u-blox Holding AG (UBXN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the full year results 2019 conference call and live webcast. I am Moira, the Chorus Call operator. [Operator Instructions] and the conference has been recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Thomas Seiler, CEO. You will now be joined into the conference room. Thank you.

So again, good morning, ladies and gentlemen. Welcome to our presentation of the 2019 results. As you see, we are making here also a live stream and are recording this presentation and, of course, also the later Q&A session. And I hope we can here give access to a broad audience and at these times. So we make the presentation with the usual disclaimer, especially about forward-looking statements. And our presentation is hold in the following sections, that we first give you an overview and the highlights of the year. Then we give you the financial numbers in detail, talk also of business and strategy and, of course, have also outlook and guidance before we then come to your questions. So the numbers are summarized here. We give you IFRS and adjusted numbers. The adjustments are made as normally this is done with regard to certain items and have in the bar just reflect what also our peers are doing. The results have met our guidance that we have given in August last year, so we are well sort of in the middle of our ranges. And we are very glad, we finally were able to achieve a solid result. And perhaps we go to the next slide, where we see the changes over the previous year. So our top line remained more or less the same as in the previous year. So growth was very difficult to achieve last year. However, thanks to good product mix and, of course, thanks to successful products, we were able to increase the gross profit margin slightly. This is more than just a small difference because we are in a market where normally, this is not so easy to achieve with a lot of technological advancement and, of course, competitive pressure. So finally, our EBITDA slightly decreased. This is mainly a reason of constant R&D efforts we are making to move us forward and maybe late to see but were important results that we have achieved. And finally, the net profit, of course, also is smaller for the same reason. However, cash flow was very strong. We have tremendously increased our cash flow from operations and also and most importantly, we deliver a positive free cash flow. We started to do that already in the first half year and have expanded in the second half year. Now let's look what were the highlights of the year. So major event was that we were able to sell the 500 millionth GNSS receiver, so in the lifetime of our company, just showing how large the number of units is that we have brought to the market. And I would say probably many of them, a majority of them is still working in the market, is making good use for everyone on this globe to tell people where they are. We have also made an acquisition. We acquired the company Rigado in July that has then added to the portfolio in the short-range radio section. We have got numerous, more customers, more distributor relationships and, of course, also talented employees. We launched many important new platforms and products. The major ones were our own platform for LTE category M communication with SARA-R5 and the -- we expanded for high-precision solutions with F9K. And also, we brought out a new chipset and module, what we call M9, for standard positioning solutions. This has widened importantly our offer and is just, of course, a result of our ongoing R&D efforts we make to bring out new convincing solutions to the market. We have also expanded at the top of our organization. We have added a new head of marketing sales, Markus Schaefer, who took over here one of my hats that I have run for almost 18 years in the company, that I was the head of marketing sales, now handed over to him. And with this, of course, we can expand how we manage the way to the market. And on the other side, for me, it is more capacity of the strategic side. So we have maintained our efforts to build the company. As I said, R&D was uncompromised in the last year, and we will going to do so. This is the lifeblood of our company and is finally propelling for growth. On the financial side, quickly seeing how we have brought the numbers together. The most importantly was a good progress in APAC, where we have seen growth of 5%. And especially in China, we have got 16% growth rate, this broadly across the range of customers. We have seen very good interest with our products and good ramp-ups with a new project and therefore, we see also here a continued very stable and strong business in this market. We were only losing in Taiwan where we had a customer that had to be eliminated because of some fraudulent behavior. However, in EMEA and the Americas, it was more difficult. We saw decline of 6% in each market due to the quite difficult market conditions. In EMEA, our customers were hit by the trade war tensions. And in the Americas, we still suffered from network issues that the category M network was not available in the beginning of the year. Only after summer we have seen this resolved and customers really ramping up production, and indeed, we have seen then very good unit sales. So the gross margin, I have commented and also what we have seen then as the result at the EBITDA line. Again, cash flow was strong because of solid gross margin, because of our investment cycle, but also we were able to recuperate cash from our inventory. The net working capital requirement has decreased these as a countermovement to what happened 1 and 2 years before, where we had to increase inventories because of shortage of components. I now hand over to my colleague, Roland Jud, who provides you all the details on the numbers side.

