Strongpoint ASA
OSE:STRO
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Strongpoint ASA
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Good morning, everybody, and welcome to this third quarter presentation by StrongPoint. My name is Jacob Tveraabak, I'm the CEO of StrongPoint. And with me today, I have, as always, Hilde to present additional financial figures. Today's agenda is threefold. I'll do a short introduction of StrongPoint, we'll go through the highlights of the third quarter. And then finally, Hilde will do some additional deep dives into the financials. And we'll end this session also today with Q&A. So first, now, what is StrongPoint for anybody that is new to StrongPoint out there. StrongPoint, we are a retail technology company, providing solutions, particularly to grocery retailers, but also to other retail. If you look at the, what we have called the double opportunity for StrongPoint. We've had the growth of e-commerce and still have fundamentally the growth of e-commerce. But in addition, having now the inflationary pressure, the wage increases, contributing to a margin pressure of the retail stores, the grocery retail stores. So we believe that in order to withstand that margin pressure, you need to introduce solutions and technologies to withstand exactly that margin pressure and uphold the margins.
Similarly for e-commerce, there's most large grocery retailers out there have a significant e-commerce presence. The need to make e-commerce profitable or more profitable is higher than ever. And again, StrongPoint provides some of the world's most efficient solutions to make exactly that happen. StrongPoint, we focus on grocery retail. Why do we focus so much on grocery retail? Why are we so proud that approximately 85% of our revenue stems from grocery retail. Well, it's a resilient, solid and mature market. And that's exactly what you would want in uncertain times and turmoil times like we have today.
On this slide, you see a number of the customers that we are serving in totally 8 countries where we have offices and are present with sales, service and support functions. To relight you a bit about what StrongPoint what offers. We have introduced what we call the StrongPoint sandwich. And as you would all know, at least if you're a Norwegian, you need the bread and butter, the bread and butter is the first component of a sandwich. And in a StrongPoint setting, these are the in-store solutions, the mature in-store solutions that many of you are familiar with. These are Vensafe solution, tobacco automation. This could be cash card solutions, self-checkout solutions, electronic shelf labels, digi scales and more. And for this segment, we have a very healthy margin to provide us -- to provide us with.
On top of the bread and butter, you, of course, need some toppings. And for StrongPoint, that topping is e-commerce. This is our in-store picking solution, our dark store picking solution, our automated picking solution with AutoStore, I'll talk more about that in a second. But also the last mile solutions, whether that's click & collect solutions, drive-through solutions or home delivery solutions. And we're investing and have invested quite heavily into e-commerce.
And then finally, there are the solutions for the future. We will always keep an eye on what is moving out there, whether that is frictionless stores, so fully frictionless stores like kind of Amazon Go solutions or whether these are robots to provide reshelfing solutions as an example. So with this StrongPoint sandwich, as we call it, -- what can we expect to get out of this. Well, we have set out a financial ambition for our -- for 2025 of NOK 2.5 billion revenue and a 13% to 15% EBITDA margin.
And again, I'd like to reiterate that we stand by this financial ambitions also after this quarter. So to some highlights in this quarter. As always, 3 points here: the financials; the progress on customers; and lastly, additionally, points on how we're progressing on the 2025 strategy. And what the quarter when you look at the top line, we've had a 76% top line growth in our business. 20% of this growth is organic. This is organic growth, which is absolutely strong, stemming from, in particular, a very, very solid pricer ESL sales in Sweden from the Baltic organization that we have, where we have sold a tremendous amount of self-checkout solutions and really across the board, delivering very strong in this generally turmoil market, but proving again that grocery retail is very resilient. And then you have 56 percentage points of the growth or NOK 110 million stemming from the ALS acquisition we did in the U.K. We're super proud to have ALS as part of StrongPoint. And we must confess this contribution from ALS this quarter has been very strong and exceeding our expectations. And it should be said again also to this crowd that a company like ALS, which is now labeled ALS StrongPoint, by the way, has a peak typically in Q2 and Q3 season. So just managing a little bit expectations there for the quarters, Q4 and Q1, but very, very strong NOK 110 million revenue contribution in -- from ALS.
