Preliminary results

for the year ended 31 March 2021

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 ("SµRF") 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 £12.5m (2020: £15.0m) reflecting the effect of COVID 19 on the voice centric

markets yielding what was essentially a break-even outcome of £0.01m, (2020: £1.2m 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 £0.6m (2020: £Nil) and a change in accounting estimates that yielded a net reduction in costs of £0.75m (2020: Nil). A tax credit in the year means the profit on the continuing business after tax was £0.8m (2020: £1.4m). After adding a profit on disposal for the discontinued business of £22.8m (2020: £Nil), the profit attributable to the Shareholders amounted to £23.6m (2020: £1.5m). Net cash levels, after US loan, were £31.9m (2020: £8.5m) after accounting for an £8.3m capital redemption, £0.7m paid out as dividends and a share buyback costing £1.6m. Net assets have increased to £53.4m (2020: £42.4m).

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.

Preliminary results

for the year ended 31 March 2021

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 £0.28m (2020: £Nil), whilst in Singapore we received grants under the Job Support Scheme of £0.05(2020: £Nil). 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

Preliminary results

for the year ended 31 March 2021

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 "SµRF" 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

Preliminary results

for the year ended 31 March 2021

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.

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CML Microsystems plc published this content on 15 June 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 June 2021 07:51:02 UTC.