Final Results

RNS Number : 5942T

Quixant PLC

21 March 2023

 

21 March 2023

Quixant plc

("Quixant" or the "Group")

Full Year Results 2022

Strong demand across the Group driving record revenues

Quixant (AIM: QXT), a leading provider of innovative, highly engineered technology products principally for the global gaming and broadcast industries, announces its full year results for the 12 months ended 31 December 2022.

		Year ended 31 December 2022		Year ended 31 December 2021		Change
		($m)		($m)
	Group Revenue	119.9		87.1		38%
	Gaming Division Revenue	74.1		47.3		57%
	Densitron Revenue	45.8		39.8		15%
	Group gross profit	38.6		25.9		49%
	Adjusted profit before tax1,2	10.2		5.4		89%
	Group profit before tax2	8.8		4.9		80%
	Adjusted diluted earnings per share1,2	0.1779		0.0595		199%
	Diluted earnings per share2	0.1616		0.0533		203%
	Operating cashflow	0.8		4.4		-82%
	Net cash	12.9		17.6		-27%

¹ For details on adjusted measures refer to note 1 and note 5 of the consolidated financial statements.

² Stated after recording a $0.9m provision owing to a customer involved in Chapter 11 bankruptcy protection subsequent to balance sheet date as discussed further below. 

HIGHLIGHTS

·	Strong order intake through 2022 with a book-to-bill ratio in excess of one giving excellent visibility of growing customer demand
·	Record Group revenues driven by sustained recovery in Gaming and another record year for Densitron
·	Continued product innovation opening up new growth opportunities:
	o  Receipt of first mass production order of turnkey Gaming cabinet solutions and pipeline progression of further new business.
·	Progression of Densitron Broadcast opportunity, which grew 42% year on year, representing the third consecutive year of double-digit growth in the sector
·	Gross margins starting to recover from supply chain disruption with stabilisation of component price and freight cost inflation
·	As a result of events subsequent to the balance sheet date, a charge of $0.9m recorded against profit before tax due to uncertainty of the recoverability of balances owed by a Quixant Gaming customer involved in Chapter 11 bankruptcy protection
·	Net cash of $12.9m, down from the prior year due to investment in strategic stock to meet customer demand
·	Good operational liquidity and net cash with minimal debt supportive of future organic and acquisitive growth
·	Dividend of 3.0p per share proposed (2021: 2.4p per share) reflecting confidence in ongoing growth and cash generation

CURRENT TRADING AND OUTLOOK

·	Positive trading momentum has continued into new financial year
·	Further progression of new business opportunities for gaming cabinets and broadcast HMI products since the start of 2023
·	In line with the Group's evolution as a multi-vertical technology provider, the Board proposes to change the name of Quixant plc to Nexteq plc, while maintaining Quixant as the Gaming brand and Densitron as the Broadcast market and Industrial Display Component product brand; shareholder approval will be sought at the upcoming AGM

Jon Jayal, Chief Executive Officer of Quixant, commented :

"We delivered a strong financial performance during the year, with record revenues for the Group significantly ahead of expectations at the start of the year, driven by double-digit revenue growth across both Quixant Gaming and Densitron. This performance comes despite persistent supply chain disruption during the year and reflects the hard work of teams across the Group, as well as tight partnership with our customers.

After declines in 2021, gross margins started to recover during the year and, combined with operational leverage through higher revenues, resulted in improved trading profitability.

We move into the new financial year positioned to grow and scale further in the medium-term. With the business now aligned to growth opportunities across multiple vertical markets, the renaming of the Group to Nexteq plc is an important milestone in our evolution. 

Whilst cognisant of recession and inflation risk, our strong customer relationships, visible order backlog and the healthy pipeline of new business, together with a clear strategy unlocking new growth opportunities, provides confidence that we will drive further growth in 2023."

Investor Presentation

Jon Jayal, CEO, and Johan Olivier, CFO, will provide a live presentation relating to the Group's results for the year ended 31 December 2022 via the Investor Meet Company platform on 24 March 2023 at 11:00am. The presentation is open to all existing and potential shareholders and registration can be completed via the following link: https://www.investormeetcompany.com/quixant-plc/register-investor .

Quixant plc Jon Jayal, Chief Executive Officer Johan Olivier, Chief Financial Officer	Tel: [phone]
Nominated Adviser and Broker: finnCap Ltd Matt Goode / Simon Hicks (Corporate Finance) Alice Lane (ECM)	Tel: [phone]
Joint Broker: Canaccord Genuity Limited Simon Bridges / Andrew Potts	Tel: [phone]
Financial PR: Alma PR Hilary Buchanan / Kieran Breheny / Will Ellis Hancock	Tel: [phone]

About Quixant

Quixant, founded in 2005, designs and manufactures highly optimised computing solutions and monitors principally for the global gaming and broadcast industries. The Company is headquartered in Cambridge in the UK, with offices throughout Europe, North America and Asia.  Quixant has its own manufacturing and engineering operation based in Taiwan and software engineering and customer support teams based in Italy and Slovenia. All the specialised products software and manufacturing are produced in-house and Quixant owns all its own IP some of which is protected by patents and design rights.

In November 2015 Quixant acquired Densitron Technologies plc. Densitron has a strong heritage in the sale of electronic display solutions to global industrial markets. Through Densitron's experienced sales team, Quixant has a robust platform to build its business into wider industrial markets. In-depth information on the Company's products, markets, activities and history can be found on the corporate website at www.quixantplc.com.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

CHAIR'S STATEMENT

A year of strategic progress

 

I am delighted to report on a year of meaningful financial and strategic progress in the Group.  Throughout the challenges resulting from the pandemic and the subsequent supply chain shortages, the business has remained resilient, and demand has rebounded such that we are able to report a record year of revenues, improving margin and progression of our strategic goals which we believe will bolster growth in future years.

 

This positioning is testament to the strength of relationships we enjoy with our customers and suppliers, the quality of our product offering, the tenacity and skill of our colleagues across the business, the power of our business model and the support of our shareholders.  I would like to thank all stakeholders for their contribution to the successes of the year.

 

Both the Quixant Gaming and Densitron businesses delivered their second consecutive year of double-digit revenue and profit growth, posting results which were significantly ahead of initial Board expectations.  This was despite the ongoing electronics component shortages which started in 2021 and persisted throughout 2022.  Our strategic stock programme which commenced in January 2021 remained an essential ingredient to mitigating supply disruption to our customers.  The Board remains committed to continuing this programme in 2023 until volatility in component availability and pricing subside.

 

Strategy driving value enhancement and diversification benefits

 

We believe the Quixant Gaming business has a buoyant trading outlook for its computer platform products and the changes made in the Densitron business continue to yield positive results in growing revenues and improving profitability.  Both these businesses delivered profit growth in the year and show further potential going forward.

The Board is committed to a multi-year growth plan to increase diversity in the Group's earnings, both within the Quixant Gaming portfolio and across multiple vertical markets.  During the year the Board supported investment in new product categories which drove new growth opportunities alongside the core business which continues to be a sustained source of growth.

These investments drove success in securing our first multi-million dollar mass production gaming cabinet order in 2022 and a third consecutive year of double-digit Broadcast revenue growth.

Progression of our sustainability agenda

Within the framework of our Corporate Responsibility Strategy, the Board set a range of targets aimed at delivering improvements in the environmental impact of our business and enhancing the social benefits brought about by the Group.  I am impressed by the engagement from teams across the business globally to drive these initiatives.  We made excellent progress in increasing our confidence in our suppliers operating ethical business practices with 100% now signed up to our Supplier Code of Conduct and 95% audited for compliance.  Our staff voted for UNICEF to be nominated our Charity of the Year and alongside donation of a share of the Group's profits to the charity, colleagues also embarked on several events to raise money including the team globally incredibly covering 14,000km in November in the "BIG Step Challenge".

Our Electric Vehicle (EV) scheme has resulted in more than 10% of our UK workforce now using an EV to commute to work, with the additional benefit that we offer free charging at our UK offices.  We have continued the more extensive use of international collaboration through video conferencing tools to reduce our air travel compared to pre-pandemic levels whilst ensuring our operations across eight countries remain well-connected.

