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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Frontier Smart Technologies Group Limited | LSE:FST | London | Ordinary Share | KYG3730C1078 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 25.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMFST
RNS Number : 3987A
Frontier Smart Technologies Grp Ltd
24 March 2017
For immediate release 24 March 2017
Frontier Smart Technologies Group Ltd
('Frontier' or the 'Group')
Final Results
EBITDA ahead of market expectations
Frontier (AIM: FST), a pioneer in technologies for Digital Radio and Smart Audio devices, has published its final results for the full year ended 31 December 2016.
Financial Highlights
-- EBITDA ahead of market expectations, turning positive at GBP0.7 million (FY 2015: loss(1) GBP0.8 million)
-- Steady revenues of GBP32.1 million (FY 2015: GBP31.7 million)
o Digital Radio revenues up 8% to GBP22.3 million (2015: GBP20.6 million)
o Smart Audio revenues down 11% to GBP9.8 million (2015: GBP11.1 million), pending release of Minuet, the Group's new solution incorporating Google's Chromecast platform
-- R&D expenditure reduced 11% to GBP6.6 million (FY 2015: GBP7.4 million)
-- Loss-making Healthcare division sold in July 2016 for gross proceeds of GBP1.3 million plus ten-year royalty agreement
-- As of 31 December 2016, the Group's cash balance was GBP3.4 million
Operational Highlights
-- Group renamed Frontier Smart Technologies Group Limited in November 2016 to reflect sole focus on consumer audio technologies
-- 40 for one share consolidation completed in November 2016
-- Design wins secured for Minuet, with several Smart Audio brands, including Harman JBL, the world's largest manufacturer of speakers; first products from Brookstone already on sale
Commenting on the Final Results, Anthony Sethill, CEO of Frontier, said:
"2016 was a pivotal year for the Group. We sold our loss-making Healthcare business, delivered our first positive EBITDA figure and are now fully focused on our Consumer Audio technology business.
"In Digital Radio we have maintained our market leadership position as international markets for DAB radio continue to develop. With Norway becoming the first country in the world to switch- off its FM signals, the prospects for this business are encouraging.
"2016 was an important year for our Smart Audio business, as we completed the development of our new Minuet solution incorporating Google's Chromecast platform. The first consumer products using this solution are now available in-store, with more to follow in the coming months. This will help drive Group revenue and EBITDA growth in 2017."
Notes:
(1) EBITDA means earnings before interest, tax, depreciation, amortisation, and before non-recurring and certain non-cash items. In 2015 EBITDA was adjusted in respect of an exceptional non-cash provision.
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.
For further enquiries:
Hot Features
Premium
+44 (0) 20 7391
Frontier Smart Technologies Group Ltd 0630
Anthony Sethill, Chief Executive Officer
Jonathan Apps, Chief Financial Officer
+44 (0) 20 7418
Peel Hunt LLP (Nominated Adviser and Broker) 8900
Richard Kauffer/ Euan Brown
+44 (0) 20 7466
Buchanan (Financial PR) 5000
Henry Harrison-Topham/ Steph Watson FST@buchanan.uk.com
About Frontier Smart Technologies
Frontier is a pioneer in software and hardware technologies for Digital Audio devices. The Group has one operating division, Frontier Silicon, which provides solutions for Digital Radio and Smart Audio devices.
Frontier was founded in 2002. Customers include many leading consumer audio brands: Bose, Bowers & Wilkins, Denon, Grundig, harman/kardon (JBL), Onkyo, Panasonic, Philips, Pioneer, Pure, Roberts, Sony, TechniSat, Yamaha, and many more.
The Group is headquartered in London, with engineering, sales and operations teams in Cambridge, Timisoara (Romania), Hong Kong, and Shenzhen. Please visit http://www.frontiersmart.com/
Chairman's Statement
In last year's report, I described how our highest priority was to optimise shareholder value from our loss-making Healthcare business. Working with advisors, we completed the sale of the business in July 2016, for gross proceeds of GBP1.3 million. In addition, the Group will receive royalties on net revenues over ten years and, if the business is sold within four years, we will receive 19% of net proceeds.
Following this disposal, the Group is now fully focused on its consumer audio technology business, Digital Radio and Smart Audio, an area where Management has extensive, deep-rooted expertise. To reflect this shift in focus, in November 2016, we changed our name to Frontier Smart Technologies Group Limited. At the same time we undertook a 40 for 1 share consolidation.
