SenSen Networks — Time to scale

SenSen Networks (ASX: SNS)

Last close As at 12/12/2024

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Research: TMT

SenSen Networks — Time to scale

SenSen’s Q324 results reflect the move to a lower cost base that provides a platform for future profitability. Minor delays to the National Heavy Vehicle Regulator (NHVR) contract affected Q3 but should not affect FY24 as most of the deployment is now complete. North American Smart Cities growth is gaining traction via partnerships, underpinning Q424 momentum alongside strong fuel theft solution uptake. Restructuring to drive a return to sustainable free cash flow is mostly complete but resulted in one-off costs. We revise down our FY24 forecasts assuming similar Q4 growth from a lower Q3 base.

Written by

Dan Ridsdale

Head of Technology

TMT

SenSen Networks

Time to scale

Q324 update

Software and comp services

2 May 2024

Price

A$0.03

Market cap

A$22m

Net debt (A$m) at 31 March 2024

1.0

Shares in issue

774.6m

Free float

46%

Code

SNS

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

30.4

7.1

(33.0)

Rel (local)

35.8

7.0

(35.6)

52-week high/low

A$0.06

A$0.02

Business description

SenSen Networks, an Australia-based technology company, operates in the field of sensory artificial intelligence and provides ‘live awareness’. By applying its SenDISA AI platform to physical space monitoring, it extracts real-time insights that can be used in smart cities.

Next events

FY24 cash flow update

July 2024

FY24 preliminary report

August 2024

Analysts

Dan Ridsdale

+44 (0)20 3077 5700

SenSen Networks is a research client of Edison Investment Research Limited

SenSen’s Q324 results reflect the move to a lower cost base that provides a platform for future profitability. Minor delays to the National Heavy Vehicle Regulator (NHVR) contract affected Q3 but should not affect FY24 as most of the deployment is now complete. North American Smart Cities growth is gaining traction via partnerships, underpinning Q424 momentum alongside strong fuel theft solution uptake. Restructuring to drive a return to sustainable free cash flow is mostly complete but resulted in one-off costs. We revise down our FY24 forecasts assuming similar Q4 growth from a lower Q3 base.

Year end

Revenue (A$m)

Adj. EBITDA*
(A$m)

PBT**
(A$m)

EPS**
(c)

P/sales
(x)

Net debt/
(cash)*** (A$m)

06/21

5.5

(2.2)

(2.9)

(0.59)

4.0

(3.9)

06/22

9.1

(7.6)

(8.4)

(1.40)

2.4

(3.9)

06/23

10.8

(5.1)

(6.1)

(0.91)

2.0

2.6

06/24e

12.5

(0.8)

(1.6)

(0.21)

1.8

2.1

Note: *Adjusted EBITDA excludes non-cash share-based payments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, other income and exceptional items.

Growth opportunities across SenSen

SenSen reported a 16% y-o-y decline in cash receipts to A$2.3m due to minor NHVR contract vehicle delivery delays, but is now operational on 19/22 vehicles and all five trailers. Management expects to receive all the A$1.5m upfront cash before the year-end, plus A$500k recurring revenue with upsell scope (see our November 2023 flash note) from FY25. In North America, the Gtechna partnership continues to support new contract wins, particularly in Canada. Gaining similar traction with its new Blue Systems partnership, which has a greater US focus, and showcasing technological value could catalyse further regional momentum. In Australia, more than 200 fuel stations were added over FY24 to 600+ in total, showing strong adoption. This represents a 10% share of all Australian fuel stations and underpins scope for further expansion.

Restructuring complete for sustainable cash growth

Restructuring focused on headcount reductions as SenSen moves away from software development to customer delivery, but led to one-off costs of c A$0.5m, which contributed to negative free cash flow of A$2.1m in Q3 (H124: +A$572k). We conservatively revise our FY24 revenue forecast down by A$0.5m to A$12.5m (+16% y-o-y), assuming similar Q4 growth from a lower Q3 base. One-off costs drive a greater fall in EBITDA to a loss of A$0.8m (previous: A$0.6m profit). However, the group has identified future IT and auditor cost savings, potentially mitigating the impact of these one-off costs on our EBITDA forecast.

Valuation: Re-rating potential

On an FY24e EV/sales multiple of 1.4x, SenSen trades at a 52% discount to its small-cap AI peers. We maintain the belief that the market overemphasizes short-term disruption from the recent restructuring. The current rating misses the long-term potential for operationally geared global growth, which could drive a re-rating.

