Strongpoint ASA

OSE:STRO

Earnings Call Transcript 2022-Q4

[Jacob Tveraabak, executive]

Good morning, everyone, and welcome to this Q4 presentation from StrongPoint. Today, we're going to go through the Q4 results. And following this session, we're going to have a separate strategy update session that we do every year about this time. That session will start pretty much immediately after the Q4 presentation. So at 9:15 Central European time. Hope you're able to join that as well.

But for this session, it's going to be myself and, as always, Hilde, our CFO, to present the Q4 numbers. I'll do a short introduction of StrongPoint to those of you that are new to the company, then we'll go through the financial figures and highlights, and then Hilde will do even more details on the financials.

So we said this in the past, I would just like to reiterate the double opportunity that exists for StrongPoint. The grocery retail market is going through big changes. And not just big changes, but big megatrends. The megatrends include a lack of staff in store operations, and in general, the rise of discounters across Europe and the world for that matter, and also the continuous demand from end consumers for better customer experiences. And we know that all of these challenges or opportunities, if you want, are going to require the grocery retailers to do and take many, many actions.

But what we also know is that technology is going to be a vital part of that solution. And StrongPoint providing exactly that technology, both in store, but also to e-commerce operations, is going to be an important part of the solution. That is the double opportunity for StrongPoint, in-store and in e-commerce.

We are very proud to be serving not only the major grocery retailers in Scandinavia and the Baltics, but also now increasingly across Europe and also U.S. More than 80% of our revenue stems from the grocery retail sector. And maybe in particular, in today's environment, that is important to highlight.

We are serving the stable and resilient grocery retail market. And as you will see in today's figures, that's absolutely making sense when you look at our figures today. And so because we are in the grocery retail space, we have earlier introduced what we call the StrongPoint sandwich to help investors and others to understand what are the bulk of solutions we offer and how does that fit with the financial contributions that we are achieving.

So firstly, when you make a sandwich, you need bread and butter. And so for StrongPoint, the bread and butter are the in-store solutions. This is the Vensafe solution, the Electronic Shelf Label, the Self-checkout, the CashGuard solution, all the mature solutions that many of you would have seen out in the market.

Over cycles, we have seen that the profitability levels we are achieving in the bread and butter business is about 10% to 11% EBITDA. So put differently, if StrongPoint only did these in-store solutions, we would have achieved a 10% to 11% EBITDA. But that's only part of the double opportunity for StrongPoint. We have the most efficient picking solution for e-commerce.

We have helped the Swedish grocery retailers achieve the most efficient last-mile delivery through lockers, for instance, and drive-thru solutions. And we have also recently started the partnership with AutoStore to deliver automated micro fulfillment picking facilities through their cubic system.

Today, we're not achieving the scale required to yield benefits positively on an EBITDA level, but we will get there. And I want to take the opportunity to highlight that we are expensing all our costs. So there's no hidden secret, so to speak, in the balance sheet. We are expensing it all. And currently, the e-commerce volumes are not great enough to yield a profit, but we will get there.

And thirdly, on a sandwich, you just don't only want bread and butter and the topping, you also want some sauce on top. So it's important for me to get across the message that we are preparing not just for tomorrow, but also for the future. Again, expensing all the investments we're doing in autonomous stores, in robotics, solutions that we know are going to be part of the next frontier grocery stores.

So that's -- I'm saying this with a little bit of a grin on my face. Obviously, the StrongPoint sandwich is there to both deliver on today's demands, but also tomorrow's and future demands for our grocery customers.

Then lastly, before getting into the Q4 numbers, I wanted to take the opportunity to share with you the financial ambition that we set forth at StrongPoint in the beginning of 2020, and that was our financial ambitions for 2025 with a turnover or a revenue of NOK 2.5 billion and an EBITDA level of 13% to 15%.

I'm again reconfirming this financial ambition. We feel confident that we are on the way to achieving those financial ambitions. And again, we'll talk more about that in the strategy update session following the Q4 results.

So then let's get to today's figures, so to speak. We have, as always, a 3-layered part on this section, the financial figures. I'll also be talking about the customer success and priority areas that we have, and how this all fits into the strategic ambition and strategic platform we need to achieve the financial ambitions.

