Full Year Results 2018 - March 2019 - Frontier Smart Technologies
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Full Year Results 2018
March 2019
Presentation team
Anthony Sethill Jonathan Apps
Chief Executive Officer Chief Financial Officer
Anthony is the founder and CEO of Frontier Smart Jonathan has 20 years’ experience as a finance director.
Technologies, the leading supplier of technologies for digital He was CFO of Europe’s largest independent Wi-Fi
radio and Smart IoT devices. Since 2001, he has successfully operator, The Cloud Networks, for over four years prior to a
grown the business and established the Group as a strategic trade sale to Sky.
supplier of digital audio chips and modules to global consumer
electronic brands. Jonathan was previously CFO of interactive TV, mobile and
internet content producer YooMedia, CFO at AIM listed
Prior to that, Anthony was Executive Director of Consumer & technology venture capital fund E-capital Investments, and
Mobile Phone Products at Amstrad PLC, Sales and Marketing European Finance Director at network integrator EQUANT
Director at Samsung (UK) Ltd, and Chief Commercial Officer of Integration Services. Jonathan is a qualified chartered
ONDigital (British Digital Broadcasting Ltd). accountant and has a Bachelor of Commerce degree from
Birmingham University.
1
Highlights FY 2018
• Revenues: US$41.8m (FY 2017: US$53.0m), with stronger second half revenues of US$24.8m
Financial • Adjusted EBITDA1: US$1.4m (FY 2017: US$2.5m)
• R&D expenditure: US$7.5m expensed (FY 2017: US$8.5m)
• Trading EBITDA2: US$0.8m (FY 2017: US$2.5m), with the first half loss of US$2.1m reversed in the second
half (H2: US$2.9m)
• As of 31 December 2018, the Group’s gross cash balance was US$3.8m; net debt was US$2.5m
• Digital Radio
Operational
- continued market leadership in consumer DAB; market volumes stabilising post-completion of Norwegian
highlights FM switch-off
- new Smart Radio solution due for release in H1 2019
• Smart IoT (Audio and Non-Audio)
- completion of multi-ecosystem voice-enabled software; R&D expenditure subsequently reduced
- software licensing team created and collaborations with silicon providers established
- first Licensing and non-audio design wins secured – revenues from Q4 2019
FY 2019 • The Board expects an improvement in Trading EBITDA in FY 2019
Outlook
1) Adjusted EBITDA means earnings before interest, tax, depreciation & amortisation; and before restructuring, other non-recurring costs & certain non-cash items
2) Trading EBITDA means Adjusted EBITDA less R&D costs (of US$0.6m) which have been capitalised in compliance with IAS38
2
Frontier: two business lines
Digital Radio Smart IoT
(DAB and Smart Radio) (Audio and Non-Audio)
• FY 2018 revenues: US$35.7m • FY 2018 revenues: US$6.1m
• FY 2018 Adjusted EBITDA: US$10.3m • FY 2018 Adjusted EBITDA: loss of US$8.1m
• Frontier retains #1 market leadership position in consumer • First solution was Smart Audio – now extending into
DAB and Smart Radio software licensing (audio and non-audio)
• Global volumes now stable after Norwegian DSO – mid • Following completion of multi-ecosystem smart software,
term prospects given uplift by R&D expenditure being reduced
- France significant new market from 2020
• Collaborations with ecosystem players and major silicon
- Swiss DSO 2021-24 providers, e.g. NXP, already delivering results
- soundbars (design win with major ODM / brand -
• Smart Radio significant opportunity for new Frontier
potential to roll-out to other brands)
solution (Venice X) – including in non-DAB markets
- first non-audio product (Kohler Smart Mirror)
3
Key strengths
Technology
• World leading digital radio technologies – world’s most
integrated DAB chip
• Extensive experience in connectivity standards (Wi-Fi
and Bluetooth) and voice platform integration
• Expertise in software and cloud services which is
transferable from Smart Audio into multiple IoT verticals
Digital Radio
Business relationships
• Strategic relationships with ecosystem players: Google,
Amazon, Apple
Our
• Collaborations with global silicon providers: NXP,
Amlogic and Marvell markets
• Long term customer relationships with blue chip audio
brands, major retailers and Far East ODMs
Delivery capability
Smart IoT
• Best-in-class engineering support to ensure efficient
delivery of customer projects
• Highly effective manufacturing and operations team
• Flexible business model – now building software
licensing capabilities
4
Vision
To be a leading multi-ecosystem, multi-interface platform for smart devices
Frontier’s multi-ecosystem In multiple verticals*
IoT platform
Smart Smart
Frontier device device
module and / Smart Smart Smart
or SDK device device device
Frontier Smart Smart
cloud device device
Human interfaces, e.g.
