Talkpool Interim report January-June 2019

APRIL 1st – JUN 30th 2019

• Net sales amounted to EUR 5 569 thousand (5 509), a 1.1 percent increase
• EBITDA of EUR 52 thousand (375) and EBITDA margin of 0.9 percent (6.8)
• EBIT of negative EUR 40 thousand (301) and EBIT margin of negative 0.7 percent (5.5)
• Net earnings after tax of negative EUR 801 thousand (-58)
• Net earnings after tax, adjusted for non-recognized FX gains, negative EUR 604

JAN 1st – JUN 30th 2019

• Net sales amounted to EUR 11 152 thousand (11 626), a 4.1 percent decrease
• EBITDA of negative EUR 37 thousand (882) and EBITDA margin of negative 0.3 percent (7.6)
• EBIT of negative EUR 240 thousand (702) and EBIT margin of negative 2.2 percent (6.0)
• Net earnings after tax of negative EUR 1 155 thousand (95)
• Net earnings after tax, adjusted for non-recognized FX gains, negative EUR 958

APRIL - JUNE KEY DEVELOPMENTS

• Gross margin improvement over the quarter thanks to a reduction in cost of sales
• Significant negative net earning driven by large non-operating expenses, in particular unrealised (“paper losses”) FX losses due to extreme currency movements
• Talkpool ended the quarter with a strong cash position with almost EUR 1.5 million in cash and EUR 1 million of unutilised credit capacity across the group
• Gross margin and EBITDA in the Netherlands and Pakistan exceeding expectation
• Restructuring and improvement projects in Haiti and Pakistan showing good progress
• First IoT water meter volume order received from B Meters
• Horizon 2020 water project award of EUR 270 thousand
• Partner agreement signed with DS Energy in Denmark
• Managed service contract for major operator signed in Pakistan

CEO COMMENTS

With the ambition to deliver on the IPO story and achieve a fast revenue growth, Talkpool has invested a lot of time and money in the acquisition and integration of new companies as well as the development of IoT products and solutions over the last three years. During this period the development and organic growth of some of Talkpool´s legacy business has received limited attention. The capacity to manage challenges in difficult environments has sometimes been lacking, with shrinking organic growth and operational inefficiencies in the service delivery organisations as a result. The closure and divestment of small non-profitable and non-strategic markets has also received limited attention, but nevertheless continued to generate administration and cost. An increasing spread and complexity combined with unrealized synergies between some of the group companies has had an adverse impact on the profitability.

Several non-profitable quarters in a row and an inability to create expected shareholder value has triggered an assessment of the situation in the board of directors and the management team of Talkpool. The need for a simplification of the group structure and a clearer focus on strategical and sustainable markets and business areas has become obvious. A restructuring plan and a change in strategic direction is in progress and the action program will be presented to the market this autumn.

Network Services

We have seen an increase in client inquiries but delays in customer orders for new technology such as 5G, DTH and LoRa, in which Talkpool has invested, has resulted in lower revenue and profits than expected.

Talkpool’s Operation & Maintenance organisation in Haiti has since the start of the project in 2005 delivered high quality services to the local operator Digicel and a stable revenue stream to Talkpool Group. Quality and operational excellence was always the trademark of Talkpool Haiti. After 12 years of high performance under increasing pressure, the need for investments in the Haiti operations became obvious during last year. A major refurbishing project with a new organization, processes and tools has been implemented and is well underway. Talkpool’s refurbishment costs peaked during Q2 that saw higher costs than revenues. It will take until the end of the year before the refurbishing work is fully accomplished. This will be followed by new opportunities and projects from Digicel.

The Pakistani business improved substantially during Q2. Ongoing projects are efficient and generated more gross profit in Q2 than in any other quarter since the acquisition. In June and July, Pakistan exceeded expectations and delivered strong results based on various initiatives deployed for cost control.

In June Talkpool Pakistan signed a strategically important managed services contract with the world’s largest telecom vendor for maintaining one of the major mobile networks Pakistan. The order value amounts to approximately 620'000 Euros per year with an initial contract of 360'000 Euros for the first six months. This is the first Managed Services contract for Talkpool in the Middle East/Pakistan region and it will generate long-term and stable revenues. The scope of work and the business model are similar to the ones in the O&M-contract with Digicel in Haiti. 

