Good afternoon, and welcome to this H1 presentation with Shape Robotics. With us today, we have the CEO of Shape Robotics, André Fehrn, and the VP of Revenue and Business Development, Mark Abraham. First, there will be a presentation, and afterwards, a Q&A, where the CEO and VP will ans
wer all questions submitted via Stokk.io. There have already been pre-submitted questions on Stokk.io for the Q&A, and the Q&A is still open so that you can submit questions live as well. I will now hand over the mic to Shape Robotics for the presentation. Your line is now open.
Thank you so much, Anders, and thank you for the description and the presentation. Before I get started with my presentations and the slides we have for you today, I would like just to introduce Mark Abraham, as you also did, as VP, Revenue and Business Development. Maybe, Mark, you can say a few words about yourself and your history in the company so far.
Hello, everybody. Thank you for the opportunity to present our first half of the year report. I'm, as André said, in charge of the Revenue and the Business Development division in Shape Robotics. I've been joined the company two years ago through the acquisition of a company called Story Kids.
It was a Romanian company that founded together with my better half, and we have been very active in the field of new educational equipments and software solutions, and we're part of the Smart Lab concept that is now implemented across a lot of the Central Eastern European markets, as you have seen also in our presentation from now on.
I'm happy to be here to answer to some of the questions related to sales and to potential revenue outcomes in the following years. And now, let's hear a little bit about the presentation, and then we can continue with the Q&A. Thank you again for the opportunity.
Yes, as Mark said, we've structured, so I will go through the slides, and then, I will try to answer some questions when they come, and Mark will primarily take about market and sales and questions like that. But first of all, the agenda. There are following topics we chosen to highlight today.
As always, there's a brief introduction to the company, a bit about the market we're in, some highlights for the second quarter, and of course, some financial key figures, and then an update on our main market listing to Nasdaq Main Market in Copenhagen, and then, of course, status on the acquisition of Skriware.
So Shape Robotics in general is an EdTech company that promotes education and technology, teaches fundamental STEM skills, and through STEM solution and robots technology, young students are taught introductory pro-programming, mathematics, and physics in a in a learning environment that encourages these problem-solving skills. We primarily distribute our products through two channels.
One is the direct sales of our own robot, in-house developed robot, Fable. The other one is designing of STEAM Labs, and the newest thing is also not only having a physical STEAM Lab, but we also develop now a mobile STEAM Lab that we have high expectations for. So that's basically what the channels we're driving into. You can say, as I said, the one the robot is our own, the other one has third-party products also. So a bit about our history.
It started actually in 2011 with the development of the robot, and in 2017, our company was founded, and the first Fable robots were shipped. In 2020, we got listed on Nasdaq First North. In 2021, as Mark said, we acquired a company, Shape Robotics acquired a company in Romania, which actually were specialists in designing these STEAM Labs, and Mark did not give himself enough credit, but he is one of the brains behind these STEAM Labs that we're building right now.
Also in 2022, we partnered up with Samsung, and in 2022 as well, we acquired a company called VTS to have better rhythm in our distribution, and we needed skilled people for this kind of area we're in right now. The next thing we're pointing towards is the Nasdaq Main Market, which I will also get back to later, status on that one.
So bit about our market opportunities, and actually, if there are more questions to this, Mark actually are even more specialist than me in the market we're tapping into right now. You could say that the COVID-19 pandemic accelerated the digital transformation. As an EdTech company, everything totally died.
I'm sure it did in a lot of business, but everything in EdTech business died these years because some of the first things that got closed were actually schools. But after that, EU actually launched a digital decade plan for EU and allocated billions of EUR to a digital transformation in schools.
As you can see here, it's approximately EUR 14 billion that are expected to be used on digital transformation in schools in EU in the next coming years. So it's a huge political focus for all countries, and all countries, especially in Eastern Europe or Central Europe, is speeding up this digital transformation of the educational sector. Good. Some highlights from our first quarter?
You can say as a company, we're often measured on the financial key figures, and of course, I will get back to that. But I think it's also important that we just touch base on some of the things that happened here in Q2, because they're also very important for the future growth and the future of this company.
In April, we had the annual general assembly, and the board was strengthened by the addition of three new profiles, each contributing with competencies to help the company reach the next level. You could say that years ago, we were a startup. We maybe last year and this year, we're in a scale-up phase, and now we need to take it to the more professional.
We are professional, of course, but at next level, and that's why new board members came in to help us on this journey. The competencies the new board profiles are bringing to the company are accounting, corporate governance. We have someone specialized in subscription-based learning platform and then, of course, mergers and acquisitions. In June, we opened a subsidiary in Chisinau, the capital of Moldova.
