9th May 2019 12:16
LONDON (Alliance News) - Frontier Smart Technologies Group Ltd on Thursday warned on its 2019 earnings due to higher competition, weak legacy sales, and the ramping up of its new business.
Shares in the company, which makes audio and smart home software, were trading 41% lower at 12.40 pence each on the back of the earnings guidance.
Frontier Smart Technologies expects to post adjusted earnings before interest, taxation, depreciation, and amortisation loss of "no worse than" USD900,000 in 2019. This compares to a USD1.4 million adjusted Ebitda profit in 2018.
Trading Ebitda, which is the adjusted Ebitda minus research and development costs, is also expected to be a loss in 2019 - this time of no more than USD1.5 million. In 2018 the company posted an USD800,000 trading Ebitda profit.
The company expects to record sales of around USD36.6 million in 2019, down from USD41.8 million of revenue in 2018.
This weaker annual performance will result from higher competitive pressure in its Digital Radio business and weak sales of legacy Smart Audio hardware products. The timing of the ramp-up for Frontier Smart Technologies' new Smart Audio & Internet of Things licencing business is also expected to hurt profit.
The company expects to post a trading Ebitda loss in its first half of USD2.2 million, which will be "followed by a return to Ebitda profitability in the second half". This aligns with 2018, when the company's first half trading Ebitda loss of USD2.1 million USD2.9 was followed by a USD2.9 trading Ebitda profit in the second. However, unlike in 2018, the annual trading Ebita will be a loss.
"The short-term trading outlook for the group is challenging," said Frontier Smart Technologies Chief Executive Anthony Sethill.
Sethill noted harm caused to the company by increased competition but said the business' fundamentals are solid and he expects market volumes to grow "in the medium term" on higher sales in Germany, as well as new markets in Belgium and France.
"In Smart [Internet of Things], sales of our legacy Smart Audio hardware continue to disappoint - due to the aggressive pricing of first party products. As a result, Smart Audio revenues in 2019 are likely to be significantly lower than in 2018," said Sethill.
Sethill said prospects for its new Smart Internet of Things software licencing business look "more promising" and said the company is "leveraging its relationship" with NXP Semiconductors NV to develop a design pipeline.
"We remain committed to the group's core strategic objectives of maximising Digital Radio cashflows, controlling Smart Audio [research and development] expenditure and developing our Smart IoT software licensing business. In light of the current trading conditions, we will continue to monitor our progress closely to ensure that the group's cash position remains secure," Sethill added.
As at April 30, Frontier Smart Technologies' gross cash stood at USD2.6 million with net debt of USD3.9 million. The company is confident of returning to trading Ebitda profitability in the second half of 2019 and for the whole of 2020.
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