Earnings Call: H1 2021

Aug 20, 2021

Ladies and gentlemen, welcome to the Half Year Results 20 21 Conference Call and Live Webcast. I am Paul, the course call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Saylor, CEO. Please go ahead, sir. Ladies and gentlemen, welcome to our presentation about the half year results of I'm glad to see many attending today. We make this presentation with the usual disclaimer about forward Looking statements. So in the first round, I will provide a short overview. Then Our CFO, Roland Jut, will explain you in detail all the numbers. And later, I will talk about our strategy and outlook The first half year twenty twenty one was That is an important progress over the first half year twenty twenty. That was a strong one still before the COVID crisis really then At the same time, this first half year, very successful also at the level of gross profit. The profit grew even more by 13%. This is all a result of various effects, Mostly by product mix, also because our gross margin is naturally hedged against foreign exchange variations And also we were able to manage price. Then what is a strong number is The EBITDA that has made progress by 20%. In conjunction also, we can read the cash flow numbers for operating cash flow that achieved CHF 43,000,000 and free cash flow was positive with CHF28 1,000,000, both a strong increase over first half year twenty twenty. Now why have we been so much better? First of all, of course, the top line has delivered more and especially the gross profit. But also, you remember, in 2020, we have exercised a cost reduction program that, of course, has now taken effect And I've helped to provide such strong numbers on the profits and especially on the cash flow side. With that, I hand over to our CFO, Roland Mute, to explain you the details. Mr. Yudi, we cannot hear you. Maybe your line is on mute. Okay. Welcome. Now you hear me, I hope. Welcome also from my side. Thomas mentioned it, a strong first half year twenty twenty one with total revenues of CHF192.7 million. We had growth in all areas in Asia, in Europe and in the Americas, the biggest growth in The Americas with 22.4 percent, but also 15% in Europe and 5.4% in Asia. Gross contribution adjusted was nearly CHF 90,000,000, a growth of 13 0.3%. And as said, free cash flow CHF27.7 million in the first half year 2021. The growth of revenue Has to suffered a little bit on the negative currency impact on dollars where the average rate was lower in 2021 than in 2020. Without this effect, we would have had growth of 16.5% over The first half year twenty twenty. The EBITDA adjusted margin, 14.9 percent, CHF 28,700,000 in June 2021. 5.4 percent in Asia, revenue increased CHF 73.9 million, which represents 38.3 percent of our revenues, 30.6 percent goes to Europe and CHF 59,900,000 is the share of the Americas, which grew with 22.4%. The growth is in Americas and also in Europe was driven from the automotive and market, telematics, medical and wearable application had very good growth in the first half About the market trends, the split, The revenue split over the markets remains as it was. Industrial markets were stable. Here, Tracking and telematics belongs to and also Automation. 57.4 percent of our revenues come from this market, CHF110 1,000,000 revenue. On the consumer side, where we had quite a Big growth, 90% growth, which represents now 12.6% of our revenues. And Also, the automotive market was strong with 25.1% growth. It represents now 26.8 percent of our revenues. The growth is also visible on the volume side. The module business strongly increased. Although the Average sales price declined. We sold roughly 20,000,000 modules in the first half year twenty twenty, which is a plus Of 29.1 percent over the half year twenty twenty, average sales price Four modules is CHF 7.33. On the chipset side, even More growth. We sold nearly 32,000,000 chipsets in the first half year, which 43.4 percent more than in the first half year twenty twenty one. The revenue split between chips and modules now moved again a little bit towards modules. 23% of our revenue comes from chipset and 76% belongs Two modules compared to 79% and 20%, respectively, in the first half year twenty twenty. Thomas mentioned it. Gross profit adjusted, we were able to increase our gross margin to 46 0.7%. This reflects the positive impact from the product mix and the revenue growth. With that, we have CHF 89,900,000 gross profit reached in the first half year twenty twenty one. On the cost side, the distribution and marketing expenses Amounted to CHF18.1 million, which represents 9.4%. This increase is mainly due to the effects of the growing revenues and contributions. If that, This has also an effect on the bonus of our salespeople, but this one is a good sign from our point of view. R and D expenses went up to CHF52.3 million in the first half year twenty twenty one, Which is 27.1 percent of revenues. This increase is on One hand, due to that we brought products earlier into amortization or earlier to the market so that amortization Start earlier, we increased the amortization amount, which goes to R and D expense. And also the capitalization was lower than before on one hand because more R and D efforts are carried in agile processes, which is results in more expense and less capitalization. And we have also some strong efforts put into redesigning modules with better available components. Due to the component shortage, we were, with that, able to provide the market with product instead of where we Get the components and not the ones where we don't have them. On this slide, you see now the complete income statement. In the first column, you have the IFRS figures. The second one is then the adjustments we made. The adjustments are mainly the same as in the Years before, share based payments, which amounts to SEK1.8 million, there is a pension impact of IAS 19 Tin valuation of SEK 700,000, the amortization of assets intangible assets acquired amounts to CHF1.6 million in the first half year, and there we also have nonrecurring expenses of CHF800 CHF 1,000 which are taken out. With that, we get to an operating profit adjusted of CHF 10 point CHF5 million, which represents 5.5 percent of revenue. The R and D expense increased, as I mentioned, due to the lower capitalization. We in the first half year, SEK15.2 million and the higher amortization of capitalized R and D, which was SEK11.8 million in the first half year