STRONG GROWTH, DESPITE CORONA EFFECT
Serstech Group – First Quarter 2020
- Net sales: KSEK 6 012 (3 251)
- Profit for the period: KSEK -3 206 (-3 660)
- Earnings per share SEK -0,04 (0,06)
- Earnings per average number of shares: SEK -0,04 (0,06)
Several of the tenders that we expected to close in Q4 2019 resulted in orders during the first quarter of this year. Net sales increased by approximately 85%, despite the slowdown in March. We also saw a large inflow of new opportunities during the quarter and our sales pipeline increased by several million SEK every week until early March, resulting in the strongest pipeline in the history of the company. Before the downturn, the sum of the tenders our partners participated in was above 120 MSEK for the full year, which can be compared to just above 10 MSEK at the same time in 2019. This number has of course decreased dramatically due to recent events, but it was clear proof that our partner and sales strategy was showing results. Many experienced industry insiders are convinced that it takes three to four years to establish a new brand in the security market, but it seemed until the Corona pandemic started that we were about to succeed in a little more than two years.
In January, we were pleased to receive the second order from the World Customs Organization (WCO), only seven months after the initial order. WCO is the umbrella organization for almost all national customs organizations in the world. Our partner Hotzone Solutions signed a frame agreement with WCO in 2019 and we expect more orders from WCO over the coming years. In an industry where end-customers normally refuse to be named publicly, WCO also represents an important reference customer and proof-of-concept.
During the second week of the year, Serstech established the fully owned subsidiary Serstech Development s.r.l. in Romania. The subsidiary currently employs ten people, mainly software engineers, who previously worked as consultants for us. The company was established to retain and enable recruitment of highly skilled engineers, which at the time had become increasingly difficult in Lund. The cost of skilled staff is significantly lower than in Sweden and the risk associated with increasing the staff size is also significantly lower than in Sweden, due to a much more flexible labor market. The performance of the team is at the same high level as of the team in Sweden and the longer-term plan is to continue to grow the team in Romania faster than the team in Sweden.
In March, as the gravity of the effects of the Corona pandemic became clearer, we initiated various cost-cutting activities. Our ambitious and aggressive growth plans had increased our staff cost considerably and due to the sharp downturn of the sales projections, we had to both stop all ongoing recruitment and reduce staff rather quickly. In total seven people have left or will be leaving the company over the next few months and the team in Lund will be in total 14 people by early summer. Starting from mid-April, we have also reduced working hours for the remaining staff by 60%, which further lowers our fixed costs. With the new spending level, we will still remain in pretty good shape for quite some time, despite a pessimistic sales forecast. The timing of the recently completed rights issue was fortunate – our current cash balance is good and should be sufficient even if the sales takes the rest of the year to get back on track. It is of course harder than usual to make predictions and we do not rule out that we need to take further actions during the year.
In Q2, we will launch our two new products – one Raman instrument for the security market and one for the pharmaceutical production market. Both products are significantly improved compared to our current instrument and introduce the industry-f irst and patented autofocus functionality, which will improve the signal quality dramatically. The instruments are upgraded in virtually every aspect and we expect the pharma version to contribute well to our sales in Q4, since the pharmaceutical industry is less negatively affected by the prevailing market conditions. We expect the security version to contribute to sales in 2021, but due to the long sales cycles in combination with the downturn in the economy, we do not expect large numbers in 2020.
Due to the Covid-19 pandemic, where a company that is dependent on governmental tenders is especially effected, Serstech expect sales in 2020 to be lower than in 2019. Large uncertainties remain however, and things can develop in a more positive direction. The long term need for our products is unaffected or increased and our financial goals remain intact.
Given everything that has happened the last months, Serstech is in a good condition to weather the storm ahead. We have new products coming out to energize our partner network and we will be well prepared and in good shape when sales opportunities start to open up again.
For further information, please contact:
CEO, Serstech AB
Phone: +46 739 606067
Chairman of the Board, Serstech AB
Phone: +46 702 072643
Company website: 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 13:40 CET on April 27, 2020.
Certified advisor to Serstech is Västra Hamnen Corporate Finance AB, phone: 040-20 02 50, e-mail: firstname.lastname@example.org
Serstech delivers solutions for chemical identification and has customers across 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 is traded at Nasdaq First North Growth Market and more information about the company can be found at www.serstech.com