Q323 update: Restructuring for operational optimisation

The back-ended nature of SenSen's NHVR contract drove a 16% y-o-y decline in customer cash receipts to A$2.3m in Q324, with the impact attributed to minor delays in receiving vehicles for hardware installation required to operate the system. However, the project has since progressed smoothly, with SenSen receiving 80% of the upfront cash in April and management expecting the remainder by year-end. This contract is expected to generate A$1.5m in upfront revenue for SenSen, plus around A$500k in recurring revenue from FY25, with substantial upsell potential. As a major scale-up with an existing customer, the NHVR deal provides a key case study for the potential value that SenSen's technology can deliver from a single client.

Exhibit 1: Quarterly progression in customer cash receipts

Source: SenSen Networks

As shown in Exhibit 1, Q4 is typically SenSen’s strongest quarter and we believe the company is well positioned to repeat this in FY24. In addition to the NHVR contract, the group reported progress with its North American partner Gtechna, which has provided a strong pipeline of parking solution projects, particularly in Canada. SenSen is working to deliver five additional cities, as well as receiving new SenForce (curbside management solution) orders from three US cities and three Canadian cities. Management hopes its new partnership with Blue Systems, which has a greater US focus, will achieve similar traction as its partnership with Gtechna.

Recent news articles highlight the value of SenSen’s technology in the US via its recent trial with the City of San José, California, demonstrating the platform’s ability to tackle multiple use cases rather than being developed with one use case in mind. (The Guardian and SFGate).

Transitioning to a self-sustaining business

Restructuring the business has been a key theme in FY24. SenSen’s SenDISA platform has been developed to a point that has enabled the company to pivot from software development to delivery focused on a sole Smart Cities opportunity. As a result, the company has been able to lower headcount, the main driver of its cost base, substantially, from a peak of 206 in June 2022 to 74 in March 2024. As shown in Exhibit 2, the bulk of this reduction in Q3 was from its Indian operations, its centre for software development.

Exhibit 2: Decline in headcount, March 2022–24

Closing headcount

June 22

Dec 22

June 23

Dec 23

March 24

Australia

45

33

32

26

22

India

145

110

95

85

46

North America

16

13

9

7

6

Total

206

156

136

118

74

Source: SenSen Networks

One-off restructuring costs of A$0.5m, as well as a significant upfront working capital requirement to fulfil the NHVR contract, led to an operating cash outflow of A$1.5m, which nevertheless represents y-o-y improvement of A$2.1m. This increase was supported by a A$1.2m y-o-y reduction in ytd operating costs, in line with the cost reduction measures planned in the year.

Clean break from Angel

On the day of the Q3 announcement, SenSen also announced that the transfer of intellectual property from SenSen to Angel Group Co (AGC) is now essentially complete. These rights relate solely to the gaming industry, which SenSen has now exited. As a result, the companies have agreed to file a request for dismissal of all claims and counterclaims between the two businesses by 7 May.

The previously announced A$1.8m placement agreement with Angel has also been terminated, reflecting management’s confidence in executing its strategy without taking further funding while keeping the company’s share register in a more optimal shape. We note that SenSen’s balance sheet remains reasonably well capitalised, with gross cash of A$1.2m and unused facilities of A$1.8m (total financing facilities: A$4m).

New non-executive chairman

On 1 May, SenSen announced the appointment of Mark Brayan as non-executive chairman and director, taking over from SenSen’s founder Subhash Challa, who continues as managing director and CEO. Mark is a proven leader of technology businesses including AI, software, services and outsourcing, highlighted by his previous role as CEO and managing director of Appen, the world’s leading provider of AI training data and testing services, from 2015 to 2023.

Mr Brayan has M&A, investor relations and capital markets experience and a successful track record with technology company founders. He should be a valuable addition to the SenSen team as it transitions to its next growth phase and drive towards profitability.

In its Q3 results, the group also announced that David Smith was stepping down from his role as executive director and chief operating officer, but would continue to work as a non-executive director.

Updates to forecasts

With good Q4 momentum we maintain similar revenue growth expectations to our previous forecast, but off a lower Q3 base. Higher Q3 costs than we were expecting drive a swing to an EBITDA loss for the full year. However, with further cost savings also announced, including cloud and IT cost optimisations, as well as a change in auditor, the company should be well placed to sustain profitability and cash flow generation into FY25 and beyond.

Exhibit 3: Changes to forecasts

FY24e

A$m

Old

Forecast

Change

y-o-y

Revenue

13.0

12.5

-4%

16%

Gross profit

10.1

9.9

-2%

32%

Gross margin

77.5%

79.0%

2%

10%

EBITDA

0.6

(0.8)

N/A

-85%

EBITDA margin

5%

-6%

-11%

-44%

EBIT, normalised

0.1

(1.3)

N/A

-77%

PBT, normalised

(0.3)

(1.6)

N/A

-74%

EPS – normalised, diluted (c)

(0.04)

(0.21)

N/A

-77%

Cash flow from operations

0.1

(1.0)

N/A

-79%

Net debt/(cash)

(0.9)

2.1

N/A

-19%

Source: SenSen Networks, Edison Investment Research

Additionally, our net debt forecast has been affected by SenSen’s decision to terminate the capital raise with Angel.


