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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Toumaz | LSE:TMZ | London | Ordinary Share | KYG6390E1070 | ORD 0.25P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 2.125 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
TIDMTMZ
RNS Number : 8200S
Toumaz Limited
22 March 2016
22 March 2016
Toumaz Limited
Final results
Toumaz Limited (AIM: TMZ, 'Toumaz', or 'the Group'), a leading software solutions provider for wireless devices, has published its results for the year ended 31 December 2015.
Highlights
-- Group revenues up 22.1% to GBP32.0 million (2014: GBP26.2 million)
o Digital Audio revenues up 24.4% to GBP31.7 million (2014: GBP25.5 million)
o Healthcare revenues: GBP300,000 (2014: GBP750,000)
-- Adjusted EBITDA* loss GBP7.8 million (2014: loss GBP9.8 million) - including R&D expenditure of GBP11.3 million
-- Group's cash balance was GBP7.7 million at 31 December 2015 -- Digital Audio
o Digital radio revenues up 14.6% to GBP20.6 million (2014: GBP18.0 million)
o Connected audio revenues up 48.1% to GBP11.1 million (2014: GBP7.5 million)
o Next generation connected audio solution, incorporating Google Cast, expected to ship mid-2016
-- Healthcare
o Review of strategic options for the business progressing well - decision expected mid-2016
o Trials in three NHS hospitals underway; engagement with US hospitals is generating interest
* Adjusted EBITDA excludes a GBP1.1million provision against other receivables
Anthony Sethill, CEO of Toumaz said:
"Our Digital Audio division, Frontier Silicon, comprising digital radio and connected audio, continues to make good progress - delivering strong growth in revenues and volumes. It has been EBITDA positive for the majority of 2015.
"Our digital radio business is well positioned to exploit the growing opportunities in the DAB market, particularly now that the development of our fourth generation digital radio chip is complete.
"Connected audio is performing well. Our agreement with Google is a strong endorsement of our connected audio capabilities. Development of our new solution incorporating Google Cast is progressing well and is on course for mass production this summer.
"The commercialisation of SensiumVitals continues whilst our review of the strategic options for maximising the value of the IP of the business is progressing.
"We expect the Group to be cash flow break-even by the middle of 2016."
Enquiries:
+44 (0) 207 391 Toumaz Limited 0630 Anthony Sethill, Chief Executive Officer Jonathan Apps, Chief Financial Officer Peel Hunt LLP (Nominated Adviser +44 (0) 207 418 and Broker) 8900 Richard Kauffer / Euan Brown +44 (0) 207 457 Instinctif Partners 2020 Kay Larsen / Chantal Woolcock
Overview
In 2015 Group revenues rose 22.1% to GBP32.0 million and the adjusted EBITDA loss was reduced from GBP9.8 million to GBP7.8 million. R&D expenditure of GBP11.3 million has now passed its peak and, with cash at year end of GBP7.7 million, the Board is confident sufficient funds are in place to see the Group through to break-even this year.
The Digital Audio business (Frontier Silicon) was EBITDA positive at an operating level for the majority of 2015 and is well positioned to benefit from the developing opportunities in its two sectors - digital radio and connected audio.
In digital radio, Frontier Silicon is established as market leader in technology for consumer DAB receivers. In 2015 digital radio revenues grew 14.6% to GBP20.6 million. The Group completed development of its fourth generation digital radio chip in April - marking the end a period of significant R&D expenditure for this business line.
With international markets for DAB continuing to develop and grow, digital radio is expected to generate significant positive cash-flows into the mid-term.
Frontier Silicon's connected audio business is performing strongly with revenues up 48.1% to GBP11.1 million and its prospects are promising. Underpinning this growth is the rapid expansion of the market for Wi-Fi enabled connected audio devices, such as wireless speakers, internet radios and soundbars.
Connected audio is attracting the interest of major technology players including Google, who have developed Cast, a technology which allows consumers easy access to multiple online music services.
