TIDMQXT
RNS Number : 8187I
Quixant PLC
06 April 2020
6 April 2020
Quixant plc
("Quixant" or the "Group")
Audited Final Results
Quixant (AIM: QXT), a leading provider of innovative, highly
engineered technology products principally for the global gaming
and broadcast industries, announces that further to the trading
update provided on 31 March 2020, the Group publishes its audited
full year results for the 12 months ended 31 December 2019.
FINANCIAL HIGHLIGHTS
-- Revenue decline of 20% to $92.3 million (2018: $115.2
million)
o Quixant Gaming division revenue $56.2m (2018: $77.6m)
-- Gaming Platforms revenue $46.6m (2018: $62.5m)
-- Gaming Monitors revenue $9.6m (2018: $15.1m)
o Densitron division revenue of $36.2m (2018: $37.5m)
-- Adjusted(1) pre-tax profit of $10.7m (2018: $18.2m)
-- Pre-tax profit of $9.4m (2018: $14.3m)
-- Adjusted(2) diluted EPS $0.139/share (2018: $0.260/share)
-- Diluted EPS of $0.124/share (2018: $0.213/share)
-- Net cash from operating activities up 33% to $14.9m (2018:
$11.3m)
-- Net cash at period end of $16.1m (2018: $9.7m)
-- Covid-19 presents a material uncertainty to the Group's
future operations
1. Adjusted by adding back items included in the adjusted PBT
reconciliation in note 2 to the financial statements totalling
$1.3m (2018: $3.9m).
2. Adjusted by adding back the items included in note 1 above
and subtracting the associated tax effect as set out in note 3 to
the financial statements. In 2019 these amounted to $1.0m (2018:
$3.1m).
OPERATIONAL HIGHLIGHTS
-- Revenue decline in Gaming due to major customers facing stiff
competition which has led to a reduction in demand for our
products.
-- No major customers lost during the year.
-- New products launched by Densitron to target the broadcast
market expected to generate revenue in 2020 and increased pipeline
of new business of $12m.
-- Appointment of key senior management, including a Densitron
Managing Director, Densitron Product Director, Gaming Product
Director and a new Gaming Global Sales Director.
-- Enhanced systems and sales discipline to improve revenue visibility.
-- Acquisition of IDS to enhance Densitron product offering in Broadcast sector
-- Unpredictability in 2020 and beyond due to the impact of Coronavirus/Covid-19
For further information please contact:
Quixant plc Tel: +44 (0)1223 892
696
Jon Jayal, Chief Executive Officer
Guy Millward, Chief Financial
Officer
Nominated Adviser and Broker:
finnCap Ltd Tel: +44(0)20 7220
0500
Matt Goode / Simon Hicks (Corporate
Finance)
Alice Lane (Corporate Broking)
Financial PR: Tel: +44 (0) 20 3405
0205
Alma PR
John Coles / Hilary Buchanan
About Quixant
Quixant, founded in 2005, designs and manufactures highly
optimised computing solutions and monitors principally for the
global gaming industry. The Company is headquartered in Cambridge
in the UK where the global sales function is based. North America
sales and sales support is run from their subsidiary in Las Vegas.
Quixant has its own manufacturing and engineering operation based
in Taiwan and software engineering and customer support team based
in Italy. All the specialised products software and manufacturing
are produced in-house and Quixant owns all its own IP some of which
is protected by patents and design rights.
In November 2015 Quixant acquired Densitron Technologies plc.
Densitron has a strong heritage in the sale of electronic display
solutions to global industrial markets. Through Densitron's
experienced sales team, Quixant has a robust platform to build its
business into wider industrial markets. In-depth information on the
Company's products, markets, activities and history can be found on
the corporate website at www.quixant.com.
CHAIRMAN'S STATEMENT
First year of reduced revenue in the company's history masks
strengthened underlying business
Against the backdrop of a significant softening in some of our
largest gaming customers' businesses, unfortunately I am reporting
to you the first year in Quixant's history in which the business
has seen a fall in revenue and profit. While clearly disappointing,
we are confident in the business' ability to deliver growth and
have made significant steps in the year to address areas of
weakness.
Intense competition among the gaming machine manufacturers has
reduced demand for some of our largest customers' machines and
consequentially impacted demand for our gaming platforms and
monitors. The outlook for the industry, however, remains buoyant
with significant long-term opportunities and we continue to see
evidence of the outsource trend which has fuelled our gaming
division growth over the last 15 years. We believe long-term this
intense competition will lead to more business opportunities as new
customers seek to streamline their businesses. We have taken steps
during the year to improve our revenue visibility to be more
equipped to predict such shocks in our customer demand.
Our Densitron Broadcast strategy remains very positive as we
start to see the first revenue being generated from the new
business pipeline which continues to grow.
We delivered strong cash generation in the year, despite lower
than anticipated profits and as a result we end the year with an
extremely strong balance sheet with a healthy net cash position.
Given the current Covid-19 situation, the Board will review whether
it is able to pay an interim dividend later in the year.
Gaye Hudson has decided to step down from the Board at the AGM
in 2020. I would like to take this opportunity to thank Gaye for
her contribution to Quixant over the last three years. The Board
will begin a search for a new non-executive immediately. At the end
of May 2020, JJ (C-T) Lin will also step down from the board and
Nick Jarmany and Gary Mullins will become non-executive directors.
