StrongPoint ASA (STRO) Earnings Call Transcript & Summary

Hi, everyone. My name is Daniel Haugland. I'm an analyst here at ABG, and I will be moderating this call with StrongPoint, which is a very exciting Norwegian retail technology firm, now also going into the U.K. with its latest acquisition. I guess Jacob will be talking more about that shortly. But it's my pleasure to welcome Jacob, the CEO of the company, Jacob Tveraabak. So I'll just give the word to you. It will be around 15 to 20 minutes of presentation, and then we'll do a Q&A at the end. So Jacob, the floor is yours.

Thank you so much, and welcome, everybody, to this short presentation of StrongPoint. Just go to the next page, we'll talk very briefly about what is StrongPoint. You're right, we are a Norway-based, or I'd say Nordic-based because our presence in Sweden is also quite strong. Efficiency obsessed, which stems out of the fact of being a Nordic-based company with high labor cost in general, which spurs a lot of very interesting technologies for retailers and grocery retailers, in particular, in the rest of Europe and North America, in particular. We provide both in-store solutions and also e-commerce logistics solutions that I will talk a bit about. And the unique thing about StrongPoint is that we both own software and hardware and also integrate that with some of the world-leading partners like Pricer and AutoStore to provide an end-to-end solution for customers, whether that is in-store solutions or e-commerce solutions. And in the countries we are present, we are doing not only the presales and sales but also installation service support, which enables us to get a very, very good grip of helping customers with what really matters for them. The next page, the mandatory map to show where we are. We're now in 8 geographies actually: Norway, Sweden, the 3 Baltic countries and Spain, and now lastly, with the acquisition of Air Link Group, we are also in the U.K. and in Ireland. We're not a new company. We've actually been around for 35 years and are now listed at the Oslo Stock Exchange. We have about now -- or in excess of 450 employees with the last acquisition. And our solution is pretty much in all countries across Europe and also in North America. If we go to the next page, we'll talk about what that StrongPoint have called double opportunity. So e-commerce, category killers like -- you would know out of the Nordics with [indiscernible] and also hard discounters are challenging the traditional grocery retailers on 2 fronts. On the one hand side, the move of volume or sales from the traditional stores, either online or to these category killers and hard discounters, is putting a pressure on the grocery retailers' margin. So taking away the sales with pretty much a big part of the cost base being fixed puts a margin squeeze on these companies, and we believe that one of the absolute important ways to withstand that margin pressure is in the introduction of technology solutions. The other major opportunities within e-commerce. So e-commerce in itself is both driving the changes in store, but it's also a source of opportunity for StrongPoint. We have now the full range of e-commerce solutions from -- an e-commerce logistics solutions from the fulfillment solutions, whether that is manually or automated pick to the full range of last-mile solutions. So whether you are a grocery retailer or retailer about to start the e-commerce journey or in the midst of the journey or actually rather mature, we have the solution for you. That's the double opportunity for StrongPoint. On the next page, we have a -- in today's environment with higher inflation, with fuel costs going up, with electricity rates going up, at the same time, as we have lifted or trying to get into a normalized roll up through COVID, you could argue that, well, what are really safe havens in today's environment. And we would argue that regardless of what happens in the turmoil, you still need the food and vegetables and food and drinks. And whereas we are all keen to go out to restaurants and to canteens, the grocery store, whether that is in the store or e-commerce will continue to live on very, very strongly going forward. And that's exactly the market that StrongPoint is certain. So on the next page, just very superficially, the range of solutions that StrongPoint has in its portfolio. In the in-store solutions, we have best-in-class self-checkout solutions, with image recognition that makes our solutions stand out from the traditional self-checkout solutions you will find in Norway and Sweden today. And so we're getting that into the market, also in the home countries. Electronic shelf labels from Pricer, we've been a long-standing partner for many, many years. We have our traditional Vensafe solution, our CashGuard solution but also more cutting-edge technologies such as the humanoid grocery robot or humanoid robot from Halodi Robotics able to perform tasks in-store to withstand the pressure on the margins that we see there with higher labor costs. On the right-hand side, you will see an illustration of the e-commerce logistics solutions I mentioned, whether that is in-store picking, dark store picking or automated picking or whether that is the last-mile solutions with home deliveries, grocery lockers, stationary or mobile or drive-through solutions. So we have a full range of solutions to offer to our customers. If you go to the next page. The T-shape strategy, we called it, meaning we are dedicated to go deep in some core markets. And again, with the U.K. and Ireland, we're now into 8 markets. And when we go deep into markets, we define that as not "only selling a solution," but doing the full range from installation service support in those markets. That enables us to not only serve customers well but also grab a very nice portion of the full value created in the selling of a solution or products. In addition to that, we do have some proprietary solutions that we believe are right for the world market. Most notably is the e-commerce order fulfilling -- fulfillment platform that we have and that in Sweden would have seen a lot of, whether it's the order picking that you don't really see but experience when you see the order picking being fulfilled in stores. Or whether there is the last-mile solutions with, for instance, our Click & Collect lockers. So we've defined a number of these of solutions to be taken also outside the countries we're going into. Next page, please. At StrongPoint, some 2 years ago, just prior to the COVID-19, we set forth a very ambitious financial ambition and a strategy to follow and that was to grow our business to NOK 2.5 billion in 2025 and get to an EBITDA margin of 13% to 15%. And when we launched this, we had a turnover of about NOK 1 billion and an EBITDA margin just south of 