Final Results
21/03/2023 07:00
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RNS Number : 5942T Quixant PLC 21 March 2023
21 March 2023
Quixant plc
("Quixant" or the "Group")
Full Year Results 2022
Strong demand across the Group driving record revenues
Quixant (AIM: QXT), a leading provider of innovative, highly engineered
technology products principally for the global gaming and broadcast
industries, announces its full year results for the 12 months ended 31
December 2022.
Year ended 31 December 2022 Year ended 31 December 2021 Change
($m) ($m)
Group Revenue 119.9 87.1 38%
Gaming Division Revenue 74.1 47.3 57%
Densitron Revenue 45.8 39.8 15%
Group gross profit 38.6 25.9 49%
Adjusted profit before tax(1,2) 10.2 5.4 89%
Group profit before tax(2) 8.8 4.9 80%
Adjusted diluted earnings per share(1,2) 0.1779 0.0595 199%
Diluted earnings per share(2) 0.1616 0.0533 203%
Operating cashflow 0.8 4.4 -82%
Net cash 12.9 17.6 -27%
(1)For details on adjusted measures refer to note 1 and note 5 of the
consolidated financial statements.
(2)Stated after recording a $0.9m provision owing to a customer involved in
Chapter 11 bankruptcy protection subsequent to balance sheet date as discussed
further below.
HIGHLIGHTS
· Strong order intake through 2022 with a book-to-bill ratio in excess of one
giving excellent visibility of growing customer demand
· Record Group revenues driven by sustained recovery in Gaming and another
record year for Densitron
· Continued product innovation opening up new growth opportunities:
o Receipt of first mass production order of turnkey Gaming cabinet solutions
and pipeline progression of further new business.
· Progression of Densitron Broadcast opportunity, which grew 42% year on year,
representing the third consecutive year of double-digit growth in the sector
· Gross margins starting to recover from supply chain disruption with
stabilisation of component price and freight cost inflation
· As a result of events subsequent to the balance sheet date, a charge of $0.9m
recorded against profit before tax due to uncertainty of the recoverability of
balances owed by a Quixant Gaming customer involved in Chapter 11 bankruptcy
protection
· Net cash of $12.9m, down from the prior year due to investment in strategic
stock to meet customer demand
· Good operational liquidity and net cash with minimal debt supportive of future
organic and acquisitive growth
· Dividend of 3.0p per share proposed (2021: 2.4p per share) reflecting
confidence in ongoing growth and cash generation
CURRENT TRADING AND OUTLOOK
· Positive trading momentum has continued into new financial year
· Further progression of new business opportunities for gaming cabinets and
broadcast HMI products since the start of 2023
· In line with the Group's evolution as a multi-vertical technology provider,
the Board proposes to change the name of Quixant plc to Nexteq plc, while
maintaining Quixant as the Gaming brand and Densitron as the Broadcast market
and Industrial Display Component product brand; shareholder approval will be
sought at the upcoming AGM
Jon Jayal, Chief Executive Officer of Quixant, commented:
"We delivered a strong financial performance during the year, with record
revenues for the Group significantly ahead of expectations at the start of the
year, driven by double-digit revenue growth across both Quixant Gaming and
Densitron. This performance comes despite persistent supply chain disruption
during the year and reflects the hard work of teams across the Group, as well
as tight partnership with our customers.
After declines in 2021, gross margins started to recover during the year and,
combined with operational leverage through higher revenues, resulted in
improved trading profitability.
We move into the new financial year positioned to grow and scale further in
the medium-term. With the business now aligned to growth opportunities across
multiple vertical markets, the renaming of the Group to Nexteq plc is an
important milestone in our evolution.
Whilst cognisant of recession and inflation risk, our strong customer
relationships, visible order backlog and the healthy pipeline of new business,
together with a clear strategy unlocking new growth opportunities, provides
confidence that we will drive further growth in 2023."
Investor Presentation
Jon Jayal, CEO, and Johan Olivier, CFO, will provide a live presentation
relating to the Group's results for the year ended 31 December 2022 via the
Investor Meet Company platform on 24 March 2023 at 11:00am. The presentation
is open to all existing and potential shareholders and registration can be
completed via the following link:
https://www.investormeetcompany.com/quixant-plc/register-investor
(https://www.investormeetcompany.com/quixant-plc/register-investor) .
Quixant plc Tel: +44 (0)1223 892 696
Jon Jayal, Chief Executive Officer
Johan Olivier, Chief Financial Officer
Nominated Adviser and Broker: Tel: +44 (0) 20 7220 0500
finnCap Ltd
Matt Goode / Simon Hicks (Corporate Finance)
Alice Lane (ECM)
Joint Broker: Tel: +44 (0) 20 7523 8000
Canaccord Genuity Limited
Simon Bridges / Andrew Potts
Financial PR: Tel: +44 (0)20 3405 0205
Alma PR
Hilary Buchanan / Kieran Breheny / Will Ellis Hancock
About Quixant
Quixant, founded in 2005, designs and manufactures highly optimised computing
solutions and monitors principally for the global gaming and broadcast
industries. The Company is headquartered in Cambridge in the UK, with offices
throughout Europe, North America and Asia. Quixant has its own manufacturing
and engineering operation based in Taiwan and software engineering and
customer support teams based in Italy and Slovenia. 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.quixantplc.com.
This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR.
CHAIR'S STATEMENT
A year of strategic progress
I am delighted to report on a year of meaningful financial and strategic progress in the Group. Throughout the challenges resulting from the pandemic and the subsequent supply chain shortages, the business has remained resilient, and demand has rebounded such that we are able to report a record year of revenues, improving margin and progression of our strategic goals which we believe will bolster growth in future years.
This positioning is testament to the strength of relationships we enjoy with our customers and suppliers, the quality of our product offering, the tenacity and skill of our colleagues across the business, the power of our business model and the support of our shareholders. I would like to thank all stakeholders for their contribution to the successes of the year.
Both the Quixant Gaming and Densitron businesses delivered their second consecutive year of double-digit revenue and profit growth, posting results which were significantly ahead of initial Board expectations. This was despite the ongoing electronics component shortages which started in 2021 and persisted throughout 2022. Our strategic stock programme which commenced in January 2021 remained an essential ingredient to mitigating supply disruption to our customers. The Board remains committed to continuing this programme in 2023 until volatility in component availability and pricing subside.
Strategy driving value enhancement and diversification benefits
We believe the Quixant Gaming business has a buoyant trading outlook for its
computer platform products and the changes made in the Densitron business
continue to yield positive results in growing revenues and improving
profitability. Both these businesses delivered profit growth in the year and
show further potential going forward.
The Board is committed to a multi-year growth plan to increase diversity in
the Group's earnings, both within the Quixant Gaming portfolio and across
multiple vertical markets. During the year the Board supported investment in
new product categories which drove new growth opportunities alongside the core
business which continues to be a sustained source of growth.
These investments drove success in securing our first multi-million dollar
mass production gaming cabinet order in 2022 and a third consecutive year of
double-digit Broadcast revenue growth.
Progression of our sustainability agenda
Within the framework of our Corporate Responsibility Strategy, the Board set a
range of targets aimed at delivering improvements in the environmental impact
of our business and enhancing the social benefits brought about by the
Group. I am impressed by the engagement from teams across the business
globally to drive these initiatives. We made excellent progress in
increasing our confidence in our suppliers operating ethical business
practices with 100% now signed up to our Supplier Code of Conduct and 95%
audited for compliance. Our staff voted for UNICEF to be nominated our
Charity of the Year and alongside donation of a share of the Group's profits
to the charity, colleagues also embarked on several events to raise money
including the team globally incredibly covering 14,000km in November in the
"BIG Step Challenge".
Our Electric Vehicle (EV) scheme has resulted in more than 10% of our UK
workforce now using an EV to commute to work, with the additional benefit that
we offer free charging at our UK offices. We have continued the more
extensive use of international collaboration through video conferencing tools
to reduce our air travel compared to pre-pandemic levels whilst ensuring our
operations across eight countries remain well-connected.
