Pricer AB

STO:PRIC B

Earnings Call Transcript 2022-Q4

[Magnus Larsson, executive]

Hello, everybody. Welcome to the presentation of the fourth quarter results 2022 from us at Pricer.

So it's me Magnus, and Susanna sitting here next to me in the same room, who will do the presentation today.

Next slide, please. So I would like to start our quarterly report by speaking about our vision. Since we last made a presentation of the Q3 report, we spent quite a lot of time on continuing the development of our strategy. And as part of that strategy, having a very clear and appealing vision has been, of course, an important part.

It's a tool for us internally to direct everyone on what we want to do, but it's also a very good tool for us to create clarity when we actually engage with our customers on what exactly they can expect from Pricer.

Our vision is to be Retail's first choice in shelf edge automation and communication. And what does that actually mean? Well, Retail's first choice, it's -- I want to make sure that Pricer is the first choice in every single interaction with our customers. So from the first time they meet us, it could be in-person or through the web page at an event, at the sales call, I want them to feel that the Pricer staff are on their toes and that they get a really good response and a good feeling from that meeting and that interaction.

Same goes when we do our first offer, when we do the first technical discussions. When they place an order and the response they get from the team, they will help with the order administration, the delivery, they have a problem and they contact our support. I want every single interaction should generate the impression that will -- this was really good. And I would recommend Pricer to anyone, and I want to use them again. Thus, first choice means that we should be #1. Of course, it would be nice to be #1 in all markets. But it's not necessarily.

We want to make sure that we are the first choice for the potential customer, a new customer that they feel if it was up to them, they would always go with us. But then for different reasons, we might actually say that we do not feel it would be worthwhile to be #1 in a market where we're already strong enough because the investment as such might actually be higher than the potential gain from that investment. So we want to be the first choice for the Retail, but that's not the same as being #1 in every single market where we actually engage. We might be happy with position #2. Whereas in certain markets, we absolutely want to be the first choice and #1.

Shelf-edge automation or shelf edge, that's something I discussed quite a lot with the management team. What does that mean? If you're a retailer, shelf edge means, anything in the physical store, any kind of screen, any gadget item that you have in the store that's not the actual shelf or the product they sell, it's shelf edge. So when we speak about shelf-edge automation and communication, it's actually using our ESLs and using the different kind of screens to communicate, regardless of where in the store they are. It could be on a television screen, it could be LED screen, LCD screen, of course, our ESLs, but it could also be the smart watch on the wrist on an employee, if they do that kind of communication.

Automation, it's about all the stuff that we do to make life easier in the store. And communication is, of course, the communication with shoppers, with staff and with the suppliers. So Retail's first choice, in shelf-edge automation and communication is something that you will see and hear more about.

We have tested it with 1 of the top 10 retailers in the world. And without going into details on whom it was, they were actually delighted. And I say, we're happy to see that unlock many of the other vendors on the market that you are actually very, very clear in how you engage and what you provide in the retail tech space.

So I hope that this will be appreciated. And it will also give us the possibility to measure the performance of what we do in every interaction towards the actual result. So this is our vision. You will see more of it.

We also developed new set of corporate values. And I think I'll save those for Q1 to make sure that there will be something that we'll build some suspense in the communication. But I'm really happy to present this.

Next slide, please. So what happens in Q4? Of course, I'm extremely proud to say that we had the best revenue ever in the history of Pricer. Susanna will go through the figures in more detail. And we have the second best order intake. So this has been, of course, an immense work from the sales team, but also from the delivery team from making sure that the ESLs have been produced to make sure that they actually reach our customers that they are deployed and that they're invoiced. It's been a fantastic work.

And of course, also looking at the R&D efforts behind getting all those products in place. So it's really a collective work. It's a teamwork. But for this specific quarter, I think, it's been a magnificent work by our regional teams that really made sure that they got the orders and actually managed to deliver them. So it's been a fantastic achievement.

