REG - Nexteq PLC - Final Results
19/03/2025 07:15
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RNS Number : 2232B Nexteq PLC 19 March 2025
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.
19 March 2025
Nexteq plc
("Nexteq" or the "Group")
Audited Final Results
Significant reorganisation to deliver three-year plan
Nexteq (AIM: NXQ), a leading technology solutions provider to customers in
selected industrial markets, is pleased to announce its audited full year
results for the 12 months ended 31 December 2024.
Year ended Year ended 31 December 2023 Change
31 December 2024
Group Revenue $86.7m $114.3m (24%)
Quixant Revenue $54.8m $69.2m (21%)
Densitron Revenue $31.9m $45.1m (29%)
Gross margin 35.9% 36.3% -40 bps
Adjusted profit before tax(1) $4.8m $14.7m (67%)
Group profit before tax $1.7m $12.9m (87%)
Adjusted diluted earnings per share(1) 5.08c 18.09c (72%)
Diluted earnings per share 0.48c 16.02c (97%)
Operating cashflow $13.0m $19.8m (34%)
Net cash(2) $29.1m $27.9m 4%
(1)Adjusted for amortisation of customer relationships, technology and order
backlog, share based payments, restructuring charges and goodwill impairment.
For further details refer to note 1 and note 5 of the condensed consolidated
financial statements. Adjusted profit before tax of $4.8m includes a charge of
$2.7m to reduce the carrying value of Aruze inventory.
(2)Net cash is a non-GAAP measure of cash inflows from operations less cash
tax paid
FINANCIAL HIGHLIGHTS:
· Historically high margins maintained and continued healthy operating cash
flow.
· Destocking process from record volume years in 2022 and 2023 continued,
leading to Group revenues down 24%.
o Quixant revenues down 21%, with Gaming Hardware Platform volumes reducing
in the year, but critically with no loss of customers.
o Densitron revenues down 29%, with softer demand across all industrial
sectors.
· Gross margin reduced by 40bps to 35.9%. Whilst remaining strong, this was
significantly impacted by charges to reduce the carrying value of Aruze stock
of $2.7m.
· Adjusted profit before tax reduced 67% to $4.8m (2023: $14.7m), a margin of
5.5% (2023: 12.9%).
· Reported profit before tax reduced 87% to $1.7m (2023: $12.9m) a margin of
2.0% (2023: 11.3%) following a goodwill impairment of $2.9m, provisions taken
against Aruze stock of $2.7m and restructuring costs of $0.7m.
· Net cash increased 4% to a record $29.1m, reflecting improved cash generation
from trading and positive working capital movement as overall stock levels
reduced, alongside returning $6.9m to shareholders through the share buyback
programme and $2.8m in dividends paid in the period.
· Dividend of 3.7p per share proposed (2023: 3.3p per share) reflecting
confidence in the long-term prospects of the business and strong cash
generation.
OPERATIONAL HIGHLIGHTS:
· Maintained high customer satisfaction and retention rates.
· New customer wins across Gaming and Broadcast, providing foundations for
long-term valuable relationships.
· New products and solutions launched in Broadcast and Gaming sectors as focus
on R&D is re-energised, bringing to the market ProDeck, IQ-2 and IQON-2
products.
· New Senior Leadership team put in place in Q4 with strategic review
undertaken.
· Organisational restructure as 'One Nexteq' into a regionally aligned structure
to deliver new three-year organic growth ambitions
· Robust product roadmap and launches planned for 2025, including Gaming
software solution.
· Strong balance sheet with a significant net cash position, and with continuing
good cash generation positioning the Group for future organic and acquisitive
growth.
Duncan Faithfull, Chief Executive Officer of Nexteq plc, commented:
"2024 was a challenging year for Nexteq, with a significant impact on volume
driven by continuing destocking across our customer base, and the wider
economic environment, characterised by high interest rates, which impacted our
customers' willingness to invest.
2024 was also a year of significant change, with the appointment of a new
Senior Leadership Team and Board transition, including my appointment in the
CEO position. We now look forward to the future with this reorganisation
behind us, and a renewed platform of leadership stability to drive forward our
ambitions.
This change has given the Group the opportunity to re-build; re-energise; and
refocus on delivering a new three-year plan based upon what made us great in
the first place. Nexteq is a technology product business - and a very good one
- with world-class engineering, both hardware and software, at its core.
Re-focussing these skills to develop market leading innovative solutions will
be the cornerstone of that plan, with our 'One Nexteq' approach to our markets
driving customer adoption of these new products and solutions.
The Board is excited about the three-year plan and remains confident that our
renewed focus on creating innovative technology solutions will unlock the
growth potential of the business, with 2025 being a year to focus on our
current strong customer relationships; winning and integrating new customers;
and diversifying our revenue streams, with the objective to deliver growth
from 2026. Nexteq's impressive cash reserves provide the Senior Leadership
Team with the opportunity to invest to accelerate growth in our target
markets, and to further diversify the Group. We look ahead with a clear plan,
robust financial position and established, market-leading position from which
to grow."
Investor Presentation
Nexteq is hosting an online presentation open to all investors today via
Investor Meet Company at 10.00am. Anyone wishing to join the session should
register here:
https://www.investormeetcompany.com/nexteq-plc/register-investor
(https://www.investormeetcompany.com/nexteq-plc/register-investor)
Capital Markets Day video recording
A video recording of the Group's Capital Markets Day, held on 26 February
2025, in which the Group presented detail on its three-year plan and strategic
ambitions for the end of 2027, can be found on the Company's website
at Investor Hub - Nexteq plc (https://nexteqplc.com/investor-hub/) .
(*) Three-year organic growth ambitions, targeting revenue of $108m-$120m,
gross margin of 35-38% and 10-15% EBITDA(1) margin by the end of 2027.
Nexteq plc Tel: +44 (0)1223 892 696
Duncan Faithfull, Chief Executive Officer
Matt Staight, 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)
Financial PR: Tel: +44 (0)20 3405 0205
Alma Strategic Communications
Hilary Buchanan / Emma Thompson
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 Taiwan operation is 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 divisions can be found at
www.nexteqplc.com.
CHAIR'S STATEMENT
As one of the three founders of Quixant, I am delighted to continue in my role
of Interim Chair as we move into 2025. With Quixant celebrating its 20th
Anniversary in March 2025, and with Densitron recently turning 50 years old,
we have established brands, with a reputation for engineering excellence;
quality and innovation. Coming out of the pandemic years, and the subsequent
component crisis, I truly believe that we now have an organisational structure
and strategy to deliver a diversified group, and consistent growth for all our
stakeholders.
2025 will see a new Chair in role, now that the new Senior Leadership Team has
set out its strategy, but my continuing affection and drive for this business
will see me retaining my position as a non-executive on the Board, supporting
the new Chair, and the business as we move through the next phase of Nexteq's
evolution.
Review of 2024
The year under review has been a challenging period for the Group, both in
terms of the wider market backdrop, which was characterised by the continued
trend of industry-wide destocking and low business confidence, but also a
period of major leadership transition with the resignation of the Chair, CEO
and CFO, each having made major contributions to the Group's evolution and
success. This was followed by the appointment of strong internal successors
following a rigorous process, with Duncan Faithfull taking on the role of CEO
and Matt Staight appointed to CFO. I have been impressed in my time working
with Duncan and Matt on their clarity of vision, early strategy execution and
determination in delivering results, and I am delighted we now enter the new
year with a renewed platform of stability with an excellent blend of expertise
and experience.
