CML Cml Microsystems Plc

19 November 2024

CML Microsystems Plc

("CML", the "Company" or the "Group")

Half Year Results

Resilient trading and operational progress in challenging market conditions

CML Microsystems Plc which develops mixed-signal, RF and microwave semiconductors for global communications markets, today announces its unaudited results for the six months ended 30 September 2024.

Financial Highlights

Operational Highlights

1.    Net cash is the total of cash, cash equivalents and short-term deposits see note 7.

2.    Basic earnings per share reconciliation see note 6.

Chris Gurry, Managing Director of CML Microsystems Plc, commented on the results:

"The progress we've made this period despite the ongoing headwinds in some industrial markets showcases the resilience and adaptability of our business model. We continue to expand our market position as we navigate industry-wide challenges by diversifying and innovating our product portfolio to target adjacent markets that offer the most potential. Long-term customer relationships with blue-chip organisations remain strong, underscoring our reputation as a trusted technology partner.

While market conditions remain subdued in the near term, our ongoing investments, strategic initiatives and a strong balance sheet lay the foundations on which to build sustained, meaningful growth in the medium term."

Enquiries:

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.

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.

Chief Executive's review

Overview

The first six months of the financial year to 31 March 2025 has seen the Company make steady operational progress on several fronts. We are pleased by the resilience of our business model and the strategic progress made, despite the relative softness within some of the industrial markets addressed and ongoing customer inventory management dynamics. CML's market position has been expanded into new, adjacent market segments with an increased product-set thereby increasing the business' growth potential; important groundwork has been laid to build upon.

The post-acquisition integration of MwT has continued, with increased marketing and support activities around the enlarged product portfolio. As a new entrant to some end markets, particular attention is being paid to promoting awareness of CML as a proven and reliable technology partner. The Group's existing blue-chip customer base is assisting that process in conjunction with a continual focus on new customer reach, opportunity pipeline growth and enhancements to the sales channel network.

Research & development activities have been focused on new product developments to serve wider market access along with specific programmes to ensure security of supply for a selection of the more established key products. New product announcements included:

These product releases are targeted at new customers in adjacent communication market sectors, each representing significant growth opportunities.

The Group has R&D capabilities across multiple sites and, following a strategic review earlier in the year, the decision has been made to perform a restructuring within the UK team to facilitate streamlined collaboration, resource sharing and increased productivity. The process is expected to be complete by the end of the current financial year and further detail will be provided at the time of the full year results.

There have been disappointing delays in obtaining local US government building permits that are needed to unlock efficiency improvements and cost reductions within the Group's Silicon Valley-based facilities. The first half results include elevated costs relating to those delays with additional expenses stretching into the second half. Whilst it is not possible to put a definitive date on a resolution, current expectations are for the situation to be resolved by the end of the calendar year.

To summarise, multi-year investments have positioned us well for expansion with operational tweaks continuing to be made. The traditional voice and data centric markets are temporarily challenging but as a sole source supplier and supported by regular customer dialogue, we are confident that it is an industry wide problem. Expansion into microwave, millimetre wave and now broadcast radio sectors is underway and we remain very well placed as conditions improve.

Financial summary

Revenues for the first half of the financial year climbed 18% to £12.53m (H1 FY24: £10.58m), including a contribution of approximately £3.50m from products associated with the MwT acquisition. Geographically, sales into the Far East fell by close to 10% against the prior year comparable period, largely due to the previously reported environment in China. However, increases of 28% and 137% were recorded from the Americas and Europe respectively, where the Group is now shipping products into new application areas including fixed wireless backhaul, test & measurement and radar. The overall product mix delivered a gross profit of £8.74m (H1 FY24: £7.94m).

The maiden inclusion of MwT in the opening six-month period drove an increase in expenses against the prior year equivalent. One-off costs associated with US national security compliance activities and a loss on foreign exchange also contributed, leading to an overall rise in distribution and administration costs to £7.98m (H1 FY24: £6.32m).

The Group delivered a profit from operations of £0.58m (H1 FY24: £1.61m) and a profit before tax of £0.82m (H1 FY24: £1.87m).

The Board is declaring an interim dividend of 5.0p per ordinary share (H1 FY24: 5.0p), payable on 13 December 2024 to shareholders on the register on 29 November 2024.

