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Shareholder letter

This year's highlights have included the launch of Sapcorda, a joint venture with Bosch, Geo++ and Mitsubishi Electric, as well as multiple new products, tailored to the ever-changing needs of our key industrial, automotive and consumer markets.

Dear shareholders,

Having delivered strong growth and high levels of profitability, we can look back on 2017 as a very good year for u‑blox.

Helped by the return to growth of our Americas business, we achieved global revenues of more than CHF 400 million for the first time. This represents another big step towards our intermediate goal of half‑billion‑dollar annual revenues, a milestone we plan to come close to in 2018.

We have continued to expand our product and service offering. As well as releasing a variety of new chips and modules, we launched the Sapcorda high‑precision GNSS positioning service, a joint venture with Bosch, Geo++ and Mitsubishi Electric.

As always, we have maintained our significant investment in research and development, guided by tangible technology trends and market demands. Key areas currently include Bluetooth Low Energy in the Industrial Internet of Things (IIoT), low‑power wide‑area networks for smart cities and high‑precision positioning. This on‑going work has enabled us to create a valuable and coherent range of products that meet our customers’ current and future needs.

Based on our strong performance and profitability, the Board of Directors wishes to continue returning money to shareholders. We propose a dividend of CHF 2.25 per share, and will put the motion to shareholders at the Annual General Meeting on 24 April 2018.

An update on our four strategic pillars

Our four strategic pillars are to strengthen our position in our key markets, continue our market‑leading technology and innovation work, strive for operational excellence and explore opportunities for partnerships and acquisitions. We are pleased to say we have taken great strides in all four areas this year.

Market position

Although the Internet of Things (IoT) is taking hold in different ways across the industrial, automotive and consumer markets, the common thread is the growing need for dependable connectivity and location‑awareness. Our diverse product portfolio, which caters for the specific needs of each market, combines with our capacity to deliver and enviable reputation, positioning us perfectly to take advantage of the global IoT opportunity.

In industry, our offerings support the spread of automation and the demands of the Industrial Internet of Things (IIoT). In the automotive world, autonomous and semi‑autonomous vehicles require precisely the electronics components we provide. And in consumer markets, demand for our products and services is growing in both the wearables space and in areas such as cycle- and car‑sharing businesses.

Technology and innovation

Our strategy remains to provide a coherent range of products and services that are secure, easy‑to‑use and of high quality. It is also an ongoing aim to continually increase the number of products that are built on our own silicon.

In 2017, we launched a variety of exciting new chips and modules across positioning, cellular and short‑range, alongside integrated solutions and complementary services. Highlights include the ZOE‑M8 series, the industry’s smallest complete GNSS module; the next‑generation NINA‑B1, and the NINA‑B3 Bluetooth 5.0 modules; and the TOBY‑L4 LTE Cat 6 cellular module for the automotive sector, which includes the most powerful CPU found on this type of module anywhere in the industry.

It was also an excellent year for our CellLocate and AssistNow services, with the latter now being used more than a billion times every month. The new Sapcorda joint venture will bring high‑precision GNSS positioning services to the mass market in a way we can monetize. Including capitalized efforts, we have again invested considerable amounts into R&D.

 

Operational excellence

Optimizing our operations becomes ever‑more‑important as our business grows. We are now delivering 99% of our orders on the confirmed date. This is one of the reasons our customers hold us in such high regard: they know they can trust us.

Strategic partnerships and acquisition opportunities

Partnerships and acquisitions remain a key pillar in our growth journey. As well as the aforementioned Sapcorda joint venture, 2017 saw us launch a collaboration with NXP and Commsignia to deliver reliable vehicle‑to‑everything (V2X) technology.

While we were regrettably unable to reach an agreement to acquire the SIMCom cellular module product line, we continue to explore opportunities to expand our business through acquisition.

Our diverse customer base

Our diverse and growing customer base remains one of our biggest strengths. We now have 6,100+ customers, spread all around the globe, including a healthy blend of small and large organizations. Crucially, no single customer accounts for no more than 6% of our revenue. Ensuring high levels of customer satisfaction continues to be high on our agenda.

2017 financial highlights

After a challenging year in 2016, optimism in the Americas rose once more in 2017, particularly in the second half. Demand in the area of medical equipment and consumer goods was particularly strong, while traditional automotive and fleet markets also performed well. Moreover, new tracking applications started to pick up momentum. As a result, we achieved 8% revenue growth in this region.