We could see that in Q4, we had very strong order intake. It was across most markets of the existing one. I would like to highlight the fantastic performance in Italy where there was a very high growth. We have been working closer to a number of customers. We can say we've been rewarded by corporate goals actually. Got a question on PLUS, I will answer that later. But we can see that here in Italy, they had strong focus and that we're getting PLUS across all our customers. And we get a very positive feedback and momentum on that side.

When it comes to the revenue growth, we -- I sort of expected France to do well. But France has done very well. We can see a very strong growth driven by especially independent store owners that are part of a retail chain. It could be like Carrefour or someone else. I'm not sure I'm allowed to say exactly how much better, but it's been much, much better on the individual store owner.

So you can say that there is a store owner, they know they have the possibility to buy, they have money, and they make up their mind and they do it immediately. So it's been -- it's more than doubled. It's actually more than tripled. That's all I have to say, but it's been very good uptake on that side. And we showed similar pattern in many countries where we actually have someone part of the cooperative or being a franchisee.

And on Canada, as you probably know, if you've been following us for a while, we have a big customer called Canadian Tire, but also with the help of our partner that's serving the French-speaking part of Canada, we have seen that we managed now to expand -- this is very much [ natural ] we have done some of our own as well, of course. But we have been extremely successful in spreading the sales across segments. So it's not only grocery, but we have done grocery, we've done do-it-yourself, we've done pharmacy, we do general retail, we're also doing home electronics.

So -- and it's extremely nice to see that we have actually managed to accomplish this because even though we have done really good -- and Canada is by far our biggest market right now. We still see there's a lot of opportunities for growth, and we see that what we do in Canada is something that is also strengthening my view that we will be able to do the very same thing on the U.S. market.

And finally, as a fifth point, the profitability of the fourth quarter, together with the profitability of the third quarter, has now ensured that we are being profitable on the full year at the bottom line. So it's been -- it might be too early to say it's been a turnaround, but let's say it's been a small turnaround where we actually went from loss in Q1 and Q2 to small profitability in Q3 and a much better profitability now in Q4.

And of course, I do expect that we will see continuous growth and that we'll continuously work also with profitability during 2023.

Next slide, please. So now that I'm done, but bragging for the fourth quarter, let's look at what the market is actually offering.

We started the year now with the National Retail Federation, their exhibition in New York. In January, it's a 3-day event where you have pretty much all retailers from the American market, but also quite a few European retailers coming to this and actually some Asian as well. It was by far the best exhibition. If I look at my entire professional life, starting since I was in my 20s to now, it was exhibition with a good attendance. It was attendance of customers, the right kind of customers, both stuff that were booked, but also the surprise meetings. And above all, it was filled with retailers that plan to make an investment. We can see that whatever we have predicted on the growth in the American market -- in the North American market, also the Latin American market, it's about to get fulfilled.

We have retailers with a need and wanted to actually discuss tangible business. And one of the things they wanted to discuss was four-color. And we stood out among the ESL vendors at the exhibition since we were pushing four-color fully. We had a lot of discussion on four color. We had customers that have been buying two-color, three-color. Segment is -- says that, now let's discuss four color. We had new customers that said we are really engaged and we really want to discuss four-color with your guys.

And we also realized that we are the only company right now in the market that is actually pushing it actively. We could see that the way that other position themselves were different. We could see that we're not actively pushing for four color. We know the reason why, it's affecting battery life and we are in a different position than anyone else to capture the opportunity to actually do the four-color.

I expect that what we do, the way we address the market in the U.S., the way we work with four-color will have an effect on our sales over time that what we have now, what we see in our plans, which we are planning for will materialize.

Another interesting effect that I've seen now, our feedback that I've had, both from the journeys I've had now in Asia for the last couple of months, but also in the U.S., is that the effect of inflation, the frequent price changes, the -- but also the store optimization where the flash is used to help the stores that do the work effectively is now causing problems with some of the radio solution vendors. We had a large retail. I cannot go into details. Just specifying that actually they need now to do a big reinvestment because actually, their ESLs are not working as per plans.

