Last checked at 21 Nov 2017 07:00
21 November 2017
CML Microsystems Plc
Half Yearly Report
CML Microsystems Plc, ("CML" or "the Group"), which designs, manufactures and markets mixed-signal and Radio Frequency (RF) semiconductors, primarily for global communication and solid state storage markets, is pleased to announce results for the six months ended 30 September 2017.
Financial Highlights
· Group revenues up 23% to £16.02m (H1 2016: £13.04m)
· Gross profit up 21% to £11.23m (H1 2016: £9.31m)
· Profit before tax up 19% to £2.31m (H1 2016: £1.94m)
· Adjusted EBITDA up 16% to £4.90m (H1 2016: £4.23m)
· Basic EPS up 14% to 11.74p (H1 2016: 10.25p)
· No borrowings and net cash of £12.72m (31 March 2017: £12.45m) after a £1.24m dividend payment (FY 2017: £1.13m)
· Introduction of a maiden interim dividend of 2.0p per ordinary share
Operational Highlights
· Investment strategy paying off; continuing high level of R&D activity
· Growth from an assortment of customers addressing a number of end-applications
· Product range continues to expand; three new products launched across Storage and Communications markets
· Release of the Group's first RF semiconductor product operating in microwave bands (3GHz)
· Customer adoption of application programming interface (API) that was launched during the prior financial year has been very encouraging
· Expansion and enhancement of the sales channels
Chris Gurry, Group Managing Director of CML, commented: "The financial and operational progress made in the first half of the year is firm evidence that we are delivering on our growth strategy and the momentum that we are seeing in the business has continued into the start of the second half. With a number of customer products now in the ramping-up phase, and supportive end market dynamics, the Board has confidence in meeting expectations for the full year and remains excited about the Group's future prospects."
The information contained within this announcement is deemed by the Group to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014.
CML Microsystems Plc Chris Gurry, Group Managing DirectorNeil Pritchard, Group Financial Director
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About CML Microsystems PLC
CML designs and develops semiconductors for the industrial storage and communications markets. The Group utilises a combination of in-house and outsourced manufacturing and has trading operations in Europe, the Far East and the USA. CML targets niche markets with strong growth profiles and high barriers to entry. It has secured a diverse, blue chip customer base, including some of the world's leading telecoms equipment providers and industrial product manufacturers.
The spread of its customers and products largely protects the business from the cyclicality usually associated with the semiconductor industry. Growth in its end-markets is being driven by factors such as the ever-increasing trend towards solid state storage devices in the commercial and industrial sectors, the upgrading of telecoms infrastructure around the world and the growing prevalence of private commercial communications networks for voice and/or data communications linked to the industrial internet of things (IIoT).
The Group is cash-generative, has no borrowings and is dividend paying.
Chairman's Statement
It has been our stated objective to achieve long-term, sustainable growth and I am pleased to report that the results for the first half of this financial year clearly demonstrate that we have an effective strategy in place and are on the right path.
The main driver of our success continues to be the Group's consistent focus on R&D, working closely with our customers to understand their requirements and deliver market leading products. The strong financial performance this half remains a reflection of the investments made in previous years, whilst further investments have been made in the period and will continue to be made to deliver our strategy.
The markets in which we operate remain robust and it is pleasing to note that the solid performance was delivered across both of our target sectors, namely Storage and Communications. There continue to be firm underlying growth drivers in each of these markets.
Revenue in the period grew by 23% to £16.02 m (H1 2016: £13.04m) against a strong comparative half which itself had experienced 19% growth. Pre-tax profits grew by 19% to £2.31m (H1 2016: £1.94m), particularly driven by our operating performance, whilst maintaining high levels of investment. This period also reflects the higher cost base from senior personnel hires made over the last 18 months. Profit after tax grew by 15% to £1.98m despite the Group incurring a higher level of corporation tax than the previous year, which was expected. Cash levels, which are always a key management focus, increased to £12.72m (31 March 2017: £12.45m) after a dividend payment of £1.24m (FY 2017: £1.13m). We continue to have no borrowings.
Investments made in the business have resulted in improvements in all of our key metrics, including revenue, pre-tax profits, earnings per share, adjusted EBITDA and net assets and the Board expects to continue along this path. Organic growth is the cornerstone of our stated strategy, but we continue to monitor and review acquisition opportunities that will support further growth.
