An extremely eventful 2020 began with ITAB setting a new direction
CONSIDERABLE FLUCTUATIONS AND IMPROVED UNDERLYING PROFITABILITY
Our business was being affected by the closures in China resulting from Covid-19 as early as February, and in March wide-ranging lockdowns were implemented in many places around the world. This affected ITAB both directly due to the shutting down of production in several countries, and indirectly through the closure of stores. Support measures for our customers and for ITAB have differed greatly from country to country, and have also varied over the course of the year. Political decisions and corrective measures have been implemented at short notice, and as a result our business has been subjected to significant fluctuations with limited planning. We decided early on to run ITAB with a clear focus on liquidity. We immediately took decisions that reduced our costs, as well as launching a process with the aim of strengthening our balance sheet through the injection of new capital. Material supplies have been problematic at times, as have cross-border movements within Europe, both for our deliveries and our staff. At the start of the pandemic, our customers were Incredibly busy ensuring a safe environment for their consumers and staff.
Grocery stores and pharmacies have been able to remain open throughout the year, with the effects of the pandemic mostly being felt by other retail businesses. Sales recovered during the summer and autumn, and this trend continued into the final quarter of the year. The pattern of increased sales to our largest customer group, Grocery, was clear during the second half of the year. We have continued to deliver solutions from our traditional portfolio, supplemented with Covid-19 related solutions such as contact barriers and solutions to avoid overcrowding and queueing. We secured several important deals, including self-checkout systems and shop fittings for one of the world’s leading grocery businesses; increased sales of gates to North America; and a significant order for conventional checkouts to a leading Nordic player which has many stores in Poland. The volume of orders at the end of 2020 was greater than at the start of the year. The positive sales trend, the improved underlying gross margin and the more rapid impact of implemented cost savings meant that the guidance in respect of adjusted EBITDA results, which was communicated in July 2020, was significantly exceeded. As a result of the efforts made during the year, net debt excluding lease liability was reduced to SEK 1,092 million, compared to SEK 1,746 million at the end of the previous year.
ACQUISITION OF CEFLA STRENGTHENING OUR POSITION IN THE FOOD SECTOR
In October, ITAB announced its intention to acquire 81 percent of Cefla’s business unit for retail solutions, and this deal was concluded in January 2021. This is a strategically important acquisition that is strengthening ITAB’s market position in southern Europe, mainly within the Grocery sector. The acquisition is creating opportunities to offer ITAB’s solutions to a wider group of customers and entails clear synergies for both ITAB and our customers. ITAB has the right to acquire the remaining 19 percent from 2024.
RECAPITALISATION AND NEW STRATEGIC PRINCIPAL OWNER
At the start of December, ITAB announced its intention to conduct a rights issue amounting to SEK 768 million. We also announced that the current principal owners are selling the majority of their subscription rights in order to allow the potential for a new strategic principal owner. Aeternum Capital A/S has been established by WQZ Investments Ltd using capital from the Fredriksen family’s foundations. The company is based in Oslo and has an independent investment team and an advisory board that endeavour to generate long-term value through Board representation and support for the investment companies. After the issue, Aeternum Capital AS will be the largest shareholder within ITAB, holding approximately 25 percent of the shares.
The rights issue was completed in March 2021 and was fully subscribed, with the result that SEK 768 million was supplied to ITAB before issue costs. The net liquidity from the issue will primarily be used to reduce indebtedness and secure long-term financing. The recapitalisation also covered a set-off issue, where SEK 100 million of the short-term shareholder loan arrangements that were entered into in July 2020 were offset against newly issued shares, further reducing ITAB’s debt burden. ITAB’s financial position is being strengthened ahead of the implementation of the One ITAB transformation plan, creating stability as the retail sector recovers from the effects of Covid-19.
IMPLEMENTATION OF ONE ITAB INFLUENCES THE ENTIRE ORGANISATION
Our One ITAB strategy, which was adopted in February 2020, is made up of three parts, with different focus areas in terms of time and content. The first part relates to stabilising ITAB’s profitability and balance sheet by focusing on cost adaptations and capital efficiency, as well as clarifying and simplifying our marketing activities. The second part involves building new capabilities by investing in skills and partnerships, joint information and working methods, as well as in new tools, in order to improve our competitiveness. Finally, the third part relates to scaling up ITAB through organic growth and strategic acquisitions, with the aim of accelerating the transition into the leading supplier of solutions. One ITAB has served as a map and compass during 2020, and has helped to prioritise the right areas. The measures implemented to date have had a number of positive effects on profits. This can principally be seen in the form of reduced costs within sales and administration, as well as through a relative reduction in our purchasing costs. During the final quarter of the year, wide changes in a number of companies have been announced. For example, this relates to the closing down of production in France; the merging of two factories in China; the relocation of assembly and warehousing from Skellefteå to China and the Czech Republic; and the relocation of production from the Netherlands to Latvia, as well as the relocation of aspects of the production process from Jönköping to China and the Czech Republic. In all of these cases, this entails a combination of optimised capacity utilisation internally within ITAB, in addition to improved conditions for reducing lead times and costs as well as for coordinating purchasing and product development. The roll-out of a new CRM system along with training measures to launch the shift towards a larger share of solutions-focused sales have begun, at the same time as we have initiated a revision of internal working methods and an evaluation of the required system support. The costs of a non-recurring nature that we have incurred during the year derive principally from the restructuring of operational activities, such as shutting down and relocating businesses, stock reductions and redundencies.
Our culture and our employees have been the primary reason behind our ability to finish 2020 with better underlying profitability, an improved cash flow and higher order stock, despite the fact that we are fewer in number and our sales have decreased by approximately SEK 700 million compared to 2019. The strong entrepreneurial spirit and the implementation capability within the organisation have been evident, despite the fact that we have been facing the toughest conditions imaginable. We have had to say goodbye to colleagues during the year, at the same time as experiencing an extensive workload, and the change to a new, more connected ITAB that has been challenging for many employees. I would therefore like to say a big THANK YOU to all our employees for the incredible efforts you have put in during 2020.
ITAB’S FOCUS IN 2021
We will be continuing to work on our transformation, with the focus on implementing and completing our restructuring activities. Our balance sheet has been considerably strengthened, which is enabling us to devote all of our energy to transforming ITAB. Our costs will decrease over the coming years as a result of changed working methods, increased efficiency as well as through a simplified and less capital-intensive structure. During 2021, we will continue our work aimed at establishing common working methods and investing in a common information landscape, in order to provide the organisation with an overview and better control over operations, along with better tools for planning sales, purchasing and production. We will clarify our market approach, with the aim of taking the first steps in becoming the leading solution provider within our industry through closer collaboration with our customers.
Without this clear focus on initiating a shift within ITAB, our results would not have developed in the same way. Over the coming years, we will be laying the foundations to strengthen our position as the leading partner to the Grocery sector in Europe.
CEO & President
ITAB Shop Products