Quarterly Report • Apr 19, 2016
Quarterly Report
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Revenue at MUSD 40 in the quarter
Close to 1 Million units of the nRF52 Series shipped
Pilot production of three Tier 1 customer projects started in Q1
Strong growth in Emerging Markets and an expected decline in Wearables
Accelerating number of design wins with Tier 1 customers
| 1st quarter | |||
|---|---|---|---|
| 2015 | |||
| Amounts in USD million (unaudited) | 2016 | Restated* | Change |
| Revenue | 40,1 | 40.0 | 0,1% |
| Order inflow | 38,0 | 53,3 | $-28,6%$ |
| Gross Margin % | 49,1% | 52,4% | |
| Operating Profit (EBIT) | $-0.3$ | 4.4 | $-107,4%$ |
| Operating Profit % (EBIT %) | $-0.8%$ | 11,0% | |
| Net profit after tax | $-1,0$ | 3,2 | $-132,4%$ |
| Free Cash Flow (Net cash flow excluding financing) | 9,7 | $-14.8$ | |
| Cash and cash equivalents | 39,0 | 25,3 |
*Certain amounts do not correspond to the 2015 quarterly reports and reflects past period adjustments, refer note 5.
| Revenue | |||||||
|---|---|---|---|---|---|---|---|
| Technology Q1 |
|||||||
| Amounts in USD thousand | 2016 | 2015 | Year 2015 | ||||
| Proprietary wireless | 19 3 36 | 48.3% | 21 3 24 | 53.3% | 76 544 | 39,6% | |
| Bluetooth Smart | 18 194 | 45,4% | 17903 | 44,7% | 110843 | 57,4% | |
| ASIC components | 2 3 5 4 | 5.9% | 788 | 2.0% | 5567 | 2,9% | |
| Consulting services | 179 | 0.4% | 0.0% | 114 | 0.1% | ||
| Total | 40 063 | 100,0% | 40 017 | 100,0% | 193 068 | 100,0% |
Total revenue in Q1 2016 was MUSD 40.1, compared with MUSD 40.0 in Q1 2015. Compared to Q4 2015, revenues decreased by MUSD 6.4 or 13.9%. The decrease from Q4 2015 is mainly explained by seasonally weaker sales due to Chinese New Year. In Q1 2016 Nordic sold close to 1 million nRF52 System on Chip (SOC's). The nRF52's was mainly sold as volumes to support high-volume pilot production for several design wins. We expect to see these products in the market during Q2 as we are ramping up production.
Sales of Bluetooth Smart ended at MUSD 18.2, or 45.4% of revenue during Q1 2016, compared with MUSD 17.9, or 44.7% of revenue in Q1 2015. Nordic has historically shown strong quarterly growth rates year over year, however Q1 2016 was impacted by the loss of a large wearable project. In addition, several customers are holding back on new orders until full scale deliveries of nRF52 can be made.
Sales of Proprietary wireless ended at MUSD 19.3, or 48.3% of revenue during Q1 2016, compared with MUSD 21.3, or 53.3% of revenue in Q1 2015. This represents a decrease of 9.3%, showing that the downwards trend on proprietary sales observed through 2015 has been reduced.
ASIC sales ended at MUSD 2.5 compared to MUSD 0.8 in Q1 2015. The strong sales relate to a few projects within home automation.
Gross profit was MUSD 19.7, or 49.1% of revenues, compared with restated MUSD 21.0, or 52.4% of revenue during Q1 2015. Lower gross margin compared to Q1 2015 is explained by a product mix within proprietary in Q1 2015 and a change in product
and customer mix within Bluetooth Smart. In addition, gross margins of sold nRF52 products are temporarily low due to low yield in connection with the startup of volume production. Yields are expected to be normalized during 2H 2016.
Total operating expenses including depreciation were MUSD 20.0 in Q1 2016. compared with MUSD 16.5 in Q1 2015. Total cash operating expenses (excluding depreciation) before options, net capitalized R&D expenses and pension income were MUSD 18.5 in Q1 2016, compared with MUSD 15.7 in Q1 2015. The comparable number in Q4 2015 was MUSD 18.7. The increase from last year is driven by significantly higher number of employees, mainly related to the new operation in Finland.