Frontier Silicon is one of a very small number of technology suppliers offering connected audio solutions which incorporate Google Cast. The Group's new Cast-enabled solution is expected to ship in the middle of 2016 - with first revenues in H2 2016 and more significant uptake expected in 2017. Interest from potential customers is strong.
In the Healthcare division, it became clear in mid-2015 that the pace of commercial adoption of the Group's SensiumVitals(R) wireless vital signs monitoring system would be slower than anticipated. The Board therefore decided to review all strategic options for the business with the aim of maximising shareholder value. Advisors were appointed in Q4 2015 and the process is expected to complete in the middle of 2016.
In parallel, the commercial teams in the UK and US continue to engage positively with key accounts. Three trials in NHS hospitals in the UK are progressing well, with more expected to start soon. The Group's recently established US team is receiving positive interest from a number of potential customers.
R&D expenditure peaked in the first half of 2015 with the completion of the fourth generation digital radio chip and the last major expenditure on the next generation connected audio chip. R&D was lower in the second half and is expected to reduce further in 2016. The Group will still be allocating the necessary resources to support its software development needs.
Current trading and outlook
The Group expects digital radio and connected audio sales to continue in line with recent trends, with the connected audio unit expected to start shipping its Cast-enabled solution, Minuet, from the second half of 2016.
Research and development expenditure is expected to continue its decline in absolute terms from its peak in the first half of 2015.
Overall the first two months of 2016 have seen a solid sales performance in Digital Audio. With cash resources of GBP7.7 million at year end, and a projected positive cash flow position in mid-2016, the Board is satisfied with the cash resources of the Group.
Operational Review
Digital Audio (Frontier Silicon)
In 2015 Digital Audio revenues grew 24.4% to GBP31.7 million (2014: GBP25.5 million) - up 15.3% at constant exchange rates. Growth in digital radio was based on the expansion of European markets for DAB radio - a trend likely to continue for the foreseeable future. Growth in connected audio was driven by a combination of design wins and underlying market growth.
Digital radio
Frontier Silicon is the world's leading provider of technology solutions for consumer DAB digital radios. Customers include Sony, Philips, Panasonic, Roberts, Grundig and several major retailer own-brands. It has maintained this position through a combination of reliable, competitively priced solutions and high levels of customer service. Revenues in 2015 grew 14.6% to GBP20.6 million driven by a 15.3% increase in volumes to 4.4 million units.
The market for DAB / DAB+ digital radios and the technology inside them is growing steadily - driven primarily by progress in continental Europe.
The launch of DAB+ in Germany in 2011 was the major catalyst for this growth - with significant market developments following in the Netherlands, Italy and France. Last year, Norway became the first country in the world to set a firm date for Digital Switchover (DSO). FM signals are scheduled to be switched off in 2017 and this has provided a significant boost to sales in that region. Switzerland will be next with DSO planned for 2020-24.
In April 2015 the Group completed its investment in its fourth generation digital radio chip. This chip is now being adopted in significant volumes by customers. With the completion of this major development programme, R&D investment in digital radio will be considerably reduced. As a result, the business is expected to generate significant positive cashflows for the foreseeable future.
Connected audio
Frontier Silicon offers a broad range of technology solutions including modules, software and apps that enable manufacturers to build Wi-Fi enabled connected audio devices, such as wireless speakers, soundbars and internet radios. Revenues in 2015 grew 48.1% to GBP11.1 million driven by a 34.4% increase in volumes to 850,000 units.
The market opportunity in Wi-Fi connected audio is developing quickly - with market volumes forecast to more than double in the next three years - from 22 million units in 2015 to 48 million units in 2018.
This growth is being driven by demand for devices which provide easy access to online music services, such as Spotify, Deezer and Pandora, and the emergence of Wi-Fi as a superior and cost-effective alternative to Bluetooth.
The wireless speaker market is already well-established, with Bluetooth speakers which play content streamed directly from users' phones. The advantage of Wi-Fi audio systems is that they play content taken directly from the cloud (via a router rather than the phone). This reduces the speaker's dependency on the user's phone - so phone calls can be made without interrupting the music and there is no need to run down the phone's battery. Wi-Fi systems also offer the potential for multi-room audio.
