Prodways Group SA (ALPWG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Prodways Group half year (sic) [ full year ] 2020 results. I'll now hand over to Mr. Raphaël Gorgé, Executive and Chairman of Prodways. Sir, please go ahead.

Thank you. So I am Raphaël Gorgé, Chairman; and I am with Olivier Strebelle, CEO; and Laurent Cardin, CFO. We present you the -- our full year results, starting on Page 4, meaning the position of Prodways. We are a unique organization, divided in 2 division: the first one, Systems, which enable us to sell to our customer all the service and product necessary to print in-house, which are software material and 3D printer; and the other division, Products, on which we manufacture 3D printed parts, one is design and on-demand manufacturing, and the other one is on medical application, like audiology, podiatry and dental. And I'll leave the floor to Olivier Strebelle for the following of the presentation.

Thank you, Raphaël, and good morning, all. Our presentation today will have 3 sections. The first one, we'll talk about our 2020 activity and provide a recap. The second section will be on our financial results and will be presented by Laurent Cardin, Prodways Group CFO. And the last section will be an outlook that I will present. Starting with a recap of the 2020 activities. Three key messages for 2020. The first one is that we got some great commercial success, although in a challenging environment in 2020. The second message is that we've been strengthening our strategic position out of innovation. And the third message is that we didn't put to waste the opportunity of a good crisis. And we've leveraged 2020 to fast-track our operating model transformation and the final step of setting up the synergies of Prodways Group. Moving on to Page 5 regarding our commercial success within a challenging environment. Three main elements on that. The first one is that, in 2020, we got major contracts for liquid resins in medical. Overall, Prodways Group is exposed -- Prodways Group activity is about 40% in medical. And in 2020, indeed, we launched some 2 strong partnership with European specialists and a large global player for dental materials linked to the orthodontic application of aligners. We got several printers, our MOVINGLight, LD10 and 20 that have been installed at clients on these orthodontic applications. And at these clients, actually, on these industrial applications, dozen of -- tons of resins are going to be consumed out of this application. Second, a family of commercial successes are the sales on our laser sintering 3D printers. At the beginning of the year, we got some strong wins with major chemical player, like BASF, DSM or Arkema. And at the end of the year, we got some as well very interesting wins on mass-customized applications, for example, in the steel industry or in the food packaging industry. On some other fronts as well, we've got some very interesting commercial dynamics, for example, in the jewelry applications, with dozen of wax machine for 2 clients in the middle of the year. And as well on our activity of CAD softwares, where we won in 2020 one of the largest contracts of this activity in the truck industry, covering a transformation program of more than 50 design engineers with the software and the consultancy bundled. So that's -- that was on commercial successes. Moving on to Page 6 on the second message, which is the consolidation of our strategic positions within -- with new innovative solutions for clients. Two main elements on this topic in 2020. The first one is that we've launched a cloud solution for CAD and 3D modeling applications, actually, offer. As some of you might know, we are indeed distributing Dassault Systèmes' CAD solutions, and we've launched actually the new cloud offer, the 3DEXPERIENCE. And we are one of the very early cloud distributor, both in Europe and in the United States on this topic, which is strongly reinforcing our software expertise, which is an important component of the end-to-end value chain that we are covering at Prodways. Second element of innovation in 2020 is that we are focusing on industrial applications at Prodways, and one of these applications is this aligner orthodontic applications. And we're continuing to innovate along these applications. For example, 2 elements that we've launched in 2020 were, on the first one, some improvement on our software to manage the machine to actually smoothen the surface of the parts that we are building, so then these aligners are more and more transparent. And the second element as well is a new innovation in the post-processing with the centrifuge to clean the parts that are built out of our machine and our material. All of that actually improve the end product, the quality of the end products and as well the efficiency of the process, which is, in this industrial application, of great value for the clients, who are not buying 3D printing but really solutions. Last but not least, on Page 7, actually. So we really leverage the opportunity of 2020 to fast-track the implementation of our final stage of synergies. So Prodways Group, we grew up very quickly since 2014. And we still had a final phase of consolidation at Prodways Group that was supposed to last 18 months. And actually, out of the COVID crisis, we've decided to fast-track this implementation in 6 months. And we've done that at the end of last year, and it will be done actually this summer. The main element of that is that, actually, we've been bundling 4 of our sites in France in Annecy into one, especially with the product technology of laser sintering. And as well, we are bringing another technology, the MOVINGLight technology, to our U.S. sites and operations to be closer to the large application clients that are mainly in the U.S. In parallel, actually, because our material activity is ramping up, driven by the development of these industrial applications, we've been doubling the capacity of our material production sites in Germany. So that was for the key highlights of 2020. I'm going to -- next, Laurent presents us the financial results.

