Interim Results
10/09/2024 07:00
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RNS Number : 5086D Nexteq PLC 10 September 2024
The information contained within this announcement is deemed by the Company to
constitute inside information pursuant to Article 7 of EU Regulation 596/2014
as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 as amended.
10 September 2024
Nexteq plc
("Nexteq" or the "Group")
Interim Results
Resilient performance and strong cash generation in challenging market
conditions
Nexteq (AIM: NXQ), a leading technology solutions provider to customers in
selected industrial markets, is pleased to announce its unaudited interim
results for the six months ended 30 June 2024.
Six months to 30 June 2024 Six months to 30 June 2023 Change
Group revenue $48.2m $56.3m (14%)
Quixant revenue $30.9m $34.3m (10%)
Densitron revenue $17.3m $22.0m (21%)
Group gross margin 37.3% 34.2% 310bps
Adjusted Group operating profit(1) $4.4m $5.9m (25%)
Operating profit $4.0m $5.1m (20%)
Adjusted Group profit before tax(1) $5.0m $5.9m (16%)
Group profit before tax $4.7m $5.1m (9%)
Adjusted diluted earnings per share(1) 6.07c 7.18c (15%)
Diluted earnings per share 5.70c 6.31c (10%)
Net cash from operating activities $9.9m $6.2m 59%
Net cash(1) $36.9m $27.9m(2) 32%
(1)For details on adjusted measures refer to note 1 and note 4 of the
condensed consolidated financial statements.
(2)Balance as at 31 December 2023.
FINANCIAL HIGHLIGHTS:
· Revenues of $48.2m, down 14% against strong comparative, due to
o persistent softer customer demand across both divisions, in line with
wider industry de-stocking across a wide range of end markets; and
o recent lower demand from some specific larger Quixant customers partly
reflecting the timing of new product releases and challenges in specific
regional markets.
· Group continues to be profitable, operating at double-digit Adjusted PBT
margins, and highly cash generative, capital-light business model with cash
conversion exceeding 100%, despite the challenging market conditions.
· Gross margin improving 310bps to 37.3%, benefitting from a focus on higher
quality revenues and improved product and customer mix.
· Adjusted profit before tax reduced 16% to $5.0m, a margin of 10.4% (H1 2023:
10.5%). Reported profit before tax reduced 9% to $4.7m (H1 2023: $5.1m).
· Net cash increased 32% to $36.9m, reflecting improved cash generation from
trading and effective management of working capital.
· Share buyback programme of up to 10% of the Company's share capital approved
by shareholders, following consultation with investors and consideration of
the likely timing of near-term acquisition opportunities. Robust balance sheet
allows the Group to repurchase shares, while maintaining sufficient capital to
allocate towards diversification into new markets; a total of £170k shares
was bought back in the period.
OPERATIONAL HIGHLIGHTS:
· High levels of customer retention, demonstrating strength of relationships and
providing for a strong platform from which to build as we see a resumption in
industrial demand and an easing in the de-stocking cycle.
· Continued evolution of new product lines into mass production, targeting the
high volume, value segment of the gaming market.
· Active stock management leading to improved working capital position.
BOARD TRANSITION:
· Duncan Faithfull, formerly Gaming Business Leader and Chief Commercial
Officer, appointed as Group Chief Executive Officer following an extensive
selection process, with former Group Chief Executive Officer Jon Jayal
stepping down from the Board but remaining with the Group to support orderly
handover.
· Nick Jarmany, founding Director and former Chief Executive Officer of the
Group, appointed as Interim Chair, with former Chair Francis Small leaving the
Group.
· Johan Olivier (Chief Financial Officer) to leave the Group when a successor
has been identified.
· Process to recruit a permanent Chair and Chief Financial Officer ongoing
CURRENT TRADING AND OUTLOOK:
· Confirmed order coverage of more than 90% of 2024 revised revenue
expectations, despite lower order book due to de-stocking and shorter lead
times.
· Profit and revenue expected to be in line with revised expectations as set out
in July trading update.
· Customer de-stocking still ongoing and expected to continue into Q1 2025.
· Strong balance sheet with record net cash position and good operational
liquidity; supported by good cash generation, positioning the Group for future
organic and acquisitive growth.
Duncan Faithfull, Chief Executive Officer of Nexteq commented:
"Despite the previously reported challenges Nexteq's trading faces because of
wider market conditions, it is reassuring to report the Group has maintained
good profitability and achieved a record cash position which gives us a strong
foundation for further investment opportunities. Equally, the Group has
performed well in the execution of key elements of its strategy, reflected in
our strong levels of customer retention and continued innovation across our
product lines to capture further markets and customers.
"While we continue to monitor our end markets closely, we remain strategically
well-placed for future growth, underpinned by our strong customer
relationships, a clear product roadmap and a robust financial position. Now in
the position as Chief Executive Officer, I am excited to apply my experience
across Nexteq's products, customers and markets to drive forward the Group's
vision. We remain confident in the long-term prospects across the Gaming and
other key industrial markets where our product offering continues to resonate
with customers."
