Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies

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Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Full Year Results 2017
     8 March 2018
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Presentation team

              Anthony Sethill                                 Jonathan Apps
              Chief Executive Officer                         Chief Financial Officer

              Anthony was the founder and CEO of              Jonathan has over 18 years’ experience
              Frontier Silicon Ltd, the leading supplier of   as a finance director. He was CFO of
              digital broadcast, network audio products       Europe’s largest independent WiFi
              and Smart Audio devices. From 2001, he          operator, The Cloud Networks, for over
              successfully grew the business and              four years prior to a trade sale to Sky.
              established Frontier Silicon as a strategic     Jonathan was previously CFO of
              supplier of digital audio chips and modules     interactive TV, mobile and internet
              to global consumer electronic brands.           content producer YooMedia, CFO at
                                                              AIM listed technology venture capital
              Prior to that, Anthony was Executive            fund     E-capital  Investments,    and
              Director of Consumer & Mobile Phone             European Finance Director at network
              Products at Amstrad PLC, Sales and              integrator      EQUANT       Integration
              Marketing Director at Samsung (UK) Ltd,         Services. Jonathan is a qualified
              and Chief Commercial Officer of ONDigital       chartered accountant and has a
              (British Digital Broadcasting Ltd).             Bachelor of Commerce degree from
                                                              Birmingham University.

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Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Highlights FY2017

                        • Revenues up 28% to £41.0m (FY2016: £32.1m)

   Financial            • EBITDA* up 171% to £1.9m (FY2016: £0.7m)

                        • R&D expenditure stable at £6.5m (FY2016: £6.6m)

                        • As of 31 December 2017, the Group’s gross cash balance was £5.9m; the net cash balance was £3.0m

                        • Strong performance in Radio, especially in H1, driven by switch-off of FM radio in Norway plus steady
 Operational              growth in other European markets
  highlights
                        • In Smart Audio, over 20 models released incorporating the Group’s solution with Google Chromecast

                        • Working demonstrations of Frontier’s Smart Audio solutions, incorporating Google’s Voice Assistant,
                          Amazon’s Alexa Voice Services and Apple AirPlay 2, presented at CES in January 2018

                        • Ten design wins secured for devices incorporating Frontier’s Smart Audio solution with Google’s Voice
                          Assistant – products to be released in 2018

   FY2018               •   The Board expects modest growth in revenues and EBITDA, as the Group continues to invest in Smart
   Outlook                  Audio

               * Earnings before interest, tax, depreciation, amortisation and before share based payments

                                                                                                                                  2
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Frontier: a pioneer in consumer audio technologies

                     Radio                                          Smart Audio

             • Digital Radio                                         • Google
             • Advanced Radio                                        • Amazon
                                                                     • Apple

  • #1 provider of consumer DAB Digital and        • Hardware and software for cloud connected /
    Advanced Radio solutions                         voice recognition audio devices

  • World leading technology (silicon, hardware,   • Working with Google, Amazon and Apple as
    software, customer support)                      solution provider for 3rd party brands

  • 2017 revenues: up 15% to £36.3m (FY2016:       • 2017 – first material revenues: £4.7m (FY2016:
    £31.7m)                                          £0.5m)
                                                     - growing number of design wins, including for
  • Positive cashflows                                 voice-enabled devices

                                                                                                      3
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Strategic objectives 2018-20

              Radio                               Smart Audio                                Smart Home
      • DAB Radio                                 • Google Voice                          • Home appliances
      • Advanced Radio                            • Amazon Alexa                          • Home security
                                                  • Apple AirPlay 2                       • Home automation

   Maintain                           Build                                             Explore

   • Revenue (FY2017): £36.3m         • Smart speakers for 3rd party brands             • Evaluate market opportunity
                                        (majority with voice)
   • Gross margin (FY2017): £15.4m                                                      • Engage with ecosystem
                                        - turnkey module solutions                        (partners / customers)
     (42%)
                                        - licensing Frontier’s SmartSDK (model in
   • EBITDA (FY2017): £9.5m*              development)                                  • Identify where Frontier
                                                                                          technology is applicable
                                      • Frontier goal to be leading system integrator
                                        for third party brands                          • Develop business plan (first
                                                                                          revenues expected in 2020)