Enhanced governance arrangements
In September 2022 we welcomed two new independent non-executive directors to
the Board, Duncan Penny and Carol Thompson. As XP Power's CEO, Duncan has an
exceptional track record of driving the business' growth, making him immensely
relevant to guiding the Group through its growth strategy into new markets.
Carol, who brings a wealth of financial and non-executive experience and
gaming market exposure, has been appointed Chair of the Audit & Risk
Committee, taking over from Guy van Zwanenberg. Guy has been a long-standing
member of the Board and chaired the Audit and Risk Committee for nine years
but will be retiring from the Board in April 2023. A deeply committed and
supportive board member, I thank Guy for his service and stewardship of the
business since he joined the Board in 2013 and wish him well.
Confidence in ongoing trading performance drives increase proposed dividend
The positive trading momentum in 2022 has continued into the new financial
year and we expect to generate healthy levels of operating cashflows. The
Board is recommending payment of a 25% increase in the dividend to 3.0p per
share for 2022 (2021: 2.4p per share) reflecting its confidence in ongoing
growth and cash generation.
Francis Small
Chair
CHIEF EXECUTIVE'S REPORT
KEY TAKEAWAYS
· Effective management of the challenging supply environment enabling us to
deliver record Group revenues and profits significantly ahead of initial
expectations.
· Investment into new Gaming cabinet and Broadcast technology product offerings
have started to deliver measurable progress supporting the case for ongoing
investment.
· Improved profitability through a partial recovery in gross margins and
operational leverage and with a stabilisation of component costs.
Strong demand and robust supply chain management yields 38% revenue growth
2022 was a year characterised by exceptional demand for the Group's product offerings across both its divisions, tempered by ongoing challenges in supply chains. While the ongoing component market disruption affecting technology markets was worse than anticipated at the start of the year our mitigation strategies enabled us to shield our customers from much of the effect. This is an excellent result which not only drove improved trading performance, but also solidified our partnership with customers. Better availability of our innovative products compared to other market participants also fuelled new business.
Group revenues grew for the second consecutive financial year to a record $119.9m, 38% up year on year (2021: $87.1m) and 4% higher than the previous record revenues of $115.1m achieved in 2018. Pleasingly, this strong revenue performance was diversified across the Quixant Gaming and Densitron business units, with both delivering double-digit year on year growth.
GROUP GROWTH STRATEGY
The Group serves as an outsource technology and supply chain partner for major
global industrial electronic equipment manufacturers, with a focus on specific
vertical markets. The Group combines hardware, software, display and
mechanical engineering expertise, a global sales network with in-depth
industry knowledge and a Far Eastern manufacturing base making it the ideal
global strategic technology provider.
The Group's origins are in its highly respected Quixant brand of specialised
computer platforms, which are designed to power machines in the global casino
gaming and slot machine market. These computer platforms, which are supplied
to electronic gaming machine manufacturers installed in casinos and other
gaming venues globally, combine optimised hardware and software elements to
address the specialist needs of this highly regulated market. By outsourcing
their computer platform to Quixant, manufacturers can focus their R&D on
the game design, which has the greatest impact on their commercial success.
They are also able to bring new products to market quicker.
A key objective is for the Group to diversify its revenue across more
customers, product offerings and vertical markets. The Group seeks to
achieve this objective through its Densitron business.
Densitron has a 52-year pedigree in supplying display components to a wide
range of industrial sectors, from which the Board has selected sectors in
which there is the opportunity to develop tailor-made products, which are
different to those readily available from broad-based technology corporations.
We believe the Broadcast market represents such an opportunity, in which we
have developed unique solutions which revolutionise the human machine
interaction and control of Broadcast equipment. We delivered our third
consecutive year of double-digit revenue growth in 2022.
The Group's growth strategy is defined as follows:
- Identification and analysis of market sectors, focusing on those that do not
currently benefit from dominant deep specialist solution outsource providers
and are undergoing a technology evolution;
- Building new customer partnerships in its chosen target market segments,
further diversifying the Group's revenue base;
- Focused R&D to move up the value chain, including within the software
stack;
- Increase share of customer wallet by providing additional outsource solutions
to become a fully integrated technology partner; and
- From time to time, the Board may complement its organic growth strategy with
strategic acquisitions that enhance the Group's technical capabilities and
market reach.
Gaming Business Review
Recovery continues with third consecutive year of revenue and profit growth
Demand for our gaming technology products was strong throughout the year, with
2022 order intake ahead of 2021 levels and 2022 revenues. Supply chain
constraints were the primary limiting factor on revenue, but our expertise in
supply chain management allowed the Gaming business to grow revenues to
$74.1m, a 57% increase year on year (2021: $47.3m). Along with new customer
wins, we continued to be successful in growing our engagement within the
substantial existing customer base, with volume growth across the majority of
our customers.
Due to the mix of customers supplied, we also saw a shift in volume towards
higher end models, further increasing the Average Selling Price (ASP) of our
products. In total gaming platform volume shipped in the year grew by 30% to
52,044 units.
Price inflation also contributed partly to the revenue growth. The impact of
several rounds of sale price increases in order to recover higher input costs
started propagating through profit & loss in 2022 and aside from
increasing revenues it also drove a partial recovery in gross margins.
Strong end-market environment
Underpinning the growth in our gaming business are healthy land-based gaming
markets in North America and Europe which have rebounded strongly from the
lows of 2020 and in 2022 posted gross gaming revenues at a similar level to or
above 2019(1). The US market, which made up 65% of Quixant Gaming revenues
in 2022, has been a particular highlight with US commercial casino land-based
slot gross gaming revenues reaching a record high in 2022 of $34bn, an
increase of 5% year on year over the previous record in 2021. Since the
easing of COVID-19 restrictions, commercial casinos have seen strong player
attendance and spend, and have consequentially been investing in the venues
and customer offering. This is resulting in our customers seeing greater
demand for their gaming machines and therefore our products installed in them.
Aside from the commercial casinos, the other major land-based gaming revenue
source in the US market is the tribal casinos. These reside on Native
American reservation land and are subject to different legislation, taxation
and regulation. The tribal properties were amongst the first to open after
the 2020 lockdowns and saw incredible player attendance in those early
months. This sharp recovery in tribal casino take meant they saw a lesser
revenue impact from the pandemic compared to commercial casinos and continued
to trade well in the following year, posting record gross gaming revenues
(GGR) in 2021 of $39bn(2).
(1) Source: American Gaming Association Commercial Gaming Revenue Tracker, Q4
2022
(2) Source: National Indian Gaming Commission
The European market recovery from the pandemic lagged the US as governments
were more cautious about easing restrictions. As such, the market remained
weak during 2021 with land-based gross gaming revenues broadly unchanged from
2020. With the widespread easing of restrictions by the end of 2021,
land-based gross gaming revenue recovered strongly in 2022, increasing 34%
year on year to $70.3bn(1), which was only 6% below 2019.
Through recent years the strong build in online gaming revenues has been
evident across many countries, particularly in the US which passed legislative
changes to online gambling laws. Importantly for our business these changes
have not cannibalised the land-based markets where our products are used,
rather the new online gaming revenue have been augmentative to the overall
gaming market turnover.
Continued diversification with first mass production gaming cabinet order with
exciting pipeline of prospects
In line with the Group's strategy to diversify revenues and move up the value
chain through innovation the Group complemented its Self-Service Betting
Terminal (SSBT) offering with an Electronic Gaming Machine (EGM) turnkey
cabinet solution. This extends the Group's range of outsourcing solutions for
the gaming sector by combining Quixant's proven computer platform and monitor
technology into a 'one-stop-shop' cabinet, complete with peripherals and a
support software package. As a result, customers are able to focus exclusively
on game software development and player experience, while outsourcing hardware
design and procurement entirely to Quixant, improving the quality of their
offering and accelerating time to market.
During the year we received our first mass production order for our EGM
cabinet offering valued at $4m, underpinning the business case for further
investment. The first deliveries under this order are expected to be
delivered in the first quarter of 2023.
Management estimates that the total addressable market for computer platforms
and cabinets for casino slots globally is in excess of $3bn(2,) of which we
believe our realistic addressable market with the current products and
offering we have today is $310m(2). This assumes our cabinet offerings are
targeted at niche, most price sensitive areas of global gaming markets and are
not designed to satisfy the requirements of high-end casino product.
