25430.02 27 March 2017 3:52 PM Proof 8 Welcome to the Quixant Annual Report 2016 Quixant plc is a public company listed on the Alternative Investment Market (AIM) in London. Established in 2005 and headquartered in Cambridgeshire the core business is the design, development and manufacture of gaming platforms and display solutions for the gaming and slot machine industry. Following the acquisition of Densitron Technologies plc in 2015, Quixant also supplies electronic display solutions to a wide range of global industrial markets. Table of Contents Highlights Chairman’s Statement Chief Executive’s Report Financial Review Financial Statements Company Information 1 2 4 6 8 53 Visit us online: www.quixant.com 25430.02 27 March 2017 3:52 PM Proof 8 Stock Code: QXT www.quixant.com Financial Highlights Revenue ($m) Adjusted EBITDA1 ($m) EBITDA ($m) $90.4 million 2016 2015 2014 2013 2012 $41.8 million $31.9 million $24.2 million $21.6 million 2016 2015 2014 2013 2012 $15.6 million $10.1 million $7.9 million $6.4 million $5.1 million $14.7 million 2016 2015 2014 2013 2012 $8.7 million $7.7 million $6.4 million $5.1 million Note: 2016 includes a full year for the Densitron division Adjusted profit before tax2 ($m) Profit before tax ($m) Adjusted fully diluted EPS3 ($) 2016 2015 2014 2013 2012 $13.8 million $9.2 million $7.2 million $6.0 million $5.0 million $11.7 million 2016 2015 2014 2013 $7.8 million $7.1 million $6.0 million 2012 $5.0 million $0.166 2016 2015 2014 2013 2012 $0.113 $0.094 $0.076 $0.068 Fully diluted EPS ($) Proposed full year dividend pence/share Net cash from operating activities ($m) 2016 2015 2014 2013 2012 $0.097 $0.092 $0.076 $0.069 $0.140 2016 2015 2014 2013 2012 0.0p 2.0p 1.5p 1.2p 1.0p 2016 2015 2014 2013 $2.1 million $2.5 million 2012 $1.9 million $10.1 million $6.3 million 1. Adjusted by adding back share based payments and one off non-recurring items of income and expense totalling $0.9 million (2015: share based payments and acquisition costs of $1.4 million). 2. Adjusted by adding back amortisation of intangibles arising from acquisitions, share based payments and one off non-recurring items of income and expense. In 2016 these amounted to $2.2 million (2015: share based payments and non-recurring costs $1.4 million). 3. Adjusted by adding back amortisation of intangibles arising from acquisitions, share based payments, one off non-recurring items of income and expense and subtracting the associated tax effect. In 2016 these amounted to $1.7 million (2015: share based payments and non-recurring costs $1.4 million). Operational Highlights Strong demand from major gaming customers across both gaming board and gaming monitor solutions Increased diversification of revenue base and reduced customer concentration Completed gaming board design-in for a project with a new Tier 1 customer and received first volume orders in 2017 Densitron Division performed ahead of expectations 25430.02 27 March 2017 3:52 PM Proof 8 1 Chairman’s Statement “I am pleased to report that Quixant has had another successful year with the Group delivering strong growth in both revenue and profit. This has been the first full year contribution from the acquisitions made in 2015 and it is pleasing to see these businesses performing ahead of expectations, augmenting strong organic growth from Quixant’s core gaming platform business.” Michael Peagram, Chairman I am pleased to report that Quixant has had another successful year with the Group delivering strong growth in both revenue and profit. This has been the first full year contribution from the acquisitions made in 2015 and it is pleasing to see these businesses performing ahead of expectations, augmenting strong organic growth from Quixant’s core gaming platform business. The Gaming Division performed well as Quixant continues to consolidate its position as the premier supplier of computer platforms to the gaming industry. We continued to broaden our customer base in 2016, winning several new projects with customers across a spectrum of sizes. We expect volume shipments under several of these to commence in 2017. In addition to the growth in new customers, it is pleasing to see robust performance from Quixant’s well-established customers. In 2015 we took the decision to invest in our gaming monitor business and enhanced our product offerings and sales resource in this product line. This decision has proved successful with good growth in 2016 and a strong pipeline of orders for delivery in 2017 giving us confidence in our ability to deliver substantial growth in the future. Our belief that gaming platform customers would value the ability to purchase monitors from Quixant as a trusted vendor has proven to be correct. The Densitron Division has performed ahead of expectations during the year. After a period of assessment of the division following our acquisition in November 2015, several initiatives have been implemented aimed at rationalising and enhancing the business’ product and market strategy. We are also injecting a higher degree of intellectual property into the product range and improving operational efficiency which will improve future profitability. We would expect to start to see the benefit of these initiatives resulting in improvements in sales and margins towards the end of 2017. The decision for the UK to leave the European Union resulted in a significant volatility in exchange rates and uncertainty in the way future business will be conducted between the UK and countries within the European Union. The highly global nature of Quixant’s business and operations, combined with the fact that both reporting and the majority of transactions are conducted in US Dollars mitigates the impact that Brexit will have on Quixant. However, the Board will continue to monitor the potential impact as developments unfold. A dividend of 1.5p per share was paid in May 2016 representing a growth of 25% on the prior period. The Board is pleased to propose a 2017 full year dividend of 2.0p per share, representing an increase of 33% over the previous year. This remains consistent with our progressive dividend policy and the continued strength of the Company’s balance sheet and financial performance. The Group has significant opportunities to continue to grow in all areas of its business. The market for the core gaming platform business remains robust and together with potential new geographical market opportunities provides us with confidence for continued future growth. The introduction of gaming monitors to our product portfolio has successfully uncovered significant opportunity for selling multiple products into each gaming machine and we are confident that the Group’s share of this business will continue to grow. We consider that the opportunities for the Densitron division are promising and we expect to see the benefits from the initiatives implemented as 2017 progresses. The Group has had a strong start to 2017 and is well positioned to achieve its growth targets for the year. Michael Peagram, Chairman 2 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Pictured: QMax-1 3 25430.02 27 March 2017 3:52 PM Proof 8 Stock Code: QXTwww.quixant.com Chief Executive’s Report “I am delighted to report that the Group has delivered excellent financial and operational performance over the year. Both the Gaming and Densitron business divisions performed ahead of expectations, delivering record Group revenue and adjusted profit before tax of $90.4 million (2015: $41.8 million) and $13.8 million (2015: $9.2 million) respectively.” Nicholas Jarmany, Chief Executive Revenue by product type 100,000 0 0 0 $ 80,000 60,000 40,000 20,000 0 2014 2015 2016 Gaming Platforms Gaming Monitors Densitron Pictured: QXi-4000 4 I am delighted to report that the Group has delivered excellent financial and operational performance over the year. Both the Gaming and Densitron business divisions performed ahead of expectations, delivering record Group revenue and adjusted profit before tax of $90.4 million (2015: $41.8 million) and $13.8 million (2015: $9.2 million) respectively. The unadjusted profit before tax was $11.7 million (2015: $7.8 million). The chart shows the growth in revenue from the different elements of the business over the last three years. The growth in the core gaming platform business has underpinned the growth in the organisation as a whole and enabled the introduction of the gaming monitor business in 2014 and the acquisition of Densitron in November 2015. Gaming Division The Gaming Division revenue grew by 45%, from $36.7 million in 2015 to $53.0 million in 2016 principally as a result of a growth in sales to several existing customers, commencement of volume shipments to a number of new accounts and substantial growth in the gaming monitor business. The cornerstone of our gaming proposition is Quixant’s Gaming Ecosystem®, which encompasses several aspects of the hardware, software and support of our gaming platforms and monitors. Quixant has developed a library of intellectual property aimed at providing customers with a platform which combines compliance with the strict requirements imposed by global gaming regulators with an off-the-shelf solution which accelerates their time to market with new games, provides portability across different markets and supports a simple upgrade path for their next generation of machines. This Gaming Ecosystem® is a central part of Quixant’s value proposition and differentiates us from the multitude of industrial PC manufacturers operating principally in Asia. It is gratifying to find that even the largest customers in the gaming industry recognise and embrace the value of Quixant’s Gaming Ecosystem® and are willing to adapt their games to be compatible with it. We continue to see new market opportunities evolving as governments globally vote to legalise gaming in a regulated environment. Whilst we adopt a cautious stance to the timing or potential value of such market openings, we believe this represents a major opportunity for our customers to supply new machines which in turn provides Quixant with the potential for new business. 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Brazil is the most recent of such new market opportunities. Quixant has several customers who are well-positioned to address this market with machines and games which have been developed around Quixant gaming platforms. Gaming Platforms – We shipped over 43,000 gaming platforms in 2016, up from 34,000 shipped in 2015. We continue to occupy a small market share of around 9% of the estimated 475,000 unit annual new/replacement machines deployed globally (based on the 2015 industry survey conducted by G3 Magazine). We continue to have good confidence that we have the ability to considerably increase our market share over time as more customers look to outsource the design and manufacture of their computer gaming platforms and focus their R&D effort on their core competencies. Our highest volumes continue to be dominated by our higher performance range of products, and in particular the QX-40. We have several customers now transitioning from this onto the next generation QX-50 and newer platforms but we expect to continue to see strong sales of the QX-40 in 2017. Gaming Monitors – We commenced our business in gaming monitors in 2014 as a means of providing customers with a gaming- optimised product that complements our gaming platforms. The strict regulatory requirement of maintaining a consistent bill-of-materials, something which has been a key criteria in the design of our gaming platforms, is also a requirement for gaming monitors. Quixant has built up years of credibility as a supplier that understands these strict requirements and this has enabled us to be successful in cross-selling monitor products to a number of our existing computer platform customers. In 2016 we shipped over 25,000 gaming monitors, a marked increase on the previous year. Several existing well-established customers have moved to Quixant for their monitor requirements. Touchscreen button decks have also proven to be a strong product line as manufacturers seek to replace traditional mechanical buttons with more interactive input methods on their latest machines. Whilst gaming monitors operate on a structurally lower margin compared to gaming platforms, the design-in period is typically considerably shorter and the intensity of R&D required is lower. Densitron Division Following our acquisition of Densitron in November 2015 our expectation was that the performance during 2016 would be relatively flat compared to its performance for the full year 2015. However, the business has performed ahead of expectations, delivering increased revenues at marginally better gross margin. During the year we implemented a range of initiatives designed to strengthen the business, making it more streamlined and increasing its product and market focus. We have also invested during the year in headcount, products and marketing. We have recruited additional people in Taiwan to enable better management of quality, improvements in the procurement process and standardising the operational process across divisions. This is expected to continue into 2017. We have embarked on a rationalisation of the product portfolio which we believe was previously unwieldy and lacked a globally unified strategy. As a result, several product lines were discontinued towards the end of the year and a new team of Global Product Managers has been established. We believe that increasing the intellectual property contained within Densitron’s products will improve competitiveness and provide greater opportunity for Densitron into the future. For this reason, in 2017 we have introduced a new team which is responsible for developing Densitron’s own low power embedded ARM computing solutions which will be marketed in combination and integrated with its display products. In the past, Densitron has sold into a large number of different markets, each having their own specific requirements. Leveraging on the experience