Notwithstanding the above challenges, the robustness of the underlying
business meant the Group delivered total revenues of $86.7m, albeit 24% down
on a strong comparative year, together with gross margins maintained at
historically high levels. Careful management of costs meant that adjusted
profit before tax was $4.8m. The Group ended the year with a net cash position
of $29.1m, reflecting continued strong cash generation net of the impact of
returns to shareholders over the year via our $6.9m share buyback programme
and dividends of $2.8m.
Growth ambitions building on our core strengths
Following a strategic review, the newly installed Senior Leadership Team
restructured the business in Q4 2024 to align it to a new three-year strategy
of delivering revenue of $108m-$120m, gross margins of 35-38% and Adjusted
EBITDA margins of 10-15%. The building blocks of this plan are driving organic
growth within the current product suite, expanding the addressable opportunity
through product innovation and accelerating diversification into new verticals
through bolt-on M&A. Further details of the Group's three-year plan can be
found in the CEO's report.
My confidence in the Group achieving these ambitions is underpinned by
Nexteq's core strengths and competitive market positioning built up over its
20-year heritage. First, the established and close relationships Nexteq has
earned with its customers are stronger than ever, working alongside them as a
key engineering and technology partners for their business-critical products.
Our persistent focus on product quality and collaborative approach to customer
care is part of Nexteq's DNA and is evidenced by the Group's long-standing
customer relationships and high retention rates.
Second, the Group's track-record of successfully launching and bringing new
products to market across its core verticals of Gaming, Broadcast and Medical
means that the Group has grown from a reputation as a technology pioneer
within its chosen markets, which continues to support new customer wins today.
The next step is to accelerate the pace and rigor of product innovation to
drive new growth opportunities and enhance our value proposition to customers.
The Group has a robust hardware and software product roadmap and I am excited
to support the team in their strategy.
Third, I continue to be impressed by the quality of the team and skills within
the organisation. The dedication to delivering for customers and enthusiasm
through a period of uncertainty has been inspiring, and on behalf of the
Board, I would like to thank all of our team members for their hard work.
Moving ahead sustainably
Our commitment to long-term, sustainable value creation remains a central
component of evolution. In addition to being Carbon Neutral in 2024, the Group
continues to make progress towards its target of achieving Net Zero emissions
by 2050. The work we have done against the five UN Sustainability Development
Goals (SDGs) we identified for the Group include expanding the number of
apprenticeships and continuing our contribution to carbon reduction projects.
Dividend and share buyback programme
The Board has agreed to maintain growth in the dividend despite the reduction
in earnings, supported by the healthy operating cash flow and record cash
balance which supports continued investment to grow the business. As a result,
the Board considers it appropriate to recommend a full year dividend of 3.7p
per share (2023: 3.3p per share). The Group's share buyback programme,
launched in H2 of 2024, has returned $6.9m of cash to shareholders during the
year with 89% of the approved buybacks having been completed at year end.
Looking ahead
Nexteq has demonstrated resilience withstanding the headwinds in 2024 and
addressing the continued global uncertainties which face all business in 2025.
In Q4 the business made the purposeful decision to refocus investment, both
time and skills, on the areas of the business driving new product development
and new business wins. The successful transition in leadership, continued
focus on operational efficiencies, and the establishment of a clear three-year
plan means we enter 2025 in a stronger position. Evidenced by significant
business wins secured across the Group and a clear path to delivering the
three-year strategy, the Board expects positive movements in order book
generation to be seen through 2025, with revenue growth becoming more material
from 2026.
On behalf of the Board, I would like to thank our employees, customers, and
shareholders for their continued support and confidence in Nexteq. We look
forward to the next phase of our journey with optimism and determination.
Nick Jarmany
Interim Chair
CHIEF EXECUTIVE'S REPORT
2024 in summary
2024 was a challenging year for Nexteq, but my first few months as CEO of the
Group have demonstrated to me the solid foundations the Group has built over
its 20-year history. I continue to be impressed by the Group's heritage of
technology leadership in its focus markets, excellent team of people with deep
technology expertise and best-in-class customer service that we have become
known for.
The market backdrop in 2024 was characterised by difficult conditions,
including geopolitical uncertainty, elevated inflation which both impact
business confidence combined with the ongoing cycle of destocking. As a
result, our trading performance was not at the high standard that we set
ourselves. Notwithstanding external factors, there are a number of operational
and organisational factors within our control that I, together with the newly
appointed Senior Leadership Team, have identified to change in order to become
leaders of markets again, and to drive the growth that this business is
capable of, in line with our three-year ambitions of being $108m-$120m
revenue, with gross margins of 35-38% and Adjusted EBITDA margins of 10-15%.
This refocus was presented at our recent Capital Markets Event in February and
detailed later in this report.
Despite a tough market environment, our gross margins remained strong and
resilient; and our operating costs remained controlled. Our challenge in
2024 was one of revenue generation and order intake, resulting in revenue
lower than 2023 across both of our trading brands, Quixant and Densitron.
Trading environment
The lower revenue performance in 2024 was driven by three critical factors
occurring simultaneously. Firstly, during the years post-pandemic, stock was
procured by our customer base expecting continuing growth in demand for their
products, which did not transpire to be the case. The subsequent destocking
process impacted 2024 significantly, and in fact, in certain geographies and
markets, still continues. Secondly, throughout 2024, across all our market
verticals, our customers' confidence to invest in capital projects was
impacted negatively by an uncertain macro-economic environment translating
into higher-than-expected cost of capital. Thirdly, across the business,
2023 was positively impacted by end of life / last time purchase situations in
key customers, providing a very strong comparative year.
These issues were felt across the business, but especially in our non-USA
business, which saw a 40% reduction in revenue between 2023 and 2024, driven
largely by the EMEA business in both the Quixant and Densitron brands. In
the USA, revenue was impacted in the same way, but to a lesser extent, with an
8% reduction in revenue being seen year on year, mirroring our two largest
customers' performance in their home market.
Following rigorous analysis of the situation, we are very clear about what has
driven these revenue challenges, and we have implemented specific regional
growth plans across the business verticals to win material new business
through 2025 and drive growth from 2026 and beyond. This is detailed later in
my report.
Excellent cash generation continues
As a result of the efficient Nexteq business model, cash generation continues
to be exceptionally strong. Throughout 2024, this has enabled the share
buyback scheme, in which $6.9m was returned to shareholders, alongside $2.8m
in dividends. Despite this investment we ended 2024 with $29.1m of net cash,
and as we move to 2025, this provides the flexibility to invest in our organic
and targeted "bolt on" M&A growth strategy.
Managing change
2024 also brought a period of significant leadership change within the
business, including the appointment of an interim Chair and new permanent
Executive team, along with the reorganisation of the business into a
regionally aligned 'One-Nexteq' structure to support the execution of our new
strategy in 2025 and beyond. I would like to extend my thanks to all our
global teams for their perseverance and focused commitment to delivering a
best-in-class service to clients through this period of disruption.
Business Review - Quixant
Quixant is our trading brand which delivers technology outsourcing solutions
to the Casino and slot machine industry, focused on specific hardware gaming
platforms (PCs); monitor and cabinet solutions. Quixant turned 20 years old
in March 2025.