These developments have attracted the interest of major technology companies, who see a position in connected audio as a key component of their broader connected home strategies.
The Group's connected audio business is growing rapidly, with revenues up 48.1% in 2015. The business is well positioned to achieve further significant growth. Over the last eight years Frontier Silicon has developed world class connected audio software and system integration skills, starting with Internet radio solutions and then expanding into Wi-Fi audio systems.
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In June last year the Group announced it would develop a new connected audio solution incorporating Google Cast technology. At the same time the Group also terminated development of its own connected audio silicon, which it had commissioned from a third party technology provider.
Prospects for this new solution are encouraging. At the recent Consumer Electronics Show (CES) in Las Vegas, Frontier Silicon was one of a very small number of technology providers offering Cast-enabled solutions. Development of the new product is proceeding well and is expected to enter mass production this summer. Interest from customers is strong and first revenues are expected in H2 2016 with further growth anticipated in 2017.
Healthcare
A reassessment of the financial prospects for the Healthcare division in 2015 resulted in the Board initiating a review of strategic options for the business. Advisors have been appointed with a remit to engage with potential financial or strategic investors. This process is under way and the outcome is expected in the middle of 2016.
At an operating level Healthcare is focused on securing commercial trials which demonstrate the system's ability to improve both patient outcomes and hospital economics. In the last 12 months the business has made progress in a number of areas.
In April 2015 development of an enhanced version of SensiumVitals(R) was completed. This new version of the patch has been used in trials in three NHS hospitals, including Queen Elizabeth Hospital Birmingham and St James's University Hospital, Leeds. These trials, whilst still ongoing, have demonstrated the robustness of the system. In the coming months the Group expects several more trials to start - both in the UK and in continental Europe.
In Q1 2015 the Group regained the North American distribution rights for SensiumVitals(R) . This was followed by the creation of a US commercial team and the appointment in September of a new Chief Commercial Officer based in Boston.
This team is now generating significant interest from clinicians and hospital managers, who see the introduction of SensiumVitals(R) as a potential means of avoiding or reducing financial penalties arising from the Affordable Care Act (2010).
Additionally, in the second half of the year, new regulatory penalties were introduced in the USA related to the detection of sepsis. Feedback from potential customers suggests strong interest in understanding the extent to which SensiumVitals(R) could help address this risk.
Financial review
Revenue
Group revenue for the year increased from GBP26.2 million to GBP32.0million (+22.1%) - this follows growth of 19.6% in 2014. The 2015 increase was due to significant growth in Digital Audio, with revenues up 24.4% to GBP31.7 million (2014: GBP25.5 million) and units shipments up 22.7% to 5.4 million (2014: 4.4 million).
Healthcare revenues were GBP0.3 million (2014: GBP0.8 million).
Gross profit margin declined marginally from 43.6% to 42.4%. Gross margins are expected to decline further in the immediate future as connected audio, which has lower margins than digital radio, grows as a proportion of total revenues.
R&D
The Group largely completed its investment phase in 2015, with first half R&D expenditure having peaked at GBP6.4 million. Second half 2015 R&D spend was GBP4.9million and is expected to decline further into 2016.
EBITDA
Adjusted EBITDA loss improved to GBP7.8 million (2014: loss GBP9.8 million). EBITDA loss, (loss from continuing operations less depreciation, amortisation, share based payment costs and a GBP3.0 million impairment (see below), was reduced to GBP8.9 million (2014: loss GBP9.8 million) due to lower operational expenditure and increased absolute margins on the back of higher revenues.
The Board considers that the one-off exceptional provision against other receivables (GBP1.1 million - see below) should also be excluded from EBITDA on the basis that it is a one off non-cash item. On this basis Adjusted EBITDA loss for 2015 was GBP7.8 million compared to GBP9.8 million in 2014.