Markets in Europe, the Middle East and Africa (EMEA) reported strong revenue growth of 16%. This expansion covers all areas and product ranges, and was particularly prominent in navigation and industrial automation. Europe, in particular, benefited from a notable upturn in demand for connected devices destined for the IoT, as well as good demand from the automotive sector, driven by the need for in‑vehicle connectivity.

We experienced strong growht in the Asian and Pacific (APAC) markets, with the positive economic drive in China influencing the whole region. This allowed us to achieve revenue growth of 13%. While Asia remains our biggest market for wearables, unmanned aerial vehicles (UAVs) and other consumer applications, the region’s industrial sector is evolving, leading to growing demand for network equipment and tracking solutions.

This global growth saw us achieve overall revenue of CHF 403.7 million, a 12.1% increase over 2016. Operating profit (EBIT) exceeded our forecasts, growing by 10.3% to CHF 65.1 million.

These revenue and profitability figures were achieved, in part, by investing some of our cash reserves into the supply chain, to mitigate the risks associated with having limited supplies of components during a time of component‑shortage. Making this investment enabled us to maintain high service levels and achieve our financial goals.

And with market conditions for raising money being favorable, we took the opportunity to replenish our cash. A successful bond issue raised CHF 60 million, which has been ring‑fenced for acquisitions or other strategic acceleration initiatives.

The Board of Directors

The make‑up of our Board of Directors remained the same throughout 2017.

Challenges and risks

As with any large business operating in such rapidly changing markets, u‑blox faces significant and sometimes complex challenges. To protect our own business, and those of our customers, we take these issues very seriously and have comprehensive measures in place to identify and deal with them.

A key challenge over the coming 12 months will be to make sure our products remain relevant and valuable to our customers. Thanks to the close links we have with our customers and the wider markets, as well as our agile approach to product research and development, we are confident we have the structures in place to maintain a relevant product portfolio.

With markets that are growing strongly, we need to ensure that we can turn this potential into revenue, without compromising our high service levels. The challenge here is around limited supply‑chain capacity at certain times. It’s why we are building strong, long‑term relationships with our suppliers, using our financial capabilities to mitigate any risks, and expanding the use of our own silicon, thereby giving us greater control over production.

Future outlook

Increasing global mobility and the availability of low‑cost cloud data storage, mean our markets are continuing to grow. Consequently, there’s growing demand for precisely the sort of wireless and positioning technologies we specialize in.

Our plan is to continue on the path that has delivered us significant success in recent years. We will maintain our agile attitude towards our product and service portfolio, with frequent reviews to ensure we are keeping ahead of market and technology trends.

Key focuses will be to expand our high‑precision positioning capabilities into a broader range of markets for general automation purposes; to further develop our own silicon to give us even more control over the core technology in our products; to create more solutions that blend u‑blox products from different lines; and to improve resilience by further enhancing our supply chain.

With this in mind, we have set revenue targets for 2018 of between CHF 460 million and CHF 475 million, aiming to deliver an operating profit of between CHF 65 million and CHF 70 million and an EBITDA of between CHF 95 million and 105 million. These forecasts exclude unforeseen economic adversity and are based on exchange rates at the level of 2017 of USD/CHF: 0.98 and EUR/CHF: 1.11. Accelerated revenue growth rates are expected for second half of the year 2018.

2018 will also see some changes to the Board of Directors, with our Chairman Fritz Fahrni retiring. André Müller, currently a member of the Audit Committee, will be put forward as his replacement. In addition, Ulrich Looser will be put forward for the role of non‑executive director on the board of u‑blox Holding AG. Both elections will take place at our Annual General Meeting in April 2018.

A word of thanks

On behalf of the Board of Directors and Executive Committee, we would like to take this opportunity to thank all of our employees. Your talent and commitment are what make u‑blox the successful company we are today. We would also like to extend our thanks to our shareholders, for your continuing trust and confidence in u‑blox. Lastly, we would like to thank all our customers, suppliers and manufacturing partners.

Together, we will make 2018 even more successful than 2017 has been.

 

Yours faithfully,

 

Signature_TSEI_RJUD_FFAH

Fritz Fahrni        Thomas Seiler       Roland Jud