Earnings Call: H2 2019

Mar 16, 2020

Afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the LN Full Year 2019 Financial Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Michal Asiore. Please go ahead, sir. Thank you. Good afternoon to everyone and thank you for joining us. With me on the call are Andrea Kanchiri, Alliance Managing Director and Naren Koromannoyi, Alliance about future expectations, trends and prospects and forward looking statements. Sustained statements in this call, including both addressing the company's beliefs, strengths, objectives, estimates, or expectations of possible future results, events are forward looking statements. That may be affected should the assumption turn out to be inaccurate. Consequently, no forward looking statements can be guaranteed forward looking statements. The company undertakes no obligation about the company nor to update the forward looking statements Thank you, Intellas. Thank you very much and thank you everybody for joining this conference call and the As usual, Enrico Romagnoli will guide you with the details of our financials. I'll give you a very brief highlight on the year and spend more time than on the previous phases of our business and activities. 2019 was indeed a significant year. Despite the material change, accounting was up due to the international accounting standard to fee requirement. The BRL400 million threshold was overcome by our consolidated revenues. Due to improved metrics all over the board, our EBIT increased by 27% to BRL38.2 million and improved its margin on revenue. Despite the 4,600,000 adjustment due to the accounting standard 16 requirement, Despite €8,600,000 of dividend and €23,000,000 of investment in cheaper assets and despite the 15% and more growth in revenue that of course needed funding for working capital, despite of that, the net financial position basically stayed very dry at the beginning of the year. The overall result was excellent and nearly all of our businesses contributed to the increase of revenue and profit. There were only 2 segments that progressed this year. Nonamica, Attach and Innovative States, we added 0 for the year. Worldwide for this product. And the other areas, probably, were the sales for cutting systems in China that registered a slow play down in presence of a fairly strong headwind, this was tariff war and the related effect on the performance of the overall Chinese economy. Most of our competitors booked double digit sales production, but our competitive position the longest level, say, of 2019. All the other segments went from good to very good to extraordinary. Newology and very new volume leading the path in terms of sales growth, plant system in terms of profitability, joint business related, which I recall, specialized in local market systems with the market of identity education. Our new system and the QA performed very well in the body shaping market. Asclepiente Mediasar, non leads, was our best seller in Guatemala and several new products are lined up, ready for launch in 2020. Most of our construction work dedicated to the strengthening of our logistics and our production capacity was completed. The initial 30,000,000 budget was not sufficient due to the addition and the run of 3 projects. First, the new plant in Munich our third plant in China second, a larger than expected plant needed to start like Spain past year in Caste, about 10% to the limit of the rate from there and starting from here in Palindiana were sent by mid December. And third, the refurbish of the plant, the cut like paint itself less dated by the new lease, a surface that is going to be occupied by the new 4.0 plant for our mid power CO2 RS in the services. Now please, you can go ahead with the details of 2019. Thank you, Andrea, and good morning to everybody. The year 2019 showed a strong growth in sales volume and in profitability, as already mentioned by Andrea. Revenues was over €400,000,000,000 up 16% compared to the last year. The 4th quarter was also excellent with a turnover of €117,000,000 of €11,700,000 with an impact on sales of 10%. It should also be remembered that in the period, €1,500,000 of sales to the leading company with our repurchase and regulation had been accounted in account in compliance with IFRS 15. And so the sales have been recognized as multi year ramp up despite the fact the price was already fully collected. And the negative impact on operating income was €600,000 compared to our traditional accounting. And the lower revenues and margin for the year will be recovered linearly in the multiyear period in which the operating leasing contracts will be affected. The gross margins was €156,000,000 up 13.5 percent compared to the €157,000,000 last year. And the slight drop in sales margin from 39.7% to 38.9% is due to a slight decline in margin in both sectors, medical and industrial, and also suffers from a slight reduction in rents we see. The operating costs were €43,600,000 of euro, up 1.8%. Parf costs were €66,100,000 with an increase of 12% compared to €59,000,000 over the last year. On December, the group's employees were almost 1500 with an increase of 140 units from the beginning of the year, and the main increase was in China. EBITDA was €46,300,000 up 40% on the €45,700,000 of last year with an impact on sales of 11.6%. Amortization and other accruals were €8,100,000 up 44% on the €5,600,000 of last year due to the capital expenditure affected during the year and to the increase of bad debt accrual and warranty accrual on projects sold. It's also been noted that starting from January 1, the IFRS 16 was applied and an amount of €1,600,000 was reclassified from operating cost to depreciation. In 12 months, fixed cost as operating cost plus cost back cost and depreciation decreased in income sales from 31.1 percent to 29.4 percent with a positive leverage effect on operating results. For this reason, EBIT was €38,200,000 up 27.4 percent or the €30,000,000 over last year, and the impact on sales improved to 9.5% from the 8.7% of last year. The tax result was €38,600,000 and net income was €20,000,000 up 55% and with an income per share of €1.43 compared to the €800,000 for last year. Group net financial position showed a positive balance of €61,400,000, €61,400,000, 1,000,000 less than year end, but with a strong cash generation during the Q4 of €10,000,000 of euro and with an improvement of the ratio of net working capital losses from 29.5 to 27.6. Dollars The main cash absorption of the year were dividend for €8,700,000 capital expenditure for $23,000,000 of which $40,000,000 of new building and factories. And there has also been noted that the IFRS 16 has an EBITDA to a net financial position of €4,800,000 Without it, the net financial position has been over €66,000,000 and higher than the last year. During the full quarter, Huarco System invested 2.5 €1,000,000 in insurance policy, increasing the €12,000,000 of euros already invested by LM during the past year. This kind of investment by the formation of long term investment are included among the no current financial assets and so not included in the net financial position. In the medical sector, representing in 2019 more than 60 percent of the group's turnover, Aker Synthetics showed the most relevant growth rate with revenue up by approximately 30 36% and becoming about 19% of the medical sector seats. All the types of revenue including this category like creams and accessories in the media sector, full risk contract for technical assistance. Ordinary service on the installed base contributed to this remarkable result, but the most important contribution was given by upgrades and IPL system for high level 1 and by sales of single and multiuse optical fibers for neurological application. It should be noted that upgrades already registered in past year constitute a type of revenue that cannot be replicated in each entity in the next year. In the management sector, sales in neurology, including the surgery sector, stand out 2nd in volume, only to those in the application segment historically most relevant for the group, lack of high renewable. The glue for laser system is over 19%. But considering the turnover for laser system together with that of optical fibers accounted in service segment that has consumable groups. This business altogether almost reached €50,000,000 in 2019, up 46% compared to the corresponding period of last year. The steady segment was up about 22% or remained the most relevant for the group due to the sustained growth in the application segment of our Mover and Patura Mover. A significant contribution to Tormova is attributable to Onda pool waves by VEKA for body count with 11,000,000 subs sales in the whole year. And this stuff is distributed in Italy by Estelordo for the professional aesthetic sector. As a whole, the body segment became among the most relevant segments in 2019, set up only to higher mover and with a size similar to Ipacho Revolver. The industrial sector instead faced less favorable condition in 2019 than the USMTS. But nevertheless, the growth in the sector on the annual basis is 4.4% for the system and 7% percent as of all, including the service, which reported a little greater than 40%. The LENR sector grew of 3.6% metabolic result in absolute terms and in relation to the general trends for the manufacturing sector, but far from the recent year reads. In our one most important market, the China's 1, after a very rapid start in the 1st month of the year, plus 15% in H1. H2 showed a decrease in revenue of 17%. So we have an overall reduction of 2% for the year in China. The marketing settlement is still excellent, especially in the liquefaction market, The result in the resources is decreased of 9% The result in the resources is decreased of 9% hit by the market slowdown. And in that respect, 2 most significant growth was recorded in after sales services and sales of considerable, which showed an increase of over 44%, thanks to the consistency achieved by the installed base. Looking to the distribution of revenue by geographical areas. The largest growth in the Africa sector was recorded in ex European countries followed by Europe, while the Italian market was stable. During the period, there was a recovery of competitive position and profitability in the Japanese stable market after a very bad year in 2018, thanks also to the sales to large chain of beauty centers of its new aesthetic system, suitable for home use and to the update on IPL system. Moreover, Quanta system recorded excellent performance in electrical system procedural sold to American OEMs. In industrial sector, we had a very good performance of catalytic tanker for cutting and large for marking in Italy and Europe with a slowdown in China and Brazil. And there, please go ahead. Okay. Thank you, Rico. So you had all the details of our date 2019. 2020 started with both the positive momentum of 2019. In addition, we rebounded in order bookings in China that have initiated the deadline of December. Then suddenly, the world changed. Firstly, China. The COVID-nineteen was spreading for the Chinese authorities to lock the city of Johan Sqa and several other provinces of China, eliminating the pre festival of action. What was initially looking like a minor issue turned out to be a large epidemic disease that led to the toll of most of the business activities in China for over a month. Our 3 factories have to be shut down and only early March, we and we will start working again, while the factory has been in place and it will be probably for at least this current week. Work in Munich and Venezuela is not fully operational since several of our employees originate from Rio Grande where the work had been delayed when the new virus exploded and work gets in stock. News about the current market needs are not bad. We are starting to sell again, but it's, of course, very difficult to predict how long the market will need to return to Panda's network. And this is the Chinese part. The rest of the world seems to be able to continue its value free life, but the recent events and statistics literally affirmed. And in several European and finally the U. S. Countries and finally the U. S. Are telling us that the world will be crushed by the corona virus. As you might know, all Italy lives today in our Sinai's Valentine's pages, all the shops that pharmacies and key stores and supermarkets especially in Northern Italy where the virus has for the time being been hitting harder with 100 of