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

Ladies and gentlemen, welcome to the Full Year Results 2021 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And 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.

Ladies and gentlemen, welcome to our presentation about our results of the fiscal year 2021. I'm glad to do this together with my colleague, Roland Jud, our CFO. We make this presentation with the usual disclaimer about statements into the future. And our agenda comprises that we give an overview on the highlights, then go into more details of numbers, also talk of business and strategy and finally provide an outlook, before we then provide time for questions. So in summary, our year was very successful. It was a record year. It was a record for the top line. We increased our revenue over the previous year by 24% to CHF 414 million. This is also a record. We never had such high revenues in the lifetime of our company. Also, we increased our gross margin to 46.8%. And followed by such good top input, of course, EBITDA and EBIT also followed to much higher levels than in the previous year. And most importantly, cash flows were very strong, almost CHF 100 million for the operating cash flow and CHF 56 million for free cash flow. The business was, of course, driven by a very high demand. We communicated before that we have very, very strong order intake with record bookings, and this has increased our order book to a high level. And we had, of course, to follow and increase our production capacity but the limiting factor was the availability of components. This has decided on what was achievable finally for the fiscal year. So we are on a very good situation. Also looking forward, we are continually investing into R&D, and we have launched again in 2021, 12 new core products. That, of course, are then defining our way forward, especially business further out into the years to come. Also, we have expanded our capability. We acquired another company for expanding our services business with company Sapcorda. This was important to complement what we have on the hardware side, but also with existing services for communication and security. Now I hand over to my colleague, Roland Jud for talking the financials.

Thank you, Thomas. Good afternoon, ladies and gentlemen. In the next few minutes, I'd like to give you a short overview of the financial full year results. Thomas mentioned it, revenue increased by 24.2% to CHF 414.1 million. This is above the expected range of 15% to 20% we announced in our guidance. We could do this with adjusted gross margin increased to 46.8% and as mentioned, with an EBITDA of CHF 72.1 million compared to the CHF 42.2 million last year. Cash flow from operating activities, CHF 97.7 million and free cash flow of CHF 56 million. Free cash flow before acquisition, CHF 54.9 million. This compared to the minus CHF 16.5 million, a good achievement for u-blox in this year. Equity ratio was further increased to 59.9% compared to the 54.6% in 2022 (sic) [ 2020 ]. And based on these good results, the Board of Directors will propose to the AGM to pay a dividend in form of par value reduction in the amount of CHF 1.30 per share. This is especially tax favorable for the shareholders. A little bit more in detail on the revenue side. We mentioned it now 24.2% compared to 2020. This is a new record level, based on a strong rebound since August 2020 and the accelerated trend for connected devices, also the expanded production output we are capable to make this revenue. The U.S. dollar has a negative impact on our revenue growth at 2020 rates, would even have been 26.9%. And EBITDA adjusted margin with this revenue was 17.4% in 2021. This is CHF 72.1 million. We see this year a strong growth in every region with higher demand in industrial automation and automotive navigation and infotainment application, which led the American revenue grow by 37.6%. The growth of revenues of 30.1% in EMEA was on one hand driven by a strong rebound in the automotive sector and on the other hand by the increased demand in industrial automation and consumer telematics area. And also in APAC, we saw 2021 a strong growth in Japan and Korea in the industrial market as well as in the automotive market. But this growth was tempered by the flat business in China due to on one hand, supply constraint and also some COVID impact. But although also APAC resulted in growth of nearly 12% of revenues. On the market side, during the year, our automotive segment experienced higher demand for navigation and infotainment applications, especially for electric vehicles. And we are able to support this rebound in demand after a strong decline in 2020, which leads then to a growth on the automotive side of 41% compared to 2020. Our industrial segment grew by 24%, thanks to strong demand for existing applications such as smart devices, but also new applications in micro-mobility or medical automation and networks helped to grow the industrial market by 24%. And the highest growth in consumer market, this is due to telematics and wearables, so that we are able to grow this 51%. The split of overall revenues remained similar to the years before, 62.7% of our revenues we make in the industrial market as the biggest sector, 27.8% in automotive, and this year 9.5% goes to consumers. If we have a look at the volumes after years of flat volumes or even declining, we are back on the growth path in 2021. Our module volume grew by 36.6%, and we sold roughly 48 million