Fingerprint Cards AB: Interim report, January-March 2017

Fingerprint Cards AB (Publ.)
Interim report, January-March 2017

First quarter of 2017

• Revenues amounted to SEK 685.9 M (1,491.2), down 54 % compared to the first quarter of 2016
• The gross margin was 41% (49)
• Operating profit amounted to SEK 70.8 M (618.7) and the operating margin to 10 % (41)
• Earnings per share before dilution declined to SEK 0.17 (1.44)
• Cash flow from operating activities was a negative SEK 324.1 M (pos: 279.5)

A weak but profitable first quarter

We currently face a challenge with excess inventories in the value chain in combination with increased competition which have affected our deliveries and revenues negatively. This has resulted in a weak, but profitable first quarter.  Revenues declined to SEK 686 M and operating profit was SEK 71 M, corresponding to an operating margin of 10 percent. Our gross margin of 41 percent was impacted by an obsolescence charge linked to our own inventories, and to the lower revenues, however, the underlying product margin still reflects the fact that we have a competitive offering despite operating in an increasingly competitive market. Our cash flow, primarily impacted by the lower earnings and increased inventories, was negative at SEK 324 M.

The inventory build-up in the value chain that is currently affecting our revenues is largely a consequence of our major OEM customers having set high sales targets that they have not achieved, resulting in excess production and inventory build-up.

I have recently received many questions about our visibility. I can state that our visibility is very good when it comes to the forthcoming smartphone launches that our sensors will be features of. However, we have limited knowledge of the sales volumes that these smartphones will achieve and that is what drives our revenues.

In terms of the issue of the excess inventories at our partners and customers, we view this as a short-term problem and expect these inventory levels to normalize during the second quarter. To safeguard our profitability, we are reviewing our costs and the business at large, to ensure that we invest our resources in the right areas. Recruitment of cutting-edge competencies will continue, but will be done more selectively. After a couple of years of extremely sharp growth, it makes sense to consolidate the business and take the opportunity to fine-tune processes and work methods.

If we leave the matter of inventories and instead look at what is happening in the market, I see a number of positive aspects. Despite the intense competition, our products were included in 18 launches of new mobile devices during the quarter. Huawei P10 is an important milestone as it was the first smartphone where our sensor was placed under a continuous glass plate. We have a competitive offering and, specifically, we can see that our new sensor for entry level smartphones, the FPC1028, helped us to close important deals during the quarter. The product is vital to our efforts to initiate penetration of our sensors in entry level smartphones and thus also for volume growth. It is also suitable within IoT applications since it is compact, offers good performance and is cost-effective.

We are also receiving distinct signals that our offer to acquire Delta ID was strategically correct. There is keen interest among our customers in using multiple modalities, specifically fingerprint and iris recognition, in the same device and, thanks to a licensing model with Delta ID, we can already offer this. The acquisition is currently subject to approval by the US authorities and, as previously stated, we expect to be able to close the deal during the second quarter.

In 2018 and thereafter, we see, as previously stated, opportunities to grow in new segments. For our part, 2017 is therefore primarily about establishing partnerships, mobilizing the ecosystem, marketing and demonstrating our products.

Our participation in the FIDO Alliance and at the CES and MWC, for example, has served as an important platform for these efforts. At the CES, the main focus was on our PC offering but our sensors were also included in both "wearables" and cars. During the MWC, we met all our mobile customers and partners as well as the key players in the smartcard segment and received a lot of positive feedback for our battery-and contact-less offering.

Despite short-term issues concerning excess inventories and tough competition in the mobile segment, I still view the future with confidence. Biometrics create considerable value globally, for both individuals and businesses, and we are exceptionally well positioned to be the company that best leverages this potential and to become the leading company in biometrics.

Christian Fredrikson, President and CEO

For further information, contact:

Christian Fredrikson, CEO, Fingerprint Cards AB (publ),
+46(0)31-60 78 20, investrel@fingerprints.com 
https://www.fingerprints.com/corporate/en/financialinfo/financial-reports/

Welcome to the presentation of Fingerprint Cards' interim report for the first quarter 2017, which will be held on May 4, 2017 at 15:00 CEST. Participants can access the webcast and all the presentation material at:
https://engage.vevent.com/index.jsp?eid=3483&seid=96

Fingerprint Cards AB (publ), Corp. Reg. No. 556154-2381, discloses this information pursuant to the Swedish Securities Market Act (2007:528) and the Swedish Financial Instruments Trading Act (1991:980).

This information is information that Fingerprint Cards AB is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 07:00 a.m. CEST on May 4, 2017.

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