TIDMFST
RNS Number : 0498H
Frontier Smart Technologies Grp Ltd
08 March 2018
For immediate release 8 March 2018
Frontier Smart Technologies Group Limited
('Frontier' or the 'Group')
Final Results
Strong growth in revenue and EBITDA in FY 2017
Frontier (AIM: FST), a pioneer in technologies for Digital Radio
and Smart Audio devices, announces its final results for the year
ended 31 December 2017 ('FY 2017' or the 'Period').
Financial Highlights
-- EBITDA(1) up 171% to GBP1.9 million (FY 2016: GBP0.7 million)
-- Revenues up 28% to GBP41.0 million (FY 2016: GBP32.1
million); in constant exchange rates, revenues up 22% to US$53.0
million (FY 2016: US$43.4 million)
o Radio(2) revenues up 15% to GBP36.3million (FY 2016: GBP31.7
million)
o First material revenues for Smart Audio(3) of GBP4.7 million
(FY 2016: GBP0.5 million)
-- R&D expenditure stable at GBP6.5 million (FY 2016: GBP6.6 million)
-- As of 31 December 2017, the Group's gross cash balance was
GBP5.9 million; the net cash balance was GBP3.0 million
Operational Highlights
-- Strong performance in Radio, especially in the first half,
driven by switch-off of FM radio in Norway, coupled with steady
growth in other European markets
-- In Smart Audio, over 20 models released incorporating the
Group's solution with Google Chromecast
-- Working demonstrations of Frontier's Smart Audio solutions,
incorporating Google's Voice Assistant, Amazon's Alexa Voice
Services and Apple AirPlay 2, presented at the CES tradeshow in
January 2018
-- Ten design wins secured for devices incorporating Frontier's
Smart Audio solution with Google's Voice Assistant with first
products to be released in 2018
Outlook for FY 2018
-- In FY 2018, the Board expects to see modest growth in
revenues and EBITDA, as the Group continues to invest in Smart
Audio
Anthony Sethill, CEO of Frontier, said:
"I am pleased to report a strong financial performance in 2017
with revenues benefitting from healthy growth in Radio and the
Group's first material sales in Smart Audio. This is a result of
our decision in 2016 to focus on our digital audio technology
business which has led to EBITDA more than doubling in the
period.
"2018 has started in line with plan and is likely to see modest
revenue growth year on year. In Radio, the peak impact of FM
switch-off in Norway will have passed, but we still expect to see
steady volume growth in other European markets. Medium term
prospects will be boosted by Switzerland starting to switch-off its
FM signals in 2020/21.
"In Smart Audio, the market for third party voice-enabled
devices is still at an early stage of development. We expect this
segment to build scale over a two to three-year time horizon. Our
immediate focus is to establish Frontier as the leading
multi-ecosystem solution provider for voice-enabled speakers. Our
medium term objective is to deploy our technologies in other
non-audio smart home devices."
Notes:
(1) EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, and before share-based payments
(2) Radio includes both DAB Digital Radio and Advanced
(Internet) Radio. In the FY 2016 Financial Results, Advanced Radio
was reported as part of Smart Audio. Since the 2017 Half Year
Results, Advanced Radio has been included in the Radio business
line.
(3) Smart Audio, as now defined, encompasses technologies for
Wi-Fi enabled audio devices (e.g. speakers, soundbars, AVRs),
generally based on software platforms from major technology players
such as Google. Voice-enabled devices are part of this
category.
Certain statements made in this release are forward-looking
statements. Such statements have been made by the Directors in good
faith using information available up until the date that they
approved this update. Forward-looking statements should be regarded
with caution because of the inherent uncertainties in economic
trends and business risks.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation. Upon the publication of this
announcement via a regulatory information service, this inside
information is now considered to be in the public domain.
Enquiries:
Frontier Smart Technologies +44 (0) 20 7391
Group Limited 0630
Anthony Sethill, Chief Executive
Officer
Jonathan Apps, Chief Financial
Officer
N+1 Singer (Nominated Adviser +44 (0) 20 7496
and Broker) 3000
Shaun Dobson / James Hopton
+44 (0) 20 7466
Buchanan 5000
Henry Harrison-Topham / Steph FST@buchanan.com
Watson / Gemma Mostyn-Owen
About Frontier Smart Technologies
The Frontier Smart Technologies Group is a pioneer in
technologies for digital audio devices. The original company,
Frontier Silicon, was incorporated in 2001. Customers include many
leading consumer audio brands: Bose, Denon, Grundig, harman/kardon,
Hama, JBL, Marshall, Onkyo, Panasonic, Philips, Pioneer, Pure,
Roberts, Sony, TechniSat, UrbanEars, Yamaha, and many more. The
Company is headquartered in London, with engineering, sales and
operations teams in Cambridge, Timisoara (Romania), Hong Kong, and
Shenzhen.