               * Before Group costs

                                                                                                                         4
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Financials: FY2017
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Strong financial performance in 2017

            Revenues, £m                             EBITDA, £m                               Net Cash, £m
                                                                           1.9                                  3.0
                               41.0

    31.7          32.1
                                                           0.7                                     1.3

                                             -0.8                                    -0.7
    FY 15        FY 16         FY 17        FY 15         FY 16        FY 17      31 Dec 16      30 Jun 17   31 Dec 17

 • FY2017 up 28% due to                  • Improvement in FY2016 due             • Debt being repaid to schedule
                                           primarily to reduction in R&D
   - Norway switch-off of FM
                                                                                 • Cash generative since H2 2016
   - growth in other European digital    • Improvement in FY2017 due to
     radio markets                         improvement in revenues / gross
                                           margin
   - first material revenues for Smart
     Audio

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Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
FY2017 Income Statement

Substantial growth in                                                                                                          Restated
revenues and EBITDA                                                                                                   2017         2016
                                                                                                                       £m           £m

                                                         Revenue                                                        41.0       32.1
                                                         Cost of Sales                                                (24.2)     (18.0)
                                                         Gross margin                                                   16.9       14.1
                                                         Research & development costs*                                 (6.5)      (6.6)
                                                         Sales & administrative costs                                  (8.4)      (6.9)
                                                         EBITDA                                                          1.9        0.7
                                                         Depreciation and amortisation                                 (2.6)      (2.7)
                                                         Other non trading costs**                                     (1.2)        0.6
                                                         Loss for the period from continuing operations                (1.9)      (1.4)
                                                         Loss for the period from discontinued operations                0.0     (15.9)
                                                         Loss for the period                                           (1.9)     (17.3)

                                                         Unit volumes shipped (m)                                       6.4         5.2

On a constant currency basis,           Gross margin slightly lower at 41%                  R&D expenditure             Sales & admin costs up
revenues up 22% to US$53.0m             (FY2016: 44%) due to lower margins in               similar to FY2016           22% to support move into
(FY2016: US$43.4m)                      Smart Audio                                                                     Smart Audio

              * R&D costs are all expensed ** Other non-trading costs relate to forex, share based payments and tax

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Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
FY2017 Segmental Analysis

• Radio EBITDA £9.5m
                                    For the year ended 31 December 2017       Radio      Smart     Group     Total
• Smart Audio in investment phase                                                        Audio

                                                                                £m         £m        £m        £m

                                    Revenue                                     36.3        4.7         -      41.0
                                    Cost of sales                             (20.9)      (3.3)         -    (24.2)

                                    Gross profit                               15.4        1.5          -     16.9

                                    Research & development                     (1.8)      (4.7)         -     (6.5)
                                    Sales & administrative expenses – other    (4.1)      (3.8)     (0.5)     (8.4)
                                    EBITDA                                       9.5      (7.1)     (0.5)       1.9

Revenues                                   Gross margin                                R&D expenditure split
Radio up 15% (FY2016: £31.7m)              Radio: 42%; Smart Audio: 31%                Radio 27%; Smart Audio 73%
Smart Audio up 9x (FY2016: £0.5m)

