FST.L Regulatory News (FST)

29 September 2015

Toumaz Limited

Half year results

Toumaz Limited (AIM: TMZ, 'Toumaz', or the 'Group'), a pioneer in low-power, wireless semiconductor technologies for digital audio and healthcare, has published its results for the six months ended 30 June 2015. 

Financial highlights

· Revenues up 30% at £14.0m (H1 2014: £10.8m)

· Gross profit up 40% to £6.3m (H1 2014: £4.5m)

· EBITDA loss at £5.5m (H1 2014: loss £5.6m)

· R&D expenditure: £6.2m (H1 2014: £5.1m)

· As at 30 June 2015, the cash balance was £5.5m

Frontier Silicon - Digital Audio

Digital Audio revenues increased by 34% to £13.8m (H1 2014: £10.3m), since April, the business has been EBITDA positive. The Board expects a strong performance in the second half of 2015, with record shipments in August.

The Group has a leading global position in the DAB market and gross margins which reflect this. The connected audio business is growing rapidly from a small base, driven in particular by global demand for streaming services, such as Spotify and Apple Music.

The prospects for 2016 are good. In June Toumaz signed an agreement to include Google Cast technology in its next generation connected audio solution, due to ship in mid-2016.

This business unit is expected to be cash generative and EBITDA positive in 2016.

Sensium Healthcare - Patient Monitoring

The Group now has a system that demonstrably works having resolved all the technical issues from its initial trials in 2014. This enhanced version of SensiumVitals® is now deployed into NHS hospitals as well as internationally. Although the system is well received as an improvement in patient care, it is taking longer than expected for the economic case to be made conclusively, i.e. that the costs of installing the system and its operation are outweighed by the benefits of earlier intervention in the treatment of deteriorating patient health.

The Board is now conducting a detailed review of the business model adopted to date, using internal resources and external advisers. This will establish in the near future the optimum way for Toumaz to secure value from the intellectual property behind the SensiumVitals® system.

Financing

At the end of June 2015, the Group had £5.5m in cash. Cash burn is seasonally significantly higher in the first half of the year than the second half. The Board has implemented an overhead reduction plan and R&D spend has peaked.

The Group expects to be able to fund its operations to the point of cash generation, without recourse to a further equity raise as a result of the review into the Sensium Healthcare business, the continued good performance in Digital Audio and the prospective availability of a modest debt facility.

Anthony Sethill, CEO of Toumaz, commented:

"Our Digital Audio business - Frontier Silicon - is performing well. The development of the Sensium Healthcare business is slower than envisaged.

"Accordingly, the Board is reviewing its options to best exploit the SensiumVitals® system and its IP.

"We expect to be cash generative from the middle of 2016. We are fully focussed on optimising shareholder value."

Enquiries:

About Toumaz (www.toumaz.com)

Toumaz Limited is a pioneer in low-power, wireless semiconductor and software technologies for digital audio and healthcare. The company has two divisions, Frontier silicon and Sensium Healthcare. Frontier Silicon provides chips, modules and software for digital radio and connected audio devices. Sensium Healthcare develops wireless solutions for patient monitoring.

Overview

The Group's results have been largely driven by a strong performance in Digital Audio. Group revenues were up 30% at £14.0m (H1 2014: £10.8m), with a 34% increase in Digital Audio revenues at £13.8m (H1 2014: £10.3m).

Gross profit improved 40% to £6.3m (H1 2014: £4.5m) while Group EBITDA loss remained flat at £5.5m (H1 2014: loss £5.6m).

Digital Audio has benefitted from strong growth in digital radio and connected audio. In both lines of business, the Group has secured significant design wins which augur well for the rest of this year and 2016. In June, the Group announced that its next generation connected audio solution would support Google's Cast technology.

R&D expenditure on Digital Audio has now peaked and is expected to reduce in the second half of 2015 and into 2016. In March, the Group completed development of its 4th generation digital radio chip. In connected audio, the Group has decided no longer to develop its own silicon chip and instead will base its next generation solution on 3rd party silicon.

This new approach delivers significant savings on R&D cash expenditure and also fits well with Google's preferred way of working. Following this decision, the Group is making a non-cash impairment of £3.0m of capitalised licensed IP costs for assets that no longer have value to the company.

As a discrete business unit, Digital Audio has been EBITDA positive since April. Looking forward, the business is expected to deliver robust profits and cash generation in a rapidly expanding market.