In terms of profitability, we've gone from a 4.1% EBITDA margin last year to 6% this year. So it's a NOK 13 million EBITDA improvement. I'm very pleased about that improvement. But that's 6%. Why isn't it higher with such revenue growth? Well, it's not higher because we have been and also in this quarter, been doing significant and deliberate e-commerce investments. Actually, the contribution or the negative EBITDA contribution from e-commerce is in and about NOK 15 million negative.
Clearly, that's not sustainable, and we are reducing the e-commerce investments going forward to reflect this softening in the market. But we are very positive about the long-term viability and attractiveness of e-commerce. So we are now shifting the resources and reducing the resources to reflect the softening in the e-commerce market. When you look at our revenue mix, if you want, in this quarter, there are 2 things to note. One is e-commerce being down to a 4% out of total revenue contribution. That is actually the same in absolute figures as last year, same quarter last year. Of course, a little lower with a higher top line. But it also illustrates what I just said about e-commerce contribution, we have been investing, but the market hasn't followed on the top line. And as such, you've been getting the negative contribution from EBIT -- from e-commerce. The second point to note on this page is what we call Shop Fitting. This is the contribution from ALS. So ALS contributing with a significant part of the revenue that we have now in the business, and I will in a second also talk a little bit more about what we believe ALS can do for StrongPoint going forward.
So on customers, lots of exciting things happening. Well, first of all, our dear friends in the U.K. announced in this quarter 2 major deals with leading grocery retailers in the U.K. I'll get back to one of these solutions in a second. We've also done tremendous progress with other than grocery segments in the Baltics, we Do-It-Yourself segments.
And lastly, we've had a record high ESL sales of pricer in the Swedish market. So proving that when we can and want to put our efforts into sales of any kind of solution really, there is no limit to what we can achieve.
On the 2025 ambitions and the progress, well, first of all, with these revenue figures shown, I believe we can say that the grocery retail market is a resilient market. It's a solid, mature, resilient market. I'm very pleased to be in. We are starting now to integrate ALS more and more, and I'll talk a second about -- a bit more about that. And again, for e-groceries, we believe that the long-term fundamentals are there. They are absolutely there. However, we also need to reflect the investments we're doing in e-commerce to reflect the temporary softening or dip in demand of e-commerce. So before giving the word to Hilde, I had 2 more pages I wanted to present to you all. One being ALS. I just want to underline the importance of ALS from a strategic point of view. We now have a platform in the U.K. and in Ireland to grow with our own solutions and hopefully in the future also with key partner solutions.
Number two, it is, as you've seen also a significant financial contribution and the transaction itself comes across as a very attractive and highly accretive one for investors. And thirdly, whenever you do an acquisition, I mean, we have beliefs about what we can do for this company being acquired. I'm very pleased to see that some of the solutions that ALS StrongPoint has are also valid for the other markets we serve. And I want to highlight 2 of these market opportunities. One, which we called the swivel checkout, which was part of one of the deals announced this quarter in the U.K. is a type of hybrid checkout edition. So combining a manned till, turning it around into a fully operated self-checkout solution. So combining the self-checkout solution with a manned till is what we call swivel checkout. I believe that is a solution that is also very much applicable in other markets than the U.K.
The second one is what we call checkout refurbishment. Why buy new checkout furnitures when you can reuse the existing ones. That's a big thing in the U.K., a big thing because it saves the grocery retailers money. And not least, it saves the environment. It saves the planet using or reusing the same assets again. And I have strong faith in the other markets with other retailers where that makes absolute sense. So well done ALS for providing us with these 2 solutions that I'm thrilled to take out in the other markets. Then finally, and yes, I know this is not part of Q3, but I have to tell you this anyway. The announcement we did very recently about the world's first-ever frozen facility without AutoStore. As you know, we made a distribution agreement with AutoStore becoming one of their partners earlier. We announced the first AutoStore facility earlier this year. Now this is our second, but a lot more important. Now we're providing ambient, chilled and also frozen capabilities in the AutoStore facility. And that is a game changer for any grocery retailer that is venturing into the e-commerce space. So can't wait to get more of these solutions out there. But right now, I just wanted to highlight that also, although it's not part of Q3, strictly speaking.