chipsets, which you see a result as a graph, 5.9% increase on volume between -- from 2020 to 2021. As you can see, the chipset volume is driven by the u-blox 8 series. And also on chipset side at least, the ASPs are increasing. This is due to sales price increases, which helped here as well. On the split between the different -- between modules and chipset, you see a trend towards modules in 2021, 81% of our revenue is we make with module sales, 18% goes into chipset sales. On the gross profit side, our gross profit adjusted was CHF 193.9 million. This is an increase of -- this is an increase to the margin from 45.3% to 46.8%. This is mainly due to a favorable product mix and also the sales price increases helped here. Now a comment to the cost side. Distribution and marketing expense adjusted remain at the level of the years before with 9.4% of revenues. We spent in distribution and marketing CHF 38.9 million in 2021. The income statement here, you see the adjustments we make to the IFRS figures, which are in more detail in the annual report as well. The adjustments are the usual bonds as in the past year, we have a share-based payment adjustment of CHF 3.3 million, pension impact of IFRS 19 of CHF 1.3 million, and the adjustments from amortization of intangibles acquired including impairments of CHF 3 million and nonrecurring expense of CHF 1.5 million. This ends up with an EBIT impact of CHF 9.2 million and an impact on EBITDA of CHF 6.2 million. On the financial result, this consists primarily of foreign exchange gains, the interest of the bond and the result of the equity-accounted investees and the impact of takeover of full control over Sapcorda. For all these adjustments on the tax side, we do apply the group tax rate of 18.1%. With that, we had earnings per share adjusted [ CHF 3.3 per key ]. Now let's have a look at the financial position. Our financial position still high with liquidity of 84 million in cash. Our inventories level of CHF 31.4 million. This is mainly raw material and work in process. And trade receivables were CHF 51.1 million in 2021. On the other current assets then amounted to CHF 35.2 million compared to the CHF 56.1 million in 2020. In our books, we have also capitalized R&D. They are now at the level of CHF 175.4 million compared to the CHF 162.5 million in 2020. And right of use assets based on the IFRS 16 valuation of CHF 32 million and corresponding that there are leasing liabilities in the balance sheet of CHF 32.8 million in the balance sheet end of December 2021. Our current liabilities contained trade payables of CHF 25 million. And also noncurrent liabilities, which are mainly the bond of CHF 59.8 million. This is repayable in 2023. Deferred tax liabilities of CHF 1.5 million and the employee benefits according to IAS-19 of CHF 21.3 million. Last but not least, also in the liabilities, we have provisions of CHF 7.7 million. On the cash flow statement, we mentioned it already, cash flow from operating activities was very positive, CHF 97.7 million compared to CHF 39.5 million. This positive impact is due to the increased business on firsthand and also the reduced net working capital, which helped to increase this operating cash flow. We maintained our investing activities and paid with -- that result in a free cash flow of CHF 56 million. I mentioned it before, free cash flow before acquisitions and participation in capital increase was CHF 54.9 million in 2021. Also, the acquisition of full ownership in the joint venture Sapcorda and the sale of Tashang is part of this cash flow statement resulted at the end in an amount of cash inflow of CHF 1.4 million. You can also see on the cash flow statement, the repayment of the first bond in April, the CHF 60 million here, which ends up the total cash used of CHF 11.8 million. And this leads to a cash of CHF 83.5 million at the end of the year. Now total equity, we are still a very solid equity base. We were able to increase our equity ratio to 59.9% compared to 54.6% in 2020. Our treasury shares for the option program remained at CHF 31.9 million. And without these treasury shares, our equity ratio would even have been 62.3% of assets. With the sale of the Tashang, we have no more any minority interest in our books. And last year, this was still CHF 100,000. All this is based on a widespread global customer base, overall geographical regions, we were able to increase our customer base again to 12,200 customers worldwide in 2021, which we serve. We could also remain our low customer dependency. 74 customers were responsible for 80% of our revenues and our largest customer accounts only for 4.6% of our revenues in 2021. And the 10 largest customer accounts for 31% of our revenues. On the employee side, the usual picture, 2/3 of our employees are working in R&D, 758 FTEs. 193 were engaged in logistics and administration tasks and 196 are in sales and marketing support. 76% of our employees are based outside Switzerland and across 18 countries spread. And now last but not least, our 2 segments, still the positioning and wireless products segment, there's a strong one with EUR 413.5 million revenue. The wireless services and, although we improved our services in our product offer is still mainly dependable on intergroup revenue use. But as you call that, all you can see, there is an improving path we are on the third-party revenues and all service revenues will go in the future into this segment. And with that, I hand over for the business review back to Thomas.