JJ was the founder of Quixant's operation in Thailand, is
responsible for much of Quixant's success over the years and is
still a large shareholder. I would like to thank him for his
massive contribution over many years.
Our future outlook remains positive and we believe that the
business is well progressed in moving towards a more diversified
series of growth drivers. A robust start to 2020 is tempered by the
unpredictability for the full year due to Coronavirus' impact
across the Gaming business and the industrial sectors Densitron
supplies into. We are closely monitoring the situation on our
business from a demand and supply side and have executed a number
of contingency plans to mitigate the risk to our staff and our
financial performance. Despite these, we expect continued
challenges with the business throughout 2020 as a result of the
virus outbreak.
Michael Peagram
Chairman
CHIEF EXECUTIVE'S REPORT
COVID-19 - Impact Assessment
It is clear that the COVID-19 pandemic will have a significant
impact on the business and consequently we have taken a number of
actions to weather the storm. When the pandemic first appeared in
China, the initial threat was to our supply chain. It is now very
clear that the risk to customer demand is by far our greatest
challenge and we are prepared for a significant downturn in sales
for the duration of the pandemic.
We have no experience of a similar crisis so it is difficult to
accurately predict the extent that the effect of COVID-19 will have
on our revenues. It is not yet clear how widespread the virus will
become, how long the pandemic will last and what the medium to long
term effect of this pandemic will be on consumer and business
behaviour.
The global technology industry relies almost entirely on Far
Eastern manufacturing for the electronic components used in its
products. We manufacture our Gaming division products in Taiwan
which has skilfully handled the outbreak and therefore seen limited
impact from reduced manufacturing capacity. However, many of the
components which are used on the gaming manufacturing lines are
sourced from China and we have therefore suffered some delays in
the delivery of such components in the first quarter. Densitron saw
a more direct and immediate supply side impact from the COVID-19
outbreak. Many of the products in the Densitron business are
manufactured in China in factories which were operating at a
fraction of their normal capacity during February.
The Chinese government's rapid and weighty response to the
outbreak has meant that capacity returned very quickly to most of
our suppliers over the course of February and into March and we
have seen an ongoing improvement in the delivery dates we can quote
customers. Our strategic stock holding and the intelligent handling
of the outbreak by the Taiwanese authorities has meant our
production impact has been minimised. We are continuing to monitor
the effects on our manufacturing capability.
With a return to relative normality on the supply side, we are
now focused on customer demand. The impact of Macau closing for two
weeks immediately after the Chinese New Year holiday was an 88%
reduction in overall gaming revenues in February in the territory
(a fall of around $2.8bn compared to prior year). As COVID-19 has
spread outside Asia, we have now started to see the impact on the
key Australian and American casino markets with MGM Resorts and
Wynn closing down their Las Vegas resorts for an indeterminate
period. On 17 March there was a state directive for all gaming
machines in Nevada to be switched off for 30 days. We have since
seen other markets such as the US tribal gaming market and the
Australian market closing down their operations. Globally, we are
seeing the few gaming venues which haven't closed applying severe
restrictions and "distancing measures" (turning off every other
machine to distance players from one another). This loss in casino
revenues is already weighing heavily on our customers' income and
longer term will likely weigh on demand for new machines and
therefore our customers' consumption of our products this year.
From a position where the focus was on our ability to meet
expected delivery dates, the Densitron business has seen the first
signs of customers looking to postpone/cancel orders as their
manufacturing facilities close and demand for products across most
industrial markets reduces. We have nonetheless seen continued
demand in certain sectors and have been actively offering help to
our medical customers to source components where they have faced
challenges.
We have been in constant dialogue with customers to understand
the direct impact on our Gaming Division at a senior management
level. Given the greater unpredictability around lead-times, we
have been seeking orders further out into the year to solidify
deliveries. Gradually we are forming a clearer picture of their
short term (next few months') demand which unsurprisingly has been
significantly reduced. The uncertainty principally relates to the
outlook for the second half which will be heavily influenced by
governments' response to the crisis. Some Densitron customers have
signalled reduced demand and requested postponed deliveries while
others have continued or even accelerated demand.
Our priority is to do all we can to keep our offices as safe as
possible for customers and staff. At the same time, we must prepare
the business for varying levels of sales declines. To that end we
have modelled the effects of differing levels of sales declines
along with all the measures we can take to ensure that the Company
remains within its cash and bank facilities, and have prepared cash
flow forecasts for a period in excess of 12 months.
The Board's central case scenario is based on the existing debts
being recovered, irrevocable sales orders already received from
customers and their related costs of sales being fulfilled, and an
assumption that we will only recover 50% of debts from these new
fulfilments. Under this scenario, the Group would have sufficient
funding to pay existing overheads without reducing them until the
second half of 2021. The analyses depend greatly on the amount of
orders assumed to be collectable in cash, major changes to this
could significantly change the result. In all scenarios considered
the Board assumed that the Group's medical sector revenues did not
stop, including revenues from displays sold as components for
ventilators.
The Board's severe downside forecasts are based on a scenario
where customers stop paying entirely for new orders delivered from
April 2020 onwards and do not begin buying any further goods until
December 2020. Orders delivered and invoiced up to the end of Q1
2020 are assumed to be paid for. Cost reductions can be made to
offset this reduction in cash receipts by a 25% reduction in staff
costs and a reasonable reduction in other controllable costs. The
Group have a $3.0m loan facility in Taiwan that is currently
undrawn and is part of the mortgage on the Group's property in
Taiwan. In this scenario, the Group have sufficient cash until
March 2021 without drawing on its bank facilities. The Board
therefore consider that the Group's strong balance sheet and
material net cash position means it is well positioned to navigate
through the impact of COVID-19.