Enhanced governance arrangements

In September 2022 we welcomed two new independent non-executive directors to the Board, Duncan Penny and Carol Thompson.  As XP Power's CEO, Duncan has an exceptional track record of driving the business' growth, making him immensely relevant to guiding the Group through its growth strategy into new markets.  Carol, who brings a wealth of financial and non-executive experience and gaming market exposure, has been appointed Chair of the Audit & Risk Committee, taking over from Guy van Zwanenberg.  Guy has been a long-standing member of the Board and chaired the Audit and Risk Committee for nine years but will be retiring from the Board in April 2023.  A deeply committed and supportive board member, I thank Guy for his service and stewardship of the business since he joined the Board in 2013 and wish him well.

Confidence in ongoing trading performance drives increase proposed dividend

The positive trading momentum in 2022 has continued into the new financial year and we expect to generate healthy levels of operating cashflows.  The Board is recommending payment of a 25% increase in the dividend to 3.0p per share for 2022 (2021: 2.4p per share) reflecting its confidence in ongoing growth and cash generation.

Francis Small
Chair

CHIEF EXECUTIVE'S REPORT

KEY TAKEAWAYS

·	Effective management of the challenging supply environment enabling us to deliver record Group revenues and profits significantly ahead of initial expectations.
·	Investment into new Gaming cabinet and Broadcast technology product offerings have started to deliver measurable progress supporting the case for ongoing investment.
·	Improved profitability through a partial recovery in gross margins and operational leverage and with a stabilisation of component costs.

 

Strong demand and robust supply chain management yields 38% revenue growth

2022 was a year characterised by exceptional demand for the Group's product offerings across both its divisions, tempered by ongoing challenges in supply chains.  While the ongoing component market disruption affecting technology markets was worse than anticipated at the start of the year our mitigation strategies enabled us to shield our customers from much of the effect.  This is an excellent result which not only drove improved trading performance, but also solidified our partnership with customers.  Better availability of our innovative products compared to other market participants also fuelled new business.

 

Group revenues grew for the second consecutive financial year to a record $119.9m, 38% up year on year (2021: $87.1m) and 4% higher than the previous record revenues of $115.1m achieved in 2018.  Pleasingly, this strong revenue performance was diversified across the Quixant Gaming and Densitron business units, with both delivering double-digit year on year growth.

GROUP GROWTH STRATEGY

The Group serves as an outsource technology and supply chain partner for major global industrial electronic equipment manufacturers, with a focus on specific vertical markets. The Group combines hardware, software, display and mechanical engineering expertise, a global sales network with in-depth industry knowledge and a Far Eastern manufacturing base making it the ideal global strategic technology provider.

The Group's origins are in its highly respected Quixant brand of specialised computer platforms, which are designed to power machines in the global casino gaming and slot machine market. These computer platforms, which are supplied to electronic gaming machine manufacturers installed in casinos and other gaming venues globally, combine optimised hardware and software elements to address the specialist needs of this highly regulated market. By outsourcing their computer platform to Quixant, manufacturers can focus their R&D on the game design, which has the greatest impact on their commercial success. They are also able to bring new products to market quicker.

A key objective is for the Group to diversify its revenue across more customers, product offerings and vertical markets.  The Group seeks to achieve this objective through its Densitron business.

Densitron has a 52-year pedigree in supplying display components to a wide range of industrial sectors, from which the Board has selected sectors in which there is the opportunity to develop tailor-made products, which are different to those readily available from broad-based technology corporations. We believe the Broadcast market represents such an opportunity, in which we have developed unique solutions which revolutionise the human machine interaction and control of Broadcast equipment.  We delivered our third consecutive year of double-digit revenue growth in 2022.

The Group's growth strategy is defined as follows:

-	Identification and analysis of market sectors, focusing on those that do not currently benefit from dominant deep specialist solution outsource providers and are undergoing a technology evolution;
-	Building new customer partnerships in its chosen target market segments, further diversifying the Group's revenue base;
-	Focused R&D to move up the value chain, including within the software stack;
-	Increase share of customer wallet by providing additional outsource solutions to become a fully integrated technology partner; and
-	From time to time, the Board may complement its organic growth strategy with strategic acquisitions that enhance the Group's technical capabilities and market reach.

Gaming Business Review

Recovery continues with third consecutive year of revenue and profit growth

Demand for our gaming technology products was strong throughout the year, with 2022 order intake ahead of 2021 levels and 2022 revenues.  Supply chain constraints were the primary limiting factor on revenue, but our expertise in supply chain management allowed the Gaming business to grow revenues to $74.1m, a 57% increase year on year (2021: $47.3m).  Along with new customer wins, we continued to be successful in growing our engagement within the substantial existing customer base, with volume growth across the majority of our customers. 

Due to the mix of customers supplied, we also saw a shift in volume towards higher end models, further increasing the Average Selling Price (ASP) of our products.  In total gaming platform volume shipped in the year grew by 30% to 52,044 units.

Price inflation also contributed partly to the revenue growth.  The impact of several rounds of sale price increases in order to recover higher input costs started propagating through profit & loss in 2022 and aside from increasing revenues it also drove a partial recovery in gross margins. 

Strong end-market environment

Underpinning the growth in our gaming business are healthy land-based gaming markets in North America and Europe which have rebounded strongly from the lows of 2020 and in 2022 posted gross gaming revenues at a similar level to or above 2019¹.  The US market, which made up 65% of Quixant Gaming revenues in 2022, has been a particular highlight with US commercial casino land-based slot gross gaming revenues reaching a record high in 2022 of $34bn, an increase of 5% year on year over the previous record in 2021.  Since the easing of COVID-19 restrictions, commercial casinos have seen strong player attendance and spend, and have consequentially been investing in the venues and customer offering.  This is resulting in our customers seeing greater demand for their gaming machines and therefore our products installed in them.

Aside from the commercial casinos, the other major land-based gaming revenue source in the US market is the tribal casinos.  These reside on Native American reservation land and are subject to different legislation, taxation and regulation.  The tribal properties were amongst the first to open after the 2020 lockdowns and saw incredible player attendance in those early months.  This sharp recovery in tribal casino take meant they saw a lesser revenue impact from the pandemic compared to commercial casinos and continued to trade well in the following year, posting record gross gaming revenues (GGR) in 2021 of $39bn².

¹ Source: American Gaming Association Commercial Gaming Revenue Tracker, Q4 2022

² Source: National Indian Gaming Commission

The European market recovery from the pandemic lagged the US as governments were more cautious about easing restrictions.  As such, the market remained weak during 2021 with land-based gross gaming revenues broadly unchanged from 2020.  With the widespread easing of restrictions by the end of 2021, land-based gross gaming revenue recovered strongly in 2022, increasing 34% year on year to $70.3bn ¹ , which was only 6% below 2019. 

Through recent years the strong build in online gaming revenues has been evident across many countries, particularly in the US which passed legislative changes to online gambling laws.  Importantly for our business these changes have not cannibalised the land-based markets where our products are used, rather the new online gaming revenue have been augmentative to the overall gaming market turnover. 

Continued diversification with first mass production gaming cabinet order with exciting pipeline of prospects

In line with the Group's strategy to diversify revenues and move up the value chain through innovation the Group complemented its Self-Service Betting Terminal (SSBT) offering with an Electronic Gaming Machine (EGM) turnkey cabinet solution. This extends the Group's range of outsourcing solutions for the gaming sector by combining Quixant's proven computer platform and monitor technology into a 'one-stop-shop' cabinet, complete with peripherals and a support software package. As a result, customers are able to focus exclusively on game software development and player experience, while outsourcing hardware design and procurement entirely to Quixant, improving the quality of their offering and accelerating time to market. 

During the year we received our first mass production order for our EGM cabinet offering valued at $4m, underpinning the business case for further investment.  The first deliveries under this order are expected to be delivered in the first quarter of 2023. 

Management estimates that the total addressable market for computer platforms and cabinets for casino slots globally is in excess of $3bn^2, of which we believe our realistic addressable market with the current products and offering we have today is $310m².  This assumes our cabinet offerings are targeted at niche, most price sensitive areas of global gaming markets and are not designed to satisfy the requirements of high-end casino product. 

