Earnings Call: Q4 2020

Feb 18, 2021

Dear viewers, warmly welcome on my behalf to this Robit Group analyst and press conference on the 2020 Q4 and full year results. My name is Daniel Palander, and I will be acting as the host and mediator of discussion in today's program. Before we get on with the presentations, a few words on our program today. We will first start off with Group CEO Tommi Lehtonen, giving us a brief look into 2020 and especially the Q4. We will continue with Group CFO, Mr. Arto Halonen, diving deeper into the financial figures, and we will finish with CEO Tommi Lehtonen coming back for a summary of the highlights and also an outlook into 2021 and onwards. We have reserved time, of course, for discussion and questions at the end of the program. This time, due to the nature of our event, we will do it slightly differently by me being your voice on the questions submitted in the chat. Please, I encourage you to be active in the chat and give me something to work with in the discussions with Arto and Tommi. At this point, warmly welcome on my behalf again, and it is my great pleasure to hand it over to Group CEO, Mr. Tommi Lehtonen. Tommi, the stage is yours. Thank you, Daniel. It is great to give you good news related to our Q4 2020 results. Looking at the net sales, net sales increased 11% in fixed currencies. We are confident to say that we increased market share throughout 2020. Profitability and cash flow improved despite exceptional COVID-19 environment, and we saw EBITDA improvement quarter to quarter every quarter. We did organizational savings, and at the same time, improvements, so we added some key competencies while we had good savings implemented and realized already during the second half of 2020. Currently, we are confident that we have a good structure and competencies to support Robit's growth moving forward. We had some currency headwinds during 2020, and I think, okay, in global business, you have tail or headwinds, that is normal, but it is good to highlight here when you look at our financial performance that you can separate these from the underlying profitability improvement. COVID-19 impact to our customer industries continued to reduce throughout the second half of last year, and we expect this trend to more or less continue for moving forward. Overall, solid performance. We progressed in all of the key focus areas we had, and I thank the whole Robit team for strong alignment and systematic work to move Robit forward towards our financial targets. A little bit financials related to 2020. Top Hammer sales development was strong, from EUR 40 million plus to EUR 46 million, around 20% increase. Good development, especially in mining industry. Down-the-Hole, fairly flat again. There we also continue to look for capturing the Down-the-Hole business opportunity. If you look at the orders received, good development, EUR 94 million compared to EUR 87 million 2019, an 8.1% increase. Considering again the currency headwinds we faced throughout the year, it was a good performance. I would like to highlight the cash flow. Cash flow improved to EUR 4.3 million, and especially we want to look at the cash flow before net working capital changes, which was EUR 7.2 million improvement from EUR 1.3 million. For us, this is a good kind of a solid indication of our performance improvement year on year. If you look at Q4, we had a solid quarter. I would like to highlight from here the orders received increased 24% plus increase in orders compared to 2019, and orders were EUR 23.6 million. We have a solid foundation to start 2021. Adjusted EBITDA was 8.7%, a clear improvement from a pretty bad comparison period 2019. You can see from the right-hand side graph the nice development we have had throughout the year, EBITDA improvement quarter to quarter every quarter, and moving towards our strategic target settings. Cash flow for Q4 was strong, and it was EUR 4.1 million. You can see it was EUR 2.4 million before net working capital changes. Actually, during the Q4, we were able to release some cash also from inventories, receivables, and payables. A little bit net sales development by region. East region, 41% growth. Excellent work, excellent development. The growth is mainly coming from a key strategic customer segment, mining for us, really good development. At the same time, East also saw very good success related to construction projects. Excellent work by our team for East region, and again, continuing the trend what we have seen for a few years now. If you look at EMEA, the largest region for Robit, 11% growth. It is a big geographic area. There we have a mixed market situation and a mixed situation related to COVID-19. Starting from the good parts, Nordics markets developed well and customer industries were more or less operating normally. Also Middle East, we saw very good development. South Africa, which is a key mining market for us, went into this type of a full lockdown during quarter two, but we saw the mines restart their operations already quite quickly, somewhat already during June, and by the end of the year, they were more or less in full speed. If you look at Americas and Asia, those were the regions that were most heavily impacted by COVID. In Americas, we have a very important market for us, which is Peru, which went into this full lockdown mode during quarter two. It kind of recovered throughout the second half of the year, but the construction segment was impacted by COVID in basically the whole Americas continent. Also in Asia, we saw 9% growth, but at the same time, we would have seen clearly better growth without COVID because key mining markets like Philippines and Indonesia were clearly impacted by the restrictions. Australasia, again, it is the same situation what you have seen before. That is our own challenge. Market situation is good. At the same time, we are focused on implementing our turnaround actions, and we are confident that we will turn Australasia also into a growth market. That was kind of a quick run-through from my side. Now I turn the stage to Arto Halonen, who will give you more details related to our financials. Thank you, Tommi. We continued on a solid growth path and delivered another quarter with the quarter-on-quarter growth. Also, our profitability developed positively, and we were able to improve our EBITDA consecutively on each quarter in 2020. Q4 EBITDA was EUR 2.1 million, 8.7% of the net sales. The positive EBITDA development was supported by the fixed cost savings that we implemented mainly already at the first half of the year, and also the top-line