Strongpoint ASA
OSE:STRO
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Strongpoint ASA
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Good morning, and welcome to StrongPoint's third quarter presentation. My name is Jacob Tveraabak. I am the CEO of StrongPoint. And with me, as always, I have Hilde Horn Gilen, our CFO, to present some additional financial figures. We have an agenda that looks like this. I'm going to give a short introduction maybe in particular to our new shareholders about StrongPoint. Then secondly, we're going into the Q3 results and highlights, and then Hilde will take over to go through additional financial figures. So StrongPoint, we are a retail technology company. And we keep reemphasizing the double opportunity for StrongPoint. And this double opportunity stems really out of e-commerce. So the growth in e-commerce, in retail and grocery retail specifically, are driving 2 trends that provides 2 solution or opportunities for StrongPoint. Number one is that the e-commerce growth in grocery retail is taking more and more of the store revenue moving outside the store and, hence, putting pressure on the margins in store. That provides an opportunity for StrongPoint to provide its in-store productivity and efficiency solutions to stores. So that's number one. Number two is the fact that both companies that have started their e-commerce journey but not least companies that have not yet started their e-commerce journey are embarking on a new set of business opportunities out there. And to do that, there are solutions needed on both fulfillment and last-mile solutions. And StrongPoint, we delivered now for the full end-to-end opportunities for -- solutions for grocery retailers. So those are the double or the 2 opportunities in broad sense for StrongPoint stemming out of e-commerce. So our purpose really here in life is to provide retail technology for smarter and better life. So we are supporting our customers, our grocery retail customers, in achieving exactly that with our consumers. And we are immensely proud to be working with, so to speak, all grocery retailers there are in our home markets: Norway, Sweden, the Baltics -- the 3 Baltic countries and in Spain. And increasingly so, we are seeing a number of pilots and proof of concepts in countries outside our home turf that we hopefully, of course, will be seeing going into larger-scale rollouts. So we are predominantly focusing on the grocery sector, and there are some very interesting spillovers as well to that. Lastly, before heading into the Q3 highlights, I really want to reemphasize our strategic financial ambitions: NOK 2.5 billion revenue in 2025 and an EBITDA margin of 13% to 15%. This ambition stands. It still stands and despite, I'd say, the figures that we're showing now for Q3. That's very important for us. The long-term financial ambitions still stand. So then to the highlights of Q3. I'd say, as always, we have 3 points: the financial figures; we'll talk about, secondly, some of the customer success; and then thirdly, some of the more longer-term enablers to get to the strategic ambitions we've set for 2025. So to numbers. Looking at the third quarter revenue, we are seeing a decline of 9%. This is clearly a development I'm not pleased with. However, it does have some very distinct explanations. Number one is a reason that you probably have heard with many others, namely tightening global supply chains. We have been working with ensuring smooth supply chains across the board, and we have, to the most extent, been able to withstand any component container shortages. However, in this quarter, we are seeing that the CashGuard deliveries in Norway are being hampered by a lack of certain components. So lack of certain components are making some of the orders we are supposed to be delivering now in Q3 being pushed out in time to later quarters. And to give us sort of a magnitude of the size here, if we have not had these component shortages, our revenue would have been approximately at the same level as last year. So that is number one. Number two is we have to be honest that we're seeing the global market or the market in general for grocery lockers having longer lead times than we would have anticipated and expected, to be honest. We still remain very, very confident about grocery lockers being an important part of ensuring the efficient delivery of the last mile for our customers. And also, if you're looking at the number of pilots that we're currently running with some of the premier or most premier European and North American grocery retailers, we are at an unprecedented level. We have 10 significant pilots running at the moment, which is a number we have yet to see elsewhere or earlier. But we have to sort of also acknowledge that when grocery retailers, large as such, embark on something that is new, it also takes time to make them comfortable about the decision to do larger-scale rollouts. So that is number two. And then there is number three, which is, as we are comparing with third quarter last year, it is useful to remind ourselves about the large ESL order we had last year of NOK 75 million but not least that