The principal risks and uncertainties within the business are contained within this report in note 8 above.

In the segmental analysis (note 1) inter-segmental transfers or transactions are entered into under commercial terms and conditions appropriate to the location of the entity whilst considering that the parties are related.

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

This Half Yearly Report does not include all the information and disclosures required in the Annual Report, and should be read in conjunction with the consolidated Annual Report for the year ended 31 March 2011.

The financial information contained in this Half Yearly Report has been prepared using International Financial Reporting Standards as adopted by the European Union. This Half Yearly Report does not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. The financial information for the year ended 31 March 2011 is based on the statutory accounts for the financial year ended 31 March 2011 that have been filed with the Registrar of Companies and on which the auditors gave an unqualified audit opinion. The auditors' report on those accounts did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. This Half Yearly Report has not been audited or reviewed by the Group Auditors.

A copy of this Half Yearly Report can be viewed on the company website www.cmlmicroplc.com.

12.          Approval

The Directors approved this Half Yearly Report on 21 November 2011.

 

END

 

 

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