Investor Presentation
Nexteq is hosting an online presentation open to all investors on 11 September
2024, at 12.00pm BST. Anyone wishing to connect should register
here: https://www.investormeetcompany.com/nexteq-plc/register-investor
(https://www.investormeetcompany.com/nexteq-plc/register-investor) .
(1) The current range of forecasts for the year ended 31 December 2024 is
revenue of between $94.0m and $96.0m with a consensus of $95.0m and adjusted
profit before tax of $9.4m.
Nexteq plc Tel: +44 (0)1223 892 696
Nick Jarmany, Interim Chair
Duncan Faithfull, Chief Executive Officer
Johan Olivier, Chief Financial Officer
Nominated Adviser and Broker: Tel: +44 (0)20 7220 0500
Cavendish Capital Markets Ltd
Matt Goode / Teddy Whiley (Corporate Finance)
Tim Redfern / Harriet Ward (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 Strategic Communications
Hilary Buchanan / Kieran Breheny
About Nexteq
Nexteq (AIM: NXQ) is a strategic technology solutions provider to customers in
selected industrial markets. Its innovative technology enables the
manufacturers of global electronic equipment to outsource the design,
development and supply of non-core aspects of their product offering. By
outsourcing elements of their technology stack to Nexteq, customers can focus
their product development effort on the most critical drivers of their
business' success.
Our solutions are delivered through a global sales team and leverage the
Group's electronic hardware, software, display and mechanical engineering
expertise. Our operations in Taiwan are at the heart of Asian supply networks
and facilitates cost effective manufacturing and strategic supply chain
management.
The Group operates in six countries and services over 500 customers across 47
countries.
Nexteq operates two distinct brands: Quixant, a specialised computer platforms
provider, and Densitron, leaders in human machine interface technology, each
with dedicated sales, account management and product innovation teams. Founded
in 2005, and later floating on the London Stock Exchange's AIM stock market as
Quixant plc, the Group rebranded to Nexteq in 2023.
Further information on Nexteq and its brands can be found at
www.nexteqplc.com.
Group overview
Continued strategic execution amidst period of industry de-stocking and softer
industrial demand
The first half of 2024 saw continued softer customer demand across a broad
range of customers and sectors. This trend, first highlighted in the trading
update we issued in January 2024, reflects an ongoing process of de-stocking
by customers as they seek to reduce cash tied up in inventory due to higher
costs of capital. Many customers built significant stock balances through
2021 and 2022 to safeguard against supply chain shortages. Alongside the
need to reduce these elevated stock levels, slowing economic activity through
2023 led to reduced demand for industrial goods and therefore these stock
balances have taken longer than anticipated to reduce.
As a result, Group revenues during the first half were down 14% year on year
to $48.2m (H1 2023: $56.3m), against a strong comparator which benefitted from
the easing of component shortages. This H1 performance is in line with the
wider industry, with five of the largest publicly listed global industrial PC
manufacturers declining on average by 14% in the first half of the year(1).
The Densitron business, which supplies electronic displays and human machine
interface (HMI) products to industrial customers, has a highly diversified
customer base across around 500 accounts in a wide variety of sectors.
Densitron revenues declined by 21% year on year against a strong comparator,
reflecting the broad nature of the slowdown in activity and customer
de-stocking which is leading to weak demand for industrial products.
The Quixant business, which provides computer solutions exclusively for the
global casino gaming and slot machine market, was also affected by many of the
same factors as Densitron and declined 10% year on year in the first half.
Casino expansions slowed during 2024, and we believe the venues are
currently extending the useful life of their installed base of machines to
reduce capital investment. Notwithstanding a short term slow down, these
assets will need replacement in due course as they deteriorate, become
unreliable and do not have the computation power required to run the latest
game content. As flagged in the July 2024 trading update, some specific larger
key Quixant customers have also recently indicated lower demand, partly
reflecting the timing of new product releases and challenges in specific
regional markets.
(1) Taiwan Stock Exchange (XTAI and TPE) and Nasdaq Copenhagen Exchange
(XCSE), comparison of reported revenue in H1 2024 against H1 2023 for
Advantech Co. Ltd, Adlink Technology Inc., Axiomtek Co. Ltd, iBase Technology
Inc. and Nexcom A/S.
Maintaining profitability and strong operating cash generation
Actions taken amidst the component market shortages of 2021 and 2022, which
started to rebuild our gross margin during 2023, continued to deliver elevated
gross margins in the first half of 2024, with gross margins up by 310 basis
points to 37.3% (H1 2023: 34.2%). This is partly due to continued easing of
component costs, but also due to customer and product mix. Included in cost
of sales in H1 2024 is a provision of $1.2m related to stock originally
purchased and committed to purchase for delivery to Aruze. Further details on
the Aruze related balance sheet position are included in the financial review.
Due to the increase in gross margins year-over-year, while revenues were down
by 14%, gross profit fell by just 7% to $18.0m (H1 2023: $19.3m).
Continued close management of our operating expenses and higher interest
income on our cash balances led to adjusted profit before tax of $5.0m (H1
2023: $5.9m) and reported profit before tax holding at $4.7m (H1 2023: $5.1m).
