TIDMTMZ
RNS Number : 8200S
Toumaz Limited
22 March 2016
22 March 2016
Toumaz Limited
Final results
Toumaz Limited (AIM: TMZ, 'Toumaz', or 'the Group'), a leading
software solutions provider for wireless devices, has published its
results for the year ended 31 December 2015.
Highlights
-- Group revenues up 22.1% to GBP32.0 million (2014: GBP26.2 million)
o Digital Audio revenues up 24.4% to GBP31.7 million (2014:
GBP25.5 million)
o Healthcare revenues: GBP300,000 (2014: GBP750,000)
-- Adjusted EBITDA* loss GBP7.8 million (2014: loss GBP9.8
million) - including R&D expenditure of GBP11.3 million
-- Group's cash balance was GBP7.7 million at 31 December 2015
-- Digital Audio
o Digital radio revenues up 14.6% to GBP20.6 million (2014:
GBP18.0 million)
o Connected audio revenues up 48.1% to GBP11.1 million (2014:
GBP7.5 million)
o Next generation connected audio solution, incorporating Google
Cast, expected to ship mid-2016
-- Healthcare
o Review of strategic options for the business progressing well
- decision expected mid-2016
o Trials in three NHS hospitals underway; engagement with US
hospitals is generating interest
* Adjusted EBITDA excludes a GBP1.1million provision against
other receivables
Anthony Sethill, CEO of Toumaz said:
"Our Digital Audio division, Frontier Silicon, comprising
digital radio and connected audio, continues to make good progress
- delivering strong growth in revenues and volumes. It has been
EBITDA positive for the majority of 2015.
"Our digital radio business is well positioned to exploit the
growing opportunities in the DAB market, particularly now that the
development of our fourth generation digital radio chip is
complete.
"Connected audio is performing well. Our agreement with Google
is a strong endorsement of our connected audio capabilities.
Development of our new solution incorporating Google Cast is
progressing well and is on course for mass production this
summer.
"The commercialisation of SensiumVitals continues whilst our
review of the strategic options for maximising the value of the IP
of the business is progressing.
"We expect the Group to be cash flow break-even by the middle of
2016."
Enquiries:
+44 (0) 207 391
Toumaz Limited 0630
Anthony Sethill, Chief Executive
Officer
Jonathan Apps, Chief Financial
Officer
Peel Hunt LLP (Nominated Adviser +44 (0) 207 418
and Broker) 8900
Richard Kauffer / Euan Brown
+44 (0) 207 457
Instinctif Partners 2020
Kay Larsen / Chantal Woolcock
Overview
In 2015 Group revenues rose 22.1% to GBP32.0 million and the
adjusted EBITDA loss was reduced from GBP9.8 million to GBP7.8
million. R&D expenditure of GBP11.3 million has now passed its
peak and, with cash at year end of GBP7.7 million, the Board is
confident sufficient funds are in place to see the Group through to
break-even this year.
The Digital Audio business (Frontier Silicon) was EBITDA
positive at an operating level for the majority of 2015 and is well
positioned to benefit from the developing opportunities in its two
sectors - digital radio and connected audio.
In digital radio, Frontier Silicon is established as market
leader in technology for consumer DAB receivers. In 2015 digital
radio revenues grew 14.6% to GBP20.6 million. The Group completed
development of its fourth generation digital radio chip in April -
marking the end a period of significant R&D expenditure for
this business line.
With international markets for DAB continuing to develop and
grow, digital radio is expected to generate significant positive
cash-flows into the mid-term.
Frontier Silicon's connected audio business is performing
strongly with revenues up 48.1% to GBP11.1 million and its
prospects are promising. Underpinning this growth is the rapid
expansion of the market for Wi-Fi enabled connected audio devices,
such as wireless speakers, internet radios and soundbars.
Connected audio is attracting the interest of major technology
players including Google, who have developed Cast, a technology
which allows consumers easy access to multiple online music
services.
Frontier Silicon is one of a very small number of technology
suppliers offering connected audio solutions which incorporate
Google Cast. The Group's new Cast-enabled solution is expected to
ship in the middle of 2016 - with first revenues in H2 2016 and
more significant uptake expected in 2017. Interest from potential
customers is strong.