(1) Source: European Gaming and Betting Association
(2) Source: G3 Magazine and management estimates
Densitron Business Review
Densitron revenue grew by 15% to $45.8m (2021: $39.8m), setting another
revenue record since acquisition in 2015. Densitron enters 2023 with strong
order coverage providing good revenue visibility and activities during 2022
support improved profitability in 2023.
Sales growth in Densitron was driven across both Display Components and
Broadcast Solutions offerings:
· Through its Display Components offering, Densitron supplies
electronic display modules to a wide range of industrial equipment
manufacturers. Revenues grew by 11% to $38.3m (2021: $34.5m) in 2022
achieving a second consecutive year of double-digit growth. All geographic
regions performed well.
· Densitron's Broadcast Solutions grew by 42% in 2022 to $7.5m (2021:
$5.3m), achieving the third consecutive year of double-digit growth.
Display Components
The industrial display components market is expected to grow to $8.3bn by
2030, at a CAGR of 6.1%(1).
Whilst the market is occupied by a number of electronic display component
manufacturers, our differentiation comes in terms of our ability to connect
vertical market specific requirements and environmental/performance
characteristics with the right choice of display to ensure the customers
product vision is delivered and they operate reliably in all conditions in
which the products are deployed.
In addition to this detailed application knowledge of display components,
after 52 years of experience our strength in supply chain, quality and
logistics have become newer differentiators as supply chains were disrupted
customers, who had gone directly to China or were buying through inexperienced
distributors faced far more issues in keeping supply flowing than Densitron
customers. This 'flight to quality supplier' trend boosted Densitron's
display component business in 2022.
Our product offering continued to feature the latest display technologies and
solutions to solve the most pressing display engineering challenges. Of
particular note is the success of our Mitsubishi drop in replacement line of
displays, which require little engineering effort to 'drop in' instead of
Mitsubishi displays. Mitsubishi has exited the display market leaving many
customers in a difficult position with regards to continuing production or
being forced to redesign their product around a new manufacturer's display.
Through its diverse sector exposure, the Displays Component offering also
provides an excellent platform to identify new vertical markets in which there
are opportunities to develop and supply bespoke high-value products to address
technology trends occurring in those markets. Having identified and
developed product concepts, the extensive Display Components customer book of
over 500 customers also provides an established sales channel for these new
products.
1 Source: Grand View Research
Broadcast Solutions
Our evolving Broadcast sector business brings revolutionary new human machine
interface (HMI) solutions to the market to replace the antiquated mechanical
controls which are still prevalent in the majority of audio-visual processing
equipment used in professional studios. Our HMI solutions, which combine
high-resolution graphical displays, touch screen technology and computing
elements, greatly simplify the adoption curve for manufacturers.
Our products seek to revolutionise the control of technology which typically
resides in Production Control Rooms ("PCRs"). We believe that there are
around 220,000 PCRs worldwide which result in an equipment spend every year of
$880m. These PCRs are found in broadcast corporation studios, corporate
broadcast theatres, outside broadcast trucks and houses of worship and is the
venue in which the broadcast operations are directed, and composition of the
outgoing programme takes place.
Densitron has three offerings for the Broadcast sector:
1) Finished Products - These products incorporate the best of our display, touch
and computing technology to provide plug and play solutions to broadcast HMI
and control problems. These are supplied not only to broadcast equipment
manufacturers but also to the end broadcast corporations such as BBC and NEP
Group. An example of these is the 2RU x86 rack mount control panel.
2) HMI Modules - We can supply any element of our HMI technology as a
sub-assembly to broadcast manufacturers for incorporation into their
equipment. This gives them access to newer interface technology, helps them
get to market faster and reduces their engineering workload. An example is
the Tactila(TM) range of tactile objects.
3) Original Design Manufacturer Plus (ODM+) Services - Broadcast manufacturers
can outsource their entire product design and development to Densitron and in
developing this product Densitron will incorporate our patented technologies
where appropriate. This allows the broadcast manufacturers to either cut
costs or invest in engineering, manufacturing and supply chain capacity in
other projects. We have active pipeline opportunities for these services.
We believe our current broadcast solutions allow us to access a total
addressable market of $220m with further penetration of the value chain
allowing this to increase up towards the $880m equipment market spend in
PCRs. In addition, Broadcast PCR spend is estimated to be growing at 4.5%
per year over the next 5 years(1).
The Broadcast business delivered its third consecutive year of significant
growth, increasing revenue by 42% year on year to $7.5m (2021: $5.3m). This
growth was principally driven by production ramp in new business won in 2021.
We continued our investment programme to incubate the Broadcast business to
become a significantly increased component of Group revenue. This included
recruitment of experienced commercial and product leaders with an exclusive
focus in delivering on the Broadcast opportunity.
1 Source: Business Research Company - Television Broadcast Market Report 2023
Successful management of challenging supply environment
Through the last 24 months, volatility in electronic component pricing, cost
inflation and elevated freight costs have weighed on Group gross margin. We
sought to mitigate the impact of these extenuating factors through advanced
strategic stock purchase commitments, relentless negotiation with suppliers
and, where essential, effecting price increases with our customers.
Throughout 2021 and into the first half of 2022 we were still seeing inflation
in component prices despite these measures. This drove further rounds of
intense product redesign, strategic purchasing and customer collaboration to
allow us to use alternative parts. Subsequently, we have seen a stabilisation
of component pricing, albeit at higher than historic levels. This stasis in
component pricing has allowed our higher sale prices to positively effect a
partial recovery in gross margin.
During much of 2021, many electronic suppliers were reluctant to state any
quoted lead times making manufacturing planning very difficult. Towards the
end of 2021, we started to see suppliers providing committed delivery dates
and a reduction in the number of end-of-life notices, but we quickly saw
deterioration in this situation early in 2022. We saw significant de-commits
from suppliers such as AMD which failed to fulfil orders placed months
earlier. Our actions during the year mitigated the impact of most of these
issues on our customers.
Entering 2023 we continue to see component lead times and pricing at elevated
levels, but with less widespread volatility as at the same point last year.
We expect to see continued easing of supply chains through 2023 but remain
vigilant to acute issues which require close intervention. We are committed
to our strategic stock programme until such time as we are confident in
component supply.
Innovation and product development
In 2022, 37% of our global workforce were employed in product development and
support roles.
The quality and breadth of our global product development teams is the
cornerstone of our business' current and future success. Innovations
developed by these teams have led to the Group holding 20 active patents on
key technologies incorporated into our products in Quixant Gaming and
Densitron.
During 2022, we launched the new Intel® based QMAX-3 product which takes over
as our next generation flagship computer platform for high-end casino
machines. We already have confirmed business which we expect to ramp in 2023
for this exciting new product launch.
During the year Densitron continued to invest in exciting R&D to open new
ways for humans to interact with machines, with a focus on the broadcast
sector.
Our engineers continued to spend considerable time during the year in
redesigning existing products to substitute components which unexpectedly were
made end-of-life, saw volatile pricing or were on long lead times. While
this activity hampered new product development to some extent, it was
essential to ensuring customers remained supplied with our products.
Change of name
The Group's strong growth to date means that the business has evolved from 58
employees at IPO in 2013 with a niche vertical focus in providing computer
platforms into the Gaming industry to a business with 230 employees supplying
multiple product ranges to customers across a range of industries. The Board
believes the business platform provides an opportunity to identify and
diversify further into other sectors that could also benefit from a technology
outsourcing partnership but have enjoyed no focused, expert providers to date.
As such, the Board has considered the value proposition, vision and brand for
the Group as a whole. The Quixant brand is recognised and highly respected
in the Gaming sector, while Densitron has a pedigree in industrial display
components and more recently as an expert in Broadcast HMI solutions. The
Group however is sector agnostic but operates through trading businesses which
share the common vision to support customers in selected markets with products
which enable them to focus their internal engineering effort on their core
value proposition.
