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.
13 March 2024
Nexteq plc
("Nexteq"
or the "Group")
Audited Final
Results
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
2023.
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Year ended 31 December
2023
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Year ended 31 December
2022
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Change
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Group Revenue
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$114.3m
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$119.9m
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(5%)
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Quixant Revenue
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$69.2m
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$74.1m
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(6%)
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Densitron Revenue
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$45.1m
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$45.8m
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(2%)
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Gross margin
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36.3%
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32.2%
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410
bps
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Adjusted profit before
tax1
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$14.7m
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$10.2m
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45%
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Group profit before tax
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$12.9m
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$8.8m
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47%
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Adjusted diluted earnings per
share1
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18.09c
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17.79c
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2%
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Diluted earnings per share
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16.02c
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16.16c
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(1%)
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Operating cashflow
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$19.8m
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$0.8m
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2,375%
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Net cash
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$27.9m
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$12.9m
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116%
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1For details on adjusted
measures refer to note 1 and note 5 of the condensed consolidated
financial statements.
FINANCIAL HIGHLIGHTS:
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Materially improved profitability
and cash generation through focus on higher margin
products.
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Group revenues down 5% against a
record prior year:
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o Quixant revenues down 6%, with growth in board volumes offset
by lower monitor sales.
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o Densitron revenues broadly in line with 2022, with the
Broadcast Technology sector growing 12%, tempered by softer demand
in other industrial sectors.
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Gross margin improved by 410bps to
36.3%, returning to historic, pre-Covid levels, benefitting from a
focus on higher quality revenues and easing of supply
chains.
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Adjusted profit before tax grew 45%
to $14.7m (2022: $10.2m), a margin of 12.9% (2022: 8.5%).
Reported profit before tax grew 47% to $12.9m (2022: $8.8m) a
margin of 11.3% (2022: 7.3%).
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Net cash increased 116% to a record
$27.9m, reflecting improved cash generation from trading and
positive working capital movement as overall stock levels
reduced.
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Dividend of 3.3p per share proposed
(2022: 3.0p per share) reflecting confidence in growth and strong
cash generation.
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OPERATIONAL HIGHLIGHTS:
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Healthy demand tempered by customer
de-stocking, with volume growth in strategic Gaming and Broadcast
sectors.
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Rebrand to Nexteq to reflect
evolution as a diversified industrial technology
partner.
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Refreshed Quixant product range,
with all products now harnessing Intel processors, unlocking new
market and customer opportunities.
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New customer wins providing platform
to grow engagement and lifetime value.
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Broadcast sector delivering
double-digit growth with positive progression of pipeline of sales
opportunities.
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Diversified manufacturing exposure
with production in 2nd manufacturing facility in
Malaysia, complementing the Group's existing facility in
Taiwan.
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CURRENT TRADING AND OUTLOOK:
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The Group entered 2024 with
confirmed order book covering five months of revenue.
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Strong balance sheet with net cash
position and good operational liquidity; supported by good cash
generation, positioning the Group for future organic and
acquisitive growth.
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The Board is confident in meeting
market expectations for 2024 revenues with the typical second half
weighting.
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Jon
Jayal, Chief Executive Officer of Nexteq plc,
commented:
"The Group delivered an excellent financial
performance in 2023, with profit levels and cash generation
significantly above prior year and approaching historic highs. This
performance comes despite macroeconomic uncertainty and customers
seeking to moderate inventories, prompted by a higher cost of
capital. We have remained focused on our customer proposition and
long-term growth strategy, delivering higher value products to the
market.
While the softer customer demand seen in 2023 has, as
expected, persisted in the first months of 2024, particularly in
the industrial markets served by Densitron's core display
components, the quality of the opportunity remains strong in our
strategic focus markets.
We
have established a more robust operating platform through our
diversified manufacturing, and our product portfolio is
increasingly unlocking new customer and market opportunities going
forward. With these stronger foundations and unified vision under
the Nexteq brand in mind, the Board remains confident in the
medium-term organic growth prospects. Furthermore, the Group's
balance sheet provides a strong platform for earnings enhancing
acquisitions."
Investor Presentation
Nexteq is hosting an online
presentation open to all investors on Friday 15 March at 10.00am
GMT. Anyone wishing to connect should register
here: https://www.investormeetcompany.com/nexteq-plc/register-investor.
1 The current
range of forecasts for the year ended 31 December 2024 is revenue
of between $114.8m and $115.9m with a consensus of $115.4m and
adjusted profit before tax of $14.6m.
Nexteq plc
Jon Jayal, Chief Executive
Officer
Johan Olivier, Chief Financial
Officer
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Tel: +44
(0)1223 892 696
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Nominated Adviser and Broker:
Cavendish Capital Markets
Ltd
Matt Goode / Simon Hicks / Teddy
Whiley (Corporate Finance)
Tim Redfern / Harriet Ward
(ECM)
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Tel: +44
(0) 20 7220 0500
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Joint Broker:
Canaccord Genuity Limited
Simon Bridges / Andrew
Potts
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Tel: +44
(0) 20 7523 8000
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Financial PR:
Alma Strategic
Communications
Hilary Buchanan / Kieran
Breheny
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Tel: +44
(0)20 3405 0205
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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
Group Results Overview
I am pleased to report on a year of
meaningful progress as the Group continues its evolution as a high
value technology partner across multiple selected industrial
markets. While navigating a challenging and evolving economic
environment, we stayed the course, executing our growth strategy.
As a result, the Group delivered a resilient revenue performance
against a record prior year, significant improvement to
profitability, and encouraging operational and strategic progress.
I would like to thank all colleagues for their ongoing commitment,
perseverance and adaptability during the year.
Higher interest rates and inflation
led to weakened demand for many of our customers' end products,
leading to lower order intake and customers pushing shipments out
into 2024. Despite these headwinds, the Group delivered a resilient
sales performance with Group revenues down 5%, Densitron revenues
broadly in line with 2022 and Quixant revenues down 6%.
Significant progress was made in the
operational performance of the business, particularly in managing
supply chains and driving the shift towards higher value products.
This allowed for materially improved profitability, with adjusted
profit before tax up 45% to $14.7m (2022: $10.2m) and statutory
profit before tax up 47% to $12.9m (2022: $8.8m).
The Group's capital-light model
generates strong cash flows, which management looks to reinvest
into accelerating the strategy and delivering further value for
Shareholders. The year saw an easing in the acute component
shortages experienced in the prior two years and restoration of a
better supply and demand equilibrium. This allowed for the unwind
of stock balances and improved cash generation, with $19.8m cash
generated from operating activities.
I am pleased to report that we
commenced our first mass production run in Malaysia in the fourth
quarter of 2023, complementing our Taiwanese manufacturing
capability and in line with our strategic decision to diversify our
manufacturing exposure. This was an incredible effort by our
manufacturing operations team to ramp up from initiation through
yield testing to production in nine months. We plan to increase our
Malaysian manufacturing output in 2024, with finished goods
manufacturing dual sourced between Taiwan and
Malaysia.