casualties. Currently, our quantification point in Tamarake, which is one of the so called web areas highly subjected to the epidemic, has been shut down for 2 weeks. Similar decision could be taken in its low income in Brazil, have not been taken yet, and in the other clients, they've been affected. None of our European employees have been reported as positive to the virus. Safety and health of our employees in Portland is our first responsibility and care in this particular moment and need to comply with the regulation and can't make our very better employees feel uncomfortable or were in danger. In this time, traveling has been banned and the international sales for all of our businesses, medical services and industrial, have been canceled or postponed. Then at the moment, we are surrounded by a strong unfavorable environment. Production has been healthy in China and in one factory, Italy. We had a rich, I would say, a record backlog, but it's hard to say now when the market will be back to normal and how long it will take to reinstate the confidence that is needed by the demand of capital goods that we want to manufacture in Shell. For this reason, we decided not to release any guidance. We don't want to be too simplistic modeling a short close down period or too simplistic feeling a very nice one. For sure, our numbers will be 8, but I'm not able to reasonably predict how much. Before leaving the session to your question, I want to tell you that there are several good news and there are very many positive things that we have ready for 2020. So in case we just received the SMA clearance for high fire for an integrated system that is going to be served in the United States, which is one of the areas in which 20% growth is expected for 2020. And moreover, the good news, the bad news is that out from which was demonstrated in 2019 and in the down of 2020. Our agreement and commitment to reduce in this current environment are very strong. We are willing to react and to divest through plans with all our services ready to start going again. So thank you for your attention and We will now begin the question and answer session. The first question is from Andrea Bompa of Anca Acros. Please go ahead. Hi, Andrea, Rico. Good afternoon to everybody. My first question is related to the operational leverage of Q4, although it's not particularly relevant at this point in time. But just a curiosity, I mean, your mix was pretty good with a strong growth in medical and technical. But the operational leverage didn't, let's say, impress particularly compared especially with the 9 months performance. If you can elaborate on that, please. The second one is, of course, mostly relevant to the current economic situation, the impact of the coronavirus. I mean, in the likely scenario of a recession globally in H2 2020, the trajectory, let's say, of your fixed costs and variable costs, I mean, all those costs below the gross margin, how can you manage those in the hypothetical scenario of a decline in sales? Are those still set in credit? Or can you manage those aggregator costs? Thank you very much. And if I gain on the first solid point, my curiosity is that if we arrive that there is going to be a recession, you might need to support your client with the extension of payments. So will you use your cash to support working capital? Or would you consider launching a buyback on your shares? Thank you, Andrea. A few questions. 1st, leverage on Q4. Q4, the reason why we noted what we did is that areas in China were very, very low compared to the cost. We had a structure which has certain level of cost. We are expecting a certain level of revenue. Revenue in China has an effect of the low over collection in June and December was a little bit better in December, but in the month of October November, we had a very low sale rate since the other. Then as I said before, we had a good order booking in December and in the beginning of January before this is passed. The second thing is about fixed costs. Of course, there are large of certain fixed costs that, for instance, for this moment, are gone. All the international fares are not going to take place. So we are not going to face international fares. We're not going to face any international traveling. We are not going to face all the expenses, all the traveling there and also the training there that is very relevant with our customer and with the cost is part of the fixed cost. So we will be able to cap this kind of cost. The largest part of cost is easily employee. And so for Italy, where we are slowing down, we are having people go home and work from home. From home, probably they are working a little bit less than they are working here. The production will probably have to will need to be slowed down because we won't be probably allowed to ship at least in the very next week. We could face some volume reduction. Is it clear? I mean, we first will have our employees benefit of their preferred offer? And then we see if the period should be actually longer, if we need call for the standard state report in the book agency. Ironically, we are far from this situation because our books, our order book is extremely interesting. As I told you, we had a record order book running into this period. But we need now to see how everything develops worldwide because we might encounter difficulties in shipping all the goods that we have on the order books to our customer because of the spreading of the virus worldwide. So in a nutshell, we have we can have some handle on the fixed costs trying to reduce them in terms of the limitation of revenue that we will encounter in the very next encountered in the very next weeks. For the 3rd point, you're right, the stock dropped at a very low level, which makes it interesting as an investment also for the company itself. I believe that already allocated a good amount of cash to the payment of dividends that we left unchanged even though we know we are going through a very, very difficult year. We would see what kind of financial effects this virus will have. If it happened in 2009, there will be a credit crunch. We will be probably forced to use some of our cash to support our most valuable customer, but it's early now to see and to give you a