We hired a country manager and operational manager, and we selected the premises that are expected to be ready soon. That means we will have a showroom and an office location in Chisinau very soon. The strategy for us is clear. Moldova is going to be an EU country, and they have to move the digitalization very fast, and we want to be the first mover in Moldova on building these labs and these solutions.
So, in Moldova, they have to raise the level of the education very fast. And we actually expect the first orders from Moldova to come already within weeks, I would say. Also in June, we entered into a historical framework agreement with the Network One Distribution and to delivery of these smart labs.
The first order already came in June. And this agreement, of course, has the top priority for us in the next few months because it is the basic foundation for the rest of our pipeline for the rest of the year. But of course, we also intend to leverage this pipeline and build and expand even further.
So that's, of course, also some of the strategic initiatives we're doing right now. Yeah, yes, and then, of course, there was this press release that we made in this process there is in regarding to the acquisition of Skriware, and I'll come back to that later. Good. So a bit about our financials for the second quarter.
We achieved a revenue of almost DKK 37 million, and the year-to-date revenue is nearly DKK 56 million, compared to 15.6 in 2022, and this actually represents an increase of almost 250% in the first six months of this year. In Q2, we have a contribution margin of 29% year to date, and year to date, sorry, 29%, and year to date is 30%, compared to 37% in the same period last year.
These declining margins are due to the delivery of these many technology classrooms, where we have a lower margin than compared to our own robots. Whereas if we go back in the history and look at the margins, let's say, last year, we had a higher degree of robot sales.
Yes, in Q2, our EBITDA before non-recurring items was DKK 260,000. So that means on the, the guidance level we have, we are just break even on EBITDA in this quarter. But again, as we also communicated, and I will get back to that in the full year outlook, the best quarters are still to come for us.
Of course, this also means that if you look at our EBITDA, we have a higher cost base now than we had one year ago, but we also expect that this is the level of cost base that the company will have, throughout 2023. So we are at the level we should be right now to actually deliver on the pipeline we promised. What I haven't included in these key figures, as you see here, is the balance sheet.
You can, of course, see here that the assets right now is around DKK 140 million, and that primarily is trade receivables and inventory. That means that right now we're tying up a significant amount. I'm very sorry that it seems like there's a lot of police driving by right now. We are tying up a lot of money in working capital.
So and but that is because most of our deliveries were actually in June, and at the same time, we're preparing the inventory for the quarters to come and our high pipeline. So that means in these months, we have a lot tied up in working capital, but it will loosen up during the year. Good. A bit about our full year outlook.
In June, we raised the expectations for the year after we got this framework agreement from Network One Distribution, and we are now guiding for an expected revenue in the range of DKK 145 million-DKK 155 million and EBITDA before non-recurring cost of DKK 14 million-DKK 16 million.
And this represents almost approximately 60% growth compared to last year. Our forecast is conservative, based on the pipeline we see. I think if you have read our announcement and see the pipeline and the framework agreement we have, it might come up to a higher amount, but there is a lot of work to be done when you have to deliver such huge pipeline. So therefore, it's still a conservative forecast we have right now.
So we need to move closer to Q4 before we see any changes that might occur. Yes. On the right, you can see our projected revenue broken down by quarters. This is not official guidance, this is more like a guidance on how we normally see revenue come. This can deviate a lot, but as you also see, it's not that far from the truth compared to what we start with in the beginning of the year, communicating how the revenue will fall in quarters.
So, I think we're quite far now, and we know that the Q4 will be the biggest one for us, quite certain. We can see that in the pipeline, that most of these tenders and projects will appear in Q4. So briefly, I'm coming to the status on the main listing.
In short, of course, there is much to be done when you want to uplift the company to the main market. But briefly, there are three major time-consuming things, internally, at least. The most time-consuming internally is transition, the accounting and the reporting part to IFRS, instead of the local, GAAP or Danish schedule that we have in Denmark.
Additionally, we need to not only do it, back in time, we also need to prepare how are we going to do this in the future? That's very time-consuming right now, but the good thing is we're actually there this week, so it means that we are finishing the IFRS conversion this week. Second is we need to prepare prospectus to the FSA and Nasdaq.
That one we also handed in, so that means that right now we're in a process with Nasdaq and FSA, Financial Supervisory Authority, making sure that the prospectus lives up to all the requirements, both from us and from them. And then the third part, which takes time, is the ongoing procedures, politics, governance.
So that also takes time, but that's also in the process to be completed within the next few weeks. Then, there's a lot of questions also, Skriware, how are we doing right now? What is the status with the acquisition of Skriware? And hopefully, I will answer some of those questions when I go through this one. As I said, in June, we initiated this process of acquiring the company Skriware.