The Healthcare business is focused on securing trials in major hospitals in key territories in order to deliver data which demonstrate the benefits of the system and which can be published in peer-reviewed journals. The business is making solid progress in securing these reference sites and is currently undertaking trials in two major NHS teaching hospitals - Queen Elizabeth Hospital Birmingham and St James's University Hospital Leeds. The intention is to publish results from these trials in order to accelerate commercial deployments in 2016.

In light of the slower than expected commercial uptake, the Group has scaled back its product development plans and has reduced its Healthcare R&D budget.

The Board is also conducting a detailed review of the business model adopted to date, using internal resources and external advisers. This will establish the optimum way for Toumaz to secure value from the intellectual property behind the SensiumVitals system.

Current trading and outlook

Group full year revenues for 2015 are expected to be lower than originally forecast, primarily due to slow progress in Healthcare.

The Group is expecting Digital Audio to show double digit revenue growth and product margins after record shipments in August, in line with Board expectations. With careful cash management, EBITDA losses for the full year 2015 should be reduced from those reported in 2014.

The prospects for the Digital Audio business in 2016 are good. The agreement to include Google Cast technology in its next generation connected audio solution is due to ship in mid-2016. This business is expected in 2016 to be cash generative and profitable at the EBITDA level.

At the end of June 2015, the Group had £5.5m in cash and is expected to be cash generative from H2 2016.

Frontier Silicon - Digital Audio

Frontier Silicon, the Group's digital audio division, has performed strongly in the first half of 2015. In digital radio, the business retains its strong leadership position in a market delivering positive growth. The introduction of the Group's 4th generation digital radio chip enables the business to maintain product margins at healthy levels.

The Group is using its expertise in radio and internet technologies as a platform from which to expand its position in the rapidly emerging connected audio sector. In June, the Group announced it was working with Google on a next generation solution, due for release in mid-2016.

Digital Radio

In digital radio, revenues in the first half of 2015 were up 17% to £8.7m (H1 2014: £7.4m).

The Group has maintained its strong market leadership position - with sales boosted by the continuing international adoption of DAB, especially in Germany, Netherlands and Norway. In April, Norway became the first country in the world to set a firm date for the switch from analogue to digital (2017) - and Switzerland is expected to follow in 2020-24.

The Group completed the development of its 4th generation digital radio chip ("Kino 4") in March; and has made its first shipments to customers. Volumes are growing quickly and products incorporating the new chip, from brands including Sony, Yamaha and Denon, will be on retail shelves in Q4 this year.

At the IFA consumer electronics show in Berlin in September, the Group launched a new solution, based on Kino 4, which will enable manufacturers more easily to develop DAB digital radios with colour screens - significantly reducing the costs (and increasing expected volumes) for this product category. These devices will be shipping in the first half of 2016.

Connected Audio

The connected audio business saw an 80% jump in revenues to £5.1m (£2.8m in H1 2014) - driven by market growth and a strong competitive performance of the Group's existing connected audio solution. The Group is seeing the benefits of its relationship with Spotify and its investment in additional functionality, such as hybrid radio (combining DAB and IP in a single device), multi-room technologies and new smartphone apps.

In June, the Group announced it was one of a small number of solution providers to be selected to incorporate Google's Cast technology within its next generation connected audio platform. This new solution is expected to ship in mid-2016 (later than previously anticipated following the inclusion of the Google technology and associated changes to product design).

R&D Expenditure

The development costs associated with the completion in March of the 4th generation digital radio chip and the ongoing investment in connected audio development contributed to a higher R&D spend in H1 2015. With the business no longer developing its own connected audio silicon, and Kino 4 completed, R&D expenditure will be reduced from H2 2015.

Sensium Healthcare

Q1 saw two significant developments for the Healthcare business. In February, the Group regained the North American distribution rights for SensiumVitals®; and in March, following field trials in 2014, a programme to improve the robustness and usability of the system was completed.

Both of these developments are essential building blocks required to secure the long term commercial value of the system. The first small scale trial of the new enhanced system began in Q2 at Clinimark, an FDA-approved facility for the clinical testing of medical devices.

The business is concentrating on securing trials with major academic hospitals with a view to publishing clinical and healthcare economic results in peer-reviewed journals. These results should provide the necessary evidence to encourage those hospitals to roll-out the system more broadly and allow them to act as reference sites for other potential accounts. The Group's key territories are the UK, France, Germany and North America.