Exceptional charge
As announced in July 2015, the Board took the view that the connected audio silicon development project being undertaken by the Group at that time was no longer the most effective way of delivering its next generation solution. As a result the Group terminated its involvement in the development programme and moved to a third party silicon supplier.
As a consequence the Group impaired GBP3.0 million of IP licences and other intangibles in connection with the previous silicon development project. The Group also recorded a further GBP1.1 million of royalty receivables due from its technology partner, who were to continue with the project independently of the Group.
Since year-end, due to a change of the management at the technology partner, the Board believes there is material uncertainty surrounding the future of this project and has provided in full against those receivables.
These two provisions are both non-cash items.
The table below reconciles the Group's adjusted EBITDA to its loss for the year.
2015 2014 GBP'000 GBP'000 Loss for the year (14,735) (12,242) Add back: Taxation (1,651) (1,273) Net finance charges / (income) 60 51 Depreciation 457 419 Amortisation 2,736 2,456 Share based payment 1,229 825 Impairment 3,016 - --------- --------- EBITDA (8,888) (9,764) --------- --------- Provision against other receivables 1,122 - --------- --------- Adjusted EBITDA (7,766) (9,764) ========= =========
Pre-tax loss
The Group reported a pre-tax loss of GBP16.4 million (2014: loss GBP13.5 million).
Taxation
The Group has historically applied for and received tax credits in respect of its research and development expenditure. In 2015 the tax credits amounted to GBP1.7 million (2014: GBP1.3 million). It is expected that similar claims will be made in 2016.
As at 31 December 2015 the Group has unutilised tax losses of GBP57.0 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 GBP7.7 million of cash and cash equivalents on the balance sheet. The Board believes this is sufficient cover to see the Group through to cash flow break-even in the middle of 2016.
TOUMAZ LIMITED
consolidated STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2015
2015 2014 Note GBP'000 GBP'000 Revenue 2 32,044 26,238 Cost of sales (18,455) (14,800) Gross profit 13,589 11,438 Amortisation of intangible assets (2,736) (2,456) Impairment 3 (3,016) - Depreciation (457) (419) Share based payment (1,229) (825) Exceptional items 4 (1,122) - Research & development (11,258) (11,750) Sales & administrative expenses - other (10,097) (9,452) ---------- ---------- Total administrative expenses (29,915) (24,902) Loss from continuing operations (16,326) (13,464) Finance income 15 68 Finance charges (75) (119) Loss before taxation 2 (16,386) (13,515) Taxation 1,651 1,273 Loss for the year (14,735) (12,242) Items that will not be reclassified subsequently to profit or loss Exchange differences on translating foreign operations 59 22 Other comprehensive income 59 22 ---------- ---------- Total comprehensive income for the year (14,676) (12,220) ========== ========== Basic loss per share attributable to owners of the parent 5 (0.87)p (0.74)p Diluted loss per share attributable to owners of the parent (0.87)p (0.74)p ========== ==========
TOUMAZ LIMITED
consolidated STATEMENT OF FINANCIAL POSITION
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For the year ended 31 December 2015
2015 2014 Note GBP'000 GBP'000 ASSETS Non-current assets Goodwill 6 19,118 19,118 Other intangible assets 7 11,519 17,260 Property, plant and equipment 707 578 31,344 36,956 -------- -------- Current assets Inventories 2,666 1,564 Tax receivable 1,301 1,500 Trade and other receivables 6,342 4,141 Cash and cash equivalents 7,748 12,513 Total current assets 18,057 19,718 -------- -------- Total assets 49,401 56,674 ======== ======== LIABILITIES Current liabilities Trade and other payables 11,239 8,863 -------- -------- Total current liabilities 11,239 8,863 Other liabilities > 1 year 3,735 - -------- -------- Total liabilities 14,974 8,863 -------- -------- EQUITY Share capital 4,262 4,195 Share premium 115,300 115,251 Share based payment reserve 4,501 3,325 Foreign exchange reserve (35) (94) Retained earnings (89,601) (74,866) Total equity 34,427 47,811 Total equity and liabilities 49,401 56,674 ======== ========
The accompanying principal accounting policies and notes form an integral part of these financial statements.