The dedication and hard work of our employees deserves special thanks once again. Their commitment and our growing customer base remain fundamental to the future growth of the business.
Following a solid performance during the first half, I am pleased to announce that the Company will be paying this year's dividend in two stages, with the introduction of an interim dividend to shareholders. This decision underlines our confidence in achieving expectations for the full year, supported by our growing order book and sales pipeline. The maiden interim dividend will be 2.0p per ordinary share and will be payable on 15 December 2017 to shareholders on the Register on 1 December 2017.
Nigel Clark
Group Non-Executive Chairman
20 November 2017
Operational and Financial Review
Introduction
The first six months have shown a continuation of the momentum in the business and further evidence of delivery on our stated strategy. The product range has continued to grow with three new products launched in the period. All of our key indicators have improved and it is particularly pleasing that this growth is broad based. Last year, as well as our continued investment in R&D, we added further senior personnel in sales and marketing to build scale resulting in increased activity levels , reinforcing our confidence in the future.
Financial Review
Group revenues for the first half of the financial year were £16.02m representing growth of 23% compared to the first half of the prior year (H1 2016: £13.04m). Gross margin as a percentage fell slightly due to product mix leading to a gross profit advance of 21% year-on-year to £11.23m (H1 2016: £9.31m).
The increase in revenues was across an assortment of customers operating in multiple geographic regions addressing a number of end-application areas. Further detail is provided under the Storage and Communications sections later in this review.
As expected, and in accordance with previously announced investments in resources and operational structure, distribution and administration costs increased to £9.25m (H1 2016: £7.81m). The main reasons for the increase were higher direct staff costs, higher amortisation charges associated with research and development activities and a foreign exchange loss of £0.17m compared to a gain of £0.65m in the prior year first half.
Excluding other operating income, profit from operations equated to £1.98m (H1 2016: £1.51m) reflecting a gain of 31% over the comparable reporting period.
Other income fell to £0.39m (H1 2016: £0.49m) largely due to a one-off receipt in the prior year first half period associated with the acquisition we made in China.
At the pre-tax level, profit amounted to £2.31m (H1 2016: £1.94m).
Cash balances improved from £12.45m at 31 March 2017 to £12.72m at 30 September 2017. This follows payment of a £1.24m dividend in respect of the previous year (H1 2016: £1.13m) and an R&D cash spend in the period of £3.13m (H1 2016: £3.34m). After allowing for rounding effects, inventory levels were unchanged from 31 March 2017 at £2.15m.
Basic earnings per share advanced to 11.74p (H1 2016: 10.25p).
Strategy Overview
Our business continues to be focused on two important markets, namely industrial Storage and industrial Communications, where our proprietary IP along with the quality and reliability of our technology sets us apart from our peers and makes us an integral part of our customers' products. We have developed a strong reputation in both of these markets and we continue to supply a growing world class customer base. This coupled with an impressive sales network and expanding presence in our chosen territories will enable us to scale further.
Growth in both markets is ultimately being driven by the persistent demand for increasing amounts of data to be delivered faster and stored more reliably and securely. We are committed to generating a diverse revenue stream across a broad range of customers and products. We are a single-source supplier to our customers, meaning that once designed in, the displacement of our chips would require end-product redesign.
R&D is a key tenet of our growth strategy. Our focus is on developing products which will lead to design wins with new and existing customers that we believe have the potential to develop into long-term, significant revenue generators. The Company has a proven track record of successful acquisitions and will continue to seek further appropriate opportunities to complement our organic growth.
Storage
The key objectives of our strategy within Storage are to increase the penetration of our existing customers' product portfolio whilst simultaneously adding new customers through the timely introduction of innovative new products that will enlarge the serviceable market. Our focus continues to be the expansion of the product range to include all major interface standards used within our target industrial end markets and ensure interoperation with all of the relevant Flash Memory devices produced by the major suppliers.
In recent years, we have transitioned from a narrow "Controller" product portfolio with only CompactFlash as the available interface, to an enlarged product range that now also includes USB, SD, SATA & MMC interface technologies.