The Board has therefore decided to recommend to shareholders a change in name
of the Group to Nexteq plc, while maintaining the Quixant brand for the Gaming
Business and Densitron for the Broadcast and Industrial Display Components
businesses. The Board believes this will provide the right structure to
support our growth strategy and clarify our offering in the market. Subject to
shareholder approval this will be effected after the Annual General Meeting.
Current Trading and Outlook
The Group has made a positive start to the new year, with robust trading
momentum across both divisions continuing, and a healthy order backlog
providing visibility into the second half of the year. While cognisant of
macro-economic and ongoing supply chain pressures, we remain confident that
our considerable pipeline of opportunities and strong customer relationships
will underpin future revenues. We will continue to closely monitor market
conditions to ensure that we remain agile to support our customers with their
critical technology needs.
Driving operational efficiency and profitability remain key priorities for the
Group, and we expect to continue to see the benefits of operational leverage
in the coming year. We also expect the unwind of our strategic stock position
to see a return to strong operating cash generation in the year. At the same
time, we will continue with focused investments across the Group to expand our
market opportunity.
The Group's rebrand under the Nexteq name represents the evolution of our
business as a technology partner across multiple end vertical markets and is
an opportunity to bring our teams closer together and, ultimately, drive our
expansion over the long-term.
Jon Jayal
Chief Executive Officer
Financial Review
The Quixant Group achieved record revenues of $119.9m in the year, up 38% on
2021 revenues driven by strong demand across both Gaming and Densitron.
Statutory Results
Group Revenue was $119.9m (2021: $87.1m), representing year-on-year growth of
38%. Gross profit was $38.6m (2021: $25.9m), an increase of 49% over the prior
year, with gross margins at 32.2% (2021: 29.7%). Operating expenses were
$29.6m (2021: $21.4m), resulting in operating profit of $8.9m (2021: $4.5m).
Net finance cost was $0.1m (2021: Net finance income of $0.4m), resulting in
profit before tax of $8.8m (2021: $4.9m) and an income tax credit of $2.2m
(2021: tax expense of $1.4m), equivalent to an effective tax rate of -24.8%
(2021: 27.6%). Basic earnings per share (EPS) were $0.1653 (2021: $0.0536), an
increase of 208%. Diluted EPS were $0.1616 (2021: $0.0533), an increase of
203%.
Revenue
Gaming division revenues were $74.1m, an increase of 57% on the prior year
(2021: $47.3m). The increase in Gaming revenues was due to robust demand for
our gaming computer products alongside a shift in product mix towards
higher-end solutions. Unit sales increased to 52,044 platforms shipped in
the year, up 30% on the prior year (2021: 40,070).
Densitron division revenues were $45.8m, an increase of 15% on the prior year
(2021: $39.8m). The strong demand for Densitron products seen in 2021
continued through 2022, across all its subsectors. The Broadcast sector in
particular had another strong year with revenues of $7.5m, up 42% on the $5.3m
shipped in 2021.
Gross profit and gross profit margin
The Group generated gross profit during the year of $38.6m (2021: $25.9m)
representing a gross margin of 32.2% (2021: 29.7%). Gross margins remained
volatile through the year, due to component price inflation from global supply
chain shortages and higher freight charges. These factors stabilised in the
second half of the year, and coupled with operational leverage from higher
production output, led to a recovery in Group gross margin.
Adjusted operating expenses
Adjusted operating expenses increased by 35% to $28.3m (2021: $20.9m).
Overheads were reduced during the pandemic, mainly because of reduced bonuses,
a reduction in travel and marketing spend and measures taken to control
discretionary spend. In 2022 operating expenses started to revert to
pre-pandemic levels, particularly travel and marketing due to an easing of
travel restrictions and recommencement of trade shows. In addition to this the
Group has also invested in headcount, with average employees increasing from
207 in 2021 to 228 in 2022 as the Group invested in its engineering, supply
chain and sales teams to support the growing demand across both Gaming and
Densitron. This resulted in payroll costs increasing by $4.4m to $20.2m (2021:
$15.8m).
During the year, Group expenditure on research and development increased to
$4.8m (2021: $4.7m). These costs relate to investment activities principally
undertaken in Taiwan, Italy, the UK and Slovenia. Of these costs, $1.8m were
capitalised (2021: $1.7m) as the Group continues to focus on developing new
products, with amortisation for the year on total capitalised development
costs of $1.1m (2021: $0.9m). During the year the Group abandoned in
progress development projects with a carrying value of $0.5m (2021: nil).
These were due to a combination of supplier notifications to key end-of-life
components utilised in our products; and following internal review where it
was determined that the project did not meet the criteria to capitalise
product development cost as set out in IAS38.
Post balance sheet event
As a result of events after the balance sheet date, the consolidated
statement of profit and loss includes a charge amounting to $0.9m relating to
uncertainty of the recoverability of balances owed by Aruze Philippines
Manufacturing Inc. (APMI), a customer of the Group's Gaming division.
The Quixant Group, through its Gaming division, has active contracts in place
with Aruze Philippines Manufacturing Inc. ("APMI"), for the supply of display
products and gaming boards. On 1 February 2023 Aruze Gaming America, Inc
("AGA"), a US based affiliate of APMI, filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the State of Nevada. In the filing AGA stated that this action was a part of
AGA's efforts to seek financial restructuring in the wake of a recent
garnishment judgment against AGA resulting from a separate judgment against
AGA's shareholder. Furthermore, AGA stated that it intended to continue
operating normally and utilize Chapter 11 protections to provide for an
orderly consideration of the relative rights of AGA's creditors, customers,
and employees.
The Quixant Group did not have a direct relationship with AGA at 31 December
2022, or during the 2022 financial year. As AGA is the main customer of APMI
the Chapter 11 filing has resulted in APMI having to delay payment of
outstanding debts to Quixant until they have received payment from AGA and
rework its business plans and production schedules. Due to the uncertainty
caused by this Quixant management evaluated the carrying value of balances
related to its relationship with APMI as at the balance sheet date as the
bankruptcy of AGA is considered an adjusting post balance sheet event, as the
circumstances leading to the bankruptcy petition existed at 31 December 2022.
Trade receivables at the balance sheet date included an amount of $0.7m owed
by APMI. It is Quixant's intention to seek collection of all amounts and APMI
has confirmed its intention to settle this amount, however the AGA Chapter 11
filing raised doubts over the Group's ability to recover the trade receivable.
Management considered that due to the uncertainty inherent in an insolvency
proceeding the debt owed by APMI at the balance sheet was fully impaired. An
impairment loss of $0.7m was recorded within operating expenses.
Inventory, consisting of raw materials with a book value of $2.4m and finished
goods with a book value of $1.1m was included in the Quixant Group's balance
sheet as at 31 December and earmarked for use by APMI. Post year-end finished
goods with a book value of $0.2m was shipped to APMI as part of Quixant's
normal operations. Management has assessed the remaining $3.3m to determine
alternative uses for the inventory. The inventory can be used to manufacture
products that can be sold to the Group's existing or new customers or for use
in the Group's turnkey cabinet offering. Management expects to fully recover
the net book value of $3.3m and considers that no provision against it was
required as at 31 December 2022. Inventory that was shipped to APMI post
balance sheet date has been provided for in full, as the recoverability of
this amount is dependent on Quixant receiving cash payment, which is
considered uncertain as noted above.
The Group balance sheet also included capitalised development cost with a book
value of $0.4m related to the development of products for APMI's future use.
Once development is completed, the product can be sold to the Group's existing
or new customers if APMI is unable to do purchase these products. Based on
their assessment of the future use of the product management expects to
recover the book value of the capitalised development in full and no
impairment was required at the balance sheet date.
The total charge to the consolidated statement of profit and loss amounts to
$0.9m, with $0.7m charged to operating expenses and $0.2m charged to cost of
sales.
Net finance expense
The Group also incurred net finance expenses of $0.1m (2021: Net finance
income of $0.4m), principally related to leases. In 2021 the Group recognised
finance income of $0.5m related to COVID-19 support loans which were forgiven
by the USA Government.
