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

Ladies and gentlemen, welcome to the Full Year Results 2020 Conference Call and Live Webcast. I am Sandra, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Seiler, CEO. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and good morning to our audience in the Americas. I will now go through the presentation of our annual report and do that together with our CFO, Roland Jud. So we are making the presentation with the usual disclaimer and we'll now concede [Audio Gap] following agenda. We will shortly [Audio Gap] And then my colleague, Roland Jud, will guide you through all the financial numbers and details, and I will then later come back and talk about most of the businesses in 2020 and also give an outlook. So a quick summary about the numbers of 2020. Of course, highly impacted by the COVID crisis, we were impacted in all regions where we do business. And we're hampered mainly by close-downs [Audio Gap] with our customers. Fortunately, the crisis was relatively short, as we already announced in November that we see return to growth that then continued into the new year. However, in 2020, we had a decline of 9% before exchange rate impact. Also, the door had a stronger impact. So finally, we were lower by 13.5% in revenue, resulting in [Audio Gap] The gross margin was [Audio Gap] as in the previous year, so we were able to maintain profitability at this level. However, of course, because of the operating expense, we were not able to decrease [Audio Gap] as the revenue declined. These have, of course, some [Audio Gap] visibility. EBITDA has [Audio Gap] now at 11% as a IFRS number, respectively, almost 30% adjusted and price for EBIT in the adjusted [Audio Gap] 5% and lower as in the previous year. And as you know, we have reported an impairments that had, of course, then made our profit negative. Cash flow [Audio Gap] of course, also only about half of the previous year at the operational level. And free cash flow [Audio Gap] but also we made acquisition in this period. Now some highlights [Audio Gap] despite the COVID crisis [Audio Gap] we acquired a company called Thingstream that delivered the platform to provide [Audio Gap] to our customers and [Audio Gap] provide the platform, but also connectivity solutions that. [Audio Gap] for our industrial customers. It's a special protocol that [Audio Gap] cellular network and also Wi-Fi and allows to connect this very little data transmission and also very little power. So the platform is very important for us. Of course, we have numerous services that we have created before and also thereafter. And all the platform, we can now reach out to all our customers out of function. Also in this year, despite the crisis, we launched important new products, we brought our [Audio Gap] chipset module to the [Audio Gap] cellular connectivity with the category LTE-M. that is the international standard for making industrial Internet of Sales connected by the cellular network. Also, we added another module of increased security from the same standard with our initiative to make things more secure, more robust for our customers. And component, of course, all our service idea to make not only a piece of [Audio Gap] if everything [Audio Gap] over the lifetime. And also on the side of short-range radio, we launched solutions that we call [Audio Gap] point-to-point connectivity with Bluetooth, but now you can also connect to many points. And this is, of course, a very important addition, again, in the field of devices that we connect, for example, in a factory. So in the crisis, we never stopped, continued our organizational operation [Audio Gap]. And this means we were able to continue to develop the next-generation of products. That is, of course, important for our next future. We have never stopped and maintained by that, our leadership. And of course, this was an important decision to really pull-through despite the crisis. Still, we have made some improvements [Audio Gap] able to reduce our footprint by CHF 50 million in annual savings that are now fully in force and applied for the running year. And with that, I hand over to [Audio Gap] Roland Jud, who will guide you through the numbers.

