RNS Number:1578Y
CML Microsystems PLC
12 June 2007
CML MICROSYSTEMS Plc
PRELIMINARY RESULTS
Loss broadly in line with market expectations
CML Microsystems Plc ("CML"), which designs, manufactures and markets a range of
integrated circuits (ICs) for global industrial, professional and consumer
applications within the areas of wireless communication, wireline communication,
storage and networking, with operations based in the UK, Germany, the US,
Singapore, China and Taiwan announces its Preliminary Results for the year
ending 31st March 2007.
Commenting on the results, George Gurry, Chairman said:
"As foreshadowed when reporting on the interim results and the outlook for the
second half, the results for the full year ended 31 March 2007 reflect the
material losses posted for each of the six month trading periods ... the loss is
broadly in line with market expectations for the year."
Financial Summary
* Turnover of #17.77m (2006: #26.33m)
* Loss before tax of #3.21m (2006: Profit before tax of #3.49m)
* Loss per share of 17.53p (2006: Earnings per share of 17.68p)
* Cash in bank and at hand of #3m
* Dividend of 5p per share (2006: 10.5p), payable 3 August 2007
Regarding prospects, George Gurry, Chairman said:
"The opening months of the current year are generally on or slightly ahead of
operating targets, although firm progress will most likely not become evident
before the second half. Action to address the product availability delays of
last year will only begin to bite in coming months.
"I am disappointed with the full year results but encouraged that steps to
tackle issues under management control will bear effect. I am confident,
subject to unforeseen circumstances, in expecting a firm improvement in
performance for this current year, including clear visibility of the point when
the Group will return to profitability."
Enquiries:
CML Microsystems Plc www.cmlmicroplc.com
Nigel Clark, Financial Director 020 7479 7933 (today)
Chris Gurry, Business Development Director 01621 875500 (thereafter)
Parkgreen Communications Ltd 020 7479 7933
Paul McManus 07980 541 893
Ben Knowles 07900 346 978
Chairman's Statement
Introduction
As foreshadowed when reporting on the interim results and the outlook for the
second half, the results for the full year ended 31 March 2007 reflect the
material losses posted for each of the six month trading periods.
The losses at the operating level were much as had been forecast internally, and
arising from the product introduction delays and lost customer issues referred
to in my interim statement, but the overall reported loss is increased under the
new accounting and reporting standards. Notwithstanding that, the loss is
broadly in line with market expectations for the year.
Results
Group revenues amounted to #17.77m (2006: #26.33m) for the year, the decline
attributable largely to the serious reduction in product shipments to a key
customer within the consumer storage market area.
A loss before taxation of #3.21m (2006: Profit before taxation #3.49m) was
recorded although it can be noted that a weaker dollar along with amortisation
and pensions adjustments were significant contributing factors.
The posted loss per share of 17.53p was better than market expectations although
down on the prior year (2006: earnings per share 17.68p).
Cash flow was negative during the year and cash balances reduced by #2.7m
following a #3.2m loss before taxation and the payment of a #1.6m dividend.
Dividend
Your directors have considered the material loss and negative cash flow recorded
for the year just ended, and the pressure that has been placed on cash reserves
and working capital, and they believe it is appropriate to ensure that resources
should be prioritised towards ensuring a return to profitability for your
Company.
The Board has confidence that your Company can achieve its planned progress in
this current year, and is recommending payment of a dividend of 5p per ordinary
share (2006: 10.5p per ordinary share) to be payable on 3rd August 2007 to
shareholders registered on 6th July 2007.
Prospects
The opening months of the current year are generally on or slightly ahead of
operating targets, although firm progress will most likely not become evident
before the second half. Action to address the product availability delays of
last year will only begin to bite in coming months.
I am disappointed with the full year results but encouraged that steps to tackle
issues under management control will bear effect. I am confident, subject to
unforeseen circumstances, in expecting a firm improvement in performance for
this current year, including clear visibility of the point when the Group will
return to profitability.
The progress of any business is always dependent on the quality and dedication
of the people it employs. I am confident that our employees are motivated
towards the success of the Group and its return to profit and the Board wish to
thank the employees worldwide for their dedication and support through the year.
G W Gurry
Chairman
12th June 2007
Business Review
This year can be characterised by good progress with a number of the Company's
growth plans, coupled with certain disappointments that significantly impacted
financial improvement over the prior year.
