Cycliq launches new products in time for peak Christmas period

By Trevor Hoey. Published at Oct 26, 2017, in Technology

Cycliq Group (ASX:CYQ) announced on Tuesday that it would be releasing its new ‘connected edition’ Fly6 and Fly12 bike camera and safety light devices next month. Group Executive Chairman Chris Singleton said the new products mark the evolution of the company from a crowd-funded start-up to a producer of consumer electronics.

Since establishing itself as a producer of electronic safety accessories for cyclists and in particular forging partnerships and new distribution and manufacturing arrangements overseas, CYQ has gone from strength to strength.

However, the launch of new products marks another key milestone in the company’s development, prompting Singleton to say, “We are expanding our existing product range with our new ‘connected edition’ devices which have been developed to complement our original Fly6 and Fly12 units, effectively broadening our customer appeal and optimising cross-selling opportunities.”

It should be noted that this is still early stage in the company’s expansion and investors should seek professional financial advice if considering this stock for their portfolio.

The new ‘connected edition’ devices were designed to address market research and augment CYQ’s existing customer base, which is predominantly road cyclists. Importantly, the new devices are an extension of the company’s product range, rather than a next generation product that supersedes the original.

That said, Singleton said that they had been designed to appeal to a slightly different customer base with the aim of growing the market for its products.

Benefits of inventory build to be realised in the lead into Christmas

In preparation for the global product launch, CYQ has been building up inventory to ensure stock is available across its global sales network. This should see it unlock value which has been tied up in inventory for many months, arguably creating some misconceptions in relation to the interpretation of its quarterly reports.

Singleton also noted that vendor trading terms had contributed to concerns surrounding cash flows. He said that manufacturers have requested up to 50 per cent upfront payment, with 12-week lead times to product delivery.

This, in combination with credit terms provided to large retailers, results in a significant lag
between the time of deposit and when the final payment is received from that production run.

Singleton highlighted the fact that as an early stage electronics producer CYQ hasn’t been in a position to dictate payment terms to either suppliers or customers, which reflects on the group’s cash position.

A return to equilibrium following early stage cashflow imbalances

CYQ’s rapid expansion has also been contributing to the financial results during ramp up stage, with production runs being up-scaled to meet increased sales projections. Growing pains such as these are not unusual for fledgling companies with new products attempting to establish themselves in multiple markets, particularly in the tech sector.

However, CYQ appears to be well on its way to addressing these challenges as it benefits from a manufacturing joint venture established with Thompson & Kenneth Cheung. This will ensure the company will be better positioned to balance cash inflows and outflows for future products.

The joint venture arrangement has also assisted the company in achieving far better margins. Gross margins increased from 22.6 per cent in fiscal 2017 to an average of 39.4 per cent during the September quarter.

Consequently, there are some potentially market moving catalysts on the horizon. The impact of improved margins on the bottom line should become more apparent when the company delivers its result for the six months to December 31, 2017.

At this time, there should also be evidence of the impact of the introduction of new products, along with some signs regarding Christmas sales, usually the strongest quarter for the company.

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