The batteries are dying. So we have had now several retailers coming back to us and said, Pricer please, let's have another dialogue. We do believe that your system is a really good choice for us because we do face unresponsive ESLs.

I've spoken about U.S. in the third quarter. So I thought I might make a quick update here as well. We see that the number of requests, the number of pilots and actually the number of commercial wins is increasing. And I know there's a lot of investors out there that are waiting for this big press release saying that now we want these major retailers.

And what we do now is that we are actually building the capability to get these press releases into the future. We know that it requires hard work. It requires tests and tests and tests and then the proof that this will actually generate the money that the retail is looking for. And we have a lot of these tests ongoing, and we got a lot of feedback. Does that mean that there will be a press release tomorrow -- or -- no. Not necessarily. Doesn't even necessarily have to mean that it will come this year. But it means that what I see now based on the number of discussions we're having, I'm confident that we will meet the targets that we've set and that we will actually do good business for our customers. We will help them, and we will make sure that they are successful, too.

Finally, we launched now Pricer digital solution, a signage solution. We launched it in December. We started with what we call a smart label solution. So it will be for a retailer that want to make promotion on specific products. They will get the number of screens that could be, the long screens, LED stripes coupled with big top screen, where they can actually communicate, "let's do a campaign on this one" and let's get some additional money from the consumer packaged goods vendors.

It's been very well received. We are in a number of discussions. We can see that we get a lot of request also saying that, what can you do, how can we do this? And I do expect during the spring that there will be several pilots with leading retailers on the specific product. It's still a test. We know it's an interesting area. We need to make sure that we've packaged it in the right way and that we actually address the key concern. And by -- above all that we actually make them or help them to make more money because that's the output.

We're the experts in actually optimizing the efficiency in the store and get the cost down. I want us to become the experts in actually to help our retailers do fantastic business and make more money.

Next slide, please. So here, I'm using one of the slides that I had in the Capital Markets Day last year. And I'm just trying to illustrate what are we doing differently now in 2023. So we will continue to focus on building the sales and delivery organization. There will be for the markets where we see that there will be key growth and we're gearing up to keep growth like the U.S., we will make sure that we have every single sales guy that we need. Sales engineers, delivery people, administration of people, everything required to really make sure we can address that market, so there are no hiccups. So we are preparing for growth. And here, it will be U.S., there will be a few European markets, but also we recruited in the Asian market.

Increase agility. We are now -- we have made a decision. We have started the deployment. We will deploy a second R&D site. It will be based out of Taiwan. We will add a lot of development capability. And we expect to be fully operational with this site during the second half of 2023.

We -- why did we select Taiwan? Well, it's the home market for anything in display, anything semiconductor. A lot of the -- whatever you have on the electronic side. And also from a manufacturing point of view, we want to make sure that we enter a market, we build capability, where we can see that there is a lot of good engineering to be added where we can also get more insight and more inspiration when it comes to innovation. So we will have 2 strong R&D sites, Sweden and Taiwan. And you can expect that there will be products coming out of Taiwan by the end of the year.

Supply leadership. This is pretty much the same as before. We are continuing to work on manufacturing to lower cost, procurement to lower cost, looking at how do we work with the procurement, how can we actually ensure cost down. And of course, we want to minimize the carbon footprint. But I think also when we speak about supply leadership, we are initiating a separate program also to see, can we do something more, can we do work in a different way to further reduce our cost and the money that we spend to do the different volumes?

We have done a lot of good work, but we want to take an alternative approach also and say, what can we do? Can we do something in a total different way? I cannot guarantee that we will be successful. But I can guarantee that we'll actually take a serious go at it and that I do believe that there is something to be had here. So to all competitors, so you want to watch out.

