TIDMCML
RNS Number : 8647B
CML Microsystems PLC
15 June 2021
15 June 2021
CML Microsystems Plc
("CML", the "Company" or the "Group")
Full Year Results
CML Microsystems Plc, which develops mixed-signal, RF and
microwave semiconductors for global communications markets ,
announces its Full Year Results for the year ended 31 March
2021.
Financial Highlights
-- Revenue GBP12.5m (2020: GBP15.0m) reflecting the effect of COVID
19 on the voice centric markets
-- Gross profit GBP9.27m (2020: GBP11.70m)
-- Record net cash level GBP31.9m (2020: GBP8.5m) after accounting
for an GBP8.3m capital redemption, GBP0.7m paid out as dividends
and a share buyback costing GBP1.6m
-- Profit before tax GBP0.01m (2020: GBP1.18m) after accounting for
share-based payments and net finance income
-- Recommended final special dividend of 50p per ordinary 5p share
Operational Highlights
-- Sale of Storage division for US$49m in cash
-- Launch of SuRF product range for microwave/millimetre wave applications
-- Enhanced strategic focus with significantly expanded addressable
market
-- Returned over GBP10m to shareholders via share buyback, dividends
and return of capital
-- Record order book in continuing business as at 31 March 2021
Post period end highlight
-- Proposed move to AIM to better serve Group's growth ambition
Chris Gurry, Group Managing Director of CML Microsystems
commented on the results : " This has clearly been a
transformational year for the business. We made the decision to
dispose of the storage division to focus on an expanding
communications market opportunity and the Board believes that the
Group can now scale without the distraction of conflicting
divisional and operational investment needs.
We start the new trading year in a much stronger position than
one year ago. Headwinds remain, including the pandemic, trade
uncertainty between China and the USA and the ongoing semiconductor
capacity issues that are widely reported. That said, the underlying
feeling within the Company is one of opportunity and optimism
evidenced by our day-to-day activities and the pipeline of
opportunity that we see.
As we move through the year ahead with an arsenal of new
products, intellectual property, skills and market intelligence,
the Group intends to capture share in much larger application
areas. Economic uncertainty aside, the fundamental growth factors
are positive and subject to unforeseen circumstances, we expect a
good year of progress for the continuing business, both from a
revenue and a profitability perspective."
CML Microsystems Plc www.cmlmicroplc.com
Chris Gurry, Group Tel: +44(0)1621 875
Managing Director 500
Nigel Clark, Executive
Chairman
Shore Capital Tel: +44(0)20 7408
Advisory 4090
Edward Mansfield
James Thomas
John More
Corporate Broking
Fiona Conroy
SP Angel Corporate Tel: +44(0)203 463
Finance LLP 2260
Jeff Keating
Alma PR Tel: +44 (0)20 3405
Josh Royston 0212
Caroline Forde
Robyn Fisher
About CML Microsystems PLC
CML develops mixed-signal, RF and microwave semiconductors for
global communications markets. The Group utilises a combination of
outsourced manufacturing and in-house testing with trading
operations in the UK, Asia and USA. CML targets sub-segments within
Communication 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 commercial and industrial
product manufacturers.
The spread of its customers and diversity of the product range
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 appetite for data to
be transmitted faster and more securely, the upgrading of telecoms
infrastructure around the world and the growing prevalence of
private commercial wireless networks for voice and/or data
communications linked to the industrial internet of things
(IIoT).
The Group is cash-generative, has no debt and is dividend
paying.
CHAIRMAN'S STATEMENT
Introduction
I have never witnessed a year with more challenges and
opportunities than we have faced this last year, and I am proud of
the way in which we have responded. At a macro level we have the
COVID-19 pandemic and the continuation of the geo-political trade
issues that were present when the year began and still remain
today. In addition, Brexit was implemented and what was already a
difficult year, finished with the well-publicised semiconductor
supply shortages extending delivery times throughout the supply
chain and increasing costs. At an operational level, having just
acquired PRFI Ltd, it needed to be assimilated through the first
COVID-19 lock down in conjunction with successfully executing the
divestment of the Storage Division. There were challenges for us
across the entire year, however, the Board is of the firm belief
that the performance of the business from both a trading and
operational standpoint has been resilient.
The disposal of the Storage division for US$49m, announced in
December 2020, completed in February 2021 was, in the opinion of
the Directors, at a price reflecting its true value and a very
successful outcome for CML. The Board were of the firm opinion that
this was strategically the right time to evaluate the expected
future returns and the risks in achieving those returns against the
potential opportunity that existed in the communications market
with the benefit of the focus and proceeds that could be generated
through a disposal. The transaction has materially strengthened the
balance sheet and net cash position, with the sale price achieved
being more than three times the division's prior year revenues.
This provides the Group with the scope to drive organic growth
through enhanced investment in the communications market
supplemented, as appropriate, with acquisitions to strengthen the
breath and depth of the Group's offering.
As indicated at the interim stage, the COVID-19 pandemic has hit
the voice centric radio manufacturers hard and as CML is a
component supplier into this market our revenues here have suffered
accordingly. This is seen as a transient problem for the
traditional markets we address, and they are expected to return to
historic levels and growth trends as the world normalises hopefully
through the financial year just commenced. Despite these global and
operational problems, work on R&D, the life blood of future
revenues, has not diminished with new product releases continuing
as planned.
The enhanced business strategy adopted has expanded the
addressable communications markets for CML into areas that are
expected to grow significantly over the next five years. These
markets are already understood to be a step change larger than the
historic markets addressed and provide ample opportunity for growth
of a significant magnitude. Additionally, these are markets where
our already established global market reach is well established to
capitalise without the need for major changes. It is therefore very
pleasing that, despite all the headwinds, the assimilation of PRFI
was achieved very successfully and the first of our new products
addressing RF, Microwave and Millimetre-wave application areas
("SuRF") are coming to market now, with further new products on the
way and a full future road map for the range.
Results
With the business now fully focusing on the communications
semiconductor markets, these results are reported against the
continuing business, with the comparatives adjusted where
appropriate to reflect this.
Revenues were down 16.7% to GBP12.5m (2020: GBP15.0m) reflecting
the effect of COVID 19 on the voice centric markets yielding what
was essentially a break-even outcome of GBP0.01m, (2020: GBP1.2m
profit). This break-even position was assisted by the profit
resulting from a triennial revaluation of the Group's investment
properties which yielded a gain of GBP0.6m (2020: GBPNil) and a
change in accounting estimates that yielded a net reduction in
costs of GBP0.75m (2020: Nil). A tax credit in the year means the
profit on the continuing business after tax was GBP0.8m (2020:
GBP1.4m). After adding a profit on disposal for the discontinued
business of GBP22.8m (2020: GBPNil), the profit attributable to the
Shareholders amounted to GBP23.6m (2020: GBP1.5m). Net cash levels,
after US loan, were GBP31.9m (2020: GBP8.5m) after accounting for
an GBP8.3m capital redemption, GBP0.7m paid out as dividends and a
share buyback costing GBP1.6m. Net assets have increased to
GBP53.4m (2020: GBP42.4m).
