Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2024-Q1

[Jacob Tveraabak, executive]

Morning, everybody, and welcome to this Q1 presentation by StrongPoint. We are actually also here live in Oslo. So thank you so much for those of you attending here. Today's presentation is going to be of a short kind. We have a longer set aside 2 hours for a strategy update session that will also be broadcasted to those of you following on the web, that's at 11:00 CET. But right now, I will be presenting the Q1 results together with Marius Drefvelin, our CFO. And Q&As we're going to save until we have completed the strategy update session. So now very briefly, and again, to a lot more extent in the strategy option, what is StrongPoint all about? We are providing or infusing retail technology in every shopping experience, whether it's online or offline, for a smarter and better life. That sounds grandiose so what does it really mean in practice? In terms of the solutions that StrongPoint offers, we provide a member of in-store solutions and products as well as e-commerce products and solutions. If you're in Norway, you would have seen in many, many grocery stores, the Vensafe solution for instance. This is the tobacco typically, but also other high-value item protection that allows for a secure dispensing, which is important in today's environment with increasing theft being on the rise. We're also a proud partner of Pricer when it comes to electronic shelf labels. We at StrongPoint have been an instrumental player in ensuring that the ESL penetration in Norway and Sweden and also growing in the Baltics and U.K. is coming. And lastly, as an example, on self-checkout. Self-checkout is actually one of the examples of solutions that we have developed in the Baltics and not yet seen here in the home turf of Norway and Sweden. But the solution is absolutely amazing. Not only is it cost-efficient, being built and designed in the Baltics, but it also has a member of smart features and artificial intelligence to avoid theft. I think you've all seen, and this is not only in Norway, but the rise of test in self-checkout solutions. StrongPoint has integrated its artificial intelligence solution to allow for theft detection and hence prevention. There are a number of other solutions, which I'll go in more detail through the strategy update session on the in-store. And on the e-commerce side, I'm going to now just offer a little bit of flavor into what we're doing. One is the order-picking solution at StrongPoint developed on the back of an acquisition we did in 2018. We were then very proud of the solution, and we're not more proud or even more proud now with Sainsbury's having embraced our order-picking solution, one of the highest or best solutions to our knowledge in the industry tailor-made for grocery retail. Again, we'll talk a lot more about our solutions in the strategy of that session, but now the financial overview for Q1. First of all, it is disappointing to see a 6% decline in revenue. The decline deserves some explanation. Firstly, the Scandinavian countries, Norway and Sweden have a slight growth. Its service revenues are stabilizing and growing at about 10%. And we're also executing on some electronic shelf label orders that we have, which are both contributing to an overall growth in the Scandinavian markets of 3%. Unfortunately, we're being hit very heavily on the international side specifically in the U.K. The U.K. alone explains NOK 21 million out of the NOK 22 million decline in revenues. And this stems back to the shop fitting business that we have acquired, the ALS company that we acquired some 1.5 years ago, where we have not been able to uphold the activity levels that we would otherwise normally see there. So as a consequence, the revenue as such is declining by 6% quarter versus quarter. When you then go to the EBITDA, you will also see a decline here. And a decline of NOK 90 million, which is quite severe when you think of a revenue decline of a little bit north of NOK 20 million. About half of that EBITDA decline in Norwegian kroner stems from a gross profit reduction simply driven by revenue decline. The margin as such is pretty stable. But most of the decline or the other decline is driven by operational costs. And this operational cost in Norwegian kroner, it's important to get across. We are unfortunately seeing a depreciation of the Norwegian kroner and the Swedish kroner versus the euro and pound. And that hits us when we look at the cost side of things. So despite having successfully completed the NOK 20 million net reduction in costs from Q4 and into Q1, this has not been enough to withstand the currency changes and general inflation. And that leads us to a negative NOK 6 million EBITDA in the quarter. Clearly not pay results we're happy about. And as we will be talking more about later, we're doing additional both cost measures but also restructuring and commercial efforts to change that. With that, I will briefly touch upon OnePoint, which is not giving any revenue as such in the quarter, but that is really 2 major milestones. One is the Sainsbury's order-picking win that we announced early January. I've labeled this as the most important and significant win in the history of StrongPoint. Sainsbury's is the second largest grocery retailer in the U.K. in a market, the U.K., which is the highest penetrated e-grocery market, and Sainsbury's, who has been in the market for a long, long time also with grocery e-commerce offering has chosen StrongPoint solution. That's so important, and we're going to spend a lot more time on that later as well. And although a lot didn't happen in Q1, but actually announced yesterday is the revelation of who is the retailer we have been working with in Spain for many, many years now, actually closer to 3 years to develop a revolutionary new cash management solution. And that customer is no other than Mercadona. I assume that if you're going to a vacation in Spain, it's very rare that you go to a grocery store, like I do. But Mercadona is actually even bigger than Sainsbury's in terms of revenue. And the amount of cash transactions is 50% of all transactions in the store. That's about 1/3 of all turnover is cash related, which means that the cash management solution offering that we have done now together with Mercadona over 3 years, is going to be so, so important. So these are 2 super significant new ventures that we have finally gotten. We've invested over many, many years, and we're very much looking forward to both seeing these fruits come to life in terms of revenue and profit. And later today, we will also talk a lot more about these 2 major wins. But with that, Marius?