gained in Quixant, we are in the process of identifying markets in which Densitron’s range of products and capabilities offer particular competitive advantages. Due to product development timescales we do not expect to see an immediate impact resulting from these initiatives but we would anticipate to see progress towards the end of 2017. Group Infrastructure Enhancements Given the Group’s rapid rate of growth, we believe it is essential that the infrastructure is put in place to not only manage this growth but also to enhance it. During 2016 we have continued to invest in people, by strengthening management resource, and products but also recognised the need to restructure the way in which the Group is managed overall. To do this we have created a divisional structure with several shared service areas which are leveraged across divisions. We also believe that common systems and processes across the Group are vital to be able to support the business into the future. As such, the Board approved a project at the end of 2016 to implement a common enterprise resource planning (ERP) system across the whole Group which will involve a harmonisation of business and operational processes and creation of a global financial and business analysis infrastructure. This is a substantial project that will involve input from all parts of the business but is essential to ensure efficient management reporting and enable us to leverage our resources as we grow. The Group has also strengthened the business’ management resources, promoting Jon Jayal to Chief Operating Officer of the Group, stepping up responsibilities for several other members of senior management and making a number of senior hires in Taiwan. Outlook The outlook for the Group remains extremely positive. The Gaming division continues to offer considerable growth opportunities both from the expansion of its market share in the core gaming platform business and through the new opportunity created in the gaming monitor market. The Densitron division is healthy and profitable and offers potential for growth in several important vertical markets through a more focused and co-ordinated global approach. I am therefore confident in the Group’s ability to continue to deliver strong growth in 2017 and beyond. Nicholas Jarmany, Chief Executive 5 25430.02 27 March 2017 3:52 PM Proof 8 Stock Code: QXTwww.quixant.com Financial Review “The Quixant Group achieved revenues of $90.4 million in the year, an increase of 116% on 2015 ($41.8 million). The results for 2016 include a full year of the Densitron division while the results for 2015 include the six week period following completion of the acquisition in November 2015. However, excluding the Densitron division, the Gaming division achieved revenue of $53.0 million in the year, an increase of 45% on 2015 ($36.6 million).” Cresten Preddy, Finance Director In order to maintain our market leading position, it is vital that the business continues to invest in product development. During the year, the Group expenditure on research and development was $3.5 million (2015: $2.3 million), representing 11% of gross profit (2015: 14%). These costs relate to investment activities principally undertaken in Taiwan and Italy. $0.7 million of these costs were capitalised (2015: $1.1 million) with amortisation for the year on total capitalised development costs of $0.9 million (2015: $0.4 million). Managing overheads while ensuring sufficient investment is made to support the business is key, and as such we have strengthened the business across all areas in the year, increasing our headcount to 160 people (2015: 138). Staff costs being the largest contributor to overheads resulted in an overall spend in the year of $11.3 million (2015: $4.6 million). Taxation The tax charge in the year amounted to $2.4 million (2015: $1.4 million). This constitutes a corporation tax charge of approximately 20.3% on pre-tax profits (2015: 17.6%). The Group continues to benefit from enhanced tax reliefs available in respect of qualifying research and development expenditure. Earnings per share • Basic earnings per share increased 44% to $0.1430 (2015: $0.0993). • Fully diluted earnings per share increased 44% to $0.1395 (2015: $0.0967). • Adjusted fully diluted earnings per share increased 47% to $0.166 (2015: $0.113). • The calculations of earnings per share are included in Note 10. Revenue The Quixant Group achieved revenues of $90.4 million in the year, an increase of 116% on 2015 ($41.8 million). The results for 2016 include a full year of the Densitron division while the results for 2015 include the six week period following completion of the acquisition in November 2015. However, excluding the Densitron division, the Gaming division achieved revenue of $53.0 million in the year, an increase of 45% on 2015 ($36.6 million). The growth in the Gaming division has been driven primarily by continued development of relationships with existing customers, and substantial growth in the gaming monitor sales. We have continued to broaden the customer base and now have 180 customers (2015: 126). The Densitron displays division has performed ahead of expectations in the year, achieving revenues of $37.4 million. Profit Our gross profit for the year was $32.1 million, representing a gross margin of 36%. This compares to a gross profit achieved in 2015 of $17.3 million at a gross margin of 41%. The decrease in gross margin percentage reflects the lower margins achieved in both gaming monitors and the Densitron division. Adjusted EDITDA on continuing operations increased 54% to $15.6 million (2015: $10.1 million) and adjusted profit before tax increased 50% to $13.8 million (2015: $9.2 million). EBITDA on continuing operations increased by 69% to $14.7 million (2015: $8.7 million) and profit before tax increased by 50% to $11.7 million (2015: $7.8 million). Adjustments to EBITDA are to add back share based payments and one off non-recurring items of income and expense, in 2016 these totalled $0.9 million (2015: share based payments and non-recurring costs of $1.4 million). Adjustments to profit before tax are to add back amortisation of intangibles arising from acquisitions, share based payments and one off non-recurring items of income and expense. In 2016 these amounted to $2.2 million (2015: share based payments and non-recurring costs $1.4 million). The share based payment charge has been added back because it is not a cash expense to the Company. It is a benefit to our employees which we a required to expense through the profit and loss account in accordance with IFRS2. 6 25430.02 27 March 2017 3:52 PM Proof 4 Quixant Annual Report and Accounts 2016 Pictured: QXi-200 Dividend The Board intends to maintain its progressive dividend policy whilst continuing to invest in and to develop the Group’s businesses. As such, the Board proposes a dividend in respect of the year of 2.00p per share (2015: 1.5p per share) payable on 18 May 2017 to all shareholders on the register at the close of business on 12 May 2017. The corresponding ex-dividend date is 11 May 2017. Outlook During 2017 we will continue to invest in the business by strengthening those areas that need it to enable future growth. We shall also be embarking on a project to enhance the structure of the Group going forward by introducing a common enterprise resource planning (ERP) system. This will be a major project which will have an impact on all areas of the business but will ultimately be vital in putting the Group in the position of having a harmonised accounting, reporting and procurement platform which can scale efficiently with the organisation. The 2017 financial year has started well, giving us confidence that the year will be one of strong growth. Cresten Preddy, Finance Director Balance Sheet The Group maintains a strong Balance Sheet with net assets totalling $34.3 million (2015: $25.7 million). Non-current assets have reduced in the year to $20.9 million (2015: $22.8 million). This is primarily due to the amortisation of intangible assets relating to customer relationships and order backlog following the acquisition of Densitron in 2015. Current assets principally comprise inventory and trade receivables. Inventory increased to $12.9 million (2015: $9.3 million). This is a significant increase but is in line with the Group’s inventory strategy of ensuring that it has sufficient inventory to meet near term production, and a buffer stock of key product lines is maintained. This enables Quixant to react quickly to customer requirements and gives the Group a competitive advantage. Trade and other receivables and trade and other creditors reflect the increase in business in the year, and in the case of trade and other creditors, the growth in inventory. Trade and other receivables are $21.0 million (2015: $19.5 million) and trade and other payables are $17.2 million (2015: $15.3 million). Cash Flow The Group continued to generate high levels of cash during the year. The cash generated from operating activities in the year amounted to $10.1 million (2015: $6.3 million). The Group continued to invest in the business, spending $1.4 million (2015: $12.8 million) on investing activities including $0.7 million (2015: $1.1 million) on capitalised product development. In 2015 $10.6 million was spent on acquisitions, this expenditure has not recurred in 2016. In the year $2.8 million has been used to repay borrowings including the elimination of more expensive lines of financing. We continue to review banking facilities and treasury arrangements around the Group to ensure that the level and cost of finance is appropriate to the business. 25430.02 27 March 2017 3:52 PM Proof 4 7 Stock Code: QXTwww.quixant.com Quixant Annual Report and Accounts 2016 Financial Statements Quixant plc Annual Report & Accounts for the year ended December 2016 Table of Contents Corporate Governance Strategic Report Directors’ Report Statement of Directors’ Responsibilities Independent Auditor’s Report Consolidated Statement of Profit and Loss and Other Comprehensive Income Balance Sheets Statement of Changes in Equity Cash Flow Statements Notes to the Financial Statements Notice of Meeting 10 11 13 15 16 17 18 19 21 22 49 8 25430.02 27 March 2017 3:52 PM Proof 4 Stock code: QXT www.quixant.com Quixant Gaming Platforms QMax-1 QX-50 QX-40 QXi-4000 QXi-6000 QXi-300 QXi-307 QXi-306 Quixant Gaming Monitors Ultra High Definition Monitor Curved Monitor Button Deck Monitor Standard Gaming Monitor Densitron products 2.4inc TFT High Res 2.4inc TFT High Res OLED 1 OLED 1 TFT 12inch TFT 12inch TFT Monitor TFT Monitor 25430.02 27 March 2017 3:52 PM Proof 4 9 Corporate Governance The Directors recognise the value and importance of high standards of corporate governance. Since admission to AIM in May 2013, the Board has been designed to voluntarily comply, where applicable, with selected key provisions of the UK Corporate Governance Code. The Company does not currently claim full compliance with the requirements of the code. The Company also follows the recommendations on corporate governance from the Quoted Companies Alliance for companies with shares traded on AIM. Given the size of the Company and the constitution of the Board, the following is a brief summary of the main aspects of corporate governance currently in place. With effect from the admission to the AIM market, the Board has established an Audit Committee and a Remuneration Committee with formally delegated responsibilities. The Remuneration Committee is chaired by Michael Peagram. Its other member is Guy van Zwanenberg. This committee reviews the performance of the Executive Directors and makes recommendations to the Board on matters relating to their remuneration and terms of employment. The Audit Committee is chaired by Guy van Zwanenberg. Its other member is Michael Peagram. The Committee determines the terms of engagement of the Group’s auditors and, in consultation with them, the scope of the audit. It receives and reviews reports from management and the Group’s auditors relating to the interim and annual financial statements and the accounting and internal control systems in use by the Group. The Audit Committee has unrestricted access to the Group’s auditors. Under its terms of reference, the Audit Committee monitors, amongst other matters, the integrity of the Group’s financial statements. The Committee is responsible for monitoring the effectiveness of the external audit process and making recommendations to the Board in relation to the re-appointment of the external auditors. It is responsible for ensuring that an appropriate business relationship is maintained between the Group and the external auditors, including reviewing non-audit services and fees. The Committee meets with Executive Directors and management as well as meeting privately with the external auditors. As the Board is small, there is not a separate Nominations Committee and the Board as a whole considers recommendations for appointments to the Board. The Directors follow the guidance set out by Rule 21 of the AIM Rules relating to dealings by Directors in the Company’s securities and, to this end, the Company has adopted an appropriate share dealing code. Going concern Under Company Law, the Company’s Directors are required to consider whether it is appropriate to prepare financial statements on the basis that the Group and Company are a going concern. The Directors have prepared trading and cash flow forecasts for the Group covering the period to 31 December 2018. After making enquiries and considering the impact of risks and opportunities on expected cash flows, the Directors have a reasonable expectation that the Group has adequate cash to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing the financial statements. 