While the Directors' have no reason to believe that customer
revenues and receipts will decline to the point that the Group no
longer has sufficient resources to fund its operations, should this
occur, the group may need to seek additional funding beyond the
facilities that are currently available to it, as well as making
significant reductions in its fixed cost expenses. There would be
an opportunity to mortgage or sell certain property and inventory
assets to accelerate cash generation and/or mitigate risk, but in
the economic environment that would see customer revenues and
receipts decline severely, such sales would be likely to be
difficult to achieve. The potential impact of changes in
assumptions arising from matters outside the Group's control, or
the unlikely event of a culmination of events, may result in the
group requiring additional working capital beyond the group's
existing facilities.
2019 Review
Looking back to last year, despite 2019 having been a
challenging year financially for the Group, we took significant
steps to improve the business and the fundamentals which underpin
our growth opportunity remain intact. In the year, Group revenues
fell by 20% to $92.3m due to an unexpected and pronounced decline
in expected consumption from some of our bellwether gaming
customers. Most of this loss of revenue has been due to these
customers experiencing fierce competition, reducing demand for
their machines and hence their production volumes with the
consequential effect on demand for Quixant's gaming products
integrated into their machines. While we have continued to drive
revenue from new customers it has been insufficient to offset
declines in our established customer base.
Densitron performed in line with expectations in 2019,
delivering broadly flat year on year revenue despite us closing the
non-performing Nordic business. Our focus on the broadcast vertical
continues to progress, with a strong pipeline forecasting further
growth, which will not only deliver in the near term but also into
future years.
Despite the difficult year Quixant remains profitable and cash
generative, generating profit before tax of $9.4m (2018: $14.3m),
adjusted profit before tax of $10.7m in 2019 (2018: $18.2m) out of
which we generated cashflow from operations in excess of 140% of
profits.
Segmental Revenue Analysis
2019 2018
$m $m
Gaming platforms 46.6 62.5
Gaming monitors 9.6 15.1
Densitron 36.2 37.5
----- ------
Total 92.3 115.2
----- ------
Customer headwinds in the land-based gaming business
In the gaming division, our long standing major customer,
Ainsworth Game Technology, has been detrimentally impacted by the
exceptional success of one of its rivals: Australian listed
Aristocrat Leisure. The latter launched a game called Lightning
Link in 2015 which has become the top performing slot game in
Australia and North America and in doing so has fuelled the
company's market capitalisation growth from under AU$5bn to
AU$24bn. In the Australian market, Lightning Link holds more than
60% of the "pokies" market according to Goldman Sachs. The success
of Lightning Link, and the derivative games which have followed,
has been unprecedented in the last 20 years in gaming and propelled
Aristocrat to the dominance it has today. Aristocrat's success has
also impacted, albeit to a lesser extent, revenue from several of
our other customers.
It is important to note that, during this period, Quixant has
not lost any customers. Improvements in the demand for these
customers products will immediately positively impact our revenue.
Nonetheless, the impact has weighed heavily on our financial
performance in 2019 across both the gaming platforms and gaming
monitors product lines.
We shipped just over 40,000 gaming platforms in 2019 compared to
61,000 in 2018, a reduction of 34%. Several of our customers to
which in previous years, we have shipped in excess of 5,000
platforms a year reduced orders to 1,000 and 5,000 in 2019 as shown
in the chart.
Sales by customer unit purchase quantity
2019 2018
<1k pcs 7,330 8,869
1k -
5k pcs 15,276 5,579
>5k pcs 18,082 46,632
------- -------
Total 40,688 61,080
------- -------
We sold 16,981 gaming monitors and button decks in 2019 compared
with 30,800 in 2018.
The average selling price of our products increased slightly as
we saw an increase in demand for the mid-range platforms with
reductions in demand for the cost-effective range and (mainly due
to the major customer declines) a reduction in high-end product
sales. We also shipped several hundred of the Ultimate platform
range in the year as this new product range starts to gather
traction in the market.
Quantity of gaming platforms sold split by product family
2019 2018
Cost Effective 9,134 17,013
Mid-Range 10,195 9,938
High-End 20,993 34,091
Ultimate 367 38
------- -------
Total 40,689 61,080
------- -------
New business wins with long term growth prospects
During the year we secured a significant win for gaming boards
with a major Japanese manufacturer who currently has extensive
business in the North American, Australian and Asian markets. This
is expected to develop into a multi-million dollar annual revenue
stream in the coming years. We already supply this customer with
electronic button deck solutions, but from the fourth quarter of
2021 will be supplying them with our highest performing gaming
computer product, the QMax-2. The business was won on the technical
depth of hardware and software features of the product, as well as
the expert, gaming-focused support infrastructure Quixant has
globally. This is an exciting business win and while not due to
contribute significantly to revenue until next year, positions us
well to benefit from their existing international markets and from
the casino resorts opening in Japan in the middle of the decade. We
have already shipped samples to them for their engineering teams to
work on developing the new machines.
In addition, we have converted around $3.5m of new business
pipeline to revenue in 2019 which we expect to grow over coming
years as the customers reach their full year run rate. Our new
business pipeline gives us confidence in achieving healthy growth
in 2021 and 2022, subject to any extended impact of COVID-19.
