A few weeks ago, we met with Solteq’s management and received an overview of the company’s product business and particularly its development projects. We produced a more extensive update report on the company’s products, which can be read in full at Katsaus Solteqin tuoteliiketoimintaan - Inderes
Markkinointi & Mainonta wrote yesterday about the robots in Prisma (readable at the link below), which are one of Solteq’s new products we are following this year.
Last week, Solteq announced that it had won a 1.1 MEUR procurement tender for the Finnish Customs’ cash payment system. The delivery is based on Solteq’s cloud-based point-of-sale software and its integration environment.
Solteq has invested heavily in new products over the past couple of years, and we have been expecting announcements from the company regarding orders for its own products. The deal is small in scale but supports our forecasted revenue growth of 4-5% for 2019-2020 (2019e revenue 59 MEUR). Strategically, the deal is better than its size suggests because it includes the company’s own products. We expect new orders for the company’s own products during the autumn. In May, we published a broader review of Solteq’s software and product business, which is still very relevant and can be read here.
News from Solteq today regarding the group structure figures. Solteq Oyj:n uuden raportointirakenteen mukaiset vertailukelpoiset tiedot tilikaudelta 2019
Solteq seems to be the least known of the IT companies, even though it makes quite steady profits. Of course, growth is slow compared to other IT companies. What are others’ thoughts on Solteq?
About a year ago, I looked into Solteq as a potential investment, but decided to keep my hands off the company. The key reasons for my decision were probably the low return on capital and high indebtedness; I didn’t find sufficient return potential in Solteq. I haven’t followed the company since, so the situation might be different now.
I haven’t delved into the company much myself. Now that they’ve explained their products (Software) and their contribution in more detail, I might get enthusiastic about researching the company further.
The company did indeed open its segment figures yesterday. Below is a bit from the morning comment:
Solteq Software includes the company’s own product-based business. The segment’s revenue consists mainly of licensing and maintenance fees for its own products, as well as related services such as integrations and implementation projects. Solteq Digital’s revenue is mainly derived from IT expert services. These services include consulting, implementation of customer systems as projects, continuous development services, and maintenance.
Solteq has invested heavily in its own products in recent years. The new reporting structure significantly improves the transparency we expect, and our interest is particularly in the growth and profitability of Solteq Software. Solteq will publish its Q1 interim report next week on Thursday, April 30th, when we will also get an indication of segment growth. For comparability, we recommend following adjusted operating profit instead of EBITDA, due to IFRS 16 accounting differences and capitalized product development expenses. Solteq Digital’s adjusted EBIT-% last year was 5%, which is below the company’s long-term target of 8%. Solteq Software, which is still in an investment phase, already reached a profitability level of just over 10% in individual quarters last year, which is adequate for a software business, but is still clearly below the long-term target of at least 25%. The fluctuation in Solteq Software’s profitability is, in our understanding, mainly due to the recognition of license revenues and will stabilize as the business grows.
Solteq has previously published the segments’ long-term financial targets, which for Solteq Software are an average revenue growth of 20% and an EBIT % of at least 25%. Correspondingly, Solteq Digital’s growth target is 5% and its profitability target is 8%. In our view, Solteq Software’s targets are ambitious but achievable if the commercialization of the software succeeds in the long term. Solteq Digital’s targets, on the other hand, are realistically achievable in the short term and reflect the average level of the IT service sector. In the short term, we estimate that Software’s product investments and depreciations will significantly weigh on profitability, but the burden will gradually decrease as product commercialization progresses. In addition, Solteq stated at the beginning of April that the coronavirus is affecting the company, and especially new sales of Solteq Software. Our comment from the beginning of April can be read here.
Solteq gets a boost:
On March 31, 2020, and April 27, 2020, Solteq Plc signed supply and service agreements with two Finnish energy sector customers, totaling approximately 8 million euros. These agreements consist of delivery projects for the company’s proprietary customer information system and related options (approximately 2.1 million euros), as well as license fees for 4-5 years.
I’ve taken a moderate view on this for a couple of years. It’s still under the radar of the general public, but the situation should improve when their own software products gain more traction. We’ve already seen good results, like today, and there’s potential. I’ve written more on the kl forum under the username visionääri.
From this morning’s comment:
The deals announced yesterday are a good size for the company. Solteq has invested heavily in its own products and solutions over the past couple of years, and for this reason, the orders are strategically positive. In addition, the corona pandemic has been estimated to slow down new orders, especially for the company’s own solutions, and the orders thus illustrate the criticality of the solutions for customers. The company will publish its Q1 report tomorrow.
