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 2014.

Financial Highlights

· First half results in-line with management budgets and market expectations

· Group revenues down 21% to £10.21m (H1 2013: £12.99m)

· Underlying profit before tax down 62% to £1.24m (H1 2013: £3.21m)

· Basic EPS down 62% to 5.92p (H1 2013: 15.73p)

· Cash reserves of £11.59m (31 March 2014: £11.37m) - after £1.01m dividend payment

Operational Highlights

· Promising H2 order book meaningfully ahead of prior half year

· Storage sales weaker but improved as the half year progressed

· Sales of Flash memory controllers for the automotive infotainment market grew strongly

· Encouraging early interest in new industrial class USB controller

· Wireless sales improved towards the end of the half

· Orders from two new customers for machine-to-machine applications

· Sales into analogue telephony applications were lower across all major regions

Chris Gurry, Chairman and Chief Executive of CML, said:

"The Group continues to make good progress with its numerous engineering, selling and market-related activities that are directed at widening the product range, the customer base and the addressable market areas. Whilst these activities are not expected to contribute meaningfully to the current year, I am confident that the product and management strategies being followed should allow the Group to return to growth beyond this financial year."

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

Overview

As anticipated, the results for the opening six months of the financial year saw revenue from continuing operations down 21% to £10.21m (2013: £12.99m), underlying profit before tax reduce by 62% to £1.24m (2013: £3.21m) and basic earnings per share fall 62% to 5.92p (2013: 15.73p). This performance arises from the combined effects of previously communicated prior-year events within our storage market along with some cyclical volatility within wireless centred on regional government spending.

The results were in line with management budgets and, notably, the outstanding order book at the end of September 2014 was meaningfully ahead of the prior half year, supporting expectations for a firmer second half performance.

The sale of semiconductors into industrial solid state storage and removable card applications improved as the half year progressed. Good advances were made with expanding future revenue potential through a combination of new customer growth and a broader product portfolio. Shipments of flash memory controller integrated circuits ("ICs") for use within the automotive infotainment market grew strongly and early interest shown in the Group's new industrial class USB controller has been encouraging.

The shipment of ICs into Wireless voice and data application areas also improved towards the period end after commencing the year at a relatively low level. The number of customers designing end products that contain Group chip-set solutions increased and it was particularly pleasing that initial orders were received from two new customers who each serve differing machine-to-machine ("M2M") application areas.

Revenue from the sale of Telecom ICs into traditional analogue telephony applications was lower and reflected a general weakness across all of the major regions served.

Financial summary

Revenue of £10.21m combined with stable gross margin delivered gross profit of £7.22m (2013: £9.21m). Distribution and administration costs were flat at £6.17m (2013: £6.16m) with an operating profit of £1.06m being recorded (2013: £3.06m). The Group benefited from other operating income of £221k (2013: £192k), principally EU grants and the rental income on group-owned industrial properties. Finance income fell to £22k (2013: £35k) as a result of lower interest rates on cash reserves. Profit before tax amounted to £1.24m (2013: £3.21m).

At the period end, cash reserves stood at £11.59m (31 March 2014: £11.37m) after payment of a £1.01m dividend in respect of the prior year. Working capital was better controlled and further enhanced by the receipt of a conditional customer-prepayment of US$600k against a key new product development. The Group has no borrowings.

Summary and outlook

Whilst it is disappointing to report interim results that interrupt the Group's sustained growth record over recent years, operating performance through the opening six-month period has progressively improved and the results delivered meet both management and market expectations.

In addition to a promising order book at 30 September 2014, new order bookings since that date serve to reinforce expectations that second half revenue should exceed the first.

The Group continues to make good progress with its numerous engineering, selling and market-related activities that are directed at widening the product range, the customer base and the addressable market areas. Whilst these activities are not expected to contribute meaningfully to the current year, I am confident that the product and management strategies being followed should allow the Group to return to growth beyond this financial year.

C. A. Gurry

Chairman and Chief Executive

17 November 2014

Condensed consolidated income statementfor the six months ended 30 September 2014

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2014

Condensed consolidated statement of financial positionas at 30 September 2014

Condensed consolidated cash flow statementsfor the 6 months ended 30 September 2014

Condensed consolidated statement of changes in equityas at 30 September 2014

Notes to the condensed consolidated financial statements

1 Segmental analysis

Business segments

Geographical segments

On 13 August 2013 Radio Data Technology Limited 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.

Geographical classification of continuing business turnover (by destination)

2 Dividend paid and proposed

A dividend of 6.25p per 5p ordinary share in respect of the year ended 31 March 2014 was paid on 1 August 2014 (2013: 5.5p per ordinary share of 5p in respect of the year ended 31 March 2013). No dividend is proposed in respect of the six months period ended 30 September 2014 (2013: £Nil per ordinary share of 5p in respect of the period ended 30 September 2013).

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 Limited 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 cash

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 2014 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 2014.

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 2014 is based on the statutory accounts for the financial year ended 31 March 2014 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 17 November 2014.