Robit Oyj (ROBIT) Earnings Call Transcript & Summary

Welcome to Robit's Quarter 4 and 2022 Results Presentation and Analyst and Press Conference. My name is Arto Halonen. I'm the CEO of company, and I'm here with Ville Peltonen, our CFO. 2022 was, in many respects, a record-breaking year for Robit. And this was done in a challenging business environment. We made a record in net sales, net sales reaching to EUR 112 million, growth of 11.1%. Orders received remained relatively flat. We saw an impact of declining orders from Russia faster than we saw it on the net sales where we still delivered to Russia the existing backlog we had prior to the war. And also we saw, let's say, lower order intake level in the quarter 4, which impacted also the full year order intake level all in all. Growth was driven by our Top Hammer segment, where growth was strong, 18.7%. Down the Hole, there was a small growth of 1.5%. Growth was delivered across all market areas, except in Australasia, where sales remained relatively stable. We also made a record EBITDA, and that was as a result of successful execution of the improvement measures. The year was characterized by, let's say, high inflation, high fluctuation in the raw material prices. And we were able to cope in the situation and do the price increases where seen necessary to, let's say, protect the profitability. All in all, EBITDA reached EUR 8.9 million. Also, the net cash flow from operating activities improved to EUR 5.6 million from a negative EUR 4.2 million in 2021. Also pleased that we took good steps in our sustainability journey towards our targets we have set on that front. As one highlight, the reduction in the CO2 emission intensity. That dropped by 26% from our benchmark here of 2020. Quarter 4, we continued to grow outside of Russia. But it was a challenging quarter in terms of profitability. Net sales all in all, remained flat. Excluding Russia, net sales increased by 3.4%. Orders received decreased 23.4% and 14.6%, excluding Russia from, let's say, strong comparison period from 2021. We did not receive, let's say, major onetime single orders during quarter 4, impacting the overall orders received number. And also, I think there were some timing-specific issues on the orders received. Top Hammer continued to grow in the quarter -- quarter 3 -- quarter 4, 5.3%, whereas we saw a decline in sales in the Down the Hole. There was many factors impacting negatively on the profitability in quarter 4, and EBITDA was only EUR 0.4 million in the quarter. We had a negative impact from ramp-down of the Russian entity during the quarter 4. While we are -- when we were running down the, let's say, the operative actions in the Russia, also, currencies had a big negative impact on the EBITDA in quarter 4 as well as low utilization in our factories, especially in the Down the Hole segment that had a negative impact. And as we anticipated, let's say, the material costs still continue to trend upwards during quarter 4, although now we've seen easing up on that front, and we expect the trend to turn during 2023. There was positive development in net working capital, and that supported the cash flow from operations, which was positive EUR 1.6 million compared to the EUR 0.4 million negative from quarter 4 2021. If you look a bit the net sales in 2022 by market area, Americas continued to be the driver for growth, growing more than 30%. We saw growth both in South and North America, and the growth was driven by the mining segment. In EMEA, we grew by 7.4%. In EMEA, it's a big market area, and we had the areas where we saw very strong growth. But on the other hand, there were some regions where the, let's say, year was more challenging in terms of net sales. East continued to grow. Still, we made some, let's say, good openings, good development in countries outside of Russia, and also, we still had a good share of sales coming from Russia in 2022 as we delivered the backlog we had before -- received before, let's say, the Ukrainian war started. Asia also grew nicely. And Australasia remained relatively flat. We have 4 focus areas when it comes to sustainability at Robit: sustainable partnerships, CO2 emission reduction in our value chain, healthy and happy workplace and efficiency throughout the product life cycle. For all of them, we have set KPIs. And we took, in many areas, good step towards, let's say, right direction in the KPIs. We had already mentioned one of the highlights on the CO2 emission intensity reduction, which dropped by 26% to the benchmark here. Also good to see, let's say, good development on the employee engagement index, where we also took good step towards the right direction. Now I'll hand over to Ville for a bit more details on the financials.

Thank you, Arto. So like said, we had a good year overall but a challenging fourth quarter. Net sales grew by 11% in the year, but we didn't see any growth in the last quarter as the net sales were pretty much on the same level as the year before. Due to the facts Arto already mentioned, the Q4 EBITDA declined to 1.4%. But again, for the full year, it increased to 7.9%, the highest we have ever seen in Robit. EBIT percentage declined to minus 4% in the fourth quarter, again, for the full year, increased to 2.7%. For the full year, our result was EUR 0.9 million, so basically the same as we had a year ago. Here, it's good to note that we had some withholding tax assets that we wrote off in one of our subsidiaries at the end of the year due to the fact that we are not able to utilize them. The whole Robit team has been working extremely hard on our net working capital. And as you can see, we've seen a good development in the last part of the year, especially in Q4. So the trend is on the right path. Net working capital totaled at 46.7% (sic) [ EUR 46.7 million ], down from EUR 49.5 million in the third quarter. Inventories continued to decrease to EUR 44.3 million, and receivables decreased to EUR 22.5 million. Payables stayed pretty much the same at EUR 19.9 million compared to the third quarter. The positive development in net working capital can be seen on the cash flow statement as the operating cash flow improved to EUR 5.6 million from the comparison year where it was minus EUR 4.2 million. So there's almost a EUR 10 million improvement on that front. The cash flow before changes in net working capital also improved to over EUR 10 million. Cash flow from investing activities was minus EUR 1.1 million, and cash flow from financing activities resulted in minus EUR 6.4 million, including the loan repayments we've made and use of credit limit. Here, you can see the positive trend that we had in 2022 in the cash flow before changes in working capital and also the -- from operating activities. Our financial position remains steady. Cash and cash equivalents at the end of the year were EUR 7.7 million and total interest-bearing loans and utilized credit limits at EUR 36.3 million, down from EUR 41.5 million in 2021. And this includes the IFRS 16 lease liabilities of EUR 7 million. Our net debt was EUR 28.7 million, and the net debt-EBITDA ratio was 3.24. Equity ratio remained solid at 47%. Loans from financial institutions at the end of Q4 totaled EUR 27.5 million. And just as a kind of a reminder that we still have EUR 3.5 million remaining to be raised from the financial -- financing agreement made in 2021. And the loan amortization schedule is EUR 1.5 million at the end of June and at the end of December. Thank you.