this order was delivered in record quick time. So about 1/3 of this order was delivered in Q3 last year, 2/3 in Q4, and normally, we are attempting with our customers to do this over a longer period of time. So we're working on making StrongPoint's revenue base more recurring and stable of nature. So if you're looking back at the orders received this year both with regards to electronic shelf labels or with CashGuard, we have taken a conscious decision in making those rollouts last over longer periods of time. And most of the orders we have announced this year are actually being delivered now and throughout Q4 2022. And that is, number one, because we have been wanting not to get in an unnecessarily component shortage, as described earlier; but secondly, also because we want to avoid unnecessary volatility in the business and straining on the internal resources. That said, 9% down is not something I'm pleased with. But more importantly, I'm still very confident about the long-term strategic financial ambition of NOK 2.5 billion revenue in 2025. Then looking at the bottom line or EBITDA. EBITDA is down from NOK 21 million or 9.9% margin last year to NOK 8 million and 4.1% EBITDA margin this quarter, again, far from the figures where we should be. Some of this is, of course, explained by the temporary decline in revenue, but part of this is also because of conscious investments in our e-commerce logistics solutions, both when it comes to product development, marketing, sales and, not least, IT security, which is very high on the list of our customers. These obviously investments that we are expecting will have a payoff in the future, and we remain confident about that payoff. So consequently, when looking at the revenue share per segment, most notably, the e-commerce logistics is now down to 8% of the total revenue we have in the quarter. That is down from the double digits we've seen earlier this year, and it's quite far away from the ambitions that we have set forth, 25% or more. And again, I'm very confident we are on the path underlying to get to exactly that figure. So 2 other highlights with more, how should I put it, positive spin. And firstly -- or the first 2 points here are about Spain, honestly. And as the investors that have been following StrongPoint for some time would have seen, we are undergoing a restructuring of our Spanish business that is slowly starting to recover. And in that aspect, it's, of course, very satisfactory to see that the new managing director's putting with her team in place the right measures to start winning some important deals. So firstly, we have in this quarter, one, a very important Order Picking contract with 1 of the top 10 grocery retailers in Spain in a very record time. And number two, we have also the very first pilots of our Self-Checkout solution with GM Food in Spain. So really, really compliments to the Spanish team for making these transactions or these deals come through whilst restructuring the business in Spain. And lastly, we also have and are receiving CashGuard orders both in South Africa with our friends at IT Bullion but also here in Norway with a framework agreement with REMA 1000. These deliveries will not start until -- both of these will not start until 2022, and we will, of course, be very closely monitoring the component situation as we are delivering on these orders. So lastly, before leaving the word to Hilde, we see and believe we have a steady progress on the 2025 strategic ambitions. And maybe in particular, as a Norwegian, I'm just so proud and humble that we, in this quarter, signed an agreement with AutoStore to become their partner. AutoStore that yesterday had their IPO here in Oslo, the largest IPO in Norway this year. I believe it's the second largest after Statoil in history and a very significant IPO in the European context. And the -- just the fact that AutoStore is partnering with StrongPoint we take as a testimony of the solutions and the relations we have with grocery retailers. I can say personally, prior to joining StrongPoint, I was a customer of AutoStore when being the CEO of Bavaria, the car dealership group of BMW and Porsche. We have then invested in AutoStore for car parts. And I can honestly say that it's the first automated and robotized solution that ever reached the business case. So I'm very, very pleased and have seen hands-on the AutoStore solution. That said, groceries are different. There's an immensely higher volume of transactions and picking that needs to be done. And that is what makes the StrongPoint and AutoStore partnership so exciting. We are now developing picking strategies, integrating with our Order Picking solution or last-mile solutions to be able to provide in the future the solutions -- the fully end-to-end solution for our grocery retail customers. So just very, very pleased, proud and humble for that and confident. And lastly, and now we can sort of finally say that we are a pure retail technology company. We finalized the sale of our Labels division. And as you will have seen, the EPS would have been severely positively impacted by the cash coming in after this transaction. So with that, Hilde?
