Pricer AB

STO:PRIC B

Earnings Call Transcript 2022-Q2

[Magnus Larsson, executive]

Thank you very much. Thanks for the introduction, and welcome, everyone, to the presentation of the Quarterly Results for our Second Quarter, but also for the Half Year.So with me, I have also Susanna Zethelius, our Group CFO. I guess you will see her in picture right now. So what we'll do is, I will speak about the market update. I will do a quick presentation of the Q2 highlights and then come to the corporate strategic objectives. After those, Susanna will speak about our financials and present the order intake, the sales, profitability and what has happened in the quarter and in the first half. And then I will summarize everything. And after that one, we will do a Q&A session.So next slide. What has happened in the market? We can see that the inflation that I've been spoken about in the first quarter in the Capital Market Day, it's been continuing to grow. And it's also triggered a lot of business potential. We can see that retail is pretty much across all markets. We see it in Europe. We see it in America. We see it in the Asian market. They are investing. They need to invest the time to actually make an investment is much faster than before.I think, I said that historically, investment decision for a large store could be 1 to 1.5 years. Now it's down to maybe 2 or 3 months or even shorter sometimes. And we can see a constant inflow of new stores. You can separate between the individual, the entrepreneurs that have their own store or a few stores that are not bound to have a global -- a big global budget or a big decision from their chain or from the overall organization. They are quite quick to make this kind of investment. They see the definite advantage, and they see the direct feedback of the investment, when they have -- when they go from paper to ESLs. So it's been extremely positive. But also with the big change where you have a central organization, they have a lot of stores they own. They are also engaging in discussions now, and much of it has been triggered by or has been triggered by the inflation. So it's been a very positive development. And I feel that we have the right kind of product, the right kind of approach to meet their demands and help them with whatever they need, and in this case, then the ESLs.This has generated an accelerated growth in Canada. So we could see that the Canadian market was taking off last year. It's been accelerating as you see that it's further accelerating. We, of course, have Canadian tire that I'm pretty sure that and I will speak more about. But also through our partner, JRTech, we see a lot of business and with a lot of different retailers, both in grocery but also in other segments for the Canadian market.I'm also extremely pleased to say that we can see that the Swedish market is taking off. We could see that the growth was starting last year, but this year, it's been a very good growth on the Swedish market. We can see there are a lot of stores being equipped with ESLs right now, which is extremely pleasing given that we are a Swedish company. This is something that we wanted to do for a long time. Of course, in addition to that, we have a continued strong demand in France, in Norway, in Benelux area, Italy. But we also see that we're entering new markets in Eastern Europe where we have new countries with new customers, but also in some of the existing ones where we've had business that is growing there as well. So it's extremely good to see that we manage to sell our products, both in countries where you typically would have less money maybe to invest, but also in the markets like France or Norway, where there is very easy to motivate this investment.What else? The launch of the 4 color ESL is really now making a dent. We can see that we are in a better position to capture this market. It's a technology that will require a lot of power. Our technological choice gives us the ability to better address the, especially the grocery retailers with a 4-color ESL since we basically need less energy to drive them. So unlike some on the base solution on a radio technology, we will be able to promote this as a standard ESL in the store. So if you're a grocery retailer, let's say, in the U.S., this is the opportunity to get 4-color with a long lifetime, using all the use cases with pricing. I think it will be difficult for anyone else to actually do this.So we are doing a lot of pilots. We're in a lot of dialogues, and we can see, especially in the U.S., also in the U.K., also in Australia. This has been a requirement to open the door to the grocery market, and I think that we are now opening the store. It's extremely good. The convergence of ESL and digital signage, so the possibility to pretty much, communicate over any screen in a store to do advertisement and to work together with the brands. We can see that the interest from existing but also from new customers now on the converged solution where you do both the ESL and the signage is tangible. We are in a lot of interesting customer dialogues right now in many different markets. And we will launch a product or a solution with a combined ESL signage solution during autumn. So please keep your eyes open. So this should be good news for all the customers globally.So next slide, highlights on the report. The order intake was really good. It was the -- actually, the second best order intake that we have had in ever. It's a big increase year-on-year, but also an increase quarter-on-quarter, which is, of course, really pleasing given that we had a really good first quarter from an order intake point of