StrongPoint ASA (STRO) Earnings Call Transcript & Summary

Good morning, and welcome to this Q&A session following our second quarter financial report that was released earlier today. My name is Knut Olav Olsen. And with me today to answer your questions, I have our CEO, Jacob Tveraabak; and our CFO, Marius Drefvelin. [Operator Instructions]

We have already gotten a few questions in advance. So the first one is, what do you think are the key highlights from this quarter?

Okay. I think this one goes to me, Jacob here. So first of all, of course, it is expected, yet still disappointing to see the product sales declining in this quarter compared to same quarter last year. And that's sort of the product sale, which for us reflects the continued hesitation from major retailers to do big term or investments. Then should we say also that when we look at the service revenue and recurring revenue base, that is growing. And that is an important aspect to remember in this context. There is certainly a quality of those revenues that is needed to build a healthy business over time. And then I think lastly in this quarter, and we'll probably talk more about that is the major new accounts that we're opening. I mean in Q1, we announced order picking deal with Sainsbury's, which I labeled the most important deal in the history of StrongPoint. And that is important, both because this is a big order in itself for a very, very important and growing product area. And we've already now in the quarter, started recognizing both professional services, but also recurring revenue from that contract. But equally important is how this contract is opening other doors like both short-term, but longer-term. Short term in terms of engaging in additional solutions discussions with Sainsbury's, but also because in the industry, the fact that we are delivering the order picking to Sainsbury's, that's being noted. So the way that this opportunity also open store with new customers, of course, for order picking, but most certainly also for other kinds of solutions that's very important. So that's also for me a highlight in this quarter that we're continuing -- or delivering on this major project and starting to recognize revenues. And then one final bit is, of course, also the fact that we announced the start of a pilot for our CashGuard Connect solution with the largest grocer retailer in Spain. We also announced that this quarter, again, major achievement getting this far. And again, as part of the industry, it's also being noted across also Spain. That's a good bridge over actually to the next question. That is also on CashGuard Connect. What can you say about the progress of the pilot and expected timing on potential orders, including the potential of selling to other customers? So -- first of all, it's important to recognize that this is a pilot for a development solution or development product. So getting the pilot in a store is kind of the third laboratory, if you want, for a solution like this. And so as with all new products, it will take time to do the necessary bug fixing to ensure stability is correct, et cetera, and certainly tweaks dependent on how customers and employees are using the solution, all of which is being taken into account. So for us, it's sort of -- it's progressing well according to the timing that we've set forth for this solution. Then CashGuard Connect just to ensure, we have everybody on the same page. CashGuard Connect is then ensuring that you could do cash payments as a customer directly into the solution. The employee does not have to -- the store employee does not have to touch any of the money at all. All payments and transactions and change is given directly to the customer. And then there is a part storage of the cash under the [ TIL ] and after a certain threshold of notice has been reached, which of course, can be preset by the grocer themselves or the retailer themselves, then the notes of them being transferred to the back office. And that requires a tube solution system that many grocers have across Europe, certainly in Spain, but also across Europe. And that also allows for the opportunity to, of course, take this solution to other customers. And again, the interest from other clients is certainly there, both in Spain and beyond. But right now, we're predominantly focusing on making sure that we have a solution that's being more robust, more stable in order for us to industrialize and manufacture the solutions at scale.

Very good. Next question is on the partners. Can you talk about our partner network and how you currently see this? Would you consider expanding the partner network?

So first of all -- again, I just wanted to make sure we have everybody on the same page with regards to our strategy. First of all, we want to ensure that we're able to deliver on the 9 core countries in which we are present. And then beyond that, we've said that there are a set of products or solutions that we have that we would like to take out to other countries where our partners could or should be used. We should remember that we're coming from a history where we used to have partners extremely many places. We used to have overall offices in Malaysia, and we used to be selling to Russia, et cetera. And so we spent quite some time on ensuring that we have a quality partner network to take our solutions out. And so the 2 or 3 solutions that we see that there's opportunity for us to take out the [ wall ] is, number one, of course, our good old cash card. We have a set of very strong partners in South Africa, in France, in Ireland, in particular. Those areas we want to strengthen. And of course, beyond that, always exploring what are opportunities to expand that kind of partner network. But for us, it's important also that these are partners that are self-propelled in a way. The other solution that is, of course, important for us to get traction of outside the 9 core countries we are in, is our e-commerce offering. So our order picking, our lockers and those solutions. And for that, we have a rather new set of partner networks, most notably is Peak Technologies in the U.S. And as we did again this quarter announced, we are selling more lockers to a leading U.S. grocer, that's through Peak, following a rather large proof of concept. We're now into a proof of economy stage, and we couldn't have done this if it wasn't for the fact that we have a partner in place. There are certainly also partners in other, call it, smaller economies in Europe and those we're trying to develop. So that's the second kind of solution. And then the third solution, which we yet to sort of be taken out to through partners is our self-checkout solution. We should be clear that we believe we have a very, very strong self-checkout solution. We are very dominant in the Baltic market where we've been able to take out our own solutions, whether that is hardware or software or the combination of the two. We must confess that we still have a way to go to get the self-checkout solution proven in our own countries, our own 9 core countries, right? We've had some limited success in Spain. But I'm very eager to see what we can do in particular in Norway and Sweden and also U.K. It just feels like we need to be able to prove that the solutions we have are very competitive to come to the general competition in our own countries before we start taking that elsewhere. But those are the 3 areas of products that we have that are proprietary that we could take out to other partners. And as such, when we're there, we could also examine expanding the partner network.