Thank you, Jacob. I will present some other financial figures for you, starting off with the same slide that I used the previous quarters, where we are looking at the rolling 12 revenue. We are still seeing a growth of almost 5% on the rolling-12 revenue despite the low Q3 revenue this year. It is, to repeat, the component issues, the lack of rollout within Click & Collect lockers and also the very large ESL project in Norway that constitutes the change in the revenue figures. Looking at the EBITDA, we see a quite thorough decline on the rolling 12 from NOK 69 million to NOK 54 million. That's a deviation of NOK 15 million. Just to remember you all that we, in Q2, had a negative write-down of the inventory in Spain of NOK 14 million. So that obviously hits the figures when we are looking at the rolling 12. Looking at Q3, we have conscious investments within e-commerce and IT security, where we see a substantial increase in the effort of reaching our development work within the software. We have increased our sales resources by 17 compared to the same quarter last year. We are heavily investing in marketing activities. And IT security becomes more and more important as we are dealing with software and software integrated with our customer. So we are calling it conscious investments, which are really important for the long-term growth. And again, remind you all that we are costing every expense within R&D. We are not putting that into intangibles. This EBITDA and further down in the profit and loss, we see the earnings per share with a very minimum contribution from the Q3, only 0 -- approximately 0 actually, bringing the rolling 12 down to NOK 0.49 or NOK 0.66 when we are looking at continued operations. We have included also in the slide 2 figures up in the air above the quarter figures, where you can see that we, in Q4, had an EPS of NOK 2.21 in Q4 that came from the divestment of Cash Security. And this quarter, we had the divestment of Labels, constituting a total earnings per share of NOK 3.74. Looking at the cash flow. We started off by NOK 75 million at the year start with the add-on of our operational EBITDA of NOK 34 million. There are only minimum changes from the normal operational activities. A change in working capital of positively NOK 9 million is unfortunately influenced by the component issue, meaning that we are lacking some inventory for the deliveries that Jacob just told you about. The CapEx of NOK 9 million in decline is also a just normal business change. Some investments in tangible assets and also rentals in Spain, as you now, are presenting within the CapEx. Looking to the right in this slide, you see the discontinued operation profit and gain of NOK 169 million. That's the largest blue column. We are not allowed to share the enterprise value of the Labels divestment, but we reported a financial gain of NOK 164 million in the period. So that leads us to a very good financial position of NOK 186 million as our cash position at the end of Q3. Net interest-bearing debt and leverages we have usually reported on this slide. I was thinking about changing this because we are now in a positive cash position. And you can see that our IFRS liabilities has gone down, and we are in a positive -- or negative, positive net interest-bearing debt, so it's kind of hard to understand, but we are in a positive situation at least. We are obliged to use this into funding the growth of investments that we see coming forward to enable the growth and also for further M&A activities. That was the financial figures. The financial calendar of 2022 was published yesterday, and I would like to welcome you all to our Strategy Update Session at the 15th of February. It's the same time as we present the Q4 figures for 2021. We have also the annual meeting, 28 of April next year. So that's the activities going forward. So that was the presentation from my side. I think that we might have some questions, so Jacob, will you join me on stage?
Absolutely. Thank you. Can we stand closer, though?
Can we do?
Yes, we can.
All right. So we have some questions sent in. First of all, with the Q3 numbers being what they are, what do you expect for Q4?
Okay. So maybe I could start. We -- first of all, we don't -- we have never guided, and we will not guide. But you will have heard from some of the distinct reasons for the decline in revenue. Some of these are also applicable in Q4. The global supply chain issues are not going to be resolved in a matter of days or weeks, and that goes for, I think, more than just StrongPoint. And also, as we said, last year, we had an unprecedented not large but quickly deployed ESL project. So when comparing Q4 this year with last year, it's important to have that in mind. So short term, I think that's -- if you're looking at the quarters, that's what you should bear in mind. But of course, and I would like to reiterate it again, we are standing by our financial ambitions for 2025 of NOK 2.5 billion revenue and 13% to 15% EBITDA margin.
All right. And the second question here, when will the first AutoStore facility be sold?