Nexteq rebrand supports Group
diversification
A significant milestone in the
Group's growth journey was marked during the year with the rebrand
to Nexteq. This reflects the evolution of the business from a
niche, specialist hardware provider servicing a single end market,
to a technology solutions partner with broad industrial exposure in
multiple carefully selected vertical markets with strong growth
prospects
Progression of sustainability agenda
The Board has a commitment to
long-term, sustainable value creation. During the past year,
we've worked on broadening our sustainable business strategy,
implementing measurable goals and targets, and aligning to the UN
Sustainable Development Goals (SDGs). We have focused on
around five of the UNSDGs which we believe are most appropriate and
practical for the Group to support in its sustainability
activities.
As part of our support of the
Climate Action UN SDG, we have also committed to achieving Net Zero
emissions by 2050 and the organisation was Carbon Neutral in
2023.
Clear strategic vision
The Board completed its annual
strategy review in July 2023, which confirmed that the medium-term
plan remains appropriate and robust. The Group's strategy is
focused on sustainable long-term growth, through both organic and
acquisitive means. We believe that organic growth can be achieved
by:
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New
markets: 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;
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Customer acquisition: Building
new customer partnerships in its chosen target market segments,
further diversifying the Group's revenue base;
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Product innovation: Focused
R&D to move up the value chain, including within the software
stack; and
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Land-and-expand: Increase share
of customer wallet by providing additional outsource solutions to
become a fully integrated technology partner.
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Alongside organic growth, selected
acquisitions are a key factor in the Group's strategy; to
complement and accelerate its growth strategy. The Board is
investigating opportunities in selected other industrial PC markets
which leverage our experience and capabilities already deployed in
the gaming sector.
Capital allocation prioritising capital
growth
The Group's cash generative business
model and strong balance sheet with good liquidity allow it to
invest in the business to drive organic growth and take advantage
of acquisition opportunities. With net cash of $27.9m and
negligible debt, we are well positioned to take advantage of
opportunities. Priorities for capital allocation are:
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Maintain a strong balance sheet with
good liquidity;
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Investment in acquisitions to
progress the Group's ongoing growth and diversification
agenda;
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Maintain a progressive dividend
payment, growing in line with earnings growth; and
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Any excess cash not required for
investment in the medium-term growth of the business, will be
available for distribution to Shareholders,
including by means of a limited share buyback programme.
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The Board considers it appropriate
to recommend a moderate increase in the full year dividend to 3.3p
per share (2022: 3.0p per share).
Francis Small
Chair
CHIEF EXECUTIVE'S
REPORT
Key
messages
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Profitability enhancements driven by
successful execution of strategic focus on higher value
products.
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Normalisation of order book with
easing supply chain lead times.
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New business development gathered
pace in 2023 as Gaming manufacturers reignited product development
with new business wins supporting organic growth in
2024.
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Excellent cash generation in 2023
leading to record net cash position.
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Range of organic growth and
acquisition opportunities to significantly enhance the Group's
financial scale in the medium term.
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Year in summary
The Group continued to make good
strategic progress in the year despite some challenging
macroeconomic conditions. Following the buoyant post pandemic
industrial market demand in 2021/2022, coupled with unprecedented
supply shortages, we entered 2023 with significant order backlog
and revenue visibility. The normalisation of order intake, first
reported in September 2023 with the 2023 interim results, continued
in the second half of the year. This is a result of customers
reducing inventory levels because of easing of supply chain
pressures, together with wider economic uncertainty. The Group
enters 2024 with good visibility of demand with the order book
representing a more typical five months' revenue cover, compared to
seven months' revenue cover at the start of 2023.
It is particularly pleasing in this
environment to be reporting 45% growth in adjusted profit before
tax to $14.7m (2022: $10.2m), with a corresponding 47% growth in
statutory profit before tax to $12.9m (2022: $8.8m). As noted
above, Group revenues in the year were down 5% to $114.3m (2022:
$119.9m) against a record prior year. Initiatives taken to improve
the quality of revenue through focusing on higher value products
and a stable operating expense base delivered an adjusted profit
before tax margin of 12.9% (2022:8.5%). It is a key objective
for the business to deliver mid-teen adjusted profit before tax
margins in the medium term and it is pleasing to report the
positive progress towards this objective in the last year. In
conjunction with the easing in supply chains we started to unwind
our working capital tied up in inventory supporting 142% adjusted
operating cash conversion to leave us with a record year-end net
cash balance of $27.9m.
Growth strategy - the outsource partner of choice in selected
markets
Nexteq is founded on the principle that selected industrial markets
are inadequately supported by more generalist computer and human
machine interface technology companies. As a result, original
equipment manufacturers in these markets are required to develop
aspects of their products that are non-core or non-differentiating
to meet the specific and bespoke needs of the market. This
makes their businesses less efficient and reduces focus on their
core competencies.
The Board believes that by building
domain knowledge in these markets, focusing research and
development to innovate and supply optimised solutions that cater
for technical and operational characteristics required and
deploying global expert sales teams into each of them, we can
become the preferred outsource provider. This enables our
customers to outmanoeuvre their competition and grow market
share.
Our global team encompasses a
powerful combination of computer hardware, software, display and
mechanical engineering expertise that, together with a diversified
Asian manufacturing base, enables us to engineer and supply
well-matched solutions to meet market needs.
The business was founded in 2005,
operating in the casino gaming sector by designing and supplying
optimised computer platforms to electronic gaming machine
manufacturers. Our customers' machines 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.
Our strategy has been to leverage
engineering capability and business philosophy across a
diversifying customer base, product offering and vertical
markets. We acquired Densitron, a supplier of display and
human machine interface components to a wide range of industrial
markets. Through Densitron we have identified the broadcast
market as a second focus sector in which equipment manufacturers
are seeking to replace outdated mechanical control with graphical
touch technology. To support this agenda, we have developed
unique solutions that modernise human machine interaction (HMI) and
control of broadcast equipment. We delivered our fourth
consecutive year of double-digit revenue growth in the broadcast
sector with $8.4m recognised in the year (2022: $7.5m).
The Group's growth strategy is
defined as follows:
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Identification and analysis of
market sectors that do not currently benefit from dominant deep
specialist solution outsource providers and are undergoing a
technology evolution.
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Building new customer partnerships
in its chosen target market segments, further diversifying the
Group's revenue base.
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Focused R&D to move up the value
chain, including within the software stack.
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Increase share of customer wallet by
providing additional outsource solutions to become a fully
integrated technology partner.
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Undertake acquisitions to complement
and accelerate its organic growth and diversification
strategy.
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Business Review: Quixant
Quixant is Nexteq's brand that
supplies outsourced solutions to the casino gaming and slot machine
market, representing 61% of the Group total revenue.
Growth in computer platform volumes tempered by reduced
monitor sales
Continuing a strong performance in
2022, we grew computer platform volumes by 5% to 54.5k in 2023 with
particularly healthy demand for the cost-effective IQ and mid-range
IQON products. While the margins achieved are consistent
across all our products the average selling price of IQ and IQON
products are lower which led to platform revenues in line with
2022. Against this growth in computer platform sales, we saw a
decline in monitor sales partly driven by cessation of sales to the
Aruze Group following their US entity filing for Chapter 11
bankruptcy in February 2023. Overall gaming sector revenues
were down 6% year on year to $69.2m (2022: $74.1m) albeit with
product mix driving higher gross margins. Gaming monitors
typically carry a lower gross margin than computer platforms
because they carry less bespoke intellectual property.