Thank you, Olivier. Good morning to all. Moving to Slide 9. In 2020, on a comparable basis, revenue stands at EUR 57.2 million, down EUR 14.1 million and minus 20% compared to 2019. The decrease in the second half of the year was minus EUR 5.6 million, a reduced impact compared to H1. EBITDA rises to EUR 3.3 million, down EUR 2 million compared to 2019, thanks to a better H2 progress in profitability. EBITDA increased strongly during H2 at EUR 1.9 million, up plus EUR 0.5 million compared to H1. On a full year perspective, EBITDA stands at 5.8% in 2020 compared to 7.4% in 2019. EBIT stands at minus EUR 3.8 million, down EUR 2.3 million, thanks to an improvement of EUR 2 million versus H1 2020. After other elements of the operating income of EUR 11 million linked to: in H1 to implement losses on inventories, R&D projects and intangible assets recognized at fair value; and in H2 to restructuring cost, as mentioned by Olivier, the operating income stands at minus EUR 14.8 million, down EUR 11 million compared to 2019. Financial results stands at EUR 0.3 million, like in 2019. Taxes are positive plus EUR 1 million compared to minus EUR 0.3 million in 2019. Finally, the net result group share stands at 13 -- at minus EUR 13.9 million, down EUR 9.7 million compared to 2019. On Slide 10, comments per divisions. First of all, the Systems division, comprising 3D software, 3D printers and related materials and services, reported revenue of EUR 36 million for the financial year. In the second half of 2020, the division's revenue was EUR 19.2 million, down EUR 4.4 million. This performance reflects [ contrasting ] situation within the division. Revenues continued to be impacted by customer deferred investments due to the sanitary crisis, both for machines and softwares, whereas materials activity met many successes. The sales of materials increased by plus 4.4% in 2020 compared to 2019 and by 11.8% during H2. The division's EBITDA stands at EUR 2.9 million, EUR 1.5 million in H2 compared to EUR 2 million in 2019 H2 due to the lack of turnover. The EBITDA margin was 8% in H2 as well as in 2019 versus -- no, sorry, the EBITDA margin was 8% in H2 as well as the full year versus 7.4% in 2019 whole year. The division benefited from the remarkable performance of cost reductions and the help from state measures, which increased the EBITDA margin of more than 8% and cushion the lack of activity. The division's operating income came to breakeven in the second half 2020 at EUR 0.1 million and stood at minus EUR 1.3 million in 2020 compared to minus EUR 0.4 million in 2019. On Slide 11, the Products division, which comprises the design and manufacturing of parts and demand and medical applications. The division recorded revenue of EUR 21.1 million in -- for 2020. In the second half of 2020, the division's revenue was EUR 11.3 million, EUR 1.5 million less than 2019 H2 but 14% higher than the first semester. The recovery in the medical business was strongly continued since the end of the first lockdown, whereas precision parts recovery also on an upward slope is slowed by its customer in the industry sector. The division's EBITDA was at EUR 1.8 million for 2020, but at -- almost at 2019 level for the second semester at EUR 1.2 million compared with EUR 1.4 million the previous year, without significant government support during this period. The EBITDA margin stands at 10.3% for 2020 H2 compared to 10.7% in 2019, reaching 8.4% for the full year. Operating income was close to breakeven at minus EUR 0.2 million for H2, at the same level than H2 2019. Moving to Slide 12 on cash. Operating cash flow for the year was EUR 4.4 million compared with EUR 4.5 million in 2019, in a much denser context, benefiting in particular from the significant improvement in working capital requirement, which equals EUR 5.5 million. During the year, the group maintained a high level of investment at EUR 5.2 million. As of December 31, 2020, net cash, excluding lease liabilities arising from the application of IFRS 16 and with treasury shares, totaled at EUR 5.8 million versus net cash of EUR 9.6 million as of end of 2019. The cash in hand available stands at EUR 22.5 million by the end of the year compared with EUR 15 million in 2019. I will now leave the floor to Olivier Strebelle for the 2021 perspectives.