Thank you, Roland. So let's quickly review how our business was doing last year. So we mentioned already that the demand came back and the bookings recovered strongly. It started already in August 2020. So a time go, and it was a continuous path upwards. Of course, the automotive segment recovered the most after a sharp dip in 2021 -- in the beginning of 2021. But it was not only the recovery, it was also a change in the industry, mainly that electrical vehicles suddenly took a very strong increase in production and interest, of course, in the market and this across the regions and with many of our customers. In the industrial segment, the difference was not that big because industry was less affected by the COVID crisis. But the growth continued, and it was across the entire industry, and the driving force was as before, that we -- that customers want to make their devices smart and connected away from what was before a stand-alone unit. The supply chain situation was challenging. There were disruptions. There was a lot of certain changes because of COVID measures that were taken by governments in the various countries where components are manufactured, but we were able to manage well. We were optimizing everything we could -- and by that, we were able to continually increase the production output and of course, reply to the demand of our customers. It took a lot of effort to fine-tune what was then finally the output, fine-tune it to the actual demand of our customers. And in the far, we were operating on availability-driven system, no longer an inventory-based system as many years before. So we were really reacting on whatever was on hands, and that was put into production for making the products for our customers. And despite these challenges that affected the whole company, we continued to introduce new products to the market and had, at the same time, also to redesign and remodel the products to also allow more different sources of components and broaden the supply basis for being able to deliver. So when we look into markets, you heard it already from Roland. In APAC, we had a very strong growth in Japan and Korea, of course, also driven from the automotive side, but also in industrial for continued expansion in automation. In China, the result was more flat. We had a good year before already. So it was also a base effect, but also supply constraints make it difficult. We sell a lot of chipset into China. And there, of course, we had severe limitations as we said. In EMEA, the increase came on the one side from automotive, as we said. And similarly, from industrial automation. And interestingly, also from some consumer telematics that had a very good growth pattern, the interest was enormous with some customers in this domain. In the Americas, here also, it was the industrial automation sector that drove us upwards and also automotive for the manufacturers in this region. So the order book reached record levels. It was 8x higher finally by the end of '21 compared to end of 2020. Now a little more in detail. We have already seen the recovery made that the automotive sector, again, goes more towards the 30% we have traditionally. And of course, the growth of 41% was enormous. And we have, I think, still very good driving forces aside the rebound effect, it is the electric vehicle that demands a lot more electronic components, and it has a lot more automation right from the beginning in the car. And the autonomous driving is an important move in the industry, more and more cars are -- approach to market that have certain autonomous driving capability as the industry is going to higher levels of such automation. So we see a lot more new design-ins for higher capabilities. We believe that this is continuing. So autonomous driving is an important factor in the industry. And here, we are very well positioned with our products, mainly for positioning. So it needs better capability to find out where is the car and what this is driving. And also what is added on is functional safety because this is an automated device finally. It needs to be safe, and this is an additional value, respective with technical challenge to solve. And this is where we have invested over many years and are now seeing fruits becoming available that we are harvesting. And of course, as I said, the electric vehicle has a strong drive, particularly in EMEA and China. In the industrial sector, we see a relative similar importance as before. The growth was what we made as a company about 24%. And interestingly, again, across the many different application areas, as you can reach them here. And this is, of course, most helpful that we have a diversified entry to this market that we profit from the many different applications that allow to expand our business. And it is the only -- the one major driving force that need to make devices connected and more intelligent. So when we look into the industries, the -- in health care, it is the growing role that diagnosis is possible by delivering data and also by that, helping to cut cost because there is better information available, how to cure diseases. And of course, also on a much higher level because with such data, you have much better insights and this is of high interest in this industry. In mobility, we were very strong with smart micro-mobility that these devices are connected is the only reason why this market is existing and why the business models are available insofar, this is a growing area and also with the changes in becoming a more green economy. This has, of course, a high interest how in towns mobility is finally organized. In production, continued expansion because devices become better automated and also better maintained because you are continually collecting data and you deliver insights into how to keep the production equipment even more efficient and how you can increase productivity. And last but not least, also infrastructure in the form of homes and buildings are becoming more smart. Here also, it is primarily aim to reduce energy consumption with regard to becoming greener and less CO2 effects. And of course, it's also about comfort and safety. Finally, our consumer segment. Here, we saw a very strong uptick because also during the COVID time, the demand dropped in the first instance, but also wearables and everything that gives to consumers certain data points is in high demand. Insofar, we have seen very good success with customers around the globe here. It's not a segment where we are focusing on, but for certain applications where it's rather the upper end and the high-touch consumer goods, here, our technology and our qualities that we have in the products are the perfect fit and therefore, we have seen very good success with customers. So our launches of products have been numerous, and this is important. This is what we will have for our future. And this is laying the basis to, again, create new solutions for our customers and build business from which we will profit in the many years to come. In the cellular domain, we have launched a product called ALEX-R5. This is a super compact module for connectivity in the standard of Category M and is essentially helpful for anything that needs to be compact and portable. It is a product that can run from batteries for a long time and is made for this use case where you want to have a wide area connectivity in your pocket. Also, we launched a new family of products called R6 and R8. This is the Category 1. So this is a category for higher data throughput. This is mainly used when our customers want to transmit videos or pictures and is the appropriate standard in for our industrial customers. Here, we see a continued good demand and we replaced all the products by these new generations to support our customers continually. In short-range radio, we brought out a new module for WiFi and mainly for more for applications that do not need extremely wide bandwidth, but are here to have a connection point, for