The dividend proposal is being withdrawn, which I think is logical and sensible given Solteq’s financial situation. There are now more critical uses for the money, such as, for example, a 1% fee for bondholders if and hopefully when they approve the changes to the loan terms.
Solteq is a completely new acquaintance for me. I’ve traditionally shied away from IT service companies because I don’t very often see elements of scalability in them, and in that regard, envisioning particular future success is a bit difficult. However, in one morning review, I noticed that Solteq has burgeoning product business in quite interesting target groups, and I got a feeling that this company needs to be analyzed in the near future with potential seeds of huge success in mind.
In the next few days, I plan to review a comprehensive report, the company’s website, annual reports, and other releases, but does @Joni_Gronqvist have any tips on where to look for information if one wants to delve deeper into this product business in particular? I’ll come back with a battery of questions once I’ve first analyzed my own head into a mess. 
Unfortunately, a “comprehensive report” on the company hasn’t been made for a longer time, but we did a slightly deeper dive into the company’s new products about a year ago, which can be read at Katsaus Solteqin tuoteliiketoimintaan - Inderes. I would say that the big picture in that report remains the same, with minor clarifications along the way.
In Q1, the company started reporting its software business separately, which significantly facilitates tracking the company’s operations. In its Q1 report, the company also verbally opened up much more about the nature of its operations and especially its outlook than before.
So, if I were to familiarize myself with it, I would look at the annual report, the company’s Q1 report, our product review (link above), and our Q1 comments.
From the set of questions, we’ll see what I can answer and if we can get someone from the company to shed some light on the considerations 
Great, I’ll get back to you in the next few days.
There’s a lot of talk among IT companies about the post-corona era and how the pandemic has already changed and accelerated digitalization in many respects. Solteq has a strong background and expertise in, for example, e-commerce. The increase in remote work is logical. There’s also much discussion about the virtualization of various services, where AI and virtual reality are key elements.
It would be interesting to hear how the company itself sees the pandemic’s long-term effects on the industry and services, and how the company feels its expertise/focus areas fit into this development.
Big thanks to Joni for the excellent reports and interviews, including for Solteq
This article by Ilkka Brander actually already answers the question. So nothing new and revolutionary from Solteq’s perspective, except for the acceleration of the rate of change. https://blog.kauppalehti.fi/solteq-yksinkertaisempaa-digitalisaatiota/korona-ei-tuonut-mitaan-uutta
Well, the financial crisis has been averted for now 
Solteq’s Q2 also saw good progress, exceeding forecasts in every respect. Company update (EUR 1.60/add) Potentiaali alkaa realisoitua - Inderes
I haven’t found Evli’s (EUR 1.65/buy) report on their website yet, even though it already landed in my email.
https://twitter.com/SolteqTweets/status/1296684721112592385?s=19
Solteq’s Retail Robot is now being demoed at Citymarket. The first pilot was at Prisma in Iso Omena. Solteq is a long-term partner of Kesko, and I wouldn’t be surprised if the first robots found a permanent home in Kesko’s units.
I would like to return to this text from April and Solteq’s balance sheet: have depreciations been made, or has most of the costs been capitalized on the balance sheet (“Other intangible assets”)? Below is an excerpt from the latest annual report, where goodwill and intangible assets (read: Solteq Software development costs) together amount to approximately 200% of the equity. The amount of intangible assets has also grown by over €3M from 2018 to 2019.
The Q2 report stated that development costs will be capitalized for almost 3 million this year as well. So, can the company’s results-based key figures still be considered realistic if its capitalized development costs almost correspond to the entire year’s operating profit? If development costs were treated as actual expenses, the operating profit would be about 1/4 of what is now reported.
Is such a significant capitalization on the balance sheet just normal practice in the IT industry? And should one be concerned about such a large goodwill? It would be interesting to hear @Joni_Gronqvist’s thoughts on the development of the balance sheet and what risks it might entail?
Solteq is also involved in the pharmacy sector’s digital leap in Sweden. In Finland, Solteq has a deal with the Association of Finnish Pharmacies for the implementation of online stores and related training for the association’s members. Even there, a large number of pharmacies have not yet moved online. It seems that pharmacies are becoming a strong customer sector for Solteq.
“Apoteksgruppen has selected the Nordic IT service and software solutions provider, Solteq Plc, to deliver a unified commerce software platform connecting enterprise resource planning to point-of-sale and pharmacy operations.”
“Specialized in the pharmacy sector specific IT solutions, Solteq is reaching a significant market position in the Nordics with hundreds of pharmacies adopting new technologies provided by the company during this year alone.”
