Last checked at 17 Jun 2008 07:00
CML MICROSYSTEMS Plc
PRELIMINARY RESULTS
Improving performance in line with expectations
CML Microsystems Plc ("CML"), which designs, manufactures and markets a broad range of integrated circuits, primarily for global communication and data storage markets, announces results for the full year ended 31 March 2008. CML has operations in the UK, Germany, the US, Singapore, China and Taiwan.
Commenting on the results, George Gurry, Chairman said:
"The results match quite well with market expectations for a firm improvement over those for the previous trading year. The significant reduction in operating loss includes progress achieved with improving gross margins and operating costs through the year."
Financial Highlights
Turnover of £17.10m (2007: £17.77m)
Gross margins improved to 68% (2007: 62%)
Loss before tax reduced to £1.73m (2007: Loss of £3.21m)
Loss per share of 4.13p (2007: Loss of 17.53p)
No dividend payment
Regarding prospects, George Gurry, Chairman said:
"A number of unforeseen obstacles encountered during the second half disappointed my initial expectations for a slightly better outcome for the year, but I am pleased with the planned progress that was achieved in a number of operational areas and the benefits that can be expected to flow through.
"Trading results for the opening months of this year are in line with Group expectations, which, subject to unforeseen circumstances, are for a clear further improvement in performance."
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 |
| paul.mcmanus@parkgreenmedia.com |
Chairman's Statement
Introduction
The results for the full year ended 31 March 2008 match quite well with market expectations for a firm improvement over those for the previous trading year.
The significant reduction in operating loss includes progress achieved with improving gross margins and operating costs through the year.
As anticipated when reporting figures for the opening half, conditions during the remainder of the trading year remained challenging and half-on-half gains in operating results were limited.
Results
Group revenues of £17.10m (2007: £17.77m) were posted for the full year, the decline largely attributable to a downturn in customer contract awards within the telecommunication sector. Gross margin shows an improvement to 68% (2007: 62%).
A reduced loss before tax of £1.73m (2007: £3.21m) is recorded, although it should be noted that current accounting rules for the treatment of pension effects made a positive contribution of £355k (2007: negative contribution of £217k).
The reported loss per share is 4.13p against a prior year loss of 17.53p.
Dividend
Your directors have considered the negative cash flow recorded for the year just ended and the forward requirements against resources through the year ahead. They believe that the appropriate course must be to maintain the availability of adequate resource margins against foreseeable requirements.
They are conscious that the Company has declared payment of a dividend in each of the 24 years in which it has traded as a public company, but believe that this would not be an appropriate course with respect to the year just ended.
They do not recommend payment of a dividend for the year ended 31 March 2008.
Property
During the year the Group placed various non-operational properties under offer for sale. As the result of the downturn that is taking place in the commercial property market, no satisfactory disposals were concluded and the properties remain with the market.
It is uncertain when disposals will take place, but Group planning discounts any income from such disposals in the current trading year.
Prospects
A number of unforeseen obstacles encountered during the second half disappointed my initial expectations for a slightly better outcome for the year, but I am pleased with the planned progress that was achieved in a number of operational areas and the benefits that can be expected to flow through.
Trading results for the opening months of this year are in line with Group expectations, which, subject to unforeseen circumstances, are for a clear further improvement in performance.
G W Gurry
Chairman
16 June 2008
Operating and Financial Review
Overview
During this year, we continued with our overall strategy of improving performance by combining our resources, proprietary technology and system-level understanding to develop and successfully market class-leading semiconductor products for global communication and data storage markets.
We maintained the focus on the operational areas that are key to our ultimate objective for the creation of sustainable business growth. In particular, new product development and application support activities began to benefit from our global approach to resource and knowledge sharing, whilst the continual drive for efficiency improvements resulted in lower overall operating costs.
At the interim stage, I highlighted that we were experiencing a transitional year, with certain historic markets undergoing technological change and other market areas poised for growth. These results reflect that ongoing transition.
Financial results
Group revenues for the year ended 31 March 2008 were £17.10m representing a decrease of 4% over the prior year (2007: £17.77m). It is noteworthy that the prior year included revenues of over £2m from a key European customer that withdrew from the consumer memory card market during that year. When adjusted for this specific event, revenues this year increased 8%, highlighting the underlying progress made.
Gross profit for the year increased to £11.71m (2007: £11.04m). The gross margin was 68% (2007: 62%) reflecting a combination of reduced materials costs and overall product mix. Total distribution and administration expenses fell to £13.67m (2007: £14.99m) although disregarding the effects of statutory pension accounting from both years, the improvement amounted to £611k.