                                                                                                                      8
Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
Balance Sheet as at 31 December 2017
                                                                                         Restated
                                                                               2017           2016
                                                                               £’000         £’000
                                               Non-current assets
                                               Goodwill                            8.5          8.5
• Cash and cash equivalents
                                               Other intangible assets             6.2          8.5
                                               Property, plant and equipment       0.3          0.4
  - up to £5.9m (31 Dec 2017)
                                                                                  15.0         17.4
  - from £3.4m (31 Dec 2016)                   Current assets
                                               Inventories                         3.5          2.6
                                               Tax receivable                      0.1          1.1
• Debt being repaid and net cash improved      Trade and other receivables         3.3          8.2
                                               Cash and cash equivalents           5.9          3.4
  - net cash of £3.0m (31 Dec 2017)            Total current assets               12.8         15.3
                                               Total assets                       27.8         32.7
  - net debt of £(0.7)m (31 Dec 2016)
                                               LIABILITIES
                                               Current liabilities
• Inventories up to £3.5m from £2.6m,          Trade and other payables           11.4         12.1
  reflecting increase in volumes, especially   Total current liabilities          11.4         12.1
  in Smart Audio
                                               Other liabilities > 1 year            -          2.9
                                               Total liabilities                  11.4         15.0

                                               EQUITY
                                               Share capital                        4.3          4.3
                                               Share premium                     115.3        115.3
                                               Share based payment reserve          5.8          5.1
                                               Foreign exchange reserve           (0.1)        (0.0)
                                               Retained earnings               (108.8)      (106.9)
                                               Total equity                       16.4         17.8
                                               Total equity and liabilities       27.8         32.7

                                                                                                       9
Radio: “Maintain”
Frontier: #1 technology provider for consumer DAB and Advanced Radio

Frontier’s core strengths in Radio

                                                                                                • 80% share in DAB and Advanced Radio
                        World-leading
                       audio technology*                                                        • 16 years’ heritage in DAB technology and
                                                                                                  relationships

                                                                                                   - 45m units shipped to date

                                                                                                • Stable, positive cashflows

                                                                                                   - FY2017 EBITDA of £9.5m (before Group
    Blue chip audio                                  Factory / ODM
                                                                                                     costs)
        brands                                       relationships**

             * 4th generation digital radio silicon; dedicated teams for hardware, embedded software and apps
             ** Frontier’s presence in Hong Kong / Shenzhen provides critical support to audio device manufacturers (key differentiator for the Group)

                                                                                                                                                         11
Digital radio expanding across Europe and Australia

Digital radio market developments                                                                  FM switch off
                                                                                                   Norway (2017)
                                                                                                    Switzerland
                                                                                                     (2020-24)
                                                                                                                            UK: Gov’t
                                                                                                                           review when
                                                                                     Norway
                                                                                                                          50% of listening
                                                                                                                             is digital*

                                                                                         Denmark

                                                                                                                                 Germany:
                                                                                                                                  Strong
                                                                   UK      Netherlands
                                                                                                               Poland             political
                                                                                      Germany
                                                                           Belgium
                                                                                                       Czech
                                                                                                                                commitment
                                                                                                               Slovakia
                                                                        France                     Austria
                                                                                 Switzerland

                                                                                               Italy                         Italy: all
                                                                                                                          receivers to be
           Established markets with DSO date                                                                                digital from
                                                                                                      France:
         Established markets with no DSO date                       Others: NL,                                                2020
                                                                                                  when coverage
               Recent launches / partial roll-out                  Denmark and                       >20%, all
                                                                   Belgium - plus                 receivers must
                                     Trials on air                   Australia                      offer DAB +

            * Currently on 49.9% - likely to hit 50% in May 2018

                                                                                                                                              12
2018 Roadmap: three incremental developments to maintain market leadership

                Digital Radio – Automotive Aftermarket

                • New software to run on lower cost silicon (Kino 4) to address opportunity of DSO in
                  Switzerland (starting 2020)

                Advanced Radio – adding Amazon Music

                • Adding major music service to selection already available (others include Spotify, Deezer, Napster
                  and Tidal)

               Advanced Radio - adding voice control via Alexa

               • Working with Amazon to enable radios based on the Venice 6 platform to be controlled
                 via the Dot and Echo devices (using a “connected audio” API)

             Investment of £1.8m to maintain positive EBITDA (includes sustaining engineering)

