semiconductors for a connected world Annual Report and Accounts FY20 USER GUIDE Welcome to the CML Microsystems Annual Report FY20. In this interactive pdf you can do many things to help you easily access the information that you want, whether that’s printing, searching for a specific item or going directly to another page, section or website. These are explained below. DOCUMENT CONTROLS Use the document controls located at the top to help you navigate through this report. NAVIGATING WITH TABS Use the tabs to quickly go to the start of a different section. LINKS WITHIN THIS DOCUMENT Throughout this report there are links to pages, other sections and web addresses for additional information. semiconductors for a connected world CML Microsystems Plc designs, manufactures and markets semiconductors, primarily for global communication and solid state storage markets. Founded in 1968, CML operates internationally with subsidiaries across the UK, the US, Germany, China, Singapore and Taiwan. Section 1 Strategic report Section 3 Financial statements Section 4 Other information Financial highlights Operational highlights At a glance Group Chairman’s statement Market opportunity Business model KPIs and risks Group Managing Director’s review Our stakeholders Corporate social responsibility Section 2 Directors’ report Directors Corporate governance Directors’ remuneration report Directors’ report 01 01 02 04 06 08 09 10 17 18 20 22 24 30 Statement of Directors’ responsibilities 34 Notice of Annual General Meeting Five‑year record Shareholder information Glossary Advisors Inside back cover 84 90 91 92 Independent auditor’s report Consolidated income statement Consolidated statement of total comprehensive income Consolidated statement of financial position Consolidated and Company cash flow statements Consolidated statement of changes in equity Company statement of financial position Company statement of changes in equity Notes to the financial statements 35 40 41 42 43 44 45 46 47 financial highlights operational highlights Revenue (£m) 26.42 -6.12% Pre-tax profit (£m) 1.37 -54.03% Adjusted EBITDA1 (£m) 8.27 -5.60% Shareholders’ equity (£m) 42.39 +0.17% Net cash (£m) 8.48 -33.80% Basic earnings per share (p) 8.98 -43.06% 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 2020 2019 2018 2017 2016 26.42 28.14 31.67 27.74 22.83 1.37 2.98 4.58 4.21 3.32 8.27 8.76 10.00 8.84 6.97 42.39 42.32 41.77 37.64 32.58 8.48 12.81 13.82 12.45 13.60 8.98 15.77 24.52 23.09 18.03 Communications • 57% of Group revenue (2019: 54%). • Revenue £15.0m (2019: £15.20m). • Solid performance from mission critical and commercial mobile radio customers. • Encouraging contribution from chip‑set shipments into data‑centric wireless networking. • Post period end, release of Group’s first 2.4GHz wireless transceiver solution. Find out more on page 14 Storage • 43% of Group revenue (2019: 46%). • Revenue £11.42m (2019: £12.94m). • Sales into Cellular infrastructure and Industrial Automation markets were firmer. • Shipments into Automotive infotainment and networking markets weaker. • New industrial SATA3 controller launched and selectively sampled. Find out more on page 15 1. For definition and reconciliation see note 12. CML Microsystems Plc | Annual Report and Accounts FY20 01 01 at a glance Global reach and world-class customers The Company has long held an outstanding reputation for the quality of its engineering and development teams, supported by a clear strategy, depth of management and a strengthened global sales team. Our global footprint 4 Design facilities Engineers >45% Established 1968 Offices 11 Employees worldwide 211 Cambridge, UK Essex, UK Somerset, UK California, USA North Carolina, USA Wuxi, China Shanghai, China Shenzen, China Taipei, Taiwan Konstanz, Germany Singapore Group operations This map is illustrative, but not fully definitive of our locations. For a full list of our locations please visit our website at cmlmicroplc.com 02 02 CML Microsystems Plc | Annual Report and Accounts FY20 CML Microsystems Plc | Annual Report and Accounts FY20 Our growth strategy is to ensure we retain our existing customers, developing our product range and adding new customers to expand the total addressable market. Our brands Communications Storage Find out more on page 14 Find out more on page 15 2020 revenue split by region (%) 2020 revenue split by application area (%) 50% 30% 19% 1% 57% 43% Far East Americas Europe Other Communication Storage CML Microsystems Plc | Annual Report and Accounts FY20 03 group chairman’s statement Against a challenging backdrop, the Group has delivered a year of stabilisation. Nigel Clark Group Non‑Executive Chairman and Group Finance Director Governance highlights The governance report on pages 22 to 23 describes the Group’s approach to governance and how it supports the delivery of our strategy. During the year, the following took place: • supported the Board in providing the viability statement; • monitored the Group’s systems of risk management and internal controls; and • reviewed significant judgements made by management in preparing the 2020 financial statements. Remuneration committee • Reviewed the framework for executive remuneration. • Approved the Executive Directors’ 2020 remuneration and bonus payments. Read more on pages 24 to 29 Introduction As I look back over the year, I take pride in the resilience of the Group; its people, operational structure and balance sheet strength. We entered the year faced with the ongoing market-wide challenges of extended raw material supply times and the US/China trade war, and we closed the year facing the unprecedented challenge presented by COVID-19. However, against this backdrop, the Group has delivered a year of stabilisation. While COVID-19 may impact a return to growth in the short term, the depth and quality of our product portfolio, the breadth of our customer base and the strength of our extended sales operation mean the long-term opportunity for the Company is undiminished. Results and dividend Revenues for the year fell by 6.1% to £26.42m (2019: £28.14m). With costs of £0.7m relating to M&A activities and restructuring announced in November 2019, profit before taxation fell by 54% to £1.37m (2019: £2.98m) and basic EPS by 43% to 8.98p (2019: 15.77p). Net cash at the year end was £8.48m, a drop of £4.33m (2019: £12.81m), reflecting record R&D investment, the acquisition of PRFI and two dividend payments totalling £1.33m. The Group continues to benefit from a strong balance sheet with a healthy net cash position and operating cash generation. The Board remains committed to its dividend policy of being progressive in line with revenues and profitability. Despite the ongoing uncertainty caused by the COVID-19 pandemic, the Board is confident in the Group’s ability to continue to generate cash underpinned by a robust balance sheet. As such, the Board has recommended a final dividend of 2.0p per ordinary 5p share, equating to a total for the year of 4.0p (2019: 7.8p). If approved, this will be paid on 7 August 2020 to shareholders whose names appear on the register at close of business 24 July 2020. 04 CML Microsystems Plc | Annual Report and Accounts FY20 Strengthened operational structure This has been a year of significant strategic activity across the Group, to ensure our resources and capabilities are closely aligned with our ambitions. This activity has resulted in global operational changes that will improve our effectiveness and efficiency as we enter the next financial year and help accelerate delivery of the business strategy. The acquisition of Cambridge-based specialist design house, Plextek RFI Ltd (“PRFI”), in March 2020 was another important element of this activity, complementing our plans for expansion within the Communications markets. COVID-19 Our primary focus since January has been the welfare of our teams around the world in the face of the COVID-19 pandemic. We have closed locations in a timely manner as government legislation has required us to do so, and only maintained production activity where it has been deemed possible to achieve within government safety guidelines. At this time, our China operations based in Wuxi and Shanghai are once again fully operational, in line with all relevant government safeguarding legislation. Travel restrictions within China are gradually being lifted. We have maintained a reduced production team at our UK operations, with all office-based staff working remotely. We have had no requirement to furlough any staff. Supply chain disruptions to date are minimal and of a short-term nature. Given the nature of the professional markets in which we operate, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some new products may be delayed, dampening demand for our semiconductors. Our current order book is strong, however it is not yet clear as to whether this will be a long-term trend or reflects a precautionary increase in inventory by our customers. Employees The positive response by our teams 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. While many of us have not been able to meet our new colleagues from PRFI face to face, they have integrated well and we have enjoyed welcoming them into the Group. As we continue to face the challenges of COVID-19, we do so with the support of a dedicated, talented team around the world. Our Company has a rich culture having been in operation for over 50 years, which runs through all of our operations and with a combined sense of purpose is evident in every facet of our business. The Board As announced in November 2019, our CFO Neil Pritchard resigned to pursue other business opportunities and the Board would like to thank him for his service to the Company. Having previously held the position of Group CFO, I re-assumed the role on an interim basis until such time as we are able to commence a full recruitment process, which at this stage we anticipate will be in the second half of the current financial year. In the meantime, I have stepped off the Audit Committee until such time as a replacement CFO has been recruited. Prospects and outlook Clearly these are difficult times with a global pandemic, geo-political trade issues and Brexit looming but, as a Board, even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, coupled with a sound product portfolio that addresses markets that have a positive outlook. The strategy in place, when eventually these current global uncertainties and negative influences subside, should mean we are well placed to return a meaningful uplift in the Group’s performance. Nigel Clark Group Non-Executive Chairman and Group Finance Director 19 June 2020 CML Microsystems Plc | Annual Report and Accounts FY20 05 market opportunity Addressing growing market sectors The need to transmit and store ever greater amounts of data, more quickly and securely, is driving both markets. Key market trends Our market application areas: 1: Demand for data Communications Incorporates Wireless and Wireline business 57% Revenues The connected world is driving the insatiable appetite for data in the industrial arena. Application areas: Professional and industrial voice and/ or data communications products 2: Speed Increasing amounts of data need to be retrieved, communicated and stored, faster and more securely. Market growth drivers: Need for higher data rates IP connectivity Find out more on page 14 Key end markets: Voice-centric mission/business critical communications (military, commercial, construction, transportation) Non-cellular wireless data communications; satellite M2M; asset tracking; SCADA Analogue to digital migration 3: Reliability Extremely low field failure rates underpin the Group’s enviable reputation for quality. Storage Hyperstone-branded products Application areas: Industrial flash memory cards; solid state drives; embedded storage 43% Revenues Key end markets: Telecoms/network infrastructure; industrial automation; in-vehicle infotainment; IIoT Market growth drivers: Acceleration of HDD to SSD transition Need for increased speed and highest reliability within “mission critical” applications Find out more on page 15 06 CML Microsystems Plc | Annual Report and Accounts FY20 The Group’s wide-ranging skills, diversified technology portfolio and systems-level understanding, coupled with market-leading functionality and an extensive selling network, are key factors in the Group’s long-term success. Our areas of expertise: Superior performance for targeted application areas Time-to-market • Communications: high performance RF products, • “Off the shelf” integrated circuits for focused mixed-signal baseband/modem processors. • Storage: class leading endurance and reliability; patented techniques; flash memory agnostic. niche application areas. • Integrates many engineer-years of hardware and software development. • Reduces the development cycle for the customer. Proprietary Intellectual Property (IP) High levels of customer design-in support and service • We have full control of the functionality and subsequent partitioning of silicon and software: this means we can deliver the optimum design mix for a specific target application. • We are viewed as a one-stop shop for support with hardware, software and system expertise; often regarded as an extension of the customer’s own engineering team. • Through our depth of experience, we have extensive • We have the ability to provide backwards overall “system” knowledge, irrespective of our “component” supplier status. compatibility for customer-developed legacy systems. • Proprietary silicon and software developments • We have key relationships with complementary produce internal IP that does not attract third-party royalty payments. integrated circuit providers. Customer relationships Focus on research and development and scalability • We enjoy high levels of trust with our customers. • Multi-year investment in the business, along This translates and promotes long-term relationships. • Through repeat design wins, we have upsell opportunities. • Many of our customers are multi-national “blue-chip” companies. • We have extensive, established global routes to market. with normal levels of R&D refresh, has significantly expanded our pipeline of products and total addressable market. • Design is supported by a mixture of in-house and outsourced assembly and testing. • Majority of manufacturing is outsourced, thus providing scalability for the business. CML Microsystems Plc | Annual Report and Accounts FY20 07 business model Delivering long-term sustainable growth The business model is to design, manufacture and market a range of semiconductors for global industrial and professional applications within the communication and storage market areas. It incorporates our objectives towards sustainable growth, namely of focused engineering investment, managed cost base, progressive revenues and consistent gross margins. Inputs How we do it Innovation Technical innovation is a fundamental contributor to the Group’s success. Our marketing and engineering personnel collaborate to define and deliver compelling, commercially attractive semiconductor solutions. Our extensive and growing silicon and software IP portfolio can be combined using optimal partitioning for a specific end market to achieve the right balance between performance and cost. Quality Superiority and excellence are important definitions of quality within our organisation and are widely applicable across numerous activities. Whether it is product design, manufacturing, selling or stakeholder relationship management, we strive to be a quality company operating with the high levels of business acumen and ethical practices that the business was founded on. Support Superlative customer support is part of CML’s DNA. It is a key trait that customers associate us with; and an important factor in customers’ decision-making process to select us as a long-term supplier and partner. A thorough “system knowledge” of the end-application within the markets that we address underpins our long-standing reputation. SISTENT G R O S S M N O C R G I N S A FOCUSED E N G I N E E R I N G I N V E S T M E N T T A I N ABLE GROWTH S U S N ESIG D M A N U F Technical customer focus A C T U R E MARK E T P R O G R E S S I V E R E V E N UES O ST BASE G E D C A N M A Our growth strategy is to be the first choice key-component supplier within our chosen end markets. 08 CML Microsystems Plc | Annual Report and Accounts FY20 KPIs and risks We have a range of performance measures to monitor and manage the business, some of which are considered key performance indicators (“KPIs”). KPIs1 Revenue (£m) 2020 2019 2018 2017 2016 Net cash (£m) 26.42 2020 28.14 31.67 27.74 2019 2018 2017 22.83 2016 Principal risks and uncertainties Key risks of a financial nature The principal risks and uncertainties facing the Group are with foreign currencies and customer dependency. With the majority of the Group’s earnings being linked to the US Dollar, a decline in this currency will have a direct effect on revenue, although since the majority of the cost of sales are also linked to the US Dollar, this risk is reduced at the gross profit line. The Group has significant Euro-denominated fixed costs. Additionally, though the Group has a very diverse customer base in certain market sectors, key customers can represent a significant amount of revenue. Key customer relationships are closely monitored; however changes in buying patterns of a key customer could have an adverse effect on the Group’s performance. 8.48 12.81 13.82 12.45 13.60 Gross profit (£m) Profit from operations (£m) 2020 2019 2018 2017 2016 19.57 2020 20.25 2019 22.24 2018 19.82 2017 16.25 2016 Basic earnings per share (p) Adjusted EBITDA2 (£m) 2020 2019 2018 2017 2016 8.98 2020 15.77 2019 24.52 2018 23.09 2017 18.03 2016 1.50 2.81 4.55 4.31 3.39 8.27 8.76 10.00 8.84 6.97 1. The above KPIs are of a financial nature. Management use financial KPIs to monitor the business performance, together with a combination of internally focused financial and non-financial KPIs. 2. For definition and reconciliation please see note 12. These KPIs include revenue, gross profit, profit from operations, basic EPS and cash, summary details of which are shown above and discussed within the Group Chairman’s statement on page 04 and the Group Managing Director’s Review on page 10. Key risks of a non‑financial nature The Group is a small player operating in a highly competitive global market that is undergoing continual and geographical change. The Group’s ability to respond to many competitive factors including, but not limited to, pricing, technological innovations, product quality, customer service, raw material availabilities, manufacturing capabilities and employment of qualified personnel will be key in the achievement of its objectives, but its ultimate success will depend on the demand for its customers’ products since the Group is a component supplier. A substantial proportion of the Group’s revenue and earnings are derived from outside the UK and so the Group’s ability to achieve its financial objectives could be impacted by risks and uncertainties associated with local legal requirements (including the UK’s withdrawal from the European Union, or “Brexit”), political risk, the enforceability of laws and contracts, changes in the tax laws, terrorist activities, natural disasters or health epidemics. Understanding of the development, performance or position of the Company’s business The Directors do not believe that environmental matters (including the impact of the Company’s business on the environment), details of the Company’s employees (including gender), anti-corruption and bribery matters and social, community and human rights issues are needed for an understanding of the development, performance or position of the Company’s business and accordingly have not included this within the Strategic Report but have added these to the Directors’ Report and Corporate Social Responsibility sections of this Annual Report. COVID‑19 During the period leading up to the date of this report the global impact of COVID-19 escalated. The Board has considered possible impacts of the COVID-19 outbreak on the Group’s trading and cash flow forecasts. In preparing this analysis a number of scenarios were modelled based on the management’s current understanding of potential income. In each scenario, mitigating actions within the control of management, including reductions in discretionary spend and tighter internal controls, have been modelled, but no fixed costs reductions have been assumed. Given the nature of the markets we operate within, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some of the new products may be delayed, dampening demand for our semiconductors. Even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, along with a product portfolio that addresses markets that have a positive outlook. CML Microsystems Plc | Annual Report and Accounts FY20 09 group managing director’s review Operational and Financial Review Introduction As we entered into the 2019/2020 financial year our strong belief was that it would prove to be a year of stabilisation, following previous periods of inventory correction, raw material constraints and political headwinds. I’m pleased to report that despite the highly challenging conditions, including the COVID-19 pandemic, this has proved to be the case. The first half of the financial year confirmed our view that there was no further deterioration in our end markets with sequential six-monthly order bookings a little ahead. A shortening of the timescale between customer order placement and requested delivery date was also evidenced, which is another good indicator for our business. Following the interim results announcement in November 2019, order intake was improving before the outbreak of the coronavirus hampered this progress as companies, firstly in China and then globally, initiated their business continuity processes. Nevertheless, overall revenues for the second half were similar to those of the first half. During the course of the year we have continually assessed the resources and capabilities within CML to ensure that they are aligned with the direction of travel for our business and a number of operational changes have been made which will improve our effectiveness and efficiency. These follow the investments made in previous periods to broaden and augment our sales reach, which have improved our pipeline of opportunities. In tandem with this, in March we acquired Plextek RFI Ltd (“PRFI”) a UK-based design house specialising in the design and development of RF, Microwave and Millimetre-wave (mm-wave) ICs and modules. PRFI’s design expertise expands upon the Group’s existing skills and provides a new independent services and consulting income stream for CML. Most of the costs associated with these operational changes and corporate activities have been recognised in this year under review, which impacted pre-tax profits for the year. The performance of the business at an operational level has been particularly encouraging given the environment created by the COVID‑19 pandemic. Chris Gurry Group Managing Director Highlights • Communications: • revenue £15.0m (2019: £15.20m); • solid performance from mission critical and commercial mobile radio customers; • encouraging contribution from chip-set shipments into data-centric wireless networking; and • post period-end release of Group’s first 2.4GHz wireless transceiver solution. • Storage: • revenue £11.42m (2019: £12.94m); • sales into Cellular infrastructure and Industrial automation markets were firmer; • shipments into Automotive infotainment and networking markets weaker; and • new industrial SATA3 controller launched and selectively sampled. • Record R&D investment of £8.46m (2019: £8.24m). • Progress with diversifying customer base. • Expanded sales and marketing capabilities. 10 CML Microsystems Plc | Annual Report and Accounts FY20 Financial Review Total revenues for the year fell by 6.1% to £26.42m (2019: £28.14m) including a small one-month contribution (£0.06m) from the acquisition of PRFI Ltd during March 2020. At the gross profit level, an improved margin helped reduce the decline to just over 3%, delivering a gross profit of £19.57m (2019: £20.25m). Geographically, the Far East region was the single largest contributor to the overall drop in sales, delivering a reduction of £2.17m (16%) and exceeding the overall Group revenue drop of £1.72m. The remaining regions either grew or were robust by comparison. The Far East accounted for 50% of Group revenues with sales into Europe, the Americas and Others representing 30%, 19% and 1% of Group revenues respectively. Distribution and administration costs increased to £18.75m (2019: £18.07m) driven by abnormal costs of £0.7m and higher R&D amortisation charges. These abnormal costs result from a combination of M&A activities, one of which resulted in the acquisition of PRFI Ltd, along with global restructuring expenses that were incurred following completion of an assessment of the Group’s resources and capabilities, first communicated to the market in November 2019. Total R&D spend for the year rose slightly to £8.46m (2019: £8.24m) with associated amortisation of development costs climbing £0.56m to £5.71m (2019: £5.15m). The Group operated a tight cost control policy throughout the year under review and aside from non-recurring expenses and the increased R&D spend, underlying costs were relatively stable. The Group recorded a small loss of £0.05m from foreign currency exchange compared to a gain of £0.26m in the prior year although continues to have a somewhat natural hedge at the gross profit line in respect of foreign currency exposure, given that the majority of both revenues and raw material costs are US Dollar denominated. Other operating income for the year amounted to £0.69m (2019: £0.64m) and was a result of rental income obtained from ex-operational property assets, grant income received from R&D activities and an element of profit on third-party product re-sales. Profit from operations fell by 44% to £1.50m (2019: £2.81m). After adjusting for the combined effects of share-based payments and finance income, a profit before taxation figure of £1.37m was achieved (2019: £2.98m) which included a small loss of £0.02m from newly acquired PRFI Ltd. An income tax credit of £0.16m was recorded for the year against a charge of £0.29m in the preceding year reflecting lower profitability for the year and the ongoing benefit of UK R&D tax credits. Profit after tax was £1.54m (2019: £2.69m). The Group, along with many other companies under IFRS GAAP, adopted the new leasing standard (IFRS 16) with effect from 1 April 2019. The overall effect has been to record operating leases (such as property, vehicle and office equipment rentals etc.) as an asset on the balance sheet as if those items had been purchased, with the corresponding lease payments recognised as a liability. The net result of these changes is negligible. Rentals are now replaced by depreciation and interest which has had little impact on net profitability, but the EBITDA calculation shows the depreciation for these ‘right-of-use’ assets as an additional add-back adjustment of £0.46m for the period. Adjusted EBITDA was £8.27m (2019: £8.75m) and assisted by an improved tax rate, the basic earnings per share figure recorded was 8.98p (2019: 15.77p). CML Microsystems Plc | Annual Report and Accounts FY20 11 group managing director’s review continued Operational and Financial Review continued Financial Review continued Cash management across the Group remained an important focus area throughout the year. Net cash reserves at 31 March 2020 stood at £8.48m (31 March 2019: £12.81m) following record R&D investment, the acquisition of PRFI and two dividend payments totalling £1.33m; being the final payment for the FY19 financial year (£0.99m) and an interim payment in respect of FY20 (£0.34m). Overall inventory levels at the financial year end were 17% lower than the beginning of the year at £2.39m (2019: £2.88m) with finished goods stocks in particular at very low levels. The policy that the Group had in place to mitigate certain supply chain difficulties helped react promptly to the improving order intake that was seen as we entered the current calendar year. The pension deficit associated with the Group’s historic final salary scheme, as calculated under IAS 19, increased to £4.70m (2019: £3.55m). The assets of the scheme fell to £19.18m (2019: £20.63m) with the present value of funded obligations reducing to £23.87m (2019: £24.18m). The main reasons for the increased deficit in the IAS 19 accounting position relate to (i) changes in the assumptions in using a lower discount rate due to the fall in corporate bond yields at the period end; and (ii) the scheme’s investments return was lower than the IAS 19 mandated increase in the obligation over the year. Revenue (£m) Gross profit (£m) 26.42 -6.12% 19.57 -3.36% Profit from operations (£m) 1.50 -46.81% 2 6 . 4 2 2 8 .1 4 2019 2020 1 9 . 5 7 2 0 . 2 5 2019 2020 0 1. 5 2 . 8 2 2019 2020 Adjusted EBITDA1 (£m) Shareholders’ equity (£m) Dividend (p) 8.27 -5.60% 42.39 +0.17% 4.00 -48.72% 8 . 2 7 8 . 7 6 2019 2020 4 2 . 3 9 4 2 .3 2 2019 2020 0 4.0 7 . 8 0 20192 20202 1. For definition and reconciliation see note 12. 2. Incorporates an interim dividend of 2.0p (2019: 2.0p) and a proposed final dividend of 2.0p (2019: 5.8p), providing a total dividend of 4.0p (2019: 7.8p) (see note 10). 