Ubisense Geographic expansion Acquisition Tech hardware & equipment Ubisense has strengthened its position in the Asian market through the acquisition of Geoplan, its Asian partner. The deal provides Ubisense with new products and access to Asian customers, as well as resources for RTLI marketing and implementation. The acquisition will cost up to 3.4m (cash and equity) and is expected to be earnings accretive in FY15. Year end Revenue ( m) PBT* ( m) EPS* (p) 12/11 23.79 0.65 2.64 0.0 87.3 N/A 12/12 24.29 0.02 0.05 0.0 N/A N/A 12/13e 28.03 (0.64) (2.15) 0.0 N/A N/A 12/14e 37.09 (0.02) (0.06) 0.0 N/A N/A DPS (p) Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. P/E (x) Yield (%) 6 December 2013 Price 230.5p Market cap 51m 168.58/ Net cash ( m) as at end H113 0.04 Shares in issue 22.3m* Free float 77% Code Primary exchange *Before share issue (dealings expected to commence 6 December 2013) Share price performance UBI AIM Ubisense acquires Asian partner Ubisense has acquired Geoplan Interworks KK (Geoplan), a provider of location and infrastructure management solutions for utility, telco and manufacturing applications in Asia-Pacific. Geoplan has previously partnered with Ubisense to install RTLI systems at customer facilities in Japan, Korea and China. The deal will cost up to 564.7m/ 3.4m initial consideration has already been paid ( 0.8m cash, 760k shares worth 1.7m). Geoplan had net cash of c 2m on acquisition. Expanding the opportunity in Asia Geoplan has developed proprietary software applications that enhance customers existing GIS and CAD software systems, with a focus on the Japanese and Korean utility, telco and manufacturing markets. The combined group will be able to crosssell Geoplan products and Ubisense s myworld solution to each company s existing customer base. In our view, the larger opportunity is in the RTLI market Geoplan has already provided implementation services for Ubisense in the Asia-Pacific market. With favourable changes to the Japanese regulatory environment from 2014, the deal provides Ubisense with the resources and relationships in Japan and Korea to drive adoption of RTLI more widely throughout Asia. Changes to forecasts The company expects the deal to be broadly earnings neutral in FY14 and earnings enhancing in FY15. We make minor changes to FY13 and FY14 normalised EPS forecasts to reflect dilution and interest costs. As Geoplan had 2m cash on acquisition, our net debt forecast for FY13 reduces from 2.1m to 0.04m. Valuation: Translating growth to profitability is key Ubisense is trading on an EV/sales multiple of 1.8x FY13e and 1.4x FY14e, at a discount to the UK Software and IT services sectors (c 2.7x 2013). Key to upside will be evidence that Ubisense s RTLI strategy is driving strong revenue growth that translates into improving margins and cash flows. We believe this is possible considering the size of the available market and recent order wins. % 1m 3m 12m Abs 15.0 0.4 11.1 Rel (local) 18.9 0.6 (1.4) 52-week high/low 235p 182.5p Business description Ubisense provides end-to-end real-time location intelligence (RTLI) systems to enable companies to track people and assets with a high degree of accuracy. Ubisense solutions also bring visibility and control to business processes by using the data generated from tracking such assets. Next event Preliminary results March 2014 Analysts Katherine Thompson +44 (0)20 3077 5730 Dan Ridsdale +44 (0)20 3077 5729 tech@edisongroup.com Edison profile page Ubisense is a research client of Edison Investment Research Limited
