FST.L Regulatory News (FST)

Toumaz Limited

('Toumaz', or the 'Group' or 'the Company')

Interim Results

'A period of transition'

Toumaz Limited (AIM: TMZ), a pioneer in technologies for Digital Radio and Smart Audio devices, publishes its results for the six months ended 30 June 2016.

Key Points

· Healthcare division sold in July 2016 for £1.3 million plus ten-year royalty agreement - eliminating associated cash losses

· Continuing operations moving towards break-even; expected to be EBITDA and trading cash flow positive in H2 2016

Proposal to change name of Toumaz Limited to Frontier Smart Technologies Group Limited

· Key financials for the continuing business:

o Revenues steady at £13.7 million (H1 2015: £13.8 million)

o R&D expenditure reduced to £2.8 million (H1 2015: £4.7 million) - no further silicon development planned in foreseeable future

o EBITDA loss improved to £0.04million (H1 2015: loss of £2.2 million)

o Cash attributable to continuing business at 30 June 2016 of £3.8 million (31 December 2015: £7.7 million)

Anthony Sethill, CEO of Toumaz, commented:  "Having sold Healthcare and eliminated the associated losses and cash burn, we have created a solid platform for profitable growth. The Group is now fully focused on Digital Audio, where our established leadership in Digital Radio provides a platform from which to develop our position in Smart Audio."

Enquiries:

About Toumaz

The Toumaz Group is a pioneer in software and hardware technologies for Digital Audio devices.

Having sold its Healthcare division in July 2016, the Group now has one operating division, Frontier Silicon, which provides solutions for Digital Radio and Smart Audio devices. 

Frontier was founded in 2002. Customers include many leading consumer audio brands: Bose, Bowers & Wilkins, Denon, Grundig, harman/kardon (JBL), Onkyo, Panasonic, Philips, Pioneer, Pure, Roberts, Sony, TechniSat, Yamaha, and many more.

The company is headquartered in London, with engineering, sales and operations teams in Cambridge, Timisoara (Romania), Hong Kong, and Shenzhen.

www.toumaz.com

Introduction

The first half of 2016 was a period of transition for Toumaz, culminating shortly after the period-end with the sale of the Group's Healthcare division, Sensium Healthcare. The disposal followed a strategic review announced by the Board in September 2015 and eliminates the cash losses associated with the Healthcare business. The Group is now focused entirely on its Digital Audio division, Frontier Silicon ('Frontier'), where the key development priority has been the completion of Minuet, its next generation Smart Audio platform incorporating Google Cast for Audio. This programme is in mass production - with first shipments due in Q4 2016.

Looking ahead, the Group expects to be EBITDA positive in the second half of 2016. As a result, despite the considerable changes undertaken in the year, the Board expects the Group to be close to break-even on a continuing basis for the current financial year as a whole.

In view of these changes, Toumaz is today also announcing separately a proposal to change its name to Frontier Smart Technologies Group Limited, together with a 40 for 1 share consolidation, subject to shareholder approval at a General Meeting to be held on 1 November 2016.

Overview of H1 performance

Given the disposal of the Healthcare division, Toumaz is reporting H1 results on both a combined and continuing operations basis. Excluding Healthcare, Group revenues held broadly steady at £13.7 million (H1 2015: £13.8 million). Growth in Digital Radio revenues were offset by a fall in Smart Audio revenues - the latter reflecting a comparison against H1 2015 which included one-off project related revenues of £0.5 million and the process of transitioning to the Group's next generation Smart Audio platform, Minuet. Combined revenues including Healthcare were £13.7 million (H1 2015: £14.0 million).

The Group benefitted from changes in exchange rates as Frontier's revenues are predominantly in US dollars. In constant exchange rates, Group revenues, excluding Healthcare, were down 6% year on year.

At an operational level, Frontier's priorities in H1 2016 were: the commercialisation of the Group's existing solutions in Digital Radio and Smart Audio; and the completion of Minuet, which allows smart audio devices, such as wireless speakers, to incorporate Google's new Cast for Audio technology.

In Digital Radio, the Group has maintained its market leadership position. The Group's Digital Radio revenues increased 7% to £9.3 million (H1 2015: £8.7 million), driven by increased volumes (up 11% from 1.8 million to 2.0 million units). Volume growth is due to the expansion of DAB digital radio in continental Europe, especially in Germany and the Netherlands (launched respectively in 2011 and 2013). Average prices fell slightly, reflecting a gradual shift to newer, lower cost solutions. Growth is expected to slow in H2, but full year revenues for Digital Radio are expected to be marginally up on 2015.