In the Healthcare division, it became clear in mid-2015 that the
pace of commercial adoption of the Group's SensiumVitals(R)
wireless vital signs monitoring system would be slower than
anticipated. The Board therefore decided to review all strategic
options for the business with the aim of maximising shareholder
value. Advisors were appointed in Q4 2015 and the process is
expected to complete in the middle of 2016.
In parallel, the commercial teams in the UK and US continue to
engage positively with key accounts. Three trials in NHS hospitals
in the UK are progressing well, with more expected to start soon.
The Group's recently established US team is receiving positive
interest from a number of potential customers.
R&D expenditure peaked in the first half of 2015 with the
completion of the fourth generation digital radio chip and the last
major expenditure on the next generation connected audio chip.
R&D was lower in the second half and is expected to reduce
further in 2016. The Group will still be allocating the necessary
resources to support its software development needs.
Current trading and outlook
The Group expects digital radio and connected audio sales to
continue in line with recent trends, with the connected audio unit
expected to start shipping its Cast-enabled solution, Minuet, from
the second half of 2016.
Research and development expenditure is expected to continue its
decline in absolute terms from its peak in the first half of
2015.
Overall the first two months of 2016 have seen a solid sales
performance in Digital Audio. With cash resources of GBP7.7 million
at year end, and a projected positive cash flow position in
mid-2016, the Board is satisfied with the cash resources of the
Group.
Operational Review
Digital Audio (Frontier Silicon)
In 2015 Digital Audio revenues grew 24.4% to GBP31.7 million
(2014: GBP25.5 million) - up 15.3% at constant exchange rates.
Growth in digital radio was based on the expansion of European
markets for DAB radio - a trend likely to continue for the
foreseeable future. Growth in connected audio was driven by a
combination of design wins and underlying market growth.
Digital radio
Frontier Silicon is the world's leading provider of technology
solutions for consumer DAB digital radios. Customers include Sony,
Philips, Panasonic, Roberts, Grundig and several major retailer
own-brands. It has maintained this position through a combination
of reliable, competitively priced solutions and high levels of
customer service. Revenues in 2015 grew 14.6% to GBP20.6 million
driven by a 15.3% increase in volumes to 4.4 million units.
The market for DAB / DAB+ digital radios and the technology
inside them is growing steadily - driven primarily by progress in
continental Europe.
The launch of DAB+ in Germany in 2011 was the major catalyst for
this growth - with significant market developments following in the
Netherlands, Italy and France. Last year, Norway became the first
country in the world to set a firm date for Digital Switchover
(DSO). FM signals are scheduled to be switched off in 2017 and this
has provided a significant boost to sales in that region.
Switzerland will be next with DSO planned for 2020-24.
In April 2015 the Group completed its investment in its fourth
generation digital radio chip. This chip is now being adopted in
significant volumes by customers. With the completion of this major
development programme, R&D investment in digital radio will be
considerably reduced. As a result, the business is expected to
generate significant positive cashflows for the foreseeable
future.
Connected audio
Frontier Silicon offers a broad range of technology solutions
including modules, software and apps that enable manufacturers to
build Wi-Fi enabled connected audio devices, such as wireless
speakers, soundbars and internet radios. Revenues in 2015 grew
48.1% to GBP11.1 million driven by a 34.4% increase in volumes to
850,000 units.
The market opportunity in Wi-Fi connected audio is developing
quickly - with market volumes forecast to more than double in the
next three years - from 22 million units in 2015 to 48 million
units in 2018.
This growth is being driven by demand for devices which provide
easy access to online music services, such as Spotify, Deezer and
Pandora, and the emergence of Wi-Fi as a superior and
cost-effective alternative to Bluetooth.
The wireless speaker market is already well-established, with
Bluetooth speakers which play content streamed directly from users'
phones. The advantage of Wi-Fi audio systems is that they play
content taken directly from the cloud (via a router rather than the
phone). This reduces the speaker's dependency on the user's phone -
so phone calls can be made without interrupting the music and there
is no need to run down the phone's battery. Wi-Fi systems also
offer the potential for multi-room audio.
