Strongpoint ASA
OSE:STRO
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Strongpoint ASA
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Good morning, everybody, and welcome to StrongPoint's first quarter results presentation. My name is Jacob Tveraabak. I'm the CEO of StrongPoint. And with me today, I have Hilde Horn Gilen, the CFO of StrongPoint.Today, we'll have a short but tight-packed agenda, short intro just to introduce StrongPoint to those of you who do not know much about StrongPoint. And we'll dive into the highlights for the first quarter, and then Hilde will help us with some of the key figures on balance and cash flow, and then we'll open up for Q&A session in the end.First and foremost, I'd like to repeat the mission of StrongPoint, namely driving retailers productivity by providing innovative integrated technology solutions. I think with that backstage, I'd again like to repeat what I have done on all quarterly presentations to date, which is that we have a fundamentally very strong basis for growth in retail technology. Number one is because we see e-commerce growing on all retail sectors, making incumbents want to, of course, take part in this growth. But on the other hand side and perhaps even more importantly is the fact that as we move revenue from the stores online, we are also squeezing the margins in the stores and hence the need for productivity improvements in the store. And this is what I call again the double opportunity for StrongPoint because I do believe that there is a vital role for retail technology to play in that space.New for this quarter and for the rest of the year is that we are shifting the way that we're presenting our business lines. In the past, we talked about own and third-party technologies along with labels. Now we're representing both figures but also our products and solutions in this way, namely the way that we actually do operate: Retail Technology, Cash Security and Labels. And within Retail Technology, we have our in-store solutions and our e-commerce offering. So that is our product and solutions offering as we have today. I hope you'll be pleased to see that this also provides you with even a better insight on how we actually do run the business.Lastly also in terms of repetition for those that were here last time, key focus areas for us going forward. Number one is to maintain but also grow the relevance in the key markets where we are today. So key markets as per today: Norway, Sweden and the Baltics. We've had tremendous success, but I think it's very important that we do not rest and stay diligent to grow our relevance with the retailers and with that backdrop that we have on the retail space. Secondly is that we want to significantly grow our presence in Spain and, to some extent, mirror the presence we have with retailers in the key markets we are today, but also as we've seen with the RoadRunner concept, the agent concept that we have, there's an abundance of opportunity still within cash management in Spain. And thirdly is that we need to grow our e-commerce business into a substantial portion of StrongPoint's business. And as you hear, I've been talking a lot about retail technology, and really that is because we are primarily a retail technology company. But regardless, we of course will be the both best owner and employer for all business under the StrongPoint umbrella.So then into some of the juice, the Q1 figures. We have 3 -- or we have bucketed this into 3 highlights. Number one, we have some very strong first quarter figures. Number two, we also have achieved what we believe are several breakthroughs and deliveries with customers. So I'll go a bit in more detail on that, and then lastly also some important milestones when it comes to the go-to-market model.So firstly, again very strong quarterly figures. Looking at the revenue, we're now looking at 15% growth versus last year or years. As the first quarter had been around NOK 250 million, we are now at NOK 288 million revenue growth, which is all organic. So 15% revenue growth, all organic, is pretty strong, I believe.And to give a little bit more flavor on why or where is the growth coming from, I think you will find the division into the different business areas helpful. So as we see, Cash Security growing tremendously in terms of percentage with a NOK 12 million or NOK 13 million improvement on the revenue side. And Retail Technology also very strong with 12%, and of course, in nominal terms that's even more so impressive with where we're getting to, 24% -- NOK 24 million. And it also shows the -- sort of illustrates the importance of Retail Technology for us. This is 3/4 of the business that we're running. So very strong growth in all business areas.In terms of results, we're achieving a NOK 28 million EBITDA result. That is the highest first quarter result in the history of StrongPoint. There are 4 key reasons for this growth. Number one, we see that Retail Technology both in the Baltics in particular but also in Norway are contributing to this growth. Number two, we have a very strong growth in Cash Security, yes, because there was a lot of guarantees and warranties that we had last year in Cash Security. Nevertheless, that's a growth in Cash Security. Number three is the effects of the earlier announced NOK 30 million cost-cutting program that we see coming in effect as per January 1. And number four is more technical, that it's the introduction of IFRS 16. And Hilde will go through in more detail about the background for that, but that is financially just technical stuff that gives that NOK 5.7 million increase. But nevertheless, without even the IFRS, this is the strongest first quarter results in the history of StrongPoint.Again looking at the different business areas and the EBITDA growth. As I said, you see the increase, to a larger extent, coming from Cash Security but also very healthy growth in Retail Technology. And I'm very pleased also to see Labels keeping up the steam. So in total, we have a healthy double-digit EBITDA margin on all business areas.I also promised to take you through some of the important deliveries and breakthrough contracts we've had this quarter. Number one is it's very pleasing to see that we are also extending our electronic shelf label partnership and cooperation with Pricer also into the Baltics, and we did win the Rimi Baltic contract earlier this year. We'll also have a little bit of a surge in one of the classics, namely Vensafe, both in Norway and Sweden as we're changing the -- some of the software in those