Prodways Group SA (ALPWG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Prodways Group Half Year 2021 Results Conference Call. I'll now hand over to Mr. Raphaël Gorgé, CEO and Chairman of Prodways Group. Sir, please go ahead.

Thank you very much. So we are proud to present you our H1 figures. And starting on Slide 3. The key figures of H1, achieving record results because as you can see, for the first time, we are posting a positive operating income of EUR 0.9 million, record EBITDA margin with EUR 4.5 million and strong revenue growth compared to last year, plus 27% with highly recurring profile. I switch directly to Slide 5. I think it's important to recall that looking at sustainable development goals number 12, 3D printing and the activity of Prodways has a positive impact on the manufacturing industry for different reasons. First, the -- it's a more efficient production process up to 80% reduction in CO2 emission compared to other traditional conventional manufacturing. The fact that you can print on demand reduce or eliminate the need for large physical inventory. And the fact that you can localize manufacturing, reduce the logistics and bring the production close to the customer. So you reduce transport from delocalized low-cost factories. On Slide 6, Prodways is a reference player relying on 3 strategic pillars. First, we are positioned on the whole value chain of 3D printing from part design to manufacturing, enabling our clients to 3D print by themselves or printing on our side for them. We focus on plastic. We think that, first, it is the largest market in additive manufacturing, but more important with the highest added value and the more interesting business model. And last point, we focus on industrial and mass production compared to the initial usage of 3D printing, which was rapid prototyping. We focus on industrial and medical applications, the applications which are demanding on high productivity and accuracy and precision. On Slide 7, you have 2 divisions: first Systems, providing turnkey solutions for 3D printing, which represents 60% of the revenue, comprising software, materials and printer. And on the other side, the Products division -- We are now one of the largest 3D printing service in Europe. This represents 40% of the revenue. We now have a fleet of 52 printers in France and Germany, thanks to the acquisition of the German company, Creabis. I will come back on it later. Offering a large range of technologies and brands -- we do the design and printing-on-demand and also we sell some custom medical devices in audiology, podiatry and dental. On Slide 8, Prodways is a global player, especially for its Machines and Materials business. France represents only 20% of the turnover. The biggest market is North America and Germany represents 24%. Our teams are located in France, Germany and the U.S. close to the markets and close to our customer. I will switch now on Slide 10 because a major step have been achieved over last year and beginning of this year, and we were able now to present a quite transformed company more efficient. Typically, the recruitment of teams and technology which were located in 4 different locations in France and now regroup in 1 new site in Annecy makes -- with 3D printing fleet, engineering and design service and production of SLS printers. And this organization is more efficient, and the cost -- reduction of cost impact is quite significant. And also interesting to focus because you remember that ESG preparation is important. We have transformed this former industrial site into a low carbon building, recovering the heat of the machine to heat the facility. This project was carried by significant majority of local companies. On the business model side, it's important to highlight that Prodways has a highly recurring and growing revenue profile. The growth is there. I mentioned 27% of growth this year, but it happens that it's the average growth rate that we have since 2015, if we compare H1 2015 to H1 2021. The growth -- the average growth is exactly 27% per year, combination of organic and external growth. And the recurring profile is also -- has significantly improved from 25% to roughly 60%, a combination of fully recurring business like the material of software maintenance but also a highly recurring of reoccurring business from medical device. On Slide 12 -- We have, we think, important to notice compared to the start-up environment in which we evolve. We have a disciplined financial policy to support -- supported healthy balance sheet. Cash flow from operations, which was positive in 2019, and again, positive back in first half of this year. The positive net cash position is still plus EUR 3.7 million net cash and EUR 20 million available. Our investment in R&D are focalized, 10% of Machines and Materials revenue, which are the only activities requiring significant R&D. And the overall investment policy is disciplined between EUR 2 million to EUR 3 million gross investment on a stabilized basis in R&D and CapEx, partly offset by government subsidies and tax credits. As I mentioned previously, the ESG strategy is accelerating. It's an important focus on our side. You see the improvement on the Gaïa rating. The governance also is significantly compliant with the Middlenext code, 50% of women in the Board and roughly 40% of independent board members. The shareholder structure is there. Groupe Gorgé is owning 57% of the shares and the rest is free flow -- free float, sorry. With Fimalac and Safran, they'd be still on board. I will leave the floor to Laurent, who will present the financial performance.