10 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Strategic Report The Directors present their Annual Report and accounts for the year ended 31 December 2016. Principal activities and results The principal activities of the Group are: • the development and supply of computer systems; • the design, development and delivery of electronic displays into the industrial marketplace; and • the distribution and delivery of monitors. The profits for the year after taxation amounted to $9.3 million (2015: $6.4 million) and the Directors continue to be satisfied with the overall performance of the Group. Further comments on the development of the business are included in the Chairman’s Statement, Chief Executive’s Report and Financial Review on pages 2-7. Key Performance Indicators Annual budgets are set at the beginning of each year which are reviewed against monthly management accounts. Additionally, the Directors review several performance indicators to assess the performance of the business and assist in decision-making. Operational KPI Adjusted earnings before interest, tax, depreciation and amortisation – EBITDA (Note 1) Profit before tax Financial KPI Inventory Debtors Objective Comment To ensure that the Group’s profit is growing in line with market expectations The level of adjusted EBITDA has increased year on year ahead of market expectations To ensure that the Group is providing a sufficient return to its shareholders The level of profit before tax has increased in the year by 50% which is ahead of market expectations Objective Comment To ensure that sufficient inventory levels are maintained to meet near term demand while guarding against inventory obsolescence The Board is provided with a monthly manufacturing report detailing the current inventory level and the future product requirement To ensure that customers settle debts in an orderly fashion in line with agreed terms The Board is provided with a monthly report on aged debts for each part of the business Cash and borrowings balances To ensure that the business has sufficient headroom to meet its future obligations The Board is provided with a report showing the current level of cash balances within the Group along with the current level of borrowings and available facilities Principal risks relating to the business of the Group The Group faces competitive and strategic risks that are inherent in rapidly growing and changing markets. The Board of the Company and its management review future strategy and risks to the business regularly. Where possible, processes are in place to monitor and mitigate the identified risks. The Board has considered the risks that Brexit might pose on the Group, and has concluded that it does not consider that the impact will be significant. Financial and trading risks are discussed in Note 24 of the consolidated financial statements. 25430.02 27 March 2017 3:52 PM Proof 8 11 Stock Code: QXTwww.quixant.com Strategic Report continued The key business risks set out below are not an exhaustive list of the risks faced by the Group and are not intended to be presented in any order of priority. Risk Description Mitigation Comment Commercial The marketplace for the Group’s display products is highly competitive. Gaming customers may decide to design their computer platforms and/or monitors in-house or source from another supplier. Geographical and environmental The Group operates across a range of countries, all of which carry a degree of risk, whether it is political risk or environmental issues. The Group continues to work on identifying areas in which it can add value and differentiate its products. Quixant works closely with its customers to ensure its product roadmap is robust, technologically advanced and ahead of the competition. The majority of the Group’s operations are in OECD countries and the majority of revenue is generated from customers operating in OECD countries. Despite not being an OECD member, Taiwan has a highly developed legal and political system. The Group has the capabilities and skills to create highly engineered, optimised products. The Group will continue to focus its operations in those countries that provide the best opportunity for growth and avoid those countries that pose significant country risk. Regulation Technological Additional laws and regulations may be enacted covering issues such as law enforcement, pricing, taxation and quality of products and services. The Group monitors prospective changes in regulation which may impact its business. The Group is a member of professional bodies where applicable. The Group’s business is dependent upon technology which could be superceded by superior technology, more competitively priced technology or a shift in working practices, which could affect both potential profitability and saleability of the Group’s products. The Group works closely with its technology partners to provide products which incorporate the most advanced technology available to our market. The Group also develops its own innovations to incorporate into new products. The Group recognises the technology requirements of our customers and works with them to provide the products they need for their business. Key customer dependency The Group generates a significant but declining portion of its revenue from a key customer. As the Group continues to grow, the portion of revenue from key customers has declined. Key persons The Group recognises the importance of its personnel. Its’ executive officers have been fundamental in the creation and development of the organisation. In addition, the Board recognises the importance of its key employees and the risk of losing the expertise and knowledge that they possess. The executive officers are subject to long term contracts and the Board is developing a succession plan. The Directors have put in place contractual arrangements designed to develop and incentivise key staff. The Board expects the Group’s continued organic growth to further reduce the dependency on key customers. Staff turnover of key personnel continues to be low. Intellectual property protection The Group may be unable to successfully establish and protect its intellectual property. The intellectual property rights may or may not have priority over other parties’ claims to the same intellectual property. The Group seeks to establish and protect its intellectual property rights by patents and other protection mechanisms. The Group works with professional external patent attorneys. By order of the Board on 21 March 2017. Miss A C Preddy, Director 12 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Directors’ Report Statutory information Quixant plc (‘The Company’) is a Public Limited Company incorporated in the United Kingdom (Registration number: 04316977). On 15 May 2013, the Company issued an admission document and from 21 May 2013 the Company’s ordinary shares are traded on the Alternative Investment Market of the London Stock Exchange (AIM). The Company has a branch, located in Taiwan, whose operations and results are included in the standalone financial statements of the Company. Details of the share capital of the Company including shares issued during the year are set out in Note 23 of the consolidated financial statements. Annual General Meeting The date and other details of the next Annual General Meeting of the Company are contained within the notice of this meeting, which accompanies this report. The Directors propose a dividend of 2.00p per share (2015: 1.5p), to be approved at the Annual General Meeting. During the year the Company paid a dividend of 1.5p per share amounting to $1,400,233. Substantial shareholdings On 21 March 2017 the Company had been notified of the following significant interests in its share capital: Shares held Ordinary shares of £0.001 each % of issued share capital N C L Jarmany and his wife Schroders Plc Hargreave Hale Mr J and Mrs S Mullins Octopus Investments Nominees Limited Liontrust Asset Management C-T Lin and his wife G P Mullins and his wife River and Mercantile Asset Management LLP Alexander Taylor Amati Global Investors 12,579,940 7,187,490 6,867,789 3,858,920 3,855,888 3,747,346 3,446,559 2,829,243 2,283,450 2,058,958 2,044,248 19.25% 11.00% 10.51% 5.90% 5.90% 5.73% 5.27% 4.33% 3.49% 3.15% 3.13% Directors The Directors who served during the year and their interests in the share capital of the Company were as follows: Shares held Ordinary shares of £0.001 each Options granted £0.001 each Exercise price N C L Jarmany 12,579,940 16,752,923 J F Jayal (appointed 20 June 2016) – – 110,200 400,000** 2016 2015 2016 C-T Lin G P Mullins A C Preddy M J Peagram G van Zwanenberg *date of appointment 3,446,559 2,829,243 10,000 202,174 26,087 4,589,842 4,058,641 – 152,174 26,087 2015 – 110,200* 400,000** – – – £0.49 £nil – – 69,000 79,000 £0.49 – – – – ** These figures represent a nil cost option granted by NCL Jarmany to J F Jayal over 400,000 ordinary shares owned by him (as outlined in the admission document). There has been no change in the interests set out above between 31 December 2016 and 21 March 2017. 25430.02 27 March 2017 3:52 PM Proof 8 13 Stock Code: QXTwww.quixant.com Directors’ Report continued Directors’ indemnity arrangements The Group has made qualifying third party indemnity provisions for the benefit of its Directors which were made during the year and remain in force at the date of this report. The Group has purchased and maintained throughout the year Directors’ and Officers’ liability insurance in respect of itself and its Directors. Research and development (R&D) The Group continues to invest in R&D, spending $3.6 million (2015: $2.3 million) in its R&D and customer support programmes in the year, of which $0.7 million (2015: $1.1 million) was capitalised. The Group undertakes R&D to develop and enhance its products and the Group will continue to commit a significant level of resource and expenditure as appropriate to R&D. Use of financial instruments Information on both the Group’s financial risk management objectives and the Group’s policies on exposure to relevant risks in respect of financial instruments are set out in Note 24 of the consolidated financial statements. Political contributions Neither the Company nor any of its subsidiaries made any political donations or incurred any political expenditure during the year. Disclosure of information to Auditor The Directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s Auditor is unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the reappointment of KPMG LLP as Auditor of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the Board on 21 March 2017. Miss A C Preddy, Director 14 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Statement of Directors’ Responsibilities In Respect of the Directors’ Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and applicable law and have elected to prepare the parent Company financial statements on the same basis. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the EU; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 25430.02 27 March 2017 3:52 PM Proof 8 15 Stock Code: QXTwww.quixant.com Independent Auditor’s Report To the Members of Quixant Plc We have audited the financial statements of Quixant Plc for the year ended 31 December 2016 as set out on pages 17 to 48. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Directors’ Responsibilities Statement set out on page 15, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2016 and of the Group’s profit for the year then ended; • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and applied in accordance with the provisions of the Companies Act 2006; • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic report and the Directors’ report: • we have not identified material misstatements in those reports; and • in our opinion, those reports have been prepared in accordance with the Companies Act 2006. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Charles le Strange Meakin (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants Botanic House 100 Hills Road Cambridge CB2 1AR 21 March 2017 16 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Consolidated Statement of Profit and Loss and Other Comprehensive Income For the years ended 31 December 2016 and 2015 Revenue Cost of sales Gross profit Administrative expenses Other operating expenses Operating profit Financial expenses Profit before tax Taxation Profit for the year Other comprehensive income for the year, net of income tax Items that are or may be reclassified subsequently to profit and loss Minority interests Foreign currency translation differences Total comprehensive income for the year Basic earnings per share Fully diluted earnings per share Notes on pages 22 to 48 form part of the financial statements. Note 3,4 5 5 8 9 2016 Total $000 90,365 (58,267) 32,098 (6,853) (13,211) 12,034 (371) 11,663 (2,370) 9,293 2015 Total $000 41,829 (24,503) 17,326 (3,995) (5,469) 7,862 (74) 7,788 (1,368) 6,420 1 (47) – (268) 9,247 6,152 10 10 $0.1430 $0.1395 $0.0993 $0.0967 25430.02 27 March 2017 3:52 PM Proof 8 17 Stock Code: QXTwww.quixant.com Balance Sheets As at 31 December 2016 Non-current assets Property, plant and equipment Intangible assets Investment property Investments in Group companies and associated undertakings Deferred tax assets Current assets Inventories Tax receivable Trade and other receivables Cash and cash equivalents Total assets Current liabilities Other interest-bearing loans and borrowings Trade and other payables Tax payable Non-current liabilities Other interest-bearing loans and borrowings Provisions Deferred tax liabilities Total liabilities Net assets Equity attributable to equity holders of the parent Share capital Share premium Share based payments reserve Retained earnings Translation reserve Non-controlling interest Total equity Note Group 2016 $000 2015 $000 Company 2016 $000 11 12 13 14 15 16 17 18 19 20 19 22 15 23 23 23 5,977 14,045 617 – 257 20,896 12,900 – 21,003 8,853 42,756 5,996 15,395 740 – 620 22,751 9,285 – 19,484 3,861 32,630 3,570 2,383 – 11,948 100 18,001 7,455 – 12,034 1,375 20,864 2015 $000 3,580 2,905 – 11,875 70 18,430 5,495 325 10,002 1,401 17,223 63,652 55,381 38,865 35,653 (2,774) (17,199) (1,033) (21,006) (6,148) (750) (1,442) (8,340) (29,346) 34,306 105 5,676 782 28,192 (455) 34,300 6 34,306 (2,994) (15,274) (301) (18,569) (8,744) (750) (1,667) (11,161) (29,730) 25,651 104 5,181 470 20,299 (408) 25,646 5 25,651 (911) (13,190) (794) (14,895) (6,251) – (450) (6,701) (21,596) 17,269 105 5,676 782 10,893 (187) 17,269 – 17,269 (605) (10,881) – (11,486) (8,448) – (671) (9,119) (20,605) 15,048 104 5,181 470 9,613 (320) 15,048 – 15,048 These financial statements were approved and authorised for issue by the Board of Directors on 21 March 2017 and were signed on behalf of the Board by: Miss A C Preddy, Director Notes on pages 22 to 48 form part of the financial statements. 