The Group again delivered excellent cash conversion of 225% (H1 2023: 112%),
resulting in strong operating cash generation of $9.9m, $3.7m higher than H1
2023. This was driven by reductions in working capital tied up in inventory
from purchases previously used to mitigate long component lead times and
supply shortages, alongside good cash collection reducing the Group's trade
receivables. The strong operating cash performance meant that the Group
reported a record net cash balance of $36.9m at 30 June 2024 ($27.9m at 31
December 2023).
Business Review: Quixant
Quixant is Nexteq's brand that supplies computing solutions to the casino
gaming and slot machine market, representing 64% of the Group's total revenue
in H1 2024.
Demand across the land-based gaming customer base was weaker in H1 2024, and
despite our largest market, the US, seeing growth in land-based commercial
casino gross gaming revenues of 0.9%(2), longer capital renewal cycles and a
strategy of de-stocking has impacted the volume of new machines deployed and
therefore the volume of computers sold to the gaming manufacturers. Across
Europe, a similar trend of de-stocking has been observed, dampening demand,
and in LATAM the temporary government-led embargo on new gaming machines
imports into Mexico, has impacted several of our customers' demand for
computers. Globally, demand has been weaker than anticipated in the
land-based environment, with many customers showing lower volumes of Cabinet
sales into the market. We have retained all our Quixant customers through
this period, demonstrating the stickiness of our products and providing a
strong platform for future growth.
Overall gaming sector revenues were down 10% to $30.9m (H1 2023: $34.3m),
although improved gross margin and good cost management meant that profit
contribution was in line with prior year. In addition to the impact of
de-stocking, we saw a decline in monitor sales, partly due to a cessation of
sales to the Aruze Group following their US entity filing for Chapter 11
bankruptcy in February 2023. The number of computer boards shipped in the
first half of 2024 decreased by 21% to 20,500 (H1 2023: 25,900), with the
largest decrease in our mid-range IQON range, whilst our cost-effective and
high-end product volumes were in line with the prior year. Offsetting the
lower volumes was an increase in average selling price due to customer and
product mix.
As noted above, gross margin continued the improvement first seen in 2023,
supported by lower component pricing, with customer and product mix also
driving the margin higher.
Through H1 2024, we continued to focus on product development and innovation.
In June 2024, we launched the latest in our range of Intel based products,
the IQ 2, which offers high performance at a competitive price point, for the
high volume, value segment of the market. The IQ range is also well suited
to the requirements of the potential Brazil market opening, enabling quick
market entry for customers and partners should the Federal Gaming Bill be
approved. The IQ range now comes with AMD and Intel options, giving Quixant
customers the choice of CPU provider. Progress on sales pipeline has been
made with this new product, with an important win going through the
integration process. Our traditionally most popular product family, the IQON
series, also now has Intel and AMD options, with the Intel based solution
opening a wider addressable market. Again, the pipeline looks stronger with an
important European customer progressing through the integration process. As
markets develop, and the de-stocking process completes, the focus will be on
Quixant's core strength - designing and engineering market leading gaming PCs,
with a focus on a range of value propositions.
H2 2024 focus will be on-boarding the new customers won this year, and on
converting further pipeline opportunities, along with continued retention of
our current client roster. The development of new hardware and software
products continues, with a focus on developing the revenue position for 2025
and 2026.
(2) American Gaming Association Commercial Gaming Revenue Tracker Q2 2024
Business overview: Densitron
Densitron is Nexteq's brand that supplies industrial display components and
bespoke Human Machine Interface (HMI) solutions to selected industrial markets
outside gaming, representing 36% of the Group total revenue in H1 2024.
Densitron provides a platform for the Group to identify new non-gaming focus
markets, with the broadcast sector representing the first identified market in
which to innovate high value products.
Broadcast technology
Our Broadcast business provides HMI and control solutions. These solutions
primarily support Broadcast Manufacturers and System Integrators to create
intuitive and efficient controls for the broadcast workflow in and around the
Production Control Room (PCR).
Following four years of consecutive double-digit growth within this vertical,
revenues declined by 38% to $2.2m in H1 2024 (H1 2023: $3.5m). Within the
hardware element of our offering the primary reason for weaker trading
performance was de-stocking within our end customers, as some of our customers
are managing down inventory levels and slowing new project progression due to
increased cost of capital. Within the software element of our offering the
performance was negatively impacted by the slowdown in project delivery
timeline on certain projects in our pipeline due to cost management by our
customers.
While 2024 presents a challenging trading environment due to the factors
outlined above impacting first half, there are many signs that our proposition
and technology are relevant and demanded by the sector, so we expect to return
to growth as market conditions improve and further pipeline converts and head
to mass production. Specifically, we now have our first production orders
for our Tactila(TM) range of (patent pending) rotaries from a major
international broadcast manufacturer - with an additional pipeline of
exciting, qualified opportunities to convert. In addition, our new ProDeck
demonstrator has received positive initial feedback, and we have secured a
number of sample orders.
Industrial Display Components
Revenue from Densitron display components supplied into other industrial
sectors was down 18% year on year to $15.1m (H1 2023: $18.5m).
Our industrial display components are supplied to a wide range of markets,
which in aggregate continue to see weaker demand due to the challenging
macroeconomic environment. Many customers continue to manage working capital
through de-stocking, which is taking longer than originally anticipated due to
reduced end-market demand.