For more information, see: www.frontiersmart.com
Chairman's Statement
The last financial year has been a very positive period for
Frontier. The Group has recorded a strong financial performance
with revenues up 28% to GBP41.0 million and EBITDA more than
doubling to GBP1.9 million. At the year-end, Frontier recorded a
gross cash balance of GBP5.9 million and had a net cash balance of
GBP3.0 million. These results were driven by an impressive
performance in Radio, and our first significant design wins in
Smart Audio.
The strength in Radio has been especially pleasing and reflects
a return on investment made by Frontier over several years. The
Radio business has maintained its market-leading position, whilst
also benefitting from growth in DAB Digital Radio volumes, driven
by Digital Switchover ('DSO') in Norway (completed in December
2017) and steady growth in other European markets. The cashflows
from Radio underpin the Group's investment in Smart Audio.
The Smart Audio market is still at an early stage of development
and Frontier's business line remains in investment phase. 2017 saw
the Group's first material revenues from the sector but, given the
nascent status of the market for third party Smart Audio devices,
it is difficult to predict the speed at which this business line
will scale up. Our development focus is on bringing solutions to
market which support the leading voice-enabled ecosystems of Google
Voice Assistant ('GVA'), Alexa Voice Services ('AVS') and Apple
Airplay 2. These programmes are progressing well.
In 2018, we expect the growth in Group revenues and EBITDA to be
modest. The Group's goal is to deliver a solid Smart Audio
technology platform, which underpins stronger growth in 2019 and
2020, and also provides an entry point into additional (non-audio)
segments of the Smart Home market. The Board and Management will
monitor the business closely to ensure stability of the Group's
financial position.
Today, I am announcing that I am standing down from the Frontier
Board at the upcoming Annual General Meeting and will not be
seeking re-election as a Director. I have served as a Non-Executive
Director for nine years and as Chairman since July 2015. In this
latter period, the Group has successfully exited its healthcare
business, removing a significant cash drain on the Group's finances
and allowing management to focus on Frontier's digital audio
business, an area where the Group has extensive expertise and
strong competitive advantage. As a result, Frontier has become
EBITDA positive and cash generative. The 2017 financial results are
testament to the underlying strength of the Group and, without
doubt, an exciting future lies ahead for Frontier. I wish the Board
every success in building a leading consumer technology business
which delivers sustainable shareholder value.
I am also announcing today that Chris Batterham will not be
seeking re-election as a Director at the Annual General Meeting.
Chris joined the Board nearly six years ago. His experience and
good sense have been invaluable in helping the Group through some
testing times. I would like to thank him for his contribution.
Finally, as ever, I would like to thank the Group's staff for
all their efforts over the last 12 months. The results speak for
themselves and I believe that Frontier will continue to make
significant progress in times ahead.
Martin Knight
Chairman
7 March 2018
Chief Executive Statement
Overview
Frontier made good progress in 2017. The Group delivered a
robust financial performance with revenues up 28% to GBP41.0
million (FY2016: GBP32.1 million) and EBITDA growing strongly to
GBP1.9 million (FY2016: GBP0.7 million).
Our established Digital Radio business performed well in 2017,
especially in the first half, boosted by the switch-off of FM radio
in Norway and continued growth in other European markets. Our Smart
Audio business delivered its first material revenues and, within
this sector, the Group is well-positioned to address the emerging
opportunities for modules and software for voice-enabled
speakers.
In 2017, we kept our R&D expenditure broadly flat at circa
GBP6.5 million, with investment in Smart Audio increasing
marginally, whilst spend on Radio was reduced by a similar amount.
We have focused our engineering efforts on the development of our
Smart Audio software to include the incorporation of voice
recognition capabilities. This work is progressing well. All
R&D costs have been expensed during the year as they are either
of a sustaining nature for Radio or they relate to Smart Audio
which is a nascent market.
We retain a clear focus on bottom line profitability and through
tight management of costs, coupled with strong revenue growth, we
have improved our cash position during 2017, ending the year with
GBP5.9 million cash and a net cash position of GBP3.0 million.
Our strategy for 2018 and beyond is to maintain our leadership
position in Digital Radio and to use the cashflows from this
business to underpin our investment in Smart Audio, and in due
course, in Smart Home.
The Smart Audio market represents an exciting potential
opportunity and growth driver for the Group. The sector has been
transformed by the advent of voice-enabled devices from ecosystem
industry leaders, Amazon and Google. Both companies are keen to
develop a market for Smart Audio devices from third party brands
based respectively on Amazon's Alexa Voice Services and Google's
Voice Assistant. Whilst the market for devices from third party
brands is still at an early stage of development, our clear
objective is to establish Frontier as the leading multi-ecosystem
solution provider in this sector, utilising our experience and
relationships in Radio to develop this position. We have already
announced a number of design wins for voice-enabled devices and we
expect our first voice-enabled Smart Audio solutions to come to
market in the course of 2018.