The 14% decline in Frontier's Smart Audio revenues to £4.4 million in H1 2016 (H1 2015: £5.1 million) was mainly due to the non-recurrence of one-off project fees of £0.5 million in H1 2015. There was also a reduction in volumes (down 7% from c.350,000 to 330,000), which was partially offset by a slight increase in average selling prices (up 3%). The decline in volumes was due to customers awaiting the arrival of Minuet, the Group's new Cast-enabled solution.

The Minuet development programme is now in mass production - slightly later than originally anticipated - and is expected to ship in Q4 2016. 

In September 2016, the Group announced its first design win for Minuet with Harman, the world's largest manufacturer of speakers, for its new Google Cast-enabled wireless speaker, the JBL Playlist. First revenues for this product are expected in Q4 2016.

Frontier's R&D expenditure in H1 2016 was £2.8 million - down 40% (H1 2015: £4.7m). With the completion of silicon development in 2015, the majority of Frontier's R&D is now software development for the Smart Audio market, with teams based in Cambridge and Romania. Where appropriate, it also licenses technologies from third parties. Frontier is not planning any new silicon developments.

Combined Group EBITDA improved to a loss of £5.0 million in H1 2016 (H1 2015: loss of £5.5 million), with the majority of these losses incurred by the Healthcare business. Excluding Healthcare, the loss improved to £0.04 million in H1 2016 (H1 2015: £2.2 million).

At the end of June 2016, the Group had £3.8 million in cash. The Group is expected to be EBITDA positive in the second half of 2016.

Disposal of the Healthcare division

The Board announced a strategic review of the loss-making Healthcare business, Sensium, in September 2015. Advisers were appointed and, having considered a full range of options, it was clear that significant investment would be required to see the business through to break-even. The Board therefore decided that a sale of Sensium was the most effective means of delivering shareholder value.

Proceeds from the sale (£1.0 million on completion and a further £0.3 million on 31 December 2016) will be used to fund working capital requirements. In addition, the Group will benefit from a 10 year royalty stream (3% of net revenues for five years, followed by 2% of net revenues for the following five years). If the new owner, The Surgical Company, sells the business within the next four years, Toumaz will receive 19% of the net proceeds.

Proposed Change of Name and Share Consolidation

Change of Name

In order to reflect the Group's change in focus to a pure play Digital Radio and Smart Audio technology company, it proposes to change its name from Toumaz Limited to Frontier Smart Technologies Group Limited with effect from 2 November 2016. The London Stock Exchange TIDM (ticker) for the Ordinary Shares will be changed from "TMZ.L" to "FST.L", which will also take effect from 08:00 A.M. on 2 November 2016.

Proposed Share Consolidation

The Board believes that a consolidation of the Company's share capital ("the Share Consolidation") will result in a more appropriate number of shares in issue for a company of Toumaz's size and may also help to make the New Ordinary Shares more attractive to investors going forward.

As at 30 June 2016, the Company had 1,709,830,865 existing ordinary shares of £0.0025 each ("Existing Ordinary Shares") in issue. With shares of low denominations, small absolute movements in the share price can represent large percentage movements resulting in high volatility. The Share Consolidation is expected to assist in reducing the aforementioned volatility in the Company's share price and enable a more consistent valuation of the Company. The Board also believes that the bid/offer spread on shares priced at low absolute levels can be disproportionate to the share price and therefore to the detriment of shareholders.

The Directors therefore propose that every 40 Existing Ordinary Shares be consolidated into one new ordinary share with a nominal value of 10p (currently, 0.25p).

Other than a change in nominal value, the New Ordinary Shares will carry equivalent rights under the Articles of Association to the Existing Ordinary Shares.

Further details of the proposed share consolidation will be provided to shareholders in the Notice of General Meeting.

Growth opportunity

The Board believes that growth opportunities exist in both the Digital Radio and Smart Audio markets and the introduction of voice recognition as a feature for Smart Audio and Smart Home devices could provide additional upside.

Frontier is well placed to succeed in these markets: it has a strong track record in delivering high quality, reliable technology solutions for consumer audio products and has existing relationships with leading consumer audio brands.

Digital Radio

The Group is the world leader in the provision of chips and modules for consumer DAB digital radios. Further market volume growth is likely in the medium and long term as the first countries move towards Digital Switchover (Norway in 2017 and Switzerland in 2020-24), and other European markets including Italy, France and Belgium, begin to develop.

Due to its maturity and population size, the UK is the Group's largest market for DAB Digital Radios, accounting for about a third of total volumes. A decision by the UK government to set a date for Digital Switchover ('DSO') could provide a significant uplift in sales. The market criteria1 for a potential decision on DSO are expected to be achieved in the second half of 2018, but it is too early to say if or when a date for DSO might be set.