The second largest sector in the Nexteq Group by revenue in the first half was
the medical market and we have a longstanding book of customers who require
high service levels, need to work with trusted supply partners and tend to buy
the same display for up to a decade so present a very attractive customer base
for the display component business to grow from. The medical sector continues
to perform resiliently with revenues of $5.4m in the first half of 2024,
slightly ahead of the prior year (H1 2023: $5.1m) despite the macroeconomic
environment.
Gross margins in H1 2024 remained at the elevated levels first seen in 2023 as
initiatives introduced over the last few years continue to yield results. This
has allowed the overall Densitron business to deliver improved profit margins
in H1 2024 compared with H1 2023.
Growth strategy
Nexteq delivers growth through identifying and investing in vertical markets
which are undergoing a technology change bringing about a requirement for new,
optimised solutions which are not met by standard technology. Having
identified these markets our global engineering teams develop bespoke
products, providing customers an opportunity to outsource their product
development. We continually enhance this offering to increase the value
proposition and become increasingly integrated into the value-chain.
The Group's growth strategy is centred on five strategic pillars:
· Identification and analysis of market sectors 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.
· Undertake acquisitions to complement and accelerate its organic growth and
diversification strategy.
Share buyback
The Board commenced a limited share buyback programme of up to £1m in April
2024, principally with the intention of providing some short-term liquidity
for the Group's shares. Following engagement with shareholders and
consideration of the likely timing of near-term acquisition opportunities the
Board extended the buyback programme in July 2024. The Board intends to
utilise up to its full authority to purchase up to 10% of the Group's issued
share capital, which if fully utilised will return up to £6.5 million to
shareholders.
The Board remains committed to allocating capital towards diversification of
the Group's revenues into new market sectors, consistent with its growth
strategy, but considering the board changes announced in July 2024 and current
trading performance the Board recognises that completion of any acquisition is
likely delayed.
The Group's capital allocation policy remains unchanged, with a cash
generative business model and strong balance sheet with good liquidity
allowing it to invest in the business to drive organic growth and take
advantage of acquisition opportunities. Priorities for capital allocation are:
- Maintain a strong balance sheet with good liquidity;
- Investment in acquisitions to progress the Group's ongoing growth and
diversification agenda;
- Maintain a progressive dividend payment, growing at least in line with
earnings growth; and
- Any excess cash not required for investment in the medium-term growth of the
business will be available for distribution to shareholders, including by
means of share buybacks.
Board changes
In July 2024 we announced changes to the Board of Directors, namely the
intention of the Chair, Chief Executive Officer and Chief Financial Officer to
step down from the Board over the coming months.
Nick Jarmany, formerly Non-Executive Deputy Chair and a founding Director of
the Group, assumed the role of Interim Chair on 14 August 2024, with former
Chair Francis Small stepping down from the Group on the same day. The Board
continues with the process to recruit a permanent Chair.
Duncan Faithfull, formerly Gaming Business Leader and Chief Commercial Officer
at Nexteq, was appointed to the Board as Group Chief Executive Officer with
effect from 29 August 2024 following an extensive selection process. Former
Group Chief Executive Officer Jon Jayal, stepped down from the Board on 29
August 2024 but will remain with the Group to ensure an orderly handover.
Johan Olivier, Chief Financial Officer, will step down from the Board and
leave the Group in the coming months. Johan intends to continue in his current
role until a successor has been identified and to facilitate an orderly
handover.
Current Trading and Outlook
Order intake has remained muted throughout 2024 leading to the announcement in
July tempering expectations for full year trading. Despite the lower order
intake, the Group has order coverage of more than 90% of 2024 revenue
expectations giving it a high degree of visibility of the full year outcome.
We expect to deliver full year profit before tax and revenues in line with
the revised expectations as set out in the July 2024 trading update.
The customer de-stocking cycle leading to a normalisation of order patterns is
still ongoing and we expect this to continue into Q1 2025, although it
continues to be difficult to determine the extent and timing of the recovery.
The Group continues to benefit from high customer retention and a healthy new
business pipeline. We have continued to execute on our growth strategy and
believe that the Group is well placed to return to growth in 2026 as the new
business wins start to ramp and end-markets recover.
Notwithstanding short-term term challenging macro trading conditions, the
structural drivers of demand for the Group's products and its business model
to support customers in selected industrial markets to outsource aspects of
their technology to Nexteq remain intact. We continue to generate healthy
operating cash which is building on a strong balance sheet, and this positions
us well for future organic and acquisitive growth.
Group Financial Review
Group revenues were 14% lower year on year to $48.2m (H1 2023: $56.3m), with
Quixant declining 10% to $30.9m (H1 2023: $34.3m) and Densitron declining 21%
to $17.3m (H1 2023: $22.0m). The decrease across both divisions were due to
wider industry de-stocking by customers as they seek to reduce cash tied up in
inventory due to higher costs of capital. Furthermore, some specific larger
key Quixant customers have recently indicated lower demand, partly reflecting
the timing of new product releases and challenges in specific regional
markets. As a result, Quixant board sales volumes declined to 20.5k in H1
2024, down 21% from the 25.9k shipped in H1 2023. The volume decline was
partially offset by an increase in the average selling price, due to customer
and product mix. Densitron revenues were impacted by customer de-stocking
across all its sub-sectors. Revenues from the Broadcast sector declined by 38%
to $2.2m (H1 2023: $3.5m).