Operational Review
Radio
Frontier's Radio business performed well in 2017 with revenues
growing 14.6% to GBP36.3 million (FY2016: GBP31.7 million) and
EBITDA improving to GBP9.5 million (FY2016: GBP8.7 million). The
Group continues to maintain its strong market leadership in both
consumer DAB and Advanced (Internet) Radio. Frontier recently
announced the sale of its 45 millionth digital radio solution,
reflecting the Group's strength in the sector, and is on course to
have sold more than 50 million units by the end of 2018.
The key driver of growth in 2017 was the switch-off of FM in
Norway, where volumes increased by over 100% compared to 2016. This
particularly benefited Frontier's sales in the first half of the
year. Growth was particularly strong in the automotive aftermarket
segment, for devices required to convert cars which only have FM
radio. The switchover took place over a 12-month period, starting
in January 2017 and completing in December 2017. Sales growth was
particularly buoyant in the first three quarters of the year,
before slowing in the fourth quarter. Sales in 2018 are expected to
fall back slightly, but the extent of this decline is difficult to
predict. The next country anticipated to switch-off its FM networks
is Switzerland, a process expected to start in 2020/21.
Elsewhere in continental Europe, sales volumes continue to grow
steadily with visible increases in Germany, the Netherlands,
Denmark, France, Italy and Belgium. In the last 12 months, there
have been significant developments in a number of our core markets.
In Italy, a law was passed in December 2017 which will require all
new radio receivers from 2020 to be capable of receiving digital
signals. In France, the media regulator has confirmed plans for an
accelerated roll-out of DAB+ services across the country. Once DAB+
coverage exceeds 20% of the French population, which is expected in
2018, a law requiring new receivers to offer DAB+ is due to be
triggered. In Germany, the Grand Coalition agreement includes
commitments to supporting DAB+ both at a national and European
Union level. In the UK, 49.9% of radio listening is now via digital
devices. When this figure exceeds 50%, the Government has promised
a review of the UK's long term digital radio strategy.
Margins for our Radio business remain healthy at 42% (FY2016:
44%) with erosion in ASPs broadly offset by reductions in unit
costs, continuing a trend which has been ongoing for some time.
In 2017, our engineering expenditure for Radio was GBP1.8
million, 24% lower than in FY 2016 (GBP2.3 million). The Radio
business is relatively mature and any engineering expenditure is of
a sustaining nature. Our goal is to maintain our market leadership
position and product margins, whilst ensuring that the business
line continues to deliver strong positive cashflows.
The core assets from our Radio business of world class audio
engineering skills, long-term commercial relationships with
consumer audio brands, strong customer support for Asian-based
factories, and strong positive cashflows, all underpin our entry
into the voice-enabled Smart Audio market.
Smart Audio
2017 saw the first material revenues of GBP4.7 million (FY2016:
GBP0.5 million) for the Group's Smart Audio business. This business
line is at an early stage of development and returned an EBITDA
loss of GBP7.1 million (FY2016: GBP7.4 million).
Frontier's first Smart Audio revenues were for its Minuet
solution incorporating Google's Chromecast technology (a non-voice
platform which facilitates the streaming of online music services
via Wi-Fi enabled speakers). More than 20 models incorporating
Frontier's Smart Audio technology have been launched from brands
including Harman JBL, Marshall, UrbanEars, Brookstone, Jensen,
Solis, Altec Lansing, Blaupunkt, Terris, and Toshiba.
The Smart Audio market is developing rapidly and the
introduction of voice-enabled devices from Amazon and Google has
transformed the landscape as both companies look to establish their
respective voice assistants in consumer homes. In parallel, Apple
has recently launched its AirPlay 2 streaming technology.
Google and Amazon are both aggressively promoting their own
first party products (i.e. Google Home, Google Mini, the Amazon
Echo and Echo Dot) whilst simultaneously pursuing strategies to
encourage the development of Smart Audio devices from third party
brands incorporating the Google Voice Assistant (GVA) or Amazon's
Alexa Voice Service (AVS). Frontier's focus for 2018 and beyond is
on supporting these third party brands.
Frontier is one of a very small number of technology players
working with Google, Amazon and Apple in this sphere and our
objective is to position ourselves as the leading multi-ecosystem
solution provider in Smart Audio. The Group's ability to establish
strong relationships with each of these players is testament to
Frontier's expertise in the digital audio technology market.
At CES 2018, the global consumer electronics tradeshow in Las
Vegas this January, Frontier showcased its latest Smart Audio
solutions incorporating GVA, AVS, and AirPlay 2. All three
solutions are on course to enter mass production during 2018.
Frontier has already announced design wins for ten models
incorporating GVA from brands including Altec Lansing, Braven,
Klipsch, Jensen, Memorex, and Solis and these are expected to come
to market during the course of 2018.