On a market segmental basis, performance during the year was mixed:
Wireless
A significant reduction in revenues from products shipped into the very low cost
analogue leisure radio market was partially countered by growth in application
areas for voice privacy and digital radio markets. The Company benefited from
historic investments in this area and voice privacy IC shipments for military
digital radios along with revenues from wireless data IC's for telemetry systems
exceeded those that were planned.
Revenues from shipments to professional analogue radio manufacturers continued
to grow and steady progress with customer design-in activity occurred. It is
noteworthy that growth continued in this historic analogue segment alongside
that seen within the newer digital radio markets where the Company is also well
placed and has been active for some years.
Adoption of products based upon the Company's proprietary FirmASIC technology
was encouraging and production volumes began shipping towards the year-end.
Time-to-market with products based upon this technology improved noticeably.
Wireline Telecom
Far-East data modem IC stocking issues were cleared and revenue levels moved
ahead as expected. Shipments of products to manufacturers within the wireless
local loop / fixed wireless terminal markets were particularly pleasing, despite
pricing pressure. It should be noted that business levels with certain customers
within this market sub-segment continue to exhibit uncertainty due to the bid
and tender process that is a pre-requisite to any significant contract awards.
As noted at the interim period, the Company achieved good progress with its
strategy of expanding product integration, reducing time to market and improving
commercial competitiveness.
Storage
In the consumer storage area, revenues were impacted by the decision of the
single largest Group customer to exit the flash memory card market. This
situation was unexpected as we began the year, and occurred whilst the customer
base in the storage segment was relatively low, and during a period where these
customers were in the process of designing-in Group products or in the early
production phase.
This event was unfortunate but has to be considered along with the fact that the
Company intends to become a major player in certain sub-sectors of the storage
market, and volatility can be experienced during the early stages of the growth
phase whilst customer concentration is high.
Outside of the consumer memory card markets, progress was on track and
penetration of the customer base for solid-state drives (SSD) was significant.
SSD storage devices offer a number of benefits over magnetic media for certain
applications such as faster access times, lower current consumption, higher
operating temperatures and improved reliability. The Company has extensive
experience, a strong patent and technology portfolio and world-class products in
this area that all contributed to a noteworthy revenue increase during the year.
Networking
Shipments of IC's into networking applications fell slightly year on year. This
is an area where R&D investment has been substantial and the reduction in
revenues masked the underlying progress that was made and reflected the typical
delay from new product introduction through to customer volume production phase.
Revenues from older, less integrated products fell whilst shipments of newer
technology IC's released to production at the beginning of the year began to
increase as the year-end approached. Investment in the development of support
tools for these new IC's along with reference designs for target market
applications continued.
In a year where revenues have reduced dramatically as a direct result of
unexpected issues associated with a single customer, it is appropriate to
reiterate that during the year the Group had no single customer who represented
more than ten percent of Group revenues and only one customer who represented
more than five percent of Group revenues.
Margins
Gross margins within the Group's historical markets of wireline telecom and
wireless were held at previous year levels and, with the reduction in revenues
experienced within the storage market, the overall gross profit margin improved
slightly to 62% (2006 - 60%). Product delays within consumer storage application
areas contributed to increased pricing pressure towards the year-end.
Overheads
During the year, the majority of customer transactions were in US dollars. The
Group had a partial natural hedge due to significant raw material purchases
being made in US dollars and no further hedging arrangements were entered into.
The weakening of the US dollar had an adverse effect on profits.
Tight control over the overheads was maintained whilst having appropriate regard
for the growth objectives of the business. Despite the increased control
measures, overheads increased and the main contributors to that were accounting
for pensions under IAS 19, the effects of amortisation and the weakening of the
US dollar.
Pensions
Over the last few years the Board, in conjunction with the pension schemes
trustees and actuary, have been working to reduce the scheme deficit in the
Group's defined benefit pension scheme and various measures have been put in
place with this objective in mind. These measures are agreed with the scheme
actuary who conducts a triennial valuation, as required by law. In addition, the
Group has to comply with IAS 19 for the accounting of this liability in the
consolidated financial statements. In arriving at the effect of IAS 19 for
retirement benefit obligations on the income statement, the scheme actuary
calculates the movements in the scheme deficit. It is not practical for the
Company to calculate this and then estimate the effect on internal forecasts, so
any non-recurring charge has the potential to alter results unexpectedly.
During the year, a new set of pension commutation factors were introduced which
had the effect of increasing the past service liabilities of the scheme. This
charge amounted to #587k (2006 - #nil) and has been confirmed as a one off cost.