Thank you, Raphaël. So as previously mentioned, the group recorded strong growth in its activity during the first half of 2021. Turnover reached EUR 34 million of which about EUR 22 million for the division Systems -- for the Systems divison, sorry, and about 13% from the Products division. The growth, about 27%, as mentioned by Raphaël, came roughly equally from the growth division, with record growth in the Software and Material businesses, both of which are affected in 2020 H1 by the health crisis and now over their 2019 level. The Medical business, which was heavily impacted by COVID in 2020, grew by 56% over the last year. Next Page 16, in line with the growth in turnover. EBITDA increased significantly in the first half of the year, reaching 13% of the turnover almost double that of the previous 2 years. This doubling came from the 2 divisions. In addition of the increase in turnover, it's also the result of the restructuring carried out last year, which allowed strong fixed cost reduction. This EBITDA increase augurs well for coming years. Slide 17. In addition to the performance in terms of revenue and EBITDA seen before, operating profit from ordinary activities also increased to EUR 2.2 million, up by EUR 5.1 million, partly due to some write-off booked last year. The operating results by reaching almost EUR 1 million is positive for the first time in the history of Prodways despite some costs related to the restructuring initiative last year. It should be noted as well that this performance was up by a forgiveness of EUR 0.9 million under the U.S. General Act. I will give the floor back to Raphaël for the outlook.

Thank you, Laurent. And then we switch to Slide 19. We think that Prodways has still a strong potential for industrial application and new development of new applications for 3D printing. Typically, you know that we are already on the orthodontic and dentistry market, jewellery, rapid prototyping and some new markets of emerging, audiology is growing significantly, podiatry also, and new potential market in optics, precision casting especially for aeronautics application. It's something that we communicate on it frequently, no special development or no news on this, but we still are convinced that the potential is there. One focus on Slide 20, what is our biggest market, the market of clear aligners, which is a new 3D printed orthodontic application. We put here the comparison between the growth of dentistry player and clear aligner player, the difference is quite significant. This market is booming, and we are benefiting from it. It is booming, and we think that it is bigger than what we expected a few years ago. A significant portion of the growth of the machine -- of the sales of the machine and the growth of the materials are coming from this specific application, which as you remember, is the biggest application of 3D printing in the world, all material and all market overall, I mean. Okay. And now focus on the last development, which was not in H1, but was the sign of restart of acquisition process, we acquired the German company, Creabis in July, in the strategy of accelerating the development of the product division -- The integration of Creabis is well on track. Creabis is one of the top 3D experts in Germany. It's founder Ralf Deuke is an expert of this industry since probably 20 years. The company is not that big, but I would say, significant, a fleet of 11 printers from 5 different technologies. And for your information, we knew Creabis for many years because he was one of the first German customer to buy one of our machines. He has highly diversified base of client generates roughly EUR 3 million revenue last year and 50% are coming from serial production. The complementary with Prodways is significant because we are now one of the biggest 3D printing service in Europe with a fleet of 52 printers, widening Prodways offer with new technologies, but probably more important, significant synergies potential and Creabis has already started to sell the initial capacity initially the name of our 3D Printing service in France in Annecy. So we are quite confident that those synergies could produce interesting results. And to conclude, we think it's time to be a little bit more precise about our guidance, which was previously 2-digit growth. We are now confident that it could be around 20% growth, obviously subject to the evolution of the sanitary context. And about profit, we think that we can sustain the same trend in H2 compared to H1 2021. This presentation is finished. Our next release will be for Q3 2021 activity October 28. And now we are ready to answer to the question you may have. Thank you.

[Operator Instructions] We have 1 first question from Mr. Aurelien Sivignon from ODDO BHF.