                                                                                                                       13
Smart Audio – growth engine of Frontier: “Build”
Voice speakers - future hub of the Smart Home
                                                          Smart lighting

Wholesale market for voice-
enabled wireless speakers will
reach:

US$2.8 billion                   US$8.6 billion
2017                             2020
Source: Strategy Analytics, Sept 2017

                                             Smart                         Smart
                                          thermostats                       TVs

       • Speakers no longer used just for audio
         – new product category offering Smart
         Home control and Internet access

       • Significant market opportunity

                                                        Smart appliances
                                                                                   15
Google and Amazon goal – domination of Smart Home data
Ecosystem player strategies (two routes into consumer homes)

        Ecosystem in-house                                                           Enabled by Frontier
            technology                                                                   solutions

  1    First party devices                                                    2 Third party branded devices

         Amazon         Google    Apple                        JBL Playlist with Google       Marshall Acton
        Echo & Dot       Home    Homepod                         Chromecast built-in      with Chromecast built-in

                                                                                                                     16
Smart Audio: anticipated market growth
Annual shipments of 76m units by 2020; 28m from third party brands

Smart Audio device annual shipments, millions

   Non-voice      Voice-enabled 3rd party        Voice-enabled 1st party

                                                              76

                                            62                                             • By 2020, over 90% of smart speakers
                                                                                             expected to be voice-enabled

                         47                                   48
                                                                                           • Today, voice-enabled sector dominated
                                                                                             by first party products
                                            42
       32                                                                                  • Over time, third party products
                         34                                                                  expected to increase share

       23                                                                                  • As third party is nascent sector, speed
                                                              23             3rd party       and scale to be determined
                                            13                                 smart
       1                  6                                                audio devices
       8                  7                  7                 5

      2017              2018                2019             2020
               Source: Strategy Analytics (Sept 2017)

                                                                                                                                       17
Frontier’s role in the Smart Audio value chain

     Ecosystem               Solution                    ODMs
                                                                                Brands                Retailers   End Users
      players                providers               (Manufacturers)

                      Wi-Fi / processor
                            chips

 • Voice assistants      • Hardware (module)                  • Industrial Design    • Product Marketing
 • Cloud services        • SmartSDK licensing                 • Acoustic             • Distribution
                                                                engineering
 • Music providers       • Turnkey solutions
                                                              • Manufacturing
 • Smart home            • Engineering services
   connectivity            (customisation)
                         • Pre-certification / eco
                           system compliance
                         • Mobile app & data
                           services

                                                                                                                              18
Frontier: a leading Smart Audio system integrator

One of the few companies working with all three major ecosystem players

       Google Voice Assistant           Alexa Voice Services              Apple AirPlay 2 / Siri*

               FRONTIER                        FRONTIER                           FRONTIER
                SmartSDK                        SmartSDK                           SmartSDK

            Frontier’s Minuet               Frontier’s Minuet                  Frontier’s Minuet
             module family                   module family                      module family

                                                                                                    19
Commercial progress

Growing number of design wins

              2017: 20 models with                         2018: Ten models with
            Google Chromecast built-in                     Google Voice Assistant

            Next step – develop licensing model for SmartSDK, targeting larger ODMs

                                                                                      20
Frontier SmartSDK roadmap

    Core platform                                                 Platform enhancements

       June 17                    Dec 17                  March 18                    Q2 2018                  H2 18

• Google Chromecast      • Slave mode               • Google Voice             • AirPlay 2              • Alexa Voice
  built-in                                            Assistant                                           Services
                         • Wireless Stereo                                     • Simple display
• Spotify Connect                                                                support
• AirPlay 1              • High-res audio
                           support (96/24)
• Internet Radio
• Bluetooth A2DP /
  AVRCP
• Multi-room

                    Smart audio                             Voice                          Multi-ecosystem support

                            Invest ~£5.6m in R&D in 2018 – to establish leadership position in sector

                                                                                                                        21
Smart Home: “Explore”
Smart Home market is on the move

                         Voice control expected to play central role

           Smart                            Smart                            Smart
        thermostats                        lighting                        appliances

