KERLINK (EPA:ALKLK) - 2019 results

Transparency directive : regulatory news

28/04/2020 17:40

2019 results
Decrease in activity from telecom operators
Continuation of strategic repositioning in favor of private network players

                           2020 first-quarter update
             Approval of new medium-term loans from partner banks
                 Update on activity during the COVID-19 crisis

PRESS RELEASE
Thorigné-Fouillard, April 28, 2020, 5.45 p.m.

Thorigné-Fouillard, France - Kerlink (AKLK - FR0013156007), a specialist in
solutions dedicated to the Internet of Things (IoT), is today publishing its
2019 consolidated full-year results and revenue for Q1 2020.

The 2019 financial year saw incumbent telecom operators continue to take a
wait-and-see stance, which automatically impacted the Group's activity and
results. To tackle this situation, the Group took the necessary steps to adapt
its organization to these new market conditions, bolster its cash position and
step up efforts to expand business in the private players' segment (cities,
industries, utilities, enterprises and new entrants).

Consolidated financial statements
On April 24, 2020, the Board of Directors approved the consolidated financial
statements for the financial year ended December 31, 2019.

International accounting standard IFRS 16, concerning the treatment of leases
in the consolidated financial statements, came into force on January 1, 2019.
Kerlink Group chose to apply this standard using the simplified retroactive
approach, in which there are no adjustments for the previous year. Note that
the implementation of IFRS 16 requires a change in the presentation of the
consolidated financial statements as approved at December 31, 2019, with the
balance sheet showing a liability in respect of future lease payments and an
asset in respect of rights of use. On the income statement, the lease expense
previously recognized under operating costs is now to be recognized partly as a
depreciation charge and partly as a financial cost.

In thousands of euros              2019     2018

Revenue                           13,038   17,068
Gross margin (amount)              5,956    7,578
Gross margin rate                  45.7%    44.4%
Other operating expenses         -10,981  -11,014
EBITDA                            -5,027   -3,436
Depreciation and amortization     -3,636   -2,037
Operating profit                  -8,663   -5,472
Net financial expense                -79      -79
Corporation tax                   -1,817     -221
Group net profit/loss             -9,861  - 5,773

IFRS - Audited financial statements

Slight increase in activity in the private players' segment
No large new rollouts among telecom operators
Revenue for the 2019 financial year decreased by 24% compared with 2018, at
EUR13.0m.

This trend reflects the ongoing slowdown in the rollout of major IoT projects
for telecom operators. Bear in mind that activity in this client segment had
been particularly strong in 2018, especially with the second stage of the
contract for the rollout of the state-of-the-art IoT network for Tata
Communications in India. After adjustment for sales of infrastructure equipment
for this rollout, FY 2019 revenue declined slightly (-4%).

In the private operators' segment, in which clients prefer to implement
proprietary IoT networks, 2019 revenue showed a slight increase of 2% to
EUR10.4m.

In 2019, the Group embarked on a strategic repositioning to step up its growth
in this segment, by extended its partner ecosystem to be able to offer the
end-to-end solutions expected by such players.

Increase in the sale of value-added services
Revenue from services (operation and maintenance in operating condition of IoT
networks, administration and geolocation of connected equipment, Reference
Design expertise, and professional services) came to EUR3.3m in 2019, an
increase of 10% compared with the previous year. At the end of 2019, revenue
from these value-added services accounted for 25% of total revenue compared
with 17.5% in 2018.

Return to positive momentum in international markets since mid-2019

Revenue in France reached EUR7.7m, accounting for 59% of total revenue.
As a reminder, revenue in France in 2018 (EUR8.9m) incorporated significant
deliveries for a leading telecom operator. After adjustment for these
deliveries, the Group cemented its positions in its domestic market.

The Group generated 40% of its revenue in international markets in 2019.
Revenue in the EMEA region (Europe, Middle East, Africa) excluding France
increased by 23% compared with 2018 while sales show a decline in the APAC
(Asia Pacific) and NCSA (Americas) regions.