The number of employees increased from 454 at the end of Q4 2015 to 477 at the end of Q1 2016, an increase of 5.0%. Compared to Q1 2015, number of employees has increased by 33.0% from 360 employees. This increase mainly relates to operations in Finland with 117 employees at the end of Q1 2016 compared to 79 at the end of Q1 2015. Total costs for the Finland operations were MUSD 3.5 in Q1 2016 compared to MUSD 2.2 in Q1 2015. As the Finland project develops, expenses will increase during 2016 as we add more employees and incur expenses related to tape outs of silicon wafers. Tape outs are the first pilot products that are delivered to Nordic and partners for further evaluation.
The remaining expense increase relates to larger headcount in both the Norwegian R&D organization and within sales and marketing in order to support the future growth of the company.
Nordic has during the first quarter capitalized MUSD 1.1 compared to MUSD 2.0 in Q1 2015 related to internally developed products. The capitalization can be attributed to the next generation Bluetooth Smart platform nRF52 that during Q1 2016 moved to the final development stages prior to commercial product launch. Capitalized expenses are expected to be maintained at approximately MUSD 1 per quarter in 2016.
The company's Operating Profit (EBIT) decreased to MUSD -0.3 in Q1 2016, compared with MUSD 4.4 in Q1 2015. This reduction is explained by lower gross margin, higher operating expenses and less capitalized expenses. Net financial items were a loss of approximately MUSD 0.6 in Q1 2016 and a gain of MUSD 1.1 in Q1 2015.
Profit before tax was MUSD -1.0, compared with MUSD 5.5 in Q1 2015. Income tax expense was MUSD 0.1, or 6.0% of pretax profit. The base tax rate for the group is 25%, but the actual rate will fluctuate based on the effect of net financial items, as these items are calculated differently in the parent company's financial reporting (calculated in USD) and its tax reporting (calculated in NOK).
Net profit after tax was MUSD -1.0 in Q1 2016, compared with MUSD 3.2 in Q1 2015. The company's basic earnings per share were USD-0.006 in Q1 2016, compared with USD 0.020 in Q1 2015.
| Revenue Markets | Q1 | |||||||
|---|---|---|---|---|---|---|---|---|
| Amounts in USD thousand | 2016 | 2015 | Year 2015 | |||||
| Consumer Electronics | 20078 | 50,1% | 20 26 2 | 50,6% | 96 503 | 50,0% | ||
| Wearables | 7 3 0 1 | 18,2% | 15 3 60 | 38,4% | 63 279 | 32,8% | ||
| Building/Retail | 4890 | 12,2% | 2747 | 6,9% | 14 1 15 | 7,3% | ||
| Healthcare | 2571 | 6,4% | 616 | 1,5% | 7 1 7 1 | 3,7% | ||
| Others | 2690 | 6,7% | 242 | 0.6% | 6319 | 3,3% | ||
| Wireless Components | 37 530 | 93,7% | 39 227 | 98.0% | 187 387 | 97,1% | ||
| ASIC components | 2 3 5 4 | 5,9% | 788 | 2,0% | 5567 | 2,9% | ||
| Consulting services | 179 | 0,4% | $\overline{2}$ | 0.0% | 114 | 0,1% | ||
| Total | 40 063 | 100.0% | 40 0 17 | 100.0% | 193 068 | 100,0% |
Ultra low power and Bluetooth Smart wireless technology is changing how entire industries work and it is being embedded into quite literally everything: a trend that has been dubbed 'The Internet of Things' ('IoT' for short). Right in the middle of it all, sits Nordic Semiconductor- the global leader in ultra-low power (ULP) proprietary and Bluetooth Smart wireless solutions.
Almost single-handedly, Nordic Semiconductor pioneered the development of ultralow power wireless during the early 2000's and has been a key contributor in the creation and evolution of the Bluetooth Smart wireless standard. These efforts have culminated into its latest nRF52 series, which redefines what is possible on a Bluetooth Smart System-on-Chip.