The major game manufacturers, aside from Aristocrat, have all
had challenging periods in their land-based gaming businesses.
Their focus on content to reinvigorate their competitiveness has
led to opportunities for us to pitch for strategic outsource
arrangements which have been supported by the sales and product
team members we brought in during Q3 2019 and Q1 2020.
As we look to build on the recent new business wins, we are
focusing on delivering market appropriate solutions to our current
and prospective customers, based upon a segmentation and needs
analysis. For our Strategic Accounts, our value proposition is
clear in that we can help our customers deliver a higher quantity
of better games faster, with reduced costs and reduced time to
market. Our business enables a global standard for Strategic
Accounts (Tier 1) to build their next generation games upon, and
our market leading hardware, and embedded Gaming Ecosystem(R)
allows game developers to excel creatively, whilst ensuring the
hardware can deliver the ultimate player experience. For our Key
Accounts (Tier 2), we are focusing on account retention and new
account penetration via a focused product range, at differing price
points, and SKU distribution maximisation across the portfolio of
current products. For our Core Accounts (Tier 3) we are bringing to
market turnkey outsource options, enabling these customers to focus
solely on game design and distribution, with Quixant providing
every element of the solution. Our sales team structured around
this market segmentation, ranging from Strategic Account Directors
for the Strategic Accounts, to a Tele-Accounts function for our
Tier 3 customers, ensuring the appropriate level of contact and
focus to maximise the account experience.
Sports Betting market entry
In 2019, we launched Quixant's entry to an adjacent market to
Gaming: Sports Betting. The legalisation of Sports Betting in the
US has led to a major focus on this market as a growth driver in
the gambling industry. There is already a well-established European
sports betting industry in which technology (online and retail)
plays a significant role. A number of the existing slot machine
manufacturers already have business in sports betting but all are
viewing the market as a revenue growth driver alongside the limited
growth available in global slots. Many of our prospective customers
in sports betting are businesses new to Quixant, so this industry
represents a diversifier to our land-based gaming business.
At a high level, Quixant is offering two products to the sports
betting market: an optimised computer platform designed to drive
customers' own sports betting terminals onto which they integrate
their sports book software and a turnkey, full terminal solution
which integrates our computer platform into a regulatory compliant
cabinet. We have already received significant interest for both of
these solutions since their launch at the G2E trade show in Las
Vegas in October 2019 and will have first pre-production samples
shipping to customers in H1 2020.
While we had expected to generate revenue from the sports
betting opportunity in 2020, the suspension of almost all sporting
events and the consequential shutdown of most sports betting
operations means that we believe there is uncertainty around this
revenue being realised during the year. Nonetheless, we continue to
be optimistic of future business in the sector and have a a
weighted new business pipeline which builds up to business worth
several million dollars annually over the next 5 years.
Densitron - Densitron 2.0 - Control Surface Growth Strategy
Within Densitron, we have continued to execute our change plan
across all areas of the business as we pivot towards Densitron 2.0
(one product to many customers) to generate growth through our
range of Broadcast-centric control surfaces, while protecting our
traditional Densitron 1.0 display component core business
(typically one product for one customer). Densitron 2.0 control
surface products bring together our expertise in display,
touch/tactile, embedded computing and mechanical engineering to
help our customers modernise the human interaction with their
products while accelerating their time to market and reducing their
execution risk.
Broadcast industry progress with Densitron 2.0 products
Our Densitron 2.0 control surface product sales efforts are
focussed in the broadcast vertical. Of the 100 blue-chip broadcast
equipment manufacturers in this space we chose to focus on when we
launched this strategy, we are now actively engaged in sales
conversations with the majority. The pipeline of new business in
this vertical stands at over $12m and continues to grow, as we now
move to focus on the next 100 priority target customers. In 2020 we
forecast c. $0.5-1.0m of this pipeline will convert into in-year
revenue, the point in the range dependent on how quickly our
customers are able to move into mass production after telling us we
have won the deal - something we are unable to control.
In addition, our One Densitron culture and operating structure
change plan is yielding tangible results because we are now
structured internally to allow us to deal globally with large
customers such as Panasonic and Grass Valley.
Acquisition of (IDS) launching our Densitron 3.0 product set
In July 2019, we completed the acquisition of a small UK-based
technology business called IDS. This took our product strategy one
step further by adding market leading software to the base of our
expertise in control surfaces. We call this addition of software to
our control surface products Densitron 3.0. The IDS technology is
already in use extensively in the most prestigious broadcasters
including the BBC, CNN and Channel 4. The product enables content
distribution, such as world time clocks or programme schedule data
to be displayed across a network of end-points driven by a GUI
based server. The real power of IDS however comes from its support
to automate and control a wide range of third-party hardware and
software products. IDS can save broadcast systems integrators and
equipment manufacturers development time through adoption of a
scalable, flexible off the shelf solution.
IDS is already contributing to revenue in the business and we
are investing in the technology which we purchased to launch an
enhanced solution which will additionally be offered under as SaaS
model.
New senior gaming business hires
We made two key hires to the business in 2019.
Abhinay Bhagavatula joined us in September 2019 as Gaming
Product Director. With overall responsibility for our gaming
business product strategy and innovation, this is a key role to
ensure our products align well with the market requirements and are
driving technology change in the gaming industry. Abhinay joins us
from the leading gaming manufacturer, Aristocrat where he was
Director, Product & Commercial Strategy. His deep knowledge
from 10 years working in game manufacturers positions him uniquely
in Quixant with a knowledge of computer technology, game design and
commercial value creation in our customers.