More precisely, we submitted a letter of intent, following that we could actually start this due diligence. Skriware, much like Shape Robotics, and maybe also Mark can elaborate on some of the things, it offers a comprehensive solution for classroom.
It's like a teaching scenario, just like Shape Robotics has, where students work with robots, 3D design program, construction kits, 3D printers, and they connect it all in a learning platform, which we actually find very interesting, this learning platform, because that allows us maybe to, to allow all new products also in the future to be connected to this learning platform.
The current status, and we can't go into specific details because we're still ongoing this, this process, but the current status of this due diligence, is that we are finalizing the due diligence, and the next step will be actually to decide, whether we want to acquire the company on what terms, and of course, they also have to accept the terms. So I would say we're just finalizing this process. We have to put all the cards on the table and figure out what will be the next step.
Another thing we're doing internally, also working with Skriware, and their management, is that if and when this merger acquisition goes through, we need to be sure that we have the right organization, the right product offering in the future, because a lot of these projects are starting, as we believe, in Q4, Q1.
So we have to be ready to take as much as we can and be ready. So we are actually working on this merger plan already. That was what I had with my slides. André, so go ahead with questions, and then maybe I'll leave them, some of them to Mark. But go ahead. Let's see.
Perfect, and thank you to the both of you. Let's start off with one question here concerning the 2024 revenue. Is it correct that the order of DKK 223 million will give revenue of approximately DKK 140 million in 2024, and the buy of Skriware, which had a revenue of DKK 38 million, will have a minimum of DKK 38 million in 2024?
If correct, the two things give DKK 180 million in 2024. That's the question from Mikkel Fleming, no?
Yeah.
Good. Let me answer very direct to this. And somehow, let's say, give also a conclusion to the last part of the presentation of André regarding Skriware. I think that right now we have to understand that, especially in Central Eastern Europe, we are facing a situation where people should come together and find solutions, not only on the social level, but also business level.
And we believe that education is something that it's above the, let's say, the business case. It's also a mission for us. And we find that with Skriware, we have the same values, the same ideas, same concepts, and same, let's say, work ethics.
And also, we have to take in consideration that the number of independent, companies developing solutions for education across the Eastern, across Europe and especially in Eastern Europe, is very small. So we're talking about just five or six companies that are doing things, Skriware being one of them.
We have to look at the synergies between our companies, of course, and finish the due diligence process and follow up the procedures. But, we need to understand that they follow also a similar journey, and they are following right now a resurgence into business, that, happened after COVID. So we cannot just look at what they did in 2022 and believe that they will do the same or, less or more, whatever.
We just need to follow what happened with the money in the public sector in Poland, especially. That's public information. There are several projects that have been started there. Our investors can look into those projects. They are available on the GovTech site of the government of Poland.
Of course, we might look at the same and calculate or accumulate the numbers if we find that Skriware has a 3%-4% market share out of these projects, but we are not able to answer whether these numbers will happen for Skriware. We can answer that they should, and of course, we always deliver on our promises happen to us. So I think that's the answer to
I think also it can-
the question from my side.
If I can elaborate also. It's correct, if you put the numbers together, it gives that result. That's correct. But I believe that, you know, it's first of all, we can't say anything about our guidance next year, but of course, as I always say, not always say, but we expect growth also next year, but we can't say how much yet. I think we all believe that Skriware will contribute more than that number in the future, but we can't say the timing of it. But yes, I think we-
It's very important for our investors and through this opportunity to explain the fact that what we see through this digital transformation is extremely complex process, because we are talking about a change in mentality in terms of the teachers. We are fighting against, let's say, the inertia that the teachers are having in adopting new technologies all across Europe. We are basically trying to prepare children right now for jobs that have not been invented yet.
So I guess the challenge is quite high, and there is a lot of attention when spending this public money, and that's why we have to be very close to the stakeholders across Europe right now, and to understand which is the best solution, and also make a step back if our solution is not the right one for certain approaches.
We see that this recipe has proven successful. We see that the interest of large distributors, like distributors of IT, like Network One Distribution, for instance, Romania and others that will come, is very high in this product category. So we have the solution to move the goods fast into the hands of the resellers and the end users that are interested in participating in these projects.
But also very important to understand that these projects have a large macro structure, not a micro step-by-step structure. That means that the objectives of these projects can be followed at the European level Union, at the European Union level, and they can monitor which are the principal pillars to be achieved by every individual countries, but the gap is quite high, so we cannot know exactly if it's going to be fixed in quarter three, four, five, six, seven, eight, nine, ten.