Since March, five new trials have started using the new enhanced system. These trials include two high profile NHS hospitals: Queen Elizabeth Hospital, Birmingham and St James's University Hospital, Leeds - both of which will be undertaking studies to ascertain the impact of the system.

The division has reduced expenditure on product development - focusing only on incremental enhancements which will facilitate earlier adoption of the system.

Financial Review 

Group H1 revenues were up 30% to £14.0m (2014 £10.8m) with gross margin up 40% to £6.3m (2014: £4.5m). The growth in Group revenue follows a similar growth in the first half of 2014 of 32%. Frontier Silicon (Digital Audio) revenues grew by 34% to £13.8m from £10.3m in the first half of 2015.

Digital radio revenue growth (17% year on year) was primarily due to growth in the German, Dutch and Scandinavian markets, Norway having announced definitive dates for a switch off of the analogue signal in 2017.

Connected audio revenues increased by 80% to £5.1m (H1 2014: £2.8m) primarily due to the uptake of the Group's solutions for Spotify Connect and Internet Radio.

Healthcare revenues of £0.2m (H1 2014: £0.5m) included revenues from the North American distributor which, following the termination of that agreement in early 2015, will not recur. Revenues in 2015 derive from sales of SensiumVitals® patches and bridges together with grant income.

Overall gross margins are 44.8% (2013: 42.1%), and gross profit has increased by £1.7m.

EBITDA loss can be calculated as:

Research and development costs are expensed where possible and mainly reflect the final spend on bringing the fourth generation digital radio solution to market (which now shipping in quantity), and the development of the next generation connected audio solutions.

The Board believes that the research and development expenditure of the Group has peaked and will reduce in absolute terms from that seen to date

Sales and admin expenses have increased due to the planned growth in SensiumVitals® sales and marketing and sales support personnel numbers.

EBITDA has remained broadly unchanged. 

Other non-trading costs included in the full profit and loss account primarily comprise the non-cash employee share based payments and amortisation and depreciation.

The Board took the decision in Q2 2015 to end its development of its own silicon platform and to use commercially available silicon to support its immediate next generation connected audio solutions. This decision has resulted in an impairment of the carrying value of intangible assets - in this case, certain of the licensed IP purchased by the Group to enable it to design and build the silicon wafers.

In developing its own silicon, the Group had sub-contracted with Imagination Technologies plc for certain of the elements of design. An agreement was signed in August 2015 whereby Imagination Technologies was granted rights to certain of these licences to allow them to continue development of the chip. When Imagination Technologies brings the solution to market, the Group will receive a volume based royalty.

The impairment charge booked reflects the Board's estimate of the assets affected offset by the fair value of the future royalty revenue streams. Accordingly, a non-cash impairment charge of £3.0m has been taken. This charge falls below EBITDA. 

Group pre-tax loss was £10.7m (2014: loss £7.5m) with a loss per share of 0.61p (2014: loss 0.46p). The increase in loss is largely attributable to the impairment charge.

Cash and cash equivalents at 30 June 2015 were £5.5m (31 Dec 2014: £12.5m) and the balance at 31 August 2015 was £4.6m. Historically, the Group has a cyclical business whereby cash is consumed primarily in the first half of the year with the second half showing only a modest decline. The Board expects that trend to continue in 2015. The Group is in advanced discussions to complete a modest debt facility which will give it greater resilience on its cash position.

Unaudited Interim Results for the six month period ended 30 June 2015

Statement of Comprehensive Incomefor the period ended 30 June 2015

Consolidated Statement of Financial Positionat 30 June 2015

Consolidated Statement of Changes in Equityfor the period ended 30 June 2015 

Consolidated Cash Flow Statement

For the period ended 30 June 2015

Notes to the Interim Report

For the period ended 30 June 2015

1. Nature of operations and general information

Toumaz Limited and subsidiaries' ('the Group') principal activity is that of commercial exploitation of wireless technologies with commercial propositions for the digital audio and healthcare sectors.

Toumaz Limited is the Group's ultimate parent company. It is incorporated in the Cayman Islands. The address of Toumaz Limited's registered office is Elgin House, 119 Elgin Avenue, George Town, Grand Cayman, Cayman Islands. Toumaz Limited's shares are listed on the Alternative Investment Market of the London Stock Exchange.

Toumaz Limited's consolidated interim financial statements are presented in Pounds Sterling (£), which is also the functional currency of the parent company.

The financial information set out in this interim report does not constitute statutory accounts. The Group's statutory financial statements for the year ended 31 December 2014 are available from the Group's website. The auditor's report on those financial statements was unqualified.

