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Edited Transcript of STRONG.OL earnings conference call or presentation 20-Aug-19 10:00am GMT

Q2 2019 Strongpoint ASA Earnings Call

STRØMMEN Sep 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Strongpoint ASA earnings conference call or presentation Tuesday, August 20, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jacob Tveraabak

StrongPoint ASA - CEO

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Presentation

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Jacob Tveraabak, StrongPoint ASA - CEO [1]

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Good afternoon. My name is Jacob Tveraabak. I'm the CEO of StrongPoint. And today, we have this live telco to go through the Q2 results that was announced in July 16. In this live performance, we also have taken Slido in use. Slido is a tool to manage questions, so I urge you all to go to sli.do.com and #StrongPoint to post your questions. So after a intro and the Q2 presentation, I will go through the top questions there.

As we go to the agenda, I would like to do a short introduction of StrongPoint to those of you that are less familiar with the company. I will then take you through the key highlights for Q2, and then, finally, the key figures for the quarter and then we'll end up with the Q&A session.

Starting with the mission of StrongPoint. As a Retail Technology provider, we are committed to drive the retailers productivity by providing innovative integrated technology solutions. That is a mission that's very clear for us. Follows the very strong commitment and focus on Retail Technology.

I would also like to highlight the very strong market fundamentals for Retail Technology and as such for StrongPoint. And those are driven by the growth in e-commerce. E-commerce, first of all, is a area in which many, many retailers, both grocery and non-grocery clients wants to grow. It's a new area for them and they want to grow. And they're looking for expertise and solutions to provide the best possible client and customer experience. But the other implication of a growing e-commerce is that the stores and the in-store productivity needs to improve. So regardless of our client's view on e-commerce, they are all implied or -- they all have an implication in the in-store operations in the sense that they need to improve their productivity operations.

So Retail Technology and StrongPoint we believe is a vital part of the solution for all retail companies, both when it comes to growth in e-commerce as well as to improve the in-store productivity.

On the next slide here, we are showing a very brief overview of the product and solutions we're offering. On the right-hand side here, you see Cash Security and the Cash In Transit solution we're offering to the transportation companies or cash transportation companies of the world. And to the bottom right, we also have the Labels business. However, the key part of StrongPoint's business is in Retail Technology, and we separate between our in-store solutions as well as the e-commerce solutions.

In-store, we have 3 key areas that we bundle our solutions and products, that being both own and also third-party solutions around: number one is what we call in-store productivity solutions; number two is payment solutions; and lastly, number three is checkout efficiency.

When it comes to e-commerce, there are really 2 parts of the operations which are vital to make e-commerce successful that is picking and its delivery, and we're providing both these solutions through E-commerce Logistics Suite and Click & Collect lockers along with route optimization tools.

Lastly, before going into the highlights, I would also like to repeat the key focus areas for StrongPoint. Number one, we are working very hard to both maintain, but also grow our relevance with retailers in our key current markets, meaning Norway, Sweden and the Baltics. So you will see going forward and you hopefully have seen that we are expanding our product and solution portfolio to remain on top of retailers agenda.

Number two is we have singled out Spain as a area in which we want to really grow our presence. That is a market in which lots of our solutions are now ready for retailers in Spain and relevant for these players. And it's also a consequence of us, rather than having global presence with own offices all around the globe, we are much more focusing our efforts and Spain is the country in which we're focusing our efforts.

And then thirdly, we are committed to grow our e-commerce business into a substantial portion of StrongPoint's business.

Lastly, we also want to underline that we want to be both the best owner and employer for all business that we have under the StrongPoint umbrella.

So with that, let me then go into the highlights for Q2. Some of you might have seen or heard a short video that we released along with the Q2 results. But I'd like to go a little bit more in detail on highlights and figures before we go on to the Q&A.

So firstly, we had a very strong Q2 performance. Operating revenue, when you look, compare numbers to numbers, we had an unadjusted growth of 4%. Those of you that have been following StrongPoint knows that last Q2, meaning Q3 in 2018, was a particular quarter because Alimerka acquired or purchased the cash management solutions that they had on rental in that quarter. So really the underlying revenue growth, which is 100% organic is actually 19%, which obviously are very pleased about.

Secondly, I'd like to mention or not just mention, but pick out our EBITDA where we had a very strong underlying improvement of actually NOK 25 million. Again, I'm saying underlying because Alimerka deal in Q2 2018 had a 21 -- or a little bit more than NOK 21 million EBITDA impact. So very pleased that we're seeing the effects from 4 sources coming to life here. Number one, the NOK 30 million cost-cutting efforts that we announced end of last year. Number two, it's the fact that we've been getting the warranty costs that we had in Cash Security under control. Number three, we are seeing a very strong and solid growth in both Norway and the Baltics on the retail segment. And then lastly, somewhat more technical, but the transition into IFRS also provides a NOK 5.7 million EBITDA impact.

Then lastly on the Q2 performance. Compliments to my new CFO, Hilde, who's taken a real grasp of the working capital, which have led to a staggering NOK 46 million cash flow impact on -- from the operational activities. So all in all, what we like to call a strong Q2.