These developments have attracted the interest of major
technology companies, who see a position in connected audio as a
key component of their broader connected home strategies.
The Group's connected audio business is growing rapidly, with
revenues up 48.1% in 2015. The business is well positioned to
achieve further significant growth. Over the last eight years
Frontier Silicon has developed world class connected audio software
and system integration skills, starting with Internet radio
solutions and then expanding into Wi-Fi audio systems.
(MORE TO FOLLOW) Dow Jones Newswires
March 22, 2016 03:01 ET (07:01 GMT)
In June last year the Group announced it would develop a new
connected audio solution incorporating Google Cast technology. At
the same time the Group also terminated development of its own
connected audio silicon, which it had commissioned from a third
party technology provider.
Prospects for this new solution are encouraging. At the recent
Consumer Electronics Show (CES) in Las Vegas, Frontier Silicon was
one of a very small number of technology providers offering
Cast-enabled solutions. Development of the new product is
proceeding well and is expected to enter mass production this
summer. Interest from customers is strong and first revenues are
expected in H2 2016 with further growth anticipated in 2017.
Healthcare
A reassessment of the financial prospects for the Healthcare
division in 2015 resulted in the Board initiating a review of
strategic options for the business. Advisors have been appointed
with a remit to engage with potential financial or strategic
investors. This process is under way and the outcome is expected in
the middle of 2016.
At an operating level Healthcare is focused on securing
commercial trials which demonstrate the system's ability to improve
both patient outcomes and hospital economics. In the last 12 months
the business has made progress in a number of areas.
In April 2015 development of an enhanced version of
SensiumVitals(R) was completed. This new version of the patch has
been used in trials in three NHS hospitals, including Queen
Elizabeth Hospital Birmingham and St James's University Hospital,
Leeds. These trials, whilst still ongoing, have demonstrated the
robustness of the system. In the coming months the Group expects
several more trials to start - both in the UK and in continental
Europe.
In Q1 2015 the Group regained the North American distribution
rights for SensiumVitals(R) . This was followed by the creation of
a US commercial team and the appointment in September of a new
Chief Commercial Officer based in Boston.
This team is now generating significant interest from clinicians
and hospital managers, who see the introduction of SensiumVitals(R)
as a potential means of avoiding or reducing financial penalties
arising from the Affordable Care Act (2010).
Additionally, in the second half of the year, new regulatory
penalties were introduced in the USA related to the detection of
sepsis. Feedback from potential customers suggests strong interest
in understanding the extent to which SensiumVitals(R) could help
address this risk.
Financial review
Revenue
Group revenue for the year increased from GBP26.2 million to
GBP32.0million (+22.1%) - this follows growth of 19.6% in 2014. The
2015 increase was due to significant growth in Digital Audio, with
revenues up 24.4% to GBP31.7 million (2014: GBP25.5 million) and
units shipments up 22.7% to 5.4 million (2014: 4.4 million).
Healthcare revenues were GBP0.3 million (2014: GBP0.8
million).
Gross profit margin declined marginally from 43.6% to 42.4%.
Gross margins are expected to decline further in the immediate
future as connected audio, which has lower margins than digital
radio, grows as a proportion of total revenues.
R&D
The Group largely completed its investment phase in 2015, with
first half R&D expenditure having peaked at GBP6.4 million.
Second half 2015 R&D spend was GBP4.9million and is expected to
decline further into 2016.
EBITDA
Adjusted EBITDA loss improved to GBP7.8 million (2014: loss
GBP9.8 million). EBITDA loss, (loss from continuing operations less
depreciation, amortisation, share based payment costs and a GBP3.0
million impairment (see below), was reduced to GBP8.9 million
(2014: loss GBP9.8 million) due to lower operational expenditure
and increased absolute margins on the back of higher revenues.
The Board considers that the one-off exceptional provision
against other receivables (GBP1.1 million - see below) should also
be excluded from EBITDA on the basis that it is a one off non-cash
item. On this basis Adjusted EBITDA loss for 2015 was GBP7.8
million compared to GBP9.8 million in 2014.