So for us, we are looking at the whole pie, and we're trying to be as, competitive as, possible, taking in consideration that this is a mission here, that we need to be, accepted and the partners of the teachers that are using this technology, the parents, the children, it's not, only about, figures.
Perfect.
Go ahead.
Thank you for that, for that answer. The next question is: How is the agreement with Network One Distribution progressing? Have you delivered the expected part in June, and have you received any further orders for delivery for 2023? Has the organization so far been able to handle this deal size?
That is for sure a question for Mark.
Yes. Yes. No. So, yes, it's a question for me, and the answer is also yes. Very important to understand what is the role of Network One Distribution, and this is something that, somehow we will see as a recurring theme for us in the future, because our strategy right now is to work with distributors, okay?
By working with distributors, we can somehow smoothen the curve and the inconsistencies of deliveries specific to public tendering, and to somehow give a straighter, let's say, a better separation between quarters, not only having 80% of the business done in Q4. So what is happening with the Network One Distribution, we have a schedule of deliveries that is based around the governmental tendering systems, okay?
You can publicly check the letters from the Ministry of Education, for instance, in Romania, where you see the schedules, you see that the most of the financing have been signed in August, and the rollout plan is for the next six months. Of course, this rollout plan is a request. It could be eight months, 12 months.
Anyways, it has to happen at the end of 2024 - first quarter of 2025. So what is happening with Network One Distribution? To answer very clearly, yes, we delivered on the June promises. We have a forecast for Q3, and we have a very good forecast for Q4. We have no problem on delivering, we have prepared for this delivery.
We have invested into the right partnerships, and we have invested in the right employees to be able to cope with the requirements of such a large deal. But basically, we have been preparing for one and a half years for this. So we are ready to do this, and we are ready to scale it up to other countries.
Perfect.
Okay.
Miguel has a question more here. The new ARR product you launched a couple of months ago, how is that going, and what are your expectations to this in the future?
... Is he talking about the-
AI system.
AI?
AI assistant, I guess that's the one. You wanna cover that also, Omar?
Yeah, no problem. The business ones I can cover. So that product, first of all, just to make a very clear statement regarding the artificial intelligence product or service that we are offering to our customers.
Because of the complexity of the STEAM Labs environments, we have identified across European markets around 350 different product categories, different products, okay, in around 60 categories, that enter in the setup that are part of the bill of material of a STEAM Lab, okay?
So of course, the teacher assistant is the tool, the correct tool to have a proper teacher adoption. But we have to take in consideration right now that most of the financing that is available at the level of the European Union is divided into three main categories.
One category is the fit out of with hardware solutions, okay, with the solutions. The second part is adapting the curricula to the needs of the European Union. So creating new jobs, creating new opportunities, creating the right setup for the European Union to develop. And the third one is the teacher adoption and the training.
So whatever we discuss right now here in terms of the business and the budget schemes, is always about hardware acquisition. So we are talking about capital expenses, about CapEx, not about recurrent revenue at the moment. But where we are targeting this product is exactly in the training section that should appear as budgeted in the next 2-3-year cycle.
That means that after the hardware acquisitions are being made, or together with the hardware acquisition, at the same time, they're starting the process of training. And our teacher assistant is going to be used, and we are formatting this teacher assistant, which is not a free AI.
So we use our own technology. We have our own partnerships with Lenovo, that we train the AI models on our own premises with our own hardware. And it's using the 350 products that we discussed earlier that we identified in the market, so that it will offer answer based exactly on these programs to be able to help the trainers, and to help the deliver on the training side of the business. So we are targeting licensing agreements for teachers that are going to train the teachers.
Train the trainers or programs for training for teacher adoptions. For the moment, of course, our product is in the learning phase. We need 6-8 months in which it will learn how it's being used in the classrooms, and then it will be offered as a solution in the Smart Labs for free at the beginning, and then it will become a training solution for the teacher adoption programs.
Of course, very important to say, for free, if you acquire a Smart Lab, so there it is a-
For free.
Yeah. So good.
Perfect. Then there is further for 2024. If revenue 2024 is much higher than in 2023, then are we going to see a lot of this giving a much higher earnings, or will some of the revenue be used to open up, for example, Hungary or Bulgaria?
That one. I think that is far too early to say. I can be totally honest and say that, of course, if we go back eight, eight months, we had a strategy in the company of how we wanted to expand. But it's also moving so fast that the strategies we made eight, 12 months need, let's say, a retouch again.
So right now, whether we want to acquire new companies, we want to penetrate other countries in 2024, of course we will do that. But on what level and what cost it will take from the P&L or the investment is too early to say.
But of course, as I've said before, we are targeting growth, we are targeting profitability, and that needs to be the most important thing for us the next year or so. So, you won't see a company that is investing all its profit into to new markets, but we will invest some.
