Full Year Results 2017 - 8 March 2018 - Frontier Smart Technologies
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Full Year Results 2017
8 March 2018
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.
1
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
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
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
Financials: FY2017
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
6
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
7
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
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
9Radio: “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)
11Digital 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
122018 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)
13Smart 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
15Google 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
16Smart 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)
17Frontier’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
18Frontier: 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
19Commercial 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
20Frontier 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
21Smart 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
23The 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
24Next 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
25Board 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
27Conclusions
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
29Objectives 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
30Thank You
Contact:
anthony.sethill@frontiersmart.com (CEO)
jonathan.apps@frontiersmart.com (CFO)
31Medium 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)
32Disclaimer
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solicitation of any vote or approval in any jurisdiction fluctuations in demand and pricing in the industry; fluctuations in
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