We also introduced Duncan Faithfull as the new Global Sales
Director in January 2020. Duncan is responsible for leading our
gaming sales team. His focus will firstly be on retention and
growth in our existing customer base, ensuring predictability and
reliability in our revenue, and secondly, through redefining our
proposition to the top tier accounts, boosting our new business
pipeline for revenue delivery in 2021 and beyond. He comes from a
background as Sales & Marketing Director at Cardtronics and
prior to that G4S with experience in strategic outsource selling to
some of the largest global financial institutions.
Given the strengthened senior management team we have in place,
the founders of the business will also be changing their roles as
we look to streamline operations. Effective 31 May 2020, Nick
Jarmany will become non-executive deputy chairman and Gary Mullins
will move to a non-executive director role. C-T Lin will be
stepping down from the board.
Global SAP and Salesforce deployment
We successfully completed the implementation of our global SAP
Business One ERP system in December 2019, with just one or two
smaller parts of the business to begin using it in 2020. This
two-year project has been undoubtedly the most complex technology
project the group has undertaken but now gives us a strong, global
infrastructure to run the business. In 2020 we will continue to
build out the reporting functionality and automation in the
business to maximise its benefit.
During H2 2019 we brought Salesforce.com to the gaming division,
having already used the product in the Densitron business. We
continue to refine the usage and integration of the system with SAP
and other Quixant technology systems, but already are running our
sales pipeline and activity tracking from it. We believe this,
alongside enhanced SAP reporting and improved sales process and
discipline will lead to improvements in our revenue visibility
going forward.
Summary and Outlook
While the challenges of 2019 in the Gaming division have been
painful to endure, the actions to enhance our sales discipline to
improve revenue visibility and forecasting accuracy were already
being addressed during the year and are now complete.
We have an undiminished opportunity with the land-based gaming
business to grow, despite the short-term headwinds from major
customer slowdowns and an uncertain negative impact across the
global economy from COVID-19. Allied with the new growth sources in
sports betting and Densitron this leads to the desired
diversification to de-risk this growth. We constantly monitor the
risks to the business as a result of the COVID-19 outbreak and
while it will certainly have a profound impact on our business in
both Gaming and Densitron divisions in 2020, at this point the
magnitude of this impact remains uncertain and hence we believe it
necessary to withdraw our guidance for 2020 and thereafter. We are
necessarily cautious and tracking the situation daily but believe
our strong balance sheet provides a high degree of resilience.
Nonetheless, our severe downside modelling case indicates scenarios
in which there may be a requirement to access additional funding in
Q4 2020 and we continue to closely monitor this position.
Over the medium to long term we are confident in our ability for
Quixant to grow materially. We have made many of the adjustments
necessary to position the business for this growth from a sales,
product and operational perspective as the challenges presented by
COVID-19 subside.
The Board remains confident in the long-term future of the Group
and our ability to weather the current crisis.
Jon Jayal,
Chief Executive Officer
FINANCIAL REVIEW
The Quixant Group achieved revenues of $92.3 million in the
year, a decrease of 20% on 2018 ($115.2 million).
Revenue
Gaming division revenues were $56.2 million, a decrease of 28%
on 2018 (2018: $77.6 million). This was split between Gaming
platform revenue of $46.6 million, a 25% decrease on 2018 (2018:
$62.5 million), and Gaming monitor revenue of $9.6 million, a 36%
decrease on 2018 (2018: $15.1 million). Densitron division
revenues, including the IDS acquisition in 2019, were $36.2
million, a decrease of 3% on 2018 (2018: $37.5 million).
The decline in the Gaming division has largely been driven by
reduction in demand from larger customers who have in turn seen
sales of their gaming machines go down in the face of competition
from other industry suppliers who currently have more popular
games. Densitron revenues declined marginally as sales of new
products are yet to ramp up to replace declining older product
revenue.
Gross profit and gross profit margin
Our gross profit for the year was $34.3 million representing a
gross margin of 37%. This compares with a gross profit achieved in
2018 of $39.8 million and a gross margin of 35%. The underlying
gross margin for each part of the business has been improved in the
year with the improvement in Gaming coming from the move away from
low margin gaming monitor sales and in Densitron because of the
move to sell higher margin Broadcast products.
Profit before tax (PBT)
PBT decreased by 34% to $9.4 million (2018: $14.3 million).
Adjusted PBT decreased 41% to $10.7 million (2018: $18.2 million).
Adjustments to profit before tax amounted to $1.3 million in 2019
(2018: $3.9 million) and comprise share-based payments and
amortization and impairment of acquired intangibles that are not
cash expenses ($0.9m in both 2019 and 2018) and a loss on the
disposal of the Densitron business in Finland, acquisition costs
for IDS and restructuring costs, which are not comparable with the
prior year, as we closed a warehouse in the UK and sold the
loss-making Finnish business - see note 1. The Company profit for
the year includes an impairment charge on the investment in
Densitron which has arisen from the cash flow forecasts used for
the Group goodwill impairment testing.
Expenses
During the year the Group expenditure on research and
development increased by 2% to $6.6 million (2018: $6.4 million)
representing 19% of gross profit (2018: 16%). These costs relate to
investment activities principally undertaken in Taiwan, Italy and
Slovenia. $2.2 million of these costs were capitalised (2018: $2.6
million) with amortisation for the year on total capitalised
development costs of $1.4 million (2018: $1.3 million).