Refreshed product range
2021 and 2022 saw extraordinary
disruption in electronic supply chains with high volatility in
pricing, extended supply lead times and unexpected component
end-of-life notices. Maintaining supply through this period
was a major challenge for the business and engineering teams across
the Group were heavily occupied with re-designing existing product
and validating new components to replace those that were
unavailable.
Component markets in 2023 were
substantially more stable than previous years, and greater
confidence returned in supply availability and reliability.
While there remain some challenges and we cannot be complacent, we
were able to resume focus on new product development. In
2022, we started the process of migrating our newest products from
AMD to Intel processor technology. Graphic processing
capability is critical for the high-resolution video slots that the
computer platforms power and traditionally AMD offered better
performance embedded graphics than Intel. In recent years
Intel has significantly improved its graphics processing
performance, likely partly driven by their recognition of the
importance of GPU Compute in artificial intelligence. This
has benefited their embedded processor parts and enabled them to
offer significantly more compelling processors with longer supply
lifetimes.
With the roll out of IQ 2 and IQON 2
in 2024 to join the already launched QMAX-3, all our latest
products now harness Intel processors.
Combined with Quixant's Software
Hub, a value-add library of support software libraries, tools and
drivers, the new hardware product launches give us a complete
portfolio to all price points, which we can market with confidence
in long-term availability and price competitiveness for the first
time since the pandemic.
New business development gathered
pace in 2023 as manufacturers reignited new product development
rather than focusing on maintaining supply of existing
product. With our refreshed product suite, we are well
positioned to drive the conversion of new business.
Growth in new markets augmenting flat demand from established
jurisdictions
The US Gaming market continued to
see strong player spend with the American Gaming Association
reporting US slot machine gross gaming revenues growing by 3.3%
year on year to $32.4bn. The tribal gaming market, which
covers casinos that are located on reservation land, represents the
other major source of US gaming. The National Indian Gaming
Commission reported gross gaming revenues in 2022 of $40.9bn, 4.9%
growth year on year.
The market replacement cycle,
however, has seen stagnant growth in the year and the major
manufacturers have been trading places in market share with
Aristocrat and Light & Wonder leading the pack. This
competitive environment has led some of the majors to enter
atypical US markets for them such as Historical Horse Racing and
the Route Markets seeking growth. This presents a risk for
some of our larger customers as they have historically been strong
in these segments. It also, however, presents an opportunity
for us because it is increasing the emphasis on content creation to
be competitive which plays into our outsource
proposition.
Our two largest customers, Everi
Holdings (Everi) and Ainsworth Game Technology (AGT) made important
new product launches at the Global Gaming Expo (G2E) 2023, held in
Las Vegas in October 2023. Both launched several new
cabinets, which has put them in a competitive position, and
introduced new 'hold and spin' games at the show - a type of bonus
game that is dominating player appetite at the moment.
While European market revenues
recovered from pandemic lows in 2020, the replacement cycle has
continued to lag pre-pandemic levels and sentiment generally
remains weak. Exceptions to this are Bulgaria and Romania
where we have seen elevated activity, with the latter supported by
legislative changes.
Latin America represents a
significant growth opportunity as markets regulate and
evolve. We continue to follow developments in Brazil closely,
where in December 2023 the government enacted a law regulating
'fixed-odds betting'. The law allows companies to run fixed-odds
betting operations in relation to sports events and online games.
This has resulted in many companies competing for licences to
manage lottery and sports betting locations. Significant challenges
remain around import logistics of any gaming product in the country
and whether legislation to approve gaming will ever be passed
remains to be seen but there are tailwinds in what would be a
substantial market. Despite the optimism around Brazil, we
are aware of the political uncertainty that exists in many LATAM
countries and therefore are cautious about relying on new market
growth in the region.
Across all jurisdictions
'omnichannel gaming' is increasing in popularity and
importance. Players expect a seamless experience between
bricks-and-mortar venues and virtual online gaming. This is
driving major investment from traditional land-based manufacturers
into online, but also a tide of online game developers looking to
bring out land-based machines with their content. The latter
is exciting for us because our turnkey product offerings allow them
to realise their ambitions without designing or manufacturing
hardware.
Business Review: Densitron
Densitron is Nexteq's brand that
supplies industrial display components and bespoke human machine
interface (HMI) solutions to selected industrial markets outside
gaming, representing 40% of the Group total revenue.
Significant margin enhancement in 2023 after a record
2022
In 2022, we delivered record
revenues in Densitron since acquisition in 2015. Despite
challenging macro conditions in many industrial markets driving
weaker than anticipated demand, overall Densitron delivered another
strong revenue performance of $45.1m, broadly in line with the
prior year (2022: $45.8m).
Initiatives introduced over the last
few years to improve profitability yielded results in 2023 as
Densitron delivered several percentage points improvements in gross
margin. Combined with revenues remaining at historical highs,
this meant Densitron delivered a materially increased adjusted
profit before tax contribution in the year.
Double-digit broadcast sector growth
Broadcast sector revenues were up
12% to $8.4m (2022: $7.5m), the fourth consecutive year in which we
have achieved double-digit growth. This is despite the
broadcast market seeing similar macro headwinds to many other
industrial markets. Importantly, the higher value product
propositions supplied to the Broadcast sector are at higher gross
margins than other Densitron sectors which is partly responsible
for the better margin performance in 2023.
Broadcast is a strategic market for
the Group in which we seek to modernise the control of technology
which typically resides in Production Control Rooms ("PCRs"). We
believe that there are around 220,000 PCRs worldwide which results
in an equipment spend every year of $880m of which we believe our
realistic total addressable market is $220m. These PCRs are
found in broadcast corporation studios, corporate broadcast
theatres, outside broadcast trucks and houses of worship and are
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)
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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
the BBC.
|
|
|
2)
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HMI Modular Solutions - 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.
|
|
|
3)
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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 reduce costs or invest in engineering,
manufacturing and supply chain capacity in other
projects.
|
As our product portfolio matures and
gains greater traction across the industry, we are increasingly
seeing customers adopting more standardised variants. This is
expected behaviour and supports the R&D effort expended in
developing the product portfolio.
During the year we expanded the
range of our Tactila tactile objects and commenced work on smaller
rotaries which, while technically difficult to accomplish, expands
the application into more broadcast equipment and applications.
This helped drive new business activity in the second half of 2023.
Our patented button technology will be adopted by Ross Video. These
buttons are overlaid onto a display to enable the user to enjoy the
benefits of a touchscreen but with the tactility of a mechanical
button. We also secured an order for our Tactila rotaries to
be applied to a market-leading piece of broadcast hardware by
Wohler.
Display Component book delivering record
margins
While 2023 saw a slight downturn in
revenue amid wider weakness in the industrial equipment demand,
margin gains more than offset this from a profit perspective.
We believe this new margin level can be sustained going forward
with the value proposition we now offer customers.