So in terms of revenue, it's a bit of a milestone to break through the NOK 400 million revenue in 1 quarter. We grew by 43% compared to the same quarter last year to NOK 405 million. About NOK 100 million of this stems from ALS, the Irish and U.K. acquisition we did, yielding a 7% organic growth. And 7% here is also very strong, considering the fact that last -- or same quarter last year, we were completing some very big Electronic Shelf Label rollouts in Norway. So all in all, a very, very strong performance with regards to revenue growth that I'm very pleased about.

Looking at our EBITDA, we are growing our EBITDA by NOK 14 million to NOK 34 million. This represents an EBITDA margin of 8.3%. It's important to get across that about 1/3 of the EBITDA stems from ALS, meaning 2/3 stems from the existing or other businesses that we have at StrongPoint. So this just underlines, number one, the ALS acquisition has been a highly accretive and value-creating acquisition for our shareholders. And number two, we're doing really good also on the core business that StrongPoint has.

Just one geographic area I want to single out, and that is Spain. And the reason for that is we have had to go through a restructuring of our Spanish business. And at the beginning of this year, we promised to be achieving breakeven run rate when we got to the end of this year. We did not achieve that, we overachieved. We didn't just get a breakeven run rate, we're actually yielding a slight profit in Q4 for the Spanish operations. So very pleased about that delivery as well.

When we then look at the StrongPoint portfolio across the solutions we offer, you will see a very balanced kind of portfolio. I think again it is good to be serving the grocery retailers, but it's also good to be having a balanced portfolio in terms of solutions that we offer. You will see our e-commerce business again growing in percentage. And of course, growing in percentage when the growth overall is 43%, it's very strong.

And for us and for me, it's important to get across that. Although in many markets e-commerce is experiencing a slowdown in growth, we are more pivoting towards serving the major e-commerce markets where we're not trying to grow with the market, but rather penetrate major clients with our top or world-class solutions. And seemingly, we are achieving exactly that. I'll talk more about that.

Then I want to highlight a couple of other points where we are achieving success. In the quarter, we announced that we were doing or are doing the world's first 3 temperature zones AutoStore with ambient, chilled, and frozen. And we are doing that for a customer in Norway together with AutoStore, delivering on that at the end of Q1, maybe into Q2, but around that.

I feel very, very proud that we're doing this. It's not long ago since StrongPoint became an AutoStore distributor. And we promised both AutoStore and others that we would make a difference versus other distributors. I think this example exactly points to the fact that we are able to deliver on very specific grocery demanding projects such as this three temperature zoned AutoStore, very pleased about that.

Secondly, in the quarter, we also announced that we'll be delivering a pilot to a U.S.-based grocery retailer, a major U.S.-based grocery retailer. And so normally, when we talk about a pilot, that could be 1, 2, perhaps 3, 4 or 5 locker installations. We're talking about 20 locker installations. So I hope that also provides a little bit of insight into what kind of potential we might be looking at here.

And then lastly, it's also good just to reconfirm that we are in our core markets, the go-to supplier for retail technology. Not only for grocery retailers, but also for customers like Maxbo, the famous DIY chain in Norway. So those were just 3 examples of some of the customer success stories we had.

There's a couple of other things I want to highlight before handing over to Hilde, and that is, what are the other areas in which we're achieving progress to creating a platform to achieve the 2025 financial ambitions. And the first is that following the acquisition of ALS, we were awarded the distribution rights for Pricer Electronic Shelf Labels in U.K. and Ireland. And whilst also getting that, we were also awarded and expanded rights into Spain.

So one thing is getting the distribution rights, but I think it's also important, and I'd like to take the opportunity to just highlight the very close and closer cooperation that we have with Pricer now. That cooperation is closer than ever, providing great opportunities for both companies.

Another company that also understood the value of StrongPoint going into the U.K. and Irish market was AutoStore. And so going from having the distribution rights in the Nordics and Baltics, which have traditionally been the StrongPoint firm holds, we are also getting or have gotten the rights to distribute AutoStore in U.K. and Ireland. And so I'm very, very pleased to see that.

It's not only StrongPoint that understands and believes in the potential that lies in the U.K. and Irish markets, but also our partners, Pricer and AutoStore believing in exactly the same kind of value potential.

And then lastly, I will spend more time on this in the strategy update session, where our Managing Director for Spain will get the chance to talk more about the very exciting cash management project and, actually, R&D project that we're working for in close collaboration with a major Iberian grocery retailer.

And normally, we don't go to that specifics of a certain product development or product expansion, but this opportunity is just so vast, have such great potential for StrongPoint in the Iberian market that we wanted U.S. investors to understand what the potential is. And it should also be said that I'm sure Hilde will touch up on that, that during the year as a whole, the cash flow has actually been impacted by NOK 40 million because of this very exciting project.