• voice
• face recognition
* e.g. audio, security, appliances, home automation
5
Financials: FY 2018
FY 2018 overview
Comparison against record FY 2017
Revenues, US$m Trading EBITDA, US$m Net Cash, US$m
$41.8m $0.8m $(2.5)m
2017: $53.0m 2017: $2.5m 2017: $3.8m
• FY 2018 down 21% due to • Trading EBITDA • Receivables up by US$5.0m
- 24% decline in Digital Radio - margin down US$4.7m to - from US$4.6m
revenues post Norway DSO US$17.1m (FY 2017: US$21.8m)
- to US$9.6m
- flat Smart IoT revenues - overheads1 down US$3.0m to
US$16.4m (FY 2017: US$19.4m)
1) Including capitalised R&D costs of US$0.6m
7Improved performance in H2 2018
Return to seasonal trend
Revenues, US$m R&D1, US$m Trading EBITDA, US$m
+45% -24% +$5.0m
Recovery in Decline due to reduction
Digital Radio 4.6 in Smart IoT R&D
24.7 2.9
3.5
17.0 0.6
Capitalised
R&D
2.9
Expensed
R&D
-2.1
H1 H2 H1 H2 H1 H2
1) Including capitalised R&D costs of US$0.6m
8FY 2018 Income Statement
Adjusted EBITDA of US$1.4m 2018 2017
US$m US$m
Trading EBITDA of US$0.8m
Revenue 41.8 53.0
Cost of Sales (24.6) (31.2)
Gross margin 17.1 21.8
Other income 0.3 0.0
Research & development costs* (7.5) (8.5)
Sales & administrative costs (8.6) (10.9)
Adjusted EBITDA 1.4 2.5
Capitalised R&D (0.6) 0.0
Trading EBITDA 0.8 2.5
Depreciation and amortisation (2.8) (3.4)
Other non trading costs** (1.5) (1.5)
Loss for the period (3.0) (2.5)
Unit volumes shipped (m) 5.4 6.4
Revenues down 21% Margins stable at 41% R&D costs (inc. capitalised Sales & admin costs reduced
costs) reduced by 5% by 21%
* Net of US$0.6m which were capitalised
** Other non-trading costs relate to non-recurring costs, share-based payments, finance charges and tax
9FY 2018 Segmental Analysis
• Digital Radio Adjusted EBITDA: For the year ended 31 December 2018 Digital Radio Smart Group Total
$10.3m IoT
• Smart IoT in investment phase US$m US$m US$m US$m
Revenue 35.7 6.1 - 41.8
Cost of sales (20.2) (4.4) - (24.6)
Gross profit 15.5 1.7 - 17.1
Other income 0.3 0.3
Research & development (1.3) (6.2) - (7.5)
Sales & administrative expenses – other (3.9) (3.9) (0.8) (8.6)
Adjusted EBITDA 10.3 (8.1) (0.8) 1.4
Revenues Gross margin R&D expenditure split
Digital Radio down 24% (FY 2017: US$46.8m) Digital Radio: 43%; Digital Radio 17%;
Smart Audio flat (FY 2017: US$6.1m) Smart Audio: 28% Smart Audio 83%
10Balance Sheet as at 31 December 2018
2018 2017
$’000 $’000
ASSETS
Non-current assets
• Cash and cash equivalents Goodwill 10,892 11,548
Other intangible assets 6,275 8,372
- US$3.8m (31 Dec 2018) Property, plant and equipment 419 411
17,586 20,331
- US$7.9m (31 Dec 2017)
Current assets
Inventories 2,839 4,784