example, in industrial applications or in the power management for electrical vehicles, where you basically transmit data to just steer the charging. And therefore, the bandwidth needs to not be that wide. And secondly, very interesting are new modules in the Bluetooth domain here with mesh networking. This means Bluetooth is not only connecting between 2 points but it can build a mesh network that connects many points and is sort of expanding itself into wide area. There, we see a lot of interest in the industrial use case, where you have many data points to connect and to collect data. This is, of course, a very low-cost solution for -- in these use cases, primarily in smart buildings or in the smart industry. On the positioning side, we continue to expand. We have rolled out a module, the NEO-M9V for that reckoning and this is a combination where you can collect additional information from the vehicle by being connected to certain sensors in the car, but also without -- this is a very versatile solution and offers additional capability especially for anything that is also -- is a vehicle, not only a car. And the other products you are seeing here are very special receivers, they receive satellite signals in the sense of communication signals, not positioning signals. As you know, they are also satellites that provide connectivity from the space to the earth. And this is very nice because we can deliver via satellite correction data to anything that moves on the earth and is independent of the terrestrial communication network. This is, of course, extremely flexible and versatile and is an expansion of our product offer into such a very specific receiver. And on the services side, we have expanded the offer. Again, all these services do improve the functionality of our products in cellular, short-range radio and positioning. They make these programs to better perform to deliver additional capability and also to maintain them over the entire lifetime. This PointPerfect. This is our correction services for high precision. This is what we got via the acquisition of Sapcorda, is now part of our Thingstream platform where all these services are available, and it does complement our hardware offer for high precision. And with that, our customers get everything out of our hand, what is in the hardware and what comes through the air, so to say, as a service to make them finally a very precise position determination possible. And with CloudLocate, it's also about positioning, but this is an alternative. It delivers positioning without the availability of satellite signals. It does compute position in the cloud and through delivery of the position information directly to the back end. The information is not in the device, but is precisely where normally you want to have the information, this means in the cloud. And here are a few examples. So this is an example for mesh connectivity. It's a Bluetooth device in this lighting sensor, and you can put many sensors, they connect one to each other, and help to easily install such a system in the building. This is very typical for light installations in buildings to have them connected via Bluetooth. Here is a very different example in the medical area. This is a special device to help treat chronic pain treatment -- chronic pains, excuse me, and here, of course, the Bluetooth connectivity is to connect to the smartphone to make the smartphone the user interface. And of course, it is important here that it's a very compact and lightweight device because you wear this device or your head. And here, a typical use case for micro-mobility. Here a bicycle where we supply all the elements to make this device connected. First of all, that you know where is the device; second, that you can connect via the cellular network and connect it to the back end; and also with a Bluetooth device that the user can unlock the [ bicycle ], also program the functionality of this bicycle and all is handled via our Thingstream platform. This makes it very easy for this customer to have the solution readily available with little engineering effort and, of course, fully maintained over the lifetime of the product. And finally, little device available for temperature measurement. This was invented during the times of COVID. It existed before for a different use case. Now it helps to do body temperature monitoring and the Bluetooth device must be very low power, it must have a long lifetime from battery and it is here to monitor the well-being of people. So our strategy is still that we are looking for good solutions for our customers. We solve problems to connect -- to make devices smart. We are continually working on our innovation path to preempt what markets are needing and into our invest with a long-term perspective into R&D. We are expanding sales channels to reach markets. We have again reached more customers than ever before and make sure whatever we offer is the perfect solution for our customers, that we are here -- that we have the capability that makes easy -- makes it easy for customers to work with us. We, of course, look continually not to do everything ourselves, but if possible, also look for inorganic growth whenever there is an opportunity and primarily, we look for bolt-on acquisitions that are not so large in size that have a very good fit for culture for strategy. And of course, they need to be financially accretive, and we made acquisition, as we mentioned last year. And all in all, the goal is to provide shareholder value return, but is a consistent dividend. Unfortunately, during the crisis here, we had no dividend, but I think we are recovering very well now with what we propose and based on strong free cash flow also for the future. And again, when we look into acquisitions, we have done 17 so far. We have a strategy team that does look continually into such cases. It needs a lot of effort and a long time to really build a final case that becomes viable. And of course, it is not directly predictable when such cases become mature. However, they help us as before and in the future to expand our technological capabilities, or in the other case, to gain economies of scale. Insofar, we believe we still have opportunities and are, of course, continuing -- reaching out to find more possibilities. Now I come to our outlook. We are providing here the numbers what we think we can achieve in 2022. And as we have explained, we see continued expansion of demand. The industry has very strong needs for all what we do. The automotive and in the space of industrial Internet of Things. And we see very good ramp-up with new products, meaning new products that make our customers but also, of course, with our products that are new and help customers to build new solutions. We see no direct impact from the Ukraine crisis. Fortunately, we had very, very little business in the Russian territory. However, of course, the supply constraints continue still. I mean, with the revenue growth that we predict between 21% and 32%, this is a little relative. We could grow more because we have higher demand than this 20% to 30%. But this is our estimate, what our suppliers can deliver more in 2022. And insofar, whatever you see as numbers and also when you look into '21, don't forget, it was driven by supply and not by what customers really demand. This means we have quite some distortion in the numbers because they are created by the supply side and not by the demand side. So we also guide for EBITDA and EBIT margin that are in similar ranges as we had in 2021. Also, this guidance is made with exchange rates' average of '21. And of course, with the current exchange rate situation, we are -- we have a positive impact, probably at least actually, because the dollar has increased and euro has become weaker. That means our top line has a positive boost, whereas our operating expenses are reduced by this currency situation. And with that, we come to the time to answer your questions.