Exceptional charge
As announced in July 2015, the Board took the view that the
connected audio silicon development project being undertaken by the
Group at that time was no longer the most effective way of
delivering its next generation solution. As a result the Group
terminated its involvement in the development programme and moved
to a third party silicon supplier.
As a consequence the Group impaired GBP3.0 million of IP
licences and other intangibles in connection with the previous
silicon development project. The Group also recorded a further
GBP1.1 million of royalty receivables due from its technology
partner, who were to continue with the project independently of the
Group.
Since year-end, due to a change of the management at the
technology partner, the Board believes there is material
uncertainty surrounding the future of this project and has provided
in full against those receivables.
These two provisions are both non-cash items.
The table below reconciles the Group's adjusted EBITDA to its
loss for the year.
2015 2014
GBP'000 GBP'000
Loss for the year (14,735) (12,242)
Add back:
Taxation (1,651) (1,273)
Net finance charges / (income) 60 51
Depreciation 457 419
Amortisation 2,736 2,456
Share based payment 1,229 825
Impairment 3,016 -
--------- ---------
EBITDA (8,888) (9,764)
--------- ---------
Provision against other receivables 1,122 -
--------- ---------
Adjusted EBITDA (7,766) (9,764)
========= =========
Pre-tax loss
The Group reported a pre-tax loss of GBP16.4 million (2014: loss
GBP13.5 million).
Taxation
The Group has historically applied for and received tax credits
in respect of its research and development expenditure. In 2015 the
tax credits amounted to GBP1.7 million (2014: GBP1.3 million). It
is expected that similar claims will be made in 2016.
As at 31 December 2015 the Group has unutilised tax losses of
GBP57.0 million which may be utilised against taxable future
profits. These losses are still to be agreed with the UK tax
authorities. In the Board's opinion there is uncertainty over the
timing and quantum of their use in the foreseeable future and
therefore a deferred tax asset has not been recognised.
Cash flow
At the year-end the Group recorded GBP7.7 million of cash and
cash equivalents on the balance sheet. The Board believes this is
sufficient cover to see the Group through to cash flow break-even
in the middle of 2016.
TOUMAZ LIMITED
consolidated STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2015
2015 2014
Note GBP'000 GBP'000
Revenue 2 32,044 26,238
Cost of sales (18,455) (14,800)
Gross profit 13,589 11,438
Amortisation of intangible assets (2,736) (2,456)
Impairment 3 (3,016) -
Depreciation (457) (419)
Share based payment (1,229) (825)
Exceptional items 4 (1,122) -
Research & development (11,258) (11,750)
Sales & administrative expenses - other (10,097) (9,452)
---------- ----------
Total administrative expenses (29,915) (24,902)
Loss from continuing operations (16,326) (13,464)
Finance income 15 68
Finance charges (75) (119)
Loss before taxation 2 (16,386) (13,515)
Taxation 1,651 1,273
Loss for the year (14,735) (12,242)
Items that will not be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations 59 22
Other comprehensive income 59 22
---------- ----------
Total comprehensive income for the year (14,676) (12,220)
========== ==========
Basic loss per share attributable to owners of the parent 5 (0.87)p (0.74)p
Diluted loss per share attributable to owners of the parent (0.87)p (0.74)p
========== ==========
TOUMAZ LIMITED
consolidated STATEMENT OF FINANCIAL POSITION
(MORE TO FOLLOW) Dow Jones Newswires
March 22, 2016 03:01 ET (07:01 GMT)
For the year ended 31 December 2015
2015 2014
Note GBP'000 GBP'000
ASSETS
Non-current assets
Goodwill 6 19,118 19,118
Other intangible assets 7 11,519 17,260
Property, plant and equipment 707 578
31,344 36,956
-------- --------
Current assets
Inventories 2,666 1,564
Tax receivable 1,301 1,500
Trade and other receivables 6,342 4,141
Cash and cash equivalents 7,748 12,513
Total current assets 18,057 19,718
-------- --------
Total assets 49,401 56,674
======== ========
LIABILITIES
Current liabilities
Trade and other payables 11,239 8,863
-------- --------
Total current liabilities 11,239 8,863
Other liabilities > 1 year 3,735 -
-------- --------
Total liabilities 14,974 8,863
-------- --------
EQUITY
Share capital 4,262 4,195
Share premium 115,300 115,251
Share based payment reserve 4,501 3,325
Foreign exchange reserve (35) (94)
Retained earnings (89,601) (74,866)
Total equity 34,427 47,811
Total equity and liabilities 49,401 56,674
======== ========
The accompanying principal accounting policies and notes form an
integral part of these financial statements.