Quixant increased its percentage share of Group revenue in 2024 to 63%,
despite a year-on-year decline in its own revenue of $13.4m to a total of
$54m. The reduction in revenue in Gaming was spread between the trading
regions, with our largest market, the USA, down 12%, or $6m versus 2023, and
the Rest of the World (RoW) region by 40%, which equated to a $7.6m reduction.
Driving this was an overall reduction in hardware platform sales as customers'
confidence to invest was impacted by persistent macro-economic uncertainty.
This uncertainty, coupled with the destocking process which followed the 2022
and 2023 post pandemic optimism led to reductions in volume of sales of the
three hardware platform categories that Quixant offers.
Our cost-effective solutions (IQ range) saw the smallest decline of the three
product categories. We saw no customer losses through 2024, and our newest
variants - the IQ 2 and IQ Connect - were launched, so we expect material
progress to be made in this category in 2025.
Traditionally the mid-range products (IQON range) are the biggest selling
products but saw a 38% reduction in volume between 2023 and 2024, driven by
general destocking, and one large customer in the UK being acquired by a
business which has not historically used Quixant.
Our QMAX range, our premium solutions range, declined by 33% in volume in 2024
as a result of three large customers having difficult trading years
themselves. No distribution has been lost, and the three customers have now
invested significantly in game design - the factor which determines the
success of a Cabinet and our sales of hardware platforms.
2024 saw the continuing improvement in supply chain lead times and component
pricing. Quixant's lead times are now back at pre-pandemic levels and whilst
component pricing has not returned to pre-pandemic levels, the market is now
stable, with supply and demand in balance.
Throughout 2024, Quixant refocused onto product development and concentrated
on the following activities:
· AMD and Intel - Both graphic chip partners have been integrated across the
hardware product range with all product families having an Intel and AMD
variant. Our Gaming customers are split equally between the two graphics
providers, so having a product range which uses both is essential for opening
the overall addressable market.
· New Product introduction - The IQ 2 and IQ Connect were both launched in 2024,
targeting the addressable markets in 'Route' markets in North America and
Spain and LatAm markets. IQON 2, featuring Intel, was also launched late 2023.
· Bespoke QMAX development - Both of our largest Gaming customers started the
process of moving to a next generation hardware platform to give them more
performance at competitive pricing levels, utilising our core strength of PC
hardware and software engineering.
Quixant continued its progress in Gaming Cabinets in 2024, with new customers
to complement the significant win of one of the UKs largest Casino operators
in 2023. Quixant now works with leading Cabinet manufacturers in North
America and Europe to deliver its 'Turnkey' Cabinet solutions, for customers
who need a fully outsourced cabinet. Through 2024 Quixant sold over 200 full
Turnkey cabinets globally. The partnership 'Turnkey' model is gaining traction
as the trend for online game providers looking for a land-based solution
increases in popularity.
Quixant Outlook
There are many reasons to be positive as we move into 2025:
· Brazil - With the online and sports betting segment legalised in January 2025,
the Video Lottery Terminal (VLT) market is being opened on a state-by-state
basis. With two states already operating VLTs legally, the expectation is
that this will grow offering an opportunity even before any federal law is
passed legalising slot machine operations in country. Quixant has its supply
chain already established and favourable trading conditions, by partnering
with a Brazilian importation organisation. We continue to monitor the
situation of the Federal law and remain hopeful of progress in 2025.
· Supply chain certainty - With the USA publicly stating the support of
Taiwanese independence, coupled with our dual location manufacturing strategy,
we remain confident in the supply chain security. We are confident that USA
tariffs will not impact Quixant product.
· North American positivity - With a new President and improving economic
picture, there is renewed positivity within our largest gaming market.
· The increasing requirement of enhanced graphics gives us an advantage - Having
a full range of AMD and Intel SKUs allows maximisation of addressable markets,
and our close relationships with AMD and Intel allow the potential of new and
exclusive graphics solutions.
· UK Gaming White Paper - We are expecting the Government white paper on
expansion of gaming cabinets in UK Casinos to be published in Q3 2025,
increasing the opportunity for Turnkey solutions.
· Software - To complement our market leading suite of embedded gaming software
on our Hardware platforms, we will launch a new Software product at G2E 2025
in Las Vegas.
· 'One Nexteq' Monitor solutions - Partnering with our sister company,
Densitron, we are investigating the potential of the significant Gaming
monitor market. As a specialist display solutions provider, we have
expertise in the Group to deliver exceptional products at competitive prices.
Business Review - Densitron
Through our Densitron brand we sell advanced display solutions and human
machine interface (HMI) technology into several market segments, which we have
been doing for 50+ years.
2024 was a tough year for Densitron, with revenues falling 29% versus 2023,
driven largely by significant reductions in the RoW business. In this region
we declined by $12m, driven by the planned loss of one major customer, coupled
with the impact of several last time buys (LTB) of displays in 2022 and 2023,
which enhanced the outcomes for those two years. In North America, which
includes sales to customers in Asia, the business declined by 10.4%,
translating into a revenue decline of $1.1m, driven by LTBs and general
destocking across the customer base. As evidenced in the chart below,
Densitron was impacted by the same destocking pressure as felt across many
industries, including the gaming market.
The above numbers represent the core Densitron Industrial displays business in
2024, which involves applying advanced engineering solutions to 3rd party
monitors. Whilst revenues have been disappointing, over recent years a huge
amount of effort has gone into margin development, with 2024 seeing Densitron
overtaking Gaming in terms of Gross Margin %, and in doing so achieving a
Company record.
Through 2024, a concerted effort has been made with our key supplier partners
to ensure certainty of supply from China, and other industrial display
markets, and to ensure dual supply solutions, to prevent previous issues
around LTBs.
The Densitron business generates revenues from several key market verticals,
including Medical, Automotive, Agriculture and Broadcast. The Broadcast market
continues to be a significant opportunity for Densitron with $4.7m revenue
from the sector in 2024. Over recent years, the business has focused on
delivering innovation in terms of Nexteq I.P. based solutions, where we own
the product design and overall solution. We believe that we will make
significant traction in this Market over the coming years as we move to this
more 'Quixant style' of doing business in Display solutions.
Our Tactila product
This can be seen in the continued development of our patented 'Tactila'
solution, which is truly unique in terms of engineering innovation, which
allows tactile rotaries to be bonded to single pieces of glass,
revolutionising the user experience in the 'Production Control Rooms' (PCRs)
of our Broadcast partners. Tactila shows off the engineering expertise of
Nexteq and now includes software support delivery from our Software centre of
excellence, which historically was exclusively focused on the gaming vertical.
ProDeck
Delivering value add, innovative solutions is how we are driving growth in the
Densitron vertical markets. Another example being the 'ProDeck' solution -
our stand-alone desktop control solution. ProDeck combines a PC from Quixant
and the display solutions from our consumer grade broadcast models, which can
be linked to our IDS software solution. With the ProDeck solution, anywhere
can become a broadcast studio.
The Medical sector is another significant market vertical for Nexteq. In
2024 the Group enjoyed $8m of revenue from this sector and it presents the
next focus market opportunity after Broadcast. Leveraging technology and
expertise from across the group, we are developing Medical grade HMI
solutions, building on the technology innovation we have developed for the
Broadcast sector.
Densitron is critical to our Group's growth strategy as the solutions which we
are developing in Broadcast and Medical, are incubated in the service of
excellence of the core Densitron business.