As planned, stock levels have increased, predominantly at the raw material level. This is partly due to the inclusion of MwT from October 2023, but also in line with the strategic initiative to ensure continuity of supply in what continues to be an uncertain global environment. At 30 September 2024, inventory levels stood at £4.77m (31 March 2024: £3.67m). As noted in the Company's AGM statement on 13 August 2024, an improvement in customer inventory levels is anticipated during the second half of the financial year.

The balance sheet remains strong, with no debt, and disciplined cash management contributed to cash/cash equivalents totalling £14.98m at 30 September 2024 (30 March 2024: £18.21m). This follows cash outflows, totalling £5.01m arising from a combination of MwT acquisition stage payments (£0.96m), a final dividend (£0.96m), the purchase of Company shares for treasury (£0.45m) and investment in research and development costs of £2.64m. Further cash payments totalling £2.27m, in relation to the MwT acquisition, fall due in the second half of the year.

Property

Having been granted, in February 2023, planning permission on excess land at the Group's Essex Headquarters site, Oval Park, the land has been placed on the market for sale. It is the Group's intention to dispose of all surplus land and property that is outside of its operational needs. This also includes a vacant commercial property in Fareham, Hampshire. These one-off transactions are subject to attractive terms being achieved.

Current trading & outlook

We are pleased with the resilience of our business model, which against a backdrop of industrial market softness and stubbornly elevated customer inventory levels, is expected to deliver revenues in line with market expectations. We have made good operational progress in the half, and the Group's growth prospects have been enhanced through its investments and entry into additional market sectors with an expanded product set.

That being said, given the investment efforts to unlock future financial and operational gains alongside the protracted US building permit process and related costs, if the current trading environment persists, it will become challenging to meet management's full year expectations for trading profitability.

An additional consideration is that opportunities may present themselves in the meantime to realise exceptional benefits from the Group's non-operational property assets and discussions are ongoing. This adds to the variability of profit outcomes.

The Board is confident that the Company is well placed to deliver meaningful growth over the medium term as our growing product portfolio meets the increasingly complex needs of industrial communications. Whilst external pressures outside of our control remain frustrating, the operational decisions being taken, continuing investments and considerable effort expended will drive future performance.

Chris Gurry

Group Managing Director

19 November 2024

Condensed consolidated income statement

for the six months ended 30 September 2024

All financial information presented relates to continuing activities.

Earnings per share from total operations attributable to the ordinary equity holders of the Company:

The following measure is considered an alternative performance measure, not a generally accepted accounting principle. This ratio is useful to ensure that the level of borrowings in the business can be supported by the cash flow in the business. For definition and reconciliation see note 8.

Condensed consolidated statement of total comprehensive income

for the six months ended 30 September 2024

Condensed consolidated statement of financial position

as at 30 September 2024

Condensed consolidated cash flow statement

for the six months ended 30 September 2024

Cash flows presented exclude sales taxes. Further cash-related disclosure details are provided in note 7.

Changes in liabilities arising from financing activities relate to lease liabilities only.

Condensed consolidated statement of changes in equity

for the six months ended 30 September 2024

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued

for the six months ended 30 September 2024

Notes to the condensed consolidated financial statements

for the six months ended 30 September 2024

1 Basis of preparation and approval of interim statements

The financial information for the six months ended 30 September 2024 and for the six months ended 30 September 2023 is unaudited.

The interim financial statement for the six months to 30 September 2024 does not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements for the year ended 31 March 2024.

The financial information has been prepared on the basis of UK adopted international accounting standards (IFRSs) that the Directors expect to be applicable as at 31 March 2025.

The accounting policies adopted in the preparation of the interim financial statements are consistent with those set out in the Group's Annual Report and Financial Statements 2024, which were prepared in accordance with IFRSs.

This interim financial statement does not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2024 were approved by the Board on 1July 2024 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

AIM-quoted companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has not applied this standard in preparing this report.

The interim financial statement were approved by the Board of Directors on 19 November 2024.

2 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 Group Managing Director, who is 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.

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 single segment, being semiconductor components for the communications industry.

Geographical segments (by origin)

3 Revenue

The geographical classification of business turnover (by destination) is as follows:

The operational classification of business turnover (by market) is as follows:             

Semiconductor products, goods and services are transferred at a point in time whereas design and development revenue is transferred over the period of the contract on a percentage basis of contract completion, as detailed in the Group's revenue recognition policy within its published Annual Report.