TOUMAZ LIMITED
consolidated Cashflow Statement
For the year ended 31 December 2015
2015 2014
GBP'000 GBP'000
Cash flows from operating
activities
Loss before taxation (16,386) (13,515)
Amortisation 2,736 2,456
Depreciation 457 419
Impairment of intangible
assets 3,016 -
Exceptional item 1,122 -
Share based payments 1,229 825
Net interest payable 60 51
Increase in inventories (1,102) (89)
Decrease/ (increase) in
trade and other receivables (2,038) 817
Increase in trade and
other payables 1,111 604
Other foreign exchange
movements 59 22
Tax refund 1,998 1,772
Net cash outflow from
operating activities (7,738) (6,638)
-------- --------
Cash flows from investing
activities
Purchase of property,
plant and equipment (578) (356)
Purchase of intangible
assets (1,389) (1,991)
Net cash used in investing
activities (1,967) (2,347)
-------- --------
Cash flows from financing
activities
Loan 5,000 -
Loan interest payable (75) -
Interest receivable/ (payable) 15 (51)
Net cash inflow from financing
activities 4,940 (51)
-------- --------
Net change in cash and
cash equivalents (4,765) (9,036)
Cash and cash equivalents
at the beginning of period 12,513 21,549
Cash and cash equivalents
at the end of period 7,748 12,513
======== ========
The accompanying accounting policies and notes form an integral
part of these financial statements.
1. BASIS OF PREPARATION
The Company was incorporated in the Cayman Islands which do not
prescribe the adoption of any particular accounting framework. The
Board has therefore adopted and complied with International
Financial Reporting Standards as adopted by the European Union
(IFRS). The Company's shares are listed on the AIM market of the
London Stock Exchange. The principal accounting policies of the
Group are set out below.
The financial information set out in the announcement does not
constitute statutory accounts for the years ended 31 December 2015
and 31 December 2014. The financial information for the year ended
31 December 2015 is derived from the statutory accounts for that
year, which will be delivered to shareholders shortly and were
approved by the Directors on 21 March 2016. The auditors' report on
those accounts was unqualified.
2. revenue, LOSS before taxation and segmental information
Revenue and loss before taxation
Revenue and loss before taxation are attributable to the
principal activities of the Group.
The loss before taxation is stated after charging:
2015 2014
GBP'000 GBP'000
Share based payment expense 1,229 825
Staff costs 12,419 10,687
Research and development costs
written off 11,258 11,750
Amortisation of intangible
assets 2,736 2,456
Depreciation of owned property,
plant and equipment 457 419
Impairment of intangibles 3,016 -
Exceptional bad debt provision 1,122 -
Gain on foreign exchange (210) (355)
Operating leases: land and
buildings 754 657
Auditor's remuneration:
Fees payable to the Company's
auditor for the audit of the
Company financial statements 36 33
Fees payable to the Company's
auditor for other services
- audit of the Company's
subsidiaries pursuant to the
legislation 55 44
======= =======
Revenue by geographic location
2015 2014
GBP'000 GBP'000
United States and North America 1,033 1,763
Europe 3,120 1,460
Asia 27,891 23,015
Total revenue 32,044 26,238
======= =======
Assets and liabilities by geographic location
Assets Liabilities
2015 2014 2015 2014
GBP'000 GBP'000 GBP'000 GBP'000
Cayman Islands 3,836 2,189 6,025 179
Europe 44,976 54,112 8,635 8,485
Asia 580 373 313 199
North America 9 - 1 -
-------- -------- -------- ------------
49,401 56,674 14,974 8,863
-------- -------- -------- ------------
Segmental information
As described under Segmental Reporting in the Principal
Accounting Policies, Management currently identifies three
divisions as operating segments.
