UBXN.SW FY2024 Q4 Earnings Call Transcript
Date: 2025-02-27
Source: Financial Modeling Prep

Operator: Ladies and gentlemen, welcome to the u-blox Full Year 2024 Results Conference Call and Live Webcast. I'm Sandra, the Chorus Call operator. I would like to remind you that all participants are in a listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rafael Duarte, Head of Investor Relations at u-blox. Please go ahead.
Rafael Duarte: Hi, everyone. A warm welcome from my side to the ones joining here in Zurich as well to the ones participating via webcast. Presenting today is our Chairman, Andre Muller; CEO, Stephan Zizala; and CFO, Camila Japur. Let's go through the agenda quickly. We start with a forward from our Chairman on strategy, then we move to the full year results. And after we address some of the key topics that you have been asking for more clarity for a while. First, Camilla will walk us through several topics such as our cost optimization program, R&D capitalization and cellular phaseout. Then Stephan will give us a strategy update focused on our Locate business, including the new target financial model. Finishing up, we have the outlook and obviously, time for Q&A. And now let's start with the Chairman. Chairman?
Andre Muller: Thank you, Rafael. Also, welcome from my side. As the Chairman, I usually don't speak up in those conferences. I have last done so in November 2023 at the Capital Markets Day. As you might have already realized, this is not a regular result publication. It is almost a mini market -- Capital Markets Day, and that's also why I show up today, as you might have [indiscernible] for this special event. You see in November 2023, we presented to you our new u-blox under the leadership of Stephan Zizala. Now, 16 months later, we are able to show you how this company actually looks like. And this is why I think it's important for me to be here today. 2024 was a year of execution. And it could not have -- it couldn't have been a better time to bring Camila on board as our new CFO in June. She was an instrumental addition to our u-blox management team and key to the achievements that we present today. We had to take difficult decisions. We reduced over 20% of our workforce, and we decided to phase out Cellular, which once contributed 1/3 to our revenue. These are hard decisions, and they were not taken lightly and they -- as an entrepreneur, they are also emotional. I am confident in the near future -- near and long-term growth potential of the Company. To reflect the challenging 2024, the Board of Directors has actually voluntarily decided to forgo 25% of their compensation for 2024. Actually, for Germany it's 33%. Going forward, we propose to align the Board's compensation with shareholders' interest, lower the cash and adding a new share component into the compensation. As it's written here, we are fully convinced in the near- and long-term growth potential of u-blox and look forward to create significant value in the future. I hand over to Stephan.
Stephan Zizala: So thank you, Andre, and welcome in the call, both for the people in the call and for the people in the room. Now let's move to Slide 7 with the highlights of 2024. We anticipated 2024 to be a difficult transition year, and we were correct. However, even in such a year, we managed to deliver a solid free cash flow of CHF10 million. The challenging environment acted as a catalyst for us to accelerate u-blox's transformation into a more focused and a more resilient company. We significantly reduced our cost base, fully implementing and even exceeding the targets of our cost optimization program. In August, we targeted CHF20 million, and we achieved total savings of CHF25 million. This new reduced cost base sets the stage for profitable growth once the markets recover in future. Last but not least, we announced in January the strategic decision to further strengthen our focus on Locate and phase out Cellular. We will explore these topics in the next slide. After two record years, our revenue halved in 2024 due to overstocking at our customers and continued softness of end markets. Looking into the quarterly revenue development, we observed a gradual improvement from quarter one to quarter three. However, in quarter four, this trend got interrupted, mainly due to the weak performance of the automotive market outside of China. We expect this gradual improvement to resume in 2025, as you will see later in the presentation. Slide 9. Aligned with our focus, Locate performed better than Connect. In terms of end applications and regions, the performance was weak across the board. There are some differences here and there, but the general picture is similar, mainly due to the common effect of overstocking. Going to Page 10. Our gross margin improved significantly in 2024, almost by 200 basis points. Again, the improvement reflects our strong focus on Locate, which comes with a significantly higher gross margin profile compared to Connect. You can see in the chart that the gross margin of 46% reached in 2024 is still lower than the highest level we achieved in 2022. This does not mean any deterioration in our business. This is a consequence of some fixed logistics costs that are included in our cost of goods sold. In other words, also in the gross margin, we will see a certain positive effect from higher operating leverage due to the expected top line growth. You can see we manage this business towards a higher margin profile. I will pause here and hand over to Camila, who will go through more financials. Camila?