[Operator Instructions] The first question comes from Francois Bouvignies from UBS.

Can you hear me?

Yes. [Foreign Language]

[Foreign Language]. I have a couple of questions, if I may. So the first one is on your guidance. Obviously, you deliver a very strong revenue growth in 2022. I mean what you expect? And it's interesting because we are in a short tight situation for many of your peers and orders that struggle to get capacity for foundries. So you mentioned a bit what you have done maybe on the inventory management level. But can you explain us how did you do basically to get this capacity? And maybe if you can explain what is volume versus price in 2022 revenue growth? How much is driven by price and how much is driven by volume? If you don't might have other questions as well quickly.

Yes. So the explanation to growth here is that, of course, all depends on what we have a relationship with our suppliers and what we can negotiate for volume for 2022. So of course, we have taken enormous efforts to get the commitment from suppliers and the growth rates we are here indicating are based on such agreements. I mean it's not on paper, but at least what we have as an indication from suppliers and what we believe we can execute them together with them. And of course, we have made also all efforts, as already explained, to more diversify the supply basis. Fortunately, we have not all eggs in 1 basket. We have quite diversification with regard to how we make the products and what sources they are depending on. And this helps, of course, to optimize here the growth path. Now the growth is mainly volume-driven, but of course, we increased prices, as you correctly say. So if we take a number of 25% growth, then we have probably a 3% to 5% price effect and the rest is volume.

Okay. Thomas, that's very clear. And -- did you take any -- into account any price increase from the foundries in 2022 from your partners?

Yes. Of course, we have also price increases from our suppliers. This is, of course, as you can read everywhere. The good thing is that these increases are especially from the foundries at a level where we are not yet through our value chain. This means they are not 100% rippling through, but only partially. And insofar, we have some protection with regard to this impact.

Okay. And maybe on the gross margin side, I was a bit surprised by how steady the margins were when maybe it was more module than chips driven. I would have thought that modules was lower margin. And I know models can include chips. So it doesn't tell you the full picture. But can you help us understand whether this cellular mainly module driven? How should we think about the margins going forward? I mean, is it -- do you expect the gross margin to remain where it is today? Or do you expect some dilution due to maybe price increase on the manufacturing side or the mix towards cellular and more module?

[Operator Instructions] We lost connection with the speaker. [Operator Instructions] Ladies and gentlemen, Mr. Seiler is connected again.

Sorry for the interruption. Yes. So...

We lost you again or?

Mr. Seiler is connected.

Hello, can you hear me now?

Yes, we can.

Okay. Again, my answer about gross margin development. So there are 2 effects. One is we optimized the mix and we made sure we were mainly manufacturing products with very good margin and compromised on the ones that had not so good margin. And the other effect is price increase. We were able to increase prices a little better than what we had increased on the cost of goods.

Okay. Great. And last one, if I may. On the APAC side, I mean you have a strong exposure there. Do you see any -- how should we still feel about the competition from local players? And can you remind us which process node your products are using? Just I was not sure which process node do you use that foundry is mostly in majority, I guess you have different ones, but you measure it.

Yes. So talking about Asia, then you talk probably of China. Of course, in China, on the one hand, we have a large business. On the other hand, we also have competitors but this is not a new situation. It was always so that we had local competitors in China. And we are able to compete. We have very good products, very good customer loyalty and enjoy also broad diversification of applications in the industrial and automotive space. Your question about process nodes. This is also, I think, important to know we are not dependent on the 1 node or a 1 manufacturer. We have 2 suppliers, Taiwan Semiconductor and GlobalFoundries. And we use nodes between 28 and 65 nanometers and even more, even higher notes also from -- for legacy products to make the various chipsets we have.

The next question comes from Harald Eggeling from ZKB.

Basically, I was wondering, when I look at the midpoint of your guidance, Obviously, it implies a very low incremental EBIT margin of roughly 11%. Could you please give some more color what these cost elements are? And then I was also curious, what basically the underlying assumption regarding Ukraine and Russia is? What's your gut feeling or what are your customers' feeling regarding duration and potential impact?

Sure. On the first question about the guidance of profitability. So here, we are... [Audio Gap]

[Operator Instructions] We lost connection with Mr. Seiler. Ladies and gentlemen, the line of Mr. Seiler is connected again.

So the first question was about the profitability guidance. Here, we are a little conservative because we have inflation and inflation will impact our operating costs, mainly on the salary side. The numbers are still increasing as we all witnessed. And therefore, we have probably here an effect that we wanted to at least have already in the numbers. But on the other hand, as I said, the -- the guidance is based on previous year's exchange rates. Now with the quite sharp changes in exchange rate against Swiss franc, of course, we have, at the moment, a positive impact, meaning better profitability. Now to the question of Ukraine, I cannot say much. We see no direct impact so far. As I said also, we have no business in this territory. And therefore, it's -- I cannot give another opinion or insight than what we all can read. It's, of course, very hard to predict what is here the outcome of this crisis.

Okay. May I ask a follow-up, please, on automotive and industrial environment. What basically is your production expectation, roughly speaking, for global light vehicle production, as we have seen, I would say, some shutdowns of major OEMs in Europe and today, obviously also lockdown in Chengdu, China was announced, plus regarding commodity prices rising recently sharply. Is there any gut feeling you would see for electric car demand?

You passed several questions together, I think. Of course, we have impact from the Ukraine crisis but also still from COVID that production output is hampered in certain places. But fortunately, we have a very diversified customer base and insofar are then not so directly affected by the one or the other event. And hopefully, it is not becoming more widespread as before. Whether the basic -- I mean, you again talk of inflation. Yes, of course, inputs to production are becoming more expensive. But normally, this is far away and very down in the value chain. So the direct impact is finally diluted a lot.

Okay. But you expect global light vehicle production to grow in 2022? Did I get that right?

Oh yes, the demand is constantly increasing, we cannot fulfill the demand of our customers. Limited demand on our side -- supply on our outside.

The next question comes from Serge Rotzer from Credit Suisse.