[Marius Drefvelin, executive]

Thank you very much, Jacob. I will go through some of the other key financials for the first quarter of 2024. I will start off with the earnings per share. On the left-hand side, you will see that for the first quarter, we had a negative NOK 0.26 in the EPS, obviously, driven by the financial results that Jacob has touched upon. On the right-hand side, you will see the 12 months rolling EPS, which was negative NOK 1.14. However, if you adjust for the noncash items related to amortization of M&A, it's negative NOK 0.88. So this was the earnings per share. If we move on to the cash flow movements so far this year, we have the impact of the operating result of minus NOK 6 million from the EBITDA. However, we had a positive impact from working capital with an improvement of NOK 11 million, and this allowed us to reduce the bank overdraft with $10 million during the period. We also had capital expenditure of NOK 6 million. This is [ planned ] CapEx mainly related to the Mercadona project. These are development costs and other purchases that we are mainly capitalizing in the balance sheet. All other development costs are expensed over the P&L. Other cash items included NOK 9 million in lease payments mainly related to premises and there was a repayment of NOK 6 million on taxes mainly related to Sweden. If we look further into the working capital items, it's important for us to convey that. Working capital development is highly dependent on the type of projects that we deliver and the volume, obviously. So this will vary over time. We reduced the working capital with NOK 10 million. We see that we had a fairly flat development in accounts receivable. We continue to have low loss on receivables due to the solid customer base. In addition, we had a reduction in inventory, which has a positive impact on the working capital. This is a high priority for us going forward. If we move on to the development in the net interest-bearing debt, we had NOK 77 million at the end of this quarter. This was a reduction of NOK 4 million compared to the previous period. We have been able to maintain and control the debt level over the last 3 quarters, which again is important to us. But I think more importantly, we signed a new agreement with a leading Scandinavian financial institution to refinance our current bank overdraft, increasing from NOK 150 million to NOK 200 million. And this consists of a revolving credit facility and working capital financing. And we expect this to be completed sometime during the second quarter. And this was an important milestone for us, and there are 2 main factors that I would like to highlight. First of all, we are now taking on bigger and more demanding international customers, which will increase the working capital requirement. And secondly, last quarter, we announced that we had a covenant waiver for the end of Q4 this year. With this new credit facility, we will not have a net leverage covenant, so the covenant waiver will no longer be needed. There will be a 30% equity ratio covenant, which compares to our current balance sheet where we have 46%. So obviously, there is still a lot of work left, but this was an important milestone for us to be able to deliver on the business plan. So these were the key highlights and key takeaways from the first quarter. As Jacob mentioned, we have a new session now at 11:00 with a strategy update. And the next quarterly presentation is on the 12th of July. And with that, we thank you for your attention and wish you a good day.