I am pleased to report that in 2016, the continuing consumer audio business became EBITDA positive for the first time, moving from an EBITDA loss of GBP0.8 million to a positive figure of GBP0.7 million. Revenues were relatively flat at GBP32.1 million; but close control of overheads, in particular R&D costs, contributed to this significant improvement in financial performance.
At year end, the Group had a cash balance of GBP3.4 million. Given the continuing business's improved financial performance, the Board is confident that no further funds from shareholders will be required to support the existing business.
Frontier has two business lines, Digital Radio and Smart Audio, each in different stages of development. The Digital Radio business is well-established and performing well. The prospects for DAB radio appear positive, not least, as Norway has recently become the first country in the world to start switching off its FM transmission. The cashflows from this business line provide a foundation for our investment in Smart Audio.
Our Smart Audio business, where we are working closely with Google, offers potentially exciting opportunities, but is in a much earlier stage of development. Initial indications in terms of design wins for this business are promising, however it is too early to predict with great certainty how quickly revenues will grow. Nevertheless, for the Group as a whole, our financial goals for 2017 and 2018 are to increase revenues and improve our profitability and cash generation.
In the last 12 months, we have seen some changes to the Board. In July 2016, Professor Chris Toumazou stepped down from his position as Non-Executive Director. As many of you will know, Chris was the founder of and long-time driving force behind the Group. I would like to thank him for his contribution over the years. In November 2016, we appointed a new NED, Martin Harriman. Martin brings a wealth of international, digital experience - most recently from his time at Telefonica. I would like to welcome Martin to the Board.
Finally, I would like to thank the Group's staff. The success of our established business is down to them, and their efforts will play a crucial role in determining our fortunes as we address the exciting, opportunities in Smart Audio.
Martin Knight
Chairman
23 March 2017
Chief Executive's Statement
Overview
2016 was a pivotal year for the Group. In July, we sold our loss-making Healthcare business, leaving the Group to focus solely on its consumer audio business, Frontier Silicon, which provides technology solutions for DAB digital radios and Wi-Fi enabled smart audio devices.
In November 2016, the Group was renamed Frontier Smart Technologies Group Limited which more accurately reflects the refocused business. At the same time, a 40 for one share consolidation was undertaken, which the Board believes may help to make New Ordinary Shares more attractive to potential new investors.
In FY 2016, the continuing business returned its first positive EBITDA of GBP0.7 million (against an adjusted loss of GBP0.8 million in 2015). Reported revenues were slightly ahead at GBP32.1 million (2015: GBP31.7 million), benefiting from being largely denominated in US dollars.
As at 31 December 2016, the Group had cash of GBP3.4 million, with the outstanding balance of its bank loan being reduced by GBP0.9 million to GBP4.1 million.
The improvement in EBITDA reflected improved revenues from Digital Radio and an 11% reduction in the Group's R&D expenditure to GBP6.6 million (2015: GBP7.4 million); this follows completion of the Group's fourth generation digital radio chip in 2015. Smart Audio revenues were lower than 2015, pending the release of the Group's next generation solution incorporating Google Chromecast.
Smart Audio is expected to be the driver of growth for the business in the medium term. Global volumes for Smart Audio devices are expected to grow from 14 million units in 2016 to 50 million units in 2020 (Source: Strategy Analytics). Frontier's focus is on third party brands which are incorporating ecosystem platforms, such as Google's Chromecast, into their Smart Audio devices.
Operational Review
Digital Radio
Digital Radio revenues were up 8% to GBP22.3 million (2015: GBP20.6 million), supported by sales volume growth of 4% to 4.5 million units (2015: 4.4 million units).
EBITDA for Digital Radio was GBP8.7 million, a significant improvement on the prior year (2015: GBP2.7 million), largely reflecting the completion of major R&D expenditure. The Group's fourth generation chip is shipping in significant volumes and is generating improved margins for the business.
Frontier continues to retain its strong market leadership position and has benefited from growth in Germany, the UK, Norway and the Netherlands. Continued growth is expected following the start of Norway's switch-off of FM transmissions in January 2017, a process which completes at the end of this year. Sustained medium term growth in volumes should be driven by continued expansion in continental Europe, including Switzerland switching off FM in 2020-24.