¹ Source: European Gaming and Betting Association

² Source: G3 Magazine and management estimates

Densitron Business Review

Densitron revenue grew by 15% to $45.8m (2021: $39.8m), setting another revenue record since acquisition in 2015. Densitron enters 2023 with strong order coverage providing good revenue visibility and activities during 2022 support improved profitability in 2023. 

Sales growth in Densitron was driven across both Display Components and Broadcast Solutions offerings:

· Through its Display Components offering, Densitron supplies electronic display modules to a wide range of industrial equipment manufacturers.  Revenues grew by 11% to $38.3m (2021: $34.5m) in 2022 achieving a second consecutive year of double-digit growth. All geographic regions performed well.

·   Densitron's Broadcast Solutions grew by 42% in 2022 to $7.5m (2021: $5.3m), achieving the third consecutive year of double-digit growth.

Display Components

The industrial display components market is expected to grow to $8.3bn by 2030, at a CAGR of 6.1% ¹ . 

Whilst the market is occupied by a number of electronic display component manufacturers, our differentiation comes in terms of our ability to connect vertical market specific requirements and environmental/performance characteristics with the right choice of display to ensure the customers product vision is delivered and they operate reliably in all conditions in which the products are deployed. 

In addition to this detailed application knowledge of display components, after 52 years of experience our strength in supply chain, quality and logistics have become newer differentiators as supply chains were disrupted customers, who had gone directly to China or were buying through inexperienced distributors faced far more issues in keeping supply flowing than Densitron customers.  This 'flight to quality supplier' trend boosted Densitron's display component business in 2022.

Our product offering continued to feature the latest display technologies and solutions to solve the most pressing display engineering challenges.  Of particular note is the success of our Mitsubishi drop in replacement line of displays, which require little engineering effort to 'drop in' instead of Mitsubishi displays.  Mitsubishi has exited the display market leaving many customers in a difficult position with regards to continuing production or being forced to redesign their product around a new manufacturer's display.

Through its diverse sector exposure, the Displays Component offering also provides an excellent platform to identify new vertical markets in which there are opportunities to develop and supply bespoke high-value products to address technology trends occurring in those markets.  Having identified and developed product concepts, the extensive Display Components customer book of over 500 customers also provides an established sales channel for these new products.

1 Source: Grand View Research

Broadcast Solutions

Our evolving Broadcast sector business brings revolutionary new human machine interface (HMI) solutions to the market to replace the antiquated mechanical controls which are still prevalent in the majority of audio-visual processing equipment used in professional studios.  Our HMI solutions, which combine high-resolution graphical displays, touch screen technology and computing elements, greatly simplify the adoption curve for manufacturers.

Our products seek to revolutionise the control of technology which typically resides in Production Control Rooms ("PCRs").  We believe that there are around 220,000 PCRs worldwide which result in an equipment spend every year of $880m.  These PCRs are found in broadcast corporation studios, corporate broadcast theatres, outside broadcast trucks and houses of worship and is the venue in which the broadcast operations are directed, and composition of the outgoing programme takes place. 

Densitron has three offerings for the Broadcast sector:

1)	Finished Products - These products incorporate the best of our display, touch and computing technology to provide plug and play solutions to broadcast HMI and control problems.  These are supplied not only to broadcast equipment manufacturers but also to the end broadcast corporations such as BBC and NEP Group.  An example of these is the 2RU x86 rack mount control panel.
2)	HMI Modules - We can supply any element of our HMI technology as a sub-assembly to broadcast manufacturers for incorporation into their equipment.  This gives them access to newer interface technology, helps them get to market faster and reduces their engineering workload.  An example is the TactilaTM range of tactile objects.
3)	Original Design Manufacturer Plus (ODM+) Services - Broadcast manufacturers can outsource their entire product design and development to Densitron and in developing this product Densitron will incorporate our patented technologies where appropriate.  This allows the broadcast manufacturers to either cut costs or invest in engineering, manufacturing and supply chain capacity in other projects.  We have active pipeline opportunities for these services.

We believe our current broadcast solutions allow us to access a total addressable market of $220m with further penetration of the value chain allowing this to increase up towards the $880m equipment market spend in PCRs.  In addition, Broadcast PCR spend is estimated to be growing at 4.5% per year over the next 5 years¹.

The Broadcast business delivered its third consecutive year of significant growth, increasing revenue by 42% year on year to $7.5m (2021: $5.3m).  This growth was principally driven by production ramp in new business won in 2021.

We continued our investment programme to incubate the Broadcast business to become a significantly increased component of Group revenue.  This included recruitment of experienced commercial and product leaders with an exclusive focus in delivering on the Broadcast opportunity. 

1 Source: Business Research Company - Television Broadcast Market Report 2023

Successful management of challenging supply environment

 

Through the last 24 months, volatility in electronic component pricing, cost inflation and elevated freight costs have weighed on Group gross margin.  We sought to mitigate the impact of these extenuating factors through advanced strategic stock purchase commitments, relentless negotiation with suppliers and, where essential, effecting price increases with our customers.  Throughout 2021 and into the first half of 2022 we were still seeing inflation in component prices despite these measures.  This drove further rounds of intense product redesign, strategic purchasing and customer collaboration to allow us to use alternative parts. Subsequently, we have seen a stabilisation of component pricing, albeit at higher than historic levels.  This stasis in component pricing has allowed our higher sale prices to positively effect a partial recovery in gross margin. 

During much of 2021, many electronic suppliers were reluctant to state any quoted lead times making manufacturing planning very difficult.  Towards the end of 2021, we started to see suppliers providing committed delivery dates and a reduction in the number of end-of-life notices, but we quickly saw deterioration in this situation early in 2022.  We saw significant de-commits from suppliers such as AMD which failed to fulfil orders placed months earlier.  Our actions during the year mitigated the impact of most of these issues on our customers.

Entering 2023 we continue to see component lead times and pricing at elevated levels, but with less widespread volatility as at the same point last year.  We expect to see continued easing of supply chains through 2023 but remain vigilant to acute issues which require close intervention.  We are committed to our strategic stock programme until such time as we are confident in component supply.

Innovation and product development

In 2022, 37% of our global workforce were employed in product development and support roles. 

The quality and breadth of our global product development teams is the cornerstone of our business' current and future success.  Innovations developed by these teams have led to the Group holding 20 active patents on key technologies incorporated into our products in Quixant Gaming and Densitron.

During 2022, we launched the new Intel® based QMAX-3 product which takes over as our next generation flagship computer platform for high-end casino machines.  We already have confirmed business which we expect to ramp in 2023 for this exciting new product launch.

During the year Densitron continued to invest in exciting R&D to open new ways for humans to interact with machines, with a focus on the broadcast sector.

Our engineers continued to spend considerable time during the year in redesigning existing products to substitute components which unexpectedly were made end-of-life, saw volatile pricing or were on long lead times.  While this activity hampered new product development to some extent, it was essential to ensuring customers remained supplied with our products. 

Change of name

The Group's strong growth to date means that the business has evolved from 58 employees at IPO in 2013 with a niche vertical focus in providing computer platforms into the Gaming industry to a business with 230 employees supplying multiple product ranges to customers across a range of industries. The Board believes the business platform provides an opportunity to identify and diversify further into other sectors that could also benefit from a technology outsourcing partnership but have enjoyed no focused, expert providers to date.

As such, the Board has considered the value proposition, vision and brand for the Group as a whole.  The Quixant brand is recognised and highly respected in the Gaming sector, while Densitron has a pedigree in industrial display components and more recently as an expert in Broadcast HMI solutions.  The Group however is sector agnostic but operates through trading businesses which share the common vision to support customers in selected markets with products which enable them to focus their internal engineering effort on their core value proposition. 

The Board has therefore decided to recommend to shareholders a change in name of the Group to Nexteq plc, while maintaining the Quixant brand for the Gaming Business and Densitron for the Broadcast and Industrial Display Components businesses.  The Board believes this will provide the right structure to support our growth strategy and clarify our offering in the market. Subject to shareholder approval this will be effected after the Annual General Meeting.