view. It's not one single customer, but we have had a lot of good orders from many different customers, which is extremely reassuring. We got the order from PLUS. We've got a renewed trust to continue the deployment of the stores that are in the previous co-brand. So we will start deployment in the fourth quarter.We have worked a lot with our capability to supply both from a production point of view, from a logistics point of view, but also from capital point of view with the customer, the payment terms that we have agreed. And this has resulted in addition to the good work done by the sales team to actually win business that we have improved our capability to deliver business. So we shortened the lead times. We improved the cash flow, but it also meant that we've been able to supply more to the customers. And for some of these customers have been quite hungry for business or for components, they actually simply place more orders once we actually fulfill what it already placed. So very satisfying.The -- something that is not as satisfying is, of course, the profitability that was negative for the quarter. We are taking several initiatives to address this to get the product margin up and to actually look at the operational -- our operational costs as well to get them down. We are looking on the factory that we are now deploying in Germany, for plants, we will start producing in Q4, and those plants, they remain. We are in discussions with the suppliers of components, display, et cetera. We are just looking at the way we do the transportation. But of course, we're also discussing with our customers. We are initiating the discussion on price increase. And they are aware and they are taking the discussion. They might not be appreciating the discussion, but with actually quite a few customers, we are also increasing the prices in cooperation with them.For the price increases, of course, we would like to see the impact immediately, but a little bit depending on when things are delivered and what the contract looks like. There might be a delay in actually when we can see the improved profitability. But those discussions happen and we have taken that with quite a few of our big customers or actually we've taken with almost all. So that will be results over time. Additionally, we are, of course, looking at the organization. Do we have the right people in the right place? So we organized the right way. I mentioned in the Capital Market Day that we will increase the agility and that will create the Pricer edge sites to make sure that we -- in addition to the operations that we have in Stockholm that we also have a few more sites in other countries, where we will employ staff.Finally, we had this very successful Capital Market Day, June 8, where we representing the corporate strategy, but also the financial targets for 2025. So on the next slide, I will show a little bit about the strategic objectives as the recap for those of you not participated. On the target side, we plan to deliver SEK4.5 billion in revenue by 2025. And I think maybe not more importantly, but importantly, we plan to do it with a 10% recurring revenue out of the total. And this transfer, I think, will be one of the key things that we do. This will be one way, of course, to improving profitability over time.Next slide. So how will we achieve this? Well, the first thing we said we're going to strengthen the sales organization. We have now created a regional sales organization. So we have Charles Jackson heading Americas as before. We have much on hall a Pricer a long timer that is now a leading region is Europe, and PI is selling up, another Pricer long timer that is taken care of Middle East, Africa and the APAC region. And we can see that there is a really positive dialogue, I wanted to increase the customer proximity to make sure that we, also in the management team, get more input from the market needs. And I can see the results already now, which is good.Increased agility. Here, we are looking at how can we improve the speed of development, how can we make sure that we get more product out to the market faster. I think the signage solution that we do will be one point that we will see that, yes, we have made up our mind. They will come and it will deliver it. But we're, of course, also looking at the way we're working. We have also here we organized on the R&D side, where we have an organization that is a little bit more closer to the way we deliver services or products and developed products.Supply leadership, we will continue to work with all our vendors in a partnership mode to make sure we jointly lower cost. We look at the production. If we are successful in Germany, I think we've proven that having this almost fully automated production is something that we can deploy in many different places. And that having something that is very close to customer will be beneficial for the future, not only to lower the cost and lead times, but also for the carbon footprint. Finally, to actually do the 10% recurring revenue, we need to look at the business model. So also here, you can say that we aim for a cloud-based technology setup where the recurring component will be an important part, but also important for the customer because that will give them the flexibility to add or take away features that they need, maybe they need it for a time when they need it for a longer period of time or should be something that's more consumption based. These are the kind of functionality that we expect in the future.So these are the key strategic objectives. So I'd like to hand over to Susanna. So Susanna, I would change to your side now.

