Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2020-Q1

[Jacob Tveraabak, Chief Executive Officer]

Good morning, everyone. My name is Jacob Tveraabak, I am the CEO of StrongPoint. I will be presenting the Q1 results and highlights so far, this year, together with Hilde Gilen, who's here with me. This time, we will do this quarterly presentation solely on webcast from our offices, just outside Oslo. So I hope you're following us on the webcast. Given the fact that we are on the webcast, we will not be opening for Q&A session as we normally have. However, both Hilde, as the Investor Relations responsible, and myself will be available for any questions after this session. So let's jump straight to it. And the highlights for the quarter as well as some further details that Hilde will take us through. The 3 highlights that we'd like to bring out to you as investors are the following: Number one, the fact that we have a solid financial performance in this Q1, so despite the COVID-19 effects that you might expect. Number two, that we are have taken a number of measures, given the situation, and we will go through those measures in somewhat more detail for you to understand what we have been doing and what we are doing. And thirdly, we are continuing to strengthen the organization, and we have some very exciting new recruitments that I would very much like to share with you all. Going into the overall revenue, we see a flat development or a 3% decline. This is coming from -- I think we should bear in mind the best quarter, the first quarter in StrongPoint's history, ever, last year, with NOK 288 million. This quarter, NOK 280 million. So I'm very pleased about the fact that we are maintaining such a good pace of the business. But you really don't understand what's happening under the business before you dive into the business areas and I'd love to share that with you as well. And when you do have a look at the business areas, we actually see, we have a 4% increase, an organic increase, in our Retail Technology business area. Very pleased about that, both as it's the biggest business area, the business area, which we have focused on going forward, as well as seeing the grocery retail focus really putting its pin on these numbers. Both in Norway, Sweden and the Baltics and Spain, the grocery part of Retail Technology is going well and is contributing positively to these figures. In addition to that, it should be said that we had a relatively large order of some 500 cash management systems to South Africa, and about half of that has been delivered in Q1 and as such, is in these figures. When you look at the Cash Security, it's obviously a big decline, with 40% decline. Again, I'd like to remind us all about the fact that Q1, last year, was a pretty good Q1. We had the impact of 2 large orders coming from Q4 and into Q1. We have not had those kind of orders of magnitude into Q1. And as a result, the revenue comes down in Cash Security. As for Labels, we're seeing a somewhat positive outlook and not only outlook, but also performance based on the fact that we are serving both pharmaceuticals and CPGs or consumer producing companies, supporting them in getting their labels on the products. So I'm very pleased to see that we're getting this sort of slight increase in the Labels business, in particular, when you take into consideration the fact that we have been had to do a number of precautions to avoid any sort of COVID-19 effections in our factories. When you look at the split of not only business areas but also business segments within Retail Technology, those of you that did follow us on February 12, and the strategy update session will remember that we did show this picture for 2019 overall, for the first time. And as you see now in Q1, with the growth of Retail Technology, we see the in-store productivity portion of the pie growing, primarily driven by continued good progress on ESL, or electronic shelf labels, in the core markets. We're also growing our cash management a bit again, partially because of the nice order we have with F&B in South Africa through our partner, Bullion. And then also, as an example here, we see our e-commerce, maintaining its good growth and are now up to 6% of the total revenue of StrongPoint. So in total, Retail Technology now is 77% in Q1 of the total business that we have. Then, taking a step to profitability. We're seeing, again, coming from the record Q1, last year, of NOK 28 million and now going down to NOK 70 million, a decline of NOK 12 million with some roundings. The -- but we'll go into the business areas. But I think right away -- and it should be emphasized here that the foreign exchange variations that we've seen between, in particular, the Norwegian kroner and the U.S. dollar has made its dent and an impact here. In total actually, out of the NOK 12 million decline, NOK 4 million of this stems from foreign exchange changes directly. And when you look at the different business areas, and you see the NOK 6 million decline in Retail Technology, actually, NOK 5 million of that is all due to foreign exchange changes. And beyond the foreign exchange variations that we've had in the quarter, we've also, I must say, of course, in the latter part of March, seen an effect on both Spain and the Baltics on the nongrocery businesses. But to cushion it all and to actually really drive the growth, we've seen the growth in grocery retail in all our key markets, which