NXT gears up its Hong Kong Operations as growth pauses
Short term challenges and the need to bed down its expanded Hong Kong operations have led sound system technologist NXT plc (NTX.L) to caution investors that revenue growth in the second half of this financial will be "restrained".
The warning came as the company released its first half results to end December, when revenues totalled £1.73m, a 42% increase over the comparable period in 2004. Royalty receipts increased by 34% to £0.88m.
This growth, coupled with cost savings of £0.5m, helped NXT to narrow losses and control its cash burn rate. Cash resources held on 31 December were £5.9m, compared with £6.6m six months earlier.
It said its licensees shipped 3.7 million NXT speakers during the half year - a 72% increase on the same period in 2004. During the calendar year 2005, 6.6 million loudspeakers were shipped, 76% more than in 2004.
Chairman David MacKay (pictured) said the company continues "to record tangible progress and move towards a position of profitability. NXT has market-verified technologies across an increasing number of sectors, not least the automotive industry where Toyota recently announced the world's first two production vehicles to incorporate our technology.
"The redeployment of more staff to our Hong Kong office will support the growth of our standalone audio business, which we expect to drive overall growth levels."
Short term challenges
But is was the warning about the upcoming flat period that dominated reaction
Mr Mackay said there were short term challenges ahead. "Firstly, the complexity of product development in embedded audio, for example with mobile phones, has limited our growth in this sector, one already highly unpredictable in its nature.
"Secondly, in refocusing the business upon the standalone audio sector, our growth remains susceptible to delays in, or the success of, certain key products. Of course, such susceptibility is significantly diminished by increasing the number of new product introductions and thereby increasing the overall volume of NXT-enabled product in the market. Our strengthened presence in Hong Kong will allow us to more easily address this issue."
As a result of these challenges and because the strengthened Hong Kong business "will require some time to move to full operating speed, revenue growth in the second half will be restrained and we anticipate only marginal progress over first half levels".
After the announcement, one broker that watches NXT, Bridgewell Securities, cut its financial forecasts for year but kept 'neutral' advice on the shares. The 'old tech' stock's price - the company has been around in various guises since 1977 - shed 17%.
The company remained upbeat about the longer term. It said its clear strategic direction, improved focus on cost constraint, a reduced cash burn, and a healthy cash balance, positioned it to continue its progress towards "sustainable profitability".
And during the six months under review, it made significant commercial progress. The recent announcement from Toyota that two high profile vehicles will feature its technology was a high point. The company said it was encouraged by the arrival of products in the standalone audio sector launched by partners such as Kensington, Logitech, Oregon Scientific, LG Electronics and TEAC, and also by the proliferation of its products in stores such as Dixons.
NXT is also creating and identifying new opportunities to work with organisations outside traditional audio markets. It signed a new licence and agreed a programme of joint development with a new high profile partner.
Mr Mackay said that the programme "is still in its infancy and competitive advantage needs to be protected. … I am currently not in a position to divulge further details".