of twenty twenty one. And also something which is in this number is the fact that we bought The rest of Subcorda shares, which leads to from equity accounting to full consolidation. And with full consolidation, the costs move up from financial income or expense to R and D expenses, increase the R and D expense as well. In the financial costs, they consist Primarily on the on foreign exchange losses we had to carry, then there is in the interest of the Two bonds and it's also the result of technical result of the reverse of equity consolidation of Subquarter at GmbH. In the financial income of SEK5 1,000,000, this is mainly driven by the unrealized foreign exchange gains Due to the fact that U. S. Dollar was overall the period lower Then in the comparing period, June 2020, But at the end of this period in June 2021, the borrower increased, and therefore, there are some unrealized current exchange gains on the balance sheet. For all these adjustments, we applied the group tax rate of 18.1%. With that, we had a net profit adjusted of CHF 6,300,000 and after minority interest of CHF 6,207,000. The EPS Under IFRS, it's CHF0.32 and under adjusted, it's Now let's go and have a look on the financial position on the balance sheet. We Have still a strong financial position with a liquidity of CHF 85,600,000 Swiss francs. In December, it was CHF94.4 million, the movement is on one hand due to the free cash flow of CHF27 million, which Increase is the liquidity, but we repaid The first bond on 27 April 2021 with a net of CHF 30 CHF 5,000,000, so with that end up in this liquidity of CHF 85.6 CHF 1,000,000. Inventory decreased due to the high demand to CHF 23,800,000. Trade receivables were CHF41.3 million and capitalized R and D Are now CHF166 1,000,000 on the balance sheet at 30th June 2021. In the current liabilities, you find on amongst others trade payers, CHF 18 point CHF 6,000,000 and also a bridge loan from the repayment of the bond of CHF 25,000,000. And in the noncurrent side, there is the 2nd bond we have, which is repayable on in 2023 in April. It's valued with CHF60.8 million and amongst other, there is our tax deferred tax liabilities of CHF100 and CHF 1,800,000 and IAS 19 employee benefits of CHF 21,300,000 provisions of CHF 7,800,000 and the leasing liabilities Based on the IFRS 16 calculations amount end of June CHF 29,200,000, We were able in again in 2021 to Increase our customer base. We are serving worldwide 10,300 customers Compared to the 9,000 customer, say, in 2020, we have still a low customer dependency. 74 customers are responsible for 80% of revenue, and our largest customer is only 5.6 percent of total revenue in H1 2021. Employee wide, u blox engaged end of June, 11.20 3 FTEs. The split over the functions remains as usual. 2 thirds are engaged in R and D, 756 FTEs, 16% are engaged in logistics administration and also 16% in sales and marketing, which represents 100 and 89 FT feet feet feet feet feet feet feet feet feet feet Es. Most of our employees are based outside of Switzerland, spread across 18 countries, 76% is of the employees are outside of Switzerland. As an average number, we had in the first half year 11 36 SDEs engaged. As I said, we had a strong equity base. We could maintain that. Our equity ratio is still 58 0.1% compared to the 54.6% we have in the With you also, the treasury shares for the option program still with €32,000,000 Without these treasury shares, The equity will have been even our ratio would have been even higher, 60.6% of total assets. And for completeness only, the integration without IFRS 16 valuations, that would The 62.3% compared to 58.2% end of December 2020. On the segment information, no big change to prior years. The biggest segment still positioning at Wireless Products is CHF192,700,000 revenue and an operating EBIT of CHF 6,700,000, these numbers are all IFRS numbers. Wireless services still dominated by intergroup revenue has total revenues of CHF17 1,000,000. Swiss francs, it's at the moment operating profit negative, but it's mainly driven by internal calculations. And last but not least, the cash flow statement. We managed to have cash flow from operating activities Of CHF43 1,000,000 compared to the CHF 13,900,000 in June 2020, driven there is a positive impact of net working capital of CHF 8 point €9,000,000 but also from income taxes, which were repaid in 2021 of €5,700,000 But also there is a big impact too to the good revenues and good contributions we made in the first half year, which also generates side, we invested DKK15.5 million into intangibles, mainly capitalized R and D. As I mentioned, DKK1 €900,000 goes into property, plant and equipment. So our total cash used in Investing activities was CHF 15,300,000. You see here as well an acquisition of Saptesys net of cash, A cash inflow of CHF1.8 million, this is due to the Subcorda consolidation where now the cash of this entity also show up here under this number. With that, we reach free cash flow after acquisition of CHF27.7 million, So we were capable to turn that Into a positive number, again, after the period before where we have negative CHF 21 CHF900,000 free cash flow. We are now again positive back to positive figure. On the net cash used in financing activity, CHF39.8 million are used here. The main number here is the €35,000,000 which is net used for the repayment of the first bond in April 2021. With that, we and we come from CHF 93,900,000 beginning of the year to CHF 85,100,000 cash. And with that, I give back over to Thomas for the business review. Thank you, Roland. So the result is driven, as mentioned by, a very good expansion in all markets, in all applications. And we had a very, very strong order intake. And unfortunately, we're not able to really exploit this great potential. We are highly limited by component constraints that we are able to manage where we have taken many measures to remain a good supplier to our customers, but it is a fact our current order book is 7x the amount it was A year ago and also what it was normally in the past. So this tells you how strong our bookings are. And of course, in the bar, we have an excellent visibility into the future. Only it is hard to predict in What time frame we can finally manufacture because our suppliers do not give precise indications and we have More or less, constantly replanned manufacturing to optimize output. In turn, we also made strategic progress. We acquired full ownership of the Sapkora