Current Trading and Outlook

The Group has made a positive start to the new year, with robust trading momentum across both divisions continuing, and a healthy order backlog providing visibility into the second half of the year. While cognisant of macro-economic and ongoing supply chain pressures, we remain confident that our considerable pipeline of opportunities and strong customer relationships will underpin future revenues. We will continue to closely monitor market conditions to ensure that we remain agile to support our customers with their critical technology needs.

Driving operational efficiency and profitability remain key priorities for the Group, and we expect to continue to see the benefits of operational leverage in the coming year. We also expect the unwind of our strategic stock position to see a return to strong operating cash generation in the year. At the same time, we will continue with focused investments across the Group to expand our market opportunity.

The Group's rebrand under the Nexteq name represents the evolution of our business as a technology partner across multiple end vertical markets and is an opportunity to bring our teams closer together and, ultimately, drive our expansion over the long-term. 

Jon Jayal

Chief Executive Officer

Financial Review

The Quixant Group achieved record revenues of $119.9m in the year, up 38% on 2021 revenues driven by strong demand across both Gaming and Densitron.

Statutory Results

Group Revenue was $119.9m (2021: $87.1m), representing year-on-year growth of 38%. Gross profit was $38.6m (2021: $25.9m), an increase of 49% over the prior year, with gross margins at 32.2% (2021: 29.7%). Operating expenses were $29.6m (2021: $21.4m), resulting in operating profit of $8.9m (2021: $4.5m). Net finance cost was $0.1m (2021: Net finance income of $0.4m), resulting in profit before tax of $8.8m (2021: $4.9m) and an income tax credit of $2.2m (2021: tax expense of $1.4m), equivalent to an effective tax rate of -24.8% (2021: 27.6%). Basic earnings per share (EPS) were $0.1653 (2021: $0.0536), an increase of 208%. Diluted EPS were $0.1616 (2021: $0.0533), an increase of 203%.

Revenue

Gaming division revenues were $74.1m, an increase of 57% on the prior year (2021: $47.3m). The increase in Gaming revenues was due to robust demand for our gaming computer products alongside a shift in product mix towards higher-end solutions.  Unit sales increased to 52,044 platforms shipped in the year, up 30% on the prior year (2021: 40,070).

Densitron division revenues were $45.8m, an increase of 15% on the prior year (2021: $39.8m). The strong demand for Densitron products seen in 2021 continued through 2022, across all its subsectors. The Broadcast sector in particular had another strong year with revenues of $7.5m, up 42% on the $5.3m shipped in 2021.

Gross profit and gross profit margin

The Group generated gross profit during the year of $38.6m (2021: $25.9m) representing a gross margin of 32.2% (2021: 29.7%). Gross margins remained volatile through the year, due to component price inflation from global supply chain shortages and higher freight charges. These factors stabilised in the second half of the year, and coupled with operational leverage from higher production output, led to a recovery in Group gross margin.

Adjusted operating expenses

Adjusted operating expenses increased by 35% to $28.3m (2021: $20.9m). Overheads were reduced during the pandemic, mainly because of reduced bonuses, a reduction in travel and marketing spend and measures taken to control discretionary spend. In 2022 operating expenses started to revert to pre-pandemic levels, particularly travel and marketing due to an easing of travel restrictions and recommencement of trade shows. In addition to this the Group has also invested in headcount, with average employees increasing from 207 in 2021 to 228 in 2022 as the Group invested in its engineering, supply chain and sales teams to support the growing demand across both Gaming and Densitron. This resulted in payroll costs increasing by $4.4m to $20.2m (2021: $15.8m).

During the year, Group expenditure on research and development increased to $4.8m (2021: $4.7m). These costs relate to investment activities principally undertaken in Taiwan, Italy, the UK and Slovenia. Of these costs, $1.8m were capitalised (2021: $1.7m) as the Group continues to focus on developing new products, with amortisation for the year on total capitalised development costs of $1.1m (2021: $0.9m).  During the year the Group abandoned in progress development projects with a carrying value of $0.5m (2021: nil). These were due to a combination of supplier notifications to key end-of-life components utilised in our products; and following internal review where it was determined that the project did not meet the criteria to capitalise product development cost as set out in IAS38.

Post balance sheet event

As a result of events after the balance sheet date, the consolidated statement of profit and loss includes a charge amounting to $0.9m relating to uncertainty of the recoverability of balances owed by Aruze Philippines Manufacturing Inc. (APMI), a customer of the Group's Gaming division.

The Quixant Group, through its Gaming division, has active contracts in place with Aruze Philippines Manufacturing Inc. ("APMI"), for the supply of display products and gaming boards. On 1 February 2023 Aruze Gaming America, Inc ("AGA"), a US based affiliate of APMI, filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the State of Nevada. In the filing AGA stated that this action was a part of AGA's efforts to seek financial restructuring in the wake of a recent garnishment judgment against AGA resulting from a separate judgment against AGA's shareholder.  Furthermore, AGA stated that it intended to continue operating normally and utilize Chapter 11 protections to provide for an orderly consideration of the relative rights of AGA's creditors, customers, and employees.

The Quixant Group did not have a direct relationship with AGA at 31 December 2022, or during the 2022 financial year. As AGA is the main customer of APMI the Chapter 11 filing has resulted in APMI having to delay payment of outstanding debts to Quixant until they have received payment from AGA and rework its business plans and production schedules. Due to the uncertainty caused by this Quixant management evaluated the carrying value of balances related to its relationship with APMI as at the balance sheet date as the bankruptcy of AGA is considered an adjusting post balance sheet event, as the circumstances leading to the bankruptcy petition existed at 31 December 2022.

Trade receivables at the balance sheet date included an amount of $0.7m owed by APMI. It is Quixant's intention to seek collection of all amounts and APMI has confirmed its intention to settle this amount, however the AGA Chapter 11 filing raised doubts over the Group's ability to recover the trade receivable. Management considered that due to the uncertainty inherent in an insolvency proceeding the debt owed by APMI at the balance sheet was fully impaired. An impairment loss of $0.7m was recorded within operating expenses.

Inventory, consisting of raw materials with a book value of $2.4m and finished goods with a book value of $1.1m was included in the Quixant Group's balance sheet as at 31 December and earmarked for use by APMI. Post year-end finished goods with a book value of $0.2m was shipped to APMI as part of Quixant's normal operations. Management has assessed the remaining $3.3m to determine alternative uses for the inventory. The inventory can be used to manufacture products that can be sold to the Group's existing or new customers or for use in the Group's turnkey cabinet offering. Management expects to fully recover the net book value of $3.3m and considers that no provision against it was required as at 31 December 2022.  Inventory that was shipped to APMI post balance sheet date has been provided for in full, as the recoverability of this amount is dependent on Quixant receiving cash payment, which is considered uncertain as noted above.

The Group balance sheet also included capitalised development cost with a book value of $0.4m related to the development of products for APMI's future use. Once development is completed, the product can be sold to the Group's existing or new customers if APMI is unable to do purchase these products. Based on their assessment of the future use of the product management expects to recover the book value of the capitalised development in full and no impairment was required at the balance sheet date.

The total charge to the consolidated statement of profit and loss amounts to $0.9m, with $0.7m charged to operating expenses and $0.2m charged to cost of sales.

Net finance expense

The Group also incurred net finance expenses of $0.1m (2021: Net finance income of $0.4m), principally related to leases. In 2021 the Group recognised finance income of $0.5m related to COVID-19 support loans which were forgiven by the USA Government.

Adjusted Profit Before Tax

Adjusted profit before tax increased by 87% to $10.2m (2021: $5.4m). The adjustments to statutory profit before tax of $1.4m (2021: $0.5m) comprised a share-based payments charge of $0.6m (2021: share-based payments credit of $0.2m) and amortisation of acquired intangibles charge of $0.8m (2021: $0.9m). The 2021 adjustments also included a restructuring credit of $0.2m.