Camila Japur: Thank you, Stephan. Hi, everyone. I'm happy to be here today to present my first full year results at u-blox. Before I start, allow me a few words. I joined u-blox almost nine months ago, but it feels like much more. I arrived right before our half year results and had to jump in to several topics we will present today. It has been a challenging time, but putting together this presentation, I had a real feeling that we are on the right track. I am now more confident than ever in the prospects of u-blox. Okay. I will go through the main lines of P&L, then cash flow and finish with our balance sheet. Let's start with Slide 11. Here, our most important investment area, R&D. I want to highlight two main messages: one, a substantial CHF10 million reduction while protecting investments in future innovation. Our R&D team did a great job finding a balance between addressing short-term needs and protect future business and growth. We do not compromise the future of our Locate business. Now I will guide you through the chart that has two pieces of information. One, full year cash R&D in the left side and the breakdown with a view per half year on the right side. As I mentioned, we reduced cash R&D by CHF10 million in the full year. When we take a look in the half year numbers, we had an impressive 16% reduction in the second half 2024 versus the same period in '23. Moving to Slide 12. Let's talk about the SG&A, which is about half of R&D expenses. Again, here, you can see quite an achievement in terms of cost reduction, about 10% year-on-year. On the Slide 13, we will see how the EBIT looks like. This is not a pretty chart, but we are work on it. The chart shows on the left side, the full year EBIT and on the right side, the half year view. Starting with the full year view, EBIT went from CHF70 million in 2023 to minus CHF60 million in '24, a direct consequence of a lower operating leverage. But as I said, we are work on it. It's clear when we look at the evolution by half year, in the second half 2024, we broke the trend of a sequential EBIT worsening. It's still negative at minus CHF23 million, but better than first half with minus CHF36 million. Now, I want to highlight one very important thing. We had a significant reduction of R&D capitalization in the second half of '24. Hence, we are not comparing apples-to-apples. If we had kept the same level of R&D capitalization in the second half, our EBIT would be around minus CHF9 million. It's 4x better the first half of '24. As a reminder, EBIT adjusted excludes one-offs and impairment charge. Going forward, we will use cash EBIT, which takes in consideration cash R&D. We will adopt a profitability metric that is closer to cash. To conclude, even if we are not happy about the losses in '24, we are proud about the progress in the last quarters and confident about the future of the Company. Big thanks to the team that worked very hard to reduce costs. It's painful to see many colleagues leaving the Company, but the cost base adjustment was necessary. So, changing gears now, we will talk about cash flow on Slide 14. If we go back to my interim speech in August, I mentioned that my focus in my first month would be cash generation. And here, we have it. Despite a very challenging '24, we achieved a positive cash flow of CHF10 million. In the first half of '24, we have a large free cash flow contribution from accounts receivable reduction. In the second half, we had a substantial reduction in inventory. The team did a great job managing our working capital, which contributes CHF60 million to our cash generation. I'm really happy with the result. Moving to Slide 15. And to finish this review of 2024 results, a quick view of our balance sheet. On the left, we have our balance sheet on this netted version, which I like. It shows very clear how clean and strong our balance sheet is with a strong net cash position of CHF91 million. One super important message here is about the evolution of our net cash that you can see on the right side. We closed '24 with a higher net cash position than previous years. And worth to remember that we paid dividends in 2024, and we don't have financial debt. Good. So I have concluded the review of our full year results. Now let's get to another interesting part. We got a clear message in January from the market about the need to share more information, and we knew that. It's just that we could not share at that stage. Today, I'm happy that we could add this new chapter in the presentation with the objective to give you more transparency and confidence that we are moving to the right direction. So I start with Slide 17 here that is about our cost optimization program. I'm happy to share that we overachieved our cost optimization program, CHF25 million compared with CHF20 million initially expected. In the first box here, we double checked box for a higher savings than achievement -- savings achieved. The second box shows that this was 100% completed in 2024. In the third one, first savings already reflected in Q4. We had CHF4 million in Q4 2024 and an additional CHF21 million to happen in 2025. And last but not least, our restructuring costs were CHF13 million instead of CHF20 million. This means no additional restructuring cost for this specific program. A majority of its cash impact is already reflected in 2024. A super important takeaway here, we have proved our ability to execute. We are in the drive seat, and we managed to adjust the cost base as planned. Moving to Slide 18. Here is another topic that was also in my priority list, that is R&D capitalization. This slide is about the reduction of R&D capitalization. Before we dive deep in the numbers, let me clarify