By the way, congrats on the results. It's really -- I'm happy for you after this long dry season, so looking forward, what you will deliver in the future. So -- but still, I have some questions here. And the first one is about the volume and price, when I go on Slide #13 and the volume growth in module was 37% almost and in GNSS chips, almost 6%. The breakdown is 18%, 81% you mentioned. When I make your rough calculation, I get a growth of 31% and you reported in constant currency, 27%. So this would tell me that you had a price decline of 4%. What is wrong in my calculation? Or how -- why do you say you had a price increase last year?

Yes, the problem is this computation is that you have, of course, also a product mix effect in the numbers you use, that have seemingly decreased the average price, but this is not what we have, of course, experienced as a price per product family where we have an increase.

Okay. Then the next question would be, again, on volumes. You mentioned that you had some -- from your supplier, you get some confirmed volumes. But still, you grew by about CHF 80 million last year and now the guidance is for plus CHF 87 million or CHF 133 million, roughly speaking. So the difference is still CHF 50 million within the guidance for this year or a plus from low to high plus 66%. Where is this big huge variance is coming from when you tell us you have a commitment from the supplier? Can you explain us -- this to us?

Yes. So foremost -- first and foremost, by increased volume. So we were able to negotiate for higher volumes being at the beauty to us. That's, of course, most important. And the other effect is again the mix. We have a good outlook for certain products that have higher prices in average. And this, of course, helps also to boost the top line.

I don't understand that because you know what you have the orders and you know exactly what you will ship in products. And you have a good feeling for the price. And still, we have a variance of CHF 50 million in the guidance. So well, you don't have a better visibility because you have also from your suppliers, you get the volumes you mentioned. So I still don't understand where this difference is coming from?

Yes. But the difference is we do manufacture a different mix of products in this year and in the previous year. This is why we have a mix effect, and it's a change to products with higher prices.

Yes, compared to previous year, yes, but in the current year. In the current year, you said that you will grow -- let me check say exactly the numbers, where are we here, between 21% and 32%, and the growth of 21% and the growth of 32%, the delta in between is CHF 50 million, CHF 50 million. And this is quite a lot. So this I would like to understand.

Okay. Then I misunderstood you. Okay. I mean that such a range is, of course, always then finally also a matter of estimates again. I mean suppliers give you a number, but it is not accurate, and we have to also then estimate what this might be a minimum and rather a maximum. And therefore, we have such a range.

Okay. Then we will see in the course of time. Probably last question for the CFO. The cash flow benefited quite a lot from the change in working capital from receivables and tax paid was quite low. Could you give us a guidance for this year? What does this mean? Where you see the larger thing, but especially for tax paid and also probably the working capital, as you will, as expect growth of 20% to 30%. So this sounds like that you need cash.

Yes. Thank you for the question. This is really a difficult -- cash flow is really difficult to guide and also for us because you have seen it, right, net working capital impact in 2021 is quite big. And for sure, what we can say, we shouldn't expect an even high -- big positive impact from working capital anymore in 2022. But to give you a prediction that rather difficult, on one hand, on the tax side, you have here the impacts when you pay taxes at which point in time when you get, let's say, a surplus you paid maybe get back in cash. It's just a cash view and not an expense view. And so it's rather difficult to say. But let's say, I would not expect to grow the cash flow similarly than we did from 2020 to 2021, again, in 2022.

[Operator Instructions] Gentlemen, so far there are no questions from the phone.

Good. Then we continue on the chat questions. And we start off with a couple of questions from Mr. Sauter from Kepler Chevreux. "Could you help us understand the contribution by Sapcorda, please? What's been Sapcorda's top line in 2021 and 2020? How much of your growth is organic in 2021 and maybe 2022?"

Yes. So 2 questions. The gross was not impacted by Sapcorda. The number was very, very small. So all our growth organic in 2021. Normally, we do not give details on product lines, how much we make in detail the numbers. However, this was out, there is lucky. This time, we have a number about what the Sapcorda because it was an acquisition [indiscernible] into some information in the annual report. We have roughly [ CHF 180,000 ] effects on the top line of this acquisition. So very small.

"Then on Slide 13, you are showing volume and price data for modules and GNSS chips. Are these GNSS chips sales only the external revenues?

Yes, they are.

"How does the share -- how does the share of your modules, which are chip change? I'm asking because you have invested so much into chipset R&D, but apparently GNSS chipset revenues are not growing much. is this a worry?"

Yes. That's an important consideration. And I think also good that we explain again. As I said, we show here what we sell to the markets, modules and chips. And here, of course, I'd like to repeat, our aim is to mainly sell modules. First of all, they serve our customers much better. It's a complete solution that is easy to use. And of course, it has also a higher price. We make more value out of the market with a module than with an integrated circuit. Now because we had supply limitations. We, of course, optimize for selling modules, and we kept the chip sales rather limited, and this is why the growth rate in modules is much higher than for chipset.

Then Thomas [indiscernible]. "What are your goals in terms of yearly revenue growth? The next forward years and also the EBITDA target if there would be no restrictions in components, what revenue could you achieve?

Yes. That is, of course, a good question. And actually, I could give quite high numbers, but you would not believe it. I mean, we could make probably 50% more at the top line if you had everything we want. The demand is very, very large and also for even -- and also on the basis of our order book, of course, we have almost unlimited capability to expand. But this is, of course, very hypothetical. The fact is all the supply is limited. All the suppliers are bursting at seams. And therefore, I think our guidance is also, I mean, on the one side, a strong one, but we cannot make it much higher than what we have on the table here.