The Group shows good activity momentum in international markets, with revenue
in the second half of the year surpassing that of the first half (+17%).

2019: a lower volume of activity impacted the results despite an increase in
the gross margin rate

The strategic shift made by the Group in favor of private network operators led
to a change in the product mix with a significant increase in the contribution
from value-added services to total revenue. This naturally led to an increase
in the gross margin rate to 45.7% of revenue in 2019 versus 44.4% in 2018.

However, this increase did not offset the fall in activity. In value terms, the
gross margin decreased to EUR6m versus EUR7.6m in 2018, but this was smaller
than the decrease recorded in revenue (-21%). This resulted in negative EBITDA
of EUR5m versus a negative EUR3.4m in 2018.

The Group made an operating loss of -EUR8.7m in 2020 compared with -EUR5.5m,
incorporating a EUR1m increase in the amortization of research and development
expenses for previous financial years (EUR3.6m versus EUR2.6m in 2018).

In 2019, research and development expenses were recognized in the amount of
EUR0.8m compared with EUR1.8m in 2018.

The Group made a net loss of -EUR9.9m, which incorporates a reversal of
deferred tax assets of EUR1.7m, which was already communicated during the
publication of the half-year results.

Operating expenses remained stable between 2018 and 2019

Operating expenses (factoring in IFRS 16) remained stable at EUR11m in relation
to the previous year.
They mainly include:
  * A EUR1m increase in research and development costs, an automatic occurrence
    linked to the recognition of amortization on research and development
    expenses;
  * A 2% increase in payroll expenses to EUR8.9m in 2019 versus EUR8.7m in
    2018. This increase incorporates the 11 additional employees brought on
    board following the acquisition of Wyres in January 2019 for EUR0.8m;
  * A decrease in the use of external personnel. Costs in respect of the latter
    came to EUR0.3m compared with EUR1.1m in the previous year, reflecting the
    efforts made during the year to reduce these expenses.

Taking payroll and external personnel costs together, total personnel expenses
show a decrease to EUR9.3m versus EUR9.9m in 2018.

Effects of the Employment Protection Plan to come into play fully in FY 2020

The payroll expenses for 2019 only marginally incorporate the impacts of the
Employment Protection Plan (French "Plan de Sauvegarde de l'Emploi - PSE")
implemented by the Group in September to deal with the decline in activity. A
cost of EUR0.5m in respect of the implementation of this plan was recognized in
FY 2019 under operating expenses.

This plan covered the external reclassification of 22 of the 103 employees of
Kerlink France at July 31, 2019.

This resizing of the cost structure is expected to have a positive impact of
around EUR2.6m on the EBITDA margin in 2020 versus that of 2019.

Accounting entries related to the acquisition of Wyres

As part of the repositioning of the activity in favor of private operators,
back in January 2019, the Group announced it had acquired a 51% fully diluted
stake in Wyres, a specialist in indoor geolocation systems and complete
solutions that include beacons, tags, and business applications.

In February 2020, the Group made an accelerated acquisition of the remaining
shares in Wyres from its founders and investors and owns, since that date, 100%
of the shares of Wyres(1). It is important to note that this final acquisition,
which gives Kerlink ownership of 100% of the shares of Wyres, concerns the 2020
financial year.

The financial statements for the year ended December 31, 2019 show a gross
amount of EUR1,828k relating to goodwill on the initial consolidation of Wyres.
Amortization of EUR928k was recognized on this amount to give a net value of
EUR900k as at December 31, 2019. In the accounts, this entry includes a charge
that is not payable but which weighs on the 2019 results, and does not factor
in the finalization of the operation carried out subsequent to the closing date
for an amount of EUR80k.

The total acquisition of this asset represents a cash outflow for the Group in
2020 of just EUR430k, including the acquisition of the remaining shares and a
related current account.