Net finance costs were £144k against a prior year income of £153k due to reduced cash balances through the year, pension effects and higher borrowings.
The higher gross margin, coupled with a reduction in operating expenses, helped narrow the loss before tax to £1.73m (2007: £3.21m loss) representing a 46% improvement on last year.
Pressure on cash flow increased through the year following continued trading losses. Cash usage was £2.12m (2007: £2.46m) after payment of a net prior-year tax charge of £747k (2007: 236k credit) and a dividend of £747k (2007: £1.56m).
An increase in raw materials mostly to cope with legacy product planning requirements saw inventory levels rise to £1.75m (2007: 1.60m). A combination of lower revenues and a decrease in receivables as a result of tight financial control resulted in a working capital reduction of £440k. Capital expenditure was £358k (2007: £369k).
Through the 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 substantial exposure to foreign currency fluctuations.
The tax credit within the income statement of £1.11m is higher than expected mainly as a result of deferred taxation movements following the reclassification of certain group investment properties that were put on the market for sale. Almost half of the tax credit (£519k) relates to a deferred tax release in respect of this.
Research and development expenses fell by 16% to £3.95m (2007: £4.70m) reflecting the continued focus on leveraging internal engineering resources at the expense of external spend, where possible. This lower level of expenditure is posted on the back of a healthy flow of new product releases following multi-year investments in the design of core technology platforms.
Further progress was made with reducing the deficit relating to the Group's defined benefit pension scheme. Despite the turbulence that was experienced in the financial markets during the year a small surplus was recorded at the year end. Whilst this is encouraging, it is too early to know if this is a long-term position. We need to await the results of the actuary's latest triennial valuation through the coming year to decide if any refund or reduction in future contributions will be available.
The effect on the income statement of accounting for pensions under IAS 19 was to reduce the administration costs by £259k (2007: increase of £444k) and to increase the finance income by £96k (2007: £227k). The independent scheme actuary provides the calculations used under IAS 19 and the potential exists for this to alter future results unexpectedly.
MARKETS REVIEW
Wireless
Revenues from the sale of semiconductors into the wireless market were flat year-on-year with the Far East and European regions being the two largest contributors. Customer products through the period included military, professional and leisure two-way radios, paging devices and narrowband wireless data modems. Within each of these products, our integrated circuits (IC's) performed a number of functions including signal processing, voice privacy and radio frequency (RF) transmission and reception.
Particularly pleasing was the contribution made from those products built on our proprietary FirmASIC technology along with growing customer adoption of the RF product range. The strategy to expand our semiconductor footprint within customer designs continued with the release of new IC's for voice compression and privacy along with continuing development of the RF product portfolio.
A reduction in revenues from the low-cost analogue radio market offset gains in the newer market areas. This decline was mostly due to our legacy product fit. Steps were taken early in the year to reverse this trend and volume orders for new products aimed at growing revenues in this segment were received shortly after the year closed. Semiconductor shipments into public utility telemetry applications within China performed ahead of expectations and global design-in levels for marine ship identification (AIS) products increased.
Storage
Within the storage market segment, the prominent applications for our semiconductors during the year were inclusion within memory cards and solid state drive products in varying form factors. Customer products containing our IC's were typically used as an alternative to magnetic storage media in commercial and industrial application areas that demand high-reliability under challenging conditions.
Revenue was fractionally down on the prior year although as previously stated, after adjusting for the significant customer who exited the market during that year, business increased. This year, the majority of business emanated from the Americas and Far Eastern regions. Good progress was made with expanding the customer base and in positioning ourselves to be a technology leader in our chosen focus areas.
Products that had previously been subject to development delays were released to market and were contributing to revenue shortly after the year-end. New IC development productivity remained a key focus area within this segment and Group resources were deployed appropriately to maximise longer-term benefits.
Telecom
The sale of semiconductors into the telecom segment weakened against the comparable period and was the main contributor to the total reduction in Group revenues. Continued volatility within wireless local loop application areas coupled with the declining payphone market resulted in a disappointing performance being posted. Good gains from customers within the Americas were more than offset by the fall in business levels from Korea and China. Applications for IC's within certain security markets demonstrated more resilience.
Networking
Revenue contribution from the networking segment posted double-digit percentage growth as the Group's HyNet product began to generate revenues following development delays that were encountered during the previous year. The delivery of products into security market IP-camera applications was encouraging.
Equipment
Radio Data Technology Limited, the Group's equipment division, posted an operating profit of £178k (2007: £101k) on the back of a steady increase in revenue to £1.13m (2007: £1.00m). The market acceptance of new digital wireless video products for CCTV applications made a noteworthy contribution.