Dividend
For a number of years, the Group has maintained a progressive
dividend policy with a keen eye on annual profitability and cash
generation. That said, the dividend has on occasion been maintained
when profits did not directly support the decision, reflecting the
Board's confidence in the future.
We have always endeavoured to ensure adequate cash resources
were maintained to cover legal obligations, organic growth and
strategic acquisitions. Today the financial strength of the Company
is clear and the Board is confident in the future. Based upon the
opportunities currently visible, the Board believes that growth
will be driven organically for the coming period, with selective
acquisitions only expected if they offer increased potential and
accelerate delivery of the Group's strategy.
Accordingly, the Board is recommending a final special dividend
payment of 50p per ordinary 5p share, equating to a total for the
year of 52p (2020: 4p). If approved this will be paid to
shareholders on 13 August 2021 whose names appear on the register
at close of business 30 July 2021, the shares will go ex-dividend
on 29 July 2021.
COVID-19 Governmental Support
The COVID-19 pandemic has led to Governments around the world
supporting industries in various ways, if needed and as a Group we
have only taken advantage of these measures where we felt it was
appropriate to do so. In the UK we did not furlough any staff, take
assistance from the UK Government Coronavirus Job Retention Scheme
or make use of any UK Government backed loans. In the USA we did
take advantage of a loan under the Paycheck Protection Program of
GBP0.28m (2020: GBPNil), whilst in Singapore we received grants
under the Job Support Scheme of GBP0.05(2020: GBPNil). Our China
operation received a very minor amount of support from their
Stabilizing and Enlarging Employment Policy. Across all global
operations our staff have continued to work through the whole year
with no pandemic related redundancies made.
Employees
Our employees, across the globe, are key to the success of CML
and with the challenges presented through this year their support
and cooperation has been paramount. It has been a year of
significant change for the Group, and I am proud of how our
employees have shown resilience and purpose with incredible
determination and courage during this pandemic, achieving the goals
set and adapting to needs as they arose. On behalf of the Board, I
would like to put on record our gratitude and thanks to each and
every one of them.
The Board
In February 2021 we announced that our Group Sales and Marketing
Director, Hugh Rudden, had chosen to retire. Hugh joined us in 2014
and has been a valued member of our Board since then. We wish him a
healthy, happy and long retirement and thank him for his service.
Hugh's role has been disseminated across a number of executive and
senior management personnel as part of the organisational changes
necessary for the continuing business.
As advised in January 2020 and in light of the numerous
corporate activities underway at that time, I took on the
additional role of CFO on an interim basis. As of today, the
Company is a different entity, being of reduced scale and
management complexity having disposed of the Storage Division. In
conjunction with the finance capabilities on the Board and
considering the strength in depth of the function across the
organisation globally, the Board is currently of the opinion that
the Group has sufficient capability to achieve its objectives
without recruiting a dedicated CFO. In support of this decision, it
was announced on 1 June 2021 that I had accepted the Board's
proposal to move from Non-Executive Chairman to Executive Chairman.
Simultaneously, we announced that Non-Executive Director Geoff
Barnes would take up the post of the Senior Independent
Non-Executive Director and Jim Lindop would join the Audit
Committee, both with immediate effect. The Board will keep under
constant review the needs of the business and requirement for
additional bandwidth through the appointment of additional
executive and non-executive directors onto the Board.
Move to the Alternative Investment Market ("AIM") of the London
Stock Exchange
In accordance with the announcement on 1 June 2021, the Company
is planning to cancel its standard listing on the Main Market of
the London Stock Exchange and move to AIM, subject to shareholder
approval at the Company's AGM. Having disposed of the Storage
Division the Group is now fully focussed on a much larger global
opportunity within the wireless communications market and the Board
believes that AIM provides a more appropriate regulatory
environment for the Company at the start of this exciting growth
phase.
The move to AIM will enable the Company to improve its
flexibility in relation to future corporate actions and although
organic growth is the immediate focus, the possibility of further
small acquisitions cannot be ruled out. Additionally, as an AIM
company there should be advantages to private individual
shareholders who should benefit from inheritance tax and stamp duty
reserve tax exemptions not available to a company listed on the
Main Market.
Prospects and Outlook
COVID-19 is omnipresent although there appears to be a light at
the end of the tunnel. The geo-political trade issues between the
USA and China have not subsided and ongoing semiconductor supply
chain issues remain well publicised. Despite this, I am pleased to
say that CML has never been in a stronger position.
We start the new financial year with the strongest balance sheet
on record, including a large element of cash, a record order book
for the continuing business and a materially increased addressable
market.
For our existing product markets, we believe our customers are
holding reduced inventory levels and as we move through the year,
we expect to see those markets recovering back towards more
normalised levels, driving good growth. These positive prospects
are further enhanced by the fact we have the marketing, sales and
distribution network already in place to support the new "SuRF"
range of products as they are launched to market through the coming
year. Though growth in this new market will take time, we are
already engaged with existing and new customers that offer exciting
growth prospects.
Even though we remain in uncertain times, the Board is confident
that the strategy in place will lead to significant, sustainable
growth. As a Company we are well placed to return to meaningful
results improvements.
Nigel Clark
Executive Chairman
OPERATIONAL AND FINANCIAL REVIEW
Introduction
This has been a transformational year for the business, both
strategically and fiscally.
Following a frustrating period during which the financial
benefit from the underlying progress being made had been stymied by
global events, we entered the year under review with a relatively
healthy order book and a business tuned to react swiftly to a
revival in demand.
Through the first six-month period there was a stark contrast in
performance from the main sectors being addressed. Storage markets
were rebounding after a period of underperformance whilst
Communications markets had deteriorated, largely driven by a
reduction in demand from voice-centric radio manufacturers as a
result of the pandemic.
Shortly after the interim results were released, the Group
announced the sale of the Storage Division. That transaction,
together with the already announced strategic move into microwave
and millimetre wave product technology, represented the catalyst
for the Group's next stage of growth, a singular focus on the
communications market sector and the enlarged market opportunity
that it represents.
Disposal of the Storage Division
The Company announced on 5 February 2021 that it had
successfully completed the sale of Hyperstone, the Group's storage
division ("the Disposal"), for US$49m. The Disposal reflected a
deliberate decision made by the Board to refocus exclusively on the
global Communications market, with all efforts directed at
capturing the exciting growth opportunities that it presents.