The net of the current years service cost and the past service costs are added
to the administration cost and this resulted in a charge for the year of #993k
(2006 - #380k) reflecting a year-on-year negative variance of #613k. The
financial income or cost is adjusted in a similar manner and this year's income
amounted to #227k (2006 - cost of #20k) posting a positive comparative variance
of #247k.
Pensions - continued
The net effect of IAS 19 on the income statement was to increase the loss before
taxation by #766k (2006 - decrease profit before tax by #400k). A further
actuarial gain was recorded of #1,063k (2006 - #222k) and this is posted through
the statement of recognised income and expenditure resulting in a scheme
deficit, before any deferred tax adjustment, of #2,289k (2006 - #3,135k).
Taxation
The low taxation credit within the income statement reflects the large
adjustment to the taxation charge on the subsidiary Hyperstone GmbH. This
followed a revised determination by the German tax authority following a tax
inspection that took place on one of the previous owners. The basis on which
certain allowances were claimed in prior years was disallowed and resulted in a
further amount of #450k becoming payable. The whole of this amount was charged
to tax during the year.
Property
In addition to property from which operating subsidiaries trade, the Group owns
a number of investment properties that are stated within the balance sheet at
market value. The remaining property is stated at historical cost. The Board is
mindful of the significant value held in property within the balance sheet and
accordingly took moves during the year to ensure this area of the business
provides a better return for shareholders. The long leasehold premises at
Fareham, Hampshire which was previously held as an investment property was
placed on the market for sale prior to the year end and an investigation
commenced into the possibility of increased development of the Group
headquarters site in Essex.
Development costs
Steady new product progress was made in the wireless and wireline telecom
markets with eight new products being launched during the year. Development of
the networking and storage solutions products fell significantly behind
schedule, as reported at the interim stage. Overall spend on development was
slightly down on the previous year at #4.704m (2006 - #5.063m). The effects of
adopting IAS 38, as opposed to following historical policies under UK GAAP where
all development expenditure was written off during the year incurred, resulted
in a small negative effect on the income statement of approximately #85k.
Working capital and cash flow
With a significant reduction in revenues becoming apparent during the year, and
in keeping with management objectives, inventory levels reduced significantly
and tight financial control was exercised over cash flow. The resulting effect
was that cash balances reduced by #2.7m following a #3.2m loss and the payment
of a #1.6m dividend.
CML Microsystems Plc
Consolidated Income Statement
Unaudited Audited
Year end 31st Year end 31st
March 2007 March 2006
#'000 #'000
Revenue 17,768 26,333
Cost of sales (6,729) (10,473)
Gross Profit 11,039 15,860
Distribution and administration costs (14,985) (13,409)
(3,946) 2,451
Other operating income 660 472
Operating (loss)/profit before adjustments (3,286) 2,923
Share based payments (76) (79)
Operating (loss)/profit after adjustments (3,362) 2,844
Revaluation of investment properties - 695
Finance costs (228) (233)
Finance income 381 180
(Loss)/profit before taxation (3,209) 3,486
Income taxation 591 (853)
(Loss)/profit after taxation attributable to equity
shareholders (2,618) 2,633
(Loss)/earnings per share
Basic (17.53)p 17.68p
Diluted (17.53)p 17.66p
Statement of Recognised Income and Expense
Unaudited Audited
Year end 31st Year end 31st
March 2007 March 2006
#'000 #'000
(Loss)/profit for the period (2,618) 2,633
Foreign exchange differences (346) 350
Actuarial gain 1,063 222
Income tax on actuarial gain (319) (67)
Recognised (losses) and gains relating to the period (2,220) 3,138
CML Microsystems Plc
Consolidated Balance Sheet
Unaudited Audited
31st March 2007 31st March 2006
#'000 #'000
Assets
Non current assets
Tangible assets - Property, plant and equipment 6,803 7,256
Tangible assets - Investment property 2,245 3,845
Intangible assets - Development costs 5,984 6,133
Intangible assets - Goodwill on consolidation 3,512 3,512
Deferred tax asset 1,717 1,165
20,261 21,911
Current assets
Inventories 1,595 2,233
Trade receivables and prepayments 3,057 4,899