Densitron Outlook
Densitron operates in a highly competitive environment, and markets are still
recovering from the over-stocking seen through 2023. We expect significant
strategic progress to be made over the coming years in both the core business,
where increased focus on targeted marketing and a new process on LTBs, and in
the chosen markets of Broadcast and Medical to deliver high quality, I.P.
based revenue from our innovative suite of new solutions.
Forward-looking growth strategy and pillars for future success
We have developed a three-year strategic plan, with the objective at the end
of 2027 to have a diversified revenue base, hitting organic growth targets to
deliver $108m-$120m of revenue, with a consistent growth trajectory to reach
significantly higher levels by 2030. This will be achieved through a
combination of organic, innovation and acquisitional growth. Importantly,
significant new business has already been won - we have to integrate our
technology into customers products exceptionally for revenue to make a
material impact from 2026.
Structure - Create an environment to deliver growth
· Right size the business to deliver 2025 profit expectation.
· Invest in the right technical skills to deliver organic growth
and innovation revenue growth.
· Drive sales activity through 'One Nexteq' regional approach.
Retention - Build from a solid base
· Retain 100% of our current Gaming and Industrial Displays core
business.
· Deliver two new hardware platforms to our biggest Gaming
customers.
· Maintain excellent customer service and close customer
collaboration.
Organic growth - build on what we do in our current markets
· Deliver our exciting hardware product roadmaps.
· On-board secured Broadcast vertical customer wins and Gaming
customer wins in 2025.
· Win new Gaming customers in identified new route market
opportunities.
· Secure 10% market share in Brazil market post legalisation of
Gaming.
· Double the number of strategic customers with $1m annual revenues
from ten in 2024 to 20 in 2027.
Diversify - Innovation and acquisition
· Launch new Gaming software proposition in 2025.
· Enhance focus on bolt-on acquisition opportunities to accelerate
growth in new target verticals.
'One Nexteq'
Our brands and our products are what set us apart from our competition and we
will protect and nurture both. In order to leverage the expertise across all
of our product areas, we have instilled a 'One Nexteq' approach, tying the
organisation closer together. We now have a new Senior Leadership Team
(SLT), made up of key leaders from across the business, including those
responsible for delivering innovation across our product range, as well as our
General Manager from our Taiwan engineering and manufacturing centre,
responsible for delivering on that innovation agenda.
Critically, we have moved to a regional based model, as opposed to a
brand-based, global one. We now have a commercial leader based in the USA,
our largest market, and another one responsible for the Rest of the World
(RoW), based in the UK. These two highly experienced Commercial leaders have
market vertical specific sales teams reporting to them, but are managed in a
consistent way, relevant to their own customer bases. Importantly, our sales
teams are now supported with a new incentive plan, which better aligns with
our growth ambitions and visibility.
An example of our 'One Nexteq' approach in action is with our exciting new
Broadcast solutions product range, where we are using our traditionally
Gaming-focused Software Engineers in Italy to work with our mechanical and
electrical engineers in Taiwan to deliver our product roadmap. This
maximises the use of our expertise and streamlines the operational cost of
delivery. These changes mark a distinct evolution in the business.
Retention of our customer base
Our high customer retention is underpinned by our excellent service and
customer care, and exceptional product quality which truley differentiate us
from our competition. As a result, our customers remain loyal, confident in
the knowledge that we are excellent at what we do, which enables them to
deliver their product and commercial objectives.
Everything we do is about delivering on our customer expectation and the value
our customers place on our partnership, and on our innovative approach to
product design and problem solving. Retention and delighting our customers
will unashamedly be the cornerstone of our growth strategy.
Regaining our technology innovation leadership
2023 and 2024 were both years where our innovation process and R&D
initiatives stalled slightly as we focussed on retention and the conversion to
Intel as a graphics provider in the Gaming sector. In our DNA, we are
technology innovators, and to be successful we must be bold; invest in R&D
and deliver creative solutions for our customers.
In Q4 2024, we restructured our cost base to allow for investment in software
innovation across our target market verticals and refocussed our hardware
teams to look at new Gaming hardware solutions designed to make our customers'
graphics performance 'ahead of the game', and our new Broadcast market
innovation to be deliverable at scale to service our exciting new customer
wins.
Nexteq has invested in Senior Product Directors to deliver the ambitious
product roadmaps that we have in Gaming and Broadcast and the Group continues
to invest in supplier management to create a Display innovation roadmap for
our core Densitron operation.
Throughout 2025 and beyond we will deliver increasing amounts of thought
leadership as we fuel our innovation pipeline. We are a product and solution
innovation business at our core - this will become more evident as we grow via
our innovations.
Diversify our revenue through product innovation and new verticals
Traditionally, Nexteq has been focused on the industrial display market
through its Densitron brand, and on the gaming sector via Quixant. Other
than our IDS software business we have been a hardware-based organisation, and
as part of the diversification agenda we are delighted to be launching our new
software innovation in the gaming business in 2025. Having invested in our
own software development team, and with focused R&D effort, we will launch
a subscription-based solution to market to assist our gaming hardware platform
customers with bringing their game content to life. This, coupled with the
IDS software solution will create a meaningful Nexteq software business of
4-5% of Group revenue in 2027.
We believe that we have significant opportunity to grow our Quixant business
in the key Gaming market vertical, especially with the software solution
described above, but it has been our objective for some time to increase the
share of revenue from other markets. In 2022 we made the strategic decision
to invest in R&D in the Broadcast vertical, which we have experience of
through the Densitron display business, with the objective to introduce our
own innovative and tailored Broadcast solutions alongside the traditional
displays we supply already. It has taken some time to gain traction here, but
I am delighted to report that we have made significant progress in winning
long-term contracts with some of the largest broadcast operators in the
world. The integration cycles are long, but some of our key milestones
within our plan are around onboarding these wins, with revenue expected to
flow from late 2025, and beyond.
Our third target vertical is the medical sector, which currently accounts for
5% of our business. We see good opportunity to growth in this sector
organically to 11-14%, with the growth potential enhanced through bolt-on
acquisitions.
Our healthy cash position means that we can invest in acquisitions in target
verticals, and we continue to assess opportunities to transform our offerings
in our traditional Densitron areas of expertise.
Summary and focus areas
2024 was a difficult year, but we move into our three-year plan period (2025
to 2027) with renewed focus, energy, people and structure, and clarity of
thought.
We start the new year with secured customer wins, an orderbook of five months'
revenue and a healthy financial position. The business is energised around
being brave and creating innovative products, manufactured to the highest
standard, that will delight new and existing customers. Everything we do will
be focused around our core strategy to expand our offering through continued
innovation, establish the Group in new territories and markets, and continue
to provide a first-class service to our existing customers. We are excited
to move into delivering our plan and building on what we learned through
2024. As ever, it's what you do next that counts, so please join me in being
excited about our future.
Duncan Faithfull
Chief Executive Officer
Financial Review
Strong margin and operating cash flows
Statutory results
Group revenue was $86.7m, 24% lower than the $114.3m delivered in 2023. Gross
profit was $31.1m (2023: $41.5m), a reduction of 25% over the prior year, with
gross margins at 35.9% (2023: 36.3%). Operating expenses were $30.8m (2023:
$29.1m), resulting in operating profit of $0.3m (2023: $12.4m). Net finance
income was $1.4 (2023: $0.5m), resulting in profit before tax of $1.7m (2023:
$12.9m) and an income tax expense of $1.4m (2023: $2.0m), equivalent to an
effective tax rate of 82.0% (2023: 15.6%). Basic earnings per share (EPS) were
0.48cents (2023: 16.39cents), a decrease of 97%. Diluted EPS were 0.48cents
(2023: 16.02cents), a decrease of 97%.