Frontier's margins for Smart Audio (FY2017: 31%) are narrower
than for Radio, in part because the Company does not use its own
silicon in this market segment, and also due to the greater
competitive pressures in this market.
Smart Audio R&D expenditure is heavily focused on software
development to ensure that the solutions incorporating GVA, AVS and
AirPlay 2 meet the standards required by the respective ecosystem
players. In 2017, R&D expenditure on Smart Audio was GBP4.7
million, (FY2016: GBP4.2 million).
Financial review
Revenue and margin
Group revenue for the year increased by 28% to GBP41.0 million
(FY2016 GBP32.1 million). The growth in revenue was largely driven
by DSO in Norway, which contributed to strong growth in Radio sales
in the first half of the year, bolstered by the first material
revenues from Smart Audio of GBP4.7 million. Total volumes shipped
across the business were 6.4 million units (FY2016: 5.2
million).
Gross profit margin decreased slightly over the year from 44.0%
to 41.2%. Overall gross margins are expected to decline in the
mid-term as Smart Audio, which has lower margins than Digital
Radio, grows as a proportion of total revenues.
R&D
As noted last year, the trend on R&D expenditure as a
proportion of revenues has been downwards since the first half of
2015, with R&D spend in 2017 of GBP6.5 million representing
15.9% of Group revenue (FY 2016: GBP6.6 million and 20.5% of Group
revenue). The Board expects R&D to increase slightly in 2018 to
enable the completion of a number of software blocks for GVA, AVS
and AirPlay 2.
EBITDA
Following the Group's first positive EBITDA contribution in 2016
of GBP0.7 million, 2017 saw EBITDA increase by 171% to GBP1.9
million. This contribution flowed through to cash generation with
year-end gross cash at GBP5.9 million (GBP3.0 million net). This
compares to year-end 2016 with gross cash of GBP3.4 million (net
debt GBP0.7 million).
Discontinued operations
During 2016, the Group disposed of its Healthcare Division and
both the trading losses and loss on disposal have been included in
the GBP15.9 million loss for the year from discontinued
operations.
The table below reconciles the Group's EBITDA to its loss for
the year.
Restated
2017 2016
GBP'000 GBP'000
Loss for the year (1,897) (17,331)
Add back:
Taxation 313 (1,607)
Net finance charges / (income) 272 352
Depreciation 292 355
Amortisation 2,342 2,377
Share based payment 617 633
Loss for the year from discontinued
operations - 15,892
---------- -----------
EBITDA 1,939 671
========== ===========
Pre-tax loss
The Group reported a pre-tax loss of GBP1.6 million (Restated
2016: loss GBP3.0 million).
Taxation
The Group has historically applied for and received tax credits
in respect of its research and development expenditure. In 2017 the
cash received in relation to R&D tax credits amounted to GBP0.9
million (2016: GBP1.8 million). The reduction year on year is due
to the claims being restricted as the Group nears
profitability.
As at 31 December 2017 the Group has unutilised tax losses of
GBP36.9 million which may be utilised against taxable future
profits. These losses are still to be agreed with the UK tax
authorities. In the Board's opinion there is uncertainty over the
timing and quantum of their use in the foreseeable future and
therefore a deferred tax asset has not been recognised.
Cash flow
At the year-end, the Group recorded GBP5.9 million of gross cash
and cash equivalents on the balance sheet (net cash was GBP3.0
million).
Current Trading and Outlook
Prospects for 2018 are favourable, though revenue and EBITDA
growth are likely to be modest. Radio volumes are likely to plateau
following the completion of the Digital Switchover in Norway in
December 2017. In Smart Audio, we are on course to deliver
solutions incorporating Google, Amazon and Apple technologies
during the course of 2018, but the market for third party
voice-enabled speakers is still at an early stage of development
and we therefore expect to see more substantial growth in later
years.
As noted in the Chairman's Statement, Dr. Martin Knight and
Chris Batterham have, after careful consideration, decided not to
seek re-election to the Board at the AGM in April 2018. I would
like to thank both Martin and Chris for their long-standing service
to Frontier and wish them well for the future. As also announced
today, Sir Hossein Yassaie has been appointed to the Board and the
Group looks forward to working with such an experienced
professional in the digital audio space.
