Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2020-Q3

[Jacob Tveraabak, Chief Executive Officer]

Okay. Good morning, everybody, and welcome to this third quarter presentation from Rælingen, outside Oslo. We'll be doing this presentation via a webinar or a web link. So I hope you are all settled at home or in your offices. Following this quarterly presentation will also be the Extraordinary General Meeting. Today, I will have with me, as always, our CFO, Hilde Horn Gilen. The agenda is as follows. And I'd say, as always, I'll do a short introduction of StrongPoint and what StrongPoint does. We'll then go into the highlights of the third quarter. And then Hilde will proceed me with some additional financial figures. We'll start today with StrongPoint's WHY statement or purpose. At StrongPoint, we believe in focus and we believe in simplicity. We talk about the why, the how and the what -- the why being the purpose, bigger than just achieving the financial ambitions of why do we get the work at StrongPoint; the what, which is our strategy; and the how, our behaviors to achieve those -- the purpose and the financial targets we set. And second, we believe in simplicity. So we talk about why, our purpose statement, rather than the mission and vision and what have you. And our, say, reborn purpose is really to be there to provide retail technology in every shopping experience for a smarter and better life. And as you can see, of course, that purpose really encapsules the focus we have on Retail Technology. You will also have noticed that we have -- StrongPoint have changed logo, and we have changed the visual expression. The logo, our visual expression and color scheme, is there to really put emphasis on StrongPoint being a Retail Technology company, being forward-leaning, forward-looking, at the same time being there, being strong. I hope you see the symbol. If there's one other thing we do like at StrongPoint, that's being cost efficient. So you'll experience that this is being a soft launch, one thing being digitally, the changes will have happened instantly, just a few days ago. And as we go forward, you will see more and more of the new logo appearing. But both the sort of purpose, the why statement, the logo and not least, everything we at StrongPoint do, is all part of the puzzle in the bigger picture where we want to achieve the financial ambition set for us as a retail technology company, but also beyond for StrongPoint as the provider of retail technology. So hope you like both the logo, the visual expression that we have, and that you can also join us in sharing the purpose of why we get up every morning to go to work. I wanted to follow-on with one page that many of you have seen before, but it's -- can't be emphasized enough, and that's what we've called the double opportunity at StrongPoint. E-commerce, in and of itself, is driving what we call the double opportunity. E-commerce tends to take sales from the stores, putting them online, which clearly then puts emphasis -- I'm sorry, puts the pressure on the margins in the stores. And if you put margin pressure in the stores, you need to basically do something to ensure that you withstand that margin pressure. And that's where our retail technology comes into play. The other opportunity is e-commerce in and of itself. We've seen, in particular in grocery retail, that many companies have been very reluctant going into the online space. But in particular, now with COVID-19, the customer demand out there makes it close to impossible not to move in this direction. So we are supporting major grocery retailers, both establishing themselves online, but also developing themselves online with our fantastic picking solution and, not least, the Click & Collect solution and everything in between. Dwelling not too much on the specific solutions we offer, if you look at the in-store solutions that we have, we are basically covering everything from electronic shelf labels, where we have a fantastic partnership with Pricer. We have our self-checkout solution that we're starting to take out of the Baltics into other countries. We, of course, have our own Vensafe solution. We have the Reflexis workforce management solution that we have now installed in the Baltics and are expecting to take elsewhere. And in addition to that, we also have e-commerce solutions that are playing jointly with the store operations, so doing the -- or enabling picking in-store and also enabling BOPIS or Buy Online Pickup In-Store with our Click & Collect lockers. If you look at the e-commerce portfolio of solutions we have, again, we are providing pretty much everything from an order has been placed to delivering that order. And we have a very modular type of solution that enables our customers to pick or cherry-pick the solutions they want to have or could simply choose all of the solutions. We have -- as you know, we have a fantastic track record already in Sweden with these solutions, but more and more so we're taking this across -- out across Europe and North America. Finally, before going on to the highlights, I just want to emphasize again that we are not only a retail technology company, but we also have a peculiar focus on grocery retail. In the third quarter, 80% of our revenue stems from the grocery retail customers. Now we serve all the major grocery retailers in Norway, in Sweden, in the Baltics, and emerging zone also in Spain. So we're very pleased and happy to have this resilient grocery retail customer base to lean on as we're moving forward into Q4 as well. But now let's go to the highlights of Q3. So I'll go through the figures first and foremost. And then following that, we'll talk about some of the other sales successes and achievements in the path onto the 2025 journey that we are on. Looking at the overall revenue, we are achieving a 19% organic growth, a 19% organic growth, which we would label as a strong growth for StrongPoint. The really interesting bit is when you start understanding