Robit Oyj (ROBIT) Earnings Call Transcript & Summary

Welcome to Robit's half year report analyst and press conference. My name is Tommi Lehtonen, and I'm Robit's CEO; and we have also here Arto Halonen, Robit's CFO. First, let's run through highlights for H1. Top line records both for net sales and orders received. So Q2, 12.7% net sales growth and orders, we are really happy with 23.1% growth and orders EUR 26.5 million. EBITDA development continued to the right direction. Naturally, this is still our focus area and continue to do a lot of access to thrive our EBITDA towards our strategic targets. Top Hammer business, excellent growth, 22%. It was really the driver of our business during first half of this year. And of course, really happy for the execution also. Factories, we are delivering record amount of -- amounts of products throughout the first half. Down the Hole sales growth 3.1% and behind our targets. Inventory growth support, increasing customer -- supporting increasing customer demand, we decided to prioritize customer service levels beginning of this year, looking at the challenges related to containers and logistics globally. At the same time, Top Hammer growth was fast, so we wanted to secure that growth. And also, we saw raw material cost increases and we were hedging that development with higher-than-normal raw material purchases. So this was a conscious decision to invest into inventories to maintain our customer service levels at the kind of a target level. Top Hammer production capacity increase investments are moving ahead as per plan, and these are up and running before end of the year. We concluded our new loan agreement, and we are really happy with the new financing solution and it supports well Robit's plans moving forward. We started to work to reinforce Robit's sustainability road map, and we will tell more about this when we have our Capital Market Days September this year. So strong quarter 2 took our first half numbers into double-digit growth. So net sales, 10% growth and in fixed currencies, around 11%. Again, Top Hammer the driver. EBITDA improvement continued now 7.2% for first half. Of course, we have still a long way to go in this area, and a lot of actions are already ongoing to improve our profitability. Operating cash flow was negative driven by the decision to invest into inventories and securing the target customer service levels. Cash flow before changes in net working capital was EUR 3.6 million positive. It's again a figure that we follow it so is the cash flow from let's say, driven by the profitability without net working capital changes and good development there. Equity ratio now 44.2%. Arto will open that more in detail in his part of the presentation. So steady development and record numbers for quarter 2 during H1. Let's look at the net sales development area, strong first half for our Americas market area. This was really driven by easing of the COVID situation in North America. And a lot of the work we've done during actually the last 1.5 years started to realize with our major distributors in North America and strong growth in U.S. and Canada and Mexico. If you look at EMEA area, good growth in our largest sales area, driven by actually good development in the Nordics market, Finland, Norway. And again, Southern Africa also strong development there, of course, against also challenging comparison period during Q2. East area continued with 10% growth. There, it was now this time driven mainly by the mining segment. Construction piling projects were a bit slower for the first half, impacting partially also the Down the Hole development. Asia, a challenging start of the year. Multiple reasons, COVID being one of them. But we are back on track and actually the last months, the trend is positive there. So we will recover, we see a market backlog growth track. Australasia, small growth, small steps forward in Australasia for H1. So now we move to the details for financials and Arto will go from here.

Thank you, Tommi. As Tommi mentioned, we made record net sales in quarter 2 so far in Robit's history, and net sales grew 12.7%. And currencies had not that big impact on the top line on the quarter and growth in fixed currencies was 12.6%. EBITDA continued to develop positively, and we had the fifth consecutive quarter where we improved EBITDA to the comparison period. All in all, the EBITDA for the quarter was EUR 1.9 million. EBIT for the quarter was also positive 1.8% and a clear improvement from comparison period. All in all, the profitability was driven by the increased top line and also the tight fixed cost control. We had a negative impact on the profitability due to the increased logistics costs. On the other hand, the global increase in the raw material prices did not have major impact on the H1 profitability as we had anticipated and hedged kind of our position with increased raw material purchases during the turn of the year already. Net working capital increased and reached EUR 41.7 million. As Tommi mentioned, a lot of it is coming from inventory increase where we made the decisions to secure availability and improve availability of our products to support growth, especially on the Top Hammer side. On the other hand, the challenges in the logistics market and the container shortages that the market is facing caused longer delivery times. And then as a result, also the capital was tied into inventory longer times and increased inventory levels. And then as a third factor this, let's say, higher than normal raw material purchases at the turn of the year still had impact on our inventory levels at the end of the quarter. Receivables increased to EUR 24.2 million, and this was primarily due to the increased net sales in the quarter. We continued positive development on the cash flow before changes in net working capital. And this shows kind of the continued trend of improvement in the underlying profitability. The network -- changes in net working capital, then caused the operating cash flow was negative for the quarter. Cash flow from investing activities was EUR 0.5 million, and we continued our growth investments in Lempäälä and Korea factories. And now we continue the execution of the investments during the second half of the year, and then we will continue to see also the cash flow from investing activities, be on a higher level than 2020, when we come to the second half of the year. This graph illustrates well the trend, a positive trend in the cash flow before changes in working capital that continued in the quarter. On the other hand, we also see that typically, we see that the net working capital increases in the beginning of the year, but the situation typically improves when we come to the second half of the year. We continue to have a steady financial position. And at the end of the year, the cash and cash equivalent was EUR 9.4 million. When you look at the liquidity of the company, it's good to note that at the end of the quarter 2, we hadn't used our bank overdrafts at all compared to the quarter 2, 2020 when EUR 3.9 million was in use. So all in all, the liquidity position is very, very good. And the total interest-bearing loans and utilized credit limits totaled EUR 35.1 million. Net debt rose in the quarter, mainly due to the negative cash flow from operation and also the investments, our equity ratio continues to be solid now at 44.2%. In June, we finalized a new financing agreement for totally EUR 30 million loan. At the end of the quarter, we raised EUR 26.5 million of this new loan and used it to refinance old loans worth of EUR 22.5 million, and also to repay used bank overdraft limits. So we still have EUR 3.5 million of this loan agreement that remains to be raised at the later stages.