Adjusted Profit Before Tax
Adjusted profit before tax increased by 87% to $10.2m (2021: $5.4m). The
adjustments to statutory profit before tax of $1.4m (2021: $0.5m) comprised a
share-based payments charge of $0.6m (2021: share-based payments credit of
$0.2m) and amortisation of acquired intangibles charge of $0.8m (2021: $0.9m).
The 2021 adjustments also included a restructuring credit of $0.2m.
Taxation
The Group recognised a corporation tax credit of $2.2m in the year, compared
to a charge of $1.4m in 2021. The tax credit consists of a current tax charge
of $0.5m (2021: $1.2m), $1.8m credit in respect of the recognition of a
deferred tax asset relating to tax losses (2021: charge of $1.0m) and $0.9m
credit relating to the movement in deferred tax assets and liabilities in the
current year (2021: credit of $0.8m).
The $1.8m tax credit is in relation to the recognition of a deferred tax asset
for tax losses which are now considered recognisable due to the Group having
enhanced visibility over their availability and utilisation.
The effective tax rate on statutory profit before tax decreased to -24.8%
(2021: 27.6%). Going forward we expect the effective tax rate to be
approximately 15% - 18%, depending on the regional mix of profits.
Earnings per share
Basic EPS increased by 208% to $0.1653 per share (2021: $0.0536 per share).
Adjusted diluted earnings per share increased by 199% to $0.1779 per share
(2021: $0.0595 per share).
Balance Sheet
Non-current assets increased to $26.2m as at 31 December 2022 (31 December
2021: $24.3m) mainly due to an increase in deferred tax assets, offset by a
decrease in right-of-use and intangible assets. Included in non-current assets
are goodwill of $7.7m (31 December 2021: $7.7m) and acquisition related
intangible assets of $1.0m (2021: $1.8m) allocated to cash generating units
(CGUs). The annual impairment review indicated that no impairment of goodwill
is necessary at 31 December 2022 or 31 December 2021. The IDS, Densitron US
and Densitron Europe CGUs are sensitive to a reasonably possible change in key
assumptions which could cause impairment.
Inventory has increased to $32.2m (31 December 2021: $29.1m), as production
increased to meet the higher customer demand. Inventory levels are elevated
compared to pre-pandemic levels as the Group continues to hold strategic stock
to mitigate the impact of the global component shortages and secure product
for customer demand.
Cash Flow
The Group generated $0.8m cash from operating activities in the year (2021:
cash generated of $4.4m). Adjusted operating cash flow, which excludes tax
payments, was $2.5m (2021: $4.9m) which represented 25% of adjusted profit
before tax (2021: 90%). This was below our cash conversion KPI targets due to
increased working capital, which reflects the impact of the strategic stock
programme implemented to ensure continuity of supply to our customers and the
timing of supplier payments and customer receipts. In the second half of the
year the Group consumed some of the strategic stock which led to an inflow of
cash from operating activities of $4.4m.
The Group capitalised $1.8m of development costs (2021: $1.7m), which reflects
the continued development of new products as the Group expands it product
portfolio.
The Group finished 2022 with net cash of $12.9m (2021: $17.6m), comprising
cash and cash equivalents of $13.5m (2021: $18.3m) and gross debt of $0.6m
(2021: $0.7m). The debt relates to a mortgage over the Group's offices in
Taiwan. The decrease in net cash during 2022 was a result of the investment
made in working capital to fund the increase in customer demand.
Capital Allocation
The Group will continue its disciplined approach to capital allocation,
prioritising the maintenance of a strong balance sheet, and sufficient cash
reserves, while continuing to focus on investing in the business to drive
organic growth.
The Board propose a dividend for the year ended 31 December 2022 of 3.0p per
share (2021: 2.4p per share). This dividend will be payable on 25 August 2023
to all shareholders on the register on 28 July 2023. The corresponding
ex-dividend date is 27 July 2023.
Foreign exchange
The Group reports its results in US Dollars as this is the principal currency
in which it trades with customers, with approximately 91% (2021: 91%) of our
revenues denominated in US Dollars.
The Group's reported results are impacted by US Dollar movements against
currencies in the territories it operates, principally Pound Sterling, Euro
and Taiwan Dollar. The average Pound Sterling to US Dollar exchange rate in
2022 was 1.24, a 10% appreciation against 2021 average of 1.38. The average
Euro to US Dollar exchange rate in 2022 was 1.05, an 11% appreciation against
the 2021 average of 1.18. The average Taiwan Dollar to US Dollar exchange rate
in 2022 was 0.034, a 7% appreciation against the 2021 average of 0.036.
The appreciation of the US Dollar against currencies in the territories the
Group operates resulted in a $2.7m favourable impact on adjusted operating
expenses.
Alternative performance measures (APMs)
Throughout these financial statements, alternative performance measures (APMs)
are used to describe the Group's performance. These are not recognised under
UK-adopted international accounting standards or other generally accepted
accounting principles (GAAP). When reviewing Quixant's performance, the Board
and Management team focus on adjusted results in addition to statutory
results.
APMs are non-GAAP measures and provide supplementary information to assist
with the understanding of the Group's financial results and with evaluation of
operating performance for the periods presented in these financial statements.
APM's however, are not a measure of financial performance under IFRS and
should not be considered a substitute for measures determined in accordance
with IFRS. APMs have been provided for the following reasons:
1) to present users of these financial statements with a clear view of what we
consider to be the results of our underlying operations, enabling consistent
comparisons over time and making it easier for users of the report to identify
trends;
2) to provide additional information to users of these financial statements
about our financial performance or financial position; and
3) to show the performance measures that are linked to remuneration for the
Executive Directors.
The following APMs appear in these financial statements.
Reason for use Reconciliation
Adjusted profit before tax 1,3 Note 1
Adjusted profit after tax 1,2 Note 1
Adjusted operating expenses 1,2 Note 1
Adjusted operating cash flow 1,2 Note 1
Adjusted diluted EPS 1,2 Note 5
Johan Olivier
Chief Financial Officer
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
For the years ended 31 December 2022 and 2021
2022 2021
Total Total
Note $000 $000
Revenue 3 119,873 87,128
Cost of sales (81,319) (61,224)
Gross profit 38,554 25,904
Operating expenses (29,622) (21,361)
Operating profit 8,932 4,543
Finance income - 534
Finance expense (131) (157)
Profit before tax 8,801 4,920
Taxation 4 2,185 (1,356)
Profit for the year 10,986 3,564
Other comprehensive expense for the year, net of income tax
Items that are or may be reclassified subsequently to profit or loss: (1,644) (771)
Foreign currency translation differences
Total comprehensive income for the year 9,342 2,793
Basic earnings per share 5 $0.1653 $ 0.0536
Diluted earnings per share 5 $0.1616 $ 0.0533
The Italian subsidiary, Quixant Italia srl, is 99% owned by the Group. The
comprehensive income and equity attributable to the non-controlling interests
in this subsidiary are not material.
The consolidated statement of profit and loss and other comprehensive income
has been prepared on the basis that all operations are continuing operations.
CONSOLIDATED AND COMPANY BALANCE SHEETS
As at 31 December 2022 and 2021
Group Company
2022 2021 2022 2021
$000 $000 $000 $000
Non-current assets
Property, plant and equipment 5,668 5,874 3,750 3,888
Intangible assets 15,533 16,027 652 949
Right-of-use assets 1,694 1,924 745 1,000
Investment property - - - -
Investments in group companies and associated undertakings - - 9,244 9,125
Deferred tax assets 2,636 116 2,389 238
Trade and other receivables 712 336 - 18,798
26,243 24,277 16,780 33,998
Current assets 22,717
32,169
Inventories 29,085 20,725
Trade and other receivables 24,047 22,960 10,917 8,933
Cash and cash equivalents 13,508 18,347 9,042 6,604
69,724 70,392 42,676 36,262
Total assets 95,967 94,669 59,456 70,260
Current liabilities (90) (90)
Loans and borrowings (99) (99)
Trade and other payables (20,437) (25,510) (15,176) (22,325)
Tax payable (530) (1,756) (274) (470)
Lease liabilities (562) (609) (329) (351)
(21,619) (27,974) (15,869) (23,245)
Non-current liabilities
(473) (473)
Loans and borrowings (621) (621)
Provisions (350) (335) - -
Deferred tax liabilities (40) (302) - (118)
Lease liabilities (1,271) (1,360) (441) (668)
(2,134) (2,618) (914) (1,407)
Total liabilities (23,753) (30,592) (16,783) (24,652)
Net assets 72,214 64,077 42,673 45,608
Equity attributable to equity holders of the parent
106 106
Share capital 106 106
Share premium 6,708 6,708 6,708 6,708
Share-based payments reserve 895 212 895 212
Retained earnings 66,038 56,940 35,085 37,533
Translation reserve (1,533) 111 (121) 1,049
Total equity 72,214 64,077 42,673 45,608
The Company's loss for the year was $0.6m (2021: loss of $3.7m).