I'm very pleased about. As for Cash Security, the decline is primarily as a result of the rather large decline in revenue, which means that the EBITDA is at a breakeven level. I'm very pleased that the initiatives we have been taking in part on quality, but also on lean and lean production and purchasing is also cushioning this result more than it could have been. So we're getting through a breakeven in Cash Security despite having a very large decline in revenue. And then, lastly is Labels, where the profitability or EBITDA is also maintaining its level. Again, I think it's very important to emphasize that the Labels production we have, both in Malmö and Tangen are working under very intense conditions, doing what we can to prevent the virus from getting its presence into any of our factories. And as such, I'm very, very proud of the fact that we're maintaining the EBITDA figures for Labels. Those were the financial results, very quickly and highlight motions. I also wanted to go into some of the decisions and actions that we, as a management team, have been taking due to the COVID-19 situation. Firstly, it should be mentioned that we, as StrongPoint and the management team, we have been having daily meetings since beginning of March to both monitor the situation and to take then, appropriate actions. As we're operating in different countries, there are different development of the virus itself, but also actions that you are able to take, depending on the government or authorities' supportive actions. So very pleased that we've come together as a management team and having had open communication and taken the necessary actions in these times. One of the measures, not surprisingly, is strong hygiene and protective measures. We have a large portion of our workforce working from home, as many of you, on following here, probably do. But we also have positions, which are not sort of suited for having as home offices. We have field technicians that are out in the field every day. We have ensured that they have their necessary protective, both gear and instructions with them out in the field. We have production facilities, both in Tangen, Malmö and Skelleftea, where the, not just hygiene, but also additional measures have been taken. And I'm very pleased that we're maintaining operations, as is, in all these areas. We are also now, unfortunately, have had to imply or install temporary layoffs in the areas in which we have seen, what is hopefully a temporary decline, in demand. At one point, we were actually up to 18% of full-time employees or FTEs on temporary layoff. We're now on 13%. We're actually expecting that to continue to decline next week as both the Baltics and Spain are starting to open up their economies. And in some sense it's, of course, sad to see that we have to go to the steps of putting people and cherished employees on temporary layoffs. On the other hand, it's been very necessary to maintain the staff level, which is appropriate for the demand we have. And I'm very pleased that most governments have stepped up and ensured that our employees are actually getting compensated, to a large extent. Lastly, financial and liquidity measures. We have been very cautious about using our word as comfortable. But we do have ensured that we have the necessary, both financing and cash positions to weather the storm. We are in a position now where, again, had almost venture introducing a term comfortable about the liquidity and capital situation we are in. Then, we have the third highlight of today's presentation, which is the continued strengthening of the organization. We have been able to attract some very top talents and performers. I'm actually very, very proud of the level of people we're able to attract to StrongPoint. And there's a few people here that, and positions, that do deserve some additional mentioning. Number one is a new MD and SVP for Norway. PerHaagensen has been with StrongPoint, leading our Norwegian operations with a steady hand for many years. He has decided to retire this summer. And as he's very, very strong substitute, we have Gisle Elvebakken. Gisle is coming from the position as Sales Director from Visma Exso. He has a very strong background, both within grocery, retail and retail, in general, but also software sales as a function. So very, very pleased to have Gisle aboard. It should be said, also as a fun fact, he's also a very good ice skater, for those of you that follow the Olympics.The second person, I think, it's very worth mentioning here is we have Knut Olav Nyhus Olsen. Kunu is going to be his nickname. He's coming in to substitute Erik Vaag, our SVP for People and Organization. Kunu is coming today from the position of leading HR with Telenor Broadcast, and he's also held similar positions, both with Skanska and ISS. So I'm absolutely certain we're getting a top, top HR resource into the company in times where we really need to continue stepping up the talent, both attraction and development. Additionally, it should be said, we have done some really top recruitments, both here within Norway with the former Nordic Sales Director for Quinyx. He's come to join us to drive both our sales of Reflexis, the workforce management solution, but not only that, also our e-commerce offering, out of Norway, but also having a more of a Nordic perspective. We have also recently been able to attract top performer with -- to our supply chain position. We have Darius based