Good afternoon, ladies and gentlemen. In the next few minutes, I'd like to give you some more insight into the numbers of the year 2020 as financial highlights, total revenues, CHF 334 million, the decline 13.4%. We managed to maintain our gross margin at 45.3%. And EBITDA adjusted was CHF 42.2 million, as Thomas mentioned already. And the free cash flow number is minus CHF 16.5 million before our acquisition of Thingstream in some -- and it was CHF 3 million minus compared to the 2019, CHF 21.3 million. The impairment charge of CHF 74.1 million did not change in the full year. We have already announced that on the half year results. On this picture, you see, again, the revenue development over the last 5 years, CHF 333.5 million, was it in 2020. The negative impact of the U.S. dollar. If you put the revenue at the same exchange rate as in previous year, the impact is minus 4.1% and the adjusted EBITDA margin, 12.6% in 2020. The revenues by geography did not change a lot in this split, although the revenues are lower. All regions suffered under the crisis, but not all the same. In Asia, China and Korea, we were able to remain relatively consistent throughout the 2020, but the negative impact of COVID-19 on automotive and telematics application leads to a 5% increase in Asia Pacific revenues. The biggest decrease comes in Europe with 20% here as well from automotive and tracking application. But fortunately, we had made good progress in the industrial automation solution and also in the U.S., we had seen an increased demand in industrial automation solution. But also here, this was not able to compensated decline in tracking and consumer applications here, the decline is 17% compared to prior year. If you look at the revenues by market, the market split did not change from 2019 to 2020. Industrial is now 63% of our revenues and was relatively stable. The automotive market, as already mentioned, declined from 30% to 24.5% of revenues in 2020. All applications had to suffer on all these lockdown measures worldwide. And also consumer market decline, most of the applications went down with one exception. This was the fitness area, where we see a little growth. Consumer markets were responsible for 7.9% of our revenues. If we look at shipments and the volumes, the module volumes remained stable, 0.7% increase as a result of the broad range of our product, also the price differs a lot within the module business. And due to these changes in products mix in 2020, the ASP declined. But although this ASP declined, we were still capable to keep our gross margin at a similar level as in 2019, as you have seen with 45.3% in relation to revenues. On the chipset side, decline is 16.9%. Overall in the chipset volumes, the volume is driven in 2020, mainly by u-blox8 and M8 series, which is now the biggest volume we sell in our chipset area. Overall, the split of revenue between chipset and modules is slightly moved towards modules. 79% of our revenue belongs to module sales, 20% to chipset sales. Gross margins, I mentioned it already. Gross margin adjusted was CHF 150.9 million in 2020, 45.3% in relation to revenues at a similar level as in 2019 with 45.5%. If we look at the cost side, distribution and marketing expense adjusted CHF 31.9 million in 2020 compared to the CHF 35.2 million -- sorry, there is something running here. The -- These expense represents 9.6% in relation to revenues. This increase is mainly due to the lower revenue number in 2020. And -- but year-end due to the cost savings, we realized also here in distribution and marketing, mainly the travel costs, which are much lower and that we have not spent exhibition to, did not take place and did not issue costs. On R&D expense, this increase you see from CHF 76.9 million to CHF 82.4 million is mainly due to the increased amortization on capitalized R&D and with the -- in the second half year, implemented cost savings program, which had a positive cash effect in 2020 already and will have its full effect in 2021. We were able to fully maintain first of all, our R&D pipeline during this COVID crisis. But also, we were able to reduce our cash expense for R&D in 2020 compared to 2019. On this slide on the right-hand side, you see the full P&L in the first column, the IFRS figures and in the fourth column then the adjusted figures. The adjustments we make are the usual ones. Share-based payments of CHF 4.8 million, then we took out the pension impact of IAS-19 of CHF 2 million, the amortization of intangible assets acquired of CHF 2 million and the impairment of CHF 74.1 million we have already communicated in half year. With that, we end up in an operating EBIT of 70 -- CHF 18 million adjusted or 5.4% of revenues. The financial result consists a prime of 10 -- minus CHF 10 million consist primarily of foreign exchange losses, the interest for the 2 bonds and also in the financial result, the CHF 4.2 million share in Sapcorda, which is also negative. For all these group adjustments, we applied a corporate tax rate of 18.1%. So this results then in a net profit before minorities of CHF 2.9 million adjusted. Now let's have a look at the balance sheet. A solid financial position with liquidity of CHF 94.4 million compared to the CHF 128.3 million in 2019. The inventory decline here reflects also the revenue decline in -- due to the COVID-19 crisis, it was CHF 33.6 million and -- December 2020. The trade receivables were CHF 34 million. And in the other current assets also contain some outstanding VAT receivables of over CHF 19 million compared to the number 2019, where it was, this number was only CHF 8 million. And you could imagine that this also has an impact on the cash flow statement later than in net working capital. Capitalized R&D is now CHF 162.5 million. After the impairment booked in 2019, it was still roughly CHF 200 million. Also, on the asset side, you find the right-of-use assets. Resulting from using the IFRS 16 accounting rule, it amounted to CHF 32.5 million in 2020 and the corresponding leasing liabilities were CHF 33 million on the liability side of the balance sheet. In the noncurrent liabilities, you see a move as well, 2 current liabilities as the bond, which is repayable from -- in '21 of CHF 60 million is now shown under current liabilities and only the second bond in the value of CHF 60 million, which is repayable in 2023 is now part of noncurrent liabilities in the years before, these non-current, they were shown under -- both under the noncurrent liability section. Now let's have a look at operating cash flow. You see here the changes in net working capital versus now lower than in 2019, CHF 3.4 million compared to the CHF 16.2 million. This has an impact on net cash generation from operating activities. One of these roughly CHF 11 million is only due to this high amount of outstanding VAT receivables, which were caused by delayed repayment of the different governments in the world. With that, we have a net cash generated from operating activities of CHF 39.5 million. We maintained our investing activities. We spent net cash in investing activities of CHF 56 million, CHF 38 million goes into investments into intangible. The major part here is the capitalization of R&D. And also CHF 13.5 million went into acquisitions, CHF 9.3 million goes out for the acquisition of Thingstream, and the further investment into the joint ventures Sapcorda and Tashang was CHF 4.2 million. With that, we have a free cash flow of minus CHF 16.5 million. Free cash flow before acquisition was minus -- it's minus CHF 3 million. Overall, we had then the net cash used in financing activities of minus CHF 11.3 million, CHF 4.3 million went out through the par value reduction or the dividend paid to the owners of the parent. Also, you find here the CHF 5 million lease payments, which is also the application of IFRS 16 now showing in this number. With that, we end at the end of a net cash decrease of CHF 27.8 million. And net cash at the end of the 2020 was CHF 93.9 million. And with that next slide? Yes. Oh, sorry. Next slide, the financial statement position. We had a solid equity base maintained, 54.6% of -- is the equity ratio, CHF 283 million the equity, if we would take out the treasury shares of this calculation of CHF 31.9 million, the equity ratio would have been 57.2%. Without IFRS 16, equity ratio would result in 58.2%. We had a global customer based, widely spread over the different applications, and we were able to enlarge through our distribution channels, our total customers worldwide to 9,000. Thanks to this high number of customers, we see now a strong order increase in 2021 with a low customer dependency, 93 customers are responsible for 80% of our revenues in 2020. And also, our large customers still account only for 7.4% of our total revenue in 2020. The 10 biggest customer are responsible to 27.8% of total revenue. On the employee side, we slightly increased our staff in 2020. The split to the different functions did not change a lot, 69% of our people are engaged in R&D, 16% are in sales and marketing support and 15% in administration. Still, 76% of our employees are based outside of Switzerland, across 18 countries around the world. And the average number of FTE-based employees is 1,124. And now last but not least, looking to our segment information. Big number in positioning wireless products, CHF 333.2 million in revenues. You see wireless services start now with the acquisition of things seem to increase also its revenue by third party. It was compared to the prior year, where we have CHF 143,000 revenue, we're now CHF 355 million. The major part is still intergroup revenue, but this will change now over the coming years so that also this segment gets stronger over the years. And with that, I'm through to the financials and hand over back to Thomas for the business review. Thomas, we don't hear you.