But we need to keep that fine balance between that we are a company that that promised and want to deliver profit, but also to scale up in the pace we can and allowing from our investors. You wanna elaborate also or?
No, no, I just, I think it's a very, very, correct answer, and I think that, also the question is extremely good, and, we appreciate, Mikkel being so... I think he did a lot of due diligence on this, question. So I like, when people are asking the right questions because we can provide the, best possible, answers, we hope.
One thing that is very important for our investors and through your platform, to understand, is the fact that, we are talking about European countries and the recovery and resilience plans or funds that are available at the moment. But don't forget something very important, and the fact that we have a lot of EU candidates. So we have a lot of countries, especially in the Balkans, we have Moldova, that are EU candidates.
So the EU candidates usually receive a lot of funding through what is called the pre-accession funds. So, just, to discuss a little bit, of the geopolitics of the area, of course, the investments in the digitalization are very low also in the Balkan areas, except maybe Croatia and Slovenia, that are already on the trail of the European Union for two years now.
So, right now, in these scenarios, our involvement in those markets is extremely important in an early stage, so that we can have direct discussions and direct, let's say, understanding of the needs of the, ministries of education and the stakeholders in, in those regions, so we can help them develop.
Of course, first of all, we need to invest there, then to start doing business there, because we cannot just wait for things to happen. Because in this field, we are the ones that understand how the solutions are working, and we understand the needs of the end user, if you want to call it like that, which is probably a combination of teachers, parents, and children.
And we can give feedback. So just as a, let's say, a parenthesis here, we have a lot of requests from the Baltics, from Denmark, about how do the projects in our territories impact education, or how should we do it also? Is it okay? Should we change the curricula, and so on and so forth.
We act as a liaison between the different governmental entities and different stakeholders, and trying to share some of the information and make sure that, in the end, the end user get the right tools for future jobs.
Perfect. Thank you. The next question here: Do you plan to start dividing your revenue into different categories, as you now have both sales of own robots, new ARR products, and complete systems such as Smart Labs and STEAM Labs? These different categories probably have very different margins.
Sorry. Good question. I guess that the question is whether we want to do it in our future reporting parts. I suppose that's the question, actually. Yes, I believe so. I think right now we are also trying to distinguish, to be certain ourselves, what categories we want to put it in.
Of course, we have ERP systems, so we know exactly what we're selling, but it's also a matter of, if you sell something to a STEAM Lab, should we then call it a STEAM Lab? Should we call it STEAM Technology? So we're also figuring out ourselves what categories is it that we want to put it into, and what is it that we want to measure in the future.
But for sure, going forward, and also I think it is an IFRS requirement that we have to do it, we will do more in dividing our revenue into split the revenue, for sure. Yes. The short answer is yes.
Perfect.
If I may add, on top of the product categories, we see the great need and probably had opportunity, and maybe we can put a link also to the investors for the videos that for the new STEAM Lab that we have. The new product, the STEAM Lab product that we have developed together with our partners from from Lenovo.
We have a very interesting offering prepared right now for the market, because we see a need of not only labs, STEAM Labs in the fixed location of a building or a room or an environment, you know? So we see this concept of the future classroom, which we call it the present classroom, because we don't see a need of having a interactive display in the future.
You need to have an interactive display and a robot now, so it's the current present requirement is combining technologies from a lab into every classroom. So that means that we created a solution together with Lenovo that provides this lab environment in a mobile cart.
Because if you want like a comparison we had in the past, the media labs, you know, when you had like this tube TV with a VCR that you moved around, or a DVD player, and you played some movies or some history lessons or whatever, this is something that teachers can relate and adopt to, you know, in this digital world.
And what we're doing with this mobile STEAM Lab is we're trying to bring in every classroom the use cases of a lab, in a very compact version, in a compact form, and also in a hybrid technological form, because we have there a solution from Lenovo called ThinkSmart. It's one of their divisions that builds video conferencing equipment, let's say, in general, smart collaboration equipment.
And together with Microsoft Teams and Google, depending on the type of customer, we have a native integration with video conferencing solutions. So that offers the possibility to do remote lessons, to use the labs for hybrid lessons for children that are at home or don't have the possibility to come to the school due to some disease or problems.
So, we believe that by having this kind of product, we also can increase a lot our revenue and margin in this environment, in this classroom investment environment, because we can control the solution better, we can offer the best approach, and there is less, let's say, variability in our offer with this product.
And I hope that after the end of the presentation, you can check the links. We will add it here for the presentation of the product. And we expect any feedback should it come from your from the viewers, would be very interesting to see.