We have continued to strengthen the business across all areas in
the year, including increasing our headcount to 227 people (2018:
203 people). Staff costs, being the largest contributor to
overheads, remained flat in the year at $16.3 million (2018: $16.3
million).
Taxation
The tax charge for the year increased to $1.1 million (2018:
$0.2 million), representing a corporation tax charge of 11.7% on
pre-tax profits (2018: 1.2%), due to higher overseas profits as a
proportion of total profits. The Group continues to benefit from
enhanced tax reliefs available in respect of qualifying research
and development expenditure and has also benefited from patent box
relief, tax relief on the exercise of employee share options and
the use of brought forward losses in Densitron.
Earnings per share
Basic earnings per share decreased by 41% to $0.1252 per share
(2018: $0.2137 per share). Diluted earnings per share decreased 41%
to $0.1243 per share (2018: $0.2125 per share). Adjusted fully
diluted earnings per share as set out in note 10 to the financial
statements decreased by 47% to $0.1396 per share (2018: $0.260 per
share).
Balance Sheet and Cash Flow
Non-current assets have increased in the year to $25.6 million
(2018: $22.5 million) due to the acquisition of IDS. Inventory has
remained relatively flat at $20.2 million (2018: $19.4 million),
with the small increase due to the acquired IDS inventory. Raw
material inventory has increased as we have made purchases to
counter long lead times and to ensure we have sufficient components
that are no longer sold by suppliers to continue to deliver our
product set. Finished goods have increased owing to planned sales
in the fourth quarter not coming through, the reduced trading had
corresponding impacts on trade receivables.
The cash generated from operating activities in the year
amounted to $14.9 million (2018: $11.3 million). The increase in
cash generated is largely due to stronger control of receivables in
the year. The Group has continued to invest in the business,
spending $5.3 million (2018: $4.1 million) on investing activities
including capitalised product development.
Dividend
The Board will review whether an interim dividend can be paid in
2020 when the Covid-19 situation becomes clearer.
Guy Millward
Chief Financial Officer
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
For the years ended 31 December 2019 and 2018
2019 2018
Total Total
$000 $000
------------------------------- -------- --------
Revenue 92,320 115,150
Cost of sales (58,033) (75,392)
------------------------------- -------- --------
Gross profit 34,287 39,758
Operating expenses (24,733) (25,174)
------------------------------- -------- --------
Operating profit 9,554 14,584
Financial expenses (136) (251)
------------------------------- -------- --------
Profit before tax 9,418 14,333
Taxation (1,102) (177)
------------------------------- -------- --------
Profit for the year 8,316 14,156
------------------------------- -------- --------
Other comprehensive income for
the year, net of income tax
--------
Foreign currency translation
differences (144) (176)
------------------------------- -------- --------
Total comprehensive income for
the year 8,172 13,980
------------------------------- -------- --------
Basic earnings per share $0.1252 $ 0.2137
------------------------------- -------- --------
Diluted earnings per share $0.1243 $ 0.2125
------------------------------- -------- --------
CONSOLIDATED BALANCE SHEET
As at 31 December 2019 and 2018
Group
------------------
2019 2018
$000 $000
---------------------------------------------------- -------- --------
Non-current assets
Property, plant and equipment 5,926 6,104
Intangible assets 18,449 15,538
Right-of-use assets 894 -
Investment property - 631
Deferred tax assets 340 236
---------------------------------------------------- -------- --------
25,609 22,509
---------------------------------------------------- -------- --------
Current assets
Inventories 20,180 19,439
Trade and other receivables 23,902 31,087
Cash and cash equivalents 16,954 11,082
---------------------------------------------------- -------- --------
61,036 61,608
---------------------------------------------------- -------- --------
Total assets 86,645 84,117
---------------------------------------------------- -------- --------
Current liabilities
Other interest-bearing loans and borrowings (82) (530)
Trade and other payables (17,756) (21,052)
Tax payable - (759)
Lease liabilities (406) -
---------------------------------------------------- -------- --------
(18,244) (22,341)
---------------------------------------------------- -------- --------
Non-current liabilities
Other interest-bearing loans and borrowings (738) (823)
Provisions (343) (306)
Deferred tax liabilities (1,469) (1,214)
Lease liabilities (564) -
---------------------------------------------------- -------- --------
(3,114) (2,343)
---------------------------------------------------- -------- --------
Total liabilities (21,358) (24,684)
---------------------------------------------------- -------- --------
Net assets 65,287 59,433
---------------------------------------------------- -------- --------
Equity attributable to equity holders of the parent
Share capital 106 106
Share premium 6,698 6,499
Share-based payments reserve 1,345 1,102
Retained earnings 57,044 51,488
Translation reserve 94 238
---------------------------------------------------- -------- --------
Total equity 65,287 59,433
---------------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARSED 31 DECEMBER 2019 and 2018
Share Share Translation Share-Based Retained
Capital Premium Reserve Payments Earnings Total Equity
$000 $000 $000 $000 $000 $000
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Balance at 1 January 2018 106 6,102 414 991 39,647 47,260
Total comprehensive income for the period
Profit - - - - 14,156 14,156
Other comprehensive loss - - (176) - - (176)
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Total comprehensive income for the period - - (176) - 14,156 13,980
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Transactions with owners, recorded directly in
equity
Share-based payments - - - 111 - 111
Dividend paid - - - - (2,315) (2,315)
Exercise of share options - 397 - - - 397
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Total contributions by and distributions to owners - 397 - 111 (2,315) (1,807)
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Balance at 31 December 2018 106 6,499 238 1,102 51,488 59,433