Yes. So thank you, Roland, for all the financial details. I take you now through some insights how is our business going. So we mentioned already that from late summer last year, the demand has increased and that has continually accelerated into the current year. Our order book actually is about 4x higher than it was in last summer. And that means, of course, we see very, very strong bookings. And behind our various factors, first of all, that the trends that we have in the market that the growth drivers in automotive and industrial are continually expanding the market. And of course, it was also a rebound effect after the dip during the outbreak of the COVID virus. We see very strong growth now especially coming back in automotive because here is a correction of the cycle, but also in any other market, especially in industrial, in our case, and it goes across all the regions. It is most pronounced or more pronounced in the Americas and EMEA. And of course, the profit also from our hard work before, we have expanded our sales channels. We have created many new accounts and opportunities to make business and together with our expanded product offer that, of course, has created a much broader basis for expanding our business, and we see now the fruits of all these efforts. At the same time, of course, we are part of the industry and not only we see much stronger demand, all the industry has a much higher demand. And because, again, of various reasons, of course, a major one is that online connectivity has become very important for everyone. This consumer spending went into more equipment in this regard and less into travel, for example. And similarly, of course, now this translates into more demand on the industrial side in equipment and makes that the supply of components is smaller than the demand, to a large extent. So we are working intensively in managing these supply constraints. We have adaptive processes. We have put more workforce behind the topic. And of course, we work strongly together with our manufacturing partners. Fortunately, we can mitigate many problems because we have a broad offer of products. We can give customers alternatives that have a little different supply behind the product and therefore, give good diversification. So in the markets, we see continuation in APAC. APAC was little affected by the crisis, fortunately, it came out also relatively early. So this is more a continuing expansion or the trajectory that we have for a long time. Of course, China is still the major market here for us. And also other markets do very well, particularly Japan and Korea. And also here, the automotive demand has shown increase, and also our persons have started to accelerate the ramp-up. In EMEA, it was, of course, an area that was hit the most from automotive, but also here, the demand has completely reversed to a very high demand. And also I thought it was helpful is that the industrial sector remained quite stable and has also started to see an increased demand. And finally, in the Americas, we see strong acceleration because the cellular connectivity via the N1 network is really now taking the majority of the new applications and all the customers are ramping up. Now, of course, also because there's a lot more optimism in the market, and therefore, we see a surge in demand. So this, of course, is again, result from what we have done in the past. We have, of course, a very good operational leverage here. We see this growing revenues, also a very good impact on the bottom line. And not only this, we also have decreased our OpEx footprint, as mentioned, CHF 50 million that also has, of course, a positive impact on profitability. Now more precisely in automotive after the strong decline and also what makes them the segment to become smaller, only 24%. Before, it was about 1/3 of our business. That, of course, shows us how severe the lockdowns affected the industry. But this is all over. The automotive industry is running at capacity limit and has large problems in getting material to really make the volumes that are demanded. And here, we, of course, do connection to support our customers and to help them to bring them up to higher volumes. And it is, again, not only that the basic demand has increased, but is quite a shift to new car models, and especially also to car models with more electronics, either for automation of driving but also for the powertrain that in Europe, especially but also elsewhere, the hybrid or electric cars take more volume and especially the newcomers in these areas see a very strong growth of volumes. So we maintain, of course, here also the activity to make sure also for the next future, we are well positioned. We see a very strong pipeline of new opportunities of additional designing. And together with our product initiatives that we have launched a time ago and also in the last year, we are very well positioned to support the industry to allow for new functionality in the car. Often, it's much more value or we sell a lot more value. Also we sell more than one product and that, of course, expands the dollar amount we can get from a one produced car. With industrial, we mentioned already relatively little impact fortunately from the crisis last year, only 4% decline because it was a mix between several application areas where we saw continued growth. Tracking and telematics was slow and negative mainly because here, the industry stopped investing and notably in the later part of the year then came back and especially now, is very strong in recurring. So now, of course, we are driven by more and more demand from the market because connectivity is really an important driver in industrial applications going away from standalone products to connected solutions. So we see this across the board in all the various application areas, the -- in the health care, the majority of products are becoming connected because you can much better gather data, you can better give care to people. And of course, it helps to reduce cost because you can do it without personal intervention. In mobility and especially micro mobility, we see a lot of interest to make such vehicles and make them, of course, all automated and applied with advanced telematics. In the industry, it's all about automation. And of course, on the one side, improving productivity but also to become less dependent on availability to people. For example, for service segment maintenance the crisis has learned the industry that this is absolutely essential that an attachment is to each device to maintain over time. And similarly, in the channel infrastructure in homes and in the cities, likewise, the benefit of having devices connected is very essential. Also comes here the demand for a greener city for less our consumption, and of course, improving the air quality. Our consumer segment is small, growing about 7% and make about the same share in our sales. Also here, we were hitting the first instance because the stop of traveling has an impact. But later, these also reverted because consumers bending started again a little in different areas. For example, in thickness, and therefore, we saw some decrease, but also here, the rebound is pronounced. So again, and I already mentioned, we have launched several and important new platforms and products for our next future to make sure we are the leader in the industry. We give customers all they need as a solution package to make devices connected. With our 5 chipset and module, we are very well positioned to give customers a industrial solution for connecting devices to the seller network. We are the only company making chipset and module together. Finally, all customers buy a module because this is the only way of integrating this complex technology into a product but because we make also the chipset, we can much differently work with our customers, give them many more functions and features and continually develop the solution capability by relatively little effort much lower than what we had to do already to do it on top of third-party chipset. When we expanded into WiFi, is the JODY-W3. So WiFi is becoming also here, the industry's more and more important channel of communication, especially for these applications where you have bandwidth, where you transport a lot of data, for example, video, pictures that, of course, is also essentially in automation. And here, we follow the continuous