joint venture. This is the leading provider of advanced GNSS augmentation services. This is a data service that makes such a Positioning receiver delivering very precise information, so down to centimeters, and it is made to serve a mass market. This is an important step to align all the offer and solution capability for our customer to make The solution out of one hand and the outlook for such solutions with high precision is excellent because of The intention to make more and more vehicles automated, especially the cars, but also in the industrial domain, There is a lot of activity to make such vehicles that are driving more or less automatically. So this complements our services offer. We have made continuous expansion in Votis available via our SyncStream platform And the service of Subcorda is just another addition to this platform. On the side of hardware products, we have also launched many of them, more than 20 new product types to the market. This is all a result of earlier efforts to create new platforms and finally also make products. Most importantly, we brought out the Alex R5. This is a cellular module in a very, very small form factor that is There we are capable to make because we are owner of the chipset, and we can very densely integrate into such a package I make this available mainly for applications where space is of importance. You can imagine this could be, for example, And wearable device. For short range AI communication, we have also continually expanded our offer following latest Strength is standardization, but also to make sure we can really solve any problem a customer has to connect wirelessly a device On the short range node, either with Wi Fi or with Bluetooth, what we show here is just one example, In positioning, we launched more Products that are based on the number 9 platform, you remember, we also have We get 10s platform in the market, but the number 9 is mainly made for high performance and high precision. And this is also the case For timing, so for providing precise time information, maybe for network components and other Frequency critical applications. So this is especially a good way forward To more integration business for 5 gs, because the 5 gs base stations have higher requirements with regard to And finally, I mentioned already our SyncStream platform. We have added auto services. Cloud Locate is a service that computes position out of information we gather from the Cellular stations for mobile phone antennas and they are such a service is very helpful To diversify positioning information, to make it more robust or to run it even without a GNSS receiver and make it available At a very low power budget for such applications that run from battery over many years. So all these Initiatives, of course, develop new business, create new interest and finally are propelling us forward. That we have a strong growth of Bookings is not that customers just double and triple order. No, it is mainly driven from our New products that we launched a time ago and of course are launching now to create new applications, a new project and a new business with our customer And from that, we have intense demand, and we have a large number of customers ramping up their products, And here are two examples of how we realize new applications. This is in our 10th generation of GNSS receiver that was created to run at very, very low power budget. It's about 3 times less than the previous or the 8th generation, and it's of course an excellent solution whenever the product is just running from a battery like the Computer and it's not only that it is a low power device, it is also a one that has excellent capabilities, Especially for such wearables that are either here on the bicycle or are on a person, for example, for Jogging, you need a good receiver capability, otherwise, you lose track and The consumer would be disappointed. So all comes together very nicely. This is a very strong product and we have high expectations here for volume growth. Another example comes from the automotive space. We have told you many times that Electronics content is increasing in the car and the major driver is that cars become automated that are assistance, Driving systems integrated in the car. Here, our 9th generation high precision receiver is the basis that Such automation can happen and the car is in fact ready to fall around, Can change lane, can also select optimal routes while driving. And this, of course, increases the comfort And in all the newer platforms of the car becomes more or less the standard. So what are we doing to going forward? We have, Of course, look for expanding via our organic growth and investing into Technology and finally to platforms and products, but also we are accelerating with inorganic growth and acquisitions. And in so far, We have again made a step with Acorda and before the previous year it was SyncStream. I have spoken about this. So we are, of course, continuing to make sure we do both, the organic and inorganic growth. They sort of both help us to expand and especially increase the capability to solve problems for our customers. Now I come to the outlook. We are updating our guidance here slightly to what we have provided in June already based, of course, on the current results, but also on what we see as Going forward, business, mainly that we still continued very strong growth in automotive and the industrial IoT. I So IoT, I mentioned the very high order intake we continually have and the steep ramp up based on our New products. We have implemented cost improvement measures last year that are fully being exploited this year. And the only problem at the moment is it's relatively hard to keep relatively narrowband of outlook because The availability of components is hard to predict and, of course, is not endless. Also in this guidance, we have, of course, taken account that we have Socora acquired That at the moment has an effect on OpEx mainly, not so much on top line yet. And also, we have explained That the R and D accounting has some impact this year. 2 things to come together, some lower realization, but also decreased amortization from changed processes, but also from launched products. So this provides all these results in these numbers as you have probably already seen. So next communication, we will again run Analyst Day on 23rd November this year. Our full annual results are then available in the beginning of March and our Annual General Meeting