Gross margin in H1 2024 was 37.3%, 310bps up from the 34.2% achieved in H1
2023. The increase reflects the Group's continued focus on higher-value
products, which benefitted both the Densitron and Quixant divisions. Looking
ahead to the second half of 2024, the Group expects gross margins to stay at
these elevated levels.
Adjusted operating expenses increased by $0.2m to $13.6m (H1 2023: $13.4m), as
the Group carefully managed its cost base.
Adjusted Group operating profit in the first half was $4.4m, compared to the
$5.9m reported in H1 2023. Statutory operating profit was $4.0m (H1 2023:
$5.1m).
Interest rate rises and increased cash balances contributed to finance income
of $0.7m (H1 2023: $0.1m), whilst finance expense were in line with the prior
year at $0.1m (H1 2023: $0.1m).
Adjusted Profit before tax in the first half was $5.0m, compared to the $5.9m
reported in H1 2023. Statutory profit before tax was $4.7m (H1 2023: $5.1m).
The adjustments to statutory profit before tax and statutory operating profit
of $0.3m (H1 2023: $0.8m) comprised a share-based payments expense of $0.1m
(H1 2023: $0.5m) and amortisation of acquired intangibles of $0.2m (H1 2023:
$0.3m).
The tax charge on adjusted profit before tax was $0.8m (H1 2023: $1.0m), an
effective tax rate of 17.0% (H1 2023: 17.2%), driven by the mix of profits
across our regions in the first half. We expect the full year tax rate to be
within a range of 16-19% (2023: 16-19%). The tax charge on reported profit was
$0.8m (H1 2023: $0.8m).
Adjusted diluted earnings per share was 6.07c, a reduction of 15% on H1 2023
(7.18c per share). Diluted earnings per share was 5.70c, a reduction of 10% on
H1 2023 (6.31c per share).
Valuation of Aruze debtors and inventory
As disclosed in its 2022 and 2023 annual reports, the Group, through its
Quixant brand, had 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.
As at the date of this interim report the Chapter 11 proceedings are still
ongoing. AGA's operations and assets have been sold as part of the proceedings
and AGA also closed it Las Vegas operations. APMI filed for voluntary
liquidation on 22 August 2023 and a liquidation order was issued by the
Philippine courts. As at the date of this interim report the liquidation
proceedings are still ongoing.
There remains uncertainty over the recoverability of balances related to APMI,
and Nexteq management evaluated their carrying value as at the balance sheet
date.
As at 30 June 2024, APMI owed $1.0m to the Group from the sale of goods. The
amounts were impaired in full as at 31 December 2023 and due to the
uncertainty referenced above remain fully impaired at 30 June 2024. We are
continuing to take steps to recover these balances.
Inventory, consisting of raw materials with a book value of $1.6m (31 December
2023: $1.8m) and finished goods with a book value of $0.2m (31 December 2023:
$0.6m) originally earmarked for use by APMI was included in the Nexteq Group's
balance sheet as at 30 June 2024. The Group is also obligated to purchase raw
materials originally earmarked for APMI's use with a total purchase value of
$1.8m. The Group received raw materials with a book value of $0.9m in July
2024 and expects to receive the remaining stock into its inventory in the
second half of 2024.
The Group sold finished goods with a book value of $0.4m in the first half of
the year and expects to sell the remaining $0.2m stock in the second half of
2024 and 2025. All raw materials, both already within inventory and due to be
received, 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.
Due to weak market demand currently, the Group is exploring other sales
opportunities, including selling the raw materials as separate components. In
Q3 2024 the Group sold raw materials with a book value of $1.0m as separate
components at a loss of $0.6m. The Group has assessed the net realisable value
of the remaining raw material in stock and has recognised a provision of $1.2m
in the income statement in the six months ended 30 June 2024, $0.6m against
the book value of raw materials in stock at 30 June 2024 and $0.6m as an
onerous contract provision against the stock due to be received in H2 2024.
This provision reflects both the loss on sale of raw materials in Q3 2024 and
estimated losses on future sales, either as raw materials or as finished
goods.
The Group balance sheet also previously included capitalised development costs
with a book value of $0.4m related to the development of products for APMI's
future use. Management assessed the commercial opportunities for these
products and determined that it was not probable that these would generate
future economic benefits for other customers. As a result, development of
these products was ceased in 2023. An impairment charge of the full book value
of $0.4m was recorded within operating expense in the year ended 31 December
2023.
Cash flow
The Group generated $9.9m net cash from operating activities in the first half
of 2024 (H1 2023: $6.2m). Adjusted operating cash flow, which excludes tax
payments, was $11.3m (H1 2023: $6.7m), which resulted in operating cash
conversion of 225% (H1 2023: 112%). This was largely due to strong working
capital management, with cash collections reducing trade receivables and
effective stock management, with Inventory balances reduced by $2.2m since 31
December 2023.
