-- Net sales in the period amounted to MSEK 128 (83) and Net sales for the quarter were MSEK 83 (40).
-- The Gross margin for the period was 34% (53%) and Gross margin for the quarter was 31% (46%). Gross profit for the period was MSEK 44 (43) and Gross profit for the quarter was MSEK 26 (18).
-- Earnings before depreciations and amortizations (EBITDA) for the period were MSEK -90 (-35) and EBITDA for the quarter was MSEK -35 (-23).
-- The Result after tax for the period was MSEK -102 (-35) and the Result after tax for the quarter was MSEK -40 (-29).
-- Earnings per share before and after dilution for the period were SEK -0,08 (-0,05) and for the quarter SEK -0,03 (-0,04).
-- Cash flow during the period was MSEK 30 (3) and Cash flow for the quarter was MSEK 32 (-27). Cash flow from operating activities before changes in working capital during the period was MSEK -83 (-32) and for the quarter MSEK -29 (-28). Cash flow from financing activities during the period was MSEK 199 (36) and for the quarter MSEK 169(16).
-- Acquisition of Pen Generation Inc. was completed on May 31. The acquisition was another step in consolidating the Anoto ecosystem to realize synergies in hardware and software development, supply chain and operations, as well as to give Anoto access to additional market channels for online sales and retail distribution. Pen Generation financials and revenues of 3.6 MSEK was included in Q2 from June 1st.
Comments from the CEO
Q2 revenue was MSEK 83, an 84% increase over Q1 2016 and a 108% growth YOY compared to Q2 2015. Several factors contributed to this sharp increase in revenue. Anoto now has a stable revenue flow from recent acquisitions such as Livescribe and Pen Generation which combined contributed MSEK 23 for the quarter. Also the successful delivery of pens in the Japanese insurance company project account for MSEK 30.
Gross profit increased from MSEK 18 in Q1 to MSEK 26 in Q2. Diversification of product portfolio and reduced dependency on higher margin Enterprise Forms business is continuing to put pressure on the Gross Margin. Gross Margin remained at 31%, a 9 percentage point drop over Q1. The decline in gross margin is somewhat expected as a result of the addition of increased revenue base with higher volume and lower margin businesses.
In terms of operating losses, Anoto reduced operating losses from MSEK 62 in Q1 to MSEK 42 in Q2. Operating expenses still remain high due to the fact that the restructuring efforts in Q2 does not take full effect until Q3 and Q4 of this year. For example, due to restructuring charges, total compensation and consultant expense remained virtually unchanged at MSEK 52 in Q2 vs MSEK 53 in Q1. However, we expect this number to go down in Q3 and further employee count reduction measures in Q2 and Q3 will take effect in Q4 of this year. To date, we have achieved more than 15 MSEK savings per quarter in labor costs.
Another reason for high operating expenses is attributable to the development costs for the HP pen. A significant part of Anoto’s resources and headcounts are dedicated to the development of HP pen. In addition, we are incurring costs related to the external consultants in preparation for the mass production which adds to the cost base. We expect a substantial portion of the work and expenses will be done by Q3, thereby allowing us to reduce costs in Q4 of this year.
Anoto is expanding its business lines from hardware centered business (digital pen) to software and pattern technology based businesses. It is also reducing its dependence on the Enterprise Forms business which typically has long sales lead time and long development time in coordination with SI partners.
Anoto’s dot pattern technology enables multi-surface collaboration work including paper. Anoto currently has interactive walls (We Inspire), Desktop solutions and screens (LFDs) which can be combined with paper based solutions to create a multi-user, multi-surface collaboration software. This is going to be an important line of business in 2017.
The addition of Livescribe and Pen Generation provides much needed pen portfolio diversification. More importantly, it opens up the possibility of working with large corporations to a multi-million dollar, high volume businesses. For example, a Pen Generation’s customer, a large education company in Korea, buys more than 200,000 pens per year. Anoto is in the final stages of discussions with Tstudy China for a minimum purchase of 100,000 pens in one year in the Chinese education markets. Chinese government, the Ministry of Education, recently passed a decree mandating all primary schools to purchase digital writing instrument in order to teach writing and calligraphy of Chinese characters to its students. The Chinese government is concerned about children not learning how to write as they are becoming more and more dependent on typing on mobile devices.
In Japan, we are in the final stages of negotiation for additional order of 4,000 pens and 6,000 cradles which is a follow-on order for our Boxer Jr. pens. We expect to deliver this order in Q4 of 2016.
Lastly but most importantly, our recent transaction with Digiwork provides an ability to use mobile phones to read patterns rather than using digital pens. On July 15, 2016 Anoto entered into a Strategic Cooperation and Investment Agreement with Digiwork, a specialist in pattern based image encoding technology using mobile phones and tablets as a device for pattern recognition. In addition, Digiwork has a proprietary technology to print such patterns on all surfaces including, but not limited to, metal, plastic, glass and fabrics.
This alliance includes a co-marketing agreement of each other’s’ products. Digiwork produces a near-invisible pattern which can be read with mobile devices for the authentication and security. Digiwork has extensive clients in Asia, including Indonesia, Thailand and Korea. Through Digiwork’s client base, Anoto is expected to increase its exposure in rapidly growing Asian economies. Digiwork also has an ability to encode 16K data into its pattern which enables mobile connectivity and data gathering in its Apps. Anoto’s global sales force is already engaged to sell this product worldwide and are working on multiple sales leads.
Anoto and Digiwork are collaborating to migrate Anoto’s unique pattern generating ability to Digiwork’s mobile solutions to create a new business line called the “Product DNA” Anoto’s unique pattern becomes a product ID which can be linked to consumer’s mobile phones and tablets which could gather information on the digital connectivity, ecommerce activities and use of various mobile apps. This technology enables product registration and bridges physical objects to digital space.
Anoto is entering into a new phase of evolution. Anoto is no longer just a pen hardware manufacturer. Our focus on collaboration software and alternate use of patterns will expand our business lines beyond paper and screens. Although we only started this process, Q2 2016 was a critical time where we laid a foundation for this future.
Joonhee Won CEO, Anoto Group AB (publ)
This information is information that Anoto Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 29 July 2016, 08:45 CET.
Q3 report 18th of November
Q4 report February 2017
For more information
Joonhee Won, CEO Email: email@example.com
Anoto Group AB (publ.), Corp. Id. No. 556532-3929 Mobilvägen 10 SE-223 62 Lund, Sweden Phone: +46 46 540 12 00 www.anoto.com
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