TIDMFST
RNS Number : 9485O
Frontier Smart Technologies Grp Ltd
23 May 2018
THIS ANNOUNCEMENT CONTAINS INFORMATION WHICH, PRIOR TO ITS
DISCLOSURE, WAS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION.
For immediate release 23 May 2018
Frontier Smart Technologies Group Ltd
('Frontier' or the 'Group')
Trading Update
Frontier (AIM: FST), a pioneer in technologies for Digital Radio
and Smart Audio devices, announces a trading update for the period
from 1 January 2018 to 30 April 2018 (the 'period') and the outlook
for the current financial year ending 31 December 2018
('FY-2018').
Challenging trading conditions in Q2-2018 are likely to have an
adverse impact on the Group's FY-2018 trading performance.
Consequently, the Board is revising its guidance for FY-2018. The
Board now expects full year sales of approximately US$47.7 million
(GBP34.9 million) and EBITDA(1) of c. US$1.0 million (GBP0.8
million).
Given the usual seasonality of the business, the Group expects
to report an EBITDA loss in H1-2018 of approximately US$2.1 million
(GBP1.5 million), followed by a stronger performance in H2-2018
when EBITDA is expected to be approximately US$3.1 million (GBP2.3
million).
The Group has two lines of business, Digital Radio (which is
long established and profitable) and Smart Audio (which operates in
a nascent market that has good medium-term growth prospects). The
reduced expectations for FY-2018 are due to the following:
Digital Radio
-- Frontier's sales in FY-2017 were boosted by strong demand
from Norway driven by the country's FM switch-off. However, at
year-end our customers held sizable excess stock due to Norwegian
retail sales in the final quarter of 2017 being significantly lower
than anticipated.
o Retail sales volumes in Norway in the first nine months of
2017 were up 162 per cent year on year, but in Q4-2017 were only up
16 per cent (source: GfK February 2018).
-- These excess stock levels have adversely impacted Frontier's
order book for Q2-2018. This is a short-term situation. Major
retailers and brands in Norway are now reporting that their
inventory levels are reducing and, as a result, Frontier's orders
are starting to return to more typical volumes.
-- The Board expects Frontier's Digital Radio revenues to
normalise in H2-2018 and return to growth in 2019 driven by the
continued development of DAB markets in Germany, France, Italy and
Benelux, and the forthcoming FM switch-off in Switzerland (due to
commence in 2020).
Smart Audio
-- The Smart Audio market is being driven by the desire of major
US technology companies to establish their voice assistant and AI
platforms in consumer homes. Each of these companies is using a
combination of their own first-party devices and products from
third-party brands to drive consumer adoption.
-- Frontier's focus is on providing third-party brands with
solutions incorporating these platforms. Frontier is the only
system integrator working with all three of the major US ecosystem
players in the Smart Audio sector.
-- Currently, the major technology companies are engaged in an
aggressive battle for market position. Their strategic promotional
approaches have limited the ability of third-party brands to gain
significant market traction this year. This has had a negative
impact on Frontier's addressable market and the Board therefore
expects growth in the Group's Smart Audio revenues in FY-2018 to be
slower than previously anticipated.
-- The prospects for FY-2019 and beyond are more promising. As
the Smart Audio sector expands and matures, the Board believes that
third-party brands will achieve significant volume growth,
especially in the medium / higher price point categories, where
consumers are looking for greater product differentiation.
-- Frontier is well placed to address this opportunity.
o As the only system integrator currently working with all three
ecosystem players, the Group is developing a multi-ecosystem
platform which will allow Smart Audio products to be controlled by
any first-party voice assistant. This product is due for release in
H2-2018 and the first design wins have already been secured.
o The Group is also introducing a software licensing business
model (to complement its existing turnkey solutions). Software
licensing is of particular interest to Tier One brands and larger
ODMs, who value the greater control and flexibility that this
provides them in their product development.