Smart Audio
Smart Audio revenues were 11% lower at GBP9.8 million (2015: GBP11.1 million), reflecting a 20% fall in volumes, pending the release of Minuet, Frontier's new solution incorporating Google Chromecast.
Working software for Minuet was released in December 2016, four months later than originally anticipated, but the Group has now secured a number of design wins for its new platform. The first, Brookstone's Big Blue Studio Wireless Speaker, has already gone on sale in the US. Several other Minuet design wins have also been secured, including for Harman JBL, the world's largest manufacturer of speakers. The Board believes these design wins will deliver growth in Smart Audio revenues in 2017.
Frontier's competitive position in this sector is based on its significant experience in developing technologies in emerging areas of the consumer audio market, its well-established supply chain operations and its relationships with leading audio brands and industry innovators, such as Google.
Prospects for this business, whilst not without risk, are promising, driven in particular by the advent of Voice Personal Assistants ('VPAs') such as the Amazon Echo and Google Home. Frontier's focus will be on third party brands which aim to include these technologies in their own devices.
Disposal of Healthcare
The Group disposed of its healthcare business, Sensium Healthcare, in July 2016 as the business had been heavily loss-making with significant uncertainty regarding when revenue generation would commence. The loss, comprising of GBP4.7 million in respect of trading losses and GBP9.5 million loss on disposal for the discontinued business in 2016, was GBP14.2 million (GBP6.8 million in 2015).
The business was sold for gross proceeds of GBP1.3 million (GBP1.0 million on completion and a further GBP0.3 million on 31 December 2016) to its European distributor, The Surgical Company ('TSC'). This followed a strategic review, initiated by the Board, which concluded that significant investment would be required to see the business through to revenue generation.
Proceeds from the sale will be used to fund working capital requirements. In addition, the Group will benefit from a ten year royalty stream (3% of net revenues for five years, followed by 2% of net revenues for the following five years). If TSC sells the business within the next four years, Frontier will receive 19% of net proceeds.
Financial review
Revenue
As noted, the Healthcare Division was sold on 22 July 2016 and the trading results and loss on disposal is treated as a discontinued business throughout these accounts. As a result, certain comparative numbers for 2015 have been restated so as to show changes against the continuing business.
Group revenue for the year increased from GBP31.7 million to GBP32.1 million, this follows growth of 22.1% in 2015 and 19.6% in 2014. 2016 was broadly flat despite the benefit to revenue of foreign exchange movements between sterling and the US dollar. The exchange gain was offset by a shift in product mix in Digital Radio where fourth generation modules sell for c$5-6 and third generation for c$7-9, and an overall reduction in Smart Radio sales. Total volumes shipped across the business were 5.2 million units (2015: 5.2 million units).
Gross profit margin increased slightly over the year from 43.2% to 43.9%. 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 Group largely completed its investment phase in 2015, with R&D expenditure having peaked at GBP7.4 million. For 2016 as a whole, R&D spend was GBP6.6 million and is expected to decline further during 2017.
EBITDA
For the first time in its history the Group is able to report a positive EBITDA of GBP0.7 million compared to a loss in 2015 on a like for like basis of GBP0.8 million. As noted earlier, revenue has benefited from the movement in the sterling/dollar exchange rate, however as you move further down the Consolidated Statement of Comprehensive Income this effect is reduced as all the Group's cost of sales is dollar denominated as is a large proportion of its overheads where staff are located outside the UK. The Group expects EBITDA performance to improve further in the coming years as Smart Audio matures.
Discontinued operations
During the year, the Group disposed of its Healthcare Division and both the trading losses and loss on disposal have been included in "Loss for the year from discontinued operations" of GBP14.2 million. As has been noted in public market announcements previously, the Board undertook a rigorous sales process with external advisers and disposed of the division for gross proceeds of GBP1.3 million, plus a future royalty stream and a share of any profits on a subsequent disposal.
The table below reconciles the Group's EBITDA to its loss for the year.
Restated
2016 2015
GBP'000 GBP'000
Loss for the year (15,612) (14,735)
Add back:
Taxation (1,607) (1,133)
Net finance charges / (income) 352 60
Depreciation 355 371
Amortisation 2,377 2,480
Share based payment 633 1,229
Impairment - 3,016
Loss for the year from discontinued
operations 14,173 6,809
EBITDA 671 (1,903)
---------- ---------
Provision against other receivables - 1,122
---------- ---------
Adjusted EBITDA 671 (781)
========== =========
Pre-tax loss
The Group reported a pre-tax loss of GBP3.0 million (Restated 2015: loss GBP9.1 million).
