Pricer AB

STO:PRIC B

Earnings Call Transcript 2023-Q3

[Magnus Larsson, executive]

Hello, everyone, and welcome to the presentation of the third quarter result for 2023. My name is Magnus Larsson, and I'm the CEO of Pricer. And with me today, I have our CFO, Susanna Zethelius.As usual, we will start with the presentation, and then we will actually end with a Q&A session. So if you have any questions, I think you will actually find the link for the questions or the e-mail for the questions. So please send them and then they will be moderated by Cecilia, our Head of Communication at the end.So I would like to start, as I've done for the last quarters with our vision. And our vision is to be retail's first choice, excuse me, in shelf edge automation and communication. And what does that actually mean? Well, it means that in every single interaction with our customers and potential customers, we want to be their first choice. We want them to feel that if I get the choice to make whatever choice I want, well, I want Pricer, I think they were the best in the way they approached me, the way they made the offer, the way we actually concluded the agreement, the way they deliver and the way they support me and the way we discuss forthcoming business. And of course, we need to have the right kind of solutions for them. And we focus on what we call shelf edge automation and communication.And what that exactly is, is something I'm not always going into detail. So I thought I would actually spend a few minutes and a few slides on actually what it means and what we solve for our customers. Gartner made a report, they call it the Retail CIO Priorities 2023. And they identified something in this report that they call the triple squeeze. And that's the environment in which all the retailers are actually living. You have the historically high inflation levels, which also seem to be quite persistent in most markets, affecting them. In many markets, we can see U.S., notably. Now also the U.K. market after Brexit, but also a lot of European markets are having difficulties actually attracting and getting labor. They can also see that labor cost is going up, but I think it's even more of a problem for them to actually get the labor. They also sometimes have quite a high churn rate as well.Capabilities of staff has also been something that is difficult to develop if the churn rate is higher. So this is another driver that's actually affecting them. And as a retailer, many have seen actually a continuation of the supply chain disruptions. So all these things have, of course, affected the environment they live in, but it also affect the appetite and decision to invest and then preferably in technologies like the ones that we actually provide. And these 3 drivers are affecting in different ways. So as part of this study, there were also a lot of questions on what are the key investments and what are the objectives of the digital investments you plan to do or that you actually did over the last 2 years. Well, it was a lot about the efficiency. It's a lot about the shopper experience, the experience, actually the in-store experience.#2, growing revenue is not very surprising. But these are, in essence, focused around the customer experience, the revenue growth, but also the cost savings and the ability to actually deliver in the store. So how do we address this? A lot of you that have been on several calls, they will probably recognize us as a company that sells shelf labels. But we are actually much more than that and especially the way we sell ourselves to the customer, the sales story and the sales pitch that we have is about the solution and how we help them improve efficiency, lower cost. That has been one of the areas where we've been very strong. But now we are increasingly speaking about how we can help them to increase revenue and how we can increase them to really improve the shopper experience, their customers' experience in their store.And you can say that based on the previous drivers and the objectives of the digitalization, we meet quite a few of them. Our label solution helped them to improve the operational excellence. Instead of having paper tags that need to be replenished manually or changed manual as the prices change, well, they do it digitally. They use these labels to actually direct their staff to be more effective and make the picking of online orders or replenishment on new products more effective. We use digital signage as you can see in the middle to help them grow revenue. How can we increase the appetite for shopping while in the shop? So here, we help them to do appealing promotions. But it's also the cooperation together with their suppliers, the consumer packaged goods suppliers like Unilever or Coca-Cola or Procter & Gamble. Here in cooperation with them, we can also do appealings campaigns to increase revenue but also to get revenue from the actual supplier.And then how can we utilize actually both these solutions to improve the experience in-store? It could be everything from sharing information on ingredients or content of a specific product, but it could also be how to use that product to cook a meal. It could be finding the product, help them to actually get the products they want. So we're trying to work with addressing all these areas that at the end, someone that choose to work with Pricer, we should help them to actually be more effective. We should also help them to grow the revenue. And at the end, we should actually participate in their customer journey, the customer journey of their shoppers to make it a more appealing place. So this is the way we position ourselves. And then it's something that we can see. And especially combining it now is getting a lot of traction.Going to a little bit more of a business outlook. Well, I've talked a lot about Four colour labels. And over the last couple of quarters or more where the four colour has gone from something which catches interest to a hype and growing interest to pilot stores, initial orders. And now on a few markets and here, I was actually thinking out, New Zealand, Australia, and Sweden, we can actually see that we're getting a very heavy momentum on four colour. It's actually one of the key drivers for ESL installation right now. So in this market, more than 30% of our orders in Q3 were four colour labels. And so far this year, Q1 to Q3, more than 25% of the revenue in this market were from four colour labels. And here, we can see a fundamental shift and a fundamental