Amino Interim Results for the six months ended 31 May 2010Tuesday, July 27th, 2010
Amino Technologies plc (‘Amino’ or the ‘Company’) (LSE: AMO), the Cambridge-based leader in digital entertainment solutions for IPTV, Internet TV and in-home multimedia distribution, announces its unaudited consolidated results for the period ended 31 May 2010.
- 41.7% increase in revenue to £18.14m (H1 2009: £12.80m)
- 18.5% increase in gross profit to £5.38m (H1 2009: £4.54m)
- Order book of 250k units (H1 2009: 8k units) representing revenue of c.£21m giving strong revenue visibility into H2 2010
- As previously announced, gross margin reduced by 5.78 percentage points to 29.69% (H1 2009: 35.47%) reflecting increased sales to higher volume, lower margin tier 2 customers and foreign exchange movements
- Operating costs reduced by £1.78m to £6.35m (H1 2009: £8.13m)
- Operating loss after exceptional costs reduced by £2.63m to £0.97m (H1 2009: loss of £3.60m)
- Excluding exceptional costs of £Nil (H1 2009: £0.49m) and provision for “mark-to-market” and other foreign exchange losses of £0.89m (H109: gain £0.46m) in relation to H2 2010 sales, operating loss reduced by £3.50m to £0.07m (H1 2009: loss of £3.57m)
- Net cash balances of £13.13m (30 Nov 2009: £9.05m)
- First Western European tier one operator contract win for Amino Freedom hybrid/OTT set top box with initial units now shipped
- Tier two contract wins in Eastern Europe and South America
- New Amino Freedom media centre successfully launched
- New IPTV product portfolio launched
- Logistics and supply chain management improvements continuing to be made
- Total shipments up 47% to 243,000 with MPEG-4 shipments up 325% compared to H1 2009, representing 79% (H1 2009: 36%) of shipments in the period
- Milestone reached marking 3m set-top boxes sold and shipped
Commenting on the results, Keith Todd, Non-Executive Chairman, said: “This has been an encouraging H1 performance, with record booked unit sales, that builds on the momentum from the second half of the previous year. Profitability has been impacted by foreign exchange movements, higher component prices and the adjustment of margins as the company scales into tier 1 and tier 2 markets, where important new contracts have been secured during the period.
“An order book of 250k units – representing £21m in revenues – provides strong revenue visibility for the remainder of the year. The company remains focused on managing production costs and supply chain efficiencies, with the main benefits expected to arise in 2011. The combination of a healthy H2 order book, improving market conditions and a new product portfolio provide confidence we are in line with management forecasts for the full year.”
This has been an encouraging half year for Amino. The record booked unit sales and revenues in the period – together with a healthy order book – are a major step change in performance compared to the corresponding period last year. The changes in foreign exchange rates and our hedging policy, including the accounting for “mark-to-market” committed forward contracts, impacted profitability. At the period end, the company’s cash position was strong with net cash balances of £13.13m (30 Nov 2009: £9.05m).
Revenues at £18.14m increased 42% year on year (H1 2009: £12.80m). However, gross margins were affected by a combination of reduced margins on higher volume sales to tier 2 operators, the impacts of foreign exchange rate movements and higher component prices that have been felt across the industry. These factors lead to an operating loss of £0.97m for the period, albeit this is a significant reduction year on year (H1 2009: loss before exceptional costs of £3.1m, loss after exceptional items of £3.6m).
The improved sales performance has been driven by the core IPTV business where the transition to MPEG-4 devices is almost complete. MPEG-4 shipments increased 325% compared to H1 2009 and represent 79% (H1 2009: 36%) of shipments in the period. The launch of new products has helped the company gain increasing traction in both Amino’s traditional IPTV and the emerging hybrid/OTT markets. Important contract wins in the tier 2 IPTV market in Europe and South America are evidence of the company’s ability to scale its operations to meet the demands of major operators. Early in the period, the company announced a significant contract win – to supply a major Western European tier 1 operator with its Intel-based hybrid/OTT technology to support a significant broadband TV rollout. Initial products have been designed, produced and shipped to support this important deployment within five months of order.
The company enters the second half of the year with a strong backlog of sales and a fresh confidence that its products are now closely aligned with current and future market demand. Market conditions have improved during the period and there are encouraging signs that emerging markets, such as South America, are beginning to develop more strongly.
Supply chain management remains a clear focus to improve gross margins with specialist logistics support engaged at the start of the year beginning to deliver cost savings. The appointment of Donald McGarva, Senior Vice President, Asia Pacific for DHL Supply Chain, as a Non-executive Director during the period has also enhanced the company’s capabilities in this critical part of the business.
