U blox : ‑blox reports first half 2019 financial reslts

• Revenues of CHF 190.6 million compared to H1.2018 revenues of CHF 199.0 million, a decline of 4.2%
• APAC returned to growth and increased revenue by 8% compared to H1.2018; China saw growth of 14%
• Gross profit (adjusted) was CHF 86.1 million compared to CHF 94.0 million in H1.2018, a decline of 8.4% and gross margin (adjusted) decreased to 45.2% compared to 47.2% in H1.2018 (45.2% for FY 2018)
• EBIT (adjusted) fell to CHF 19.7 million compared to CHF 34.9 million in H1.2018
• EBITDA (adjusted) declined to CHF 32.7 million compared to CHF 45.1 million in H1.2018
• Operating activities generated a cash flow increase to CHF 33.1 million compared to CHF 13.7 million in H1.2018
• Positive free cash flow (before acquisitions) of CHF 3.9 million
• Net profits (adjusted) were CHF 13.6 million compared to CHF 30.2 million in H1.2018
• Strong growth in number of customers compared to H1.2018
• Important product launches - new chip platform and modules
• R&D pipeline expanded - significant product launches ahead
• Full year revenue, EBITDA, and EBIT guidance have been adjusted reflecting macro‑economic uncertainties

Remark: All numbers in this report are adjusted. IFRS numbers are provided in the first table of this press release.

For more information, please refer to the online versions at:

Half year report (PDF)
Presentation (PDF)

In the first half of 2019, u‑blox reached revenues of CHF 190.6 million compared to H1.2018 revenues of CHF199 million, a decline of 4.2%. The company saw a resurgence in the APAC region with growth of 8% and growth of 14% in China against H1.2018.

The effect of this resurgence was attenuated by a reduction in revenues in EMEA of 12% against H1.2018, which had been a particularly strong half year, and in the Americas by a decline of 7% compared to H1.2018 due to a slower than expected migration and ramp up to LTE‑based connectivity.

u‑blox posted gross profits (adjusted) of CHF 86.1 million compared to CHF 94.0 million in H1.2018, and gross margin (adjusted) decreased by 2% to 45.2% compared to 47.2% in H1.2018 (45.2% in FY 2018).

EBIT (adjusted) fell to CHF 19.7 million compared to CHF 34.9 million in H1.2018, affected by lower revenues and an increase in R&D expenses, which, in addition to new products that have already been announced, will deliver more important additions to the portfolio this year.

Regional development

In Asia, there has been strong progress in the automotive and industrial segments, with particular growth in Japan for automotive solutions and a 14% growth in China driven by increased domestic investment in technology for infrastructure as well as growth in industrial IoT, with China accounting for about one quarter of the IoT market globally. In Taiwan, however, we saw our growth decline due to the elimination of one large customer for lack of compliance with our terms and conditions.

In the Americas, while there was a slight decline in sales, some customer segments had to further delay migration to LTE‑based connectivity. Moving into H2, with this hesitation disappearing, customers are ramping up their production with Cat M‑based modems.

In the EMEA region individual projects contributed to an exceptionally good result in H1.2018 which could not be repeated in this year. In the first half of 2019, growth was achieved above all in sustainability projects such as EV charging or solar converters. Against second half year 2018 revenues grew by 10%.

Research and product development

In the first half of 2019, R&D expenses (adjusted) stood at CHF 39.8 million compared to CHF 33.1 million during the same period in 2018, an increase of 20.3% which includes increased amortization for capitalized projects of CHF 5.6 million from CHF 4.4 million in H1.2018 and a lower capitalization rate of 43.3% (H1.2018: 48.9%). R&D expenses (adjusted) represent 20.9% of revenue compared to 16.6% in the same period last year.

Distribution and marketing activities

Distribution and marketing expenses (adjusted) remained stable at CHF 17.8 million (CHF 17.7 million in the same period last year).

Finance income and costs

Finance income was CHF 1.8 million compared to CHF 5.4 million in H1.2018, a decline of 67% mainly due to less favorable currency development. Financial costs were CHF 3.2 million against CHF 1.0 million in H1.2018. They consist mainly of the interest for the two bonds, interest for lease liabilities, and foreign exchange losses. The financial result also contains the loss from at‑equity accounted investees (Sapcorda GmbH) net of tax of CHF 2.0 million against CHF 1.4 million in H1.2018.

Positive free cash flow

Cash flow from operating strongly increased to CHF 33.1 million (H1.2018: CHF 13.7 million) and free cash flow (before acquisitions) achieved CHF 3.9 million. Investments were lower in this period than in H1.2018 and working capital decreased. Dividend payment and interest payments required cash resulting in a decreased cash position of CHF 121.0 million (31.12.2018: CHF 136.3 million).

