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Northland Capital Partners View on the City - Starcom Plc

Published: 09:31 22 Mar 2017 GMT

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Starcom (LON:STAR) – CORP*:  FY16 Results

Market Cap: £3.2m; Current Price: 2.2p; Target Price: Under Review

Revenue $5.13m, reduced operating loss (adj) of $1.09m

 

Starcom, specialist in the development of wireless solutions for remote asset tracking, monitoring and protection reported results for the year to December 31st 2016. Key points were:

Revenue for the year was $5.132m (2015: $5.131m)

Gross margin of 27.7% (2015: 40.3%) inclusive of an inventory write-down of $0.50m, or 37% if adjusted for the write-down.  Starcom reported the impact of reduced  SAS revenue            (-11%YoY).

An Operating loss of $(1.737)m on a reported basis (FY15:$(1.560)m).  The FY16 operating loss on an adjusted basis was $(1.09)m compared to $(1.56)m in FY15.   The company achieved cost savings of $0.52m, with General and Admin expenses reduced by 18%YoY.

SAS revenues up 8.8% to $1.75m (2015: $1.6m).

Adjusted PAT loss of  $(1.36)m (2015 loss: $(1.76m)).

Starcom reports segment-based revenue in four categories:

1. Revenue from the sale of hardware (‘Sets’) was $3.128m (FY15: $3.238m), -3.4%YoY.

2. Revenue in the SAS category was $1.749m (FY15:1.608m), +8.8%.

3. The sum of Accessories and Other revenue was $0.255m (FY15:0.285m), -10.5%.

Starcom noted that its core Helios product range accounted for 76% of total hardware revenue excluding SAS; this compares to 75.3% in FY15.  It reported that: “the new Watchlock Pro was launched in the second half of the year and was well received in the market.  Initial orders were received in the fourth quarter but it proved impossible to fulfil these orders due to the failure of our partner Mul-T-Lock to deliver their parts to us by the year end. We expect that this problem will be resolved shortly, but inevitably it has delayed the expected sales from this product.”  It noted that Watchlock Pro will be brought in-house to streamline delivery and remove reliance on third party partner. 

Starcom announced the launch in January 2017 of a new track-and-trace smartphone application, Zeppos, which can be downloaded from Google Play Store to enable the device as a tracking asset.

The reported year-end cash position was $35,000 (FY15: $90,000). Starcom notes that it has “sufficient loan facilities” to meet cashflow requirements.

NORTHLAND CAPITAL PARTNERS VIEW: In its February 27th Trading Update Starcom had indicated that revenue would be ”not less than” US$5.2m; this compared to our prior estimate of $5.4m.  As it highlights today the shortfall was attributable to Watchlock component supplier delays and, secondly, to reduced SAS revenues following from a delay in services connection by a major customer.  Starcom has maintained the pace of new product development (e.g. Zippos) and emphasis on value-added SAS revenues.  It has identified sales and marketing as the priority for 2017; given the success in further cost reduction, progress in securing revenue should positively impact profitability.

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