Tax receivable 340 170
• In May 2018, existing term loan of £2.6m was Trade and other receivables 9,294 4,408
converted into a £5m RCF with a three-year term Cash and cash equivalents 3,817 7,920
Total current assets 16,290 17,282
- at year-end 2018, the RCF was fully drawn
Total assets 33,876 37,613
• Inventories down
LIABILITIES
- to US$2.8m (31 Dec 2018) Current liabilities
Trade and other payables 14,928 15,400
- from US$4.8m (31 Dec 2017) Total current liabilities 14,928 15,400
Other liabilities > 1 year - -
Total liabilities 14,928 15,400
EQUITY
Share capital 6,847 6,836
Share premium 187,971 187,971
Share based payment reserve 9,528 9,021
Foreign exchange reserve (9,853) (9,025)
Retained earnings (175,545) (172,590)
Total equity 18,948 22,213
Total equity and liabilities 33,876 37,613
11Digital Radio
Frontier: Digital Radio
#1 18 48m
years
market leader in consumer of heritage in DAB units shipped
DAB & Smart Radio technology to date
Strong positive cash flows: FY 2018 Adjusted EBITDA of US$10.3m
13DAB established as European standard
Established markets
Regular services
Trials
Finland
Norway
Sweden • DAB footprint extended across
Estonia most of Europe – and Australia
Latvia
DK
Lithuania
• Volumes now stable following spike
Ireland in sales in 2017 (Norwegian DSO)
UK NL
Poland
Bel Germany
Czech • DAB has received additional
Slovakia
Austria
backing from EU
CH Hungary
France Slovenia - all new car radios to have digital
Croatia terrestrial from end 2020
Italy Serbia
- Member States free to have own
rules for consumer devices
Portugal Spain Greece
14DAB: significant developments
• France: national services launching in H1 2020 (all major broadcasters)
• Local services on air in six cities – expanding to 30 in next two years
• From 2020, all new consumer receivers required by law to have DAB+
• Switzerland: Digital Switchover scheduled to run between 2021 and 2024
• Detailed timetable to be announced 29 August 2019
• Germany has overtaken UK as largest consumer DAB market
• Receiver regulation under discussion
15France: status
The Five Cs – the keys to success in DAB radio
Consumer
Content Coverage Cars Communication
devices
• All major broadcasters • 70% by end 2020 • Over 100 ODMS • All cars offer DAB+ • Industry body to be
signed up as standard or option formed
• Simple DAB radio:
$10.00 FOB • All new car radios • Communications to
EUR20.00 retail with DAB+ from mid- public / in-store is
2020 by law required
DAB+ mandated in
consumer receivers from
end 2019
16Smart Radio: significant opportunity
Chorus 4 Smart Radio chip
• Smart Radio: fastest growing digital radio segment (volumes up 30% p.a.)