During the period under review, revenue derived from Storage semiconductor products increased by 23% to £8.09m (H1 2016: £6.56m). Primary drivers included automotive infotainment and industrial automation end market applications. In automotive, our customers continue to expand their penetration of the market for in-car navigation systems; both in terms of factory fit and more recently, after market data storage requirements. It is noteworthy that the advances made come amidst an environment first reported in the second half of the last financial year where some of our customers have reported flash memory availability constraints.
Our strategy necessitates that a portion of our R&D spend is periodically invested into refreshing the existing product range. As anticipated, in August we released a class-leading Compact Flash controller to market targeted at industrial and embedded applications. This product enables the use of our proprietary hyMap firmware amongst those customers and applications that have standardised on the Compact Flash interface and supports the more recently available memory technologies along with the benefits that they bring.
Market adoption of our application programming interface (API) that was launched during the prior financial year has been very encouraging.
Communications
Our strategy for the Communications market continues to run in parallel with the Storage market approach. The main objectives are to grow customer share and expand the customer base through new product introductions that increase the functionality that our ICs deliver and serve to widen the addressable market.
In recent years we have introduced a number of new products that have been conceived to operate either on a "stand alone" basis or as part of an optimised CML chip set. Enhanced through acquisition in the prior financial year, the consolidated product portfolio now offers customers a greater selection of technical functionality whilst improving commercial competitiveness.
Progress for the first six months of the year against our planned objectives has been encouraging. Revenue advanced to £7.86m representing a 23% increase against the first half of last year (H1 2016: £6.38m). This increase is delivered as a growing number of individual customer projects reach production status having been developed upon multiple CML ICs and comes despite the comparable first half receiving a boost from the effect of a last time buy programme.
A number of new product releases took place, some of which were delayed from the second half of the prior financial year. Particularly noteworthy was the release of the Group's first RF semiconductor product operating up to a frequency of 3.6GHz, designed to consume very little power. Additional releases included a second RF Power Amplifier for mobile/portable radio applications and the enhancement of the Group's marine AIS product portfolio through an agreement announced with a leading provider of satellite AIS data services, exactEarth.
From an operational perspective, improvements were made to the way in which the Communications products are marketed across the Americas. An agreement was signed with RFMW Ltd, a specialised distributor of RF and microwave components and multiple changes to our regional manufacturers' representative network were made. These changes complement our internal resources and position the business well to support further growth.
Market Development
We have seen no change to the solid, long-term underlying growth trends which continue to exist within the two main industrial application areas addressed. The principal factor for both remains the persistent demand for increasing amounts of data to be transmitted and stored more quickly and securely.
The industrial data storage market has several specific areas which are exhibiting exciting opportunities for which we have either secured design wins or are at the somewhat earlier stage of qualifying products with our customers. These areas include the telecoms/network infrastructure market, industrial automation, various security applications and the in-vehicle infotainment market. A number of the major original equipment manufacturers (OEMs) or tier 1 suppliers to those OEMs are our customers meaning we are well positioned to benefit from the growing demand.
The Communications market is exhibiting a number of growth areas including the transition to higher-capacity digital networks within voice-centric markets and, in data-centric markets, the increasing data throughput requirements from terrestrial and satellite communications applications. The latter is required to meet the needs of the growing Machine-to-Machine (M2M) and Industrial Internet of Things sectors (IIoT).
Again, we are already suppliers to, or working with, many of the leading OEMs in these areas and believe we are well placed for future growth, which is supported by our performance to date and the growing pipeline of opportunities.
Customer dependency for the period was broadly unchanged against the prior year. Two customers contributed greater than 10% to Group revenues with a combined contribution of approximately 29%. All other customers were below the 6% threshold.
Operational Developments
As previously highlighted, last year the Group invested in additional people to support our business globally, with appointments across a range of skills, including senior management, engineering support and particularly in sales and marketing. These hires were largely completed by the end of the last financial year and therefore this represents the first period of trading with the enlarged headcount.
The semiconductor market as a whole is in a growth phase at the moment and the knock on effect of that is for a general tone of caution around raw material lead times. That said, management is acting appropriately to minimise any effect this might have on the business.
It is pleasing to be able to report a positive impact from the investments made supported by tangible evidence seen from the pipeline of opportunities having grown meaningfully through the first six months of this financial year.
Outlook
The financial and operational progress made in the first half of the year is firm evidence that we are delivering on our growth strategy and the momentum that we are seeing in the business has continued into the start of the second half. With a number of customer products now in the ramping-up phase, and supportive end application dynamics, the Board has confidence in meeting expectations for the full year and remains excited about the Group's future prospects.