Cloud Tech. We want to make sure that whatever product we develop this year will actually lead to the path of cloud enabled technology. So Plaza will be the fundament that we build our work on, want every single customer to be connected to Plaza. All the new customers is primary choice for our salespeople to offer the Plaza. For existing customers, that's why we go and address them with Plaza story, how can we move from on-prem to Plaza? What are the benefits you get? How can you save money? How can you be more effective? How can you build the future?

So -- we've got a question actually, because we had a target set for Plaza before, that we had to target 3,500 Plaza stores for this year or end of 2022. We did not reach that. We were above 2,500, but below 3,000. But we can see the right kind of progress and we see a lot of interest from our customers to actually build it. I'm not very fond of doing a Plaza-specific target as we did before. I rather focus on how we increase the recurring revenue because Plaza will come in many different flavors. And then I'm very interesting in the add-on services that we'll sell on top of Plaza. That will not be really visible by doing the number of Plaza stores.

If there would be a demand from the investor community that, yes, please give us Plaza numbers. Well, we can certainly look into that and do it. But at this point of time, I would rather show the products than the way we actually grow the Plaza site. And as you probably know by now, we are retail's first choice in self-edge automation and communication.

So having said that, I would like to hand over to Susanna to go through some of our fantastic numbers. Susanna, please?

[Susanna Zethelius, executive]

Yes. So next slide, please. Thank you. So a couple of words about the financials for 2022, with a focus on the fourth quarter. And I mean, if we look at the demand side, like Magnus has already said and that you've seen in the report, it's been very, very strong numbers, both on the order intake and also on the net sales. For both of those numbers, we saw 43% growth year-on-year, which is very, very strong.

What we can see is that both order intake and net sales, the focus areas, it's coming from its France, its Canada, like often before. For order intake, Magnus mentioned that, too, it's been strong in Italy, where we have come closer to our customers and started even better collaboration. For net sales, we saw the rollout of our Dutch customer PLUS Retail, an order that was announced earlier in 2022.

If we then talk a little bit about the gross margin, you've seen that it's been pressured throughout 2022, and we saw that pressure continued in the fourth quarter. It's primarily 3 reasons behind it. The first one is that the components in the inventory that we sold in the fourth quarter was bought at an earlier point in time when component cost was still higher, which gave a negative effect in the fourth quarter. The component costs that we did buy in, in Q4 is at a better level, which we expect to show some form of improvement during 2023. So that's the first thing.

The second thing that affected the gross margin was, again, the currency effect, the euro-dollar, of course. And the third one was the customer mix. Depending on what customers we sell to, we have different margins. So that can also affect the gross margin.

Despite this, we had a positive operating profit versus the same quarter last year. So it was up. And that was, of course, driven by the strong sales numbers. And as also previously mentioned, net profit was positive as well for the fourth quarter.

And a few words about the cash flow. Also positive for the fourth quarter, due to, well, higher sales. It was also due to the fact that we launched a number of working capital improvement projects during the second half of the year. And then, of course, as well, the new financing that was closed in the fourth quarter.

Next slide, please. And then just summarizing the full year of 2022 as well. Many of the comments are quite similar for the full year as for Q4. Order intake and net sales, very strong year, 44% growth in order intake year-on-year. Main markets on the sales side, it has been Canada, France and Italy as the top 3 during the year. Gross margin, similar like previous quarters, it's been a pressured year. It's been especially the component costs, and we're finally seeing that improve for 2023, but it did impact 2022 fully and then also the exchange rate with the euro-dollar of course.

Operating profit was down than year-on-year, looking at the full year. So it's the gross margin pressure that is giving the negative impact, despite the sales increase.

And to finish off, the net profit did turn out positive for the full year, which was an effect of the strong Q4 that we now present.

So with that, I would like to hand back over to Magnus.

[Magnus Larsson, executive]

Thank you very much. So next slide, please. And this will be the summary of the report. And after that, we'll have some Q&A. And I hope that you could see from the invitation that you will find -- actually, if you haven't send it before, you can actually send your questions to [e-mail]. And my apologies, I should, of course, have mentioned that before.