Stable and strong financial position

u‑blox maintained a strong balance sheet during the first half of 2019; the equity ratio amounted to 60.5%. Cash, cash equivalents, and marketable securities totaled CHF 122.4 million as of June 30, 2019, compared with CHF 137.7 million at end of 2018.

Changes in accounting standard IFRS‑16

With the introduction of IFRS‑16 the accounting treatment of long term rental contracts changed. The impact of the change in H1.2019 onto EBITDA was CHF 2.6 million and on EBIT CHF 0.4 million. There is no impact on net profit. In the balance sheet end of June 2019 there is a new right‑of‑use assets in the amount of CHF 19.5 million and accordingly there are additional financial lease liabilities of CHF 19.5 million. In the cash flow statement the introduction of IFRS‑16 results in a CHF 2.6 million increase of cash generated from operating activities and additional cash used in financing activities in the same amount.

Strategic highlights and initiatives

Designed to deliver sustainable, profitable growth across market cycles, u‑blox's strategy is founded on four discrete pillars: ongoing strengthening of our leading market position; continuing technological development and innovation; outstanding operational performance; and strategic partnerships. Despite a challenging environment in some of our core markets during the first half of 2019, u‑blox made advances in these key strategic areas: u‑blox announced the SARA‑R5 series of LTE‑M and NB‑IoT modules for low power wide area (LPWA) applications, its most advanced, secure, and highly integrated cellular product. The module, built on the u‑blox UBX‑R5 cellular chipset and the u‑blox M8 GNSS receiver chip, offers unmatched end‑to‑end security and long product availability, making it ideal for IoT applications with long‑term device deployments.

Earlier in the year, u‑blox announced the u‑blox ZED‑F9K high precision multi‑band GNSS (Global Navigation Satellite System) module with built‑in inertial sensors. The module combines the latest generation of GNSS receiver technology, signal processing algorithms, and correction services to deliver down to decimeter‑level accuracy within seconds, addressing the evolving needs of ADAS (Advanced Driver‑Assistance Systems) and automated driving markets. Siemens has integrated the u‑blox ZED‑F9K high precision dead reckoning module into its Toyota Prius V2X (vehicle‑to‑everything) test fleet.

On July 31, 2019, u‑blox announced that it acquired the wireless modules business from Rigado's portfolio in an asset purchase agreement. Founded in 2010, Rigado is a custom electronics design company in low power, wireless products with a focus on the Internet of Things (IoT) and consumer wearables. This agreement allowed u‑blox to extend the range of its products in the area of Bluetooth® low energy, Zigbee, and Thread, as well as to access new market segments and channels. The acquisition was closed on July 31, 2019.

New customer engagements

In the first half of 2019, we saw a strong growth in our customer numbers, growing from 5'900 to 6'700 served accounts.

Treon offered a disruptive Treon Node and Gateway platform for smart building applications earlier this year. Their platform uses the u‑blox NINA Bluetooth module series to connect nodes distributed across a building in a wireless mesh network. An IoT edge gateway featuring a u‑blox SARA‑R4 cellular module and a u‑blox NINA‑B1 Bluetooth low energy module links the network to the cloud.

u‑blox, in partnership with Arvento Mobile Systems, a global pioneer in vehicle telematics and fleet management technology, announced the launch of the new imt.x1 vehicle tracking system. The imt.x1 sets itself apart from other vehicle tracking devices on the market thanks to its 6‑axis gyro sensor that can sense 3‑dimensional movement caused by emergency acceleration, panic braking, and directional yaw and drift. With connectivity options including dual CANBus and Bluetooth, the system is also eCall compatible and captures and provides data for accident analysis and other vehicle tracking functions. The system also uses a powerful, next‑generation ARM®-based microcontroller.

Board and management

To allow CEO Thomas Seiler to focus more on corporate strategy, the company's innovation agenda, and acquisition strategy, u‑blox named Markus Schaefer as new Executive Director for Global Marketing and Sales. Schaefer, a veteran of the semiconductor industry with a solid track record in growing market share in his previous positions, will complete u‑blox's executive leadership team. Markus Schaefer will define and implement the company's sales and marketing strategy in the Americas, EMEA, and APAC sales regions.

Outlook

Thomas Seiler, CEO of u‑blox, commented: 'While the first half of 2019 has overall developed below our initial expectations, we are greatly encouraged by the return to growth in APAC and the strong expansion in China where nearly one quarter of our revenues are generated. The second half of 2019 will continue to remain impacted by macro‑economic uncertainties, reflecting wider global trends in the industry, impacted by a number of factors such as the U.S.-China trade dispute and political quarrels resulting in slower growth in the major applications.'