That's a good question. Well, first of all, it's important to say that we are now with AutoStore developing the picking strategies, integrating our solutions and, of course, going out to customers and customer prospects in the Nordics and the Baltics. And there's a huge difference between the different countries on how mature the e-commerce markets are. I think one of the first things you would like to start, if you haven't started yet, is with e-commerce as a grocery retailer is to do augmented manual picking with StrongPoint's Order Picking solution. And once you have sufficient volumes, AutoStore is the natural next step. So I wish I could give sort of one answer. There are lead times to, well, develop the picking strategies. There are lead times to sell these opportunities and then, of course, deliver. So I wouldn't put that time line on it but just say that we are confident that we will be seeing something in the years to come and, in particular, towards the long-term 2025.
Okay. We have a few more questions here. One says that Spain has been a difficult region. How do you see the development here going forward?
So maybe I can start here, but I mean we have a restructuring process ongoing. And as part of restructuring, it takes time. I think we have reason to say there are some lights happening there. We have a new MD in place. We have increasingly a very, very strong team. We're building on the resources we have. We have added new resources which have been necessary to win, amongst others, some of the deals we highlighted today, both the Order Picking and the Self-Checkout solutions. I am very positive about the trajectory of how the Spanish business is going.
Maybe I can add on there as well. It might be a question that we have not seen during the quarter any additional need for write-downs. So what we did in Q2 was what we had to do to get the figures correct. And we do see that the things have come under control when it comes to the inventory in Spain.
Great. We have another question here. You mentioned that you have 10 major pilots ongoing. When do you expect that some of these can result in firm orders?
So always difficult to say, right? Pilot are pilots. And some of these pilots have been ongoing for 9 months, some of them are going on for 6, some just a few months. Of course, we wouldn't be doing pilots if we didn't truly believe that, that would result in major sales and rollouts. So again, we are not guiding here on when rollouts will happen, but what I can say is that we have an unprecedented high number of pilots both in Order Picking and in Click & Collect. And I can also say as much that the quality, if I may say so, of the customers or customer prospects is unprecedented. These are some of the finest and largest grocery retailers out there, so obviously, the potential is huge, but so are also the lead times typically when you're dealing with very large organizations.
Maybe I add on to the quality, we have also very proof in the Swedish market where our lockers is operating every day. And to our knowledge, our customers and the end customers of the retailers are very happy with the solutions. It's very efficient, and it takes very little time for the customer to pick up their groceries. And the communication around it with the QR codes and all that is also supporting. So that is at least a proof that we have in the market.
Okay. Fantastic. And we have one more question here. Would you say the company is closer to its financial target today compared to the start of the year? And is it possible to get a hint on how big the order backlog is?
Okay. So I'll do the first part, and you can do the second.
Thank you.
So going back to the beginning of the year, it's almost difficult to go back 9 months, but let me try. I mean going back 9 months, we had a pandemic ongoing, where we all knew and saw that this could be a pivotal moment for e-commerce logistics and e-commerce in groceries in general. At that point in time, we didn't yet have landed any major partners or customers beyond the ones we have had already from earlier. But in retrospect, right, we have landed the global deal that we announced in February, which is hugely important not just for Spain but in general. It's getting a lot of attention. And it's almost possible to sort of take the global deal and draw a line directly to some of the pilots we're running now. Secondly, what I would also like to point out is the AutoStore partnership. We had at the beginning of the year started very early discussions, but it was pretty unclear at that point in time whether we would be reaching an agreement or not. So I think there are some fundamentals here which are very, very different in a positive way now than they were at the beginning of the year, so that makes me, of course, very, very positive. And at the same time, quarterly results like this with a sort of 9% decline is not fun, but I think underlying -- the underlying belief in StrongPoint and its solutions is, if anything, at least as strong, if not stronger than it was at the beginning of the year. So I'll give you the order backlog question to you.
Thank you. Well, we -- actually, we do not present the order backlog, and there is a reason for that. A very high share of our revenue is not stemming from big, large orders. A lot of our orders coming by our salespeople selling solutions to one and one retail store. So that would, we think, give not the correct view of StrongPoint if we started to share this. That said, the large orders that we have received during the year are going to be delivered over time. Actually all -- one of them is even to 2023. And that situation we did not have a year ago, so that is a positive situation now compared to a year ago.
Okay. So I think with those questions, I think we'd like to thank you from StrongPoint, and we wish you all a good day. Thank you.