So with that, Hilde, please, why don't you take us through a couple of the other key financials.
Thank you so much, Jacob. I will absolutely try to do that. Good morning, everybody. I will also start off by talking about Air Link Group Limited or the acquisition that we have done. So far this year, ALS has contributed with NOK 141 million and earnings before tax per Q3 is then on a level of NOK 20 million. As Jacob said, ALS has a top season in Q3 and Q2, and we have -- also a gap that was created by the pandemic by the customers in U.K. and Ireland, that the local management has done a fantastic job in closing during the quarter.
If you look at Air Link Group isolated in Q3, the growth was actually 70% compared to their own figures last year. So it's a fantastic achievement by the management. We have closed the final purchase price, the estimated purchase price was based on the December 2021 balance sheet. And during Q3, we have established all the figures into the Excel spreadsheet. And the adjustment amount to be paid is NOK 4 million, that will be paid in Q4. There is no earn-out in this transaction. So the final purchase price ended at NOK 116 million. This equals an enterprise value over EBITDA multiple of 2.5, which is a very attractive acquisition for StrongPoint. And I must also add, there are several business opportunities that we have seen during the first 4 months. So we are very happy with this, the acquisition and this transaction.
Going forward, with the figures, rolling 12 based on Q3, we are now at NOK 1.25 billion -- and that, Jacob, is exactly 50% of our overall ambition for 2025. We have a growth in the period of 13% organic and 28% if we include ALS, that is combining the rolling 12 over the last years, NOK 981 million in revenue. If we look at the right side, the EBITDA, we ended at NOK 62 million end of Q3, rolling 12 still. And that equals a EBITDA margin of 5%. That is a drop of 0.5 percentage points from the 2021 level. And I will try to explain a bit more about why there is a drop in the EBITDA margin. There are 2 reasons for this. The first one is that our gross margin has declined in the quarter. And the second one is the continued investments in e-commerce.
First, let me elaborate about the gross margin decline, which we -- I want to assure is fully explainable starting off by the first one, and that is ALS. ALS is explaining 2.5 percentage points of the decline. That is something we need to get used to. This is the business model of ALS. They have a lower gross margin but their EBITDA contribution is very good. So that will affect our gross profit also going forward. Secondly, and the largest effect is the product mix and especially related to in-store operations. That calculates for 4 percentage points of the total decline. It is in-store and some other hardware products that we have sold during this quarter. And as Jacob has already explained, the lack of proprietary e-commerce sale has obviously not helped on the gross margin.
Thirdly, it is foreign exchange currency, especially related to U.S. dollar versus Swedish krona. That has -- is calculating for 1 percentage point of the decline. So let this message come out as it is explainable. The reduced gross margin in Q3 compared to the same quarter last year. Secondly, we are continuing to invest in e-commerce with NOK 6 million in additional investments in Q3. we will, as Jacob said, reduce this level going forward. But in Q3, this has also contributed to the lower EBITDA margin. Our earnings or net profit after tax came to NOK 8 million, up from 0 last year. And our earnings per share in the quarter ended at NOK 0.27, and our rolling 12 is NOK 0.81.
Looking at our cash flow. We started off the year with 174% in net cash in StrongPoint. This is a result of the 2 divestments that we have done in 2020 and 2021. Adding, of course, the EBITDA and an earn-out received this year from the sale of cash security. We also now have paid a net amount of NOK 85 million of the acquisition of ALS this year. The dividend of NOK 35 million was paid in May. And we have a rather large change in working capital in the quarter of NOK 57 million, sorry, this year of NOK 57 million. There are 2 things explaining the change in working capital. First one is that -- and the most important part of this increase is actually receivables. And with our customer base of more than 85 percentage point from the grocery sector, we can assure that the collection should -- should go, the collection risk is not high on -- as we have seen in previous years.