Then we have also had a number of significant customer breakthroughs. Firstly, we have the Click & Collect pilots to both Coop in Sweden as well as 2 installations in Spain. We're also pleased that we have delivered the first Click & Collect solution to a key ICA store in Sweden. So basically, we are emerging as the e-commerce supplier for the retailers in Sweden, without a doubt. We have also been delivering a significant number of both Vensafe and Pricer Electronic Shelf Labels in Norway Sweden. And lastly, our newly -- new solution on self-checkout is something that we have installed to the chains top! and Mego in the Baltics.

Lastly now on the highlights, I'd like to pinpoint some of the milestones we have for the go-to-market model. First of all, it is 2 partner agreements we announced in Q2. The first being with Reflexis, Reflexis Systems, where we have an exclusivity for the Nordic and Baltic markets. Reflexis is a workforce and task force management system which is very important for all retail clients, but in particular, in the Nordics, where you have high labor costs. And coming back to improving productivity, this is one of the really key items to improve your productivity. So I have great hopes for the future of this partnership we have with Reflexis.

The second partner agreement we made was with Optical Phusion, OPI, with regards to having OPI sell our e-commerce solution in North America. We're given OPI an exclusivity for a time limit. And reason for being a time limit is because we are investing quite significantly now in a project called E20, which I'll get back to, on the e-commerce side. So when we have E20 ready, the Optical Phusion agreement is dissolved. But up till then, Optical Phusion have gotten our approval to sell our e-commerce solution in North America.

Another important milestone and that continues along the lines of what was announced in Q1 is the conversion of own offices where we have suboptimal size into partner offices. So we did this conversion both for Malaysia and the Russian part of our retail office earlier. We have now in Q2 done that both in Belgium and in France. So I'm very pleased to sort of see the financial results keeping up when we know that these types of processes both take time and resources, but also incur some reconstruction or some restructuring costs.

Lastly is the RoadRunner concept. We've seen a great success or emerging success of that in Spain. And as a consequence, we have started to implement that in Germany as well. Along with the retailer or the RoadRunner concept is also the Easy Access product, which is a rental solution, which we have institutionalized in the way that we're selling Cash Management as a Service rather than selling the product itself. We believe that, that is a product offering or a solution offering that's coming on top of the typical cash management sales we're doing. So we're very pleased to see that in Spain, we had 3 times as many installations in Q2 as in Q1. And very early now in Q3, we see that, that trend is continuing.

So to put some figures on what that means. If we have had sold the number of cash management solutions we have on Easy Access in Q2, our turnover would actually have been about NOK 5.5 million higher.

If we then go to the more visual parts of the financial figures. We see again that there was a 19% underlying growth in overall revenue from 270 -- well, actually we're seeing a NOK 276 million to NOK 287 million, but NOK 276 million was then including NOK 36 million from Alimerka.

Going to the next page with the different segments, we're seeing that the Retail Technology part of StrongPoint had a underlying 27% growth in revenue. Cash Security had a very strong -- sorry, 56% growth to NOK 26 million. Whereas Labels is more stable or actually somewhat declining here in what we can describe as a somewhat challenging market in Labels where we're working hard to keep up with the clients that we have at the same time as many competitors are putting in more capacity on the market.

Looking at the EBITDA. Last -- or Q2 2018 was in a way saved by the Alimerka deal. But we're seeing then, again, a underlying NOK 25 million underlying performance. I won't be repeating the sources of that as I went through that earlier.

But if we look on the last page before Q&A, we see that the main bulk of this is coming from Retail Technology, which is very reassuring in a world where StrongPoint is focusing on Retail Technology. We also see Cash Security significantly improving their EBITDA, which to a large extent, stems from getting the warranty costs under control. And then lastly, on Labels, there's a more flat or somewhat lower EBITDA performance, again, primarily driven by the top -- the challenging top line development.

So with that, I'd like to switch my head to the Q&As and the questions that have been coming up on Slido here. And I believe those of you following #StrongPoint on Slido will be able to see the same questions. So what do we have?

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Questions and Answers

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Jacob Tveraabak, StrongPoint ASA - CEO [1]

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First question being, what happened in France for the sales of cash card?

France was the second biggest market. Actually, somewhat uncertain where France being the second biggest market stems from. Clearly, both Norway, Sweden are much larger market when it comes to cash card. But in any case, with regards to France, we have had and we have a very strong partner in Tigra. Tigra have been selling CashGuard and cash management solutions for us for many years. And in the conversion of France from own office to partner office, Tigra will continue to be a important partner for us there. I know that some of our partners like Bullion in South America and the CashGuard in Ireland are very frequent users of Facebook to promote sales and that Tigra is less so are doing that on Facebook, but I can reassure you that France is doing very well when it comes to CashGuard sales through Tigra.

Okay. Then we have the next question which have also received 3 thumbs up. When will [Cash Compact] be ready for all EMEA markets?

Well, firstly, Cash Compact , for those not familiar with that solution, is a addition to the -- to our own solutions such as CashGuard. Cash Compact has a much smaller size, but also a smaller capacity, and as such, is better suited for some of the less cash-intensive businesses. We have actually recently installed this in Madrid with the first client. And we're expecting the full availability of Cash Compact for all EMEA markets to take place in Q4.