I have 3 actually. First, could you give us more color on the guidance upgrade on the top line on the 20% for the full year? I mean, is it a better trend on the 3D machine or others? Or is it mainly related to the stronger dynamic in material, especially, then do you think that H1 EBITDA included the full effect of the cost saving measures, the positive impact can be very higher on H2 cost structure? And last question on M&A, specifically after the acquisition of Creabis you just talked about. Could you consider bigger M&A operation in the coming months or quarters, so regarding Prodways healthy balance sheet?

Okay. So your first question was about the growth and where does it come from, I would say, several activities. For sure, material are performing well on one side from the installed base, which is growing. And on the other side, also on the growth of our partners to whom we sell the resin. Second, the software integration division is also performing well. And last, the medical application, especially audiology is performing well also driven by the new regulation in France driving this market because now the level of reimbursement of hearing aids has significantly increased. Your last question was external growth, and I talked about your last question because I don't remember the second one. But Laurent will answer to that. About acquisition, we are not looking at big acquisition for the moment. We could, but we have nothing active on this side. We are facing a significant problem is that the valuation are significantly high and higher than the one of Prodways. So when we are dealing with -- so most of the valuation, especially when you look at the U.S. of 2 or 3x the valuation of Prodways, which is a kind of drawback when you are targeting bigger acquisition. And your point was about the -- also the effect of the cost reduction. Most of the effect is already in H1, yes.

The full impact will be on H2.

Okay. It's very clear. Maybe an additional question going back on the hearing aid that you just mentioned. Do you have an idea of your market share in this segment?

Yes, between 70% to 80% in France. And this is a local business. We are almost selling nothing outside France.

Next question is from Mr. Kartik Swaminathan from Exane BNP Paribas.

I had 3 as well for the time being. The first question was on sustainability. So you've clearly made some very notable progress during the first half of the year to improve your Gaïa score by 8 points. Could you walk through any of the other measures that you have in play? And what could be the potential in the coming years to improve that score?

Yes. Okay. You want to have your 3 questions now or we'll do it one by one.

Sure. Okay. I can ask the other 2 as well. The second question was on audiology. So I appreciate that there's been some changes in legislation and how consumers can recoup the cost of hearing aids. So what I wanted to understand was because this is quite a new initiative, have you reached the full peak of order flow yet, given that you have such a massive market share? Or -- Is it still going to grow in the coming quarters to reach its full potential? And then the third question was on expansion into new areas such as optics. What would it take to execute on growth -- So do you have the capacity available? Is it all about just marketing your capabilities to potential customers or waiting for the market to grow. Some color there would be useful.

Okay. I will take the last 2 ones and [indiscernible] will answer your question about sustainability. New expansion in new markets like optics depends on many parameters, but most of the key factors are located in the market itself and in the player. The technology is ready -- we still have some improvements. But in an industrial process, it takes a very long time to validate all the parameters typically. On the optics side, I already have seen some lenses, which are perfectly transparent. But the question is, will they remain transparent after 3 years under the sun, typically? Or will they resist to different shocks or things like that. So I think that we are not so close to a launch of this application. But the good news is that the partner we have, which is Essilor has confirmed that the only technology which is able to reach this target is Prodways MOVINGLight. So I have no clear view on this. But to answer, if this technology was adopted at large scale, yes, we would be able to produce and deliver because we will probably have time to prepare ourselves. On the audiology side, I don't know if the peak is reached. It is still growing for the moment, and we are facing some internal difficulties to ramp up the production, but not huge difficulties. So I cannot tell you that. But we don't see for the moment, a downturn in this flow. The -- I think that the market is supposed to double or something like that, thanks to this new regulation. And for sustainability, [indiscernible] will take the answer.

On -- as you noted, we improved our grade significantly in the past year. What we are working on now to go further is on several targets -- context targets on each of the topics of environmental, social and governance, especially environmental and social actually, to implement at 5 years horizon. So which would be a target on reduction of carbon emissions and a reduction of the turnover specifically in our -- which is a major topic in the company.