Strongpoint ASA
OSE:STRO
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Strongpoint ASA
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[Audio Gap]
first quarter presentation by StrongPoint. Today we're going to go through a pretty standard agenda. The short introduction of StrongPoint, the highlights including financial figures for Q1 and then we round off with some additional deep dive into the financials whereas, always, I will have the support and help of our CFO, Hilde.
Starting off with where StrongPoint comes from. We have numerous times and I will repeat again, talk about the double opportunity that lies with -- for StrongPoint. We're seeing an environment where labor cost is going up, household income and disposable income is getting more and more tight and, as such, the discounters are growing and becoming more and more mainstream.
And of course, the end consumers also have additional expectations from the grocers. So this is the environment that creates a perfect storm for a company like StrongPoint. Most certainly, technology will play a vital role in how to overcome these challenges, whether that is in store, where we have a number of solutions or within online or for e-groceries. That's the double opportunity for StrongPoint.
We in 2020 launched our financial ambitions for 2025 and I would like to take the opportunity again to reiterate those ambitions: a revenue of NOK 2.5 billion from approximately NOK 1.5 billion run rate today and an EBITDA margin of 13% to 15%.
So now let's deep dive into the highlights of the first quarter. Our financial figures, revenue, EBITDA included, the customer success stories that we'd like to highlight this quarter and I'll do a short update on how we're progressing towards these financial ambitions just stated.
So first of all, we are growing quite nicely. We're growing at a 27% rate in terms of revenue. By far, the most growth here stems from our U.K. and Irish business, by far the most. And of course, we are very proud of the entry that we made into the U.K. to make this possible.
I think what should also be highlighted in this context is that Q1 last year was extremely strong, in particular in Norway. Actually, 43% of the revenue Q1 last year stemmed from Norway from the finalization of electronic shelf label and CashGuard rollouts. And so when we come to this quarter, I'm very proud that we've been able to uphold that same revenue level in Norway and that's come from the inclusion of 2 AutoStore facilities that we have partially included in this quarter's revenue figures.
In addition to that, the other markets are fairly stable. There is an achievement in itself, I believe, in today's volatile and uncertain environment. And so as a consequence, we're now ending at a 27% revenue growth.
I also believe what's worth mentioning with the inclusion of the AutoStore facilities is that our revenue split this quarter is a staggering 15% stemming from the e-commerce business. That is the highest we've had in a long, long time.
In terms of EBITDA, we are growing or being rather stable, I would say, even though it's a NOK 2 million increase from NOK 11.5 million to NOK 13.5 million this quarter. The margin as such is from 3.8% to 3.5%, so relatively stable margins.
About 50% of the EBITDA in this quarter stems from our U.K. and Irish business. And as you will understand then, the EBITDA contribution from the other businesses are lower than they were last year. And those stems from principally 2 things within e-commerce. One being the fact that to be able to win these first AutoStore deals, we've had to be extra price competitive. So we've had a shift on the margins with these very first 2 installations. Of course, we believe that will and shall change going forward as we as a company build more competence in the area.
And the other is that there has been a product shift. The e-commerce business has not been growing as one would have thought maybe a few quarters or years back but rather been stable or even in some areas declining, but we've uphold the revenue with other solutions that traditionally have not had the same margin contribution. But as a whole, we're being relatively stable on the EBITDA margin level.
In terms of customer service, there are 2 areas I would like to highlight that we also shared with the stock market in separate messages. One is the win of a very significant and important deal with Rimi in the Baltics for Electronic Shelf Labels from Pricer. The contract is a framework agreement that has the potential to roll -- be rolled out to 300 stores across the Baltics. We're starting to roll this out barely, I would say in Q2 and are progressively going to grow this to more and more businesses. This is very important for us to see.
Number two is that we had actually 2 separate solution or checkout refurbishment projects or upgrades in the U.K. market. Again, these have barely been started yet. So most of the contribution here will come in Q3 and Q4 also, barely starting to be delivered in Q2. So very pleased to see some of these important projects being announced in the first quarter and being delivered Q2 and beyond.