what's behind this 19% growth. In terms of percentages, clearly, the Cash Security business has grown very nicely with the delivery of the more than 350 cases delivery to Sberbank. But also in terms of not only -- but also in terms of absolute figures, the growth in Retail Technology is very good. And if you look beyond the sort of 14% growth in Retail Technology, in Norway and Sweden, we're actually having an unprecedented, about 40% growth -- 4-0 percent growth -- which, of course, is outstanding. We're delivering Pricer Electronic Shelf Labels in Norway with a large deal to NorgesGruppen. And in Sweden, we are continuing to deliver e-commerce solutions to existing customers, but also Pricer Electronic Shelf Labels. And the growth of 14% is actually despite the fact that we are retracting in Spain and other parts of EMEA, where the COVID-19 is impacting our business a lot more than what we've seen in the Nordic countries. So I'm very, very proud that we're achieving a 40% growth in Retail Technology with parts of the business being really impacted by the COVID-19. If we then look at the relative share of our revenue and you compare this quarter with earlier quarters and last year, you'll be able to see that the in-store solutions are increasing, principally because of the Pricer rollouts that we have ongoing now. Payment solutions are retracting in absolute size, not unsurprisingly, with Spain being very hit -- hardly hit with COVID-19, whereas the e-commerce and checkout efficiency continues to maintain their very high levels, and e-commerce being more than double of what it was last year. And again, Cash Security increased its relative share of revenue with the large order being delivered in Q3. Going on to the profitability or the EBITDA figures. We are more than -- or we're close to doubling the performance this year. This gets us up to a EBITDA figure or margin of 12.2%, which is substantial improvement from last year's 7-plus percent, which, of course, we're very proud of. Again, looking behind these figures, you'll be able to see that a lot of the absolute share of increase comes from Cash Security. But I think even more importantly for StrongPoint as a company going forward is the resilient business in Retail Technology. We're now at a 13.3% EBIT margin -- I'm sorry, EBITDA margin, which makes us believe that there is a very -- we're on a very good path to achieving the overall 13% to 15% EBITDA margin in 2025. Label is continuing to do very strong and being relatively stable in its performance, particularly if you compare that with the somewhat more volatile Cash Security business. Looking beyond the sort of share figures for the quarter. We're very pleased that we're having increased sales success. And the Electronic Shelf Label order from NorgesGruppen, to some extent, people may argue, came surprisingly. But for us, it's not surprising. We're continuing to deliver high-quality service, support and service to our customers. And that's the sort of reward that we're getting. And in addition to that, we are experiencing, as you might expect, a very high demand and interest for our e-commerce solutions. We have a number of Click & Collect solutions now also outside Sweden, Spain starting to pick up really there as well, in addition to a number of partner countries. And when it comes to our picking solutions or picking solution, we are experiencing a tremendous interest from some of the world's most premier grocery retail players out there. And I'd like to just reemphasize that we are a Nordic-based company with all the benefits that that gives. We're seeing the picking efficiency that you obtain with our solution being 3 or even 4 times faster than what the average norm or standard would be in the U.S. So for us, the workers really to get the message out and across through our marketing and sales resources. The last highlight I want to update you on is the progress towards the 2025 ambitions that we have. As you can see from the financial figures as well, we believe that there is proven operational leverage in Norway, in Sweden, in the Baltics, where we do have operational or material size of operations. That enables us to take on new solutions as well, take them and deploy them out in the market and achieve a profitability which is sound and solid and that any competitors would be struggling to match. In addition to that, we are working on a number of enabling or supporting elements to the 2025 strategy. We're just now in the phase of implementing Salesforce CRM for our Retail Technology business. In the past, we've tried to encapsule all the different business areas we have in one CRM system and that's been not very optimal. So the implementation of the Salesforce CRM for the Retail Technology business is something I'm looking very much forward to, and we're expecting to have that completed in -- within Q1. And then as a final point, you understand both from the financial performance but also the outlook that the Board feels comfortable about presenting a dividend proposal of -- to the general assembly, and we'll talk more about that afterwards. So before giving the word over to Hilde, our CFO, I just want to again reemphasize and restate the 2025 ambitions we have: organic growth to NOK 2.5 billion in a few years' time and an EBITDA margin of 13% to 15%. We have the 3 sort of what pillars we'll be achieving and continuing to work on operational leverage in the countries that we have defined as core: Norway, Sweden, the Baltics and Spain. We'll continue pursuing -- getting the attention of large grocery -- I'm sorry, retail technology companies to deploy their technology in those countries. And we, again, also have some world class solutions, namely e-commerce solutions or Self-Checkout solution; and for the southern parts of Europe, also the cash management solution out there. And we have the people and the balance sheet to do that. And I think with the balance sheet, Hilde, if I may bring the word over to you, please.