So concluding the market is growing fast. And what I said at the Capital Markets Day in June last year was that, we see that the correlation of market trends and events, they are -- might generate a perfect storm. And I see that we are now on our way right into this perfect storm. And maybe that from a language point of view, it's not suitable given what we have seen, now in Turkey and Syria, which is, of course, tragic. But from a business point of view, I look forward to this perfect storm because here, we can see the market trends, we see our ability and what we see in the open market, what we can offer, that it actually goes hand in hand.

So when -- look at the plans that we've done, the SEK 4.5 million -- SEK 4.5 billion, sorry, that we'll deliver in 2025. I see that, that is very, very clear, our target and that we will actually make that.

How will we make it? Well, thought leadership. The blend of being tech agnostic and actually doing the retail-grade solution is unique to Pricer. And then once again, at the NRF, in my customer interactions that I've had over the last year or so, I can see that this is something that is now -- is truly understood by many and is valued by even more. So I do believe that we are on the right track. There will be a lot of interesting announcements, when it comes also to products, We will actually look at the way of doing products in a different way compared to what we have done. We'll actually package them in a different way as well.

We also see that in-store communication that would really be the convergence of our label, signage, computer vision will enable the future of shopping, who will benefit shoppers and retailers alike. It will simply make the physical store more attractive and the preferred place to actually do your shopping because it will give you the products that you want, but it will also give you the information and experience that you want as well. You will be -- we get the possibility to be helpful by staff, but it will be -- and I think we see something that will be much of an experience. It will be -- shopping will be a real experience. That's something that you will maybe not, enjoy, is a strong word, but in that direction.

We will continue to invest in what we do, not necessarily growing everything, but we will invest and be more specific in what we do. To be successful, we need to focus more on the innovation, and we have a lot of actions doing just that right now. I think that some of the things that we have now on the drawing table, some of the things that are cooking and some of the things that will actually come out are clearly innovative. They're clearly addressing the market in a way that competition might not have done before, that we have not done before, but what I feel that based on our customer dialogue that we are addressing true needs in a different way.

We will, of course, also invest in the organizational capabilities. Here, I've mentioned before that we will actually strengthen sales organization and delivery organization, but also build now an R&D site in Taiwan. We will look at the go-to-market models, do the models that we have right now, do the offer, the best setup for a retailer, do they offer the best setup for ourselves? How can we make sure that we grow while making profit and where we actually help our retail customers make profit?

And one thing that might be interesting to speak about is that when we look at our capability, we -- I've spoken about it before, now it's getting very tangible. We will come with ESLs, where much of what we do is software-controlled and software-configured, while we get the possibility to offer new business models and pricing models where we sell on ESL and we can actually activate or deactivate specific features. It could actually enable us and the retailer to take an investment and split it on separate budgets.

You can imagine a scenario where actually the ESL as such, would be part almost of the infrastructure in the store like the shelves. The software solutions and then the SaaS solutions will be part of the IT budget, whereas activating four-color for a week at the price, let's say, $1,000, if that would be relevant. Would be something they put on a campaign budget, on the marketing budget.

So all of sudden, we'll build something, same components, but we actually enable it in a different way, where we actually get to sell it in a different way. And we get the retailer to use this investment in a different way. And having that capability and knowing that we can actually, unlike anyone else do it in a different way. I think that will be a key differentiator between us and some of the other vendors in the market.

I am looking at the SEK 4.5 billion target that we have set. I am confident that we'll meet it. And I think that the markets that we have done are correct. Over the last year, we've, of course, followed what competition is doing, how they communicate, and we look at different kind of reports. And there is a lot of reports and actions that now verify our assumptions that the market is growing.

So in addition to customer dialogue, we can say that market is really growing. But we can also say that the starting point where are we from an installed base point of view, that seemed to be verified looking at some of the colleagues in this space. We can also see that the markets we expect to grow, like the U.S. will really happen. It's happening here now. So that's extremely reassuring.