Exhibit 4: Financial summary

A$'000s

2021

2022

2023

2024e

30-June

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

5,533

9,145

10,797

12,489

Cost of Sales

(2,030)

(3,513)

(3,314)

(2,623)

Gross Profit

3,503

5,633

7,483

9,866

Other income

2,807

2,978

2,529

2,297

Oper. expense (not incl. share-based payments)

(8,524)

(16,217)

(15,102)

(12,922)

Adjusted EBITDA

 

 

(2,214)

(7,606)

(5,090)

(759)

Normalised operating profit

 

 

(2,685)

(8,183)

(5,605)

(1,301)

Amortisation of acquired intangibles

(83)

(536)

(960)

(960)

Exceptionals

0

0

0

0

Share-based payments

(72)

(3,173)

(208)

(921)

Reported operating profit

(2,840)

(11,893)

(6,773)

(3,181)

Net Interest

(176)

(254)

(463)

(250)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

(154)

(148)

0

Profit Before Tax (norm)

 

 

(2,861)

(8,437)

(6,068)

(1,551)

Profit Before Tax (reported)

 

 

(3,016)

(12,300)

(7,384)

(3,431)

Reported tax

(6)

225

(26)

(269)

Profit After Tax (norm)

(2,878)

(8,488)

(6,105)

(1,560)

Profit After Tax (reported)

(3,022)

(12,075)

(7,409)

(3,701)

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(2,878)

(8,488)

(6,105)

(1,560)

Net income (reported)

(3,022)

(12,075)

(7,409)

(3,701)

Basic average number of shares outstanding (m)

484

608

667

727

EPS - basic normalised (c)

 

 

(0.59)

(1.40)

(0.91)

(0.21)

EPS - diluted normalised (c)

 

 

(0.59)

(1.40)

(0.91)

(0.21)

EPS - basic reported (c)

 

 

(0.62)

(1.99)

(1.11)

(0.51)

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

47.0

65.3

18.1

15.7

Gross Margin (%)

63.3

61.6

69.3

79.0

EBITDA Margin (%)

-40.0

-83.2

-47.1

-6.1

Normalised Operating Margin

-48.5

-89.5

-51.9

-10.4

BALANCE SHEET

Fixed Assets

 

 

2,168

9,127

9,052

9,083

Intangible Assets

1,300

8,281

7,322

7,322

Tangible Assets

800

770

1,692

1,722

Investments & other

68

75

39

39

Current Assets

 

 

8,022

11,391

7,286

6,688

Stocks

241

232

486

352

Debtors

979

1,943

1,467

1,540

Cash & cash equivalents

5,176

6,214

1,898

1,785

Other

1,625

3,002

3,435

3,012

Current Liabilities

 

 

3,946

8,185

9,549

9,691

Creditors

750

1,239

1,714

2,896

Tax and social security

0

0

0

0

Short term borrowings

861

1,954

3,101

2,486

Lease liabilities

306

185

287

287

Other

2,028

4,806

4,447

4,023

Long Term Liabilities

 

 

244

201

1,198

1,198

Long term borrowings

0

0

0

0

Lease liabilities

138

183

1,091

1,091

Other long term liabilities

106

19

107

107

Net Assets

 

 

6,000

12,132

5,591

4,882

Minority interests

0

0

0

0

Shareholders' equity

 

 

6,000

12,132

5,591

4,882

CASH FLOW

Op Cash Flow before interest and tax

(3,250)

(7,770)

(4,449)

(772)

Net interest

(127)

(117)

(335)

(250)

Tax

(31)

0

0

0

Net operating cash flow

 

 

(3,409)

(7,887)

(4,784)

(1,022)

Capex

(253)

(254)

(151)

(220)

Acquisitions/disposals

0

(1,080)

0

0

Equity financing

7,043

9,644

0

2,098

Borrowings

(414)

1,120

909

(616)

Dividends

0

0

0

0

Other

(253)

(506)

(290)

(352)

Net Cash Flow

2,714

1,037

(4,316)

(113)

Opening net debt/(cash)

 

 

(1,150)

(4,315)

(4,259)

1,204

FX

0

0

0

0

Movement in borrowings

451

(1,093)

(1,147)

616

Closing net debt/(cash)

 

 

(4,315)

(4,259)

1,204

701

Closing net debt/(cash) w/ leases

 

 

(3,871)

(3,891)

2,581

2,079

Source: Company accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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