Earnings Call: Q4 2020

Feb 11, 2021

Thank you. So welcome, everyone, to this audio call of the pricers' Q4 and full year 2020 financial results. As you have probably already seen, there are many records to be very proud of in today's report. And particularly, considering the circumstances around us, I can't stress enough the importance of the people within Prycer who made all of this actually come through. So next slide. And I'm sure it's also well understood that this is a very exciting time in the ESL industry in general and of course, within Prycer in particular. But before we dive into the quarterly financials, I would just like to spend a few minutes talking about the Q4 more in general and also about the contract that was recently signed with Carrefour. I'm sure that many of you are particularly interested in this contract as it is, of course, a significant win for Pricer. So we have been a supplier to Carrefour in France since 2004. And over the years, we have installed our system in around 200 hypermarkets. During 2019, Carrefour issued an RFP with an intent to select 1 global ESL partner to support all of their new ESL installations on a global basis. So the RFP was based on the intent to install roughly 500 stores. But it was always clear from the get go that there are no minimum commitments in this contract. But as part of the selection process, Carrefour conducted an in store performance testing where they had us demonstrate a wide range of use cases. And this was, of course, the price updating, but then also things like digitalized for picking up online orders and the put to light for more efficient replenishment process. And so our ability to demonstrate some of our key capabilities, which will be on speed and reliability, may thus come out on top in this evaluation. And we should also remember that the cloud based platform, Prajser Plaza, was also an important part of the selection of Prycer as the strategic partner of choice. And within Prycer, we think very highly of the Carrefour team, and that, of course, makes us even more proud to be their preferred choice for an ESM partner over the coming years. So for the Q4, we can also conclude that the lockdowns in some of the mostly European countries didn't really cause the same delays in installations as we noted during the Q2. So instead, the greatest challenge during the Q4 was to solve transportation between continents. And we're also very pleased that we have been able to continue to recruit and strengthen our organization despite all the current circumstances. So next slide. So let's move into a recap of the financials for the Q4. So we came into the quarter with a backlog of SEK754,000,000, which was a reflection of the many large customer projects that were ongoing in parallel during the fall. So the delivery activity during the Q4 was consequently very high, and it resulted in, again, a record high net sales for an individual quarter of SEK 680,000,000. And if you compare that with the Q4 of 2019, it represents a quarter on quarter growth of 186%. So there are, as always, several countries that contribute to this record high net sales. But the top 3 contributors were the U. S, U. S. A, France and Canada. Moving to next slide. So the order intake remained on a similar level as in the 3rd quarter and amounted to SEK 454,000,000. And although this is a historically high quarterly figure, it was significantly less than the Q4 of 2019 when Best Buy placed an order of SEK 625,000,000. So those were some very challenging comps. And the order intake in the 4th quarter had a customer mix and good geographic distribution. Beside the generally strong quarter in France, it also included additional orders relating to some of the ongoing customer projects that were also announced in the quarter with Best Buy and Plus Retail. There was no major contribution effect in order intake of the 4th quarter relating to the new agreement with Carrefour. And that is just something that we would like to highlight. And moving out of the of 2020, the backlog at the end of December remained on a very high level at SEK 495,000,000. So moving on to the next slide. Rig Vos margin also remained on a similar level as in Q2 and Q3. It reached 22.5% in the 4th quarter. And of course, as always, it's the contracts and the product mix that impact the gross margin, but there were also some headwind from the weekend U. S. Dollar against the Swedish krona. In addition, we have what we have seen during the pandemic is that freight costs have been going through the roof. And of course, this is grounded airplanes and more extensive border control that have caused us a general shortage of transportation opportunities in the market. And although we have shifted as much as possible to sea freight, the pricing levels for sea freight has also increased dramatically during the second half of twenty twenty, which adds, of course, additional pressure on the gross margin. Next slide. EBIT operating profit came in at SEK 69,000,000 for the 4th quarter, which corresponds to an EBIT margin of just over 10%. And this is in line with the same EBIT margin for the period in for the Q4 in 2019, but it was a decline compared with the Q3 of 20 today. So operating expenses have increased compared with the same period in 2019, and this is primarily relating to higher personnel costs and other operating activities aimed to build the organization for continued growth. There was also an impact of roughly SEK 10,000,000 in the 4th quarter, which primarily relates to a lower level of activation to the balance sheet of R and D expenses. Of course, this has no cash flow impact, but it distorts comparability between quarters. Next slide. And when we look at the cash flow from operating