Anthony Sethill
Chief Executive Officer
7 March 2018
consolidated statement of comprehensive income
For the year ended 31 December 2017
Restated
2017 2016
Note GBP'000 GBP'000
Revenue 1 41,046 32,135
Cost of sales (24,153) (18,000)
Gross profit 16,893 14,135
Research & development (6,524) (6,588)
Sales and administrative expenses - other (8,430) (6,876)
------------------------------------------------------------------- ---- --------- ----------
EBITDA 1,939 671
------------------------------------------------------------------- ---- --------- ----------
Amortisation (2,342) (2,377)
Depreciation (292) (355)
Share based payment (617) (633)
Total administrative expenses (18,205) (16,829)
Loss from continuing operations (1,312) (2,694)
Finance income 9 9
Finance charges (281) (361)
Loss before taxation 1 (1,584) (3,046)
Taxation (313) 1,607
Loss for the year from continuing operations (1,897) (1,439)
--------- ----------
Loss for the year from discontinued operations 3 - (15,892)
--------- ----------
Loss for the year (1,897) (17,331)
========= ==========
Items that will not be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations (62) 17
Other comprehensive income (62) 17
--------- ----------
Total comprehensive income for the year (1,959) (17,314)
========= ==========
Earnings per share Note
Basic earnings per share 5 restated
- From continuing operations (4.44)p (3.36)p
- From discontinued operations - (37.10)p
-------------------------------- ----- ---------- -----------
Earnings per share
Diluted earnings per share restated
- From continuing operations (4.44)p (3.36)p
- From discontinued operations - (37.10)p
-------------------------------- ----- ---------- -----------
consolidated STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2017
Restated
2017 2016
Note GBP'000 GBP'000
ASSETS
Non-current assets
Goodwill 6 8,536 8,536
Other intangible assets 6,188 8,510
Property, plant and equipment 304 401
15,028 17,447
--------- ---------
Current assets
Inventories 3,536 2,588
Tax receivable 126 1,123
Trade and other receivables 3,258 8,209
Cash and cash equivalents 5,854 3,376
Total current assets 12,774 15,296
--------- ---------
Total assets 27,802 32,743
========= =========
LIABILITIES
Current liabilities
Trade and other payables 11,383 12,112
--------- ---------
Total current liabilities 11,383 12,112
Other liabilities > 1 year - 2,872
--------- ---------
Total liabilities 11,383 14,984
--------- ---------
EQUITY
Share capital 4,277 4,275
Share premium 115,300 115,300
Share based payment reserve 5,751 5,134
Foreign exchange reserve (80) (18)
Retained earnings (108,829) (106,932)
Total equity 16,419 17,759
Total equity and liabilities 27,802 32,743
========= =========
consolidated Cashflow Statement
For the year ended 31 December 2017
Restated
2017 2016
Note GBP'000 GBP'000
Cash flows from operating
activities
Loss before taxation (1,584) (3,046)
Amortisation 2,342 2,377
Depreciation 292 355
Share based payments 617 633
Net interest payable 272 352
(Increase)/ decrease in
inventories (948) 78
Decrease/ (increase) in
trade and other receivables 4,951 (1,881)
(Decrease)/ increase in
trade and other payables (2,636) 900
Foreign exchange gain/
(loss) 221 (559)
Tax refund 919 1,805
Net cash from continuing
operations 4,446 1,014
------- --------
Net cash used in discontinued
operations - (5,200)
------- --------
Net cash from/ (used in)
operating activities 4,446 (4,186)
------- --------
Cash flows from investing
activities
Purchase of property,
plant and equipment (220) (81)
Purchase of intangible
assets (10) (143)
Proceeds from sale of
subsidiaries, net of cash
sold - 714
Net cash used in investing
activities (230) 490
------- --------
Cash flows from financing
activities
Proceeds from issue of
share capital 2 -
Loan repayments (1,200) (900)
Loan interest payable (281) (361)
Interest receivable 9 9
------- --------
Net cash used in from
financing activities (1,470) (1,252)
------- --------
Net change in cash and
cash equivalents 2,746 (4,948)
Cash and cash equivalents
at the beginning of period 3,376 7,748
Exchange differences on
cash and cash equivalents (268) 576
Cash and cash equivalents
at the end of period 5,854 3,376
======= ========
notes to the financial statements
1 revenue, LOSS before taxation and segmental information
Revenue and loss before taxation
Revenue and loss before taxation are attributable to the
principal activities of the Group.
The loss before taxation is stated after charging:
Restated
2017 2016
GBP'000 GBP'000
Share based payment expense 617 633
Staff costs 10,107 8,505
Research and development costs
written off 6,524 6,588
Amortisation of intangible
assets 2,342 2,377
Depreciation of owned property,
plant and equipment 292 355
Gain on foreign exchange 352 (193)
Operating leases: land and
buildings 604 660
Auditor's remuneration:
Fees payable to the Company's
auditor for the audit of the
Company financial statements 25 29
Fees payable to the Company's
auditor for other services
- audit of the Company's
subsidiaries pursuant to the
legislation 59 50
- other assurance services - 3
- non-audit services 3 1
======= ========
Revenue by geographic location
2017 2016
GBP'000 GBP'000
United States and North America 54 919
Europe 4,134 2,456
Asia 36,858 28,760
Total revenue 41,046 32,135
======= =======
Assets and liabilities by geographic location
Assets Liabilities
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Cayman Islands 591 841 3,349 4,397
Europe 26,411 31,314 7,563 10,233
Asia 800 588 471 354
-------- -------- -------- ------------
27,802 32,743 11,383 14,984
-------- -------- -------- ------------
Segmental information
As described under Segmental Reporting in the Principal
Accounting Policies, Management currently identifies three
divisions as operating segments.
