Ovzon AB (publ) (OVZON) Earnings Call Transcript & Summary

Welcome to the Ovzon webcast. [Operator Instructions] Today, I'm pleased to present Ovzon's CEO, Per Noren; and Ovzon's CFO, Noora Jayasekara. Please begin your meeting.

Thank you, Lucas. Good afternoon, everyone, and thank you for joining the webcast related to the news that we released earlier this morning, Central European Time. My name is Per Noren. I am the CEO of Ovzon, and I'm here today with our Chief Financial Officer, Noora Jayasekara. Good morning, Noora. Good afternoon.

Good afternoon.

Okay. Let's waste no time and begin straight away. As you probably have seen this morning, we published a press release regarding further provisions of SEK 34 million for bad debt related to our Italian distributor and its financial situation. I'd like to go through a little bit to provide background, but let's take it from the beginning so you will get a better understanding of the events that elevated this bad debt provision. One, Ovzon made its first agreement with the Italian distributor in 2019. It started very well. And in 2020, they signed their first order with us, a relatively small order but still the first order. Up until and including 2021, Ovzon has had no late payments or other disturbances with this distributor. On December 31, 2021, Ovzon signed an agreement at a value of USD 9.8 million through this distributor. The end customer was the Italian Fire and Rescue Services, and the order contained delivery of Ovzon's world-leading SATCOM-as-a-Service. This order was, of course, a large contract and an important breakthrough for Ovzon in the European market. The contract included services that would be delivered -- would start in April 2022 and extend until the end of April 2023. As agreed, and according to the order and the plan, Ovzon started its deliveries in April 2022. During the summer of 2022, we also signed one more smaller order with this distributor for another customer and a test installation. During the fall of 2022, it emerged that this distributor was experiencing financial difficulties and they have started to fall behind with their payments to Ovzon. Of course, we actively drove a dialogue with the distributor regarding this. And together, we established a solid payment plan for the outstanding payments. In the interim report of the third quarter of 2022, bad debt provisions were made regarding the outstanding receivables of SEK 6 million, all related to this distributor. In the third and fourth quarter, the distributor continued to fall behind on its payments. A payment was made. We reset the payment plan, and the payment that was made then was about SEK 5 million. But that was not fully to the agreed level nor the -- entirely according to our payment plan and our sent invoices, but we were given guarantees that they would secure -- that would secure our payments. When publishing the fourth quarter results on February 21st, we made an additional SEK 10 million provision of bad debt related to the same distributor. Since then, it's been unveiled that the distributor's financial situation is worse than we previously assessed, and it's been a lot of work around this together with our various advisers and the distributors. That's why we've come to the decision now to make further provisions of SEK 34 million related to this. Before I hand over to Noora to run through the financial effects more in detail, I will say that the end customer, the Italian Fire and Rescue Service, has been content and are satisfied with our delivered services. I think this is important to emphasize. They're a government-run social-critical function of great importance, not only to Italy, but also to other countries around that. And they've been engaged in the earthquakes in Turkey and Syria. They've been engaged with the wildfires in Tuscany, and they've been engaged with avalanches, as well as the landslide in the island of Ischia, recently using Ovzon's SATCOM-as-a-Service. And as we said, they perform a societal-critical function of importance, so that's why we have made the decision to continue the delivery of the service despite our Italian distributor's financial difficulties. In summary, we are in good standing with a satisfied end customer right now, and we are continuing the dialogue with them. And they are a reference in the market, so we continue to gain interest and opportunities with civil and defense customers in Italy. I'll now hand over to you, Noora, for some more details around the financial outcome of what we just did.

Thank you, Per. I will now give you some details on the effects of this additional provision in the previously communicated fourth quarter and full year 2022 figures. Net sales remains unchanged, at SEK 101 million for the quarter and SEK 357 million for the full year. The total recognized revenue deriving from this agreement in 2022 is SEK 62 million, of which SEK 57 million are unpaid for. Operating result is affected by the additional provision of SEK 34 million, and is updated to minus SEK 45 million for the quarter and minus SEK 81 million for the full year. Net result is similarly affected: Ovzon's up to minus SEK 43 million for the quarter and minus SEK 36 million for the full year. With this short summary, back over to you, Per.

Thank you, Noora. So that is what we had for you today. And obviously, we are open to questions and answers in this unforeseen and not planned, frankly, situation. So we'll hand it over to you, Lucas, and we'll take any questions and answers that there will be on the webcast.

[Operator Instructions] There are currently no questions coming from the audience.