is again programmed for April. With this, I thank you for your attention and I invite you for your questions. We will now begin the question and answer session. Questioners on the phone are requested to use only handset and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comment in writing via a related field. The first question comes from Francois Boujeevin from UBS. Please go ahead. Hi, everyone. Thank you very much. The first question I had is on the gross margin that is And more and more pricing increase in terms of manufacturing of chips. And more recently, The foundry players are seem to increase and the last one, I guess, At the last earnings calls that they said that they will increase their pricing in the second half of the year. So I just wanted understand with you, is it something that will impact or how should we think about the gross margin in the second half of the year If TSMC and other foundries are increasing the pricing, so just basically the sustainability of this gross margin And the second question is on the capitalized R and D. So I understand you we should expect lower Capitalization going forward, can you give us some sense around the absolute number we should expect From now, I mean, is it going to decrease from H1 or is it going to be stable? Just to get a direction there would be helpful. Thank you, Francois, for these questions. So about impact of Costs from the supplier side on our gross margin. First of all, fortunately, we have a long Value chain, so an increase on a chip cost is, of course, rippling through the value chain. But finally, we are selling a module and so far that, of course, dilutes the increase. That's the first good effect. And the other is we will, of course, Increased prices vis a vis customers and in this environment we have quite a high price setting power and we believe that is accretive The capitalized R and D, as we have explained, was mainly impacted by A change in how we run processes. So we have started to do it more agile. At Jalmin, you try to make a product quicker to the market in the sense of what is called a minimum viable product and then You increase thereafter via software upgrade to higher functionality levels. But that means, of course, such upgrades are then made as an expense and no longer as a capitalized effort. This is The reason why the ratios will change, but of course, there's also a singular event, I hope it remains a more singular event. We had to redesign quite a number of products to cope with the shortage In the component market, so we have selected different suppliers and that need, of course, redesign and requalification. Such airports Should go away and no longer create extra expense. So in the far Two effects. So from the changing of processes rather Decreasing rate, on the other hand, you must take out the special effect of this component shortages efforts. Thank you, Zama. And if I may, I have a follow-up on these answers. When you talk about the gross margin in the half of the year and the moving parts, Your guidance for full year 2021, did you include some price increase from the foundries? Is it something that you see or you didn't see any price or cost increase on your side? Yes. Of course, we see cost increase, but not only from foundries, from potentially any supplier, because of course the shortage is always The seller, the power for price setting and insofar we must expect price increases across the board. It's not dramatic. But of course, we follow closely and make sure we protect the margin. The next question comes from the line of Andreas Muller from CKB. Please go ahead. Yes. Good afternoon, gentlemen. Thanks for taking my question. I've got also 2 on the booking side. I mean, you increased Booking 7 fold, can you indicate where the book to bill ratio was? And how long these bookings cater to revenue Progression going forward and also probably what could you have basically generated The level of revenues if the constraints were not here, that's the first question. And the second question is When do you expect the supply chain to normalize? Is that have Have you seen here the worst or do you foresee same problems Going forward, and can you give a bit more color on the measures You try to mitigate these things. One was redesigning, but I was wondering also with the redesigning, Can you use that to increase your own chipset content with this redesigning in the modules? Thank you. Sure. Thank you, Mr. Muller. So just to clarify, we give a number that our order book The bookings have been very, very strong and our order book, of course, last very much into next year and It's of course, in the far something that gives us a very strong basis for going forward. And you asked also if you had no component constraints, how much more billings we would have been able to make. I mean, you can Take any number you want. For sure, we would have been able to double the output or triple. I mean, It is such a difference between bookings and billings. Now The critical question, the difficult question is about when will supply normalize. This is in fact very hard to say when we listen to our They become back to perhaps then they say it takes at least 2 years because they cannot more quickly build out capacity Buying machines and manufacturing these machines takes a lot of time and also there is limited capacity. But of course, the other Question is, when is overall demand changing? You also need to imagine a lot came from Consumer goods, a lot came from people that had to sit at home and that could not spend money elsewhere. Of course, wanted better equipment for Communicating through the Internet and so on, and the old industrial demand has suddenly strongly increased. But all that we know, I mean, such cycles are somewhat turning. The difficulty is to find out at what point of time is this turning to a downturn in So the methodology to manage supply Is to indeed diversify components. These are more the standard components and making sure we are not dependent on 1 supplier. The other is that with our fabs where we make our own components, our own integrated circuits, we of course look for long term commitments For very good support, we are fortunately together with these partners for very long times, 50 years or so, And have very good also personal connections that help to negotiate that we are well served and that we can At least deliver an amount to our customers that keep them to production the ramp. Okay. Thank