But you're right, Anders, too. I totally understand the question, that the investors want to also monitor us on what kind of the business is moving forward and what are the margins. And of course, we would, we will strive to do more information on that in future reports. Yes.
Perfect. Thank you. Then the next question, I think you have already addressed it, but I will just read it, and then you can add if there's anything to add.... Can you provide an update on the initiated acquisition of Skriware? What is the expected timeline of the acquisition?
Yes. I did already say it, but right now the status of the acquisition, it's ongoing, and we can't go into specific details. It's ongoing and we're finalizing the due diligence. So the timeline right now is that we, with the board of directors, need to gather all the cards and then move forward in the acquisition with Skriware.
So right now, we still believe that the closing could be in October, but as I also said, this is the final decision of the board of directors and the investors of Skriware. So my recommendation will be to our board of directors, is to move forward with this acquisition, because we have huge opportunities in Poland, but in the end, it's the cost benefit that the board of directors needs to do.
Yeah, perfect. And then the next question here is also from Mikkel: Regarding the large order of DKK 223 million in June, have you reached your maximum production capacity? And is it a requirement with larger production facilities in order to receive further orders for the robots in the coming 18 months?
You want to take that one? It's, we're only 15% capacity. No, no, not nearly. And it's, it's also important to say that we are still providing third-party products in these offerings. So that means that for instance, in a Smart Lab or in some of our offerings, our own robot is something like 20%, sometimes it's 30%, sometimes 15%, but let's say average 20% of the offering could be our robot.
Also, very important to say, it's not always our robot is there, but it's often or mostly there. So that means our production capacity relates to our robot. The other ones is, that's Samsung's capacity, it's Lenovo's capacity, it's Avantis capacity. So is so no, we are not nearly there, but we, we can, we can scale up many times.
Also very important for Mikkel to understand about the process here, we have the buffer zone, which is the distributor. And also there is a buffer zone in all these projects that the delivery is probably between 30 and 90 days from the moment of the order of the end user to the reseller and from the reseller to the distributor.
So we have basically from the moment of the order, there is a buffer cycle in case that some bottlenecks might occur in the procurement of components. But in terms of capacity of production, in with our partner factory that is also in Bucharest, located in Romania, we are at 15% with them currently with this order, so we have no stress with that. And I'm talking about production of mobile STEAM Labs, production of robots-
Robots.
Integration of a robotic solution with the Tizen boards from Samsung. So we are encountering. We prepared. So to be honest with you, we are very well prepared into that.
Perfect. And maybe that also answers a little bit the next question here, but the question is: Given the large and bigger than expected orders you have received this year, could you please explain if and how you can fulfill these on time?
Well, basically, just as Mark said, we... First of all, if you look at our balance sheet, our inventory at June 30, you would see that we are well prepared in our inventory to deliver the first, let's say, the first deliveries that will come from Network One Distribution and other tenders also, of course.
So the idea is, of course, and it's very, very simple, is that every time, something moves out from the inventory, the same amount or more moves in. So we are very well prepared for this pipeline. And as Mark said, the production capacity can go up much more.
Perfect. The next question here: It was indicated yesterday at Atea that Shape Robotics can grow 2-3x with the financial size it has today. What considerations do you have as turnover expectedly will grow strongly in 2024 and 2025? If liquidity comes under pressure, will you then increase the share capital, or will you take out bank loans or similar support, for example, on local markets?
I think, well, that was me in that yesterday that answered that question, I guess. What I meant was, that 2-3 times, I actually meant that, you know, from the past up until now, we have grown two or three times every year. I didn't mean that we're going to grow 2-3 times till next year. I'm not going to promise that here. So, can you repeat the last question again? The last part of the question, sorry.
If liquidity comes under pressure, will you then-
Yes, I remember now.
Yeah.
Okay. We have no intentions of raising more capital as it looks right now. We, we do have the working capital we need on the growth path we're on right now. So if it comes under pressure, then we do have banks and credit facilities that are very well open to help us.
So they can see the pipeline, they can see our figures, so that should not be an issue. Of course, it comes with a cost if you want to finance things, and we prefer not to do that because we want to give our investors profit. But we are also prepared on that side, if it comes under pressure.
We know, just as Mark said, you know, we can never time, we can't time whether the pipeline sometimes comes in the Q3, Q4, Q1. So therefore, we know that sometimes we might have a dip in our liquidity, but that doesn't mean that, you know, there is no pipeline and there's no working capital.
It just means that sometimes from one month to another, we have to be careful or just reach out to the bank and say that there might be a dip here, just so you know. It's. We have very good collaboration with both our Danske Bank, our Danish bank, and also our bank in Romania, BRD, which are very well informed and know our pipeline, so that shouldn't be an issue at this current stage.