Revenue
Quixant revenues were $54.8m, a decrease of 21% on the prior year (2023:
$69.2m). Unit sales decreased to 43,569 platforms delivered in the year, down
20% on the prior year (2023: 54,513). Demand for our cost-effective range held
flat, but mid-range and high-end products had lower demand in 2024. The
decrease in overall Quixant revenues was largely due to the decline in unit
sales.
Densitron delivered revenue of $31.9m, a decrease of 29% on the prior year
(2023: $45.1m). Demand for Densitron products seen in 2022 and 2023 reduced as
the impact of customers destocking reduced sales across all its subsectors.
Gross profit and gross profit margin
The Group generated gross profit during the year of $31.1m (2023: $41.5m)
representing a gross margin of 35.9% (2023: 36.3%). Gross margins continued
their recovery from the lower levels seen in 2021 and 2022 but were impacted
in 2024 by a charge of $2.7m to reduce the carrying value of Aruze inventory.
Adjusted operating expenses
Adjusted operating expenses increased by 2% to $27.8m (2023: $27.3m). See Note
1 to the financial statements for a reconciliation of adjusted operating
expenses to operating expenses. The Group continued to invest in sales
activities with travel and marketing spend remaining flat at $2.6m (2023:
$2.6m). The reductions in headcount implemented at the end of 2023 resulted in
average employees reducing to 223 in 2024 from 238 in 2023. Alongside lower
performance related bonus payouts, this resulted in payroll costs reducing by
$1.4m to $20.3m (2023: $21.7m).
During the year, Group expenditure on research and development remained at
$4.6m (2023: $4.6m). These costs relate to investment activities principally
undertaken in Taiwan, Italy, the UK and Slovenia. Of these costs, $1.8m were
capitalised (2023: $1.8m) as the Group continues to focus on developing
innovative new products, with amortisation for the year on total capitalised
development costs of $1.2m (2023: $1.3m). During the year the Group
abandoned in-progress development projects with a carrying value of $0.1m
(2023: $1.0m). This was following internal review where it was determined that
the projects no longer met the criteria to capitalise product development cost
as set out in IAS38.
Impairment of trade receivables remained low, with an impairment loss recorded
in the current year of $0.2m compared to $0.1m in 2023. The Group also
recognised exchange rate gains of $0.4m, compared to $0.5m in 2023. The Group
benefited from less volatile foreign exchange markets, particularly the US
Dollar exchange rate to Pound Sterling and the Taiwan Dollar. In addition,
management took measures to have natural hedges in place to limit the impact
of foreign exchange fluctuations.
Adjusted operating expenses also benefited from a $0.1m R&D tax credit
(2023: $0.4m). The Group has received R&D tax credits for many years due
to its product development efforts as part of the SME R&D tax credit
scheme, which is recognised as a credit in tax expense. Since 2023 the Group
qualified for the large company Research and Development Expenditure Credit
(RDEC) regime due to the size of the Company's balance sheet. Under the RDEC
scheme the tax credits are recognised within operating expenses in-line with
the R&D expense. Apart from the change in accounting treatment of the tax
credits there are no changes in the timing or amount of tax credits the Group
expects to receive.
Valuation of Aruze-related assets
As disclosed in the 2023 Annual Report, 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 Annual
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 its 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
Annual Report the liquidation proceedings were 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 31 December 2024, APMI owed $1.0m to the Group from the sale of goods
(2023: $1.0m). The amounts were impaired in full as at 31 December 2022 and
due to the uncertainty referenced above remain fully impaired at 31 December
2024. The Group continues to take steps to recover these balances.
Inventory, consisting of raw materials with a book value of $2.4m (2023:
$1.7m) and finished goods with a book value of $0.2m (2023: $0.6m) originally
earmarked for use by APMI, was included in the Nexteq Group's balance sheet as
at 31 December 2024. As of 31 December 2023, management believed the raw
materials could be used to manufacture products sold to the Group's existing
or new customers, and the finished goods could be used in the Group's turnkey
cabinet offering. However, in 2024 management has determined there is limited
opportunity to use the raw materials to manufacture finished products for sale
to the Group's existing or new customers and is exploring opportunities to
sell these raw materials. Management does not expect to fully recover the net
book value of $2.6m and considered a provision against the raw materials of
$2.2m was required as at 31 December 2024.
Net finance income
The Group recognised net finance income of $1.4m (2023: $0.5m). Finance income
increased to $1.4m (2023: $0.6m) as the Group took advantage of higher
interest rates coupled with the higher cash balances the Group held during the
year. Finance expense of $0.0m (2023: $0.1m) principally related to leases.
Adjusted profit before tax
Adjusted profit before tax reduced by 67% to $4.8m (2023: $14.7m). The
adjustments to statutory profit before tax of $3.1m (2023: $1.9m) consisted
of:
· Share-based payments credit of $0.8m (2023: charge $1.0m). During the year the
Group granted further Long-Term Incentive Plan (LTIP) shares to employees. The
LTIP awards vest in three years providing continuous employment during the
period, and attainment of performance conditions relating to earnings per
share (EPS), as outlined in the Annual Report. The credit of $0.8m arises from
the reversal of share-based payment expenses recognized in previous years due
to the performance conditions relating to EPS no longer forecast to be met.
· Amortisation of acquired intangibles charge of $0.3m (2023: $0.6m). This
charge relates to intangible assets recognised in the acquisition of Densitron
and IDS.
· Impairment of goodwill of $2.9m (2023: nil). This impairment charge relates to
the Densitron Europe CGU recognized in the acquisition of Densitron.
· Restructuring charges of $0.7m (2023: $0.3m). The restructuring charges relate
to a restructuring programme completed in November 2024 to restructure the
business for future success through the functional operating model and to
better align resource levels with the Group's current revenues. We took the
difficult but necessary decision to remove several roles from the business
equivalent to less than 10% of headcount, reducing the Group's annual staff
costs by $1.2m. The effect of this reduction will only be fully reflected in
2025 due to the timing of when the programme was completed.
Taxation
The Group recognised a corporation tax charge of $1.4m in the year, compared
to $2.0m in 2023. The tax charge consists of a current tax charge of $0.9m
(2023: $2.3m) and a deferred tax charge of $0.5m (2023: credit of $0.3m)
relating to the movement in deferred tax assets and liabilities in the current
year.
The effective tax rate on statutory profit before tax increased to 82.0%
(2023: 15.6%). The increase in effective tax rate results from $3.2m of tax
being derecognised as a deferred tax asset due to uncertainty over the
recoverability. This off-set the impact of UK patent box claims which reduce
the Group tax charge. Going forward, we expect the effective tax rate to be
approximately 16%−19%, depending on the regional mix of profits and product
mix sold.
Earnings per share
Basic EPS decreased by 97% to 0.48c per share (2023: 16.39c per share).
Adjusted diluted earnings per share decreased by 72% to 5.08c per share (2023:
18.09c per share).