that we have two bridge in this chart. The left side reflects first half and the right side reflects the second half. The bridge shows the reported R&D, the capitalization, the amortization and finally, the cash R&D. The golden boxes in this chart show the capitalized values. As you can see, we had a substantial reduction of CHF14 million in the second half. Capitalization reduced from CHF20 million in the first half to CHF6 million in the second half. And on side note here, less than CHF1 million in Q4. Another important message here is the reduction in capitalization leads to a higher R&D value in the P&L. This is a different effect from what we were used to see. Prior to the second half of 2024, reported R&D and EBIT had the benefit of a higher capitalization. As a reminder, nothing changed if you look at cash R&D. In 2025, the capitalization is expected to be a low single-digit amount for the full year. Now we are on Slide 19, and we will take -- we will talk about balance sheet exposure. Here, I'm showing a significant reduction of R&D capitalization over the period. Capitalized R&D in December '24 is almost half of the amount in June 2023. You can also see that the majority of remaining capitalized R&D is related to positioning. I also want to recap where the main reductions came from. First, let's start with the drop from June '23 to June '24. This was the impact of the impairment announced in the CMD 2023, where the Company decided to stop its own cellular chip development. The other large reduction is the CHF31 million from the cellular impairment in Q4. This impairment was announced together with the decision to phase out Cellular business. The important message here is that capitalization will be much lower in the future, low single digit per year, as I said. So this balance sheet position is expected to reduce over time. On Slide 20, I will talk about Cellular phaseout. In fact, I have two slides about this topic. The first one is a recap and clarification of what we announced in January. The second slide includes relevant numbers. So let's start with the recap. We will talk about the phaseout, what it means and what to expect. After trying to turn around the business and not being able to divest, we have concluded that phasing out the business would be the best value generation option for u-blox. What do we mean by phaseout? We will support our customers. We will stop new product development, and we will keep a small team to support our customers. And what should we expect from this? There is two important things here. One is we harvest existing portfolio, and we will consume inventory as much as possible. The expectation is that the gross income and the reduced working capital will generate some cash to partially fund the phaseout. The second aspect here is more related to the cost part that is expected to be much lower in the second half of 2025. Having in mind that we still have running costs until we execute all reductions, and we will also have restructuring costs. Now let's move to Slide 21 to take a look in the numbers. Here, I answered something you asked. This is our best view one month after the announcement. On the left side, you have the financials of Cellular '24, approximated and audited values. You can see here the losses we mentioned in January over CHF30 million, in fact, is CHF31 million. On the right, you can see our best estimation for 2025. Cash one-off of CHF26 million, noncash of CHF39 million, both are in line with what we communicated in January. If we look beyond these one-offs and talk about the underlying business performance in 2025, we are expecting a single-digit negative cash EBIT in '25 for Cellular. This is our best estimation at this stage. Then if we look into cash terms, we do have inventory. So depending on how successful we are in consuming this existing inventory, the cash impact of Cellular could be neutral. Not a promise, but we are work on it. So moving to Slide 22. There are many slides in this deck that I like. But I admit this one is special. And this is special because it shows our efforts translated into numbers after the implementation of our communicated moves. I repeat, this is the run rate after Cellular reductions are executed. What we see here is a bridge from the old u-blox cost base by end of '23 to the future u-blox. This reflects the cost optimization full effect of CHF25 million executed plus the cellular cost base reduction of additional CHF25 million and other cost cuttings here. So we should be achieving this new cost base in 2026. After Cellular cost reduction execution that will happen until -- during '25, we see a CHF61 million reduction on the cost base. This is quite significant and necessary. With this new cost base, u-blox is ready for profitable growth. Just a reminder that this new cost base includes Locate, Short Range and a fraction of Cellular. Slide 23 is my last slide for today. And here, we are introducing a new KPI to measure our operating profit, cash EBIT. I have heard that financial community doesn't like much change in KPI, but this one is needed. With the substantial reduction in capitalization, our EBIT becomes not comparable with the past. We are not reinventing the wheel. We are just replacing R&D expenses with cash R&D. That's it. This is the change. Here on the left, you see the reconciliation. Note that EBIT and cash EBIT are the same in the full year '24, but this is just a coincidence. The half year split shows better how the reduction in capitalization impact EBIT and cash EBIT. I know this was a lot of information. We hope this clarifies where we are now, and I'm happy to take more questions in the Q&A. With that, I hand back to you, Stephan.