machines. And then it's also extremely pleasing to announce that we have won a Pricer contract outside the grocery retail world in the Baltics, namely with the largest -- or second largest pharmacy in the Baltics, and I won't even try to pronounce its name.And from then on also, we have in Q1 delivered significant self-checkout equipment to a grocery chain in the Baltics, and not in first quarter, but nevertheless since Q1 was closed, you also know that we have won a very exciting click-and-collect pilot in Coop Sweden, which I think is very interesting given its stated investments in e-commerce going forward. So that did not happen in Q1, but nevertheless it's in the click-and-collect space that we have. And I guess I should also mention in this respect that we have also recently won a self-checkout tender in the Baltics. News coming out later today about -- but that is very interesting as well. And lastly, I'm also very pleased to see that what we've been talking about, being synergies between the Labels business and the Retail Technology business starting to come to life, so we're producing our RFID tags, which we see are useful in the retail technology space. Early days, but I do have great hopes for that sort of cooperation going forward.Number three, I wanted to talk about some of the important milestones on the go-to-market model. I do believe in focus. I do believe that wherever we are, we need to be really truly present. And if we're not, then perhaps it makes more sense to engage in partnerships. In February, we announced the partnership with Harting Systems. And Harting Systems have a tremendous relationship with top German retailers. We have gained tremendous trust with the Harting system on, in particular, our self-checkout solutions. So we're primarily selling but also developing together with Harting Systems self-checkout systems to be sold in Germany, very exciting to announce that partnership.Secondly, we've also, as you know, transformed or moved our own business in Malaysia and APAC into a partnership with Radiant Globaltech. I also do believe that's the right thing. I mean doing business in Asia is different than doing business in Scandinavia. And I couldn't think of a better partner than Radiant to bring our business in APAC to a new level. And then lastly, you've heard my enthusiasm about the RoadRunners concept in Spain earlier. We're also now extending that into Germany these days, so very exciting news there for the go-to-market model.Direction and initiatives forward. That does not mean that we're starting guidance now, but rather I want to show some of the initiatives that we have supporting the overall direction.Number one, I know my organization is almost fed up with hearing about this, but focus, we have to be focused. And being focused means that we're doing -- or focusing on areas in which we believe in. On other areas, we need to partner where we see that partners have a better starting point or position than us to achieve growth. That means that we are in a process now where we will be transferring our Belgium and French office into fully-fledged partner offices. France, I mean, primarily is driven by -- where the sales is driven by one of our major partners we have there. So it makes a lot more sense to put that into a professional global partner organization. Secondly, with regards to Russia, we are not touching the Cash Security business as such but the retail business. We have some installations which are really just now being served, and we're transferring that to a service organization -- or a service partner organization in Russia. At the same time, it should be said that -- and I know some of you have been posing questions about what's happening with Utkonos. Utkonos still has about 20 lockers installed. There have been management changes there, but we're engaging on all levels to see where we can reignite that good spirit that we had more than a year ago now into something more meaningful. But as per now, we're scaling that through a partner organization. Lastly here is some of you, I mean at least the most enthusiastic and engaged ones, have noted that we had had an attempt to sell the cash management solutions through an American company called Cash Defend. That really hasn't been a success, and we have canceled that distribution agreement and are, in a way, looking for other partners to do that more successfully. So success -- our, sorry, focus is not only about what we're doing but equally about what we're not doing or doing differently.Then if you recall back to the 3 main directions forward. Number one, I can't really give you any news right now about how we are growing our relevance, but stay tuned. We are exploring opportunities for new products and services that we do know are pushing on the most important points for our customers with the increased margin pressure in the stores. When it comes to Spain, we're intensifying the recruitment. We're doing a massive investment in recruitment in Spain. We've also just now in Q1 moved our offices to larger and more appropriate offices in Madrid; [ and that ] we also set up an office in Catalonia, in Barcelona. And then lastly, we believe we are significantly now improving the value propositions of our RoadRunners. In the past, we've been selling our CashGuard Premium, the world's best cash management system for higher number of transactions, but we also see that the customers that we're meeting with the RoadRunner concept are not the 500-store grocery chains but rather the one-man shops. And to do that, we're introducing 2 new product lines, one called Unico, which is a proprietary model, and the second one is the StrongPoint compact, which is a cooperation with a local producer. And both of these products have the advantage of being single slots. They could be faced to customers, are a lot cheaper than our premium. So we hope that we will be selling both premiums and these 2 models going forward.And lastly from my side now before giving the word to Hilde is the growth in e-commerce. We're actually pushing forward on 2 fronts. One is what I call productifying the E-commerce Logistics Suite in a project we call E20, meaning we're really setting up the E-commerce Logistics Suite for being a scalable solution, a more standardized solution that we can be selling a lot more efficient than we're doing today. But also we're also increasing the number of sales personnel and enhancing the sales efforts there.Those are short highlights. Hilde, do you want to take us through some of the financial information?
