Interim Results
CML Microsystems PLC
20 November 2007
20 November 2007
CML MICROSYSTEMS Plc
INTERIM RESULTS
CML Microsystems Plc ('CML'), which designs, manufactures and markets a broad
range of integrated circuits, primarily for global communication and data
storage markets, announces its Interim Results for the half year ended 30
September 2007. CML has operations in the UK, Germany, the US, Singapore, China
and Taiwan.
Commenting on the results, George Gurry, Chairman said:
'The results for the six-month trading period ending 30 September 2007 show a
loss somewhat greater than earlier internal expectations and reflect the further
effects of the operational problems that impacted heavily on the previous year's
trading performance.
'They nevertheless mark an expected material improvement over the results for
the immediately preceding six months and are an indication of progress taking
place at the group operating level.'
Financial Highlights
• Turnover down 11% to £8.49m (2006: £9.46m)
• Loss before tax of £1.1m (2006: Loss of £0.83m)
• Loss per share of 8.05p (2006: Loss of 4.90p)
• Cash in bank and at hand of £1.8m
Business Review
• New product releases within the storage and wireless market segments.
• Adoption of voice privacy Integrated Circuits made a notable
contribution.
• Storage segment benefited from an increase of product shipments into
the Americas.
• New customer design wins expected to contribute meaningful revenues in
the next calendar year.
• Sale of Group products into the telecom segment continued to be
volatile.
• Significant investment to ensure the Group is well placed to reap
future benefits.
Regarding prospects, George Gurry, Chairman said:
'The remainder of this current trading year will continue to be challenging, but
your Board remains confident, subject to unforeseen circumstances, that the
Group's return to profitability will become evident shortly thereafter.'
Enquiries:
CML Microsystems Plc www.cmlmicroplc.com
Nigel Clark, Financial Director 020 7479 7933 (today)
Chris Gurry, Managing Director 01621 875 500 (thereafter)
Parkgreen Communications Ltd 020 7479 7933
Paul McManus 07980 541 893
Chairman's Statement
Introduction
The results for the six-month trading period ending 30 September 2007 show a
loss somewhat greater than earlier internal expectations and reflect the further
effects of the operational problems that impacted heavily on the previous year's
trading performance.
They nevertheless mark an expected material improvement over the results for the
immediately preceding six months and are an indication of progress taking place
at the group operating level.
Results
Group revenues for the opening six-month period were £8.49m, down approximately
11% against the comparable previous period (2006: £9.46m), and the loss before
tax is increased to £1.1m (2006: £0.83m).
The reported loss per ordinary share shows an increase to 8.05p (2006: loss
4.90p per share) resulting partly from a higher comparative income tax charge.
Further details and background to the results are given in the Operating and
Financial Review that follows from this Statement.
Dividend
As in previous years, your Board is not recommending payment of an interim
dividend.
Property
In June of this year your Board announced its intention to improve shareholder
return from the non-operational property assets held in the balance sheet, and
one such property at Fareham, Hampshire was placed for sale to the market.
Having recently completed preparatory steps, it is likely that a further
property, the original UK operating premises at Witham, Essex, will also be
disposed of as circumstances favour.
Prospects
The Board has taken steps earlier this year to begin implementing the changes
required to deliver a growth-oriented business. Realisation of the benefits
associated with these changes will take time to flow through but the Group's
management team are committed to following this strategic direction and creating
sustainable profit growth for the Group.
The remainder of this current trading year will continue to be challenging, but
your Board remains confident, subject to unforeseen circumstances, that the
Group's return to profitability will become evident shortly thereafter.
G. W. Gurry
Chairman
19 November 2007
Operating and Financial Review
Introduction
Our strategy remains the delivery of increasing shareholder value by leveraging
the Group's extensive design skills, diversified technology portfolio and
system-level understanding, to develop world-class semiconductor products for
global communication and data storage market segments.
During recent years we have invested heavily in developing technology that
enables us to be at the forefront of certain emerging markets whilst continuing
to ensure that existing market segments will be served by class-leading product
introductions for a number of years to come.
The first six months of the year ending 31 March 2008 saw important new product
releases within the storage and wireless market segments. Early stage customer
adoption cycles commenced and certain extensive pre-qualification procedures
continued through the period end. During this period of important new product
releases and protracted customer adoption rates, the Board continued to focus on
cost control whilst having due regard for the Group's growth objectives.
Financial Results & Business Summary
Group revenues for the six-month period to 30 September 2007 were £8.49m
representing a decrease over the £9.46m achieved in the first half of 2006.
