CML Microcircuits Regulatory News (CML)

12 Jun 2007 07:00

CML Microsystems PLC12 June 2007 CML MICROSYSTEMS Plc PRELIMINARY RESULTS Loss broadly in line with market expectations CML Microsystems Plc ("CML"), which designs, manufactures and markets a range ofintegrated circuits (ICs) for global industrial, professional and consumerapplications within the areas of wireless communication, wireline communication,storage and networking, with operations based in the UK, Germany, the US,Singapore, China and Taiwan announces its Preliminary Results for the yearending 31st March 2007. Commenting on the results, George Gurry, Chairman said: "As foreshadowed when reporting on the interim results and the outlook for thesecond half, the results for the full year ended 31 March 2007 reflect thematerial losses posted for each of the six month trading periods ... the loss isbroadly in line with market expectations for the year." Financial Summary • Turnover of £17.77m (2006: £26.33m)• Loss before tax of £3.21m (2006: Profit before tax of £3.49m)• Loss per share of 17.53p (2006: Earnings per share of 17.68p)• Cash in bank and at hand of £3m• Dividend of 5p per share (2006: 10.5p), payable 3 August 2007 Regarding prospects, George Gurry, Chairman said: "The opening months of the current year are generally on or slightly ahead ofoperating targets, although firm progress will most likely not become evidentbefore the second half. Action to address the product availability delays oflast year will only begin to bite in coming months. "I am disappointed with the full year results but encouraged that steps totackle issues under management control will bear effect. I am confident,subject to unforeseen circumstances, in expecting a firm improvement inperformance for this current year, including clear visibility of the point whenthe Group will return to profitability." Enquiries: CML Microsystems Plc www.cmlmicroplc.comNigel Clark, Financial Director 020 7479 7933 (today)Chris Gurry, Business Development Director 01621 875500 (thereafter) Parkgreen Communications Ltd 020 7479 7933Paul McManus 07980 541 893Ben Knowles 07900 346 978 Chairman's Statement Introduction As foreshadowed when reporting on the interim results and the outlook for thesecond half, the results for the full year ended 31 March 2007 reflect thematerial losses posted for each of the six month trading periods. The losses at the operating level were much as had been forecast internally, andarising from the product introduction delays and lost customer issues referredto in my interim statement, but the overall reported loss is increased under thenew accounting and reporting standards. Notwithstanding that, the loss isbroadly in line with market expectations for the year. Results Group revenues amounted to £17.77m (2006: £26.33m) for the year, the declineattributable largely to the serious reduction in product shipments to a keycustomer within the consumer storage market area. A loss before taxation of £3.21m (2006: Profit before taxation £3.49m) wasrecorded although it can be noted that a weaker dollar along with amortisationand pensions adjustments were significant contributing factors. The posted loss per share of 17.53p was better than market expectations althoughdown on the prior year (2006: earnings per share 17.68p). Cash flow was negative during the year and cash balances reduced by £2.7mfollowing a £3.2m loss before taxation and the payment of a £1.6m dividend. Dividend Your directors have considered the material loss and negative cash flow recordedfor the year just ended, and the pressure that has been placed on cash reservesand working capital, and they believe it is appropriate to ensure that resourcesshould be prioritised towards ensuring a return to profitability for yourCompany. The Board has confidence that your Company can achieve its planned progress inthis current year, and is recommending payment of a dividend of 5p per ordinaryshare (2006: 10.5p per ordinary share) to be payable on 3rd August 2007 toshareholders registered on 6th July 2007. Prospects The opening months of the current year are generally on or slightly ahead ofoperating targets, although firm progress will most likely not become evidentbefore the second half. Action to address the product availability delays oflast year will only begin to bite in coming months. I am disappointed with the full year results but encouraged that steps to tackleissues under management control will bear effect. I am confident, subject tounforeseen circumstances, in expecting a firm improvement in performance forthis current year, including clear visibility of the point when the Group willreturn to profitability. The progress of any business is always dependent on the quality and dedicationof the people it employs. I am confident that our employees are motivatedtowards the success of the Group and its return to profit and the Board wish tothank the employees worldwide for their dedication and support through the year. G W GurryChairman12th June 2007 Business Review This year can be characterised by good