expansion of the standards there is WiFi 5 and WiFi 6 coming that allows for expansion of data throughput. And of course, sometimes it's also the competitor to cellular. In positioning, we launched our 10th generation of a platform, the M10. So we are very proud that we have now 10 generations behind us of making leading-edge GNSS receiver platforms. The M10 that we announced is mainly for wearables for small size and low power consumption. But of course, it's again, a platform that we will expand to more than the broader offer. What we did also is the ninth generation. You see also here, we are still expanding. We got out, what we call M9 mainly for automotive and high-end telematics application, a very robust product, very well protected and also delivering essential information about how you can rely on positioning information. And last but not least, I already mentioned our Thingstream acquisition is this platform. This is strongly and quickly expandable for both services. Now here a few examples of what customers really do with our products. This is our customer Qualcomm in the USA. This is a typical customer for asset tracking and fleet management, or of course, several types of such systems for tracking goods and fleets, for example, for temperature-sensitive products in these refrigerated trailers or they do the same, of course, also with drive ends or sea containers. The application is, of course, to know where is our use. It is also to transmit data via the similar network. And Qualcomm is also known for satellite communications, so they combined cellular and satellite communication because in the Americas, also you have low cell power when you are on the road. Then we have a very special customer, the representative of our drone business. This is a company doing aerial medical logistics in sending, for example, vaccines to hospitals or from hospitals to doctors. And of course, this is an elegant solution because it is fast and it does deliver quickly and all demand, the sensitive vaccines. Also to have good control over the delivery end where finally, these things arrive. Here, our high-precision GNSS engine helps to drive these drones and maintain secure operations. And the next customer is MODMO. It's a company that resides in Vietnam. It does make bicycles, electrical bicycles and has added food connectivity with our technology, including also connectivity via our Thingstream platform to give the user who insights into how bicycles are used to protect them against set and also to optimize the whole powertrain. So to make this really robust but also pleasant vehicle to ride. And last but not least, the customer from the more consumer medical area, device that is measuring body temperature. It was originally designed for sports to prevent over temperature while doing intensive sports. So now it's also used to monitor temperature and detect attack of virus, and is either for, of course, useful solutions and for as a cloud solution to identify early and quickly any infections. Here, Bluetooth comes into play, especially a very low power solution, so that the device has a very low battery life time. So of these examples, some more words about our strategy, how are we going forward, most of our 4 pillars remain the same as before. Also our paradigms do not change with regard to what are our markets, what are the mega trends that drive us forward and also what are key available markets, we can say the crisis has rather accelerated all these market trends and forces and open new opportunities for what we do for our customers. So we focus on making sure we have a strong and right market position, that we have technologies and innovation at work to help customers make their products and connect it to the cloud. We need, of course, operational excellence to always be the preferred partner and a dependable partner and continually look to make strategic steps. And indeed, our market position has a strong increase in the past because we've expanded sales channels, because we added distribution partners, because we have a very strong marketing engine. We have excellent awareness in the market. We have probably a leading position amongst our competitors because we do very much a digital strategy here to connect with customers and make them aware of all the values that we can take into our hands -- into their hands. On the technology side, we have a strong IP portfolio. We have invested over almost 20 years, enormously into knowledge. And of course, we continually reapplied knowledge for making next-generation products and especially do that on the basis of our silicon. But of course, software is as important, those are more important that you can build functionality that you have algorithms and intelligence that loses the available signals to the best use of our customers. And this is especially, of course, also important for generating services. This is all about transferring data from a server to a device and backwards and give here the desired functions and values for the lifetime of the product. The operational excellence comes always to play, but especially now when we have tight supply situation. We need really to optimize our processes to make sure we do the very best out of particularly narrow way of how we can run operations. We have not much time or flexibility or headroom because we need to really make sure out of everything we can purchase, we make a maximum output and produce special financial outlook. At the same time, of course, maintain the levels of qualities, the levels for dealing with the customer to be reliable and dependable. And as mentioned already, we looked for increasing efficiency to becoming more easy, more agile, in all what we do. And finally, strategic actions are ongoing. We are continue looking at how we can accelerate our company. The acquisition of Thingstream was an excellent step last year. We are very glad that this was possible. And of course, we are looking continually into new ideas, and we showed this graph already in last November. We have a pipeline of strategic action that we continually do evaluate and hopefully bring to a closing. But that, of course, takes time. It's not so strictly predictable. And especially, it is important. We always have alternatives in parallel to then hopefully find the one that really fits. And this fit is very important that it does add on technology that delivers new and more value to our customers that we can gain economies of scale that can also expand the footprint into the market and apply more cross-selling and of course, high interest also in expanding recurring revenue models. So we had a project to look into our competitors telly, but stopped these discussions in mid of January, we are still bound by takeover rules until mid of June in this regard. Now I come to the outlook. Again, we give you the guidance what we expect in the current year, and this guidance gives you a range of growth -- relative growth for revenue, the range of margins for EBITDA and EBIT. This guidance is based on our business as expanding, as I have mentioned, the strong expansion in automotive and industrial applications and together with a very healthy ramp-up with new products and new opportunities with our customers. We have, of course, for the profitability guideline, also the efficiency measures we have implemented. But we have to recognize these numbers are all driven by the supply constraints. This is the only decisive factor that determines especially how we can expand the revenue. We have the orders in our hands, it's a question of how quickly can we turn them into billings, how we can produce the products and send them to customers. This is both -- applies here to the range of growth. It's very hard to predict. Visibility is not good with our suppliers, they give us almost no mid-term information we live practically as everybody from hands to mouths, therefore, we have to make growth estimates here. But I mean, the very solid thing is we have extremely good visibility of our order book and can basically fully pull in as we can improve the supply of components. And of course, we make this outlook also based on exchange rates that are the average rates of last year, these are really the numbers you see here. Also, we give you a sensitivity against the major exchange rates. And this concludes our presentation. We now open the microphones for questions.

