HiWave heartened by component sales growth

The new management at sound and touch technology firm HiWave is confident it can grow sales next year despite anticipating that 2012 will be tough and challenging.

The company is in the process of making the transition from a business model based on licensing its technology to one based on selling components to original equipment manufacturers, so was able to draw comfort from the fact that component sales are on the rise, even though total sales on a pro-forma basis were lower in the latest reporting period compared to last year.

Sales for the 15 months to 30 September totalled £2.0m, versus sales of £1.9m in the 12 months to 30 June.

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The composition of revenue has significantly changed over the period, with 43% of revenue coming from component sales (2010: 10%). Royalty income accounted for 48% (2010: 46%), while licensing and other income arising principally from annual licence fees only contributed 9% of revenue (2010: 44%).

"The most important thing to the turnaround of the business is the component sales, which are on a rising trend," Chief Executive Officer James Lewis told Sharecast.

Component sales in the second half of calendar 2010 totalled just £0.21m but rose to £0.24m in the first half of 2011 while in the three months to the end of September they increased to £0.43m. The order book for component sales was £0.3m at the period end.

The loss-making firm remained in the red, with the loss before tax in the 15-month period expanding to £3.89m from £1.98m in the previous (12-month) period.

Restructuring costs of £0.6m were partly responsible for the increased losses, while an additional three months of operating expenses this time round was responsible for much of the rest.

Despite the need to keep a tight control on costs, the company is back on the recruitment trail, taking on more engineers to keep the product pipeline flowing. Next year will see a new laboratory open at the company's Cambourne executive headquarters, which will enable the firm to do full product testing and allow the company to reduce the time it takes to get new products to market.

Cash at the end of the reporting period was £3.1m, after the company raised £7.03m in funds through a share issue in September 2010.

That cash injection enabled the company to embark upon a turnaround plan under its new management, and Lewis claimed "we are on schedule to kick the company into shape."

One of the areas about to receive a kicking is the company's long list of patents, many of which cost a lot of money to protect; the company intends to sell off non-core patents.

Another area of focus is the renegotiation of licensing agreements made under the previous regime.

Putting it bluntly, a number of these agreements have not worked out, either for HiWave or the licensee, but their continued existence restricts HiWave's ability to produce products using its own technology.

Asked whether renegotiating these agreements might entail money changing hands, Lewis told Sharecast he did not think this would be necessary.

"The key thing is to offer them a better deal than their current agreement. We can offer them some components, help them integrate those components into their products," he suggested; in other words, the oft-spoken of "win-win" situation.

"We've largely sorted out our partnerships, they are in place on good terms, and we anticipate sales growth in the next 12 months," Lewis concluded.

The shares fell 0.025p to 2.85p on the day the results were released.