Condensed consolidated income statementfor the six months ended 30 September 2017
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Continuing operations | |||
Revenue | 16,016 | 13,044 | 27,737 |
Consisting of: | |||
Revenue - excluding acquisition in prior period | 16,016 | 12,642 | 26,076 |
Revenue - acquisition in prior period | - | 402 | 1,661 |
Cost of sales | (4,782) | (3,733) | (7,922) |
Gross profit | 11,234 | 9,311 | 19,815 |
Distribution and administration costs | (9,253) | (7,805) | (16,116) |
1,981 | 1,506 | 3,699 | |
Other operating income | 385 | 487 | 614 |
Profit from operations | 2,366 | 1,993 | 4,313 |
Share-based payments | (71) | (72) | (139) |
Profit after share-based payments | 2,295 | 1,921 | 4,174 |
Finance income | 16 | 17 | 34 |
Profit before taxation | 2,311 | 1,938 | 4,208 |
Consisting of: | |||
Profit before taxation - excluding acquisition in prior period | 2,311 | 1,811 | 3,728 |
Profit before taxation - acquisition in prior period | - | 127 | 480 |
Income tax expense | (336) | (217) | (341) |
Profit after taxation | 1,975 | 1,721 | 3,867 |
Profit after taxation for period attributable to equity owners of the parent | 1,975 | 1,721 | 3,867 |
Basic earnings per share | |||
From profit for the period | 11.74p | 10.25p | 23.09p |
Diluted earnings per share | |||
From profit for the period | 11.56p | 10.08p | 22.84p |
Adjusted EBITDA1 | 4,902 | 4,226 | 8,840 |
Consisting of: | |||
Adjusted EBITDA - excluding acquisition in prior period | 4,902 | 3,858 | 8,247 |
Adjusted EBITDA - acquisition in prior period | - | 368 | 593 |
1. See Note 10 for definition and reconciliation.
Condensed consolidated statement of comprehensive income
for the six months ended 30 September 2017
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Profit for the period | 1,975 | 1,721 | 3,867 |
Other comprehensive income, net of tax: | |||
Items that will not be reclassified subsequently to profit or loss: | |||
Actuarial loss on retirement benefit obligations | - | - | (1,048) |
Deferred tax on actuarial loss | - | - | 178 |
Items reclassified subsequently to profit or loss upon derecognition: | |||
Foreign exchange differences | (57) | 946 | 1,068 |
Other comprehensive income for the period net of taxation attributable to equity holders of the parent | (57) | 946 | 198 |
Total comprehensive income for the period attributable to the equity holders of the parent | 1,918 | 2,667 | 4,065 |
Condensed consolidated statement of financial positionas at 30 September 2017
Unaudited | Unaudited | Audited | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Assets | |||
Non-current assets | |||
Goodwill | 9,134 | 9,181 | 9,306 |
Other intangible assets arising on acquisition | 1,242 | 1,382 | 1,339 |
Property, plant and equipment | 5,371 | 5,250 | 5,330 |
Investment properties | 3,550 | 3,550 | 3,550 |
Investment | 82 | 84 | 85 |
Development costs | 12,053 | 10,846 | 11,401 |
Deferred tax asset | 1,352 | 1,158 | 1,419 |
32,784 | 31,451 | 32,430 | |
Current assets | |||
Inventories | 2,154 | 1,812 | 2,154 |
Trade receivables and prepayments | 2,607 | 3,451 | 2,697 |
Current tax assets | 1,085 | 598 | 971 |
Cash and cash equivalents | 12,716 | 11,557 | 12,447 |
18,562 | 17,418 | 18,269 | |
Total assets | 51,346 | 48,869 | 50,699 |
Liabilities | |||
Current liabilities | |||
Trade and other payables | 5,163 | 6,427 | 5,757 |
Current tax liabilities Provision - current | 446 142 | 46 - | 57 51 |
5,751 | 6,473 | 5,865 | |
Non-current liabilities | |||
Deferred tax liabilities | 3,813 | 3,516 | 3,692 |
Retirement benefit obligation Provision - non current | 3,084 299 | 2,067 - | 3,084 423 |