Thank you, Thomas. Good -- a warm welcome also from my side. I will go, in the next few minutes, some more in the details of our financials. First of all, again, revenue and EBITDA revenue, Thomas mentioned it, is slightly below previous year, 2.1% compared to 2018. Part of it is also currency, but the effects in the currency rate, if you would have done this calculation of revenues with 2018 rate, is a decline of 2.8%. And if you do it at the guidance rate we gave for our numbers, it's minus 1.3%. The EBITDA adjusted margin was 18.7 percentage (sic) [ 18.6% ] of revenue or CHF 71.7 million. If you look on the geography, you see the split over the regions is very similar. We have 38% sold in Asia, 31% in EMEA, and also 31% of our revenues come from the Americas. Thomas mentioned it. APAC revenue increased by 5%, 18 -- 16% if you just look onto China. The elimination of 1 large customer in Taiwan has then the negative effect of the overall growth is 5%. In EMEA and in the Americas, we saw a decrease of 6% each, in EMEA because some -- of a base effect in the first half year 2018. The second half year 2019 was slightly higher than the same period last year. So this gives some good signs also for 2020. And Americas, in 2019, there's still some impacts of the network readiness delays we already saw in 2018 and which lasted into 2019. Market-wise, the split -- revenue split over markets remains similar, so industrial market with 56.5% of our revenue is still the biggest market, was rather stable. Here belongs mainly infrastructure, telematics products, which are assigned to this market. In the automotive market was also stable with in-car navigation and in-car connectivity. We see here a small increase from 29.2% to 30.6% of our revenues, and the consumer market declined to 7.7%. It was, a year before, 10.2% of our revenues. If we look on to volumes, the module volume increased by 3.2%, and average sales price here goes down due to the product mix to CHF 9.09 per module. In -- on the chipset side, you see u-blox 8 is taking over from u-blox 7 and u-blox 6. We have a decline on the chipset volumes by 8.5 percentage. But here, then, on the other hand, a small increase of CHF 1.74 for each chipset as an average sales price. The revenue split over modules and chipsets remains similar, 25% roughly goes -- are chipset sales and 75% are modules sales. On the gross margin, adjusted was CHF 175.1 million. We were able to slightly increase the gross profit margin, on one hand, through a better products mix. On the other hand, there is also some external effects from IPR license cost improvements, which ends up in a gross profit margin of 45.5% of revenues. On the cost side, distribution and marketing expense remained stable with CHF 38.2 million (sic) [ CHF 35.2 million ] we spent here due to the slightly lower revenue, the percentage increase to 9.1% of revenues. R&D expenses, Thomas mentioned it. We maintained our pipeline and invested further into new products. So the percentage of revenue, we expensed 20.5% of our revenues into R&D or CHF 78.9 million. Here, you have the full income statement. On the left-hand side, IFRS figures then adjustments, and then the adjusted numbers, which all -- the rest of the presentation is based on. The adjustments are -- used to be done in the market. We have adjusted the IFRS 2 option effect share-based payments of CHF 5.3 million. Then we also took out the pension impact of IAS-19, just a valuation effect. It's CHF 1.2 million. And then the amortization of intangible assets acquired, which means assets which we bought once when we bought the company, the effect here is CHF 1.9 million. And then also taking out the impairments we had to face, it is because some suppliers suddenly ending their -- change the life cycle of a component, and we, therefore, have then to redo our module with third-party components. And accordingly, the project -- capitalized R&D on this project had to be impaired. The effect is CHF 12.6 million. On the financial cost side, primarily, foreign exchange losses and the interest of the bond and also the equity accounted in USD, Sapcorda, the result is in -- on this line. The value here is CHF 4.2 million loss we had to book based on this equity accounting. The tax rate came down from 20% to 9.2%, is also an effect of options and how they are exercised or able -- are valued and then booked locally, what you can deduct that expense or have to book as income. And normal tax rate remains unchanged. It's roughly 20% of earnings before tax. So the value at 2018 is a value you can take for your models. Another impact on the income statement is the introduction of IFRS 16, the leasing standard. u-blox decided not to adjust the number and restate the numbers in 2018. So if you compare IFRS figures in 2018 and 2019, you have to take into account this effect. The effect