-- Large frame order for 120 000 pens received from TStudy, China, in August. Minimum order value is 4 MUSD.
-- Net sales in the period amounted to MSEK 168 (138) and Net sales for the quarter were MSEK 40 (55).
-- The Gross margin for the period was 34% (46%) and Gross margin for the quarter was 31% (37%). Gross profit for the period was MSEK 56 (64) and Gross profit for the quarter was MSEK 12 (20). The quarter was affected by a one-time inventory adjustment of -3 MSEK.
-- The quarter has also been impacted with costs of 5 MSEK related to cost-reduction activities. The related activities are expected to save approx. 50 MSEK annually. Further to this, the quarter has been affected by write-downs of 37.6 MSEK.
-- Earnings before depreciations and amortizations (EBITDA) for the period were MSEK -148 (-59) and EBITDA for the quarter was MSEK -60 (-25).
-- The Result after tax for the period was MSEK -208 (-68) and the Result after tax for the quarter was MSEK -106 (-30).
-- Earnings per share after dilution for the period were SEK -0.13 (-0.08) and for the quarter SEK -0.05 (-0.03).
-- ABLE Investment Advisors Inc., a Korean company, has entered into an agreement to invest 6 MUSD in Anoto, thereby replacing previous agreement with SMark Inc. As per November 25, 1.5 MUSD of the total amount has been received, with a further 3.0 MUSD secured through an issued guarantee from a financial institution.
-- Cash flow during the period was MSEK -4 (3) and Cash flow for the quarter was MSEK -34 (0). Cash flow from operating activities before changes in working capital during the period was MSEK -158 (-49) and for the quarter MSEK -70 (-24). Cash flow from financing activities during the period was MSEK 150 (92) and for the quarter MSEK 20 (64).
-- At present, Anoto faces a challenging financing situation. For further information, see “Risks and Uncertainties”.
Comments from the CEO
Presently, Anoto is undergoing a period of decisive transformation, characterized by significant cost reduction efforts and refocusing on profitability. In order to achieve profitability, Anoto has taken firm steps to streamline costly development projects and create a small, efficient organization, reducing headcounts and closing offices. Anoto is also re-directing its strategy by reducing dependency on capital intensive hardware business (digital pens and large screens) and instead focusing on a highly profitable pattern-based technology business in the mobile and digital app space.
As a result of such strategic changes, Anoto decided to proactively write-off substantial charges of legacy projects in the third quarter of 2016.
To facilitate this transition, Anoto is leveraging its own proprietary technologies and entering into new partnerships. On July 15, 2016, Anoto entered into a strategic cooperation with Digiworks, a specialist in pattern-based encoding and printing technology. The alliance will complement Anoto’s own proprietary pattern IP and pattern generating technology to kick start Anoto DNA business and to further expand Anoto’s reach into various Asian markets.
The Anoto DNA business (ADNA) is built on Anoto’s exceptional ability to create 600 quintillion unique patterns (hence, DNA) which can be printed onto products and devices. Each pattern has a unique ID and the possibility to add encodable data. With the introduction of ADNA business, Anoto expands the use of its proprietary pattern to ubiquitous mobile devices such as smartphones and tablets.
Anoto DNA has multiple applications and uses, from counterfeit protection to providing critical enabling technology to AR (Augmented Reality) advertising. Anoto is currently talking to a number of multinational companies ranging from consumer to industrial and service companies.
Having the Anoto DNA solution will also enable robust data-mining capabilities. This solution allows manufacturers to apply near-invisible unique patterns to their products, thereby enabling accurate item-level tracking and personalized digital engagement.