Taxation
The Group has historically applied for and received tax credits in respect of its R&D expenditure. In 2016 the tax credits amounted to GBP1.6 million (2015: GBP1.7 million). It is expected that similar claims will be made in 2016.
As at 31 December 2016, the Group has unutilised tax losses of GBP37.9 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 GBP3.4 million of cash and cash equivalents on the balance sheet. The Board believes that with the Group trading at a positive EBITDA level and generating positive cash flows in 2017 and beyond that this is sufficient for the immediate needs of the business.
Current Trading and Outlook
The outlook for 2017 is healthy and the Board expects revenues and EBITDA to improve this year.
Digital Radio revenues are benefitting from the continued international uptake of DAB radio. In January 2017, Norway became the first country to start the switch-off of its FM broadcasts, which has contributed to increased demand in the opening months of this year. Smart Audio revenues should return to growth in 2017 following the release of the Group's new solution at the end of 2016.
Anthony Sethill
Chief Executive Officer
23 March 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Restated
2016 2015
Note GBP'000 GBP'000
Revenue 1 32,135 31,721
Cost of sales (18,000) (18,030)
Gross profit 14,135 13,691
Research & development (6,588) (7,362)
Sales & administrative expenses - other (6,876) (7,110)
------------------------------------------------------------------- ---- ---------- ----------
EBITDA 671 (781)
------------------------------------------------------------------- ---- ---------- ----------
Amortisation (2,377) (2,480)
Depreciation (355) (371)
Share based payment (633) (1,229)
Impairment - (3,016)
Exceptional items - (1,122)
Total administrative expenses (16,829) (22,690)
Loss from continuing operations (2,694) (8,999)
Finance income 9 15
Finance charges (361) (75)
Loss before taxation 1 (3,046) (9,059)
Taxation 1,607 1,133
Loss for the year from continuing operations (1,439) (7,926)
---------- ----------
Loss for the year from discontinued operations (14,173) (6,809)
---------- ----------
Loss for the year (15,612) (14,735)
========== ==========
Items that will not be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations 17 59
Other comprehensive income 17 59
---------- ----------
Total comprehensive income for the year (15,595) (14,676)
========== ==========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
Earnings per share Note
Basic earnings per share 4 restated
- From continuing operations (3.36)p (18.6)p
- From discontinued operations (33.1)p (16.0)p
-------------------------------- ----- ---------- -----------
Earnings per share
Diluted earnings per share restated
- From continuing operations (3.36)p (18.6)p
- From discontinued operations (33.1)p (16.0)p
-------------------------------- ----- ---------- -----------
consolidated STATEMENT OF FINANCIAL
POSITION
For the year ended 31 December 2016 2016 2015
--------------------------------------
Note GBP'000 GBP'000
ASSETS
Non-current assets
Goodwill 5 8,536 19,118
Other intangible assets 6 8,510 11,519
Property, plant and equipment 401 707
17,447 31,344
--------- --------
Current assets
Inventories 2,588 2,666
Tax receivable 1,123 1,301
Trade and other receivables 9,890 6,342
Cash and cash equivalents 3,376 7,748
Total current assets 16,977 18,057
--------- --------
Total assets 34,424 49,401
========= ========
LIABILITIES
Current liabilities
Trade and other payables 12,074 11,239
--------- --------
Total current liabilities 12,074 11,239
Other liabilities > 1 year 2,872 3,735
--------- --------
Total liabilities 14,946 14,974
--------- --------
EQUITY
Share capital 4,275 4,262
Share premium 115,300 115,300
Share based payment reserve 5,134 4,501
Foreign exchange reserve (18) (35)
Retained earnings (105,213) (89,601)
Total equity 19,478 34,427
Total equity and liabilities 34,424 49,401
========= ========
The accompanying principal accounting policies and notes form an integral part of these financial statements.