on EBITDA is a plus of CHF 5.8 million. On EBIT, it's then only CHF 600,000 and on net profit, nothing because the difference goes into financial costs of roughly CHF 600,000. The major change of the standard is quite simple. You just replace rent and book on to the balance sheet, we'll come to that later, a new asset -- right-of-use asset. It's roughly CHF 22 million, which was booked on to the balance sheet, and you book also liability into that so that you prolong the balance sheet as such. On the balance sheet, we still are in a strong financial position. We have liquidity, including the marketable securities, of CHF 128.3 million. Inventory came down from CHF 57.5 million to CHF 51.6 million end of the year. And also trade receivables, we were able to make our customers pay from CHF 60.8 million end of December 2018 to CHF 48.5 million end of 2017. The intangible asset, still capitalized R&D, are at CHF 199.9 million, roughly CHF 200 million we have on the balance sheet of that compared to CHF 175.4 million end of 2018. The -- we also amortized capitalized R&D, including the impairment. You have -- we have booked CHF 25.6 million amortization and impairment of capitalized R&D in 2019. On the noncurrent liabilities, they still contain the 2 bonds, with CHF 119.4 million, a deferred tax liability of CHF 6.9 million, then also the employee benefits with CHF 21.3 million and provisions with CHF 8.3 million. And here is again mentioned the IFRS 16 impact, our right-of-use assets of CHF 21.8 million and leasing liability of CHF 22.2 million. All our business is based on strong and stable customer base. We served in 2019 roughly 7,200 customers. We were able to increase that again compared to 2018, where we have 6,700 customers served. The customer dependency further came down. 108 customers are responsible for 80% of our revenue and also our largest customer accounts for only 4% of our revenue in 2019. Employee-wise, we have -- FTE-wise, end December 2019, 1,088 FTEs engaged. At -- 2/3 are in research of -- and development, 743 FTEs, and then 15% of all are engaged in logistics and administration and 16% in sales and marketing. And 75% of our employees are based outside of Switzerland. So we are very international. They are all spread across 18 countries. The strong equity base remained. Equity ratio is 60% compared to 63.1% in 2018. We have to take into account here that IFRS 16 changes, so the base has increased in 2019 compared to 2016. If we take this out, the equity ratio would have been 62.3% of total assets. So a very stable base. If you go further into analyzing our balance sheet, you will remark that there is a minority interest of CHF 100,000. This is an investment in a joint venture in China, joint venture [ Tuchong ], which creates this minority interest. The 2 segments u-blox is working in, still positioning and wireless products the major segment of CHF 385 million revenue and an operating profit of CHF 19.3 million, but also the wireless services segment, which is today still a more internal segment as we have here CHF 31.9 million internal intragroup revenue on this segment. This is also profitable with CHF 2.7 million. This will change in the next 2 to 3 years with the setup of a services business we are working on. The revenue in third parties will go up on this segment and then the relationship between the 2 will change. Now last but not least, our cash flow statement. Thomas said it. We had a strong cash flow on operating activities. We were strongly able to increase that to CHF 77.3 million in 2019. One effect comes from effective net working capital management. It's roughly CHF 16.2 million, which we were -- have in this cash flow statement compared to minus CHF 32.2 million in 2018. We maintained our investment activities. We invested into new products and new -- on capitalized R&D roughly CHF 50 million. This is the major part of the net investment into intangibles. And we have also 2 acquisitions. One is Rigado and the other one is the joint venture [ Tuchong ], but we have also further investment -- invested into our Sapcorda activity, which ends up with an investment of acquisitions of CHF 10.7 million. Based on that, free cash flow overall is CHF 10.5 million, positive, CHF 10.5 million. If you calculate out the acquisition and the participation in capital increases in the free cash flow, it would even have been CHF 21.3 million. IFRS 16, unfortunately, also have an impact on the cash flow statement. You have movements from the operating cash flow into the cash used in financing activities. The operating cash flow is impacted by -- positively by CHF 5.6 million. And on the other hand, cash used in financing activity has a negative cash outflow of CHF 5.6 million. And with that, I'm through all the financial numbers and I give the word back to Thomas for a business update.