Taxation

The Group recognised a corporation tax credit of $2.2m in the year, compared to a charge of $1.4m in 2021. The tax credit consists of a current tax charge of $0.5m (2021: $1.2m), $1.8m credit in respect of the recognition of a deferred tax asset relating to tax losses (2021: charge of $1.0m) and $0.9m credit relating to the movement in deferred tax assets and liabilities in the current year (2021: credit of $0.8m).

The $1.8m tax credit is in relation to the recognition of a deferred tax asset for tax losses which are now considered recognisable due to the Group having enhanced visibility over their availability and utilisation.

The effective tax rate on statutory profit before tax decreased to -24.8% (2021: 27.6%). Going forward we expect the effective tax rate to be approximately 15% - 18%, depending on the regional mix of profits.

Earnings per share

Basic EPS increased by 208% to $0.1653 per share (2021: $0.0536 per share). Adjusted diluted earnings per share increased by 199% to $0.1779 per share (2021: $0.0595 per share).

Balance Sheet

Non-current assets increased to $26.2m as at 31 December 2022 (31 December 2021: $24.3m) mainly due to an increase in deferred tax assets, offset by a decrease in right-of-use and intangible assets. Included in non-current assets are goodwill of $7.7m (31 December 2021: $7.7m) and acquisition related intangible assets of $1.0m (2021: $1.8m) allocated to cash generating units (CGUs). The annual impairment review indicated that no impairment of goodwill is necessary at 31 December 2022 or 31 December 2021. The IDS, Densitron US and Densitron Europe CGUs are sensitive to a reasonably possible change in key assumptions which could cause impairment.

Inventory has increased to $32.2m (31 December 2021: $29.1m), as production increased to meet the higher customer demand. Inventory levels are elevated compared to pre-pandemic levels as the Group continues to hold strategic stock to mitigate the impact of the global component shortages and secure product for customer demand.

Cash Flow

The Group generated $0.8m cash from operating activities in the year (2021: cash generated of $4.4m). Adjusted operating cash flow, which excludes tax payments, was $2.5m (2021: $4.9m) which represented 25% of adjusted profit before tax (2021: 90%). This was below our cash conversion KPI targets due to increased working capital, which reflects the impact of the strategic stock programme implemented to ensure continuity of supply to our customers and the timing of supplier payments and customer receipts. In the second half of the year the Group consumed some of the strategic stock which led to an inflow of cash from operating activities of $4.4m.

The Group capitalised $1.8m of development costs (2021: $1.7m), which reflects the continued development of new products as the Group expands it product portfolio.

The Group finished 2022 with net cash of $12.9m (2021: $17.6m), comprising cash and cash equivalents of $13.5m (2021: $18.3m) and gross debt of $0.6m (2021: $0.7m). The debt relates to a mortgage over the Group's offices in Taiwan. The decrease in net cash during 2022 was a result of the investment made in working capital to fund the increase in customer demand.

Capital Allocation

The Group will continue its disciplined approach to capital allocation, prioritising the maintenance of a strong balance sheet, and sufficient cash reserves, while continuing to focus on investing in the business to drive organic growth.

The Board propose a dividend for the year ended 31 December 2022 of 3.0p per share (2021: 2.4p per share). This dividend will be payable on 25 August 2023 to all shareholders on the register on 28 July 2023. The corresponding ex-dividend date is 27 July 2023.

Foreign exchange

The Group reports its results in US Dollars as this is the principal currency in which it trades with customers, with approximately 91% (2021: 91%) of our revenues denominated in US Dollars.

The Group's reported results are impacted by US Dollar movements against currencies in the territories it operates, principally Pound Sterling, Euro and Taiwan Dollar. The average Pound Sterling to US Dollar exchange rate in 2022 was 1.24, a 10% appreciation against 2021 average of 1.38. The average Euro to US Dollar exchange rate in 2022 was 1.05, an 11% appreciation against the 2021 average of 1.18. The average Taiwan Dollar to US Dollar exchange rate in 2022 was 0.034, a 7% appreciation against the 2021 average of 0.036.

The appreciation of the US Dollar against currencies in the territories the Group operates resulted in a $2.7m favourable impact on adjusted operating expenses.

Alternative performance measures (APMs)

Throughout these financial statements, alternative performance measures (APMs) are used to describe the Group's performance. These are not recognised under UK-adopted international accounting standards or other generally accepted accounting principles (GAAP). When reviewing Quixant's performance, the Board and Management team focus on adjusted results in addition to statutory results.

APMs are non-GAAP measures and provide supplementary information to assist with the understanding of the Group's financial results and with evaluation of operating performance for the periods presented in these financial statements. APM's however, are not a measure of financial performance under IFRS and should not be considered a substitute for measures determined in accordance with IFRS. APMs have been provided for the following reasons:

1) to present users of these financial statements with a clear view of what we consider to be the results of our underlying operations, enabling consistent comparisons over time and making it easier for users of the report to identify trends;

2) to provide additional information to users of these financial statements about our financial performance or financial position; and

3) to show the performance measures that are linked to remuneration for the Executive Directors.

The following APMs appear in these financial statements.

	Reason for use	Reconciliation
Adjusted profit before tax	1,3	Note 1
Adjusted profit after tax	1,2	Note 1
Adjusted operating expenses	1,2	Note 1
Adjusted operating cash flow	1,2	Note 1
Adjusted diluted EPS	1,2	Note 5

Johan Olivier
Chief Financial Officer

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME

For the years ended 31 December 2022 and 2021

		2022	2021
		Total	Total
	Note	$000	$000
Revenue	3	119,873	87,128
Cost of sales		(81,319)	(61,224)
Gross profit		38,554	25,904
Operating expenses		(29,622)	(21,361)
Operating profit		8,932	4,543
Finance income		-	534
Finance expense		(131)	(157)
Profit before tax		8,801	4,920
Taxation	4	2,185	(1,356)
Profit for the year		10,986	3,564
Other comprehensive expense for the year, net of income tax
Items that are or may be reclassified subsequently to profit or loss: Foreign currency translation differences		(1,644)	(771)
Total comprehensive income for the year		9,342	2,793
Basic earnings per share	5	$0.1653	$ 0.0536
Diluted earnings per share	5	$0.1616	$ 0.0533

The Italian subsidiary, Quixant Italia srl, is 99% owned by the Group. The comprehensive income and equity attributable to the non-controlling interests in this subsidiary are not material.

The consolidated statement of profit and loss and other comprehensive income has been prepared on the basis that all operations are continuing operations.

CONSOLIDATED AND COMPANY BALANCE SHEETS

As at 31 December 2022 and 2021

		Group			Company
		2022 $000	2021 $000		2022 $000	2021 $000
Non-current assets
Property, plant and equipment		5,668	5,874		3,750	3,888
Intangible assets		15,533	16,027		652	949
Right-of-use assets		1,694	1,924		745	1,000
Investment property		-	-		-	-
Investments in group companies and associated undertakings		-	-		9,244	9,125
Deferred tax assets		2,636	116		2,389	238
Trade and other receivables		712	336		-	18,798
		26,243	24,277		16,780	33,998
Current assets		32,169			22,717
Inventories			29,085			20,725
Trade and other receivables		24,047	22,960		10,917	8,933
Cash and cash equivalents		13,508	18,347		9,042	6,604
		69,724	70,392		42,676	36,262
Total assets		95,967	94,669		59,456	70,260
Current liabilities		(90)			(90)
Loans and borrowings			(99)			(99)
Trade and other payables		(20,437)	(25,510)		(15,176)	(22,325)
Tax payable		(530)	(1,756)		(274)	(470)
Lease liabilities		(562)	(609)		(329)	(351)
		(21,619)	(27,974)		(15,869)	(23,245)
Non-current liabilities		(473)			(473)
Loans and borrowings			(621)			(621)
Provisions		(350)	(335)		-	-
Deferred tax liabilities		(40)	(302)		-	(118)
Lease liabilities		(1,271)	(1,360)		(441)	(668)
		(2,134)	(2,618)		(914)	(1,407)
Total liabilities		(23,753)	(30,592)		(16,783)	(24,652)
Net assets		72,214	64,077		42,673	45,608
Equity attributable to equity holders of the parent		106			106
Share capital			106			106
Share premium		6,708	6,708		6,708	6,708
Share-based payments reserve		895	212		895	212
Retained earnings		66,038	56,940		35,085	37,533
Translation reserve		(1,533)	111		(121)	1,049
Total equity		72,214	64,077		42,673	45,608

The Company's loss for the year was $0.6m (2021: loss of $3.7m).