Building capacity in Asia-Pacific Ubisense has acquired its partner in Asia-Pacific, Geoplan Interworks KK. This brings operations in Japan, Korea and the Philippines under the company s direct control. Terms of the deal The business that Ubisense is acquiring, Geoplan Interworks, owns Geoplan Korea and Geoplan Philippines and 77% of Geoplan Japan. The remaining 23% of Geoplan Japan is owned by current President and CEO Tsunehiko Nishizawa (18%) and NSC (5%). The consideration is in four parts: an initial cash consideration of 0.8m; equity worth 1.7m (759,809 shares at 225.25p, expected to start trading on 6 December); cash retention of 0.4m subject to reaching profit targets in the year to June 2014; and an earn-out of 0.5m based on revenue and profitability targets for CY14-16, payable at the end of 2016. Therefore, the maximum cost of the deal is 3.4m. In the year to 30 June 2013, Geoplan generated revenues of 900m ( 6.6m at average exchange rates over FY13, 5.4m at current exchange rates) and a loss before tax of 64m (c 380k). At the end of June, Geoplan had net assets of c 2.3m and net cash of c 2.4m. This implies a maximum EV/trailing sales of 0.3x, reflecting Geoplan s current loss-making status. Mr Nishizawa will remain with Ubisense as CEO of Asian operations. Interworks has the right to buy his 18% stake up to May 2015 for 113m ( 0.7m). Background on Geoplan Headquartered in Tokyo, Japan, Geoplan was established in 1997 with the majority of operations in Japan and Korea, and a small operation in the Philippines. The group provides location solutions and infrastructure management to the telecoms, utilities and manufacturing sectors. Geoplan has developed proprietary software solutions to augment third-party software such as GE Smallworld (GIS 1 ), Geoconcept (GIS) or Autodesk (CAD 2 ). The four main products are: water starter kits; MapGeo: mobile mapping app; NWnetGeo: water distribution network analysis; and BrainGear: construction-related CAD. Customer relationships Within the water sector, Geoplan works with six of Japan s large city water utilities, and in the gas sector, Geoplan works with Tokyo Gas and Toho Gas. Other customers include KEPCO (Korea Electric Power Corporation) and KDDI (Japanese telco). More recently, Geoplan has worked with Ubisense to implement RTLI (real time location intelligence) installations at Asia-Pacific-based facilities. This includes Japanese and Korean automotive manufacturers as well as supporting the relationship with Daifuku and the recently announced Asian automotive logistics company. 1 2 GIS: Geographic information system. CAD: Computer-aided design. Ubisense 6 December 2013 2
Opportunities for the combined group The acquisition formalises the relationship between the two companies, ensuring the availability of dedicated resource to support Ubisense s growth ambitions in Asia-Pacific. There is an opportunity for Ubisense to sell its myworld products to Geoplan s utility and telco customer base and likewise the opportunity to sell Geoplan s products to Ubisense s geospatial customer base. We believe the larger opportunity lies in selling RTLI solutions to Asia-Pacific-based manufacturing customers. This has only happened on a limited basis to date, as Ubisense has had to apply for permission to operate its tags and sensors in the required radio frequency band in Japan. Changes to Japanese radio regulations from 1 January 2014 should open up this market for Ubisense. Elsewhere, Ubisense has installed RTLI systems in Hyundai (Korea), BMW Cherry (China) and Doosan (Korea) facilities with the help of Geoplan. We believe Ubisense already has relationships with Honda and Toyota for some of their facilities outside of Japan once the new regulatory environment is in place, Ubisense should be well positioned to drive adoption of its RTLI technology in the Japanese automotive market and into the wider high-value manufacturing market. Changes to forecasts We have revised our estimates to reflect the acquisition. The company expects the deal to break even at the PBT level in FY14 and be earnings accretive in FY15. We assume a revenue contribution of 0.4m in FY13 and 5.0m in FY14. As the business is currently running close to break-even, we assume this remains the case in FY13 and FY14. Our FY14 revenue forecast increases by 1.4% and FY15 by 15.6%. Forecast FY13 LPS increases 6% and FY14 EPS reduces marginally from 0.18p to -0.06p, reflecting dilution from the equity