12 CML Microsystems Plc | Annual Report and Accounts FY20 Separately from the IAS 19 calculation, the most recent triennial actuarial valuation on the scheme carried out by an independent professionally qualified actuary, as at 31 March 2017, resulted in a net pension surplus of £1.89m. An approximate update of the funding position was carried out as at 31 March 2019 which, when viewed as a continuing scheme, showed a net surplus of £3.15m (31 March 2018: £3.17m). The report further stated that the scheme assets remained sufficient to cover 118% of the benefits accrued to members, after allowing for future increases in these benefits. COVID‑19 The welfare and safety of our employees has been of paramount importance throughout the pandemic and remains a priority. Our China-based operations were the first to be affected in January and we were swift to implement the necessary precautions and measures in line with guidance and were able to supply our workforce there with personal protective equipment that was scarce locally. Our experience in China helped us as we implemented similar processes throughout our operations as the virus spread, again in line with all local guidance. Due to the nature of our work, our facilities, and indeed those of our key suppliers, are clean and manufacturing facilities need to meet strict hygiene regulations, with access limited to the workforce. As at the time of publication of this report, our operations are fully functional, albeit through a change in working methodologies, and it is comforting to note that we have had no confirmed incidences of COVID-19 related ill health. Travel restrictions, both within individual countries as well as internationally, affect our sales teams’ ability to mobilise and physically meet with customers but they have reacted well to remote working. Strategy overview The Group’s strategy today remains consistent with that previously communicated. Our business remains focused on two important markets, namely industrial Communications and industrial Storage, where our proprietary IP along with the quality and reliability of our technology sets us apart from our peers and makes us an integral part of our customers’ products. We have developed a strong reputation in both of these markets and we continue to supply a growing world class customer base. This coupled with an extensive sales network and expanded presence globally, will enable us to scale further once market conditions ease. Growth in both markets is continually being driven by the persistent demand for increasing amounts of data to be delivered faster and stored more reliably and securely. We remain committed to generating a diverse revenue stream across a broad range of customers. We are a single-source supplier to our customers, meaning that once designed in, the displacement of our chips would require our customers to undertake an element of product redesign. This has served us particularly well recently as geo-political issues have made international trade between certain countries more difficult. Rather than sourcing locally produced goods as potential replacements, the evidence is that customers are insisting on our products due to their proven quality and reliability. R&D remains a key tenet of our growth strategy. Our focus is on developing products which will lead to design wins with new and existing customers that we believe have the potential to develop into long-term, significant revenue generators. Throughout the difficult trading conditions, we have continued our investment into R&D as we have no doubt that this approach will serve us best in the long run and deliver superior, sustainable returns for our shareholders. With that said, as a Board we are mindful of the ongoing conditions and continue to monitor investment levels carefully. The acquisition of PRFI was a further example of our desire to add businesses which can help us achieve our strategic goals and complement our organic growth. The Company has a proven track record of successful corporate activity and will continue to seek and evaluate appropriate opportunities. CML Microsystems Plc | Annual Report and Accounts FY20 13 group managing director’s review continued Our strategy within the Communications market is to grow revenues through wider customer engagement and drive a larger serviceable market from an expanded semiconductor product range that builds upon an extensive intellectual property library. The Group has been a key component supplier to major blue chip OEMs within numerous sub-sectors of the global Communications market for a number of decades. Product functionality over time has evolved from tone switches and decoders through to signal processing solutions, baseband processors and integrated modem solutions for a variety of dedicated industrial wireless networks around the world. The feature sets of those products are generally radio frequency (“RF”) agnostic, but over the last ten years or so, significant investments have been made into engineering skills and associated R&D activities to introduce a range of RF components. The resulting combined chip-sets now cover customer functionality needs from the antenna through to the microprocessor of choice. Initial product releases focused on operating frequency bands below 1GHz, while more recently the range has been extended to encompass frequencies up to 3.6GHz. Sales revenues from applications within the Communications sector were slightly down year on year and amounted to £15.00m (2019: £15.14m). Shipments into wireless public safety customers were generally quite robust while the situation across a wide range of data-centric Industrial Internet of Things (IIoT) customers was mixed and biased towards customer products prioritising high performance and reliability. Revenues from the Americas and Europe posted good gains but were unable to make up a significant shortfall from the Far East customer base. Continued uncertainty over the trade war with the USA remains, including expectations that phase two of a trade agreement will not be in place ahead of the US elections in the autumn. This is still impacting government spending on some local infrastructure projects, such as railway and power, whilst customers in surrounding countries who depend upon exports into China are also affected. Five new products were released across the year targeted at a number of communications sub-markets including satellite communications, wireless power telemetry networks and marine collision avoidance. Associated demonstration and development platforms were also released, including the Group’s first Raspberry Pi platform bringing the advanced features of the CMX655D audio codec, launched during the prior year, to the Raspberry Pi community. The Raspberry Pi is a series of small single-board computers originally developed in the United Kingdom by the Raspberry Pi Foundation to promote teaching of basic computer science in schools and in developing countries. As time has progressed, alongside traditional educational use, more serious industrial and commercial uses are foreseen making it a viable solution for “IIoT” applications. The Communications market continues to exhibit a number of growth areas including the transition to higher-capacity digital networks within voice-centric markets and, in data-centric markets, the increasing data throughput and reliability requirements from terrestrial and satellite communications applications. The latter is required to meet the needs of the growing Machine-to-Machine (“M2M”) and IIoT sectors. Application areas Markets served Professional and industrial voice and/or data communications products 14 CML Microsystems Plc | Annual Report and Accounts FY20 CommunicationsIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOSIndustrialMedicalSecurityTelecomsUtilitiesSatelliteMarineMilitaryTransportCriticalcommsTelephonyPOS The focus within the Storage market sector has been on expanding our product portfolio to include all major interface standards used within the target industrial end-markets and to ensure interoperation with all relevant third-party flash memory devices from a number of leading global suppliers. This enables customers to benefit from bill-of-materials cost efficiencies linked to new flash technologies. Over the last few years, the product portfolio has transitioned from a narrow “Controller” product portfolio with only CompactFlash as the available interface, to an enlarged product range that now also includes USB, SD, SATA & MMC interface technologies. An associated proprietary Application Programmers Interface (“API”) enables customers to either develop or “port” their own solutions to the Group’s standard Controller solutions and benefit from the class-leading levels of reliability and durability that the Group’s Hyperstone brand is becoming increasingly recognised for globally. Storage revenue for the majority of the year continued to feel the combined effects of customer inventory over build and the economic trade conflict between the USA and China. The challenges associated with this environment resulted in a revenue decline of 11% for the year as a whole to £11.42m (2019: £12.94m). That said, sales in the six months to 31 March 2020 were up 12% sequentially following a stronger period of order bookings and subsequent shipments during the closing months of the year. As with the Communications sector, uncertainties persist around US-China trade relations but, encouragingly, there are one or two end application areas that are bucking the trend. At the interim stage, we reported that 4G/5G infrastructure design wins and a number of industrial SATA SSD opportunities were poised to drive growth in the future. It is therefore pleasing to report that at the turn of the calendar year the situation began to improve, evidenced by increased order bookings and subsequent shipments related to a number of prior design wins in multi-year growth application areas, including 5G infrastructure and data security for point of sale applications. In November 2019 we announced mass production availability of the X1 SATA3 controller following its sampling availability in the early part of the calendar year. The product has subsequently achieved design-in status across a number of major industrial customers with several customer designs ongoing including mSATA and CFAST industrial form factors. Three new products were released over the period, targeted at specific CompactFlash and USB host interface variants. Several new API customers were secured and the evolution of the hyMap firmware continued, specifically related to functionality and flash memory compatibility which are essential factors in the success of the complete controller product range. Advanced health monitoring and SMART tools were also developed to optimise Controller solutions for specific applications and ensure fail safe operation. The industrial data storage market has several specific areas which represent attractive growth opportunities playing to the core strengths of the business. These include applications within industrial automation, the telecoms/ network infrastructure market and an increasing number of security conscious sub-markets where the Group’s proprietary technology and bespoke programming capabilities offer customers enhanced levels of security compared to competitor products. Application areas Markets served Industrial flash memory cards; solid state drives; embedded storage CML Microsystems Plc | Annual Report and Accounts FY20 15 AutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesAutomotiveIndustrialMedicalInfrastructureInfotainmentGamingSecurityTelecoms£Mobile and POS paymentUtilitiesStorage group managing director’s review continued Operational and Financial Review continued Market developments The underlying growth trends within our two main industrial application areas continue to strengthen and underpin confidence in our strategy. The persistent demand for increasing amounts of data to be transmitted and stored more quickly and securely remains. For Communications markets this equates to more product opportunities through higher speed requirements, enhanced error correction techniques and operation at higher radio frequencies where wider RF channels are permitted. Within industrial Storage markets, the transition to solid state technology from hard disk drives is well and truly underway at a time when our product portfolio has expanded, positioning the business well to capture share over time. Operational developments The performance of the business at an operational level has been particularly encouraging given the environment created by the COVID-19 pandemic. A new global Enterprise Resource Planning (“ERP”) system that commenced live rollout in the prior calendar year has been successfully deployed throughout the Group with the exception of the China operations due to travel restrictions associated with COVID-19. That aside, the Group benefited from the efficiencies associated with running a unified system during the year. The Group has continued to perform well at an operational level with disciplined execution across a number of areas. The operations team overcame several challenges associated with a combination of temporary and permanent supplier factory closures across the year and it is a great credit to our operations team that impact on the business was limited. The investments made in sales and marketing capabilities during prior years has helped to increase the pipeline of opportunities and improved our overall reach and routes to market. As a consequence, further enhancements and efficiencies were made to the sales channels over the last year, resulting in the appointment of additional distribution partners in the USA, the consolidation of existing sales channels within Europe and the closing of our own warehousing facility in North America. We periodically assess the wider resource levels and capabilities within the Group to ensure that they reflect the direction of travel on which the Group is heading. As a result, various changes have been made during the year, touching operations in the UK, Asia and the Americas. The resulting structure and associated capability mix positions us well for growth. Outlook There is no hiding from the fact that the year under review has been difficult, and the current environment is delaying realisation of the benefits to come from the hard work taking place behind the scenes. The current financial year did commence with a healthier order book than the prior year, although it remains to be seen how this translates to actual market consumption as there may be an element attributable to COVID-19 related supply concerns amongst the customer base. Nevertheless, following the operational adjustments made across the prior year, the business is tuned to react swiftly to a revival in demand and the Board remains convinced that a return to growth will be secured as conditions improve. Chris Gurry Group Managing Director 19 June 2020 16 CML Microsystems Plc | Annual Report and Accounts FY20 our stakeholders Our approach We believe that effective engagement with our stakeholders is fundamental to maximising value and securing our long-term success. Why our stakeholders are important to us How we have engaged with them Understanding the views and priorities of our investors is key to the development of our strategy and their continued support. Our shareholders play an important role in monitoring and safeguarding the governance of the Group. We engage with shareholders through our reports, regular news releases, website, Annual General Meeting, investor presentations and one on one meetings. Interaction with our employees is the primary way customers and other third parties obtain an understanding of the Group and its aspirations. It is essential that our employees are positively aligned with the Group‘s strategy. We have an open, collaborative and inclusive structure and engage regularly with our employees. We try to foster a suitable environment to allow them to realise their full potential. Shareholders Group strategy is aimed at driving growth and creating value for our shareholders. Employees We have an experienced, diverse and dedicated team of employees that are fundamental to the success of our business. Customers We serve a broad spectrum of customers across a variety of end markets. Without customers the Company cannot survive. They help drive innovation, quality and value. We work closely with our customers to develop a deep understanding of their business, giving us the ability to anticipate and respond to their needs and foster long-term relationships. Suppliers We utilise a number of world-class suppliers throughout the world. In terms of silicon raw material supply, we are invariably sole-sourced. For other supplies the Group operates multiple suppliers wherever practical. Local government and communities Effective supplier management is important to gain a competitive advantage through achieving operating efficiencies, driving innovation and complying with legal and regulatory obligations. Strong working relationships enhance the efficiency of our business. We engage with our suppliers regularly to ensure our quality and commercial objectives are met. We strive to maintain continuity of supply through varying global economic and market conditions. We are committed to being a responsible member of the communities in which we operate, including local government, local businesses, residents and the wider public. It is important to be a responsible employer who complies with applicable regulatory frameworks, provides a good place to work and has healthy links into the local community. We attend a variety of regional business meetings throughout the year and attend council events linked to the local community. We work with local educational establishments and offer funding for research projects. Section 172 of the Companies Act 2006 We set out our key stakeholder groups, their material issues and how we engage with them. Each stakeholder group requires a tailored engagement approach to foster effective and mutually beneficial relationships. By understanding our stakeholders, the Board can discuss the potential impact of our decisions on each group, ensuring that we consider their needs and concerns in accordance with Section 172 of the Companies Act 2006. As a result, we can continue to supply fit-for-purpose semiconductor products that our customers need, work effectively with our colleagues and suppliers, make a positive contribution to the local community and achieve long-term sustainable returns for our shareholders. CML Microsystems Plc | Annual Report and Accounts FY20 17 corporate social responsibility The Group’s employees are its greatest asset and ultimately are the key factor in determining the long-term success of the business. Employees The Board aims to ensure that all employees work in an environment that supports diversity and fosters a culture of dignity and respect. We are committed to supporting employment policies and practices that support equal opportunities, non-discrimination, and that comply with relevant local legislation and accepted employment practice codes. Policies and practices of equal opportunities and non-discrimination will ensure that an individual’s ability, aptitude and talent are the sole determinants in recruitment, training, career development and progression opportunities, rather than on the grounds of age, beliefs, disability, ethnic origin, gender, marital status, race, religion or sexual orientation. Breakdown of employees as at 31 March by gender and management Plc Board Directors Senior management Staff Total Male 5 17 133 155 2020 Female — 4 52 56 Total 5 21 185 211 Male 6 14 140 160 2019 Female — 2 59 61 Total 6 16 199 221 Senior management is per the definition in Section 414C of the UK Companies Act 2006. The Group encourages employees to participate directly in the success of the business through a free flow of information and ideas, along with Company share ownership. Options over shares in employee share plans do not hold the rights of the ordinary shares themselves. Environmental issues and greenhouse gas emissions The Board recognises its responsibility as a manufacturing concern to reduce, where economically sound, the energy it uses and where possible take advantage of recycling opportunities, complying with local laws as a minimum standard. The direct impact of the Company’s own business on the environment is little more than that of a normal office environment so has minimal effect. This is due to the fact that the Company mainly uses a sub-contractor model for the manufacture of its products. 18 18 CML Microsystems Plc | Annual Report and Accounts FY20 CML Microsystems Plc | Annual Report and Accounts FY20 Greenhouse gas emissions in tonnes of CO2 equivalents Tonnes of CO2e Scope 1 Scope 2 Total controlled emissions Source of emissions Tonnes of CO2e Scope 1 Fuel – Company owned vehicles Gas – heating Refrigerant Total scope 1 emissions Scope 2 Electricity – office and manufacturing Total scope 2 emissions Geographical breakdown 2020 Tonnes of CO2e UK Taiwan Singapore China Germany Total emissions 2019 Tonnes of CO2e UK Taiwan Singapore China Germany Total emissions Intensity of emissions Tonnes of CO2e/£’000 turnover Scope 1 Scope 2 Total 2020 127.43 253.27 380.70 % of total emissions 33.47% 66.53% 100.00% 2019 112.51 306.58 419.09 % of total emissions 26.85% 73.15% 100.00% 2020 % of total emissions 2019 % of total emissions 32.97 94.46 0.00 127.43 253.27 253.27 Scope 1 109.16 7.01 0.00 2.66 8.60 127.43 Scope 1 99.42 7.60 0.00 5.49 0.00 112.51 8.66% 24.81% 0.00% 33.47% 66.53% 66.53% Scope 2 208.03 12.60 2.68 8.04 21.92 253.27 Scope 2 263.23 13.77 3.00 9.86 16.72 306.58 26.26 86.24 0.01 112.51 306.58 306.58 Total 317.19 19.61 2.68 10.70 30.52 6.27% 20.58% 0.00% 26.85% 73.15% 73.15% % of total emissions 83.32% 5.15% 0.70% 2.81% 8.02% 380.70 100.00% Total 362.65 21.37 3.00 15.35 16.72 % of total emissions 86.53% 5.10% 0.71% 3.66% 4.00% 419.09 100.00% 2020 0.00 0.01 0.01 2019 0.00 0.01 0.01 Greenhouse gas reporting methodology The above greenhouse gas emissions data is reported using an operational control approach to define our organisational boundary, which meets the definitional requirements of the Regulations in respect of those emissions for which we are responsible. This includes all material emission sources which we deem ourselves to be responsible for. These sources are within our organisational boundary and align with our own internal and financial control. We do not have responsibility for any emission sources outside this boundary such as commercial flights (scope 3) since they are not within our control and therefore are not considered to be our responsibility. As the table demonstrates absolute emissions have decreased by 9.2%, this reduction is principally due to the Group’s continued approach to its carbon footprint. Quantity of energy consumed for the Group was 1,576 kWh, of which 84.75% relates to the UK. The UK energy consumption relates to gas and electric for manufacturing plants of 792 kWh and offices of 544 kWh. CML Microsystems Plc | Annual Report and Accounts FY20 19 directors The Board is collectively responsible for the long-term success of the Company. Nigel Clark Group Non‑Executive Chairman and Group Finance Director Nigel joined the Company in 1980. He was appointed Company Secretary in 1983 and Group Financial Director in 1985. Prior to joining CML, he was with Touche Ross & Co. (which subsequently merged with Deloitte in 1989) and is a qualified chartered accountant, holding an FCA. Nigel became Group Non-Executive Chairman in January 2015. On 1 January 2020, Nigel took up the post of Group Finance Director on an interim basis. He holds a Mathematical Science degree from Royal Holloway College, University of London. Nigel is Chairman of the Remuneration Committee but has temporarily stepped down from being a member of the Audit Committee. R Chris Gurry Group Managing Director Chris joined the Group in 1994. He was appointed to the Board in 2000 as Business Development Director and became Group Managing Director in October 2007. Prior to joining CML, he worked within the electronics industry and has over 30 years’ experience within communications markets. He is a member of the Remuneration Committee. R Hugh Rudden Group Sales and Marketing Director Hugh joined the Company in June 2014. He has over 30 years’ sales and marketing experience in the semiconductor industry. Prior to joining the Company, he divided his time between leading a VC-backed photovoltaic start-up company through early stage financing and providing business and management consultancy services across a number of sectors. Prior to this, he was CEO at Bede Plc (acquired by Jordan Valley Semiconductors in 2008), and also spent 14 years at Memec Group (acquired by Avnet in 2005), a global semiconductor distribution and design services organisation where his roles included product marketing manager, regional CEO and VP global design services solutions. Hugh speaks German and holds a BSc in Physics from the University of Durham. 20 CML Microsystems Plc | Annual Report and Accounts FY20 Jim Lindop Non‑Executive Director Jim joined the Company in April 2013. He has extensive innovative leadership experience in the technology and engineering sectors, having spent over 30 years in the industry. Most recently he was founder and CEO of Jennic Ltd, a privately held semiconductor company established in 1996 and subsequently acquired by NXP Semiconductors in 2010. Prior to Jennic, he consulted to companies in Cambridge, UK, including Symbionics, building and leading project teams in new wireless technologies. Earlier experience includes working at Rolls-Royce designing electronic instrumentation for aero-engines and as a Director of engineering at Simmons Limited. Jim holds a BSc and MSc in Electronics from the University of Nottingham. Geoff Barnes Non‑Executive Director Geoff joined the Company in April 2017. He is currently a Director of Baker Tilly International having transitioned to the role in June 2016 after serving as its CEO and President for 16 years. He is also Non-Executive Chairman of the Supervisory Board of Baker Tilly South-East Europe Ltd, strategic advisor on international matters to a major city law firm and chairman of the International Advisory Panel of the Institute of Chartered Accountants in England and Wales. In 2015, Geoff was awarded the prestigious lifetime achievement award by the International Accounting Bulletin for services to global public accounting. Previous roles include 18 years with Casson Beckman, culminating in the position of Executive Chairman, and 6 years with Deloitte Haskins & Sells in London where he qualified as a chartered accountant. Geoff is Chairman and member of the Audit Committee and is a member of the Remuneration Committee. A R Key: R Chairman of the Remuneration Committee A Chairman of the Audit Committee R Member of the Remuneration Committee A Member of the Audit Committee 21 CML Microsystems Plc | Annual Report and Accounts FY20 corporate governance The Company is committed to high standards of corporate governance. Nigel Clark Group Non‑Executive Chairman and Group Finance Director Board Audit Committee Remuneration Committee Geoff Barnes (Chair) Nigel Clark (Chair) Geoff Barnes Chris Gurry Nigel Clark has stepped down from being a member of the Audit Committee for the period he acts in the role of Group Finance Director following the departure of Neil Pritchard, the previous Group Finance Director. Articles of Association Any amendment to the Articles may be made in accordance with the provisions of applicable English law concerning companies, specifically the Act (as amended from time to time), by way of special resolution at a general meeting of the shareholders. Powers of the Directors The Board sets the overall direction and control of the Group and has the powers and duties set out in the Companies Act 2006 (the “Act”) and the Company’s Articles of Association. The Board delegates certain matters to the Board Committees and delegates the day-to-day operation of the business to the Directors. Changes to the Directors When recruiting new members of the Board, the Group adopts a formal and transparent procedure with due regard to the diversity, skills, knowledge and level of experience. Statement of the application of principles in the UK Corporate Governance Code 2018 (the “Code”) The Board acknowledges the importance of the UK Corporate Governance Code of the Financial Reporting Council 2018 (the “Code”) that applies to companies with accounting periods starting on or after 1 January 2019. Companies that have a Standard listing on the London Stock Exchange are not required to comply with the Code under the Listing Rules. However there is a requirement to comply with certain disclosure and transparency rules, specifically DTR 7.2, relating to corporate governance statements. The Company is committed to high standards of corporate governance and has sought to comply with those aspects of the Code that are considered by the Board to be practical and appropriate for an organisation of its size and nature and where, in the Board’s opinion, are of material benefit to the Company and/or its stakeholders and not voluntarily adopt the complete Code. A copy of the Code is available on the Financial Reporting Council’s website at www.frc.org.uk/corporate/ukcgcode.cfm. In particular, the Company places a high degree of importance on corporate governance issues relating to internal financial control, accountability and the ability of its Directors to behave independently and appropriately. Consequently, consideration of the Code has been weighted towards these issues whilst also having due regard for the size and nature of the Group. Board leadership and Company purpose The Group is led and controlled by an effective and entrepreneurial Board that comprises three (2019: three) Executive Directors and two (2019: three) Non-Executive Directors. Following the resignation of the Financial Director in November 2019 and his subsequent departure at the end of February 2020, as an interim solution, the Board concluded that stakeholder interests are best served by delaying the recruitment process into the new financial year, commencing 1 April 2020. As an interim measure, the Board decided that 22 CML Microsystems Plc | Annual Report and Accounts FY20 Nigel Clark, Group Non-Executive Chairman, would adopt the additional executive role of Group Finance Director. Nigel was formerly the Group’s Finance Director and will retain this dual role until the recruitment process has been completed. Details of the Directors can be found on pages 20 and 21. The Board meets formally a minimum of four times per year. During the year ended 31 March 2020, thirteen Board meetings were held where all Directors in post participated (2019: eight). Although the Board delegates some matters to its committees (Remuneration and Audit), as part of its leadership and control of the Company, the Board has specific items reserved for its consideration which include business strategy, financial performance, acquisitions, divestments and major capital expenditure. The Chairman and Executive Directors make themselves freely available and regularly consult with the global workforce. To ensure effective engagement with shareholders and stakeholders the Group Managing Director and the Group Financial Director are the Group’s principal spokesmen. Communication is with all stakeholders but primarily is with investors, fund managers, the press and other interested parties. Briefings are held with institutional and private client fund managers and analysts following the announcement of half-year and preliminary results along with other ad-hoc meetings throughout the year. In general the Board welcomes all shareholders at the Annual General Meeting where they are able to