Earnings Call: Q3 2020

Oct 27, 2020

Quarterly report

Good morning, everybody, and welcome to this presentation of Helios Bectas Assault for the Q3 of 2020. The presentation will be held by CEO, Ali Marjan. And my name is Pascal Detwiller, and I'm an analyst at Vestal Hamlin Corporate Finance. We have the pleasure of hosting this web conference today since we're covering Helios Pecta with our commissioned research. We will begin with a presentation of the quarter and thereafter follows a Q and A session. So feel free to write in questions during the presentation and Ali will answer them after in the Q and A. Also, we will record this web conference, including the Q and A, and the recording will later be available at Helios Pekta's website and also on West Hamden's YouTube channel. So with that said, I will give the word to you, Ali. Okay. Thank you very much, Pascal. Good morning, everybody. I'm going to go through a little bit of an introduction to the company, our solution, as well as some of the highlights of the basically our quarter three reports. So our company founded in 2006 in Sweden with a very strong core value around innovation, expertise, collaboration, quality, sustainability and passion. If I go through a little bit of our mission and vision, basically, our mission is to redefine the nature's potential. Basically, we are an LED lighting company for horticulture. We are providing solution, combined LED and also control system for horticulture. And we would like to make sure that all of those people and all of those investors and growers, they really get the nature's potential of the seeds that they're growing. But we are doing it through innovation, technology and also very much of a strategic partnership with basically our commitment to improving the operational excellence to our growers. Our vision has been feed and heal the world and because of the passion that we have for sustainable growing and Reliance's pursuit of the innovation. The company founded in 2006, as I mentioned, more than 14 years ago, we have done +1000light spectrum tests and basically did 90 plus in house research studies. We have offices in Europe, North America, Japan and U. K. We're listed in, obviously, NASDAQ First North. Basically, we have all of our production, all of our design and development here in Sweden, our focus is on intelligent plant growth, as well as the expertise that we have is around plant science. So you see today that a lot of LED lighting companies are working around providing solution for horticulture. The differentiation of Hydro Spectator, among others, is that 1st and foremost, we're photobiologists. We are thinking about crop as number 1. And the expertise and knowledge we gather over more than a decade is actually differentiating us and our solution from our competitors. There are 4 basic market segments that we are very much involved in and active in. Number 1 is actually on the left side is the commercial greenhouses. When you grow tomatoes, cucumber, capsicum and different type of crops in the greenhouse environment. In greenhouse environment, we look at the light as a supplemental lighting to the sun of, obviously, the areas in the world that the sun is available, we are going to provide them with a different solution and where basically the sunlight is actually lacking. The second, basically our indoor system is indoor grow facilities, mainly used for growing medical crops like cannabis. And for that, actually, we designed a very particular solution that we can simulate the sun, the natural sun actually for the crop. So you're going to get a much higher quality, better yield all year round. The third is vertical farming, which is booming. As you know, vertical farming is that's when you grow crops like leafy greens and also salads in a very, very much of a stack environment on different top of layers and so on, where you can just actually use and maximize the amount of usage of the area that you have in hand. So we have multi tiers up to 10, 15, 20 tiers of growing crops using our LED technologies. And last but not least is actually on the research and agriculture technology, where we work and collaborate with universities. We developed actually a particular solution for that particular market, which is we allow the researchers to really define every single spectrum that the sun can create. We have a light with 9 wavelengths and we can actually simulate the sun and do your research, make sure that and find out what is the best spectrum for any particular crop. And that is exactly how we do our research as well. Our value proposition to our customers and the growers is, of course, number 1 is increased yield. We have cases that, for example, are growing tomato that we could increase the yield of tomato using our technology to 110%, 115% means that more than doubling up. And that is actually achieved by right quantity of light, which is actually what we call light, basically the amount of photons that goes to the crop, but also light quality, which is actually the spectrum. So for every single crop, we have a specifically tailor made spectrum that we know that's going to feed the crop in the best possible ways. That's why the yield is going to increase per square meter. Our customer can get more crop than before using our solution. We can accelerate the harvest. Basically, we can bring, as I said, simulate the sun in a best way and just make sure that we can shave off some of the days weeks on the kind of make the product ready for harvest. And that also added to the amount of yield that's going to be increased over a period of time. Improved quality is actually our core. As you see, the picture here is actually very much focused on the crop. So we've worked a lot to work with the top of a spectrum, light quality and light quantity, just making sure that we're going to get the best quality, such as flavor, such as kind of shelf life, such as morphology, planned morphology, how they look like, and so on. And last but not least, which is a very much actually unique value proposition that we have, is actually controlling consistency. So we can get the same product all year round with the same shape, same flavor, same sweetness, same color, but also we can control the consistency of the production, means that the time that our customer is dealing with high demand in the market, we can make sure that we can grow the crops in a way that we can actually provide products for that particular demand. So basically, we can push the gas