9%. Since then and going into the next page, we've divested a number of noncore assets, most notably cash security and labels production. So that used to be on top of the NOK 1 billion. But since then, we've grown the business and laid out a plan to grow to NOK 2.5 billion in such a manner where obviously, e-commerce logistics in itself is very important. M&A, I'll talk more about both these 2 topics in a second, and also improving the way that we serve the in-store efficiency market. If you now go to the next page, and we'll look at how are we tracked on the path to this now because what we showed on the previous page was an implied CAGR of 26%. We're now at a CAGR of 22%. So when you strip out the noncore assets that we sold and got a very, very decent price for, we have invested those -- or part of those funds into amongst others, the Air Link Group acquisition that we did. So with pro forma last year numbers, we're then looking at 22% growth on top, which then includes a very strong organic growth. Next page, please. For us, going forward, it's important to emphasize that both what we do in e-commerce and what we do with in-store efficiency solutions is going to be important. In 2021, e-commerce was a mere 11% of the total turnover. As you could see from the earlier slide, you will see that a major part of the growth will be coming from e-commerce. We believe that solutions we have really are world class and are ripe for the international market. And we've just started to scratch that. We last year announced the partnership agreement with Glovo, the leading -- or one of the leading delivery platforms in Europe. And for those of you that have been following the market, Delivery Hero, the giant in Europe and internationally announced the acquisition of Glovo. So we're very proud to see that world-class platforms, the tech platforms like Glovo are selecting the StrongPoint solutions also in e-commerce. And we're starting to see also the grocery retailers see exactly that. Next page, please. For those of you that are, I would say, still skeptical in which direction e-commerce is going, and you could argue with the pandemic now easing or being removed in most parts of the world, you would expect to see a dip in e-commerce penetration. And that might be true. But that blip is really a blip. I think history has shown over many, many cycles that regardless of what kind of retail sector you're talking about, the penetration will continue to grow over cycles. And grocery still is overall in the markets we're looking at, at a single-digit penetration. So there's lots of potential still in the grocery retail market in e-commerce. On the next page, you will see what we are expecting over the next 5 years to be the addressable market for some of our solutions. We're looking at the picking solution growth, which is the in-store picking at the decent CAGRs but where we are expecting to take a much, much larger market share. On the right-hand side, you obviously have the micro fulfillment centers or the automated picking, which you're expecting to see a massive growth in, where we are very proud to be a distributor of AutoStore and actually the world's first grocery-specific distributor of the AutoStore solution. And in the middle here, we have our Click & Collect lockers again that in Sweden would have come to get our custom to expect -- we're expecting a very massive growth also in that area, in particular, in new markets where traditionally home deliveries have been strong. So we're expecting massive growth in e-commerce going forward, and we'll take a massive part in that. Next page, please. So to sum up, sort of priorities for StrongPoint going forward. Number one, it's to execute on the in-store strategy that we have. We believe that in order to succeed in grocery and retail in general going forward, you need to ride the tide of the turmoil that is happening. As an example, and I know my good friend, Magnus Larsson at Pricer, we're talking about how the turmoil is actually creating a market for ESLs that we've blown the custom to in Norway and Sweden, and we're dedicated to take those solutions and other solutions that are proprietary outside the Nordics. We're truly dedicated to leverage on the e-commerce logistics market that is out there. Again, despite the blip that is happening in this quarter, maybe for many grocery retailers, we're expecting a continued massive growth there. At StrongPoint, we will continue the momentum that we have in M&A. And with that note on -- I think we should go to the next page, just a few words about the acquisition we announced that we have signed the SPA on last Friday, ALS, or Air Link Group. Air Link Group is -- or has been a family-owned business with more than 20 years in the U.K. and Irish markets, performing installation, service, construction and engineering for some of the finest grocery retailers in the U.K. They already have experience with temperature control lockers, self-checkouts and vending solutions. And when you have this kind of platform to work out of, we believe, obviously, that we can create a lots of value on top of the good foundation ALS already has, with bringing our solutions to the market. Our e-commerce solutions portfolio, our Vensafe solution, our self-checkout solution, and also some of the third-party solutions that we believe is right for the U.K. market. So I'm very optimistic and positive about what the U.K. and Irish market going forward. So to round off before questions. On the next page, what are we expecting in today's situation with lots of turmoil? Well, first of all, if there are any -- I wouldn't say safe havens, but if there is 1 market to be positive about, it is the resilient market of grocery retail that StrongPoint is very, very focused and oriented towards. Yes, we are seeing a pressure on supply chains as well. And those that have been following the StrongPoint, you would have seen that at least for the past 3 quarters, we've also announced what kind of growth we would have had and that's -- or if we have not been impacted by the component shortage just -- however, that aside, we have experienced a very strong growth. So that just proves there's even more demand in the market. And then lastly, for any -- in particular new listeners to StrongPoint, you should know that we are investing heavily in the future. And what is particular for a company like StrongPoint, as a retail technology company, is that you will not find a lot of our investments in the balance sheet. We are expensing that all the investments that we are doing directly. So there's no hidden balance posts expecting huge growth as we still are expecting, but we're being very conservative expensing all the R&D investments that we are doing. So with that, thank you, and I'm open for any questions there might be.