Balance sheet

The Group had shareholders' equity of EUR12.5m at December 31, 2019 versus
EUR23.1m in 2018. This decrease is primarily due to the fact that it recorded a
loss of EUR9.9m. The decline in activity gave rise to a positive change in the
WCR of EUR0.9m linked mainly to a deliberate strategy to reduce inventories
(-EUR1.5m over the period) and the fall in the level of trade receivables.

(1) See press release dated February 21, 2020.

At December 31, 2019, the Group had a cash position of EUR6.3m versus EUR8.3m
at end-June 2019 and EUR11.8m at end-2018.

New loans secured at the start of 2020
At the start of 2020, the Group took out new loans with BPI FRANCE and its
long-standing banking partners to the tune of EUR2.75m, to bolster its cash
position.

The Group's response to the impact of the COVID-19 health crisis that took hold
in mid-March

After an encouraging start to the year, particularly in the NCSA (Americas)
region, the Group observed a slowdown in sales trends from mid-March with the
gradual implementation of confinement measures in all regions in which it
operates.

Revenue for the first quarter of 2020 came out at EUR2.6m versus EUR2.9m in Q1
2019.

In view of this unprecedented situation, the Group began to implement its
Business Continuity Plan from March 16 in order to be able to keep the majority
of its activities in operation and guarantee quality of service for its clients
and partners.
All clients using the Group's application solutions benefit from full
continuity of service. Kerlink's teams have access to all of the remote tools
they need to continue monitoring and maintaining in operating condition all of
its service platforms, regardless of where they are located.

This includes all necessary measures to safeguard the health of its employees,
the majority of whom are working remotely. The Group is also availing of
government measures (partial unemployment and deferral of the payment of social
security charges).

Appendices: Q1 2020 revenue
Breakdown by activity and by geographical region

Revenue by activity
In thousands of euros        At March  At March  Change
                             31, 2020  31, 2019

Historic and alternative
telecom operators               520       542     -4%
Private operators             1,983     2,329    -15%
Reference design                106       118    -10%
Total                         2,610     2,989    -13%

IFRS - Unaudited accounts

Revenue by geographical region
In thousands of euros      At March  At March   Change
                           31, 2020  31, 2019

NCSA (Americas)               73        25       +193%
APAC (Asia-Pacific)          183       273        -33%
EMEA excl. France          1,115       845        +32%
INTERNATIONAL              1,371     1,143        +20%
FRANCE                     1,239     1,844        -33%
Total                      2,610     2,989        -13%

IFRS - Unaudited accounts

About Kerlink

Kerlink Group is a leading global provider of connectivity solutions for
designing, launching, and operating public & private Internet of Things
networks. Its comprehensive product portfolio includes industrial-grade network
equipment, best-of-breed network core, operations and management software,
value-added applications and expert professional services, backed by strong R&D
capabilities. Kerlink specializes in enabling future-proof intelligent IoT
connectivity for key verticals such as fleet management, transportation &
logistics, retail, asset tracking, and smart metering, as well as smart
agriculture & environment, and smart cities, buildings, and factories. More
than 120,000 Kerlink installations have been rolled out with more than 330
clients in 69 countries. Based in France, with subsidiaries in the US,
Singapore, India, and Japan, Kerlink is a founding and board member of the LoRa
Alliance(tm) and the uCIFI Alliance(tm). It is listed on Euronext Growth Paris
under the symbol ALKLK.

For more information, visit www.kerlink.com or follow us on Twitter
@kerlink_news.

Upcoming events

H1 2020 revenue
23 July 2020 after market close

www.kerlink.fr

Investor contact:
Actifin
Benjamin Lehari
+33 (0)1 56 88 11 25
blehari@actifin.fr

Financial Press contact:
Actifin
Isabelle Dray
+33 (0)1 56 88 11 29
idray@actifin.fr

Press and Market Analysts contact:
Mahoney Lyle
Sarah Lyle
+33 (0)6 75 85 60 42
slyle@mahoneylyle.com

www.kerlink.com
fr.linkedin.com/company/kerlink
Twitter @kerlink_news
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