10th Jun 2014 14:12
LONDON (Alliance News) - CML Microsystems PLC Tuesday raised its dividend as it expressed confidence it will return to revenue growth in the medium-term, although it warned that revenue will continue to be hit by a key customer exit from the storage market and weakness in wireless markets in the current year.
The semiconductor products company also said that Finance Director Nigel Clark will be leaving his position "for personal reasons" by the end of the year. It has begun the process of seeking a replacement.
CML Microsystems raised the total dividend for its last financial year to 6.25 pence, from 5.5 pence a year earlier, which it said signaled its confidence in its medium-term prospects.
It posted a pretax profit of GBP5.8 million for the year to end-March, up from GBP5.5 million in the previous year, even though revenue declined slightly to GBP24.4 million, from GBP24.7 million. Most of the profit increase came in the first half of the year, when revenue grew.
Full-year gross margin improved to 73%, from 70%, after it exited its loss-making equipment business during the first half.
The company also booked additional income of GBP474,000 from its freehold of a number of commercial property assets, up from GBP296,000 in the previous year as rent-free periods expired.
Revenues were hit in the second half as a key customer decided to exit the embedded storage market, and merger and acquisition activity disrupted the company's supply chain. It also experienced continued volatility in its wireless markets.
The key customer was worth around 10% of group revenues, and as the margins on the business with this customer are very high, the loss had a significant impact on results.
"From just that one event you've lost GBP2.5 million pounds," Chief Executive Chris Gurry told Alliance News. The company expects this to at least heavily impact the first half of the new financial year.
Gurry said that many of its wireless sector customers are selling radios into military and governmental applications, which tends to be contractual business. In the last year, only one of these customers was in production, he said.
In order to counter this going forward, the company is looking to add more customers taking higher revenue chipsets over just single chips that generate less revenues.
"As we have more chipset customers on board, the impact of one of the customers having a bit of volatility will be less," Gurry said.
Having secured some design wins during the year, the company is confident that it will increase its number of customers buying multi chipsets starting in calendar year 2015.
Storage business revenues rose 2%, buoyed by stronger growth in Europe which offset weakness in the Americas. The company began shipments of its first SATA controller for use alongside flash memory. It said that whilst customers began to adopt the technology, revenue recognition was slower than expected.
"We weren't the first people to market with a SATA chip," Gurry explained, "so we've got to displace the competition." However, customers have to qualify products using the chip, which can take time.
This hit trading in the last few months of the year, although the company expects this to normalise during the current year.
In its wireless segment, revenues dropped to GBP9.1 million, from GBP9.8 million, as markets remained volatile due to a reliance on government spending. There was weaker demand for certain higher priced legacy products. The company established an office in Sheffield to bolster its engineering resources, which it said will allow it to focus on new product activities.
In telecoms, revenue rose to GBP2.9 million, from GBP2.7 million, due to a strong performance in Europe. The company expects this segment to stay at similar revenue levels over the next three to five years.
"We're looking at not a wonderful year coming up right now, although expectations are still profitable, we're very confident in our future," Clarke said of the company's overall outlook.
Shares in CML Microsystems were trading down 22% at 421.40 pence Tuesday morning, having touched an intraday bottom of 406.10p.
Gurry hopes that shareholders will not be perturbed by the bleaker short term outlook, and will instead focus on the company's growth prospects further ahead.
"Hopefully [shareholders are] aligned with us," Gurry said, "we're not changing anything on our strategy, it's working, the events that happened were unforseen and out of our control, but the underlying trend is one of growth in our two focus markets."
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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