Consumer Electronics consists of PC Accessories, Mobile Phone Accessories and Home Entertainment. This market segment has been dominated by PC Accessories. However, we are observing substantial growth for wireless solutions for appliances such as TV's / set-top box remotes, game controllers, toys and charging units. New product releases within Bluetooth Smart toys and home media devices have contributed to drive growth in this segment.
Compared to Q1 2015 overall this market was stable at MUSD 20.1, down from MUSD 20.3 in Q1 2015. The growth in Bluetooth Smart is driven by a large number of design wins within home entertainment and mobile phone accessories. Compared to last quarter, revenue decreased 7.2% from MUSD 21.6. The decrease is mainly explained by seasonally lower sales.
Consumer Electronics (CE) is traditionally the largest revenue market for Nordic Semiconductor, introducing a broad spectrum of products. In previous years this has primarily represented products in the PC accessories space, but now Nordic is seeing a rising demand of innovative Bluetooth Smart applications such as connected toys and interactive gaming accessories, including Virtual Reality (VR) which fall under the umbrella of CE.
Nordic continues to view the market for PC accessories as an important business segment. More importantly. Bluetooth Smart technology also creates new opportunities for Nordic to address the tablet accessory market. As tablets implement Bluetooth Smart Ready technology, these devices are now able to connect with ultra-low power Bluetooth Smart keyboards and other accessories. Bluetooth Smart offers much longer battery lifetime for tablet keyboards than traditional Bluetooth technology, and will enable tablets to be used more effectively for productivity applications in addition to casual use.
The tablet accessory market has just begun to convert from traditional Bluetooth technology to Bluetooth Smart technology and we have observed several successful product launches from our customers.
Wireless solutions are currently being implemented in a broad range of home electronic appliances to enable users to interact with these devices via a smartphone or other remote control units. Bluetooth Smart is an ideal wireless solution for many of these embedded applications.
The Alliance for Wireless Power consortium (A4WP), now rebranded as "Airfuel Alliance", has developed a standard for a small charging appliance which can wirelessly recharge batteries on a broad range of electronic devices. This standard relies on Bluetooth Smart technology to wirelessly transfer critical information such as battery type and charge status from the electronic device to the charger. This enables the charger to manage the charge session between the charger and the device. Nordic Semiconductor is an active member of the Airfuel Alliance, along with mobile phone industry giants such as Samsung, LG and HTC.
Revenue from Wearable device's market (i.e., portable electronics such as sports monitoring devices and smartwatches) was MUSD 7.3 down 52.5% compared to same quarter last year. Compared to last quarter, revenues decreased by 47.8% from MUSD 14.0. This market saw exceptionally strong sales in 2H 2014 and 1H 2015 with few new projects realized in 2H 2015 and Q1 2016. The wearable market has benefited from growing demand for wearable electronics featuring Bluetooth Smart technology. Although the loss a key high volume design, we see high design activity with the nRF 52 and expect revenue growth to be regained in this market.
Wearables signified the start of Nordic Semiconductor's Bluetooth Smart revolution. This area was the largest revenue market for our Bluetooth Smart product family. This materialized when we witnessed the global trend of monitoring personal exercise and enabling the end consumer to an easy way of tracking physical performance and historical improvement. All this was enabled via Bluetooth Smart technology. For the years to come Nordic is envisioning this revenue market to consists of many different types of wearable products which are targeting different purposes for the end customer in addition to the "classical" physical activity applications.
The Building and Retail market consists of connectivity solutions for both home and industrial applications, as well as retail solutions. Currently this market segment is dominated by retail solutions for one RFID customer that has been delivering steady volumes during the last 12-18 months. Beacons and smart homes (connected appliance and door locks) are expected to drive growth in the next 12 months.
Sales to the Building and Retail Market were MUSD 4.9, compared with MUSD 2.7 in Q1 2015. Compared to last quarter, revenue increased 41.0% from MUSD 3.5. The growth is mainly driven by new sales to our large RF ID customer.