Then as for how are we progressing on towards 2025. And normally, I would only have one page to describe this, I will spend some 3 pages during this time.
The first is that and we revealed this during our strategy update session in February, is the groundbreaking, innovative cash management solution that we are getting out in the market with a top-tier Iberian grocer with a pilot in Q3. So we're spending time, resources necessary to make sure this becomes a successful pilot and then secondly, becomes a successful rollout. More on that specific project, please do go back to our strategy update session, that's a very exciting project with a massive value potential for our customer as well as for StrongPoint.
In the quarter, we also attended what's called EuroShop, the world's largest retail technology show. StrongPoint were there with a number of its partners, actually with 5 other partners. And for those of you that did not have the pleasure of visiting, I think one of the things that really stood out for me and for StrongPoint is not necessarily that you have, hey, self-checkout, a cash management solution, representing an electronic shelf label supplier or having e-commerce solutions but rather having the breadth of the entire portfolio that is so relevant for grocers. I would go as far as to say I did not see any company that resembled what StrongPoint has in that respect. So for us, that was a very positive experience.
I promised to do a little bit more on how we're progressing towards 2025. This is a slide we showed at the strategy update session, showing that historically up until and including Q4 last year. We had a 22% revenue growth for StrongPoint as a whole when you included the full U.K. and Irish business. To reach our NOK 2.5 billion target, we have to grow at approximately the same as order going forward. And with a top line growth of 27%, we feel that we are absolutely on track on delivering on this revenue ambition.
So then on the EBITDA. This is also a slide we used during the strategy update session. So let me take a second to pause here. Starting from left. In 2022, we have over the quarters seen a 10% to 11% EBITDA margin for what we call in-store solutions. So these are all the solutions not including e-commerce, that we offer as StrongPoint. In this quarter Q1, we were delivering 10.5%. So pretty much spot on what we have delivered historically.
So how do we now end at 5.5% EBITDA for 2025 or 3.8% -- sorry, 3.5% for StrongPoint in this quarter. Well, the structure follows that was shown on page here. Number one is that we are doing investments in e-commerce, doing investments in product development, but also as shown with the AutoStore wins that we've had -- we have invested in price competitiveness. That has a short-term negative impact on EBITDA as shown here.
Spain has been pretty much the same as the year -- last year showed. There's a -- there's been a massive increase or improvement in the business, but it's still not a major EBITDA contributor. That gets us to the 3.5% this quarter and 5.5% last year.
So now fast forward to 2025. Of course, we're still working to improve the 10% to 11% EBITDA margins that we have in our in-store solutions. We're working on gross margin improvements. We're working on cost perseverance and in persistency. But let's, just for a second, assume that we are achieving the same EBITDA contribution in 2025 for in-store solutions that we have historically, so 10% to 11%.
In e-commerce, we are expecting, first of all for the longer term, e-commerce in groceries or e-groceries to be almost like an inevitable trend in the long term. Whereas e-grocery potentially right now is taking a bit of a hit, that is a temporary hit.
What will be vital for StrongPoint in 2025 is not to rely so much on the growth of e-commerce but rather to penetrate the large existing e-grocery markets. And of course, the U.K. being the highest penetrated e-grocery market in Europe with more than 10% of all groceries being sold online, that is the focus for StrongPoint.
E-grocers in the U.K. have for a long time struggled with profitability and that is exactly where StrongPoint solutions come to its best. Whether that is order-picking solution, whether that is automated picking with AutoStore or whether that is highly efficient last-mile solutions where our lockers and car license plates registrations is included.
So this is exactly the thinking behind the acquisition of ALS. This is the idea behind the high potential or higher talent recruitment we have done in the U.K., where we're focusing now on penetrating the large U.K. grocers to make e-commerce a positive EBITDA contributor in 2025. That's number one.
Number two is, I would say, needless to say, the very, very exciting cash solution product that we're working for, now for this one large Iberian grocer but has a potential that goes way beyond that. We see the solution as being highly value creating for the customer and highly value creating for StrongPoint. And with the upcoming pilot in Q3, we're expecting this solution to be an important -- a very important contributor to the positive EBITDA that we expect in 2025 from the Iberian region.