18 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Balance at 1 January 2015 Total comprehensive income for the period Profit Other comprehensive loss Total comprehensive income for the period Transactions with owners, recorded directly in equity Share based payments Dividend paid Total contributions by and distributions to owners Transactions with owners Acquisition of subsidiary with a non-controlling interest Total transactions with owners Balance at 1 January 2016 Total comprehensive income for the period Profit Other comprehensive loss Total comprehensive income for the period Transactions with owners, recorded directly in equity Share based payments Dividend paid Exercise of options Total contributions by and distributions to owners Statement of Changes in Equity GROUP Share Capital $000 104 Share Premium $000 5,181 Translation Reserve $000 (140) Share Based Payments $000 273 Retained Earnings $000 15,061 Total Parent Equity $000 20,479 Non- controlling Interest $000 – – – – – – – – – – – – – – – – – – (268) (268) – – – – – – – – 197 – 197 – – 6,420 – 6,420 (268) 6,420 6,152 – (1,182) 197 (1,182) (1,182) (985) – – – – Balance at 31 December 2015 104 5,181 (408) 470 20,299 25,646 Share Capital $000 104 Share Premium $000 5,181 Translation Reserve $000 (408) Share Based Payments $000 470 Retained Earnings $000 20,299 Total Parent Equity $000 25,646 Non- controlling Interest $000 5 – – – – – 1 1 – – – – – 495 495 – (47) (47) – – – – – – – 312 – – 312 9,293 – 9,293 (47) 9,293 9,246 – (1,400) – 312 (1,400) 496 (1,400) (592) Balance at 31 December 2016 105 5,676 (455) 782 28,192 34,300 Notes on pages 22 to 48 form part of the financial statements. 25430.02 27 March 2017 3:52 PM Proof 8 – – – – – – 5 5 5 1 – 1 – – – – 6 Total Equity $000 20,479 6,420 (268) 6,152 197 (1,182) (985) 5 5 25,651 Total Equity $000 25,651 9,294 (47) 9,247 312 (1,400) 496 (592) 34,306 19 Stock Code: QXTwww.quixant.com Statement of Changes in Equity COMPANY Balance at 1 January 2015 Total comprehensive income for the period Profit Other comprehensive loss Total comprehensive income for the period Transactions with owners, recorded directly in equity Share based payments Dividend paid Total contributions by and distributions to owners Share Capital $000 104 Share Premium $000 5,181 Translation Reserve $000 (137) Share Based Payments $000 273 Retained Earnings $000 8,432 Total Parent Equity $000 13,853 – – – – – – – – – – – – – (183) (183) – – – – – – 197 – 197 470 2,363 – 2,363 (183) 2,363 2,180 – (1,182) 197 (1,182) (1,182) (985) 9,613 15,048 Balance at 31 December 2015 104 5,181 (320) Balance at 1 January 2016 Total comprehensive income for the period Profit Other comprehensive profit Total comprehensive income for the period Transactions with owners, recorded directly in equity Share based payments Dividend paid Exercise of share options Total contributions by and distributions to owners Share Capital $000 104 Share Premium $000 Translation Reserve $000 Share Based Payments $000 Retained Earnings $000 Total Parent Equity $000 5,181 (320) 470 9,613 15,048 – – – – – 1 1 – – – – – 495 495 – 133 133 – – – – – – – 312 – – 2,680 – 2,680 133 2,680 2,813 – 312 (1,400) (1,400) – 496 312 (1,400) (592) Balance at 31 December 2016 105 5,676 (187) 782 10,893 17,269 Notes on pages 22 to 48 form part of the financial statements. 20 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Cash Flow Statements For the years ended 31 December 2016 and 2015 Cash flows from operating activities Profit for the year Adjustments for: Depreciation, amortisation and impairment Taxation expense Financial expense Equity settled share based payment expenses (Increase) in trade and other receivables (Increase) in inventories Increase in trade and other payables Interest paid Tax paid/received Net cash from operating activities Cash flows from investing activities Acquisition of subsidiary, net of cash acquired Acquisition of property, plant and equipment Acquisition of intangible assets Net cash from investing activities Cash flows from financing activities Proceeds from new loan Repayment of borrowings Dividends paid Exercise of options Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Notes on pages 22 to 48 form part of the financial statements. Group 2016 $000 2015 $000 Company 2016 $000 2015 $000 Note 9,293 6,420 2,680 2,363 2,694 2,370 371 312 15,040 (1,292) (3,436) 1,644 11,956 (371) (1,489) 10,096 58 (425) (1,017) (1,384) – (2,816) (1,400) 496 (3,720) 4,992 3,861 8,853 871 1,368 74 197 8,930 (2,140) (1,490) 2,166 7,466 (74) (1,112) 6,280 (10,593) (1,101) (1,151) (12,845) 7,754 (868) (1,182) – 5,704 (861) 4,722 3,861 1,107 454 276 239 4,756 (2,032) (1,960) 2,373 3,137 (276) 414 3,275 – (185) (321) (506) – (1,891) (1,400) 496 (2,795) (26) 1,401 1,375 684 412 53 118 3,630 (1,406) (1,487) 6,202 6,939 (53) (155) 6,731 (11,600) (230) (1,142) (12,972) 7,754 – (1,182) – 6,572 331 1,070 1,401 2 11 12 18 25430.02 27 March 2017 3:52 PM Proof 8 21 Stock Code: QXTwww.quixant.com Notes to the Financial Statements 1. Principal accounting policies The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. Quixant plc (the “Company”) develops and supplies specialist computer systems. The Company is incorporated and domiciled in the UK. The address of the Company’s registered office is Aisle Barn, 100 High Street, Balsham, Cambridge CB21 4EP. The Group financial statements consolidate those of the Company, its branch in Taiwan and its subsidiaries (together referred to as the “Group”). The parent Company financial statements present information about the Company as a separate entity and not about its group. Basis of preparation Both the parent Company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). On publishing the parent Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual profit and loss account and related notes that form a part of these approved financial statements. This financial information has been prepared under the historical cost convention, except that a subsidiary company owns a plot of land in Blackheath, London, which is held at a valuation. The land was valued by a professional firm of property consultants in 2013. Subsequently, the Directors have estimated its value based on current market conditions. The presentation currency adopted by the Quixant Group is US dollars as this is the trading currency of the Group. The preparation of financial information in conformity with Adopted IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Quixant Group accounting policies. The areas involving a higher degree of judgement and estimation relate to determining the point at which the criteria for development cost capitalisation have been met and inventory and bad debt provisions respectively. In addition, management consider the recoverable amount of goodwill and the assessment of the contingent consideration payable to be judgemental areas. As noted below, goodwill is reviewed for impairment at each reporting date or when indicators of impairment arise. See Note 12 for further consideration. Contingent consideration, as explained in Note 2, is payable in three years’ time (see Note 2 for explanation of the assumptions considered). Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra- group transactions and dividends are eliminated in full. The Italian subsidiary, Quixant Italia srl, is 99% owned by the Group. The comprehensive income and equity attributable to the non- controlling interests in this subsidiary are not material. Densitron Nordic Oy is 80% owned by the Group. The equity attributable to the non-controlling interest in this subsidiary is accounted for as a minority interest. The income attributable to this subsidiary is immaterial. Separate parent company financial statements In the parent Company financial statements, all investments in subsidiaries, joint ventures, and associates are carried at cost less impairment. 22 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Going concern The Directors have prepared trading and cash flow forecasts for the Group covering the period to 31 December 2018. After making enquiries and considering the impact of risks and opportunities on expected cash flows, the Directors have a reasonable expectation that the Group has adequate cash to continue in operational existence for the foreseeable future. For this reason they have adopted the going concern basis in preparing the financial statements. Changes in accounting policies: new standards, interpretations and amendments not yet effective The International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) have issued the following standards and interpretations with an effective date after the date of these accounts: Adopted for use in the EU: IFRS 9 Financial instruments IFRS 15 Revenue from contracts with customers Not yet adopted for use in the EU: Amendments to IAS 7 Amendments to IAS 12 Amendments to IFRS 2 IFRS 16 Leases The directors consider that the adoption of these standards on the Group’s financial statements will not be material. Revenue recognition Revenue represents amounts chargeable, net of value added tax, in respect of the sale of goods to customers. Revenue is recognised at the point that risk is transferred to the customer as determined by the terms agreed in the contract. Where invoicing takes place in advance of revenue recognition, the amounts invoiced, net of value added tax, are recorded as deferred revenue. Goodwill Goodwill arising on consolidation represents the excess of cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of the subsidiary or associated undertaking at the date of acquisition. Goodwill is recognised as an asset and is reviewed for impairment at least annually. Any impairment is recognised immediately through the income statement and is not subsequently reversed. Impairment losses recognised are allocated first to reduce the carrying value of goodwill the business relates to, and then to reduce the carrying value of the other assets of that business on a pro rata basis. Impairment excluding inventories, investment properties and deferred tax assets Non-financial assets The carrying amounts of the Group’s non-financial assets, other than inventories, investment property and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value, less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash generating units (“CGU”). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis. 25430.02 27 March 2017 3:52 PM Proof 8 23 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Property, plant and equipment Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all property, plant and equipment at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful economic life, as follows: Freehold buildings Plant and machinery 20 - 50 years between 3 and 6 years No depreciation is provided on freehold land. The carrying value of property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Investment property Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value and are reviewed on an annual basis with any revision to the valuation taken to the profit and loss account. Intangible assets – customer relationships and order back log In accordance with IFRS 3, on the acquisition of subsidiary companies the Group assess the identification of intangible assets acquired which are either separate or arise from contractual or other legal rights. These assets are recognised as intangible assets and are amortised over the period of future benefit to the Group. Intangible assets – development costs The Quixant Group incurs significant expenditure on the research and development of new computer products and enhancements. The internally generated intangible asset arising from the Company’s development is recognised only if the Company can demonstrate all of the following conditions: • The technical feasibility of completing the intangible asset so that it will be available for use or sale; • The intention to complete the intangible asset and use or sell it; • The ability to use or sell the intangible asset; • The probability that the asset created will generate future economic benefits; • The availability of adequate technical, financial and other resources to complete the development; and • The ability to measure reliably the expenditure attributable to the intangible asset during its development. Development costs not meeting these criteria and all research costs are expensed in the Consolidated Income Statement as incurred. Capitalised development costs are amortised on a straight-line basis over their expected useful economic lives of five years once the related software product or enhancement is available for use. Intangible assets – computer software Computer software is stated at cost, net of amortisation and any provision for impairment. Amortisation is provided on all computer software at rates calculated to write off the cost less estimated residual value of each asset on a straight-line basis over its expected useful economic life, as follows: Computer software between 3 and 5 years The carrying value of computer software is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. 