These financial statements were approved and authorised for issue by the Board of Directors on 20 March 2023 and were signed on behalf of the Board by:

Jon Jayal

Chief Executive Officer

Company registered number: 04316977

CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEARS ENDED 31 DECEMBER 2022 and 2021

GROUP

	Share Capital	Share Premium	Translation Reserve	Share-Based Payments	Retained Earnings	Total Equity
	$000	$000	$000	$000	$000	$000
Balance at 1 January 2021	106	6,708	882	1,571	54,086	63,353
Total comprehensive income for the year
Profit for the year	-	-	-	-	3,564	3,564
Other comprehensive expense	-	-	(771)	-	-	(771)
Total comprehensive income/(expense) for the year	-	-	(771)	-	3,564	2,793
Transactions with owners, recorded directly in equity
Share-based payment credit	-	-	-	(221)	-	(221)
Reserve transfer1	-	-	-	(1,138)	1,138	-
Dividend paid	-	-	-	-	(1,848)	(1,848)
Total contributions by and distributions to owners	-	-	-	(1,359)	(710)	(2,069)
Balance at 31 December 2021	106	6,708	111	212	56,940	64,077

	Share Capital	Share Premium	Translation Reserve	Share-Based Payments	Retained Earnings	Total Equity
	$000	$000	$000	$000	$000	$000
Balance at 1 January 2022	106	6,708	111	212	56,940	64,077
Total comprehensive income for the year	-	-	-	-	10,986	10,986
Profit for the year
Other comprehensive expense	-	-	(1,644)	-	-	(1,644)
Total comprehensive income/(expense) for the year	-	-	(1,644)	-	10,986	9,342
Transactions with owners, recorded directly in equity	-	-	-	618	-	618
Share-based payment expense
Tax on share-based payment expense	-	-	-	65	-	65
Dividend paid	-	-	-	-	(1,888)	(1,888)
Total contributions by and distributions to owners	-	-	-	683	(1,888)	(1,205)
Balance at 31 December 2022	106	6,708	(1,533)	895	66,038	72,214

¹ Share-based payment charge is recognised against the share-based payment reserve over the vesting period based on the Group's estimate of equity instruments that will vest. In the prior year the Group revised the estimated vesting for share awards downwards based on expected achievement of performance conditions for previous financial periods, which should have been revised in previous periods. This resulted in a transfer of reserves to retained earnings.

COMPANY

	Share	Share	Translation	Share-Based	Retained	Total Parent
	Capital	Premium	Reserve	Payments	Earnings	Equity
	$000	$000	$000	$000	$000	$000
Balance at 1 January 2021	106	6,708	1,364	1,571	42,040	51,789
Total comprehensive loss for the year
Loss for the year	-	-	-	-	(3,663)	(3,663)
Other comprehensive expense	-	-	(315)	-	-	(315)
Total comprehensive expense for the year	-	-	(315)	-	(3,663)	(3,978)
Transactions with owners, recorded directly in equity
Share-based payment credit	-	-	-	(355)	-	(355)
Reserve transfer1	-	-	-	(1,004)	1,004	-
Dividend paid	-	-	-	-	(1,848)	(1,848)
Total contributions by and distributions to owners	-	-	-	(1,359)	(844)	(2,203)
Balance at 31 December 2021	106	6,708	1,049	212	37,533	45,608

	Share	Share	Translation	Share-Based	Retained	Total Parent
	Capital	Premium	Reserve	Payments	Earnings	Equity
	$000	$000	$000	$000	$000	$000
Balance at 1 January 2022	106	6,708	1,049	212	37,533	45,608
Total comprehensive loss for the year	-	-	-	-	(560)	(560)
Loss for the year
Other comprehensive expense	-	-	(1,170)	-	-	(1,170)
Total comprehensive expense for the year	-	-	(1,170)	-	(560)	(1,730)
Transactions with owners, recorded directly in equity	-	-	-	618	-	618
Share-based payment expense
Tax on share-based payment expense	-	-	-	65	-	65
Reserve transfer	-	-	-	-	-	-
Dividend paid	-	-	-	-	(1,888)	(1,888)
Total contributions by and distributions to owners	-	-	-	683	(1,888)	(1,205)
Balance at 31 December 2022	106	6,708	(121)	895	35,085	42,673

¹ Share-based payment charge is recognised against the share-based payment reserve over the vesting period based on the Group's estimate of equity instruments that will vest. In the prior year the Group revised the estimated vesting for share awards downwards based on expected achievement of performance conditions for previous financial periods, which should have been revised in previous periods. This resulted in a transfer of reserves to retained earnings.

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

FOR THE YEARS ENDED 31 DECEMBER 2022 and 2021

		Group					Company
		2022	2021		2022			2021
		$000	$000		$000			$000
Cash flows from operating activities		10,986			(560)
Profit/(Loss) for the year			3,564					(3,663)
Adjustments for:		2,652			687
Depreciation and amortisation			2,529					584
Loss on disposal of property, plant and equipment		5	-		4			-
Impairment losses on intangible assets		509	-		-			-
Loss on disposal of intangible assets		-	7		-			-
Depreciation of leased assets		660	701		413			433
Provision for doubtful debts		722	-		-			-
Movement in provisions		43	(15)		-			-
Taxation (credit) / charge		(2,185)	1,356		(1,776)			588
Finance income		-	(534)		-			-
Finance expense		131	157		86			43
Exchange rate gains		(403)	-		(371)			-
Share-based payment expenses/(credit)		618	(221)		499			(355)
Operating cash flows before movement in working capital		13,738	7,544		(1,018)			(2,370)
(Increase)/Decrease in trade and other receivables		(2,017)	(6,737)		16,940			3,944
Increase in inventories		(4,633)	(7,735)		(2,980)			(6,932)
(Decrease)/Increase in trade and other payables		(4,439)	11,982		(6,774)			11,001
		2,649	5,054		6,168			5,643
Interest paid		(42)	(63)		(41)			-
Lease liability interest paid		(89)	(94)		(45)			(40)
Tax paid		(1,716)	(492)		(648)			(83)
Net cash from operating activities		802	4,405		5,434			5,520
Cash flows from investing activities
Addition of development costs		(1,817)	(1,676)		-			-
Purchase of property, plant and equipment		(545)	(160)		(407)			(78)
Addition of externally purchased intangible assets		(418)	(330)		(108)			(61)
Proceeds from investments		-	-		-			258
Net cash (used in)/from investing activities		(2,780)	(2,166)		(515)			119
Cash flows from financing activities		(6,922)			(6,922)
Reduction/repayment of borrowings			(132)					(88)
Repayment of government loans		-	(476)		-			-
Proceeds from loans		6,842	415		6,842			-
Payment of lease liabilities		(546)	(666)		(405)			(188)
Dividends paid		(1,888)	(1,848)		(1,888)			(1,848)
Net cash used in financing activities		(2,514)	(2,707)		(2,373)			(2,124)
Net (decrease)/increase in cash and cash equivalents		(4,492)	(468)		2,546			3,515
Cash and cash equivalents at 1 January		18,347	18,804		6,604			3,080
Foreign exchange rate movements		(347)	11		(108)			9
Cash and cash equivalents at 31 December		13,508	18,347		9,042			6,604

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.  General information

The financial information set out above and below, does not constitute the company's statutory accounts for the years ended 31 December 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the registrar of Companies, and those for 2022 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of UK-adopted international accounting standards and as applied in accordance with the provisions of the Companies Act 2006, this announcement does not itself contain sufficient information to comply with UK-adopted international accounting standards. The Company expects to publish full Financial Statements that comply with UK-adopted international accounting standards during March 2023.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Quixant plc Annual Report and Accounts for the year ended 31 December 2022.