- FM, DAB and Wi-Fi in single device
- access to radio, podcasts and online music services
• Frontier well-established in sector (ten years’ experience)
- recently approved as certification partner for Spotify, significantly reducing time-
to-market
• In Q2 will launch new cost-optimised solution, Venice X
- Chorus 4 silicon (world’s first integrated smart radio IC)
- 30 design wins already secured
- potential to sell into non-DAB markets, e.g. India, Russia and South America
17Smart Radio: new features – additional margin
DAB Radio 2018 Smart Radio 2019
• DAB / DAB+ / FM • DAB / DAB+ / FM
• Bluetooth • Bluetooth
• Internet radio
• Podcast and Listen-again
• On-demand music
• Color UI Venice X (new)
• App control
18Smart IoT
Smart IoT platform
Frontier has developed the technology assets to deliver a Smart IoT business
Frontier’s smart technology assets • Frontier has developed a multi-ecosystem platform for
Google, Amazon and Apple
- software, cloud services and hardware
Connectivity / voice
SDK - fully functional by mid-2018
- R&D reduced by 30% in H2 2018
Frontier cloud
services
• Multiple design wins secured1, but Smart Audio turnkey
sector constrained by
- strength of first party products (e.g. Amazon Echo,
Hardware Google Home)
solutions
- preference for more successful 3rd party brands to
use software licensing model
(1) Including Marshall, Altec Lansing and Harman JBL
20Expanding into Licensing and non-Audio IoT
Initial business focus (2016-18)
Market focus
Expanded focus (from mid-2018)
• Using existing software and cloud assets,
Frontier is extending into
Licensing - Licensing
- non-audio IoT
• New customer relationships being
established through
- existing ecosystem relationships
- new collaborations with silicon vendors
Turnkey
• R&D expenditure reduced – emphasis on
customer funding of projects
Audio Non-Audio
21Strategic relationships with major silicon providers
NXP Semiconductors
• Global silicon provider Sector focus
- revenues of $9.5bn; 31,000 employees,
market cap of $32bn • Soundbars (bringing multi-channel
functionality to mainstream devices)
• New IoT chip
- for smart devices with voice assistants • Voice-enabled IOT devices, e.g.
- needs software provider to support - air conditioners
customers - washing machines
• Frontier and NXP working together on customer engagement
• First design win secured - with major soundbar brand / ODM
• Strong potential to roll-out to other brands (who use same ODM)
22Technology for next generation soundbar
Silicon: from NXP Software platform (voice and streaming audio):
developed by Frontier and NXP
LINUX
Frontier SmartSDK
Streaming
WiFi Frontier Audio Voice Assistant (e.g.
AEC
Streaming decoders GVA or AVS)
BT Framework
ALSA ALSA ALSA
Shared Memory Interface
Configuration and Control Reference Audio
Streaming Audio Voice
ATMOS Customer
SAI/HDMI Auto- Output (mute, SAI
DTS Audio Post
input detection latency,….) output
DSD Process’g
NXP Audio Framework
RTOS
Next generation soundbar
with Dolby ATMOS and
voice recognition
Global market for
soundbars: 15m units p.a.
23First non-audio Smart IoT design win
Kohler smart mirror with Google Assistant built-in
• Voice controlled lighting
• Smart speakers built-in
• Ability to control other smart
devices, e.g. shower
Introduced to Frontier by Google
- launches Q4 2019
24Priorities for 2019
Smart IoT
Business development Resources Business model
• Secure non-audio business • Strengthen commercial team • Mixed revenue model
- work with silicon and - licensing
• Enhance B2B marketing
ecosystem partners (important communications for Licensing
source of new business - customer funding of project
introductions) costs
• Engineering focused on
extending capabilities of core IoT - fees for support and
• Verticals (examples) platform maintenance
- smart audio (e.g. soundbars)
• First material revenues expected
- appliances H2 2019
- hospitality
25Conclusions
Objectives for 2019
• Digital Radio expected to remain the Group’s cash generator - goal is to maximise these
Digital Radio cash flows
• Develop Licensing business for audio and non-audio Smart IoT
Smart IoT - continue promising start in establishing strategic partnerships with major silicon providers
- leverage existing ecosystem relationships to secure design wins in non-audio
• Lay solid foundations for development of a profitable and sustainable Smart IoT business –
Group whilst steadily increasing Trading EBITDA
27Thank You
Contact:
anthony.sethill@frontiersmart.com (CEO)
jonathan.apps@frontiersmart.com (CFO)
28Disclaimer
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number of factors which could cause actual results and
Not an Offer developments to differ materially from those expressed or implied
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or form part of, any offer to sell or subscribe for or an enactment of legislation or regulation that may impose costs or
invitation to purchase or subscribe for any securities or the restrict activities; there-negotiation of contracts of licences;
solicitation of any vote or approval in any jurisdiction fluctuations in demand and pricing in the industry; fluctuations in
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