Okay. Thank you very much, Lucas. So I think I'll wrap things up then with maybe providing some context on questions that I would have, and I won't go too deep with it. But I want to explain something that maybe is not totally understood in these situations. So first of all, most, if not all, government contracts -- so the Italian Fire and Rescue Service end customer is under the Ministry of Interior in Italy, in this case. And most of these societal functions, whether they are defense or civil and so on, of course have government rules and regulations for procurement, and you have to be an approved provider of that. And most of these government agencies have a framework holder, a framework agreement holder that is managing these kinds of services. Our Italian distributor is a reseller in the market. They are not an approved government framework holder, that is big companies such as the big telecom companies or big consulting companies that we give in the past to manage this on behalf of the government. So the Italian distributor is a reseller. They, however, had a direct contract with the Italian Fire and Rescue Services and had, had that for a period of time. But the framework order is -- the framework agreement is held by a bigger company called Vodafone. So I wanted to clarify that, because it might seem strange that this occurs. The second comment I will make is you probably have questions around why this was not dealt with in Q4. As a matter of fact, the payment plan and the payment we got during the fall and the guarantees we got was prudent, and we did some reservations, as you could tell from the numbers. We found out more about the financial health of the distributor as we entered into deeper discussions. And also the new payment plan, and the pledge that this distributor have of its assets. We found out more, therefore -- and this happened in Q1 -- therefore, this provision right now. So we run the business pretty tight or very tight, and we find out therefore the news right now, frankly. So I wanted -- I think that there were no questions on that, but maybe not everyone is aware of those things.

Okay, there are 2 questions here. I'll read them for you, one from Greg Tsakiris. There are a lot of bad news right now. Delays announced on 3 shares issues [ unpaid bills ], at the same time, you continue to press how positive demand is for Ovzon services. Can we expect some positive info soon? Thank you for the question, Greg. Obviously, we continue to drive a lot of market activities. We just came off the Satellite 2023, which is the world's largest satellite conference and show. We did win a prize from the Mobile Satellite Users Association for our terminal Ovzon T6, which doesn't generate revenue and profit, I know that. But it's a recognition of the quality that Ovzon has. Our market activities are very, very strong and solid. The difficulty in saying exactly when good news are going to happen, I can't obviously do on a call like this. But we have a number of activities and these we work on. So we hope to be able to show you some good news following these news going forward during the year. But obviously, I can't make any promises on when. But Ovzon is very well positioned with its current customer base, the extension of contracts we had, the new initial contracts we had at the end of 2022. And we continue that drive and strive, and we'll communicate as soon as we have anything of that to communicate. There's a second question from Dan H. That's -- I'll translate in English, Dan, as you wrote in Swedish. Hi, one cannot read that Gomedia Satcom's -- on Gomedia Satcom's website that they have financial problems. Can you explain a little bit about their economical difficulties? Yes, I can explain what I know. So this is our Italian distributor. They have been very successful in winning business in the Italian market and have operated there for a while. We signed them, as noted in the presentation, at -- on -- in 2019. Obviously, they won't announce financial difficulties on their website, I would say. But they are a reseller. They are an organization that are very good in finding government and commercial leads in the market and closed deals. They have a number of small -- of contracts with both the Italian Fire and Rescue Service directly, not through the framework agreement. They have a contract with -- for the Italian embassies for secure communications and so on and so forth. And they have also invested in a Teleport. So you can't read anything about that, obviously, on their website. But they have -- they have financial difficulties, I believe personally, because they have invested heavily in the new business, not had enough financial backing of revenue coming in for the contracts that they have signed with us and potentially others. What's made it difficult is also that to understand all of this is, they're not a publicly listed company. They're more like a incorporated company, but at the lowest level in Sweden, we would call it kommanditbolag. I can't -- I frankly don't know the English word of that. But so -- there are no official numbers really to look at. But we have in the process here, as we've been diving very, very deep into it, been able to unveil their financials, et cetera, et cetera. So we understand them, and they are in financial difficulties. They are in a refinancing mode, which is partly -- also part of what the -- our payment plan and so on is there, and that's why we asked them to pledge their assets to us. So that's what I can explain at this point in time. And Lucas, I think that, that ends the questions. And I would like to thank everyone that participated in the webcast. Noora, do you have anything else to add to what I just said?

Maybe just an information, but due to these changes in our 2022 figures, we are delaying our publishing of our annual report to the 30th of March.

Very good. Thank you, Noora. Thank you, Lucas. Over to you, and thanks for everyone that joined us this morning.

Thanks, everybody, for joining. Please disconnect your lines. They will be disconnected.