All right. Thank you, Arto. Let's jump into outlook and our next steps. So moving forward, what are our priorities? We have been able to sign 7 major distribution agreements during the second half -- first half of the year. And so we have a lot of untapped potential to grow together with our new distributors, to new customers. This is definitely our growth priority. If you look at Down the Hole business, we do systematic work to expand it geographically into new markets and new accounts. Currently, we have a record sales funnel of mining opportunities for Down the Hole business and of course, working hard to find ways to win those cases. Ramping up Top Hammer production capacity is a high priority for us. You saw good growth rates, and this is needed to maintain the required service levels lead times to support the growth with Top Hammer. Again, we have a strong focus on profitability improvement. And we've done a lot of actions already that will fall through also second half of this year. So there's a lot of actions that are realizing, moving forward, they are material cost savings. We know that in general, material costs are increasing. But at the same time, we have systematically moved to so-called cost-competitive country suppliers that still give us a saving -- net saving, even in this situation. Pricing optimization, we've done systematic work on this area, and we believe that it will have a clear impact during second half of this year. And fixed cost development, we maintain strict control on this. As we have stated many times, our current structure allows us to still grow minimum 10% easily, and then we start to step by step grow our structure as well. We also continue to focus on our business processes development, especially in the area of order to delivery process, which is really critical for us. This is availability business, and critical for our customers' operations. So securing reliable deliveries is a core part of our competitiveness. And we are working systematically on this area. Briefly, our long-term financial targets, growth 15% organically and 13% EBITDA. You'll see our track record, we still have some way to go, but we are trending towards our targets. Now H1 10% growth and 7.2% EBITDA, certainly working hard towards achieving these targets. Guidance, we maintain our existing guidance where we state that we believe that the impact of COVID is still continuing to reduce, even though we see some peaks in some areas, it looks like construction and mining business is resilient against these challenges and our customers continue to operate. So we see still positively the market outlook. Also, of course, in general, both construction and mining are in a very good strong, cycle, which is supporting the customer demand for Robit products. So we still estimate that our net sales will grow 2021 and our EBITDA profitability really improved compared to 2020. So next, it's time for questions and answers. So do we have any questions from the audience here, in Helsinki?

It's Julius from SEB. Maybe to kick it off first, relating to the East region where you saw another weaker quarter. And then again, you had a really strong H2 last year. Is that usually back-end loaded market for you guys? And what is the project outlook? I mean, specifically on this filing project in -- going forward?

Yes. It's really had a strong last year in all of the customer segments, and we were able to grow our business in mining as well as in this large-sized construction projects. First half, the construction project activity was slower. But we see some, let's say, more positive signs for second half. So we have some active cases. And actually, we have some smaller size deliveries already in the backlog for this segment. So slightly optimistic looking at the second half related to this segment.

All right. Thanks. If I may continue, maybe on the pricing situation. In the report, you mentioned, if I recall correctly, that you are starting to see some improvements from the price optimizations in H2. What kind of measures are we talking about here? And then from a maybe competition perspective, do you see it? Do you have room for high prices? I don't know, what are your competitors doing?

Yes. These are, of course, market-specific and so on. But certainly, when you look at this general market situation where demand for products is growing for everybody, basically, this is the moment when suppliers do pricing actions. And more or less other suppliers are doing, and we are trying to do and optimize them still, find pockets where we can do bigger increases. So I would say the pricing-related processes, and how we do pricing and follow-up, we've taken a big step forward and believe that, that supports our profitability development.

All right. And maybe last 1 at this stage for me. More general question regarding the Down the Hole business. You have seen really strong growth in Top Hammer, and the underlying market trends are rather supportive also in the DTH business. So maybe what are the main limiting factors, like limiting your growth at the moment, because it is primarily coming from Top Hammer at this stage. I think that has been the story for the past quarters or so.

That's correct. And Down the Hole has been more challenging area for us to drive growth. That's a fact. Down the hole for us is -- consists 2 major part of the business, which is what we call geotechnical part of the project type of business, and then, let's say, the mining-related business. In the geotechnical part of business, it's partially related to customer activity. And it's kind of a more normal that you see fluctuations in demand, because you may have several larger-sized projects at the same time. So that business as such is going normally a bit more up and down. Mining, for Down the Hole, that's an area where we are behind compared to our plans. But again, as I was stating, we have very systematic processes to work on that issue. And currently, we have a record active sales funnel of opportunities globally for Down the Hole mining. So we are hopeful, of course, we need to see how we are able to close now these opportunities. But first step is that we are involved and actively involved in the discussions, and then you have to close them.