The Group capitalised $1.0m of development costs (H1 2023: $0.7m), reflecting
the continued focus on innovation across both divisions.
Net cash was $36.9m on 30 June 2024, compared with $27.9m on 31 December 2023,
and comprised cash and cash equivalents of $37.3m (H1 2023: $28.4m) and gross
debt of $0.4m (H1 2023: $0.5m). The debt relates to a mortgage over the
Group's offices in Taiwan.
Foreign exchange
The Group reports its results in US Dollars as this is the principal currency
in which it trades with customers, with approximately 93% (H1 2023: 91%) of
its 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 following are the average and closing rates for the
current and prior year:
Average rate
Income statement H1 2024 H1 2023
USD/GBP 1.27 1.23
USD/Euro 1.08 1.08
USD/TWD 0.031 0.033
Closing rate
Balance sheet H1 2024 H1 2023
USD/GBP 1.26 1.27
USD/Euro 1.07 1.09
USD/TWD 0.031 0.032
As most of the Group's revenues are denominated in US Dollars, the impact of
foreign exchange movements on reported revenues was minimal in H1 2024 and H1
2023. The impact on foreign exchange movement on profit before tax is mostly
due to operating expenses incurred in Pound Sterling and Taiwan Dollars.
The average US Dollar exchange rate against currencies in the territories in
which the Group operates for H1 2024 were very similar to H1 2023 levels,
resulting in a negligible impact on adjusted operating expenses, when compared
to H1 2023 average rates. The Group recognised translational foreign exchange
rate gains of $0.2m in H1 2024, compared with gains of $0.5m in the prior
year, a negative $0.3m impact year over year. Combining the impact of these
foreign exchange elements resulted in a net negative foreign exchange rate
impact of $0.3m on adjusted profit before tax for H1 2024 when compared to H1
2023.
CONDENSED CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2024 AND 30 JUNE 2023
Unaudited 30 June 2024 Unaudited 30 June 2023
Note
$000 $000
Revenue 3 48,231 56,291
Cost of sales (30,221) (37,025)
Gross profit 18,010 19,266
Operating expenses (13,984) (14,215)
Operating profit 4,026 5,051
Finance income 721 139
Finance expense (65) (52)
Profit before tax 1 4,682 5,138
Taxation (797) (802)
Profit for the period 3,885 4,336
Other comprehensive expense for the period
Foreign currency translation differences (1,520) (189)
Total comprehensive income for the period 2,365 4,147
Basic earnings per share 4 $0.0584 $0.0652
Diluted earnings per share 4 $0.0570 $0.0631
The above condensed consolidated statement of profit and loss and other
comprehensive income should be read in conjunction with the accompanying
notes.
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 30 JUNE 2024 AND AT 31 DECEMBER 2023
Unaudited 30 June 2024 31 December 2023
$000 $000
Non-current assets
Property, plant and equipment 5,386 5,478
Intangible assets 14,396 14,243
Right-of-use assets 1,532 1,558
Deferred tax assets 2,918 2,951
Trade and other receivables - 54
24,232 24,284
Current assets
Inventories 20,889 24,338
Trade and other receivables 22,626 25,828
Cash and cash equivalents 37,341 28,406
80,856 78,572
Total assets 105,088 102,856
Current liabilities
Loans and borrowings (86) (91)
Trade and other payables (17,668) (16,763)
Tax payable (424) (1,247)
Lease liabilities (567) (569)
(18,745) (18,670)
Non-current liabilities
Loans and borrowings (317) (382)
Provisions (330) (351)
Lease liabilities (1,048) (1,107)
(1,695) (1,840)
Total liabilities (20,440) (20,510)
Net assets 84,648 82,346
Equity attributable to equity holders of the parent
Share capital 106 106
Share premium 6,747 6,747
Treasury shares (218) -
Share based payments reserve 2,060 1,905
Retained earnings 78,283 74,398
Translation reserve (2,330) (810)
Total equity 84,648 82,346
The above condensed consolidated balance sheet should be read in conjunction
with the accompanying notes.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2024, 31 DECEMBER 2023 AND 30 JUNE 2023
Share capital Share premium Treasury shares Translation reserve Share based payments Retained earnings Total equity
$000 $000 $000 $000 $000 $000 $000
Balance at 1 January 2023 106 6,708 (1,533) 895 66,038 72,214
Total comprehensive income for the period
Profit for the period - - - - - 4,336 4,336
Other comprehensive expense - - - (189) - - (189)
Total comprehensive income for the period - - - (189) - 4,336 4,147
Transactions with owners, recorded directly in equity
Share based payments - - - - 509 - 509
Exercise of share options - 39 - - - - 39
Total contributions by and distributions to owners - 39 - - 509 - 548
Unaudited balance at 30 June 2023 106 6,747 - (1,722) 1,404 70,374 76,909
Unaudited balance at 1 July 2023 106 6,747 (1,722) 1,404 70,374 76,909
Total comprehensive income for the period
Profit for the period - - - - 6,561 6,561
Other comprehensive income - - 912 - - 912
Total comprehensive income for the period - - 912 - 6,561 7,473
Transactions with owners, recorded directly in equity
Share based payments - - - - 453 - 453
Deferred tax on share-based payment expense - - - - 48 - 48
Dividend paid - - - - - (2,537) (2,537)
Total contributions by and distributions to owners - - - - 501 (2,537) (2,036)
Balance at 31 December 2023 106 6,747 - (810) 1,905 74,398 82,346
Balance at 1 January 2024 106 6,747 - (810) 1,905 74,398 82,346
Total comprehensive income for the period
Profit for the period - - - - - 3,885 3,885
