Fourth quarter and year-end report 2022

SERSTECH GROUP – FOURTH QUARTER 2022

Net sales amounted to KSEK 3 488 (2 910).
Net earnings for the period: KSEK -16 229 (-2 894).
One-off write-down of capitalized development costs: KSEK 7 451 (1 058).
Earnings per share: SEK -0.19 (-0.03).
Earnings per average number of shares: SEK -0.19 (-0.03).
Investment in equipment: KSEK 17 (47).
Investment in intangible assets: KSEK 1 578 (4 036).
Cash and cash equivalents: KSEK 1 866 (19 574).
Equity ratio (%): 51% (84%).

SERSTECH GROUP – FULL YEAR 2022

Net sales: KSEK 17 112 (18 650).
Net earnings for the period: KSEK -29 566 (-10 251).
One-off write-down of capitalized development costs: KSEK 10 593 (3 030).
Earnings per share: SEK -0.35 (-0.12).
Earnings per average number of shares: SEK -0.35 (-0.13).
Investment in equipment: KSEK 30 (278).
Investment in intangible assets: KSEK 7 560 (12 284).
Cash and cash equivalents: KSEK 1 866 (19 574).
Equity ratio (%): 51% (84%).

Comments from the CEO

At the end of 2021, the sales pipeline started to grow rather dramatically, more than doubling its size in December alone. Since then, the pipeline has continued to grow, which is a clear indication that the market is waking up again, after 30 months of pandemic slumber. In our line of business, the time from a customer is ready to buy until they actually buy is typically one year. As was communicated in December 2022, we received an order of 10 MSEK from a partner in Singapore at the end of the year. The large order, which is one of the largest so far, was also the first order from South-East Asia since before the pandemic. South-East Asia has historically been our strongest sales region, and we expect to see good contributions from this region in 2023 and onwards as the customers resume normal operations.

The pandemic period, which in the sales context included most of 2022, has had Serstech focused on reducing cost, in combination with preparations for the return of the market. The Serstech team was reduced by 15 people during the pandemic, and during the fourth quarter of 2022, we finally started to recruit again. With a continued growth in our sales pipeline and with multiple opportunities expected to close during the first half of 2023, we are strengthening our capacity in R&D, sales and technical support. Already at the beginning of February 2023, our sales had surpassed 60% of the 2022 full-year sales.

To ensure that we are ready to meet the demand we saw building in 2022, we performed a rights issue in Q4 and added approximately 20 MSEK to our cash balance in January 2023. Out of the 108 rights issues that were made in 2022 on Nasdaq First North, ours had the third highest subscription rate with 152%, which shows that our shareholders share our optimism for 2023 and onwards. The order of 10 MSEK received at the end of December will be invoiced in February, which will bring our cash balance to the highest level ever.

Our new sales director for Europe has done an excellent job during the year. We have added several strong sales partners and the sales pipeline in Europe has continued to grow significantly. One of the drivers in Europe is the increased demand for solutions that can identify chemical warfare agents. As in the rest or the world, the post-pandemic resumed focus on drug enforcement by police and border control, has increased the demand in our core business segment. We therefore expect the European sales region to perform very well in 2023.

We had our first major order from the US market in May 2022. The order value was more than 8 MSEK and it was delivered during the summer to a state prison authority, which has deployed Serstech instruments in all prisons throughout the state. The feedback from the customer is positive and we have received requests for information from other prison systems in the country, and we expect the importance of the US market to continue to grow over the coming years.

Most of our competitors are from the US, and many customers have a preference to buy from domestic manufacturers. This is one of the main reasons why it has taken Serstech almost three years to get the first major order. We now have a good local reference, and we have thereby passed a great hurdle in the sales development. In 2022, we added our second salesperson in the country, and we will continue to strengthen our sales capacity in 2023 and 2024.

Early 2022, we cancelled our OEM agreements with Environics and Field Forensics. Field Forensics remains one of our most valued partners, and they are now selling our products under the Serstech brand. The main reason for entering into the OEM agreements in 2018 and 2019 was to get access to established sales networks of more experienced companies, since we did not have our own sales channel yet. As we now have a strong partner network, we instead focus on continuing to build our sales and brand through our own channels, and to improve our gross margins.

The global component shortage has been one of the challenges throughout 2022. We have however succeeded in building the necessary component inventory, even if it has meant several electronics redesigns during the year. Many component suppliers stopped producing less profitable components during the year and focused on their latest generations only, which forced us to upgrade several critical components on our circuit boards. The positive side-effects of changing to the latest generation components include noticeably faster instruments and lower battery consumption. During the development work, we also managed to reduce the number and cost of components.

While the net sales in 2022 were severely affected by the pandemic, everything aligned perfectly for imminently resumed growth. The pent-up demand created by the absence of sales in the market for 30 months, the resumed focus on drug enforcement and the demand created by the risk of chemical warfare in Europe combine to drive up total demand to unprecedented levels. At the same time, we have a strong cash balance from the successful rights issue and the resumed sales. Our next-generation product Serstech Arx is in volume production since Q4 2022, and we have sufficient component inventory for at least the first quarters of 2023. We expect and predict strong or very strong growth in 2023 and onwards.

For further information, please contact:

Stefan Sandor,
CEO, Serstech AB
Phone: +46 739 606 067
Email: ss@serstech.com

Thomas Pileby,
Chairman of the Board, Serstech AB
Phone: +46 702 072 643
Email: tp@serstech.com

or visit:  www.serstech.com

This is information that Serstech AB (publ.) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above at 08:45 CET on February 24, 2022.

Certified advisor to Serstech is Svensk Kapitalmarknadsgranskning AB (SKMG).

About Serstech

Serstech delivers solutions for chemical identification and has customers around the world, mainly in the safety and security industry. Typical customers are customs, police authorities, security organizations and first responders. The solutions and technology are however not limited to security applications and potentially any industry using chemicals of some kind could be addressed by Serstech’s solution. Serstech’s head office is in Sweden and all production is done in Sweden.

Serstech is traded at Nasdaq First North Growth Market and more information about the company can be found at www.serstech.com.

The full report is available here.