pedal and put a brake on the production as the demand is needed in the market. And that is actually the value proposition for Heliospecra, which is a combination of light control as well as the technical service that we're providing. So in this picture, I'm just, in a very brief way, just kind of schematic of the greenhouse. You see on the right side, it says schematic of the greenhouse and you can see our light is hanging there. We have 4 categories of products or 4 product families, Mitra, Elixir, Dyna and Sierra, each for different purposes. Mitra and Elixir are very much used in the commercial greenhouses. Dynase for research and Sierras were used for vertical farming, which is actually schematic of vertical farming is here. You have a light control system called HelioCore, which is combination with this sensor technology and the box that's over there. We can actually control the amount of light and make sure that we don't over light or under light the crop. It's basically designed on the philosophy of the Swedish word logon. So we make sure that we get just exactly what crop needs, no more, no less. And by that, we're going to even save further electricity, but also making sure that all the nutrition and also all the photons that the crop need is actually sent to them and the crop can receive all of those photons. Last but not least is actually our expert solution specialist product, which is our service product called HelioCare. It's actually this gentleman here. So basically, what we do is that we are working with our clients and with our customers, making sure that they get optimized production kind of method using our solution. And with that, actually, we are offering that as a service to majority of our growers. And it's quite a popular solution that we're offering. Just very much of a quick look. This is actually our products. These are the LED Light Mitra designed for large greenhouses, very powerful light. This is actually one of the most powerful light with a tailor made spectrum for different types of crops, being it cannabis, tomato, cucumber, basil. That is a light that is actually designed for such a purpose. We have Alexia, which is a variable spectrum. With Alexia, we can actually simulate the light. It has 4 channels, 4 different types of spectrum red, blue, far red and white, where we can just actually simulate the sun in the morning, in noon and in the evening. And we have a product family, Sierra, which is designed for vertical farming solutions. It's a very slick design and doesn't take so much space and just provide just enough photons that is needed for different type of crops. And also Dyna, which is our research product, basically the 9 different channels and basically it works with the kind of in the research environment as well as kind of making sure that we can simulate different type of a sun different type of spectrum of the sun going forward. On the crop control, which is our heliocore, what we do is that we can forecast production, we can predict yield, maximize growth, optimize light zones and grouping of the different type of lights, especially when you're dealing with the greenhouses with a 5,000, 10000 installation. It is important we can get a control over those 5,000, 10000 instrument that is hanging there. You can further save money. So LED itself saves money by saving electricity. But with HelioCore, we can even further save money by just bringing enough light that is needed for the crop. And of course, we can monitor the growth facility. On the HelioCare, we do life planning, make sure that our customers get the right amount of light in the right place in their facility. We have on-site services. We do trials. So we make sure that actually, especially when the growers before building a project, For example, if they want to kind of grow a specific crop, we make sure that we do a trial for them, tailor made the spectrum and make sure that they get the right product. We do cultivation training, as I mentioned, also, basically use our labs for some sort of simulation for the customers. I mean, the demand for cultivation and sustained production is there. There is a driving coming from this need for sustainable solutions everywhere. We would like to have a produced crop with less amount of electricity. Population is growing. In just 2,050, the world population is going to grow another 70%, and that population needs to be fed. So you need to have like a more smart way of growing basically crops. There is a dynamic in the growing cannabis market, medical cannabis, especially in North America and Europe, and now we see that also in other places in the world. That is actually there is a demand for a solution for growing the crop in controlled environment. And of course, urbanization. I mean, no longer are we going to ship goods from rural areas and to the urban area because probably in 2,050, 70 percent of the population is going to live in the urban area. So we better produce the crop in actually closer where it's going to be consumed. The map here actually shows our footprint of our customers today. So talking a little bit about the quarter three highlights, obviously, we faced COVID-nineteen situation and pandemic. The first and foremost for us was very important to ensure our employees feel secure and safe in the work environment. And we already, since 3 months ago, back on track with 100% in selling and going back on the road, working with customers. We were one of the first companies already in March to sort of kind of engage our customers with webinars and that actually led to the 1500 new leads and almost half a 1000000 people reach out to these webinars and our outreach and all of those and digital marketing that we did. So that is actually so far how we work with COVID-nineteen. But also we took the opportunity to look at what is needed for going forward. And also, we know that the sales are going to be delayed. So although we have like a drop in sales because of the COVID-nineteen, but also we see that the interest is still rising with our customers. So we keep them warm. We have a hand holding process with all of them, making sure that once they are feeling secure about their CapEx investment, we are there for them and they can just invest with us. So one of some of the strategies we took to just adapt to the new situation was we narrow our focus to the key markets. We make sure that those key markets are going to get the extra attention. And the key markets are the markets we see that have the highest