We are recognised as a trusted
supplier to a loyal customer base and have worked successfully
during the year to secure new business wins to support future
revenue growth. The second largest sector in the Nexteq Group
by revenue is the medical market and we have a longstanding book of
customers which require high service levels, need to work with
trusted supply partners and tend to buy the same display for up to
a decade so present a very attractive customer base for the display
component business to grow from within. Having exhibited at
the Medica trade show in 2023 we are exploring growth opportunities
in this market.
Expanded manufacturing footprint for efficiency and
resilience
All our manufacturing takes place in
Asia with most components sourced from China and Taiwan.
Historically, all our finished goods are manufactured by
Taiwan-based subcontractors.
Considering continuing geopolitical
tensions in the region, we made the decision at the end of 2022 to
explore manufacturing options elsewhere and I am pleased to report
that we commenced the first mass production run of the IQON 2
gaming platform in Malaysia in Q4 2023. This was an
incredible effort by our manufacturing operations team to ramp from
initiation through yield testing to production in just nine months.
Going forward, finished goods manufacturing will be dual sourced
between Taiwan and Malaysia for Quixant and Densitron finished
goods.
We also signed a manufacturing
partnership with ELAS, a respected gaming cabinet manufacturer
based on Bosnia and Herzegovina. They will enable us to
efficiently supply our Quantum cabinet products to the European
market alongside our other manufacturing partners in North
America.
Current Trading and Outlook
In the first months of 2024 we have
seen a continuation of the slower order intake across our end
markets as customers continue to focus on managing working capital
tied up in inventory. We expect these conditions to persist in the
near term but improve into the second half of the year. The Group
enjoys a healthy order backlog providing good revenue visibility
and remains confident in meeting market expectations for 2024
revenues, with asecond half weighting. The Board continues to have
confidence in the Group's organic growth opportunities in the
medium term.
Driving further operational
efficiency and profitability remain key priorities for the Group,
and we expect to make further improvements in the current year.
With the normalisation of supply chains, we expect cash conversion
to remain at high levels, further improving our net cash position.
The strength of our balance sheet and accumulated cash balance also
positions us well to undertake acquisitions to earnings
growth.
Jon
Jayal
Chief Executive Officer
Financial Review
Improved profitability and cash generation
Statutory Results
Group Revenue was $114.3m, 5% lower
than the $119.9m delivered in 2022. Gross profit was $41.5m (2022:
$38.6m), an increase of 8% over the prior year, with gross margins
at 36.3% (2022: 32.2%). Operating expenses were $29.1m (2022:
$29.6m), resulting in operating profit of $12.4m (2022: $8.9m). Net
finance income was $0.5m (2022: Net finance cost of $0.1m),
resulting in profit before tax of $12.9m (2022: $8.8m) and an
income tax expense of $2.0m (2022: tax credit of $2.2m), equivalent
to an effective tax rate of 15.6% (2022: -24.8%). Basic earnings
per share (EPS) were 16.39cents (2022: 16.53cents), a decrease of
1%. Diluted EPS were 16.02cents (2022: 16.16cents), a decrease of
1%.
Revenue
Quixant revenues were $69.2m, a
decrease of 6% on the prior year (2022: $74.1m). Unit sales
increased to 54,513 platforms delivered in the year, up 5% on the
prior year (2022: 52,044). Demand for our cost effective and
mid-range products were particularly high in 2023, resulting in a
slightly lower average selling price resulting in platform revenues
in line with the prior year. The decrease in overall Quixant
revenues was largely due to product mix, as the Group delivered
fewer monitors than in 2022.
Densitron delivered another strong
revenue performance with $45.1m, broadly in line with the prior
year (2022: $45.8m). The strong demand for Densitron products seen
in 2022 continued through 2023, across all its subsectors. The
broadcast sector in particular had another strong year with
revenues of $8.4m, up 12% on the $7.5m delivered in
2022.
Gross profit and gross profit margin
The Group generated gross profit
during the year of $41.5m (2022: $38.6m) representing a gross
margin of 36.3% (2022: 32.2%). Gross margins continued their
recovery from the lower levels seen in 2021 and 2022, which was a
result of component price inflation from global supply chain
shortages and higher freight charges.
Adjusted operating expenses
Adjusted operating expenses
decreased by 4% to $27.3m (2022: $28.3m). For the first year since
the outbreak of COVID-19 in 2020, operations were not impacted by
pandemic related restrictions. This resulted in travel and
marketing spend returning to normal levels, increasing $0.6m to
$2.6m (2022: $2.0m). In addition to this the Group has also
invested in headcount, with average employees increasing from 228
in 2022 to 238 in 2023 as the Group grew its engineering, supply
chain and sales teams to support the growing demand across both
Quixant and Densitron. This resulted in payroll costs increasing by
$1.5m to $21.7m (2022: $20.2m).
During the year, Group expenditure
on research and development reduced to $4.6m (2022: $4.8m). These
costs relate to investment activities principally undertaken in
Taiwan, Italy, the UK and Slovenia. Of these costs, $1.8m were
capitalised (2022: $1.8m) as the Group continues to focus on
developing new products, with amortisation for the year on total
capitalised development costs of $1.4m (2022: $1.1m). During
the year the Group abandoned in progress development projects with
a carrying value of $1.0m (2022: $0.5m). 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.
Offsetting these increases were
lower impairment of trade receivables, with no impairment loss
recorded in the current year compared to $0.9m in 2022 when the
Group recognised an impairment loss related to Aruze. The Group
also recognised exchange rate gains of $0.6m, compared to an
exchange rate loss of $1.6m in 2022. 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 $0.4m R&D tax credit. 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. In 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 should be recognised within
operating expenses. 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 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 these financial statements, 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 these financial statements 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 2023, APMI owed
$1.0m to the Group from the sale of goods (2022: $0.7m). The
amounts were impaired in full as at 31 December 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 $1.7m (2022: $2.2m) and finished
goods with a book value of $0.6m (2022: $1.1m) originally earmarked
for use by APMI was included in the Nexteq Group's balance sheet as
at 31 December 2023. The raw materials can be used to manufacture
products sold to the Group's existing or new customers, and the
finished goods can be used in the Group's turnkey cabinet offering.
Management expects to fully recover the net book value of $2.3m and
considers that no provision against it was required as at 31
December 2023.
The Group balance sheet also
previously included capitalised development costs with a book value
of $0.4m related to the development of products for APMI's future
use. Management assessed the commercial opportunities for these
products and determined that it was not probable that these would
generate future economic benefits for other customers. As a result,
development of these products was ceased. An impairment charge of
the full book value of $0.4m was recorded within operating
expenses.
Net
finance income/(expense)
The Group recognised Net finance
income of $0.5m (2022: Net finance expense of $0.1m). Finance
income increased to $0.6m (2022: $0.0m) as the Group took advantage
of higher interest rates coupled with the higher cash balances the
Group had during the year. Finance expense of $0.1m (2022: $0.1m)
principally related to leases.
