SERSTECH AB: Year-end Report 1 January - 31 December 2020

FULL YEAR GROWTH, Q3 AND Q4 PROFITABLE

Fourth Quarter 2020                                                                               Full Year 2020        
• Net sales: KSEK 5 954 (3 824, +56%)                                                   • Net sales: KSEK  20 488 (18 742, +9%)      
• Profit for the period: KSEK 1 095 (-6 131)                                             • Profit for the period KSEK -6 730 (-15 682)
• Earnings per share SEK 0,02 (-0,09)                                                     • Earnings per share: SEK -0,09 (-0,23)
• Earnings per average number of shares: SEK 0,02 (-0,09)                   • Earnings per average number of shares: SEK -0,10 (-0,24)

MESSAGE FROM THE CEO

The last quarter of the year was the second consecutive quarter with both positive cashflow and a positive result. The net sales in Q4 were 56% higher than in the same period in 2019. The full year recorded a growth of 9%, which is a strong number, given that we lost an entire quarter due to the standstill caused by the Corona pandemic. We see a continued strong demand and we remain convinced that our solutions match the needs of our customers well.

Just before the end of the quarter, we received an order of 8.7 MSEK from our OEM partner Anton Paar, which has been marketing a version of our instrument since late 2018. Most of this order will be delivered and invoiced in Q1 2021. Anton Paar is a highly skilled organization, with more than a hundred salespeople, and securing such a big order in only two years bodes well for the future. In general, we can see that our partners take a few years to become successful and since almost all our partners have been added during and after the second half of 2018, we expect sales to continue to grow as the partners gain traction in their respective markets.

The partner network

By the end of 2020 we had 82 sales partners around the world and we continuously work with them to activate, support and train them. Due to the long sales cycles, it is sometimes a challenge to motivate a partner to focus on the long-term Serstech business, rather than the short-term that will generate results either the current or the following year. We can now see that the relentless work we have done over the last three years has been successful. The number of successful partners and the number of countries we have delivered to are shown below. As can be easily seen, the growth is accelerating.

Almost three quarters of our partners have not generated any sales yet, but most of these are actively pursuing leads and working with potential customers to generate business in 2021 and the coming years. Those who are not sufficiently performing are continuously being replaced or supplemented with more active partners. The work with the partner network will never be finished and we will always be evaluating, replacing and adding partners to the network. We have a systematic, detailed approach to partner assessment and evaluation, and we consider our well-established partner network to be one of our core assets.

Important steps forward in the EU and US markets

In the fourth quarter, we had four significant orders from the European market, which show that we are starting to be successful also in this very conservative market. The security industry is conservative in general, and no one wants to be the first customer of a new product or a new player, such as Serstech. Our competitors have been the preferred suppliers for many years in EU and the US, mostly due to an unwillingness among the customers to switch to something new. This is one of the reasons why we have been the most successful in South-East Asia so far, where brand-name recognition has been less of a deciding factor. The orders we recently have received in Europe reduce the threshold for consideration of our products, since the otherwise secretive security customers are quite open to each other with recommendations and insights. The EU and US markets are together around two thirds of the world market, so it has long been a priority to break into these regions. During the second half of 2020, our partners also received relatively small, first orders from important reference customers in the US, among them one of the more well-known intelligence organizations.

Since Q4, we have a local salesperson in the US and this has allowed us to significantly speed up progress there and in addition, having a local person who is less restricted in travel during the pandemic is a significant advantage. We also added local salespeople in South America, South-East Asia and China in 2020. As we see quick ROI on these local salespeople, we will continue to increase our local presence in other important markets.

The Corona effect

Throughout the year, both Serstech and our partners have been adversely affected by the Corona pandemic. More than half of our partners have been severely limited in their freedom to operate and physical demo meetings have been all but impossible. Since narcotics are partially local, virtually no customer would buy a Raman instrument before seeing it perform with their own samples. Without the physical demo meetings, which are almost always an important milestone in tender processes, a lot of sales opportunities have been postponed or even canceled in 2020. We expect most of these to come back in 2021 or 2022, but the limitations have had a significant impact on our sales numbers in 2020. It is hard to predict the effect on 2021 sales, but we expect slightly shorter sales cycles on average the coming year, since the need for identification of narcotics is rising rather fast and global procurement volumes have been lower than normal in 2020.

