Highlights of the quarter

• Cost-cutting program executed as planned
• Operating result for the first quarter of 2018 charged with restructuring costs of SEK 40.2 M
• Performance in the Chinese smartphone market remained weak
• The shift towards smaller and cheaper fingerprint sensors negatively impacted revenues and gross margin

First quarter of 2018

• Revenues totaled SEK 289.7 M (685.9), down 58% compared with the first quarter of 2017
• The gross margin was 15% (41)
• The operating loss was SEK 174.9 M (profit: 70.8)
• Earnings per share before dilution was a negative SEK 0.47 (profit: 0.17)
• Cash flow from operating activities was a negative SEK 203.8 M (neg: 324.1)

CEO's comments

Earnings in the first quarter of 2018 were impacted by a continued weakening of sales, as we anticipated in the year-end report for 2017. Sales declined 58 percent year-on-year. Production volumes of smartphones for the Chinese market declined, both sequentially and year-on-year.

Meanwhile, the shift towards smaller and cheaper fingerprint sensors continued during the quarter. This had an adverse impact on the average selling price for our products. This product mix trend was the single most important factor underlying the decline in sales and the weaker gross margin. We expect the declining price trend to continue due to the difficult competitive situation. Overall, as previously communicated, this means that we expect the value of the market for capacitive fingerprint sensors for smartphones to continue to decline during 2018.

During the quarter, we focused intently on implementing the cost-cutting program. We have implemented the actions necessary to generate the targeted cost savings of SEK 360 M, and the full SEK 40.2 M restructuring cost related to the program was recorded in Q1. Our cost savings program will have full effect on cash flow starting from Q3.

To defend our market share and our margins, we are currently conducting a high-priority development project with the aim of launching a fingerprint sensor with a lower production cost than the present generation of sensors, but whose biometric performance remains high. We expect to introduce the new low-cost sensor to the market in the second half of the current year. In respect of capacitive fingerprint sensors for smartphones, the main focus of our R&D activities will henceforth be on ensuring a competitive production cost.

At the same time as our ambition is to strengthen our position in the smartphone segment, we have moved the focal point of our investments towards new, emerging biometric markets. These involve both new applications for our existing technology and developing solutions based on new biometric modalities, e.g. iris- and face recognition. Diversifying the operations is a major strategic priority and we are about to reach our goal that new areas, outside the segment for capacitive sensors for smartphones, will account for approximately 10 percent of sales in 2018. Our biometric solutions are already found in a series of product areas, such as door locks, laptops and tablet devices. At the same time, biometrics are being introduced in increasing numbers of areas, not least in smartcards, where Fingerprints is very well positioned.

Market conditions are challenging, but we expect some stabilization and sequential growth in Q2, a quarter which has historically been seasonally stronger than Q1. Furthermore, we expect cash flow from operating activities to sequentially improve during Q2 and be positive, due to a tax refund and an improved operating result.

Christian Fredrikson, CEO

Today at 09:00 CET Fingerprints' CEO Christian Fredrikson will present the report together with CFO Hassan Tabrizi in a combined webcast and telephone conference. The presentation will be held in English.

The report will be available at https://corporate.fingerprints.com/en/financialinfo/financial-reports/

The webcast and the presentation material can be accessed through https://engage.vevent.com/index.jsp?eid=3483&seid=127

For analysts and media: The telephone conference dial-in is +44 (0) 1452 560304 (international participants) or 08-506 921 86 (Swedish participants). Please state conference ID 1583118.