So I think that I would like to conclude before we do the Q&A with that, I see 2023 in a very positive way. There's a lot of actions we take to be a better company. We are now transforming. We are opening a second R&D site. We are looking at how we can actually continue to improve our cost, also on the COGS side. So we're looking at the way we do supply. We are addressing the market in a way that's obviously appealing to the customers. We are in pilots. We are in initial store installs with customers -- while we believe that there can be a tangible and large growth over time.

And we see that all the market trends are still in our favor. So I hope to be able and expect to be able with Q1, Q2, Q3, Q4 report that will, of course, be interesting. And I cannot promise that it will be fantastic, but I feel pretty happy and satisfied.

So having said that, I would like to open for questions. [ Charlotte ], have - we had any questions?

[Unknown Executive]

Yes, we have a few questions. So the first one is, is Carrefour installing Pricer system also in Spain where they have bought Super [ store ].

[Magnus Larsson, executive]

No, we're not yet installing with Carrefour in Spain. We are in discussions with Carrefour on a global level and we discuss -- and also local levels, that we discuss how and where we will do the deployments. So we haven't done any deployments yet. But let's see what the future holds.

[Unknown Executive]

Okay. You mentioned customer mix as one of the reasons for the weaker gross margin. How is the customer mix in the order intake last year? What do you expect for the gross margin this year?

[Magnus Larsson, executive]

This is a question for you, Susanna, or is it a question for me?

[Susanna Zethelius, executive]

I can say, well, maybe you can answer on the customer side. But like I mentioned, we have seen like part of the margin issue has been the high component costs. And we have seen that coming down and then the margin is, of course, composed of different things and pricing is one of them. We have also been mentioning throughout the year a number of times about how we tried to push the increased prices onwards to customers, and we keep working on that. And for some customers, it's easier to succeed. And for some, it's more challenging.

[Magnus Larsson, executive]

And I think the customer mix, it's been very much based on market. Also, we see that some markets are more competitors than other. It's very much depending on who the key competitors are in that market, and what their objective is. We can see it also differs sometimes from segment to segment. It could also be that, in some cases, we'll go direct. In some cases we'll go through a partner, and that will also affect the mix.

So it's hard to say that one thing pharmacy will always generate better margin, and then this will do worse. It's actually not that backwards. It's very much depending on the specific market. And...

[Unknown Executive]

So another question, service sales improved particularly well in Q4. Are you making a push to improve these? Or how could we think about them in 2023?

[Magnus Larsson, executive]

We are pushing to do more service sales. And we can say that also, it's visible. And one country where we have done a lot of service sales has been Italy. So when we sell in Italy, here we have been very successful in building a complete package that would be Plaza hardware services, different kind of support services, different kind of deployment in installed services. And I think the model that we have done there is something that we are also replicating all the markets where we have our own staff.

But of course, also pushing Plaza and pushing add-on functionality to Plaza is something that you will see more of. But services is something that we will try to push in all markets where we can.

[Unknown Executive]

Good. So we have a couple of -- we actually have 3 questions on Germany. How is it growing in sales? How is your production, manufacturing growing in Germany? Yes.

[Magnus Larsson, executive]

Cool. So I'll start with the production. We expect to have the first units out from the factory on the production line now in March, that will be the first run of product and we'll check it. We will then, in April, May and June, gradually increase the output until we have full output in, I think, in May or June. But it's clearly coming. So the European customers can expect made in Germany ESLs already during the second quarter, that's really good.

When it comes to the sales in Germany, I'm -- I feel that we've not been able to address the market the way we should. And of course, many bigger customers they have done the procurement some time ago, and we did not win at that time. Now we can see that the second generation or third generation some customer cases is starting again. And of course, our intention is to make sure that we are a player in the German market. We've been out of the German market for too long. And I know that a lot of you have been -- and we said that we will grow in the German market. We have not done so far.