Adjusted Profit Before Tax
Adjusted profit before tax increased
by 45% to $14.7m (2022: $10.2m). The adjustments to statutory
profit before tax of $1.9m (2022: $1.4m) consisted of:
·
|
Share-based payments charge of $1.0m
(2022: $0.6m). 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).
|
·
|
Amortisation of acquired intangibles
charge of $0.6m (2022: $0.8m). This charge relates to intangible
assets recognised in the acquisition of Densitron and
IDS.
|
·
|
Restructuring charges of $0.3m
(2022: nil). The restructuring charges relate to a restructuring
programme completed in December 2023 to improve the efficiency of
the Group's operations. We took the difficult but necessary
decision to reduce our workforce by 10%, reducing the Group's
annual staff costs by $1.2m. The effect of this reduction will only
be fully reflected in 2024 due to the timing of when the programme
was completed.
|
Taxation
The Group recognised a corporation
tax charge of $2.0m in the year, compared to a credit of $2.2m in
2022. The tax charge consists of a current tax charge of $2.3m
(2022: $0.5m) and $0.3m credit relating to the movement in deferred
tax assets and liabilities in the current year (2022: credit of
$2.7m). The 2022 tax credit included a $1.8m credit in relation to
the recognition of a deferred tax asset for tax losses that were
considered recognisable due to the Group having enhanced visibility
over their availability and utilisation.
The effective tax rate on statutory
profit before tax increased to 15.6% (2022: -24.8%). The Group had
higher than previously expected tax relief from the research and
development efforts and a greater mix of patented product sales
increasing patent box claims in the UK. 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 1% to 16.39c
per share (2022: 16.53c per share). Adjusted diluted earnings per
share increased by 2% to 18.09c per share (2022: 17.79c per
share).
Balance Sheet
Non-current assets decreased to
$24.3m as at 31 December 2023 (31 December 2022: $26.2m) mainly due
to amortisation and impairment of intangible assets. Included in
non-current assets are goodwill of $7.7m (31 December 2022: $7.7m)
and acquisition related intangible assets of $0.5m (2022: $1.0m)
allocated to cash generating units (CGUs). The annual impairment
review indicated that no impairment of goodwill is necessary at 31
December 2023 or 31 December 2022. The impairment reviews did
indicate that the estimated recoverable amounts of the Densitron US
and Densitron Europe CGUs are sensitive to a reasonably possible
change in key assumptions. The change in key assumptions could
cause the carrying amount of the CGUs to exceed the recoverable
amount, which would lead to an impairment.
Current assets increased to $78.6m
at 31 December 2023 (31 December 2022: $69.7m) mainly due to a
significant increase in cash and cash equivalents from $13.5m at
the start of the year to $28.4m at 31 December 2023. This was
offset by a decrease in inventory to $24.3m (31 December 2022:
$32.2m), as the Group consumed the strategic stock purchased during
2021 and 2022.
Cash Flow
The Group generated $19.8m cash from
operating activities in the year (2022: $0.8m). Adjusted operating
cash flow, which excludes tax payments, was $21.0m (2022: $2.5m)
which represented 142% of adjusted profit before tax (2022: 25%).
This was ahead of the Group's 2023 cash conversion KPI target due
to reduced working capital, as the Group consumed strategic stock
balances.
The Group capitalised $1.8m of
development costs (2022: $1.8m), which reflects the continued
development of new products as the Group expands its product
portfolio.
The Group finished 2023 with net
cash of $27.9m (2022: $12.9m), comprising cash and cash equivalents
of $28.4m (2022: $13.5m) and gross debt of $0.5m (2022: $0.6m). 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 2023 of 3.3p per share (2022: 3.0p per
share). This dividend will be payable on 23 August 2024 to all
shareholders on the register on 26 July 2024. The corresponding
ex-dividend date is 25 July 2024.
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% (2022: 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
|
|
2023
|
2022
|
USD/GBP
|
|
1.24
|
1.24
|
USD/Euro
|
|
1.08
|
1.05
|
USD/TWD
|
|
0.032
|
0.034
|
|
|
|
|
|
|
Closing
rate
|
Balance sheet
|
|
2023
|
2022
|
USD/GBP
|
|
1.27
|
1.20
|
USD/Euro
|
|
1.11
|
1.07
|
USD/TWD
|
|
0.033
|
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 2023 and 2022. 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 2023 were very similar to 2022 levels, resulting in a
negligible impact on adjusted operating expenses, when compared to
2022 average rates. The Group recognised translational foreign
exchange rate gains of $0.6m in 2023, compared with losses of $1.6m
in the prior year, a positive $2.2m impact year over year.
Combining the impact of these foreign exchange elements resulted in
a net positive foreign exchange rate impact of $2.2m on adjusted
profit before tax for 2023 when compared to 2022.
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 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 these financial
statements. APM's, however, are not a measure of financial
performance under IFRS and should not be considered a substitute
for measures determined in accordance with IFRS. APMs have been
provided for the following reasons:
1)
|
to present users of these financial
statements with a clear view of what we consider to be the results
of our underlying operations, enabling consistent comparisons over
time and making it easier for users of the report to identify
trends;
|
2)
|
to provide additional information to
users of these financial statements about our financial performance
or financial position; and
|
3)
|
to show the performance measures
that are linked to remuneration for the Executive
Directors.
|
The following APMs appear in these
financial statements.
|
Reason for use
|
Reconciliation
|
Adjusted profit before tax
|
1,3
|
Note 1
|
Adjusted profit after tax
|
1,2
|
Note 1
|
Adjusted operating
expenses
|
1,2
|
Note 1
|
Adjusted operating cash
flow
|
1,2
|
Note 1
|
Adjusted diluted EPS
|
1,2
|
Note 5
|
Johan Olivier
Chief Financial Officer
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
For the years ended 31 December 2023
and 2022
|
|
2023
|
2022
|
|
Note
|
$'000
|
$'000
|
Revenue
|
3
|
114,349
|
119,873
|
Cost of sales
|
|
(72,828)
|
(81,319)
|
Gross profit
|
|
41,521
|
38,554
|
Operating expenses
|
|
(29,091)
|
(29,622)
|
Operating profit
|
|
12,430
|
8,932
|
Finance income
|
|
585
|
-
|
Finance expense
|
|
(106)
|
(131)
|
Profit before tax
|
|
12,909
|
8,801
|
Taxation
|
4
|
(2,012)
|
2,185
|
Profit for the year
|
|
10,897
|
10,986
|
Other comprehensive income/(expense) for the year, net of
income tax
|
|
|
|
Items that are or may be
reclassified subsequently to profit or loss:
Foreign currency translation
differences
|
|
723
|
(1,644)
|
Total comprehensive income for the year
|
|
11,620
|
9,342
|
Basic earnings per share
|
5
|
$0.1639
|
$
0.1653
|
Diluted earnings per
share
|
5
|
$0.1602
|
$
0.1616
|
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 2023 and
2022
|
|
Group
|
|
Company
|
|
|
2023
$'000
|
2022
$'000
|
|
2023
$'000
|
2022
$'000
|
Non-current assets