Since the pandemic limited the time spent traveling to customers in 2020, we have taken the opportunity to consolidate the company, review and refine processes, reduce cost significantly and to prepare, research and plan an exciting product development roadmap. Our team is smaller now than it was at the beginning of the year, but it is also much more efficient and it will not be rebuilt in the same way as it was. Even though we lost a full quarter of sales in 2020, I think we will look back at this period and see that the longer-term effects of the pandemic are predominantly positive for Serstech.

Customer-driven innovation

One of the strengths of Serstech is that we are agile and adaptable, as opposed to our much larger competitors, which over the last ten years have been rather unchallenged by something unlike themselves. Serstech Arx is one prime example of our adaptability and the product solves many of the problems and challenges we have observed in the field or have had reported to us. To better serve the market and increase the value of our offering, we are now introducing two additional industry-firsts – five-year warranty and an option to rent our solutions.  

The five-year warranty provides a large value to the customers, since the upgrade cycle is typically seven or eight years long, and the more of this period that is covered the better. In addition, we offer warranty extensions, which will allow the warranty to cover whatever upgrade cycle the customer has. We have several times experienced end-users with broken instruments that have not been repaired, due to poor service, high repair cost and short warranty periods provided by our competitors. By buying from Serstech, the customer will not experience this problem again.

Serstech Rental

Serstech Rental solves multiple problems our potential customers experience today. Since the procurement process is long and complicated and investment budgets are often tight, many potential customers need to wait one or several years before they can improve their operational efficiency with a Raman device. With rental, they can get an instrument within weeks and often without going through the public tender process. By renting, they can use their discretionary or operational budget rather than the more inaccessible investment budget. Lower risk, higher value, shorter lead times and far greater flexibility will make this industry-first rental program interesting for both current customer groups and those that today are unable to afford the rather large investments modern technology requires.

Serstech Rental will offer three options – flexible, 36 months or 60 months rental plans. The rental program will increase the total revenue per instrument delivered and will provide recurring revenue for Serstech and our partners. We expect to reach new parts of the market, previously not addressable, with the rental program, since the main obstacle for buying today is the high initial investment. The rental option will be available to customers by February 22, 2021.

Outlook for 2021 and beyond

When we started the commercial phase of Serstech in 2018, we had practically no metrics available and limited knowledge of the market, the customers or the competitors. Today, we have an array of metrics available and have gained deep insights into customer and market behavior and we collect data at a granular level every month from our partner network. We often know about tenders well before they are published and can therefore together with our partners influence the important technical requirements in the tenders. With the introduction of Arx, with its unique set of features, we now have an opportunity to lock out the competition from the tenders, something we have never had in the past.

After spending 2018 and 2019 on getting the fundamentals in place, we had high hopes and forecast for 2020, but the pandemic put a dent in our high-growth trajectory, and we could only report a modest growth. The fundamentals remain in place and the result and growth in Q3 and Q4 show that we are back on track and well positioned for the future, despite the pandemic. Our sales pipeline is larger today than it was before Covid-19 at the beginning of 2020 and we are confident that we will continue to increase our market share and deliver results above our goals.

Stefan Sandor, CEO

For further information, please contact:

Stefan Sandor,
CEO, Serstech AB
Phone: +46 739 606067
Email: ss@serstech.com

Thomas Pileby,
Chairman of the Board, Serstech AB
Phone: +46 702 072643
Email: tp@serstech.com

or visit: www.serstech.com

This is information that Serstech AB (publ.) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above at 08:45 CET on Feb 25, 2021.

Certified advisor to Serstech is Svensk Kapitalmarknadsgranskning AB (SKMG), phone: +46 11 323 07 32, e-mail: ca@skmg.se.

About Serstech

Serstech delivers solutions for chemical identification and has customers across the world, mainly in the safety and security industry. Typical customers are customs, police authorities, security organizations and first responders. The solutions and technology are however not limited to security applications and potentially any industry using chemicals of some kind could be addressed by Serstech’s solution.

Serstech is traded at Nasdaq First North Growth Market and more information about the company can be found at www.serstech.com

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