These financial statements were approved and authorised for issue by the Board
of Directors on 20 March 2023 and were signed on behalf of the Board by:
Jon Jayal
Chief Executive Officer
Company registered number: 04316977
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2022 and 2021
GROUP
Share Capital Share Premium Translation Reserve Share-Based Retained Total Equity
Payments Earnings
$000 $000 $000 $000 $000 $000
Balance at 1 January 2021 106 6,708 882 1,571 54,086 63,353
Total comprehensive income for the year
Profit for the year - - - - 3,564 3,564
Other comprehensive expense - - (771) - - (771)
Total comprehensive income/(expense) for the year - - (771) - 3,564 2,793
Transactions with owners, recorded directly in equity
Share-based payment credit - - - (221) - (221)
Reserve transfer(1) - - - (1,138) 1,138 -
Dividend paid - - - - (1,848) (1,848)
Total contributions by and distributions to owners - - - (1,359) (710) (2,069)
Balance at 31 December 2021 106 6,708 111 212 56,940 64,077
Share Capital Share Premium Translation Reserve Share-Based Retained Total Equity
Payments Earnings
$000 $000 $000 $000 $000 $000
Balance at 1 January 2022 106 6,708 111 212 56,940 64,077
Total comprehensive income for the year - - - - 10,986 10,986
Profit for the year
Other comprehensive expense - - (1,644) - - (1,644)
Total comprehensive income/(expense) for the year - - (1,644) - 10,986 9,342
Transactions with owners, recorded directly in equity - - - 618 - 618
Share-based payment expense
Tax on share-based payment expense - - - 65 - 65
Dividend paid - - - - (1,888) (1,888)
Total contributions by and distributions to owners - - - 683 (1,888) (1,205)
Balance at 31 December 2022 106 6,708 (1,533) 895 66,038 72,214
(1) Share-based payment charge is recognised against the share-based payment
reserve over the vesting period based on the Group's estimate of equity
instruments that will vest. In the prior year the Group revised the estimated
vesting for share awards downwards based on expected achievement of
performance conditions for previous financial periods, which should have been
revised in previous periods. This resulted in a transfer of reserves to
retained earnings.
COMPANY
Share Share Translation Share-Based Retained Total Parent
Capital Premium Reserve Payments Earnings Equity
$000 $000 $000 $000 $000 $000
Balance at 1 January 2021 106 6,708 1,364 1,571 42,040 51,789
Total comprehensive loss for the year
Loss for the year - - - - (3,663) (3,663)
Other comprehensive expense - - (315) - - (315)
Total comprehensive expense for the year - - (315) - (3,663) (3,978)
Transactions with owners, recorded directly in equity
Share-based payment credit - - - (355) - (355)
Reserve transfer(1) - - - (1,004) 1,004 -
Dividend paid - - - - (1,848) (1,848)
Total contributions by and distributions to owners - - - (1,359) (844) (2,203)
Balance at 31 December 2021 106 6,708 1,049 212 37,533 45,608
Share Share Translation Share-Based Retained Total Parent
Capital Premium Reserve Payments Earnings Equity
$000 $000 $000 $000 $000 $000
Balance at 1 January 2022 106 6,708 1,049 212 37,533 45,608
Total comprehensive loss for the year - - - - (560) (560)
Loss for the year
Other comprehensive expense - - (1,170) - - (1,170)
Total comprehensive expense for the year - - (1,170) - (560) (1,730)
Transactions with owners, recorded directly in equity - - - 618 - 618
Share-based payment expense
Tax on share-based payment expense - - - 65 - 65
Reserve transfer - - - - - -
Dividend paid - - - - (1,888) (1,888)
Total contributions by and distributions to owners - - - 683 (1,888) (1,205)
Balance at 31 December 2022 106 6,708 (121) 895 35,085 42,673
(1) Share-based payment charge is recognised against the share-based payment
reserve over the vesting period based on the Group's estimate of equity
instruments that will vest. In the prior year the Group revised the estimated
vesting for share awards downwards based on expected achievement of
performance conditions for previous financial periods, which should have been
revised in previous periods. This resulted in a transfer of reserves to
retained earnings.
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 2022 and 2021
Group Company
2022 2021 2022 2021
$000 $000 $000 $000
Cash flows from operating activities 10,986 (560)
Profit/(Loss) for the year 3,564 (3,663)
Adjustments for: 2,652 687
Depreciation and amortisation 2,529 584
Loss on disposal of property, plant and equipment 5 - 4 -
Impairment losses on intangible assets 509 - - -
Loss on disposal of intangible assets - 7 - -
Depreciation of leased assets 660 701 413 433
Provision for doubtful debts 722 - - -
Movement in provisions 43 (15) - -
Taxation (credit) / charge (2,185) 1,356 (1,776) 588
Finance income - (534) - -
Finance expense 131 157 86 43
Exchange rate gains (403) - (371) -
Share-based payment expenses/(credit) 618 (221) 499 (355)
Operating cash flows before movement in working capital 13,738 7,544 (1,018) (2,370)
(Increase)/Decrease in trade and other receivables (2,017) (6,737) 16,940 3,944
Increase in inventories (4,633) (7,735) (2,980) (6,932)
(Decrease)/Increase in trade and other payables (4,439) 11,982 (6,774) 11,001
2,649 5,054 6,168 5,643
Interest paid (42) (63) (41) -
Lease liability interest paid (89) (94) (45) (40)
Tax paid (1,716) (492) (648) (83)
Net cash from operating activities 802 4,405 5,434 5,520
Cash flows from investing activities
Addition of development costs (1,817) (1,676) - -
Purchase of property, plant and equipment (545) (160) (407) (78)
Addition of externally purchased intangible assets (418) (330) (108) (61)
Proceeds from investments - - - 258
Net cash (used in)/from investing activities (2,780) (2,166) (515) 119
Cash flows from financing activities (6,922) (6,922)
Reduction/repayment of borrowings (132) (88)
Repayment of government loans - (476) - -
Proceeds from loans 6,842 415 6,842 -
Payment of lease liabilities (546) (666) (405) (188)
Dividends paid (1,888) (1,848) (1,888) (1,848)
Net cash used in financing activities (2,514) (2,707) (2,373) (2,124)
Net (decrease)/increase in cash and cash equivalents (4,492) (468) 2,546 3,515
Cash and cash equivalents at 1 January 18,347 18,804 6,604 3,080
Foreign exchange rate movements (347) 11 (108) 9
Cash and cash equivalents at 31 December 13,508 18,347 9,042 6,604
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
The financial information set out above and below, does not constitute the
company's statutory accounts for the years ended 31 December 2022 or 2021 but
is derived from those accounts. Statutory accounts for 2021 have been
delivered to the registrar of Companies, and those for 2022 will be delivered
in due course. The auditor has reported on those accounts; their reports were
(i) unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
While the financial information included in this preliminary announcement has
been prepared in accordance with the recognition and measurement criteria of
UK-adopted international accounting standards and as applied in accordance
with the provisions of the Companies Act 2006, this announcement does not
itself contain sufficient information to comply with UK-adopted international
accounting standards. The Company expects to publish full Financial Statements
that comply with UK-adopted international accounting standards during March
2023.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Quixant
plc Annual Report and Accounts for the year ended 31 December 2022.