7,196 | 5,583 | 7,199 | |
Total liabilities | 12,947 | 12,056 | 13,064 |
Net assets | 38,399 | 36,813 | 37,635 |
Capital and reserves attributable to equity owners of the parent | |||
Share capital | 843 | 851 | 843 |
Share premium Capital redemption reserve | 8,338 9 | 8,294 - | 8,319 9 |
Treasury shares - own share reserve | (190) | (190) | (190) |
Share-based payments reserve | 558 | 456 | 504 |
Foreign exchange reserve | 1,329 | 1,264 | 1,386 |
Accumulated profits | 27,512 | 26,138 | 26,764 |
Total shareholders' equity | 38,399 | 36,813 | 37,635 |
Condensed consolidated cash flow statementfor the six months ended 30 September 2017
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Operating activities | |||
Net profit for the period before taxation | 2,311 | 1,938 | 4,208 |
Adjustments for: | |||
Depreciation | 195 | 358 | 325 |
Amortisation of development costs | 2,263 | 1,849 | 4,100 |
Amortisation of intangibles recognised on acquisition | 78 | 26 | 102 |
Movement in non-cash items | - | - | (31) |
Share-based payments Movement in provisions | 71 - | 72 - | 139 474 |
Finance income | (16) | (17) | (34) |
Movement in working capital | (504) | 2,002 | 1,745 |
Cash flows from operating activities | 4,398 | 6,228 | 11,028 |
Income tax (paid)/received | (33) | 367 | (224) |
Net cash flows from operating activities | 4,365 | 6,595 | 10,804 |
Investing activities | |||
Purchase of acquisition, net of cash acquired | - | (3,576) | (3,576) |
Purchase of property, plant and equipment | (233) | (413) | (450) |
Investment in development costs | (2,692) | (2,900) | (5,763) |
Receipt of escrow cash deposit Disposal of property, plant and equipment | - - | 385 - | 385 17 |
Finance income | 16 | 17 | 34 |
Net cash flows from investing activities | (2,909) | (6,487) | (9,353) |
Financing activities Issue of ordinary shares |
19 |
- |
25 |
Purchase of own shares for cancellation |
- |
- | (669) |
Dividend paid to Group shareholders | (1,244) | (1,134) | (1,134) |
Net cash flows from financing activities | (1,225) | (1,134) | (1,778) |
Increase/(decrease) in cash and cash equivalents | 231 | (1,026) | (327) |
Movement in cash and cash equivalents: | |||
At start of period/year | 12,447 | 13,596 | 13,596 |
Increase/(decrease) in cash and cash equivalents | 231 | (1,026) | (327) |
Effects of exchange rate changes | 38 | (1,013) | (822) |
At end of period | 12,716 | 11,557 | 12,447 |
During the year ended 31 March 2017 (and the respective half year ended 30 September 2016), 774,181 shares in CML Microsystems Plc were issued in part consideration for the acquisition of Sicomm equity to the value of £2,632,000. As a significant non-cash transaction, this is not reflected in the above consolidated cash flow statement.
Condensed consolidated statement of changes in equityfor the six months ended 30 September 2017
Capital | Share | Foreign | Accum | |||||||
Share | Share | redemption | Treasury | -based | exchange | -ulated | ||||
capital | premium | reserve | shares | payments | reserve | profits | Total | |||
Unaudited | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
At 31 March 2016 | 813 | 5,700 | - | (190) | 388 | 318 | 25,547 | 32,576 | ||
Profit for period | 1,721 | 1,721 | ||||||||
Other comprehensive income net of taxes |
| |||||||||
Foreign exchange differences | 946 | 946 | ||||||||
Total comprehensive income for the period | - | - | - | - | - | 946 | 1,721 | 2,667 | ||
Transactions with owners in their capacity as owners |
| |||||||||
Dividend paid | (1,134) | (1,134) | ||||||||
Issue of ordinary shares | 39 | 2,594 | 2,633 | |||||||
Total of transactions with owners in their capacity as owners | 39 | 2,594 | - | - | - | - | (1,134) | 1,499 | ||