For the year ended Radio Smart Group Total
31 December 2017 Audio
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 36,315 4,731 - 41,046
Cost of sales (20,876) (3,277) - (24,153)
Gross profit 15,439 1,454 - 16,893
Research & development (1,788) (4,736) - (6,524)
Sales and administrative
expenses - other (4,124) (3,780) (526) (8,430)
----------------------------- --------- ---------- ---------- ----------
EBITDA 9,527 (7,062) (526) 1,939
----------------------------- --------- ---------- ---------- ----------
Amortisation (2,334) (8) - (2,342)
Depreciation (237) (55) - (292)
Share based payment - - (617) (617)
--------- ---------- ---------- ----------
Total administrative
expenses (8,483) (8,579) (1,143) (18,205)
--------- ---------- ---------- ----------
Profit/ (loss) from
continuing operations 6,956 (7,125) (1,143) (1,312)
Interest receivable/
(payable) 9 - (281) (272)
Profit/ (loss) before
taxation 6,965 (7,125) (1,424) (1,584)
Taxation - - (313) (313)
Loss for the year
from continuing operations 6,965 (7,125) (1,737) (1,897)
========= ========== ========== ==========
Included in revenues for the year ended 31 December 2017 are
revenues of GBP12.9 million from the largest customer, GBP7.9
million from its second largest customer and GBP2.2 million from
its third largest customer. Together these represent 56.1% of the
total Group revenue for the year.
For the year ended Radio Smart Group Total
31 December 2016 Audio
GBP'000 GBP'000 GBP'000 GBP'000
Revenue 31,681 454 - 32,135
Cost of sales (17,682) (318) - (18,000)
Gross profit 13,999 136 - 14,135
Research & development (2,339) (4,249) (6,588)
Sales and administrative
expenses - other (2,948) (3,237) (691) (6,876)
----------------------------- --------- ---------- --------- ----------
EBITDA 8,712 (7,350) (691) 671
----------------------------- --------- ---------- --------- ----------
Amortisation (2,367) (10) (2,377)
Depreciation (262) (93) - (355)
Share based payment - - (633) (633)
--------- ---------- --------- ----------
Total administrative
expenses (7,916) (7,589) (1,324) (16,829)
--------- ---------- --------- ----------
Profit/ (loss) from
continuing operations 6,083 (7,453) (1,324) (2,694)
Interest receivable/
(payable) - - (352) (352)
Profit/ (loss) before
taxation 6,083 (7,453) (1,676) (3,046)
Taxation - - 1,607 1,607
Loss for the year
from continuing operations 6,083 (7,453) (69) (1,439)
========= ========== ========= ==========
Included in revenues for the year ended 31 December 2016 are
revenues of GBP10.7 million from the largest customer, GBP5.4
million from its second largest customer and GBP1.8 million from
its third largest customer. Together these represent 55.8% of the
total Group revenue for the year.
2 PRIOR PERIOD RESTATEMENT
Shortly after the completion of the full year accounts for 2016
the company became aware that an inter-company debtor of GBP1.7
million in respect of the discontinued business should have been
provided for in the period to 31 December 2016. In preparing these
statements for the period to 31 December 2017 and having regard to
the materiality of the debtor, the Board has concluded that the
item should be treated as a prior year adjustment. The discontinued
loss for the year to 31 December 2016 has therefore increased to
GBP15.9 million from the GBP14.2 million previously reported.
3 DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
The amounts presented in the statement of comprehensive income
under discontinued operations relate to the disposal of Sensium
Healthcare Limited and its subsidiaries, together with the closure
of Frontier Microsystems Limited. Sensium Healthcare was disposed
of on 22 July 2016 and the decision to close Frontier Microsystems
was taken on the same day. Revenue and expenses relating to the
discontinuation of this subgroup have been eliminated from loss
from the Group's continuing operations and are shown as a single
line item on the face of the statement of comprehensive income.
The operating loss of Sensium Healthcare and Frontier
Microsystems until the date of disposal and the loss from
re-measurement and disposal of assets and liabilities classified as
held for sale are summarised as follows:
Restated
2016
GBP'000
Revenue 53
Cost of sales (22)
--------------------------------------- ---------
Gross profit 31
--------------------------------------- ---------
Amortisation of intangible
assets (123)
Depreciation (49)
Research & development (3,753)
Sales and administrative expenses
- other (1,269)
--------------------------------------- ---------
Total administrative expenses (5,194)
--------------------------------------- ---------
Loss from discontinued operations
before tax (5,163)
Taxation 437
Loss on disposal 4 (11,166)
--------------------------------------- ---------
Loss for the year from discontinued
operations (15,892)
--------------------------------------- ---------
The disposal of Sensium Healthcare allowed for the disposal of
all of the assets and liabilities of the entities as at 22 July
with the exception of a receivable in respect of R&D tax
credits of GBP150k. The closure of Frontier Microsystems eliminated
any continuing costs and allowed for the settlement of all
liabilities as at 22 July with non-current assets, primarily test
and IT equipment, transferred to other Frontier Smart Technologies
Group companies.