growth and as a result, the improved utilization at our factories. In Q4, we also received a remission of an R&D loan, and that had a positive impact on EBITDA of EUR 0.5 million and on EBITA EUR 0.4 million. EBIT for Q4 was positive, reaching 2.6%. Tommi mentioned also the currency headwinds. They impacted our top-line numbers, but they also impacted our profitability. If you look our net operational exchange rate expenses for the full year 2020, they totaled EUR 1.5 million and impacting us negatively on our EBITDA level. In 2019, the net impact was positive, EUR 0.3 million. This also highlights the improvement we had during the year on our underlying profitability. We had a good development on the net working capital in Q4, and the net working capital at the end of the period was EUR 34.4 million, 38% of our 2020 sales. I am very pleased how we managed the receivables during 2020, and it was a great effort from the Robit team, and the tight control had a positive impact on our net working capital development. The payables were at the high level at the end of the year, reaching EUR 19 million. We increased our raw material purchases towards the end of the year to be prepared for the growth in 2021. Also there was some timing of larger payable items that impacted the levels. Inventory is increased to EUR 34.9 million as we are ramping up our supply to support the customers we have won now at the end of the year, these new bigger mining contracts that we have. Cash flow in Q4 was strong. The cash flow before changes in working capital improved throughout the 2020, and then shows the strengthening of the underlying profitability. We were also able to release cash from the net working capital in Q4, and the total operating cash flow was EUR 4.1 million in Q4. Cash flow from investing activities was minus EUR 1 million. We started to do some investments on the bottleneck resources in Korea and Finland Lempäälä factories, which basically are our Top Hammer factories where we have seen strong growth as a result of the new business won. We also made EUR 2 million loan amortization at the end of the year, and that can be seen from the cash flow from financing activities. We have a healthy balance sheet structure. The cash at the end of the year was EUR 14.3 million. Total interest-bearing loans and utilized credit limits was at EUR 35.6 million, and this includes EUR 6.4 million of IFRS 16 related liabilities. The net debt dropped to EUR 21.2 million at the end of Q4, mainly as a result of the strong cash flow in Q4. The equity ratio is at 45.5%. Total loans from financial institutions at the end of the year was EUR 24.9 million. As mentioned, we made this amortization of EUR 2 million at the end of the year, and we will have these EUR 2 million amortization now every six months. For this amortized loan, the final installment in end of June 2022, when also our bullet loan expires. We will start during the first half of the year the negotiation to refinance our loans. At the end of the year, we did not meet the covenant we have on our financing agreement net debt to EBITDA ratio, but we received in December a waiver to break this covenant. I will hand over back to Tommi to go over summary and outlook. Thank you, Arto. Let's move into summarizing 2020 and looking at the outlook for 2021. First of all, Robit was able to grow in the market impacted by COVID-19. If you look at the second half of last year, our growth in fixed currencies was around that 15% financial target level. I believe that was a good kind of proof of the fact that our strong work, heavy work around our growth initiative implementation was successful. We implemented the organizational changes, combination of savings and adding some key competence. We have a good foundation now to continue to grow and improve our profitability. Some examples of key competencies, Arto here next to me was joining the company first half of last year, key resource for us. Also, we added a new Vice President of Sales, really experienced senior resource from the industry end of last year. We have some key elements to take the company forward. We saw good growth with our Top Hammer business, especially in mining, during the H2. We expect this trend to continue. We have a very strong sales funnel for our Top Hammer business. At the same time, we continue to expand also naturally our Down-the-Hole business and it is following the steps of the Top Hammer. We updated our strategy during the Q4, and we are now refocusing the company on this continuous improvement path and driving the company towards financial long-term targets based on the new organizational structure and structure overall. This gives us a solid foundation really to drive the company towards the 13% EBITDA level and 15% organic growth. If we move to the outlook for 2021, we expect the favorable market development seen already during second half of last year to continue. If you look at the mining business, the consumables business in mining has a very stable demand even over the cycles. Mines do not start or stop operating depending on mineral price levels. Basically, consumables are needed continuously, and the demand steadily grows a little bit. It is very different from capital equipment business in mining that is extremely cyclical. One of the key elements of our business model focusing purely on consumables. If you look at COVID-19, we believe that it will have only marginal impact to the demand for Robit products during this year. We are very positive about mining business development moving forward. If you look at construction business right now in the markets that are relevant to Robit, we have strong, solid sales funnels, and visibility so far is pretty good, and we are confident that this part of the business also develops in a favorable way, during this year. Of course, we believe that the different stimulus funding packages from government start to also impact positively construction demand second half of this year, next year. Moving forward, we continue to drive growth key elements, distribution development. You have seen the announcements related to distribution agreement with company called BIA, who is representing now Robit in 17 key mining countries. Also, our partner in Turkey, GÜRİŞ, really developed our mining business well last year. We have plenty of partners that we are in discussions with to improve our sales coverage, especially in mining markets. We also have a high ambition level for our few direct sales markets, and we have a nice example of success related to that when we published our long-term agreement