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Share Share Translation Share Based Retained
Capital Premium Reserve Payments Earnings Total Equity
$000 $000 $000 $000 $000 $000
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Balance at 1 January 2019 106 6,499 238 1,102 51,488 59,433
Total comprehensive income for the period
Profit - - - - 8,316 8,316
Other comprehensive loss - - (144) - - (144)
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Total comprehensive income for the period - - (144) - 8,316 8,172
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Transactions with owners, recorded directly in
equity
Share-based payments - - - 243 - 243
Dividend paid - - - - (2,760) (2,760)
Exercise of share options - 199 - - - 199
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Total contributions by and distributions to owners - 199 - 243 (2,760) (2,318)
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
Balance at 31 December 2019 106 6,698 94 1,345 57,044 65,287
-------------------------------------------------- ------- ------- ----------- ----------- -------- ------------
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARSED 31 DECEMBER 2019 and 2018
2019 2018
$000 $000
----------------------------------------------------- ------- --------
Cash flows from operating activities
Profit for the year 8,316 14,156
Adjustments for:
Depreciation, amortisation and impairment 2,853 2,745
Depreciation of leased assets 680 -
Change in fair value of investment property 631 -
Movement in provisions 36 -
Taxation expense 1,102 177
Financial expense 16 251
Lease liability interest expense 120 -
Equity-settled share-based payment expenses 243 111
----------------------------------------------------- ------- --------
13,997 17,440
Decrease/(increase) in trade and other receivables 7,491 (10,992)
(Increase)/decrease in inventories (488) 1,807
(Decrease)/increase in trade and other payables (3,636) 3,751
----------------------------------------------------- ------- --------
17,364 12,006
Interest paid (16) (251)
Lease liability interest paid (120) -
Tax paid (2,282) (481)
----------------------------------------------------- ------- --------
Net cash from operating activities 14,946 11,274
----------------------------------------------------- ------- --------
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (2,392) -
Acquisition of property, plant and equipment (316) (632)
Acquisition of intangible assets (2,598) (3,457)
----------------------------------------------------- ------- --------
Net cash from investing activities (5,306) (4,089)
----------------------------------------------------- ------- --------
Cash flows from financing activities
Repayment of borrowings (534) (5,382)
Payment of lease liabilities (674) -
Dividends paid (2,760) (2,315)
Proceeds from issue of shares 200 397
----------------------------------------------------- ------- --------
Net cash from financing activities (3,768) (7,300)
----------------------------------------------------- ------- --------
Net increase/(decrease) in cash and cash equivalents 5,872 (112)
Cash and cash equivalents at 1 January 11,082 11,194
----------------------------------------------------- ------- --------
Cash and cash equivalents at 31 December 16,954 11,082
----------------------------------------------------- ------- --------
NOTES TO THE FINANCIAL STATEMENTS
1. General information
Whilst the information included in this preliminary announcement
has been prepared in accordance with the recognition and
measurement criteria of International Financial Reporting Standards
("IFRSs") as adopted by the European Union and as issued by the
International Accounting Standards Board, this announcement does
not itself contain sufficient information to comply with IFRSs. The
accounting policies adopted in this preliminary announcement are
consistent with the Annual Report for the year ended 31 December
2019.
The financial information set out in this document, which was
approved by the Board on 6 April 2020, is derived from the full
Group accounts for the year ended 31 December 2019 and does not
constitute the statutory accounts within the meaning of section 434
of the Companies Act 2006. The Group accounts on which the auditors
have given an unqualified report, which does not contain a
statement under section 498(2) or (3) of the Companies Act 2006 in
respect of the accounts for 2019, will be delivered to the
Registrar of Companies in due course. The Board of Quixant plc
approved the release of this preliminary announcement on 6 April
2020.
Pursuant to AIM Rule 20, the Annual Report and Accounts for the
financial year ended 31 December 2019 ("Annual Report") is
available to view on the Group's website: www.quixant.com and will
be posted to shareholders who have requested a paper copy shortly.
Quixant will hold its AGM on 19 May 2020 .
Going concern
In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
In the early months of 2020, a global pandemic has broken out
causing governments around the world to impose various restrictions
on economies and human populations.
The Board has carried out a going concern review and concluded
that apart from the uncertainties in the impact of the pandemic
noted below, the Group has adequate cash to continue in operational
existence for the foreseeable future.
The Directors have prepared cash flow forecasts for a period in
excess of 12 months from the date of signing the financial
statements. The main effects the pandemic could have on the
forecasts include delays in recovering debts from customers who may
be facing financial difficulties, drop in customer demand in the
coming months and the timing of sales recovering to levels prior to
the pandemic.
The Board's severe downside forecasts are based on a scenario
where customers stop paying entirely for new orders delivered from
April 2020 onwards and do not begin buying any further goods until
December 2020. Orders delivered and invoiced up to the end of Q1
2020 are assumed to be paid for. Cost reductions can be made to
offset this reduction in cash receipts by a 25% reduction in staff
costs and a reasonable reduction in other controllable costs. The
Group have a $3.0m loan facility in Taiwan that is currently
undrawn and is part of the mortgage on the Group's property in
Taiwan. In this scenario, the Group have sufficient cash until
March 2021 without drawing on its bank facilities.