We expect the remaining months of 2019 to remain challenging but we are confident that we are making the right investments for the future. We continue to believe the Internet of Things will change every aspect of our societies, our businesses, and our everyday lives. Investments into chips, modules and services for industrial wireless technology are long term: and while development takes time and money, harvesting is possible for a decade.

From an innovation point of view, during H2, we expect to launch more innovative products and solutions. Important new platforms are close to market launch.

In the Americas, we are seeing signs of growth in the industrial sector, and following our acquisition of Rigado's wireless modules, we are well‑placed to leverage the consumer sector with now a strong footprint in the consumer health and sports sectors. We're also seeing a speeding up of customers migrating to LTE Cat M technologies and the emergence of new products at our customers.

In EMEA, the second half year will only slightly grow. Despite strong progress in industrial IoT the overall negative sentiment in the industry and the decline in automotive production make growth hard to achieve.

In APAC, we will see in H2 continued growth mainly driven from China and Japan where new projects continue to ramp up. In China domestic demand remains solid mainly in the industrial domain whereas automotive lacks basic volume growth and only the trend to more electronics in the car provides for expansion.'

u‑blox is adopting a cautious but positive outlook for this period and remains confident that the fundamentals of our company are in place for healthy future growth and bottom‑line results, and that we will meet the following new guidance:

• Revenues of CHF 380 million to 400 million, a growth of 0% to 5% over 2018
• EBITDA of between CHF 50 million to 60 million
• EBIT of between CHF 15 million to 27 million
• Based on average foreign exchange rates as of 2018.

Conference call and webcast details

Thomas Seiler, CEO and Roland Jud, CFO, will host a conference call and webcast with analysts and investors Friday, August 23, at 10:00 AM CET. A live slide presentation will be available for viewing during the call from the link below.

To participate, please dial the following number approximately 10 minutes prior to the start of the call:

Switzerland / Europe: [phone]

United Kingdom: [phone]

United States: [phone]

Webcast Participants' Links:

Pre‑Registration Link: https://ccwebcast.eu/links/ublox190823/indexl.html

The webcast will be available at the u‑blox website after the event.

Table 1: Consolidated income statement (adjusted)

	Jan‑Jun 2019			Jan‑Jun 2019		Jan‑Jun 2018
(in CHF 000s)	(IFRS)	% revenue	Adjustments2)	(adjusted)	% revenue	(adjusted)	% revenue
Revenue	190'554	100.0%		190'554	100.0%	198'983	100.0%
Cost of sales	-104'772	-55.0%	306	-104'466	-54.8%	-105'013	-52.8%
Gross Profit	85'782	45.0%	306	86'088	45.2%	93'970	47.2%
Distribution and marketing expenses	-18'556	-9.7%	798	-17'758	-9.3%	-17'671	-8.9%
Research and development expenses	-42'368	-22.2%	2'591	-39'777	-20.9%	-33'072	-16.6%
General and administrative expenses	-11'320	-5.9%	1'065	-10'255	-5.4%	-9'387	-4.7%
Other income	1'368	0.7%		1'368	0.7%	1'063	0.5%
Operating Profit (EBIT)	14'906	7.8%	4'760	19'666	10.3%	34'903	17.5%
Finance income	1'762	0.9%		1'762	0.9%	5'364	2.7%
Finance costs	-3'157	-1.7%		-3'157	-1.7%	-1'042	-0.5%
'Share of profit of equity‑accounted investees, net of taxes'	-1'989	-1.0%		-1'989	-1.0%	-1'443	-0.7%
Profit before income tax (EBT)	11'522	6.0%	4'760	16'282	8.5%	37'782	19.0%
Income tax expense	-1'872	-1.0%	-773	-2'645	-1.4%	-7'622	-3.8%
Net profit, attributable to owners of the parent	9'650	5.1%	3'987	13'637	7.2%	30'160	15.2%
Earnings per share in CHF	1.39			1.96		4.32
Diluted earnings per share in CHF	1.39			1.96		4.31
Operating Profit (EBIT)	14'906	7.8%	4'760	19'666	10.3%	34'903	17.5%
Depreciation and amortization	14'164	7.4%	-1'092	13'072	6.9%	10'229	5.1%
EBITDA 1)	29'070	15.3%	3'668	32'738	17.2%	45'132	22.7%

^{1) Management calculates EBITDA (earnings before interest, taxes, depreciation and amortization) by adding back depreciation and amortization to operating profit (EBIT), in each case determined in accordance with IFRS.
2) Adjustments are impacts of share based payments, Pension calculation according to IAS‑19, Non‑recurring expenses and amortization of intangible assets acquired}

For allowing comparison with industry peers adjusted numbers are presented.

