Full Year Results 2017 8 March 2018
Presentation team Anthony Sethill Chief Executive Officer Jonathan Apps Chief Financial Officer Anthony was the founder and CEO of Frontier Silicon Ltd, the leading supplier of digital broadcast, network audio products and Smart Audio devices. From 2001, he successfully grew the business and established Frontier Silicon as a strategic supplier of digital audio chips and modules to global consumer electronic brands. Prior to that, Anthony was Executive Director of Consumer & Mobile Phone Products at Amstrad PLC, Sales and Marketing Director at Samsung (UK) Ltd, and Chief Commercial Officer of ONDigital (British Digital Broadcasting Ltd). Jonathan has over 18 years experience as a finance director. He was CFO of Europe s largest independent WiFi operator, The Cloud Networks, for over four years prior to a trade sale to Sky. Jonathan was previously CFO of interactive TV, mobile and internet content producer YooMedia, CFO at AIM listed technology venture capital fund E-capital Investments, and European Finance Director at network integrator EQUANT Integration Services. Jonathan is a qualified chartered accountant and has a 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 Operational highlights Strong performance in Radio, especially in H1, driven by switch-off of FM radio in Norway plus steady growth in other European markets 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 Outlook The Board expects modest growth in revenues and EBITDA, as the Group continues to invest in Smart Audio * Earnings before interest, tax, depreciation, amortisation and before share based payments 2
Frontier: a pioneer in consumer audio technologies Radio Digital Radio Advanced Radio Smart Audio Google Amazon Apple #1 provider of consumer DAB Digital and Advanced Radio solutions Hardware and software for cloud connected / voice recognition audio devices World leading technology (silicon, hardware, software, customer support) Working with Google, Amazon and Apple as solution provider for 3 rd party brands 2017 revenues: up 15% to 36.3m (FY2016: 31.7m) Positive cashflows 2017 first material revenues: 4.7m (FY2016: 0.5m) - growing number of design wins, including for voice-enabled devices 3
Strategic objectives 2018-20 Radio DAB Radio Advanced Radio Smart Audio Google Voice Amazon Alexa Apple AirPlay 2 Smart Home Home appliances Home security Home automation Maintain Revenue (FY2017): 36.3m Gross margin (FY2017): 15.4m (42%) EBITDA (FY2017): 9.5m * Build Smart speakers for 3 rd party brands (majority with voice) - turnkey module solutions - licensing Frontier s SmartSDK (model in development) Frontier goal to be leading system integrator for third party brands Explore Evaluate market opportunity Engage with ecosystem (partners / customers) Identify where Frontier technology is applicable Develop business plan (first revenues expected in 2020) * Before Group costs 4
Financials: FY2017
Strong financial performance in 2017 Revenues, m 41.0 EBITDA, m 1.9 Net Cash, m 3.0 31.7 32.1 0.7 1.3 FY 15 FY 16 FY 17-0.8 FY 15 FY 16 FY 17-0.7 31 Dec 16 30 Jun 17 31 Dec 17 FY2017 up 28% due to - Norway switch-off of FM - growth in other European digital radio markets - first material revenues for Smart Audio Improvement in FY2016 due primarily to reduction in R&D Improvement in FY2017 due to improvement in revenues / gross margin Debt being repaid to schedule Cash generative since H2 2016 6
FY2017 Income Statement Substantial growth in revenues and EBITDA 2017 Restated 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, revenues up 22% to US$53.0m (FY2016: US$43.4m) Gross margin slightly lower at 41% (FY2016: 44%) due to lower margins in Smart Audio R&D expenditure similar to FY2016 Sales & admin costs up 22% to support move into 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 Smart Audio in investment phase For the year ended 31 December 2017 Radio Smart Audio Group Total 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 Radio up 15% (FY2016: 31.7m) Smart Audio up 9x (FY2016: 0.5m) Gross margin Radio: 42%; Smart Audio: 31% R&D expenditure split Radio 27%; Smart Audio 73% 8
Balance Sheet as at 31 December 2017 Cash and cash equivalents - up to 5.9m (31 Dec 2017) - from 3.4m (31 Dec 2016) Debt being repaid and net cash improved - net cash of 3.0m (31 Dec 2017) - net debt of (0.7)m (31 Dec 2016) Inventories up to 3.5m from 2.6m, reflecting increase in volumes, especially in Smart Audio Restated 2017 2016 000 000 Non-current assets Goodwill 8.5 8.5 Other intangible assets 6.2 8.5 Property, plant and equipment 0.3 0.4 15.0 17.4 Current assets Inventories 3.5 2.6 Tax receivable 0.1 1.1 Trade and other receivables 3.3 8.2 Cash and cash equivalents 5.9 3.4 Total current assets 12.8 15.3 Total assets 27.8 32.7 LIABILITIES Current liabilities Trade and other payables 11.4 12.1 Total current liabilities 11.4 12.1 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 World-leading audio technology * 80% share in DAB and Advanced Radio 16 years heritage in DAB technology and relationships - 45m units shipped to date Stable, positive cashflows Blue chip audio brands Factory / ODM relationships ** - FY2017 EBITDA of 9.5m (before Group costs) * 4 th 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 Norway FM switch off Norway (2017) Switzerland (2020-24) UK: Gov t review when 50% of listening is digital* UK Denmark Netherlands Germany Belgium Czech France Austria