Share-based payments Cancellation/transfer of share-based payments | 72 (4) |
4 | 72 - | |||||||
At 30 September 2016 | 852 | 8,294 | - | (190) | 456 | 1,264 | 26,138 | 36,814 | ||
Profit for period | 2,146 | 2,146 | ||||||||
Other comprehensive income net of taxes |
| |||||||||
Foreign exchange differences | 122 | 122 | ||||||||
Actuarial loss on retirement benefit obligation | (1,048) | (1,048) | ||||||||
Deferred tax movement on actuarial loss | 178 | 178 | ||||||||
Total comprehensive income for the period | - | - | - | - | - | 122 | 1,276 | 1,398 | ||
Transactions with owners in their capacity as owners |
| |||||||||
Issue of ordinary shares Share purchase cancellation |
(9) | 25 | 9 |
(669) | 25 (669) | |||||
Total of transactions with owners in their capacity as owners | (9) | 25 | 9 | - | - | - | (669) | (664) | ||
Share-based payments | 67 | 67 | ||||||||
Cancellation/transfer of share-based payments | (19) | 19 | - | |||||||
At 31 March 2017 | 843 | 8,319 | 9 | (190) | 504 | 1,386 | 26,764 | 37,635 | ||
Profit for period | 1,975 | 1,975 | ||||||||
Other comprehensive income |
| |||||||||
net of taxes | ||||||||||
Foreign exchange differences | (57) | (57) | ||||||||
Total comprehensive income for the period | - | - | - | - | - | (57) | 1,975
| 1,918 | ||
Transactions with owners in their capacity as owners |
| |||||||||
Dividend paid | (1,244) | (1,244) | ||||||||
Issue of ordinary shares | - | 19 | 19 | |||||||
Total of transactions with owners |
| |||||||||
in their capacity as owners | - | 19 | - | - | - | - | (1,244) | (1,225) | ||
Share-based payments | 71 | 71 | ||||||||
Cancellation/transfer of share-based payments | (17) | 17 | - | |||||||
At 30 September 2017 | 843 | 8,338 | 9 | (190) | 558 | 1,329 | 27,512 | 38,399 | ||
Notes to the condensed consolidated financial statementsfor the six months ended 30 September 2017
1 Segmental analysis
Information about revenue, profit/loss, assets and liabilities
Unaudited 6 months end 30/09/17 | Unaudited 6 months end 30/09/16 | Audited Year end 31/03/17 | ||||
Semi-conductor | Semi-conductor | Semi-conductor | ||||
components | Group | components | Group | components | Group | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Total segmental revenue | 16,016 | 16,016 | 13,044 | 13,044 | 27,737 | 27,737 |
Consisting of: | ||||||
Segmental revenue - excluding acquisition in prior period | 16,016 | 16,016 | 12,642 | 12,642 | 26,076 | 26,076 |
Segmental revenue - acquisition in prior period | - | - | 402 | 402 | 1,661 | 1,661 |
Profit/(loss) | ||||||
Segmental result | 2,295 | 2,295 | 1,921 | 1,921 | 4,174 | 4,174 |
Consisting of: | ||||||
Segmental result - excluding acquisition in prior period | 2,295 | 2,295 | 1,794 | 1,794 | 3,694 | 3,694 |
Segmental result - acquisition in prior period | - | - | 127 | 127 | 480 | 480 |
Finance income | 16 | 17 | 34 | |||
Income tax expense | (336) | (217) | (341) | |||
Profit after taxation | 1,975 | 1,721 | 3,867 | |||
Assets and liabilities | ||||||
Segmental assets | 45,359 | 45,359 | 43,563 | 43,563 | 44,759 | 44,759 |
Unallocated corporate assets | ||||||
Investment properties | 3,550 | 3,550 | 3,550 | |||
Deferred tax assets | 1,352 | 1,158 | 1,419 | |||
Current tax assets | 1,085 | 598 | 971 | |||
Consolidated total assets | 51,346 | 48,869 | 50,699 | |||
Segmental liabilities | 5,604 | 5,604 | 6,427 | 6,427 | 6,231 | 6,231 |
Unallocated corporate liabilities | ||||||
Deferred tax liabilities | 3,813 | 3,516 | 3,692 | |||
Current tax liabilities | 446 | 46 | 57 | |||
Retirement benefit obligation | 3,084 | 2,067 | 3,084 | |||