Stephan Zizala: Thank you, Camila. We are in a true moment of change for u-blox. Let's see now where these changes lead to. We are now on Page 25. So first, let me recap the steps we are taking to create a better u-blox. The first important moment of this journey was in November 2023, when we announced our focus, innovate and execute them. At that time, we laid out the status quo of our different businesses and our view of the future. In August '24, we went a step further and made important announcements, strategic review of our Connect business and the cost optimization program for a higher profitability profile that Camila already went through. Finally, we come to January 2025, when we announced the decision to strengthen our focus on Locate and phase out Cellular. We have stepped up and showed our ability to focus and execute. We used the end -- weak end market as a catalyst for change. We reduced organizational complexity significantly, not only by a painful but necessary 20% workforce reduction, but also by streamlining our R&D footprint. This was a huge effort, and it's good to see how professional the u-blox team manages this transformation. Where does this lead us to? Let's see that on the next slide. Page 26. Our strategy is all around Locate. We operate in structural growth markets and having a trustworthy and reliable partner with u-blox is of high value for many of our customers. We are thrilled by our plans to shape the future. Now you may -- might say, well, automated driving will not come. I would answer: travel to California or China, it's already here. Other applications we enable are literally in our backyard, like automated lawnmowers enabled by GNSS. Our strategy is based on three pillars: expand Locate's market leadership in our focus markets, transform into a lean organization with a strong focus on value creation and execute the Cellular phaseout plan. Of course, this will pay off for u-blox. On the right-hand side of the slide, you see our new target financial model for Locate. Locate has a very nice gross margin. With such a gross margin, it's all about OpEx discipline and operating leverage. We are taking significant steps in OpEx discipline and can show the full beauty of this once the end markets start to recover. As you know, we are living in a low visibility period. And therefore, we model the future in three scenarios. Starting from the column on the right. It is our target in the midterm to reach CHF350 million revenue, the same as in 2022. However, in the current market condition, we don't want to speculate about the exact year. It's a realistic target to reach and the margin profile is just beautiful. This is the North Star that guides us. Besides our target model, we provide you with two other revenue levels and the respective cash EBIT margin. As a first proof point, you can see the breakeven point of CHF200 million, fully in line with the indications we gave in the past. The indications on margins we show here should help you to understand Locate's new leaner cost base. Two things before we move on. First, we use cash EBIT, which will be our new KPI starting in 2025. And second, at CHF350 million revenue, the greater 25% cash EBIT margin corresponds to the greater 30% EBIT margin which Locate achieved in 2022. In the next few slides, we are going to substantiate this model. Page 27. Our market position is unchanged. u-blox is the undisputed leader in GNSS, chip and modules. We will continue on this path. In 2024, we won 10% more projects than the year before. Our distribution partners contributed to this significantly, exactly in line with our go-to-market strategy we showed during the Capital Market Day in 2023. In other words, we are broadening our footprint further. Our target markets are expected to grow by 10% per year in the next five years. Page 28. We do not only intend to outperform market growth. We also know how to. We know where our growth will come from. We know the customers and the projects fueling our growth in the next years. 60% of our growth in Locate will come from three focus applications, which will shape the future. Automated driving, automated agriculture and construction machines as well as mobile robotics. I will go through them and share why we are so excited about their potential. Starting with automated driving on Page 29. u-blox is the leading provider of automotive GNSS solutions. We have an impressive presence in the auto market. We are supplying 18 out of the 20 biggest names in America, Asia and Europe. We work with traditional players and the fast-moving innovators. This broad coverage is important as not all of them will be equally successful in the future. The number of cars equipped with additional driver assistance system or ADAS, is forecasted to reach 90% adoption by 2030, providing a significant growth opportunity for us. Evidence of this opportunity are the contract wins we have previously communicated, CHF100 million revenue over lifetime of projects already won, and this is just the beginning. On Page 30, not all ADAS systems are equal. Higher levels of driving automation require higher technological content. As soon as the driver can have hands off, more advanced GNSS solutions become crucial. We