Storent Investments AS Audited Annual Report 2020
Development of the Company and results of financial operations in the reporting year
The main type of activity of the Company is related to provision of all the companies of the Storent group with financial resources, region differentiated sales strategies and activities, marketing initiatives and support of Storent brand, information technology systems, as well as provision of management services to related companies. In the reporting year, the Company decreased its turnover by 17% reaching 5.6 million euro, which was affected by Covid-19 and also changes in Storent Group’s transfer pricing policy. The reporting year closed with a loss of EUR 3 827 388, the main reason for loss was the recognition of impairment of investment in a subsidiary. Storent Investments AS balance sheet has a very strong and steady financing structure consisting of 67% shareholders equity, 15% long term liabilities and 18% short term liabilities. Non-current assets constitute 90% of the total assets. The Company’s business peculiarity historically was always having a working capital deficit due to the large amount of liabilities to finance investments, however this has not prevented the Company from meeting its obligations in accordance with their terms. Bank account balance in the amount of 1.9 million euros at the end of the accounting period is sufficient to ensure Storent Investments AS operational activities.
Storent Group’s performance in the reporting year was negatively affected by Covid-19 pandemic in all countries. Rental revenues decreased by 12%, and the consolidated turnover decreased by 7% reaching 42,1 million euros. Construction markets in all Baltic and Nordic countries declined by less than 5%, but strong price competition and rental equipment overcapacity in the market led to a further decrease of rental revenue. During the reporting year there were significant changes in the Group’s rental fleet structure, with own equipment proportion decreasing from 87% in prior year to 57% in current year.
Baltic region rental operations decreased by 15% with almost identically decreasing trends in all Baltic countries. The Baltic region accounts for approximately 65% of the Group’s rental income. In 2020, Estonian construction market volume remained at the level of previous year. The market is expected to show a modest growth in 2021, and there’s a strong pipeline of various construction projects to be realized through the year. Latvian construction market increased by 2,7% in 2020. The highest growth rate was in specialized construction works with 7,8% growth. There is a number of large and medium scale projects, including ones financed under EU programs, to be started in 2021, which provides confidence in a further positive trend on construction market. Lithuanian construction market decreased by 0,5% in 2020. A notable increase was in the residential segment with 7% growth. Rail Baltica project will drive demand for rental machinery throughout the Baltics, that provides the management additional confidence for 2021.
Nordic operations have increased by 8% compared to 2019. While there’s been a decrease of construction volumes in Sweden and Finland through 2020 due to Covid-19 pandemic restrictions, growth has been possible due to the relatively small market share. Since many construction related projects have been delayed, it is confirmed that most of them will enter into active phase throughout 2021. Our March 2021 sales look promising, and we expect further growth as the high season for construction starts in April.
Operations of subsidiary Storent OOO in Kaliningrad have seen a small revenue increase. The construction market decreased by 7% in 2020 mostly due to Covid-19 effect. The outlook for 2021 remains unclear, at the same time we see several large-scale projects starting, which definitely will drive rental machinery demand in the region.
In January 2020, the Group started cooperation with split-rent and re-rent platform PreferRent, and at the end of 2020 36% of the total rental fleet was supplied from PreferRent. It allowed to increase the Group’s efficiency since PreferRent took over a part of the fleet management function and provided increased rental fleet capacity without the Group incurring additional financial liabilities. According to approved Storent Group strategy, part of the rental fleet was sold to auction and to split-rent vendors, which resulted in own equipment proportion decreasing from 87% to 57% of the total rental fleet volume. Investment plan for rental assets in 2020 was significantly smaller compared to previous periods. The Company continued to develop and invest in IT technologies. A flexible approach to rental fleet rotation among Storent Group companies ensured a quicker response to construction market changes and, overall, a more efficient rental fleet usage.
In March 2020 in Baltics and then in late 2020 in Finland and Sweden, Storent launched the first online equipment rental platform that utilizes Artificial Intelligence and Machine Learning. By the end of 2020, in Baltics almost 40% of all equipment rental orders were made online and 70% of transactions were signed digitally. To motivate customers to use online rental solution the Storent Group launched customer reward program “Rental Points”. Customers may earn up to 20% from the rental price in „Rental Points“ when placing orders online and signing transactions digitally. It quickly became a tangible benefit as “Rental Points” may be used as a means of payment for future Storent services.
The Company management worked also on efficiency increase in other areas. During the financial year, the headcount across the
Storent Group was reduced 2020 by 22 people, as well as savings realized on other expenses positions.
The Company management has evaluated the current and potential impact of Covid-19 pandemic. Management has prepared forecasted financial results and cash flows for 2021 and already started to take steps to address the expected liquidity shortages and ensure the Company’s and its subsidiaries’ ability to continue as going concern, such as:
Storent Group continues to became more efficient by developing online sales and paper-less rental process, personal costs are estimated to decrease by 10% during 2021 compared to 2020.
In 2021, Storent Group plans to increase turnover in its countries of operation by 3% -12%, also increasing the profitability by 1% -9% as a result of the performed efficiency activities.
Storent Holding Finland Oy has agreed to postpone the repayment of loan to Levina Investments S.a.r.l. by additional year, and the final due date of the loan is December 2022. Amendments to agreement have been signed.
In January and February 2021, Storent Investments AS repurchased bonds issued in 2017 (due in June 2021) in total amount of EUR 1 050 000. In addition, in February 2021, Storent Investments AS exchanged bonds issued in 2017 (due in June 2021) to bonds issued in 2020 (due in October 2023) in total amount of EUR 1 424 200. The Company plans to settle the remaining bonds issued in 2017 (maturing in June 2021) in the amount of EUR 1 575 800 by the specified maturity from the funds at its disposal, positive cash flows from operating activities, as well as repayment of issued loans.
Storent SIA and Storent Oy continue to perform optimization of the rental equipment fleet by selling old and not-in-demand equipment. By the date of issuing these financial statements, both companies have sold equipment with the net book value EUR 3 148 186 for total gross proceeds of EUR 3 405 972.
The future development of the Company
The Company management plans to continue development of its activities supporting its subsidiaries and fostering growth of the entire Storent group. The main focus in 2021 will be to continue online sales development, digital transformation and efficiency increase. The Group will continue to transform its IT strategy to comply with the scalability needs. In April 2021 Storent group plans to join PreferRent online rental platform that will offer online rental services ordering from numerous rental companies in Baltics with competitive price. The Company’s subsidiaries plan to continue selling own rental fleet and increase split-rent share in total rental income from current 42% to 50% during 2021. Management estimates that the construction equipment rental industry will recover after Covid-19 pandemic in the autumn of 2021 yet, since the construction equipment rental industry is seasonal, management believes that construction volumes will return to the level of 2020 and continue to grow only starting from the spring of 2022. It is expected that Rail Baltica project will give a significant positive impact on the construction equipment rental industry in Baltics.
AS Storent Investments CFO
Mobile: + 371 29340012