Revenues during the first six months of 2006 included shipments to a key
customer that, as previously reported, withdrew from the memory card market
during that year. A corresponding loss before tax of £1.1m was recorded. This
reflected an increase over the comparable period (2006: £0.83m) and an
improvement against the sequential half year. Gross profit margin improved to
71% (2006: 64%) largely as a result of product mix.
During the first six months, the Group had one customer who accounted for 12% of
Group revenues and one customer who represented 4%. No other single customer
contributed more than 3% of Group revenues.
Cash balances reduced from £3m to £1.82m following the payment of the 2007
dividend (£0.75m) and an increase in inventory levels from £1.6m at 31 March
2007 to £1.96m at 30 September 2007. The increased period end inventory level
was expected and subsequently returned to appropriate levels.
As highlighted in the last annual report, the Board expects further pressure to
be placed on cash-reserves and working capital throughout the remainder of the
year and, during the first six months, continued to prioritise resources towards
ensuring a return to profitability for the Group. Existing bank facilities were
renewed in July for a further 12 months and the Board has communicated its
intention to realise value from the sale of certain non-operational property
assets. The future timing of any property disposals represents an element of
uncertainty with regards to cash flow and other income.
Through the first half year, the majority of customer transactions were in US
dollars. The Group does not enter into hedging arrangements in respect of
foreign currency exposure although a partial natural hedge exists due to the
majority of raw material purchases being in US dollars. Whilst this affords some
protection, our largest cost centres are located in the UK and Germany resulting
in a substantial exposure to foreign currencies, and a potential future risk.
Markets
Within the wireless market segment, the prominent application areas for our IC's
through the period were professional mobile radio, leisure two-way radio and
narrowband wireless data. Adoption of our voice privacy IC's within both the
professional and leisure markets made a notable contribution and expansion of
the product range to include RF (radio frequency) functionality continued.
The storage segment benefited from an increase of product shipments into the
Americas, where the Group has a significant addressable market.
The existing customer base began to ramp production volumes and new customer
design wins were recorded that are expected to begin contributing meaningful
revenues during the next calendar year. The major applications for our storage
products in the first half were inclusion within solid state disk (SSD) and
disk-on-module products which are used as an alternative to magnetic storage
media in commercial and industrial application areas that demand
high-reliability and an extended product lifecycle.
The sale of Group products into the telecom segment continued to be volatile.
Good demand for modem IC's within wireless security alarm products was countered
by weakness in shipments into wireless local loop telephony applications. This
market situation is expected to continue for the remainder of the financial
year. The Group has reduced costs and improved functionality of the product
range in this segment and is well placed to capitalise on opportunities as they
materialise.
The networking segment exhibited improved shipments during the period with
initial deliveries being recorded for our HyNet products for use within
IP-camera applications. This followed the release of a reference-design for this
application area which is typical of the demands from our Far East customer
base.
Summary
Group performance during the first six months reflects the period of transition
we are in. Certain historic markets are exhibiting technological change and the
Group has invested significantly to ensure we are well placed to reap the
rewards associated with those changes. Newer application areas for Group
products are poised for substantial growth and we are well placed to benefit
from the associated opportunities. The Board continue to focus on being able to
deliver sustainable progress beyond this year.
As previously announced, our Chairman, Chief Executive and co-founder, George
Gurry, relinquished his executive roles at the period end and will remain
non-executive Chairman. His contribution has been fundamental in positioning the
Group for future growth and, on behalf of the Board, I would like to thank him
for his considerable achievements.
Finally, I would like to thank our dedicated employees for their achievements so
far and acknowledge the crucial role they continue to play in our future. There
remains much to do in achieving future success but the Board has confidence in
the medium term outlook.