So with that, Hilde, would you mind taking us through the rest of the presentation?

[Hilde Gilen, executive]

Absolutely, Jacob, thank you so much. As normal, I will go through some other key financial figures, trying to give a little bit more information supporting Jacob's presentation.

So first of all, to summarize the slide that Jacob showed on the quarter development on revenue. We ended the year on NOK 1.372 billion, close to NOK 1.4 billion, that is. That represents a growth of 40% compared to last year and a 15% growth if we exclude the ALS acquisition, which is a very good achievement by the organization, StrongPoint.

If we were to own -- if we had owned ALS since the start of the year, the revenue would touch NOK 1.5 billion. Looking at the EBITDA, we ended the year, the total year of NOK 76 million. That is up NOK 22 million from last year. We are at the same EBITDA margin as last year, 5.5%.

2022 has been a year of turmoil. It's been challenging. We have had component shortage issues. We have experienced inflation, supply chain issues, and so on. So our gross margin has, of course, been affected by those FX.

And we started, in 2022, to share an EBITDA breakdown per quarter. Just to enlighten you a bit on the development and why the EBITDA is affected as it is. We are not sure we will continue with that. Hopefully, the global situation will come down a bit. But this is the breakdown of Q2 -- sorry Q4.

We had a Q4 EBITDA last year of NOK 20 million. We had a very good contribution on the gross profit from the increased revenue. But we have a gross margin on the same level as in Q3. So it takes time to take the cost increase out to the customers.

Adding, of course, the ALS cost, which is then deviating from last year. We said in -- in the Q3, we said that we are going to do some reallocations and some changes on the R&D of our e-commerce business, and it has actually affected the Q4 EBITDA immediately. And that is due to some consultants that are no longer been hired by StrongPoint. So that affected our EBITDA by NOK 4 million.

We have increased our R&D in total, and had a tax refund of almost NOK 4 million also then affecting the Q4. And we are continuing to invest in our e-comm sales and marketing as normal, but to a slightly lower pace than before. So in total, we ended the quarter of NOK 34 million, and then NOK 76 million for the full year. This results in an earnings per share of NOK 0.38, adjusted for amortization in the quarter, which is up from last year, and our earnings per share rolling 12 months ended at NOK 0.95.

Our cash flow movement has -- I think the graph is just extending every time I stand here. But we started off with a good cash position following the divestment of Labels in 2021. We add the EBITDA, of course. We received in Q1 2022, an earn-out for the Cash Security business of NOK 20 million. We do not expect the same in Q1 2023 as very much part of the Cash In Transit business for our Cash Security that we sold out and was sold to Russia.

Then we had the acquisition of ALS amounting to NOK 89 million. We paid dividends. And we had a change in working capital for the growth of StrongPoint, obviously, but also following the global situation we have had with supply chain issues and component situation.

Now most of this NOK 45 million is actually linked to receivables. And we can assure the market that we continue to have a very strong customer base, and we have a low risk on receivables in StrongPoint.

One other point to note in this waterfall is the amount NOK 14 million, further to the right in the graph that was presented by Jacob as the investments we are doing now in a joint venture together with a technology partner for the large scale project that we are developing with a major Iberian grocery retailer. This is a loan, and it will be presented in this graph going forward. In Q4, it affected our cash flow with NOK 4 million. So NOK 14 million was the total for the year.

So we ended the year with NOK 47 million in cash or cash equivalents. We continue to have a breakeven debt position if you look away from the IFRS 16 effects. StrongPoint IFRS 16 is only linked to rental buildings and rental cars. And if you take that away, we have a positive cash position of NOK 4 million, actually. So we continue to have a very strong balance sheet, low risk on the receivables, a high turnover on our inventory, and a breakeven debt position.

In total, that has allowed the Board to evaluate the dividend for 2022. And they proposed to the general meeting in April a dividend of NOK 0.9 per share. That follows the long trend that we have had for the past 12 years, and it also follows the overall ambitions from the Board to continue to pay and increase the dividend forward.

The financial calendar for 2023 is published, and we will meet again on the 27th of April for our Q1 2023 results, and also the general meeting for 2023.

And with that, I would like to say thank you for following this quarter presentation. We hope that you will join us in the strategy update session that will start at 9:15 CET. Thank you.