progress with a number of the Company'sgrowth plans, coupled with certain disappointments that significantly impactedfinancial improvement over the prior year. On a market segmental basis, performance during the year was mixed: Wireless A significant reduction in revenues from products shipped into the very low costanalogue leisure radio market was partially countered by growth in applicationareas for voice privacy and digital radio markets. The Company benefited fromhistoric investments in this area and voice privacy IC shipments for militarydigital radios along with revenues from wireless data IC's for telemetry systemsexceeded those that were planned. Revenues from shipments to professional analogue radio manufacturers continuedto grow and steady progress with customer design-in activity occurred. It isnoteworthy that growth continued in this historic analogue segment alongsidethat seen within the newer digital radio markets where the Company is also wellplaced and has been active for some years. Adoption of products based upon the Company's proprietary FirmASIC technologywas encouraging and production volumes began shipping towards the year-end.Time-to-market with products based upon this technology improved noticeably. Wireline Telecom Far-East data modem IC stocking issues were cleared and revenue levels movedahead as expected. Shipments of products to manufacturers within the wirelesslocal loop / fixed wireless terminal markets were particularly pleasing, despitepricing pressure. It should be noted that business levels with certain customerswithin this market sub-segment continue to exhibit uncertainty due to the bidand tender process that is a pre-requisite to any significant contract awards. As noted at the interim period, the Company achieved good progress with itsstrategy of expanding product integration, reducing time to market and improvingcommercial competitiveness. Storage In the consumer storage area, revenues were impacted by the decision of thesingle largest Group customer to exit the flash memory card market. Thissituation was unexpected as we began the year, and occurred whilst the customerbase in the storage segment was relatively low, and during a period where thesecustomers were in the process of designing-in Group products or in the earlyproduction phase. This event was unfortunate but has to be considered along with the fact that theCompany intends to become a major player in certain sub-sectors of the storagemarket, and volatility can be experienced during the early stages of the growthphase whilst customer concentration is high. Outside of the consumer memory card markets, progress was on track andpenetration of the customer base for solid-state drives (SSD) was significant.SSD storage devices offer a number of benefits over magnetic media for certainapplications such as faster access times, lower current consumption, higheroperating temperatures and improved reliability. The Company has extensiveexperience, a strong patent and technology portfolio and world-class products inthis area that all contributed to a noteworthy revenue increase during the year. Networking Shipments of IC's into networking applications fell slightly year on year. Thisis an area where R&D investment has been substantial and the reduction inrevenues masked the underlying progress that was made and reflected the typicaldelay from new product introduction through to customer volume production phase.Revenues from older, less integrated products fell whilst shipments of newertechnology IC's released to production at the beginning of the year began toincrease as the year-end approached. Investment in the development of supporttools for these new IC's along with reference designs for target marketapplications continued. In a year where revenues have reduced dramatically as a direct result ofunexpected issues associated with a single customer, it is appropriate toreiterate that during the year the Group had no single customer who representedmore than ten percent of Group revenues and only one customer who representedmore than five percent of Group revenues. Margins Gross margins within the Group's historical markets of wireline telecom andwireless were held at previous year levels and, with the reduction in revenuesexperienced within the storage market, the overall gross profit margin improvedslightly to 62% (2006 - 60%). Product delays within consumer storage applicationareas contributed to increased pricing pressure towards the year-end. Overheads During the year, the majority of customer transactions were in US dollars. TheGroup had a partial natural hedge due to significant raw material purchasesbeing made in US dollars and no further hedging arrangements were entered into.The weakening of the US dollar had an adverse effect on profits. Tight control over the overheads was maintained whilst having appropriate regardfor the growth objectives of the business. Despite the increased controlmeasures, overheads increased and the main contributors to that were accountingfor pensions under IAS 19, the effects of amortisation