Location Sciences Group PLC – LSAI – Trading Update and Directorate Changes
Location Sciences (AIM: LSAI), the leading location data insight and verification company, provides the following trading update for the year ended 31 December 2020.
Unaudited revenues for the year ended 31 December 2020 are expected to be approximately £1.07 million, a decrease of approximately 12% on 2019 (2019: £1.21 million). The reduction in revenue is due to the ongoing impact of the COVID-19 pandemic on the location-based advertising industry.
Unaudited Verify revenues for the year to 31 December 2020 were £0.32 million, compared to £0.50 million in 2019, a reduction of 36%.
Unaudited Data & Insights revenues showed a modest improvement, delivering £0.75 million for the year to 31 December 2020, a 6% increase on 2019 (2019: £0.71 million).
To mitigate the impact of COVID-19, the Company's directors implemented a cost reduction programme in early 2020 which has led to unaudited administrative expenses being reduced to approximately £1.50 million for the year, a reduction of 41% on 2019 (2019: £2.55 million).
The unaudited EBITDA loss is expected to be approximately £0.77 million in the full year period, a decrease of approximately 55% compared to 2019 (2019: EBITDA loss £1.71 million).
Impact of COVID-19
Verify revenues have continued to be adversely impacted by the significantly reduced advertising spend caused by the pandemic. The anticipated uplift in Verify revenues during Q4 2020 did not materialise and there has been no improvement in the first part of 2021 due to the ongoing restrictions being imposed by governments globally.
As reported during 2020, it has been a challenging time for location-based advertising within sectors that rely on people's movement, such as retail and QSR.
The outlook for location-based advertising is poor due to the overall impact of the pandemic on the location-based advertising industry, with mainstream media agencies now focused on media delivery rather than adopting new technologies, especially those which risk limiting delivery scale such as Verify.
Data & Insights
As reported in our interim results, the Company has sought to mitigate the loss of Verify revenues by enlarging and broadening its Data & Insights customer base, including helping to inform the ongoing response to COVID-19. Through its long-term partnership with CACI, Location Sciences is supplying data to support NHS England and members of the Scientific Pandemic Influenza Group on Modelling (SPI-M) in their analysis of how movement of individuals is impacting the reproduction number (R) and growth rate of COVID-19 in the UK.
These contract wins enabled the Data & Insights business to grow modestly during 2020, despite the negative impact of the pandemic on some of the business's existing customers.
During 2020, the Company developed a new product for the financial services industry which it expects to launch on the Bloomberg Enterprise Access point in the next few months. The product will provide financial analysts with access to market leading footfall data and insights for UK supermarkets to assist them to better measure store performance. A further announcement will be made upon launch of this new product.
The Company launched an updated version of its Verify Proximity platform at the end of April 2020, providing customers with a clearer picture of how to obtain better value from their location spend and how to drive better performance. Following this in June 2020, Location Sciences launched its Verify Audience product "GeoProtect" in the US. GeoProtect allows brands, agencies and suppliers to check the validity of location-based derived audience segments. It also enables a review of historical movements in contrast to proximity which validates the real time locations as digital advertising campaigns are delivered.
Since GeoProtect's launch, the Company has made two important customer wins, both of which were announced in 2020. InMarket, which is a leader in 360-degree consumer intelligence business in the US, and The Spoken Thought, Inc. (trading as Mira), which is a high value audience segment supplier to leading brands and media agencies across the US. Both contracts have growth potential but are facing headwinds in the US market due to the ongoing impact of the pandemic.
Despite the product enhancements, the broadening of the product offering with GeoProtect, and the key customer wins during 2020, the performance of Verify has been severely hampered by the restrictions imposed by governments globally to tackle the ongoing pandemic.
Further to these developments, in December 2020 shareholders were advised of potential defamation action against the Company pursuant to data manipulation identified by Verify and the findings being reported to its customers. While the threatened legal action - which the Company believes is baseless - has not transpired, the reaction from industry participants has been disappointing. The reality being that the location-based advertising industry is reluctant to adopt technologies which bring transparency to this area, especially now, given the negative impact of the pandemic.
The Company will continue to try and solve what it sees as an industry problem. However, the directors believe that, as a knock-on impact of the pandemic, it may now be some years before the location-based advertising industry fully embraces transparency.
In March 2020, the Company raised approximately £0.975 million (before expenses) through an equity placing comprising the issue and allotment of 111,430,000 new ordinary shares. An additional approximately £0.07 million was raised through the issue and allotment of 74,057,996 new ordinary shares pursuant to the issue of warrants.
In addition to the fundraising activities, the Board made swift cost reductions to mitigate the impact of the downturn in revenues. These included salary reductions for the Board and senior members of the team, a hiring freeze, closure of the London office and staff being furloughed. In addition, with the exception of product development, all operational expenses were reduced to the minimal viable levels from April 2020 following the downturn in the location-based advertising industry caused by the restrictions imposed by governments globally. These actions, together with the data and insight customer wins during the year, have to a large extent offset the impact of the lower Verify revenues on the cash resources of the business.
As at 31 December 2020, the Company had cash reserves of approximately £1.1 million (2019: £1.3 million), which the directors believe will now be sufficient for the Company's requirements until 2022.
In recognition of the need for a leaner business going forward, the size of the Board has been reduced and the Company announces that both Donald Williams and Niall Hogan are stepping down from the Board with immediate effect.
The Board would like to thank both Donnie and Niall for their valuable contributions and consider them friends of the Company going forward.
The Board believes that, in part as a consequence of COVID-19, the Company and in particular, Verify, will continue to face a number of trading challenges. This is despite the current relative strength of the Company's working capital position. As a result, the Board is now exploring a number of options for the Company and its businesses and further announcements will be made as and when appropriate.
Mark Slade, Chief Executive Officer of Location Sciences, commented: "Like many businesses, 2020 has been an extremely challenging year for Location Sciences and, disappointingly, has halted the momentum we had gained in our verification business. Embracing transparency, which has the side effect of limiting the scale of media delivery, has simply fallen down the priority list for many in the industry. On the positive side, we are encouraged by the durability of our data and insight business and look forward to launching our first product into the financial services industry.
"As shown by our results, as a management team we have done everything possible to reduce costs and conserve the cash resources of the business.
"The announcement of a business review is the right thing for us to do for shareholders given the ongoing uncertainty caused by the global pandemic and the Board will be evaluating all options open to it."