Then Mr. [ Christophe Grown ] from [indiscernible]. "You have won quite many customers, new customers. But on the other hand, you are more dependent on lesser number of key customers. How will this impact your strategy? And do you have any plans to diversify your customer base?

Yes. So customer base is important. This is, of course, where we derive the business from. We already have a very diversified customer base because we serve 3 different application sectors as we have explained and of course, many, many different applications in these sectors and also they are distributed across the 3 regions, the Americas, Europe and Asia. And that, on the one hand, we have so many customers is important because this just shows us how much more interest is created for making things connected. More and more companies are really jumping on the bandwagon and want to have this technology in the product. And of course, many of them that look small in the beginning, become then the growing contributors and help us to grow overall the company. That this year, '21, we have seen somehow a reduced number of customers that make 80% again is a result of supply restrictions. This is only a result of what were we able to deliver to the certain customers. This is not what really is the potential with all our customers we have. So insofar, we have here a distortion and is only attributable to this supply situation.

He asks as well. "Your order book is quite full. How long will it take to convert these orders into real revenue? What are the main obstacles?"

Yes. Again, all dependent on the behavior of our suppliers. It is, for sure, not resolved this year and probably also not next year where we could talk of an equilibrium between supply and demand. So we will have a large order book quite for a time, I would say, at least for the next 2 years. And of course, it is in a positive event that we have a much better visibility on business at hand.

And then Mr. [indiscernible] has 2 additional questions, one on merchant acquisitions and one on R&D. "What are your key regions and business sectors for further M&A activities? And will your investments in R&D stay that high? How will this impact your business strategy?"

Quite a few aspects here. With regard to acquisitions, we have 2 dimensions. One is we want to add-on technical capability. And of course, insofar finally be able to expand solution capability with our customers. This is one aspect, and I would say the more important one. The other is to add scale. So by business to become a larger company to have a scale effect on our cost. We have also done such acquisitions, and we remain also open here for more such cases. And when we mean by region geographically, then of course, we are not geographically limited. We have a global footprint and insofar, can do that in any -- almost any place of the world, in the places where we do business. R&D investment, yes. Of course, we need to remain competitive and leading and are an innovation company. We will, of course, balance the R&D investment in a way that this is achieved, but also that we have a good production of cash flows and profitability. This is the management task we have to solve, how do we balance these 2 aspects. And this is what we have done over the past and we will look also into the future. This is the track we need to maintain to keep the company successful.

Mr. [indiscernible] from Family Office [indiscernible]. And I think he asked this on Slide 25. He's asking, "Is the redesigning ongoing or running out." And I believe it's about redesigning of modules.

Yes. Indeed, this effort is finished. We have done what was possible. I mean there's a limited number of suppliers that are available on the globe, and we have taken the ones that are capable in helping us and insofar, this exercise is closed.

Then [indiscernible] from Blackwell Capital. "Can you please comment on the expected average selling prices for modules and chips for 2022? In light of current inflation everywhere, what will be u-blox's gross margin trend 2022 year-over-year?

We already explained it before that at this time we are in a seller's market. So we have the power to set prices. And of course, we will react to further cost increase driven by the inflationary tendency. So the prices will increase by tendency. Again, what then is visible in our accounts, it's finally also depending on product mix. So this is why sometimes there's a difference in what you see and what we say. As already discussed with Mr. Rotzer. Yes, what was the other question, the...

So what will be u-blox's gross margin trends?

Yes, the gross margin is insofar -- I think we can well manage the gross margin, again because it's a seller's market, we can better or well increased prices over the cost increase.

Then Mr. [ Jeff Hamilton from Alter Management ]. "Your product mix is likely far more relevant than your end market mix in helping to understand your business and competitive dynamics. Can you help provide the mix between GNSS seller short-range products? What are the gross margin trends in each given the new product generations? For instance, in past years, you indicated that gross margins on Qualcomm-based cellular products were far below 20%. Where are you in transitioning to your own chipsets in cellular? And what are those gross margins?" Many questions. I can also repeat them.

Yes. Okay. It's all about how much gross margin we make in certain product segments. I mean we are not giving guidance here or any detailed information. It is so that not all part of our catalog have the same gross margin. But the numbers that I mentioned is a little too low. We have been making better margins. And especially, we have a widespread of gross margin that can go from the roughly 30%, up to above 80%. And this tells you that, of course, it's a little difficult to give general numbers here.

Okay. Then Mr. [ Hamilton ] continues. "The folks at e-Bay have been telling the market that they have started to market Telit all over again. Is Telit still on your potential acquisition list? Can you share any competitive details? And what do you know of the state of Thales' plans to sell Cinterion?"

Yes. I cannot make any comments here. I mean we are not doing anything unless we would announce it, and therefore, no further comments.

"What is the process node and semiconductor fab that you use for your 8 generation GNSS and new cellular parts?"

Yes, as mentioned before, I can just repeat. We have 2 fabs, Taiwan Semiconductor and GlobalFoundries. And we have a variety of nodes between 28 and maybe 65, but also larger nodes for some specialty chips.