Building and Retail (BR) targets a massive end-market which spreads from smart locks, smart payment systems, alarm systems, smoke detectors, beacons, location tags and plenty more. For Nordic, BR is still a small market in terms of revenue, but the potential is large. There are several different standards on the market today fighting to be the winning protocol for such products, and Nordic is certain that Bluetooth Smart has proven itself to be the winner, and with the new specs of the Bluetooth 5.0 we are even more confident that Bluetooth Smart will be the primary adopted standard for a large variety of low power IoT devices.
BR includes wireless sensor networks and are sometimes referred to as "machineto-machine" (or "M-to-M") technologies, as they often collect and distribute information from objects rather than people. While this market is still in its earliest stages of development, the potential applications are so many that they are Bluetooth Smart provides a very attractive standard for impossible to quantify. building these wireless sensor networks, based on its compatibility with a huge existing installed base of smartphones and other devices. Focusing on this opportunity is part of Nordic's overall IOT strategy to move from "My Things" to "Things around us".
Healthcare is an emerging market for Nordic. Reported revenue relates to design wins, mainly within glucose monitoring and hearing aids. From being a small market in 2014, Healthcare reported a significant revenue increase during the quarter to MUSD 2.6 in Q1 2016 compared to MUSD 0.6 in Q1 2015. Compared to Q4 2015, revenues were stable. Healthcare does not show the seasonal decline as Nordic's other markets. This emphasizes Nordic's strategy of diversifying in both markets and customer types, thereby reducing seasonal dependency.
Healthcare represents an emerging market with a lot of potential for Nordic. This is due to the fact that in addition to an individual's own physical awareness, there are several institutions in the world that are interested in being able to monitor basic physiological functions. Hospitals, General Practitioners, Employers and Insurance companies are a few examples of such institutions that will have direct benefits of such data. Nordic is seeing products such as continuous blood glucose monitors and hearing aid increasing in volume. These applications are still in their infancy, and Nordic are viewing healthcare as an emerging market with lots of potential.
The demand from health conscious consumers is expected to focus more on monitoring serious illnesses and conditions. Portable healthcare devices act as extensions of a smartphone; they gather data and transmit the information wirelessly, thus helping medical professionals to work more efficiently and extend care outside the Hospital/Clinic environment.
Others consist of sales to module manufactures as well as distribution sales where no final customer is reported. Revenues in these markets were in Q1 2016 MUSD 2.7. up from MUSD 0.2 in Q1 2015.
Sale to module manufacturers is an important market for Nordic. Module manufactures develop compact ultra-low power Bluetooth Smart modules for space-constrained applications employing coin cell batteries. The modules reduce development time by providing a complete wireless solution and are tailored for OEMs who wish to develop their own application software. Currently Nordic's SOC's are integrated into more than 70 different modules from several of the top module manufactures. Revenue from this market was MUSD approximately MUSD 1 in Q1 2016.
ASIC components and consulting revenue was MUSD 2.5, compared with MUSD 0.8 in the prior year. Nordic Semiconductor has made a strategic decision not to invest further in acquiring new customers within this market, and is currently only fulfilling demand from existing customers.
As of 31 March 2016, Nordic Semiconductor had total assets of MUSD 155.4, of which MUSD 119.6 were current assets. Non-Current assets were at MUSD 35.8 compared to MUSD 32.0 in Q1 2015. Nordic Semiconductor is focusing on reducing working capital and has during Q1 2016 both reduced inventories and accounts receivables. At the same time, accounts payables have increased contributing to a net working capital improvement of MUSD 17.
Total liabilities were MUSD 44.1, of which MUSD 43.2 were current liabilities. Total liabilities are slightly reduced from MUSD 46.0 in Q4 2015 mainly as a result of reduced other short term liabilities and taxes, only partly offset by increased accounts payables. Total Shareholders' equity was MUSD 111.3, which represents an equity ratio of 71.6%, up from 70.9% at the end of the previous quarter.