question the full Board and meet with them afterwards. In light of COVID-19 this will not be possible at this year’s Annual General Meeting. Details of all briefings and meetings are communicated to the full Board. Division of responsibilities The Group Chairman is primarily responsible for the running of the Board and the Group Managing Director is the Chief Operating Decision Maker (“CODM”) with responsibility for the day-to-day running of the Group and for implementing Group strategy. All Non-Executive Directors have sufficient time to devote to their duties as is demonstrated by their active participation in the Group’s activities. They constructively challenge and help develop proposals on strategy, bringing strong independent judgement, knowledge and experience to the Board’s deliberations. The Group’s wider organisational structure has clear lines of responsibility. Operating and financial responsibility for all subsidiary companies is the responsibility of the Board. The CODM monitors operating performance through the regular review of financial reports and by holding regular formal and informal discussions with senior managers and their respective senior personnel. In accordance with the Articles of Association, one-third of the Board excluding the Group Managing Director, is subject to re-election by rotation annually. Audit, risk and internal control On page 09 of this Annual Report a range of performance measures and risks are detailed. These are used to monitor and manage the business, with some of them considered key performance indicators (“KPIs”). On pages 30 to 33 of this Annual Report and Accounts there are details of the Group’s internal financial control procedures and risk management practices. The Group has a long-established framework of internal financial controls and the Board recognises that the Group operates in highly competitive markets that can be affected by factors and events outside its control. Accordingly, an annual review of the material controls, including financial, operational, compliance and risk management systems, is undertaken during the year by the internal audit function. The Audit Committee is responsible for ensuring the financial performance of the Group is properly measured and reported and for reviewing reports from auditors relating to the Group accounts and the Group’s internal control systems. The Audit Committee also reviews the independence and the objectivity of the auditor and the supply of non-audit services. The Audit Committee normally comprises of the Non-Executive Chairman and an Independent Non-Executive Director, however, for an interim period where the Non-Executive Chairman has been appointed to the additional role of Group Finance Director, the Chair of the Audit Committee (see Directors section) is the sole member of the Audit Committee. During the year ended 31 March 2020, two Audit Committee meetings were held where all Directors in post participated (2019: two meetings). Remuneration On pages 24 to 29 is the full Remuneration Report which details the remuneration policy of the Group. The Remuneration Committee has a long-standing and practical approach to avoiding complex remuneration packages, based upon intricate formulaic outcomes that inadvertently drive behaviour away from the long-term sustainable growth strategy. Typically, Executive Director basic salary adjustments track global employee averages on a belated and cumulative multi-year basis. The bonus element is linked to a combination of annual performance and the successful delivery of the Company’s long-term strategy, with discretion applied. This is a long-standing practice within the business and is evidenced by historic total remuneration awards. All Board members have full access to the Group’s advisors for seeking professional advice at the Company’s expense and the Group’s culture is to openly discuss any important issues. The Remuneration Committee is mindful of promoting long-term shareholdings by the Executive Directors to support the alignment of the Executive Directors’ interests with those of the shareholders. Composition, succession and evaluation The evaluation of the Board, collective skills and its performance along with that of the individual members is considered on an ongoing basis considering the needs of the Company and its stakeholders. New appointments are led by the Group Managing Director and considered by the whole Board acting as the Nominations Committee. By order of the Board Nigel Clark Group Non-Executive Chairman and Group Finance Director 19 June 2020 CML Microsystems Plc | Annual Report and Accounts FY20 23 directors’ remuneration report Introduction This report has been prepared in accordance with the regulations regarding the Directors’ remuneration report. As in previous years the shareholders will be asked to approve the Directors’ Remuneration Report at the forthcoming AGM of the Company at which the financial statements will be approved. Approval sought for this will have advisory status. The Remuneration Committee reviewed the existing policy revised in 2014 and deemed no change necessary to the current arrangements. Therefore, there has been no change in remuneration policy in 2020. Consideration of employment conditions elsewhere in the Group In setting the policy for Directors, the Remuneration Committee is mindful of the Group’s objective to reward all employees fairly according to their role, experience and performance. In setting the policy for Directors’ remuneration the Committee considers the pay and employment conditions of the other employees within the Group. No formal consultation has been undertaken with the Group’s employees in drawing up this policy. The Committee has not used formal comparison measures. Remuneration Committee The Board has established a Remuneration Committee that currently comprises Nigel Clark (Committee Chairman), Geoff Barnes and Chris Gurry. No member of the Remuneration Committee participates in deciding their personal remuneration package. During the year ended 31 March 2020, there were three meetings (2019: two meetings) two of which all Directors in post participated. Remuneration policy Set out in the following table is the Group policy on Directors’ remuneration. In setting the policy, the Remuneration Committee has taken into account: • the need to attract, retain and motivate individuals of a calibre who will ensure successful leadership and management of the Company; • the Group’s general aim in seeking to reward all employees fairly according to the nature of their role; • the need to align the interests of the shareholders as a whole with the long-term growth of the Group; • the need to be flexible and adjust with operational changes throughout the term of this policy; • the size and nature of the business; and • knowledge of general pay levels within the Company’s peer group and similarly sized companies. The remuneration of the Non-Executive Directors is determined by the Board and takes into account additional remuneration for services outside the scope of the ordinary duties of Non-Executive Directors. 24 CML Microsystems Plc | Annual Report and Accounts FY20 Executive Directors Element Purpose Policy Operation Performance conditions Base salary To recognise skills, responsibility, accountability, experience and value. Set at a level considered appropriate to attract, retain, motivate and reward the right individual. Reviewed annually by the Remuneration Committee. Contribution to pension To provide competitive retirement benefits. Fixed percentage of base salary. Paid monthly into pensions or as an adjusted amount of salary in lieu. No specific performance conditions, no maximum salary and no minimum or maximum rate of increase. No specific performance conditions. Benefits1 To provide a competitive benefits package. Includes car or car allowance, health cover and death in service. As defined in the employment contract. No specific performance conditions. Annual bonus To reward and incentivise. Tied to the overall profit and performance of the business as well as the individual in that period. Assessed annually on both a financial and non-financial basis. The maximum bonus will not exceed 50% of base salary and is totally at the discretion of the Remuneration Committee. Share options To provide Executive Directors with a long-term interest in the Company. Granted under general Group-wide schemes. Offered at appropriate times by the Remuneration Committee. No minimum or maximum levels set and no performance criteria specified. 1. Principally a car and private medical insurance. The contracts of the Executive Directors allow the provision of a company car to be exchanged for a car allowance and where this is done, this allowance is added to the benefits in kind figure. Contributions to pension figures may include where Executive Directors elect to make payments into a personal pension plan in lieu of salary awarded. Non‑Executive Directors Element Purpose Policy Operation Performance conditions Base salary To recognise skills, experience and value. Set at a level considered appropriate to attract, retain and motivate the individual. Reviewed periodically as needed. No specific performance conditions, no maximum salary and no minimum or maximum rate of increase. Contribution to pension Benefits None offered. None offered. None offered. None offered. Health cover when employed under PAYE. Health cover where appropriate up to the age of 75. Group organised. No specific performance conditions. Share options None offered. None offered. None offered. None offered. The Company has no long-term incentive plans for Directors and no separate share option scheme exists solely for Executive Directors and they therefore only participate in share option plans that are eligible to all employees. The Committee believes that share option schemes for all employees maximise shareholder value over time and therefore no specific performance conditions attach to the number of options granted to Executive Directors on an individual basis. 25 CML Microsystems Plc | Annual Report and Accounts FY20 directors’ remuneration report continued Policy on payment for loss of office There are no contractual provisions that could impact on a termination payment. Termination payments will be calculated in accordance with the existing contract of employment or service contract. It is the policy of the Remuneration Committee to issue employment contracts to Executive Directors with normal commercial terms and without extended terms of notice which could give rise to an extraordinary termination payment. Single total figure of remuneration (audited) Individual Directors’ remuneration was as follows: 2020 Nigel Clark Chris Gurry Neil Pritchard1 Hugh Rudden Geoff Barnes Jim Lindop 2019 Nigel Clark Chris Gurry Neil Pritchard1 Hugh Rudden Geoff Barnes Jim Lindop Salary £’000 Bonus £’000 Benefits in kind £’000 Total excluding pension £’000 Contribution to pension £’000 Benefits total £’000 97 224 146 154 25 23 669 Salary £’000 69 214 149 147 25 23 627 — — — 20 — — 20 Bonus £’000 — 43 29 30 — — 102 4 27 18 9 1 1 60 101 251 164 183 26 24 749 — 27 14 15 — — 56 101 278 178 198 26 24 805 Benefits in kind £’000 Total excluding pension £’000 Contribution to pension £’000 Benefits total £’000 1 32 21 9 1 1 65 70 289 199 186 26 24 794 — 25 14 14 — — 53 70 314 213 200 26 24 847 1. N Pritchard left employment with the Company on the 29 February 2020. See remuneration policy for types of benefits in kind. No formal performance measures are considered relevant due to the size and nature of the Board and therefore bonuses and share options granted are entirely at the discretion of the Remuneration Committee. Remuneration of the Group Managing Director over the last five years: Year 2020 2019 2018 2017 2016 Group Managing Director Chris Gurry Chris Gurry Chris Gurry Chris Gurry Chris Gurry Total remuneration including bonus £’000 Annual bonus payout/ maximum opportunity % Long-term incentive vesting rates against maximum opportunity % 278 314 315 313 289 0%/50% 20.0%/50% 22.0%/50% 22.0%/50% 17.5%/50% n/a n/a n/a n/a n/a 26 CML Microsystems Plc | Annual Report and Accounts FY20 Change in Group Managing Director’s remuneration: The table below shows the Group Managing Director’s total remuneration from the two prior years to the current year compared to the total remuneration for the Group. Basic salary Taxable benefits and pension Annual bonus Total remuneration of Group Managing Director Total remuneration of employees 2020 £’000 224 54 — 278 2019 £’000 214 57 43 314 2018 £’000 214 54 47 315 13,966 13,530 14,118 Share options (audited) The following Directors had interests in options to subscribe for ordinary shares as follows: Number of options at 1 April 2019 ’000 Options exercised in year ’000 Gain on options exercised in year ’000 Options lapsed in year ’000 Number of options at 31 March 2020 ’000 Exercise price Exercise date Chris Gurry Hugh Rudden 20 30 75 12 25 55 75 292 — — — — — — — — — — — — — — — — — — — — — — — — 20 30 75 12 25 55 75 292 £2.20 15 June 2014 to 14 June 20211 £3.51 £2.79 25 Sept 2018 to 25 Sept 2025 19 Mar 2022 to 18 Mar 2029 £3.125 17 Sept 2017 to 17 Sept 20241 £3.475 25 Sept 2018 to 25 Sept 20251 £5.20 £2.79 28 Mar 2021 to 28 Mar 2028 19 Mar 2022 to 18 Mar 2029 1. These share options are potentially exercisable. Depending on the share option scheme, options are granted at an exercise price not less than the market price on the last dealing day prior to the date of grant or the average for the last three dealing days prior to date of grant, and, under normal circumstances, remain exercisable between the third and tenth anniversaries of the date of grant. The share option schemes cover all Group employees, not just the Directors. The share options have no performance conditions attached. No options have been granted in the year to Directors. On leaving his employment on 29 February 2020, N Pritchard’s outstanding options lapsed and none were exercised in the year. Pensions (audited) The Group operates several pension schemes throughout the UK and overseas in which some of the Directors are included. Full details of these schemes are given in note 27 to the financial statements. The number of Directors who were members of pension schemes operated by the Company (where a member is defined as a current member, deferred member or pension member) was: Defined contributions scheme 2020 Number 2 2019 Number 3 Life assurance cover and widows’ death-in-service cover was provided under a separate policy for the year ended 31 March 2020. Company contributions of £56,000 (2019: £53,000) were made towards the defined contribution scheme during the year in respect of the Executive Directors as detailed earlier in this report. Normal retirement age for all Company pension schemes is 65 years (2019: 65 years). There are no additional benefits that will become receivable by a Director in the event of early retirement. 27 CML Microsystems Plc | Annual Report and Accounts FY20 directors’ remuneration report continued Approach to recruitment remuneration All appointments to the Board are made on merit. The components of the remuneration package (for a new Director recruited within the life of the approved remuneration policy) would comprise of a base salary, pension, benefits, annual bonus and an opportunity to be granted share options. The approach with any appointment is detailed in the policy table. The Company aims to attract appropriately skilled and experienced individuals offering a level of remuneration that, in the opinion of the Remuneration Committee, is not excessive but fair. Remuneration scenarios An indication of the possible level of remuneration that would be received by each Executive Director in the year commencing 1 April 2020 in accordance with the Directors’ remuneration policy and contractual terms, is shown below: C. A. Gurry (£’000) H. F. Rudden (£’000) N. G. Clark (£’000) Minimum On target Maximum 278 306 Minimum On target 178 197 Minimum On target 193 216 390 Maximum 255 Maximum 283 Salary Benefits in kind Pension Bonus The “minimum” remuneration consists of the base salary, benefits and pension as disclosed in the remuneration table for 2020 contained within this report. The “on target” remuneration is the minimum remuneration figure plus, as an example, a 12.5% bonus paid on the base salary element part of the minimum remuneration. There are no contractual targets set for Directors’ bonuses and in the last five years bonus levels have ranged from zero to 22.5% of the base salary element. The maximum remuneration assumes a 50% bonus paid on the base salary element part of the minimum remuneration. Non-Executive Directors The fees payable to Non-Executive Directors are determined by the Board and designed to recognise the experience and responsibility whilst rewarding the expertise and ability of the individual. Directors’ service contracts Chris Gurry is employed by the Company under a written contract of employment that provides for termination by either party giving twelve months’ notice. Hugh Rudden is employed by the Company under a written service contract that provides for termination by either party giving six months’ notice. Jim Lindop has a service contract effective from 1 April 2019. Nigel Clark has a service contract effective from 19 January 2015. Geoff Barnes has a service contract effective from 1 April 2017. All Directors are subject to re-appointment at the first AGM after their appointment and, thereafter, apart from the Group Managing Director, one-third of the remaining Directors shall retire by rotation at the AGM. Directors’ notice periods are set in line with market practice and of a length considered sufficient to ensure an effective handover of duties should a Director leave the Company. Consideration by the Directors of matters relating to Directors’ remuneration The Remuneration Committee considered the Executive Directors’ remuneration and the Board considered the Non-Executive Directors’ remuneration in the year ended 31 March 2020. Any movements awarded to salary are shown on page 26 and no external advice was taken in reaching this decision. 28 CML Microsystems Plc | Annual Report and Accounts FY20 Relative importance of spend on pay The total expenditure of the Group on remuneration to all employees (note 6) is shown below: Employee remuneration Group Managing Director remuneration Distributions to shareholders (interim and final dividends paid) 2020 £’000 13,966 278 1,332 2019 £’000 13,530 314 1,332 Movement £’000 Movement % 436 (36) — 3.2% (11.5%) 0.0% Shareholder voting At the AGM on 31 July 2019, there was an advisory vote on the resolution to approve the Remuneration Report the result of which is detailed below: Resolution to approve the Remuneration Report % of votes for % of votes against % of votes withheld 94.95 5.05 0.00 Consideration of shareholder views No shareholder views have been taken into account when formulating this policy. In accordance with the regulations, an ordinary resolution for approval of this policy will be put to the shareholders at the AGM in July 2020. Company’s performance The graph below shows the total shareholder return on a holding of shares in the Company as against the average total shareholder return (“TSR”) of the companies comprising the TechMark 100 Index for the last ten years. The TechMark 100 Index was selected because in the opinion of the Board it is the most appropriate for benchmarking the Company. 1,200 CML TechMark 800 400 0 Apr 2010 Apr 2011 Apr 2012 Apr 2013 Apr 2014 Apr 2015 Apr 2016 Apr 2017 Apr 2018 Apr 2019 Apr 2020 On behalf of the Board of Directors Nigel Clark Chairman of the Remuneration Committee 19 June 2020 29 CML Microsystems Plc | Annual Report and Accounts FY20 Results The results for the Group for the current and comparative periods are discussed in the Financial Review section of the Group Managing Director’s Review within the Strategic Report as required by legislation. Dividends An interim dividend of 2.0p per 5p ordinary share was paid on 11 December 2019 to shareholders on the Register on 29 November 2019. The Directors are proposing to pay a final dividend of 2.0p per 5p ordinary share, taking the total dividend amount in respect of the year ended 31 March 2020 to 4.0p (2019: 7.8p total dividends). Research and development The Group actively reviews developments in its markets with a view to taking advantage of the opportunities available to maintain and improve its competitive position. This action involves the design and development of hardware and firmware for the semiconductor environment. Strategic Report Greenhouse Gas Emissions, Energy Consumption and Energy Efficiency are detailed in the Corporate Social Responsibility section on page 19 and future developments in the Group Managing Director’s review on page 16. In accordance with S414C (11) of the Companies Act 2006, these have been included in the Strategic Report: Greenhouse Gas Emissions, Energy Consumption and Energy Efficiency. Share capital The Company’s authorised and issued ordinary share capital as at 31 March 2020 comprised a single class of ordinary shares. Details of movements in the issued share capital can be found in note 29 to the financial statements. Each share carries the right to one vote at general meetings of the Company. During the period 2,486 ordinary shares (2019: 63,143 ordinary shares) in the Company were issued under the terms of the various share option schemes. Restrictions on transfer of securities There are no specific restrictions on the transfer of securities in the Company, which is governed by the Articles and prevailing legislation. Nor is the Company aware of any agreements between holders of securities that may result in restrictions on the transfer of securities or that may result in restrictions on voting rights. directors’ report Directors’ Report The Directors submit their report and Group financial statements for the year ended 31 March 2020 in addition to the Directors’ Remuneration Report on pages 24 to 29. The Directors referred to on pages 20 and 21 all served throughout the year ended 31 March 2020. Corporate governance statement The Disclosure and Transparency Rules (“DTR”) require certain information to be included in a corporate governance statement. Information that fulfils these requirements has been incorporated into the Directors’ Report. Going concern The Group’s business activities, performance, position and risks are set out in this Annual Report and Accounts. The financial position of the Group, its cash flows, liquidity position, borrowing facilities and the use of financial instruments and policies relating thereto are detailed in the notes to the financial statements. The report also includes details of the Group’s risk mitigation and management. Given the nature of the markets we operate within, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some of the new products may be delayed, dampening demand for our semiconductors. Even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, along with a product portfolio that addresses markets that have a positive outlook. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. Principal activities The Group designs, manufactures and markets a range of semiconductor products for use in communications and data storage industries. Business review and future developments The Strategic Report on pages 01 to 19 provides an analysis of the business of the Group along with the development and performance of the business during the year and the position at the year end along with future developments. A range of performance measures to monitor and manage the business are discussed within the Strategic Report on page 09. The Group’s business activities, performance, position and risks are set out in this Annual Report and Accounts. The financial position of the Group, its cash flows, liquidity position, borrowing facilities and the use of financial instruments and policies relating thereto are detailed in the notes to the financial statements. The report also includes details of the Group’s risk mitigation and management. 30 CML Microsystems Plc | Annual Report and Accounts FY20 Variation of rights Subject to applicable statutes, rights attached to any class of shares may be varied with the written consent of the holders of at least 75% in nominal value of the issued shares of that class, or by a special resolution passed at a separate general meeting of the shareholders. Rights and obligations attaching to shares Subject to the provisions of the Companies Act 2006, any resolution passed by the Company under the Companies Act 2006 and other shareholder rights, shares may be issued with such rights and restrictions as the Company may by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Board (as defined in the Articles) may decide. Subject to the Articles, the Companies Act 2006 and other shareholder rights, unissued shares are at the disposal of the Board. Powers for the Company issuing or buying back its own shares The Company was authorised by shareholders, at the 2018 AGM, to purchase in the market up to 2,576,274 of the Company’s issued share capital, as permitted under the Company’s Articles. This standard authority is renewable annually; the Directors will seek to maintain the authority for 2,576,274 ordinary shares of 5p at this year’s AGM. The Directors were granted authority at the 2019 AGM to allot relevant securities up to a nominal amount of £572,505. That authority will apply until the conclusion of this year’s AGM. At this year’s AGM shareholders will be asked to grant an authority to allot relevant securities up to a nominal amount of £572,588. Interests in voting rights Information provided to the Company pursuant to the Financial Conduct Authority’s (“FCA”) Disclosure and Transparency Rules (“DTRs”) is published on a Regulatory Information Service and on the Company’s website. Directors and their voting rights are listed further below in this Report. As at 10 June 2020, the Company had been notified under DTR 5 of the following significant holdings of voting rights in its shares. Registered holder Miton Group Plc Otus Capital Management J. M. Gurry Herald Investment Management M. I. Gurry T. M. R. Dean Schroder Investment Management Limited Ruffer Investment Management Legal and General Investment Management Limited Slater Investments Limited Type of investor % of issued share capital Institutional investor Institutional Investor Private investor Institutional investor Private investor Private investor Institutional investor Institutional investor Institutional investor Institutional investor 12.41% 9.17% 9.14% 6.28% 5.60% 5.55% 4.89% 3.74% 3.57% 3.29% Deadlines for exercising voting rights Votes are exercisable at a general meeting of the Company in respect of which the business being voted upon is being heard. Votes may be exercised in person, by proxy, or in relation to corporate members, or corporate representatives. The Articles provide a deadline for submission of proxy forms of not less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting. Significant agreements – change of control There are no agreements to which the Company is party that take effect, alter or terminate upon a change of control of the Company following a takeover bid, other than Director share options. 31 CML Microsystems Plc | Annual Report and Accounts FY20 directors’ report continued Payment of payables It is the Company’s policy to negotiate payment terms with its suppliers in all sectors and to ensure that they know the terms on which payment will take place when the business is agreed. It is our policy to abide by these terms. The Company is not a trading entity and as such has no trade payables outstanding at the end of the financial year; the Company’s practice in respect of the year with regard to its payment of creditors has been zero days (2019: zero days). The Group’s general policy is to pay all creditors in a period between 30 and 45 days. Market value of land and buildings Investment properties in both the Group and Company comprise freehold and leasehold land and buildings and it is from the operating leases on these properties that the Group’s rental income is generated. Everett Newlyn, Chartered Surveyors and Commercial Property Consultants, professionally valued on a triennial basis the Company’s investment properties on the basis of open market value as at 31 March 2018, at a valuation of £3,690,000. Directors and their interests The Directors of the Company at 31 March 2020, all of whom have served throughout the year, together with their interests in the shares of the Company were: Nigel Clark Chris Gurry1 Hugh Rudden Geoff Barnes Jim Lindop Ordinary shares of 5p each 31 March 2020 24,600 908,816 — 12,000 — 31 March 2019 24,600 908,816 — 12,000 — 1. Chris Gurry’s shareholding amounts to 5.30% of the issued share capital. The above interests in the ordinary share capital of the Company are beneficial. Details of the Directors’ interests in options granted over ordinary shares are disclosed in the Directors’ Remuneration Report. There have been no changes in the Directors’ interests in shares between 1 April 2020 and 9 June 2020. With the exception of Directors’ service contracts, there are no contracts of significance in which the Directors have an interest. Third-party indemnity provision for Directors The Company currently has in place, and has done for the whole of the year ended 31 March 2020, Directors’ and officers’ liability insurance for the benefit of all Directors of the Company. Annual General Meeting The notice of the Annual General Meeting sets forth resolutions for the customary ordinary business resolutions 1 to 7 and also special business comprising one ordinary resolution, 8 and three special resolutions, 9, 10 and 11 relating to the following matters: Special business ordinary resolution • To renew the authority for the Company to allot relevant securities. Special business special resolutions • To disapply the pre-emption provisions of the Companies Act 2006. • To disapply the pre-emption provisions of the Companies Act 2006 for the purposes of financing an acquisition or capital investment. The Prospectus Rules were amended in July 2017 whereby a Prospectus is not required for additional shares being issued as part of an acquisition where those shares are below 20% of the total equity holding less treasury shares. Accordingly, the numbers in this resolution are revised to provide for the additional flexibility afforded by this amendment. • To renew the authority to the Company to make market purchases of its own shares. 