                      Security                               Home health

                                                                                        23
The future of Smart Homes
By 2020, over 100 million smart homes in North America and Europe

Smart Homes in N America and Europe, millions

                 North America           Europe

                                                         117              • North America currently in lead; Europe expected to
                                                                            catch up

                              39%
                             CAGR                                         • Key sectors today
                                        86               56                 - energy management / climate control

                                                                            - lighting and window control
                      62                37                                  - security and access control

       44             24                                                  • In medium term, expect emergence of

       14                                                                   - home appliances
                                                         61
                                        49                                  - healthcare and assisted living
                      38
       29

     2017            2018              2019             2020
             Source: Berg Insight, Smart Home and Home Automation, 2017

                                                                                                                                  24
Next step: assess market Smart Home opportunity

    Frontier’s transferable Smart technology
                      assets
                                               • Evaluate and prioritise Smart Home product categories
                                                 for Frontier focus
         Hardware
         solutions                             • Will assess

                                                 - scale / growth prospects

                                                 - maturity of sector / competitive landscape
    Connectivity / voice
          SDK                                    - technology needs of brands / suitability of Frontier
                                                   solutions

                                               • Develop go to market plan
      Frontier cloud
         services

                                                                                                          25
Board changes
Board changes

• Dr Martin Knight, after nine years as a Non-Executive Director and Chairman since July 2015, will not be
  standing for re-election at the Annual General Meeting (‘AGM’) in April 2018

• Chris Batterham, a Non-Executive Director since 2012, has also informed the Board of his decision not to stand
  for re-election

• Both will cease to be Directors at the conclusion of the AGM

• Sir Hossein Yassaie has been appointed a Non-Executive Director with immediate effect

• The Group has initiated a search to identify further candidates to join the Board, including for the role of
  Chairman

• Martin Harriman, who joined the Board in December 2016, will continue in his current position of Non-Executive
  Director

                                                                                                                   27
Conclusions
Summary FY2017

       EBITDA                                                  Strong
       Profitable                             Cash             growth
                                            generative
                                                            FY2017 revenues
     FY2017 EBITDA:                        FY2017: +£3.7m       £41.0m
         £1.9m                                                 up 28%*
       (up 171%)

         * up 22% in constant currencies

                                                                              29
Objectives for 2018

             Radio                              Smart Audio                            Smart Home

  Maintain                         Build                                          Explore

  • Maintain market share          • Deploy Google Voice, Alexa and AirPlay 2     • Develop technology platform
                                     solutions                                      and go to market plan with
  • Incremental R&D
                                                                                    - development in 2019/20
                                   • Secure design wins / establish Frontier as
  • Continue to deliver positive     leading Smart Audio system integrator          - first revenues anticipated
    EBITDA                                                                            in 2020
                                   • Build volumes, revenues and margins

                                                                                                                   30
Thank You

Contact:
anthony.sethill@frontiersmart.com (CEO)
jonathan.apps@frontiersmart.com (CFO)

                                          31
Medium term outlook
Market expected to be split equally between first and third party

Voice-enabled Smart Audio device annual shipments, millions

                     First party devices                                           Third party devices

        Amazon          Google           Apple            Other          Amazon           Google             Other

                                                 50        50                                                    50
                                    48
                                                 5          5
                         42          5                                                                           10
                          4                                                                          36
             34                     10           14
                                                           16
                          7
              3                                                                                          8
              4
    23                   11         14                                                       23                  31
                 8                               16
     1                                                     17                                 5
    4                                                                                                21
                                                                                   13
             20          20                                                         3        12
    16                              18           16                          6
                                                           12                1      7
                                                                   1         3                           7       10
                                                                   0                3         5
                                                                   1
                                                                   1         2
   2017      2018       2019       2020      2021         2022    2017      2018   2019     2020    2021       2022

                 Source: Strategy Analytics (Sept 2017)

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