Across all market areas during the year, no customer accounted for more than 11% of Group revenues and only one customer accounted for more than 5%.
SUMMARY & OUTLOOK
As already stated, the year under review was very much a transitional one. An improved trading performance was posted despite the reduction in revenues that became apparent through the year. Operationally, we made visible progress with our policy to minimise costs whilst having close regard for our growth objectives. Additionally, we took significant steps with leveraging our global engineering and support resources to focus on those target areas that are expected to generate consistent growth.
The segmental market outlook is varied.
We expect to benefit from the growth areas that are emerging within our wireless sector as voice-based professional and leisure radios begin to embrace digital technology over the coming years. Additionally, the TETRA and marine vessel identification markets are growing and customer penetration levels are good. Our strategy for expanding the product range to include complementary functionality is intended to widen our available customer base.
Within storage, the Group has secured good positions inside customer products that require high levels of reliability under arduous operating conditions. This is a growing area that includes military, aeronautical, medical and industrial end applications. We are building on our patent protected technology to deliver class leading semiconductor solutions. The challenge is to transfer that position across other emerging sub-sectors that demand similar performance. This remains a key management focus.
Any near term progress within the telecom sector is likely to be dominated by the high volume wireless local loop opportunities. Our customers typically have low order book visibility in this market, which represents an element of uncertainty going forward.
The contribution to Group revenues from the networking segment is at an early stage and the signs are encouraging. Through the coming year we will have better clarity on the medium to long-term contribution we can expect from this market.
Subsequent to the year end, the company renegotiated its banking facilities and terms. These new arrangements support progress of the growth strategy.
The Board continues to have confidence in the medium term outlook and looks forward to the ongoing transition of the business. We remain focused on delivering sustainable growth over the coming years.
Our success will be built on the continued dedication and support of our global employee base, encompassing six countries on three continents. On behalf of the Board, I would like to acknowledge the crucial role they play and thank them for their ongoing commitment.
C A Gurry
Managing Director
16 June 2008
CML Microsystems Plc
Consolidated Income Statement
| Unaudited | Audited | |||
| Continuing operations | Year end 31st March 2008 | Year end 31st March 2007 | ||
| £'000 | £'000 | |||
| Revenue | 17,098 | 17,768 | ||
| Cost of sales | (5,393) | (6,729) | ||
| Gross Profit | 11,705 | 11,039 | ||
| Distribution and administration costs | (13,671) | (14,985) | ||
| (1,966) | (3,946) | |||
| Other operating income | 430 | 660 | ||
| Loss before share based payments | (1,536) | (3,286) | ||
| Share based payments | (48) | (76) | ||
| Loss after share based payments | (1,584) | (3,362) | ||
| Finance costs | (334) | (228) | ||
| Finance income | 190 | 381 | ||
| Loss before taxation | (1,728) | (3,209) | ||
| Income tax expense | 1,111 | 591 | ||
| Loss after taxation attributable to equity holders of the Company | (617) |
(2,618) | ||
| Loss per share | ||||
| Basic | (4.13)p | (17.53)p | ||
| Diluted | (4.13)p | (17.53)p |
CML Microsystems Plc
Statement of Recognised Income and Expense
| Unaudited | Audited | |||
| Year end 31st March 2008 | Year end 31st March 2007 | |||
| £'000 | £'000 | |||
| Loss for the year | (617) | (2,618) | ||
| Foreign exchange differences | 82 | (346) | ||
| Actuarial gain | 1,934 | 1,063 | ||
| Income tax on actuarial gain | (580) | (319) | ||
| Net income for the year directly recognised in equity | 1,436 | 398 | ||
| Recognised gains and (losses) relating to the year attributable to equity holders of the Company | 819 |
(2,220) |
CML Microsystems Plc
Consolidated Balance Sheet
| Unaudited | Audited | |||
| 31st March 2008 | 31st March 2007 | |||
| £'000 | £'000 | |||
| Assets | ||||