The carrying amounts of assets and liabilities in this disposed
group are summarised as follows:
Restated
31 December
2016
Assets GBP'000
Non-current assets
Goodwill -
Other intangible assets -
Property, plant and equipment -
-
------------------------------ ------------
Current assets
Inventories -
Tax receivable 229
Trade and other receivables -
Cash and cash equivalents -
------------------------------ ------------
Total current assets 229
-------------------------------- ------------
Total assets 229
-------------------------------- ------------
Liabilities
Current liabilities
------------------------------ ------------
Trade and other payables 408
-------------------------------- ------------
Total current liabilities 408
-------------------------------- ------------
4 Disposal of Sensium Healthcare Limited
On 22 July 2016, the Group disposed of its 100% shareholding in
its subsidiary Sensium Healthcare. The consideration was settled
GBP1 million on 22 July 2016, and GBP316k on 31 December 2016. At
the date of disposal, the carrying amounts of Sensium Healthcare's
net assets were as follows:
Restated
2016
GBP'000
Goodwill 10,582
Intangible assets 590
Property, plant and equipment 70
------------------------------- ---------
Total non-current assets 11,242
------------------------------- ---------
Inventories 435
Debtors 532
Cash and cash equivalents 318
------------------------------- ---------
Total current assets 1,285
------------------------------- ---------
Trade and other payables (406)
------------------------------- ---------
Total current liabilities (406)
------------------------------- ---------
Total net assets 12,121
------------------------------- ---------
Total consideration received
in cash 1,000
Deferred consideration 316
Other consideration 296
Cost of disposal (657)
------------------------------- ---------
Fair value of consideration
received 955
------------------------------- ---------
Loss on disposal 11,166
------------------------------- ---------
Included within other consideration is an amount relating to a
10-year royalty stream (3% of net revenues for five years, followed
by 2% of net revenues for the following five years).
5 LOSS PER SHARE
The calculation of the basic loss per share of 4.44 pence, (2016
restated: 40.46 pence) is based on the loss after tax of GBP1.9
million (2016 restated: GBP17.3 million) divided by the weighted
average number of ordinary shares in issue during the year of
42,758,145 (2016: 42,832,269).
Due to the losses incurred the impact of the share options and
other deferred shares is anti-dilutive. As such the diluted
earnings per share equals the ordinary earnings per share.
6 GOODWILL
Frontier Sensium Frontier
Silicon Healthcare Microsystems Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2016 8,536 10,582 5,951 25,069
Additions - - - -
Disposals - (10,582) - (10,582)
-------- ----------- ------------- --------
At 31 December 2016 8,536 - 5,951 14,487
Additions - -
At 31 December 2017 8,536 5,951 14,487
======== =========== ============= ========
Impairment
At 1 January 2016 - - 5,951 5,951
Charge in the year - - -
-------- ----------- ------------- ----------
At 31 December 2016 - - 5,951 5,951
Charge in the year - - -
At 31 December 2017 - - 5,951 5,951
======== =========== ============= ==========
Net book amount at
31 December 2017 8,536 - 8,536
======== =========== ============= ==========
Net book amount at
31 December 2016 8,536 - - 8,536
======== =========== ============= ==========
Goodwill relating to Frontier Silicon results from the
acquisition of the Frontier Silicon Group on 20 August 2012.
The Directors have tested the aggregate recoverable value of
goodwill, specific intellectual property, and licence and
development fees for impairment in accordance with the Group's
accounting policy of testing annually for impairment. Recoverable
value is assessed by value in use. The Directors, in assessing the
recoverability of the remaining amount have considered the
technical feasibility of the technology and the opportunities for
commercial exploitation, including the position with the current
commercial relationships.
To determine the value in use, the Directors have produced
detailed monthly profit and loss and cash flow forecasts for the
five years up to December 2022. A five-year forecast period is
considered reasonable for the markets that the Company addresses,
particularly given the stage of development of the Group's products
and the expected life of new technologies as explained further
below.
The Chief Executive's Statement provides a summary of the
Group's expectations for each division, together with an overview
of the relevant markets. Below we have summarised the key
judgements in relation to the individual impairment reviews.
Frontier Silicon
The intangible assets of Frontier Silicon were independently
valued in 2012 as part of the acquisition accounting. The
difference between the fair value of the net assets and the fair
value of the consideration has been treated as goodwill.