portion of the consideration and higher interest charges in FY14. Ubisense used some of its 2m remaining debt facility for the initial consideration. As Geoplan had c 2m in cash when it was acquired, our net debt forecast for FY13 reduces substantially. For FY14, increased working capital counteracts the impact of the acquired cash. Exhibit 1: Changes to estimates 000s FY13e FY14e Old New Change (%) Old New Change (%) Revenues 27,628 28,028 1.4 32,087 37,087 15.6 Gross profit 10,330 10,504 1.7 12,507 14,484 15.8 Gross margin (%) 37.4 37.5 0.1 39.0 39.1 0.1 EBITDA 1,172 1,172 0.0 2,507 2,507 0.0 Normalised EBIT (588) (588) 0.0 157 156 (0.2 Normalised EBIT margin (%) (2.1) (2.1) 0.0 0.5 0.4-0.1 Normalised PBT (638) (638) 0.0 57 (19) -132.8 Normalised net income (479) (479) 0.0 42 (14) -132.8 Normalised EPS (p) (2.03) (2.15) (6.0) 0.18 (0.06) -133.7 Net debt 2,115 40 (98.1) 2,930 2,950 0.7% Source: Edison Investment Research Ubisense 6 December 2013 3
Exhibit 2: Financial summary '000s 2008 2009 2010 2011 2012 2013e 2014e Year end 31 December IFRS IFRS IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 9,693 14,985 17,697 23,785 24,292 28,028 37,087 Cost of Sales (6,323) (9,658) (11,762) (15,308) (14,690) (17,525) (22,603) Gross Profit 3,370 5,327 5,935 8,477 9,602 10,504 14,484 EBITDA (301) 1,386 1,041 1,448 1,157 1,172 2,507 Operating Profit (before am, share-based payments and except.) (686) 1,003 645 796 (23) (588) 156 Amortisation of acquired intangibles 0 0 0 (112) (257) (282) (557) Exceptionals 0 0 0 (371) (423) (614) 0 Share-based payments (34) (73) (18) (24) (63) (90) (130) Operating Profit (720) 930 627 289 (766) (1,574) (531) Net Interest (263) (214) (232) (148) 38 (50) (175) Profit Before Tax (norm) (949) 789 413 648 15 (638) (19) Profit Before Tax (FRS 3) (983) 716 395 141 (728) (1,624) (706) Tax 117 157 3 (107) 90 0 (150) Profit After Tax (norm) (832) 946 416 541 11 (479) (14) Profit After Tax (FRS 3) (866) 873 398 34 (638) (1,624) (856) Average Number of Shares Outstanding (m) 11.8 11.8 12.0 18.9 21.8 22.3 23.1 EPS - normalised & diluted (p) (7.1) 8.0 3.3 2.6 0.0 (2.2) (0.1) EPS - FRS 3 (p) (7.4) 7.4 3.3 0.2 (2.9) (7.3) (3.7) Dividend per share (p) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Gross Margin (%) 34.8 35.5 33.5 35.6 39.5 37.5 39.1 EBITDA Margin (%) -3.1 9.2 5.9 6.1 4.8 4.2 6.8 Operating Margin (before GW and except.) (%) -7.1 6.7 3.6 3.3-0.1-2.1 0.4 BALANCE SHEET Fixed Assets 6,706 6,655 6,873 10,042 10,940 12,873 12,466 Intangible Assets 6,459 6,493 6,594 9,676 10,319 12,212 11,765 Tangible Assets 247 162 279 366 621 661 701 Investment in associates 0 0 0 0 0 0 0 Current Assets 5,039 6,316 14,394 17,199 13,970 17,552 19,574 Stocks 292 264 364 1,667 862 1,152 1,524 Debtors 2,695 3,656 6,900 9,498 10,392 12,440 16,000 Cash 2,052 2,396 7,130 6,034 2,716 3,960 2,050 Current Liabilities (3,604) (3,174) (8,346) (7,294) (5,246) (6,275) (7,316) Creditors (3,604) (2,930) (5,974) (7,294) (5,246) (6,275) (7,316) Short term borrowings 0 (244) (2,372) 0 0 0 0 Long Term Liabilities (2,978) (3,498) (1,386) (709) (653) (5,153) (6,153) Long term borrowings (2,869) (3,379) (1,246) 0 0 (4,000) (5,000) Other long term liabilities (109) (119) (140) (709) (653) (1,153) (1,153) Net Assets 5,163 6,299 11,535 19,238 19,011 18,997 18,571 CASH FLOW Operating Cash Flow 476 (115) 694 (2,387) (986) (1,151) 15 Net Interest (172) (98) (103) (14) 38 (50) (175) Tax 121 167 32 102 203 0 150 Capex (347) (348) (618) (1,386) (2,341) (2,775) (2,500) Acquisitions/disposals 0 0 0 (1,600) (399) 1,200 (400) Financing 147 (42) 4,834 5,203 167 20 0 Dividends 0 0 0 0 0 0 0 Net Cash Flow 225 (436) 4,839 (82) (3,318) (2,756) (2,910) Opening net debt/(cash) 1,042 817 1,227 (3,512) (6,034) (2,716) 40 HP finance leases initiated 0 0 0 0 0 0 0 Other 0 26 (100) 2,604 0 0 0 Closing net debt/(cash) 817 1,227 (3,512) (6,034) (2,716) 40 2,950 Source: Ubisense accounts, Edison Investment Research Ubisense 6 December 2013 4
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