Yes. Hello, everybody. Very nice to be here, first time, so bear with me.Starting with a technical slide. I know it's quite busy, but I need everybody to understand the IFRS effects of this quarter's results. First of all, we have not changed the 2018 figures, meaning that there are -- when you compare the figures, you have to have this one in mind. Our opening balance has been changed by NOK 70 million from 31st of December 2018 to 1st of January 2019. This is the current lease agreements that StrongPoint has. There are no new lease agreements. It's just an accounting change. This actually also decreases the equity ratio by 4 percent points, which you see here, from 40.5% to 36.5%. Again, this is a technicality, but it is the effect of the new leasing standards within IFRS.For profit and loss, as Jacob showed you, there is some effect of NOK 6 million, which you see in the table. There -- that is, actually comparing to the EBITDA margin, representing 2 percent points. So that is why it's important for everybody to understand the effect. The change is that you move the costs for leasing from operational cost to depreciation and interest expenses. A lot of other companies are doing the same. So this is the high topic within finance this quarter, and our effect is then NOK 6 million. Net profit of the company is not changed. In the cash flow, it's equal. We move the cash flow from financial activities to operations.The major asset groups that we have is rent and cars. And the majority is on rent agreements. There is also a discussion about how to handle the optional agreements that you have. We have not included any optional rent agreements in the Q1 figures. That is due to the fact that we are not closing up on expiration dates. We will be including optional rental periods when it's a high probability that we will continue renting the facilities. And the machineries within Cash Security and Labels has already been handled as depreciation and financial lease, so the IFRS has no influence on the EBITDA of Cash Security and Labels. That is only then the rent and the cars. I would like to stop and see if there are any questions to this. So perfectly clear. That's very good.Moving on to the cash flow and the balance sheet. We see that we start on a cash situation of NOK 27 million at the end of last year. And we add on, of course, the operational effect from EBITDA this quarter. We have a negative effect on the working capital of NOK 19 million. That is mainly due to seasonal effects from trade receivables and prepaid expenses. So we do not have anything we would like to communicate on this. It's more the natural cause that we have higher revenue in the last month of the quarter. But it is, of course, not something that we like to present, so we have initiated activities to try to see how we can manage the working capital in a better way.When it comes to the free cash flow generation, if you look at the last 12 months, there is a positive development, as you see, from Q4 where we ended up at NOK 27.9 million, which is quite flat from Q3. And then we end up at NOK 45.6 million. Actually, one of the major reasons for the positive development is that we had a very slow -- low cash flow from Q1 2018. So when we now account for quarters back we have, we don't include that, and that's part of it. And also for those of you who followed us last year, you know that in Q2 we sold the Alimerka cash management-as-a-service project. It influenced our cash flow but also our EBITDA in Q2, and the cash flow effect was NOK 14.4 million. So that is also important to understand. But we are happy to see that there's a solid growth in the free cash flow.When it comes to the more long-term financial situation, we see the net interest-bearing debt is flat from Q4 '18 to Q1 '19, around NOK 55 million. And that is -- it's a stable situation. We see that the leverage multiples are reduced to 0.66, meaning that we do have some headroom within the current financial situation for investments. I have also included another blue column here, which is Q1 '19, that is for your information. From this period on, the net interest-bearing debt need to include also the IFRS effect. The long-term leasing of NOK 70 million that I talked about from 1st of January has to be included. So it's more -- I will include that every quarter presentation from now so that you get used to the new figures because we are used to seeing it around NOK 55 million, and it's important to understand that, that is now changing.So that was the balance sheet. And when it comes to investor relations, there is a lot of interest in StrongPoint. We're very happy about that. We will continue to have this quarter presentation as our primary communication to the market. We are working on how we can improve the communication to the market within investor relations, especially when it comes to news and newsletters and use of social media.Next time Q2 will be presented is the 16th of July. I guess maybe you will have your vacation at that time, so it will only be a report that we send out, as we did last year. And then we will meet up again in Q3 in October.Yes. So I guess then we have a Q&A session.
So any questions from the audience? We actually have a microphone, so you don't need to even speak out very loudly.
Crystal clear, Jacob.
Crystal clear, as Mr. [ Wally ] used to say. [ Wally ], everything clear?
Perfect.
Perfectly clear.
Perfect.
Okay. Thank you so much then.
Thank you for your time.
Thank you.