24 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Inventories Inventories, which comprise goods held for resale, are stated at the lower of cost and net realisable value. Cost includes all costs in acquiring the inventories and bringing each product to its present location and condition. Net realisable value represents the estimated selling price and costs to be incurred in marketing, selling and distribution. Foreign currencies Transactions denominated in foreign currencies are translated into the functional currency of the relevant operation at the rates ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated at the rates ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. On consolidation, results of overseas subsidiaries are translated using the average exchange rate for the period, unless exchange rates fluctuate significantly. The Balance Sheets of overseas subsidiaries are translated to the Group’s presentational currency, US dollars, using the closing period-end rate. Exchange differences arising, if any, are taken to a translation reserve. Such translation differences would be reclassified to profit and loss in the period in which the operation is disposed of. Provisions Provisions are recognised when there is a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefit will be required to settle the obligation, and where the amount of the obligation can be reliably measured. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessment of the time value of money and the risks specific to the liability. Leased Assets Assets leased under operating leases are not recorded in the statement of financial position. Rental payments are charged directly to the income statement in the period in which they are incurred. Lease incentives, primarily up-front cash payments or rent free periods, are spread over the period of the lease term. Payments made to acquire operating leases are treated as prepaid lease expenses and amortised over the life of the lease. The land and buildings element of property leases are considered separately for the purposes of the lease classification. Income tax The charge for current income tax is based on the results for the year as adjusted for items which are not taxed or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences between the tax bases of certain assets and liabilities and their carrying amounts in the financial statements. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference is due to goodwill arising on a business combination or from an asset or liability, the initial recognition of which does not affect either taxable or accounting income. Deferred tax is charged or credited in the profit and loss account or in Other Comprehensive Income, except when it relates to items credited or charged directly to Shareholders’ equity, in which case the deferred tax is also dealt with in Shareholders’ equity. Financial assets The Group’s financial assets fall into the categories set out below, with the allocation depending to an extent on the purpose for which the asset was acquired. Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their fair values. • Trade receivables: Trade receivables do not carry interest and are stated at their nominal value as reduced by allowances for estimated irrecoverable amounts. • Cash and cash equivalents: Cash and cash equivalents in the Statement of Financial Position comprise cash at bank and in hand, short-term deposits and other short-term liquid investments. In the Cash Flow Statement, cash and cash equivalents comprise cash and cash equivalents as defined above, net of bank overdrafts. 25430.02 27 March 2017 3:52 PM Proof 8 25 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued Financial liabilities All of the Group’s financial liabilities are classified as financial liabilities carried at amortised cost. The Group does not use derivative financial instruments or hedge account for any transactions. Unless otherwise indicated, the carrying amounts of the Group’s financial liabilities are a reasonable approximation of their fair values. Financial liabilities include the following items: Trade payables and other short-term monetary liabilities, which are recognised at their nominal value. Bank borrowings, which are initially, recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated Statement of Financial Position. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Pension The Group operates a defined contribution scheme to the benefit of its employees. Contributions payable are changed to income in the year they are payable. Determination and presentation of operating segments The Quixant Group determines and presents operating segments based on the information that internally is provided to the executive management team, the body which is considered to be the Quixant Group’s Chief Operating Decision Maker (“CODM”). An operating segment is a component of the Quixant Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Quixant Group’s other components. The operating segment’s operating results are reviewed regularly by the CODM to make decisions about resources to be allocated to the segment to assess its performance, and for which discrete financial information is available Share based payments The grant date fair value of share based payments awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which employees become unconditionally entitled to the awards. The fair value of the awards granted is measured using an option valuation model, taking into account the terms and conditions upon which the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non-vesting conditions, the grant date for fair value of the share based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA) and profit before tax (PBT) EBITDA, adjusted EBITDA, PBT and adjusted PBT for the current and prior year have been derived as follows: Profit for the year Adding back: Taxation expense Financial expenses Depreciation Amortisation of intangible assets Amortisation of customer relationships and order backlog EBITDA/PBT Amortisation of customer relationship and order backlog Share based payments expense Costs arising on the acquisition of subsidiaries Settlement of claim (note 5) Termination payment and discontinued products (note 5) Adjusted EBITDA/PBT 26 EBITDA 2016 $000 9,293 2,370 371 465 1,001 1,228 14,728 – 312 – (377) 987 15,650 2015 $000 6,420 1,368 74 312 559 – 8,733 – 197 1,168 – – 10,098 PBT 2016 $000 9,293 2,370 – – – – 11,663 1,228 312 – (377) 987 13,813 2015 $000 6,420 1,368 – – – – 7,788 – 197 1,168 – – 9,153 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 2. Acquisitions of subsidiaries Acquisitions in the previous period On 10 November 2015, the Company acquired all of the ordinary shares in Densitron Technologies plc for £7,663,601.66 ($11,600,971) being 11p per share, satisfied in cash. On 9 December 2015, the Company acquired all of the ordinary shares in Alpha Display Europe GmbH (subsequently renamed Quixant Deutschland GmbH) for $750,000 and contingent consideration estimated as $750,000 to be satisfied in cash. The accounting for the acquisition was based on estimated results in the 2015 accounts as 2015 financial statements of Quixant Deutschland were outstanding. These accounts have now been completed and the appropriate amendments have been undertaken in these accounts. There have been no material changes to the acquisition accounting. Effect of acquisitions The 2015 financial statements for Quixant Deutschland GmbH were not available at the time of completion of the 2015 Group financial statements, these accounts have now been completed giving rise to the following effect on the Group’s assets and liabilities. Acquiree’s net assets at the acquisition date: Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Consideration paid: Initial cash price paid Contingent consideration at fair value Total consideration Estimated values at acquisition $000 Adjustments to previous estimates $000 Adjusted recognised values on acquisition $000 – 55 – (28) 27 750 750 1,500 179 183 85 (337) 110 – – – 179 238 85 (365) 137 750 750 1,500 Goodwill on acquisition 1,473 (110) 1,363 Goodwill has arisen on the acquisition because the consideration paid is in excess of the net identifiable assets and liabilities. This represents the value of the underlying business including its workforce. No intangible assets have been recognised on the acquisition because the consideration for the acquisition was primarily to acquire the workforce and their expertise. Although Quixant Deutschland owned some underlying contracts, these were not significant. Contingent consideration The Group has agreed to pay additional consideration to the vendors of Quixant Deutschland GmbH based on the profit earned over the three years following acquisition. The range of the additional consideration payment is between $nil and $3,375,000. The Group has included $750,000 as contingent consideration related to the additional consideration, which represented its fair value at the acquisition date. The calculation of the deferred consideration has been reassessed at 31 December 2016 and it is considered that this remains the fair value of the deferred consideration. The key assumptions in assessing the fair value are the growth rate and gross profit margin as applied to future profits of Quixant Deutschland GmbH. Acquisition related costs The group incurred acquisition costs of $1,168,000 relating to professional fees in respect of due diligence and advice. These costs have been included as a cost in administrative expenses in the group’s consolidated profit and loss account for 2015. 25430.02 27 March 2017 3:52 PM Proof 8 27 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 3. Business and geographical segments The chief operating decision maker in the organisation is an executive management committee comprising the Board of Directors. They have determined the operating segments detailed within this report and, on which, the business is managed. The Group assesses the performance of the segments based on a measure of revenue and EBITDA. The operating segments applicable to the Group are as follows: • Quixant A single customer accounted for 21.9% of reported revenues for the year ended 31 December 2016 (2015: 43%). • Densitron Europe • Densitron America • Densitron France • Densitron Japan Together, Densitron Europe, Densitron America, Densitron France and Densitron Japan comprise the Densitron division. 2016 Revenue Profit/(loss) before tax Balance Sheet Assets Liabilities Net assets/(liabilities) EBITDA Capital Expenditure Depreciation/amortisation 2015 Revenue Profit/(loss) before tax Balance Sheet Assets Liabilities Net assets/(liabilities) EBITDA Capital Expenditure Depreciation/amortisation Quixant Gaming $000 Densitron Europe $000 Densitron America $000 Densitron France $000 Densitron Japan $000 53,003 9,594 49,692 18,655 31,037 12,353 1,344 2,485 11,174 (601) 4,576 6,252 (1,676) (393) 62 133 15,212 1,272 4,419 2,014 2,405 1,312 16 33 5,429 984 2,944 1,853 1,091 1,019 11 24 5,547 414 2,021 572 1,449 437 9 19 Quixant Gaming $000 Densitron Europe $000 Densitron America $000 Densitron France $000 Densitron Japan $000 36,650 7,607 42,215 18,642 23,573 8,414 2,183 762 1,977 104 5,265 6,835 (1,570) 164 28 43 2,106 189 4,572 2,629 1,943 234 24 38 411 (87) 1,676 1,154 522 (70) 8 14 685 (25) 1,653 470 1,183 (9) 9 14 Total $000 90,365 11,663 63,652 29,346 34,306 14,728 1,442 2,694 Total $000 41,829 7,788 55,381 29,730 25,651 8,733 2,252 871 The results included for the Densitron segments include a full year for 2016 but for the period from acquisition on 10 November 2015 until 31 December 2015 for 2015. 28 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 4. Analysis of turnover By geographical market Asia Australia Europe North America Other The above analysis includes sales to individual countries in excess of 10% of total turnover of: Australia USA There were no such individual countries in Asia, Europe or other. 5. Expenses and auditor’s remuneration Included in profit/loss are the following: Included in gross profit: Settlement of a claim Included in operating profit: Costs associated with discontinued product lines and payments in respect of termination of employment contracts Gain/(loss) on foreign exchange transactions Costs arising on the acquisition of subsidiary companies Research and development expenditure Of which capitalised Depreciation of owned assets Amortisation of intangible assets Auditor’s remuneration: Audit of these financial statements Amounts receivable by the Company’s auditor and its associates in respect of: Audit of financial statements the company and its subsidiaries Taxation and other services Corporate finance services 25430.02 27 March 2017 3:52 PM Proof 8 2016 $000 12,719 11,400 27,536 37,581 1,129 90,365 2016 $000 11,400 36,453 2016 $000 (377) 987 (59) – 3,557 (742) 465 2,229 2015 $000 3,958 14,479 7,274 15,976 142 41,829 2015 $000 14,479 15,976 2015 $000 – – 1 1,168 2,305 (1,071) 312 559 2016 $000 2015 $000 144 284 – 107 – 126 29 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 6. Staff numbers and costs The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows: Production and manufacturing Research and customer service Sales and marketing Administrative The aggregate payroll costs of these persons was as follows: Wages and salaries Share based payments (See Note 21) Social security costs Contributions to defined contribution plans 7. Directors’ remuneration EXECUTIVE DIRECTORS N C L Jarmany G P Mullins C-T Lin A C Preddy J F Jayal (from 20 June 2016) NON-EXECUTIVE DIRECTORS M J Peagram G van Zwanenberg Share Based Payments 2016 $000 Pension Contributions 2016 $000 Salary/Fee 2016 $000 280 280 315 189 128 1,192 94 60 1,346 – – – 3 2 5 – – 5 – 2 – 1 1 4 – – 4 2016 $000 35 53 29 43 160 2016 $000 9,690 312 934 374 11,310 Total 2016 $000 280 282 315 193 131 1,201 94 60 1,355 2015 $000 25 45 26 42 138 2015 $000 4,028 197 278 95 4,598 Total 2015 $000 258 258 237 176 – 929 98 63 1,090 During the year, A C Preddy exercised options over 10,000 shares and J F Jayal exercised options over 21,800 non-approved share options prior to his appointment. (2015: none). There were no directors’ advances, credits or guarantees outstanding at 31 December 2016 or 2015. 