CML Microcircuits Regulatory News (CML)

CML Microsystems Plc

INTERIM RESULTS

CML Microsystems Plc ("CML"), which designs, manufactures and markets a broad range of semiconductor products, primarily for the global communication and data storage markets, announces Interim Results for the six months ended 30 September 2013.

Financial Highlights

· Record first half results

· Group revenues up 5% to £12.99m (2012: £12.39m)

· Gross profit up 7% to £9.21m (2012: £8.57m)

· Profit before tax up 29% to £3.21m (2012: £2.48m)

· Diluted EPS up 38% to 15.37p (2012: 11.13p)

· Net cash of £9.7m (2012: £6.5m)

Operational Highlights

· Storage revenues up c. 7% as customers transitioned to higher-performance flash memory controller products

· Wireless semiconductors revenues up c. 10% due to robust professional and commercial wireless communication markets

· Successful exit of Radio Data Technology (RDT) completed on schedule and at minimum cost leaving the Group as a pure-play fabless semiconductor business

· Continued adoption of industrial controllers with positive feedback from sampling customers

· Expansion of the RF product portfolio to drive growth in wireless markets

Chris Gurry, Managing Director of CML, said:

"The first half of the year has seen record half year results and reflects the Group's focus on delivering sustainable growth. Our key addressable markets of storage and wireless each exhibit compelling growth opportunities.

"Order book visibility continues to be relatively short term and raw material lead times can extend to 16 weeks in some instances. This could affect the timing of revenue recognition towards the end of what is a traditionally weaker second half period. That said, the Board's expectation remains for a full year of firm growth in profitability to 31 March 2014."

Chairman and Chief Executive's statement and operational and financial review

Introduction

I am pleased to report a further improvement in the Group's operating performance through the first six-month trading period to 30 September 2013. A steady increase in revenues, coupled with a diligent focus on product and operational cost management, has contributed to a 5% uplift in revenues and a 29% advance in profit before tax being recorded against the comparable period.

Unfortunately, the financial and operational progress achieved has been overshadowed in recent weeks following the death of two Board members.

Our founder and Non-Executive Chairman, George Gurry passed away on 5 October 2013. Although he had announced plans to vacate the Chairman's role by the end of this financial year, the Board was expecting to benefit from his wide ranging knowledge and experience for some time. An inspirational leader, he was highly regarded by those that knew him and the business legacy he leaves is evidence of both his success and the gratitude the Group owes to his vision and commitment for over 45 years.

Unexpectedly, George Bates, Non-Executive Director, passed away on 21 October 2013. George joined the Group in 1971 and over the following three and a half decades made an immeasurable contribution to the Group's engineering activities. In March 2006 he relinquished his executive engineering position but remained on the Board in a non-executive capacity. His considered and pragmatic approach will be sorely missed.

Over the coming months the Board will fully assess the situation and take appropriate action to ensure it has the right mix of skills and experience to continue executing on its sustainable growth strategy.

Equipment segment

As reported at the time of the full-year results in June 2013, the Board took the decision to exit from the Group's loss-making equipment segment, Radio Data Technology Ltd (RDT), and completed the exit during the first half of the current financial year. Following the sale of certain IP and assets to third parties, RDT went into liquidation on 13 August 2013. As a consequence, the Group now has only one operating segment, semiconductors, and this statement and operational review refers to the results of the continuing operations. A note in the condensed consolidated income statement highlights the loss from discontinued operations and notes 1 and 4 of the condensed consolidated financial statements contain further detailed breakdowns.

Operational and financial review

Revenues from continuing operations increased year on year by almost 5% to £12.99m (2012: £12.39m) driven by progress in the Group's two key semiconductor market areas, storage and wireless.

Storage revenues advanced by close to 7% as a number of customers transitioned to higher-performance flash memory controller products. The Group also benefitted from the first full reporting period where its SATA interface controllers were in mass production.

Revenues from the sale of semiconductors into professional and commercial wireless applications improved by approximately 10%. The growth was driven by increased shipments of digital baseband products and high performance RF ICs.

Telecom revenues were down approximately 5% but remained broadly in line with expectations.

Geographically, the improvement in sales revenues was not attributable to any one single area, with increases posted in all three major regions; the Far East, the Americas and Europe.

Gross margins improved to 71% (2012: 69%) largely as a result of product mix, leading to a reported gross profit of £9.21m (2012: £8.57m), an increase of just over 7% year on year. Distribution and administration costs were fractionally lower at £6.16m (2012: £6.18m) driving a 28% improvement in operational profits (before other income, share-based payments and net finance effects) to £3.06m (2012: £2.39m).

Other operating income rose to £192k (2012: £124k) reflecting the increased occupancy of group owned non‑operational commercial properties.

There were no finance costs during the period and a small finance income was reported of £35k (2012: £5k).

Profit before tax increased by 29% to £3.21m (2012: £2.48m).

Once again the Group posted a pleasing performance in terms of cash generation, despite high levels of investment in new product development activities, the repayment of all bank loans and the payment of an £873k cash dividend (2012: £631k). At 30 September 2013, the Group had net cash reserves of £9.74m (2012: £6.51).

