CML Microsystems LON:CML, the Essex-based, AIM-listed chip designer and manufacturer, published its full-year results to end-March on Tuesday (2nd July).
CML Microsystems makes mixed-signal, radio frequency and microwave semiconductors for various communications markets, a market that was hit hard by the post-Covid economic environment. Going from feast pre-Covid, where there was a global chip shortage; to famine, where the global economy was hit with inflation and insecurity dampening demand. The last time The Armchair Trader spoke to Chris Gurry, MD of CML, he was expecting a return to growth as global technology equipment manafacturers ran down their inventories.
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Things look like they are slowly turning around for CML Microsystems. The company reported an 11% increase in year-on-year revenues to GBP22.8m. However, operating profit fell 51% to GBP1.94m, although 2022/23 operating profit of GBP2.93m included one-off profit from the sale of excess land.
CML Microsystems keeping up the dividends
Cash was down 18% to GBP18.2m, as a result of a share buyback of GBP1.75m and dividend payouts of GBP1.74m. The company also made capital investments of GBP1.54m. CML recommended a final dividend of 6p/share, the same as the year before, giving a full-year dividend of 11p/share, on par with 2022/23.
Gurry said in a statement to the market: “Continuing macro headwinds and over-stocked inventory levels within some customers subdued profitability for the year […] The mega trends behind the markets we serve point to an ever-growing opportunity and our highly-engineered, mission-critical products and the strength of our relationships positions the group well to capitalise.”
One of the big news stories for CML Microsystems was the USD13.2m (GBP10.4m) acquisition of Chicago-based Microwave Technology, Inc. (MWT), a US-based company that designs and manufactures GaAs and GaN Based MMICs, Discrete Devices, and Hybrid Amplifier Products for Commercial Wireless Communication, Defence, Space, and Medical (MRI) applications, completed after the US Government approved CML’s January offer for MWT in September 2023.
Gurry noted that MWT was already positively contributing to CML’s revenues.
The company’s longer-term plan is to set itself on a long-term path to sustainable growth. Although management were pleased with the company’s increased revenues, they were not as pleased with the profitability.
Subdued profits blamed on global market, high inventory
CML Microsystems said that subdued profitability was partially due to the continued comparative weakness of the global economy and sustained high inventory levels held by CML’s customers, but they predict that inventory levels in the sector are falling, and over the medium-term revenues (and profits) should start to pick up.
The company also sees new markets emerging, away from the firm’s core clientele which in chairman, Nigel Clark’s words: “Exciting opportunities lay before us, we are addressing growing new markets which are supplementary to the more traditional sectors that have been a cornerstone of growth in recent years. The pipeline of opportunities has a strong upward trend, giving us confidence that we will achieve our strategy of sustainable long-term growth.”
CML opened trading (on 2nd July) at 315p. Over one-year shares are down 31% and over the year-to-date are down 16% with shares ranging between 290p and 465p over a 52-week period. CML Microsystems has a market capitalisation of GBP54.3m.
Strong balance sheet, deep customer relationships
Despite the poor performance in the share price, Gurry was still sounding a positive note.
“Although the mixed demand environment is expected to continue in the current financial year, the strength of our balance sheet and deep customer relationships enables us to confidently invest, delivering the optimal return for all stakeholders in both the medium and long term.” said Gurry.
CML Microsystems has navigated a challenging market environment in 2023, achieving revenue growth but facing lower profitability. The acquisition of MWT expands the company’s product portfolio and opens-up new markets. Despite a declining share price, management remains confident in the company’s long-term prospects, pointing to a strong balance sheet, strategic investments, and emerging market opportunities to fuel future growth.