Under CML's ownership, Hyperstone had grown to become a
significant player within the industrial solid state storage
market, supplying some of the world's largest OEM's with
class-leading solutions. However, following a strategic review, the
Board identified that change was required if the Group was to
achieve its sustainable growth ambitions.
The Storage Division lacked the scale of its principal
competitors but, critically, synergies between it and the
communications division were rapidly reducing. The relatively high
product development costs, periodically extreme market dynamics and
the divergence of the customer base, routes to market and
engineering disciplines were all important factors in the
decision-making process.
The Board decided that an exit from the storage market was the
optimum solution for all stakeholders, enabling the Group to fully
focus on a much larger global opportunity within the wireless
communications market, with the potential for strong growth on a
sustainable basis.
Proceeds from the disposal have provided the Group with the
financial flexibility to maximise this opportunity.
COVID-19
The welfare and safety of our employees has been of paramount
importance throughout the pandemic and remains a priority. Our
operations remain fully functional although travel restrictions in
some regions have affected our sales teams' ability to mobilise and
physically meet with customers.
The positive response by our people to the changes we have been
required to implement to our working practices has been very
supportive. Once again, the CML teams across the world have proven
their resilience and dedication, for which we, the Board, are
extremely grateful. They have continued to work tirelessly under
difficult circumstances and their dedication both to CML and our
customers has not wavered.
It is noteworthy that a number of new colleagues joined the
Group either just prior to, or during, the pandemic. While many of
us have not been able to meet them physically, they have integrated
well and we have enjoyed welcoming them.
As we continue to face the challenges of COVID-19, including the
risk of rolling lockdowns, we do so with the support of a
dedicated, talented team around the world.
Strategy
The Group's vision is to be the first-choice semiconductor
partner to technology innovators, together transforming how the
world communicates.
The focus is on our customers' success by delivering advantages
through the improved functionality and performance of class leading
IC solutions. R&D activity is targeted at developing the
product portfolio to support emerging and evolving customer
requirements for size, cost and performance whilst striving to
remain our customer's first choice supplier within their advanced
communication platforms.
Overall, the strategy was enhanced during the year through the
sale of the storage division and the successful development and
market launch of the SuRF product portfolio to address
microwave/millimetre wave wireless applications. The Group has a
clear pipeline of future products to drive organic growth and the
capital resources to invest in the appropriate level of R&D now
it is solely focussed on communications.
In today's world, 'connected everything' is propelling
exponential increases in data consumption - driving growth across
wireless communications markets globally. We are expanding our
total addressable market having enlarged our market focus to
include applications within the so-called mega trend areas of
Industrial Internet of Things (IIoT), 5G and Industry 4.0. This
complements the historic market areas of public safety, maritime
and mission critical wireless voice and data communications,
leveraging our systems knowledge, engineering capabilities and
routes to market.
Markets and operations
During the first six months of the year, revenues from
voice-centric wireless applications were heavily impacted by the
COVID-19 crisis whilst the situation across a wide range of
data-centric IIoT customers was somewhat mixed. Pleasingly, through
the second half, the order intake progressively improved,
culminating in a record order book for the continuing business as
at 31 March 2021.
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 M2M and IIoT sectors. Ancillary markets
continue to develop which serves to maintain the very fragmented
nature of the Group's traditional communications markets. New
product releases in recent years are expected to capture a higher
share of a growing market over time.
Customer and market intelligence suggests that conditions for
voice applications should improve as the 2021 calendar year
progresses. A number of bellwether players in the voice
communication space are indicating stronger order backlogs
themselves and, in the US in particular, government stimulus
packages that are predicted to be available over the current and
future years underpins confidence levels.
In addition to the traditional wireless voice and data market
areas served, our enhanced strategy to significantly widen the
product portfolio and address broader application areas is being
achieved through a combination of resource blend and new customer
engagements.
Prior to the disposal of the storage division, the Group was
addressing an annual serviceable market of close to $360m, split
almost 50/50 between communication and storage application areas.
Post-disposal, under our enhanced strategy, the addressable market
has expanded to include a number of key growth areas over the
coming years, including critical infrastructure (public utilities,
smart grid, RFID), 5G (repeaters, small/pico cells, fixed wireless
access, distributed antenna systems) and satellite communications
(terminals, broadband access). As a result, the Group's annual
addressable market has increased substantially.
As one example, the 5G network itself is being rolled out in two
phases. The first of them, operating on frequency bands below 6GHz,
is already being deployed in a selection of different countries. In
the years that follow, the rollout involves the introduction of
millimetre wave frequencies that span 24-GHz to 40-GHz. These
higher frequencies will offer much higher data rates, greater
capacity, better quality and lower latency. Customer product
designs for a number of millimetre wave applications will benefit
from the use of compound semiconductor technologies, such as
gallium nitride (GaN) or gallium arsenide (GaAs), rather than
silicon. Independent market statistics estimate that the GaN RF
device market alone is expected to grow from circa $740m to $2bn
through to 2025. While this represents a double digit CAGR across
the period, the market is a new one for CML, thus putting into
perspective the opportunity it represents.
The feedback from early customer engagements for our SuRF
product range has been very positive and endorses the approach
being taken. Aside from technical performance and commercial
competitiveness, the focus on our customers' success and our
inherent partnership capabilities are key factors that bode well
for the future of the business.
The Group's return on investment (ROI) profile relating to
R&D expenditure is evolving as the full benefit of the expanded
strategy and related performance enhancements take hold. Product
lifecycles within the traditional market areas being addressed can
be typically characterised as a two-year development cycle, a
further two-year customer engagement and adoption timeframe,
followed by multiyear revenue generating period as the product
gains success across the customer base. This is typical for a
complex system-on-chip (SoC) semiconductor.
For the SuRF product range, development, market launch and
subsequent customer adoption is already occurring more rapidly, due
to a combination of internal design and operational capabilities,
ease of use from a user perspective and the leveraging of existing
sales channels. Overall, the Group's resulting ROI profile is now a
'blended' approach, improving the timing for a return on the
investments being made.
In recent years, the Group invested significant effort in
ensuring sales channels globally were appropriate for the direction
of travel that the business was taking. The enhanced strategy that
is now being followed, allows the Group to drive forward and
leverage those extensive routes to market, without the associated
disruption and inefficiency that can sometimes accompany new
product line introductions within adjacent market areas. Through
the year ahead work remains to be done, particularly in Asia, but
the intent is to translate the early successes from other regions
and rapidly capture new opportunities.
A general lengthening of lead times from raw material suppliers
and third-party manufacturing services companies has been in play
across the semiconductor industry for some time. The business has
navigated that comparatively well so far, supported by the prior
decision to maintain higher levels of raw material inventory.
However, it should be noted that Group semiconductor products are
just one of a number of electronic components that customers need
in order to successfully produce their own products. Their failure
to secure any one of the needed components could have an impact on
Group sales. Capacity constraints in the supply chain are not
expected to ease until next calendar year.
