Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2021-Q1

[Jacob Tveraabak, Chief Executive Officer]

This Jacob Tveraabak. I am the CEO of StrongPoint. And with me today, I have Hilde Horn Gilen, as always, to present some additional financial figures. I'd say as normal, I will be going through some of the highlights of the quarter. And then we will be having some additional financial information. So highlights in Q1. Well, number one, we believe there is a very solid and strong financial performance, which I will dig more into in just a few seconds. Secondly, we are seeing continued success in a number of customer areas, which I'll also talk more about, and in particular one deal we are very, very proud to have achieved. And lastly, I will be talking about how we are progressing on the 2025 strategic ambitions that we have set forth. So overall, looking at the revenue figures, we are growing at a strong 15% organic growth. So this growth is stemming primarily from our Baltic and Swedish operations, which have been doing very strong this quarter. And I must say, with 15% growth this quarter, I'm pretty pleased about the overall top line growth of where we're going. Our business area, Retail Technology, is really driving this growth. So looking at -- behind the figures, you will be seeing that we are doing a relatively strong within e-commerce, the e-commerce segment. We're also doing strong in the checkout efficiency area with a number of deliveries in that area as well. So all in all, 15% organic growth in Retail Technology is something we're very proud of. And then, of course, also in Labels, which is predominantly a more stable business, a 6% growth is pretty decent as well. If you then take the revenue and look at the relative shares and how that is developing, there's a few things to have been said about this quarter. Number one is the large increase relatively in checkout efficiency. So we're going from 11% in Q4 to 18% this quarter. And in e-commerce, comparing quarter-by-quarter, we're going from 6% to 11%, so close to a doubling of the relevance of e-commerce when we compare with the pre -- or predominantly pre-COVID Q1 last year. And as a consequence, you will see the other segments in Retail Technology developing. Payment solutions starting to pick up again, but just starting to pick up. And we're looking very much forward to see how that will be developing as the pandemic gets somewhat more under control.Then switching to the EBITDA. We are improving our EBITDA by NOK 4 million to 6.6%. I would have liked to see that higher. This number is kept down by a number of distinct factors, one of them being Spain. We're still in a negative EBITDA territory in Spain. With our new MD in Spain in place, we are taking active measures now to turn around both that negative contribution on the EBITDA side, but also looking, of course, on how to massively change the way we're targeting customers and reviewing the organization. So a very massive restructuring going on in Spain right now.It should also be said that in this quarter, we have also absorbed additional IT security costs. IT security is a priority at StrongPoint. It's a priority for our customers. And we have also absorbed additional marketing and sales resources in which we are very confident will pay off in the next quarters to come.Again, looking at the business areas, the 2 business areas: Retail Technology, clearly being the one leading this improvement in profitability, and the drivers, as explained, are somewhat mostly faceted. So looking beyond the share figures for Q1, what are other highlights? Well, number one, it's pretty difficult to avoid getting around the fact that we landed a deal, a partnership with Glovo, the delivery platform unicorn out of Spain. I will actually be using an additional slide to go in more depth about this very exciting partnership. Furthermore, I'm also very pleased to have announced that we have struck a deal with NorgesGruppen to roll out electronic shelf labels from Pricer, and that deal is worth about NOK 110 million. What's also interesting about this deal is I think it reinforces StrongPoint's very solid connections with a grocer retailer like NorgesGruppen. And I'm also very pleased that we have together come up with a rollout plan, which is over a long stretch of time. It provides a better security and safety with regards to supply chain, but it also provides a very good opportunity for StrongPoint to really leverage the operational efficiencies in the Norwegian service organization.And lastly, we have earlier announced that we have ongoing Click & Collect lockers in the U.S. Today, I'm proud to say we have also an undisclosed customer where we are running pilots. This is a major U.K. customer. Again, clearly, only a pilot. It honestly just proves the very, very exciting opportunity space within the Click & Collect locker space. So very exciting there. So just a few additional words on Glovo because this is really exciting. First of all, Glovo, as a delivery platform, suggesting or promising to deliver everything, have also moved into groceries, as have most the on-demand delivery platforms that you all would have maybe used then when you've bought in a fast food. But they're all moving into groceries. And the recognition that Glovo came to, I believe, is going to be very similar to what other delivery platforms are recognizing, mainly that groceries is a totally different type of retail vertical to serve than other retail verticals or restaurants. It's very complex. So that's why we are just extremely proud that a technology unicorn like Glovo is choosing StrongPoint's picking solution to pick its groceries and using that with its partners to pick groceries. They have some very impressive customers as per today. That customer base is just increasing.And when we announced this partnership some 2 months ago, we said we would be launching a pilot at the end of Q1. Unfortunately, it's a bit smooth but not just more than just a bit. We're getting that pilot up and running very quickly now and are very excited to see, together with Glovo, the results from the pilot and the ongoing rollout of that pilot to other customers. So very exciting there. Lastly about Glovo, clearly, with such a deal, we are attracting a lot of attention from not only other delivery platform players out there, but also from the grocery retailers in the market and perhaps, in particular, in Spain.Okay. Number three highlights from me today, just giving you a short update on how we are progressing on the strategic ambitions towards 2025. Our revenue ambition of NOK 2.5 billion and 13% to 15% EBITDA. So first of all, the overall story is we are on the track to achieving that. And for those of you that did follow our strategy update session a year plus ago, so really when we launched the 2025 strategic ambitions, you would have remembered that we talked about what existing solutions would be providing to this growth organically and what would be additional new types of initiatives. And we didn't really disclose what all those initiatives were, but one of those initiatives is exactly the first bullet on this slide. That is the investment we've done now and partnership we've done with Halodi Robotics. And just shortly about Halodi now, and I'll explain more about that afterwards. But the use of robotics in grocery stores is something that we absolutely will be seeing more of in the years to come. And if you really think about the pressure on margins that we will be seeing increasingly in the grocery stores as e-commerce is growing, when you start peeling the onion and looking at what are really the elements, the cost elements you can affect in a store to make a dent on the P&L., the labor cost really is the big item when you exclude the COGS. So we need to be able to do something with the labor cost. And clearly, with robotics and in robotic solutions like Halodi, we are able to, in a few years' time, be able to do a number of operations in-store more efficiently for our customers, very exciting. But again, also something that will happen in a few years. As part of the journey towards 2025, we have strengthened our sales and marketing departments. I would like to emphasize in particular within digital marketing. We've taken a leapfrog with regards to sophistication and spend to reach customers in new geographies.And lastly, just a few, I would say, weeks or month ago, we reemphasized the 2025 strategic ambitions and the goals to get there compared to the strategic update we did 1 year ago. We are expecting a much bigger growth within e-commerce and a lower growth within payment solutions, and that's been added up. We are still very confident about these strategic ambitions.So then the final slide for me before putting you on stage, Hilde, Halodi Robotics. I would just like to emphasize a few additional things. Firstly, I'm just very proud of the fact that we are now 1 of 3 very exclusive partners of Halodi Robotics. So Halodi Robotics is a Norwegian-based robotics company, however, with multiple offices also in North America. ADT, a very big American security company is one partner. Altopack in Italy is a second partner. And StrongPoint is Halodi's partner within the retail space and grocery retail, where we have an exclusivity in many of the markets in Europe. So we are going to be working with some of the selective grocer retailers that we are very closely connected within the Nordics to develop the capabilities of the robot to do actions, which will alleviate the margin pressure in the stores. That will not be tomorrow. This will be a journey over many years. But clearly, when we are coming into '24, '25 and coming out of '25, we should be seeing this being both a financial contributor, but not least also a contributor in terms of providing a very bright light for the future.And then I think we have additional key figures looking back 1 year. Please?