expect that 45% of all vehicles shipped in 2030 will use GNSS for automated driving functionalities. And u-blox is perfectly set up to take advantage for this. We have a large scalable portfolio of automotive GNSS products and services, which allows our customers to gradually and quickly introduce more and more automated driving functionalities. This makes us unique in the market space and a highly appreciated partner for key automotive innovators. Going to Page 31. Agriculture and construction machines are a very interesting market. We can help to solve two problems: the lack of qualified workers and the precision how certain tasks are performed. For example, this is very helpful when seeding and fertilizing exactly on the spot you want. Precision agriculture and construction machinery is a large market. We expect a market demand of more than 4 million units by 2030. And we do not only address this market, we enable it. u-blox's new X20 product family brings centimeter accuracy at affordable costs to those applications. We like this a lot. Going to Page 32. Let's talk about a subsegment of mobile robotics, which happens literally in our backyard, robotic lawnmowers. This is one of my favorite applications for GNSS solutions. Robotic lawnmowers can help to save costs and make our lives more convenient. However, today, it's very inconvenient to install the boundary wires in the ground as well as finding and fixing any damages of the wires, which will come over the years. This was the past. Today, lawnmowers can get the position from satellite. u-blox's positioning products and services enables centimeter accuracy for a consumer product. You might remember, we announced design wins adding up to CHF100 million over lifetime of the contracts in this area. We are even more proud that the market leader and trendsetter Husqvarna selected and uses our solution. We see this as a clear sign that the mobile robotics market in general holds tremendous opportunities for u-blox. u-blox brings centimeter positioning accuracy to mass market. We are very confident of our bright future. Let's talk about the near term, our guidance for Q1. For Q1, we expect revenue in the range of CHF65 million to CHF75 million and cash EBIT margins between minus 12% and minus 2%. For the remainder of the year, we expect a sequential quarter-on-quarter improvement in 2025, resulting in a double-digit growth for both the Locate and the Short Range businesses for the full year 2025. Let me conclude. We started this journey in 2023 when we laid out our vision for u-blox. 2024 was a year of important decisions and intense execution. I'm happy now that the new u-blox starts to take shape and gains traction. I'm convinced that we go after the right growth markets like automated driving or mobile robotics. We are the undisputed market leader in positioning based on our unique IP, and we will double down on this. And we, the u-blox team, are fully committed to creating sustainable value in line with our focus, innovate and execute them. This is just the beginning of a bright story. We are all on it. Thank you.
Rafael Duarte: Thank you, Stephan. So, we move now to the Q&A. So, let's just move to the Q&A slide. To make it easier, we start here in the room, and we move to the webcast later. So, any questions from the audience is alright.
Q - Unidentified Analyst: Gunter [indiscernible] at Polar Capital. Just on the Locate business and your targets for Locate, is this including Short Range or not?
Stephan Zizala: This model is LOCATE only.
Unidentified Analyst: Okay. And for the Short Range, you're still targeting breakeven in the second half or...
Stephan Zizala: Unchanged.
Unidentified Analyst: Unchanged. Thank you.
Unidentified Analyst: I would have three questions, and I would take them one by one, if possible. You guided for Q1 and mentioned that you expect through 2025 sequential improvements every quarter. What gives you the confidence on that statement? Is it the low inventories at your [indiscernible], the customers, project ramp-up, design wins? Anything to share that gives us as well the same confidence as you have on the market recovery?
Stephan Zizala: You took part of the answer. So my answer can be shorter. So yes, we are confident because indeed, there are quite some differences in some observations we made. So that the inventory level at our customers, we can see and observe they are lower. And you might remember previous meetings where you asked me when do you know, how much is it, and when it will be stocked. And I answered hopefully consistently, the best indicator is order entry. And we see a significant elevation of our order entry. And therefore, we have very high confidence that this overstocking period is mainly behind us. And this was a special effect for u-blox in 2024, which hit us harder than many others on this one. The other thing is, as you mentioned, also, we see new projects ramping up. We know them. We see them coming. Customers are executing. I mentioned one of them, so literally robotic lawn mowers with satellite positioning. That's something you will find in shops, literally. So that there you can make your own proof point even more. So yes, that's the reason why we are more confident.