consolidated Cashflow Statement
For the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
Cash flows from operating activities
Loss before taxation (3,046) (9,059)
Amortisation 2,377 2,480
Depreciation 355 371
Impairment of intangible assets - 3,016
Exceptional item - 1,122
Share based payments 633 1,229
Net interest payable 352 60
(Decrease) increase in inventories 78 (1,102)
(Increase) in trade and other
receivables (3,568) (905)
Increase in trade and other payables 868 1,111
foreign exchange (loss)/ gain (559) 59
Tax refund 1,805 1,998
Net cash from continuing operations (705) 380
------- -------
Net cash from discontinued operations (3,481) (8,130)
------- -------
Net cash from operating activities (4,186) (7,750)
------- -------
Cash flows from investing activities
Purchase of property, plant and
equipment (81) (578)
Purchase of intangible assets (143) (1,389)
Proceeds from sale of subsidiaries,
net of cash sold 714 -
Net cash used in investing activities 490 (1,967)
------- -------
Cash flows from financing activities
Loan (900) 5,000
Loan interest payable (361) (75)
Interest receivable 9 15
------- -------
Net cash inflow from financing
activities (1,252) 4,940
------- -------
Net change in cash and cash equivalents (4,948) (4,777)
Cash and cash equivalents at
the beginning of period 7,748 12,513
Exchange differences on cash
and cash equivalents 576 12
Cash and cash equivalents at
the end of period 3,376 7,748
======= =======
Cash and cash equivalents for
discontinued operations - 297
Cash and cash equivalents for
continuing operations 3,376 7,451
-------------------------------- -------- --------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year to 31 December 2016
BASIS OF PREPARATION
The Company was incorporated in the Cayman Islands which do not prescribe the adoption of any particular accounting framework. The Board has therefore adopted and complied with International Financial Reporting Standards as adopted by the European Union (IFRS). The Company's shares are listed on the AIM market of the London Stock Exchange. The principal accounting policies of the Group are set out below.
The financial information set out in the announcement does not constitute statutory accounts for the years ended 31 December 2016 and 31 December 2015. The financial information for the year ended 31 December 2016 is derived from the statutory accounts for that year, which will be delivered to shareholders shortly and were approved by the Directors on 23 March 2017. The auditors' report on those accounts was unqualified.
1 revenue and LOSS before taxation
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:
2016 2015
restated
GBP'000 GBP'000
Share based payment expense 633 1,229
Staff costs 9,135 9,701
Research and development costs written
off 6,588 7,362
Amortisation of intangible assets 2,377 2,480
Depreciation of owned property, plant
and equipment 355 371
Impairment of intangibles - 3,016
Exceptional bad debt provision - 1,122
Gain on foreign exchange (193) (200)
Operating leases: land and buildings 660 553
Auditor's remuneration:
Fees payable to the Company's auditor
for the audit of the Company financial
statements 29 36
Fees payable to the Company's auditor
for other services
- audit of the Company's subsidiaries
pursuant to the
legislation 50 55
- other assurance services 3 2
- non audit services 1 1
======= =========
Revenue by geographic location
2016 2015
GBP'000 GBP'000
United States and North America 919 1,019
Europe 2,456 2,828
Asia 28,760 27,874
Total revenue 32,135 31,721
======= =======
Assets and liabilities by geographic location
Assets Liabilities
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Cayman Islands 2,522 3,836 4,359 6,025
Europe 31,314 44,976 10,233 8,635
Asia 588 580 354 313
North America - 9 - 1
-------- -------- -------- ------------
34,424 49,401 14,946 14,974
-------- -------- -------- ------------
2 Segmental information
As described under Segmental Reporting in the Principal Accounting Policies, Management currently identifies three divisions as operating segments.
For the year ended 31 December Consumer Group Total
2016 Audio
GBP'000 GBP'000 GBP'000
Revenue 32,135 - 32,135
Cost of sales (18,000) - (18,000)
Gross profit 14,135 - 14,135
Amortisation of intellectual
property (2,377) - (2,377)
Depreciation (355) - (355)
Share based payment - (633) (633)
Research & development (6,588) - (6,588)
Sales & administrative expenses
- other (6,185) (691) (6,876)
--------- --------- ---------
Total administrative expenses (15,505) (1,324) (16,829)
--------- --------- ---------
Profit/ (loss) from continuing
operations (1,370) (1,324) (2,694)
Net finance payable - (352) (352)
Profit/ (loss) before taxation (1,370) (1,676) (3,046)
========= ========= =========
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.