C.A. Gurry
Managing Director
19 November 2007
CML Microsystems Plc
Consolidated Income Statement
6 Months End 30/09/ 6 Months End 30/ 12 Months End 31/03
07 09/06 /07
£'000 £'000 £'000
Continuing Operations
Revenue 8,487 9,460 17,768
Cost of sales (2,437) (3,455) (6,729)
Gross Profit 6,050 6,005 11,039
Distribution and administration costs (7,162) (7,149) (14,985)
(1,112) (1,144) (3,946)
Other operating income 125 374 660
Operating loss before adjustments (987) (770) (3,286)
Release of restructuring provision 18 - -
Share based payments (18) (40) (76)
Operating loss after adjustments (987) (810) (3,362)
Finance cost (166) (110) (228)
Finance income 57 88 381
Loss before taxation (1,096) (832) (3,209)
Income Tax (107) 100 591
Loss for the period attributable to equity
shareholders
(1,203) (732) (2,618)
Loss per share
Basic (8.05p) (4.90p) (17.53p)
Diluted (8.05p) (4.90p) (17.53p)
Statement of Recognised Income and Expense
6 Months End 30/09 6 Months End 30/09 12 Months End 31/03
/07 /06 /07
£'000 £'000 £'000
Loss for the period (1,203) (732) (2,618)
Foreign exchange differences (44) (261) (346)
Actuarial gain - - 1,063
Income tax on actuarial gain - - (319)
Recognised losses relating to the period (1,247) (993) (2,220)
Consolidated Balance Sheet
30/09/07 30/09/06 31/03/07
£'000 £'000 £'000
Assets
Non current assets
Tangible assets - Property, plant and equipment 6,699 7,084 6,803
Tangible assets - Investment property 2,245 3,845 2,245
Intangible assets - Development costs 5,729 6,789 5,984
Intangible assets - Goodwill on consolidation 3,512 3,512 3,512
Deferred tax asset 1,715 1,159 1,717
19,900 22,389 20,261
Current assets
Inventories 1,963 1,766 1,595
Trade receivables and prepayments 3,005 3,985 3,057
Current tax assets 148 - 419
Cash and cash equivalents 1,816 3,978 3,000
6,932 9,729 8,071
Non current assets classified as held for
sale - property 1,600 - 1,600
8,532 9,729 9,671
Total assets 28,432 32,118 29,932
Liabilities
Current liabilities
Bank loan 4,000 4,000 4,000
Trade and other payables 3,093 2,826 2,248
Current tax liabilities 424 302 761
7,517 7,128 7,009
Non current liabilities
Deferred tax liabilities 3,126 3,135 3,128
Provisions - 52 30
Retirement benefit obligation 2,289 3,135 2,289
5,415 6,322 5,447
Total liabilities 12,932 13,450 12,456
Net Assets 15,500 18,668 17,476
Equity
Share capital 747 747 747
Capital reserve 4,148 4,148 4,148
Share based payments reserve 19 202 238
Foreign exchange reserve (80) 49 (36)
Accumulated profits 10,666 13,522 12,379
Shareholders' equity 15,500 18,668 17,476
Consolidated Cash Flow Statement
6 Months End 6 Months End 12 Months End
30/09/07 30/09/06 31/03/07
£'000 £'000 £'000
Operating activities
Net loss for the period before income taxes (1,096) (832) (3,209)
Adjustments for:
Depreciation 324 377 706
Amortisation of development costs 2,205 1,895 4,789
Movement in pension deficit - - 217
Share based payments 18 40 76
Exceptional restructuring costs (30) (95) (117)
Interest expense 166 110 228
Interest income (57) (88) (381)
Increase in working capital 530 1,159 1,418
Cash flows from operating activities 2,060 2,566 3,727
Income tax (paid)/refunded (176) 334 236
Net cash flows from operating activities 1,884 2,900 3,963
Investing activities
Purchase of tangible assets (230) (281) (369)
Investment in intangible assets (1,919) (2,605) (4,704)
Disposals of tangible assets - 32 56
Interest income 57 88 381
Net cash flows from investing activities (2,092) (2,766) (4,636)
Financing activities
Dividends paid (747) (1,564) (1,564)
Interest expense (166) (110) (228)
Net cash flows from financing activities (913) (1,674) (1,792)
Decrease in cash and cash equivalents (1,121) (1,540) (2,465)
Movement in cash and cash equivalents:
At start of period 3,000 5,708 5,708
Decrease (1,121) (1,540) (2,465)
Effects of exchange rate changes (63) (190) (243)
At end of period 1,816 3,978 3,000
Consolidated Statement of Changes in Equity
Share Convertible Capital Share based Foreign Accumulated Total
capital warrants reserve payments exchange profits
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 April 2006 745 120 4,039 162 310 15,809 21,185
Warrants converted/lapsed
2 (120) 109 9 -
Foreign exchange
differences
(261) (261)
Dividends paid (1,564) (1,564)
Loss for period (732) (732)
Share based payments 40 40
At 30 September 2006 747 - 4,148 202 49 13,522 18,668
Foreign exchange
differences
(85) (85)
Net actuarial gains
recognised directly to
equity
1,063 1,063
Deferred tax on actuarial
gains
(319) (319)
Loss for period (1,887) (1,887)
Share based payments 36 36
At 31 March 2007 747 - 4,148 238 (36) 12,379 17,476
Foreign exchange
differences
(44) (44)
Dividends paid (747) (747)
Loss for period (1,203) (1,203)
Share based payments (219) 237 18
At 30 September 2007 747 - 4,148 19 (80) 10,666 15,500
Notes to the financial statements