Outlook
This has clearly been a transformational year for the
business.
Having disposed of a division that had been a substantial
contributor to Group performance over the years, in favour of
focussing on an expanded communications market opportunity, the
Board believes that the Group can now scale without the distraction
of conflicting divisional and operational investment needs.
Fiscally, the Group starts the new trading year to 31 March 2022
in a much stronger position than one year ago, notwithstanding the
returns to shareholders that have been made or are planned.
Headwinds remain, including the pandemic, trade uncertainty between
China and the USA and the ongoing semiconductor capacity issues
that are widely reported. That said, the underlying feeling within
the Company is one of opportunity and optimism evidenced by our
day-to-day activities and the pipeline of opportunity that we
see.
CML has a decades long history of innovation and adaptation as
markets have evolved and new opportunities for growth present
themselves. The various decisions made to navigate the business
through fluctuating fortunes in more recent years have laid the
foundations for a new chapter. A total focus on communications
markets backed by solid financial resources allows us to capitalise
and the Board is steadfast in its commitment to support and achieve
challenging growth objectives over the years ahead.
As we move through the year ahead with an arsenal of new
products, intellectual property, skills and market intelligence,
the Group intends to capture share in much larger application
areas. Economic uncertainty aside, the fundamental growth factors
are positive and subject to unforeseen circumstances, we expect a
good year of progress for the continuing business, both from a
revenue and a profitability perspective.
Financial Review
For the financial year to 31 March 2021, the Group's
profitability was overwhelmingly dominated by the exceptional gain
arising on the sale of the Storage Division, including the trading
contribution of GBP1.03m.
Gross sale proceeds of US$49m generated a cash inflow of
GBP35.83m and, following inclusion of associated transaction costs,
taxation and the GBP8.74m valuation of assets forming part of the
sale, led to a net profit of GBP22.76m from the discontinued
operation.
For the continuing business, the financial review that follows
includes comparison figures that have been restated from those
published for the year to 31 March 2020 in accordance with the
relevant accounting standards.
Revenues for the year were GBP12.47m representing a 17%
reduction (FY20: GBP14.96m) amidst the backdrop of regional
variations caused by the pandemic, ongoing uncertainties with
China/USA trade and, towards the latter part of the year, a more
general semiconductor shortage.
At the Gross Profit level, a reduction in revenue of circa
GBP2.5m along with the effects of higher inventory costs, an
element of services revenue and a static fixed element within the
cost of sales, all combined to produce a drop in gross profits to
GBP9.27m (FY20: GBP11.70m),
Geographically, sales were lower in each of the three regions
serviced, with Asia being hit the hardest in absolute terms. It is
noteworthy, however, that a number of the Group's customers make
use of Far Eastern manufacturers for their production requirements
and Group revenues are classified geographically in terms of
shipping destination.
Distribution and administration expenses reduced to GBP10.57m
(FY20: GBP11.06m) largely due to lower selling expenses relating to
reduced travel through the pandemic and the change in accounting
estimate relating to the treatment of development expenditure which
yielded a net reduction in expenditure of GBP0.75m (see note
10).
The combined research and development expenditure for the year
amounted to GBP4.9m, of which, GBP0.93m was expensed (FY20:
GBP4.84m of which GBP0.53m expensed).
The Group receives other income from a combination of the
commercial rental of non-operational property assets and royalty
income on the sale of third-party technology incorporated within
Group semiconductor solutions. Other operating income rose to
GBP0.83m (FY20: GBP0.63m) and included a one-off contribution for
operational services to support the discontinued business.
Lower revenues along with cost of sales pressures delivered a
fall in profit from operations to GBP0.46m (FY20: GBP1.25m).
In accordance with statutory requirements, the Group's
non-operational property assets have been revalued as at 31 March
2021, using independent commercial property consultants. The open
market valuation recognised is GBP3.78m resulting in a profit of
GBP0.58m against the prior year (FY20: GBP3.17m).
After accounting for share-based payments and net finance
income, a minor profit before tax of GBP0.01m was recorded (FY20:
GBP1.18m profit).
A higher UK tax credit associated with the Group's investment in
research and development activities was the primary driver behind a
lower-than-average rate of taxation. An income tax credit of
GBP0.79m (FY20: GBP0.19m) was recorded. Under substantial
shareholding exemption rules, the Group does not anticipate a
charge relating to the UK profit upon disposal of the discontinued
business, although a charge of less than US$200k was incurred in
the USA along with a negligible charge relating to the Taiwanese
subsidiary that was divested.
The Group's balance sheet has been considerably enhanced through
events of the past year, placing the business in a strong financial
position to support its growth objectives. Following the cash
inflow from the sale of the storage division and, after giving due
consideration to the Group's ongoing needs, in March 2021 the Board
returned GBP8.28m to shareholders by way of a return of capital.
That aside, the Group conducted a share buyback of GBP1.59m,
rendered dividend payments totalling GBP0.67m and invested strongly
in the development of future products (GBP4.9m). Cash and cash
equivalents at the year end totalled GBP32.20m (FY20:
GBP8.48m).
Inventory levels have been maintained at relatively high levels,
helping to reduce the impact of an ongoing capacity issue within
the semiconductor market generally. At 31 March 2021, inventory
levels were GBP1.45m (FY20: GBP1.46m relating to continuing
operations).
The Group currently has a retirement benefit obligation in
respect of its historic defined benefit pension scheme, which was
closed to new members and future accruals in 2002 and 2009
respectively. The most recent triennial actuarial funding valuation
of the scheme carried out by an independent professionally
qualified actuary, as at 31 March 2020, resulted in a net pension
deficit of GBP2.24m (1 April 2017: GBP1.89m net surplus). The
market value of the assets of the scheme was GBP19.14m. (1 April
2017: GBP19.49m).
Using the same valuation methodology, an annual update to the
schemes position, as at 31 March 2021, showed that the shortfall of
GBP2.24m had improved to a surplus of GBP0.47m.
The GBP0.47m pension surplus calculated under the funding
valuation basis above is different to the accounting valuation
presented in the Group consolidated balance sheet, which shows a
net pension liability of GBP5.57m. Differences arise between the
funding valuation and accounting valuation, mainly due to the use
of different assumptions in valuing the liabilities in accordance
with the accounting standard IAS 19 Retirement Benefits.
All administrative expenses of running the scheme are met
directly by the scheme along with pension protection fund levies.
However, during the year a voluntary, one-off advance contribution
of GBP0.23m was made towards the running expenses of the
scheme.