Balance sheet
Non-current assets decreased to $22.1m as at 31 December 2024 (31 December
2023: $24.3m) mainly due to the $2.9m impairment of goodwill related to the
Densitron Europe CGU. Included in non-current assets are goodwill of $4.8m
(31December 2023: $7.7m) and acquisition-related intangible assets of $0.2m
(2023: $0.5m) allocated to cash generating units (CGUs). The annual impairment
review determined a $2.9m impairment of Densitron Europe CGU goodwill. The
impairment reviews did indicate that the estimated recoverable amount of the
Densitron Japan CGU as sensitive to a reasonably possible change in key
assumptions. Refer to Note 11 to the financial statements for further
disclosure of the annual impairment review.
Current assets decreased to $63.4m at 31 December 2024 (31 December 2023:
$78.6m) mainly due to a significant reductions in Trade and other receivables
to $16.5m at 31 December 2024 from $25.8m at 31 December 2023, and inventories
reducing to $17.4m at 31 December 2024 from 24.3m at 31 December 2023
reflecting the reduction in the Group's trading activity during the year. This
was offset by an increase of Cash and cash equivalents by $1.1m from $28.4m at
the start of the year to $29.5m at 31 December 2024.
Cash flow
The Group generated $13.0m cash from operating activities in the year (2023:
$19.8m). Adjusted operating cash flow, which excludes tax payments, was $15.5m
(2023: $21.0m) which represented 324% of adjusted profit before tax (2023:
142%). This was ahead of the Group's 2024 cash conversion KPI target of 100%
(see Director's Remuneration Report on pages 40-45) due to reduced working
capital, as the Group consumed strategic stock balances.
The Group capitalised $1.8m of development costs (2023: $1.8m), which reflects
the continued development of new products as the Group expands its product
portfolio.
The Group finished 2024 with net cash of $29.1m (2023: $27.9m), comprising
cash and cash equivalents of $29.5m (2023: $28.4m) and gross debt of $0.4m
(2023: $0.5m). The debt relates to a mortgage over the Group's offices in
Taiwan.
Dividend
The Board proposes a dividend for the year ended 31 December 2024 of 3.7p per
share (2023: 3.3p per share). This dividend will be payable on 30 May 2025 to
all Shareholders on the register on 2 May 2025. The corresponding ex-dividend
date is 1 May 2025.
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% (2023: 91%) of our
revenues denominated in US Dollars.
The Group's reported results are impacted by US Dollar movements against
currencies in the territories in which it operates, principally Pounds
Sterling, Euros and Taiwan Dollars. The following are the average and closing
rates for the current and prior year:
Average rate
Income statement 2024 2023
USD/GBP 1.28 1.24
USD/Euro 1.08 1.08
USD/TWD 0.031 0.032
Closing rate
Balance sheet 2024 2023
USD/GBP 1.26 1.27
USD/Euro 1.04 1.11
USD/TWD 0.031 0.033
As most of the Group's revenues are denominated in US Dollars, the impact of
foreign exchange movements on reported revenues was minimal in 2024 and 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 2024 were very similar to 2023 levels, resulting
in a negligible impact on adjusted operating expenses, when compared to 2023
average rates. The Group recognised translational foreign exchange rate gains
of $0.4m in 2024, compared with gains of $0.5m in the prior year, a negative
$0.1m impact year over year. Combining the impact of these foreign exchange
elements resulted in a net negative foreign exchange rate impact of 0.4m on
adjusted profit before tax for 2024 when compared to 2023.
Alternative performance measures (APMs)
Throughout this Annual Report, 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 Nexteq'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 the Annual Report. APMs,
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 the Annual Report 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 the Annual Report about our
financial performance or financial position.
3) To show the performance measures that are linked to remuneration for the
Executive Directors.
The following APMs appear in this Annual Report.
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
Net cash 1,2 Note 1
Matt Staight
Chief Financial Officer
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
For the years ended 31 December 2024 and 2023
2024 2023
Note $'000 $'000
Revenue 3 86,678 114,349
Cost of sales (55,568) (72,828)
Gross profit 31,110 41,521
Operating expenses (30,809) (29,091)
Operating profit 301 12,430
Finance income 1,448 585
Finance expense (28) (106)
Profit before tax 1,721 12,909
Taxation 4 (1,410) (2,012)
Profit for the year 311 10,897
Other comprehensive income/(expense) for the year, net of income tax
Items that are or may be reclassified subsequently to profit or loss: (1,449) 723
Foreign currency translation differences
Total comprehensive (expense) / income for the year (1,138) 11,620
Basic earnings per share 5 $0.0048 $0.1639
Diluted earnings per share 5 $0.0048 $0.1602
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 BALANCE SHEET
As at 31 December 2024 and 2023
Group
2024 2023
$'000 $'000
Non-current assets
Property, plant and equipment 5,688 5,478
Intangible assets 11,494 14,243
Right-of-use assets 2,403 1,558
Investment property − −
Investments in Group companies and associated undertakings − −
Deferred tax assets 2,476 2,951
Trade and other receivables 61 54
22,122 24,284
Current assets
17,435
Inventories 24,338
Trade and other receivables 16,461 25,828
Cash and cash equivalents 29,469 28,406
63,365 78,572
Total assets 85,487 102,856
Current liabilities (87)
Loans and borrowings (91)
Trade and other payables (11,775) (16,763)
Tax payable - (1,247)
Lease liabilities (501) (569)
(12,363) (18,670)
Non-current liabilities
(382)
(271)
Loans and borrowings (473)
Provisions (355) (351)
Lease liabilities (1,878) (1,107)
(2,504) (1,840)
Total liabilities (14,867) (20,510)
Net assets 70,620 82,346
Equity attributable to equity holders of the parent
106
Share capital 106
Treasury shares (6,996) −
Share premium 6,747 6,747
Share-based payments reserve 888 1,905
Retained earnings 72,134 74,398
Translation reserve (2,259) (810)
Total equity 70,620 82,346
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2024 and 2023
Share Capital Translation Reserve Share-Based Retained Total Equity
Share Premium Payments Earnings
Treasury Shares
$'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 year
Profit for the year - - - - - 10,987 10,987
Other comprehensive expense - - - 723 - - 723
Total comprehensive (expense)/income for the year - - - 723 - 10,987 11,620
Transactions with owners, recorded directly in equity
Share-based payment expense - - - - 962 - 962
Deferred tax on share-based payment expense - - - - 48 - 48
Dividend paid - - - - - (2,537) (2,537)
Exercise of share options - - 39 - - - 39
Total contributions by and distributions to owners - - 39 - 1,010 (2,537) (1,488)
Balance at 31 December 2023 106 - 6,747 (810) 1,905 74,398 82,346
Share Capital Share Premium Translation Reserve Share-Based Retained Total Equity
Treasury Shares Payments Earnings
$'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January 2024 106 - 6,708 (1,533) 895 66,038 72,214
Total comprehensive expense for the year - - - - 10,897 10,897
Profit for the year -
Other comprehensive income - - - 723 - - 723
Total comprehensive income for the year - - - 723 - 10,897 11,620
Transactions with owners, recorded directly in equity
Treasury shares purchased - (6,996) - - - - (6,996)
Share-based payment expense - - - - (751) - (751)
Deferred tax on share-based payment expense - - - - 21 - 21
Reserve transfer - - - - (261) 261 -
Share based payment awards - - - - (26) - (26)
Dividend paid - - - - - (2,836) (2,836)
Exercise of share options - - - - - - -
Total contributions by and distributions to owners - (6,996) - - (1,017) (2,575) (10,588)
Balance at 31 December 2024 106 (6,996) 6,747 (2,259) 888 72,134 70,620
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARS ENDED 31 DECEMBER 2024 and 2023
Group
2024 2023
$'000 $'000
Cash flows from operating activities 311
Profit/(Loss) for the year 10,897
Adjustments for: 2,151
Depreciation and amortisation 2,764
Loss on disposal of property, plant and equipment 118 14
Impairment losses on intangible assets 2,922 967