growth and highest possibility of kind of growing and also growing crops. We optimize our operation costs for this quarter. And obviously, we're doing the right insurance right now to secure our strategic investment because it is important that we be healthy and good today, but also we would like to make sure that we are going to be healthy and good in the next 5 to 10 years. This is the financial highlights. You can see it in the report. And also talking about the right issuance, which is going to be a substitution period, would be like from November 5th to November 19th. We are raising or making right issuance of SEK50.6 million and the 40% of that would be like focused on development of our Helio core and also our patented product biosensor. We're going to spend on developing those products. The 35% of that is going to go to our ex strategic expansion throughout Europe because traditionally, Europe was a bit behind in the sense of kind of adopting new technology. And North America has been always faster in adopting new technology. But now it's time we see that the market is maturing and we are ready to expand in Europe. And basically, the rest of the 25% is just reinforced our company's financial position during the situation. On top of that, we do also around SEK 32,700,000 warrants, which is actually half of that's going to be spent, which is actually, this is basically in a year from now. The 50% of that is going to be spent on the product development that is needed for 2022, 2023, and also building a reseller network across the world. This is my last slide, basically talking about our owners. So we have quite a very we are very happy to just have very much of a commitment from the main owners of the company for long term in the company. We have Veland, Vetapaper and also Veland Store as the main owner, and we have Adama, then we have MeadRock. The first kind of 4 first owners, they own 62 percent of the company, give and take, and that there is, of course, free floating in the markets and then we can trade. By that, basically, that was the presentation a little bit about Heliospektra. Here, you can see that we have an office in Gothenburg, Sweden We have an office in Toronto, Canada, one in Chicago, U. S, and also we opened an office last year in Tokyo, Japan. And we are working in satellite mode in the U. K. As well. So, I would like to welcome any question that you might have. Thank you for the presentation, Ali. So as Ali said, feel free to ask questions now. You can write them in. If you look at your toolbar, you have something called questions and you can just write them there and I will make sure that Ale can answer your questions. As for now, we don't have any questions yet. So I have a few questions of my own I can start with. You mentioned in the report that you're back and you're selling with full force again at 100%. And we're reading now in the newspapers that is 2nd wave of COVID and there's a lot of new restriction being in place, especially in Europe and in various places in the world. So what I'm wondering, you also mentioned that you had reshaped and resized organization, but would you say that you're better prepared at this stage for another lockdown than you were the beginning of the year? Yeah, we can say that. Basically, we are not just prepared for the lockdown situation, but also we are prepared for the rebound, especially when this pandemic is actually contained. We are very much ready for that situation that we're gonna see that the customers are actually traveling, traveling is going to be open and all of those. Between August October, there was a window that the lockdown was minimized And that is the time that our sales team become like very much on the road and they spend time with customer. But it is not just also on a face to face meeting. We did a lot on the digital marketing and also we did a lot through our webinars and also different type of conferences that we arranged for different group of growers. So with that, even right now, we are absolutely more ready because we are actually quite warm with doing all of this and the more lockdown, we know that how we can just reach out to our customer and our customer, they kind of we build some sort of loyalty with them. So we are continuously working with them even considering the lockdown. Actually, we've become in a way become better because our time and those 10%, 15% of the time that a salesperson need to spend on the airplanes or road to just meet the customer, those 10%, 15% is now spent on actually meeting with customers. So in that sense, actually, we are much more effective. Okay. We have 2 questions from the audience. The first one is, while looking at the market, do you consider the demand to be pent up or reduced during COVID-nineteen? That's a very good question. It depends. I mean, like, it depends. We see that there is a lot of demand on the food side, like when they want to grow crops. And that's very much simple because of the logistics that's not as efficient as before. And majority of the countries, we see that they're looking at having the local food grown in those countries or in that particular location. So for the food, we see actually quite a rise up in basically the demand for solutions like Helios Spectra is offering. On the medical side, the situation is a bit different. It is still the growing I mean, the steady growth of the medical cannabis market is still seen. We don't see any kind of a slowdown on the kind of ambitions, but we see a slowdown on the CapEx investment. So majority of investors are sitting on their money to see that how the situation is going to be contained and then they're going to do the CapEx investment. So it's actually dependent on the crop is going to be a different level dynamic. Okay. We also have another question. What is the status on the big order in Australia on 70,000,000? Yeah. As I mentioned in the report, so the customer is very much kind of did their financial part and they raised money and everything. Unfortunately, we hit COVID and with COVID, the kind of location in Australia that this plant is going to be built, which is Victoria, is actually in a 100% lockdown. So we are seeing the constant communication with customer. We are having a weekly and monthly meeting with them and them and also their investment company. But the situation is that the greenhouse builders, they cannot travel to Australia to build a greenhouse, the glasshouse that is needed for basically hanging our light and hanging our