Consolidated total liabilities | 12,947 | 12,056 | 13,064 | |||
Other segmental information
Unaudited 6 months end 30/09/17 | Unaudited 6 months end 30/09/16 | Audited Year end 31/03/17 | ||||||||||
Semi-conductor | Semi-conductor | Semi-conductor | ||||||||||
components | Group | components | Group | components | Group | |||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
Property, plant and equipment additions |
233 |
233 |
413 |
413 |
450 |
450 | ||||||
Development cost additions | 2,692 | 2,692 | 2,900 | 2,900 | 5,763 | 5,763 | ||||||
Depreciation | 195 | 195 | 358 | 358 | 325 | 325 | ||||||
Amortisation of development costs | 2,263 | 2,263 | 1,849 | 1,849 | 4,100 | 4,100 | ||||||
Amortisation of acquired intangibles | 78 | 78 | - | - | 102
| 102
| ||||||
Other non-cash income/(expense) | - | - | - | - | 31 | 31 | ||||||
Geographical segments
UK | Rest of Europe | Americas | Far East | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | |
Unaudited | |||||
Six months ended 30 September 2017 | |||||
Revenue to third parties | 3,865 | 3,737 | 2,868 | 5,546 | 16,016 |
Property, plant and equipment | 4,989 | 314 | 31 | 37 | 5,371 |
Investment properties | 3,550 | - | - | - | 3,550 |
Development costs | 4,148 | 7,905 | - | - | 12,053 |
Goodwill | - | 3,512 | - | 5,622 | 9,134 |
Other intangible assets arising on acquisition | - | - | - | 1,242 | 1,242 |
Total assets | 21,216 | 16,496 | 1,804 | 11,830 | 51,346 |
Unaudited | |||||
Six months ended 30 September 2016 | |||||
Revenue to third parties | 2,780 | 2,431 | 2,878 | 4,955 | 13,044 |
Property, plant and equipment | 5,043 | 189 | 12 | 6 | 5,250 |
Investment properties | 3,550 | - | - | - | 3,550 |
Development costs | 3,487 | 7,359 | - | - | 10,846 |
Goodwill | - | 3,512 | - | 5,669 | 9,181 |
Other intangible assets arising on acquisition | - | - | - | 1,382 | 1,382 |
Total assets | 20,031 | 15,812 | 1,602 | 11,424 | 48,869 |
Audited | |||||
Year ended 31 March 2017 | |||||
Revenue to third parties | 6,744 | 4,856 | 6,047 | 10,090 | 27,737 |
Property, plant and equipment | 5,056 | 243 | 16 | 15 | 5,330 |
Investment properties | 3,550 | - | - | - | 3,550 |
Development costs | 3,827 | 7,574 | - | - | 11,401 |
Goodwill | - | 3,512 | - | 5,794 | 9,306 |
Other intangible assets arising on acquisition | - | - | - | 1,339 | 1,339 |
Total assets | 22,147 | 14,994 | 1,969 | 11,589 | 50,699 |
Segmental reporting is, in accordance with IFRS 8, 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 full year financial statements.
Revenue
The geographical classification of business turnover (by destination) is as follows:
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Europe | 4,823 | 3,716 | 7,600 |
Far East | 8,006 | 6,110 | 13,460 |
Americas | 2,918 | 2,930 | 6,117 |
Other | 269 | 288 | 560 |
16,016 | 13,044 | 27,737 | |
2 Dividend paid and interim dividend
A dividend of 7.4p per 5p ordinary share in respect of the year ended 31 March 2017 was paid on 7 August 2017 (2016: 7.0p per 5p ordinary share in respect of the year ended 31 March 2016).
The Board is declaring a maiden interim dividend of 2.0p per 5p ordinary share, payable on 15 December 2017 to shareholders on the Register on 1 December 2017.
3 Income tax expense
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
UK income tax credit | (272) | (167) | (420) |
Overseas income tax charge | 508 | 268 | 511 |
Total current tax charge | 236 | 101 | 91 |
Deferred tax charge | 100 | 116 | 250 |
Reported income tax expense | 336 | 217 | 341 |
The Directors consider that tax will be payable at varying rates according to the country of incorporation of its subsidiary undertakings and have provided on that basis.