Thank you, Jacob. So I think I can start out, you touched a bit upon the challenge retailers are facing with regards both to in-store being pressured from e-com. And now during COVID, the e-com has seen a very good boost, at least some geographies. So I was thinking, could you maybe give a bit more flavor on how grocers are talking to you now about e-com? Are they approaching it more in a wait-and-see approach? Or is it rather like they think this change is coming now anyway? And we continue to invest.

So I think, first of all, all retailers, the grocery retailers, see e-commerce growth, all e-commerce -- or all grocery retailers see that there is no way that you could be a grocery retailer in the future without any kind of e-commerce offering. That might not be some evident if you're sitting in Norway where the e-commerce penetration is still very, very low. But everybody knows that e-commerce is going to be an important part of the public or consumer and customer offering going forward. So I think, first of all, it depends very much on the market. But that said, we all know that the grocery market is a market in which changes happens over time. And we have very promising discussions across the geographies that we are serving to serve the different markets, whether that is in very mature markets like the U.K. or less mature markets like the Nordics, or Finland for that matter.

And obviously, this will be an important growth driver when you look at the bridge you present from 2021 to '25 that the e-com logistics will be an important driver there. And is that like tilted to some specific countries in your mind going towards 2025? Or do you also think it's more of a broad game going towards that?

In general, it's hard to find geographies in which e-commerce is not expected to grow through the cycles, first of all. And with that said, of course, there are certain markets that we would like to be more present than others just because they're more ripe for the solutions. But that said, I think we should there to be somewhat bullish and proud here because our e-commerce solution, first and foremost, stems out of the acquisition that StrongPoint did some 4.5 years ago when a company called Trib. We realized then that the solutions that Swedish grocery retailers have been benefiting from really our world class. We've invested significant amounts of funds making the solution both scalable, and cloud-based. And that is the solution that we're now bringing out to grocery retailers. And just earlier today, I was in a customer call with one of the premier grocery retailers in Europe. Not very known -- or StrongPoint was not very known to them, and not least our solution, but the efficiency, the picking efficiency we are able to display is absolutely something that's casting shapes all across Europe. So we have high expectations for the e-commerce. That's correct.

Great. And we can just touch a bit on this U.K. acquisition of Air Link now. Now this already seems like a quite decent business. You look at the 10% margins, especially given that it's more of an installation business, at least to my understanding. Could you talk a little bit about how you will work now to develop that market further through ALS, for example, selling StrongPoint solutions into their prime U.K. customers, et cetera?

Yes. Well, first of all, I have to just underline, what you just said, I mean we're adding NOK 240 million with a 10% EBITDA to the business. And now that it's out there, I mean our purchase price is GBP 9.5 million. So you do the math, we believe it's very decently priced in the eyes of StrongPoint shareholders. That said, this is a fantastic platform for us to bring the solutions that we're having. I mean we have to recognize that in order to work with the Tescos of the world, Tangen, Sansbury, I mean these kinds of customer relations is not something you build over weeks or months. And ALS spent 20 years building these relations. That said, we also know that if you look at the U.K. market, that is the -- alongside the France, this is the highest, most highest penetrated European market in e-commerce, highly inefficient in many manners. This is where the StrongPoint solutions come in, whether that is on the picking side or on the last-mile side, including with the lockers. The U.K. is also the -- what should we call it, the capital of the self-checkout. And we've yet to experience the home-produced proprietary built self-checkout solutions, both hardware and software, that we have out there. And there is a market leader out in the Baltics. We're expecting that to be a high importance in the U.K. market. So we have, again, very, very high expectations about what we can build on top of the ALS platform. Right now in the short term, the boring priority, sort of speaking, is sort of to maintain the amazing business that has been built. We are very careful about any kind of acquisition leading to questions on turmoil in the target organization. We are confident that we have motivated, incentivized the correct people at ALS, and are keen to make sure we have a very, very solid base before introducing new solutions. But it's a very promising acquisition we've done, we believe, in the U.K. and Ireland.

Great. I see we've reached our hard cut on time now. So I just want to say thank you to Jacob and StrongPoint for presenting. And as you all know, StrongPoint, have -- we have a commissioned research coverage of StrongPoint. You can find our latest research on our website. And you can obviously also find both webcast and presentation material at StrongPoint website. So with that, thank you, Jacob. Have a good day.