[Hilde Horn Gilen, Chief Financial Officer]

Thank you, Jacob. Thank you. I'll just find my spot here. Yes, I'm going to present some additional figures. 2020 was a year with some extraordinary effects, and we had a compensation for the relocation of the Labels business in Norway. And in addition, we sold the cash security business, so that will obviously influence the figures. So I just brought these slides to remind you that we had that effect in the 2020 full year effect of NOK 56 million on the revenue side.The operational revenue, as you see, grew from NOK 1.127 billion in 2020 operational to NOK 1.165 billion. So the rolling 12 is showing increased or a positive trend, so hence, also from 2018 to 2021 Q1. The EBITDA is also moving in the right direction. Although we did have a quite substantial currency effect in Q1 last year, we still see that this is at least trending neutral or positive also after Q1.When we are going further down in the profit and loss line, we had a net profit of NOK 10 million after tax, and that equals to NOK 0.23 as an earnings per share in the quarter. And if we adjust for the amortizations that we have done every quarter the last years, we are at NOK 0.27. That's double compared to last year. And again, we had this currency effect last year, but we are positive to the contribution that we have provided this quarter.Looking at the 12 months rolling, it's still increasing. It's a good trend. And I have then excluded the one-offs. So we really like to see those trends, Jacob, don't we? And it at least goes that way. Going further into the cash flow and the cash position. We started off the year with a fantastic NOK 75 million in cash. Added EBITDA of almost NOK 20 million of the period, some small effects on working capital and CapEx, not a big change there. Then we had the investment part of the Halodi project that Jacob just talked about with the NOK 4 million, that's the investment in shares in Halodi. In addition, we have a development project that we will, of course, cost over the next periods. That is coming in addition, but that will come through the P&L. What is the biggest effect is the NOK 34 million that we have reduced our long-term debt. So we have taking the positive cash situation and refinanced our long-term situation. So we are ending up in -- after Q1 with NOK 49 million in positive cash. And then, of course, this also have influence on our net interest-bearing debt, continues to be a positive cash position. It goes from NOK 18 million after Q4 to NOK 19 million after Q1. So we are quite steady when it comes to the FX and the working capital. And with the liabilities that we have for the IFRS, we end up at NOK 23 million in interest-bearing debt, and that gives a net leverage multiple of 0.15. I remind you that the covenants of 3.5, so we are in a very good shape and have a lot of headroom to support our financial growth and also, to some extent, M&A. The Board, as I announced also in Q1 presentation, have -- they have evaluated StrongPoint and our situation, the financial position, the outlook, and they have proposed a dividend of NOK 0.70 per share. That will be voted on at the general meeting starting at 9:00 today. You will find another link to that webcast in our web pages. So hopefully, we see those shareholders or you in that link. So financial calendar. We will meet up again in July in the summer to present Q2. And as always, Jacob and I are more than happy to talk to anyone that would like to talk to us at in Teams still, but yet we are available. So please make contact with me if you have any things you would like to discuss. And then see you at 9:00. So thank you so much.