32 CML Microsystems Plc | Annual Report and Accounts FY20 Capital risk management The Company only has one class of share as detailed in note 29. Although no specific basis, such as the gearing ratio, is used to monitor the capital, the Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Interest rate, liquidity and foreign currency management Further information regarding these matters is provided in note 23. Internal control and risk management systems in relation to the process of preparing consolidated accounts The elements of the internal control system are aimed at ensuring the accuracy and reliability of consolidated financial reporting and guarantee that business transactions are recognised in full and at the proper time in accordance with statutory regulations and CML Microsystems Plc’s Articles of Association. Furthermore, they ensure that inventory counts are carried out correctly and that assets≈and liabilities are accurately recognised, measured and disclosed in the consolidated financial statements. The systems also ensure that the accounting documents provide reliable, comprehensible information. The Group has zero tolerance towards bribery and corruption in its business dealings. The controlling activities to ensure the accuracy and reliability of the accounting include analytical reviews as well as the execution and control of important and complex transactions by different people. The separation of administrative, executive, accounting and authorisation functions and their performance by different individuals (dual signatures) reduces the risk of fraud. Internal guidelines also govern specific formal requirements made of the consolidated financial statements. Establishing the group of consolidated companies is defined in detail, as are the components of the reports to be drawn up by the Group companies and their transmission to the central consolidation system. The formal requirements relate to the mandatory use of a standardised and complete set of reporting forms and a uniform account framework for the Group. The internal guidelines also include concrete instructions on presenting and carrying out netting procedures within the Group and confirming the resulting account balances. At Group level the specific control activities to ensure the accuracy and reliability of consolidated financial reporting include the analysis and, if necessary, restatement of separate financial statements prepared by Group companies, taking into account the auditor’s report and meetings held to discuss them. Statement as to disclosure of information to the auditor The Directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors have confirmed that they have taken all the steps that they believe they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. Auditor A resolution to re-appoint RSM UK Audit LLP, Chartered Accountants, as auditor of the Company will be put to the members at the forthcoming Annual General Meeting. By order of the Board Nigel Clark Company Secretary 19 June 2020 33 CML Microsystems Plc | Annual Report and Accounts FY20 statement of directors’ responsibilities in respect of the financial statements The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and the Company transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the Directors, whose names and functions are listed on pages 20 and 21 confirm that, to the best of each person’s knowledge: a. the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole; and b. the Strategic Report and the Directors’ Report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the CML Microsystems Plc website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors submit their report and Group financial statements for the year ended 31 March 2020. The Directors are responsible for preparing the Strategic Report, the Directors’ Report, the Directors’ Remuneration Report, the separate Corporate Governance Statement on pages 01 to 33 and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. The Directors are required under the Listing Rules of the Financial Conduct Authority to prepare Group financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and have elected under company law to prepare the Company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the Group and the Company and the financial performance of the Group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing the Group and Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • for the Group financial statements, state whether they have been prepared in accordance with IFRS adopted by the EU; and • prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business. 34 CML Microsystems Plc | Annual Report and Accounts FY20 independent auditor’s report to the members of CML Microsystems Plc Opinion We have audited the financial statements of CML Microsystems Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2020 which comprise the consolidated income statement, the consolidated statement of total comprehensive income, the consolidated and company statements of financial position, the consolidated and company cash flow statements, the consolidated and company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2020 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Summary of our audit approach Key audit matters Materiality Group • Goodwill impairment • Capitalisation of development costs Group • Overall materiality: £190,000 (2019: £199,000) • Performance materiality: £142,500 (2019: £149,250) Parent company • Overall materiality: £44,000 (2019: £152,000) • Performance materiality: £33,000 (2019: £114,000) Scope Our audit procedures covered 79% of revenue, 93% of total assets and 96% of profit before tax. 35 CML Microsystems Plc | Annual Report and Accounts FY20 independent auditor’s report continued to the members of CML Microsystems Plc Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on the overall audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the matters described below to be the key audit matters to be communicated in our report. Goodwill impairment Key audit matter description How the matter was addressed in the audit The Group has completed a number of past acquisitions and as a result carries goodwill amounting to £10.7m at 31 March 2020. As set out in note 13 of the financial statements, the recoverability of the goodwill arising is dependent on the underlying businesses generating sufficient cash flows in the future. Due to the significant management judgement in forecasting the cash flows and selecting an appropriate discount rate there is a high level of estimation uncertainty which results in there being a significant risk associated with determining whether goodwill is impaired. Our audit procedures included reviewing the discounted cash flow models, testing and challenging the judgements and assumptions used by management in their assessment of whether goodwill had been impaired and assessing management’s sensitivity analysis on the cash flow model. We have used our knowledge of comparable companies and market data to challenge the assumptions and inputs in determining the discount rate used to calculate the present value of projected future cash flows. We have audited the validity of the model and challenged the valuation model and the basis of management’s impairment considerations. We considered the historical accuracy of key assumptions by comparing the accuracy of the previous estimates of profitability and related cash flows to the actual amounts realised. We assessed management’s sensitivity analysis of key assumptions, including the revenue growth forecasts and the discount rate and considered whether the disclosures about the sensitivity of the outcome of the impairment assessment to reasonably possible changes in key assumptions were adequate and properly reflected the risks inherent in the assessment of the carrying value of goodwill. Key observations We have no other key observations, other than those already considered in this audit report. Capitalisation of development costs Key audit matter description The Group invests significantly in developing new products to support the future trade of the business and has capitalised development costs of £7.9m (2019: £7.2m) in the year. We identified this as a key audit matter due to the significant amounts invested and the degree of judgement involved in assessing whether the criteria for capitalisation under IAS 38 Intangible Assets are met. We focused our audit procedures on the risks: • that capitalised costs relate to products that are not currently technically feasible or for which the probability of future economic benefits is not yet proven; • that development costs are not amortised over their useful economic lives; • of impairment of existing assets, where new technology potentially supersedes previously capitalised projects or inappropriate amortisation rates are used; and • of potential for fraud or error inherent in judgements over appropriate capitalisation. 36 CML Microsystems Plc | Annual Report and Accounts FY20 Capitalisation of development costs continued How the matter was addressed in the audit Our audit procedures included the following: • reviewing management’s process for capitalisation, which include pre-approval papers setting out the anticipated costs and returns to be generated by the products; • holding discussions with regional managers responsible for the products to gain an understanding of the projects, and to inform our assessment as to the feasibility and economic benefits of individual projects; • testing a sample of project additions in the year against the IAS 38 capitalisation criteria; • performing a number of audit procedures on internal staff costs capitalised including substantive testing to payroll records, discussions with management on the proportion of time spent and nature of work attributable to the project; • reviewing the track record of sales and profitability of the products with a carrying value at the year end for indicators of impairment. This included reviewing the profile of significant products to assess whether any had significant sales declines and held discussions with management to challenge whether these are still expected to generate future sales; and • performing analytical tests on the costs capitalised to identify items that in our judgement appeared unusual, and obtaining explanations and supporting evidence from management, for example challenging changes in patterns of capitalisation. Key observations We have no other key observations, other than those already considered in this audit report. There were no other key matters in relation to either the group or parent company. Our application of materiality When establishing our overall audit strategy, we set certain thresholds which help us to determine the nature, timing and extent of our audit procedures. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements. Based on our professional judgement, we determined materiality as follows: Group Parent company Overall materiality £190,000 (2019: £199,000) £44,000 (2019: £152,000) Basis for determining overall materiality 5% of a combination of EBITDA and Profit before tax 1% of Net assets Rationale for benchmark applied Profit measure used for the trading activities of the Group. The parent company is a holding company so net assets have been used as the benchmark. The percentage applied to the benchmark has been restricted for the purpose of calculating an appropriate component materiality. Performance materiality Basis for determining performance materiality Reporting of misstatements to the Audit Committee £142,500 (2019: £149,250) £33,000 (2019: £114,000) 75% of overall materiality 75% of overall materiality Misstatements in excess of £9,500 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. Misstatements in excess of £5,000 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. 37 CML Microsystems Plc | Annual Report and Accounts FY20 independent auditor’s report continued to the members of CML Microsystems Plc An overview of the scope of our audit The group consists of 9 components, located in the following countries; • United Kingdom (three) • Germany • China • USA (two) • Singapore • Taiwan The coverage achieved by our audit procedures was therefore: Full scope audit Analytical procedures Total Number of components Revenue Total assets Profit before tax 6 3 9 79% 21% 100% 93% 7% 100% 96% 4% 100% Of the above full scope audit, 1 component was undertaken by component auditors. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report set out on pages 01 to 33, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. 38 CML Microsystems Plc | Annual Report and Accounts FY20 Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 34, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of our audit, we will consider the susceptibility of the group and parent company to fraud and other irregularities, taking account of the business and control environment established and maintained by the directors, as well as the nature of transactions, assets and liabilities recorded in the accounting records. Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs. However, the principal responsibility for ensuring that the financial statements are free from material misstatement, whether caused by fraud or error, rests with management who should not rely on the audit to discharge those functions. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Other matters which we are required to address Following the recommendation of the audit committee, we were appointed by the members in 1988 to audit the financial statements for the year ending 31 March 1988 and subsequent financial periods. The period of total uninterrupted engagement is 33 years, covering the years ending 1988 to 2020. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting our audit. Our audit opinion is consistent with the additional report to the audit committee. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. David Clark (Senior Statutory Auditor) For and on behalf of RSM UK Audit LLP, Statutory Auditor Chartered Accountants 25 Farringdon Street London EC4A 4AB 19 June 2020 39 CML Microsystems Plc | Annual Report and Accounts FY20 Notes 2020 £’000 2019 £’000 28,140 (7,887) 20,253 26,420 (6,855) 19,565 (18,762) (18,074) 803 689 1,492 (139) 1,353 — 11 106 (96) 1,374 162 1,536 2,179 635 2,814 (117) 2,697 222 — 64 (1) 2,982 (288) 2,694 8.98p 15.77p 8.94p 8,276 15.36p 8,754 3 4 4 5 30 16 15 8 8 9 11 11 12 consolidated income statement for the year ended 31 March 2020 Continuing operations Revenue Cost of sales Gross profit Distribution and administration costs Other operating income Profit from operations Share-based payments Profit after share‑based payments Profit on disposal of property Profit on disposal of property, plant and equipment Finance income Finance expense Profit before taxation Income tax credit/(expense) Profit after taxation attributable to equity owners of the parent Basic earnings per share From profit for year Diluted earnings per share From profit for year Adjusted EBITDA 40 CML Microsystems Plc | Annual Report and Accounts FY20 consolidated statement of total comprehensive income for the year ended 31 March 2020 Profit for the year Other comprehensive expense/income: Items that will not be reclassified subsequently to profit or loss: Actuarial loss on retirement benefit obligations Deferred tax on actuarial loss Items that may be reclassified subsequently to profit or loss upon derecognition: Foreign exchange differences Notes 2020 £’000 2020 £’000 1,536 2019 £’000 2019 £’000 2,694 27 26 (995) 187 308 (1,317) 224 104 Other comprehensive expense for the year net of taxation attributable to equity owners of the parent Total comprehensive income for the year attributable to the equity owners of the parent (500) 1,036 (989) 1,705 41 CML Microsystems Plc | Annual Report and Accounts FY20 consolidated statement of financial position as at 31 March 2020 Notes 2020 £’000 2020 £’000 2019 £’000 2019 £’000 Assets Non‑current assets Goodwill Other intangible assets Development costs Property, plant and equipment Right-of-use assets Investment properties Investments Deferred tax assets Current assets Inventories Trade receivables and prepayments Current tax assets Cash and cash equivalents Total assets Liabilities Current liabilities Bank loans and overdrafts Trade and other payables Leased liabilities Current tax liabilities Provisions – current Non‑current liabilities Deferred tax liabilities Leased liabilities Retirement benefit obligation Provisions – non-current Total liabilities Net assets Capital and reserves attributable to equity owners of the parent Share capital Share premium Capital redemption reserve Treasury shares – own share reserve Share-based payments reserve Foreign exchange reserve Accumulated profits reserve Total shareholders’ equity 13 14 18 15 15 16 17 26 19 20 25 21 22 24 24 25 28 26 24 27 28 29 30 30 30 30 30 30 2,390 5,075 1,044 8,479 4,960 568 4,697 — 10,741 1,823 16,930 4,976 1,184 3,170 83 1,343 40,250 16,988 57,238 — 4,036 502 85 — 4,623 10,225 14,848 42,390 859 9,286 9 (80) 582 1,714 30,020 42,390 2,882 3,430 1,118 13,471 4,420 — 3,548 16 9,235 1,775 14,495 5,307 — 3,170 83 908 34,973 20,901 55,874 662 4,634 — 77 195 5,568 7,984 13,552 42,322 859 9,279 9 (342) 507 1,406 30,604 42,322 The financial statements on pages 40 to 83 were approved and authorised for issue by the Board on 19 June 2020, and signed on its behalf by: Chris Gurry Director Nigel Clark Director Registered in England and Wales: 000944010 42 CML Microsystems Plc | Annual Report and Accounts FY20 consolidated and company cash flow statements for the year ended 31 March 2020 Notes Group 2020 £’000 2019 £’000 Company 2020 £’000 2019 £’000 1,374 2,982 2,147 2,966 Operating activities Profit for the year before taxation Adjustments for: Depreciation – on property, plant and equipment Depreciation – on right-of-use assets Amortisation of development costs Amortisation of intangibles recognised on acquisition and purchased Profit on disposal of property, plant and equipment Movement in non-cash items (pension) Share-based payments Movement in provisions Finance income Finance expense 397 456 5,708 212 (5) 154 139 — (106) 96 400 — 5,146 172 (222) 161 117 (193) (64) 1 6,757 454 7,211 83 — — 42 — — 139 — (2) — 450 2,859 — 2,859 — (1,295) (294) (7,169) — 750 (368) — 64 (1) — — — — (28) — 2 — Movement in working capital 33 (1,868) (1,743) Cash flows from operating activities Income tax received Net cash flows from operating activities Investing activities Acquisition of subsidiary, net of cash acquired Purchase of property, plant and equipment Investment in development costs Lease liability repayments Proceeds from disposal of property, plant and equipment Investment in intangibles Investment in loan note Finance income Finance expense 6,557 526 7,083 (1,295) (57) (7,936) (682) 11 (28) (323) 106 (34) Net cash flows (used in)/from investing activities (10,238) (7,018) (1,321) Financing activities Issue of ordinary shares Issue/(purchase) of own shares for treasury Dividends paid to shareholders Net cash flows used in financing activities (Decrease)/increase in cash and cash equivalents Movement in cash and cash equivalents: At start of year (Decrease)/increase in cash and cash equivalents Effects of exchange rate changes At end of year 21 33 7 — (1,332) (1,325) (4,480) 12,809 (4,480) 150 8,479 214 (152) (1,332) (1,270) (1,077) 13,816 (1,077) 70 12,809 7 — (1,332) (1,325) 213 294 213 — 507 Cash flows presented exclude sales taxes. Further cash related disclosure details are provided in notes 21, 22, 23 and 33. 43 81 — — 16 (222) — 117 — (2) — (2,051) 905 — 905 — (22) — — 750 (235) — 2 — 495 214 (152) (1,332) (1,270) 130 172 130 (8) 294 CML Microsystems Plc | Annual Report and Accounts FY20 consolidated statement of changes in equity for the year ended 31 March 2020 Share capital £’000 Share premium £’000 Capital redemption reserve £’000 Treasury shares £’000 Share- based payments £’000 Foreign Accumulated profits reserve £’000 exchange reserve £’000 856 9,068 9 (190) 443 1,302 30,282 2,694 104 Total £’000 41,770 2,694 104 — 856 — 9,068 — 9 — (190) — 443 104 1,406 1,601 31,883 1,705 43,475 (1,317) (1,317) 224 224 At 31 March 2018 Profit for year Other comprehensive income Foreign exchange differences Net actuarial gain recognised directly to equity on retirement benefit obligations Deferred tax on actuarial gain Total comprehensive income for year Transactions with owners in their capacity as owners Issue of ordinary shares 3 211 Purchase of own shares – treasury (152) Dividend paid Total transactions with owners in their capacity as owners Share-based payments Cancellation/transfer of share-based payments 3 211 — (152) At 31 March 2019 859 9,279 Changes in accounting policy IFRS 16 Restated at 31 March 2019 859 9,279 9 9 (342) Profit for year Other comprehensive income Foreign exchange differences Net actuarial gain recognised directly to equity on retirement benefit obligations Deferred tax on actuarial gain Total comprehensive income for year 214 (152) (1,332) (1,332) — 117 (53) 507 — (1,332) (1,270) 117 — 53 1,406 30,604 42,322 (342) 507 1,406 (30) (30) 30,574 1,536 42,292 1,536 308 308 (995) 187 (995) 187 — 859 — 9,279 — 9 — (342) — 507 308 728 1,036 1,714 31,302 43,328 Transactions with owners in their capacity as owners Issue of ordinary shares – exercise of share options Issue of own shares – treasury Dividend paid — Total transactions with owners in their capacity as owners — Share-based payment charge Cancellation/transfer of share-based payments 7 7 262 — 262 At 31 March 2020 859 9,286 9 (80) (14) 7 248 (1,332) (1,332) — 139 (64) 582 — (1,346) (1,077) 139 — 64 1,714 30,020 42,390 There is considered to be no significant tax effect of foreign exchange differences in the above consolidated statement of changes in equity. 44 CML Microsystems Plc | Annual Report and Accounts FY20 company statement of financial position as at 31 March 2020 Notes 2020 £’000 2020 £’000 2019 £’000 2019 £’000 Assets Non‑current assets Intangible assets Property, plant and equipment Investment properties Investments Deferred tax assets Current assets Trade receivables and prepayments Cash and cash equivalents Total assets Liabilities Current liabilities Trade and other payables Current tax liabilities Non‑current liabilities Deferred tax liabilities Total liabilities Net assets Equity Share capital Share premium Capital redemption reserve Treasury shares – own share reserve Share-based payments reserve Merger reserve Accumulated profits reserve Total shareholders’ equity 1,153 294 14 15 16 17 26 20 21 24 25 26 29 30 30 30 30 30 30 813 507 596 4,507 3,170 14,508 232 23,013 1,320 24,333 764 36 800 689 1,489 22,844 859 9,286 9 (80) 582 316 11,872 22,844 The parent company profit for the financial year attributed in the financial statements of the parent company was £2,033,000 (2019: £2,999,000). The financial statements on pages 40 to 83 were approved and authorised for issue by the Board on 19 June 2020 and signed on its behalf by: Chris Gurry Director Nigel Clark Director Registered in England and Wales: 000944010 611 4,591 3,170 12,964 210 21,546 1,447 22,993 654 — 654 604 1,258 21,735 859 9,279 9 (342) 507 316 11,107 21,735 45 CML Microsystems Plc | Annual Report and Accounts FY20 Total £’000 19,889 2,999 2,999 22,888 214 (152) company statement of changes in equity for the year ended 31 March 2020 Share capital £’000 Share premium £’000 Capital redemption reserve £’000 Treasury shares £’000 Share- based payments £’000 Merger Accumulated profits reserve £’000 £’000 856 9,068 9 (190) 443 316 9,387 2,999 — 856 — 9,068 — 9 — (190) — 443 — 316 2,999 12,386 At 31 March 2018 Profit for year Total comprehensive income for year Transactions with owners in their capacity as owners Issue of ordinary shares 3 211 Purchase of own shares – treasury (152) Dividend paid Total transactions with owners in their capacity as owners Share-based payments Cancellation/transfer of share-based payments At 31 March 2019 Profit for year Total comprehensive income for year 3 211 — (152) 859 9,279 9 (342) — 117 (53) 507 — 859 — 9,279 — 9 — (342) — 507 (1,332) (1,332) — (1,332) (1,270) 117 — 21,735 2,033 53 11,107 2,033 — — 13,140 23,768 316 — 316 Transactions with owners in their capacity as owners Issue of ordinary shares – exercise of share options Issue of own shares – treasury Dividend paid — Total transactions with owners in their capacity as owners — Share-based payment charge Cancellation/transfer of share-based payments 7 7 262 — 262 At 31 March 2020 859 9,286 9 (80) 7 262 (1,332) (1,332) — 139 (64) 582 — (1,332) (1,063) 139 — 64 316 11,872 22,844 46 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements for the year ended 31 March 2020 1 Accounting policies The financial statements have been prepared in accordance with International Financial Reporting Standards and interpretations issued by the IFRIC interpretations committee as endorsed by the EU (“IFRS”) and the requirements of the Companies Act applicable to companies reporting under IFRS. The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. a) Basis of accounting and preparation The financial statements have been prepared under the historical cost convention with the exception of investment properties that are carried at valuation. The financial statements have been prepared on a going concern basis as the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Group’s presentational currency is Pounds Sterling and the Company’s functional currency is Pounds Sterling and figures are rounded to the nearest thousand pounds. Going concern The Group’s business activities, performance, position and risks are set out in this Annual Report and Accounts. The financial position of the Group, its cash flows, liquidity position, borrowing facilities and the use of financial instruments and policies relating thereto are detailed in the notes to the financial statements. The report also includes details of the Group’s risk mitigation and management. Given the nature of the markets we operate within, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some of the new products may be delayed, dampening demand for our semiconductors. Even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, along with a product portfolio that addresses markets that have a positive outlook. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts. b) Basis of consolidation These financial statements incorporate the financial statements of the Company and its subsidiary undertakings using the acquisition method of accounting. The results of acquired subsidiary undertakings are included from the date of acquisition. No income statement is presented for CML Microsystems Plc as provided by Section 408 of the Companies Act 2006. A subsidiary is defined as a company, over which the Group has control. The Group controls an entity where the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Dormant subsidiaries are not included in the consolidated financial statements on the basis that they are not material to the Group. c) Segmental reporting 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 business segment classification. d) Revenue The Group recognises revenues from semiconductor products at the point of satisfaction of its performance obligation and at a determined transaction price. Revenues are recognised when invoices are raised and goods have been despatched to the customer and it is probable that the Group will collect the consideration. Revenue is measured at the fair value of the consideration receivable excluding discounts, rebates, Value Added Tax and other sales taxes or duties. Other income such as interest earned and property income is recognised as earned. The Group recognises its revenue in any given period in accordance with these measures and therefore does not recognise future revenues within current revenue. Product sales meet the definition of a distinct service whereby the associated revenue is to be recognised at a point in time, evidenced by the delivery of the products to the customer, i.e. when control passes to the customer. Pricing is fixed and determinable pursuant to agreeing upon pricing lists that establish stand-alone selling prices. There are no further performance obligations associated with these sales. Warranties for all products sold or any loss or damage suffered by a purchaser only extends to the refund of the purchase price or replacement of the product originally sold regardless of how the claim has arisen, therefore it is only accounted for on an actual identified potential liability, in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. e) Intangibles Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Under IFRS 1 First-time Adoption of International Financial Reporting Standards, the Group elected to adopt the 31 March 2005 balance sheet amortised value prepared under UK GAAP for Hyperstone-related goodwill relating and carry out annual impairment reviews as required under IAS 36 and in accordance with IAS 38. Goodwill was recognised for the Sicomm acquisition in August 2016 and Plextek RFI Limited acquired in March 2020. Goodwill is reviewed annually for impairment by comparing its carrying value to the value in use or net selling price of the cash generating unit; any resultant loss being charged through the consolidated income statement. Net selling price is determined using a five-year average of projected future earnings as applied to the price earnings ratio for the technology sector. No impairments are reversed. 