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