Chris Gurry
Group Managing Director
Consolidated income statement for the year ended 31 March
2021
Unaudited Restated
2021 2020
Notes GBP'000 GBP'000
------------------------------------------------ ----- --------- ----------
Continuing operations
Revenue 1,2 12,470 14,963
------------------------------------------------ ----- --------- ----------
Cost of sales (3,197) (3,261)
------------------------------------------------ ----- --------- ----------
Gross profit 9,273 11,702
Distribution and administration costs (10,567) (11,060)
------------------------------------------------ ----- --------- ----------
(1,294) 642
Other operating income 830 604
------------------------------------------------ ----- --------- ----------
(Loss) / Profit from operations (464) 1,246
Share -- based payments (143) (139)
------------------------------------------------ ----- --------- ----------
(Loss) / Profit after share -- based payments (607) 1,107
Revaluation of investment properties 8 579 -
Profit on disposal of property, plant and
equipment - 11
Finance income 75 105
Finance expense (37) (45)
Profit before taxation 10 1,178
Income tax credit 4 792 193
------------------------------------------------ ----- --------- ----------
Profit from continuing operations 802 1,371
Profit from discontinued operations 7 22,762 165
------------------------------------------------ ----- --------- ----------
Profit after taxation attributable to equity
owners of the parent 23,564 1,536
------------------------------------------------ ----- --------- ----------
Earnings per share for profit from continuing
operations attributable to the ordinary
equity holders of the company:
Basic earnings per share 5 4.81p 8.02p
Diluted earnings per share 5 4.79p 7.98p
Earnings per share for profit attributable
to the ordinary equity holders of the company:
Basic earnings per share 5 141.13p 8.98p
Diluted earnings per share 5 140.56p 8.94p
Adjusted EBITDA 62,731 4,483
---------------- ----- -----
Consolidated statement of total comprehensive income for the
year ended 31 March 2021
Unaudited Unaudited Restated Restated
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- --------- --------- ---------- ---------
Profit for the year 23,564 1,536
Other comprehensive (expense)/income:
Items that will not be reclassified
subsequently to profit or loss:
Re-measurement of defined benefit
obligation (897) (995)
Deferred tax on actuarial loss 170 187
---------------------------------------- --------- --------- ---------- ---------
Items reclassified subsequently
to profit or loss upon derecognition:
Foreign exchange differences (312) 308
Reclassification of foreign
exchange differences on discontinued
operations (1,100) -
---------------------------------------- --------- --------- ---------- ---------
Other comprehensive expense
for the year net of taxation
attributable to equity owners
of the parent (2,139) (500)
---------------------------------------- --------- --------- ---------- ---------
Total comprehensive income for
the year attributable to the
equity owners of the parent 21,425 1,036
---------------------------------------- --------- --------- ---------- ---------
Total comprehensive income for
the year attributable to the
equity owners of the parent
Continuing operations (237) 871
Discontinued operations 21,662 165
--------------------------------- ------ -----
21,425 1,036
------------------------------- ------ -----
Consolidated statement of financial position as at 31 March
2021
Unaudited Unaudited Audited Audited
2021 2021 2020 2020
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- --------- --------- ------- -------
Assets
Non -- current assets
Goodwill 7,072 10,741
Other intangible assets 1,276 1,823
Development costs 9,191 16,930
Property, plant and equipment 4,864 4,976
Right-of-use assets 409 1,184
Investment properties 3,775 3,170
Investments - 83
Deferred tax assets 1,531 1,343
------------------------------------ --------- --------- ------- -------
28,118 40,250
Current assets
Inventories 1,450 2,390
Trade receivables and prepayments 2,434 5,075
Current tax assets 1,046 1,044
Cash and cash equivalents 32,196 8,479
------------------------------------ --------- --------- ------- -------
37,126 16,988
----------------------------------- --------- --------- ------- -------
Total assets 65,244 57,238
------------------------------------ --------- --------- ------- -------
Liabilities
Current liabilities
Bank loans and overdrafts 282 -
Trade and other payables 3,081 4,036
Lease liabilities 183 502
Current tax liabilities 80 85
------------------------------------ --------- --------- ------- -------
3,626 4,623
----------------------------------- --------- --------- ------- -------
Non -- current liabilities
Deferred tax liabilities 2,339 4,960
Lease liabilities 262 568
Retirement benefit obligation 5,570 4,697
------------------------------------ --------- --------- ------- -------
8,171 10,225
----------------------------------- --------- --------- ------- -------
Total liabilities 11,797 14,848
------------------------------------ --------- --------- ------- -------
Net assets 53,447 42,390
------------------------------------ --------- --------- ------- -------
Capital and reserves attributable to equity owners
of the parent
Share capital 859 859
Share premium 1,039 9,286
Capital redemption reserve 9 9
Treasury shares - own share
reserve (1,670) (80)
Share -- based payments reserve 570 582
Foreign exchange reserve 302 1,714
Accumulated profits reserve 52,338 30,020
------------------------------------ --------- --------- ------- -------
Total shareholders' equity 53,447 42,390
------------------------------------ --------- --------- ------- -------
Consolidated cash flow statement for the year ended 31 March
2021
Unaudited Restated
2021 2020
GBP'000 GBP'000
--------------------------------------- --------- ----------
Operating activities
Profit for the year before taxation
- continuing operations 10 1,178
Profit for the year after taxation
- discontinued operations 22,762 165
Adjustments for:
Depreciation - on property, plant
and equipment 370 397
Depreciation - on right-of-use
assets 438 456
Impairment of development costs 701 -
Amortisation of development costs 3,789 5,708
Amortisation of intangibles recognised
on acquisition and purchased 212 212
Profit on disposal of property,
plant and equipment 16 (5)
Revaluation of investment properties (579) -
Gain on disposal of discontinued
operations (21,740) -
Movement in non-cash items (Retirement
benefit obligation) 201 154
Share -- based payments 143 139
Finance income (75) (105)
Finance expense 37 45
Movement in working capital 1,388 (1,868)
---------------------------------------- --------- ----------
Cash flows from operating activities 7,673 6,476
Income tax received 494 526
---------------------------------------- --------- ----------
Net cash flows from operating
activities 8,167 7,002
---------------------------------------- --------- ----------
Investing activities
Disposal of business (net of
expenses) 33,261 -
Acquisition of subsidiary, net
of cash acquired (100) (1,295)
Purchase of property, plant and
equipment (390) (57)
Investment in development costs (7,270) (7,936)
Proceeds from disposal of property - 11
Investment in intangibles 25 (265)
Investment in loan note - (323)
Finance income 75 106
Net cash flows from / (used in)
investing activities 25,601 (9,759)
---------------------------------------- --------- ----------
Financing activities
Lease liability repayments (556) (682)
Proceeds from borrowings 282 -
Issue of ordinary shares 29 7
Purchase of own shares for treasury (1,590) -
Dividends paid to shareholders (674) (1,332)
Share capital redemption (8,276) -
Finance expense (15) (34)
---------------------------------------- --------- ----------
Net cash flows used in financing
activities (10,800) (2,041)
---------------------------------------- --------- ----------
Increase / (decrease) in cash
and cash equivalents 22,968 (4,798)
---------------------------------------- --------- ----------
Movement in cash and cash equivalents:
At start of year 8,479 12,809
Increase/(decrease) in cash and
cash equivalents 22,968 (4,798)
Effects of exchange rate changes 749 468
---------------------------------------- --------- ----------
At end of year 32,196 8,479
---------------------------------------- --------- ----------
Cash flows presented exclude sales taxes.