Thank you, Roland. So our strong R&D efforts have really created important new product offers in the last year. And most recently, also, we have seen more progress with what we are achieving here. The -- in the -- for cellular communication, we have launched our SARA-R5 module for the category M networks. That are the ones for industrial IoT. And most recently, we have here also achieved the certification in the U.S. and also the channel certification that paves the way into the market so that, here, we are ready with our customers to really go live. The experience was very good here with our own chipset. It was a lot easier and smoother way to get such products ready, much better than when working from components we are buying from the market. So this is really a good event that we have recently. It really confirms that our strategy pays off. It pays off into much more mature and better-performing products. We finally deliver more value to our customer and are allowed to expand here with products that do reply to several needs that customers have. With -- in short-range radio, we brought out a next generation of low-energy module series, the NINA-B4. This is the actual standard in Bluetooth, of course, very attractive because of low energy consumption. And also it allows to create here also more solutions, not just that you transfer some data, but also you can use it, for example, for positioning. On the positioning side, with the satellite signals, we have further expanded for high precision, mainly for solutions in the car that need high precision and low latency. This is mostly needed when you start to automate certain functions in the car. And this is, of course, the trend in the car industry worldwide. And the other important event was our M9 series, so a next-generation platform for standard precision. That is the broad market we are serving. And here, the product is made for our industrial customers that deliver, as you know, a major part of our business. And finally, of course, we also expand on the services side. I'll come back to that later. We make sure, in all our products, there is not just that the customer gets a hardware but more and more, they get add-on services that make the product more robust, better-performing and secure. Now what drives us? Still the same picture and numbers. It is the drive in the market for automotive, for the world that runs on wheels. Here, the investment is ongoing to make these cars more capable, more autonomous, more -- better supports drivers and, of course, give also more possibilities for the passengers. This makes that cars are connected have all our technologies inside a lot more than ever. And we are still on a way of expansion and of more content that goes into this market. This is the major driver on the automotive side. On the industrial side, we profit from making devices connected more and more than ever before. What was a stand-alone solution is, today, one that is connected to the cloud, and therefore, we have here an expansion just by the sheer number of units that is becoming a part of an accessible market that was not available before. And all these trends are really making that we have a good growth avenue now and over many years because this is not going to change overnight. These are processes that take years and years to change the functionality of all the products our customers make. And here are examples what such effects are. Here, for example, is an application for surveying pumps. Our customer, Treon, makes such modules and solutions to make such pumps connected to the cloud, to monitor them, to measure also certain operating parameters, to optimize the use of these pumps, to reduce cost or energy consumption, and this, of course, is all about improving the overall industrial systems and infrastructure. So here, we combine 2 connectivity solutions for the short-range and also for the wide-range needs that this solution has. Or another application is for worker safety. Here is a unit that goes with workers when they are on sites and gives them the possibility also to measure certain environmental data, for example, for workers that are in gas fields. They can measure what is the gas content of the air around them. And of course, they get warnings, respectively, also so if -- help -- can then monitor whether all workers are safe. And again, it needs products that are very compact, that use little energy, that can live long from batteries and, of course, for our customer, are easy to implement and can be brought to market very quickly. Our strategy is based on 4 pillars: We work for a strong market position; we continually expand technology by innovation; we look for great operational excellence; and, of course, we are also going to make it stronger because we build more partnerships, that we have a broader reach into technology and into markets. So on the market position, of course, we make sure we remain leaders in certain important applications. We are often the reference for what is a typical application and in that, we enjoy, of course, very loyal customer base, but also, it helps us to be systematic in approaching market segments and winning market share. On the technology innovation side, we have to see. We have brought out a number of platforms and are going to do so also in this year again. Our pipeline is filled and we'll deliver new solutions into the market. We are making sure we remain agile and excellent in our organization. We have, in so far, done a lot of changes in how we operate and how we bring all our people together into the various programs and projects, how we can push them through with maximum efficiency and also with predictable time lines, and of course, we have grown. We were 100 engineers in 2010. Now we are 800. Of course, we must make sure all these people do a good job. They know where is their challenge and how they contribute to our success. And finally, as I will explain later, we have done more with our partnerships, but I will tell you that later. So the priorities remain that we do build the strong market way and also when markets are difficult as now, this is most important that we build positions because then we profit also from a return and from an upswing. Therefore, we are relentlessly maintaining strong customer relationships and expand our channel with the add-on of a new head of marketing sales. We have expanded capacity and are also, here, changing parts of our organization to make the contact to the market even closer and the feedback loop even shorter to learn what are needs in the market and what customers make -- or what makes customers successful. On the technology side, we have more and more on our own silicon. We have seen the R5 as being on the cellular side such a step, and this is, of course, the cornerstone of our strategy that we make technology built on our own integrated circuits. We bring them into market with modules because this is the easy way to handle technology for our customers. And more and more also, we give full solution packages into the hands of our customers, the products combines that we make. And on top of this, we have a service portfolio that we are about to expand more and more and of course, with the aim also, here, to generate recurring revenue. The operational side is what I mentioned to do, continuous improvement that we build a process landscape that is second to none. We are audited by many of our key customers. They -- this is an important learning element for our organization on an ongoing basis. We have a very good rating with these core and key customers. And of course, quality is what makes a difference. We are renowned for excellent reliability, for long-term availability of our product and for very good support of our customers. And again, we are not doing everything ourselves, but make sure we reach out to partners. We look for good combinations and of course, make sure also for reaching markets, we connect to the customers we know. And if we have other customers somewhere else in the value chain, we use partners to achieve this. Now reaching customers is a broad job. We have, as I said, changed and expanded our organization. We have added more sales channels to reach markets and to well distinguish between channels how we can reach then such a large number of customers. We need so many channels, otherwise, this wouldn't be possible and to focus in