The Group's operational and financially robust position is supported by:
- A second year of double-digit growth in Gaming and Densitron
revenues;
- Resilient cash generation, despite investing in working capital
to support growth and good liquidity position; and
- Net cash position and good operational liquidity.
In undertaking a going concern review, the Directors have reviewed financial
projections for a period of at least twelve months (the review period) and
have additionally prepared projections through to 31 December 2024. Management
prepared a base case scenario based on the approved budget for 2023 and
forecasts for 2024. Management also prepared a severe but plausible downside
scenario, using the following key assumptions:
- A 25% reduction in 2023 and 2024 Gaming revenues to replicate
the impact that a downturn similar to that experienced in 2019 would have on
the Group's revenues; and
- The Group remains committed to making last time buy purchases of
key components and these purchases continue and are in addition to the regular
supplier payments made in the normal course of business.
The impact of these assumptions is mitigated by:
- Reduction in operating expenses to reflect reduction in bonuses,
delay, or suspension of new headcount additions and other cost saving measures
consistent with the actions management took in response to the COVID-19
pandemic in 2020;
- No dividend paid in 2023 or 2024; and
- Reduction of discretionary capital expenditure spend.
In this scenario, the Group continues to have sufficient cash reserves and
working capital to continue operating as a going concern through the review
period.
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 would look to
take out additional funding facilities, as well as making further reductions
in controllable costs. There would also be an opportunity to sell certain
property and inventory assets to accelerate cash generation and/or mitigate
risk.
Consequently, the Directors are confident that the Group and Company will have
sufficient funds to continue to meet its liabilities as they fall due for at
least 12 months from the date of approval of these financial statements and,
therefore, have prepared these financial statements on a going concern basis.
Use of judgements and estimates
The preparation of financial information in conformity with UK-adopted
international accounting standards requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in
the process of applying the Group accounting policies. The areas involving a
higher degree of judgement and estimation relate to the recoverable amount of
goodwill in the IDS CGU, valuation of Quixant CGU inventory and capitalisation
of development costs. Estimates and underlying assumptions are reviewed on an
annual basis. Revisions to estimates are recognised prospectively.
Significant estimates
Recoverability of goodwill and acquisition related intangibles in the IDS CGU
The estimated recoverable amount of the IDS CGU has been determined based on
the higher of the value-in-use calculations and fair value less costs to sell.
These calculations require the use of estimates and assumptions that are
subjective due to the inherent uncertainty involved in forecasting and
discounting future cash flows. Reasonably possible changes to the assumptions
in the future may lead to material adjustments to the carrying value of the
CGUs.
Inventory valuation in the Quixant CGU and parent company
Inventories, which comprise goods held for resale, are stated at the lower of
cost and net realisable value, on a weighted average cost basis. The estimated
recoverable amount of the inventory balance in the Quixant CGU and the Parent
Company is subjective, due to the inherent uncertainty involved in forecasting
of future sales. Provisions are made to write down any slow-moving or obsolete
inventory to net realisable value.
As at 31 December 2022, the total inventory in the Quixant CGU is $26.0m
(2021: $26.9m) and in the Parent company is $22.7m (2021: $20.7m). The
provision against slow-moving and obsolete inventory for the Quixant Group as
at 31 December 2022 is $2.1m (2021: $1.6m) and in the Parent company is $1.5m
(2021: $1.0m). A difference of 0.2% in the provision as a percentage of gross
inventory would give rise to a difference of +/- $0.1m in gross margin. The
choice of a 0.2% change for the determination of sensitivity represents the
change to the level of provisioning for the prior year.
Significant judgements
Capitalised development costs
The impact on the financial statements of a change in judgement with respect
to the development cost criteria, such as the commercial viability of a
product, could affect the value capitalised in respect of intangible assets
and the corresponding profit and loss effect. If the criteria had not been met
in the current year, the impact would have been to expense $1.8m (2021: $1.7m)
of development costs.
Valuation of Aruze debtors and inventory
As a result of events subsequent to the balance sheet date, the consolidated
statement of profit and loss includes a charge amounting to $0.9m relating to
uncertainty of the recoverability of balances owed by Aruze Philippines
Manufacturing Inc. ("APMI").
The Quixant Group, through its Gaming division, has active contracts in place
with Aruze Philippines Manufacturing Inc. ("APMI"), for the supply of display
products and gaming boards. On 1 February 2023 Aruze Gaming America, Inc
("AGA"), a US based affiliate of APMI, filed a voluntary petition under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the State of Nevada. In the filing AGA stated that this action was a part of
AGA's efforts to seek financial restructuring in the wake of a recent
garnishment judgment against AGA resulting from a separate judgment against
AGA's shareholder. Furthermore, AGA stated that it intended to continue
operating normally and utilize Chapter 11 protections to provide for an
orderly consideration of the relative rights of AGA's creditors, customers,
and employees.
The Quixant Group did not have a direct relationship with AGA at 31 December
2022, or during the 2022 financial year. As AGA is the main customer of APMI
the Chapter 11 filing has resulted in APMI having to delay payment of
outstanding debts to Quixant until they have received payment from AGA and
rework its business plans and production schedules. Due to the uncertainty
caused by this Quixant management evaluated the carrying value of balances
related to its relationship with APMI as at the balance sheet date as the
bankruptcy of AGA is considered an adjusting post balance sheet event, as the
circumstances leading to the bankruptcy petition existed at 31 December 2022.
Trade receivables at the balance sheet date included an amount of $0.7m owed
by APMI. It is Quixant's intention to seek collection of all amounts and APMI
has confirmed its intention to settle this amount, however the AGA Chapter 11
filing raised doubts over the Group's ability to recover the trade receivable.
Management considered that due to the uncertainty inherent in an insolvency
proceeding the debt owed by APMI at the balance sheet was fully impaired. An
impairment loss of $0.7m was recorded within operating expenses.
Inventory, consisting of raw materials with a book value of $2.4m and finished
goods with a book value of $1.1m was included in the Quixant Group's balance
sheet as at 31 December and earmarked for use by APMI. Post year-end finished
goods with a book value of $0.2m was shipped to APMI as part of Quixant's
normal operations. Management has assessed the remaining $3.3m to determine
alternative uses for the inventory. The inventory can be used to manufacture
products that can be sold to the Group's existing or new customers or for use
in the Group's turnkey cabinet offering. Management expects to fully recover
the net book value of $3.3m and considers that no provision against it was
required as at 31 December 2022. Inventory that was shipped to APMI post
balance sheet date has been provided for in full, as the recoverability of
this amount is dependent on Quixant receiving cash payment, which is
considered uncertain as noted above.
The Group balance sheet also included capitalised development cost with a book
value of $0.4m related to the development of products for APMI's future use.
Once development is completed, the product can be sold to the Group's existing
or new customers if APMI is unable to purchase these products. Based on their
assessment of the future use of the product management expects to recover the
book value of the capitalised development in full and no impairment was
required at the balance sheet date.
The total charge to the consolidated statement of profit and loss amounts to
$0.9m, with $0.7m charged to operating expenses and $0.2m charged to cost of
sales.
Reconciliation of adjusted performance measures
The Group uses certain alternative performance measures to evaluate
performance and as a method to provide Shareholders with clear and consistent
reporting. The Directors consider that these represent a more consistent
measure of performance by removing items of income or expense which are
considered significant by virtue of their size, nature or incidence or which
have a distortive effect on current year earnings and are relevant to an
understanding of the Group's financial performance. These measures include
Adjusted Profit before tax, Adjusted Profit after tax, Adjusted Operating
expenses and Adjusted Operating cash flow. See below for analysis of the
adjusting items in reaching adjusted performance measures.
Adjusted Profit before tax
2022 2021
$000 $000
Profit before tax 8,801 4,920
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 751 920
Share-based payments expense/(credit)(2) 618 (221)
Restructuring credit(3) - (190)
Adjusted Profit before tax 10,170 5,429
1. The amortisation of customer relationships, technology and order
backlog has been excluded as it is not a cash expense to the Group.
2. Share-based payments expense/(credit) has been excluded as it is
not a cash-based expense or credit. The credit is related to the reversal of
the options charge for the grants in prior periods, triggered mainly by
forfeiture of performance conditions and exercise of options in the past.