Consolidated statement of changes in equity for the year ended
31 March 2021
Share- Foreign
Share Share Redemption Treasury based exchange Retained
capital premium reserve shares payments reserves earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
At 31 March 2019 - audited 856 9,279 9 (342) 507 1,406 30,604 42,322
Changes in accounting policy - IFRS 16 (30) (30)
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
Restated at 31 March 2019 856 9,279 9 (342) 507 1,406 30,574 42,292
Profit for year 1,536 1,536
Other comprehensive
income
Foreign exchange differences 308 308
Net actuarial gain recognised directly
to equity on retirement benefit
obligations (995) (995)
Deferred tax on actuarial gain 187 187
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
Total comprehensive income for year - - - - - 308 728 1,036
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
859 9,279 9 (342) 507 1,714 31,302 43,328
Transactions with owners in
their capacity as owners
Issue of ordinary shares 7 7
Issue of own shares - treasury 262 (14) 248
Dividend paid (1,332) (1,332)
Total transactions with owners in their
capacity as owners 7 - 262 - - (1,346) 1,077
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
Share -- based payments in year 139 139
Cancellation/transfer of share -- based
payments (64) 64 -
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
At 31 March 2020 - audited 859 9,286 9 (80) 582 1,714 30,020 42,390
Profit for year 23,564 23,564
Other comprehensive
income
Foreign exchange differences (312) (312)
Foreign exchange differences
discontinued operations (1,100) (1,100)
Net actuarial gain recognised directly
to equity on retirement benefit
obligations (897) (897)
Deferred tax on actuarial gain 170 170
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
Total comprehensive income for year - - - - - (1,412) 22,837 21,425
859 9,286 9 (80) 582 302 52,857 63,815
Transactions with owners
in their capacity as owners
Issue of ordinary shares - exercise of
share options 29 29
Purchase of own shares - treasury (1,590) (1,590)
Share capital redemption (8,276) (8,276)
Dividend paid (674) (674)
Total transactions with owners in their
capacity as owners - (8,247) - (1,590) - - (674) (10,511)
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
Share -- based payment charge 143 143
Cancellation/transfer of share -- based
payments (155) 155 -
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
At 31 March 2021 - unaudited 859 1,039 9 (1,670) 570 302 52,338 53,447
---------------------------------------- ------- ------- ---------- -------- -------- -------- --------- ---------
1 Segmental analysis
Reported segments and their results in accordance with IFRS 8,
are based on internal management reporting information that is
regularly reviewed by the chief operating decision maker (C. A.
Gurry). The measurement policies the Group uses for segmental
reporting under IFRS 8 are the same as those used in its financial
statements.
The Group is focused for management purposes on one primary
reporting segment, being the semiconductor segment, with similar
economic characteristics, risks and returns and the Directors
therefore consider there to be one business segment
classification.
Geographical information (by origin)
Rest of
UK Europe Americas Far East Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------- ------- -------- -------- -------
Year ended 31 March 2021
- unaudited
--------------------------------- ------ ------- -------- -------- -------
Revenue to third parties
- by origin 5,867 - 1,624 4,979 12,470
--------------------------------- ------ ------- -------- -------- -------
Property, plant and equipment 4,753 - 22 89 4,864
--------------------------------- ------ ------- -------- -------- -------
Right -of-use assets 90 - 255 64 409
--------------------------------- ------ ------- -------- -------- -------
Investment properties 3,775 - - - 3,775
--------------------------------- ------ ------- -------- -------- -------
Development costs 7,942 - - 1,249 9,191
--------------------------------- ------ ------- -------- -------- -------
Intangibles - software and
intellectual property 264 - - 101 365
--------------------------------- ------ ------- -------- -------- -------
Goodwill 1,531 - - 5,541 7,072
--------------------------------- ------ ------- -------- -------- -------
Other intangible assets arising
on acquisition 210 - - 701 911
--------------------------------- ------ ------- -------- -------- -------
Total assets 52,228 - 2,467 10,549 65,244
--------------------------------- ------ ------- -------- -------- -------
Year ended 31 March 2020
- audited
Revenue to third parties
- by origin 4,307 - 2,824 7,832 14,963
--------------------------------- ------ ------- -------- -------- -------
Property, plant and equipment 4,724 182 30 40 4,976
--------------------------------- ------ ------- -------- -------- -------
Right-of-use assets 164 244 547 229 1,184
--------------------------------- ------ ------- -------- -------- -------
Investment properties 3,170 - - - 3,170
--------------------------------- ------ ------- -------- -------- -------
Development costs 6,161 9,793 - 976 16,930
--------------------------------- ------ ------- -------- -------- -------
Intangibles - software and
intellectual property 596 - - 118 714
--------------------------------- ------ ------- -------- -------- -------
Goodwill 1,531 3,512 - 5,698 10,741
--------------------------------- ------ ------- -------- -------- -------
Other intangible assets arising
on acquisition 235 - - 874 1,109
--------------------------------- ------ ------- -------- -------- -------
Total assets 24,606 16,984 2,203 13,445 57,238
--------------------------------- ------ ------- -------- -------- -------
2 Revenue
The geographical classification of business turnover
(by destination) is as follows:
Unaudited Restated
2021 2020
Continuing business GBP'000 GBP'000
----------------------------------------------------- --------- ---------
Europe 2,996 3,362
Far East 7,005 8,239
Americas 2,000 2,875
Others 469 487
----------------------------------------------------- --------- ---------
12,470 14,963
----------------------------------------------------- --------- ---------
3 Dividend - paid and proposed
During the year a final dividend of 2.0p per ordinary share of
5p was paid in respect of the year ended 31 March 2020. An interim
dividend of 2.0p per ordinary was paid on 18 December 2020 to
shareholders on the Register on 4 December 2020.
It is proposed to pay a final special dividend of 50.0p per
ordinary share of 5p, taking the total dividend amount in respect
of the year ended 31 March 2021 to 52.0p. It is proposed to pay the
final dividend of 50.0p, if approved, on 13 August 2021 to
shareholders registered on 30 July 2021 (2020: paid 7 August 2020
to shareholders registered on 24 July 2020).