you very much. The next question comes from the line of David Sacks from Hocky Capital. Please go ahead. Hi, Thomas. I have a couple So based on those stock markets response to today's results, there's clearly a difference of understanding in what you're talking about and the Financial results and the analyst understanding of them. If you could walk us through the R and D spending, the budgeting process for that, How we determine the vitality of the investment we're making if we're getting a return on the money we're spending. The dollar amount this quarter This half of CHF52 million is an alarmingly high number. Just wanted to understand why the number jumped as much as it did, Especially given the robustness of sales, the percentage is 27%, was expecting that number to be declining given some revenue leverage to R and D spend. Can you just explain the R and D process, how we allocate money in that category and how we determine whether the money is being wisely spent Yes, maybe, thanks. That's a crucial question and often misunderstood. I mean, when we say R and D Spending then we have to clearly distinguish between what is the cash spent and what is showing up in the accounts. We explained for many, many times and many, many years that we are driving R and D only with a cash view. So finally, it is about how much cash can we spend for R and D for fulfilling our overarching goal to Create positive free cash flow. And indeed, also this has been well managed. We at a cash basis, And together with cost improvement measures we have made, our cash spend on R and D has constantly decreased Since 2018 and has, of course, helped that we make a strong positive cash flow for this first half year. What you see in the accounts, in the income statement is, of course, all driven finally by As the county grows, especially about amortizations and capitalization, I think so far is often misleading. If so, I mean IFRS tries to make cost numbers coincided with income numbers, with revenue numbers. But this is, I mean, a methodology that sometimes is a little Odd, it's not really delivering the result or An indication of what is the financial performance. So we have not spent 27% in R and D. This is just what it is. As accounting does, on the cash basis, You can backwards compute, it's just above 90%. And that's reducing the reported number by the amortization amount that you're running through as a non cash charge? Yes, indeed. And then what are we directing that 20% number to over the next couple of years? Are we Looking to manage that down to 15% or below based on growing revenues, how do we determine whether that even 20% is a very How do we determine we're getting an adequate return on those R and D dollars being spent? Yes. Look, of course, we cannot Please, women, without putting us into danger, I think a 20% number is what our business needs To remain competitive, we are highly research intensive. Wireless technology is not a simple thing. But also we have the return from the market. I mean, we have almost 50% gross margin, and this is what The company needs to coincide. And again, the gross margin and the cash from that gross margin is telling us how much We can finally spend on R and D with the goal to generate free cash flow. And this is what we constantly manage, what we Try to balance in the medium term. I mean, we had, of course, years where then we had headwinds on the top line that made it difficult to keep But it's equally important to not go away from an intention, from a plan, from a long term view of how we make The next step in our product offering, the solution capability, and I think we did very well. We have so much gained in the possibility To help our customers and it's precisely this the reason why we have such a strong booking number over the last 12 months. So if I take this, the summation of those two comments together, the 27%, which is obfuscated by the amortization, you're suggesting it would be approximately 20%. We will be generating hopefully higher revenue from that R and D spend. When will we see the R and D On the income statement, maybe I'll address this to Roland, getting to a 20% reported number where the amortization expense Yes. Of course, the quick answer is when our capitalization amount is the same as amortizations, but it's a little difficult to predict Because our R and D projects have sometimes a very long run time, 3 years or even 4 years, that means over long time, you do Capitalize and therefore you have distortions between capitalization and amortization. This is unfortunately not a void at all. It will be easy if throughput times would be short, like a year, then of course, the difference is much more easy to sort of manage. And lastly, the sub quarter consolidation, how much did that increase reported expenses in the quarter for the half, excuse me? Roland Dumas keeps the answer here. Yes. I cannot give you Right. In detailed numbers because we cannot disclose that, but you find on the in our half year report, You find a figure what Saporta costs or what the loss is. So overall, I You'd say at the Secorda costs will increase over the in the or has in the 1st year, roughly $3,500,000 costs coming to the to addition in the balance sheet in the income statement. Okay. And that was for the full year or for the half? No, only for the half. And was that contemplated in your updated guidance from June or is that just something we recognized It is partially in the already June guidance, but of course, in the now in the August guidance, We get the real figures and this is, of course, reflected in the new guidance we give. The next question comes from the line of Rolf Flanders from LVE. Please go ahead. Hello, gentlemen. Thank you for taking my questions. I have two questions. On this, you made good progress on the cost savings. And I want Have you now completed everything? Or by doing this assessment, it has seen that there are other possibilities to maybe You can squeeze it. Maybe I'll start with that question. Thank you. Sure, Rolf. Thanks for the question. So cost savings have all been implemented already last year, so are in full effect this year. And as I That is of course one of the reasons why we were able to generate strong positive free cash flow. Thank you. Sorry. But in doing that, of course, we've seen More potential for that or if you would go further, would that kind of cut into the bone of your R and D or what? No, no, it's not that it eats into