The Board felt that it was necessary to increase investment in the development of its hybrid DVB-T/OTT offering to support the important tier 1 win and to fully exploit the market potential for the Amino Freedom product more broadly. As a result, the company’s cost base – at £5.46m (H1 2009: £8.11m before exceptional items and foreign exchange) – while comparing favourably with the same period last year, is ahead of the company’s expectations. The cost base for the full year is also likely to be proportionately higher than management originally planned.
Overall, Amino’s financial position remains robust with the company’s cash balance standing at £13.13m (30 Nov 2009: £9.05m).
Profit and Loss
Revenue increased by 41.70% from £12.80m to £18.14m, in line with the increase in unit shipments of 47.27% from 165k to 243k during the period. Customer support fees increased to £0.37m (H1 2009: £0.31m) whilst the combined fees from expert services and licensing reduced to £0.08m from £0.35m.
Gross margins at 29.69% (H1 2009: 35.47%) were affected by a combination of factors. Principally, this was due to expected lower margin sales as the company moves into higher volume tier 2 markets, maintenance of component prices as a result of industry-wide shortages and foreign exchange losses on sales in the period. Gross profit in the period increased 18.5% to £5.38m compared with £4.54m in H1 2009.
As compared to H1 2009, operating costs decreased by £1.78m to £6.35m (H1 2009: £8.13m). After adjustment for “mark-to-market” and other foreign exchange losses and exceptional items, operating costs decreased by £2.65m to £5.46m (H1 2009: £8.11m). “Mark-to-market” and other foreign exchange losses in relation to H2 2010 sales were £0.89m (H1 2009: gain £0.46m) and exceptional costs were £Nil (H1 2009: £0.49m).
Operating loss after exceptional costs for the period reduced by £2.63m to £0.97m (H1 2009: loss of £3.60m). Excluding exceptional costs and provision for “mark-to-market” and other foreign exchange losses, operating loss reduced by £3.50m to £0.07m (H1 2009: loss of £3.57m)
Net finance income of £0.02m (H1 2009: £0.04m) reflected reduced net cash balances. Net loss after tax is £0.93m (H1 2009: loss £3.56m) with a loss per share of 1.70p (H1 2009: loss per share of 6.53p).
The balance sheet remains strong with net cash balances of £13.13m (30 Nov 2009: £9.05m) and this was delivered from improved debt collection and better inventory management.
The internal re-structuring undertaken during the latter part of 2009 is now delivering results. The re-focused sales, marketing and customer support efforts – together with a clearer market proposition around our new product offering – has successfully re-positioned the company in its key markets.
The encouraging sales performance and order book is testimony to this structural and cultural change within the company. However, entering new tier 1 and tier 2 markets brings new challenges in terms of scaling the business to adapt to higher volume sales and demanding deployment schedules.
More focused technical and sales account management – together with the appointment of a senior level project manager – has been introduced to better align the company with these new demands. External expertise has also been introduced since the start of the year to drive out inefficiencies and cost in the supply chain and improve the speed with which products come to market.
Amino – our strategy, our markets and our positioning
The company strategy remains unchanged; to enhance the product line, drive scale and extend across the value chain.
The specific focus for the first half of the year was to improve the product offering – both for the traditional IPTV market and the growing demand for high performance hybrid media centres from the tier 1 network operator market. Underpinning this were clear objectives in terms of re-building the company brand, improving market perception and customer support.
The industry launch of the new Amino Freedom Intel-based media centre was successfully executed. Securing a contract with a major Western European tier 1 operator is a significant breakthrough for the company and products have already been shipped for this deployment. Winning a major industry award in March further underlined the growing profile of this product, which continues to attract considerable attention from operators and retailers. Investment in this key development was stepped up during the period to enable the company to exploit this market opportunity.
Our next generation IPTV STBs, based on STi7105 MPEG4-HD decoder, were also launched during the period and should, after the normal period of trial and certification, form the substantial majority of IPTV sales in FY2011.
The markets for these products are steadily improving compared to this time last year. Eastern Europe is showing strengthening demand and North America is slowly improving with a number of contract wins announced including Mahaska Communications Group and CDE Lightband. Encouragingly, South America is emerging as a potential new market for Amino’s IPTV offering. Securing a major contract with Costa Rican tier 2 operator ICE is an important landmark contract in developing Amino’s profile in the region.
At the end of the period, the company reached an important milestone as it announced that three million set top boxes had been sold and shipped.
The company has emerged from a difficult trading year in 2009 and is progressing well in terms of its streamlined structure, strategy and market offering. Profitability would have returned but for the impact of foreign exchanges losses and the increased investment in new products to support the significant Western European tier 1 operator win during the period and the wider opportunity for hybrid/OTT devices.
The encouraging first half results, sales order book into the second half and improving market conditions give the Board confidence that the company’s performance is in line with management forecasts for the full year.