Unidentified Analyst: Okay. Perfect. And the second question is on net working capital improvements. I mean you had a cash inflow of roughly CHF60 million in 2024. How much of that is really just a function of shrinking top line and shrinking business? And how much was really structural improvement because of better operational excellence and so on. Just to have a bit of a sense how much also cash outflow we would need to model if sales return.
Camila Japur: It's a good question. So for the first half, we had the reduction in working capital from the accounts receivable. That I think it's a big effect of what you were saying, right? The sales went down and then we are just collecting the cash. In the second half, we were much more disciplined to address our inventory level. And this is also an impact of the Company more disciplined and try to find some type of cash. This continues now is the Cellular phaseout. So in the phaseout, we have the chance -- also we still have a substantial inventory for Cellular that we can harvest from that. And this is what we are working.
Unidentified Analyst: Can you quantify how much inventory you have for Cellular?
Camila Japur: We don't disclose this information here. So -- but it is a relevant part of what we have in the inventory today. And it's part of what you see, you have a one-off write-off of Cellular, right, that will be booked now in Q1, and that is -- a large part is inventory. But we will try as much as possible to cash that inventory.
Unidentified Analyst: Okay. And the final, and then I'll pass on to Michael, is on the Cellular phaseout, just a quick update where you stand. If I remember correctly, the reductions are mainly focused on a site in Italy. Italy is not known for being easy to be restructured. Just to -- from your experience on the progress you made [indiscernible].
Camila Japur: We have appointed a professional liquidator that has a lot of experience doing this. So he is on top. So it's progressing. And we -- at this stage, this is what we can communicate. But it's -- we have a strong support to drive this process. I don't know if you want to... no?
Unidentified Analyst: Thanks. Two questions on R&D. So you've significantly reduced the cash spending by CHF10 million. I was wondering how do you really steer that? I mean what kind of R&D are you not really doing or basically you don't allow or you just don't do or it's not necessary? And what is really necessary? How do you steer your teams now? Because I assume in the last 10 - 20 years, that has worked probably differently than it should work in the future. So can you maybe elaborate a little bit how you steer the teams now to focus on what's really needed and probably what's not needed? And at what point in the project you're going to stop, for example, just that we can understand that there is not a huge risk you're returning to -- into the old habit, for example?
Stephan Zizala: So let me take that.
Camila Japur: Yes
Stephan Zizala: And I prefer to talk about the future, not the past. And here, I very clearly can say first of all, profitability metrics are now all over the Company. So part of this topic is we want that our people are proud about their technological achievements, and we want them to be even more proud if we make a lot of money out of this. And we spend quite significant effort also internally to make this present everywhere and also accepted everywhere. And we see the effects on this. People are questioning this. The second thing for sure, you can rely on, we are very stringent which projects we do and we don't do, and we are also very stringent to act quickly in case things change, much faster than maybe it was common in other times. So there, for sure, that the team feels a big difference. And third, this goes a bit in line what Camila presented you. She presented you a significant elevated transparency on our company for the outside. Obviously, we have much more also insight in terms of financial transparency to -- the whole target is to act faster, to take conclusions and decisions faster. And therefore, I'm confident that we will manage this very well.
Unidentified Analyst: And maybe a second one, just on the -- I mean, the typical discussions we have these days in the media, tariff discussion. I remember we had a discussion in the past that you could potentially benefit in the U.S. I think that story is a bit over. But now with Donald Trump as the President, the discussions are pretty intensive. Any risk we have to be aware of that you could face with? Or doesn't it touch you at the moment?
Stephan Zizala: I mean, first of all, what we discussed previously was, is there a risk or an opportunity out of the geopolitics -- and we, as a trustworthy Swiss supplier of GNSS solutions, I see us definitely on the side where we will see more opportunities than risks out of this because we are highly appreciated both in the East and in the West. Regarding to tariffs, none of our competitors has production of GNSS product in the U.S. So therefore, I don't expect any direct disadvantage in case a tariff comes up or doesn't come up.