Other comprehensive expense - - - (1,520) - - (1,520)
Total comprehensive income for the period - - - (1,520) - 3,885 2,366
Transactions with owners, recorded directly in equity
Purchase of own shares - - (218) - - - (218)
Share based payments - - - - 155 - 155
Total contributions by and distributions to owners - - (218) - 155 - (63)
Unaudited balance at 30 June 2024 106 6,747 (218) (2,330) 2,060 78,283 84,648
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2024 AND 30 JUNE 2023
Unaudited 30 June 2024 Unaudited 30 June 2023
$000 $000
Cash flows from operating activities
Profit for the period 3,885 4,336
Adjustments for:
Depreciation and amortisation 1,079 1,348
Loss on disposal of property, plant and equipment (1) 6
Impairment losses on intangible assets - 506
Depreciation of leased assets 314 314
Provision for doubtful debts 412 -
Movement in provisions 4 48
R&D tax credit (38) -
Taxation charge 797 802
Finance income (721) (139)
Finance expense 65 52
Unrealised exchange rate losses 232 496
Share-based payment expense 155 509
6,183 8,278
Decrease in trade and other receivables 2,547 2,921
Decrease in inventories 2,216 486
Increase / (Decrease) in trade and other payables 420 (4,967)
11,366 6,718
Interest paid (12) (1)
Lease liability interest paid (49) (45)
Income tax paid (1,455) (496)
Net cash from operating activities 9,850 6,176
Cash flows from investing activities
Addition of development costs (980) (683)
Purchase of property, plant and equipment (279) (91)
Addition of externally purchased intangible assets (46) (86)
Interest received 721 139
Net cash used in investing activities (584) (721)
Cash flows from financing activities
Repayment of borrowings (44) (45)
Mortgage interest paid (5) (6)
Payment of lease liabilities (305) (302)
Purchase of own shares (218) -
Exercise of share options - 39
Net cash used in financing activities (572) (314)
Net increase in cash and cash equivalents 8,694 5,141
Cash and cash equivalents at 1 January 28,406 13,508
Foreign exchange rate movements 241 342
Cash and cash equivalents at period end 37,341 18,991
The above condensed consolidated cash flow statement should be read in
conjunction with the accompanying notes.
1. Basis of preparation and accounting policies
As is permitted by the AIM rules for Companies, the Directors have not adopted
the requirements of IAS34 'Interim Financial Reporting' in preparing the
interim financial statements. The financial information shown for the year
ended 31 December 2023 in the interim financial information does not
constitute full statutory financial statements as defined in Section 434 of
the Companies Act 2006 and has been extracted from the Company's annual report
and accounts. Accordingly, this report is to be read in conjunction with the
annual report for the year ended 31 December 2023 and any public announcements
made by Nexteq Plc during the interim reporting period. The annual financial
statements of the Group were prepared in accordance with UK adopted
international accounting standards. Statutory accounts for the year ended 31
December 2023 have been filed with the Registrar of Companies and the
auditor's report was unqualified, did not contain any statement under Section
498(2) or 498(3) of the Companies Act 2006 and did not contain any matters to
which the auditors drew attention without qualifying their report.
The accounting policies applied by the Group in this condensed consolidated
interim financial report are the same as those applied by the Group in its
consolidated financial statements as at and for the year ended 31 December
2023. The reporting currency adopted by the Group is the US Dollar as this is
the trading currency of the Group.
The condensed consolidated interim financial information is neither audited
nor reviewed and the results of operations for the six months ended 30 June
2024 are not necessarily indicative of the operating results for future
operating periods.
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the condensed consolidated interim financial
report.
This condensed consolidated interim financial report was approved by the Board
of Directors on 10 September 2024.
Reconciliation of adjusted 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 period 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, Adjusted Operating cash flow and Net cash. The Group's definition of
adjusted measures may not be comparable to other similarly titled measures
reported by other companies. See below for analysis of the adjusting items in
reaching adjusted performance measures.
Adjusted Profit before tax
Six months ended 30 June 2024 Six months ended 30 June 2023
$000 $000
Profit before tax 4,682 5,138
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 179 291
Share-based payments expense(2) 155 509
Adjusted Profit before tax 5,016 5,938
(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 has been excluded as it is not a cash-based
expense.
Adjusted Profit after tax
Profit after tax 3,885 4,336
Adjustments:
Amortisation of customer relationships, technology and order backlog 179 291
Share-based payments expense 155 509
Non-recurring tax benefits(1) (84) (200)
Adjusted Profit after tax 4,135 4,936
(1) Tax on adjusted items relating to amortisation of customer relationships,
technology and order backlog of $0.2m (H1 2023: $0.3m) and share-based
payments expense of $0.2m (H1 2023: $0.5m).