8. Finance income and expense Total interest expense on financial liabilities measured at amortised cost Total finance expense 2016 $000 371 371 2015 $000 74 74 30 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 9. Taxation Recognised in the profit and loss account Current tax expense UK corporation tax Foreign tax Adjustments for prior years Current tax expense Deferred tax (credit)/expense Origination and reversal of temporary differences Deferred tax (credit)/expense Total tax expense Reconciliation of effective tax rate Profit for the year Total taxation expense Profit excluding taxation Tax using the UK corporation tax rate of 20% (2015: 20.25%) Non-deductible expenses Enhanced research and development claim Patent box tax relief Reduction in deferred tax rate to 18% (2015: 18%) Overseas tax in excess of standard UK rate Unrelieved losses Over provided in prior years Enhanced research and development claim Other Total taxation expense 2016 $000 1,401 1,012 (175) 2,238 132 132 2,370 2016 $000 9,293 2,370 11,663 2,333 78 (436) (104) (28) 715 (13) – (175) 2,370 2015 $000 764 550 (121) 1,193 175 175 1,368 2015 $000 6,420 1,368 7,788 1,577 30 (356) – (2) 276 (36) (121) – 1,368 Factors that may affect future tax charges Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015 and an additional reduction to 17% (effective 2020) was substantively enacted on 6 September 2016. This will reduce the Company’s future current tax charge accordingly. The deferred tax liability at 31 December 2016 has been calculated based on these rates. 25430.02 27 March 2017 3:52 PM Proof 8 31 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 10. Earnings per ordinary share (EPS) 2016 $000 2015 $000 9,293 6,420 Number 65,004,414 Number 64,634,782 1,614,766 66,619,180 1,810,578 66,445,360 $0.1430 $0.1395 $0.0993 $0.0967 Land And Buildings $000 Plant And Equipment $000 4,776 24 690 – (195) 5,295 5,295 93 (1) 5,387 152 96 – (4) 244 244 107 2 353 4,624 5,051 5,034 1,321 190 411 (10) (81) 1,831 1,831 332 14 2,177 727 216 (10) (47) 886 886 358 (10) 1,234 594 945 943 Total $000 6,097 214 1,101 (10) (276) 7,126 7,126 425 13 7,564 879 312 (10) (51) 1,130 1,130 465 (8) 1,587 5,218 5,996 5,977 Earnings Earnings for the purposes of basic and diluted EPS being net profit attributable to equity shareholders Number of shares Weighted average number of ordinary shares for the purpose of basic EPS Effect of dilutive potential ordinary shares: Share options Weighted number of ordinary shares for the purpose of diluted EPS Basic earnings per share Fully diluted earnings per share 11. Property, plant and equipment – Group Cost Balance at 1 January 2015 Acquisitions through business combinations Other additions Disposals Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Additions Effect of movements in foreign exchange Balance at 31 December 2016 Depreciation Balance at 1 January 2015 Depreciation charge for the year Disposals Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Depreciation charge for the year Effect of movements in foreign exchange Balance at 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 and 1 January 2016 At 31 December 2016 32 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 11. Property, plant and equipment – Company Cost Balance at 1 January 2015 Additions Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Additions Effect of movements in foreign exchange Balance at 31 December 2016 Depreciation Balance at 1 January 2015 Depreciation charge for the year Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Depreciation charge for the year Effect of movements in foreign exchange Balance at 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 and 1 January 2016 At 31 December 2016 Land And Buildings $000 Plant And Equipment $000 3,369 8 (97) 3,280 3,280 85 57 3,422 141 64 (4) 201 201 65 4 270 3,228 3,079 3,152 1,079 222 (18) 1,283 1,283 100 12 1,395 623 165 (6) 782 782 191 4 977 456 501 418 25430.02 27 March 2017 3:52 PM Proof 8 Total $000 4,448 230 (115) 4,563 4,563 185 69 4,817 764 229 (10) 983 983 256 8 1,247 3,684 3,580 3,570 33 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 12. Intangible assets – Group Cost Balance at 1 January 2015 Additions through business combinations Additions – internally developed Additions – externally purchased Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Additions – internally developed Additions – externally purchased Adjustments to prior year (note 2) Effect of movements in foreign exchange Balance at 31 December 2016 Amortisation and impairment Balance at 1 January 2015 Amortisation for the year Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Amortisation for the year Effect of movements in foreign exchange Balance at 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 and 1 January 2016 At 31 December 2016 Customer Relationships And Order Backlog $000 Internally Generated Capitalised Development costs $000 Computer Software $000 Goodwill $000 – – – 7,079 – 7,079 7,079 – – (110) (35) 6,934 – – – – – – – – – 7,079 6,934 – – – 5,201 – 5,201 5,201 – – – – 5,201 – – – – – 1,228 – 1,228 – 5,201 3,973 459 – – 80 (17) 522 522 – 275 – 12 809 136 82 (5) 213 213 103 4 320 323 309 489 2,417 225 1,071 – 79 3,792 3,792 742 – – – 4,534 509 477 – 986 986 898 1 1,885 1,908 2,806 2,649 Total $000 2,876 225 1,071 12,360 62 16,594 16,594 742 275 (110) (23) 17,478 645 559 (5) 1,199 1,199 2,229 5 3,433 2,231 15,395 14,045 34 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Impairment testing Goodwill has been allocated to cash generating units (CGUs) as follows: Quixant Densitron Europe Densitron America Densitron France Densitron Japan Goodwill 2016 $000 1,363 2,868 2,076 485 142 6,934 2015 $000 1,473 2,903 2,076 485 142 7,079 The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from the higher or the fair value less costs to sell and the calculations of value in use. The impairment review carried out in March 2017 and March 2016 indicated that no impairment of goodwill is necessary at 31 December 2016 or 31 December 2015. The recoverable amounts of the CGUs listed above have been determined from value in use calculations based on cash flow projections from formally approved budgets covering the year to 31 December 2017. The following assumptions have been adopted: • Cash flows were based on the internal budgets for 2017 with reference to a three year forecast to 2019. Cash flows for a further two years were extrapolated using a constant growth rate of 2.5% and a terminal value calculated on the basis of revenues declining at a rate of 10% per annum; • The forecasts were put together taking into account any specific market condition in which each CGU operates; and • The estimated market participant weighted average cost of capital of the CGUs has been calculated to be approximately 15% and this is the discount rate that has been applied; (although the actual risk rates in each CGU may differ from 15%, the effect of any difference is immaterial, and is considered within managements sensitivity analysis) A sensitivity analysis was carried out for each of the CGUs. The growth rates were reduced to zero and the discount rate for each CGU was increased to 20%. In all cases, the value in use exceeded the carrying value, a table showing the headroom following the sensitivity analysis is shown below. Following the sensitivity analysis that has been carried out there were no areas that were identified as being particularly sensitive for either 2016 or 2015. Quixant Densitron Europe Densitron America Densitron France Densitron Japan 25430.02 27 March 2017 3:52 PM Proof 8 Headroom 2016 $000 212 1,580 1,573 351 436 35 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 12. Intangible assets – Company Cost Balance at 1 January 2015 Additions – internally developed Additions – externally purchased Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Additions – internally developed Additions – externally purchased Effect of movements in foreign exchange Balance at 31 December 2016 Amortisation Balance at 1 January 2015 Amortisation for the year Effect of movements in foreign exchange Balance at 31 December 2015 Balance at 1 January 2016 Amortisation for the year Effect of movements in foreign exchange Balance at 31 December 2016 Net book value At 1 January 2015 At 31 December 2015 and 1 January 2016 At 31 December 2016 13. Investment property Balance at 1 January 2016 Acquisitions through business combinations Effect of movements in foreign exchange Balance at 31 December 2016 Internally Generated Capitalised Development Costs $000 Computer Software $000 459 – 70 (17) 512 512 – 282 12 806 136 81 (5) 212 212 103 4 319 323 300 487 2,417 1,071 – – 3,488 3,488 39 – – 3,527 509 374 – 883 883 748 – 1,631 1,908 2,605 1,896 Group 2016 $000 740 (123) 617 2015 $000 – 754 (14) 740 Company 2016 $000 – – – – Total $000 2,876 1,071 70 (17) 4,000 4,000 39 282 12 4,333 645 455 (5) 1,095 1,095 851 4 1,950 2,231 2,905 2,383 2015 $000 – – – – Investment property relates to an area of land owned by the Group at Blackheath in South East London. The fair value of the investment property was determined by external, independent property valuers, having appropriate professional qualifications and recent experience in the location and category of the property being valued. The last valuation was carried out on 10 May 2013. The Directors have reviewed the valuation put on the land on an annual basis and consider that the fair value of the land does not differ from its current carrying amount and as such they do not consider that a revaluation is required in the current year. 36 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 14. Investments in group companies and associated undertakings The principal subsidiary undertakings in which the Company had an interest in the year were: Registered office of business Principal activities Class Of Shares Held Ownership 2016 and 2015 Company name Quixant USA Inc Quixant UK Limited Quixant Italia srl Densitron Technologies Limited Densitron Europe Limited * Densitron Corporation of Japan * Densitron Corporation * Densitron France ** Densitron Nordic Oy ** Densitron Deutschland GmbH ** Densitron Land Ltd * 1 2 3 2 2 4 5 6 7 8 2 Densitron Display Taiwan Limited * Quixant Deutschland GmbH 9 10 * Subsidiary of Densitron Technologies Limited ** Subsidiary of Densitron Europe Limited Distribution company Sales of specialist computer systems Software development Ordinary Ordinary Ordinary 100% 100% 99% Holding company Sales of electronic display products and parent of European subsidiary undertakings Ordinary 100% Ordinary 100% Sales of electronic display products Sales of electronic display products Sales of electronic display products Sales of electronic display products Sales of electronic display products Property development Procurement and sale of electronic display products Sales of electronic display products Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 80% 100% 100% 100% 100% 1 2 3 4 5 6 7 8 9 2147 Pama Lane Bldg 6 Las Vegas NV 89119 USA Aisle Barn, 100 High Street, Balsham, Cambridge CB21 4EP Contrada Case Bruciate, 1, Torrita Tiberina (RM), 00060, Italy Aichiya Building 2F, 1-26-2 Omorikita, Ota-ku, Tokyo 2330 Pomona Rincon Road, Corona, CA 92880 3 Rue de Tasmanie, 441115, Basse-Goulaine FMyllypuronitie 1, 00920, Helsinki Airport Business Centre, AM Solnermoos 17, Halbergmoos, 85399, Germany 12F., No. 150, Jianyi Road, Zhonghe Dist., New Taipei City 23511, Taiwan 10 Römerstraße 7, D-85661 Forstinning, Germany Fixed asset investments Balance at 1 January 2016 Acquisitions – Group settled share based payments Acquisitions – External Balance at 31 December 2016 25430.02 27 March 2017 3:52 PM Proof 8 Company 2016 $000 11,875 73 – 11,948 2015 $000 196 79 11,600 11,875 37 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 15. Deferred tax assets and liabilities – Group Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Property, plant and equipment Intangible assets – capitalised development costs Intangible assets – acquired in business combinations Share based payments Receivables Inventory provisions Tax value of loss carry-forwards Other Net tax (assets)/liabilities Movement in deferred tax during the year Property, plant and equipment Intangible assets – capitalised development costs Intangible assets – acquired in business combinations Share based payments Receivables Inventory provisions Tax value of loss carry-forwards Other Movement in deferred tax during the prior year Property, plant and equipment Intangible assets – capitalised development costs Intangible assets – acquired in business combinations Share based payments Receivables Inventory provisions Tax value of loss carry-forwards Other Assets 2016 $000 – – – (109) (32) (25) – (91) (257) 2015 $000 – – – (70) (32) (312) (175) (31) (620) Liabilities 2016 $000 115 463 715 – – – – 149 1,442 2015 $000 164 521 936 – – – – 46 1,667 1 January 2016 $000 164 521 936 (70) (32) (312) (175) 15 1,047 1 January 2015 $000 6 382 – (40) – (23) – – 325 Recognised In Income $000 (49) (58) (221) (39) – 287 175 37 132 Acquired In Business Combination $000 – – – – – – – – – Movements In Exchange $000 – – – – – – – 6 6 31 December 2016 $000 115 463 715 (109) (32) (25) – 58 1,185 Recognised In Income $000 124 139 – (30) – (82) – 24 175 Acquired In Business Combination $000 34 – 936 – (32) (207) (175) (9) 547 Movements In Exchange $000 – – – – – – – – – 31 December 2015 $000 164 521 936 (70) (32) (312) (175) 15 1,047 38 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 15. Deferred tax assets and liabilities – Company Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Property, plant and equipment Intangible assets – capitalised development costs Inventories Share based payments Exchange Tax (assets)/liabilities Movement in deferred tax during the year Property, plant and equipment Intangible assets – capitalised development costs Share based payments Inventories Exchange Movement in deferred tax during the prior year Property, plant and equipment Intangible assets – capitalised development costs Share based payments Inventories Exchange Assets 2016 $000 – – (12) (88) – (100) 2015 $000 – – (20) (50) – (70) 1 January 2016 $000 131 520 (50) (20) 20 601 1 January 2015 $000 6 382 (26) (21) – 341 Liabilities 2016 $000 97 340 – – 13 450 2015 $000 131 520 – – 20 671 Recognised In Income $000 (34) (180) (38) 8 (7) (251) 31 December 2016 $000 97 340 (88) (12) 13 350 Recognised In Income $000 125 138 (24) 1 20 260 31 December 2015 $000 131 520 (50) (20) 20 601 25430.02 27 March 2017 3:52 PM Proof 8 39 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 16. Inventories Raw materials and consumables Work in progress Finished goods Group 2016 $000 3,307 2,638 6,955 12,900 2015 $000 1,386 1,920 5,979 9,285 Company 2016 $000 3,307 2,638 1,510 7,455 2015 $000 1,386 1,920 2,189 5,495 Raw materials, consumables and changes in finished goods and work in progress recognised as cost of sales in the year amounted to $61,882,000 (2015: $25,991,000). The cost of inventories recognised as an expense includes $196,000 (2015: $nil) in respect of write downs of inventory to net realisable value. 