shift in ask from the customers.In this market, this is the primary choice. And there is one larger retailer in one of these markets that actually said that four colour should be the preferred choice for the franchisees when it comes to actually installing in their stores. Because what they can see is that when we come to the shopper experience, when we come to the way they present themselves, it simply give them better possibility to both represent the brand but also to gain attraction -- attention and attract the shoppers. It's easy for them also to make the kind of promotions they want and campaigns. And what we've seen in this market is something that I expect to see further in the North American market and the U.K. market, plus a few more markets. Then speaking about the U.K. market, it's a market that's gone from relatively cold 2 years ago to be maybe smoking hot. This is a little bit too enthusiastic wording, but we can see that there is a lot of potential.We are in multiple customer pilots. We have a number of initial installs, and we actually have several customer engagements that really enforce our view that the U.K. is a highly strategic market. And we can see that pretty much all major retailers are now discussing digital signage, they're discussing electronic shelf labels, and they are discussing digitalization of their stores. So it's an interesting market. We believe that we will see a lot of things happening on this market and over the coming couple of quarters. Same, I would say, goes for Spain. Last time I did a -- when I did the quarter 2 or the second quarter report, I was actually doing it from Madrid after some meetings in Spain. And the decision by Carrefour to actually start the deployment of ESL in Spain, which we initial phase was actually 3 pilot installs. It has been very successful.And the orders, the positive growth you've seen in the report for Q3 is actually from Carrefour's stores in Spain, but we start to see the ripples on the order now as well. So since it's known in the market, they are now doing this investment, and they're planning to actually do large digitalization of their stores, we get a lot of interest from other both grocery retailers, but also other segments. So also for Spain, I'm very positive and have a very positive view on the future, actually also this year in Q4, but also into next year.On the U.S. market, we still see the continuous interest. We see there are a lot of discussion. We are in a lot of discussion just like in the U.K. We have concrete deployment discussions with several larger retailers. It's very hard to make an assessment when exactly and then what would be the size of initial business. But we can also -- I can also say that we see a clear interest, we see investment budgets in place and the discussions that we are having are concrete. So even though, of course, I would have wished to see something tangible already now, I do not feel concerned by the fact that we haven't had tangible orders that we can actually communicate so far. And we actually did announce the order -- the contract, the frame agreement with AFS, which is a retailer with -- cooperative with 450 or 500 stores in a few of the mid states in the U.S.And finally, I would like to mention digital signage. It's pretty much part of most customer discussions now. And what they like is the ability and what we do is that we can then enable the communication on any screen. It doesn't matter if it's labels, displays, even paper tags to actually to have an agnostic approach. And I think this is our ability, especially for retailers who will feel that maybe we will do not a full store install, maybe we want to focus on a few sections. To be able to say that, yes, we are able to engage in a way that you can manage both environments, of course, from our point of view, we hope that we'll see that there will gradually be full-store deployments. But I think this has been an important point in some of the discussions. And I can see that there is an interest on the market in more general terms in this kind of setups as well. And I think that will be very interesting also in the American market.To the right, I'm just reinstating our financial targets. For those of you that you've heard them and want us -- want to hear me say again, our target is actually, and for those that haven't heard it, our target is to do SEK 4.5 billion in revenues, which has gone up by during 2025. And of that revenue, 10% should be recurring. What I would like to conclude with before handing over to Susanna is the bragging part of the presentation, some of the new agreements that we won. And I think most notably, I would like to mention our win in Finland with S-Group. S-Group have roughly 1,000 stores. It's been an extremely positive experience to work together with S-Group and their very professional team. I would state that I've seen -- I feel it's a partnership. I'm really happy for this engagement. We have communicated that their ambition is to do 300 stores or more than 300 stores, and we said that will be over the coming couple of years. I cannot go into any details, but I can see that the plan is now -- that the current plan is an accelerated plan. So I have a very positive view on 2024.Also very happy, of course, to get an order with a leading Norwegian grocery retailer, which is something that will be deployed over the coming couple of quarters as far as I understand. Actually, I know, but I cannot specifically do it, tell you specifically how it will actually pay off. We also see one partner, one Praktiker, which is a Bulgarian do-it-yourself retailer, full chain installation, really nice stores. And I'm also very happy to see this, the Bulgarian market continue to grow and not only in grocery format. So we have grocery, we have home electronics, and we also have the Praktiker and do-it-yourself. And just now, a few days ago, we announced also our frame agreement with or supply agreement with Associated Grocers, which have 650 stores or associated stores in the Canadian market. It's also a very important one because it's a large group, and it's food. And actually, the first store we have done for them is four colour.So I think that will also set the -- hopefully, we'll see the same development now in the Canadian market as we have seen in Sweden, New Zealand, and Australia. And as before, if you have any questions, we'll take them at the end. And having said that, all that, I would like to hand over to Susanna.Susanna, the stage is yours.