Unidentified Analyst: Do you have any exposure already to humanoid robots or any requests? I'm not sure whether with GNSS or chips, I assume there are also outdoor developments, outdoor robots.
Stephan Zizala: It sounds logical, but I personally don't know. So this doesn't mean that it's not the case. I just don't know.
Unidentified Analyst: And for the Locate business, you mentioned the margin, the gross margin at that time, do you -- can you disclose it Locate gross margin at two years ago or so? [indiscernible]
Camila Japur: Two years ago.
Unidentified Analyst: Was it 60's or even higher?
Camila Japur: Yes. So in '24, it was slightly lower than 60%, but this is also because we had lower revenue as well. We have a fixed cost in logistics, right? So then it's fairly in line with the target financial model that we report to see quite constant at 60%.
Unidentified Analyst: You outlined the opportunity around ADS. Can you explain us a bit where you designed in because there were some -- recently, there were some big platform announcement NVIDIA and also BYD with the [O1] implementing it in, I think, all the vehicles. Can you elaborate a bit where this 45% come from until 2030 and how this works now for you?
Stephan Zizala: I mean the 45% is the share of the vehicles where we think that will need GNSS to -- for the automated driving level. And this is more or less whenever the driver can take the hands off. So what we know is the project we are in. I cannot list them now name by name. But -- and the other thing we know players like NVIDIA, they include us in their reference design platforms, which means it's a very clear sign to every customers of NVIDIA if you go to a higher automated driving level, the GNSS is needed, and there's already a good proposal on the [reference part].
Rafael Duarte: Anyone else from the room?
Unidentified Analyst: Maybe on Page 26, you say you get CHF350 million revenues and you say more than 60%. If I plug in 60%, I get the CHF210 million gross profit. And then with your cost base of CHF158 million, I get -- I don't get to a margin of 25%.
Camila Japur: But the cost base, are you referring to that bridge that I -- but that's the whole company. It includes Short Range and it includes a fraction of Cellular cost. That is the thing that you keep. That's not the Locate cost base.
Unidentified Analyst: And then a similar question, the Cellular cost base on '22, you have CHF25 million and CHF38 million on the previous slide.
Camila Japur: '24. Yes 2020 -- sorry.
Unidentified Analyst: On Slide 28, you have CHF38 million OpEx for Cellular?
Camila Japur: Yes, in '24.
Unidentified Analyst: And on Slide 22, you have EUR 25 million Cellular cost base. What's -- there's a difference?
Camila Japur: So the CHF38 million OpEx on Slide 21, this is reported cash OpEx -- sorry, OpEx adjusted in '24. This includes nine months of Cellular cost without any cost reduction, one quarter, Q4 that we saw some reductions from the cost saving program, okay? Then on the other slide that we talk about, we'll take an additional CHF25 million. This is an additional cost that we are taking out of the Company. So if -- you cannot compare the CHF38 million is reported OpEx in '24. So it's a mix. You have a lot of costs there that we already took out, right? And then we will take an additional CHF25 million now during '25. Okay?
Rafael Duarte: So we can check now if there are any questions over the phone. I don't think it's the case. Operator, can you confirm if there is any?
Operator: [Operator Instructions] We have a question from Reto Huber from Research Partners.
Reto Huber: Thank you for taking my questions. I'm going to ask two. One of them is relating to your Cellular inventory. You're saying you're using that up to continue to support existing customers. Now what happens if you run out of inventory and one of your important customers still want that particular Cellular product, will you continue to -- or would you produce that respective module again?
Stephan Zizala: So let me clarify first. When we talk about consuming inventory, we don't talk about consuming u-blox end product inventory. We are rather talking about chips from other chip suppliers, which are needed to produce the modules. And in case those would run out, we would simply reorder at the supplier. So there is no risk in terms of that a customer would like to have more, margin is attractive, then we can easily reorder the components needed for this.
Camila Japur: Just to add on that, just to be super clear here, we also -- in the communication with a customer also, we -- now that we are phasing out, there is a minimal margin that we will charge for the -- so if there is something that is not in the inventory and we will not take any risk, as Stephan mentioned. And additionally to that, we have a margin that is higher than what we have today.
Stephan Zizala: The margin control really works.