17. Trade and other receivables Trade receivables Amounts receivable from subsidiary undertakings Other receivables Group 2016 $000 18,328 – 2,675 21,003 2015 $000 16,754 – 2,730 19,484 Company 2016 $000 – 11,007 1,027 12,034 2015 $000 – 9,408 594 10,002 All debtors are receivable within one year and are included as current assets. A provision of $226,156 has been provided in respect of potential doubtful debts as at 31 December 2016 (31 December 2015: $429,086). As at 31 December 2016 the following sets out the trade receivables that were past due but not impaired. These relate to customers where there is no evidence of unwillingness or of an inability to settle the debt. The ageing of these receivables is as follows: 30 – 60 days 61 – 90 days Over 90 days 18. Cash and cash equivalents/bank overdrafts Cash and cash equivalents per balance sheet Cash and cash equivalents per cash flow statements Group 2016 $000 2,648 578 63 Group 2016 $000 8,853 8,853 2015 $000 2,747 371 1,805 2015 $000 3,861 3,861 Company 2016 $000 – – – 2015 $000 – – – Company 2016 $000 1,375 1,375 2015 $000 1,401 1,401 40 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 19. Other interest-bearing loans and borrowings This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings, which are measured at cost. For more information about the Group and Company’s exposure to interest rate and foreign currency risk, see Note 24. Non-current liabilities Secured bank loans Current liabilities Current portion of secured bank loans Terms and debt repayment schedule Group 2016 $000 6,148 6,148 2,774 2,774 2015 $000 8,744 8,744 2,994 2,994 Company 2016 $000 6,251 6,251 911 911 2015 $000 8,448 8,448 605 605 Currency Nominal Interest Rate Year of Maturity Face Value 2016 $000 Carrying Amount 2016 $000 Face Value 2015 $000 Carrying Amount 2015 $000 Loan 1 – secured on the Group’s freehold property in Taiwan Loan 2 – secured on the Group assets Loan 3 – secured on UK subsidiary assets Loan 4 – Secured loan on subsidiary assets Letters of credit Letters of credit Invoicing discounting facility Factoring NTD 1.80% USD 2.75% over LIBOR GBP 3.5% over base 2% over LIBOR 2.6% to 2.68% 2% over LIBOR 2.75% over base USD NTD USD GBP USD Euro Euro 1.3% over Euribor 2029 2018 2017 2017 2017 2017 2017 2017 1,076 1,076 1,146 1,146 5,175 5,175 7,400 7,400 247 247 744 744 – 911 – 241 594 56 622 8,922 – 911 – 241 594 56 622 8,922 235 507 493 187 1,013 13 – 11,738 20. Trade and other payables Current Trade payables Other tax and social security payables Other payables and accrued expenses Amounts payable to subsidiary undertakings Group 2016 $000 13,029 367 3,803 – 17,199 2015 $000 13,325 82 1,867 – 15,274 Company 2016 $000 8,202 – 1,512 3,476 13,190 25430.02 27 March 2017 3:52 PM Proof 8 235 507 493 187 1,013 13 – 11,738 2015 $000 6,689 – 800 3,392 10,881 41 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 21. Employee benefits Defined contribution plans The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was $374,000 (2015: $95,000). Share based payments – Group and Company In 2013 the Company issued share options to employees. To be able to exercise these options, employees are required to be employed by the Company for a period of three years from the grant date. In addition exercise is conditional on the Company achieving a minimum level of EPS growth over the vesting period. Options have been issued over 2,052,064 (2015: 1,895,370) shares. The initial options issued were exercisable in 2016 and employees exercised their options over 730,000 shares. A further 67,666 (2015: 76,230) options lapsed during the year, leaving 1,254,398 (2015: 1,895,370) outstanding at the year end. Exercise prices are set out below. Options issued under the scheme expire 10 years from grant date. The fair value of employee share options is measured using a Black Scholes model. Measurement inputs and assumptions are as follows: Fair value at grant date Weighted average share price Exercise price Expected volatility Option life Risk-free interest rate 2016 Issue 4 £2.09 £2.09 £2.09 44% 5 years 0.9% 2016 Issue 3 £1.63 £1.63 £1.63 44% 5 years 0.9% 2016 Issue 2 £0.61 £1.37 £1.40 50% 5 years 0.9% 2016 Issue 1 £0.19 £0.46 £0.49 50% 5 years 0.9% The fair values at grant date were converted at the exchange rate on the grant date to give fair values of $2.93, $2.43, $0.98 and $0.29 per option. The total expense recognised in the period in respect of share options is $312,000 (2015: $197,000). The number and weighted average exercise prices of share options are as follows: Outstanding at the beginning of the year Granted during the year Lapsed during the year Exercised during the year Outstanding at the end of the year Weighted Average Exercise Price 2016 0.59p 2.09p 1.60p 0.49p 0.78p Number Of Options 2016 1,895,370 156,694 (67,666) (730,000) 1,254,398 Weighted Average Exercise Price 2015 0.49p 1.40p 0.99p – 0.59p Number Of Options 2015 1,710,200 261,400 (76,230) – 1,895,370 42 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 22. Provisions Group Balance at 1 January Provisions made during the year Balance at 31 December 2016 Non-current Current 2016 $000 750 – 750 750 – 750 2015 $000 – 750 750 750 – 750 The provision is in respect of contingent consideration payable in cash on the acquisition of Alpha Display Europe GmbH (since renamed Quixant Deutschland GmbH). The Company has no provisions. 23. Capital and reserves Share capital Fully paid ordinary shares of 0.1p per share Balance at 1 January 2015 and 31 December 2015 Balance at 1 January 2016 Exercise of share options (see note 21) Balance at 31 December 2016 Ordinary shares Number 64,634,782 64,634,782 730,000 65,364,782 Share Capital $000 104 104 1 105 Share premium $000 5,181 5,181 495 5,676 The holders of fully paid ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. 730,000 ordinary shares were issued following the exercise of vested options arising from issue 1 in 2013 (2015: nil) (see note 21). Options were exercised at an average price of £0.49 per share. Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. Dividends The following dividends were recognised during the period: 1.5p (2015: 1.2p) per qualifying ordinary share Total dividends recognised in the year 2016 $000 1,400 1,400 2015 $000 1,182 1,182 After the Balance Sheet date dividends of 2.0p per qualifying ordinary share (2015: 1.5p) were proposed by the Directors. This dividend has not been provided for. 25430.02 27 March 2017 3:52 PM Proof 8 43 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 24. Financial instruments – Group and Company This note presents information about the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Financial risks The Group’s activities expose it to a number of financial risks including credit risk, cash flow risk and exchange rate risk: Credit risk The Group’s principal financial assets are bank balances and cash, trade and other receivables. The Group’s credit risk is primarily attributable to its trade receivables, which were concentrated in a small number of high value customer accounts, but following the acquisition of the Densitron Group of companies this risk has been reduced. In addition, operations in emerging or new markets may have a higher than average risk of political or economic instability and may carry increased credit risk. In each case the risk to the Group is the recoverability of the cash flows. Credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. The credit risk on trade and other receivables is managed by agreeing appropriate payment terms with customers, obtaining credit agency ratings of all potential customers, by requiring wherever possible payment for goods in advance or upon delivery, and by closely monitoring customers balances due, to ensure they do not become overdue. In addition careful consideration is given to operations in emerging or new markets before the Group enters that market. The aging of trade receivables at the Balance Sheet date is set out in Note 17. Cash flow risk Group cash balances and expected cash flow are monitored on a daily basis to ensure the Group has sufficient available funds to meet its needs. Exchange rate risk Group exposure to exchange rate risk includes the measurement of overseas operations at the relevant exchange rate and changes in trade payables and receivables as a result of exchange rate movements. Daily exchange rate movements are monitored and any losses or gains incurred are taken to the Profit and Loss account and reported in the Group’s internal management information. Before agreeing any overseas transactions consideration is given to utilising financial instruments such as hedging and forward purchase contracts. Liquidity risk Group policy is to maintain a strong capital base so as to enhance investor, creditor and market confidence. Surplus funds are placed on deposits with cash balances available for immediate withdrawal if required. 44 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Capital management Group and Company The capital management policy is to maintain a strong capital base so as to enhance investor, creditor and market confidence. The Board’s objective is to safeguard the Group’s ability to continue as a going concern, to sustain the future development of the business and to provide returns for shareholders, whilst controlling the cost of capital. The Group monitors capital on the basis of the carrying amount of equity, less cash and cash equivalents as presented on the face of the Balance Sheet. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets. There were no changes in the Group’s approach to capital management during the period. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Total equity Cash and cash equivalents Capital Total equity Other financial liabilities Total financing Group 2016 $000 34,306 (8,853) 25,453 Group 2016 $000 34,306 8,922 43,228 2015 $000 25,651 (3,861) 21,790 2015 $000 25,651 11,738 37,389 Company 2016 $000 17,269 (1,375) 15,894 Company 2016 $000 17,269 7,162 24,431 2015 $000 15,048 (1,401) 13,647 2015 $000 15,048 9,053 24,101 Financial assets and liabilities The Group’s activities are financed by cash at bank and bank borrowings. Credit risk Exposure to credit The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Trade and other receivables excluding prepayments Group 2016 $000 8,853 18,328 27,181 2015 $000 3,861 16,754 20,615 Company 2016 $000 1,375 11,007 12,382 2015 $000 1,401 9,408 10,809 The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was: Australia USA Europe Asia Rest of world Group 2016 $000 2,279 9,982 5,235 828 4 18,328 2015 $000 3,464 7,432 4,789 1,068 1 16,754 Company 2016 $000 – – – – – – 2015 $000 – – – – – – 45 25430.02 27 March 2017 3:52 PM Proof 8 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 24. Financial instruments – Group and Company continued Liquidity risk The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements. Group 31 December 2016 Carrying amount Contractual cash flows 6 months or less 6 to 12 months More than 12 months Group 31 December 2015 Carrying amount Contractual cash flows 6 months or less 6 to 12 months More than 12 months Company 31 December 2016 Carrying amount Contractual cash flows 6 months or less 6 to 12 months More than 12 months Company 31 December 2015 Carrying amount Contractual cash flows 6 months or less 6 to 12 months More than 12 months Trade and Other Payables $000 Other Financial Liabilities $000 Total $000 17,199 8,922 26,121 17,199 – – 17,199 $000 2,731 60 6,230 9,021 $000 19,930 60 6,230 26,220 $000 15,274 11,738 27,012 15,274 – – 15,274 2,577 453 9,646 12,676 17,851 453 9,646 27,950 $000 $000 $000 13,190 7,162 20,352 13,190 – – 13,190 $000 972 60 6,230 7,262 $000 14,162 60 6,230 20,452 $000 10,881 9,053 19,934 10,881 – – 10,881 553 47 9,343 9,943 11,434 47 9,343 20,824 46 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 The carrying amounts of the Group’s financial assets and liabilities may also be categorised as follows: Current assets Cash and cash equivalents Trade and other receivables excluding prepayments Group 2016 $000 8,853 18,328 27,181 2015 $000 3,861 16,754 20,615 Company 2016 $000 1,375 11,007 12,382 2015 $000 1,401 9,408 10,809 All of the above relate to the IAS 39 category ‘loans and receivables’ and are measured at amortised cost. Current liabilities Trade and other payables Other financial liabilities Non-current liabilities Other financial liabilities (17,199) (2,774) (19,973) (15,274) (2,994) (18,268) (13,190) (911) (14,101) (10,881) (605) (11,486) (6,148) (26,121) (8,744) (27,012) (6,251) (20,352) (8,448) (19,934) All of the above relate to the IAS 39 category ‘other financial liabilities’ and are measured at amortised cost. Liquidity needs are managed by regular review of the timing of expected receivables and the maintenance of cash on deposit. Currency risk Whilst the Group experiences some revenue, cost of sales and overheads in other currencies, the majority of revenue and cost of sales is denominated in US dollars which is the Group’s reporting currency and therefore foreign currency risk is considered to be limited. Interest rate and currency profile The Group’s financial assets comprise cash at bank. At 31 December 2016 the average interest rate earned on the temporary closing balances was 0.54% (2015: 0.50%). Sensitivity analysis For the above reasons, the Group’s sensitivity to interest rates and currency exchange rates are considered immaterial. Fair values versus carrying amounts The Directors consider that there is no material difference between fair values and carrying amounts of financial assets and liabilities. 