[Operator Instructions] The first question comes from Andreas Mller from ZKB.

Thanks for taking my, say, 2 or 3 questions. First question is on the booking. What's your sense about the real demand beyond the order book? You just mentioned, you're here pretty confident, but I mean, could there be overbookings as well out of some customers? And how much larger is the order book relative to pre-COVID levels, say, at the end of 2019.

Yes. Hello, Mr. Mller. That's, of course, a question. We are also asking ourselves what is this demand right as it go up so strongly, but while talking to also other partners in the industry, this is really solid demand across the board. And it has to do with the fact I have mentioned that the industry is moving to more connectivity and more connected devices. So we see little hot air in the orders. We have, of course, always also our innovation from the sales channels. And of course, we have a budget against which we can check, what customers have promised earlier what they want to take. And so far, we can continually check whether we can count on this demand. But so far, I mean, the demand is so much higher than what we can ship. We are not so concerned also from that angle. But clearly, the industry is seeing strong expansion. And I said already, our order book is today, 4x higher than it was last summer.

Yes. And in terms of -- by the end of 2029, is it 2x higher or 10% higher? The order book just to get a sense.

End of 2019. It's about the same factor.

Okay. And maybe an add-on here. What's the assumption between the 5% to 15% growth rate? Is the 15% basically you convert everything in the order book into revenues? And what's the 5% there with your functionality?

So an estimate how quickly can expand output month by month, but the 2 -- or the upper number is not the maximum. We have -- we do not believe we can do everything we have in our hands this year because of supply constraints.

Okay. And then my last question, do we have pricing power in certain areas, given that there's such constraints?

Yes. That's interesting. The -- our industry has new only one way of prices, they always went down. Now this has indeed turned and we can increase prices. Of course, also suppliers to increase prices, not all, but some of them. But overall, for us is rather a positive event with regard to pricing power.

The next question comes from Francois Bouvignies from UBS.

I have a couple of questions. The first one is on your 2021 guidance. And you mentioned in H2 that you were impacted in Asia by the trade tension in the U.S. So I was just wondering if you factored in '21, this trend to continue? Or do you expect relaxation here? The second question I had is on your gross margin. You managed to do a fairly good gross margin, still flat compared to the top line. But more importantly, when I look at the average selling price, it's coming down meaningfully, it looks like for module and chips. And I was wondering how do you manage to get your gross margin flat with pricing decline? And also from the cost side, it looks like the foundry, given the shortage and all of what's going on. We didn't see any price decrease on their side. So rather than the opposite. So I would have thought like the gross margin would be under pressure. So how should we think about this gross margin would be very helpful. The third question, I'm sorry if I have too many. The -- your deposition and amortization. So when I look at your guidance, you have a D&A of roughly 7%. But your -- your CapEx to sales, it's more around 11%. And it has been -- this gap has been for a while. So how can we explain this difference? And when should we expect a normalization here?

Mr. Bouvignies, thanks for your questions. Trade tensions are difficult to predict. What effects they have. Of course, we had a change in presidents in the U.S. And so far, also hard to predict what might be happening now. So unfortunately, I think -- I would say the worst is probably behind us that certain things were changing or adapting in the industry. And these are all assets we cannot talk of any special precautions or measures we have taken here. More importantly to your question about gross margin. Indeed, we were able to maintain the same level for several years now. This, of course, post this question, house is possible. But first of all, it is that we do continually create more value for our customers that we get premium prices or we can add on to the get more value out of the same application. That all is the Metop here to maintain gross margin. Of course, we also can improve our cost of manufacturing purchasing to go along based price decline as I just mentioned, that is normal in the industry to compensate for this. Now when you look at our information about what our average price is, then you need to know this is, of course, a big mix of products for very small to very big, if you want, or for products with little features to high features products. So all depends on how these things come together for the average price. But this not leading you to any meaningful information with regard to gross margin because the gross margin is really what we make with all the various elements of this mix of products, how we are continually able to improve in the overall margin we are generating. And of course, we continue. This is part of our product strategy to make sure we have good innovation to keep more and new values the head of customers and, of course, make that transfer into maintain a strong gross margin. The question about difference between CapEx and depreciation and amortization. I think that's a question for Roland to explain.

Yes, there's different success. You're right, Mr. Bouvignies. The difference will get smaller in the future because we still have let's say, so-called lack in chip development, which we have done in the past and which will now come into usage. Also in 2021, we will have complete new developments coming on to the market. And with that also new amortization and total gap will still remain in 2021 and also 2022, but it will become smaller over the time as long as we do not have some complete new technology starting to develop and then start again to build up a gap as we did before. The gap we are in today is coming from -- mainly from the cellular development and also from all the big investments we did in high-precision GPS.

That's very clear. If I may squeeze in a last one. When you talk about the shortage for 2021 or even now, can you estimate maybe by how much the shortage is impacting you? I mean, in other words, how much revenues are you losing in terms of percentage because of the shortage. Do you have a number?

I can give a very brush number. It's somewhere between 10% and 30%, that we could make more at the top line, yes.

10 and 30, 3-0?

Yes, 3-0.

The next question comes from Rolf Renders from Helvea.

Can you remind me what the covenants are on your bonds?

Renders, Yes. The bond is due next month, indeed, and of course, it was important for us to bring out the annual results to then also go after this bond that is refinancing, but we can't be assured we are ready to do this.

Thank you. But there's no financial criteria attached to do this in the other bonds?

No not no covenant as such.

And then the other question relates to the cellular business. How would you that? How is that developing? Are you becoming stronger there, is competition stronger? How is that segment doing?

