NXQ Nexteq Plc

24 July 2024

Nexteq plc

("Nexteq" or the "Group")

Trading Update and Notice of Results

Nexteq (AIM: NXQ), a leading technology solutions provider to customers in selected industrial markets, today provides an update on trading for the six months ending 30 June 2024 and outlook for the remainder of 2024 and into 2025.

Trading

The business has continued to see persistent softer customer demand across both divisions through the first half of the year, in line with wider industry de-stocking, as initially highlighted at the time of the FY23 results release in March 2024.  Furthermore, some specific larger key Quixant customers have recently indicated lower demand, partly reflecting the timing of new product releases and challenges in specific regional markets.  

As a result, we expect to report Group Revenue for the six-month period down 15% to $48.2m (H1 2023: $56.3m). Within the Group's brands, we expect to report that Quixant revenue is down 10% to $30.9m (H1 2023: $34.3m) and Densitron revenue down 22% to $17.3m (H1 2023: $22.0m).

Pleasingly, the robust gross margin performance seen in 2023 has continued into 2024 at record levels, ahead of that achieved in FY 2023, benefitting from customer and product mix and the ongoing focus on higher quality revenues. This increased gross margin coupled with effective cost management ensured that the Group continues to operate at double-digit adjusted profit before tax margins.

The Group generated healthy cash flows in the first half with net cash at 30 June 2024 of $36.9m (31 December 2023: $27.9m), with positive working capital movements as stock levels reduced and strong cash collections continued.

Outlook

Our strategy to diversify our customer and sector base is resulting in encouraging new business pipeline momentum from new customers in the Gaming and Broadcast sectors. We had forecast an anticipated improvement in order intake in the second half of the year, however we have not seen this to date, which we believe to be in part related to de-stocking. The Board therefore considers it prudent to expect this period of de-stocking to persist through to the end of this calendar year.

As a result, H2 2024 revenues are expected to be broadly in line with H1, which would result in FY24 revenues 15%-20% below market expectations¹. The higher gross margin throughout the year continues to somewhat mitigate the impact of the expected softer revenues and the Board continues to keep a strong focus on cost, cash management and cash generation. However, despite this strong focus on costs, the Board does not believe it will be sufficient to offset the impact of the lower H2 2024 expected revenues, and as a result, expects adjusted profit before tax to be 30%-40% below market expectations¹, primarily driven by the lower revenues.

The Board expects to see an improvement to order intake in 2025 as key customers' buying patterns normalise and the Group benefits from the healthy pipeline of new customers across both Quixant and Densitron. The Group benefits from a robust operating platform and diversified product portfolio, and the Board continues to have confidence in the Group's organic growth opportunities in the medium term.

The Board also continues to evaluate a number of acquisition opportunities to leverage its strong balance sheet and is committed to identifying appropriate targets to deliver on the Group's growth strategy and diversify the revenue base, however, is cognisant of the likely impact of the Board transition as set out below.

Board transition

As noted in a separate announcement today, Francis Small (Non-Executive Chair), Jon Jayal (Chief Executive Officer) and Johan Olivier (Chief Financial Officer) have informed the Board of their desire to step down from the Board over the coming months. Each Director intends to continue in their roles until such time as appropriate successors are appointed and to then facilitate an orderly handover.

Notice of Results

The Board expects to announce its results for the six months ended 30 June 2024 on 10 September 2024.

Jon Jayal, CEO of Nexteq, commented:

"Whilst it is disappointing to be reducing our guidance for the full year we remain encouraged by the opportunities across an increasingly diversified range of products, customers and sectors.  We believe these structural drivers will benefit the Group as markets and orderbooks recover while the strong cash position provides the optionality to invest organically and review wider acquisition opportunities. The business remains well-placed to capitalise on the long-term opportunity as a high-value technology partner across select industrial markets."

¹ The current range of forecasts for the year ended 31 December 2024 is revenue of between $114.8m and $115.9m with a consensus of $115.4m and adjusted profit before tax of $14.9m.

About Nexteq

Nexteq (AIM: NXQ) is a strategic technology solutions provider to customers in selected industrial markets. Its innovative technology enables the manufacturers of global electronic equipment to outsource the design, development and supply of non-core aspects of their product offering. By outsourcing elements of their technology stack to Nexteq, customers can focus their product development effort on the most critical drivers of their business' success.

Our solutions are delivered through a global sales team and leverage the Group's electronic hardware, software, display and mechanical engineering expertise. Our Taiwan operation is at the heart of Asian supply networks and facilitates cost effective manufacturing and strategic supply chain management.

The Group operates in six countries and services over 500 customers across 47 countries.

Nexteq operates two distinct brands: Quixant, a specialised computer platforms provider, and Densitron, leaders in human machine interface technology, each with dedicated sales, account management and product innovation teams. Founded in 2005, and later floating on the London Stock Exchange's AIM stock market as Quixant plc, the Group rebranded to Nexteq in 2023.

Further information on Nexteq and its divisions can be found at www.nexteqplc.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.