Great. Thank you, Laurent. Moving on, indeed, to perspective on Page 14. We are very confident at the mid- to long-term perspective of the 3D printing markets. As of 2021, this market is estimated at 21 -- at a EUR 10 billion size overall and expected to grow to EUR 100 billion by 2029. This growth actually will be driven by the development of industrial application, especially for mass-customized products. And this is why as well we are confident at Prodways to [ plot ] a winning course within this market because, actually, we have already a track record on these industrial applications. And I'm listing here 3 of them. The first one is the aligner application in dental orthodontics that I mentioned. In 2020, out of our machine materials, more than 1 million aligners have been produced with our solutions. Another example of these industrial applications are the podiatrist insoles. Here, it's our Products division that is producing these insoles for podiatrists in France, and we sold 50,000 of them in 2020. The last example is in the jewelry market, where our machine and material have produced actually more than 0.25 million of jewels in 2020. The -- this potential of the 3D printing market is taken into account in the valuation of the 3D printing stocks players in the U.S., with a growth since the end of 2019 of more than 300% for a basket of them. This update hasn't yet materialized in the European stock. Moving on to Page 15, actually. At Prodways, we've got a strong strategic positions that will help us benefit from the supporting trends of our markets. 3 pillars actually supports this strong positioning. The first one is our end-to-end offering on software, printer, materials manufacturing. More and more, our industrial clients are asking for solutions. And actually, at Prodways, we're able to cover the full needs of our clients. The second pillar of our strong strategic positioning is our focus on industrial applications, and especially on mass-customized applications. Out of our technologies, which are offering both a unique precision and speed on the market, actually, we can provide actually the proper offer to our client on this industrial application. And then the third pillar of our strategic positioning is the fact that we are continuing to develop new partnerships on new application that will drive the growth of this market. We communicate on one of this partnership with Essilor on manufacturing lenses, actually, which is a program we've been working on for the last 3 years, and that will continue. As well, we communicated in January about a strong R&D partnership with a leading global player on material for the dental market to replicate actually what has been happening on the aligners and some other applications. And we've got as well strong partnership with -- in the industrial foundry with a U.S. player. So we'll let Raphaël conclude this presentation on the perspective on Page 16.

Thank you, Olivier. Thank you, Laurent. And to conclude this presentation, we can give the following guidance and future ambition. We think that the growth will be strong in 2021 and beyond. And for 2021, we expect double-digit revenue growth, and thanks to the huge organization efforts that have been done during 2020 and significant improvement in the profitability starting in H1 2021. Thank you all, and we are all available for the [ potential questions ] you may have.

[Operator Instructions] So we have one first question from Mr. Augustin Socié from Portzamparc.

Yes. Just to be clear about 2021 guidance. For growth, are you expecting low, mid or high double-digit? If it's possible to have an answer. And for margins, can we expect for 2021 an EBITDA margin higher than 2019?

Okay. So I will not disclose other comment than the 2 -- than the double-digit. And yes, the EBITDA margin should improve compared to 2020.

But it was regarding 2019?

2019, yes.

[Operator Instructions] We have another question from Mr. Augustin Socié from Portzamparc.

Yes. If it's no question, I can continue. Regarding M&A, did you have any progress and you could communicate about?

Yes. Okay. It is right that the past history of Prodways has been a combination of stronger organic growth and acquisition. The last 18 months, under the supervision of Olivier, have been dedicated to putting in place synergy between all the companies, reorganizing and putting the 4 French site together into a unique one in Annecy. We think that now the group has a stronger organization. And yes, we think that we could restart this M&A strategy. We have some discussion but nothing enough -- advanced to mention it now. But we have -- yes, we have restarted this type of process. And this would be to strengthen existing activity and not entering in new activities or technology. We think that we have the right strategy, the strategy that deliver nice success in the U.S. And if we look at the value and the valuation of those strategy, we think that we are on the right path. So typically, this would be to strengthen our existing activities.

Okay. So very clear. And then another question. Can Prodways be impacted by the world situation on electronic components?

So we -- when the COVID crisis hit, as you can imagine, we've been looking into all of our supplies, and we've been setting up some security stocks. So at this stage, this is under control.