Cash flow from operating activities was MUSD 11.7 in Q1 2016, compared with a cash out flow of MUSD 8.6 in Q1 2015. The improvement is mainly driven by reduced net working capital due to reduced inventory levels and reduced outstanding accounts receivables, which is part of the company's strategy to improve cash conversions ratios.
Cash flow from investments was an outflow of MUSD 2.0, compared with an outflow of MUSD 6.2 in Q1 2015. Capital expenditures were MUSD 0.9, mainly driven by software related to an upgrade of Nordic's ERP system and R&D investment. Capitalized development expenses were MUSD 1.1, compared with MUSD 2.0 last year, as the company shifted its R&D efforts to the final stages of the nRF52.
The company has a line of credit agreement with its primary bank where it may borrow up to MUSD 20 at any time with a rate of LIBOR + 1.15%. The credit facility has a 3-year term. MUSD 10 of this facility was utilized during Q1 2016.
Net change in cash during the period was a positive cash flow of MUSD 9.7 and during Q1 2016 the cash balance increased to MUSD 39.0 from MUSD 29.3 at the end of Q4 2015.
As of 31 March 2016, Nordic Semiconductor had 477 employees, compared to 454 employees at 31 December 2015. Of these, 371 employees work within Research and Development representing an increase of 15 employees compared to 31 December 2015.
In the Finland operations a total of 117 employees had started as of March 31, 2016. an increase of 3 employees since 31 December, 2015. The Finland team focuses on Long Range Low Power Wireless, however top wireless talent are also considered for other technologies. The team in Finland is expected to increase to a maximum 150 by the end of 2016.
Bluetooth Smart has established itself as a core technology within the IoT market space, a market predicted to grow faster and longer than any other development within the field of technology. The Bluetooth Smart market, in terms of IC shipments, is expected to grow at a 44% CAGR from 2015-2019, reaching +1.2 Billion IC shipments in 2019. Nordic's aim is to secure a dominant share of this market.
A vast number of design wins over the last years have enabled Nordic to build a large client list. This has taken Nordic's business into an accelerating number of new customers in a variety of product categories. Recent design wins with tier 1 customers also confirms our ability to compete for the most prestigious design wins.
The Bluetooth Smart standard has continuously evolved and expanded its reach and potency and with the decision to ratify 5.0 later this year, the technology will further accelerate its competitiveness.
Nordic has proved its technology leadership with the introduction of nRF52 on top of its existing technology platform. Nordic shipped the first few products during Q4 2015 and ramped up further deliveries in Q1 2016 to about 1 million units. Customers are eagerly waiting for an aggressive growth in deliveries in Q2 and
onwards. At the same time, we expect to see strong improvement in the yield contributing positively to gross margin growth.
Bluetooth Smart will continue to be the main revenue driver for the next years but the company is starting to see strong complimentary growth prospects from Nordics operation in Finland where its industry leading technology architecture is being merged with a long range wireless technology by a team of engineers that has built some of the most successful cellular technologies in past professional careers.
The project in Finland is progressing according to plan, and the second RF test chip has been sent to production with feature complete LPWAN Radio on Board.