And that together, ladies and gentlemen, is what will bring us from today's levels to the ambition levels of 13% to 15% EBITDA.
Hilde, with that, there is time for some other financial figures, please.
Thank you. Good morning, everyone. I will go through as normal some other key financial figures. Starting as I usually do with the rolling 12 months revenue and EBITDA. We are now at NOK 1.4 billion, almost NOK 1.5 billion for the past 12 months on the revenue side. That equals to a 6% growth and we are very glad to see that keep on being a positive development on the rolling 12.
Looking to the right, we see the EBITDA, which also is up by NOK 2 million and that equals an EBITDA margin of 5.4%, almost the same as Jacob just showed in the last slide.
The strong point -- sorry, the earnings per share slide shows also a positive development. Now there has been some net financial transactions that influencing below EBITDA this quarter. There are 2 things. The interest is increasing obviously and we have increased use of our credit facility and the interest paid on our lease agreements has resulted in a net financial cost on interest.
On the positive side, it's a currency efficiency effect on the internal loans between the different units. And in total, there is a positive net finance of -- in the first quarter. And our net profit ended at NOK 5.2 million up from NOK 3.2 million last year. So it's a positive development on the earnings per share to NOK 0.18 up from NOK 0.11 last year. And we have the rolling 12 up to NOK 1 if we adjust for the intangible assets.
Now looking at the cash flow. We started the year on NOK 47 million in a positive cash position and this has been decreased to NOK 29 million at the end of the quarter. As you see, the largest column here is the change in working capital and I will come back to that in the next slide to present what has happened. But with that increase in working capital of NOK 56 million, we have had to increase the use of the credit facility. The change in overdraft is NOK 37 million.
Further to the right on this slide, we see that the change in long-term debt, that is mostly related to our IFRS 16 effects, is NOK 8 million. And the change in long-term receivable, this one is 100% linked to our investments in the joint venture in Spain covering the development project that Jacob just explained. So these are the elements and the movements of our cash flow in the quarter.
Explaining the main working capital in a more detailed sense. We started this with a balance sheet volume of NOK 221 million of the working capital end of last year. The movement in the working capital, almost 50% of that is linked to increased accounts receivables. This is just the nature of our business, as the revenue in March isolated is much higher than the December revenue. In StrongPoint, we are pleased to know that our customers normally pay on due time, so we expect this one to have a very low risk.
Our accounts payable are increased by -- are decreased by NOK 13 million. And in this quarter, our public and other current liabilities has also decreased, showing a NOK 29 million effect on the working capital. This is linked to VAT.
And then we have large projects where we have some customers paying upfront partly and that has been equalized more during the quarter, and that also affects this compared to last year.
But we are focusing on the total balance in the working capital. So even if every line in this slide is explainable, the management will focus on improving the balance between net current assets and net current liabilities in the quarters to come. And the first you will see is that the inventory has already declined by NOK 14 million and we will continue to work on the movements that we can work on. So we ended this quarter on NOK 289 million.
We still have a very strong balance sheet in StrongPoint. Although we have been using more of our credit facility at the quarter and that has been increased by -- to -- by almost NOK 40 million. We are still on a low debt situation in StrongPoint.
The interest increase in IFRS liabilities from NOK 68 million to NOK 82 million is only related to currency. So this shows how currency actually influenced the StrongPoint figures as such.
The Board of StrongPoint still have the ambition to gradually increase our dividends to the shareholders. The general meeting starts today at 9:15 CET. Please join us on a separate webcast link that you can find on our web page.
The Board has for this general meeting proposed a NOK 0.9 per share in dividend. That fulfills the ambition of the Board to continue to pay and increase the dividend going forward.
The financial calendar for 2023, we welcome you back here on stage on the 14th of July for the Q2 and first half presentation.
Now for the Investor Relations context, there is a new name and that will be Jacob that will hand that over. So I guess, Jacob, you will come to stage -- back on stage now.