|
|
|
|
|
|
|
Property, plant and
equipment
|
|
5,478
|
5,668
|
|
3,649
|
3,750
|
Intangible assets
|
|
14,243
|
15,533
|
|
408
|
652
|
Right-of-use assets
|
|
1,558
|
1,694
|
|
667
|
745
|
Investment property
|
|
−
|
−
|
|
−
|
-
|
Investments in Group companies and
associated undertakings
|
|
−
|
−
|
|
9,586
|
9,244
|
Deferred tax assets
|
|
2,951
|
2,636
|
|
2,637
|
2,389
|
Trade and other
receivables
|
|
54
|
712
|
|
−
|
-
|
|
|
24,284
|
26,243
|
|
16,947
|
16,780
|
Current assets
|
|
24,338
|
|
|
16,180
|
|
Inventories
|
|
32,169
|
|
22,717
|
Trade and other
receivables
|
|
25,828
|
24,047
|
|
9,889
|
10,917
|
Cash and cash equivalents
|
|
28,406
|
13,508
|
|
24,857
|
9,042
|
|
|
78,572
|
69,724
|
|
50,926
|
42,676
|
Total assets
|
|
102,856
|
95,967
|
|
67,873
|
59,456
|
Current liabilities
|
|
(91)
|
|
|
(91)
|
|
Loans and borrowings
|
|
(90)
|
|
(90)
|
Trade and other payables
|
|
(16,763)
|
(20,437)
|
|
(26,583)
|
(15,176)
|
Tax payable
|
|
(1,247)
|
(530)
|
|
(421)
|
(274)
|
Lease liabilities
|
|
(569)
|
(562)
|
|
(296)
|
(329)
|
|
|
(18,670)
|
(21,619)
|
|
(27,391)
|
(15,869)
|
Non-current liabilities
|
|
(382)
|
|
|
(382)
|
|
Loans and borrowings
|
|
(473)
|
|
(473)
|
Provisions
|
|
(351)
|
(350)
|
|
−
|
-
|
Deferred tax liabilities
|
|
−
|
(40)
|
|
−
|
-
|
Lease liabilities
|
|
(1,107)
|
(1,271)
|
|
(364)
|
(441)
|
|
|
(1,840)
|
(2,134)
|
|
(746)
|
(914)
|
Total liabilities
|
|
(20,510)
|
(23,753)
|
|
(28,137)
|
(16,783)
|
Net
assets
|
|
82,346
|
72,214
|
|
39,736
|
42,673
|
Equity attributable to equity holders of the
parent
|
|
106
|
|
|
106
|
|
Share capital
|
|
106
|
|
106
|
Share premium
|
|
6,747
|
6,708
|
|
6,747
|
6,708
|
Share-based payments
reserve
|
|
1,905
|
895
|
|
1,905
|
895
|
Retained earnings
|
|
74,398
|
66,038
|
|
30,464
|
35,085
|
Translation reserve
|
|
(810)
|
(1,533)
|
|
514
|
(121)
|
Total equity
|
|
82,346
|
72,214
|
|
39,736
|
42,673
|
The Company's loss for the year was
$2.1m (2022: loss of $0.6m).
These financial statements were
approved and authorised for issue by the Board of Directors on 12
March 2024 and were signed on behalf of the Board by:
Jon
Jayal
Chief Executive Officer
Company registered number:
04316977
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN
EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2023
and 2022
GROUP
|
Share
Capital
|
Share
Premium
|
Translation
Reserve
|
Share-Based
Payments
|
Retained
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 (expense)/income for the
year
|
-
|
-
|
(1,644)
|
-
|
10,986
|
9,342
|
Transactions with owners, recorded directly in
equity
|
|
|
|
|
|
|
Share-based payment
expense
|
-
|
-
|
-
|
618
|
-
|
618
|
Deferred 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
|
|
Share
Capital
|
Share
Premium
|
Translation
Reserve
|
Share-Based
Payments
|
Retained
Earnings
|
Total
Equity
|
|
$'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
|
-
|
-
|
-
|
-
|
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
|
-
|
-
|
-
|
962
|
-
|
962
|
Share-based payment
expense
|
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
|
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN
EQUITY
FOR THE YEARS ENDED 31 DECEMBER 2023
and 2022
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 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
|
Deferred 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
|
(121)
|
895
|
35,085
|
42,673
|
|
Share
|
Share
|
Translation
|
Share-Based
|
Retained
|
Total
Parent
|
|
Capital
|
Premium
|
Reserve
|
Payments
|
Earnings
|
Equity
|
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
$'000
|
Balance at 1 January 2023
|
106
|
6,708
|
(121)
|
895
|
35,085
|
42,673
|
Total comprehensive loss for the year
|
-
|
-
|
-
|
-
|
(2,084)
|
(2,084)
|
Loss for the year
|
Other comprehensive
income
|
-
|
-
|
635
|
-
|
-
|
635
|
Total comprehensive expense for the year
|
-
|
-
|
635
|
-
|
(2,084)
|
(1,449)
|
Transactions with owners, recorded directly in
equity
|
-
|
-
|
-
|
962
|
-
|
962
|
Share-based payment
expense
|
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
|
514
|
1,905
|
30,464
|
39,736
|
CONSOLIDATED AND COMPANY CASH FLOW
STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 2023
and 2022
|
|
Group
|
|
Company
|
|
|
2023
|
2022
|
|
2023
|
2022
|
|
|
$'000
|
$'000
|
|
$'000
|
$'000
|
Cash flows from operating activities
|
|
10,897
|
|
|
(2,084)
|
|
Profit/(Loss) for the year
|
|
10,986
|
|
(560)
|
Adjustments for:
|
|
2,764
|
|
|
701
|
|
Depreciation and
amortisation
|
|
2,652
|
|
687
|
Loss on disposal of property, plant
and equipment
|
|
14
|
5
|
|
-
|
4
|
Impairment losses on intangible
assets
|
|
967
|
509
|
|
-
|
-
|
Depreciation of leased
assets
|
|
638
|
660
|
|
360
|
413
|
Increase in provision for doubtful
debts
|
|
136
|
722
|
|
-
|
-
|
Movement in provisions
|
|
7
|
43
|
|
-
|
-
|
R&D tax credit
|
|
(382)
|
-
|
|
-
|
-
|
Taxation charge/(credit)
|
|
2,012
|
(2,185)
|
|
413
|
(1,776)
|
Finance income
|
|
(585)
|
-
|
|
(563)
|
-
|
Finance expense
|
|
106
|
131
|
|
47
|
86
|
Exchange rate
losses/(gains)
|
|
120
|
(403)
|
|
124
|
(371)
|
Share-based payment
expenses
|
|
962
|
618
|
|
676
|
499
|
Operating cash flows before movement in working
capital
|
|
17,656
|
13,738
|
|
(326)
|
(1,018)
|
(Increase)/Decrease in trade and
other receivables
|
|
(1,283)
|
(2,017)
|
|
1,016
|
16,940
|
Decrease/(Increase) in
inventories
|
|
8,573
|
(4,633)
|
|
7,176
|
(2,980)
|
(Decrease)/Increase in trade and
other payables
|
|
(3,888)
|
(4,439)
|
|
(3,448)
|
(6,774)
|
|
|
21,058
|
2,649
|
|
4,418
|
6,168
|
Interest paid
|
|
(3)
|
(42)
|
|
−
|
(41)
|
Lease liability interest
paid
|
|
(92)
|
(89)
|
|
(35)
|
(45)
|
Tax paid
|
|
(1,208)
|
(1,716)
|
|
(522)
|
(648)
|
Net
cash from operating activities
|
|
19,755
|
802
|
|
3,861
|
5,434
|
Cash flows from investing activities
|
|
|
|
|
|
|
Addition of development
costs
|
|
(1,839)
|
(1,817)
|
|
-
|
-
|
Purchase of property, plant and
equipment
|
|
(262)
|
(545)
|
|
(219)
|
(407)
|
Addition of externally purchased
intangible assets
|
|
(135)
|
(418)
|
|
(135)
|
(108)
|
Interest received
|
|
461
|
−
|
-
|
440
|
|
Net
cash used in investing activities
|
|
(1,775)
|
(2,780)
|
|
86
|
(515)
|
Cash flows from financing activities
|
|
(926)
|
|
|
(926)
|
|
Repayment of borrowings
|
|
(6,922)
|
|
(6,922)
|
Proceeds from loans
|
|
842
|
6,842
|
|
15,553
|
6,842
|
Mortgage interest paid
|
|
(11)
|
-
|
|
(11)
|
-
|
Payment of lease liabilities
principal
|
|
(624)
|
(546)
|
|
(358)
|
(405)
|
Exercise of share options
|
|
39
|
-
|
|
39
|
-
|
Dividends paid
|
|
(2,537)
|
(1,888)
|
|
(2,537)
|
(1,888)
|
Net
cash used in financing activities
|
|
(3,217)
|
(2,514)
|
|
11,760
|
(2,373)
|
Net increase/(decrease) in cash and
cash equivalents
|
|
14,763
|
(4,492)
|
|
15,707
|
2,546
|
Cash and cash equivalents at 1
January
|
|
13,508
|
18,347
|
|
9,042
|
6,604
|
Foreign exchange rate
movements
|
|
135
|
(347)
|
|
108
|
(108)
|
Cash and cash equivalents at 31 December
|
|
28,406
|
13,508
|
|
24,857
|
9,042
|
|
|
|
|
|
|
|
| |
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 2023 or 2022 but is
derived from those accounts. Statutory accounts for 2022 have been
delivered to the registrar of Companies, and those for 2023 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
2024.