Oslo, April 18th, 2016 Board of Directors
For further information, please contact: Svenn-Tore Larsen, CEO, mobile +47 982 85 476 Pål Elstad, CFO, mobile +47 991 66 293
Financial Calendar 2016
| Jul 13th, 2016 | 2 nd Quarter 2016 Results |
|---|---|
| Oct 18 th , 2016 | 3 rd Quarter 2016 Results |
| Feb 10 th , 2017 | 4 th Quarter/Preliminary Annual 2016 Results |
| Q1 | Year | ||
|---|---|---|---|
| Amounts in USD thousand (unaudited) | 2016 | 2015 Restated* | 2015 |
| Total Revenue | 40 063 | 40 017 | 193 068 |
| Cost of materials | (20346) | (19042) | (97391) |
| Direct project costs | (28) | (16) | (22) |
| Gross profit | 19689 | 20 960 | 95 655 |
| Payroll expenses | (12546) | (10492) | (32840) |
| Other operating expenses | (5099) | (4184) | (19404) |
| EBITDA | 2044 | 6 2 8 4 | 43 411 |
| Depreciation | (2370) | (1867) | (8437) |
| Operating Profit (EBIT) | (326) | 4416 | 34975 |
| Net interest | (26) | 16 | (15) |
| Net foreign exchange gains (losses) | (617) | 1 1 2 0 | 2028 |
| Profit before tax | (970) | 5552 | 36 988 |
| Income tax expense | (61) | (2370) | (12797) |
| Net profit after tax | (1031) | 3 1 8 3 | 24 191 |
| Earnings per share | |||
| Basic | (0,006) | 0,020 | 0,148 |
| Fully Diluted | (0,006) | 0,019 | 0,147 |
| Weighted average number of shares (in '000) | |||
| Basic | 162 440 | 162 801 | 163 081 |
| Fully Diluted | 162 839 | 164 730 | 164 986 |
| *Certain amounts do not correspond to the 2015 quarterly reports and reflects past period adjustments, refer note 5. |
| $\overline{\mathbf{Q1}}$ | |||||
|---|---|---|---|---|---|
| Amounts in USD thousand (unaudited) | 2016 | 2015 Restated* | 2015 | ||
| Net profit after tax | (1031) | 3 1 8 3 | 24 191 | ||
| Actuarial gain/loss recognized in equity | $\overline{\phantom{0}}$ | 1691 | |||
| Difference with translation to USD | (55) (40) |
202 | |||
| Comprehensive income for the period | (1 086) | 3 1 4 3 | 26 083 |
*Certain amounts do not correspond to the 2015 quarterly reports and reflects past period adjustments, refer note 5.
| Amounts in USD thousand (unaudited) | 31.03.16 | 31.12.15 | 31.U3.ZU15 Restated* |
|---|---|---|---|
| Capitalized development expenses | 13038 | 12 5 42 | 8 3 0 3 |
| Software and other intangible assets | 9 1 6 0 | 9082 | 7 1 2 5 |
| Deferred tax assets | 1331 | 1 2 5 0 | 5 3 6 3 |
| Property assets | 1421 | 1 3 0 6 | 754 |
| Equipment | 10888 | 11748 | 10 4 75 |
| Other long-term assets | 12 | 12 | 6 |
| Non-current assets | 35 852 | 35 939 | 32 0 26 |
| Inventory | 40 40 3 | 41 100 | 37 656 |
| Accounts receivable | 35762 | 48 938 | 40 258 |
| Other short term receivables | 4 4 4 0 | 3 1 7 7 | 5 1 9 9 |
| Cash and cash equivalents | 38 955 | 29 29 3 | 25 279 |
| Current assets | 119 560 | 122 508 | 108 392 |
| TOTAL ASSETS | 155 412 | 158 447 | 140 418 |
| Shareholders' equity | 111 320 F |
112 405 | 94 881 |
| Pension liability | 838 | 707 | 10 181 |
| Non-current liabilities | 838 | 707 | 10 181 |
| Accounts payable | 9631 | 6389 | 13 4 06 |
| Income taxes payable | 7601 | 9931 | 6758 |
| Public duties | 2088 | 2 2 9 5 | 2 704 |
| Short-term loan facility | 10 000 | 10 000 | $\blacksquare$ |
| Other short-term liabilities | 13 9 36 | 16720 | 12 488 |
| Current liabilities | 43 255 | 45 3 35 | 35 35 5 |
| TOTAL EQUITY AND LIABILITIES | 155 412 | 158 447 | 140 418 |
TOTAL EQUITY AND LIABILITIES
*Certain amounts do not correspond to the 2015 quarterly reports and reflects past period adjustments, refer note 5.