47 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 1 Accounting policies continued e) Intangibles continued Other intangibles Externally acquired intangible assets have been recognised in accordance with the provisions of IFRS 3 Business Combinations in relation to the acquisition of Sicomm and Plextek RFI Limited. These acquired intangibles have been amortised in accordance with the following: • brands 10 years from date of acquisition • customer relationships 6-9 years from date of acquisition 10 years from date of acquisition • intellectual property Intellectual property and software The Group is progressively implementing an Enterprise Resource Planning system across all companies within the Group business functions. The purchased intangible will be amortised over its useful economic life of 15 years from its date of implementation. The Group has also purchased a licence for the use of external software for vocoder purposes. This has been capitalised as an intangible asset and amortised over ten years in line with acquired intellectual property rights above. Amortisation of all the above intangible assets is recognised on consolidation and reported in distribution and administration costs in the consolidated income statement. f) Research and development Development expenditures that satisfy the recognition criteria as set out in IAS 38 Intangible Assets are shown at historical cost less accumulated amortisation since they have a finite useful life. In determining the period over which the carrying value of the intangible fixed assets are amortised, the Group is required to consider the likely period over which the developed products are likely to generate economic benefits. Amortisation is calculated using the straight-line method to allocate the cost of the development over a period of four years, representing the period over which economic benefit is derived from developed products and is charged to administration costs in the income statement. Research and other development expenditures that fall outside the scope of IAS 38 are charged to the income statement when incurred. An internally generated intangible asset arising from the Group’s business development is recognised only if all of the following conditions are met: • an asset is created that can be identified; • it is probable that the asset created will generate future economic benefits; • the development cost of an asset can be measured reliably; • the product or process is technically and commercially feasible; and • sufficient resources are available to complete the development and to either sell or use the asset. g) Property, plant and equipment and investment property All property, plant and equipment, other than investment properties, are stated at historical cost. Depreciation is provided on all property, plant and equipment other than freehold land and investment properties at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows: • freehold and long leasehold premises • short leasehold improvements • plant and equipment • motor vehicles 2% straight line period of the lease 25% straight line 25% straight line Investment properties are stated at their fair values and are revalued annually by the Directors and every third year by an independent chartered surveyor on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40 Investment Properties, gains and losses arising on revaluation of investment properties are shown in the income statement. h) Taxation The tax expense represents the sum of the tax currently payable, adjustments in respect of prior years and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the year end. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the year end. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. 48 CML Microsystems Plc | Annual Report and Accounts FY20 i) Inventories Inventories are valued on a first-in, first-out basis and are stated at the lower of cost and net realisable value. In respect of work in progress and finished goods, cost comprises direct materials, direct labour and a proportion of overhead expenses appropriate to the business. j) Foreign currencies Assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the year end. Transactions in foreign currencies are recorded at the rates ruling at the date of the transactions. All differences are taken to the income statement. The financial statements of the overseas subsidiaries are translated into Sterling at the average rate of exchange for the period for the income statement and at the closing rate for the statement of financial position. Translation differences are dealt with through the foreign exchange reserve in shareholders’ equity. The Group decided to deem the cumulative amount of exchange differences arising on consolidation of the net investments in subsidiaries at 1 April 2004 to be zero. k) Investments Investments are stated at cost less any provision for diminution in value. l) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts where there is a set-off arrangement with the bank. Other bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. m) Employee benefits – pension obligations Group companies operate both defined benefit and defined contribution pension schemes. The schemes are funded through payments to funds administered separately by trustees and these are determined by periodic actuarial calculations in respect of the defined benefit pension schemes. The liability recognised in the statement of financial position in respect of the defined benefit pension schemes is the present value of the defined benefit obligation at the year end less the fair value of the scheme assets. Independent actuaries using the projected unit method calculate the defined benefit obligation annually. The current service cost, which is the increase in the present value of the retirement benefit obligation resulting from employee service in the current year, and gains and losses on settlements and curtailments, which arise on transactions that eliminate part or all of the benefits provided or when there are amendments to terms such that a significant element of future service will no longer qualify for benefits or will qualify only for reduced benefits, are included within operating profit in the consolidated income statement. Past service credits/ costs are those service credits/costs in relation to prior years’ service costs as a result of changes of future benefits earned by members. Past service credits/costs are recognised immediately in the consolidated income statement. Re-measurement of the UK defined benefit scheme due to actuarial gains and losses from experience adjustments and changes in actuarial assumptions are immediately recognised in other comprehensive income and charged or credited directly to equity. For defined contribution schemes, contributions are recognised as an employee benefit expense in the consolidated income statement when they are due. n) Employee benefits – share‑based payments Share options which are equity settled are valued using the Black-Scholes model. This fair value at the date of the grant is charged to the income statement over the vesting period of the share-based payment scheme. The value of the charge is adjusted to reflect expected and actual levels of options vesting. Cancelled or settled options are accounted for as an acceleration of vesting. The unrecognised grant date fair value is recognised in the profit or loss in the year that the options are cancelled or settled. o) Government grants Government grants receivable to assist the Group with costs in respect of development work are credited against capitalised development costs or capitalised property, plant and equipment so as to match them with the expenditure to which they relate. Other grants that are not of a capital nature are credited to the income statement as part of other operating income. Grants are only recognised when all conditions of the grant have been complied with and are matched to the expenditure to which they relate. p) Leases Group as a lessee Right‑of‑use assets A right-of-use asset is recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group. The right-of-use asset is subsequently measured at cost less accumulated depreciation and any accumulated impairment losses. The depreciation methods applied are as follows: • leased property • lease vehicles over the term of the lease 25% straight line Lease liabilities On commencement of a contract (or part of a contract) which gives the Group the right to use an asset for a period of time in exchange for consideration, the Group recognises a right-of-use asset and a lease liability unless the lease qualifies as a “short-term” lease or a “low-value” lease. Initial measurement of the lease liability The lease liability is initially measured at the present value of the lease payments during the lease term discounted using the interest rate implicit in the lease, or the incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. 49 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 1 Accounting policies continued p) Leases continued Lease liabilities continued Initial measurement of the lease liability continued The lease term is the non-cancellable period of the lease plus extension periods that the Group is reasonably certain to exercise and termination periods that the Group is reasonably certain not to exercise. Lease payments include fixed payments, less any lease incentives receivable, variable lease payments dependent on an index or a rate (such as those linked to LIBOR) and any residual value guarantees. Variable lease payments are initially measured using the index or rate when the leased asset is available for use. Subsequent measurement of the lease liability The lease liability is subsequently increased for a constant periodic rate of interest on the remaining balance of the lease liability and reduced for lease payments. Interest on the lease liability is recognised in profit or loss. Variable lease payments not included in the measurement of the lease liability as they are not dependent on an index or rate, are recognised in profit or loss in the period in which the event or condition that triggers those payments occurs. Group as a lessor Leases of property, plant and equipment where the Group has substantially all the risk and rewards of ownership are classified as finance leases. Rental income under these leases is credited to the income statement on a straight-line basis and any contingent rents are recognised as income in the period to which they relate. q) Dividends Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. r) Critical accounting judgements and Key sources of estimation uncertainty The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual result. The amortisation period of development costs, the assumptions made (for example mortality, inflation and discount rates) for the UK defined benefit pension scheme and the impairment of goodwill are considered to be critical accounting estimates and judgements; details of which are referred to in this accounting policies note, sections e, f, h, m and t. Deferred tax assets are only recognised when there is a reasonable expectation of recovery. Critical accounting judgements The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. • Research and development – measurement and amortisation Distinguishing whether development expenditure satisfies the recognition requirements for the capitalisation of development costs requires the exercise of judgement. The point at which amortisation commences also requires management judgement and therefore, where there is uncertainty on when to begin amortisation, a conservative approach is taken. The corresponding amortisation period is derived from existing developed products in the markets served and therefore the assumption is that new products will provide economic benefit for similar periods of time. Depending on these factors, judgement is exercised whether research and development costs are impaired. • Acquisition of Plextek RFI Limited – recognition of intangible assets The initial accounting for the acquisition of Plextek RFI Limited is provisional as the purchase price allocation (and thereby goodwill) has not been completed. Consequently, the fair values stated in the financial statements are only provisional. There is judgement applied determining which separate or legal/contractual intangible assets should be recognised. Key sources of estimation uncertainty • Impairment of goodwill An annual review is carried out (as set out in note 13) as to whether the current carrying value of goodwill is impaired. Detailed calculations are performed based on (i) discounting expected pre-tax cash flows of the relevant cash generating units and discounting these at an appropriate discount rate; and/or (ii) the comparison of carrying value to the net selling price of the cash generating unit; the determination of these factors require the exercise of judgement. • UK defined benefit pension scheme Actuarial assumptions are made in valuing future benefit pension obligations (as set out in note 27). The principal significant assumptions relate to the rate of inflation, the discount rate and life expectancy of members. Estimates are used for these factors in determining the pension costs and liabilities in the financial statements. • Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of probabilities that future taxable incomes in jurisdictions will be available against which the deductible temporary differences and tax loss carry-forwards can be utilised in the future. 50 CML Microsystems Plc | Annual Report and Accounts FY20 The Group has considered the impact of COVID-19 on its critical accounting judgements and key sources of estimation uncertainty and at this time the Group believes there is no material impact of COVID-19 that can be clearly defined. Given the nature of the markets we operate within, we anticipate our end customers being insulated from a consumer downturn to some extent, although the roll-out of some of the new products may be delayed, dampening demand for our semiconductors. Even in these difficult times, we still maintain the belief that the Group is well placed to move positively forward in the medium to long term. This belief is underpinned by a strong balance sheet and no debt, along with a product portfolio that addresses markets that have a positive outlook. s) Financial instruments (i) Recognition of financial instruments Financial assets and financial liabilities are recognised when the Company becomes party to the contractual provisions of the instrument. (ii) Financial assets Initial and subsequent measurement of financial assets (a) Trade, Group and other receivables Trade receivables are initially measured at their transaction price. Group and other receivables are initially measured at fair value plus transaction costs. Receivables are held to collect the contractual cash flows which are solely payments of principal and interest. Therefore, these receivables are subsequently measured at amortised cost using the effective interest rate method. (iii) Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Initial and subsequent measurement of financial liabilities (a) Trade, Group and other payables Trade, Group and other payables are initially measured at fair value, net of direct transaction costs and subsequently measured at amortised cost. (b) Bank overdrafts Bank overdrafts are initially measured at fair value, net of direct transaction costs, and are subsequently measured at amortised cost. Finance charges, including premiums payable on settlement or redemption, are recognised in profit or loss over the term of the loan using an effective rate of interest. (c) Equity instruments Equity instruments issued by the Company are recorded at fair value on initial recognition net of transaction costs. (iv) Derecognition of financial assets (including write-offs) and financial liabilities A financial asset (or part thereof) is derecognised when the contractual rights to cash flows expire or are settled, or when the contractual rights to receive the cash flows of the financial asset and substantially all the risks and rewards of ownership are transferred to another party. When there is no reasonable expectation of recovering a financial asset it is derecognised. The gain or loss on derecognition of financial assets measured at amortised cost is recognised in profit or loss. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or expires. Any difference between the carrying amount of a financial liability (or part thereof) that is derecognised and the consideration paid is recognised in profit or loss. t) Impairment of property, plant and equipment (including right‑of‑use assets), development costs and intangible assets other than goodwill At each year end, the Group reviews the carrying amounts of its non-current assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that an asset may be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease until the associated revaluation reserve is extinguished. u) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reliably estimated. Provisions are discounted where material to do so. v) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where the Company has purchased its own equity share capital, the consideration paid, including directly attributable incremental costs, is deducted from retained earnings until the shares are cancelled. On cancellation, the nominal value of the shares is deducted from share capital and the amount is transferred to the capital redemption reserve. 51 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 1 Accounting policies continued w) Acquisitions The acquisition of subsidiaries is accounted for using the acquisition method. The cost of acquisition is measured at the aggregate of the fair values, at the date of change of control, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs relating to the issue of debt or equity securities. Any costs directly attributable to the business combination are expensed to the consolidated income statement. The acquiree’s identifiable assets, liabilities, and contingent liabilities are recognised at their fair value at the acquisition date. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. x) Adoption of International Accounting Standards New standards, amendments to published standards and interpretations to existing standards effective in 2019, with their dates of adoption adopted by the Group and brief description: IFRS 16 Leases 1 January 2019 1 January 2019 IFRIC 23 Uncertainty over Income Tax Treatments Amendments to IAS 19: Plan Amendment, Curtail or Settlement IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is twelve months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRIC 23 clarifies the accounting for uncertainties in income taxes. The interpretation is to be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. 1 January 2019 The amendments to IAS 19 include the following: • If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. • In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling. Annual Improvements to IFRS Standards 2015-2017 Cycle 1 January 2019 The improvements in this amendment clarify the requirements of IFRSs and eliminate inconsistencies within and between standards. With the exception of IFRS 16, discussed further below/above, the implementation of these standards did not have a material impact on the Group’s consolidated or Company financial statements. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group: Amendments to IAS 1 and IAS 8: Definition of Material Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020 Issued to clarify the definition of “material” and to align the definition used in the Conceptual Framework and the standards themselves. 1 January 2020 Included are revised definitions of an asset and a liability as well as new guidance on measurement and derecognition, presentation and disclosure. The Directors anticipate that the adoption of these standards and interpretations in future periods will have little or no material impact on the financial statements of the Group, subject to any future business combinations. 52 CML Microsystems Plc | Annual Report and Accounts FY20 (i) IFRS 16 Leases The Group has adopted IFRS 16 Leases for the financial year ending 31 March 2020, and it has chosen to use a modified retrospective approach to adoption. The approach adopted does not require the restatement of prior year figures. As a result of the fact the right-of-use assets are measured based on the lease commencement date compared to the lease liabilities being calculated based on the initial application date, there is an adjustment to brought forward reserves as shown in the consolidated statement of changes in equity. • Property leases • Office equipment leases • Motor vehicle leases • Other leases These leases have been recognised on the balance sheet, in financial liabilities, by recognising the future cash flows of the lease obligation, discounted using an implicit interest rate of 4% for property leases, and 21% for office equipment and 7% for motor vehicles. These rates are in line with industry published discount rates. Corresponding right-of-use assets have been recognised in the Group balance sheet for right-of-use assets property, office equipment and motor vehicles and have been measured as being equal to the discounted lease liability at the date of inception plus any lease payments made at or before the inception of the lease. Cash flows from these leases have been recognised by including the lease payments in cash flows from investing activities. As the Group has chosen to adopt IFRS 16 using the modified retrospective approach, comparatives have not been restated and are accounted for under the Group’s previous lease accounting policy. Under this approach, prior year figures have not been restated to reflect leases that were in effect at that time. On transition to IFRS 16, the Group has applied the practical expedient of using a single discount rate to a portfolio of leases with reasonably similar characteristics: • Using a single discount rate to a portfolio of leases with reasonably similar characteristics. • The Group has chosen to transition all leases previously identified under IAS 17 to IFRS 16 and has not reassessed whether these contracts are leases. • Reliance on the assessment of onerous leases at 31 March 2019 instead of performing an impairment review on transition at 1 April 2019. • In assessing the length of the lease, where options to extend or terminate the contract exist at the transition date these have been taken into account or the known length of the lease has been used. Key judgements and estimates The Group determines the lease term as the non-cancellable term of the lease together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. Where the implicit rate of interest relating to a lease is not readily available, the Group has used a discounted rate of 4% for property leases and 7% for motor vehicles. Undiscounted operating lease obligations as at 31 March 2019 Discounting Lease liabilities at 1 April 2019 The effect of adoption of IFRS 16 as at 1 April 2019 (increase/(decrease)) is as follows: Non‑current assets Right-of-use assets Total assets Liabilities Lease liabilities Total liabilities Net assets Equity Reserves Total equity £’000 1,038 (48) 990 £’000 960 960 990 990 (30) (30) (30) 53 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 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 Chief Operating Decision Maker (Chris Gurry). 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 business segment classification. Information about revenue, profit/loss, assets and liabilities 2020 2019 Semiconductor components £’000 26,420 Group £’000 26,420 Semiconductor components £’000 28,140 Group £’000 28,140 1,353 1,353 2,697 2,697 106 (96) 11 162 1,536 51,681 51,681 3,170 1,343 1,044 57,238 5,106 4,960 85 4,697 14,848 5,106 5,507 2020 2019 Semiconductor components £’000 57 86 Group £’000 57 86 7,936 7,936 28 397 456 5,708 212 154 28 397 456 5,708 212 154 Semiconductor components £’000 294 — 7,169 368 400 — 5,146 172 161 64 (1) 222 (288) 2,694 50,678 50,678 3,170 908 1,118 55,874 5,507 4,420 77 3,548 13,552 Group £’000 294 — 7,169 368 400 — 5,146 172 161 Total segmental revenue Profit Segmental result Finance income Finance expense Profit on disposal of property, plant and equipment Income tax receipt/(expense) Profit after taxation Assets and liabilities Segmental assets Unallocated corporate assets Investment properties Deferred tax assets Current tax assets Consolidated total assets Segmental liabilities Unallocated corporate liabilities Deferred tax liabilities Current tax liabilities Retirement benefit obligation Consolidated total liabilities Property, plant and equipment additions Right-of-use assets additions Development cost additions Intangible additions Depreciation Depreciation – right-of-use assets Amortisation of development costs Amortisation of acquired and purchased intangibles Other non-cash expenditure (pension) 54 CML Microsystems Plc | Annual Report and Accounts FY20 40 229 — 976 118 5,698 874 13,445 40 — — — 5,723 1,164 13,036 4,976 1,184 3,170 16,930 714 10,741 1,109 57,238 28,140 5,307 3,170 14,495 611 9,235 1,164 55,874 Geographical information (by origin) Year ended 31 March 2020 Revenue to third parties – by origin Property, plant and equipment Right-of-use assets Investment properties Development costs Intangibles – software and intellectual property Goodwill Other intangible assets arising on acquisition UK £’000 Rest of Europe £’000 Americas £’000 Far East £’000 Total £’000 8,868 26,420 6,793 4,724 164 3,170 6,161 596 1,531 235 5,903 182 244 — 9,793 — 3,512 — 4,856 30 547 — — — — — Total assets 24,606 16,984 2,203 Year ended 31 March 2019 Revenue to third parties – by origin Property, plant and equipment Investment properties Development costs Intangibles – software and intellectual property Goodwill Other intangible assets arising on acquisition 7,419 4,941 3,170 5,359 611 — — 6,051 260 — 9,136 — 3,512 — 66 — — — — — 5,207 9,463 Total assets 25,174 16,070 1,594 Revenue contribution from the top two customers provided a combined contribution of approximately 21% (2019: 20% of revenue), although only one of these customers was above the 10% threshold (2019: one customer). 3 Revenue The geographical classification of business turnover (by destination) is as follows: Continuing business Europe Far East Americas Others 2020 £’000 7,844 13,182 4,907 487 26,420 2019 £’000 7,201 15,348 5,251 340 28,140 In accordance with IFRS 15, the Group’s revenue of £26,420,000 is made up of revenue from customers which fall into one of the market application areas of communications or storage only and does not include any other significant revenue. Goods and services are transferred at a point in time, not over time, as detailed in the Group’s revenue recognition policy (see note 1). The Group does not have any contract assets at 31 March 2020 (nil at 31 March 2019) as the Group does not fulfil any of its performance obligations in advance of invoicing to its customer. The Group however does have contractual balances in the form of trade receivables. See note 20 for disclosure of this. The Group also has contractual liabilities of £0.3m at 31 March 2020 (£0.7m at 31 March 2019). The Group also does not have any contractual costs capitalised at 31 March 2020 (nil at 31 March 2019) or have any outstanding performance obligations at 31 March 2020 (nil at 31 March 2019). 55 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 4 Profit from continuing operations Profit from operations is stated after charging or crediting: Cost of sales: Depreciation Amount of inventories written down Cost of inventories recognised as expense Other (stock) movements Distribution and administration costs: Distribution costs (mainly staff costs) Administration costs: Amortisation of development costs Research and development expensed Amortisation of acquired and purchased intangibles Depreciation – owned assets Depreciation – right-of-use assets Foreign exchange losses/(gains) Rentals under operating leases: Land and buildings Other operating leases Auditor’s fees (see below) Restructuring and reorganisational costs Other expenses (mainly staff costs) 2020 £’000 £’000 2019 £’000 £’000 99 7 6,645 104 5,708 526 212 397 456 48 — 1 203 700 6,977 6,855 3,534 15,228 18,762 101 20 7,672 94 5,146 1,073 172 299 — (255) 435 90 188 — 7,552 Amounts payable to RSM UK Audit LLP, Chartered Accountants in respect of both audit and non-audit services: Audit services: Statutory audit of Company’s annual accounts and Group consolidation Other services: The auditing of accounts of associates of the Company pursuant to legislation (including that of countries and territories outside the UK) This includes: Audit of subsidiaries Audit of associated pension schemes Other non-audit services Amounts payable to other auditors in respect of both audit and non-audit services: Statutory audit services Tax compliance services Other services 2020 £’000 56 45 17 5 123 51 23 6 80 56 7,887 3,374 14,700 18,074 2019 £’000 50 36 15 5 106 61 20 1 82 CML Microsystems Plc | Annual Report and Accounts FY20 5 Other operating income Rental income Government grants and consulting Other income 2020 £’000 316 97 276 689 2019 £’000 326 55 254 635 All conditions relating to the government grants have been fulfilled and there are no other contingencies. Other income relates to an element of profit on third-party product re-sales. 6 Employees Staff costs, including Directors, during the year amounted to: Wages and salaries Social security costs Other pension and health care costs Share-based payments The average number of employees, including Directors, during the year was: Administration Engineering Manufacturing Selling 7 Directors’ emoluments Remuneration (including fees) Emoluments in respect of the highest paid Director amounted to: Remuneration Group 2020 £’000 11,633 1,371 823 139 2019 £’000 11,292 1,312 809 117 Company 2020 £’000 1,036 134 84 32 13,966 13,530 1,286 2019 £’000 1,060 130 80 40 1,310 Group 2020 Number Company 2019 Number 2020 Number 2019 Number 44 101 35 31 211 54 105 34 28 221 8 — — — 8 2020 £’000 805 278 9 — — — 9 2019 £’000 847 314 Further details on Directors’ emoluments, including contributions to pension, can be found in the Directors’ Remuneration Report on pages 24 to 29. 8 Finance income and expense Finance income Bank interest receivable Finance expense Bank interest payable Bank interest payable – leased liabilities 2020 £’000 106 2020 £’000 34 62 96 2019 £’000 64 2019 £’000 1 — 1 57 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 9 Income tax expense a) Analysis of tax expense in period Current tax UK corporation tax on results of the year Adjustment in respect of previous years Foreign tax on results of the year Foreign tax – adjustment in respect of previous years Total current tax Deferred tax Deferred tax – origination and reversal of temporary differences Deferred tax – relating to changes in rates Adjustments to deferred tax charge in respect of previous years Total deferred tax Tax (income)/charge on profit on ordinary activities (note 9b) 2020 £’000 (588) — (588) 245 1 (342) 97 106 (23) 180 (162) 2019 £’000 (722) 4 (718) 92 4 (622) 913 — (3) 910 288 b) Factors affecting tax expense for period Tax assessed for the period is lower than the standard rate of corporation tax in the UK of 19% (2019: 19%). The differences are explained below: Profit before tax Profit before tax multiplied by the standard rate of UK corporation tax of 19% (2019: 19%) Effects of: Capital allowances less than depreciation Expenses not deductible for tax purposes Share-based payments – tax effect Research and development tax credits Reversal of recognition of deferred tax assets on losses Losses expired on assets not recognised Different tax rates in countries in which the Group operates Adjustments to current tax charge in respect of previous years Adjustments to deferred tax charge in respect of previous years Change in deferred tax rate Non-taxable income and other Tax (income)/expense for period (note 9a) 2020 £’000 1,374 261 14 211 12 2019 £’000 2,982 567 15 61 (7) (692) (720) — 1 (3) (1) (23) 107 (49) (162) 413 — 100 8 (3) (59) (87) 288 A deferred tax credit of £187,000 was recognised on an actuarial loss of £995,000 on a retirement benefit net obligation and was recognised in the year in the consolidated statement of total comprehensive income (2019: deferred tax credit of £224,000 on an actuarial loss of £1,317,000 on a retirement benefit net obligation). A deferred tax credit of £107,000 was recognised due to the changes in rate from 17% to 19%. 