Depreciation of leased assets 642 638
Increase in provision for doubtful debts 245 136
Movement in provisions 44 7
R&D tax credit 142 (382)
Taxation charge 1,410 2,012
Finance income (1,448) (585)
Finance expense 28 106
Exchange rate losses 234 120
Share-based payment (credit)/expense (751) 962
Operating cash flows before movement in working capital 6,048 17,656
Decrease/(Increase) in trade and other receivables 9,741 (1,283)
Decrease in inventories 5,745 8,573
(Decrease)/Increase in trade and other payables (6,020) (3,888)
15,514 21,058
Interest paid (13) (3)
Lease liability interest paid (5) (92)
Tax paid (2,524) (1,208)
Net cash from operating activities 12,972 19,755
Cash flows from investing activities
Addition of development costs (1,228) (1,839)
Purchase of property, plant and equipment (980) (262)
Addition of externally purchased intangible assets (650) (135)
Interest received 1,345 461 -
Net cash used in investing activities (1,513) (1,775)
Cash flows from financing activities (87)
Repayment of borrowings (926)
Proceeds from loans - 842
Proceeds from intercompany loans - -
Mortgage interest paid (9) (11)
Payment of lease liabilities principal (709) (624)
Purchase of Treasury shares (6,996) -
Exercise of share options - 39
Dividends paid (2,836) (2,537)
Net cash used in financing activities (10,637) (3,217)
Net increase in cash and cash equivalents 822 14,763
Cash and cash equivalents at 1 January 28,406 13,508
Foreign exchange rate movements 241 135
Cash and cash equivalents at 31 December 29,469 28,406
NOTES TO THE CONDENSED 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 2024 or 2023 but
is derived from those accounts. Statutory accounts for 2023 have been
delivered to the registrar of Companies, and those for 2024 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
2025.
Going concern
The Group's operational and financially robust position is supported by:
- Improved cash generation, leading to a net cash balance of $29.1m at 31
December 2024 (31 December 2023: $27.9m).
- The Group's track record of returning funds to Shareholders whilst increasing
the cash balance.
- Good order book at 31 December 2024, covering five months of forecasted 2025
revenues (31 December 2023: five months of forecasted 2024 revenues).
In undertaking a going concern assessment, the Directors have reviewed
financial projections for a period of at least twelve months from the date of
this report (the assessment period). Management prepared a base case scenario
based on the approved budget for 2025 and forecasts for the first three months
of 2026. Management also prepared a severe but plausible downside scenario,
using the following key assumptions:
- A 25% reduction in 2025 and 2026 Quixant revenues to replicate the impact that
a downturn similar to that experienced in 2019 would have on the Group's
revenues.
- Supply chain disruptions similar to that experienced in 2021 and 2022 leading
to increased levels of working capital.
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 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 Densitron Europe and Densitron Japan CGUs, valuation of
Quixant CGU inventory, capitalisation of development costs, deferred tax asset
recognition and valuation of Aruze debtors and inventory. 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
Densitron Europe and Densitron Japan CGUs
The estimated recoverable amounts of the Densitron Europe and Densitron Japan
CGUs have 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. See Note 11 for further details.
Quixant inventory valuation in the Quixant CGU
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 for the Group
financial statements 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 2024, the Group balance sheet included Quixant inventory of
$13.9m (2023: $19.1m) and $10.6m (2023: $14.7m) respectively. The provision
against slow-moving and obsolete inventory for the Group as at 31 December
2024 is $4.9m (2023: $2.6m) and in the Parent company is $4.4m (2023: $2.3m).
A difference of 12.0% in the provision as a percentage of gross inventory
would give rise to a difference of +/- $2.7m in gross margin. The choice of a
12.0% change for the determination of sensitivity represents the change to the
level of provisioning for the prior year.
Deferred tax asset recognition
A deferred tax asset is recognised only to the extent that it is probable that
sufficient taxable profits will be available to utilise the temporary
difference. The Group has made estimates on the likelihood that future taxable
profit will utilise the tax losses, meaning the deferred tax assets being
realised by the Group is contingent upon the estimates regarding future tax
profits of the Group in the jurisdiction where the loss exists. At the
reporting date, the Group had unused tax loss of $16.8m (2023: $15.7m)
available for offset against future profits.
In order to support the recognition of $3.4m (2023: $3.6m) deferred tax asset
on losses, modelling was undertaken to review the recovery period of the
deferred tax asset. The modelling was based on management forecasts for the
subsequent five years and showed that the deferred tax asset on losses is not
expected to be fully recovered by 2029. A probability weighted model was used
to determine the loss recoverability. The reduction in the recoverability of
the asset recorded in 2024 is predominately due to reducing the probability of
forecast results in year four and five of the forecast period after factoring
in the results achieved in 2024.
This modelling is judgemental given the forward-looking nature of performance,
taking into account inherent uncertainties constraining the expected level of
profit as appropriate. Changes in the estimates will affect future taxable
profits and therefore the recoverability of the deferred tax assets. The value
of unrecognised deferred tax asset in the UK as at 31 December 2024 is $3.2m
(2023: $Nil). The losses may be carried forward indefinitely.
Other important judgements
Valuation of Aruze debtors and inventory
As disclosed in the 2022 Annual Report, 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 Annual
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 its 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
Annual Report the liquidation proceedings were 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 31 December 2024, APMI owed $1.0m to the Group from the sale of goods
(2023: $1.0m). The amounts were impaired in full in 2022 and due to the
uncertainty referenced above remain fully impaired at 31 December 2023. The
Group continues to take steps to recover these balances.
Inventory, consisting of raw materials with a book value of $2.4m (2023:
$1.7m) and finished goods with a book value of $0.2m (2023: $0.6m) originally
earmarked for use by APMI, was included in the Nexteq Group's balance sheet as
at 31 December 2024. As of 31 December 2023, management believed the raw
materials could be used to manufacture products sold to the Group's existing
or new customers, and the finished goods could be used in the Group's turnkey
cabinet offering. However, in 2024 management determined there is limited
opportunity to fully recover the net book value of $2.6m. Consequently, in
2024 an inventory provision of $2.7m was recorded, which after utilisation of
$0.5m of this provision for loss on sale of some of the inventory, leaves a
closing provision balance of $2.2m as at 31 December 2024.
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 that 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, Adjusted Operating cash flow and Net cash. The adjusted measures are
not defined terms under IFRS and may therefore not be comparable with
similarly titled measures reported by other companies. They are not intended
to be a substitute for, or superior to, IFRS measures. See below for analysis
of the adjusting items in reaching adjusted performance measures.
Adjusted Profit before tax
2024 2023
$000 $000
Profit before tax 1,721 12,909
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 271 582
Share-based payments expense(2) (751) 962
Restructuring charges(3) 665 293
Impairment of goodwill(4) 2,873 -
Adjusted Profit before tax 4,779 14,746
Adjusted Profit before tax % (Adjusted Profit before tax/Revenue) 5.5% 12.9%
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.
