Letter to the shareholders

letter shareholders

Dear Shareholders,


After the strong result posted in 2015, and despite more challenging circumstances, u-blox can look back on another good year. Robust growth in Asia and Europe and with the ramping up of new products brought a 25% increase over 2015. However, unexpectedly slow demand in the USA in 2016 obliged us to correct our guidance figures, as events on the far side of the Atlantic could not be compensated. The profit outlook was finally little impacted and we post a record result. Our share value remained stable at CHF 191.20.

The Board of Directors proposes a dividend payout of CHF 2.10 per share and will put the motion to shareholders for approval at the Annual General Meeting on April 25, 2017.

Overall growth continues
Consolidated Group revenues in 2016 showed continued growth, rising by CHF 21.90 million to CHF 360.2 million, or the equivalent of a 6.5% increase over the previous year. Operating profit (EBIT) was up strongly by 15.0% compared with 2015 and stood at CHF 59.0 million. Nevertheless, revenue progress differed markedly from one geographical region to another.
 

Worldwide revenue growth of

growth

Markets in Europe, the Middle East and Africa (EMEA) reportedstrong growth of 18.5%, with expansion across all areas and product ranges, especially for asset tracking and infrastructure applications. Europe, in particular, benefited from a notable upturn in demand for mobility solutions and smart metering, as well as telematics units for cars and trucks. The latter is driven by lively demand for in-vehicle connectivity and, on the automotive front, will undoubtedly profit from the upcoming mandatory eCall function in the car.

The Asian markets continued to benefit from a positive economic climate and reported a growth of 9.1%, especially in the consumer markets for wearables and personal trackers, where we continued to develop new business. u-blox has also established a leading position in the region for UAVs (unmanned aerial vehicles, or drones) and continued to play a pioneering role in automotive applications for telematics and navigation. The industrial side of our operations profited from expansion in the telecoms industry.

Business in the Americas was negatively affected by events that included political uncertainty and slow business progress in the USA. Customers there delayed further investments into mobility solutions, and generally took a more prudent approach in launching new products. Despite this temporary setback, we are confident that the design of several promising new products and ongoing demand for IoT solutions will see the region revert to robust growth in the months ahead.


Net cash generated from operating activities in m CHF

net cash

Firmly on course towards intermediate goal

u-blox remains on course to achieve its medium-term goal of half-billion-dollar annual revenues. We continuously expanded our workforce, particularly in R&D, to boost the innovation rate. The resulting capacity provided the impetus needed to create and announce a number of market leading new products.


Product highlights
One of the central reasons for u-blox’s ongoing success is the company’s ability to develop and market products that are geared precisely to the needs of specific markets. In this respect, 2016 was a milestone year: never before had the company announced so many new products. Last year’s highlights included:

  • LARA-R3121: the first module and chipset from a single supplier.
    This product expressly underlines our strategy to become a
    leading semiconductor supplier in the wireless communication
    market.
     
  • UBX-R3: a low-cost, low-energy consumption chip for a vast
    range of narrow-band IoT application – and the chipset at the
    heart of LARA-R3121.
     
  • NEO-M8U: the industry’s first untethered dead reckoning
    module, which addresses the automotive sector and combines
    easy installation with optimum positioning capability.
     
  • NEO-M8P: centimeter-level positioning accuracy for the mass
    market.
     
  • NINA-B1: a Bluetooth-capable module that tracks mobile devices
    and equipment moving in confined spaces such as at healthcare
    facilities and industrial plants.

Challenges and risks
The risks that confront a high-technology company like u-blox in a global environment are many, and we take prudent measures to safeguard our own operations and those of our customers. First and foremost of these is the continued development and marketing of the leading products our customers can rely on to meet their precise needs, which means keeping a close eye on and predicting technological development. Secondly, we are keenly aware of the repercussions of currency exchange movements and ensure as far as possible that our production and operational expense in specific currencies is commensurate with our revenues. And thirdly, we have an extensive and expanding base of over 5'700 customers, with no single one of them accounting for more than 6% of sales.

Strategy
We are pleased to report that we remain firmly on course with our well-established strategy, which is founded on four discrete pillars:consolidation of our market position; ongoing technological development and innovation; operational excellence; and strategic partnerships. We continue to grow our business with regular launches of new and more sophisticated products. These include the launch of first LTE chipset for Category 1 and the LARA-R3 module based on this chipset. We also announced the NANO-S100 module for wireless applications, the new u-blox 8 platform together with high-precision products for positioning, and the expansion of our short-range product line for IoT applications. We work untiringly to strengthen our global presence, in the quest for operational excellence and the increased efficiency that comes with economies of scale.

On the acquisition front, in January 2017 u-blox announced an asset deal with Shanghai-based SIMCom that expands u blox’s existing cellular product range and makes it a major supplier of cellular modules worldwide. The asset deal is due for completion in spring 2017.

Operating profit (EBIT) in m CHF

ebit

Board and management

During the period under review, Soo Boon Koh retired from the board. Her seat was taken by Gina Domanig, who holds triple (Swiss, US and French) nationalities. Gina Domanig is Managing Partner of Emerald Technology Ventures AG, a Member of the Board with Die Mobiliar Genossenschaft, Switzerland, and Chairman of the Board at the Energy Venture Forum, Switzerland.

Outlook
We plan to maintain our aim of continued profitable growth. To achieve this, we need to invest in new products and offer a wide range of chips and modules that meet the many needs of our customers. These will consolidate our leading position and help us accelerate growth. As the Internet of Things continues to transform the course of the industry, we are forging ahead with the development of the low-power, low-price modules required in countless applications with strong, continuously growing demand, while focusing on the three areas that cover the entire spectrum of communication needs: positioning, cellular and short-range technology.

Gross profit in %

gross profit

For positioning, we have four primary lines designed for: standard precision (meter-level accuracy), high precision (centimeter to decimeter accuracy), dead reckoning (coverage in tunnels and urban canyons), and timing and frequency requirements.

For the cellular sector, we offer an extensive range of modules covering all major standards, GSM, UMTS and CDMA, highperformance, multi-mode LTE modules and low data-rate, single-mode LTE, NB-IoT and RPMA modules. The integration of SIMCom’s products will further enhance our market position. The third element in our product strategy is short-range technology, covering low-energy Bluetooth for low data rates, Wi-Fi for high data rates and V2X modules for automotive safety applications.

For the current year, we are targeting revenues of between CHF 485 million and CHF 515 million including the acquisition of SIMcom, with an operating profit (EBIT) of between CHF 60 million and CHF 65 million. These expectations exclude unforeseen economic adversity and budgeted exchange rates (USD/CHF: 1.00; EUR/CHF: 1.10).

u-blox plans to launch its second bond issue in 2017. The net proceeds of the issue will increase u blox‘ financial flexibility, ensuring the Group's financing for the coming years.

On behalf of the Board of Directors and the Executive Committee, we wish to thank our growing team of highly skilled employees for their commitment and untiring efforts in 2016. We would also like to extend our gratitude to our shareholders for their trust and confidence in u-blox, and to our valued customers, suppliers and manufacturing partners.

We look forward to another exciting and successful year.

Fritz Fahrni
Fritz Fahrni
Chairman of the
Board of Directors
Thomas Seiler
Thomas Seiler
CEO
Roland Jud
Roland Jud
CFO