1. Segmental Analysis
Primary - Business
Unaudited Unaudited Audited
6 Months End 6 Months End 12 Months End
30/09/07 30/09/06 31/03/07
Semi-conductor Semi-conductor Semi-conductor
components components components
Equipment Group Equipment Group Equipment Group
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Revenue
Segmental Sales 587 7,900 8,487 503 8,957 9,460 1,003 16,765 17,768
(Loss)/Profit
Segmental
operating (loss)/
profit 110 (1,097) (987) 57 (867) (810) 101 (3,463) (3,362)
Net financial
income/(expense) (109) (22) 153
Income Tax (107) 100 591
Loss after (1,203) (732) (2,618)
taxation
Assets and
Liabilities
Segmental assets 815 21,908 22,723 804 26,082 26,886 762 23,190 23,952
Unallocated
corporate assets 5,709 5,232 5,980
Consolidated
total assets 28,432 32,118 29,932
Segmental 133 2,301 2,434 245 2,633 2,878 158 2,120 2,278
liabilities
Unallocated
corporate
liabilities 10,498 10,572 10,178
Consolidated
total liabilities
12,932 13,450 12,456
Other segmental
information
Tangible asset
additions - 230 230 - 281 281 - 368 368
Intangible asset
additions 34 1,885 1,919 38 2,567 2,605 74 4,630 4,704
Depreciation 8 316 324 8 369 377 17 689 706
Amortisation 32 2,173 2,205 33 1,862 1,895 76 4,713 4,789
2. Dividend paid and proposed
Declared and paid during the period
Unaudited Unaudited Audited
6 Months End 6 Months End 12 Months End
30/09/07 30/09/06 31/03/07
£'000 £'000 £'000
Equity dividends paid on 5p
ordinary shares
10.5p per share dividend for year
ended 31 March 2006 - 1,564 1,564
5p per share dividend for year
ended 31 March 2007 747 - -
The directors do not recommend the payment of an interim dividend.
3. Income tax
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.
Deferred taxation is not reassessed at the interim stage.
Unaudited Unaudited Audited
6 Months End 6 Months End 12 Months End
30/09/07 30/09/06 31/03/07
£'000 £'000 £'000
UK income tax (144) - (358)
Overseas income tax 251 (100) 645
Total current tax 107 (100) 287
Deferred tax - - (878)
Reported income tax charge/(credit) 107 (100) (591)
4. Earnings per share
The calculation of basic earnings per share is based on the profit attributable
to shareholders for the period and on the following weighted average number of
shares in issue:
Ordinary 5p shares
Weighted Average Number Diluted
Number
6 months ended 30 September 2007 14,947,626 14,947,626
6 months ended 30 September 2006 14,919,839 14,919,839
12 months ended 31 March 2007 14,933,733 14,933,733
5. 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.
6. Tangible assets - Investment Property
Investment properties are re-valued at each discreet period end by the directors
and every third year by independent Chartered Surveyors on an existing use open
market basis. No depreciation is provided on freehold properties or on leasehold
investment properties where the un-expired lease term exceeds 20 years. In
accordance with IAS 40, gains and losses arising on revaluation of investment
properties are shown in the income statement. The directors are of the opinion
that there has been no material change in the carrying value of investment
properties.
Subsequent to the 30 September 2007 the Group's property at Witham, Essex has
been placed on the market for sale.
7. 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 in the
Operating and Financial Review on pages 2 and 3 of this Half Yearly Report.
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 has been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting'. This Half Yearly Report
does not include all the information and disclosures required in the Annual
Financial Statements, and should be read in conjunction with the consolidated
Annual Financial Statements for the year ended 31 March 2007.
The financial information contained in this Half Yearly Report has been prepared
using International Financial Reporting Standards as adopted by the European
Union. The accounting policies used in preparation of the Half Yearly Report are
the same accounting policies set out in the year ended 31 March 2007 financial
statements. This Half Yearly Report does not constitute statutory accounts as
defined by Section 240 of the Companies Act 1985. The financial information for
the year ended 31 March 2007 is based on the statutory accounts for the
financial year ended 31 March 2007 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 237
(2) or (3) of the Companies Act 1985. This Half Yearly Report has not been
audited or reviewed by the Group Auditors.
All shareholders will be sent a copy of this Half Yearly Report which can also
be obtained from the company's registered office at Oval Park, Maldon, Essex CM9
6WG, England.
8. Approval of results
The directors approved this Half Yearly Report on 19 November 2007.
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