Adjusted Operating profit
Operating profit 4,026 5,051
Adjustments:
Amortisation of customer relationships, technology and order backlog 179 291
Share-based payments expense 155 509
Adjusted Operating expenses 4,360 5,851
Adjusted Operating expenses
Operating expenses (13,984) (14,215)
Adjustments:
Amortisation of customer relationships, technology and order backlog 179 291
Share-based payments expense 155 509
Adjusted Operating expenses (13,650) (13,415)
Adjusted Operating cash flow
Net cash from operating activities 9,850 6,176
Add back:
Tax paid 1,455 496
Adjusted Operating cash flow 11,305 6,672
Adjusted Operating Cash conversion % (Adjusted operating cash flow/Adjusted 225% 112%
profit before tax)
Net cash
Cash and cash equivalents 37,341 18,991
Loans and borrowings (403) (512)
Net cash 36,938 18,479
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 profit before tax. 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:
· Quixant - Design, development and manufacturing of gaming
platforms, cabinets, and display solutions for the casino gaming and slot
machine industry.
· Densitron - Sale of electronic display components to global
industrial markets and custom Human Machine Interface (HMI) products to the
Broadcast market. 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:
Six months ended Six months ended
30 June 2024 30 June 2023
$000 $000
Quixant 8,014 8,492
Densitron 2,069 2,492
Segment results 10,083 10,984
Corporate cost (6,057) (5,933)
Operating profit 4,026 5,051
Finance income 721 139
Finance expense (65) (52)
Profit before tax 4,682 5,138
Taxation (797) (802)
Profit after tax 3,885 4,336
Six months ended 30 June 2024 Six months ended 30 June 2023
$000 $000 $000 $000 $000 $000
Quixant ( ) Densitron Total Quixant Densitron Total
Other information
Depreciation of owned assets 54 5 59 62 3 65
Amortisation of intangible assets 355 202 557 468 159 627
Impairment of intangible assets - - - 28 478 506
409 207 616 558 640 1,198
(1)Depreciation and amortisation of $778k (H1 2023: $969k) were not allocated
to segments as these were reported to the CODM as corporate costs.
3. Analysis of turnover
Six months ended 30 June 2024 Six months ended 30 June 2023
$000 $000 $000 $000 $000 $000
Quixant ( ) Densitron(1) Total Quixant Densitron Total
By primary geographical market
Asia 497 5,096 5,593 1,115 5,327 6,442
Australia 1,259 18 1,277 3,637 36 3,673
UK 1,731 994 2,725 2,757 1,879 4,636
Europe excl. UK 2,588 4,677 7,265 5,637 8,590 14,227
North America 24,445 6,071 30,516 21,096 5,678 26,774
Rest of World 371 484 855 48 491 539
30,891 17,340 48,231 34,290 22,001 56,291
(1)Densitron Revenue from products splits into Densitron $16.7m (H1 2023:
$21.3m) and IDS $0.6m (H1 2023: $0.7m). IDS Revenue of $0.2m (H1 2023: $0.2m)
recognised throughout the performance period.
The above analysis includes sales to individual countries in excess of 10% of
total turnover of:
Six months ended Six months ended
30 June 2024 30 June 2023
$000 $000
USA 30,255 26,111
Revenues of $20.8m (H1 2023: $16.0m) are derived from three customers (H1
2023: two customers) who individually accounted for more than 10% of Group
revenues in H1 2024. These revenues are attributed to the Quixant segment.
4. Earnings per share
Six months ended Six months ended
30 June 2024 30 June 2023
$000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit
attributable to equity shareholders
3,885 4,336
Number of shares
Weighted average number of ordinary shares for the purpose of basic EPS 66,510,153 66,488,872
Effect of dilutive potential ordinary shares:
Share options 1,602,231 2,237,164
Weighted number of ordinary shares for the purpose of diluted EPS 68,112,384 68,726,036
Basic earnings per share $0.0584 $0.0652
Diluted earnings per share $0.0570 $0.0631
Six months ended Six months ended
30 June 2024 30 June 2023
Calculation of adjusted diluted earnings per share: $000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit
attributable to equity shareholders
3,885 4,336
Adjustments:
Amortisation of customer relationships, technology and order backlog 179 291
Share-based payments expense 155 509
Tax effect of adjustments (84) (200)
Adjusted earnings 4,135 4,936
Adjusted diluted earnings per share $0.0607 $0.0718
5. Related party transactions
During the period, the Group paid €15,600 (H1 2023: €15,600) for
administrative services to Francesca Marzilli, the wife of Nicholas Jarmany.
There were no other related party transactions, other than transactions with
key management personnel, who are the Directors of the Company and the
Executive Committee.
6. Post balance sheet events
On 29 July 2024, the Group announced its intention to extend the share buyback
programme previously authorised by shareholders at the General Meeting on 16
April 2024. This increased the initial buyback programme, authorised to
purchase shares of up to £1.0m, to extend the authorisation to purchase up to
10% of the Group's Issued Share Capital, equating to 6,475,634 ordinary shares
of 0.1 pence each. The extended buyback will return a maximum of £6.5m to
shareholders.
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