25430.02 27 March 2017 3:52 PM Proof 8 47 Stock Code: QXTwww.quixant.com Notes to the Financial Statements continued 25. Operating leases Non-cancellable operating lease rentals are payable as follows: Less than 1 year Between 1 and 5 years Group 2016 $000 311 202 513 2015 $000 291 426 717 Company 2016 $000 154 – 154 2015 $000 154 – 154 Group During the year $378,000 was recognised as an expense in the Profit and Loss account in respect of operating leases (2015: $180,000). Company During the year $182,000 was recognised as an expense in the Profit and Loss Account in respect of operating leases (2015: $126,000). 26. Commitments Neither the Group nor Company had any capital commitments entered into at 31 December 2016 (2015: none). 27. Contingencies Neither the Group nor Company had any contingencies existing at 31 December 2016 (2015: none). 28. Related parties Group In June 2016 two Directors entered into a related party transaction. The wife of G P Mullins rented a house to a subsidiary company at a rent of £2,500 per calendar month. The rent payable is determined on an arm’s length basis. The subsidiary company provides the house rent free to J F Jayal. There were no other related party transactions other than transactions with key management personnel, who are the Directors disclosed in Note 7 above. Other related party transactions There are no other transactions and balances with key management not included within the Directors’ remuneration. 29. Subsequent events There have been no significant events affecting the Company or Group since the end of the year. 48 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Notice of Meeting QUIXANT PLC Registered in England No. 04316977 NOTICE IS HEREBY GIVEN THAT The Annual General Meeting of the Ordinary Shareholders of the Company will be held at the offices of finnCap Limited, 60 New Broad Street, London EC2M 1JJ, on Tuesday 25 April 2017 at 10:00 a.m. to transact the following business: Ordinary Business 1. To receive and, if thought fit, adopt the audited Annual Accounts of the Company for the year ended 31 December 2016, together with the reports of the Directors and the Auditors thereon. 2. Upon the recommendation of the Directors, to declare a final dividend of 2.0 pence on each of the Ordinary Shares of £0.001 each. 3. To appoint KPMG LLP as auditors of the Company from the conclusion of this Annual General Meeting until the conclusion of the next general meeting of the Company at which accounts are laid. 4. To authorise the Directors to determine the remuneration of the Auditors. 5. To elect Jonathan Jayal as a Director who retires in accordance with the provisions of Article 66 of the Company’s Articles of Association. 6. To elect Gaye Hudson as a Director who retires in accordance with the provisions of Article 66 of the Articles of Association. 7. To re-elect Nicholas Jarmany as a Director who retires in accordance with the provisions of Article 69 of the Company’s Articles of Association. 8. To re-elect Gary Mullins as a Director who retires in accordance with the provisions of Article 69 of the Company’s Articles of Association. Special Business: Ordinary Resolution 9. That the Directors of the Company be generally and unconditionally authorised for the purposes of Section 551 of the Companies Act 2006 (“the Act”) to exercise all powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares of the Company up to an aggregate number of 21,544,927 Ordinary Shares of £0.001 each provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company or on 30 June 2018, whichever is the earlier, save that the Company shall be entitled to make, prior to the expiry of such authority, any offer or agreement which would or might require equity securities (as defined in Section 560 of the Act) to be allotted after the expiry of such authority, and the Directors may allot any such securities pursuant to such offer or agreement as if such authority had not expired; and all prior authorities to allot securities (to the extent unutilised) be revoked, but without prejudice to the allotment of any shares or securities already made or to be made pursuant to such prior authorities. Special Business: Special Resolution 10. That the Directors of the Company be granted power pursuant to Section 571 of the Companies Act 2006 (“the Act”) to allot equity securities (as defined in Section 560 of the Act) for cash pursuant to the authority conferred on them by resolution 9 and to allot equity securities (as defined in section 560(3) of the Act (sale of treasury shares)) for cash in each case as if Section 561 of the Act did not apply to any such allotment provided that this power shall be limited to: (i) the allotment of equity securities in connection with a rights issue, open offer or other offer of securities in favour of the holders of ordinary shares in the Company on the register of members at such record dates as the Directors of the Company may determine and other persons entitled to participate therein where the equity securities respectively attributable to the interests of the ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares in the Company held or deemed to be held by them on any such record dates, subject to such exclusions or other arrangements or practical problems arising under the laws of any overseas territory or the requirements of any other regulatory body or stock exchange or by virtue of shares being represented by depositary receipts or any other matter whatever; and (ii) the allotment (otherwise than pursuant to paragraph (i) above) to any person or persons of equity securities up to an aggregate number of 6,536,478 Ordinary Shares of £0.001 each, provided that this authority shall expire at the conclusion of the next Annual General Meeting of the Company or on 30 June 2018, whichever is the earlier. This power shall expire at the conclusion of the next Annual General Meeting of the Company or on 30 June 2018, whichever is the earlier, unless previously varied, revoked or renewed by the Company in general meeting provided that the Company may, before such expiry, make any offer or agreement which would or might require securities to be allotted, or treasury shares sold, after such expiry and the Directors may allot such securities or sell treasury shares pursuant to any such offer or agreement as if the power had not expired; and all prior powers granted under Section 571 of the Act shall be revoked provided that such revocation shall not have retrospective effect. 25430.02 27 March 2017 3:52 PM Proof 8 49 Stock Code: QXTwww.quixant.com Notice of Meeting continued Special Business: Special Resolution 11. That the Directors shall be authorised to make market purchases (within the meaning of Section 693(4) of the Companies Act 2006) of Ordinary Shares of £0.001 each in the Company on such terms and in such manner as the Directors shall determine, provided that: (i) the maximum number of shares hereby authorised to be acquired shall be 6,536,478 Ordinary Shares of £0.001 each; (ii) the minimum price which shall be paid for each share will be its nominal value and the maximum price shall be an amount equal to 105 per cent of the average middle market quotations for the ordinary shares of the Company (derived from the AIM appendix to the London Stock Exchange’s Daily Official List) for the five business days prior to the date of purchase; and (iii) the authority hereby given shall expire at the conclusion of the next Annual General Meeting of the Company or on 30 June 2018, whichever is the earlier, save that the Company may make a purchase of Ordinary Shares under such authority after the expiry of this authority if the contract of purchase for the same was concluded before such date and will or may be executed wholly or partly after such expiry. Special Business: Ordinary Resolution 12. To approve that: (a) the Company may send or supply any document or information that is: (i) required or authorised to be sent or supplied by the Company under the Companies Acts (as defined in section 2 of the Companies Act 2006 (the “2006 Act”)); or (ii) pursuant to the Company’s Articles; or (iii) pursuant to any other rules or regulations to which the Company may be subject; by making it available on a website; (b) the relevant provisions of the 2006 Act, which apply when documents sent under the Companies Acts are made available on a website, shall also apply, with any necessary changes, when any document or information is sent or supplied under the Company’s Articles or other rules or regulations to which the Company may be subject; and (c) this Resolution 11 shall supersede any provision of the Company’s Articles to the extent that they are inconsistent with this resolution. By order of the Board. L E Park Secretary Registered Office: Aisle Barn, 100 High Street, Balsham, Cambridge CB21 4EP Date: 21 March 2017 50 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 NOTES: 1. Resolutions 1 to 9 and 12 above are Ordinary Resolutions. Resolutions 10 and 11 are Special Resolutions. A member entitled to attend and vote at this meeting is entitled to appoint another person as his or her proxy to exercise all or any of his or her rights to attend, to speak and, both on a show of hands and on a poll, to vote in his or her stead at the meeting. A proxy need not be a member of the Company but must attend the meeting in person. The appointment of a proxy does not preclude a member from attending and voting in person at the meeting should he or she subsequently decide to do so. A form of proxy which may be used is enclosed. 2. A member may appoint more than one proxy in relation to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him or her. 3. To be valid, a form of proxy together with, if applicable, the power of attorney or other authority under which it is signed, or a certified copy thereof, must be received by Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen B63 3DA no later than 10:00 a.m. on 23 April 2017. 4. The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those shareholders registered in the register of members of the Company as at 6:00 p.m. on 21 April 2017 shall be entitled to attend or vote (whether on a show of hands or on a poll) at the meeting in respect of the number of shares registered in their name at the time. Changes to entries on the register after 6:00 p.m. on 21 April 2017 (or after 6:00 p.m. on the day which is two days before any adjourned meeting) shall be disregarded in determining the rights of any person to attend or vote at the meeting. 5. As at 20 March 2017 (being the last business day prior to the date of this notice) the Company’s issued capital consisted of 65,364,782 ordinary shares each carrying one vote per share. Accordingly, the total number of voting rights in the Company as at 20 March 2017 was 65,364,782. 6. CREST members who wish to appoint a proxy or proxies for the meeting or any adjournment thereof by utilising the CREST electronic proxy appointment service may do so by following the procedures described in the CREST Manual (www.euroclear.com/CREST). CREST personal members or other CREST sponsored members and those CREST members who have appointed a voting service provider(s) should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent 7RA11 by the latest time(s) for receipt of proxy appointments specified in this notice. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST special procedures in CREST for any particular message. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed (a) voting service provider(s), to procure that his CREST sponsor or voting service provider(s)) takes(s) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service provider(s) are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 7. 8. Any member attending the meeting has the right to ask questions. If a shareholder has a general query about the Annual General Meeting or wishes to give the Company prior notification of any question he wishes to ask at the Annual General Meeting he should call our financial PR advisors, Alma PR (John Coles or Hilary Buchanan) on +44 (0)20 8004 4218. Their lines are open from 8:30 a.m. to 5:30 p.m. on Monday to Friday (except public holidays). Calls may be recorded and monitored for security and training purposes. 25430.02 27 March 2017 3:52 PM Proof 8 51 Stock Code: QXTwww.quixant.com Quixant Annual Report and Accounts 2016 Shareholder Notes 52 25430.02 27 March 2017 3:52 PM Proof 8 Quixant Annual Report and Accounts 2016 Stock Code: QXT Company Information Directors N C L Jarmany G P Mullins C-T Lin Miss A C Preddy FCA J F Jayal M J Peagram G van Zwanenberg FCA Company secretary L E Park Registered office Auditor Nominated advisor and Broker Financial PR Aisle Barn 100 High Street Balsham Cambridge CB21 4EP KPMG LLP Botanic House 100 Hills Road Cambridge CB2 1AR finnCap 60 New Broad Street London EC2M 1JJ Alma PR 37 Demster Road London SW18 1AS Principal Bankers Barclays Bank PLC Legal advisors Freeths LLP Jones Day Registered number 04316977 Website Ticker www.quixant.com London: QXT 25430.02 27 March 2017 3:52 PM Proof 8 53 Stock Code: QXTwww.quixant.com Quixant plc Aisle Barn 100 High Street Balsham Cambridge CB21 4EP UK T: +44 (0)1223 892696 F: +44 (0)1223 892401 E: info@quixant.com Registered Number: 04316977 Registered in England and Wales 25430.02 27 March 2017 3:52 PM Proof 8