the several channels on certain parts of the market. With a dynamic sales force, we mainly look at our top-notch customers and the ones that deliver probably 80% of our business. We use distributors, either they are specialized and are real wizards in technology or they are more broad line and serve the smaller customers. They help us to have enough feet on the ground to really touch on the many places on this world and altogether, must deliver technical support. We need to help our customers to quickly use our products flawlessly. And finally, of course, we also try to support sort of the more innovative sides of the market. This is done with what we call the maker community. Maker -- makers are the guys who try something that want to build a quick prototype. There are even events for that, that support this attitude and here, we also enjoy a very good basis. They are often the breeding point for new business. And of course, this all results in a large number of customers that we serve across the globe and most names are probably known to you. At least they cover the sphere of our industrial and automotive customers. This is where we have, as you know, our majority of the business. We enjoy a very good reputation, and this is making us also very solid also in times when business is not going straightforward. Here, it is really then the fish -- or the point where we live with our customers and go through also a difficult time with them. And in the back is a strong supply chain. We have, for 2 decades almost, partners that we work with, that we have developed to the levels we can serve our customers with regard to cost, with regard to quality, with regard to throughput times. And also, we enjoy with these large partners, a very good backing in the sense of that they are flexible, that they also can expand capacity on a continuous basis. And also, we have a good placement insofar that we stand outside of the more hot zones, mainly with regard to trade war. We are -- we were never affected by these tensions directly, but of course, some of our customers have suffered last year. Our partners, they are -- the main ones are Sapcorda and Kudelski. Sapcorda is a joint venture, as you know, where we also have further invested and are essential for delivering high-precision positioning solutions without certain data streams that do tell receivers how to correct errors they are picking up in the signals. You could not make it highly precise and therefore, we have created, 2 years ago, this joint venture and are about to go live with the data streams. And of course, only on this backing, we can also sell our hardware without such services, no high precision and especially also for high performance wouldn't be possible. And with Kudelski, we have a very important partnership to make our offer, also including security. Kudelski has a vast experience and an excellent reputation in this area, how you bring security into hardware but also on the software side, how you make it protected and especially protected over the lifetime of the product that our customers have here a secure solution in their hand and especially also a solution that is not just secure but also that is elegant, that is demanding legal resources and can be easily maintained. And security is a broad area. It is about making or maintaining confidentiality. It is to make sure things remain integer, and trust is involved here. Of course, it must be very robust and -- robust against the tax. And over the lifetime, availability must be guaranteed so that you always keep control over the device that is somewhere far away in the market without interaction from a human being. Now we talk often about innovation and about putting a lot of money to R&D. It is not just that we make new products and just expand the catalog so to say. It's also about, well, thinking about in what dimensions we have to drive innovation, and you see here, on the right-hand side, the little scheme that is mainly depicting innovation into an axis of technology risk and one into business risk. And for the 4 fields here, we are continually looking to put efforts into because in all dimensions, we must make progress. We, for example, must be in an attitude to try new things and you see that means mentoring. But also, we have to expand what we do already, make it more stable, more broader and are, for example, then in an expansion field. So the products we have announced last year are precisely responding to these 4 quadrants. And with services, we tried to realize a new venture. We tried to expand into a field where we have not been before from the business side but from a technology point of view, this is relatively straightforward. With disruption, we go into things that are really risky in both dimensions because we are expanding technology-wise into solutions that are really new, that are difficult to make. And also, we want to go into businesses and an expansion that the market offers but that can only be achieved because we may also make it, on the technology side, a next level. Expansion means we look making products more proficient. And this is what we do, for example, by adding on certain capabilities in the product, the u-connect software that helps to make adaptation much more easy. And also, when we say scale and sustaining, we are just adding new types, what are delivering certain additional features that are, from an innovation point of view, a little step. And the innovation is also that we look around, that we look in inorganic growth, that we find ideas around us and here is a whole process that we run through. And as you can see, when we made 15 acquisitions over the last 10 years or so, then it was a huge effort to begin with. We had to look into more than 200 ideas. We had to analyze perhaps 100, and we went into due diligence with 24 cases but finally, we only made it to 15 acquisitions. This is what is a process that, of course, also in the organization must be organized and this is constant strategic thinking, finally, to make sure we make steps that are adding on and finally, create more shareholder value. All in all, these 15 deals were 12, mostly technology-based, adding capability and of course, capacity on the R&D side, and 3 were more business oriented, adding on turnover and also expanding into markets. And this last category was also Rigado that we did in last July. It was a real add-on of more customers, mainly in the U.S., and also strong relationship with distributors. It expanded insofar the way to the market. It's a scale effect that we achieve here. And it also works not only towards the customer but also towards the supplier. Nordic Semiconductor is here, our core supplier for short-range radio, and this step, of course, we have gained importance also in this dimension. Now I come to the outlook, and we give a guidance for this year, but making a guidance in these times is, of course, a difficult matter. It's really hard to judge the future. And insofar, we are in a time of quite high unpredictabilities and uncertainties. I think this needs no further explanation. And we see more and more impact in all the regions and of course, also see a recovery in turn sooner or later but at an unknown point of time. So our guidance has a wider window in this regard. And we have -- the only choice here is to update the guidance once we have better visibility and still are, of course, in a good situation that our underlying markets are not disappearing. We are not losing customers. We are not losing opportunity. Also, we see, so far, little impact from the whole situation across the globe. We are lucky that we have a strong diversification, but we also have, fortunately, customers, they do still very well in the various markets and hope that we, in the far, can further count on the stability also over the next several months. The numbers are based on exchange rates of the previous year, the average exchange rate of the last year. Of course, also with the crisis, these numbers are changing rapidly in all dimensions. But with this indication, you can make your adjustments as is necessary from time to time. Our next events are the Annual General Meeting on April 23, and half year results are available August 21. We also intend to hold an Analyst Day again in November this year. And with this, we are at the end of our presentation. I invite you for questions first in this room.