and the weakening of theUS dollar. Pensions Over the last few years the Board, in conjunction with the pension schemestrustees and actuary, have been working to reduce the scheme deficit in theGroup's defined benefit pension scheme and various measures have been put inplace with this objective in mind. These measures are agreed with the schemeactuary who conducts a triennial valuation, as required by law. In addition, theGroup has to comply with IAS 19 for the accounting of this liability in theconsolidated financial statements. In arriving at the effect of IAS 19 forretirement benefit obligations on the income statement, the scheme actuarycalculates the movements in the scheme deficit. It is not practical for theCompany to calculate this and then estimate the effect on internal forecasts, soany non-recurring charge has the potential to alter results unexpectedly. During the year, a new set of pension commutation factors were introduced whichhad the effect of increasing the past service liabilities of the scheme. Thischarge amounted to £587k (2006 - £nil) and has been confirmed as a one off cost.The net of the current years service cost and the past service costs are addedto the administration cost and this resulted in a charge for the year of £993k(2006 - £380k) reflecting a year-on-year negative variance of £613k. Thefinancial income or cost is adjusted in a similar manner and this year's incomeamounted to £227k (2006 - cost of £20k) posting a positive comparative varianceof £247k. Pensions - continued The net effect of IAS 19 on the income statement was to increase the loss beforetaxation by £766k (2006 - decrease profit before tax by £400k). A furtheractuarial gain was recorded of £1,063k (2006 - £222k) and this is posted throughthe statement of recognised income and expenditure resulting in a schemedeficit, before any deferred tax adjustment, of £2,289k (2006 - £3,135k). Taxation The low taxation credit within the income statement reflects the largeadjustment to the taxation charge on the subsidiary Hyperstone GmbH. Thisfollowed a revised determination by the German tax authority following a taxinspection that took place on one of the previous owners. The basis on whichcertain allowances were claimed in prior years was disallowed and resulted in afurther amount of £450k becoming payable. The whole of this amount was chargedto tax during the year. Property In addition to property from which operating subsidiaries trade, the Group ownsa number of investment properties that are stated within the balance sheet atmarket value. The remaining property is stated at historical cost. The Board ismindful of the significant value held in property within the balance sheet andaccordingly took moves during the year to ensure this area of the businessprovides a better return for shareholders. The long leasehold premises atFareham, Hampshire which was previously held as an investment property wasplaced on the market for sale prior to the year end and an investigationcommenced into the possibility of increased development of the Groupheadquarters site in Essex. Development costs Steady new product progress was made in the wireless and wireline telecommarkets with eight new products being launched during the year. Development ofthe networking and storage solutions products fell significantly behindschedule, as reported at the interim stage. Overall spend on development wasslightly down on the previous year at £4.704m (2006 - £5.063m). The effects ofadopting IAS 38, as opposed to following historical policies under UK GAAP whereall development expenditure was written off during the year incurred, resultedin a small negative effect on the income statement of approximately £85k. Working capital and cash flow With a significant reduction in revenues becoming apparent during the year, andin keeping with management objectives, inventory levels reduced significantlyand tight financial control was exercised over cash flow. The resulting effectwas that cash balances reduced by £2.7m following a £3.2m loss and the paymentof a £1.6m dividend. CML Microsystems PlcConsolidated Income Statement Unaudited Audited Year end 31st Year end 31st March 2007 March 2006 £'000 £'000 Revenue 17,768 26,333Cost of sales (6,729) (10,473)Gross Profit 11,039 15,860 Distribution and administration costs (14,985) (13,409) (3,946) 2,451 Other operating income 660 472Operating (loss)/profit before adjustments (3,286) 2,923 Share based payments (76) (79)Operating (loss)/profit after adjustments (3,362) 2,844 Revaluation of investment properties - 695Finance costs (228) (233)Finance income 381 180(Loss)/profit before taxation (3,209) 3,486 Income taxation 591 (853) (Loss)/profit after taxation attributable to equityshareholders (2,618) 2,633 (Loss)/earnings per shareBasic (17.53)p 17.68pDiluted (17.53)p 17.66p Statement of Recognised Income and Expense Unaudited Audited Year end 31st Year end 31st March 2007 March 2006 £'000 £'000 (Loss)/profit for the period (2,618) 2,633 Foreign exchange differences (346) 350Actuarial gain 1,063 222Income tax on