The cooperation between Anoto and Digiwork is reinforced by Anoto’s investment of 2 MUSD in Digiwork’s parent, SMark Co., Ltd. SMark is a Korean listed company on KOSDAQ Korea under “ticker” SMARK. Originally, the parties agreed that SMark in turn would invest 5 MUSD in Anoto at a subscription price of USD 0.029185. However, due to recent KOSDAQ (Korea Stock Exchange) regulations regarding cross-investments, SMark’s affiliate company, ABLE Investment Advisors Inc (ABLE), will make the investment. The renegotiated agreement reflects an investment of 6 MUSD at a subscription rate of USD 0.023135. As per November 25, we have received approximately 1.5 MUSD from ABLE, with a further 3.0 MUSD secured through an issued guarantee from a financial institution. The remaining 1.5 MUSD is expected to arrive beginning of December.
While the above partnerships and innovation are opening exciting new markets, the acquisitions of Livescribe and Pen Generations ensure that Anoto retains a relevant footprint in the digital pen business. In addition to providing a diversification of the pen portfolio, these acquired companies also open up the fast-growing pen markets in Asia and Latin America. Pen Generations has a strong network of partnerships, especially in the Education sector in Asia, while Livescribe provides a strengthened presence in the US retail market. As previously communicated, Tstudy China has given Anoto a frame order of 120 000 pens to be delivered within one year – the value of this frame agreement can vary substantially depending on the type of pen Tstudy chooses to buy, but an absolute minimum would be around 4 MUSD annually. Overall, the pen pipeline is very strong, with several large orders for 2017 already in place. As announced on November 16, Anoto has received an 8.4 MUSD order for pens from India for deliveries over three years.
Historically, Anoto has invested heavily in R&D, both in pen development projects but also to develop capital intensive new businesses such as large interactive screens. As a result, the company has made substantial losses – losses which have been financed through share issues. Anoto has now decided to focus on only four business areas, and going forward the company will principally invest in one of these, namely Anoto DNA (ADNA).
Our costly pen developments projects, such as the pen delivery to a Japanese insurance company and the HP Screen pen, are no longer putting any strain on the Group’s liquidity. The Japanese pen project has been successfully completed while the HP project is on hold while the commercial aspects are being renegotiated. As for the own branded large screen display development project, Anoto has chosen to discontinue this and will instead seek technology licensing option to existing large display manufacturers.
In conclusion, Anoto is moving in a new strategic direction that innovatively bridges the analogue – digital divide with hardware, software, patterns, and data. This strategy is built around Anoto’s proprietary pens, microdot patterns, real-time image processing, big data, and the optic capabilities of mobile devices. It thereby leverages current strengths while delivering dramatically expanded global market presence.
Anoto remains committed to a profitable future, and accordingly further restructuring has been done during Q3. The latest restructuring effort, will result in annual savings of approximately 50 MSEK, affecting 50 FTEs. Related one-time costs amount to 5 MSEK and have been provided for in the Q3 numbers. In total, restructuring programs implemented during 2016 are estimated to save 100 MSEK annually versus present cost levels.
To ensure adequate financing throughout the ongoing transformation period, Anoto is presently negotiating a convertible bond offer of 5 MUSD of which approximately 4 MUSD has already been committed. The Board’s opinion is that this additional 5 MUSD gives the Group the required funds to address the future business opportunities. The Board is working on various other alternatives to secure the required cash in case the convertible bond private placement is not fully placed.
Anoto expects to close both the next quarter and the full year of 2016 at a loss. 2016 has been a challenging year notable for the tough decisions taken to transform from a hardware-focused organization to one building for a profitable future based on software, proprietary patterns, and robust image processing. Challenges will certainly remain in 2017 but it is expected that the newly efficient pen business will make strong contributions to the financial health of the organization while the pattern-business develops in less predictable but potentially more explosive ways. With costs lowered by 100 MSEK and this exciting portfolio to support growth, Anoto anticipates substantial improvements in its financial performance during 2017.
Joonhee Won CEO, Anoto Group AB (publ)
Anoto Group AB discloses the information provided herein pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication at 08.45 on November 25, 2016
Q4 report February 2017
For more information
Joonhee Won, CEO Email: email@example.com
Anoto Group AB (publ.), Corp. Id. No. 556532-3929 Mobilvägen 10 SE-223 62 Lund, Sweden Phone: +46 46 540 12 00 www.anoto.com
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