Earnings Call: Q4 2019

Feb 20, 2020

Ladies and gentlemen, welcome to Robit's Q4 2019 and full year 2019 analyst and press conference. My name is Tommi Lehtonen. I am the CEO of Robit, and I have here Ilkka Miettinen with me. He is Robit's CFO. Good afternoon, and welcome. First, a little bit highlights of 2019 and Q4. Our net sales grew further, so 5% year-on-year full year net sales development. If you look at quarter four, it is +18% against the comparison period. Cash flow improved with EUR 3 million year-on-year. As we have communicated before, we used 2019 to implement our efficiency program. As a reminder, we have the illustration on the left for the key priorities of this program. We restructured our Down-the-Hole manufacturing operations, and in the product development area, we had some key product launches like the Diamond Button bits for production drilling in mining and these larger size heavy duty piling projects where we had success, for example, in Russia for larger project business. If you look at the key financials, our net sales reached EUR 86.5 million, which was a 5% increase compared to previous year. From offering perspective, our Top Hammer business grew with 10%, while our Down-the-Hole business remained at 2018 level. Order intake grew with EUR 6.5 million to EUR 87.3 million. That was 8% growth. Profitability developed to adjusted EBITDA of EUR 2.7 million for the full year, where the comparison period was EUR 3.5 million negative. Again, the operating cash flow before financial items improved with EUR 3 million, and our equity ratio ended up to 47.4%. Key highlights for Q4, sales growth of 18% to EUR 22.2 million. Adjusted profitability was slightly EBITDA profitability was slightly negative. Ilkka will give more details about that. Operative cash flow improved with EUR 2.9 million. We also got our largest filing project order in the company history during Q4, and actually, that execution of that project is going right now very well. We finalized the closure of our Brighouse manufacturing operations, and the production is already ramped up in our Perth and Chesterfield factories. If you look at the net sales or sales development by region, first of all, order intake grew with 8% year-on-year. CIS East region, 40% growth, excellent result. Again, second year in a row, good growth in this market area for us. Also, Americas with 20% growth, which is, of course, we are very satisfied and happy with that performance. EMEA, our largest region, grew with 13%, which is also a good result. Then in Asia, we had a difficult year with a net sales decline of 10%. We have had the challenges in Australasia, as we have communicated before, and sales drop was 23%. Quarter to quarter, last quarter of 2019 was slightly higher than 2018. As we have communicated, we have stabilized the situation there already. So overall, satisfactory development for us related to growth. Now, Ilkka Miettinen will give a little bit more details about our financials. Thank you, Tommi Lehtonen. As said, we are developing satisfactorily in the net sales line. The top line grew compared to comparison year significantly, and we can see the same pattern also compared to 2017 figure that when we faced the fact that Q4 net sales was lower than Q3. But now we are on the same level in Q3 and Q4 net sales, so that gives a good ground for us to grow again. But this EBITDA performance is not on satisfactory level yet. We hit some IFRS-stated comparable items like EUR 1.1 million, which are relating to the Down-the-Hole business restructuring. But in Q4, we saw a housekeeping issue that we made some deductions, write-offs in our inventories, and that was about EUR 1.7 million. It's not all in Australia, but most of it was in Australia relating to organizing the business there. Networking capital, the trend is good. The networking capital ratio is improving, and that's the combination of stable networking capital level itself, but improved net sales, which is improving the ratio year-on-year, month by month, week by week. That's the path what we are planning to do, but securing the availability of the sales. Cash flow. There was a clear improvement also here, but still we are not at the level where we want to be, and this is something what is focus area for us for the future. Also, cash flow from the investing activities was positive due to the reorganizing or restructuring the Halco business, and we got proceeds for about EUR 2 million from selling Halco assets as a disposal for Halco business. But about half of that was spent on the Korean EUR 10 million investment, which was completed last year, and these are the remaining payments for that investment. But what needs to be highlighted here is that we amortized loans about EUR 11.3 million during 2019, and at the same time, our cash has been on a steady level. The loan amortization also in here, the financing activities, they also include the lease payments which were classified as lease loan amortizations here according to IFRS 16, which was the change in reporting standards last year. Going to the balance sheet, we still are carrying some goodwill in our balance sheet mainly due to the Down-the-Hole business. But that has been tested by impairment test, and we are satisfied with the results at the moment and the performance, what we can see and the improvement in the performance is now reflecting that this goodwill is still valid. The big change here in the balance sheet compared to last year was the IFRS 16 implementation, where both sides of the balance sheet were increased by the leased assets, which are now named as right-of-use assets. That amount is about EUR 7 million on both sides of the balance sheet. So we have increased the assets by EUR 7 million, and on the other side, we have the same liabilities, roughly EUR 7 million in the balance sheet. Asset, capital structure has been impacted by IFRS 16 implementation at the beginning