10 Dividend – proposed During the year, a final dividend of 5.8p per ordinary share of 5p was paid in respect of the year ended 31 March 2019. An interim dividend of 2.0p per ordinary share was paid on 13 December 2019 to shareholders on the Register on 29 November 2019. It is proposed to pay a final dividend of 2.0p per ordinary share of 5p, taking the total dividend amount in respect of the year ended 31 March 2020 to 4.0p (2019: total of 7.8p). It is proposed to pay the final dividend of 2.0p, if approved, on 7 August 2020 to shareholders registered on 24 July 2020 (2019: 5 August 2019 to shareholders registered on 5 July 2019). 58 CML Microsystems Plc | Annual Report and Accounts FY20 11 Earnings per ordinary share Basic earnings per share From profit for year Diluted earnings per share From profit for year 2020 p 2019 p 8.98 15.77 8.94 15.36 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 shown below: 2020 Weighted average number of shares Number Profit £’000 Profit per share p Profit £’000 2019 Weighted average number of shares Number Profit per share p 1,536 17,099,216 8.98 2,694 17,087,788 15.77 Basic earnings per share Basic earnings per share – from profit for year Diluted earnings per share Basic earnings per share Dilutive effect of share options — 88,355 1,536 17,099,216 8.98 (0.04) 2,694 17,087,788 — 448,311 15.77 (0.41) Diluted earnings per share – from profit for year 1,536 17,187,571 8.94 2,694 17,536,099 15.36 During the year, the Company and staff exercised 2,486 staff share options under the terms of the staff share option schemes at a weighted average price of 3.69p per 5p share. During the year the Company issued 76,533 treasury shares. 12 Adjusted EBITDA Adjusted earnings before interest, tax, depreciation and amortisation (“Adjusted EBITDA”) is defined as profit from operations before all interest, tax, depreciation and amortisation charges and before share-based payments. The following is a reconciliation of the Adjusted EBITDA for the years presented: Profit after taxation (earnings) Adjustments for: Finance income Finance expense Income tax (credit)/expense Depreciation Depreciation – right-of-use assets Amortisation of development costs Amortisation of purchased and acquired intangibles recognised on acquisition Share-based payments Adjusted EBITDA 2020 £’000 1,536 (106) 96 (162) 397 456 5,708 212 139 8,276 2019 £’000 2,694 (64) 1 288 400 — 5,146 172 117 8,754 59 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 13 Goodwill Cost and net book value At 1 April Acquired (see note 34) Foreign exchange difference At 31 March 2020 £’000 2019 £’000 9,235 1,531 (25) 10,741 9,190 — 45 9,235 The goodwill relates to (i) Hyperstone group of companies £3,512,000; (ii) Sicomm group of companies £5,698,000 which is held in RMB, upon Group consolidation is therefore is subject to foreign exchange between periods; and (iii) Plextek RFI £1,531,000. Annual impairment testing Goodwill is not amortised under IFRS but instead tested annually for impairment. An annual impairment review is carried out in accordance with the accounting policies set out in note 1, namely: the Group reviews the carrying amounts of its goodwill and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. The recoverable amount of the asset is estimated in order to determine the extent of any impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. Goodwill and other intangibles are allocated to cash generating units, which represent the appropriate level that those cash generating units are monitored for internal management purposes. In assessing value in use, the estimated future cash flows are discounted to their present value utilising a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset, in addition to the basis of the weighted average cost of capital for the Group. Projections are based on budgets for year one and cash flow projections for the following four years’ extrapolations using growth rates and terminal cash flows considered to be in line with the economic environment in which the cash generating unit operates, past and current local management experience. In accordance with IAS 36 Impairment of Assets, growth rates do not exceed the long-term average growth rates for the industry in that jurisdiction. If the recoverable amount of the cash generating unit is estimated to be less than its carrying amount, the carrying amount of the cash generating unit is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease until the associated revaluation reserve is extinguished. Evaluation of Hyperstone goodwill, Sicomm goodwill and Plextek RFI goodwill The Directors have considered the carrying value of the goodwill relating to Plextek RFI Limited, since it was acquired on 3 March 2020, and are satisfied that no impairment is required. The Directors also consider no impairment is required for Hyperstone or Sicomm. The recoverable amount of Hyperstone related goodwill is determined using the fair value less cost of disposal and recoverable amount of Sicomm related goodwill is determined using the value in use methodologies. Net selling price in respect of the Hyperstone goodwill is determined based on current year earnings, adjusted for predicted earnings changes in the next financial year as applied to the price earnings ratio prevailing for the technology sector taking the average of (medium 15.1 and 25th of 9.8) operating in industrial markets (2019: similar metric range). For Sicomm related goodwill, the pre-tax discount rate used was 11.8% and growth rates vary from 7% to 15% over a five-year prospective period (2019: similar metric range). Management consider these key assumptions do not differ from past experience or external sources of information. Sensitivity analysis The Group has not identified any reasonable potential changes to key assumptions that would cause the carrying value of the goodwill or other intangibles to exceed its recoverable amount. Fair value less cost of disposal price earnings ratio benchmarks are widely and publicly available in active markets. For value in use methodology in respect of the Sicomm impairment review, the key assumptions are growth rates and discount rate. Long-term growth rates would have to average 1.2% with a reduction in year 2-5 growth rates to 4% or pre-tax discount rates move to 22.09% for carrying value to be impacted by any impairment. Sensitivity analysis of these key assumptions is built into our annual impairment testing modelling. 60 CML Microsystems Plc | Annual Report and Accounts FY20 14 Other intangibles Group Cost/valuation At 1 April 2018 Additions Foreign exchange difference At 31 March 2019 Additions Foreign exchange difference At 31 March 2020 Amortisation At 1 April 2018 Charge for the year Foreign exchange difference At 31 March 2019 Charge for the year Foreign exchange difference At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 Intangible assets acquired in business combinations Intangible assets capitalised/purchased Brands £’000 Customer relationships £’000 Intellectual property £’000 Intellectual property £’000 Software £’000 96 — 1 97 37 — 134 16 10 — 26 10 — 36 98 71 935 — 8 943 25 (5) 963 173 104 2 279 104 (1) 382 581 664 403 — 3 406 175 (2) 579 67 40 1 108 42 (1) 149 430 298 — 133 — 133 — — 133 — 2 — 2 13 — 15 118 131 392 235 — 627 28 — 655 — 16 — 16 43 — 59 596 611 Total £’000 1,826 368 12 2,206 265 (7) 2,464 256 172 3 431 212 (2) 641 1,823 1,775 The intangible assets acquired above were recognised on the acquisition of Sicomm and Plextek RFI Limited in accordance with the provisions of IFRS 3 Business Combinations. There were additional intangibles purchased in the year and these have been shown in accordance with IAS 38 Intangible Assets. Software £’000 Total £’000 Company Cost At 31 March 2019 Additions At 31 March 2020 Amortisation At 31 March 2019 Charge for the year At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 The Group is progressively implementing an Enterprise Resource Planning system for use by all companies in the Group across business functions. This purchased intangible is amortised over its projected useful economic life from the dates of implementation. 627 28 655 16 43 59 596 611 627 28 655 16 43 59 596 611 61 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 15 Property, plant and equipment – owned assets Freehold and long leasehold premises £’000 Short leasehold improvements £’000 Plant and equipment £’000 Motor vehicles £’000 6,062 — — — 6,062 — — — — 6,062 1,411 80 — — 1,491 79 — — 1,570 4,492 4,571 53 — — 2 55 — — — 4 59 49 — — 2 51 — — 4 55 4 4 12,288 278 (1,320) (8) 11,238 25 57 (1) 55 11,374 11,563 313 (1,320) (11) 10,545 312 — 64 10,921 453 693 177 16 (11) — 182 — — (61) (1) 120 147 7 (11) — 143 6 (56) — 93 27 39 Equipment £’000 Freehold and long leasehold premises £’000 70 70 49 1 50 5 55 15 20 6,062 6,062 1,411 80 1,491 79 1,570 4,492 4,571 Total £’000 18,580 294 (1,331) (6) 17,537 25 57 (62) 58 17,615 13,170 400 (1,331) (9) 12,230 397 (56) 68 12,639 4,976 5,307 Total £’000 6,132 6,132 1,460 81 1,541 84 1,625 4,507 4,591 Group Cost At 1 April 2018 Additions Disposals Foreign exchange difference At 31 March 2019 Acquired assets Additions Disposals Foreign exchange difference At 31 March 2020 Depreciation At 1 April 2018 Charge for the year Disposals Foreign exchange difference At 31 March 2019 Charge for the year Disposals Foreign exchange difference At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 Company Cost At 1 April 2018 and 31 March 2019 At 31 March 2020 Depreciation At 1 April 2018 Charge for the year At 31 March 2019 Charge for the year At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 62 CML Microsystems Plc | Annual Report and Accounts FY20 Right‑of‑use assets Group Cost At 31 March 2019 Transition – IFRS 16 Acquired assets – as part of business combinations Additions Disposals Effect of modification to lease terms Foreign exchange difference At 31 March 2020 Depreciation At 31 March 2019 Charge for the year Disposals Foreign exchange difference At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 16 Investment properties Group and Company Valuation At 1 April 2019 Disposal At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 Property £’000 Office equipment £’000 Motor vehicles £’000 845 70 — (55) 467 74 1,401 379 (13) (24) 342 1,059 — 24 — — — — — 24 7 — — 7 17 — Total £’000 — 960 70 86 (55) 467 78 91 — 86 — — 4 181 1,606 70 — 3 73 108 — Investment properties £’000 3,170 — 3,170 3,170 3,170 — 456 (13) (21) 422 1,184 — Total £’000 3,170 — 3,170 3,170 3,170 Investment properties are measured at fair value and are revalued annually by the Directors and in every third year by independent Chartered Surveyors on an open market basis. No depreciation is provided on freehold investment properties or on leasehold investment properties. In accordance with IAS 40, gains and losses arising on revaluation of investment properties are shown in the income statement. The open market valuation value of the investment properties recognised is £3,170,000 (2019: £3,170,000). No formal market valuation was conducted in the year. The value of the investment properties were they to be held at historic cost would be £2,462,000 (2019: £2,462,000). The Group/Company does not incur significant costs not otherwise recharged to its tenants for its investment properties. The investment properties are measured at fair value. Valuations are based on what is determined to be the highest and best use. When considering the highest and best use the Directors will consider, on a property by property basis, its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer will consider the cost and likelihood of achieving and implementing this change in arriving at its valuation. The methods of fair value measurement are classified into a hierarchy based on the reliability of the information used to determine the valuation, as follows: • level 1: valuation based on inputs on quoted market prices in active markets; • level 2: valuation based on inputs other than quoted prices included within level 1 that maximise the use of observable data directly or from market prices or indirectly derived from market prices; and • level 3: where one or more inputs to valuations are not based on observable market data. The Group has applied method 2. 63 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 16 Investment properties continued The values used below utilise a level 2 methodology: Investment properties The prior year comparative values were as follows: Investment properties 17 Investments Group – investments Cost and net book value At 1 April At 31 March Carrying/ fair value £’000 Valuation technique Key observable inputs Income 3,170 capitalisation Estimated rental value Per sq ft p.a. Equivalent yield 3,170 Carrying/ fair value £’000 Valuation technique Key observable inputs Income 3,170 capitalisation Estimated rental value Per sq ft p.a. Equivalent yield 3,170 Range (weighted average) 2020 £7‑£10 per sq ft 7%‑15% 10.7% Range (weighted average) 2019 £4-£8 per sq ft 8%-15% 11.1% 2020 £’000 83 83 2019 £’000 83 83 The investment represents the Group’s 14.29% equity investment measured at cost (not at valuation) in Quanzhou Cybercomm Wireless Communication Technologies Institute Co., Inc., a Chinese industrial institutional body, acquired with the acquisition of the Sicomm group of companies. Company – investments Cost of investment in subsidiary undertakings: As at 1 April Additions – acquisitions Capital reduction in the year As at 31 March Net book value As at 31 March 2020 £’000 2019 £’000 12,964 1,941 (397) 14,508 12,964 — — 12,964 14,508 12,964 64 CML Microsystems Plc | Annual Report and Accounts FY20 The Group is headed by the Company, CML Microsystems Plc. Details of the subsidiary undertakings of the Company are as follows: Name CML Microsystems Inc CML Microcircuits (UK) Ltd Plextek RFI Ltd CML Microcircuits (USA) Inc Country of incorporation Percentage held USA England England USA CML Microcircuits (Singapore) Pte Ltd Singapore Wuxi Sicomm Technologies, Inc Shanghai Futiake Investment Consulting Co., Ltd Wuxi Shilian Communications Technologies, Inc Applied Technology (UK) Ltd Integrated Micro Systems Ltd Hyperstone GmbH Hyperstone Inc. Hyperstone Asia Pacific Ltd China China China England England Germany USA Taiwan 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Status Trading in USA Trading in England Trading in England Trading in USA Trading in Singapore Trading in China Holding company Trading in China Dormant Dormant Trading in Germany Trading in USA Trading in Taiwan Holding Direct Direct Direct Indirect Direct Indirect Direct Indirect Direct Direct Direct Indirect Direct All of the above companies where holding or trading companies are involved in the design, manufacture and marketing of specialised electronic devices for use in the telecommunications, radio and data communications industries, or dormant as stated. The above all share the same reporting date as the Company, with the exception of the three Chinese subsidiaries above which have, in line with Chinese laws and regulations, a 31 December year end. The Group has accordingly taken up the financial results and financial position of these Chinese subsidiaries up to 31 March 2020. Company registered addresses/locations are as follows: CML Microsystems Inc CML Microcircuits (UK) Ltd Plextek RFI Ltd CML Microcircuits (USA) Inc 486 N Patterson Avenue, Suite 301, Winston-Salem, NC 27101, USA Oval Park, Langford, Maldon, Essex, CM9 6WG England Oval Park, Langford, Maldon, Essex, CM9 6WG England 486 N Patterson Avenue, Suite 301, Winston-Salem, NC 27101, USA CML Microcircuits (Singapore) Pte Ltd 150 Kampong Ampat, 05-03A KA Centre, Singapore 368324 Wuxi Sicomm Technologies, Inc Shanghai Futiake Investment Consulting Co., Ltd 2/F Building B, 21 Changjiang Road, Wuxi, Jiangsu, China Room B02, F16, No. 2188 Huangxing Road Yangpu District, Shanghai, China Wuxi Shilian Communications Technologies, Inc Room 201, Building L, 21 Changjiang Road, Wuxi, Jiangsu, China Applied Technology (UK) Ltd Integrated Micro Systems Ltd Hyperstone GmbH Hyperstone Inc. Oval Park, Langford, Maldon, Essex, CM9 6WG England Oval Park, Langford, Maldon, Essex, CM9 6WG England Line-Eid-Strasse 3, 78467 Konstanz, Germany 486 N Patterson Avenue, Suite 301, Winston-Salem, NC 27101, USA Hyperstone Asia Pacific Ltd 3F, No.501, Sec.2, Tiding Boulevard, Neihu District, Taipei City 114, Taiwan 65 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 18 Development costs Group – Developments Cost At 1 April Additions Fully amortised costs Foreign exchange difference At 31 March Amortisation At 1 April Charged in the year Fully amortised costs Foreign exchange difference At 31 March Net book value At 31 March At 31 March 2018 2020 £’000 35,520 7,936 (2,768) 682 41,370 21,025 5,708 (2,768) 475 24,440 16,930 2019 £’000 31,503 7,169 (2,759) (393) 35,520 18,961 5,146 (2,759) (323) 21,025 14,495 12,542 No government grants have been credited to the cost of development in arriving at the net book value at the year end (2019: £Nil). 19 Inventories Raw materials Work in progress Finished goods 20 Trade receivables and prepayments Amounts falling due within one year: Trade receivables Trade receivables – intercompany Other receivables Other receivables – intercompany Prepayments and accrued income Group 2020 £’000 1,389 704 297 2,390 Group 2020 £’000 2019 £’000 Company 2020 £’000 3,440 2,581 — 727 — 908 — 152 — 697 5,075 3,430 7 207 14 321 264 813 Disclosure of credit risk and associated disclosures are provided in note 23. 21 Cash and cash equivalents Cash on deposit Cash at bank Disclosure of foreign currency risk is provided in note 23. Group Company 2020 £’000 3,591 4,888 8,479 2019 £’000 9,895 3,576 13,471 2020 £’000 442 65 507 2019 £’000 889 647 1,346 2,882 2019 £’000 273 — 659 — 221 1,153 2019 £’000 103 191 294 66 CML Microsystems Plc | Annual Report and Accounts FY20 22 Bank loans and overdrafts Bank overdraft Undrawn facility details are provided in note 23. Group Company 2020 £’000 — — 2019 £’000 662 662 2020 £’000 — — 2019 £’000 — — 23 Financial instruments Financial instruments The Group’s financial instruments can comprise cash balances, overdraft facilities and items such as trade receivables and trade payables and leased liabilities that arise directly from its operations. The overall objective of the Board is to reduce risks where possible within a competitive, dynamic and flexible trading environment. Capital market risk is discussed below. The risks arising from the Group’s financial instruments are interest rate, liquidity risk and foreign currency risk. The policies for managing these risks are summarised below and have been applied throughout the year. Credit and cash flow risk The Group has little exposure to credit and cash flow risk. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The maximum credit exposure of financial instruments within the scope of IFRS 9 Financial Instruments, without taking account of collateral, is represented by the carrying amount for trade receivables, other receivables and cash and cash equivalents included in the statement of financial position. Credit risk on cash and cash equivalents is managed by depositing funds with high rated banks. Capital market risk The Board considers capital to be the carrying amount of equity and debt. The Group presently does not have any debt. Its overall capital objective is, in the light of changes in economic conditions, to maintain a strong and efficient capital base to support the Group’s strategic growth objectives, provide progressive returns to shareholders and safeguard the Group’s status as a going concern. Interest rate and liquidity risk Cash balances are placed so as to maximise interest earned while maintaining the liquidity requirements of the business. The Directors regularly review the placing of cash balances. A significant movement in LIBOR would be required to have a material impact on the cash flow of the Group. The gross overdraft facility provided by the Group’s principal bankers is £750,000 (2019: £750,000); and US$100,000 (2019: US$100,000); and is subject to renewal annually. In addition, the Group’s German subsidiary has, through its principal bankers, a €1m gross overdraft facility (2019: €1m), renewable on an annual basis. Foreign currency risk The Group has overseas subsidiary operations in Germany, the US, China, Taiwan and Singapore. As a result, the Group’s Sterling statement of financial position could be affected by movements in the Euro, US Dollar, Chinese Renminbi, Singapore Dollar and Taiwan Dollar to Sterling exchange rates. At 31 March 2020, the Group had cash and cash equivalents denominated in foreign currencies of approximately £4.8m (2019: £5.7m), of which approximately 46% (2019: 41%) was denominated in US Dollars, 47% in Chinese Renminbi (2019: 55%) and 3% (2019: 0%) was denominated in Euros. As national currency of China, the Chinese Renminbi is subject to foreign exchange controls made by that country. The effects of foreign exchange recognised in the income statement amounted to a loss of £48,000 (2019: gain of £255,000). 67 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 23 Financial instruments continued Financial instruments recognised in the consolidated statement of financial position Group and Company Non‑current financial assets Equity investment (see note 17) Total 2020 £’000 83 83 2019 £’000 83 83 The term “Financial assets” in the following table refers to financial assets measured at amortised cost in accordance with IFRS 9 definitions. Group Company 2020 Amortised cost £’000 2019 2020 Amortised cost Amortised cost £’000 £’000 2019 Amortised cost £’000 Current financial assets Trade and other receivables Cash and cash equivalents Total 4,167 8,479 12,646 2,733 13,471 16,204 227 507 734 273 294 567 Trade and other receivables are all due within six months. At 31 March 2020, £494,000 (2019: £499,000) of trade receivables were denominated in Sterling, £1,677,000 (2019: £1,402,000) in US Dollars, £1,252,000(2019: £652,000) in Euros, and £17,000 in Chinese Renminbi (2019: £28,000). The Directors consider that the carrying amount of trade and other receivables approximate to their fair value. Cash and cash equivalents of £8,479,000 (2019: £13,471,000) comprise cash and short-term deposits held by the Group treasury function. The carrying amount of these assets approximates to their fair values. Impairment of financial assets The Company’s credit risk management practices and how they relate to the recognition and measurement of expected credit losses is set out below. Definition of default The loss allowance on all financial assets is measured by considering the probability of default. Receivables are considered to be in default when the principal or any interest is significantly more than the associated credit terms past due, based on an assessment of past payment practices and the likelihood of such overdue amounts being recovered. Determination of credit‑impaired financial assets The Company considers financial assets to be “credit-impaired” when the following events, or combinations of several events, have occurred before the year end: • significant financial difficulty of the counterparty arising from significant downturns in operating results and/or significant unavoidable cash requirements when the counterparty has insufficient finance from internal working capital resources, external funding and/or Group support; • a breach of contract, including receipts being more than materially past due; or • it becoming probable that the counterparty will enter bankruptcy or liquidation. Write‑off policy Receivables are written off by the Group when there is no reasonable expectation of recovery, such as when the counterparty is known to be going bankrupt, or into liquidation or administration. Receivables will also be written off when the amount is more than materially past due. 68 CML Microsystems Plc | Annual Report and Accounts FY20 Impairment of trade receivables The Company calculates lifetime expected credit losses for trade receivables using a portfolio approach. Receivables are grouped based on the credit terms offered and the type of product sold. The probability of default is determined at the year end based on the ageing of the receivables and historical data about default rates on the same basis. That data is adjusted if the Company determines that historical data is not reflective of expected future conditions due to changes in the nature of its customers and how they are affected by external factors such as economic and market conditions. The average credit period was 48 days (2019: 33 days). There were no impairment losses recognised on any financial assets measured at amortised cost at 31 March 2020 (2019: £Nil). Based on the profile of the Group’s trade receivables and history of bad debts, no loss allowance provision has been recognised on the basis this would be highly immaterial. At 31 March 2020, of the £3,440,000 trade receivables outstanding, the vast majority were classed as within 30-60 days. The term “Financial liabilities” in the following table refers to financial liabilities measured at amortised cost in accordance with IFRS 9 definitions. Group Company Current financial liabilities Bank loans and overdrafts Trade and other payables Accruals Lease liabilities Provisions – current Total Non‑current financial liabilities Lease liabilities Provisions – non-current Total 2020 Amortised cost £’000 2019 2020 Amortised cost Amortised cost £’000 £’000 2019 Amortised cost £’000 — 2,300 1,264 502 — 4,066 662 1,761 1,776 — 195 4,394 — 396 260 — — 656 Group Company — 194 359 — — 553 2020 Amortised cost £’000 2019 2020 Amortised cost Amortised cost £’000 £’000 2019 Amortised cost £’000 568 — 568 — 16 16 — — — — — — The maturity of the gross contractual undiscounted cash flows due on the Group’s and Company’s financial liabilities with the exception of lease liabilities are all less than six months. Group financial liabilities totalling £3,564,000 and Company financial liabilities totalling £656,000 equal the gross contractual cash flows. The gross contractual cash flows relating to lease liabilities for the Group total £1,070,000 with £819,000 being over six months. Sensitivity analysis Interest rate sensitivity A sensitivity analysis has been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant through the reporting period. A 100 basis point change has been used. At the reporting date, if the interest rate had been 100 basis points: • higher and all other variables were constant, the Group’s profit before taxation would have increased by £37,000 (2019: increased by £79,000); • lower and all other variables were constant, the Group’s profit before taxation would have decreased by £38,000 (2019: decreased by £39,000); • higher and all other variables were constant, the Group’s other equity and reserves would have increased by £29,000 (2019: increased by £64,000); or • lower and all other variables were constant, the Group’s other equity and reserves would have decreased by £31,000 (2019: decreased by £31,000). 69 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 23 Financial instruments continued Sensitivity analysis continued Foreign currency sensitivity The following table details the Group’s sensitivity to a 10% change in exchange rates against the Sterling equivalents. The sensitivity analysis of the Group’s exposure to foreign exchange risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. 10% movement in rates will have an impact on: Profit before taxation Cash Equity US$ impact 2020 £’000 1,055 221 1,333 2019 £’000 1,120 236 1,406 Euro impact 2020 £’000 391 — 1,080 2019 £’000 262 — 972 RMB impact 2020 £’000 2019 £’000 (61) 227 153 93 315 484 The Group closely monitors its access to bank and other credit facilities in comparison to its outstanding commitments on a regular basis to ensure that it has sufficient funds to meet the obligations of the Group as they fall due. The Board receives regular forecasts that estimate the cash flows over the next twelve months, so that management can ensure that sufficient financing is in place as it is required. Detailed analysis of the debt facilities held and available to the Group are disclosed in this note above. Group 2020 £’000 2,049 391 251 1,345 4,036 Group 2020 £’000 502 568 1,070 2019 £’000 1,688 387 73 2,486 4,634 2019 £’000 — — — Company 2020 £’000 337 59 108 260 764 Company 2020 £’000 — — — 2019 £’000 187 102 6 359 654 2019 £’000 — — — £’000 990 59 70 (24) 595 62 (682) 1,070 24 Trade and other payables Amounts falling due within one year: Trade payables Other taxation and social security costs Other payables and deferred income Accruals Leased liabilities Current lease liabilities Non-current leased liabilities 1 April 2019 – at the date of transition Additions Additions on business combinations Disposals Effect of modification to lease terms Interest expense Repayment of lease liabilities 31 March 2020 70 CML Microsystems Plc | Annual Report and Accounts FY20 25 Current tax liabilities/assets Current tax liabilities Current tax assets Group Company 2020 £’000 85 1,044 2019 £’000 77 1,118 2020 £’000 36 — £588,000 (2019: £721,000) of the current tax asset is an R&D claim that by its nature is subject to HMRC approval. 