the bone. Of course, we have lowered the cost path, so to say. And again, we manage constantly our OpEx in line with what is the top line expectation. Great. Thanks. And then other question, maybe in these times with shortage of supply, it's difficult to say. But Would be great to get your view on the market share developments And especially how you're making progress with cellular? Thank you. Yes. Thank you. So of course, everybody is cooking with the same water, so the supply constraints Are affecting all the participants in the market. I think we have quite an Advantage is positioned, especially as when we talk against the module competitors because to a large extent, we make our own Cheap set and we have a much better supply situation than probably our competitors that have to share the output of fabs with many other module makers. That counts also for our still alarm module. We have very good progress with our R5. We are the leader for category M in the market. And indeed that we do the old chipset also has positive effect when you talk market share. That's great. Thanks. No more questions. Thank you. The next question comes from the line of Sergey Roetzel from Credit Suisse. Please go ahead. Yes. Good afternoon, gentlemen. I would have about 4 questions. I would ask 1 by 1. So the first one, it's a little bit about the Guidance, which you have narrowed, that's fine. But the question for me is, what has to happen that you can grow by 19% at the margin to 20% and what would keep you back that you would grow only by 15% with margin at 16% that you Could you please help us to understand what are the factors, how many ExoGen factors you have and also factors you can manage? Yes. Thank you. The question points to our business model and of course, our mechanisms we have. So I mean, any growth we make will create Additional gross margin that goes more or less directly to the bottom line and the reason is because we are a fabless company, We have no cost for expanding the capacity and the output. So Indevar, of course, it's sensitive for Okay. That sounds simple given your backlog you have then. Yes. Okay. Probably the next one, you made you said that you have brought products earlier to the market than expected and also probably with that some technologies. So I'm wondering, you made quite a substantial impairment last year. Does this have an impact on these developments you have impaired? And what does this mean technically going forward? Of course, these two events Are independent of each other, launching products and dimension impairments, impairment is the past. I'm not quite sure what you mean technically Going forward Yes. The point is, if you have impaired now a product development, a research and development, and now you can use the product, and you have Stream out of this development and how does this work? Yes. Of course, there are certain products that are still Being sold and did so far generate margin without that there is amortization, that is correct. But the impact is not that large at all the numbers. But so what you have impaired, there is nothing at the horizon that you can use Now or in the near future? Yes, I said we have certain products that we are still selling. Without that we have to amortize, But revenue from these products is not so large. It's not a very determined Okay. I always understood that this is for future product, but then this is for All products, this is correct. Impairment, yes. Yes. Okay. Then this was misunderstood. Then I have a question for the CFO. I was surprised about the financial results of the high interest income. Could you explain it to us and what does this mean for the second half? And probably the same is true for the interest expense as you have now repaid bond. On the other hand, you have a bridge loan. If you could give us some guidance here. So, yes, you are talking not about interest expense, but about financial expense and financial income Because the financial income is not interest, it's just currency gains, unrealized currency gains of the dollar, The fact that the U. S. Dollar increased quite a lot in June, so towards end of June, we have 92 roughly. And this gives us some unrealized Foreign exchange gains on the income side, it's mainly that. So to the second half, if you can tell me how the dollar is end of December, I can tell you what this number is. But yes, we don't know. And on the finance cost side, In there, you have some realized foreign exchange losses as well. But the bigger part here is Accounting technical losses from the consolidation of Saporta and then full consolidation of Saporta, which are put into these numbers. So for, let's say, from the for the second half, this Should be it. So there is not to be expected that you get a lot more here, at least not from The consolidation or decontolidation of legal entities. So then there remains just the interest Of the bond and the interest of 1 bond at the end, which comes in the second half. Okay, got it. And can you tell me what you're bridging actually? Is it bridge to cash or bridge to new loan? A loan to a new bond, sorry, bridge to a new bond. Yes. No. Okay. At the end, we just have a bridge loan of CHF 25,000,000 Now in the books or short term, there has to be taken a decision. If it's still needed at the moment or if we Pay it back, then this decision is not taken yet, but will be taken soon. And then it's either a bridge To cash, so we pay back or a bridge to then maybe a new bond. But this for sure then You would use it operationally or strategically, this money? Then we would if we issue a new bond, we would use it operationally and to get some operational Certainty, if we need the money, yes. But So the strategic pipeline is empty, that's it. No, but you told me that you would use the money for operational Yes. Today, we don't use it. At the moment, we don't use it for operational issues. So we could pay it back. Depending on the strategic pipeline and depending on these decisions, we will decide what we do with the bridge loan. Either the guy there put it into another bond or pay it back. Okay. Many thanks. I'm fine. Thank you. The next question comes from the line of Emmanuel von Zvi from ROTH and Partners. Please go ahead. Yes. Hello. Thank you for taking my questions. I'm a little bit surprised to See these guidance, which have been changed. In June, Not so long ago. And now to this much lower level, how is that possible? All what you have explained makes