The second largest market for DAB Digital Radio is Germany. Receiver sales volumes are growing strongly, up 27% in H1 2016. There is growing political support for measures which could accelerate this growth. Greater clarity on the impact of this support should be forthcoming over the next 12 months.

Frontier plays an active role helping to build political and broadcaster support for DAB Digital Radio across Europe.

For the Group, having completed the development of its fourth generation DAB chip in 2015, the strategy in Digital Radio is to maximise profitability by retaining market share, maintaining margins and adopting a prudent approach to R&D.

Smart Audio

The Group has been active in Wi-Fi enabled audio solutions for several years, starting with solutions for Internet Radio and then incorporating online music services, such as Spotify. In 2015, the Group announced it would be working with Google to develop a new solution incorporating Google's Cast for Audio technology. Frontier is one of a small number of solution providers working with Google on this technology.

Market volumes for Wi-Fi enabled Smart Audio devices (speakers, soundbars, Hi-Fi systems, audio / video receivers and Internet radios) are expected to grow in the next three years. The introduction of voice personal assistants may also represent an additional driver of the Smart Audio market. With the inclusion of microphones in a speaker, users can control the speaker via voice commands. These speakers can also offer connectivity to the internet and other smart home appliances, all controlled via voice. The Amazon Echo is the first such device to have successfully launched and Google has announced plans to introduce a voice-controlled Google Home Assistant before the end of 20162.

Frontier is well placed to succeed in this market given its engineering skills, track record of delivery and its extensive customer and ecosystem relationships.

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Outlook

With the sale of the Healthcare division and re-focusing on Digital Audio, the Group has established a solid platform on which to build as it seeks to take full advantage of the medium and long term growth opportunities in both Digital Radio and Smart Audio.

Excluding Healthcare, Group full year revenues for 2016 are expected to show single figure growth year on year.  As outlined above, Digital Radio revenues are expected to be broadly flat compared to 2015. Smart Audio revenues are expected to improve in the second half of the year relative to H2 2015. The first shipments of Minuet, Frontier's Google Cast-enabled solution, are expected in Q4 2016.

The UK currently accounts for about one third of Group revenues. At a global level, Group revenues (in Sterling) are likely to benefit from a sustained drop in the Sterling / Dollar exchange rate. It is too early to judge if the Brexit decision will have a significant impact on UK trading but the increase in import prices may have a negative impact on volumes.

Historically, end-users for Frontier-based products (DAB and Internet radios) have been predominantly European-based. With the introduction of the Group's Google Cast-enabled Smart Audio solution, the North American market is expected to become more important for Toumaz from 2017 onwards.

Having disposed of the Healthcare business, the Group expects to be EBITDA positive in H2 2016 and to be close to break-even on a continuing basis for FY 2016.

Financial Review 

As noted previously, the Group disposed of its Healthcare subsidiaries on 22 July 2016 and took the decision to close its silicon development subsidiary on the same day. The results of these entities are disclosed as discontinued businesses in these statements. Numbers disclosed in the narrative below relate solely to the continuing business and comparatives have been restated to exclude the discontinued businesses.

H1 revenues for the continuing operations were broadly steady at £13.7 million (2015: £13.8m) with gross margin also similar to the prior year at £6.0 million (2015: £6.2 million). 

Behind these numbers, Digital Radio revenues grew 7% to £9.3 million (H1 2015: £8.7 million) driven by an increase in unit sales to 2.0 million from 1.8 million. The key driver of this volume growth has been the continued growth of DAB Digital Radio in continental Europe. The ASP per unit has declined from £4.77 to £4.52 as a result of a move away from Chorus 3 based products towards the more cost-optimised Chorus 4 products. 

Smart Audio revenues decreased by 13.7% to £4.4 million (2015: £5.1 million) mainly due to the non-recurrence of one-off project related revenues (£0.5 million) in H1 2015. In addition, Smart Audio volumes are down year on year to 329,000 (2015: 354,000k) as customers delay placing orders until Minuet enters production; this was partially offset by a 3% rise in ASPs from £12.94 to £13.31.

The Group has benefited from the recent movement in the USD/GBP exchange rate as the majority of its revenue is booked in dollars. Against this however is the possible increase in retail selling prices in the UK from the reduced purchasing power of sterling. In constant dollar terms revenue for H1 2016 is $19.8m (2015: $21.4m). 