3. Restructuring charges relates to leaver costs incurred in headcount
reduction actions taken in December 2024 and 2023.
4. The impairment of goodwill has been excluded as it is not a cash
expense to the Group.
Adjusted Profit after tax
2024 2023
$000 $000
Profit after tax 311 10,897
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 271 582
Share-based payments expense(2) (751) 962
Restructuring charges(3) 665 293
Impairment of goodwill(4) 2,873 -
Non-recurring tax benefits(5) (46) (432)
Adjusted Profit after tax 3,323 12,302
5. Tax on adjusted items relating to amortisation of customer
relationships, technology and order backlog of $Nil (2023: $0.6m), share-based
payment credit of $0.8m (2022: expense of $1.0m) and restructuring charges of
$0.7m (2023: $0.3m).
Adjusted Operating expenses
2024 2023
$000 $000
Operating expenses (30,809) (29,091)
Adjustments:
Amortisation of customer relationships, technology and order backlog(1) 271 582
Share-based payments expense(2) (751) 962
Restructuring charges(3) 665 293
2,873 -
Adjusted Operating expenses (27,751) (27,254)
Adjusted Operating cash flow
2024 2023
$000 $000
Net cash from operating activities 12,972 19,755
Add back:
Tax paid 2,524 1,208
Adjusted Operating cash flow 15,496 20,963
Adjusted Operating Cash conversion % (Adjusted operating cash flow/Adjusted 324% 142%
profit before tax)
Net cash
Group Company
2024 2023 2024 2023
$'000 $'000 $'000 $'000
Analysis of net cash
Cash and bank balances 29,469 28,406 25,212 24,857
Bank loans falling due within one year (87) (91) (87) (91)
Bank loans falling due after more than one year (271) (382) (271) (382)
Net cash 29,111 27,933 24,854 24,384
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:
· Quixant - 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:
2024 2023
$000 $000
Quixant 12,100 17,165
Densitron 3,152 7,538
Segment results 15,252 24,703
Corporate cost (14,952) (12,273)
Operating profit 301 12,430
Net finance income/(expense) 1,420 479
Profit before tax 1,721 12,909
Taxation (1,410) (2,012)
Profit after tax 311 10,897
Year to 31 December 2024 Year to 31 December 2023
$000 $000 $000 $000 $000 $000
Quixant ( ) Densitron Total(1) Quixant Densitron Total(1)
Other information
Depreciation of owned assets 110 11 121 93 8 101
Amortisation of intangible assets 847 387 1,234 1,020 337 1,357
Impairment of intangible assets(2) - 2,922 2,922 489 478 967
957 3,320 4,277 1,602 823 2,425
(1) (Depreciation and amortisation of $796k (2023: $977k) were not allocated
to segments as these are considered corporate costs.)
(2 Includes impairment of Densitron Europe CGU Goodwill of $2,873k
(2023:$Nil).)
3. Analysis of revenue
2024 2024 2024 2023 2023 2023
$000 $000 $000 $000 $000 $000
Quixant ( ) Densitron(1) Total Quixant Densitron Total
By primary geographical market
Asia 1,727 8,286 10,013 2,911 9,311 12,222
Australia 1,870 30 1,900 6,067 79 6,146
UK 2,805 2,062 4,867 4,733 4,370 9,103
Europe excl. UK 6,656 8,711 15,367 10,777 15,668 26,445
North America 41,301 11,619 52,920 44,380 14,404 58,784
Rest of World 407 1,204 1,611 405 1,244 1,649
54,766 31,912 86,678 69,273 45,076 114,349
(1)
(2024 Densitron revenue from products splits into Densitron $31.0m (2023:
$43.5m) and IDS $0.9m (2023: $1.6m). IDS revenue included revenue of $0.4m
(2023: $0.4m) recognised throughout the performance period.)
( )
The above analysis includes sales to individual countries in excess of 10% of
total turnover of:
2024 2023
$000 $000
USA 51,840 56,069
Two customers (2023: two customers) individually accounted for more than 10%
of Group revenues in 2024,
with revenues of $16.8m (2023: $19.4m) and $9.0m (2023: $14.8m), respectively.
These revenues are attributable to the Quixant segment.
4. Taxation
Recognised in the profit and loss account
2024 2023
$'000 $'000
Current tax expense
3
UK corporation tax 382
Foreign tax 1,063 1,801
Adjustments for prior years (152) 136
Current tax expense 914 2,319
Deferred tax
350
Origination and reversal of temporary differences 120
Adjustments for prior years 136 (427)
Change in deferred tax rate to 25% 10 -
Deferred tax 496 (307)
Total tax expense / (credit) in the income statement 1,410 2,012
Reconciliation of effective tax
rate
2024 2023
$000 $000
Profit for the year 311 10,897
Total taxation expense / (credit) 1,410 2,012
Profit excluding taxation 1,721 12,909
Tax using the UK corporation tax rate of 25% (2023: 23.52%) 430 3,036
Non-deductible expenses 96 239
Fixed asset differences 81 47
Patent box tax relief(1) (1,187) (1,531)
Foreign tax expensed 296 513
Change in deferred tax rate to 25% 10 14
Effect of tax rates in foreign jurisdictions (14) 124
Unrecognised tax losses 811 10
Deferred tax credited directly to equity 21 48
Change to estimates related to prior years (16) (291)
Impairment of goodwill 718 -
Other 164 (197)
Total taxation expense / (credit) in statement of profit and loss 1,410 2,012
(1 The Group has elected into the UK patent box regime under which patent box
profits from certain patents are taxed at a reduced rate of corporation tax.)
Deferred tax credit arising in the reporting period and not recognised in net
profit or loss or other comprehensive income but directly (credited) or
debited to equity:
2024 2023
$000 $000
Deferred tax asset - share-based payments (21) (48)
Total (21) (48)
5. Earnings per ordinary share (EPS)
2024 2023
$000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit 311 10,987
attributable to equity shareholders
Number of shares Number Number
Weighted average number of ordinary shares for the purpose of basic EPS 65,002,312 66,501,570
Effect of dilutive potential ordinary shares: 369,742
Share options 1,519,943
Weighted number of ordinary shares for the purpose of diluted EPS 65,372,054 68,021,513
Basic earnings per share $0.0048 $0.1639
Diluted earnings per share $0.0048 $0.1602
Calculation of adjusted diluted earnings per share: $000 $000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit 311 10,897
attributable to equity shareholders
Adjustments
Amortisation of customer relationships, technology and order backlog 271 582
Share-based payments expense (751) 962
Restructuring charges 665 293
Impairment of goodwill 2,873 -
3,369 12,734
Tax effect of adjustments (46) (432)
Adjusted earnings 3,323 12,095
Adjusted basic earnings per share $0.0511 $0.1850
Adjusted diluted earnings per share $0.0508 $0.1809
6. Post balance sheet events
Post year end, the Group has placed its property in Balsham, Cambridge on the
market and expects the sale to complete in 2025. As of 31 December 2024, the
property in Balsham was recorded within land and buildings in non-current
assets. The intended sale will help to promote the centralisation and
collaboration of the UK labour force in one location. The sale will facilitate
a change of UK registered office to Crawley, West Sussex.
There were no other material post balance sheet events that were required to
be disclosed.
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