[Susanna Zethelius, executive]

Thank you. So the next slide, please. So a bit more look at the numbers in the report and starting with the customer side, so sales and order intake. And just one comment, maybe more for those of you who haven't been following us for a long time, I think it's important to remember that when it comes to customer demand, both sales and order intake, it normally isn't smooth across quarters, but it's quite normal, as you will see as well on the next slide that there is some variation across the quarters, but the general trend remains very positive.So with that said, if we look at net sales, we landed on SEK 622 million for this quarter. Year-on-year, it was up 8%. Adjusted for currency, it was up 2%. Order intake, quite in line with same quarter last year, so down 4%. And a few comments about each of the regions, starting with Europe. Revenue-wise, we saw a very strong quarter in Europe, up 36% year-on-year. That was primarily driven by France. Looking at order intake for Europe, we were slightly weaker in France as a result of large order stocks being rolled out. We also saw some decrease in demand from Scandinavia, a temporary decrease as we deem it as Magnus will talk more about. Then we had Spain and Italy as strong markets in order intake.Moving to the Americas. It was a decrease in revenue versus the same quarter last year. And the main reason here is the delay in rollout with our major Canadian customer. If you go to order intake, more on par for Americas with previous year same quarter. And here, we can see a slight decrease from North America, which has been largely compensated by Latin America. And then our smallest region, APAC showed strong growth in revenue, and that was actually coming especially from Eastern Europe, which despite the name is part of APAC. So Bulgaria, Romania, and Hungary, primarily. On the order level, APAC was slightly down.So next slide, please. So here, we have order intake, net sales, and gross profit for a number of quarters over time. And I think for order intake and net sales, we already talked about those. But here, you can clearly see the upwards trend, but also the individual fluctuations between quarters. And if you look at order intake, specifically, you can see that both Q3 '21 and Q3 '22 had a dip that was then compensated. And then gross profit and gross margin. So the last few quarters, we've been talking about the improvements in the gross margin that we were expecting. We were expecting it to be more visible in Q3. And here we are. So now we're happy with gross margin for this quarter with 18.1%. So a clear increase from last quarter when we had 16%. And it's also the highest single quarter since Q1 '22, if I'm correct, you can read it in the chart as well. So clear continued positive trend. The reasons behind this is primarily component costs. It's both due to external factors, so a general decrease in certain component costs, but it's also due to internal factors and lots of hard work from us internally in many different areas.It's about renegotiating supplier agreements, finding new suppliers, and many, many other things that will -- some are giving impact in the short term and some more in the long term. These positive movements on the component side is sometimes somewhat off or balanced by when we have large rollouts for customers in markets with more price pressure. So that's -- these effects are sometimes balancing one at -- in different directions. But all in all, we expect this positive trend to continue into next year.Next slide, please. So EBIT and EBIT margin. And comparing with same quarter last year, I mean what's contributing in a positive way is, of course, revenue higher than last year and also the gross margin. And then on the other hand, we have operating costs that have been increasing. I would say that the main drivers behind this increase is inflation. And to some extent as well one-off costs related to improvement in projects that we've seen during the quarter. And the amount of those one-off costs, I would say, is a few million SEK. Good.So a few other comments just before finishing. As you know, we announced the share issue that was completed during the quarter, and that gave us a cash contribution of roughly SEK 280 million. On the cash flow side from operations, we had a negative SEK 86 million, and that's due to slightly higher inventory tie-up due to delays in projects. And then I have received a few questions regarding the Ture loan in the agreement. There is -- they had an option to decrease the loan amount from SEK 250 million to SEK 200 million after the share issue and they have decided not to exercise that option.So that's it from me. And with that, I'm handling back over to Magnus.