A less severe scenario was based on the existing debts being
recovered, irrevocable sales orders already received from customers
and their related costs of sales being fulfilled, and an assumption
that we will only recover 50% of debts from these new fulfilments.
This would provide us with enough cash to pay existing overheads
without reducing them until the second half of 2021, well beyond
the period the Board is required to look at to assess going
concern.
The analyses depend greatly on the amount of orders assumed to
be collectable in cash, and major changes to this could
significantly change the result. In all scenarios considered, the
Board assumed that the Group's medical sector revenues, including
revenues from displays sold as components for ventilators,
continued at forecasted levels prior to the pandemic. The analysis
assumes that there are no issues in recovering these debts,
considering the increasing demand in this sector as a result of the
pandemic and the nature of the customers.
While the Directors' have no reason to believe that customer
revenues and receipts will decline to the point that the Group no
longer has sufficient resources to fund its operations, should this
occur, the group may need to seek additional funding beyond the
facilities that are currently available to it, as well as making
further significant reductions in controllable costs. There would
be an opportunity to sell certain property and inventory assets to
accelerate cash generation and/or mitigate risk, but in the
economic environment that would see customer revenues and receipts
decline severely, such sales would be likely to be difficult to
achieve.
The potential impact of changes in assumptions arising from
matters outside the Group's control, or the unlikely event of a
culmination of events, may result in the group requiring additional
working capital beyond the group's existing facilities.
Based on the above, these circumstances represent a material
uncertainty that may cast significant doubt about the Group's
ability to continue as a going concern such that the Group may be
unable to realise its assets and discharge its liabilities in the
normal course of business.
Nevertheless, at the time of writing, the Directors' believe
that the Group will continue to have acceptable financial resources
to meet obligations as they fall due and accordingly have formed a
judgement that it is appropriate to prepare the financial
statements on a going concern basis. These financial statements do
not include any adjustments that would result if the going concern
basis of preparation is inappropriate.
2. PBT reconciliation
PBT and adjusted PBT for the current and prior year have been
derived as follows:
PBT
--------------
2019 2018
$000 $000
------------------------------------ ------ ------
Profit for the year 8,316 14,156
Adding back:
------
Taxation expense 1,102 177
------------------------------------ ------ ------
PBT 9,418 14,333
Adjustments:
Amortisation of customer
relationships and order backlog(1) 663 757
Share-based payments expense(2) 243 111
Loss on disposal of subsidiary(3) 124 -
IDS acquisition costs(3) 63 -
Restructuring cost(3) 169 3,036
------------------------------------ ------ ------
Adjusted PBT 10,680 18,237
------------------------------------ ------ ------
1. The amortisation of customer relationships and order backlog
has been excluded as it is not a cash expense to the Group.
2. Share-based payments expense has been excluded as they are not a cash-based expense.
3. Other items of income and expense - where other items of
income and expense occur in a particular year and their inclusion
in PBT means that a year on year comparison of year on year results
is not on a consistent basis the directors will exclude them from
the adjusted numbers. During the years under review the directors
have excluded the costs arising from restructuring costs from the
closure of the UK warehouse, the loss on disposing of Densitron
Nordic and the acquisition costs of buying IDS due to their
incomparability with the previous year.
3. Earnings per ordinary share (EPS)
2019 2018
$000 $000
------------------------------------------------------------------------------------------- ----- ------
Earnings
Earnings for the purposes of basic and diluted EPS being net profit attributable to equity
shareholders 8,316 14,156
------------------------------------------------------------------------------------------- ----- ------
Number of shares Number Number
------------------------------------------- ---------- ----------
Weighted average number of ordinary shares
for the purpose of basic EPS 66,404,468 66,239,967
Effect of dilutive potential ordinary
shares:
----------
Share options 499,053 380,383
------------------------------------------- ---------- ----------
Weighted number of ordinary shares for
the purpose of diluted EPS 66,903,521 66,620,350
------------------------------------------- ---------- ----------
Basic earnings per share $0.1252 $0.2137
------------------------------------------- ---------- ----------
Diluted earnings per share $0.1243 $0.2125
------------------------------------------- ---------- ----------
Calculation of adjusted diluted earnings per share: $000 $000
------------------------------------------------------------------------------------------- ----- ------
Earnings
Earnings for the purposes of basic and diluted EPS being net profit attributable to equity
shareholders 8,316 14,156
Adjustments
Share-based payment expense 243 111
Amortisation of customer relationships and order backlog 663 757
Loss on disposal of Densitron Nordic 124 -
IDS acquisition costs 63 -
Restructuring costs 169 3,036
------------------------------------------------------------------------------------------- ----- ------
9,578 18,060
Tax effect of adjustments (239) (764)
------------------------------------------------------------------------------------------- ----- ------
Adjusted earnings 9,339 17,296
------------------------------------------------------------------------------------------- ----- ------
4. Subsequent events
As discussed above, the Covid-19 pandemic may result in severe
reductions in future revenues, profits and cash flows. There are
short-term actions, as well as the Group's existing cash reserves,
that are already being taken to ensure the Group survives over the
next 12 months. At present levels of uncertainty it is not
practical to conclude on an appropriate valuation basis for all
assets on the balance sheet except cash but we continue to monitor
the situation closely.
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
FR KKPBDKBKBOQK
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