Yes. So I mentioned already that our 5G set has taken very good traction in the market and the category and is the standard for what we call machine-to-machine type communication. Therefore, we see a very strong demand in this segment. And also we have expanded the offer into quite a number of variants, including the product that supports security. Also solutions that are specifically made, for example, for asset tracking. And therefore, we are on a good path now. It was a difficult time before in maybe 2018 and '19 because the network changeover was really happen seat function. So it was much a delay in the whole transition phase. But this is of course now far behind us. And if we had no COVID crisis, it would be really on a much higher level.

All right. Excellent. And then how would you see for this year, from a breakeven level.

That because, of course, what type of breakeven but I think it is probably not so much our problem today. And where is the breakeven, the problem is more, how much can we expand and can maximize the progress and the growth rate so this is what is our challenge at the moment. Of course, it has dramatically changed from probably what you are asking, where is the critical breakeven point because doing prices, this was the question. Now it's completely the opposite. How can we expand capacity.

[Operator Instructions] Then we have some questions from the chat. Mr. Torsten Sauter first from Kepler Chevreux. What's the sustainable financial expense? When will Sapcorda breakeven and no longer dilute group profitability.

Yes. So corridor is our joint venture that delivers what is called correction data is our specific data streams that eliminate errors, we do determine positions based on satellite signals without such as stream, you cannot come down to such a level of precision. It took a while to build this company and especially the system because you need a worldwide coverage. You do need the receiver stations, you need, of course, a network, you need older algorithms and the data streams. But the company is -- has done the old ad. The services are available. They work very, very well. And they complement perfectly with our hardware. And this has created a strong interest in the market. And we believe that this year, the company will reach the prices.

Then we have a question about Telit, also from Mr. Sauter. What has been attractive about acquiring Telit, which were the deal breakers? Has u-blox had discussions with Telit's Board, will you partner with Telit or any other module player to sell your new seller chipsets?

Yes. Thanks for all these questions. But as mentioned, we are unfortunately not allowed to make any statements with regard to this case.

Good. Then we have from Thomas Noski, Independent Credit View. How do you plan to address the April 2021 maturity? Can you also give some guidance on cash flows or CapEx levels?

Yes. As mentioned, we will communicate in due time about this bond question. At that time, then also be how details.

Then Thomas Fundra, Valor, was the foreign exchange loss reported in 2020 numbers. Realized? Or do you expect the situation to reverse in 2021, partly given the recent recovery of the U.S. dollar.

Yes. I think what the dollar will do is everybody's estimate on their own. What happened in our books, Roland will explain.

Yes. So yes, the major part of the foreign currency losses is unrealized foreign currency loss. And yes, how it will be in 2021, we will see. It depends on how the dollar does, as Thomas already mentioned.

Then a question ...

And again, we keep [indiscernible] numbers with regard to impact of exchange rate variations.

Good. There's still a bond question. I just mentioned it. Is refinancing of the bond maturing in April 2021 plan? Or do you intend to repay it from current cash balance and positive cash flow.

Yes. We have a plan for dealing with this question. And again, we will communicate in due time.

Then Mr. Sauter, what has triggered the VAT tax receivables increase with various governments. By when will this cash come in? And what would be the cash effect from a normalization here.

Ronald, please?

Yes. So the trigger of the government, why they don't pay back. So fast, I think it's the ordinary situation that it also took the government side longer to pay back the money. The difference I have mentioned in my explanations roughly CHF 11 million compared to 2019 is what is usually end of the year is roughly CHF 6 million and now -- or CHF 6 million, CHF 7 million. And now we are close to CHF 19 million, which is open. So this -- the cash effect would, in this case be then this is CHF 11 million as soon as it is paid back. But as I said, it's difficult to judge when this will be the case because it's -- you can't do as a company, you can't do anything to get this money faster back from the government when the government is willing to pay it back.

Then Mr. Lowisky. Can you share more information on dividends? Do you have a net leverage target?

Ronald?

Yes, the dividend payment is a topic from for the Board. And as said, we do not propose to pay dividends. The policy, the Board has decided not to change the policy as before. The policy was and is still to pay dividends out 1/3 of profits due to the fact that we are a negative -- have a negative profit this year, no dividend is paid. If next year, this change and the Board does not decide to change this policy, then we might have a dividend again.

Then we have a question from Thomas Kone, LMV asset management. Why did automotive decline more than 30%, considering that the global light vehicle volume declined only 16%. Have you lost share?

Yes, that's an important observation. And the explanation here is that our customers that are not the OEMS, but what we call the Tier 1. So the level below that the electronic systems. They have simply scaled down their inventories and, of course, stopped to the MAX to buy components. And therefore, the inventory cycle, of course, makes this difference between our number and the observed the total output. And the lowest equation, of course, what you measure as a car sales when you measure the registrations, then there's another inventory in place. This is the dealer inventory as we also know that deal inventories decreased tremendously. So all that, of course, makes a very much distorted supply system, and this is why we have such an overload in the pipeline because everybody is now trying to catch up and to replenish the inventories.

Mr. Gunter Holden from Robeco. Do you expect a stable gross margin in 2021?

Yes, we have explained already how we got all we do for managing and creating strong gross margins. And of course, this space in play and is very essential to our strategy.

Then Mr. Kune, why has asset tracking been so weak? It seems surprising given the global room in freight volumes. Do you see a rebound? And how do you see the outlook for the number of employees, sales per employees has declined steadily recently?