solution over there. So we are still waiting to see that how the situation with the COVID is going to be contained. And then after that, we have much more projection about the timing of that project. But all I can say in the short is that that project is pretty much alive and we are in a very good conversation. And as soon as this situation with pandemic resolves, I think the project is going to start. It's a little bit of uncertainty due to the COVID situation. Of course. Another question is, could you elaborate a little further on the strategic decision of establishing a reseller network? Absolutely. I mean, that's mainly if you look at Europe, I mean, Europe is, you know, we have like a 600, 700,000,000 population here, but there are different languages, a different way of working. We see that. So actually, today we have a solution. Our solution is very much of a kind of ready to use or you don't need to have like so much of a we kind of created the cold control and lighting solution so smart that actually can be sold by the resellers. So we would like to expand to those markets. One way, of course, is that to just have build our own team in those markets. But our strategy is more towards building our technical service team in those markets support the resellers and the resellers become the way to just approach the customers based on the relationship they have built over decades with those customers locally. So they're very much local approach, but we are supporting those with our technical services, making sure that there is a confidence also with the resellers when they reach out to the customers. Okay, thank you. And one more question here in Swedish, I'll translate it is, what are your thoughts around the stores like IKA and Coop, food stores that are beginning to look into system for growing food of their own? Yeah, exactly. And those are like of course, there's a niche with the kind of ECA, COOP, and even if you go out to U. S. And North America, Whole Foods and all of those, they have actually you can see that as solutions that are very much automized and you can grow it. Our focus is actually on the main horticulture market. So we did not actually intentionally try to explore such a market. Of course, we have a solution for that market, but we are looking for actually larger installation where actually the customer can see the value of Heliospectral solution. So for us, we didn't we did not intentionally and consciously, we did not prioritize those small installations like in the retailers, at least for now. Okay. And a question for me is, you wrote that you had an increase in prospective customers during the pandemic. Is there any way you could specify or elaborate what kind of product range that is of the most interest and maybe what sort of customers that is included in this customer segment? So the customer, if you have like 8, I mean, we bring down our customers into different type of 8 different kind of customers. We have like, if you start from the medical, we have indoor medical and also growing the greenhouse. In indoor, we have single tier, multi tiers. And then even in that category, we have like a kind of a top of a production that they have like a different vegetative room and flowering room, and then we have also basically full cycle growing. And then we have leafy greens in the greenhouse, we have vertical farmers, we have actually wine crops, tomato and cucumber, as well as research. So what we have done is that, as I said, we were very much in the beginning of the pandemic. Even before all the lockdowns, we actually foresee that such a thing is coming. So we started kind of planning our webinars and a lot of educational webinars we did. We had actually a hit rate that was very much record, industry record. So for example, some of our webinars on vertical fund, we had up to 700 people participating in those webinars. And so with that, actually, we created kind of a trust and loyalty with those participants and some of those actually turned to a potential prospective customer that we need to actually start working. There were a lot of investors also in those calls that they want to invest in the vertical farming because of the dynamic that is created in pandemic. And now we are trying to kind of guide them through what they should do, where they should kind of invest and what type of solution they need. That is how actually we created our kind of outreach with our customers. Okay, thank you. That is all the questions I had and there seems to be no further questions in the chat either. So with that, I'd like to thank you, Ali, for coming here and presenting for us and answering the questions. And Actually, we have one more question now. Okay. Take it. From the order intake of SEK 10,000,000, how big part is new customers? And has the office in Japan contributed to new deals? Yes, that's a good question. So the first part of the question, I think in the $10,000,000 this quarter, the majority of that, I would say 90% of the new customers, if not all. Yes, there are a little bit of a repetitive order, but we have 90% of the new customers. Our office in Japan is actually pretty active in a sense of not just on the selling, so we had actually projects for the first time actually a non kind of Chinese company we sold China out of our office in Japan. But also, with our expertise in Japan, we could actually work in a lot with our product development, making sure that we can develop a product that is actually demanded for such a market. When it comes to virtual farming and indoor growing facilities, Japan is actually a country that everybody look up to. I mean, they've been doing it for over a couple of decades. And we are trying to kind of transfer that knowledge also into our basic design and everything that we do in Sweden, making sure that we're going to optimize our products, but also kind of tailor made our product for such a market. So Japan is very much of a strategic we opened that due to the strategic reason, not just for sales, but also that to make sure that we are on the front line when it comes to our product development. Thank you for that. And now we have no more questions. So I'd like to thank you again, Ali. I'd like to thank everybody that attended this meeting and asked good questions. And as I said earlier, this recording will be uploaded to Hillispector's website and also to our YouTube channel. So with that said, I wish you all a good day and thank you for attending. Have a good one. Bye bye. You too. Bye.