[Magnus Larsson, executive]

Thank you very much, Susanna. I wanted to also give you some feedback on what has happened during the year. I've had this slide in, I think, both the Q1 and Q2 presentation on what we're doing to capture the market. So I thought it might be good to do a status update. So in terms of sales and delivery, we have focused on strengthening our presence, both salespeople, sales engineers, service people, and administration to be able to actually manage the growth that we foresee and that we have actually managed to deliver. And we have focused on U.K., Spain, and the U.S. But also additionally, existing markets as France and Italy to actually address the growing markets that we're seeing in this comparably mature markets. So it's been a clear focus on building capability to both sell but also to deliver and make sure we have happy customers at the end of the day.We have now inaugurated the local R&D site in Taipei. We have more than 10 people now employed. It's operational, and it's been a very positive experience. So very grateful for that, and it's been going pretty much according to plan. A bit slightly slower, but on the other hand, the result has been better than I was hoping for. Supply leadership. We have set major cost improvements, or actually, we have achieved major cost improvements on components, on assembly. Our production in Germany is up and running, and it's actually providing customers now with the only ESL on the market that is made in Germany. In fact, it's the only ESL that's made in Europe. And on cloud tech, all the development that we do right now have or should have a cloud part. We want to make sure that all -- at the end, all configurations, everything we do should be set somehow to our SaaS service.So this is continuous work. Most of the, I can't say all, but the vast majority of the orders we win are Plaza, so our SaaS service. And we are actually working now together with Google on a migration project from our on-prem or PC-based solutions to cloud-based solutions. So that's ongoing. And of course, I would want it to run a little bit faster, but we have good progress. Yes, next slide, please.So now it's a slide summarizing Q3 2023. During the first bullet, I had a lot of different versions. And I just realized this, this was the one that felt the most. We have had a fantastic year in France. And I think it's fair to say that we have actually established ourselves as retail's first choice on the French market. We have seen good growth with existing customers. We have won new customers. We have had customers that have been on alternative technologies that have now chosen to come back. I think that we are the one that have won the most and delivered the most. We expect to deploy nearly or actually more than 600 stores in France this year. I'm also happy to see that the continuous work, as Susanna mentioned, to improve gross margin has resulted in the highest gross margin, a tangible improvement since Q4 2021 when we had 20%, 20-plus percent, I think, something.On the revenue and order intake. Well, it has been affected by delays in two of our customer project. It was covered by Susanna. And I think that we can say that in Scandinavia, primarily Sweden, we have seen a temporary slowdown very much due to the macroeconomic uncertainty where many retailers haven't -- they felt the pressure not to increase the pricing at the same level as inflation has been driving it. So we've been speaking to several franchisees saying that I want to invest. I will invest. It will be Pricer, but I will actually do the investment next year. And I'm also happy for the order intake that we could see a clear spread across several markets versus then the third quarter last year. Spain, Latin America, Italy. And of course, as mentioned, the September announcement of our frame agreement with S-Group. It's not only about the significant partnership that we've formed. But I also see, as mentioned, the substantial revenue potential for 2024.So despite a mixed quarter where the order intake was not on the level that I would have wished, I always want to break every quarter and do better continuously, I still look at the future with confidence, and I feel happy with the discussion that we have with potential customers, and I'm really happy for the contract agreements that we've won. And I see the potential in those agreements.So having said that, I think it's time to open up for Q&A. So Cecilia, do you have any interesting and hot questions for us?