Yes. I also mentioned here that the asset tracking and fleet management solutions had a strong decline last year because in the first inning, the industry stopped investing. And of course, probably also was running down their own food because outline business started to pick up very dramatically. And of course, the industry has now completely reversed. There is a lot of investment into such solutions to improve overall capabilities in logistics. So we see here, of course, continued strong expansion. Now there was a question about efficiency in sales. Of course, we have not made redundant of our salespeople in the crisis. We kept them precisely because the designing activities, the creation of next business was very, very strong. It is densified for the simple fact that sales guides were not traveling, but they were constantly talking to customers online. They had more meetings at As than ever before. And of course, that also helps now that we see very strong upswing in business because we profit from these new projects we have created in this time.

We have 5 more questions. Mr. Hollfelder from Robeco. Do you have capacity constraints for your key GNSS chips at your foundry partner?

Yes. That's, of course, a picture we have to draw where are what types of constraints when you look at our first levels, this means where we assemble the modules, we have a constrained only -- or I mean, Oli, primarily from the supply of components. Our output capacity means how much we can assemble is much higher than what we get components right now. But still, we have taken better also to expand the assembly capacity. At the next level of components, we have, of course, our own components, is the chipsets that we met make in the foundries. These foundries are highly loaded. They have -- both of them have an order book full until 2022. And it is only because of our long lastings relationships and our very solid forecasting and also placing orders. These foundries that we are get coverage and the quantities that we need, but it is hard to ask for more than what we have initially the time ago already placed in the pipeline. And then we have also suppliers for other components for standard components. There, I would say, it's mostly driven by the pure manufacturing capacity, so the machinery capacity, it's not so much the matter of raw material, this exceptions. And these manufacturers roll all their capacities at the very edge of what they can do.

Just a follow-up question by Oliver Knobloch from Pictet. Can you be more precise with electronic components are not available in the market? And do you have a view when this shortage will disappear?

Sure. So I mean we have about 60 suppliers for third-party components. And almost all of them are under allocation. This means they do not fit for an order, they give you a less. Unfortunately, I cannot give an outlook where such trains are going away. This will, for sure, take 6 to 18 months.

Mr. Inauen from [indiscernible]. Can you maybe walk us through the automotive revenue development in the last 2020 quarter, month-by-month since the recovery started? Other automotive suppliers seem to have recovered faster. Second, are u-blox product parts, the vaccine transferred to value chain?

I answer the first question. The second, you must repeat. The -- I cannot give you a lot more detail about what how has the business ramped up with automotive, but you can just count that the change in demand was dramatic. And the second question...

The question was, are u-blox' products part of the vaccine transport value chain.

Vaccine. Just I didn't hear. Yes, we have certain applications. I mentioned RCOM, these trailer trackers of course, such trailers have also refrigeration, transport vaccines, for example, at temperatures of minus 70 degrees. And of course, measuring temperature and tracking the good state of such goods is absolutely essential.

Then a question from Claudio Ranieri from Albern Mar Asset Management. Question from my side, is a capital increase an option to strengthen u-blox' liquidity position and sort out the bond refinancing issue? Second, how has turnover developed in January, February 2021?

Yes. So of course, an option of capital increase is always available as we are a public company, but whether we would go this route or another, we will, as said, communicate in due time. Then we are not making any specific or giving us any specific details to month-by-month revenue numbers at this time.

Then 2 more questions from the Jett Lejowski, independent credit view, do you have a net leverage target?

Yes, we have, but we stand much below, I mean, such targets come into play even for example, a larger acquisition, but at this time of -- I mean, this is not a critical KPI.

And Mr. Kune, LLB asset management. Could you give more color on the x pen design win? And how this could help set the benchmark for other OEMs to feel compelled to also use your highest capability products, the x pen Autopilot system seems very expensive, impressive, even versus Tesla.

Okay. That a question with several elements. I mean the -- you see by the number of customers, how we are expanding and how much attraction we find in the market. And that's, of course, a very generic answer. And indeed, we give sometimes light to specific application and this new electric car in China is a good example how our higher-end products go into such cars and help generate new solutions and especially here, of course, to support automation. And new features to assist the driver. And of course, we make sure we do think that we have value for our customers. We have very strong ties to the industry at the OEM level and the Tier 1 level. We also employ what we call application marketing people. They do nothing else than continually discuss next ideas and new ways of solving problems and ensure that our product development is really targeting their efforts towards making this possible.

Good. Maybe be up for 2 other questions? The next question from the phone comes from Michael Schulz from JMS Invest.

I have a question related to your Slide #13, you showed the average selling prices for modules and chipsets. If I understand correctly, the sharp drop in average selling prices, and that happened, I mean the sharpest drop was in the second half of 2020 is strongly related to the lower sales in automotive, which generates lower or automotive generates higher average selling prices and, hence, the lower average selling prices. Now my question would be, how would those charges look like, especially the modules but also the chipset chart look like in 1 year going forward. Do you expect this average selling prices to rebound with a normalizing mix going forward.

I mean we are not giving any guidance in such numbers, Mr. Ruter. Thanks for the question. But of course, the drop is because of a trade, as we explained, especially from the automotive side, where we sell products, these high picture set is also solutions that are highly enriched, where we, of course, garnish higher prices than for just an industrial application, for example. And now that automotive market is expected to bounce back and that it will take about 1/3 of our business again, makes, of course, that this trend of course.

If I may add there, I mean, that should actually generate going forward, a kind of a double whammy, right? I mean, the volumes will go up and also the mix and the average selling price will go up. I mean in this sense, your guidance, 5% to 15% revenue growth is not very ambitious. So it does not sound very ambitious to me doesn't -- it implies that you only need a couple of percent volume growth to achieve the 15% because you have some 10% or so from the average selling price.

Sure. We call it conservative. Yes.

Next question from the phone comes from Serge Rotzer from Crédit Suisse.

I have -- you guided for growth, 5% to 15%. And so I'm wondering, could you give us some guidance on net working capital movements, where do you see that? And probably in addition on the Capex, probably I missed that, but what do you expect more or less on CapEx on PPE and intangible assets? This would be my first question.