Foreign Exchange
-- Frontier has adopted the US Dollar as both its functional and
reporting currency from 1 January 2018. The strengthening of
Sterling against the US Dollar(2) in 2018 is expected to adversely
impact FY-2018 EBITDA by US$0.5 million. This impact has been
included in the new market guidance provided by the Board.
In order to address these market conditions and the delays in
the emergence of the third party Smart Audio segment, the Board is
taking immediate steps to implement targeted R&D cost
reductions.
With the core Smart Audio platform largely complete, the Group
has decided to scale-down its R&D investment and will focus on
several smaller-scale developments in the coming year. A cost
reduction plan is being implemented that will reduce R&D spend
in FY-2018 by US$2.2 million (GBP1.7 million). This represents 20.8
per cent of this year's R&D budget and aligns Frontier's costs
with anticipated trading. Costs have also been reduced in other
parts of the Group that will result in further savings of US$1.2
million (GBP0.9 million) in FY-2018.
New revolving credit facility
Frontier's business trading is seasonal with the majority of
sales being recorded in the second half in a normal year. To help
smooth out the Group's working capital requirements, specifically
in 2018 where component shortages have caused Frontier to hold
inventory in excess of its normal requirements, the Group has this
month successfully entered into a new loan facility with Clydesdale
Bank. The existing three-year term loan which was due to expire in
September 2018 has been rolled into a larger, GBP5.0 million
revolving credit facility over three years. This provides
incremental headroom of US$3.1 million (GBP2.3 million). Net debt
is expected to be c. US$2.1 million (GBP1.6 million) at the half
year.
Anthony Sethill, CEO, Frontier Smart Technologies commented:
"Trading in Q2-2018 has been difficult and the outlook for Smart
Audio in 2018 is weaker than previously expected. As a result, the
Group is unlikely to achieve market expectations for the full year
and we are therefore implementing a cost-reduction programme.
I am however encouraged by the initial order book for Digital
Radio products in Q3-2018 and expect trading for this business line
to return to normal levels in H2-2018. In Smart Audio, the growth
in volumes for third-party products has been delayed until 2019,
when we anticipate that the key ecosystem players will enhance
their promotion of third-party products.
In addition, I am confident the deployment of our
multi-ecosystem platform and the introduction of our new licensing
model will enhance Frontier's share of this market. The Group
remains well positioned in its core markets and growth prospects
for the medium-term remain positive."
(1) EBITDA is earnings before interest, tax, depreciation,
amortisation, and certain non-cash items.
(2) Budget rate of 1.32 versus current rate of 1.36 and average
for the year to date of 1.395
- Ends -
For further enquiries:
Frontier Smart Technologies Group Ltd +44 (0) 20 7391 0630
Anthony Sethill, Chief Executive Officer
Jonathan Apps, Chief Financial Officer
N+1 Singer (Nominated Adviser and Broker) +44 (0) 20 7496 3000
Shaun Dobson
Buchanan (Financial Communications) +44 (0) 20 7466 5000
Henry Harrison-Topham / Gemma Mostyn-Owen FST@buchanan.com
Forward-looking statements
The information in this release is based on management
information. This announcement includes statements that are forward
looking in nature. Forward looking statements involve known and
unknown risks, assumptions, uncertainties and other factors which
may cause the actual results, performance or achievements of the
Group to be materially different from any future results,
performance or achievements expressed or implied by such forward
looking statements. Except as required by the AIM Rules and
applicable law, the Group undertakes no obligation to update,
revise or change any forward-looking statements to reflect events
or developments occurring after the date of this announcement.
Notes to Editors
The Frontier Smart Technologies Group is a pioneer in
technologies for digital audio devices. Customers include many
leading consumer audio brands: Bose, Denon, Grundig, harman/kardon,
Hama, JBL, Marshall, Onkyo, Panasonic, Philips, Pioneer, Pure,
Roberts, Sony, TechniSat, UrbanEars, Yamaha, and many more.
Established in 2001, the Group is headquartered in London, with
engineering, sales, marketing and operations teams in Cambridge,
Timisoara (Romania), Hong Kong, and Shenzhen. For more information,
see: www.frontiersmart.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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