Switzerland Poland Slovakia Germany: Strong political commitment Established markets with DSO date Established markets with no DSO date Recent launches / partial roll-out Trials on air Others: NL, Denmark and Belgium - plus Australia Italy France: when coverage >20%, all receivers must offer DAB + Italy: all receivers to be digital from 2020 * 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 voiceenabled wireless speakers will reach: US$2.8 billion 2017 US$8.6 billion 2020 Source: Strategy Analytics, Sept 2017 Smart thermostats Smart 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 technology Enabled by Frontier solutions 1 First party devices 2 Third party branded devices Amazon Echo & Dot Google Home Apple Homepod JBL Playlist with Google Chromecast built-in Marshall Acton 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 32 47 34 42 48 Today, voice-enabled sector dominated by first party products Over time, third party products expected to increase share 23 23 13 1 6 8 7 7 5 2017 2018 2019 2020 Source: Strategy Analytics (Sept 2017) 3 rd party smart audio devices As third party is nascent sector, speed and scale to be determined 17
Frontier s role in the Smart Audio value chain Ecosystem players Solution providers ODMs (Manufacturers) Brands Retailers End Users Wi-Fi / processor chips Voice assistants Hardware (module) Industrial Design Product Marketing Cloud services Music providers Smart home connectivity SmartSDK licensing Turnkey solutions Engineering services (customisation) Acoustic engineering Manufacturing Distribution 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 SmartSDK FRONTIER SmartSDK FRONTIER SmartSDK Frontier s Minuet module family Frontier s Minuet module family Frontier s Minuet module family 19
Commercial progress Growing number of design wins 2017: 20 models with Google Chromecast built-in 2018: Ten models with 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 built-in Spotify Connect AirPlay 1 Internet Radio Slave mode Wireless Stereo High-res audio support (96/24) Google Voice Assistant AirPlay 2 Simple display support Alexa Voice Services 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 thermostats Smart lighting Smart 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 86 56 Key sectors today - energy management / climate control 62 37 - lighting and window control - security and access control 44 24 In medium term, expect emergence of 14 29 38 49 61 - home appliances - healthcare and assisted living 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 Hardware solutions Evaluate and prioritise Smart Home product categories for Frontier focus Will assess - scale / growth prospects Connectivity / voice SDK Frontier cloud services - maturity of sector / competitive landscape - technology needs of brands / suitability of Frontier solutions Develop go to market plan 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 Profitable FY2017 EBITDA: 1.9m (up 171%) Cash generative FY2017: + 3.7m Strong growth FY2017 revenues 41.0m up 28%* * up 22% in constant currencies 29
Objectives for 2018 Radio Smart Audio Smart Home Maintain Maintain market share Incremental R&D Continue to deliver positive EBITDA Build Deploy Google Voice, Alexa and AirPlay 2 solutions Secure design wins / establish Frontier as leading Smart Audio system integrator Build volumes, revenues and margins Explore Develop technology platform and go to market plan with - development in 2019/20 - first revenues anticipated in 2020 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 Amazon Google Apple Other 48 50 50 42 5 5 5 4 34 10 14 7 3 16 4 23 11 14 8 16 1 17 4 20 20 16 18 16 12 2017 2018 2019 2020 2021 2022 Third party devices Amazon Google Other 50 10 36 8 23 31 5 13 21 3 12 6 1 7 1 3 1 2 3 5 7 10 10 2017 2018 2019 2020 2021 2022 Source: Strategy Analytics (Sept 2017) 32
Disclaimer Restricted distribution This presentation is not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws or regulations of such jurisdiction (the Restricted Jurisdictions ). Not an Offer This presentation is not intended to and does not constitute, or form part of, any offer to sell or subscribe for or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the matters contained herein or otherwise. Website A copy of this presentation will be available subject to certain restrictions relating to persons resident in the Restricted Jurisdictions on FST s website (www.frontiersmart.com). The content of the website is not incorporated into and does not form part of this presentation. Forward-looking statements This document contains certain forward-looking statements, including statements regarding FST s plans, objectives and expected performance. Such statements relate to events and depend on circumstances that will occur in the future and are subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements, including, among others the enactment of legislation or regulation that may impose costs or restrict activities; there-negotiation of contracts of licences; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxations; industrial disputes; and war and terrorism. These forward-looking statements speak only as at the date of this document. Not a profit forecast The financial information contained in this presentation is based on publicly available historic financial information of FST and is not intended to be a profit forecast or profit estimate under applicable rules. 33