Yes. So the impact on net working capital. Here, as long as VAT is paid back normally, we have the only variable is our inventory, which is very low at the moment. So because we depleted it to make business due to lack of component supply. We intent to increase the inventory gain, but I think this is hardly possible on the current supply situation. So therefore, from that side, there's relatively little impact foreseeable at this time. Accounts payable receivable, they are well under control as before. And so far, probably quite a similar ratio to sales also this year. For the other question, Roland, you are best positioned, Capex.

For the CapEx question, yes, capitalization. So the capitalization of R&D will go up again to -- because we have a very low capitalization rate. So if you take now the CapEx in the cash flow statement today, we will come back in 2021 to levels where we have been in the year before. So we will have there some more cash out, or so to say, or more CapEx on a higher level, but because 2020 was quite an extraordinary year in this regard.

Okay. That's very helpful. So basically, if you exclude the refinancing topic, do you believe the change in cash for the full year is positive or negative?

I would assume ...

For 2020, for '21?

For '21, yes, of course, yes.

I would assume that it is positive. We occur, we will come -- we should come back to positive free cash flow again. Is all the peers on the top line and on -- then on the effective net working capital development, what is achievable here? Also regarding inventories and sales, so -- but I would expect ...

Yes, of course, this was my intention. On your guidance, EBITDA guidance, so up to CHF 70-plus million EBITDA and the CapEx and the working capital change, so we get a CHF 30 million free cash flow, yes. No, but that's fine for the moment. Probably last question, I know you normally -- I'm not allowed to ask this question, but still, Mr. Seiler, are you committed to stay at the company for another 12 months or 24 months? Or is the successor planning initiated by the Board?

Yes. Of course, we think about the future, but we will communicate such plans again in due time.

Next question comes from Mark Dieter from [indiscernible].

I just have 2 follow-up ones. One is again on Capex. The depreciation level when I take the midpoint of your adjusted EBITDA and EBIT guidance, the depreciation and amortization for this year is more or less the same level as 2020. I mean you said that the CapEx in the gap will close over time. So my question is we will see a step-up in '22 already or only by 2023, particularly on seller amortization going up? And the second one is, again, also a follow-up on competition. Do you see more competition, for example, with Nordic semi launching their several product lines and then acquiring WiFi capabilities or hypocore being more aggressive in the automotive sector? That would be my 2 questions.

Thank you, Mr. Dieter. I'll answer the second question first. So competition is always around. And -- or we have to deal with that. And of course, the one or the other competitor also announce new products. But we feel very well, although it is primarily for us a partner because they supply chipset for our Bluetooth activities. In the cellular domain, of course, we have a much broader foothold because we have the 2 bits of solutions in the form of modules. That is essential. Chipset alone is not sufficient to go to industrial customers. Now the other question about amortization, Roland?

Yes. The amortization. We expect a small increase in 2021 and then in 2022, a bigger gap between capitalization and amortization between the years, that calculated in the ranges in EBIT and EBITDA it is calculated in that we have an increase of a smaller increase in 2021 compared to 2020, then in 2022. Because the effect of the impairment on to amortization, amortization, amortization of R&D is of course, higher in the 2021 as in 2022.

We have a follow-up question from Mr. Rolf Renders from Helvea.

Just a clarification on what you said before. So on the 5% to 15% sales growth for '21. And then someone asked what the potential would be without shortage of components where you mentioned 10%, 30%. 10%, 30% compared to what? Was that '21 or compared to the guidance?

Yes. I think when I give such a broad range. It doesn't really matter. So -- I mean, it is -- let's take it. It's on the big point of our guidance for 2021.

This was the last question from the phone. We would have one more in the chat. Mr. Ranieri. What is the risk of u-blox losing market share to bigger competitors, which have stronger negotiation power towards suppliers as those competitors could be less affected from component shortage issues.

Yes. That, of course, is always the question in shortage period. Who gets preference who has priority but our experience, we supply this being the same, by the way, is our customers. We are not going to penalize the small against the big, but we keep the balance here in supporting all. I mean the first thing is you give an allocation rate that is almost the same for everyone. And therefore, we do not see that much that we would lose preference. And also, you should not forget the used Flex as our module assembly house and Flex is one of the largest buyer of components in the market. So in so far, we have, of course, a very good hedge against this situation.

Then Mr. Hollfelder from Robeco. Could you provide indication for the expected sales level in the first half?

Your game. This is then for our half year reporting.

Mr. Sauter, Kepler Chevron, how much of your growth in 2021 will come from higher ASPs, better mix.

I cannot say that it would be a healthily complicated computation because it depends on assumptions you make here. But of course, everything, it's always a multiplication between volume, times, average sales price. We mentioned already several facts here that come together that these numbers rather moving up.

And then the last question from Mr. Sauter. Why has the depreciation of tangible assets declined so much? And what is the run rate year.

Yes. The depreciation went partly down to the impairment. There was also a small part of this impairment due to fixed assets on long hand. And on the other hand, because of the status of the development and of investments into equipment, we have equipment not invested that much in the year before 2019 in new equipment. Therefore, this level was lower. Now the depreciation level is lower, but I would expect that over the run -- over the long term, we can keep the depreciation level as we have with the investments we need to do. It's also dependent on how fast we grow. The faster we grow, the more equipment is needed, the more fixed assets you have and the more depreciation you have also in the future.

That were all questions.

Very good. So thank you for your attendance, for your many questions, and I hope we were able to give you a good insight in the current state of our business. Of course, it was a dramatic past last year with a very quick swing from a deep crisis peak to a situation where we have now extremely high growth. Thank you, and I hope to speak you on the occasion. Thank you very much again. And goodbye.

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