Yes, well, we'll miss you, we'll miss you, Hilde, but you'll stick around for a couple of or more at least weeks. But going forward, I will be the temporary Investor Relations contact.
Dominic, do we have any questions?
Yes, we have a few questions. First question, what do you think of the outlook given the macro challenges?
Okay. That's a good question. I think, first of all, we at StrongPoint are so fortunate to be serving the stable and resilient grocery sector, right? So approximately 85% of the revenue stems from the grocery sector. That said, right, even the grocery sector is not completely immune to what's happening in the world. There are some experiences of hesitation when it comes to sort of new investments. And there is a general, I think, uncertainty geopolitically, financially, economically that also would impact grocers. But generally speaking, I think we're in a good position -- we are in a good position. But there is high uncertainty and that obviously affects our customers in such strong point as well.
Next question. The e-commerce share of grocery retail is still low. Why do you continue to invest in these solutions?
Sure. Right. So first of all, this quarter, we had a 15% of the revenue stemming from e-commerce. And so e-commerce for us constitute a number of solutions, whether that's fulfillment or order-picking solution, that is a proprietary solution of StrongPoint, that includes automated facilities with AutoStore. It includes a number of last-mile solutions, including lockers and car registration or pickup solutions. So all these solutions are going to be highly relevant also going forward.
I think right now with household disposable income being put a strain, e-commerce that is in some markets have contracted. But the growth long term will be there. That's almost like undisputed if you -- if you go to other kinds of retail verticals or segments and look at the e-commerce penetration.
That said, we cannot wait for the market as such and so as I tried to explain in the presentation, the one biggest focus area for us right now is the U.K. And the reason for that is the obviously the highly penetrated U.K. market.
To put that in context, the U.K. e-commerce or e-grocery market is bigger than the entire Norwegian grocery market. So it's a very big market to be penetrated. We currently do not deliver any solutions there, but our solutions are very, very relevant for the U.K. market with the profitability challenges that they've had there. So that's the reason for the investments. We have during the course of the year reduced the investments. So what? But e-commerce is an important part of the growth journey going forward.
Next question, what influence has currency had on the financial figures?
Actually, this quarter especially, we have seen very high changes stemming from currency. Obviously, the revenue has increased following that we have revenue in especially euros and Swedish krona that has influenced this positively. Also now actually GBP, which I tend to forget.
Then on the other side, the COGS and the cost has equally increased, so it has a very little effect on the EBITDA. But on the financial side, it has, as I showed in my previous slides, some effects on the net finance situation.
So currency do play a role for an international company like StrongPoint.
Last question. Are you sure that the 10% to 11% EBITDA margin on in-store solutions will be maintained going forward?
So sure. Well, as explained like we have quite a number of quarters now where we have shown and proven that 10% to 11% EBITDA margins for our in-store solutions is what we achieve. And it's important to recognize that's also including all the corporate costs as such. Nothing is certain going forward, but what we are doing is a number of measures to, if anything, improve that margin. I mentioned the gross improvement -- gross margin improvement solution programs that we are running, general cost prudence but also the fact that as we've grown now into 8 markets, we see that there are more and more potential for synergies across the company that we are exploring on how we can extract it.
So yes, I feel -- I feel very confident about sort of the achieving and maintaining the 10% to 11% EBITDA margins that we've had in the in-store solutions.
And if Dominic, if that was the last question, then I'd like to take the opportunity for -- to thank you all for having listened. And since this is your last round, Hilde, I was -- I'm not going to embarrass you, okay?
No, thank you.
But I just wanted to thank you so much for the great journey we have had together. I wish you all the best in your new position. I'll be following you and you will be following us. As Lockwood, the Head of the Nomination Committee if the general assembly wants it like that. So you're not leaving us completely.
I am not. I am not. And I would like to thank you, Jacob, for the journey and also to the shareholders for this opportunity that I've really learned a lot and all the encouraging and challenging text messages during night, I will surely miss them. So thank you so much for your support during this period. Thank you.
Thank you, everybody.