Going concern
The Group's operational and
financially robust position is supported by:
-
|
Increased profitability with profit
before tax of $12.9m, 47% higher than 2022 ($8.8m).
|
-
|
Improved cash generation, leading to
a net cash balance of $27.9m at 31 December 2023 (31 December 2022:
$12.9m).
|
-
|
Good order book at 31 December 2023
covering five months of forecasted 2024 revenues (31 December 2022:
seven months of forecasted 2023 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 2024 and forecasts for the first three
months of 2025. Management also prepared a severe but plausible
downside scenario, using the following key assumptions:
-
|
A 25% reduction in 2024 and 2025
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 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 Densitron US CGU, valuation
of Quixant CGU inventory, capitalisation of development costs and
valuation of Aruze debtors, inventory and capitalised 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 Densitron US and Densitron Europe CGUs
The estimated recoverable amounts of
the Densitron US and Densitron Europe 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.
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 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 2023, the Nexteq
Group balance sheet and Parent company balance sheets included
inventory of $19.1m (2022: $26.0m) and $14.7m (2022: $22.7m)
respectively. The provision against slow-moving and obsolete
inventory for the Nexteq Group as at 31 December 2023 is $2.6m
(2022: $2.1m) and in the Parent company is $2.3m (2022: $1.5m). A
difference of 3.7% in the provision as a percentage of gross
inventory would give rise to a difference of +/- $1.0m in gross
margin. The choice of a 3.7% change for the determination of
sensitivity represents the change to the level of provisioning for
the prior year.
Other important judgements
Valuation of Aruze debtors, inventory and capitalised
development costs
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 these financial statements, 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 these financial statements 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 2023, APMI owed
$1.0m to the Group from the sale of goods (2022: $0.7m). The
amounts were impaired in full as at 31 December 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 $1.7m (2022: $2.2m) and finished
goods with a book value of $0.6m (2022: $1.1m) originally earmarked
for use by APMI was included in the Nexteq Group's balance sheet as
at 31 December 2023. The raw materials can be used to manufacture
products sold to the Group's existing or new customers, and the
finished goods can be used in the Group's turnkey cabinet offering.
Management expects to fully recover the net book value of $2.3m and
considers that no provision against it was required as at 31
December 2023.
The Group balance sheet also
previously included capitalised development costs with a book value
of $0.4m related to the development of products for APMI's future
use. Management assessed the commercial opportunities for these
products and determined that it was not probable that these would
generate future economic benefits for other customers. As a result,
development of these products was ceased. An impairment charge of
the full book value of $0.4m was recorded within operating
expenses.
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
|
2023
|
2022
|
|
$000
|
$000
|
Profit before tax
|
12,909
|
8,801
|
Adjustments:
|
|
|
Amortisation of customer
relationships, technology and order backlog1
|
582
|
751
|
Share-based payments
expense2
|
962
|
618
|
Restructuring
charges3
|
293
|
-
|
Adjusted Profit before tax
|
14,746
|
10,170
|
Adjusted Profit before tax % (Adjusted Profit before
tax/Revenue)
|
12.9%
|
8.5%
|
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
2023.
|
Adjusted Profit after tax
|
|
|
2023
|
2022
|
|
$000
|
$000
|
Profit after tax
|
10,897
|
10,986
|
Adjustments:
|
|
|
Amortisation of customer
relationships, technology and order backlog1
|
582
|
751
|
Share-based payments
expense2
|
962
|
618
|
Restructuring
charges3
|
293
|
-
|
Non-recurring tax
benefits4
|
(432)
|
(260)
|
Adjusted Profit after tax
|
12,302
|
12,095
|
4.
|
Tax on adjusted items relating to amortisation of customer
relationships, technology and order backlog of $0.6m (2022: $0.8m),
share based payment expense of $1.0m (2022: $0.6m) and
restructuring charges of $0.3m (2022: $Nil).
|
Adjusted Operating expenses
|
|
|
2023
|
2022
|
|
$000
|
$000
|
Operating expenses
|
(29,091)
|
(29,622)
|
Adjustments:
|
|
|
Amortisation of customer
relationships, technology and order backlog1
|
582
|
751
|
Share-based payments
expense2
|
962
|
618
|
Restructuring
charges3
|
293
|
-
|
Adjusted Operating expenses
|
(27,254)
|
(28,253)
|
Adjusted Operating cash flow
|
2023
|
2022
|
|
$000
|
$000
|
Net
cash from operating activities
|
19,755
|
802
|
Add
back:
|
|
|
Tax paid
|
1,208
|
1,716
|
Adjusted Operating cash flow
|
20,963
|
2,518
|
Adjusted Operating Cash conversion % (Adjusted operating cash
flow/Adjusted profit before tax)
|
142%
|
25%
|
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:
|
2023
|
2022
|
|
$000
|
$000
|
Quixant
|
17,165
|
17,348
|
Densitron
|
7,538
|
5,165
|
Segment results
|
24,703
|
22,513
|
Corporate cost
|
(12,273)
|
(13,581)
|
Operating profit
|
12,430
|
8,932
|
Net finance
income/(expense)
|
479
|
(131)
|
Profit before tax
|
12,909
|
8,801
|
Taxation
|
(2,012)
|
2,185
|
Profit after tax
|
10,897
|
10,986
|
|
|
Year to 31 December
2023
|
|
Year to
31 December 2022
|
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
|
Quixant
|
|
Densitron
|
|
Total1
|
|
Quixant
|
|
Densitron
|
|
Total1
|
Other information
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of owned
assets
|
|
93
|
|
8
|
|
101
|
|
92
|
|
5
|
|
97
|
Amortisation of intangible
assets
|
|
1,020
|
|
337
|
|
1,357
|
|
804
|
|
291
|
|
1,095
|
Impairment of intangible
assets
|
|
489
|
|
478
|
|
967
|
|
194
|
|
315
|
|
509
|
|
|
1,602
|
|
823
|
|
2,425
|
|
1,090
|
|
611
|
|
1,701
|
1 Depreciation and
amortisation of $977k (2022: $1,611k) were not allocated to
segments as these are considered corporate
costs.