Then Mr. [ Robin Alexander ] [indiscernible] "Congratulations for such an excellent job. Could you give us a sense of the size of the order book in relation with the sales made in financial year 2021?"

Yes. Thanks for the congratulations. We're glad as well about the good result. Obviously, the order book, we give an indication that the order book is 8x higher than it was end of 2020. You can imagine that this number is quite a bit larger than what was our annual revenue in '21.

Then [indiscernible] Partners. "Can you share some sense of the backlog? Is it larger than 1/4 of shipments? Can I please highlight the disclosure of one of your suppliers and competitors Nordic Semiconductor, which explicitly provides backlog every quarter?"

Yes. So I just replied this answer about how big is the order book. So it's more than a quarter of business. It's much more than an annual revenue. And I know this company, Nordic, does provide order book information. We have decided not to do so.

Mr. [ Philip ] [indiscernible] from [indiscernible]. "Is the adoption of the R5 series according to plan? Why did you sell your stake in Tashang Semiconductor?"

Yes. The R5 is doing very well indeed. We have -- I mean, we enjoy very much having this product. It's very convincing with our customers. And the simple reason is because we have control over everything in this product, it makes it a lot more easy to go forward to support customers. And also on this platform, we can add on values that otherwise are not possible to achieve, especially additional functionality. The divestiture of Tashang is basically the insight that the Chinese market is not lucrative for certain products, especially cellular. The market is not delivering profits. And therefore, it does not make sense to invest in such an endeavor.

Mr. [indiscernible] from [indiscernible] had exactly the same question, therefore, not repeating it. Mr. Thomas [indiscernible]. "Congratulations to the excellent results and achievements. How would you expect margins, EBITDA, EBIT to develop in a situation when the global supply chain situation eased again use under which circumstances and revenue growth level, would you expect financial leverage, higher increasing margins to unfold in the future?"

Yes, thank you for the questions. And the -- to estimate what would change if supply is easing is probably okay, not so easy because it all depends whether we still have some price-setting power because it's a sellers market, but this could, of course, also turn into again a customers market where then the other side has more price setting power. However, as I mentioned already, this is not going to change that quickly. And of course, we do a lot also to continue to develop products to make them more differentiated to add on additional value that are important to our customers. And that is, of course, the major measure to keep a good margin for our products. And with regard to continued growth, of course, we have a leverage. We have a business model that is fabless and any top line growth does -- will add on the bottom line.

Then Mr. [ Art from Askin ] Partners. " How much revenue do you think you missed shipping in 2021 due to supply shortages?"

Yes, that's a similar question than before. Of course, we could have made a lot more and had another 10% or 20% on top of everything. But finally, it's a little hypothetical answer because finding it was not available.

Then we have 3 last questions of Mr. [ Hamilton ]. "I did not catch your comment on the mix between GNSS and cellular and the growth rate of each as they are such very different markets and businesses, can you please address this?" He also asked, "Can you please address what the mix is of our new cellular products based on your own chips as opposed to Qualcomm? And then, what is your mix in seller between LTE and 3G and Cat M1 versus all other modalities? When will you offer 5G modules? And will they be based on your own silicon?"

Just so quite some questions about details, but -- we can probably relatively easily answer. First of all, the growth rate or the growth in cellular, all these questions are around the cellular product, comes from all angles. So again, this has to do with the diversification of the customer base and applications and where we have, across the board, strong demand. And of course, we profit as well in products that have our own chipset. It's not everything we sell, but it is important. The Category M is the leading standard for most of the industrial applications because they do transport relatively small amounts of data and have not a video capability, for example. And that means also LTE is important. That was the other question, the legacy standard 2G and 3G are on a strong shrink and the migration to LTE of either Category M or possibly Cat 1 is really going or have been accelerated a lot. We have probably 80% of business today is LTE-based and no longer legacy-based. And how we go forward, I mean LTE means long-term evolution. And you hear of 3G, 4G, 5G, whatever number, this just means the application of the next release of standards that is adding more and extended capability. However, this is almost too much. There are so many new capabilities that are not of interest to the industrial customers. They are, for example, invented for the smartphones or for some other applications. So we are, of course, following both parts of these standards makes sense for our customers, and they are then also the basis to decide what products we make, either because it's then part of an own chipset or it is then part of any module we are considering for the future.

Thank you very much. That's all.

We have a question on the phone from Mr. [indiscernible] from [ VV AG ].

Do you hear me?

Yes.

Just a simple question. Could you elaborate on the capitalization of R&D efforts this year and how you forecast them to evolve over the next couple of years? In order of -- or in dependence of your development pipeline that you have and foresee?

Yes, the -- we make an indication of one of the slides. We count on a capitalization rate going forward of 40%. This is mainly defined or a result of how our R&D work is structured, how much throughput time it needs and what, of course, is new development versus maintaining existing products. So this is what is the indication we can give here. And because we have sort of a constant mix between making new things and maintaining existing products. This is why the indication of 40% is also valid quite for the next future.

Gentlemen, so far there are no more questions from the phone.

Very good. Then, ladies and gentlemen, thanks for attending this presentation. I hope we were able to give you good insight in what we achieved in the last year, and I'm looking forward to meeting you in person at possibly next events. Thank you very much, and goodbye over.

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