4 Income tax expense
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 Restated
2021 2020
GBP'000 GBP'000
------------------------------------------------------- --------- --------
Current tax
UK corporation tax on results of the year (1,089) (588)
Adjustment in respect of previous years (37) -
------------------------------------------------------- --------- --------
(1,126) (588)
Foreign tax on results of the year 248 182
Foreign tax - adjustment in respect of previous
years - 1
------------------------------------------------------- --------- --------
Total current tax (878) (405)
------------------------------------------------------- --------- --------
Deferred tax
Deferred tax - Origination and reversal of temporary
differences 91 106
Deferred tax - relating to changes in rates - 106
Adjustments to deferred tax charge in respect of
previous years (5) -
------------------------------------------------------- --------- --------
Total deferred tax 86 212
------------------------------------------------------- --------- --------
Tax (income) / charge on profit on ordinary activities (792) (193)
------------------------------------------------------- --------- --------
5 Earnings per share
Unaudited Restated
2021 2020
----------------------------------------------------------- --------- --------
Earnings per share for profit from continuing operations
attributable to the ordinary equity holders of the
company:
Basic earnings per share 4.81p 8.02p
Diluted earnings per share 4.79p 7.98p
Earnings per share for profit attributable to the
ordinary equity holders of the company:
Basic earnings per share 141.13p 8.98p
Diluted earnings per share 140.56p 8.94p
The calculation of basic and diluted earnings per share is based
on the profit from continuing operations attributable to ordinary
shareholders, divided by the weighted average number of shares in
issue during the year, as shown below:
Unaudited 2021 Restated 2020
--------------------------------- -----------------------------------
Weighted Weighted
average average
number of Earnings number of Earnings
Profit shares per share Profit shares per share
Basic earnings per share GBP'000 Number p GBP'000 Number p
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Basic earnings per share
- from profit for year 802 16,696,060 4.81 1,371 17,099,216 8.02
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Basic earnings per share 802 16,696,060 4.81 1,371 17,099,216 8.02
Dilutive effect of share
options - 67,886 (0.02) - 88,355 (0.04)
---------------------------- ------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
* from profit for year 802 16,763,946 4.79 1,371 17,187,571 7.98
---------------------------- ------- ------------ ---------- ------- ------------ ------------
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
shown below:
Unaudited 2021 Restated 2020
---------------------------------- -----------------------------------
Weighted Weighted
average average
number of Earnings number of Earnings
Profit shares per share Profit shares per share
Basic earnings per share GBP'000 Number p GBP'000 Number p
---------------------------- -------- ------------ ---------- ------- ------------ ------------
Basic earnings per share
- from profit for year 23,564 16,696,060 141.13 1,536 17,099,216 8.98
---------------------------- -------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
---------------------------- -------- ------------ ---------- ------- ------------ ------------
Basic earnings per share 23,564 16,696,060 141.13 1,536 17,099,216 8.98
Dilutive effect of share
options - 67,886 (0.57) - 88,355 (0.04)
---------------------------- -------- ------------ ---------- ------- ------------ ------------
Diluted earnings per
share
* from profit for year 23,564 16,763,946 140.56 1,536 17,187,571 8.94
---------------------------- -------- ------------ ---------- ------- ------------ ------------
6 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 years presented:
Unaudited Restated
2021 2020
GBP'000 GBP'000
--------------------------------------------------- --------- ----------
Profit before taxation (earnings) 10 1,178
Adjustments for:
Finance income (75) (105)
Finance expense 37 45
Depreciation 310 302
Depreciation - right-of-use assets 202 211
Impairment of development costs 701 -
Amortisation of development costs 1,191 2,501
Amortisation of acquired and purchased intangibles
recognised on acquisition 212 212
Share-based payments 143 139
--------------------------------------------------- --------- ----------
Adjusted EBITDA 2,731 4,483
--------------------------------------------------- --------- ----------
7 Discontinued Operations
On 10 December 2020 the group announced it had entered into a
definitive agreement to divest its storage division,
Hyperstone.
Hyperstone was sold on 4 February 2021 and is reported in the
current period as a discontinued operation. Financial information
relating to the discontinued operation for the period to the date
of effective disposal is set out below.
Financial performance and cash flow information
The financial performance and cash flow information presented
are up to date of disposal (2021 column) and the year ended 31
March 2020.
2021 2020
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Revenue 9,505 11,457
Cost of Sales (3,043) (3,594)
----------------------------------------------------- -------- --------
Gross Profit 6,462 7,863
Distribution and administration (5,396) (7,702)
----------------------------------------------------- -------- --------
1,066 161
Other operating income 8 85
----------------------------------------------------- -------- --------
Profit from operation 1,074 246
Finance income - 1
Finance expenses (42) (51)
----------------------------------------------------- -------- --------
Profit before tax 1,032 196
Income tax expense (10) (31)
----------------------------------------------------- -------- --------
Profit after income tax and dividend of discontinued
operation 1,022 165
Gain on sale of subsidiary after income tax 21,740 -
----------------------------------------------------- -------- --------
Profit from discontinued operation 22,762 165
----------------------------------------------------- -------- --------
Reclassification of foreign exchange differences
on discontinued operation (1,100) -
-------------------------------------------------------- -------
Other comprehensive income from discontinued operations (1,100) -
-------------------------------------------------------- -------
Net cash inflow from operating activities 3,879 3,717
Net cash outflow from investing activities (3,380) (3,681)
Net cash outflow from financing activities (206) (236)
---------------------------------------------------- ------- -------
Net increase / (decrease) in cash from discontinued
operations 293 (200)
---------------------------------------------------- ------- -------
Net increase / (decrease) in cash from discontinued
operations 293 (200)
Proceeds from sale of discontinued operations net
of cost 33,261 -
---------------------------------------------------- ------ -----
Total cash inflow / (outflow) from discontinued
operations 33,554 (200)
---------------------------------------------------- ------ -----
Details of the sale of subsidiary
2021 2020
GBP'000 GBP'000
Consideration received or receivable:
Cash 35,832 -
---------------------------------------------------- -------- --------
Total disposal consideration 35,832 -
Carrying amount of net assets sold (8,742) -
Carrying amount of Goodwill (3,512) -
Carrying amount of other intangible assets (268)
Other associated costs (2,571) -
---------------------------------------------------- -------- --------
Gain on sale before income tax and reclassification
of foreign currency translation reserve 20,739 -
Reclassification of foreign currency translation
reserve 1,100 -
Income tax expense on gain (99) -
---------------------------------------------------- -------- --------
Gain on sale after income tax 21,740 -
---------------------------------------------------- -------- --------
Other associated costs relate to Legal and professional fees
along with other contracted costs of GBP1,936,000 and other
ancillary costs of GBP635,000.