TOUMAZ LIMITED
consolidated Cashflow Statement
For the year ended 31 December 2015
2015 2014 GBP'000 GBP'000 Cash flows from operating activities Loss before taxation (16,386) (13,515) Amortisation 2,736 2,456 Depreciation 457 419 Impairment of intangible assets 3,016 - Exceptional item 1,122 - Share based payments 1,229 825 Net interest payable 60 51 Increase in inventories (1,102) (89) Decrease/ (increase) in trade and other receivables (2,038) 817 Increase in trade and other payables 1,111 604 Other foreign exchange movements 59 22 Tax refund 1,998 1,772 Net cash outflow from operating activities (7,738) (6,638) -------- -------- Cash flows from investing activities Purchase of property, plant and equipment (578) (356) Purchase of intangible assets (1,389) (1,991) Net cash used in investing activities (1,967) (2,347) -------- -------- Cash flows from financing activities Loan 5,000 - Loan interest payable (75) - Interest receivable/ (payable) 15 (51) Net cash inflow from financing activities 4,940 (51) -------- -------- Net change in cash and cash equivalents (4,765) (9,036) Cash and cash equivalents at the beginning of period 12,513 21,549 Cash and cash equivalents at the end of period 7,748 12,513 ======== ========
The accompanying accounting policies and notes form an integral part of these financial statements.
1. 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 2015 and 31 December 2014. The financial information for the year ended 31 December 2015 is derived from the statutory accounts for that year, which will be delivered to shareholders shortly and were approved by the Directors on 21 March 2016. The auditors' report on those accounts was unqualified.
2. 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:
2015 2014 GBP'000 GBP'000 Share based payment expense 1,229 825 Staff costs 12,419 10,687 Research and development costs written off 11,258 11,750 Amortisation of intangible assets 2,736 2,456 Depreciation of owned property, plant and equipment 457 419 Impairment of intangibles 3,016 - Exceptional bad debt provision 1,122 - Gain on foreign exchange (210) (355) Operating leases: land and buildings 754 657 Auditor's remuneration: Fees payable to the Company's auditor for the audit of the Company financial statements 36 33 Fees payable to the Company's auditor for other services - audit of the Company's subsidiaries pursuant to the legislation 55 44 ======= =======
Revenue by geographic location
2015 2014 GBP'000 GBP'000 United States and North America 1,033 1,763 Europe 3,120 1,460 Asia 27,891 23,015 Total revenue 32,044 26,238 ======= =======
Assets and liabilities by geographic location
Assets Liabilities 2015 2014 2015 2014 GBP'000 GBP'000 GBP'000 GBP'000 Cayman Islands 3,836 2,189 6,025 179 Europe 44,976 54,112 8,635 8,485 Asia 580 373 313 199 North America 9 - 1 - -------- -------- -------- ------------ 49,401 56,674 14,974 8,863 -------- -------- -------- ------------
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 Healthcare Digital Group Total December 2015 Audio GBP'000 GBP'000 GBP'000 GBP'000 Revenue 323 31,721 - 32,044 Cost of sales (423) (18,032) - (18,455) Gross profit (100) 13,689 - 13,589 Amortisation of intellectual property (256) (2,470) (10) (2,736) Depreciation (86) (371) - (457) Share based payment - - (1,229) (1,229) Exceptional item - (1,122) - (1,122) Impairment - (3,016) - (3,016) Research & development (3,897) (7,361) - (11,258) Sales & administrative expenses - other (2,989) (6,468) (640) (10,097) ----------- --------- --------- --------- Total administrative expenses (7,228) (20,808) (1,879) (29,915) ----------- --------- --------- --------- Loss from continuing operations (7,328) (7,119) (1,879) (16,326) Net finance payable - 10 (70) (60) - 10 (70) (60) ----------- --------- --------- --------- Loss before taxation (7,328) (7,109) (1,949) (16,386) =========== ========= ========= ========= Segment assets 12,590 32,975 3,836 49,401 =========== ========= ========= ========= Segment liabilities 457 8,492 6,025 14,974 =========== ========= ========= =========
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Included in revenues in the Digital Audio segment for the year ended 31 December 2015 are revenues of GBP5.5m from the largest customer, GBP4.3m from its second largest customer and GBP2.1m from its third largest customer. Together these represent 37.5% of the reported divisional revenue for the year and 37% of the total Group revenue for the year.