of this year, and the red bar is representing that change in the balance sheet. Yet our equity ratio is pretty good at the 47%. Loan maturity, as known, we have planned to renegotiate these loan amortizations during the first quarter, at least to begin to renegotiate these loan amortizations during the first quarter of this year. That's to be conducted by myself and our Chairman of the Board, Mr. Harri Sjöholm. That was briefly the financial part of the presentation. Now, please, Tommi Lehtonen. Okay, let's summarize and look into the future as well. So 2019 was the year of the change. There was a need to make significant changes to Robit, and we implemented them throughout the year with the efficiency program, as well as implementing the needed restructuring operations. Net sales grew with 5%, and order intake with 8%. Three of the five regions grew with our expectations, and two regions, sales was not up to our expectations. Major restructuring was carried in the Down-the-Hole part of the manufacturing and implemented throughout 2019. New products were launched, and for the specific needs of current trend of automation in mining, these Diamond Button bits are related to that trend. Then larger size piling projects, with larger products for piling. So financially, to summarize, our adjusted EBITDA increased with EUR 6.2 million. Cash flow improved with EUR 3 million. Equity ratio again was 47.4%. Net working capital remained flat. Key elements moving forward, we have a new structure based on these changes and again, maintain the focus on drilling consumables only. We have four different customer segments that we work on with our global presence. We have plenty of room to grow. Robit's current market share is 4%. We have the widest offering for drilling applications. We have still free capacity in our manufacturing plants, and we are using a dynamic, competitive pricing strategy to support our growth. We have also strengthened the company management with the nomination of a COO, and we feel that this will accelerate the needed changes in Robit throughout 2020 as well. We have a stable outlook for 2020, and we don't see any major risks related to our demand. Capital distribution. The board of directors is proposing to annual general meeting a refund of capital 3 cents per share. That total amount is a bit over EUR 600,000. Outlook for the future. Right now, of course, the global situation is quite challenging. A lot of things happening. Our China exposure is very small, so current coronavirus situation impacting us probably less than some other companies. But as a summary, we feel or currently we don't see any major risks related to Robit market situation, related to the markets that are significant for us or important for us. Long-term financial targets, we are looking for 15% organic growth and still committed to our target of 30% adjusted EBITDA profitability level. We feel that these are realistic, good long-term targets for our business model and the business where we are in. Guidance for 2020, simply we guide for increased net sales and a higher adjusted EBITDA level compared to 2019. Now it's time for questions and answers session. Ilkka Miettinen will join me here for this part. Please. It came clear. Okay, no problem. Erkki's question came clear. Okay. Antti-Ville Knuutila, Inderes. I think that this year, 15% growth target is ambitious, even if your market share is quite low. How are you going to take market share over long term? Just a second, we'll check that the mic is on. Did you hear? Because here, okay, that's fine. Okay. Can you hear me? Yeah, I could hear you. It's fine. Your 15% growth target looks quite ambitious, even if your market share is low. How are you going to take market share from the Yeah from other companies over time? Yeah, definitely 15% is ambitious, and we want it to be ambitious. We are a growth company primarily. Again, you saw three of our five regions are actually in a big geographic area, either being very close or clearly exceeding this target already now. So we are confident that doing the right work, we are able to reach it. How? It's based on the positioning we have in the market as a challenger, where we offer high quality, basically the same quality offering or performance as the market leaders. And we are slightly priced slightly below them. So pretty simple growth strategy. 13% EBITDA is quite distant right now. What else but growth do you need to close the gap? Yeah, it is all the elements. We are moving into this kind of also continuous development mode where we as a company start to do normal profitability development of all the elements: pricing, material costs, fixed cost follow-up, and so on. I think from last year during this year, we moved more towards this continuous improvement model, and we see a lot of potential in our current way of doing business for improvement. On the other hand, the underlying profitability we see in the business, we feel that there is room for it, referring to the main players and their profitability levels in this. So I am very confident that requires, of course, top-line development as well, but it is reachable. Thank you. Julius Reponen, SEB. In the beginning, you mentioned a large project you received in Q4, and looking at the CIS and East Europe figures, quite nice growth year-over-year. So how much of this is related to the one large project, or is any of it? We had some invoicing during Q4 related to that. I cannot recall exact number, but the project business had some significant role, but also mining business developed well and our outlook is positive for CIS East. We do not expect them to grow 40% every year, but we have a positive growth outlook in the marketplace anyway. Again, we grew also during 2018 compared to 2017 nicely in that region. All right. Thank you. No more questions. Thank you, and thank you for the participation and see you next time after H1. Thank you.