[Hilde Horn Gilen, Chief Financial Officer]

Thank you, Jacob. It's been an exciting quarter end also with new layouts. But I'm happy to stand here in front of you and presenting our figures. Our net profit, that's the bottom line of our balance -- of our profit and loss, ended at -- increased by NOK 12 million in the quarter, up to NOK 15 million. And that led to the increased earnings per share to NOK 0.34; that is NOK 0.40 if we adjust for the amortization. If you look at the rolling 12, which indicates how the year-on-year is going, this has increased to NOK 1.73, that is NOK 0.95 adjusted for the amortization. It's been an exciting year with a lot of challenges, but also a lot of good things happening. So we are happy that the earnings per share accumulated at the end of Q3 is on the same level as last year with NOK 0.54. If we move forward to the cash flow. The cash flow from operating activities increased by NOK 35.4 million in the quarter. That stems from the strong operating activities that we have performed in the quarter and also some slightly changes in the working capital. If we -- the slide shows that we started the year with a positive cash position of NOK 39 million, increased, of course, by our EBITDA of NOK 77 million. The change in the net working capital ties up quite a substantial part of that EBITDA. It's actually slightly improved during Q3. But if you look behind the net figure, that is to the gross figure, we see that our asset side of the working capital increased by NOK 53 million. And the debt side, the liability side, increased by NOK 58 million. So this stems from the high activity on the ongoing projects, with -- which has quite a substantial part of hardware in it. If you look at our quarterly report, you will find that we continue to give more information of our financial position in Note 5, and you will there find information that our receivables are healthy. Looking at the CapEx, it's NOK 9 million in year-to-date. As you all know, we are booking the rentals in Spain in this post, and that stands for about 60% of the NOK 9 million that we have tied up in that. The rest is other fixed assets. The earn-out we paid in Q1, that was the 2 acquisitions in Spain and Sweden, and that was NOK 17 million, and I can inform that we still have a smaller amount of earn-out that is due in 2021. Our long-term debt ended at minus NOK 1 million. Might sound strange that we ended up at almost 0 on that. During Q2, we increased our long-term debt as a consequence of the earn-out payment and also some security for the COVID-19. And then we have paid all our debts at due date. Changes in overdraft, minus NOK 11 million, and that ended the cash position of NOK 28 million. If you look at the net interest-bearing debt, that decreased to NOK 114 million; that's an improvement of NOK 28 million in the period. Most of this comes from the positive cash flow from the operating activities. Our net leverage multiples ended at 1.06; that's an improvement from last quarter. Our disposable funds are also up to NOK 116 million, that's up NOK 19 million from the end of Q2. We continued to be close on the financial position as a consequence of the wave 2 of the COVID-19, and we are looking to have this -- we are going to secure our business. But we estimate our situation to be solid on the financial position. And that has led to the proposal of dividend for 2019 from the Board. And just after this meeting, at 9:00, our Extraordinary General Meeting will start where there is the proposal of dividend of NOK 0.60 will be proposed by our Board. You will find a link to the meeting at our website. The earn-out of NOK 0.6 million follows the slightly improving trend year-on-year, which our Board confirmed during the strategy of this session in February that we -- our ambition is to maintain this. So we are happy that we can do that also for 2019. Coming to the -- oh, one more thing on the dividend. That will be paid on November 4, if it is approved. The financial calendar. We will meet up again for the Q4 report at the 11th of February. We are also proud that we will invite you all for a strategy update session. If the COVID-19 situation is as today or improved, we will -- we aim for a physical meeting. We would really like to meet all of you, and that will be in a safe place where all the COVID-19 measures are, of course, taken. So we are looking forward to that. In the meantime, Jacob and I are available for one-to-one meetings, and we look forward to meeting you all through Teams Events or like that later on. So by that, I would like to thank you all for joining this webcast and welcome you all to join us on the Extraordinary General Meeting at 9:00. Thank you.