in the Baltics, coming from -- or having experience from, amongst others, IKEA. So we're seeing some very interesting moves already now by Darius on the supply chain operations that we are constantly monitoring and maybe, in particular, in these times. And then lastly, it should be said, we have strengthened our team in Spain to a very large extent with key account resources that are really just waiting to get the restrictions that we've had in Spain lifted so we can go out and sell our top solutions to the grocery retailers, in particular, but also to the larger Spanish society. Given that we have this video conference for a reason because of the COVID-19, I also wanted to spend 2 additional slides before giving the word over to Hilde and some additional financial information. And this picture here is showing a illustrative situation of today's situation or the situation that we've had over the past few weeks. And I wanted to take you, as investors, through this because we're seeing -- I've said in the past, we're sort of schizophrenic in the way that we have some businesses that are going very, very well due to the COVID-19 situation and others going not so well. And I think it's fair in this -- and just to be transparent, following their numbers, to explain to you how this situation is affecting us. So starting on top here with Cash Security. Cash -- our Cash Security business primarily is about delivering cash in transit, or CIT, cases to the typical money transport companies, G4S, Loomis, Nokas, et cetera, but also to banks, such as Spar Bank that are dealing with the CIT operations themselves. And it sort of goes without saying that when an economy shuts down or closes down and, in particular, the retail business, not the grocery business, but the other retail businesses are experiencing a massive decline in demand, well, there is less cash to be moved around. And as such, the cases are being less used and the foreseen demand for cases are going down. And that's exactly what we're seeing in Cash Security. We have very interesting leads but as the times are being now, it's pretty much a standstill as we've seen in the Q1 figures. When you look at the HORECA or Hotels, Restaurants segment where, in particular, we've been strong in Spain. Again, it goes without saying that when there is a lockdown in the economy, there is not much activities going on in that segment. And as a result, the impact is negative there. You see some shaded red here for the Baltics to represent the fact that we are delivering European POS systems to restaurants and hotels in the Baltics as well and that, of course, has also been impacted. Looking at nongrocery retail, which, I guess, we could say, fortunately, it's not a big portion of what we're doing is also at par, negatively affected. You do see on the right-hand side elsewhere and I guess you see pockets of that everywhere, the fact that the COVID-19 situation is also pushing for more security operations of cash. So I both hope and believe that some of the growth that we've had in countries like South Africa is -- that has been driven by safety of cash is a development that you will be seeing elsewhere as well. But as per now, the COVID-19 situation has been affecting that nongrocery business negatively to date. But as said in the past, the biggest part of what we are doing at StrongPoint is serving grocery retail customers. We're serving them on in-store productivity solutions, what they could be doing to improve the operations in the store as well as helping companies, both start and establish and continue growing their e-commerce operations. And I think everybody has realized that if there's one bit of business that is growing out there, it's grocery retail, in general but, in particular, e-commerce. And we're both seeing the impact on that in the Q1 figures now. We're seeing that on the interests from our customers in the key markets we're in, and we both expect that to see that also happening going forward. And lastly is Labels, where really it's Norway and Sweden, where we are operating with Labels production and sales. And as mentioned earlier, a large portion of the customers we're having in Labels are either CPGs or FMCGs, producers of food. And with more and more eating from home is happening, then you're typically having more production of consumer packages versus large restaurant packages, which is good for our Labels business. But we're also serving pharmaceutical companies, which, again, is also an area in which the economy is such it's seeing a growth. So positive impact on the Labels there as well. The last sentence I -- or last page I had before giving the word to Hilde is a recap of what we presented on February 12, the strategy update session. And it seems ages ago and really, it's not ages ago, but we have, both with the Board and the executive management team gone through our stated both ambitions and plans for the 2025 ambition that we shared to sanitize or sanity check, whether the COVID-19 situation is having an impact on that. And as an aggregate, we -- I would like to reaffirm our ambitions, NOK 2.5 billion in revenue with 13% to 15% EBITDA margins. That still stands. It's very much reaffirmed. And to some extent, I'd like to say, even strengthened. We've said that the grocery retail clients are important for us. And when we presented this on February 12, we said, in part, that is because it's a resilient business segment, and we are absolutely seeing that now. We're seeing a very big growth in both e-commerce, as we talked about earlier. So taking our e-commerce portfolio out in the world is still critical for us. It's critical for us to get our cash management solution out there to facilitate the protection of cash. And then also with the hygiene focus that we see, we're also experiencing a very big interest in our Self-Checkout solutions that we have, not only in the core markets, but also beyond that. So in total, the 2025 strategy and ambitions still holds, if anything, potentially strengthened. And I feel very much strongly about the quarter that we have left, but also the ambitions and the fundament for those ambitions going forward. So with that, Hilde, please come up and share some more figures. I will start here and --