3. Analysis of turnover
|
|
2023
|
|
2023
|
|
2023
|
|
2022
|
|
2022
|
|
2022
|
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
$000
|
|
|
Quixant
|
|
Densitron1
|
|
Total
|
|
Quixant
|
|
Densitron
|
|
Total
|
By
primary geographical market
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
2,911
|
|
9,311
|
|
12,222
|
|
3,306
|
|
10,353
|
|
13,659
|
Australia
|
|
6,067
|
|
79
|
|
6,146
|
|
4,958
|
|
66
|
|
5,024
|
UK
|
|
4,733
|
|
4,370
|
|
9,103
|
|
4,373
|
|
3,474
|
|
7,847
|
Europe excl. UK
|
|
10,777
|
|
15,668
|
|
26,445
|
|
12,483
|
|
13,067
|
|
25,550
|
North America
|
|
44,380
|
|
14,404
|
|
58,784
|
|
48,123
|
|
16,162
|
|
64,285
|
Rest of World
|
|
405
|
|
1,244
|
|
1,649
|
|
839
|
|
2,669
|
|
3,508
|
|
|
69,273
|
|
45,076
|
|
114,349
|
|
74,082
|
|
45,791
|
|
119,873
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
1 2023 Densitron Revenue from
products splits into Densitron $43.5m (2022: $44.7m) and IDS $1.6m
(2022: $1.1m). IDS revenue included revenue of $0.4m (2022: $0.5m)
recognised throughout the performance period.
The above analysis includes sales to
individual countries in excess of 10% of total turnover
of:
|
2023
|
2022
|
|
$000
|
$000
|
USA
|
56,069
|
61,019
|
Two customers (2022: two customers)
individually accounted for more than 10% of Group revenues in 2023,
with revenues of $19.4m (2022: $22.5m) and $14.8m (2022: $17.9m),
respectively. These revenues are attributable to the Quixant
segment.
4.
Taxation
Recognised in the profit and loss account
|
2023
|
2022
|
|
$000
|
$000
|
Current tax expense
|
382
|
|
UK corporation tax
|
-
|
Foreign tax
|
1,801
|
1,483
|
Adjustments for prior
years
|
136
|
(934)
|
Current tax expense
|
2,319
|
549
|
Deferred tax
|
120
|
|
Origination and reversal of
temporary differences
|
(2,262)
|
Adjustments for prior
years
|
(427)
|
(599)
|
Change in deferred tax rate to
25%
|
-
|
127
|
Deferred tax
|
(307)
|
(2,734)
|
Total tax expense / (credit) in the income
statement
|
2,012
|
(2,185)
|
Reconciliation of effective tax
rate
|
2023
|
2022
|
|
$000
|
$000
|
Profit for the year
|
10,897
|
10,986
|
Total taxation expense /
(credit)
|
2,012
|
(2,185)
|
Profit excluding taxation
|
12,909
|
8,801
|
Tax
using the UK corporation tax rate of 23.52% (2022:
19%)
|
3,036
|
1,672
|
Non-deductible expenses
|
239
|
246
|
Fixed asset differences
|
47
|
7
|
Enhanced research and development
relief1
|
-
|
(399)
|
Patent box tax relief
|
(1,531)
|
(897)
|
Foreign tax expensed
|
513
|
392
|
Change in deferred tax rate to
25%
|
14
|
(64)
|
Effect of tax rates in foreign
jurisdictions
|
124
|
273
|
Recognition of previously
unrecognised tax losses2
|
10
|
(1,815)
|
Deferred tax credited directly to
equity
|
48
|
65
|
Change to estimates related to prior
years3
|
(291)
|
(1,533)
|
Other
|
(197)
|
(132)
|
Total taxation expense / (credit) in statement of profit and
loss
|
2,012
|
(2,185)
|
1 In 2023 the Group breached the SME
thresholds for the UK R&D tax credits regime for the second
year in a row, meaning the Group claimed the R&D tax benefit
under the large company RDEC regime, resulting in a credit of $382k
within Profit before tax (2022: $nil).
2 In 2022, management recognised the tax
effect of $9.6m of previously unrecognised tax losses in Nexteq plc
and Nexteq UK Limited because management considered it probable
that future UK 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 have been updated for the Group's
2024 budget and forecast through to 2028, and management still
considers it probable that future UK taxable profits would be
available against which such losses can be
utilised.
3 The 2022 tax provision included 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. The 2023 tax provision
included an adjusted for patent box and enhanced research and
development relief claims relating to the tax returns submitted for
2022.
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:
|
2023
|
2022
|
|
$000
|
$000
|
Deferred tax asset - share-based
payments
|
(48)
|
(65)
|
Total
|
(48)
|
(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 has increased the company's future
current tax charge accordingly. The deferred tax asset at 31
December 2023 has been calculated based on these rates, reflecting
the expected timing of reversal of the related temporary
differences.
5. Earnings per ordinary share (EPS)
|
2023
|
2022
|
|
$000
|
$000
|
Earnings
|
|
|
Earnings for the purposes of basic
and diluted EPS being net profit attributable to equity
shareholders
|
10,897
|
10,986
|
Number of shares
|
Number
|
Number
|
Weighted average number of ordinary
shares for the purpose of basic EPS
|
66,501,570
|
66,450,060
|
Effect of dilutive potential
ordinary shares:
|
1,519,943
|
|
Share options
|
1,531,052
|
Weighted number of ordinary shares for the purpose of diluted
EPS
|
68,021,513
|
67,981,112
|
Basic earnings per share
|
$0.1639
|
$0.1653
|
Diluted earnings per
share
|
$0.1602
|
$0.1616
|
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
|
10,897
|
10,986
|
Adjustments
|
|
|
Amortisation of customer
relationships, technology and order backlog
|
582
|
751
|
Share-based payments
expense
|
962
|
618
|
Restructuring charges
|
293
|
-
|
|
12,734
|
12,355
|
Tax effect of adjustments
|
(432)
|
(260)
|
Adjusted earnings
|
12,302
|
12,095
|
Adjusted basic earnings per
share
|
$0.1850
|
$0.18200
|
Adjusted diluted earnings per
share
|
$0.1809
|
$0.17790
|
6.
Post balance sheet events
There were no material post balance
sheet events that were required to be disclosed.