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SERSTECH AB: Third Quarter Report 1 January – 30 September 2021

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Serstech Group

Third Quarter 2021

Net sales: KSEK 1 516 (8 213)

Profit for the period: KSEK -5 074 (2 076)

Earnings per share SEK -0.06 (0.03)

Earnings per average number of shares: SEK -0.06 (0.03)

Serstech Group

Period 1 January – 30 September 2021

Net sales: KSEK 15 740 (14 534)

Profit for the period: KSEK -7 347 (-7 948)

Earnings per share SEK -0.09 (-0.11)

Earnings per average number of shares: SEK -0.09 (-0.11)

Parts of the world is slowly starting to open up, but many of Serstech’s target markets remain hard to access for us due to Covid restrictions. Historically, we have been most successful in South-East Asia, but for the last 18 months, we have not been able to visit customers or partners in that important region. Our local salespeople have been able to have some meetings in North America and China, even though many potential customers have their own Corona-related meeting restrictions. In September, we have met with partners and customers in nine European countries, and it seems that some tenders are being resumed in Europe. It is however too early to tell when business will be back to normal. The whole industry is affected by the pandemic-related restrictions and the fact that many of our potential customers are focusing their work on enforcing travel restrictions, rather than their normal law enforcement activities.

As for virtually all electronic product manufacturers, we are experiencing component shortages, which primarily restrict the production capacity for our new Arx products. There is a risk that the component shortage will have at least some effect on our production for most of 2022. Due to the shortage, having confirmed orders from component suppliers is not enough, since these can be cancelled at any time. For this reason, we are placing orders with immediate delivery and are building stock of all components we expect to need for the coming year. This does have an effect on our liquidity, but as we expect sales to start growing again within short, we need to build stock in order to be able to deliver.

We have been able to secure the components we need for the Serstech 100 Indicator, corresponding to a sales value of 25 MSEK, which should be enough for 2022 for this product. Depending on how our competitors are affected by the component shortage, our ability to deliver fast could be a significant advantage for us in 2022. Due to the long sales cycles, we expect the Serstech 100 Indicator to be a significant part of our volumes for at least the coming year.

The feedback we are receiving from our partners and customers about our recently updated product portfolio is very positive. Every time we show the Arx products to customers, they are impressed by their size and weight, their industry-best usability and the speed and precision of the patented autofocus. The end-user price of Arx is slightly higher than that of the Serstech 100 Indicator, but it still has one of the best price/performance ratios among the handheld Raman instruments on the market.

We have taken significant steps forward in the US during the quarter. We have signed two partnership agreements, including with one of the largest suppliers to federal authorities in the country, and we have been in several high-level meetings with large potential buyers. The majority of the volumes in the US are procured through multi-year frame agreements and through direct purchases from pre-approved suppliers. These purchases are completely hidden from the world, so unless a supplier is well-established and pre-approved, this market is completely inaccessible. Through focused and excellent work, our US salesperson has been able to ensure that Serstech’s products are scheduled for in-depth testing and evaluation in several government programs over the next nine months. After these tests are completed successfully, the US potential is huge for Serstech.

In September, we received a few small orders from United Nations, which has purchased instruments from us several times over the last three years. Our instruments are deployed by the United Nations Office on Drugs and Crime (UNODC) in several countries, and they are for instance used in the Middle East to combat the large-scale trafficking of opiates to Europe. UN is a recurring customer since 2018 and deploys our instruments in harsh field conditions, from deserts to cold, mountainous areas.

Our first mobile application ChemDash Mobile is getting closer to launch, and we now have a working prototype that will be demonstrated at an exhibition in the US in November. The application connects a mobile phone to our Arx instruments and is the first of its kind in our industry. The application introduces several unique features, such as voice control of and voice feedback from our Serstech Arx instruments. The voice input and output are important for users in protective gear, which can limit both the screen visibility and the ability to operate buttons on an instrument. In addition, the mobile application allows us to participate in tenders that require GPS and camera integration, which is something many of our competitors have integrated in their instruments and we have been missing.

For many years, our vision has been to create wider solutions, rather than stand-alone instruments. The wider solutions would be connected through our powerful ChemDash software, which is designed to allow connections to many types of devices. The security industry is slow and conservative, which has made it hard to lead the transformation of the industry, especially as we are the small newcomer. Now, finally, this seems to be changing. We have several productive product collaboration discussions ongoing, and we hope to be able to announce the first such collaboration in Q4 2021. The idea is to solve larger problems for the customer, i.e. not just the chemical identification task as we do today. By combing several technologies, we could for instance also detect traces of a dangerous substance and hence be able to tell the customer which package to open and then, in a second step, identify its content with our Raman instruments.

Serstech has a skilled and productive R&D department and earlier in 2021 we decided to improve the protection of our innovations and set the goal to submit at least five patent applications during the second half of the year. Seven patent applications are currently under review with our IP attorneys, so we are well on our way to reaching this goal. The patents are both related to improvements of our Arx products and to our coming Genesis product platform. Since Genesis is expected to be disruptive, it is crucially important to protect all related intellectual property.

Despite the significant challenges created by the effects of the pandemic and the global component shortage, we have managed to slightly increase our revenue so far in 2021 compared to the same period in 2020 and 2019. We know from multiple customer meetings over the last few months that our new Arx units are a great match to the market needs and that our price/performance ratio is one of the best in the industry. Parts of the world are opening up for business again and we remain convinced that our 50% growth goal is well within reach for 2022 and onwards, as long as the pandemic loosens its grip on the industry and the market.

For further information, please contact:

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

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

or visit: www.serstech.com

This is information that Serstech AB (publ.) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above at 8:00 CET on Nov 9, 2021.

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

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

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

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