The Group's operational and financially robust position is supported by: 

-  A second year of double-digit growth in Gaming and Densitron revenues;

-  Resilient cash generation, despite investing in working capital to support growth and good liquidity position; and

-  Net cash position and good operational liquidity.

In undertaking a going concern review, the Directors have reviewed financial projections for a period of at least twelve months (the review period) and have additionally prepared projections through to 31 December 2024. Management prepared a base case scenario based on the approved budget for 2023 and forecasts for 2024. Management also prepared a severe but plausible downside scenario, using the following key assumptions:

-  A 25% reduction in 2023 and 2024 Gaming revenues to replicate the impact that a downturn similar to that experienced in 2019 would have on the Group's revenues; and

-  The Group remains committed to making last time buy purchases of key components and these purchases continue and are in addition to the regular supplier payments made in the normal course of business.

The impact of these assumptions is mitigated by:

-  Reduction in operating expenses to reflect reduction in bonuses, delay, or suspension of new headcount additions and other cost saving measures consistent with the actions management took in response to the COVID-19 pandemic in 2020;

-  No dividend paid in 2023 or 2024; and

-  Reduction of discretionary capital expenditure spend.

In this scenario, the Group continues to have sufficient cash reserves and working capital to continue operating as a going concern through the review period.

While the Directors' have no reason to believe that customer revenues and receipts will decline to the point that the Group no longer has sufficient resources to fund its operations, should this occur, the Group would look to take out additional funding facilities, as well as making further reductions in controllable costs. There would also be an opportunity to sell certain property and inventory assets to accelerate cash generation and/or mitigate risk.

Consequently, the Directors are confident that the Group and Company will have sufficient funds to continue to meet its liabilities as they fall due for at least 12 months from the date of approval of these financial statements and, therefore, have prepared these financial statements on a going concern basis.

Use of judgements and estimates

The preparation of financial information in conformity with UK-adopted international accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group accounting policies. The areas involving a higher degree of judgement and estimation relate to the recoverable amount of goodwill in the IDS CGU, valuation of Quixant CGU inventory and capitalisation of development costs. Estimates and underlying assumptions are reviewed on an annual basis. Revisions to estimates are recognised prospectively.

Significant estimates

Recoverability of goodwill and acquisition related intangibles in the IDS CGU

The estimated recoverable amount of the IDS CGU has been determined based on the higher of the value-in-use calculations and fair value less costs to sell. These calculations require the use of estimates and assumptions that are subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. Reasonably possible changes to the assumptions in the future may lead to material adjustments to the carrying value of the CGUs.

Inventory valuation in the Quixant CGU and parent company

Inventories, which comprise goods held for resale, are stated at the lower of cost and net realisable value, on a weighted average cost basis. The estimated recoverable amount of the inventory balance in the Quixant CGU and the Parent Company is subjective, due to the inherent uncertainty involved in forecasting of future sales. Provisions are made to write down any slow-moving or obsolete inventory to net realisable value.

As at 31 December 2022, the total inventory in the Quixant CGU is $26.0m (2021: $26.9m) and in the Parent company is $22.7m (2021: $20.7m). The provision against slow-moving and obsolete inventory for the Quixant Group as at 31 December 2022 is $2.1m (2021: $1.6m) and in the Parent company is $1.5m (2021: $1.0m). A difference of 0.2% in the provision as a percentage of gross inventory would give rise to a difference of +/- $0.1m in gross margin. The choice of a 0.2% change for the determination of sensitivity represents the change to the level of provisioning for the prior year.

Significant judgements

Capitalised development costs

The impact on the financial statements of a change in judgement with respect to the development cost criteria, such as the commercial viability of a product, could affect the value capitalised in respect of intangible assets and the corresponding profit and loss effect. If the criteria had not been met in the current year, the impact would have been to expense $1.8m (2021: $1.7m) of development costs.

Valuation of Aruze debtors and inventory

As a result of events subsequent to the balance sheet date, the consolidated statement of profit and loss includes a charge amounting to $0.9m relating to uncertainty of the recoverability of balances owed by Aruze Philippines Manufacturing Inc. ("APMI").  

The Quixant Group, through its Gaming division, has active contracts in place with Aruze Philippines Manufacturing Inc. ("APMI"), for the supply of display products and gaming boards. On 1 February 2023 Aruze Gaming America, Inc ("AGA"), a US based affiliate of APMI, filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the State of Nevada. In the filing AGA stated that this action was a part of AGA's efforts to seek financial restructuring in the wake of a recent garnishment judgment against AGA resulting from a separate judgment against AGA's shareholder.  Furthermore, AGA stated that it intended to continue operating normally and utilize Chapter 11 protections to provide for an orderly consideration of the relative rights of AGA's creditors, customers, and employees.

The Quixant Group did not have a direct relationship with AGA at 31 December 2022, or during the 2022 financial year. As AGA is the main customer of APMI the Chapter 11 filing has resulted in APMI having to delay payment of outstanding debts to Quixant until they have received payment from AGA and rework its business plans and production schedules. Due to the uncertainty caused by this Quixant management evaluated the carrying value of balances related to its relationship with APMI as at the balance sheet date as the bankruptcy of AGA is considered an adjusting post balance sheet event, as the circumstances leading to the bankruptcy petition existed at 31 December 2022.

Trade receivables at the balance sheet date included an amount of $0.7m owed by APMI. It is Quixant's intention to seek collection of all amounts and APMI has confirmed its intention to settle this amount, however the AGA Chapter 11 filing raised doubts over the Group's ability to recover the trade receivable. Management considered that due to the uncertainty inherent in an insolvency proceeding the debt owed by APMI at the balance sheet was fully impaired. An impairment loss of $0.7m was recorded within operating expenses.

Inventory, consisting of raw materials with a book value of $2.4m and finished goods with a book value of $1.1m was included in the Quixant Group's balance sheet as at 31 December and earmarked for use by APMI. Post year-end finished goods with a book value of $0.2m was shipped to APMI as part of Quixant's normal operations. Management has assessed the remaining $3.3m to determine alternative uses for the inventory. The inventory can be used to manufacture products that can be sold to the Group's existing or new customers or for use in the Group's turnkey cabinet offering. Management expects to fully recover the net book value of $3.3m and considers that no provision against it was required as at 31 December 2022.  Inventory that was shipped to APMI post balance sheet date has been provided for in full, as the recoverability of this amount is dependent on Quixant receiving cash payment, which is considered uncertain as noted above.

The Group balance sheet also included capitalised development cost with a book value of $0.4m related to the development of products for APMI's future use. Once development is completed, the product can be sold to the Group's existing or new customers if APMI is unable to purchase these products. Based on their assessment of the future use of the product management expects to recover the book value of the capitalised development in full and no impairment was required at the balance sheet date.

The total charge to the consolidated statement of profit and loss amounts to $0.9m, with $0.7m charged to operating expenses and $0.2m charged to cost of sales.

Reconciliation of adjusted performance measures

The Group uses certain alternative performance measures to evaluate performance and as a method to provide Shareholders with clear and consistent reporting. The Directors consider that these represent a more consistent measure of performance by removing items of income or expense which are considered significant by virtue of their size, nature or incidence or which have a distortive effect on current year earnings and are relevant to an understanding of the Group's financial performance. These measures include Adjusted Profit before tax, Adjusted Profit after tax, Adjusted Operating expenses and Adjusted Operating cash flow. See below for analysis of the adjusting items in reaching adjusted performance measures.

Adjusted Profit before tax

	2022	2021
	$000	$000
Profit before tax	8,801	4,920
Adjustments:
Amortisation of customer relationships, technology and order backlog1	751	920
Share-based payments expense/(credit)2	618	(221)
Restructuring credit3	-	(190)
Adjusted Profit before tax	10,170	5,429

1.  The amortisation of customer relationships, technology and order backlog has been excluded as it is not a cash expense to the Group.

2.  Share-based payments expense/(credit) has been excluded as it is not a cash-based expense or credit. The credit is related to the reversal of the options charge for the grants in prior periods, triggered mainly by forfeiture of performance conditions and exercise of options in the past.

3.  Restructuring credit - This related to the reversal of provision, set aside in the past, which settled in the prior period for lower than the estimated provision.