For the year ended 31 Healthcare Digital Group Total
December 2015 Audio
GBP'000 GBP'000 GBP'000
GBP'000
Revenue 323 31,721 - 32,044
Cost of sales (423) (18,032) - (18,455)
Gross profit (100) 13,689 - 13,589
Amortisation of intellectual
property (256) (2,470) (10) (2,736)
Depreciation (86) (371) - (457)
Share based payment - - (1,229) (1,229)
Exceptional item - (1,122) - (1,122)
Impairment - (3,016) - (3,016)
Research & development (3,897) (7,361) - (11,258)
Sales & administrative
expenses - other (2,989) (6,468) (640) (10,097)
----------- --------- --------- ---------
Total administrative
expenses (7,228) (20,808) (1,879) (29,915)
----------- --------- --------- ---------
Loss from continuing
operations (7,328) (7,119) (1,879) (16,326)
Net finance payable - 10 (70) (60)
- 10 (70) (60)
----------- --------- --------- ---------
Loss before taxation (7,328) (7,109) (1,949) (16,386)
=========== ========= ========= =========
Segment assets 12,590 32,975 3,836 49,401
=========== ========= ========= =========
Segment liabilities 457 8,492 6,025 14,974
=========== ========= ========= =========
(MORE TO FOLLOW) Dow Jones Newswires
March 22, 2016 03:01 ET (07:01 GMT)
Included in revenues in the Digital Audio segment for the year
ended 31 December 2015 are revenues of GBP5.5m from the largest
customer, GBP4.3m from its second largest customer and GBP2.1m from
its third largest customer. Together these represent 37.5% of the
reported divisional revenue for the year and 37% of the total Group
revenue for the year.
3. Impairment
2015 2014
GBP'000 GBP'000
Impairment of intangible assets 3,016 -
3,016 -
======= =======
During the year the Board took the view that the next generation
of connected audio products should be based on third party silicon
rather than the company develop its own chip. As a result of this
decision certain licences and IP recorded as intangible assets have
had their value impaired.
4. Exceptional items
2015 2014
GBP'000 GBP'000
Provision against other debtor 1,122 -
1,122 -
======= =======
As reported in note 3 a change in direction in respect of the
Company's connected audio strategy has resulted in an impairment of
certain intangible assets. This decision resulted in other
intangible assets being reclassified as "Other Receivables". It is
the Board's view that, due to a change of management at its
sub-contracting silicon partner, these receivables should be
provided for.
5. LOSS PER SHARE
The calculation of the basic loss per share of 0.87p (2014:
0.74p) is based on the loss after tax of GBP14.7m (2014: GBP12.2m)
divided by the weighted average number of ordinary shares in issue
during the year of 1,701,426,768 (2014: 1,660,220,043).
Due to the losses incurred the impact of the share options and
other deferred shares is anti-dilutive. As such the diluted
earnings per share equals the ordinary earnings per share.
6. GOODWILL
Frontier Sensium Healthcare Frontier Microsystems
Silicon Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2014 8,536 10,582 5,951 25,069
Additions - - - -
---------- -------------------- ----------------------- -------
At 31 December 2014 8,536 10,582 5,951 25,069
Additions - - - -
---------- -------------------- ----------------------- -------
At 31 December 2015 8,536 10,582 5,951 25,069
========== ==================== ======================= =======
Impairment
At 1 January 2014 - - 5,951 5,951
Charge in the year - - - -
---------- -------------------- ----------------------- -------
At 31 December 2014 - - 5,951 5,951
Charge in the year - - - -
At 31 December 2015 - - 5,951 5,951
========== ==================== ======================= =======
Net book amount
at 31 December 2015 8,536 10,582 - 19,118
========== ==================== ======================= =======
Net book amount
at 31 December 2014 8,536 10,582 - 19,118
========== ==================== ======================= =======
Goodwill relating to Sensium Healthcare results from the
acquisition of Sensium Healthcare Limited on 3 November 2005.
Goodwill relating to Frontier Silicon results from the acquisition
of the Frontier Silicon Group on 20 August 2012.
There is considerable cross over and exchange of knowledge,
intellectual property and the application and use of products
between the cash generating units. The expertise and know-how of
the Group as a whole provides a platform for all of its products.