Perfect. And the next question: Can you elaborate on the types of tenders you participate in or expect to participate in, in Spain, Portugal, Italy, and not least, Lithuania? What sizes are the tenders? Is it regional tenders or tenders based on EU grants?
Well, first of all, we cannot mix them all together because, okay, maybe Portugal and Spain have some similarities. These are totally different markets. Maybe they should have a similar geographic position, let's say, but they are totally different markets. So, I will be very thorough in my response, and, if, because it's important for everybody to understand.
Let's start geographically from north to south. So I would say that, when we look into the Baltics, we have three different countries with three different approaches in terms of the recovery and resilience plans, in terms of the local investments and in terms of private-public investments.
So, should we talk about the highest project capability or potential is in Lithuania, where they are investing a lot of money through RRP in rebuilding the schools, and the lowest one being in Estonia, where basically the schools buy directly from websites online.
So what I can tell you is, without sharing too many information, is that most of the Baltic regions are getting deliveries either from Denmark, Sweden or Norway, so from the Nordic side, or if it goes to Lithuania, Polish companies are the ones that have the capacity to deliver there. So I kind of hinted what we're doing there. Now, in terms of Italy, the situation in Italy, of course, is totally different because we have their plans for digitalization very well structured.
We have a partner there in Italy that is one of the best companies that the educational system in Italy has. It's a very old publishing house with a lot of family-owned business, with a lot of right connections and the right governmental, let's say, such pipelines. The project is going to start probably in Q2 2024. So we're looking at that project that we are interested directly into. Of course, again, it is public information available on the RRP sites of, and RRP monitors for Italy.
There are regional, regional investments, and of course, we need to look at the history of the area, because, for instance, we have regional investments done by Veneto area to to former Istria, which is part of Croatia, because they have there some kind of, you know, territorial helping, like we have right now discussing with Catalonia province or Basque, where we have regional investments being done.
Because even RRP has funds available for Catalonia, to give you an example, now going back to Spain or going forward to Spain. So these, these kind of regional investments are happening. We see them.
We are following together with a group of consultants that basically we hired, and I think André can explain more of what we're doing with the consultants that we have there that are monitoring these partnerships. But of course, we are not there in the position of being the leaders of a change because there's not really that big of a change there, okay? We are talking about more hardware investments in a strategy and a campaign.
And what is happening, very important, and now going to Spain, we participated already in a couple of tenders there. We're active there. Some information should come soon. And in Portugal, we have a partner that already has proposed our solution in their RRP program since that show this year.
So usually, it takes between 8-12 months to see any results in tenders. What I want to say is that to add is, that of course, when we look at digitalization and robotics, with what we see common in the western part of Europe is that already robotics has a place in the life of a school, and that place is in the coding section, engineering section.
In our main interest area today, where we have the most of the RRP funds, which is Central and Eastern Europe, robotics is being used also in what we call common curricula. That means that robotics is being used to teach geography, physics, it's being used to teach history.
So we have very interesting lesson plans that you can see in our Teacher Zone that basically, and on our YouTube channel, for instance, which are-- they're free, and you can-- and people can understand what we are doing. And this is totally different than the approach that is in the more digitalized markets, because we had today a discussion with a partner from Belgium, and they are telling us that every school in Belgium, in Netherlands, is digitalized.
So 100% digitalized, so since 15 years ago. So they already have learning management system, they have automatic, you know, billing to parents, reporting centralized. So robotics already there has a place, there is curricula. Imagine that Eastern Europe, where we are active right now, doesn't have any kind of curricula for robotics. We are writing curricula together with the teachers. It's a totally different journey between these countries.
Just a final on, on Mark's comment. I think it's also very important to say that the, in 95% or 98% of the, incidents, we don't participate in tenders. We find, resellers, distributors, integrators that participate in tenders. So it's a push-pull effect.
That means we have to, we have to promote our solutions in the relevant country both for students, teachers, how do you call it? Principals. At the same time, we have to find a good distributor, and they have to go to tenders or to direct acquisitions with our offering. So it's so we don't, in 99% of the cases, participate directly in any tenders.
Perfect. Thank you. And then there is a second part of the question as well. Are the tenders expected to be completed Q4 2023 or Q1 2024, and with implementation in 2023, 2024 and 2025?
Which tenders? Yeah, which tenders?
Yeah, it was the for the same question.
Are the ones in Italy... Yeah.
Yeah, exactly.
It's difficult to say because it's many, many, many, many tenders. Many small... You know, a tender could be one school or a municipality that's making a tender for a STEAM Lab or for STEAM equipment, and it could be a school district that is doing. So it's also in the common cities and the regional, national. So we're talking about hundreds of tenders, so—and they will be ongoing.