Next question is, is the SQS part out for sale?

So SQS is the old name of Cash Security. Clearly, that's not a question I will be able to answer. If that is ever to happen, then you'll be notified as the rule and regulations demand per stock exchange.

What is Easy Access? How much have we sold? And how do we finance it?

So first of all, Easy Access is our name for the rental solution of cash management solutions. So that could include CashGuard. It can include cash -- I'm sorry, [Compact], and other solutions that we have in the pipeline for clients which do not want to pay upfront for a solution. We're seeing this both being a success with both larger retailers like was the case with Alimerka before we applied the Easy Access label to it, but also with the RoadRunner concept that we have going on in Spain and now in Germany.

How much have we sold? Well, as said, we had three-folded the sales from Q1 to Q2. In Q2, we had something like -- we had something like 70 -- yes, a little bit in excess of 73 systems being sold, which had a face value at NOK 5.5 million. So if the -- we had sold these systems instead of renting them, there would have been a NOK 5.5 million increase in revenue. Again, we believe that this concept enables us to get sales or rental sales on top of straight upsales. But that's the value of that.

With regards to finance, we have -- to date, we have chosen to finance it through our own books. And with the growth of this concept, obviously, that's a area in which we need to explore further how to finance it, provided that this continues to be big and growing.

Then the next question is, why is not more happening within M&A?

Well, I think, firstly, starting this year, I announced some changes in the management. And part of that is getting a new CFO, Hilde Horn Gilen, with a lot of many M&A experience and expertise. And that is some 5, 6 months ago. And clearly, we have many, many companies in the pipeline.

Would I have loved to see acquisitions? Clearly, yes, but it's also a question of price. And it's not to hide, that in today's environment, there is very often price expectations that do not meet the expectations that we have to maximize the shareholder value that we have for StrongPoint. But I can assure you, there's lots of activity happening that's not necessarily now emerging in -- as a sales or acquisition.

Next question, with one thumbs up. Will you move the business at Tangen to Sweden after BaneNor compensation?

Well, so this is with regards to the earlier announcement that the BaneNor has given StrongPoint an offer of NOK 56 million to be paid in Q1 for us to move our business in Tangen as there is new railroad coming nearby that will impact our business there. Firstly, that offer is something that we have accepted, but we would need also approval within our own Board as well as the BaneNor Board. And in any case, we will use this opportunity to find the best solution for the business we currently have in Tangen. So right now, we have not concluded on where to move Tangen to whether that's in area in the vicinity of Tangen or what, but that will be very thoroughly analyzed as we move throughout the year.

Then we have an update question on -- with regards to partners: Asia/Radiant, Germany/Harting and U.S./Cash Defend.

So to start with Asia and Radiant. So Radiant was the partner that we selected for our Asia business. I guess to date, it's fair to say that the trend or the pace we had in Asia is being upheld with Radiant, nothing more, nothing less. We, of course, have expectations that Radiant will be able to grow the business there more than we had earlier. But that's the current update on Asia and Radiant.

With regards to Germany and Harting, that's a partnership we announced in Q1. We have given Harting a exclusivity to sell our self-checkout system in Germany. We have a very good both dialogue and partnership with Harting in which we are expecting to leverage their competence and clout and credibility with large retailers in Germany. But I must say, on the other hand, that these types of large-scale rollouts typically tend to have a pretty long rollout and buying time. So we haven't landed any big deals with Harting yet, but I'm very, very -- a still promising outlook for that partnership going forward, and we'll make sure to keep you up to speed with regards to what's happening in there.

And lastly, when it comes to U.S. and Cash Defend. Cash Defend was a partner that we had connected to us to sell Monero. Monero was a cash management system that was really under the radar for many reasons. It was a single slot machine. We have both terminated the Monero product, and we have also terminated the Cash Defend partnership in the U.S. That partnership never took off. And I think, as a reminder to us to both make sure that whatever we do, whether it's with own resources or with partner resources, we need to do that 100% fully and committed and not as a left-hand work. And it's also a reminder to us that working with the hardware across long distances is a lot more time consuming and resource consuming than it looks at face value.

So that was the short update on those partners.

Then we see we're still half an hour into the session, so I will answer the last question, which is around market-making. So this comes again back to the earlier announced market-making agreement we had done with SpareBank 1.

This market-making deal is one out of many initiatives we're taking to increase the visibility of StrongPoint, to attract more liquidity to the share, which we know is both valuable for existing shareholders, but not least for new shareholders.

When you look at the historic liquidity of the StrongPoint share, that's been low, I think it's fair to say. And both Hilde and myself are very frequently getting the liquidity question from larger potential investors and what we're doing to improve the liquidity. And market-making is one out of many initiatives we're taking in that respect.

So that was the 30-minute run-through of the Q2 results as well as some Q&As. In about 30 minutes, there will also be a session on Facebook with AX Exposure. So for more questions and dialogue with my dear CFO, Hilde Horn Gilen, please log on to Facebook in about 30 minutes.

With that, thank you and speak to many of you very soon.