Overall gross margins are 1% down from 44.9% in 2015. Gross profit has remained broadly flat at £6.0 million (2015: £6.2 million).

EBITDA loss can be calculated as: 

Research and development costs are expensed where possible and mainly reflect the software development on Minuet. This has just entered mass production with first sales expected in Q4 2016. As stated previously R&D expenditure peaked in H1 2015 and shows a 40% reduction year-on-year.

EBITDA loss has reduced significantly and the Frontier business is trending towards a break-even position for the full year 2016. 

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. In addition, due to the disposal of Healthcare, a charge of £9.4m has been taken in respect of an impairment of intangible fixed assets.

Group pre-tax loss was £2.0 million (2015: loss £7.4 million) with a loss per share on the continuing business of 0.02p (2015: loss 0.41p).

Cash and cash equivalents at 30 June 2016 including discontinued activities was £3.8 million (31 Dec 2015: £7.5 million) and the balance at 31 August 2015 was £3.4 million. The Group is expected to be trading cash flow positive in the second half.

Toumaz LimitedUnaudited Interim Resultsfor the six month period ended 30 June 2016

Statement of Comprehensive Incomefor the period ended 30 June 2016

 Consolidated Statement of Financial Positionat 30 June 2016

 Consolidated Statement of Changes in Equityfor the period ended 30 June 2016 

Consolidated Cash Flow Statement

For the period ended 30 June 2016

Notes to the Interim ReportFor the period ended 30 June 2016

1. Nature of operations and general information

Toumaz Limited and subsidiaries' ('the Group') principal activity is that of commercial exploitation of wireless infrastructure technologies with commercial propositions for consumer electronic sector. 

On 22 July 2016, the Group disposed of its subsidiary companies that were involved with wireless healthcare technologies. The activities of those companies has been classifies as "discontinued" in these statements. In addition, the Group also decided to close Frontier Microsystems a company involved with low power RF technologies and the results of that company have also been treated as "discontinued" in these statements.

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 2015 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 2016. 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 2015. 

These financial statements have been prepared on the going concern basis and under the historical cost convention. 

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 2015. 

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

Sensium Healthcare

During the half-year, the Group has taken an impairment against the goodwill arising on consolidation in respect Sensium Healthcare. Sensium Healthcare and its subsidiaries were first acquired on 3 November 2005 and were disposed of on 22 July 2016, shortly after the period end. The calculation of the value to be impaired was made by deducting the fair value of expected proceeds from disposal including royalties, less any costs of disposal, from the carrying value of the goodwill.

Frontier 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 Plc 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 have reviewed these licences for impairment and consider that they are no longer required for the on-going development of the company's other products. Included in the termination agreement with Imagination, 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.

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. Discontinued operations and non-current assets held for sale

The amounts presented in the statement of profit or loss under discontinued operations relate to the disposal of Sensium Healthcare and its subsidiaries, together with the closure of Frontier Microsystems. Sensium Healthcare was disposed of on 22 July 2016 and the decision to close Frontier Microsystems was taken on the same day. As disclosed in note 5, included within the loss from discontinued operations of £14,160,000 is a non-cash impairment charge of £9,447,000 in respect of goodwill and £4,713,000 being the loss recorded for the half year. Where costs are expected to be incurred in the second half year in respect of the discontinued businesses, a fair value estimate of that cost has been included in determining the loss from discontinued operations for the first half.

8. 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.

9. Cash and cash equivalents

As at 30 June 2016, cash and cash equivalents attributable to the continuing business were £3.4 million, with a further £0.4 million disclosed on the Consolidated Statement of Financial Position under "Assets included in disposal group classified as held for sale".

10. 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.

11. 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 98,462,243 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

16 March 2016, 2,666,119 ordinary shares 0f 0.25p were issued in relation to the exercise of share options by employees.

29 March 2016, 1,000,699 ordinary shares 0f 0.25p were issued in relation to the exercise of share options by employees.

25 April 2016, 64,668 ordinary shares 0f 0.25p were issued in relation to the exercise of share options by employees.

3 May 2016, 1,320,000 ordinary shares 0f 0.25p were issued in relation to the exercise of share options by employees.

12. Post Balance Sheet Events

On 22 July 2016, the Group disposed of its healthcare subsidiaries for a consideration of £1.3m plus an ongoing royalty stream. In addition, also on 22 July 2016, the Group decided to close Frontier Microsystems its subsidiary working on next generation silicon for healthcare. Both the healthcare subsidiaries and Frontier Microsystem have been treated as discontinued business in the accounts for the six months to 30 June. As a result of these decisions an impairment charge of £9.4m has been taken in the profit and loss account.