3. Restructuring credit - This related to the reversal of provision, set
aside in the past, which settled in the prior period for lower than the
estimated provision.
Adjusted Profit after tax
2022 2021
$000 $000
Profit after tax 10,986 3,564
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 751 920
Share-based payments expense/(credit)(2) 618 (221)
Restructuring credit(3) - (190)
Non-recurring tax benefits(4) (260) (97)
Adjusted Profit after tax 12,095 3,976
4. Tax on adjusted items relating to amortisation of customer
relationships, technology and order backlog of $0.8m (2021: $0.9m), share
based payment expense of $0.6m (2021: credit of $0.2m), restructuring credit
of $Nil (2021: $0.2m).
Adjusted Operating expenses
2022 2021
$000 $000
Operating expenses (29,622) (21,361)
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 751 920
Share-based payments expense/(credit)(2) 618 (221)
Restructuring credit(3) - (190)
Adjusted Operating expenses (28,253) (20,852)
Adjusted Operating cash flow
2022 2021
$000 $000
Net cash from operating activities 802 4,398
Add back:
Tax paid 1,716 492
Adjusted Operating cash flow 2,518 4,890
Adjusted Operating Cash conversion % (Adjusted operating cash flow/Adjusted 25% 90%
profit before tax)
2. Business and geographical segments
The Chief Operating Decision Maker (CODM) in the organisation is an executive
management committee comprising the Board of Directors. The segmental
information is presented in a consistent format with management information.
The Group assesses the performance of the segments based on a measure of
revenue and operating profit. The segmental split of the balance sheet is not
reviewed by the CODM and they do not look at assets/liabilities of each
division separately but combined as a group. Therefore, this split for assets
has not been included.
The operating segments applicable to the Group are as follows:
· Gaming - Design, development and manufacturing of
gaming platforms and display solutions for the casino gaming and slot machine
industry.
· Densitron - Sale of electronic display products to
global industrial markets. IDS is included in the Densitron reporting segment,
due to the nature of IDS business, the products that are sold and the market
that the business operates in are all consistent with that segment.
Reconciliation of segment results to profit after tax:
2022 2021
$000 $000
Gaming 17,348 9,807
Densitron 5,165 4,597
Segment results 22,513 14,404
Corporate cost (13,581) (9,861)
Operating profit 8,932 4,543
Net finance (expense) / income (131) 377
Profit before tax 8,801 4,920
Taxation 2,185 (1,356)
Profit after tax 10,986 3,564
Year to 31 December 2022 Year to 31 December 2021
$000 $000 $000 $000 $000 $000
Gaming ( ) Densitron Total Gaming Densitron Total
Other information
Depreciation of owned assets 92 5 97 97 4 101
Amortisation of intangible assets 804 291 1,095 670 213 883
896 296 1,192 767 217 984
3. Analysis of turnover
2022 2022 2022 2021 2021 2021
$000 $000 $000 $000 $000 $000
Gaming ( ) Densitron(1) Total Gaming Densitron Total
By primary geographical market
Asia 3,306 10,353 13,659 1,822 8,264 10,086
Australia 4,958 66 5,024 4,597 47 4,644
UK 4,373 3,474 7,847 2,021 2,443 4,464
Europe excl. UK 12,483 13,067 25,550 7,865 13,722 21,587
North America 48,123 16,162 64,285 30,595 13,540 44,135
Rest of World 839 2,669 3,508 399 1,813 2,212
74,082 45,791 119,873 47,299 39,829 87,128
(1 2022 Densitron Revenue from products splits into Densitron $44.7m (2021:
$39.0m) and IDS $1.1m (2021: $0.8m). IDS revenue included revenue of $0.5m
(2021: $0.3m) recognised throughout the performance period.)
( )
The above analysis includes sales to individual countries in excess of 10% of
total turnover of:
2022 2021
$000 $000
USA 61,019 42,136
Revenues of $40.4m (2021: $15.4m) are derived from two customers (2021: one
customer) who individually accounted for more than 10% of Group revenues in
2022. These revenues are attributable to the Gaming segment.
4. Taxation
Recognised in the profit and loss account
2022 2021
$000 $000
Current tax expense
-
UK corporation tax -
Foreign tax 1,483 2,057
Adjustments for prior years (934) (832)
Current tax expense 549 1,225
Deferred tax
(2,262)
Origination and reversal of temporary differences (303)
Adjustments for prior years (599) -
Change in deferred tax rate to 25% 127 434
Deferred tax (2,734) 131
Total tax (credit)/expense in the income statement (2,185) 1,356
Reconciliation of effective tax
rate
2022 2021
$000 $000
Profit for the year 10,986 3,564
Total taxation (credit)/expense (2,185) 1,356
Profit excluding taxation 8,801 4,920
Tax using the UK corporation tax rate of 19% (2021: 19%) 1,672 935
Non-deductible expenses 246 46
Fixed asset differences 7 -
Enhanced research and development relief (399) (363)
Patent box tax relief (897) (382)
Foreign tax expensed 392 -
Change in deferred tax rate to 25% (64) 433
Effect of tax rates in foreign jurisdictions 273 501
Exercise of share options - 6
Recognition of previously unrecognised tax losses(1) (1,815) -
Unrecognised deferred tax on losses - 1,009
Deferred tax credited directly to equity 65 -
Change to estimates related to prior years(2,3) (1,533) (832)
Other (132) 3
Total taxation (credit)/expense in statement of profit and loss (2,185) 1,356
1 In 2022, management recognised the tax effect of $9.6m of
previously unrecognised tax losses in Quixant plc and Quixant UK Limited
because management considered it probable that future taxable profits would be
available against which such losses can be utilised. The availability of
future taxable profits was based on the Group's budget for 2023 and forecasts
for 2024 and 2025. These forecasts reflect the continued improvement in
trading conditions in 2021 and 2022 which has led to an increase in future
profitability within the UK.
2 The 2020 tax provision included a reversal of enhanced research
and development relief due to uncertainty over whether the relief would be
granted. In 2021 the Group completed the necessary actions to ensure relief
may be claimed and filed a tax return on that basis, leading to the adjustment
to the 2021 tax provision.
3 The 2022 tax provision includes an adjustment for enhanced
research and development relief relating to 2020 and movement on the final
deferred tax balances included within tax returns submitted during 2022.
Aggregate deferred tax asset arising in the reporting period and not
recognised in net profit or loss or other comprehensive income but directly
(credited) or debited to equity:
2022 2021
$000 $000
Deferred tax asset - share-based payments (65) -
Total (65) -
Factors that may affect future tax charges
An increase in the UK corporation tax rate from 19% to 25% (effective 1 April
2023) was substantively enacted on 24 May 2021. This will increase the
company's future current tax charge accordingly. The deferred tax asset at 31
December 2022 (2021: Liability) has been calculated based on these rates,
reflecting the expected timing of reversal of the related temporary
differences.
5. Earnings per ordinary share (EPS)
2022 2021
$000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit 10,986 3,564
attributable to equity shareholders
Number of shares Number Number
Weighted average number of ordinary shares for the purpose of basic EPS 66,450,060 66,450,060
Effect of dilutive potential ordinary shares: 1,531,052
Share options 425,500
Weighted number of ordinary shares for the purpose of diluted EPS 67,981,112 66,875,560
Basic earnings per share $0.1653 $0.0536
Diluted earnings per share $0.1616 $0.0533
Calculation of adjusted diluted earnings per share: $000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit 10,986 3,564
attributable to equity shareholders
Adjustments
Amortisation of customer relationships, technology and order backlog 751 920
Share-based payments (credit)/expense 618 (222)
Restructuring credit - (189)
12,355 4,073
Tax effect of adjustments (260) (97)
Adjusted earnings 12,095 3,976
Adjusted diluted earnings per share $0.1779 $0.05950
6. Post balance sheet event
As a result of events subsequent to the balance sheet date, the consolidated
statement of profit and loss includes a charge amounting to $0.9m relating to
uncertainty of the recoverability of balances owed by a customer. Further
details are set out in Note 1 to these consolidated financial statements.
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