I'm not happy with what we have achieved collectively. But I see that the opportunity is there. I see that there are a lot of big German retailers that we now are in discussion with. There's opportunities to actually do new big wins over time. But we are reengaging with quite a few of them. And I hope that, that will bear fruit over the coming couple of years. But I'm not happy where we are with Germany. I think we should have done things differently. And that's something that is up to myself and then the management team to address.

[Unknown Executive]

So that was specific about Germany. But you also have a question overall, could you talk about the competitive environment? And how do you think they could evolve going forward?

[Magnus Larsson, executive]

The competitive environment has always been quite tough. We have seen vendors or suppliers come. And we've seen suppliers going. We have been actually be the longest -- the vendor that's been around the longest. So I still think that the competitive environment will be quite tough. I think we're reaching a point where we can see some kind of, I may actually call it, saturation, but there will be a tough competition, but I think it will behave in a slightly different manner.

I don't think that we will see too many new vendors that will come with rock bottom prices to buy themselves market share. I think that will be harder. I can see that the way that the retailers are buying is now, they are more aware from whom they buy. I think we can see that, it will be ourselves and maybe 2, 3 competitors that will actually win the majority of new business.

So I still believe that it will be hard competition. We have to earn our right to sell. We have a fantastic system. But we have to be out and we have to sell the store, we have to engage and we have to make our retail customers or the potential customers enthusiastic about what we do. I think that's the key thing we need to do, and the rest will follow.

[Unknown Executive]

Could you add some color to the announced partnership with StrongPoint? When do you expect it to be fruitful in the new markets?

[Magnus Larsson, executive]

I -- of course, I'm a positive guy. So I hope it will be fruitful quite fast. We can say that we are now -- we are focusing on U.K. and Ireland, and Spain in new partnerships since before, we have had Nordic and the Baltic region. We are working in close cooperation of these markets. I think that the dialogues that we have are interesting. And these are somehow new markets. U.K. is definitely a new market with our own staff.

In Spain, we've been around for a while, but I think that we are now getting new energy through these partnerships. I can see there's a lot of renewed interest. We are now in customer dialogue. Thanks to this partnership where I feel that they will generate sales. Is it now or during spring? Will it be summer or autumn or next year? It's hard to say. It's old truth within sales that you have to earn the right to sell. And I think we're actually right there as of now. We are earning right to sell, and we are doing it together with these guys. So I have no doubt in my mind that it will generate good sales, but it's hard to say exactly when it will happen.

[Unknown Executive]

How large is the margin difference between new purchases versus old inventory? And what do you expect -- what kind of margin increase do you expect to see in Q1?

[Susanna Zethelius, executive]

I wouldn't want to quantify that. So I've already commented on the inventory or the component costs, which will be one factor. But I will not comment on the level for Q.

[Magnus Larsson, executive]

I think also what we want to look at is the trend that we can see that we will have a margin that will continuously go up. And it will be a combination from the way we procure, the way we produce, but also the way we sell. And I think here the ability to do more Plaza and subscription-based models, together with no packaging, will actually have great, big difference. But it will be over time, and it will be [ implementative ] process.

[Unknown Executive]

And there are some questions on infrared versus radio. The first one being why the retailers buy the more expensive infrared?

[Magnus Larsson, executive]

Well, it's only more expensive. It depends very much on how you actually sell it. But what I've asked myself is that I expect you to take a premium because I think we deserve a premium because what we do is actually we deliver the cheapest solution over time. There is no one that can deliver the same kind of saving or efficiency that we do. So even though a unit might be more expensive, the gain for the vendor or for the retailer is clearly better with ourselves.

I was meeting with a store operations manager, who had a large installed base. Pricer stores and stores from a radio competitor. And he said, do you know what I'm experiencing? He said, with your system, I have no problems. With your competitor, I would die to tell you whom it is, but I will not. I have 2 to 3 customer complaints a day because the price is not right on their ESL versus what we have in the point of sales when they have to pay for the product.