[Hilde Horn Gilen, Chief Financial Officer]

Thank you, Jacob. I will present some other key financial figures, as I normally do. I will start with another -- a different slide than what I usually do, and the reason for that is the currency fluctuations. Jacob told us that there was a net NOK 4 million negative effect on EBITDA. If we move further down in the P&L, we see that there is also influencing, the translation of our debt, which is in other -- in foreign currency. And what the slide shows us is that we had a very positive currency effect last year of NOK 3.6 million. And this year, we have a negative other financial expenses of minus NOK 1.5 million. So the average of that is NOK 5 million, which is affecting the comparison figures. This, of course, affects the earnings per share, which we -- which is the sum of all the activities that we have done. It's influenced both from the operational part and, of course, from the financial part. So in the quarter, the EPS per share, earnings per share, is only NOK 0.02. If we adjust for the amortizations, we have it up to NOK 0.08. So this is, of course, just the aggregated as a result of the performance that Jacob have shown us. So the rolling 12 months EPS is then declined to NOK 0.44, the last 4 quarters on the EPS and the adjusted is down to NOK 0.72. If we move further to the cash flow. We started the year with NOK 39 million in liquidity asset. We have an EBITDA of NOK 16 million, which is moving us up. And then, the change in working capital is declined by NOK 20 million. Why is this? Most of the effect comes from the increase of stock. First of all, when we heard about the COVID-19 attack or outbreak in China, we were worried about the ESL delivery to Norway, and we increased the purchase of ESL. So we still have some of that Pricer tags left on our stock, and it influences our balance sheet. In addition to that, our manufacturer of CashGuard produces, of course, on foreign cost from our operation. We did not foresee this shutdown, especially in Spain, and that leaves us with quite a lot of CashGuards in stock. We have, of course, reduced the manufacture of CashGuard going forward, but this leads to some increase in working capital. And lastly, the Click & Collect lockers are produced in China. Actually, they are produced in the Wuhan area, which was influenced and the first to be influenced by the COVID-19. And that is -- it led to a 6-week stop of the factory in January, February. The production is up and running again, and we managed to get some of the lockers received in the end of March for assembly, and then they will be delivered to the customers in Q2. Further on the cash flow overview here. The CapEx is, as normal, related to the rental solutions of cash management in Spain for the first 2 weeks -- no, 2 months, and some investments. Then, we have an earn-out payment of NOK 17 million related to the acquisition of Cub AB from December 2017. And the PYD SLU, which is in Spain, which was done in December 2016. So that resulted in an earn-out payment of NOK 17 million. The debt is then increased by NOK 9 million as a result of this, and we ended at cash position of NOK 27 million. If you look at the net debt situation, this has increased, mostly due to the earn-out payment. So we -- the net leverage multiple has been increased to 1.47. Liquidity was a big issue when the COVID-19 situation started in the mid-March -- March. We established quite a few measures, balancing our cash flow and net cash position. We have increased our monitoring measures. We have increased our long-term debt with the same amount as we have the earn-out paid. And we have also secured increased credit facility to ensure that we also have -- are in a solid position for any liquidity fluctuation in the coming months. But as for today, we have a strong financial position also on the cash situation. And we will thank Danske Bank, our major bank, for good help and advice in this period. Just to mention dividend of 2019. The Board did on the March 19, postponed the decision. So in the general meeting later today, that question will not be conducted. There will be called for an Extraordinary General Meeting, if the Board find that advisable. The financial calendar for the rest of 2020 is the 14th of July, we will present our Q2. And I must even -- since we have this situation of webcasts and not so many physical meetings, please use my e-mail or my phone to ask questions, if there is any. Do you want to wrap up? Okay. Then, I will thank you so much for listening to this webcast. And as I said, please make contact with me or Jacob, if you have any questions. Thank you.