a lot of sense to me. The R and D question, The purchase, but that you know also in June, I'm really surprised that is coming now On the EBIT margin? Yes. Of course, you can read it this way That you should have known. Perhaps this is true. But finally, you only know the numbers when you have closed the books. As things are very dynamic at this time and especially also what efforts we have to spend in R and D, What type of efforts and what changes we made that, of course, makes predictability then very hard. So insofar, we have probably not everything understood already in June, how much Yes. But I think that's the main reason why the Market is reacting today like that. Yes. But again, I mean, it's all just accounting. I can only emphasize At the cash level, we have been very good in controlling OpEx and in expanding our gross margin. I, Inter part, this is a misunderstanding in the market because it's all driven by accounting regulations and not so much by the operational You have created And view of again, I mean, not really be transparent with this upgrade and no downgrade. I mean, that's it's very disturbing, put it this way. Yes. You talk about transparency. I think that we do update It's precisely to provide transparency. And of course, foresee the future, especially at these times, is extremely difficult. That was the last question from the phone. Thank you. Good. Then we continue with the chat questions. We have Mr. Sauter that asked, given your lower CapEx ratios, will u blox generate cash in I mean, we are not delivering guidance on such numbers, but obviously, you know why we have The reasons given for the ratios or the CapEx numbers, so insofar, I think that gives us an indication for the future. Then also Mr. Sauter, can you provide some indication of the financial performance of subquarter In the first half year and in your guidance, sales EBITDA EBIT, when is Subcorda set to breakeven on EBIT line? Yes. We have already provided an indication on how much OpEx This is at the moment creating, but we are not guiding on the business So numbers, business success here that, of course, obviously is not available. Then we have 3 questions on the guidance. I will ask them at the same time. Mrs. Chasseur From TMETIA Finance and Veerthchaft, you had a successful first half year, but still had a very negative stock price reaction because the very high expectations after the increased outlook were not met. Now you increased the revenue guidance again. Why not be a little more conservative in the outlook? Mr. Kune from LLB Asset Management, Why were these factors impacting the guidance not known 2.5 months ago? And Mr. Followert Belvador, Why does u blox disappoint investors? Was it necessary to raise guidance in June, which must be lowered just 2 months later? Yes. Thank you for all these questions around guidance. I think I made a statement before. It's very hard to predict The future in these times, we have almost no reliable information from what we can make Revenue in the next future and also we have made quite some adaptations in this regard to cope with the situation. Again, it's hard to make provisions. And in the sense of transparency, we give updates As much as we can't, this is also why you have given a 3rd update on the guidance. Insofar, I mean, everybody should reduce Expectations about accuracy, also you see to guidance as quite a span because And finally, I think What is overarching here is we have been successful in creating top line growth, in expanding gross margin, and especially, Then Mr. Zuberbuhler from Zuberbuhler Associates. Good afternoon. Question 1, companies like Logitech have purchased components in reserve in order to not face production constraints, which will most likely increase as delta variant spreads, Can you give more specific examples of components that cannot be purchased at the moment? For example, I know USB 3 hub chipsets are not available according to one of my Chinese sources and this since weeks and 4 weeks with no end in sight. Many thanks. Yes, interesting questions around the supply chain. Of course, we have inventory and we have quite a strong inventory In front of the crisis, but of course, there's a limitation to the inventory. I mean, it is cash and also you have uncertainty. You I cannot precisely know what component amounts you need in the future. So this is, of course, where you have to find the balance. And also every inventory has somewhere in the end. This has happened now overall with supply chain. Nobody has inventory Today, anymore, and most suppliers live from hand to mouth, and this is Hopefully, no longer the solution. And the question about what type of components are short, I can only say all components are short to a more or less extent. And every component can create Huge disturbances. You can imagine if you assemble a product, then if one component is missing, You cannot go into production because you need all the components at once. And that makes it so difficult that A long disturbing fact is creating quite a high effect. And unfortunately, it's not only production capacity. You must imagine also transportation is affected by capacity, but also by sheer availability, that ports have been closed, Mr. Schultz from JMS Invest, what is your view on working capital change for second half, Yes. Again, supply chain, you have indeed seen that our inventory went down once more, but We can probably say it cannot go down much more because this is what is being meant and we need to run the production cycle. And on the other hand, working capital is tied to top line with regard to accounts Receivable and of course, equal to accounts payable, but this is a fixed ratio and insofar No surprises that must be expected. Then Laurent Stuckley by Quira Capital. First half twenty eighteen and first half twenty nineteen. And second question, did Yes. So in the sales cycle, indeed, the order book It's as 97x higher than last year, but it's equally the same number for comparison against 2018 'nineteen. We had always about a similar order book in these years, relatively Smaller for covering a few months because customers were used to order on short notice. This has completely changed, of course. And this is what we mentioned is the 7 times higher And indeed, it is correct what you hear. If we had Mr. Sauter from Kepler Cheuvreux, can you give a rough split between positioning, cellular and short range revenues? Can you rank these by gross margin? And