activities, it saw somewhat of a ketchup effect during the Q4 and reached a record high level for an individual quarter of SEK 203,000,000. And this is the result, of course, of the ongoing work to improve working capital, but also in combination with a temporary effect from favorable payment terms relating to some of the larger customer projects. But as always, we recommend analyzing the cash flow over time and not for quarter by quarter. And the cash position at the end of the year was SEK262,000,000 and the Board proposes a dividend of SEK 1 per share, which is a 25% increase compared with last year, and the dividend is to be payable in 2 equal installments. So next slide. So moving on to the financial results for the full year of 2020. Yes, I'm particularly proud to report a top line growth of 75% year over year. And this kind of growth figure is not uncommon for stock up companies, but they're certainly not so frequent for 30 year old technology companies. It also shows that although there is some lumpiness in our figures, the growth over time has been significant. In average, we have grown more than 20% per year over the past 5 years. Profitability has also increased, which is, of course, a good sign of health. It also demonstrates that we are in this for the long run, which is why we never, for a moment, divert from our strategy to deliver high quality products and services that generate real value for our customers. So being successful in business is all about piling satisfied customers on top of one another. And this is, of course, our goal and what motivates us as a team. So next slide please. Look at some of the key figures, we can conclude that 2020 was a very good year for Praetor. Despite all the challenges caused by the pandemic in terms of lockdowns, remote working, significantly reduced traveling and so on and so on. We managed a record high year in terms of sales and profitability. And considering the large order from Best Buy of SEK 625,000,000 in December 2019 as well as the weakening of the Swedish krona versus the U. S. Dollar, It makes the comparison figure from 2019 challenging, but we still managed to grow the order intake by 5%. The growth is spread across multiple geographies and customers, where the U. S, the Netherlands, Norway, Canada have contributed the most. And despite the transition to mostly digital interactions, we added many new customer names to the list during 2020. And we're, of course, equally proud to be working with all of them. The operating margin is somewhat lower than last year. Is primarily a result of the decrease in gross margin but also combined with higher operating expenses. It is also worth mentioning that we have not received any COVID-nineteen related government funding, But instead, we have continued to build the organization for continued growth and success. So next slide, please. So although I'm very pleased, but not so surprised about our development in 2020. First of all, Prycer has the best performing solution of all ESL suppliers. And as the requirement for an ESL system extends beyond price updating, then our differentiation becomes increasingly valuable. And of course, secondly, the penetration rate of digital price labels is still on a very low digits. And as the world's becoming increasingly digital, it's quite natural that the analog paper label, which remains our largest competitor, will be replaced over time. And of course, this generates the great opportunity in this market is still ahead of us. And then with the explosion of online shopping following the pandemic, the need for retailers to engage with shoppers in a unified way across all their sales channels has been become increasingly important. And also the aim to replicate some of the advantages with online shopping in the physical store environment is a trend that has been noted for some time and where the digital shelf labels can be an important part to ensure accurate information to the customer in the store. So in the end, it's about improving the customer experience by building trust and loyalty. The dramatically increased demand for online shopping has also resulted in a drastic increase of in store picking. This is a new process for many physical stores, and there's a strong demand for system support to make this process as efficient and accurate as possible. And the pricery itself is particularly suitable to support this process as it can provide guidance for route optimization and speed up the picking process by utilizing the system's real time capacity for pick to light. And in addition, the pandemic has exposed a vulnerability to many retailers with regards to the dependency on the staff. With sick rates that have been much higher than normal, it has become increasingly challenging to operate the physical store. And driving automation and simplifying processes is a way to improve the flexibility when it comes to staffing and allocation of labor in the store as well, of course, as to optimize the process efficiency itself. So in the end, it's about being able to do more with the S. The next slide. And then on a more general note, we continue our geographical expansion to meet this increased demand in the market. And as previously mentioned, we established presence in Taiwan and the Netherlands during 2020 and most recently, we also added dedicated resources in the U. K. In 2020, we also launched our cloud based platform called Price Plaza. And at the end of 2020, we had more than 500 stores connected to Praxit Plaza. Although we continue to deliver and support both the on premise and the hosted cloud based solution to manage our system, we are pleased to see how Praicer Plaza is gaining traction in the market. And of course, besides improving the speed and