The carrying amounts of assets and liabilities as at the date of
disposal were:
Date of
disposal
Non-current assets GBP'000
Development costs 10,613
Property, plant and equipment 159
Right-of-use assets 221
Deferred tax assets 159
Inventories 1,370
Trade receivables and prepayments 1,972
Cash & cash equivalents 1,049
Current tax assets 340
---------
Total assets 15,883
---------
Current liabilities
Bank loans and overdrafts (1,343)
Trade and other payables (2,658)
Leased liabilities (216)
---------
(4,217)
---------
Non -current liabilities
Leased liabilities (2,920)
Current tax liabilities (4)
---------
(2,924)
---------
Total liabilities (7,141)
---------
Net assets 8,742
---------
8 Investment properties
Investment properties are measured at fair value and are
revalued annually by the Directors and in 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. The open market valuation value of
the investment properties recognised is GBP3,775,000 (2020:
GBP3,170,000). Formal market valuation was conducted in the year by
Fenn Wright and Lambert Smith Hampton, Commercial Property
Consultants.
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 will 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
sectors, 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 that is undergoing continual and 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 (including
the UK's withdrawal from the European Union, or 'Brexit'),
political risk, the enforceability of laws and contracts, changes
in the tax laws, terrorist activities, natural disasters or health
epidemics.
COVID-19
During the pandemic the Group ensured that its critical
infrastructure, resources and activities were organised to provide
continuity of our operations which enabled us to implement our
responsive approach to COVID-19. All non-essential operational
employees worked from home, the Group did not make use of the
government's staff retention schemes in the UK. In United States
the government provided support in the form of a loan under the
Paycheck Protection Program ($388,400) which could be forgiven, in
Singapore there was support from job retention schemes ($62,300)
and in China there was minor support from stabilising and enlarging
employment Policy which was took up. The Board continues to closely
monitor the impact of COVID-19 and is taking prudent steps to
mitigate any potential impacts to our employees, customers,
suppliers and other stakeholders..
The Group is following the guidance of the World Health
Organisation and other government health agencies. The Group
remains prepared to implement appropriate mitigating strategies to
minimise any potential business disruption and continues to carry
out regular assessments of the modelled scenarios based on the
management's current understanding of potential income and
mitigating actions within the control of management, including
reductions in discretionary spend along with tighter internal
controls, but no fixed costs reductions have been assumed.
Given the nature of the markets we operate within, we anticipate
our end customers being insulated from a consumer downturn to some
extent, although the roll-out of some of the new products may be
delayed, dampening demand for our semiconductors. Even in these
difficult times, we still maintain the belief that the Group is
well placed to move positively forward in the medium to long term.
This belief is underpinned by a strong balance sheet and no debt,
along with a product portfolio that addresses markets that have a
positive outlook.
Brexit
The United Kingdom's exit from the European Union is anticipated
to have a low impact on the Group.
10 Significant accounting policies
The accounting policies used in preparation of the annual
results announcement are the same accounting policies set out in
the year ended 31 March 2020 financial statements with the
exception of the revision to the Research and development
amortisation and impairment policy as set out below
Distinguishing whether development expenditure satisfies the
recognition requirements for the capitalisation of development
costs requires the exercise of judgement.
The disposal of the storage division coupled with the completion
of the implementation of the new ERP system, lead to new
information being available with regards to lifecycle and
availability of the Groups products. Therefore, a full review was
carried out of the development expenditure, the impairment, and the
amortisation. As a result of this review, it was established that
the amortisation period of the development expenditure should be
amended to delay the commencement of amortisation and to extend the
amortisation period. A review for potential impairment of
development costs was also carried out which identified that there
was a requirement to impair in the year.
The research and development review highlighted that the
judgement on when amortisation should commence, and the period of
amortisation was overly prudent. Hence, following the review the
product lifecycle was extended from four to six years and internal
development expenditure amortisation was delayed for a period to
coincide with when the product was available to the market. The
changes made to these policies arose from the availability of new
information and therefore represents a change in accounting
estimate. This change of judgement resulted in the amortisation for
the year to 31 March 2021 reducing to GBP1.190m as compared to an
amount of GBP2.646m which would have been incurred under the old
policy, thus yielding a cost reduction of GBP1.456m.
Following the revision of the judgement of the product lifecycle
an impairment review was undertaken into each stage of the product
development, highlighting any amounts needing to be written off.
This review resulted in the carrying costs of the development
expenditure needing an impairment of GBP0.701m for the year (2020:
GBPNil).
The net effect of the change in product lifecycle and impairment
was to improve profits for the year to 31 March 2021 by GBP0.755m.
Going forward the impact in future periods will that be that the
carrying value of the development costs will be higher due to
amortisation being over a longer period. It is impractical to
estimate the impact in change in estimate in future periods as
costs are capitalised year on year dependent on products in
development.
11 General
These Condensed Consolidated Financial Statements have been
prepared in accordance with International Accounting standards in
conformity with the requirements of the Companies Act 2006. They do
not include all of the information required for full annual
statements and should be read in conjunction with the 2021 Annual
Report.
The comparative figures for the financial year 31 March 2020
have been extracted from the Group's statutory accounts for that
financial year after adjusting for the discontinued operations (see
note 7). The statutory accounts for the year ended 31 March 2020
have been filed with the registrar of Companies. The auditor
reported on those accounts: their report was (i) unqualified, (ii)
did not include references to any matters to which the auditor drew
attention by way of emphasis without qualifying the reports and
(iii) did not contain statements under section 498(2) or (3) of the
Companies Act 2006.
The statutory accounts for the year ended 31 March 2021 are
expected to be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and
signed following approval by the Board of Directors on 25 June 2021
and delivered to the Registrar of Companies following the Company's
Annual General Meeting on 4 August 2021.
The financial information contained in this announcement does
not constitute statutory accounts for the year ended 31 March 2021
or 2020 as defined by Section 434 of the Companies Act 2006.
A copy of this announcement can be viewed on the company website
http://www.cmlmicroplc.com .
12 Approval
The Directors approved this preliminary results announcement on
14 June 2021.
Glossary
5G Fifth Generation Cellular Network Technology
AIM Alternative Investment Market
API Application Programmers Interface
CAGR Compound Annual Growth Rate
EBITDA Earnings before interest, tax, depreciation and amortisation
EU European Union
GaN Gallium Nitride
GaAs Gallium Arsenide
GMP Guaranteed Minimum Pension
IAS International Accounting Standard
IC Integrated Circuit
IFRS International Financial Reporting Standards
IIoT Industrial Internet of Things
IP Intellectual Property
M2M Machine -- to -- machine
OEM Original Equipment Manufacturer
R&D Research and Development
RF Radio Frequency
RFID Radio Frequency Identification
ROI Return on Investment
SoC System on Chip
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FR SFUFULEFSELM
(END) Dow Jones Newswires
June 15, 2021 02:00 ET (06:00 GMT)
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