[Susanna Zethelius, executive]

Thank you. Great. So I'm Susanna Zethelius, CFO at Pricer, as you've heard. And I mean, you've all seen the report, you've seen the numbers, and you've also heard a bit about it from Magnus side. So I would just comment on the numbers and starting with the sales side. So we can see that it's been a very, in our view, very positive quarter for us in Q2. I mean both in terms of order intake and also in terms of net sales. Starting to look at order intake, we had SEK581 million this quarter.O it was like Magnus said, that was second that quarter than ever. And a couple of the highlights we have the plus order that came in recently and SEK90 million, 128 stores, I think, that will be rolled out in the coming couple of months. Like Magnus also mentioned, especially good to see the strong demand in Sweden as our home market. So it was the best quarter for order intake in Sweden ever. And this is, I think, a clear sign that this inflationary pressure that we see in the environment really turns into business for us. And so we're leaving this quarter with a backlog of SEK542 million that will be rolled out in the second half of this year and also into 2023.Moving over to net sales, SEK530 million, which is plus 36% versus same quarter last year, this is our third best net sales ever. So we're very pleased with this number as well. Looking a bit at the regions and where the sales is coming from, you can see on the map here that it's especially in the Americas, where we've seen a very, very strong growth compared to the same quarter last year. So almost doubling from SEK128 million to SEK244 million and this is really driven by the accelerated rollout of Canadian Tire, like Magnus also quickly mentioned. So this has been the main growth reason for this quarter.Moving to EMEA and APAC, it's still solid performances. Notable markets in EMEA, like many times before, it's Norway and France, where we have strong performances, but also APAC where, I mean, the numbers are smaller, but it's almost doubling versus same quarter last year, so positive on the sales side.Moving on to the profit side. I mean this is also similar to what we've been talking about the past few quarters. Now I mean, we're landing slightly below 0 when it comes to operating profit. It's really primarily driven by this pressure in gross margin that we've experienced for the past few quarters. And it's the same reasons. It's the availability and cost for the transport. It's also components adding a pressure here. And then, of course, we're trying to do our best to flow price increases onwards to customers. And in some cases, it's easier and in some cases, it's a bit more challenging. In this quarter, we had quite a lot of our business coming from larger deals where prices are already tied up. So in this quarter, it was a bit more challenging to flow price increases onwards.Then finally, like Magnus mentioned as well on the OpEx side, it has been an increase versus the same quarter last year. It's been -- we have been hiring more people this past year. It's also been an increase in marketing costs. And I think that's something that we want to do. I mean, going out of COVID, we need to focus more on the marketing side. And then there's also been a couple of couple of one-off effects, improving the organization and taking costs as a result of that. So that's on the profit side.And finally, a couple of comments on cash, where we've had a challenging year, but it's actually been some positive signs for this quarter. So we had a positive operating cash flow of SEK50 million. We improved the working capital with SEK32 million this quarter, and this has really been the result of the targeted work with both suppliers and customers in order to improve payment terms and the cash situation for us. So that's also on a positive, I think, for us.With that, with those few comments here on the numbers, I would like to hand back over to Magnus.

[Magnus Larsson, executive]

All right. Thank you very much, Susanna. So I will go for the next slide, which is sort of summarizing what we've done. And it's the same summary that I used for the Capital Market Day because I think it really sums up what we're doing and what we want to do quite well. The first thing is that we can see that we have a market that is growing fast, and I'm really happy with this quarter to also show that we are capturing this growth. We do take the orders. And we do turn them actually into revenue. And I have all reason to believe that this will continue. The market is growing, and our ambition is still to grow faster than the market.Thought leadership, I haven't spoken much about our products right now, but we will continue to deliver retail-grade products for the stores. They require something that is durable that lasts and have a long lifetime from an energy point of view, that's responsive, and that's something we can deliver. But we're also now combining it with the SaaS service, of course, and the being technical agnostic. So what we've done also, we have decided that for -- we want to be the vendor that can deliver the best solution for any given market, any given use case. And one thing where we've seen that it's been a little bit more difficult is, of course, to use optical for outdoor, for example.So here, we will combine it with saying that we can do radio for outdoor installation as an example. And I think this combination will be extremely appealing. It will also give the retailers the possibility to get a unique and best solution from Pricer because there's no one else right now in the market that can actually do it, combine the best of breed in the way that we will do. So I think that this will give us yet another edge in the market. So we'll continue to do the infrared the optical solution where it makes most sense in the high-density stores, in the retail stores. But for specific areas, we will have radio like the outdoor it could be something that is even combined.In-store communication, this will be the key thing. We are priced and we help out with price changes. But above all, we are helping and enabling the retailers to do in-store communication over any kind of screen. So if you want to communicate with your customer on the pricing on information on where to find the product you want, to even make sure that when they come, there is a product on the shelf, we can do that. We are also enabling the communication with the staff of the retailer to make sure they know what to do, maybe how to do it if they knew and to make their life easier to make sure that they are more effective. But we also now with additional signage part allow them to effectively communicate with the brands and with the consumers, doing campaigns, promotions. It could be for the own brand or it could be for one of the CPGs, the consumer packaged goods manufactured where they jointly do commercial.And finally, we are investing to grow faster than the market. In the sales side, we are looking at the organization and how to develop it to make sure we have the right fit for the market in terms of set up production possibility to deliver, but also from a cost point of view. And of course, we are investing in getting the recurring revenue setup that will require for the future growth. So -- and to just reinstate our targets are SEK4.5 billion 2025 -- by 2025, and 10% of those should be recurring. So this is what we target, and this is what I want to achieve and exceed.So that's pretty much for me. So I think we should open for any Q&A right now.

[Operator]

[Operator Instructions] It looks like we have no questions today. So I would like to turn the call back over to Magnus Larsson for any closing remarks.

[Magnus Larsson, executive]

All right. Thank you very much. So I would like to thank you all for dialing in or for those of you that watched online afterwards. Thanks for watching. I hope that it was informative. We will come back, of course, with the Q3 results in 3 months' time. I think personally, I'm more for an ice cream. It's pretty hot. It's one of the warmest days in Sweden, and I hope that you also get the chance to have a good summer. So thanks a lot. Bye.