Yahoo Finance Fingerprint Cards AB: Interim Report January – September 2022
Highlights
COVID-19-related lockdowns in China had a significant negative effect on Fingerprints’ sales in Mobile
Fingerprints has carried out an issue of perpetual hybrid equity instruments in an aggregate amount of SEK 75 M and intends to carry out a SEK 300 M fully guaranteed rights issue in order to strengthen its balance sheet and liquidity
New product segments, outside capacitive sensors for Mobile, continue to grow and are expected to account for about 30 percent of Fingerprints’ revenues by year-end 2022 and 45 percent by year-end 2023.
Third quarter of 2022
Revenues amounted to SEK 143.2 M (354.3)
The gross margin was 12.2 percent (28.6)
EBITDA totaled negative SEK 38.1 M (pos: 32.3)
The operating result was a negative SEK 59.8 M (pos: 10.8)
Earnings per share before and after dilution amounted to a negative SEK 0.17 (pos: 0.04)
Cash flow from operating activities was a negative SEK 111.6 M (neg: 45.5)
January-September 2022
Revenues amounted to SEK 671.5 M (999.2)
The gross margin was 22.3 percent (28.4)
EBITDA totaled a negative SEK 41.7 M (pos: 58.9)
The operating result was a negative SEK 103.7 M (neg: 11.5)
Earnings per share before and after dilution amounted to a negative SEK 0.29 (neg: 0.02)
Cash flow from operating activities was a negative SEK 230.2 M (pos: 41.1)
CEO’s comments
The sharp decline in demand for smartphones in China, as a result of COVID-19-related restrictions in the country, continued to have a significant negative impact on Fingerprints’ sales also in the third quarter. Sales fell 60 percent year on year (down 71 percent in constant currency terms), and 37 percent relative to the second quarter of 2022 (down 48 percent in constant currency terms). The gross margin was negatively impacted by increased price competition and lower sales, which also led to an increase in the ratio of planned depreciation/amortization to revenue, which impacts on gross margin. This ratio rose to 15 percent in the third quarter of 2022 from the more normal level of 6 percent in the third quarter of 2021. In addition to this, sales in the Access area in Asia decreased this quarter, partly as a result of lower activity in the construction sector in China, with an impact on sales of biometric door locks. This had a negative impact on profitability as the gross margin is higher in this product segment, as compared to Mobile. The quarterly sales development within our operating segment Payment & Access tends to be more uneven than within Mobile. However, Access sales outside of China continued to increase in the third quarter and the long-term trend within Payment & Access remains positive.
The decrease in revenue since the previous quarter was due to the destocking that is now taking place across the supply chain. We have rapidly gone from a situation where earlier this year we were limited by insufficient access to production capacity caused by the global component shortage, to a position where we, our suppliers and our customers instead must handle a very sharp decline in demand. This means the industry is in a position where it is holding far too much stock, which is tying up capital. We can see this at sensor suppliers such as ourselves, but also further down the supply chain at distributors, module suppliers and mobile-phone manufacturers who, due to the earlier component shortage, were obliged to purchase products many months in advance in order to ensure their delivery capacity.
The supply chain in the mobile industry is relatively complex, with several stages and long lead times. Mobile phone producers (known as OEMs) had planned for significantly higher sales volumes in 2022, and their focus in the second and third quarters was therefore on reducing their surplus inventory of phones while sharply reducing purchasing from module suppliers, the subcontractors who deliver modules for assembly into finished mobile phones. Mobile phone producers are only now approaching more normal inventory levels, which means the module suppliers and distributors who supply them with components have probably only been able to begin to reduce their inventory in the third and fourth quarters. And for Fingerprints, which delivers sensors to distributors and module suppliers, this means that we can begin to reduce our inventory only now, at the beginning of the fourth quarter. In 2022, Fingerprints invested approximately SEK 190 M in building up inventories, and by the end of the third quarter inventories totaled SEK 412 M.
The stock accumulation and decline in demand has left us in a strained situation in terms of working capital. In view of the above, and as previously announced, we issued hybrid equity instruments in an aggregate amount of SEK 75 M and the Board has resolved on a fully guaranteed SEK 300 M rights issue. These measures will strengthen liquidity and will allow us to continue to finance important customer projects and investments in research and development. In parallel, we are implementing a cost reduction program to adapt the company to the more challenging situation. As previously communicated, this program is expected to reduce operating expenses by approximately 20 percent with full effect from the fourth quarter of 2022.
While the demand situation in the mobile industry remains challenging in the short term, our assessment is that the impact of the lockdowns in China are of a temporary nature. As the restrictions are gradually lifted, we expect to see a return to historical levels of demand for mobile phones, albeit perhaps initially not fully. At the same time, we can see continued growth in application areas outside capacitive fingerprint sensors for mobile phones. These areas include optical under-display sensors for mobile phones and the Payments, PC and Access product segments. Our revenue in these parts of the business has been about 10 percent for the past two years. However, during the first half of 2022 we witnessed significant growth, and we expect these segments to account for about 30 percent of Fingerprints’ revenues by year-end 2022 and 45 percent by year-end 2023. The PC and Access areas account for most of this growth.
Continuous product development is crucial for maintaining and strengthening our competitiveness in all focus areas. In the Mobile area, we could announce during the quarter that our third-generation slim, side-mounted capacitive touch sensor, FPC1553, has now been integrated into the first three mobile phone models. FPC1553 builds further upon our highly successful FPC1542 and FPC1552 sensors.
During the quarter, we also announced the first computer – the Dynabook Satellite C30-K – to feature Fingerprints’ biometric Match-on-Chip solution, which was added to Microsoft’s approved vendor list (AVL) for Windows Hello Enhanced Sign-in Security earlier this year. This means that we can now effectively address the entire PC market: both enterprise computers and PCs for private use. Match-on-Chip solutions for enterprise computers have a higher ASP and currently account for about half of our addressable market in the PC segment.
There is significant potential in biometric payment cards and we continue to strengthen our world-leading position in this emerging mass market for biometric solutions. Our operations in this area have continued to grow, albeit from a low level. The two latest commercial launches of biometric cards featuring Fingerprints’ technology were in Morocco. There is substantial interest in the region, and during the quarter we announced that Fingerprints has also partnered with Technical Equipment & Supplies Company (Tesco), a financial and banking solution provider, to promote and support the adoption of contactless biometric payment cards in the Middle East. The card, which was initially launched by Thales, embeds Fingerprints’ second-generation T-Shape module and software platform, and will be commercialized and customized by Tesco for customers in the region.
Christian Fredrikson, President and CEO
Today at 09:00 CEST Fingerprints’ CEO Christian Fredrikson will present the report together with CFO Per Sundqvist in a combined webcast and telephone conference. The presentation will be held in English.
The report will be available at fingerprints.com
The presentation will be webcast, and participants can register via this link: https://edge.media-server.com/mmc/p/m7iiggw4
For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BI3c2dbde1b13048568d98bff93fe6089d
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