The supply chain and technical knowhow acquired with Frontier is
used across the Group.
All principal operating divisions incurred losses in the year
ended 31 December 2015, which is an indicator of impairment. The
Directors have tested the aggregate recoverable value of goodwill,
specific intellectual property, and licence & development fees
for impairment in accordance with the Group's accounting policy of
testing annually for impairment. Recoverable value is assessed by
value in use. The Directors, in assessing the recoverability of the
remaining amount have considered the technical feasibility of the
technology and the opportunities for commercial exploitation,
including the position with the current commercial
relationships.
To determine the value in use, the Directors have produced
detailed monthly profit and loss and cash flow forecasts for the
five years up to December 2020. A five year forecast period is
considered reasonable for the markets that the Company addresses,
particularly given the stage of development of the Group's products
and the expected life of new technologies as explained further
below.
The Operational Review on pages 2 to 5 provides a summary of the
Group's expectations for each division, together with an overview
of the relevant markets. Below we have summarised the key
judgements in relation to the individual impairment reviews.
Digital radio and connected audio - Frontier Silicon
The intangible assets of Frontier Silicon were independently
valued in 2012 as part of the acquisition accounting. The
difference between the fair value of the net assets and the fair
value of the consideration has been treated as goodwill.
Whilst Frontier has continued to make losses post-acquisition,
primarily as a result of R&D spend, this is in line with the
forecasts at the time of the acquisition and therefore the
Directors consider the Goodwill arising on consolidation as still
valid and no impairment has occurred since acquisition.
The Directors have reviewed the carrying value of these assets
in light of their forecasts of revenues and profitability for this
business sector. As with the healthcare division (below), a
discount rate of 18% was applied to future cash flows with a rate
of 20% used as a stress test. Under both scenarios, the carrying
value of the intangible assets could be supported.
In assessing the future cash flows of the division, the
Directors have looked at a 5 year forward view and then made a
terminal value assessment at the end of 2020 assuming no further
sales and cost growth. This is based on the life cycle of the
connected audio and digital radio products, where certain existing
models are reaching end of life, and new models have 12 to 24
months development ahead of them before a useful sales life of 5-6
years depending on future product enhancements. The Directors
expect the market for digital radio to keep expanding at its
current rate and for the company to maintain its market share. In
connected audio the Directors expect the market to expand
significantly as Wi-Fi enabled speakers with much enhanced
functionality really take hold. The forecast demonstrates that even
a relatively small market share could lead to revenue growth rates
significantly ahead of more mature markets. As with Healthcare,
this opportunity does not come without risk.
The key judgements applied by the Directors in the forecasts are
in relation to sales, prices, volumes and margins. The forecast
model is built on the Directors' best estimates of the addressable
market and the Company's resultant share of that market. In
determining these estimates the Directors have considered
information and trends from existing markets and their expectations
for emerging markets in order to develop an assessment of both
future sales volumes and prices. The Directors believe the
underlying assumptions to be reasonable but are aware that there
are significant competitive risks which would be magnified by
delays to key programmes and therefore growth rates may not be
achieved or margins could be compromised. Should the underlying
estimates not be achieved there is a risk these assets will be
impaired.
Sensium Healthcare
The growth rates of revenue for Sensium Healthcare used in the
projections are significantly higher than may be expected from
normal inflationary rises. These are based on the Directors'
considered estimates of the developing market and include estimates
of both the likely volume and individual value of sales. The
introduction of new and untested "disruptive technology" into the
market whilst allowing for large potential revenues also exposes
the Group to the risk that costly developments will take longer
than planned or not achieve the forecast financial returns. Should
these estimates not be achieved there is a risk these assets will
be impaired.
Consistent with 2014, a discount rate of 18% has been applied to
the aggregate results of the forecast. The Directors considered the
applicability of a discount rate of 20% and are satisfied that even
if that rate were to be applied, the carrying value of the
Healthcare goodwill is justified. In assessing the future cash
flows of the division, the Directors have looked at a 5 year
forward view and then made a terminal value assessment at the end
of 2020 assuming no further sales and cost growth.
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