simplicity of the system integration, price to plot also enables our customers to quickly and with quite little effort applied new functionality and new applications that become available in the system, making this solution to future proof. And being able to deliver an integrated solution of products and services, we gradually transition into becoming a strategic partner to our customer on the digitization journey. It changes our business model from a product sale towards a solution sale. And it also enables an ongoing dialogue with that generates new ideas and lots of input on ways in which we can provide additional value. And when we speak about future proof, we're also moving forward with our battery powered shelf mounted camera and the shelf vision application. And the idea here is to insert ICE in the store to offer retailers real time insight of the status in the stores. So collecting data in the stores to better understand customer behavior is the first step towards aligning the in store analytics with the algorithms that successfully drive the digital sales channels. And this new application opens up for a different dialogue with existing as well as new customers. And although the application works well without the pricery ASN system, there are significant values to gain for customers that combine the 2 solutions. And some of the use cases in the shelf vision application include gap detection to show if products are sold out or missing on the shelf. It includes planogram, planogram compliance and also ensuring accurate management of promotions in the store. And these are some of the use cases that are currently being within stores. And as this application matures, of course, more capabilities will be added. Next slide. So to conclude this presentation before moving into questions, I'd just like to express my gratitude to all Przy colleagues who have gone really above and beyond to make 2020 a fantastic year. It was certainly not without obstacles along the way, but everyone joined forces and came together to make this happen. So Thank you, everyone, who contributed to these fantastic results. So let's move on with questions. Thank Our first question comes from the line of Simon Grondner at ABG. Please go ahead. Hi, Helena, and congrats on the Strong results at the end of 2020 here. As a first question, you say that you're taking steps from the role as Product supplier towards instead becoming a strategic partner for store digitalization. Could you explain to us what those these initiatives involve? Well, it's more about the dialogues that we engage with the customers that the pricers plus also enable us to have a very continuous dialogue with different levels of people within our customer. And of course, that sort of that puts us very well in front of the people we need to dialogue with in order to improve and secure our system and the solutions. And so this, let's say, joint dialogue in how we can add more value on our in our system, that is a very, very valuable input for our product development. And of course, that as we add more value to the system for the customer, of course, that is just a very good iterative process to remain with the customer for a longer period of time rather than at the initial time of installation. So we stay with the customer for a much more standard period. And that is a very interesting position for us. I see. Thank you. You also mentioned that pricier Klasa allows customers to add more solutions on top of the platform. Could you provide some examples regarding these add on solutions that Customers are allowed to add. Yes. So if we look at many of the software solutions that are available for retailers, they are primarily located somewhere in the cloud. And of course, having then a cloud based platform where you can open up APIs to integrate solutions, that is a much faster and easier way than to having a local server in the store, let's say, where you need to do all these integrations for on a store by store basis. So it's on also on the scalability. That could be, for example, on the waste management side, Kreizer has no offering of our own, but we have partners that we work with. And then we can provide a joint, let's say, pre integrated solution, but that is a cloud based pre integrated solution. Thank you for that. And I know the pricier has gained quite strong Traction in the U. S. Market in recent years. Can you explain to us what has happened in recent years? Why has the U. S. Market taken off if you compare it to The last decade or so. Yes. We have been going through this a bit over the years. But of course, there have been some, let's say, significant steps. But first of all, having the an additional color in the e paper. So when red as a color became available in the digital label, that was a very important step for the U. S. Market. So we shouldn't forget that in the U. S, retailers utilize the shelf hedge for a lot of communication. And in order to replicate this communication and remove the paper label and put the digital label, there are some requirements and on the color side is one of them. So that there are some prerequisites. But then, of course, the competition from ecom players like Amazon and so on is very tense in the U. S. And the drive for automation and availability of the labor and cost of labor and all of these driving forces are starting to move the market. It's crystal clear. Thank you for having my questions. Thanks, Simone. Thank you. There are currently no questions. So I'll now hand back to the speaker. Okay. Thank you very much, everyone, for listening in. If you do come up with questions, you're always welcome to e mail them to us at infoprycer.com. Otherwise, I look forward to seeing with you again in a quarter from now.