Whilst Frontier has continued to make losses post-acquisition,
primarily because of R&D spend, this is in line with the
forecasts at the time of the acquisition and therefore the
Directors consider the Goodwill arising on consolidation as still
valid and no impairment has occurred since acquisition.
The Directors have reviewed the carrying value of these assets
considering their forecasts of revenues and profitability for this
business sector. A discount rate of 12% was applied to future cash
flows with a rate of 18% used as a stress test. Under both
scenarios, the carrying value of the intangible assets could be
supported.
In assessing the future cash flows of the division, the
Directors have looked at a five year forward view and then made a
terminal value assessment at the end of 2022 assuming no further
sales and cost growth. This is based on the life cycle of the smart
audio and digital radio products, where certain existing models are
reaching end of life, and new models have 12 to 24 months
development ahead of them before a useful sales life of 4-5 years
depending on future product enhancements. The Directors expect the
market for Digital Radio to keep expanding at its current rate and
for the company to maintain its market share. In Smart Audio the
Directors expect the market to expand significantly as Wi-Fi
enabled speakers with much enhanced functionality really take hold.
The forecast demonstrates that even a relatively small market share
could lead to revenue growth rates significantly ahead of more
mature markets.
The key judgements applied by the Directors in the forecasts are
in relation to sales prices volumes and margins. The forecast model
is built on the Directors' best estimates of the addressable market
and the Company's resultant share of that market. In determining
these estimates the Directors have considered information and
trends from existing markets and their expectations for emerging
markets in order to develop an assessment of both future sales
volumes and prices. The Directors believe the underlying
assumptions to be reasonable but are aware that there are
significant competitive risks which would be magnified by delays to
key programmes and therefore growth rates may not be achieved, or
margins could be compromised. Should the underlying estimates not
be achieved there is a risk these assets will be impaired.
7 OTHER intangible assets
Marketing Customer Other Licence &
intellectual intellectual intellectual development
property property property fees Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January
2016 4,000 1,690 17,009 16,573 39,272
Additions - - - 81 81
Disposals - - (6,805) (826) (7,631)
-------------- -------------- -------------- ------------- -------
At 31 December
2016 4,000 1,690 10,204 15,828 31,722
Additions - - - 10 10
Disposals - - - - -
At 31 December
2017 4,000 1,690 10,204 15,838 31,732
============== ============== ============== ============= =======
Amortisation
At 1 January
2016 1,333 470 11,095 14,855 27,753
Charge in the
year 400 141 1,268 568 2,377
Disposals - - (6,805) (113) (6,918)
-------------- -------------- -------------- ------------- -------
At 31 December
2016 1,733 611 5,558 15,310 23,212
Charge in the
year 400 141 1,268 533 2,342
Disposals - - - (10) (10)
At 31 December
2017 2,133 752 6,826 15,833 25,544
============== ============== ============== ============= =======
Net book amount
at 31 December
2017 1,867 938 3,378 5 6,188
============== ============== ============== ============= =======
Net book amount
at 31 December
2016 2,267 1,079 4,646 518 8,510
============== ============== ============== ============= =======
Intellectual property
Intellectual property relates to the valuation of beneficial
licence agreements, trade names and customer relationships in
Frontier Silicon at the date of their original acquisition.
Licence & development fees
The Group capitalises certain licence and third-party
development fees where, in the view of management, they have
intrinsic value to ongoing software and hardware development
programmes. Additions in the year relate to technology on new
projects essential to the future development of new generation
solutions. The capitalised licence and development fees are
amortised in accordance with the Group accounting policy and are
subject to an annual impairment review.
Marketing
Marketing-related intangible assets are defined as those assets
that are primarily used in the marketing or promotion of products
and services. The Frontier solutions are well known and preferred
by a majority of the consumer electronic brands who specifically
instruct their manufacturers to use Frontier modules and solutions
in their audio systems.
Customer relationships
Customer-related intangible assets may consist of customer
lists, order or production backlogs, customer contracts and
relationships, and non-contractual customer relationships. Frontier
has developed relationships with both consumer electronic brands
and manufacturers. The customer relationship valuation captures the
economic benefits of having these trading relationships.
Impairment reviews
The Directors have tested all intangible assets for impairment
in conjunction with their testing for goodwill, in accordance with
the Group's accounting policy.
8 ANNUAL REPORTS AND ACCOUNTS
The Annual Report and Accounts for 2017 will be posted to
Shareholders on 19 March 2018 and will also be available free of
charge on request from the Group's registered office, 4th Floor,
137 Euston Road, London NW1 2AA and on the Group's website at
www.frontiersmart.com.
9 NOTICE OF ANNUAL GENERAL MEETING
Notice is given that the Annual General Meeting of the members
of Frontier Smart Technologies Group Limited will be held at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN on Tuesday, 24
April 2018 at 11:00am.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKODDDBKBNNK
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