3. Impairment
2015 2014 GBP'000 GBP'000 Impairment of intangible assets 3,016 - 3,016 - ======= =======
During the year the Board took the view that the next generation of connected audio products should be based on third party silicon rather than the company develop its own chip. As a result of this decision certain licences and IP recorded as intangible assets have had their value impaired.
4. Exceptional items
2015 2014 GBP'000 GBP'000 Provision against other debtor 1,122 - 1,122 - ======= =======
As reported in note 3 a change in direction in respect of the Company's connected audio strategy has resulted in an impairment of certain intangible assets. This decision resulted in other intangible assets being reclassified as "Other Receivables". It is the Board's view that, due to a change of management at its sub-contracting silicon partner, these receivables should be provided for.
5. LOSS PER SHARE
The calculation of the basic loss per share of 0.87p (2014: 0.74p) is based on the loss after tax of GBP14.7m (2014: GBP12.2m) divided by the weighted average number of ordinary shares in issue during the year of 1,701,426,768 (2014: 1,660,220,043).
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 Healthcare Frontier Microsystems Silicon Total GBP'000 GBP'000 GBP'000 GBP'000 Cost At 1 January 2014 8,536 10,582 5,951 25,069 Additions - - - - ---------- -------------------- ----------------------- ------- At 31 December 2014 8,536 10,582 5,951 25,069 Additions - - - - ---------- -------------------- ----------------------- ------- At 31 December 2015 8,536 10,582 5,951 25,069 ========== ==================== ======================= ======= Impairment At 1 January 2014 - - 5,951 5,951 Charge in the year - - - - ---------- -------------------- ----------------------- ------- At 31 December 2014 - - 5,951 5,951 Charge in the year - - - - At 31 December 2015 - - 5,951 5,951 ========== ==================== ======================= ======= Net book amount at 31 December 2015 8,536 10,582 - 19,118 ========== ==================== ======================= ======= Net book amount at 31 December 2014 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.
There is considerable cross over and exchange of knowledge, intellectual property and the application and use of products between the cash generating units. The expertise and know-how of the Group as a whole provides a platform for all of its products. The supply chain and technical knowhow acquired with Frontier is used across the Group.
All principal operating divisions incurred losses in the year ended 31 December 2015, 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 five years up to December 2020. 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 Operational Review on pages 2 to 5 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.
Digital radio and connected 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. As with the healthcare division (below), a discount rate of 18% was applied to future cash flows with a rate of 20% 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 5 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 connected 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 5-6 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 connected 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. As with Healthcare, this opportunity does not come without risk.
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.
Sensium Healthcare
The growth rates of revenue for Sensium Healthcare used in the projections are significantly higher than may be expected from normal inflationary rises. These are based on the Directors' considered estimates of the developing market and include estimates of both the likely volume and individual value of sales. The introduction of new and untested "disruptive technology" into the market whilst allowing for large potential revenues also exposes the Group to the risk that costly developments will take longer than planned or not achieve the forecast financial returns. Should these estimates not be achieved there is a risk these assets will be impaired.
Consistent with 2014, a discount rate of 18% has been applied to the aggregate results of the forecast. The Directors considered the applicability of a discount rate of 20% and are satisfied that even if that rate were to be applied, the carrying value of the Healthcare goodwill is justified. In assessing the future cash flows of the division, the Directors have looked at a 5 year forward view and then made a terminal value assessment at the end of 2020 assuming no further sales and cost growth.
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