And it's every single day. And it's the radio environment that's killing it. And it seems like the pricing does not come through. How do you measure that in money? You can, of course, but it's really hard. Well, as a procurement guy when you see it and if you feel it, everything is the same. So here, I think the weakness from customer is like this. The weakness from the retailer that we now met in NRF saying that their investment, they plan for will now generate a huge ESL obsolescence, where they need to do additional investments just to keep their system alive.

So I would argue that, sure, we might be higher, and that's my expectation on the salespeople. I want them to sell at a higher price because I think that's what we can do and that's a fair thing because we take the entire cost down. So we'll be the cheapest over time.

[Unknown Executive]

So I guess the answer to the next question, as you know, but perhaps you could elaborate anyway on radio frequency. They're asking if you're considering moving from them, for its radio frequency?

So the answer is, no, but...

[Magnus Larsson, executive]

Yes, the absolute -- we will absolutely not move, but there are areas where radio is better. If you want to do outdoor coverage and if you're a do-it-yourself, you might actually have an outdoor section. Well, radio is a good option, if you want to do outdoor. Infrared is not as good outdoor. So here, yes, I would definitely consider doing radio outdoor.

We have been discussing having a hybrid ESL, where we can say, it will be a quick way to enter a customer. But the point is that we want to do the full store, then it's very clear, it will be infrared. And then when I look at the development of radio, radio will -- is developing nicely. But now with the emergence of four-color, there's no way that radio will be able to generate the same benefits as infrared.

So it will be just like with four-color now, and that's the reason why the other competitors is not pushing four-color because they know it's like jumping 4 years back in time from an energy point of view. They cannot go to retail and tell them, listen guys, you will have the system installed for 8 years. It's not going to happen. So I see that infra will be the best choice for any retailer that want to do high-density stores.

So grocery or do-it-yourself as examples. So yes, super, no.

[Unknown Executive]

Super no. Could you disclose some retailers names that where you have a pilot in the U.S.?

[Magnus Larsson, executive]

I would love to. I'm not sure that I'm allowed to. But I hope I can come back to -- there would be a few names that would make you happy. I hope I'm not saying too much.

[Unknown Executive]

So a follow-up question on the competitive environment. Do you see more pricing pressure recently from competitors?

[Magnus Larsson, executive]

No. I think the pricing pressure has been roughly the same all the time. I think we established that we know roughly where the market price is. It's quite low, but it's manageable. And I haven't seen that things are getting worse in some markets I can actually see that it's getting better.

[Unknown Executive]

You were pushing camera on the shelves. How is it going? And are you doing partnerships with brands for shelf facing?

[Magnus Larsson, executive]

We have been discussing with different brands for shelf facing. We are still in pilot phase. I cannot say that it's been taking off yet as we were hoping. So it still remains to see what the size of this business will be and this opportunity. But I do remain positive. I think that it's an area where I can see a lot of interest from the retailers. But it also has -- we need to show that we can actually take it from interest to money -- to a retailer making money out of that investment. And we have not seen that yet.

[Unknown Executive]

And also a follow-up in Germany, is there any chance you would close your office there and focus on other countries, if you are. How long time will they have in Germany?

[Magnus Larsson, executive]

I will not say how long time they will have in Germany. I want to make sure we focus on winning business in Germany, that will be the key thing. But generally speaking, if we have a market where we're not successful, of course, then we need to take strategic decisions on where we should actually have our staff. If a market is unsuccessful, we have a plan. We know what the steps are to actually address the market.

And if you realize that we cannot, the plan does not work. We try to change it. If it still doesn't work, well, then we should probably pull out of the market.

[Unknown Executive]

And I think that was all the questions.

[Magnus Larsson, executive]

Yes. So instead of the lasting we're pulling out of the market. I would just to -- once again highlight that it's been a fantastic Q4 and looking at 2023, I'm full of hope and believe that we will be able to come back with a lot of interesting news over the coming couple of months and quarters. So thank you very much for all your interests. It's been lovely having you here. So see you in Q1. Bye-bye.