Andreas Müller?

Andreas Müller, ZKB. I've got a question on the revenue you lost with this fraudulent customer in Taiwan. How much was that? And also the impact of Rigado in terms of revenue and probably profitability.

Yes. So the situation in Taiwan was a good business because it was single-digit millions. But when you have customers that work against you, then, of course, they are no longer customers. And this is why we stopped business with this company. And the effect of our acquisition, I must ask Roland for the precise number.

Yes. The effect of the acquisition on revenues is CHF 3.6 million of both acquisitions, [ Tuchong ] and Rigado. Rigado is roughly CHF 3 million. So 0.9% of revenue is acquisition-based in 2019.

Okay. And with regards to your guidance, the lower end, I mean, what is implied in the lower end of the guidance? I know it's probably difficult to say out, but what kind of scenario do you have?

The scenario is high uncertainty and more is difficult to say.

And the higher end would have been just the normal course of...

This would be a normal continuation from last year. But of course, we already know that we cannot be overoptimistic at this time.

And year-to-date, I mean, we are at the end of March, more or less. What do you have seen with regards to progression throughout these 3 months so far?

Yes. As I said, we have seen little impact. So our customers are, fortunately, thanks to our diversification, still delivering business as we would expect. And also on the production side, we had never any issues to be able to deliver.

And in terms of year-on-year progression, is that currently negative or stable or...

Whether we see a continuation of a trend line, this is very hard to say because you cannot move your picture from the past into the future. There is not enough stability. There is so much uncertainty. So I will not -- I cannot make a statement here. It's impossible.

Rolf Renders from Helvea. On the guidance for this year, maybe that's a question for Roland, but with current exchange rates, how would that end up in low and high numbers?

So I think the -- I make a remark before, perhaps before we go to details. But I mean what you should never forget, you must work with average number for a year, and the dollar is very low now or whatever currency. I mean it's probably not a good idea to look at the number, but it's more about what is on a year, the average. And I have often seen here misunderstandings that the actual number is not so helpful to make your prediction. So -- but you are better positioned to judge currency developments than we are.

Right. So on the slide, we have also indicated some -- on the revenue impacts there, we see, for example, for the U.S. dollar means -- if the U.S. dollar goes 10% up to the average rate, we indicated here though the average rate in 2019, you should have a 9% surplus on revenues or a 9% revenue growth just based on the fact that there is another 10% increase in the exchange rate. And the same is true then for EBITDA and EBIT. If you look at the table, you can easily see it's roughly 80 -- 90% of our revenues are in dollars, and 10% -- 1 -- 10% of the revenues are in euros. If you go down to gross margin, the split is similar. Still remains as it is. So the movements, you have then 16% impact in EBITDA and 22% impact on EBIT is not due to differences on the gross margin split on currencies. It's because the costs are different. So our major costs, our R&D personnel costs at the end, they are in Europe and Swiss francs-related and not in U.S. dollars. And therefore, on the euro side, then you have to turn.

Okay. But it's too difficult to give a few numbers or -- well, we can do it later, but that would be my question, actually. If we just take today, if the state of today would be average trend, how would -- should we adjust these?

I heard. I don't have it, what the average today is.

Okay. Well, we can do it later then. That's fine. Sorry for that. The other question is, so if you end up on the high side of your guidance, so CHF 440 million in sales, EBIT would be CHF 30 million. Why would that be so much lower compared to the '19 comparison there?

Yes, it's mainly that amortization of capitalized R&D will increase in 2020 due to the fact that certain bigger development projects reach amortization phase in 2020. This is an effect you have already in 2019 partially and you will have it in 2020 again, based on effect on the 2019 ones. And then in 2021, let's say, you have the last effect -- jump or increase of amortization there.