with Agnico Eagle Kittilä mine in Finland, beginning of this year. Also, we will have new product launches in both Top Hammer and Down-the-Hole offering during 2020. We feel solid growth initiative funnel to drive our growth further. Also, partially related to growth and especially rapid growth related to our Top Hammer business, we are planning to now do some of the production investments earlier compared to our initial plans. Also, we need to invest bit into the inventory to support the growth in mining, to ensure good service levels to the customers, and support the growth through this year, and the outlook related to our sales. We are focusing heavily on margin improvement initiatives. This is basic improvements related to reduction of material costs, pricing, productivity, so on and so on. We have solid action plans to drive our margins up and to support our profitability together with the top-line development. Related to fixed cost, we continue to have a really disciplined approach, and the current fixed cost base supports our next growth step moving forward. Of course, we will have a bit of more traveling and so on coming when the world starts to open, but the baseline is on a level that we can, with this cost base, take another growth step. We focus also on development of our performance culture. We are now moving from structural and organizational changes to continuous development of the company, and really driving the culture of this continuous improvement. Again, it is systematic implementation of improvement initiatives. One of our values is drive change, and definitely it's the key element to continuously drive improvement of every area of the company. I would say we have a very solid foundation to further drive our growth and profitability. Market demand in this consumable business, especially in mining, is extremely stable. We have a good market potential. It gives a solid foundation to develop our top line, and also we have a good funnel of profitability improvement initiatives. If you look at guidance for 2021 and dividend proposal from the board, there's also a reminder for our financial targets. Moving to guidance, we expect market situation to develop positively and believe that COVID-19 restrictions will have a limited impact to the demand of Robit products during 2021. We expect, as estimate, that 2021 net sales will grow and EUR-denominated comparable EBITDA profitability improve compared to 2020. If you look at dividends, board proposes to annual general meeting that there will be no dividend payment for 2020. Main reason for this is that we feel that we drive better shareholder value with supporting our growth now related to investments and inventories. We want to ensure that we have funding to drive and capture the opportunity we have for growth. Next, it's time to move to the questions and answers part of the presentation, and Daniel, please. Thank you very much, Tommi and Arto, for that outlook and the presentations. Good. For a while it looked like we have no questions, but please, as I ask some of the questions from here, keep them coming if you are still interested in any more details or have got something that you'd like to ask Tommi and Arto. The question from Tommi Railo, thanks for joining us, and welcome. There's a couple of parts in this question, Tommi and Arto. The first one was that, "Can you describe mining and construction market activity and outlook in different geographies, and where is momentum improvement strongest or weakest?" And then slightly different angle, "Have you seen quoting improving also early 2021, and is the pipeline getting bigger?" Tommi and Arto, over to you. Yeah, I will take this one. If you first start with mining, first of all, you've seen that the mineral prices are developing in a favorable way. Let's say mining is a global business driven by the global mineral prices, and really more or less the activity is on a good level everywhere globally. The drivers are always global. Again, reminding that the consumable demand, which is our scope, which is related always when mine is operating, they are using consumables, and while the investment cycle is really heavily up and down in mining industry, consumable demand is really stable. For us, mining has a good, stable outlook, and it is actually more or less continuously like that. It's one of the strong parts of our business model. If you look at construction, I would like to highlight that there is a good market situation in Nordic countries and Russia, for example, that are important for us. We still see some kind of, let's say, slow activity levels in Americas due to the COVID-19 and the situation, but if you look at really the key markets for Robit, the outlook is good. Yeah, and all right, then there was a continuation of the question about that, have you seen quoting improving also early 2021? Could you still comment to that, Tommi? I would say quoting related to mining is basically developing together with our sales coverage improvement. So quoting in mining is on a growing path, but it's not so much related to market demand. It's related to improved sales coverage. If you look at construction, I would say the quoting level is pretty stable from last year. Thanks for that, Tommi. Then we have a question from Julius Rapeli. Thanks for joining us as well, and I believe this one would go to Arto, to you. "Do you believe that operating costs in Q4 are a good representation of expected operating cost levels also in 2021? Yeah, I think, as we mentioned on the presentation also, the kind of the current structure we have, we believe that we can take the next growth phase with this structure, so the operating cost level can be considered as a good baseline. Obviously, if the COVID-19 situation develops well and the, let's say, travel restrictions will be lifted at some point, that will increase the cost related to the traveling at some point. But obviously at this point still, it is not foreseeable in the kind of a very near future. Excellent. Thank you very much, Arto. All right. That, I think, is currently the situation. Those are the questions. I suppose that other than that, I think our message is loud and clear and well-received. Thank you for the participation in this, and I will turn it over to Tommi for the final words. Thank you. Thank you, Daniel, and thank you for all the participants. I hope you enjoyed the good news related to the development of Robit. Again, we have a solid foundation to take the company forward and really appreciate the time you took to follow the updates related to us. Thank you.