[Cecilia Vinell, executive]

Yes. So how about the new production line in Germany? Is this going according to plan?

[Magnus Larsson, executive]

It is going to according to plan, a bit, a little bit slower. So we are almost fully in full production. Being a new production line, we have had some minor hiccups. We have had some delays but when it comes to the production time for an ESL, we are almost on the I wished for speed per ESL. And we can see that we are doing continuous improvements week by week. But in essence, we are almost on the capacity that we are doing what we're achieving or wanted to achieve.

[Cecilia Vinell, executive]

So -- and how about Germany and Italy, i.e., are you still focusing on these markets or have you changed focus to the U.K. and U.S.?

[Magnus Larsson, executive]

We have a clear focus on U.K., Spain, and U.S., actually Germany as well as developing markets, markets where we haven't really had any presence. We still have a focus on the Italian market as well, and we are investing in that market. So I would say in market, Italy is, from a price point of view an established market, but I see that the -- there is still a lot of growth potential in that market. And consequently, we have invested in the necessary staff to actually capitalize that growth. The German market, I feel that we are behind since before. So here, we are doing more of the groundwork. So we are in dialogue with a number of the large grocery retailers. They are from early discussions to a little bit more advanced discussion. The target is clearly to be able to win with one of the Tier 1s during next year.Of course, this is not a promise. This is a target. So let's see how we manage. But we can say on the German market, it's a little bit about a retake. We need to show credibility and we need to show the German market that we are, should be retail's first choice also in Germany. But we have to -- I have to be mindful of the time it will actually take to reenter the market. And even though we've had presence, I would say, reenter because we haven't won any of the large German retailers.

[Cecilia Vinell, executive]

And can you tell us something about the growth on the global market? Can we expect growth considering underlying drivers on the market?

[Magnus Larsson, executive]

It's -- I still see a growing global market. What I can see is that there are certain markets like Scandinavia, where we have seen a slowdown, what I perceive as a temporary slowdown. But I also see that there is a lot of budget allocated in many -- across many countries actually and across many different retailers. So I do believe that there is a large appetite for investment. We haven't seen any decline in the number of customer engagement. We haven't seen any decline in the number of customers actually approaching us and want to do -- they have -- they actually do a tender or they want to discuss expansions. So my assessment is that the market is still growing at very high speed, even though we can see specific markets where you will have a slower growth or a cool down. So maybe before the next question, still positive.

[Cecilia Vinell, executive]

And how about costs? You mentioned that in your CEO letter. Will you start looking at the cost reductions?

[Magnus Larsson, executive]

We are -- we have a number of initiatives to actually reduce cost that we have started. And we expect both short-term and longer-term results of those actions. So I think we can say that we do feel. And correct me if I'm wrong, Susanna, that our OpEx is higher than we want it to be. And I think I focus very much on OpEx per employee, where I feel that we are clearly too high. And that's something we will address.

[Cecilia Vinell, executive]

And how about inventory? The question is when will it go back to normal level?

[Magnus Larsson, executive]

Susanna, I guess that one is for you.

[Susanna Zethelius, executive]

No. I mean I would say that as long as there wouldn't be any additional delays, we expect that to normalize during the fourth quarter.

[Cecilia Vinell, executive]

And another question for Susanna about net financial income expense which amounted to SEK 18.9 million in Q3 compared to SEK 11.2 million in Q2 and minus SEK 12.1 million in Q1. Can you comment on the difference and --

[Susanna Zethelius, executive]

Yes. I would say in the third quarter, there is an FX effect that's increasing that amount versus previous quarters.

[Cecilia Vinell, executive]

And yes, so this one was inventory. I think this summarized the other questions. Yes.

[Magnus Larsson, executive]

All right. Thank you very much for the facilitation, Cecilia. And should you have any additional questions, you can still send them and we'll try to get back as soon as possible. I would like to thank you for joining the call. I hope that you found it interesting and you got the information you were looking for. So having said that, thank you very much, and we'll meet again on our Q4 report. Thank you very much. Bye-bye.