Second is inventory increase this year that I have explained before. We have deliberately produced cash guards to be able to mitigate the component situation that we have had this year. And also, we have some more lockers in our inventory in Sweden due to the lower sale of lockers in Q3. So this ends up with a positive cash position of NOK 54 million at the end of the quarter. And if we are looking then at the net interest-bearing debt, we are still around breakeven if we do not include the IFRS figures. The IFRS figures have increased a bit in the period, that is a new long-term lease agreement for our Birmingham facilities and -- in ALS, obviously. And that leaves us with a net leverage of 1.08 compared to our EBITDA rolling 12.
We distributed yesterday our new financial calendar for 2023. And we start off the year on February 13, with a strategy update session as we have done now for the past years. So we will welcome you on to that. We just want to also let you know that we will be starting a new time frame from 2023 with the launch of the documents, not at 7 in the morning, but at 8, and the presentation will start at 8:30. So we wish you welcome to join this webcast. But of course, please reach out to me directly. I can help out on some questions. Then Jacob, maybe we have some questions.
Let's see. Dominic, please, do we have any questions?
Yes, we've got quite a number of them. First one, I think to Hilde, a very strong ALS sales, you say year-to-date is unprecedented in the company's history. How does the pipeline and backlog into 2023 look? Should we expect ALS to recover to 2021 levels?
I think that is -- first of all, the backlog of ALS is very short termed. So it's a very short time between the order comes in and the actual delivery on that. So obviously, we are not guiding for next year, but we are very pleased with this year. And I'm not sure, Jacob, do you want to -- or more positive, but to reveal, but we are very positive to the future for ALS that we can say.
Next question, I think to Jacob, which countries do you see upcoming acquisitions? And how many companies are you looking at now?
Okay. So first of all, it's particularly I can't go in too much detail. But I think, first of all, most, we are now in 8 countries: Norway, Sweden, the 3 Baltic countries, U.K., Ireland and Spain. And the potential in these 8 countries is massive. We've -- there's just so much white space in even these 8 countries. So the first and foremost focus for StrongPoint now is to ensure we get proper operational leverage that we give proper size in these markets rather than necessarily jumping to a new geography. So focus for us is how do we become even bigger, stronger, get a better operational leverage in these 8 countries with the margins that, that should entail. And beyond that, I'm going to decline going into a discussion about how many or which companies we're looking at, but -- but I think history has shown that we are patient. And when we do acquisitions, we like to do them well.
And next question, I think for you, Jacob, as well. What is the reason for the relatively low e-commerce sales? And why have we not succeeded so far?
Yes. Well, I think the -- first of all, this is a -- this is a market, I think it's not like there is numbers of RFPs or projects out there that we are losing out on. I think there is a general -- I think it's natural that in a world of turmoil, even if you're a grocery retailer, you tend to be less sort of progressive or aggressive with projects that are more sort of uncertain of nature for them. And so we've seen that a number of e-commerce projects that we're about to start have been put on post or halt and that goes for the entire market, and that's just reflecting the uncertainty that we have. So then what you see from these results is that we have I think as we have explained, invested quite heavily into e-commerce, also versus last year. However, the revenues haven't followed, and we need to take the consequences of adapting the cost base to the revenues in that respect.
Final question. Following recent auto -- sorry, following the recent AutoStore contract, do you see more to come?
I think the short answer is, of course, yes. We knew that when we got the first -- when we got the AutoStore distribution rights, the partnership with Hörmann was very important to build our credibility and we managed to do that with the first contract, ColliCare. And of course, as a company with focus on grocery retailers, it is in particularly happy or joyful to be able to do the first ever frozen facility. And following the announcement, we've received a number of interesting queries from interesting parties because this is a world news, and we'll be stupid, I mean, not to say that, I believe in additional AutoStore sales. Sales cycles are long. We're not going to deliver either 1 of the 2 wins we have until Q1 next year. But I think the wait is very well worth the wait, so to speak.
There was 1 question regarding the inventory and receivables build up, but I believe the Hilde actually answered that already. Otherwise that's it.
Thank you so much. And have a great day.