For the year ended 31 December Consumer Group Total
2015 Audio
GBP'000 GBP'000 GBP'000
Revenue 31,721 - 31,721
Cost of sales (18,030) - (18,030)
Gross profit 13,691 - 13,691
Amortisation of intellectual
property (2,470) (10) (2,480)
Depreciation (371) - (371)
Share based payment - (1,229) (1,229)
Exceptional item (1,122) - (1,122)
Impairment (3,016) - (3,016)
Research & development (7,362) - (7,362)
Sales & administrative expenses
- other (6,470) (640) (7,110)
--------- --------- ---------
Total administrative expenses (20,811) (1,879) (22,690)
--------- --------- ---------
Loss from continuing operations (7,120) (1,879) (8,999)
Net finance payable 10 (70) (60)
Loss before taxation (7,110) (1,949) (9,059)
========= ========= =========
Included in revenues for the year ended 31 December 2015 are revenues of GBP5.5 million from the largest customer, GBP4.3 million from its second largest customer and GBP2.1 million from its third largest customer. Together these represent 37% of the total Group revenue for the year.
3 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 net assets were as follows:
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 (2,125)
-------------------------------------- --------
Total current liabilities (2,125)
-------------------------------------- --------
Total net assets 10,402
-------------------------------------- --------
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 9,447
-------------------------------------- --------
Included within other consideration is amounts 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).
4 Loss Per Share
The calculation of the basic loss per share of 36.46 pence, 3.36 pence from continuing operations and 33.1 pence from discontinued operations (2015 restated: 34.6 pence) is based on the loss after tax of GBP15.6 million (2015: GBP14.7 million) divided by the weighted average number of ordinary shares in issue during the year of 42,832,269 (2015 restated: 42,543,169). 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.
5 GOODWILL
Frontier Sensium Frontier
Silicon Healthcare Microsystems Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2015 8,536 10,582 5,951 25,069
Additions - - - -
---------- ------------ -------------- --------
At 31 December 2015 8,536 10,582 5,951 25,069
Additions - - - -
Disposals - (10,582) - (10,582)
---------- ------------ -------------- --------
At 31 December 2016 8,536 - 5,951 14,487
========== ============ ============== ========
Impairment
At 1 January 2015 - - 5,951 5,951
Charge in the year - - - -
---------- ------------ -------------- --------
At 31 December 2015 - - 5,951 5,951
Charge in the year - - - -
At 31 December 2016 - - 5,951 5,951
========== ============ ============== ========
Net book amount at 31
December 2016 8,536 - - 8,536
========== ============ ============== ========
Net book amount at 31
December 2015 8,536 10,582 - 19,118
========== ============ ============== ========
Goodwill relating to Sensium Healthcare results from the acquisition of Sensium Healthcare Limited on 3 November 2005. Goodwill relating to Frontier Silicon results from the acquisition of the Frontier Silicon Group on 20 August 2012.
All principal operating divisions incurred losses in the year ended 31 December 2016, which is an indicator of impairment. The Directors have tested the aggregate recoverable value of goodwill, specific intellectual property, and licence & 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 four years up to December 2020. A four-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.
Consumer Audio - 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 as a result 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 in light of their forecasts of revenues and profitability for this business sector. A discount rate of 16% 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 four-year forward view and then made a terminal value assessment at the end of 2020 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.
6 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 2015 4,000 1,690 17,009 16,562 39,261
Additions 1,389 1,389
Disposals - - - (1,378) (1,378)
-------------- -------------- -------------- ------------- -------
At 31 December 2015 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
============== ============== ============== ============= =======
Amortisation
At 1 January 2015 933 329 9,827 10,912 22,001
Charge in the year 400 141 1,268 927 2,736
Impairment - - - 3,016 3,016
Disposals - - - - -
-------------- -------------- -------------- ------------- -------
At 31 December 2015 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
============== ============== ============== ============= =======
Net book amount at
31 December 2016 2,267 1,079 4,646 518 8,510
============== ============== ============== ============= =======
Net book amount at
31 December 2015 2,667 1,220 5,914 1,718 11,519
============== ============== ============== ============= =======
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.
7 Annual reports and accounts
The Annual Report and Accounts for 2016 will be posted to Shareholders on 4 April 2017 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.
8 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, 9 May 2017 at 9:00 a.m.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKNDQOBKDANB
(END) Dow Jones Newswires
March 24, 2017 03:00 ET (07:00 GMT)
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