Talkpool’s operations in the Netherlands clearly overperformed the budget in Q2. Talkpool’s customer Cellnex launched a project to construct and build new 5G-towers which will generate more orders for Talkpool at least until the end of 2020. Talkpool Netherland’s traditional Camouflage-business also clearly exceeded expectations in Q2 based on the 5G roll outs in the Netherlands.

IoT

In April B Meters, a leading European water meter manufacturer, placed a major order worth of EUR 95 thousand for Talkpool’s IoT devices that are compatible with B Meters’ mechanical water meters. B Meters produces almost 2 million water meters per year and the trend goes towards making these water meters smart. B Meters has taken the step to make their products smart with Talkpool technology. First deliveries were made already in Q2. The concept of partnering with leading suppliers of existing “dumb” products and appliances and making them smart is part of Talkpool’s strategy and will be a means of fast growth of our IoT business over the coming years. Another example of this is the smart floor drain developed by Talkpool in cooperation with a leading Swedish floor drain supplier.

Talkpool and Danish DS Energy signed a strategic partnership agreement in June. The parties have been working together to transform DS Energy’s product portfolio to be based on the latest IoT solutions for energy savings and via DS Energy, Talkpool’s IoT solutions now reach the Danish energy market.

In May Talkpool was awarded EUR 270 thousand from the Horizon 2020 project “Digital solutions for water: linking the physical and digital world for water solutions”. The project focuses on developing solutions for water management in the smart cities of the future. Talkpool will contribute with its expertise in IoT solutions, to develop the IoT technology and data security in the project. The project duration is 4 years and is part of the Horizon 2020 Research program, initiated by the European Union.

New strategic orders and an increasing willingness to invest in IoT is confirming our positive expectations for the IoT business, even if the big orders are yet to come.

The planned restructuring effort (as mentioned in press release 2019-08-29) covers exploring the following themes:

• Reduce organizational complexity and increase focus
• Increase shareholder value through spinning-off entities
• Creating IoT advisory and risk committee functions in the board
• Strengthen key hubs and exit our weakest businesses
• Local financing model replacing central financing from headquarters

Currency losses

A very important driver for the large quarterly net loss, was the negative Financial Net of EUR 722 thousand. Financial Net includes, foreign exchange losses, other extraordinary financial costs and interest expense. Where foreign exchange losses constituted more than 50% of the costs for the period.

Talkpool is exposed to a number of different currencies due activities in many geographies. For each quarter, Talkpool typically experiences economic unrealised FX losses and gains. Talkpool however only recognises the unrealised FX losses, not gains, in its books. This to comply with Swiss Code of Obligations. As an example, if Talkpool holds a $1 asset and a $1 liability and the dollar depreciates 10%, the economic loss is zero, but the accounting loss per Swiss Code of Obligations is 10 cents.

If Talkpool would apply international financial reporting standards, the firm would not only recognise losses but also realise gains. Talkpool unrealised FX gains that in this case could have been recognised in Q2 2019 amounted to an estimated EUR 197 thousand.

The key driver for the large FX losses in Q2 2019 was the extreme movements in Pakistani rupees in connection with the country receiving an IMF loan in May.

3rd Quarter 2019

In July Talkpool won a contract with one of Sweden’s leading real estate companies for providing smart building solutions with several types of sensors to a new major development area in Stockholm. The initial contract is worth approximately 100’000 euros.

For more information contact: 

Erik Strömstedt, CEO Talkpool
Phone: +41 81 250 2020
erik.stromstedt@talkpool.com 
    
  
About Talkpool
Talkpool provides IoT solutions and telecommunication network services globally. Through its cutting-edge technical expertise, long experience and agile business model, Talkpool offers global telecom vendors and operators high-quality services on short notice no matter the location. Moreover, Talkpool is one of few companies with actual solutions and contracts in place in the exciting IoT-market. FNCA Sweden AB, +46(0)8-528 00 399 info@fnca.se, is Talkpool’s Certified Advisor. www.talkpool.com 

This information is inside information that Talkpool AG (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, at 08.30 CET on August 29, 2019.

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