What is very important to understand is that the tender, tenders are a very generic topic. Because every country in the European Union and outside European Union, or like candidates, has its own procedures for tendering. It's called public acquisition laws, which of course, are aligned more or less with the general acquisition criteria of the European Union, but public acquisition is done very specific.
So to give an example now as a comparison, for instance, province of Catalonia can do an acquisition of more than EUR 30 million in a single tender. But Madrid is not able to do that because the government has to split for every region, the budget and every region that has to split it to every mayor's office, and every mayor's office has to give it to the school. So it's becoming totally decentralized.
Then the acquisitions fall into other categories, which are basically categories that are linked to direct acquisition, so buying up to EUR 100,000 or EUR 200,000, or something similar to what we see in Poland, Romania, Bulgaria, where schools are buying directly from resellers without a tender, up to EUR 50,000 based on what they want.
And this is why we need distributors, because we cannot monitor every single law and every single... We have two lawyers working in our legal department that are monitoring all the tenders. But basically, first of all, the integrity of the tenders and the acquisition process, but the most important part is to understand that that's why you need distributors that are sys- that are capable of following-
And locally.
And locally.
Yeah. So I think, Anders, to go to question, we can't really because it's very difficult to say, because there are so many, and it's different from every country, and we don't participate in them. We just monitor them, and then we help our distributors with our product specifications, brochures, marketing, things like that.
Yeah, perfect. Then we are at the last question here. Yesterday, at HCA, it was stated that gross margin at the end of the year will be 25%-27%. Does it correspond to the expected level for 2024 and beyond? In case of deviations from this, will gross margin then in the coming years tend to be larger or smaller?
I can answer in a different way, that we are working extremely hard on increasing these margins. I can say that, you know, we were in a state a couple of years ago to saying, "Right now, we rather want volume, sales, and then, of course, profit in the bottom, and then we start to work on these margins."
Also, I think Mark can also elaborate, but it's very important to say that our robots is a part of this margin, but we do have some products in our product offering that has very low margin. So that's why it's taken down on an average. But what we also know and see is that once you reach a certain level, also with these, let's say, displays, computers, et cetera, then you get better pricing.
So that means we have two things we can. Actually, we have three things. So we can substitute some of our products with OEM products or better products. But of course, that's not something you can do from one day to another.
The next thing is we get better pricing from our vendors, which is something that is feasible when you get to a certain quantity and volume. And the third thing is, which Moises, our CTO, is working on every day, is reducing the cost price and efficiency on our own robot, which means that will also lower the cost price. So we will see better margins in the future, but it will be a gradual growth on our margins.
Very important to somehow summarize the discussion here in terms of the tenders and to make it clear again for everybody, Shape Robotics is not participating in the tenders. Shape Robotics is helping resellers, distributors participate into tenders.
It's discussing and interacting with end users in terms of schools, promoting, so on and so forth, ministries, helping decide on selection of products, but we are not involved in any commercial relationship with the end users.
But why we want to do this, why we are involved? Because we want to make sure that our partners in the regions that are participating to these tenders are protected through deal registration, bid registration, so are protected for their work.
So that means that we need to make sure that the channel is protecting, because we are calling, we are discussing about the channel-driven business with distributors, resellers, and trainers, but end users, that all of them have to make money. And of course, all of them are interested in getting margins.
And what is very important is this, besides the fact that we are optimizing day by day the cost on every product category and then the partnerships with the strategic partners, we also have a very important limit here. So first of all, we need to understand that the budgets for the Recovery and Resilience Plans have been defined in 2020. Most of the budgets have been defined in euro, and they are suffering a conversion rate in every local country where euro is not a national currency.
So what is happening, besides having a difference in currency, like in the Polish zloty, like in the Romanian RON, like in the Bulgarian leva, we have all these kind of differences in the Forex that are impacting the cap on the budget, because the sales in those countries is being done in local currency.
So we see clearly an impact there, and they cannot go above the budget, of course, because the budget is fixed. And also, don't forget, we had at least 25% increase in pricing during the pandemic on the products, that on components, on deliveries, and especially the deliveries from China.
I believe that the margin optimization is going to happen in the next 8-16 months because of the fact that also the pressure on deliveries and the cost from the manufacturing is lowering, and we see better performance on the Forex for the countries that we are activating in.
Perfect. Thank you. That finalizes all the questions. Before we end this webcast, I will hand over the mic for you for some final remarks.
Well, I think we covered it very much this time. I think we went around all our financial, and we had some very good questions and good answers about the market and our strategy. So I really hope that you would like to join us another time, and I'm very happy for all the questions. Keep them coming. Thank you.