Current tax assets 419 537
Cash and cash equivalents 3,000 5,708
8,071 13,377
Non current assets classified as held for
sale - property 1,600 -
9,671 13,377
Total assets 29,932 35,288
Liabilities
Current liabilities
Bank loans and overdrafts 4,000 4,000
Trade and other payables 2,248 3,297
Current tax liabilities 761 365
7,009 7,662
Non current liabilities
Deferred tax liabilities 3,128 3,159
Provisions 30 147
Retirement benefit obligation 2,289 3,135
5,447 6,441
Total liabilities 12,456 14,103
Net Assets 17,476 21,185
Equity
Share capital 747 745
Convertible warrants - 120
Capital reserve 4,148 4,039
Share based payments reserve 238 162
Foreign exchange reserve (36) 310
Accumulated profits 12,379 15,809
Shareholders' equity 17,476 21,185
CML Microsystems Plc
Consolidated Cash Flow Statement
Unaudited Audited
Year end Year end
31st March 2007 31st March 2006
#'000 #'000
Operating activities
Net (loss)/profit for the period before income taxes (3,209) 3,486
Adjustments for:
Revaluation of investment properties - (695)
Depreciation 706 666
Amortisation of development costs 4,789 4,005
Movement in pensions deficit 217 (147)
Share based payments 76 79
Exceptional restructuring costs (117) (273)
Interest expense 228 233
Interest income (381) (180)
Increase/(decrease) in working capital 1,418 (2,533)
Cash flows from operating activities 3,727 4,641
Income tax refunded 236 69
Net cash flows from operating activities 3,963 4,710
Investing activities
Purchase of tangible fixed assets (369) (722)
Investment in intangible assets (4,704) (5,063)
Disposals of tangible fixed assets 56 19
Interest income 381 180
Net cash flows from investing activities (4,636) (5,586)
Financing activities
Issue of ordinary shares - 32
Repayment of bank loan - (377)
Dividends paid to group shareholders (1,564) (1,564)
Interest expense (228) (233)
Net cash flows from financing activities (1,792) (2,142)
Decrease in cash and cash equivalents (2,465) (3,018)
Movement in cash and cash equivalents:
At start of period 5,708 8,449
Decrease (2,465) (3,018)
Effects of exchange rate changes (243) 277
At end of period 3,000 5,708
CML Microsystems Plc
Consolidated Statement of Changes in Equity
Share Convertible Capital Share based Foreign Accumulated Total
Capital Warrants reserves payments Exchange profits
reserve
#'000 #'000 #'000 #'000 #'000 #'000 #'000
At 1st April 2005 744 120 4,007 82 (40) 14,585 19,498
Audited
Shares issued 1 32 33
Foreign Exchange
differences 350 350
Net actuarial gains
recognised directly to
equity 222 222
Deferred tax on
actuarial gains (67) (67)
Dividends paid (1,564) (1,564)
Profit for period 2,633 2,633
Share based payments 80 80
At 1st April 2006 745 120 4,039 162 310 15,809 21,185
Unaudited
Warrants converted/
lapsed 2 (120) 109 9 -
Foreign Exchange
differences (346) (346)
Net actuarial gains
recognised directly to
equity 1,063 1,063
Deferred tax on
actuarial gains (320) (320)
Dividends paid (1,564) (1,564)
Loss for period (2,618) (2,618)
Share based payments 76 76
At 31st March 2007 747 - 4,148 238 (36) 12,379 17,476
CML Microsystems Plc
Notes
1. Presentation of results
The directors approved this Preliminary announcement on 11th June 2007.
The results for the year have been prepared using International Financial
Reporting Standards and the accounting policies as set out the most recently
published financial statements along with the only new accounting policy
relating to non current assets held for sale which have been valued at the lower
of the carrying value or fair value less costs to sell. The reclassification to
current assets takes place when the assets are placed on the open market
available for sale.
The audited financial information for the year ended 31st March 2006 is based on
the statutory accounts for the financial year ended 31st March 2006 that have
been filed with the Registrar of Companies and on which the auditors gave an
unqualified audit opinion.
The financial information contained in this announcement does not constitute
statutory accounts as defined by Section 240 of the Companies Act 1985.
2. Dividend
A dividend of 5p per Ordinary Share (2006: 10.5p per Ordinary Share) is
recommended in respect of the year ended 31st March 2007 and will be paid on 3rd
August 2007 to shareholders on the register as at 6th July 2007.
3. Earnings per share
The calculation of basic and diluted (loss)/earnings per share is based on the
(loss)/profit attributable to shareholders, divided by the weighted average
number of shares in issue during the year.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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