Prodways Group SA (ALPWG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Prodways Group Half Year 2020 Results. I'll now hand over to Madam Elodie Robbe-Mouillot, Investor Relations. Madam, please go ahead.

Good morning. Before starting the conference call, we remind participants that this presentation contains statements on past events and forward-looking statements regarding future goals or targets. They reflect current expectations for results and future events that depend on known and unknown risks, uncertainties and other factors that are detailed in our annual report available on our website. I will now leave the floor to Olivier Strebelle, CEO of Prodways Group.

Good morning, everyone. Welcome, and thank you for joining today's presentation of our half year 2020 results. So 3 topics for today. I'll start today's presentation with an introduction on our first half operational highlights. Then Laurent Cardin, our CFO, will share half year 2020 financial highlights. And finally, Raphaël Gorgé, Chairman of Prodways Group, will provide you with an update on our perspectives. Moving to Page 5. Let's start with our half year 2020 operational highlights. Our performance in the first half demonstrates our ability in managing operations, whatever the business environment. As expected, the COVID-19 had a negative impact on our financials, but recovery is underway in all segments. We have managed to limit the impact of decreasing revenues on our profits through group-wide cost efficiency initiatives and the acceleration of our consolidation and synergies initiatives across the group while continuing to invest in products and technology to shape our future. We acknowledge that there is further macro uncertainty ahead of us in the near term, but favorable consumer trends have accelerated and opportunities are arising from the crisis. Going beyond that, we have shown strong support with specific initiatives. Our teams have mobilized to take part to fight COVID-19 and meet the exceptional material needs of this unprecedented healthcare crisis on our customers. And our customers have manufactured thousands of face shields for medical professionals. On the Prodways printers, some operating the machines at night in order to provide support in addition to their regular operation. In this unprecedented context, we secured a strong available cash position of EUR 21.6 million, enough to preserve our operations and our capacity to continue to expand our businesses. Moving to Page 6. Recovery is underway across our various segments. As we were anticipating, the hit on our financial performance was quite significant, especially in our medical activities, but we saw progressive improvement in revenue month by month. Our Materials activity showed resilience, and we even contracted the sale of tens of tons of liquid resins to 2 European bundle specialists. This success is on an industrial scale validates Prodways' good development strategy, focused on plastic machines and materials for industrial applications. We saw a negative impact from the growth in revenues, but this was partially mitigated by the implantation of government measures in France, Germany and the U.S.A. and the cost efficiency initiatives, and that was deployed to provide -- protect short-term profitability. We also remain fully committed to investing in innovation to support sustainable growth in the long run. Finally, due to the unusual context of the health crisis, we performed in-depth reviews of the value of all these assets this summer and recognized one-offs with no impact on cash. Moving to Page 7. We responded very fast to the COVID crisis with group-wide cost management initiatives on multiple fronts. First, we used the opportunity of the crisis to fast-track the implementation of synergies launched last year, especially within our printers activities. Personnel costs were limited driven by hiring freeze, stronger performance management and by the activation of government support measures in France, Germany and the U.S.A. Finally, on marketing expenses and other operating expenses like travels and meeting, of course, given the cancellation or the delayed of trade shows and the limits in the travels, the costs were decreased, but that's where we used the opportunity to accelerate some of the digital trends that were already happening and to secure actually the decrease in this cost on the mid- to long term. Moving to Page 8. Investment in product and technology is obviously a core priority for us. And even during this past period, our efforts remain, and we focus on developing products and applications, driving the future of 3D printing for industrial applications. Four of our ongoing developments are shown on this slide. One, the Clear Aligner activity remains a strong area of focus to us and our moving light technology, which is gaining traction in the Dental and Clear Aligner sector, where the productivity and aggressive of our printers are paramount. Secondly, with an installed base of more than 5,000 printers in jewelry, we are the world leader in jewelry printers, and our product teams continue to work on developing our next-generation 3D printer. Thirdly, we continue to invest in medical materials, where we have a strong and distinctive expertise as materials is an enabler and a differentiator to unlock new applications. And finally, we continue to expand in 3D software with the commercial development of XD Innovation Europe. We launched this business at the beginning of the year, dedicated to our cloud solutions and are starting to see some interesting momentum. I will now hand it over to Laurent Cardin for the financial position. Laurent, are you online?