Diluted earnings per share increased by 38% to 15.37p (2012: 11.13p) and shareholders' equity rose to £22.94m (2012: £20.12m).

Summary and outlook

Performance through the first half year was in line with both management and market expectations for firm improvement. The exit from the equipment segment was completed on schedule and at minimum cost leaving the Group focused as a pure-play fabless semiconductor business.

Our key addressable markets of storage and wireless each exhibit compelling growth opportunities. Within storage we expect adoption of our industrial SATA controller to continue whilst the early feedback from sampling customers with our new industrial SD controller has been positive. For our target wireless markets, we expect the growth drivers to be digital radio technology along with opportunities for chip-set design wins within data centric applications. The expansion of the RF product portfolio is a key catalyst in this regard. In short, engineering development activities are being targeted to underpin the sustainable growth strategy that has been communicated in recent years.

Order book visibility continues to be relatively short term and raw material lead times can extend to 16 weeks in some instances. This could affect the timing of revenue recognition towards the end of what is a traditionally weaker second half period. That said, the Board's expectation remains for a full year of firm growth in profitability to 31 March 2014.

On behalf of the Board, I would like to express sincere thanks and appreciation to our employees for the commitment and loyalty they continue to demonstrate and, without whom, success would not be possible.

It remains for me to convey my appreciation to all Group stakeholders and friends who have offered their support in recent weeks following the loss of our founder. He set high standards for business acumen, ethics and achievement that are embedded across the Group and will remain a constant reference as we move forward.

C. A. Gurry

Chairman and Chief Executive

19 November 2013

Condensed consolidated income statementfor the six months ended 30 September 2013

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2013

Condensed consolidated statement of financial positionas at 30 September 2013

Condensed consolidated cash flow statementsfor the six months ended 30 September 2013

Condensed consolidated statement of changes in equityfor the six months ended 30 September 2013

Notes to the condensed consolidated financial statements

1 Segmental analysis

Business segments

Geographical segments

On 13 August 2013 Radio Data Technology Ltd which represents 100% of the equipment segment went into liquidation and consequently after that date the Group only has one segment.

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

2 Dividend paid and proposed

A dividend of 5.5p per 5p ordinary share in respect of the year ended 31 March 2013 was paid on 2 August 2013 (2012: 4.0p per ordinary share of 5p in respect of the year ended 31 March 2012). No dividend is proposed in respect of the six months period ended 30 September 2013 (2012: £Nil per ordinary share of 5p in respect of the period ended 30 September 2012).

3 Income tax

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 Discontinued operations

On 13 August 2013 Radio Data Technology Ltd went into liquidation and consequently qualifies as a discontinued operation. The results of the discontinued operation which have been included in the consolidated income statement are presented below:

5 Earnings per share

The calculation of basic and diluted earnings per share is based on the profit attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.

6 Investment properties

Investment properties are revalued at each discrete period end by the Directors and every third year by independent Chartered Surveyors on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement. At 31 March 2012 the investment properties were professionally valued by Everett Newlyn, Chartered Surveyors and Commercial Property Consultants on an open market basis.

7 Analysis of cash flow movement in net debt

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

8 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.

9 Principal risks and uncertainties

Key risks of a financial nature

The principal risks and uncertainties facing the Group are with foreign currencies and customer dependency. With the majority of the Group's earnings being linked to the US Dollar, a decline in this currency would have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. Additionally, though the Group has a very diverse customer base in certain market segments, key customers can represent a significant amount of revenue. Key customer relationships are closely monitored; however changes in buying patterns of a key customer could have an adverse effect on the Group's performance.

Key risks of a non-financial nature

The Group is a small player operating in a highly-competitive global market, which is undergoing continual geographical change. The Group's ability to respond to many competitive factors including, but not limited to pricing, technological innovations, product quality, customer service, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers' products since the Group is a component supplier.

A substantial proportion of the Group's revenue and earnings are derived from outside the UK and so the Group's ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics.

10 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 and Chief Executive'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.

11 Basis of preparation

The basis of preparation and accounting policies used in preparation of the Half Yearly Financial Report are the same accounting policies set out in the year ended 31 March 2013 financial statements.

12 General

Other than already stated within the Chairman and Chief Executive's statement and 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 Financial 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 9 above.

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

This Half Yearly Financial 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 Financial 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 2013.

The financial information contained in this Half Yearly Financial Report has been prepared using International Financial Reporting Standards as adopted by the European Union. This Half Yearly Financial 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 2013 is based on the statutory accounts for the financial year ended 31 March 2013 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 Financial Report has not been audited or reviewed by the Group Auditor.

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

13 Approvals

The Directors approved this Half Yearly Report on 19 November 2013.

Glossary

fabless a company that designs the semiconductor but subcontracts the wafer fabrication process

IC integrated circuit

IP intellectual property

RDT Radio Data Technology Ltd

RF radio frequency

SATA serial ATA interface

SD secure digital