actuarial gain (319) (67) Recognised (losses) and gains relating to the period (2,220) 3,138 CML Microsystems PlcConsolidated Balance Sheet Unaudited Audited 31st March 2007 31st March 2006 £'000 £'000AssetsNon current assetsTangible assets - Property, plant and equipment 6,803 7,256Tangible assets - Investment property 2,245 3,845Intangible assets - Development costs 5,984 6,133Intangible assets - Goodwill on consolidation 3,512 3,512Deferred tax asset 1,717 1,165 20,261 21,911Current assetsInventories 1,595 2,233Trade receivables and prepayments 3,057 4,899Current tax assets 419 537Cash and cash equivalents 3,000 5,708 8,071 13,377Non current assets classified as held forsale - property 1,600 - 9,671 13,377 Total assets 29,932 35,288 LiabilitiesCurrent liabilitiesBank loans and overdrafts 4,000 4,000Trade and other payables 2,248 3,297Current tax liabilities 761 365 7,009 7,662 Non current liabilitiesDeferred tax liabilities 3,128 3,159Provisions 30 147Retirement benefit obligation 2,289 3,135 5,447 6,441 Total liabilities 12,456 14,103 Net Assets 17,476 21,185 EquityShare capital 747 745Convertible warrants - 120Capital reserve 4,148 4,039Share based payments reserve 238 162Foreign exchange reserve (36) 310Accumulated profits 12,379 15,809Shareholders' equity 17,476 21,185 CML Microsystems PlcConsolidated Cash Flow Statement Unaudited Audited Year end Year end 31st March 2007 31st March 2006 £'000 £'000Operating activitiesNet (loss)/profit for the period before income taxes (3,209) 3,486Adjustments for:Revaluation of investment properties - (695)Depreciation 706 666Amortisation of development costs 4,789 4,005Movement in pensions deficit 217 (147)Share based payments 76 79Exceptional restructuring costs (117) (273)Interest expense 228 233Interest income (381) (180)Increase/(decrease) in working capital 1,418 (2,533)Cash flows from operating activities 3,727 4,641Income tax refunded 236 69Net cash flows from operating activities 3,963 4,710 Investing activitiesPurchase of tangible fixed assets (369) (722)Investment in intangible assets (4,704) (5,063)Disposals of tangible fixed assets 56 19Interest income 381 180Net cash flows from investing activities (4,636) (5,586) Financing activitiesIssue of ordinary shares - 32Repayment of bank loan - (377)Dividends paid to group shareholders (1,564) (1,564)Interest expense (228) (233)Net cash flows from financing activities (1,792) (2,142) Decrease in cash and cash equivalents (2,465) (3,018) Movement in cash and cash equivalents:At start of period 5,708 8,449Decrease (2,465) (3,018)Effects of exchange rate changes (243) 277At end of period 3,000 5,708 CML Microsystems PlcConsolidated Statement of Changes in Equity Share Convertible Capital Share based Foreign Accumulated Total Capital Warrants reserves payments Exchange profits reserve £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1st April 2005 744 120 4,007 82 (40) 14,585 19,498AuditedShares issued 1 32 33Foreign Exchangedifferences 350 350Net actuarial gainsrecognised directly toequity 222 222Deferred tax onactuarial gains (67) (67)Dividends paid (1,564) (1,564)Profit for period 2,633 2,633Share based payments 80 80 At 1st April 2006 745 120 4,039 162 310 15,809 21,185UnauditedWarrants converted/lapsed 2 (120) 109 9 -Foreign Exchangedifferences (346) (346)Net actuarial gainsrecognised directly toequity 1,063 1,063Deferred tax onactuarial gains (320) (320)Dividends paid (1,564) (1,564)Loss for period (2,618) (2,618)Share based payments 76 76 At 31st March 2007 747 - 4,148 238 (36) 12,379 17,476 CML Microsystems Plc Notes 1. Presentation of results The directors approved this Preliminary announcement on 11th June 2007. The results for the year have been prepared using International FinancialReporting Standards and the accounting policies as set out the most recentlypublished financial statements along with the only new accounting policyrelating to non current assets held for sale which have been valued at the lowerof the carrying value or fair value less costs to sell. The reclassification tocurrent assets takes place when the assets are placed on the open marketavailable for sale. The audited financial information for the year ended 31st March 2006 is based onthe statutory accounts for the financial year ended 31st March 2006 that havebeen filed with the Registrar of Companies and on which the auditors gave anunqualified audit opinion. The financial information contained in this announcement does not constitutestatutory accounts as defined by Section 240 of the Companies Act 1985. 2. Dividend A dividend of 5p per Ordinary Share (2006: 10.5p per Ordinary Share) isrecommended in respect of the year ended 31st March 2007 and will be paid on 3rdAugust 2007 to shareholders on the register as at 6th July 2007. 3. Earnings per share The calculation of basic and diluted (loss)/earnings per share is based on the(loss)/profit attributable to shareholders, divided by the weighted averagenumber of shares in issue during the year. This information is provided by RNS The company news service from the London Stock Exchange