All right. So -- and if you then look again a bit further, even more uncertain, but on your midterm guidance, there you -- if I have the right numbers, I think you aim to get at, on EBIT CHF 80 million to CHF 120 million. Were that the numbers, CHF 84 million to CHF 120 million? That's quite a...

We have given percentages, yes.

A percentage, yes, yes, yes. If you then calculate that. But that is -- how do you expect to get there? Because it's -- based upon this, looks like quite a jump.

Yes, of course, building a stronger bottom line has always several jobs and tasks to perform but you can count that we are expanding, of course, at the top line. We are making sure we can bring new values into the market and especially with recurring revenue, we see expansion of making more out of the same customers. We are working on improving operational efficiency and, of course, also via acquisitions. Okay. More questions in this room. Otherwise, we would switch to the online participants.

Exactly. We would switch to the phone. So the question to the operator. Are there any questions?

There are no questions from the phone.

Okay. Then we go ahead with the questions from the chat. And there, we have a couple of -- Mr. Sauter from Kepler Cheuvreux. One is your financial year 2020 guidance grounds on adjusted EBITDA and adjusted EBIT assumptions, including share-based compensation, et cetera. Your medium-term guidance has not been reiterated but I remember that it had been altered slightly at the CMD last year. Is this mid-range plan still valid? And do the margins targets refer to actual or adjusted margins, please?

Yes. So far, we do not comment our midterm guidance at this time. What we have commented in November is our latest statement.

Then on impairment. You can please give a split between external effects and the change on your own R&D road map? To which product does this impairment relate? And are other road maps at risk of seeing adjustments?

Yes, that, of course, is an expected question. But the number you see is, to the major part, due to external effects, these are suppliers that have stopped operations. One example is Intel. They are no longer active in cellular chipsets and therefore, of course, we cannot count on this company as a supplier anymore. That, perhaps, we had a little impairment from internal projects. This is more than natural. It's for me a very good sign that we are an agile organization, that we give people the chance to develop new ideas. But of course, you have the slight risk that perhaps one idea is not the best one, but another one and the better idea is always the enemy of the good one. And we had such a one project where we then decided we go for another one that is more promising than the one we have now impaired. So the last question was is there more in the pipeline. No, there is not more in the pipeline as such. We do capitalize R&D. This is IFRS. We make visible to investors where we are. If we do an impairment, then it's visible when we have such events that perhaps something in the pipeline doesn't work, and this is a big advantage. If we would not follow IFRS and just expense all R&D, no investor would ever see how much we have to write off because of different avenues we have to take. So let me give you very high transparency here. And again, I mean, overall, the percentage of impairment compared to what we have on the balance sheet is relatively small. I mean of course, we hate that suppliers are unreliable, but that's a matter of fact. And this is why we go for our own chipsets, precisely to avoid also such risks that are finally then no longer happening.

Thank you. Then we have a question from Mr. Bouvignies from UBS. Can you quantify the extraordinary license cost improvement in financial year '19? What would we expect for the gross margin in financial year 2020?

Yes, this effect is very small. So perhaps we should not have mentioned it. It is, of course, an effect that we have to make estimates of what are the future license payments we have to make. And from time to time, we can make an adjustment because we have new insights or also we have won a new agreement that lowers the rates and then, of course, we do reduce the provisions that we have made in the past.

Then a question from Mr. [ Murhav ] from Credit Suisse. Can you explain where the scalability will come from in your model? 2015 to 2019 revenues, plus 13.8%, gross profit margin improved. But employee count, plus 55%, R&D plus 31%, distribution marketing plus 36%, therefore, EBIT has declined over the last 5 years.

Yes, the observation is, of course, all correct, but it has a strategic reason. We have decided, from this point of time, and 2013 is mentioned, that was the point of time when we started to expand our R&D activities very strongly. We added more products. This means cellular and short-range radio. And also, we maintained and pulled through to create our own chipsets. And I have just explained how important this is. We are still sort of leaving this time where we had accelerated R&D and we'll now come to a more stable situation, more balanced situation that what we maintain as an R&D capacity is much more aligned with what we see from the top line. Of course, we hope to make more growth in the last 2 or 3 years, but we have forces against us in the market to make this happening, as we have also explained again, but this is, of course, in our opinion, more temporary. We are going through, sometimes a time where not everything is blue sky. But the underlying force is that expand markets are all very well available, and we have done, I think, a lot of good products responding to these needs and are, therefore, very confident that the scaling is happening as we are expanding business.