| Non current assets | ||||
| Property, plant and equipment | 6,261 | 6,803 | ||
| Investment property | 415 | 2,245 | ||
| Development costs | 5,341 | 5,984 | ||
| Goodwill | 3,512 | 3,512 | ||
| Deferred tax asset | 1,290 | 1,717 | ||
| 16,819 | 20,261 | |||
| Current assets | ||||
| Inventories | 1,745 | 1,595 | ||
| Trade receivables and prepayments | 2,535 | 3,057 | ||
| Current tax assets | 410 | 419 | ||
| Cash and cash equivalents | 1,891 | 3,000 | ||
| 6,581 | 8,071 | |||
| Non current assets classified as held for sale - property | 3,770 | 1,600 | ||
| Total assets | 27,170 | 29,932 | ||
| Liabilities | ||||
| Current liabilities | ||||
| Bank loans and overdrafts | 5,075 | 4,000 | ||
| Trade and other payables | 2,320 | 2,248 | ||
| Current tax liabilities | 54 | 761 | ||
| 7,449 | 7,009 | |||
| Non current liabilities | ||||
| Deferred tax liabilities | 2,125 | 3,128 | ||
| Provisions | - | 30 | ||
| Retirement benefit obligation | - | 2,289 | ||
| 2,125 | 5,447 | |||
| Total liabilities | 9,574 | 12,456 | ||
| Net Assets | 17,596 | 17,476 | ||
| Capital and reserves attributable to equity holders of the Company | ||||
| Share capital | 747 | 747 | ||
| Convertible warrants | - | - | ||
| Share Premium | 4,148 | 4,148 | ||
| Share based payments reserve | 50 | 238 | ||
| Foreign exchange reserve | 46 | (36) | ||
| Accumulated profits | 12,605 | 12,379 | ||
| Shareholders' equity | 17,596 | 17,476 |
CML Microsystems Plc
Consolidated Cash Flow Statement
| Unaudited | Audited | |||
| Year end | Year end | |||
| 31st March 2008 | 31st March 2007 | |||
| £'000 | £'000 | |||
| Operating activities | ||||
| Net loss for the year before income taxes | (1,728) | (3,209) | ||
| Adjustments for: | ||||
| Depreciation | 579 | 706 | ||
| Amortisation of development costs | 4,684 | 4,789 | ||
| Movement in pensions deficit | (355) | 217 | ||
| Share based payments | 48 | 76 | ||
| Exceptional restructuring costs | - | (117) | ||
| Interest expense | 334 | 228 | ||
| Interest income | (190) | (381) | ||
| Decrease in working capital | 440 | 1,418 | ||
| Cash flows from operating activities | 3,812 | 3,727 | ||
| Income tax (paid)/refunded | (747) | 236 | ||
| Net cash flows from operating activities | 3,065 | 3,963 | ||
| Investing activities | ||||
| Purchase of property, plant and equipment | (358) | (369) | ||
| Investment in development costs | (3,952) | (4,704) | ||
| Disposals of property, plant and equipment | 13 | 56 | ||
| Interest income | 190 | 381 | ||
| Net cash flows from investing activities | (4,107) | (4,636) | ||
| Financing activities | ||||
| Increase in short term borrowings | 1,075 | - | ||
| Dividends paid | (747) | (1,564) | ||
| Interest expense | (334) | (228) | ||
| Net cash flows from financing activities | (6) | (1,792) | ||
| Decrease in cash and cash equivalents | (1,048) | (2,465) | ||
| Movement in cash and cash equivalents: | ||||
| At start of year | 3,000 | 5,708 | ||
| Decrease in cash and cash equivalents | (1,048) | (2,465) | ||
| Effects of exchange rate changes | (61) | (243) | ||
| At end of year | 1,891 | 3,000 |
CML Microsystems Plc
Consolidated Statement of Changes in Equity
| Share Capital | Convertible Warrants | Share Premium | Share Based Payments | Foreign Exchange Reserve | Accumulated Profits | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1st April 2006 | 744 | 120 | 4,039 | 162 | 310 | 15,809 | 21,184 |
| Audited | |||||||
| Foreign Exchange differences |
(346) |
(346) | |||||
| Net actuarial gains recognised directly to equity | 1,063 | 1,063 | |||||
| Deferred tax on actuarial gains | (319) | (319) | |||||
| Loss for year | (2,618) | (2,618) | |||||
| 744 | 120 | 4,039 | 162 | (36) | 13,935 | 18,964 | |
| Warrants converted/ lapsed | 3 | (120) | 109 | 8 | - | ||
| Dividends paid | (1,564) | (1,564) | |||||
| Share based payments | 76 | 76 | |||||
| At 1st April 2007 | 747 | - | 4,148 | 238 | (36) | 12,379 | 17,476 |
| Unaudited | |||||||
| Foreign Exchange differences | 82 | 82 | |||||
| Net actuarial gains recognised directly to equity | 1,934 | 1,934 | |||||
| Deferred tax on actuarial gains | (580) | (580) | |||||
| Loss for year | (617) | (617) | |||||
| 747 | - | 4,148 | 238 | 46 | 13,116 | 18,295 | |
| Dividends paid | (747) | (747) | |||||
| Share based payments in year | 48 | 48 | |||||
| Share based payments transferred on cancellation | (236) | 236 | - | ||||
| At 31st March 2008 | 747 | - | 4,148 | 50 | 46 | 12,605 | 17,596 |