Good. The next question is three-folded. What is the progress on the new order picking contract with Sainsbury's? Are there other pilots on order picking in other stores? Anyone outside of Europe?

Right. I can start. I think it's fair to say that we are well underway with the customer success team. We have started the onboarding preparations that has been ongoing now for a few months, which is typical for this kind of software contract to be implemented. We expect to be live with the first handful of stores during this autumn. And as you can see in the P&L, we already are seeing an increase in service revenue, both in this quarter and for the first half so far this year. As far as other pilots, another order picking contract in other stores, maybe you can touch upon that Jacob.

I think to the extent we have large-scale order picking pilots. We will, of course, announce that to the market. I think it should be said that the order picking solution contrary, we should say to selling pure hardware products is something which for good and bad, it takes time to get into stores. That's the bad part. It takes time to get into a sizable grocer retailer. And the good side of that is, of course, that once you're in, it will take a lot for you to get out, which is, again, why the Sainsbury's agreement is so important. I guess what we can say though is that the attention that we as a company have been getting when Sainsbury, the largest -- sort of the fourth largest e-grocer in Europe. And actually, if you look at in-store picking only, it's the largest, that's getting attention. And we're certainly going from talking about how great our picking solution is from a Scandinavian and Swedish perspective into sort of using and leveraging for what it's worth. The fact that Sainsbury is through a very diligent process have selected our solution. So we're [ prosperous ] about that, but when we do have any large pilots, we will, of course, announce that to the markets.

What is the status on ESL, particularly in Spain and the U.K., any pilots?

So electronic shelf labels, so ESL, electronic shelf labels is an area in which is getting a lot of attention in Spain and U.K. as well. We had strong [indiscernible] have been very, very good, I think, for many, many years in ensuring that the penetration of electronic shelf labels is where this here back home. Now with the interest that is growing in general, in other economies, in Spain and U.K., I think it's sort of fair to say that some of these chains that are starting to experiment with pilots. They are also of the size that they would expect to have access directly to the supplier, right? So that goes to the Pricers of the world or [indiscernible], et cetera, et cetera. And so it's important to recognize that whereas StrongPoint have been and are active as the -- you can call it sort of sole contact point that we've been in the Nordics and Baltics, that same kind of sole contact point, is not going to be the case in the larger economies with the larger grocery retailers. So that certainly has some implications for us. We -- to be honest, right, you notice the Pricer winning deals in the U.K. I just noted, one of the commentary was about East of England Co-op, which we helped pilot. However, when the actual purchasing order came in, that of course, came directly through Pricer, and that workforce StrongPoint has been rather limited. So we're still exploring how we can build a good position with ESLs on top of and together with our other solutions. Again, I would like to just reiterate that one of the key attributes to StrongPoint is that we're not just pushing products, but we're creating solutions. And again, order picking is in that respect, extremely important to ensure that you can build a business case for also electronic shelf labels, which is attractive for the grocers. And again, if there's any big pilots, we will, of course, notify that, but there is always pilots and proof of concepts ongoing also in these geographies.

Next question is about AutoStore. We haven't seen new announcements or wins lately. What is the market status and your participation in the deals out there?

Good question. I noted also there were some newsprint articles about AutoStore in general. I think in that respect, it's important for us to say that we are one of many distributors of AutoStore. And it's correct, we haven't announced any new wins lately. We've merely announced. We haven't officially announced yet the opening of the delivery facility with 3 temperature zones that's coming now up in August or September, I believe. And that will be important for us to use that world news, which is to attract additional customer attention. We're not seeing in the countries where we have access to being a distributor of [indiscernible] the Nordics, Baltics and U.K., Ireland, not Spain, just to be clear. We're not seeing that there is a bunch of deals which are suitable for a distributor, just like StrongPoint. We're not seeing that. We're losing many deals. But what I can say is that we certainly internally see that we have a pipeline of opportunities that is better than we've ever had before. While now pipeline doesn't do it all. So we need to convert these to actual deals. And we remain positive about landing some of these opportunities in a pipeline to deals without being too specific on what kind of timing we're looking at. But we're very proud -- we see that the cooperation with AutoStore is important and promising and part of entire portfolio that StrongPoint offers to its customers.

Good. Have the restructuring initiatives come into effect yet?