Then 2 more questions from Mr. [ Murhav ]. Slide 23, what drives the connected future? Facts and figures implies fantastic growth, but we don't see such high growth in the revenue line.

Yes, again, I think I gave the answer already, that we had forces against us in the last 2 or 3 years. And of course, the -- these markets are also new. They are only developing. I mean that you make the industrial Internet of Things, that you have devices connected now in the cloud and no longer stand-alone. This is all a process in the industry. This is not so easily always predictable. But we have no choice. When we see a trend, we must go and create products that are really then available when such things are emerging, and we go with this development. Finally, the good thing is we have a long time to follow the trend. Our lifetime of a product is 9 years. So we have 9 years harvesting time. If you miss a little the ignition point then, okay, that's a problem. But we have still a long time to recover and especially profit from our initial investment.

What percent of revenues from modules is based on your own chipset? Excluding the depreciation, amortization of costs of developing the chipset, how much higher is your gross margin on the sale of a module with u-blox chipset compared to the gross margin on a chipset using third-party chipset?

Yes. So we can probably say more than 50% of our module business is based on our own chipsets and, therefore, important. The number, how much better gross margins are with our own chipsets is quite wide. It can go up to 20 to 30 percentage points. In other products, in very complex products, it's less. It's perhaps 15% -- 10% to 15%.

Then we have a question from Mr. [ Tarabati ] from Kepler Cheuvreux. Could you please speak about some specific automotive applications utilizing SARA-R5 in 2020? If not relevant in 2020, then 2021. Who is your competitor for SARA-R5? What is SARA-R5's edge compared to competitive products out there?

Yes. So the R5 is a category M solution. That means that such a category defines how much data you can transport, and it's not an application for video streams. This is not possible. It is good for certain data packages and, therefore, are mainly made for industrial applications where you transport measured data or certain captured data that is a relatively small package of kilobytes but not the megabytes. So -- and it's not for making the car connected that you can see a video stream. It is good for tracking. It is good for anti-theft. It is also good for certain solutions for sharing, for example, so this is where such products will be used. However, the major market for category M is industrial, either mobile or stationary. It is not the device for car applications per se. It's more for aftermarket that it goes into the passenger car. So when we -- the question is also what's the difference here. The difference is this product is made for an industrial market. It is highly robust. It is very well-performing and have low energy consumption. That was one of the aims of making an own chipset. And also, we add security. There is no other solution that will deliver the same level of security. And it also adds a lot of other capabilities for supporting the application of the customer. This makes it a very essential centerpiece for our customers to create the solution.

Then a question on Sapcorda from Mr. Hollfelder from Robeco. When is Sapcorda expected to go live? Do you expect to invest in Sapcorda similar amount of cash also in 2020?

Yes. I mean we are -- I mean I'm not representing Sapcorda here. We are an investor, not more. But Sapcorda is live. We -- customers can test in Europe and Americas the data stream. This is, of course, good progress. And we are expecting also, this year, more investment because the profitability point will not be reached in this fiscal year.

Mr. Bouvignies. What is the outlook for the cash flow 2020?

We are not guiding cash flow at this point of time.

Then Mr. Schulz from JMS Invest. Could you please give an update about current trading since beginning of the year?

Does that mean shareholder tradings? I mean we are -- cannot comment on this side if that was the question. If it was business, I think we have given the answer already.

Then from JMS Invest as well, how are traveling restrictions impact your business?

Probably little because we have local teams. We have made them self-sufficient forever. They are well trained. They have all the resources. So we can continue to serve our customers and are not dependent on people traveling to customers to give service for example. This is not what is the business model we have.

So 2 final questions, again, from Mr. Sauter. Your competitor Sequans has recently signed distribution agreements to sell its LTE chips. Can you please provide details on how you want to scale up on your own chip sales even beyond your own internal channels?

I explained our way into the market and our channels we have and precisely, these channels are available to serve 7,200 customers. I mean we have these customers. Our competitors have not 7,000 customers. They have perhaps 100.

Then final question from Mr. Hollfelder, Robeco. Do you expect that the ASP of GNSS chips will further increase in 2020?

Yes, of course, prices are decreasing in the component market. This is nothing new. However, we have good strategic action taken, of course, to make prices rather to increase. I mean it's about the average sales price that we talk here and we do this by adding value. We are giving customers more value into their hands. We are making products for performing. We also look for good differentiation, that we have an offer that is not easily matched by competition. And all this is helping to finally have a much more stable situation. With regards to prices, you have seen that on the chip side of our business, the prices have increased precisely because we are able to deliver more value to the market. This seems to resume all the questions. So thank you, everyone, for attending either here in person and online. And we are here for more questions if there is need and otherwise, thank you very much, and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.