Adjusted Profit after tax

	2022	2021
	$000	$000
Profit after tax	10,986	3,564
Adjustments:
Amortisation of customer relationships, technology and order backlog1	751	920
Share-based payments expense/(credit)2	618	(221)
Restructuring credit3	-	(190)
Non-recurring tax benefits4	(260)	(97)
Adjusted Profit after tax	12,095	3,976

4.  Tax on adjusted items relating to amortisation of customer relationships, technology and order backlog of $0.8m (2021: $0.9m), share based payment expense of $0.6m (2021: credit of $0.2m), restructuring credit of $Nil (2021: $0.2m).

Adjusted Operating expenses

	2022	2021
	$000	$000
Operating expenses	(29,622)	(21,361)
Adjustments:
Amortisation of customer relationships, technology and order backlog1	751	920
Share-based payments expense/(credit)2	618	(221)
Restructuring credit3	-	(190)
Adjusted Operating expenses	(28,253)	(20,852)

Adjusted Operating cash flow

	2022	2021
	$000	$000
Net cash from operating activities	802	4,398
Add back:
Tax paid	1,716	492
Adjusted Operating cash flow	2,518	4,890
Adjusted Operating Cash conversion % (Adjusted operating cash flow/Adjusted profit before tax)	25%	90%

2. Business and geographical segments

The Chief Operating Decision Maker (CODM) in the organisation is an executive management committee comprising the Board of Directors. The segmental information is presented in a consistent format with management information. The Group assesses the performance of the segments based on a measure of revenue and operating profit. The segmental split of the balance sheet is not reviewed by the CODM and they do not look at assets/liabilities of each division separately but combined as a group. Therefore, this split for assets has not been included.

The operating segments applicable to the Group are as follows:

· Gaming - Design, development and manufacturing of gaming platforms and display solutions for the casino gaming and slot machine industry.

· Densitron - Sale of electronic display products to global industrial markets. IDS is included in the Densitron reporting segment, due to the nature of IDS business, the products that are sold and the market that the business operates in are all consistent with that segment.

Reconciliation of segment results to profit after tax:

	2022	2021
	$000	$000
Gaming	17,348	9,807
Densitron	5,165	4,597
Segment results	22,513	14,404
Corporate cost	(13,581)	(9,861)
Operating profit	8,932	4,543
Net finance (expense) / income	(131)	377
Profit before tax	8,801	4,920
Taxation	2,185	(1,356)
Profit after tax	10,986	3,564

		Year to 31 December 2022						Year to 31 December 2021
		$000		$000		$000		$000		$000		$000
		Gaming		Densitron		Total		Gaming		Densitron		Total
Other information
Depreciation of owned assets		92		5		97		97		4		101
Amortisation of intangible assets		804		291		1,095		670		213		883
		896		296		1,192		767		217		984

3.  Analysis of turnover

		2022		2022		2022		2021		2021		2021
		$000		$000		$000		$000		$000		$000
		Gaming		Densitron1		Total		Gaming		Densitron		Total
By primary geographical market
Asia		3,306		10,353		13,659		1,822		8,264		10,086
Australia		4,958		66		5,024		4,597		47		4,644
UK		4,373		3,474		7,847		2,021		2,443		4,464
Europe excl. UK		12,483		13,067		25,550		7,865		13,722		21,587
North America		48,123		16,162		64,285		30,595		13,540		44,135
Rest of World		839		2,669		3,508		399		1,813		2,212
		74,082		45,791		119,873		47,299		39,829		87,128

_{1 2022 Densitron Revenue from products splits into Densitron $44.7m (2021: $39.0m) and IDS $1.1m (2021: $0.8m). IDS revenue included revenue of $0.5m (2021: $0.3m) recognised throughout the performance period.}

The above analysis includes sales to individual countries in excess of 10% of total turnover of:

	2022	2021
	$000	$000
USA	61,019	42,136

Revenues of $40.4m (2021: $15.4m) are derived from two customers (2021: one customer) who individually accounted for more than 10% of Group revenues in 2022. These revenues are attributable to the Gaming segment.

4.  Taxation

Recognised in the profit and loss account

	2022	2021
	$000	$000
Current tax expense	-
UK corporation tax		-
Foreign tax	1,483	2,057
Adjustments for prior years	(934)	(832)
Current tax expense	549	1,225
Deferred tax	(2,262)
Origination and reversal of temporary differences		(303)
Adjustments for prior years	(599)	-
Change in deferred tax rate to 25%	127	434
Deferred tax	(2,734)	131
Total tax (credit)/expense in the income statement	(2,185)	1,356

Reconciliation of effective tax rate 

	2022	2021
	$000	$000
Profit for the year	10,986	3,564
Total taxation (credit)/expense	(2,185)	1,356
Profit excluding taxation	8,801	4,920
Tax using the UK corporation tax rate of 19% (2021: 19%)	1,672	935
Non-deductible expenses	246	46
Fixed asset differences	7	-
Enhanced research and development relief	(399)	(363)
Patent box tax relief	(897)	(382)
Foreign tax expensed	392	-
Change in deferred tax rate to 25%	(64)	433
Effect of tax rates in foreign jurisdictions	273	501
Exercise of share options	-	6
Recognition of previously unrecognised tax losses1	(1,815)	-
Unrecognised deferred tax on losses	-	1,009
Deferred tax credited directly to equity	65	-
Change to estimates related to prior years2,3	(1,533)	(832)
Other	(132)	3
Total taxation (credit)/expense in statement of profit and loss	(2,185)	1,356

1  In 2022, management recognised the tax effect of $9.6m of previously unrecognised tax losses in Quixant plc and Quixant UK Limited because management considered it probable that future taxable profits would be available against which such losses can be utilised. The availability of future taxable profits was based on the Group's budget for 2023 and forecasts for 2024 and 2025. These forecasts reflect the continued improvement in trading conditions in 2021 and 2022 which has led to an increase in future profitability within the UK.

2  The 2020 tax provision included a reversal of enhanced research and development relief due to uncertainty over whether the relief would be granted. In 2021 the Group completed the necessary actions to ensure relief may be claimed and filed a tax return on that basis, leading to the adjustment to the 2021 tax provision.

3  The 2022 tax provision includes an adjustment for enhanced research and development relief relating to 2020 and movement on the final deferred tax balances included within tax returns submitted during 2022.

Aggregate deferred tax asset arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly ( credited) or debited to equity:

	2022	2021
	$000	$000
Deferred tax asset - share-based payments	(65)	-
Total	(65)	-

Factors that may affect future tax charges

An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021. This will increase the company's future current tax charge accordingly. The deferred tax asset at 31 December 2022 (2021: Liability) has been calculated based on these rates, reflecting the expected timing of reversal of the related temporary differences.

5.  Earnings per ordinary share (EPS)

	2022	2021
	$000	$000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit attributable to equity shareholders	10,986	3,564

Number of shares	Number	Number
Weighted average number of ordinary shares for the purpose of basic EPS	66,450,060	66,450,060
Effect of dilutive potential ordinary shares:	1,531,052
Share options		425,500
Weighted number of ordinary shares for the purpose of diluted EPS	67,981,112	66,875,560
Basic earnings per share	$0.1653	$0.0536
Diluted earnings per share	$0.1616	$0.0533

Calculation of adjusted diluted earnings per share:	$000	$000
Earnings
Earnings for the purposes of basic and diluted EPS being net profit attributable to equity shareholders	10,986	3,564
Adjustments
Amortisation of customer relationships, technology and order backlog	751	920
Share-based payments (credit)/expense	618	(222)
Restructuring credit	-	(189)
	12,355	4,073
Tax effect of adjustments	(260)	(97)
Adjusted earnings	12,095	3,976
Adjusted diluted earnings per share	$0.1779	$0.05950

6.  Post balance sheet event

As a result of events subsequent to the balance sheet date, the consolidated statement of profit and loss includes a charge amounting to $0.9m relating to uncertainty of the recoverability of balances owed by a customer.  Further details are set out in Note 1 to these consolidated financial statements.

 

END

 

 

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