CML Microsystems Plc
Notes to the financial statements
1. Segmental Analysis
Primary - Business
| Unaudited | Audited | |||||
| 2008 | 2007 | |||||
| Equipment | Semi-conductor components | Group | Equipment | Semi-conductor components | Group | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Revenue | ||||||
| By origination | 1,130 | 22,474 | 23,604 | 1,003 | 21,797 | 22,800 |
| Inter-segmental revenue | - | (6,506) | (6,506) | - | (5,032) | (5,032) |
| Segmental revenue | 1,130 | 15,968 | 17,098 | 1,003 | 16,765 | 17,768 |
| (Loss)/Profit | ||||||
| Segmental results | 178 | (1,762) | (1,584) | 101 | (3,463) | (3,362) |
| Net financial income/(expense) | (144) | 153 | ||||
| Income tax | 1,111 | 591 | ||||
| Loss after taxation | (617) | (2,618) | ||||
| Assets and Liabilities | ||||||
| Segmental assets | 708 | 20,578 | 21,286 | 762 | 23,190 | 23,952 |
| Unallocated corporate assets | ||||||
| Investment property | 4,184 | 3,845 | ||||
| Deferred taxation | 1,290 | 1,717 | ||||
| Current tax receivable | 410 | 418 | ||||
| Consolidated total assets | 27,170 | 29,932 | ||||
| Segmental liabilities | 93 | 2,227 | 2,320 | 158 | 2,120 | 2,278 |
| Unallocated corporate liabilities | ||||||
| Deferred taxation | 2,125 | 3,128 | ||||
| Current tax liability | 54 | 761 | ||||
| Bank loans and overdrafts | 5,075 | 4,000 | ||||
| Retirement benefit obligation | - | 2,289 | ||||
| Consolidated total liabilities | 9,574 | 12,456 | ||||
| Other segmental information | ||||||
| Property plant and Equipment additions | 2 | 356 | 358 | 1 | 368 | 369 |
| Development cost additions | 72 | 3,880 | 3,952 | 74 | 4,630 | 4,704 |
| Depreciation | 16 | 563 | 579 | 17 | 689 | 706 |
| Amortisation | 73 | 4,611 | 4,684 | 76 | 4,713 | 4,789 |
| Other significant non cash expenses | - | 54 | 54 | 2 | 118 | 120 |
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.
2. Dividend paid and proposed - Final
Declared and paid during the period
| Equity dividends paid on 5p ordinary shares | Unaudited | Audited | |
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| 10.5p per share dividend for year ended 31 March 2006 | - | 1,564 | |
| 5p per share dividend for year ended 31 March 2007 | 747 | - |
The directors do not recommend the payment of a dividend in respect of the year ended 31st March 2008.
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.
| Unaudited | Audited | ||
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| UK income tax | (364) | (358) | |
| Overseas income tax | 329 | 645 | |
| Total current tax | (35) | 287 | |
| Deferred tax | (1,076) | (878) | |
| Reported income tax charge/(credit) | (1,111) | (591) |
4. Loss per share
The calculation of basic earnings per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The share options are not expected to have a dilutive effect on the loss per share as the likelihood of exercise is low given the recent share price movements.
| Ordinary 5p shares | ||||
| Weighted Average Number | Diluted Number | |||
| 12 months ended 31 March 2008 (unaudited) | 14,933,733 | 14,933,733 | ||
| 12 months ended 31 March 2007 (audited) | 14,933,733 | 14,933,733 | ||
5. Investment Property
Investment properties are re-valued at each discrete 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 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. The directors are of the opinion that there has been no material change in the carrying value of investment properties.
6. General
The directors approved this Preliminary announcement on 16th June 2008.
The results for the year have been prepared using the recognition and measurement principles of International Financial Reporting Standards as adopted by the EU and the accounting policies as set out in the most recently published financial statements with no new accounting policies.
The audited financial information for the year ended 31st March 2007 is based on the statutory accounts for the financial year ended 31st March 2007 that have been filed with the Registrar of Companies. The auditors reported on those accounts: their report was (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying the reports and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 31st March 2008 will be filed in due course.
The financial information contained in this announcement does not constitute statutory accounts for the year ended 31st March 2008 or 2007 as defined by Section 240 of the Companies Act 1985.