4 Earnings per share
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
Basic earnings per share | |||
From profit for the period | 11.74p | 10.25p | 23.09p |
Diluted earnings per share | |||
From profit for the period | 11.56p | 10.08p | 22.84p |
The calculation of basic and diluted earnings per share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year, as explained below:
Ordinary 5p shares | ||
Weighted | ||
average | Diluted | |
number | number | |
Six months ended 30 September 2017 | 16,815,949 | 17,087,298 |
Six months ended 30 September 2016 | 16,787,173 | 17,066,490 |
Year ended 31 March 2017 | 16,745,457 | 16,929,156 |
During the year ended 31 March 2017 (and the respective half year ended 30 September 2016), the Company issued 774,181 of its own 5p ordinary shares at a price of 340p per share as part of its acquisition on 3 August 2016 of the Sicomm group of companies.
On 23 December 2016, the Company purchased 179,439 of its own 5p ordinary shares at a price of 370p per share for cancellation. These shares were cancelled on 18 January 2017.
5 Investment properties
Investment properties are revalued at each discrete year 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 2015 the investment properties were professionally valued by Everett Newlyn, Chartered Surveyors and Commercial Property Consultants, on an open market basis.
6 Analysis of changes in net cash
6 months | 6 months | 6 months | |||||
Net | end | Net | end | Net | end | Net | |
cash at | 30/09/16 | cash at | 31/03/2017 | cash at | 30/09/17 | cash at | |
01/04/16 | Cash flow | 30/09/16 | Cash flow | 31/03/17 | Cash flow | 30/09/17 | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Cash and cash | 13,596 | (2,039) | 11,557 | 890 | 12,447 | 269 | 12,716 |
equivalents | |||||||
13,596 | (2,039) | 11,557 | 890 | 12,447 | 269 | 12,716 |
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 IAS 19 Employee Benefits 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 Group customers can represent a significant amount of revenue, though their end-customers may be a diversified portfolio. Key customer relationships are closely monitored; however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.
Key risks of a non-financial nature
The Group is a small player operating in a highly-competitive global market, which is undergoing continual geographical change. The Group's ability to respond to many competitive factors including, but not limited to pricing, technological innovations, product quality, customer service, raw material availabilities, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers' products since the Group is a component supplier.
A substantial proportion of the Group's revenue and earnings are derived from outside the UK and so the Group's ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements, 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 Group 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 Group Managing Director's statement and operational and financial review include 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 Report are the same accounting policies set out in the year ended 31 March 2017 financial statements.
Adjusted EBITDA
Adjusted earnings before interest, tax, depreciation and amortisation ('Adjusted EBITDA') is defined as profit from operations before all interest, tax, depreciation and amortisation charges and before share-based payments. The following is a reconciliation of the Adjusted EBITDA for the three periods presented:
Unaudited | Unaudited | Audited | |
6 months end | 6 months end | Year end | |
30/09/17 | 30/09/16 | 31/03/17 | |
£'000 | £'000 | £'000 | |
Profit after taxation (earnings) | 1,975 | 1,721 | 3,867 |
Adjustments for: | |||
Finance income | (16) | (17) | (34) |
Income tax expense | 336 | 217 | 341 |
Depreciation | 195 | 358 | 325 |
Amortisation of development costs | 2,263 | 1,849 | 4,100 |
Amortisation of intangibles recognised on acquisition | 78 | 26 | 102 |
Share-based payments | 71 | 72 | 139 |
Adjusted EBITDA | 4,902 | 4,226 | 8,840 |
11 General
Other than already stated within the Chairman's statement and Group Managing Director's operational 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.
This Half Yearly Report includes a fair review of the information required by DTR 4.2.7/8 (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 2017.
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 2017 is based on the statutory accounts for the financial year ended 31 March 2017 that have been filed with the Registrar of Companies and on which the Auditor gave an unqualified audit opinion.
The Auditor's 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 Auditor.
A copy of this Half Yearly Report can be viewed on the Company website: www.cmlmicroplc.com.
12 Approvals
The Directors approved this Half Yearly Report on 20 November 2017.
Glossary
AIS Automatic Identification System
API Application Programmers Interface
DTR Disclosure and Transparency Rules
EU European Union
IAS International Accounting Standard
IC integrated circuit
IFRS International Financial Reporting Standards
IIoT Industrial Internet of Things
IP intellectual property
H1 First Half (Financial Year)
M2M machine‑to‑machine
MMC multimedia card
OEM original equipment manufacturer
R&D research and development
RF radio frequency
SATA serial ATA interface
SD secure digital
USB universal serial bus