| Q1 | Year | ||
|---|---|---|---|
| Amounts in USD thousand (unaudited) | 2016 | 2015 Restated* | 2015 |
| Equity at beginning of period | 112 405 | 85 122 | 85 122 |
| Net profit for the period | (1 031) | 3 183 | 24 191 |
| Purchase of treasury shares | - | - | (4 562) |
| Sale of treasury shares on options exercise | (0) | 6 064 | 6 064 |
| Share-based compensation | - | 551 | (303) |
| Cash settlement of options contract | - | - | |
| Actuarial gain/loss recognized in equity | - | - | 1 691 |
| Difference with translation to USD | (55) | (40) | 202 |
| Equity at end of period | 111 320 | 94 881 | 112 405 |
| Q1 | |||
|---|---|---|---|
| Amounts in USD thousand (unaudited) | 2016 | 2015 | 2015 |
| Profit before tax | (970) | 5 552 | 36 988 |
| Profit before tax, discontinued operations | - | - | - |
| Taxes paid for the period | (2 901) | (1 891) | (6 146) |
| Depreciation | 2 370 | 1 867 | 8 437 |
| Change in inventories, trade receivables | - | - | - |
| and payables | 17 115 | (13 639) | (32 780) |
| Share-based compensation expense | 237 | 597 | (175) |
| Movement in pensions | 130 | (1 274) | (4 944) |
| Other operations related adjustments | (4 288) | 176 | 2 986 |
| Net cash flows from operating activities | 11 694 | (8 611) | 4 366 |
| Capital expenditures (including software) | (937) | (4 191) | (11 817) |
| Proceeds from sales of equipment | - | - | - |
| Capitalized development expenses | (1 084) | (2 025) | (8 328) |
| Net cash flows from investing activities | (2 021) | (6 215) | (20 145) |
| Changes in Treasury stock | (0) | 6 064 | 1 503 |
| Cash settlement of options contract | - | (49) | (830) |
| Short-term loan facility | - | - | 10 000 |
| Other financing related adjustments | - | - | - |
| Net cash flows from financing activities | (0) | 6 015 | 10 673 |
| Effect of changes in currency rates | (10) | 9 | 319 |
| Net change in cash and cash equivalents | 9 663 | (8 802) | (4 788) |
| Net change in cash and cash equivalents from | |||
| discontinued operations | |||
| Cash and cash equivalents at start of period | 29 293 | 34 080 | 34 080 |
| Cash and cash equivalents at end of period | 38 955 | 25 279 | 29 293 |
The condensed first quarter interim financial statements for the three months ended 31 March 2016 were approved for publication by the Board of Directors on April 18, 2016.
Nordic Semiconductor ASA develops and sells integrated circuits and related solutions for short-range wireless communication. The company specializes in ultralow power (ULP) components, based on its proprietary 2.4 GHz RF and Bluetooth Smart technology.
Nordic Semiconductor ASA is listed on the Oslo Stock Exchange and is a joint stock company registered in Norway. The Company's head office is located at Otto Nielsens vei 12, 7052 Trondheim.
The Group accounts for Nordic Semiconductor ASA and its wholly-owned subsidiaries, together called "The Group" have been prepared in accordance with IAS 34 Interim Financial Statements. The interim financial statements for Q1 2016 do not include all the information required for the full year financial statements and shall be read in conjunction with the Group Annual Accounts for 2015.
The financial statements are presented in thousand USD, unless otherwise stated. As a result of rounding adjustments, the figures in one or more rows or columns included in the financial statements may not add up to the total of that row or column.
Major accounting principles are described in the Group Financial Statement for 2015. The group accounts for 2015 were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, relevant interpretations of this, as well as additional Norwegian disclosure requirements described in the Norwegian GAAP and the Norwegian Securities Trading Act.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, which replaces IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations. IFRS 15 is effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The Company is currently evaluating the impact of the new standard.
In the interim financial statements for 2016, judgments, estimates and assumptions have been applied that may affect the use of accounting principles, book values of assets and liabilities, revenues and expenses. Actual values may differ from these estimates. The major assumptions applied in the interim financial statements for 2016 and the major sources of uncertainty in the statements are similar to those found in the Financial Statements for 2015.