Yes. Thank you, Olivier. Sorry, I was on mute. As already highlighted, the COVID crisis and the negative impact on our financial performance, as you can see, Slide 10, when compared to last year. Revenues were down 24% in the first half compared to last year. EBITDA decreased by minus EUR 1.5 million, resulting in slightly down EBITDA margin at 5.3%. The drop in revenue were partially mitigated by cost-saving initiatives and implementations of government initiatives measure in France, Germany and in the U.S. As a result of the foregoing and the increase in depreciation and amortization expenses and provision, EBIT was minus EUR 2.9 million in the first half of 2020. Other items of operating income with no effect on cash totaled minus EUR 7 million in the first half of 2020. Due to the unusual context of the health crisis, the group performed in-depth reviews of the value of all the assets this summer and recognize -- and we recognized, sorry, an impairment losses of EUR 6 million for inventory, R&D projects and intangible assets recognized at fair value at the time of acquisition. Operating income stood at minus EUR 10 million compared with minus EUR 2.5 million in the first half of 2019, the deceleration being largely attributed to the significant provisions. Net income group share was minus EUR 8.7 million in the first half of 2020 compared with minus EUR 2.8 million in the first half of 2019. I will now go over to the section on the different division on Slide 11. Systems revenue saw negative growth of minus 21% in H1 compared to H1 of last year, significantly impacted by the lockdown, also gradually recovering. The division benefiting from the resilience of Materials activity. Despite the challenging environment, the division maintains its business momentum with the software distribution activity winning its largest contract ever during the second quarter. EBITDA margins improved at 8.1%. Several initiatives, along with government support measures related to employees, were implemented during the lockdown to mitigate the shortfall in revenue. We also progressed on the implementation of synergies in our activities and observed increasing margins in our Materials activity. Moving to Slide 12. The production division was -- saw negative growth of minus 30% compared to H1 2019. This is mainly impacted once again by the COVID situation, also showing signs of recovery towards the end of the quarter in medical activities, audiology, chiropody and dental. The shutdown of our customers' activity with the total closure of practitioners' offices during the lockdown led to the complete stoppage of all of these activities with very short backlogs. Revenues in on-demand activity were also impacted despite limited exposure to weakened markets compared to many peers. The EBITDA decreased by 65% in H1, impacted by the drop in revenue that do not fully offset the implementation of government support measures related to employees. To conclude the section, I will highlight our financial position. In the first half, cash flow from operating activities became negative at minus EUR 1 million, but the working capital requirement saw a positive change. Operating cash flow was positive at EUR 0.7 million in the first half of 2020. Our CapEx levels were lower, mainly related to the investment in our on-demand activity shown in [indiscernible], and there were no acquisitions. The group was granted State Guaranteed Loans in the amount of EUR 1.2 million and drew EUR 5 million from a confirmed line of credit. At June 30, 2020, available cash thus amounting to EUR 21.6 million. Net cash and cash equivalents was EUR 6.5 million versus net cash and cash equivalents of EUR 9.6 million at December 31, 2019. State Granted Loans receivable by the group before the end of September totaling EUR 7.2 million will further improve the group's strong liquidity. This leaves us with flexibility to continue to further invest in the business and to help on M&A opportunities under favorable conditions. I will now hand over to Raphaël to comment on the outlook.

Thank you, Laurent. Now looking ahead, we saw progressive pickup in activity in May and June. And while uncertainty remain around the macro environment in the near term, we expect this recovery trend to continue in H2. Acceleration of industry digitalization for mass production is supportive of the 3D printing industry overall, even more specifically for player focusing on projection application. Our continuous focus on innovation to improve customer experience and efficiency will contribute to strengthening our position in this buoyant market. On Slide 16. It is clear that this crisis has helped to generate significant awareness that 3D printing is becoming essential for accelerating and improving design, speeding up time to market and production and adjust production flow. We do observe an acceleration in the consumer trend that underpin the development of 3D printing, such as increase in digital transformation of our clients. And the creation of new business model based on 3D printing, such as SmileDirectClub, developing a new business model for aligner competing with dentists based on fully digitalized business model. [ We can ] also observe an interest in more local supply chain, this has amplified their role of 3D printing. On Slide 17, as I mentioned, we have strong position on the buoyant and attractive market. And I thought it was interesting to focus on some striking points of the recent month or weeks. The gap between historical player focusing on prototyping and the new player focusing like us on additive 2.0, also known as 3D printing dedicated to mass production, is deepening. On printer and materials, 2 striking examples are Desktop Metal and Carbon. The latest was founded in 2013 and raised more than $680 million in group fund at $2.4 billion valuation. But probably more interesting, Desktop Metal announced early September as a project of type of IPO and the net debt. Desktop Metal was founded in 2015 and generated revenue of $26 million and forecast a range between S15 million to $25 million turnover for the year 2020. The negative EBITDA was $96 million in 2019. This company is, at this time, targeting an IPO and a valuation of $1.8 million (sic) [ $1.8 billion ] pre-money, raising $500 million. I think this enlights the potential -- midterm potential, very significant on 3D printing for industrial application. On the -- on our manufacturing and medical and software segments, our closest peer, Materialise, showed impressive stock market growth in the recent month. Our strategy is to be present all over the 3D printing value chain with polymer printer and recurring material activity, coupled with manufacturing, medical and software activity position us well at the forefront of the industry. To wrap things up, we will continue to rely on our leading position on the overall additive 2.0 value chain, product and technology portfolio and recurring revenues, thanks to our plastic positioning. We are well positioned to leverage the ongoing recovery and sight growth opportunity to deepen and expand our production in our existing markets. We have the team, the strategy and the balance sheet to do so, both organically and through acquisition. Our objective remains to generate sustainable growth and create long-term value for our shareholders. Now this concludes the presentation, but we are now available to answer any question you might have. So operator, please go ahead.