Table 2: Consolidated statement of cash flows (condensed)

For the period ended	For the period ended
(in CHF 000s)		June 30, 2019		June 30, 2018
Net Profit		9'650		25'083
Depreciation&Amortization		14'164		11'510
Other non‑cash transactions		2'547		6'093
Financial income & Financial expense		3'384		-2'879
Income tax expense		1'872		6'339
Change in Networking Capital and provision		7'900		-21'457
Income tax paid		-6'406		-10'953
Net cash generated from operating activities		33'111		13'736
Net investment into property, plant and equipment		-3'409		-4'345
Net investment into intangibles		-26'408		-27'623
Net investments into financial assets		612		918
Participation in capital increase		-3'386		-4'108
Net cash used in investing activities		-32'591		-35'158
Free Cash Flow (before Participation in capital increase)		3'906		-17'314
Free Cash Flow		520		-21'422
Proceeeds from issuance of ordinary shares		91		13'599
Dividends paid to owners of the parent		-11'077		-15'440
Repayment of financial liabilities		-2'192		0
Purchase of treasury shares		0		0
Interest paid		-2'182		-1'813
Net cash provided by / used in financing activities		-15'360		-3'654
Net decrease in cash and cash equivalents		-14'840		-25'076
Cash and cash equivalents at beginning of year		136'296		169'624
Exchange gains/(losses) on cash and cash equivalents		-481		3'291
Cash and cash equivalents at end of the period		120'975		147'839

Table 3: Consolidated statement of financial position (condensed)

At June 30, 2019	At December 31, 2018
(in CHF 000s)		(unaudited)	(audited)
ASSETS
Current assets
Cash and cash equivalents		120'975	136'296
Marketable securities		1'404	1'401
Trade accounts receivables		52'607	60'802
Other assets		83'097	78'415
Total current assets		258'083	276'914
Non‑current assets
Property, plant and equipment		13'707	14'829
Right‑of‑use assets		19'460	0
Goodwill		54'068	55'231
Intangible assets		212'113	193'445
Financial assets (incl. equity accounted investees)		11'094	9'041
Deferred tax assets		6'987	3'570
Total non‑current assets		317'429	276'116
Total assets		575'512	553'030
LIABILITIES AND EQUITY
Current liabilities		53'696	55'476
Non‑current liabilities		173'450	148'677
Total liabilities		227'146	204'153
Shareholders' equity
Share capital		6'391	6'390
Share premium		55'309	66'296
Retained earnings		286'666	276'191
Total equity, attributable to owners of the parent		348'366	348'877
Total liabilities and equity		575'512	553'030

About u‑blox

u‑blox (SIX:UBXN) is a global provider of leading positioning and wireless communication technologies for the automotive, industrial, and consumer markets. Their solutions let people, vehicles, and machines determine their precise position and communicate wirelessly over cellular and short‑range networks. With a broad portfolio of chips, modules, and a growing ecosystem of products supporting data services, u‑blox is uniquely positioned to empower its customers to develop innovative solutions for the Internet of Things, quickly and cost‑effectively. With headquarters in Thalwil, Switzerland, the company is globally present with offices in Europe, Asia, and the USA.

Find us on Facebook, Google+, LinkedIn, Twitter @ublox and YouTube

Financial calendar

Analyst day:	November 20, 2019
Full year results 2019:	March 12, 2020
Annual General Meeting:	April 23, 2020

u‑blox contact:

Gitte Jensen
Investor Relations
Phone [phone]
[email protected]

u‑blox AG
Zürcherstrasse 68
8800 Thalwil
Switzerland
Phone [phone]
Fax [phone]
[email protected]
www.u‑blox.com

Disclaimer
This release contains certain forward‑looking statements. Such forward‑looking statements reflect the current views of management and are subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the u‑blox Group to differ materially from those expressed or implied. These include risks related to the success of and demand for the Group's products, the potential for the Group's products to become obsolete, the Group's ability to defend its intellectual property, the Group's ability to develop and commercialize new products in a timely manner, the dynamic and competitive environment in which the Group operates, the regulatory environment, changes in currency exchange rates, the Group's ability to generate revenues and profitability, and the Group's ability to realize its expansion projects in a timely manner. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report. u‑blox is providing the information in this release as of this date and does not undertake any obligation to update any forward‑looking statements contained in it as a result of new information, future events or otherwise.

This press release is published in German and English. Should the German translation differ from the English original, the English version is binding.