Reto Huber: Very good. And then the other one, Slide 7 with the 10% CAGR, what average annual price reduction have you baked into that number?
Stephan Zizala: Typical annual price reduction for those products is in the low single digits. And that's really in line with all other players in this area.
Operator: The next question comes from Lukas Spang from Tigris Capital.
Lukas Spang: I have two questions. I would also do them one by one. The first question is just a clarification question regarding your phaseout of the Cellular business. What exactly do you understand of phasing it out? Do we see after this phasing out period a certain, let's say it -- let's call it, base revenue going forward? Or will there be a point in the future that we see zero revenues going forward from the Cellular business?
Stephan Zizala: Yes, it's the second one. So phaseout means that we give our customers a certain opportunity to buy those products and to have sufficient time to design in the next generation. And this will not last forever. It's rather something which will come to a fixed end in '27.
Lukas Spang: Okay. And then to the investment topic. So we talked a lot about reduced capitalized costs, and I think that's very welcomed from investors' perspective. But what does this mean in terms of CapEx in 2025 and beyond?
Camila Japur: So you have low single-digit capitalization in '25. This is what we expect.
Lukas Spang: And that's just the intangible part of CapEx. So any tangible.
Camila Japur: This is R&D capitalization. So we are not changing the process we have in the Company. We just review the projects that we have for a more conservative view. That led to that reduction, but some projects we still capitalize after action. So that should be very low compared. And then we have the normal CapEx, I can tell you that it is a low single digit for the year, is what is in our budget. So it's not -- we are not talking about high investment here.
Lukas Spang: Okay. But that means also in terms of cash flow generation going forward, that will be a very attractive free cash flow model in the future.
Camila Japur: Correct.
Rafael Duarte: We come back now here to the room.
Unidentified Analyst: Maybe first just from an accounting or legal perspective, what's the difference to discontinued business that you -- in your accounting that you decided not to have this discontinued business?
Camila Japur: It's good -- we are not -- I don't know the answer, to be honest, from the accounting and legal point of view, but we check the case with auditors and legal. And this is how we should report this phasing out and we reported as other companies do, like we have a taxes instrument that does this type of thing. What we should do is try to give more transparency. So this is what we -- we are not ready yet, but we are working for it.
Unidentified Analyst: On the market shares you showed with Broadcom and STMicro, is it possible to provide more information regarding your market share and how it compares to Broadcom? Or [indiscernible]
Stephan Zizala: Well, the situation is this. We come out of a few very special years. First, there was undersupply, then there was oversupply, then there was inventory correction. So I would -- and we rely on external market studies on the numbers. Otherwise, I can tell you everything. What is clear in there, a lot of these special effects disturb the picture highly. One thing which we can say with sufficient knowledge and confidence is that we are the clear #1. If I make it a bit more concrete, companies, the #2 Broadcom, we don't see them in our target markets, not at all. We don't see them in our automotive customers. We don't see them in our industrial customers. So that if I would reduce the picture exactly to those markets, it would be a huge, let's say, gap to the next one.
Unidentified Analyst: If we look at cash R&D related to Locate business in absolute terms, where do we stand in 2025 versus 2023? Higher or lower...
Camila Japur: Cash R&D '25 compared with '23?
Unidentified Analyst: [indiscernible]
Camila Japur: All -- I don't have -- I don't know by heart cash R&D for Locate in '23. But what I can tell you is that we had a reduction in R&D. This was in all areas, including Locate. However, Connect took a bigger hit because -- and also, as I mentioned, what's super important here is that we are being very careful to protect the business that will address future growth. So we are addressing the short-term needs and being more disciplined with cost. So including Locate, they also made reductions, but we ensure that for the future business, we have the OpEx.
Rafael Duarte: So any other questions here from the audience? If not, we close here. If there are any further questions, so there are a lot of bridges in the presentation, a lot that we did to try to explain. So do let us know. And thanks to you guys from the market that also with all the feedback allowed us to prepare the presentation. Sometimes from our side, we take it for granted that some things are clear and there are some pain points that we just heard from you. So let's continue the feedback and the interaction. So you know where you find us. Thank you very much.
Stephan Zizala: Thanks. Thanks a lot for joining and both virtually on the phone and here in the room.
Camila Japur: Thank you all. Thank you.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.