SERSTECH AB: Quarterly report January-March 2018

First quarter 2018

     ·                       Net sales: KSEK 1,210 (2,939)

     ·                       Profit for the period: KSEK -3,434 (-722)

     ·                       Earnings per share: SEK -0.06 (-0.02)

     ·                       Earnings per average number of shares: SEK -0.07  (-0.02)

     ·                       Orders delivered to the UN

     ·                       First order of the unique database for chemical warfare agents

CEO's comments

During the first quarter of 2018 we focused on implementing our new strategy and building distribution channels. During the quarter we signed an agreement with our first systems integrator, who is also our first partner in the important but previously inaccessible (to us) US market. We have also had and continue to have promising and well-advanced discussions with prospective OEM partners, many of whom have global reach, with large distributor networks and own sales forces.

The work carried out during Q1 lays the foundation for Serstech's forthcoming growth. Throughout the year we will focus on establishing and renewing our three routes to the market - traditional resellers, OEM partners and systems integrators. During Q1 some agreements with previous resellers have been terminated and new ones have been signed, including in China, the United States and several countries in Southeast Asia. Since Serstech has begun to establish itself in the market, we can now attract more competent partners than before and, moreover, on better terms.

Contract negotiations with OEM partners and systems integrators are more complex than with resellers, but despite the complexity a first agreement has already been signed in Q1 and other negotiations are under way. Generally speaking, the agreements may in the short term result in demo sales to the partner's own sales organization, followed, after market adaptation, by firm orders.

The month of January was all about our rights issue, which generated enormous interest, and when the subscription period closed, the issue was subscribed to 197%. The issue provided the company with more than MSEK 20  after issue costs and was the prerequisite for the current commitment to a renewed go-to-market strategy and a completely revised long-term view of the sales operation.

During this period, we completed the delivery to the UN and we also received a first order for our database for the identification of chemical weapon agents. This order, which came from Romania and Bulgaria, as well as being the first order for the database was also the first major order from Europe. It is of course very gratifying that we received an order worth more than SEK 1.7 million so soon after the launch in November. The order will be delivered and invoiced during May.

Our gross margin during the period was lower than normal, as a majority of orders were for demo products for use by new partners in their sales efforts. In the long term we expect to have gross margins of over 50%, though slightly lower than before, as there will be some volume discounts for our future OEM partners. The slightly lower margin is a direct consequence of our new business model, but the expected higher volume will compensate for this.

During the first quarter a total of five new recruitments were initiated, and we already have one new person in place. The recruitment focus is in sales and marketing, but we are also strengthening R & D so that we can offer better and faster customizations to our major partners. We ship the first instrument under another brand in May.

As previously reported, it takes time to build a professional global distribution channel, and this will result in relatively weak net sales during at least the first half of 2018. The great interest we see from potential partners and the many negotiations we are currently involved in are clear indications that we have a very attractive offering and that the potential in the market is significant.  We continue to be highly optimistic about the future

Stefan Sandor, CEO, Serstech AB (publ)

For further information please contact:
Stefan Sandor,
CEO, Serstech AB
phone +46 739 606067
e-mail: ss@serstech.com

Sophie Persson, 
Styrelseordförande Serstech AB
phone: +46 733 865660
e-mail: sp@serstech.com
or visit www.serstech.com

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