forecast on what we will be able to do sincerely. For the moment, we are I mean, today, we are continuing to ship and we don't see problems to our customers with our customers. I'm talking of foreign customers. This can change tomorrow, the day after tomorrow. For food, in this moment, we are not shipping at all to customers in Italy because our customers in Italy in the medical system in the rental market cannot work. The next question is from First one, just to clarify and rethought about the experience for a product in the U. S. But I didn't catch the name of this product. Can you just come back on that? Then another thing is on the recent FDA clearance on that new wave. While our expectation overall, I guess it's not difficult to do that at this point. Then if you can give us an update on the work made at all the plant enhancements that you had announced until late last year, are they all over and ready to authorize? And finally, the recent investment in the minority, About that, is it too early to think about some impairment in those assets? Thank you very much. Okay. Three questions. On the we received a clearance in the Nordic space, but the clearance is not for Onda itself, but for products that is similar to Onda, but its specification and most important, its intended use claim is a little bit different from Onda. This system anyway will be sold in the United States by a new distributor that we have. It's called Nenvia, which has a strong distribution network in the United States. The other product for air removal will be sold through an OEM partnership and the name is going to impact you. The other question then was about the minorities in China. Well, the transaction took place in the first half in twenty nineteen with the purchase by Denjo of Buan and second part in 2020, January, with the pre purchase and payment by outlets of about 30% more of the Paypal region. I believe it is really too early to start talking about impairment. Of course, the results in 2020, especially in the first half, will be far from what we would have expected on January 15 when we paid when we sent a wire to make the payment. But we are extremely confident that the market will be back and that we will be able to complete our, let's say, business case where we're developing our business capacity in China and seeing further growth in this market. Of course, we paid a considerable amount this year, share, this 30% share of our company. But for the moment, I believe we are able, I believe, to justify still to justify the value of the acquisition. What's your third question, Thibi Francois, I don't remember. Yes, yes. Just on the plant construction and upgrade, if you can give us an update, are they all finished? Yes, yes. The plant, we are they are not all finished because we have some work that will roll on 2020 and that will be able to slow down. The most important of the work that will be slowed down is the Chinese ending of the Daimyo plant. So we finished up the new plant in 2019. We had the plant opening in December. But we have not fully completed the 2nd range of facility, and this will go on slowly given the current situation of the Chinese economy. Have to complete the new building here in Florence for the industrial laser sources manufacturing, the medium power tier 2, our fixed fiber laser sources. And we still have to complete in full the move in Toramontiata of lasers into the new funding, which was something that absolutely unplanned, but needed due to the pace of growth of the European and Italian business of CACLAB paint. We are planning to expand further our production capacity in cattle, which to the pace that we had in November December was not sufficient anymore. We have been doing really in a very, very important way. But of course, this investment is now on hold. The next question is a follow-up from Andrea Bonsa of Van Cagua. Please go ahead. Hi, Irene. Now just a little from your side, it is possible. I mean, we are really in uncharted territories in how to make the forecast for the Q1 and especially for China. And we no longer, if you can guide us what you're expecting, demonstrate for China in the Lavalier and Industrial Laser division because of that preliminary input that we put minus 50%, but it is to little. Are we going there for minus 80, minus 70, minus 30? I mean, some ideas are working to the spec, at least in China, for the Q1. And then we look at this and give some recovery scenario for the following months. And this is Andre, if I may, if you can give us a color. I mean, outside of 1, it's really the economic, let's say, situation really gradually improving and with, let's say, economic activity returning to normal level? Or what are the inputs from your side that you can share with us? Starting from last question. The inputs are fairly good that the economic situation is returning to good labor. And also, we know that our salesmen, the one that can move because we have many salespeople which were in Wuhan, so they came to me, started booking new orders. So we started booking orders in the 1st 15 days of March, which I mean was very positive because we have seen a different work under this point of view. What concerns the expected turnover for Q1, we didn't guide anything. And I am not guiding you to any numbers, but the math is quite easy. We work 15 days before the spring break. And following those 15 days, we started working again at very low rate, meaning, let's say, 50% with less than 50% of our capabilities on a market that anyway was still very, very, very, very slow. So we're expecting we're not expecting an interesting number, a good number of sales in the Q1 of 2024 are for our strategic activities. Mr. Candoli, there are no more questions at this time. So, I hope thank you for being with us. And we I hope to have a meeting with you in a few weeks when we will repeat the Q3 financials, which should take place about 2 months from now. And I hope at that point to be able to give a much clear situation on how our business will develop and most of everything. I hope that at that point, most of the shifts that we received are receiving from the coronavirus situation will be gone. Thank you for being with us. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.