On January 1, 2010 Nordic Semiconductor changed its group functional currency from NOK to USD. In connection with this change, several system changes were made in order to correctly reflect the USD functional currency amounts. Unfortunately, one wrong translation rule was used when the conversion was set up. This error was not identified until the volatility in the NOK/USD and the underlying physical inventory volume increased during 2015. As a consequence, inventory values and the corresponding gross profit have during the individual past quarters been slightly overstated, but with an accumulating impact on the inventory value. In January 2016, a detailed review has been performed on the system setup correcting the conversion rule. The error has been corrected by restating each of the affected financial statement line items for the prior periods, as follows:
| 2014 2015 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Jan 1 | Dec 31, | Dec 31, | |||||||||
| Amounts in USD thousand | 2014 | Q 1 | Q 2 | Q 3 | Q4 | 2014 | Q 1 | Q 2 | Q 3 | Q4 | 2015 |
| Inventories (-reduced) | (1000) | (1300) | (1800) | (2600) | (3400) | (3 400) | (4300) | (5 100) | (6000) | (6 000) | |
| Equity (-reduced) | (1000) | (1 300) | (1800) | (2600) | (3400) | (3 400) | (4 300) | (5100) | (6000) | (6 000) | |
| Cost of goods sold (+increase) | 300 | 500 | 800 | 800 | 2 4 0 0 | 900 | 800 | 900 | 2600 | ||
| Gross Profit (-reduced GP) | (300) | (500) | (800) | (800) | (2 400) | (900) | (800) | (900) | (2 600) | ||
| Restated Gross Margin | 50,4% | 47,1% | 49,2% | 50,6% | 49,3% | 52,4% | 47,9% | 48,5% | 50,1% | 49,5% | |
| Reported Gross Margin | 51.4% | 48,3% | 50,8% | 52,4% | 50,7% | 54,6% | 49,5% | 50.2% | 50,1% | 50,9% |
As the Group's tax is mainly calculated in the NOK legal entity, and the underlying NOK tax reporting financial statements are unchanged, the Group's taxes payable are unchanged. However, the Groups effective tax rate has been slightly affected due to the restatement.
The change did not have any impact on the Group's operating, investing and financing cash flows.
In accordance with IFRS 8, the Group has only one business segment, which is the design and sale of integrated circuits and related solutions.
The Group classifies its revenues into the following revenue markets: Wireless components, ASIC components and consulting services. Within Wireless components, the Group reports its revenues based on the product category ("hub") with which its components communicate. These include: Consumer Electronics, Wearables, Healthcare, Building and Retail and Others.
The Group also reports its Wireless component revenue by technology, including proprietary wireless and Bluetooth Smart protocols. Detailed reporting by revenue market can be found on page 2 and page 4 in this document.
On February 18, 2014, Nordic Semiconductor granted 5,843,712 share options to 176 employees. The options are exercisable after one year, and expire after three years. The options were granted at a strike price of NOK 38.43. If the company's share price exceeds a "cap" of NOK 150.00, the company may settle the option grant by compensating the employee the difference between the "cap" and the strike price. Of the share options granted in 2014, 3,771,503 all are vested and will expire in February 2017 if not exercised
According to the Black- Scholes option pricing model, the fair value of options granted in 2014 was NOK 6.153 per option. The Black-Scholes valuation of the option program was conducted by an independent advisory company. The options are expensed over the vesting period, in accordance with IFRS.
With reference to the Extraordinary General Meeting on December 8th 2015, Nordic Semiconductor has on the 26th February 2016 granted 1,590,000 share options to employees and primary insiders. On the EGM the Company was given the approval to issue up to 1% of the outstanding share capital in options to all employees.
According to the approval, the option scheme has a long term element as options are vested over a three-year period and expire after five years. The options were granted at a strike price of NOK 47,72 (10% above volume weighted average share price the week following Q4 2015 results). If the company's share price exceeds a cap of NOK 143.16, the company may settle the option grant by compensating the employee the difference between the cap and the strike price.
A description of risk factors can be found in Note 20 of Nordic Semiconductor's 2015 annual report.
No events have occurred since the end of the first quarter of 2016 with any significant effect that will impact the evaluation of the submitted accounts.
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