26 Deferred tax Provision for deferred taxation comprises: Accelerated capital allowances Tax losses carried forward Pensions Share-based payments Research and development Intangible assets Other Deferred tax asset Deferred tax liability At 1 April Foreign exchange difference Deferred tax asset introduced on acquisition Deferred tax (charged)/credited in income statement for year (see note 9) Deferred tax credited to statement of total comprehensive income At 31 March Group 2020 £’000 (691) 278 892 111 (4,057) (148) (2) (3,617) 1,343 (4,960) (3,617) (3,512) (68) (44) 2019 £’000 (588) 117 603 96 (3,604) (172) 36 (3,512) 908 (4,420) (3,512) (2,882) 56 — Company 2020 £’000 (689) 121 — 111 — — — (457) 232 (689) (457) (394) — — (180) (910) (63) 187 (3,617) 224 (3,512) — (457) 2019 £’000 — — 2019 £’000 (603) 113 — 96 — — — (394) 210 (604) (394) (428) — — 34 — (394) The financial statements include a deferred tax asset of £1,343,000 (2019: £908,000) of which £258,000 (2019: £99,000) arises as a result of trading losses. In accordance with the requirement of IAS 12 Income Taxes, the Directors have considered the likely recovery of this deferred tax asset. The Directors have taken into account expected future taxable profits and expect an improvement in profitability and profits in future periods and that this will be sustained. Accordingly the Directors have satisfied themselves that it is appropriate to recognise the above deferred tax asset. The deferred credit of £187,000 (2019: deferred tax credit of £224,000) relates to the retirement benefit obligation (see note 27). The Directors consider the deferred tax asset relating to the retirement benefit obligation to be recoverable on the basis that the deficit is a long-term liability that will be satisfied from future profitability. The Finance Bill 2020, which was substantively enacted on 19 March 2020, provides that the rate of corporation tax from 1 April 2020 will be 19%, and not 17% as previously provided for in The Finance Act 2016. The Directors therefore consider it appropriate to use 19% as the rate deferred tax should be provided for. Deferred tax assets recoverable/(liabilities) expected to be settled under twelve months are £315,000 and (£18,000) respectively (2019: £136,000 and (£38,000) respectively). Deferred tax assets recoverable/(liabilities) expected to be settled over twelve months are £1,028,000 and (£4,895,000) respectively (2019: 772,000 and (£4,382,000) respectively). Deferred tax assets/(liabilities) expected net by jurisdiction consist of the Far East (£140,000) (2019: (£168,000)), Europe (£2,735,000) (2019: (£3,413,000)) and the Americas £36,000 (2019: £69,000). Unprovided deferred tax includes £731,000 in respect of UK tax losses brought forward. In accordance with the requirement of IAS 12 Income Taxes the Directors have considered the likely recovery of any deferred tax asset as part of this process. 71 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 27 Retirement benefit obligations Explanation of current pension schemes in operation worldwide – defined contribution schemes The Group operates several pension schemes, mostly of a defined contribution nature, around the world. Today the majority of the Group’s employees are members of defined contribution schemes. All schemes are operated by trustees, independent of operation by the Company and Group. The Trustees are responsible for the operation and governance of the schemes. Defined contribution pension schemes pay fixed contributions from Group companies (where applicable) to employees’ individual investment funds. There is therefore no further liability on the Group balance sheet relating to defined contribution pension schemes. For the defined contribution schemes operated throughout the Group the employer contributions are generally up to 6% of eligible salary but are subject to minimum employee contributions. The total contributions to the schemes over the year were: Pension contributions UK defined benefit pension scheme (discussed further below) Defined contribution pension schemes (UK and overseas) 2020 £’000 — 578 578 2019 £’000 — 547 547 In relation to the UK defined contribution scheme, the Group had outstanding contributions of £49,705 (2019: £56,000). Contributions to the UK defined benefit pension scheme for administrative expenses are discussed further below in this note. Explanation of UK defined benefit pension scheme (closed to new members on 1 April 2002) Details from this point to the end of this note relate to the UK defined benefit scheme only. This part of the note therefore details the financial and demographic assumptions made in estimating the defined benefit obligation, together with an analysis of the components of the pension liability. The consolidated balance sheet therefore includes a retirement benefit liability which is the expected future cash flows to be paid out by the UK defined benefit scheme, offset by assets held by that scheme to meet those liabilities. Historically, the majority of the Group’s employees in the UK were members of a defined benefit scheme (which is governed by the UK Pensions Regulator) that was closed to new members on 1 April 2002 and with effect from 31 March 2009 future pension accrual ceased for the remaining active members. Under the UK defined benefit pension scheme’s trust deed the Company has the authority to appoint up to two-thirds of the Trustees. Currently there are two member-appointed Trustees and two Company-appointed Trustees. The Trustees of this defined benefit pension scheme are also responsible for the scheme’s investment strategy, as well as the operation and governance of that scheme. Triennial actuarial funding valuation and IAS 19 Employee Benefits accounting valuation The pension scheme is subject to a full actuarial valuation every three years using assumptions agreed between the Trustees and the Company. The latest available triennial actuarial funding valuation of the defined benefit scheme in the UK was prepared as at 31 March 2017. The purpose of this valuation is to design a funding plan to ensure that the pension scheme has sufficient funds available to meet future defined benefit payments. This most recent triennial actuarial valuation carried out by an independent professionally qualified actuary, as at 31 March 2017, resulted in a net pension surplus of £1,890,000 (1 April 2014: net pension deficit of £1,544,000). The market value of the assets of the scheme as at 31 March 2017 was £19,490,000 (1 April 2014: £15,727,000) and the actuarial valuation showed that these assets were sufficient to cover 111% (1 April 2014: 91%) of the benefits which accrued to members, after allowing for expected future increases in these benefits. The main actuarial assumptions used were: allowance for future investment returns; i.e. the discount rate, of 4.8% p.a. both before and after retirement; pensions accrued prior to 6 April 1997 and after April 2005 will increase in payment at 3% p.a. compound; pensions accrued between 6 April 1997 and 6 April 2005 will increase in payment at 3.7% p.a.; i.e. in line with RPI capped at 5% p.a., minimum 3% p.a. and early leaver revaluations will be at 2.85% p.a. The valuation calculated under the funding valuation basis of £1,890,000 pension surplus above is different to the accounting valuation presented in the Group consolidated balance sheet of a net pension liability of £4,697,000. Differences arise between the funding valuation and accounting valuation, mainly due to the use of different assumptions to value the liabilities to be in accordance with the accounting standard IAS 19 Retirement Benefits, together with any changes in market conditions between the two valuation dates of 31 March 2017 and 31 March 2020. Therefore for funding valuation purposes the liabilities are determined based on assumptions set by the Trustees following consultation with the Company and scheme actuaries. For example, the discount rate used for the most recent funding valuation is based on a 4.8% discount rate, whereas in the financial statements the liabilities are determined in accordance with IAS 19 and this accounting valuation uses a discount rate predicated on high quality (AA) corporate bond yields of an appropriate term equating to 2.3%. Funding of the defined benefit scheme is agreed with the Trustees following each triennial actuarial valuation and the following funding agreement has been put in place from 1 April 2018 until the earlier of any revised settlement arising from the next triennial valuation or by 31 January 2023 (“future revised date”); all administration expenses of running the Scheme are met directly by the Scheme and all PPF levies (and any minor Scheme expenses e.g. Pensions Regulator levies) will be paid from the Scheme and will not be reimbursed by the Employer. The next triennial actuarial funding valuation will be as at 31 March 2020. 72 CML Microsystems Plc | Annual Report and Accounts FY20 The net pension liability recognised in these consolidated financial statements has been calculated reflecting the most recent accounting valuation under IAS 19 to reflect the assets and liabilities of the scheme as at 31 March 2020, using assumptions further in this note. Risk management The cost of the UK defined benefit pension scheme depends on a number of assumptions of future events. Future contribution requirements may emerge in future if those estimated assumptions are not borne out in practice or if different assumptions are agreed in future. Specific risks mitigated by the Trustees where possible in the investment strategy include: any changes in future expectations of price inflation, including reducing real rates of return; changes in the discount rate used to value the pension liabilities; interest rate risk on pension asset matching liabilities held; the return on assets being different to that assumed; concentration of plan assets in equities versus liquidity risk of holding assets which may be difficult to sell; counterparty credit risk including, but not limited to, fund manager risk; currency risks where investments are held in overseas markets via pooled investment vehicles; impact of bond rate on liabilities held; any movements in asset values not matched by similar movements in the value of liabilities, perhaps caused by pricing risks; and any unanticipated changes in life expectancy which may have a bearing on the size of the scheme liabilities. The investment strategy for the defined benefit pension scheme is discussed further in this note. Financial and demographic assumptions Principal actuarial assumptions at the balance sheet date (expressed as weighted averages), the discount rate of liabilities applied being the most significant: a) Financial assumptions Discount rate Future salary increases Expected duration of liabilities (years) Pension revaluation in deferment (Consumer Prices Index – max. 5.0%) Pension escalation in payment (Retail Prices Index – max. 5.0%, min. 3.0% from 6 April 1997 to 5 April 2005) Proportion of employees opting for early retirement Inflation assumption 2020 2.3% n/a 15 1.7% 2.5% 0% 3.0% 2019 2.4% n/a 15 2.2% 3.2% 0% 3.2% The difference between the expected investment returns on the Scheme’s assets and the actual investment loss was £1,261,0000 (2019: loss £205,000). b) Demographic assumptions Assumed life expectancy in years, on retirement at 65 Retiring today Males Females Retiring in 20 years Males Females 2020 2019 21.6 23.5 22.9 25.1 21.5 23.4 22.8 24.9 73 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 27 Retirement benefit obligations continued Financial and demographic assumptions continued b) Demographic assumptions continued On the basis of the above assumptions, the amounts that have been charged to administration expenses within the income statement and the statement of total comprehensive income for the years to 31 March 2020 and 31 March 2019 are as follows: Amounts recognised in the consolidated income statement are as follows: Administration expenses (see details above) Past service cost – GMP equalisation Net interest on deficit Total Amounts recognised in the consolidated statement of total comprehensive income: Actual (loss)/return on assets less return implied by net interest income Experience gain/(loss) on liabilities Change in assumptions: Discount rate Inflation rate Demographic assumptions Net actuarial (loss)/gain recognised in equity Amounts recognised in the consolidated statement of financial position: Present value of funded obligations Fair value of plan assets Deficit under IAS 19 as reported by the actuary 2020 £’000 (68) — (86) (154) (1,261) 81 (370) 621 (66) (995) 2020 £’000 (23,873) 19,176 (4,697) 2019 £’000 (43) (68) (60) (171) (205) (47) (1,342) (202) 479 (1,317) 2019 £’000 (24,176) 20,628 (3,548) The main reason for the increased deficit in the IAS 19 accounting position relates to the changes in assumptions in using a lower discount rate due to the fall in corporate bond yields at the period end, the Scheme’s deterioration is the actual return on assets being much lower than required to meet the increase in defined benefit obligation over the year. However, this was partially offset by the change in assumptions used to value the defined benefit obligation. The pension plan assets do not include ordinary shares issued by the sponsoring employer nor do they include property occupied by the sponsoring employer. Sensitivity to significant assumptions Significant assumptions Discount rate RPI Assumed life expectancy Change in assumption % Change in defined benefit obligation % +/- 0.5% p.a. - 7.4%/+ 8.3% +/- 0.5% p.a. + 4.2%/- 3.9% + 1 year + 3.6% These sensitivities have been derived by the actuary using similar methodologies consistent with the rest of the disclosure. Analysis of changes in the funded status of the scheme over the period: Funded status at start of period Amount charged to income statement Employer contributions Amount recognised in other comprehensive income Funded status at end of period 2020 £’000 (3,548) (154) — (995) (4,697) 2019 £’000 (2,070) (171) 10 (1,317) (3,548) The weighted average duration of scheme liabilities at the end of the year is 15 years (2019: 15 years). 74 CML Microsystems Plc | Annual Report and Accounts FY20 Present value of the defined benefit obligation Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation Expenses incurred (including GMP equalisation) Interest cost Actuarial (gain)/loss Benefits paid (including expenses) Closing defined benefit obligation Comprising: Deferred members Pension members Fair value of defined benefit plan assets Changes in the fair value of the plan assets are as follows: Opening fair value of plan assets Interest income on assets Actuarial (loss)/gain on assets Contributions by employer Benefits paid Expenses paid Closing fair value of plan assets 2020 £’000 24,176 68 573 (276) (668) 23,873 17,357 6,516 2020 £’000 20,628 487 (1,261) (10) (600) (68) 2019 £’000 22,747 111 633 1,102 (417) 24,176 17,429 6,747 2019 £’000 20,677 573 (205) 10 (384) (43) 19,176 20,628 The actuarial loss due to the change in demographic assumptions was £66,000 (2019: actuarial gain of £479,000) and the actuarial gain due to the change in financial assumptions was £251,000 (2019: actuarial loss of £1,544,000). The return on plan assets excluding net interest was £774,000 (2018: £368,000). The interest income on plan assets is calculated using the assets, market conditions and the long-term expected rate of interest set at the start of the accounting period. The Company expects to contribute £Nil (2019: £Nil) as contributions to the CML Microsystems Plc Retirement Benefits Scheme in the next accounting year. The following is a breakdown of Plan assets held at each respective balance sheet date: Asset class Equities (all quoted) Cash Diversified growth funds Diversified credit funds Liability driven investments Other Year ended 31 March 2020 Year ended 31 March 2019 Market value £’000 % of total assets Market value £’000 % of total assets 7,249 1,351 6,308 1,829 1,873 566 38% 7% 33% 9% 10% 3% 9,425 603 6,808 1,406 1,900 486 46% 3% 33% 7% 9% 2% Closing fair value of plan assets 19,176 100% 20,628 100% Note: all assets listed above have a quoted market price in an active market and are valued using their bid values in accordance with IAS 19. The pension scheme no longer invests in bonds or property following a change in investment strategy. 75 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 27 Retirement benefit obligations continued Fair value of defined benefit plan assets continued The Trustees’ investment strategy has the objectives to generate an appropriate level of investment returns to improve the financial position of the Scheme (thereby improving security for its members); to manage cash flow requirements to ensure there are sufficient assets and cash flows available (to pay for member benefits as they arise); and to protect the financial position (in so doing limiting the scope for adverse investment experience impacting on members). The Trustees’ strategic asset allocation is determined after considering written advice from the investment advisor and is designed to strike the appropriate balance between these objectives. Liability matching assets are selected by the Trustees having regard to the nature of the Scheme’s liability profile and are expected to react to changes in market conditions in a similar way to liabilities. Growth assets are expected to deliver long-term returns in excess of liability growth. Current allocations are 15% of liability matching assets and 85% growth assets but this is monitored and rebalanced at the discretion of the Trustees and, moreover, on a day-to-day basis management of the assets delegated to the investment managers who have knowledge and experience for managing the investments. The Trustees, in conjunction with the investment advisor, regularly review each of the investment managers to ensure that the managers remain competent and assets continue to be managed in accordance with the managers’ mandates (the Scheme objectives being implemented within an acceptable level of risk). Assets are held predominantly on regulated markets, as so defined in legislation. Any investments that do not trade on regulated markets are kept to a prudent level. To ensure the safekeeping of assets, ownership and day-to-day control of the assets is undertaken by custodian organisations which are independent of the sponsoring employer and the investment managers. Where pooled investment vehicles are used, the custodians will typically be appointed by the investment manager. Five‑year comparison Amounts for the current and previous four periods are as follows: Defined benefit obligation Plan assets Deficit Experience adjustments on plan liabilities Actuarial (loss)/gain on plan assets 2020 IAS 19 £’000 23,873 19,176 (4,697) 81 (1,261) 2019 IAS 19 £’000 24,176 20,628 (3,548) (47) (205) 2018 IAS 19 £’000 22,747 20,677 (2,070) 145 823 2017 IAS 19 £’000 22,547 19,463 (3,084) 1,361 2,007 28 Provisions At 31 March 2018 Utilisation Foreign exchange At 31 March 2019 Utilisation At 31 March 2020 2016 IAS 19 £’000 19,111 17,044 (2,067) 460 475 £’000 377 (193) 27 211 (211) — The above provision relates to onerous lease and property obligations held by Group subsidiaries. 29 Share capital and share options Authorised 2020 £’000 2019 £’000 25,000,000 ordinary shares of 5p each (2019: 25,000,000 ordinary shares of 5p each) 1,250 1,250 Issued and fully paid At 1 April 17,175,166 ordinary shares of 5p each Issued in year 2,486 ordinary shares (2019: 63,143) of 5p were issued in the year as a result of employees exercising their options At 31 March 17,177,652 ordinary shares of 5p 859 — 859 856 3 859 The Company has only one class of ordinary share with no special rights, preferences or restrictions attached to them, including on the distribution of dividends or the repayment of capital. 76 CML Microsystems Plc | Annual Report and Accounts FY20 Share options The Company has a number of approved and unapproved share option schemes in place for the benefit of its employees. On 2 August 2000 the Company approved at the AGM a scheme, which was UK Revenue & Customs approved. This scheme was amended and re-approved at the Extraordinary General Meeting held on 10 February 2004. At the 2008 AGM a new Enterprise Management Incentive share option plan was approved. On 18 November 2011 a further scheme was approved which is UK Revenue & Customs approved and has an addendum for issuing unapproved options. The Company has the authority to grant options up to a limit, at any time, such that no more than 10% of the issued share capital is available under option. The number of shares over which options remained in force at the year end along with a reconciliation of option movements and their exercise period and price is shown below: Ordinary shares of 5p each From 15 June 2014 to 14 June 2021 at £2.20 From 15 June 2014 to 14 June 2021 at £2.30 From 2 September 2015 to 1 September 2022 at £2.84 From 2 October 2015 to 1 October 2022 at £3.22 From 2 October 2015 to 1 October 2022 at £3.34 From 1 May 2016 to 1 May 2023 at £3.84 From 17 September 2017 to 17 September 2024 at £3.125 From 2 April 2018 to 2 April 2025 at £3.45 From 25 September 2018 to 25 September 2025 at £3.51 From 25 September 2018 to 25 September 2025 at £3.475 From 22 December 2019 to 22 December 2026 at £3.70 From 1 August 2020 to 1 August 2027 at £4.58 From 28 March 2021 to 28 March 2028 at £5.20 From 19 March 2022 to 18 March 2025 at £2.79 From 19 March 2022 to 18 March 2025 at £2.79 2019 Number 54,346 12,500 20,000 23,955 5,000 24,293 12,000 12,500 379,083 71,600 20,000 70,469 110,000 156,673 546,727 1,519,146 Granted Number — — — — — — — — — — — — — — — — Exercised Number (2,486) — — — — — — — — — — — — — — Forfeited Number — — — (3,360) — — — (12,500) 2020 Number 51,860 12,500 20,000 20,595 5,000 24,293 12,000 — (26,144) 352,939 (31,600) 40,000 — (15,806) (55,000) (4,151) (97,087) 20,000 54,663 55,000 152,522 449,640 (2,486) (245,648) 1,271,012 Of the total outstanding at the end of the year, 559,187 were potentially exercisable at the prices detailed in the table above (2019: 617,071 share options). The weighted average market price of the share options exercised in the year was 369.0p (2019: 494.0p). The weighted average exercise price of options exercised in the year was 220.00p (2019: 338.9p). Options are forfeited due to the employees concerned leaving employment with the Group. The weighted average share option price of the share options forfeited in the year was 365.0p (2019: 405.8p). The weighted average exercise price of all options exercisable is £3.19 (2019: £3.28) and the weighted average expected remaining contractual life is three years (2019: three years). 30 Other equity reserves Share premium At 1 April Issued in year: 2,486 ordinary shares (2019: 63,143) of 5p were issued in the year as a result of employees exercising their options At 31 March Group 2020 £’000 2019 £’000 Company 2020 £’000 9,279 9,068 9,279 7 9,286 211 9,279 7 9,286 This reserve is a result of the premium being paid for the issue of shares over their par value. 2019 £’000 9,068 211 9,279 77 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 30 Other equity reserves continued Capital redemption reserve At 1 April At 31 March Group 2020 £’000 9 9 2019 £’000 9 9 Company 2020 £’000 9 9 2019 £’000 9 9 The capital redemption reserve represents the nominal value of own shares purchased by the Company. On 23 December 2016, the Company purchased 179,439 of its own 5p ordinary shares at a price of £3.70 per share for cancellation. These shares were cancelled on 18 January 2017. An amount equal to the nominal value of the cancelled shares was transferred to a capital redemption reserve. Treasury shares – own share reserve At 1 April Issued/(purchased) in the year At 31 March Group 2020 £’000 (342) 262 (80) 2019 £’000 (190) (152) (342) Company 2020 £’000 (342) 262 (80) 2019 £’000 (190) (152) (342) The Company purchased on 10 June 2015 50,000 ordinary shares of 5p each at a price of 376.5p per ordinary share plus associated transaction costs. On 11 February 2019, the Company purchased 50,000 ordinary shares of 5p each in the Company at a price of 302.5p per ordinary share. The shares are to be held in treasury for the benefit of various employee share plans. In March 2020 the Company issued treasury shares on the acquisition of Plextek RFI Limited. Share‑based payments reserve At 1 April Options exercised or released Charged in year At 31 March Group 2020 £’000 507 (64) 139 582 2019 £’000 443 (53) 117 507 Company 2020 £’000 507 (64) 139 582 2019 £’000 443 (53) 117 507 Options are granted with a fixed exercise price equal to the market price of the shares under option at the date of the grant. The contractual life of an option is ten years. Awards under the share option scheme are typically for all employees throughout the Group. Options granted under the share option scheme become exercisable on the third anniversary of the grant date. Options were valued using the Black-Scholes model. The share option charge for the year was £139,000 (2019: £117,000). The fair value per option granted and the assumptions used in the calculation are as follows: Grant date 19/03/19 28/03/18 01/08/17 22/12/16 25/09/15 25/09/15 02/04/15 Share price at grant date (£) Exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk-free rate Expected dividend yield Possibility of ceasing employment before vesting Fair value per option (£) 2.79 2.79 203 5.20 5.20 2 4.58 4.58 47 3.70 3.70 1 3.475 3.475 4 3.475 3.51 158 3.45 3.45 1 703,400 110,000 84,521 20,000 100,000 400,131 20,000 3 3 3 3 3 3 3 31.63% 23.31% 19.37% 16.02% 33.20% 33.20% 38.00% 10 3 1.19% 1.67% 4.5% 0.56 10 3 1.37% 1.40% 4.5% 0.80 10 3 1.10% 1.84% 4.5% 0.54 10 3 1.15% 1.86% 4.5% 0.35 10 3 1.83% 1.92% 4.5% 0.74 10 3 1.83% 1.92% 4.5% 0.73 10 3 2.09% 1.57% 4.5% 0.87 78 CML Microsystems Plc | Annual Report and Accounts FY20 10 3 4.28% 1.50% 4.5% 0.58 2019 £’000 316 Grant date 17/09/14 01/05/13 01/10/12 01/10/12 01/09/12 15/06/11 15/06/11 Share price at grant date (£) Exercise price (£) Number of employees Shares under option Vesting period (years) Expected volatility Option life (years) Expected life (years) Risk-free rate Expected dividend yield Possibility of ceasing employment before vesting Fair value per option (£) 3.125 3.125 1 3.88 3.84 7 3.34 3.34 1 3.34 3.22 124 2.84 2.84 1 2.30 2.20 1 2.20 2.20 22 20,000 28,720 5,000 26,872 20,000 12,500 57,165 3 3 3 3 3 3 3 26.84% 43.30% 29.36% 29.36% 29.36% 35.70% 35.70% 10 3 2.43% 1.26% 4.5% 0.60 10 3 3.60% 1.20% 4.5% 0.71 10 3 3.09% 1.49% 4.5% 0.67 10 3 3.09% 1.49% 4.5% 0.67 10 3 3.09% 1.49% 4.5% 0.67 10 3 4.28% 1.50% 4.5% 0.58 The expected volatility is based on 90 days’ trading prior to the grant date. The expected life is the average expected period to exercise. The risk-free rate of return is the yield to redemption on UK gilt strips with four-year maturity. Company only Merger reserve At 1 April and 31 March 2020 £’000 316 This reserve relates to the acquisition in 1995 of Integrated Micro Systems Limited. In accordance with the provisions of Section 612 of the Companies Act 2006, the Company transferred to merger reserve the premium arising on shares issued as part of the acquisition. Group Foreign exchange reserve At 1 April Retranslation of overseas subsidiaries At 31 March 2020 £’000 1,406 308 1,714 2019 £’000 1,302 104 1,406 This reserve represents the foreign exchange differences arising from the retranslation of financial statements of foreign subsidiaries. Accumulated profits reserve At 1 April Changes in accounting policy IFRS 16 Profit for the year Dividend paid Cancellation/transfer of share-based payments Issue of own treasury shares Net actuarial loss Deferred tax gain on actuarial loss At 31 March Group 2020 £’000 30,604 (30) 1,536 (1,332) 64 (14) (995) 187 30,020 2019 £’000 30,282 — 2,694 (1,332) 53 — (1,317) 224 30,604 Company 2020 £’000 11,107 — 2,033 (1,332) 64 — — — 2019 £’000 9,387 — 2,999 (1,332) 53 — — — 11,872 11,107 31 Capital commitments Capital commitments which have been authorised by the balance sheet date, represent a three-year purchasing commitment with a supplier for £722,000 (2019: £1,269,311), and £Nil (2019: £Nil) in relation to intangible assets. No provision has been made in these financial statements for these capital commitments. 79 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 32 Leases The Group as a lessee The following shows how lease expenses have been included in the Income Statement, broken down between amounts charged to operating profit and amounts charged to finance costs: Depreciation – right-of-use assets Charge to operating profit Finance expense – leased liabilities Charge to profit before taxation Leased offices £’000 Office equipment £’000 379 379 49 49 8 8 5 5 Motor vehicle £’000 70 70 8 8 At 31 March 2020 the Group had not entered into any leases to which it was committed but had not yet commenced. 2020 £’000 Total £’000 457 457 62 62 2019 £’000 Land and buildings Minimum lease payments under operating leases recognised in income statement as an expense for the year — 435 At the year end, the Group had future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year In the second to fifth year inclusive After five years 2020 £’000 — — — — Operating lease payments represent rentals payable by the Group for some of its office properties. Leases are normally negotiated for an initial term of three years and rentals are fixed for that period. 