2. Accounting Policies

Basis of Preparation

These interim condensed consolidated financial statements are for the six months ended 30 June 2015. They have been prepared following the recognition and measurement principles of IFRS. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2014.

These financial statements have been prepared on the going concern basis and under the historical cost convention. The Group reported cash on the balance sheet at 30 June 2015 of £5.5m and the Board believes that when the underlying performance and recent initiatives are taken into account (as set out below), that the going concern basis of preparation is appropriate.

· the seasonal nature of the Group's cash burn

· research and development spend has peaked

· overhead spend has been restricted

· the outcome of the review into the healthcare business

· the strong trading performance of Frontier Silicon

· the realistic prospect of a debt facility

These condensed consolidated interim financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2014.

The accounting policies have been applied consistently throughout the Group for the purposes of preparation of these condensed consolidated interim financial statements.

3. Revenue by sector

4. Loss per share

The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the period. The impact of the share options and share warrant on the loss per share is anti-dilutive.

5. Goodwill

Toumaz Healthcare

Goodwill relating to Toumaz Healthcare results from the acquisition of Toumaz Healthcare Limited (formerly Toumaz UK Limited ) on 3 November 2005.

Toumaz Microsystems

Goodwill relating to Toumaz Microsystems results from the acquisition of Future Waves UK Limited and Toumaz Asia on 20 May 2009.

Frontier Silicon

Goodwill relating to Frontier Silicon results from the acquisition of Frontier Silicon Ltd on 20 August 2012.

6. Other intangible assets

Intellectual property

Intellectual property relates to the valuation of beneficial licence agreements, trade names and customer relationships in Sensium Healthcare and Frontier Silicon at the date of their original acquisition.

Licence & development fees

The licences relate to technology on new projects essential to the future development of the new generation digital chips. The licences will be amortised in accordance with the Group accounting policy and will be subject to an annual impairment review.

Impairment

In the period to 30 June 2015 the Company resolved to cease designing its own silicon for its next generation connected audio solution and to use third party silicon. Subsequently, in August 2015, a termination agreement was signed with Imagination Technologies who had been designing the chip on the company's behalf.

At the time the decision was taken to cease development of its own silicon, the company was carrying £4.5m of licensed IP on its balance sheet in respect of third party licences purchased to enable the chip development. The Board has reviewed these licences for impairment and considers that they are no longer required for the on-going development of the company's other products. Included in the termination agreement with Imagination Technologies, who will continue to develop the solution, are provisions for royalty income to the company on future sales of Imagination products. The Board believes that a fair value of the expected future royalty streams is £1.5m. Consequently in the first half of 2015, the Company has recognised an impairment of £3.0m against the carrying value of the licensed IP. In the second half year the remaining licensed IP will be de-recognised and the Company will recognise a contingent receivable in respect of pending royalty income from Imagination Technologies.

Marketing

Marketing-related intangible assets are defined as those assets that are primarily used in the marketing or promotion of products and services. The Frontier solutions are well known and preferred by a majority of the consumer electronic brands who specifically instruct their manufacturers to use Frontier modules and solutions in their audio systems.

Customer relationships

Customer-related intangible assets may consist of customer lists, order or production backlogs, customer contracts and relationships, and non-contractual customer relationships. Frontier has developed relationships with both consumer electronic brands and manufacturers. The customer relationship valuation captures the economic benefits of having these trading relationships.

7. Trade and other receivables

Trade and other receivables are usually due within 30 - 60 days and do not bear any effective interest rate.

The fair value of these short term financial assets is not individually determined as the carrying amount is a reasonable approximation of fair value.

8. Trade and other payables

The fair value of trade and other payables has not been disclosed as, due to their short duration, management considers the carrying amounts recognised in the balance sheet to be a reasonable approximation of their fair value.

9. Share capital

All shares are equally eligible to receive dividends and the repayment of capital and represent equal votes at meetings of shareholders with the exception of 105,300,174 shares held jointly by the Employee Benefit Trust and participants for the purpose of the Company's joint share ownership plan in relation to which all voting rights have been waived.

Allotments

30 January 2015, 24,865,103 ordinary shares of 0.25p were issued ("JSOP Shares") pursuant to the implementation by the Company of the joint share ownership schedule to the LTIP ("JSOP").

22 April 2015, 194,444 ordinary shares 0f 0.25p were issued in relation to the exercise of share options by employees.