The Group does not have any contract assets or liabilities at 30 September 2024 (£Nil at 31 March 2024) from semiconductors as it does not fulfil any of its performance obligations in advance of invoicing to its customer. The Group has contract assets of £25,000 as at 30 September 2024 (£76,000 at 31 March 2024) from design and development and contract liabilities of £Nil as at 30 September 2024 (£Nil at 31 March 2024) from design and development. The Group has contractual balances in the form of trade receivables. See note 20 for disclosure of this in the Annual Report and Accounts for the year ended 31 March 2024.

The Group expects all contractual costs capitalised or any outstanding performance obligations will be completed within the next twelve months.

4 Dividend paid and interim dividend

The Board is declaring an interim dividend of 5p per ordinary share for the half year ended 30 September 2024, payable on 13 December 2024 to shareholders on the Register on 29 November 2024.

A final dividend of 6p per ordinary share was paid on 16 August 2024 and an interim dividend of 5p per ordinary share was paid on 12 January 2024, totalling 11p per ordinary share paid for the year ended 31 March 2024 (2023: 11p per ordinary share paid for the year ended 31 March 2023).

5 Income tax expense/(credit)

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.

The tax charge for the six months ended 30 September 2024 has been calculated by applying the effective tax rate which is expected to apply to the Group for the year ending 31 March 2025, using rates substantially enacted by 30 September 2024.

6 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, as explained below:

7 Cash, cash equivalents and short-term deposits

8 Adjusted EBITDA

Adjusted earnings before interest, tax, depreciation and amortisation ('Adjusted EBITDA') is defined as profit before taxation and before all interest, tax, depreciation and amortisation charges and before share-based payments. The following is a reconciliation of the Adjusted EBITDA for the three periods presented:

9 Acquisition of Microwave Technology Inc.

The Company announced on 2 October 2023 that it had successfully completed the acquisition of Microwave Technology Inc for a total consideration of $13.18m, of which $7.65m was payable in cash and $5.53m is payable in shares. The acquisition was not previously reported in the unaudited accounts ended 30 September 2023. In the audited accounts ended 31 March 2024 this was reported as an acquisition.

The acquisition expands the Group's product portfolio, strengthens and enhances its support resources and increase its R&D capabilities, providing essential knowhow and experience in system level understanding, product manufacturing and packaging techniques. MwT's products are complementary to CML's existing offering.

Further information can be found in the Annual Report and Accounts ended 31 March 2024 which can be reviewed on the Company website: www.cmlmicroplc.com or obtained from Companies House.

10 General

Other than already stated within the Chief Executive's Review, there have been no important events during the first six months of the financial year that have impacted this Half Yearly Report.

There have been no related party transactions or changes in related party transactions described in the latest Annual Report that could have a material effect on the financial position or performance of the Group in the first six months of the financial year.

The Company has appointed Cooper Parry Group Limited as its new auditor's replacing BDO LLP who have formally resigned and have not notified the Company of any reasons or matters connected with their ceasing to hold office as auditors. Cooper Parry will conduct the audit of the Company's financial statements for the financial year to 31 March 2025.

The auditor's report on those accounts did not contain a statement under Section 498(2) or (3) of the Companies Act 2006. This Half Yearly Report has not been audited by the Group auditor.

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

11 Approvals

The Directors approved this Half Yearly Report on 19 November 2024.

Glossary

5G                           Fifth Generation Cellular Network Technology

AIM                         Alternative Investment Market

AMR                        Automatic Meter Reading

DRM                        Digital Radio Mondiale

EBITDA                  Earnings before interest, tax, depreciation and amortisation

EPS                         Earnings per share

FY                           Full Year

GaAs                      Gallium Arsenide

GaN                        Gallium Nitride

H1                           First Half (Financial Year)

IAS                          International Accounting Standards

IC                            Integrated Circuit

IFRS                        International Financial Reporting Standards

IIoT                         Industrial Internet of Things

IoT                          Internet of Things

LMR                        Land Mobile Radio

M2M                        Machine to Machine

MMIC                      Monolithic Microwave Integrated Circuit

PMR                        Private Mobile Radio

R&D                        Research and Development

RF                           Radio Frequency

RFID                       Radio Frequency Identification

CML Microsystems Plc

Oval Park, Langford

Maldon, Essex

CM9 6WG

T: +44 (0)1621 875500

F: +44 (0)1621 875606

group@cmlmicroplc.com

Visit us online at

www.cmlmicroplc.com