2020 £’000 2019 £’000 507 359 67 933 2019 £’000 Other Minimum lease payments under operating leases recognised in income statement as an expense for the year — 90 At the year end, the Group had future minimum lease payments under non-cancellable operating leases, which fall due as follows: Within one year In the second to fifth year inclusive 2020 £’000 — — — 2019 £’000 57 48 105 The Group and Company as a lessor Property rental income earned during the year was £316,000 (2019: £304,947). Current commercial market conditions have improved and the Group now has the majority of the properties let albeit with fairly short leases. It is impractical to estimate what the estimated yields will be in the longer term but over the shorter term yields are expected to be typically 6-7% levels. At the year end, the Group had contracted with tenants for the following future minimum lease payments: Within one year In the second to fifth year inclusive 80 2020 £’000 334 428 762 2019 £’000 308 549 857 CML Microsystems Plc | Annual Report and Accounts FY20 33 Notes to the cash flow statement Group Movement in working capital: Decrease/(increase) in inventories Increase in receivables (Decrease) in payables Analysis of changes in net cash – Group: Cash and cash equivalents Company Movement in working capital: Increase in advance to subsidiary undertaking Increase in receivables Increase/(decrease) in payables Movement in investments and dividends Analysis of changes in net cash – Company: Cash and cash equivalents Net cash at 1 April 2019 £’000 12,809 12,809 Cash flow £’000 (4,480) (4,480) 2020 £’000 529 (1,182) (1,215) (1,868) 2019 £’000 (701) (877) (165) (1,743) Exchange movement £’000 Net cash at 31 March 2020 £’000 150 150 2020 £’000 — (916) 1,366 450 — 450 8,479 8,479 2019 £’000 (872) (1,084) (95) (2,051) — (2,051) Net cash at 1 April 2019 £’000 294 294 Cash flow £’000 213 213 Net cash at Exchange movement 31 March 2020 £’000 £’000 — — 507 507 81 CML Microsystems Plc | Annual Report and Accounts FY20 notes to the financial statements continued for the year ended 31 March 2020 34 Acquisition of Plextek RFI Limited Following the acquisition announced on 3 March 2020 and having satisfied the principal regulatory conditions and other transaction closing conditions, the Group took control (100% of voting rights) of UK-based Plextek RFI Limited (“PRFI”). The total consideration was £1.9m, payable in cash and from issuing of treasury shares. Founded in 2015, PRFI is a UK-based design house specialising in the design and development of RF, Microwave and Millimetre-wave (mm-wave) ICs and modules. The acquisition expands and strengthens the Group’s product design capabilities. For this reason, combined with the anticipated synergies to arise from integrating the PRFI business into existing Group businesses, the Group paid a premium over the acquisition net assets, giving rise to goodwill. All intangible assets in accordance with IFRS 3 Business Combinations were recognised at their provisional fair values on the date of acquisition, with the residual excess over net assets being recognised as goodwill. Intangibles arising from the acquisition consist of brand values, customer relationships and intellectual property and have been independently valued by professional advisors. The following table summarises the consideration and provisional fair values of assets acquired and liabilities assumed at the date of acquisition: Property, plant and equipment Intangible fixed assets: Brands Customer relationships Intellectual property Trade receivables and prepayments Cash and cash equivalents Trade and other payables Deferred tax liabilities Net assets acquired Goodwill Consideration £’000 25 37 25 175 187 105 (101) (43) 410 1,531 1,941 There are no non-controlling interests in relation to the PRFI acquisition. Fair values in the above table have only been determined provisionally and may be subject to change in the light of any subsequent new information becoming available in time. The review of the fair value of assets and liabilities acquired will be completed within twelve months of the acquisition date. Receivables at the acquisition date are expected to be collected in accordance with the gross contractual amounts. The acquisition cost was satisfied by: Cash Treasury shares issued Total consideration Net cash outflow arising on acquisition: Cash consideration paid (less cash retention) Cash and cash equivalents within the PRFI business on acquisition Total net cash outflow on acquisition £’000 1,693 248 1,941 £’000 1,400 (105) 1,295 The cash consideration excludes a £100,000 retention which is included in other payables. Other costs relating to the acquisition have not been included in the consideration cost. Directly attributable acquisition costs include external legal and accounting costs incurred in compiling the acquisition legal contracts and the performance of due diligence activity and amount to £145,000. These costs have been charged in distribution and administrative expenses in the consolidated income statement. PRFI has a 29 February 2020 financial period end; in the one-month period to 31 March 2020, PRFI contributed revenue of £64,000 and net loss before taxation of £15,000. If PRFI was part of the Group for the full reporting period the contributed revenue would have been £790,000 and net loss before taxation of £187,000. 82 CML Microsystems Plc | Annual Report and Accounts FY20 35 Related party transactions Transactions and balances with operating companies that were eliminated in the consolidation consist of: Company Management fees charged to subsidiary undertakings by parent: CML Microcircuits (UK) Ltd CML Microcircuits (USA) Inc Hyperstone GmbH Dividends paid to parent: Received from CML Microcircuits (UK) Ltd Received from CML Microcircuits (USA) Inc Received from Hyperstone GmbH Received from CML Microcircuits (Singapore) Pte Ltd Received from Wuxi Sicomm Technologies, Inc 2020 £’000 1,000 156 218 1,374 2019 £’000 1,000 153 220 1,373 1,332 1,332 282 — 285 727 493 879 278 — 2,626 2,982 Contributions to the Group’s pension schemes Contributions to the Group’s defined contribution pension schemes by the Group as employer consisted of £578,000 in the year (2019: £547,000). Contributions to the closed UK defined benefit scheme were £Nil (2019: £Nil). Group and Company Key management personnel consist of the Board of Directors and transactions during the year (included within remuneration disclosed in notes 6 and 7) were as follows: Group and Company Employee benefits Pension contributions Share-based payments 2020 £’000 839 56 32 927 2019 £’000 887 53 35 975 36 Listings CML Microsystems Plc’s ordinary shares are traded on the Official List of the London Stock Exchange and the Company is incorporated and domiciled in the UK. The Company’s registered address is: Oval Park, Langford, Maldon, Essex, CM9 6WG, England. 37 Approval of financial statements These financial statements were formally approved by the Board of Directors on 19 June 2020. 83 CML Microsystems Plc | Annual Report and Accounts FY20 notice of annual general meeting b) otherwise than pursuant to paragraph a) of this resolution, up to an aggregate nominal amount of £286,294 (such amount to be reduced by the aggregate nominal amount of Relevant Securities allotted pursuant to paragraph a) of this resolution in excess of £286,294, provided that (unless previously revoked, varied or renewed) these authorities shall expire at the conclusion of the next AGM of the Company after the passing of this resolution or on the date which is 15 months after the date of the AGM at which this resolution is passed (whichever is the earlier), save that, in each case, the Company may make an offer or agreement before the authority expires which would or might require Relevant Securities to be allotted after the authority expires and the Directors may allot Relevant Securities pursuant to any such offer or agreement as if the authority had not expired. These authorities are in substitution for all existing authorities under Section 551 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). In this resolution, “Relevant Securities” means shares in the Company or rights to subscribe for or to convert any security into shares in the Company; a reference to the allotment of Relevant Securities includes the grant of such a right; and a reference to the nominal amount of a Relevant Security which is a right to subscribe for or to convert any security into shares in the Company is to the nominal amount of the shares which may be allotted pursuant to that right. Notice is hereby given that the AGM of CML Microsystems Plc (the “Company”) will be held at CML Microsystems Plc, Oval Park, Langford, Maldon, Essex, CM9 6WG on 29 July 2020 at 11.30am to transact the following business. The resolutions numbered 1 to 8 (inclusive) are proposed as ordinary resolutions and must receive more than 50% of the votes cast in order to be passed. The resolutions numbered 9 to 11 (inclusive) are proposed as special resolutions and must receive at least 75% of the votes cast in order to be passed. Ordinary business Ordinary resolutions To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: 1. To receive and adopt the Group’s consolidated financial statements and the reports of the Directors and auditor for the year ended 31 March 2020. 2. To receive and approve the Directors’ Remuneration Report for the year ended 31 March 2020. 3. To declare a final dividend of 2.0p per 5p ordinary share for the year ended 31 March 2020 to be paid on 7 August 2020 to shareholders whose names appear on the register at the close of business on 24 July 2020. 4. To re-appoint Geoff Barnes, who retires by rotation, as a Director of the Company. 5. To send or supply all documents or information relating to the Company to members by making them available on a website. 6. To re-appoint RSM UK Audit LLP as auditor of the Company. 7. To authorise the Directors to determine the remuneration of the auditor. Special business Ordinary resolution To consider and, if thought fit, to pass the following resolution as an ordinary resolution: 8. That pursuant to Section 551 of the Companies Act 2006 (the “Act”), the Directors be and are generally and unconditionally authorised to exercise all powers of the Company to allot Relevant Securities: a) comprising equity securities (as defined in Section 560(1) of the Act) up to an aggregate nominal amount of £572,588 (such amount to be reduced by the aggregate nominal amount of Relevant Securities allotted pursuant to paragraph b) of this resolution) in connection with a rights issue: i. to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and ii. to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and 84 CML Microsystems Plc | Annual Report and Accounts FY20 10. That, subject to resolution 8 being passed, and in addition to any authority granted under Resolution 9 to allot equity securities pursuant to the Companies Act 2006 (the “Act”) for cash under the authority given by that resolution, the Directors be and are generally empowered to allot equity securities (pursuant to Sections 570 and 573 of the Act) for cash under the authority given by resolution 9 and/ or to sell treasury shares as if Section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be: a) limited, in the case of the authority granted under paragraph b) of resolution 8 and/or in the case of any sale of treasury shares, to the allotment of equity securities or sale of treasury shares up to a nominal amount of £128,746 (being 14.99% of the Company’s issued ordinary share capital, excluding treasury shares); and b) used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice, and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of the next AGM of the Company after the passing of this resolution or on the date which is 15 months after the date of the AGM at which this resolution is passed (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted or treasury shares to be sold for cash after this power expires and the Directors may allot equity securities or sell treasury shares for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under Sections 570 and 573 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). Special resolutions To consider and, if thought fit, to pass the following resolutions as special resolutions: 9. That, subject to the passing of resolution 8 and pursuant to Sections 570 and 573 of the Companies Act 2006 (the “Act”), the Directors be and are generally empowered to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authorities granted by resolution 8 and to sell ordinary shares held by the Company as treasury shares for cash as if Section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to: a) the allotment of equity securities or sale of treasury shares in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise, but, in the case of an allotment pursuant to the authority granted by paragraph a) of resolution 9, such power shall be limited to the allotment of equity securities in connection with a rights issue): i. to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and ii. to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary; iii. but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and b) the allotment of equity securities pursuant to the authority granted by paragraph b) of resolution 8 or sale of treasury shares (in each case, otherwise than pursuant to paragraph a) of this resolution) up to an aggregate nominal amount of £42,943 and (unless previously revoked, varied or renewed) this power shall expire at the conclusion of the next AGM of the Company after the passing of this resolution or on the date which is 15 months after the date of the AGM at which this resolution is passed (whichever is the earlier), save that the Company may make an offer or agreement before this power expires which would or might require equity securities to be allotted or treasury shares to be sold for cash after this power expires and the Directors may allot equity securities or sell treasury shares for cash pursuant to any such offer or agreement as if this power had not expired. This power is in substitution for all existing powers under Sections 570 and 573 of the Act (which, to the extent unused at the date of this resolution, are revoked with immediate effect). 85 CML Microsystems Plc | Annual Report and Accounts FY20 notice of annual general meeting continued Special business continued Special resolutions continued 11. That, pursuant to Section 701 of the Companies Act 2006 (the “Act”), the Company be and is generally and unconditionally authorised to make market purchases (within the meaning of Section 693(4) of the Act) of ordinary shares of 5p each in the capital of the Company (“Shares”), provided that: a) the maximum aggregate number of Shares which may be purchased is 2,576,647; b) the minimum price (excluding expenses) which may be paid for a Share is 5p (being the nominal amount of a Share); c) the maximum price (excluding expenses) which may be paid for a Share is the higher of: i. an amount equal to 105% of the average of the middle market quotations for a Share as derived from the Daily Official List of the London Stock Exchange plc for the five business days immediately preceding the day on which the purchase is made; and ii. an amount equal to the higher of the price of the last independent trade of a Share and the highest current independent bid for a Share on the trading venue where the purchase is carried out; d) an ordinary share so purchased shall be cancelled or, if the Directors so determine and subject to the provisions of applicable laws or regulations of the UK Listing Authority, held as a treasury share, and e) (unless previously revoked, varied or renewed) this authority shall expire at the conclusion of the next AGM of the Company after the passing of this resolution or on the date which is 15 months after the date of the AGM at which this resolution is passed (whichever is the earlier), save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired. By order of the Board Nigel Clark Company Secretary 19 June 2020 Registered office Oval Park Langford Maldon Essex CM9 6WG Registered in England and Wales: 000944010 86 CML Microsystems Plc | Annual Report and Accounts FY20 A member may instruct their proxy to abstain from voting on a particular resolution to be considered at the meeting by marking the “Withheld” option in relation to that particular resolution when appointing their proxy. It should be noted that an abstention is not a vote in law and will not be counted in the calculation of the proportion of votes “for” or “against” the resolution. A person who is not a member of the Company but who has been nominated by a member to enjoy information rights does not have a right to appoint any proxies under the procedures set out in these notes and should read note 8 below. To be entitled to attend and vote at the AGM (and for the purpose of determining the number of votes a member may cast), members must be entered on the Register of Members of the Company at 6pm on 27 July 2020. Under Section 337(3) of the Act members may circulate and move a resolution at the AGM if members representing at least 5% of the total voting rights request it, of if at least 100 members request it, if those members hold shares in the Company in holdings on which an average of £100 per member has been paid up. 3 Appointment of a proxy using a Proxy Form A Proxy Form for use in connection with the AGM is enclosed. To be valid, any Proxy Form or other instrument appointing a proxy, together with any power of attorney or other authority under which it is signed or a certified copy thereof, must be received by post using the postal address on the form of proxy to the Company’s Registrars, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen, West Midlands B62 8HD, or by hand by the Company at its registered office at CML Microsystems Plc, Oval Park, Langford, Maldon, Essex CM9 6WG, not later than 11am on 27 July 2020 or if the AGM is adjourned, at least 48 hours before the time of the adjourned meeting. If you do not have a Proxy Form and believe that you should have one, or you require additional Proxy Forms, please contact the Company’s Registrars, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen, West Midlands B62 8HD. 1 Attending the AGM in person In light of the COVID-19 pandemic and the restrictions imposed by the UK Government at the time of publication of the Notice of Annual General Meeting 2020, the Company will convene the AGM with the minimum necessary quorum of two shareholders (members) (which the Company will facilitate), and further members will not be permitted to attend the AGM in person. However, member participation remains important to us and we would strongly encourage members to participate in the AGM by voting by proxy and by submitting any questions in advance of the AGM. Further details of both of these options are set out below and within the Proxy Form. The Company will include all valid proxy votes (whether submitted electronically or in hard copy form) in its polls at the AGM and the Chairman will call for a poll on each resolution. The Company accordingly requests that members submit their proxy votes in respect of the resolutions as set out in the Notice of the AGM, electronically or by post in advance, in accordance with the instructions set out in the Notice of the AGM. Members should submit their votes via proxy as early as possible (and by no later than 11:30 am on 27 July 2020), and members are requested to appoint the Chairman as their proxy. If a member appoints someone else as their proxy, that proxy will not be able to attend the AGM in person or cast the member’s vote. 2 Appointment of proxies Members who are entitled to attend and vote at the AGM are entitled to appoint one or more proxies to exercise all or any of their rights to attend, speak and vote at the AGM. A proxy need not be a member of the Company but must attend the AGM to represent a member. To be validly appointed, a proxy must be appointed using the procedures set out in these notes and in the notes to the accompanying Proxy Form. In light of the circumstances this year, if a member wishes a proxy to speak on their behalf at the meeting, the member will need to appoint the Chairman of the AGM as their proxy and give their instructions directly to them. Such an appointment can be made using the Proxy Form accompanying this notice of AGM or through CREST. Members can usually appoint more than one proxy where each proxy is appointed to exercise rights attached to different shares. Members cannot appoint more than one proxy to exercise the rights attached to the same share(s). As noted above, members are requested to appoint the Chairman as their proxy this year. If a member appoints someone else as their proxy, that proxy will not be able to attend the AGM in person or cast the member’s vote. 87 CML Microsystems Plc | Annual Report and Accounts FY20 notice of annual general meeting continued 4 Appointment of a proxy through CREST CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual and by logging on to the following website: www.euroclear.com/CREST. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s) who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy, must in order to be valid, be transmitted so as to be received by the registrar (ID 7RA11) not later than 11am on 27July 2020 or if the AGM is adjourned at least 48 hours before the time of the adjourned meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service provider(s) should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 5 Appointment of proxy by joint holders In the case of joint holders, where more than one of the joint holders purports to appoint one or more proxies, only the purported appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first named being the most senior). In any event, all members are requested to appoint the Chairman as their proxy. If a member (or joint members) appoints someone else as their proxy, that proxy will not be able to attend the AGM in person or cast the member’s vote. 6 Corporate representatives Any corporation which is a member can appoint one or more corporate representatives. Members can only appoint more than one corporate representative where each corporate representative is appointed to exercise rights attached to different shares. Members cannot appoint more than one corporate representative to exercise the rights attached to the same share(s). Corporate representatives are requested to appoint to Chairman to act as their proxy. 7 Entitlement to attend and vote To be entitled to attend (by proxy) and vote at the AGM (and for the purpose of determining the votes they may cast), members must be registered in the Company’s Register of Members at 6pm on 27 July 2020 (or, if the AGM is adjourned, at 6pm on the day two days prior to the adjourned meeting). Changes to the Company’s Register of Members after the relevant deadline will be disregarded in determining the rights of any person to attend and vote at the AGM. 8 Nominated persons Any person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 (the “2006 Act”) to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the member by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the AGM. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the member as to the exercise of voting rights. 9 Website giving information regarding the AGM Information regarding the AGM, including information required by Section 311A of the 2006 Act, is available from the Company’s website www.cmlmicroplc.com. 88 CML Microsystems Plc | Annual Report and Accounts FY20 10 Audit concerns Members should note that it is possible that, pursuant to requests made by members of the Company under Section 527 of the 2006 Act, the Company may be required to publish on a website a statement setting out any matter relating to: a) the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the AGM; or b) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual accounts and reports were laid in accordance with Section 437 of the 2006 Act. The Company may not require the members requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the 2006 Act. Where the Company is required to place a statement on a website under Section 527 of the 2006 Act, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under Section 527 of the 2006 Act to publish on a website. In order to be able to exercise the members’ rights to require the Company to publish audit concerns the relevant request must be made by (a) a member or members having a right to vote at the meeting and holding at least 5% of the voting rights of the Company or (b) at least 100 members having a right to vote at the meeting and holding, on average, at least £100 of paid up share capital. For information on voting rights, including the total number of voting rights, see note 11 and the website referred to in note 9. Where a member or members wishes to request the Company to publish audit concerns such request must be made in accordance with one of the following ways (a) by hard copy request which is signed by a member, states their full name and address and is sent to CML Microsystems Plc, Oval Park, Langford, Maldon, Essex CM9 6WG or (b) a request which states the member’s full name and address, and is sent to group@cmlmicroplc.com. Please state “AGM” in the subject line of the email. 11 Voting rights As at 17 June 2020 (being the latest practicable date prior to the publication of this notice) the Company’s issued share capital consisted of 17,177,652 ordinary shares, carrying one vote each. The Company holds 23,467 shares in treasury meaning the total voting rights in the Company as at 17 June 2020 were 17,154,185 votes. Shareholders are able to vote in advance of the meeting using their Proxy Form. The Proxy Form covers all resolutions to be proposed at the AGM. Voting at the AGM will be conducted by way of a poll (rather than on a show of hands), which will be directed by the Chairman at the AGM. This is more transparent and equitable as votes are counted according to the number of shares registered in their names and also allows the votes of all shareholders who wish to vote to be taken into account. At the AGM we will disclose the total of the proxy votes received, the proportion for and against each resolution or approval vote and the number of votes withheld. Votes withheld will not be counted in the calculation of the proportion of votes ‘for’ and ‘against’ a resolution. Voting results will be announced to the London Stock Exchange as soon as possible after the conclusion of the AGM and will be published on our website. 12 Payment of dividend It is proposed to pay the dividend, if approved, on 7 August 2020 to shareholders registered on 29 July 2020. 13 Notification of shareholdings Any person holding 3% or more of the total voting rights of the Company who appoints a person other than the Chairman of the AGM as his proxy will need to ensure that both he, and his proxy, comply with their respective disclosure obligations under the UK Disclosure and Transparency Rules. However, all members are requested to appoint the Chairman as their proxy. If a member appoints someone else as their proxy, that proxy will not be able to attend the AGM in person or cast the member’s vote. 14 Further questions and communication Any member attending (by proxy) the meeting has the right to ask questions. Under Section 319A of the 2006 Act, the Company must cause to be answered any question relating to the business being dealt with at the AGM put by a member attending the meeting unless answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information, or the answer has already been given on a website in the form of an answer to a question, or it is undesirable in the interests of the Company or the good order of the meeting that the question be answered. Members who have any general queries about the AGM should contact the Company Secretary. Members may not use any electronic address provided in this notice or in any related documents (including the accompanying document and Proxy Form) to communicate with the Company for any purpose other than those expressly stated. 15 Documents available for inspection A copy of each of the Directors’ service contracts or letters of appointment will be available for inspection at the registered office of the Company during normal business hours on each business day (Saturdays, Sundays and public holidays excepted). 89 CML Microsystems Plc | Annual Report and Accounts FY20 five-year record 2020 £’000 2019 £’000 2018 £’000 2017 £’000 2016 £’000 Income statement Revenue (continuing operations) 26,420 28,140 31,674 Revenue (acquisition) Revenue (discontinued operations) Total revenue1 Gross profit1 Gross profit percentage1 Profit before taxation1 Adjusted EBITDA2 EPS1 Basic Diluted Statement of financial position Shareholders’ equity1 Dividends per ordinary share — — 26,420 19,565 74.05% 1,374 8,277 8.98p 8.94p — — 28,140 20,253 71.97% 2,982 8,754 15.77p 15.36p — — 31,674 22,236 70.20% 4,583 9,998 24.52p 23.95p 26,076 1,661 — 27,737 19,815 71.44% 4,208 8,840 23.09p 22.84p 22,833 — — 22,833 16,253 71.18% 3,324 6,970 18.03p 17.94p 42,390 42,322 41,770 37,635 32,576 Dividends proposed/paid per 5p ordinary share1 4.00p 7.80p 7.80p 7.40p 7.00p 1. As reported in the year’s Annual Report. 2. Adjusted EBITDA is defined as profit from operations before all interest, tax, depreciation and amortisation charges and before share-based payments. Issued 5p ordinary shares (including treasury shares) 17,177,652 17,175,166 17,112,023 16,860,356 16,256,537 Number of shares 2020 Number of shares 2019 Number of shares 2018 Number of shares 2017 Number of shares 2016 90 CML Microsystems Plc | Annual Report and Accounts FY20 shareholder information CML Microsystems Plc share price – for the year ended 31 March 2020 £ 4.00 £ 3.00 £ 2.00 £ 1.00 £ 0.00 Apr 2019 Techmark 100 Index – for the year ended 31 March 2020 6,500 6,000 5,500 5,000 4,500 4,000 3,500 Apr 2019 FTSE 100 Index – for the year ended 31 March 2020 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 Apr 2019 Financial calendar 2020 29 July AGM 30 September Half year end 24 November Anticipated date for half-year results 2021 31 March 15 June Year end Anticipated date for preliminary announcement of year-end 2021 results Apr 2020 Apr 2020 Apr 2020 91 CML Microsystems Plc | Annual Report and Accounts FY20 glossary 5G API ASIC DMR DTR EBITDA EU FRC GAAP GMP GPS HDD IAS IASB IC IFRIC IFRS IIoT IoT IP ISA Fifth Generation Cellular Network Technology NAND Not And OEM P25 POS R&D RF RTK SATA SCADA SSD TETRA TSR VP Original Equipment Manufacturer Project 25 digital mobile radio public safety standard Point-of-Sale Research and Development Radio Frequency Real-Time Kinematic Serial ATA Interface Supervisory Control And Data Acquisition Solid State Drives Terrestrial Trunked Radio Total Shareholder Return Vice-President Application Programmers Interface Application-Specific Integrated Circuit Digital Mobile Radio Disclosure and Transparency Rules Earnings before interest, tax, depreciation and amortisation European Union Financial Reporting Council Generally Accepted Accounting Practice Guaranteed Minimum Pension Global Positioning System Hard Disk Drive International Accounting Standard International Accounting Standards Board Integrated Circuit International Financial Reporting Interpretations Committee International Financial Reporting Standards Industrial Internet of Things Internet of Things Intellectual Property International Standard on Auditing M2M Machine-to-Machine 92 CML Microsystems Plc | Annual Report and Accounts FY20 advisors Registered office CML Microsystems Plc Oval Park Langford Maldon Essex CM9 6WG Registrars Neville Registrars Limited Neville House Steelpark Road Halesowen West Midlands B62 8HD Joint Stockbrokers Shore Capital Stockbrokers Ltd Cassini House 57 St James’s Street London SW1A 1LD S P Angel Prince Frederick House 35-39 Maddox Street London W1S 2PP Auditor RSM UK Audit LLP 25 Farringdon Street London EC4A 4AB Financial Public Relations Alma PR 71-73 Carter Lane London EC4V 5EQ Designed and produced by www.lyonsbennett.com Printed on Vision Indigo, an FSC® certified mixed sources paper. Printed by CPI Colour, an FSC® and ISO 140001 accredited company. Visit us online at cmlmicroplc.com CML Microsystems Plc Oval Park, Langford Maldon, Essex CM9 6WG T: +44 (0)1621 875500 F: +44 (0)1621 875606 group@cmlmicroplc.com