second question, you are winning more and more customers, But revenue per customer is declining. How can you scale the business and deal with complexity? Okay. So the split between the 3 product Types is relatively the same forever. So we do more than half in positioning. We do about 30% in cellular and 20% in short range radio. And but these are not 3 different types of businesses. I like To remind you, we mostly sell several products together to our customers as a solution package. With regard to size and number of customers, it is important to increase our foot in the market. This is also reason for our growth. With more customers, we have gained a lot more traction. And of course, By such a strong increase of customers, the average is decreasing. This is unavoidable, so to say. But this is all potential. The smaller customers today are probably either in an early stage with their products For our future potentials for expansion because they could be startups or just new ideas, And this is very important with the broadcast method base to capture all the new developments. Of course, we are not handling all the customers ourselves. We have a sales channel structure. We focus all the large accounts, what we call the A and B customers that have Sizable amounts of businesses that are strategically important that cover the important application areas where we focus on. What is below in size? We cover with distributors that are demand Q 'eighteen that are also handling relatively Larger accounts, but just below where we cut off from our own activities. And then for the very small ones, we have what we call catalog distributors. They do supply the very small quantities to a very large customer base, But are equally important because they are the feeders, they create the interest Then Jonathan Aart from company Kaufman. You sound very bullish, yet the analyst consensus revenues was a realistic target and you missed internal plan. Can you address how much supply issues restricted revenues in the first half? Did you receive all the wafers you expected? Are your wafers allocations in second half up Or down compared with first half? Lastly, what is the appropriate approximate mix of your wafers by foundry and process time? Yes. Thanks for these questions. Of course, When we talk region targets, again, it's very hard to make predictions. We have to give a broad span of what we think is feasible. And finally, the overall indecisive factor is how much components are supplied and how many disturbing Events are finally making the output difficult. So The more details here is that you see we have strong increased volumes for modules and for chipset. That gives you an indication. So we were able to manage supply. We were able to source components in quite a strong manner. Of course, the comparison is against the first half year twenty twenty that was already happened by COVID. But also without This effect, of course, it tells you we were well supplied. In general, for the future, we need to take into account that Inventories along the supply chain are empty, so it's harder to get parts. It's all entirely depending on output from factories. And insofar, again, difficult to say what is the future. And also there was a question About wafers and technology, you can know that we use a range of Technologies in our chipset going from 28 nanometers to 65 nanometers. Mr. Art as well, can you please describe results between GNSS and cellular as That is more relevant than chips versus modules. Yes. We hear this Question often, but again, we are not business centers by technology. We are making different types of Solution components that are belonging to the technology, of course, but only overarching View we have is on the customer, how much profit we make with each customer. Then we have a critical question by Mr. Paei Mani from Gutenberg Finance. The strategy of the company is failing since 2017 and still no recovery in sight. Don't you think that something should change in the management at some levels at some moment? Yes. Thank you for such a question. I think the strong bookings we have is the best The proof that our strategy works, it's unfortunate that we are in a phase of supply shortage that we cannot bring it to bottom line, so to say, Cash, but this probably is sold by itself. It's a matter of time. Important is the success We have these customers that they give us preference over the competitors. And the strong increase, again, Bookings is a result of the successful strategy to provide solutions that are attractive to our customers and that help them to bring their Then the last question from Mr. David Sacks from Hokey Capital, can you quantify the financial costs higher R and D that was Appended in your component work around efforts, you indicated sub quarter was a $3,500,000 operating expense Headwind in the first half year results. Is it fair to double that for the year or so? Dollars 7,000,000 headwind for SocorTa now embedded in your full year disclosed forecast. Given it was a joint venture, in theory, you would have had insight into their accounting prior to consolidation. So I'm puzzled how this was not properly factored. Yes. I think we explained quite a few things around Subcorda. Of course, if half year is 3.5% and the full year is 7%. We Not intent to make this company completely different. And Any acquisition has risks, especially with the top line. We have seen that certain businesses take longer to materialize. And this is, of course, the major problem we have. We need a little more patience, but it's on a very good track. It We have seen excellent response from the market with this acquisition. Good. One very last question from Mr. Kuehne, LLB Asset Management. Any progress on the China IPR theme? I wonder what they are relating to, probably to the news That we have won an IPR court case against the Chinese competitor. Of course, that is, First of all, proof of how we protect our IP, but also that we do well manage such issues that we have Performing team that can also handle such difficult issues in such a place of business. Thank you. Very good. Then I thank you for your attendance, for all the many Questions that I have covered many of our of the aspects of our business. Should you have a need for more information, please let us know. And I look forward to meeting you sooner or later, hopefully in person. Thank you very much and goodbye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.