Thank you, Ville. If you look 2023 and what are the key focus areas for us. First is that we focus to get all cylinders in the Robit engine firing. What we mean by this is that the growth in Robit has been driven by Top Hammer segment. And now beginning of the 2023, we implemented a, let's say, operating model change. And then we have 3 profit and loss responsible business units: Top Hammer, Down the Hole, Geotechnical. And focus of these units is to especially ensure we have the right sales channel for all of the segments that we are able to drive the profitable growth of all of the 3 businesses. Net working capital continues to be a focus area. We have a group-wide fit-for-service program launched already end of 2022, and it's focused on improving our, let's say, net working capital management, especially focused on inventory management but looking also the other elements of net working capital. And we saw, let's say, positive results from this program and the actions already in the quarter 4 of the year. Thirdly, we continue on executing on the actions to ensure positive profitability development. We continue to execute on the sourcing saving action plan. And as we progress on that, we'll start to see gradually step-by-step improvement on the cost competitiveness side and profitability side. Also, we have a good product development road map that is fostering the profitability -- profitable growth by bringing in new products to the market during 2023. So reminder, our financial targets, long-term financial targets, that's this 15% annual growth and comparable EBITDA of 13%. We are showing a positive trend towards those targets. But obviously, we have still a lot of room to improve to reach those levels. Robit Board of Directors is proposing to the AGM a dividend of EUR 0.02 per share to be distributed for the 2022 financial period. And finally, our guidance for 2023 is that Robit estimates that the net sales and comparable EBITDA profitability in euros in 2023 remains unchanged or increases slightly compared to 2022, assuming that there are no significant changes in the exchange rate from the level at the end of 2022.

And now we are ready for questions and answers. Please, Erkki, go ahead.

It's Erkki from Inderes. Can you hear me? Very good. Actually, I would have...

Okay. Yes, please go ahead.

Yes. I would have 3 questions, if you can bear with me. Firstly, how big were the costs linked to the rundown of the Russian subsidiary? And were all these booked in Q4?

Yes, the impact from Russia subsidiary rundown. We are talking about a couple of hundreds of thousands in that range from the Russia entity ramp-down.

Okay. And secondly, regarding numbers, what kind of impact the operational ForEx gains and losses have Q4 profitability? I mean you are going to disclose this figure in your annual report. Can you give us a number of...

In Q4, it was over EUR 800,000.

Negative?

Negative, yes. So a major significant impact on the profitability.

Okay. Then and finally, linked to the guidance. It looks very conservative considering Russia and all the cost headwinds that you had in '22. I mean why wouldn't your profitability improve year-on-year? Now you're guiding practically flat 8% EBITDA for the third year in a row. Why is that?

Well, if you think, when we enter 2023, we still had, for full year, a good positive impact from Russia. And also Russia was out of the net sales, 8%, 9% all in all. So effectively, we need to grow the level we will lose as a Russia sales, which -- because those are going to be 0 for this year pretty much.

Sorry to interrupt, you said 8% to 9% of your net sales in '22 was from Russia.

Yes.

Is that the only reason? I mean -- if you're guiding flat sales, nevertheless, so I mean, for instance, steel prices, freights and so forth, they have come down quite a bit last year. Will those...

Yes. I said, I think there is obviously a delay when -- what you see on the steel price on the spot price in the market when it realizes in our, let's say, cost base as steel prices -- let's put scrap prices, not necessarily even steel prices in a broader scale, started to go down already mid-last year. But still, the realized costs we have are -- have been trending up towards the end of the year due to the delay, there is in the kind of open purchase orders, we have inventory, we have -- and before that has turned around when the impact starts to see. But as I mentioned, the expectation on the, let's say, cost inflation side or cost pressure, as of today, the expectation is that there is an easing up on that front, which then naturally supports the profitability development.

So the delay is around 6 months plus?

I think it's a fair assumption, yes.

Yes, I can continue. Antti Kansanen, SEB. If we start from orders, which were down 15% ex Russia, and you mentioned some timing issues in there. Are you talking about customers' inventory reductions? Or could you open up that a little bit more?

I think partly, we are -- impact is that -- I think there is -- we've been living a period of, let's say, heavy uncertainty in supply chain in broader scale and that has resulted that, in many parts of the supply chain, you have a lot of inventory. And now when it's starting to easen up, let's say, the supply chain constraint, you start to see that the inventory levels have been reducing down. But I wouldn't say that's the only reason in that. I think there was softer orders all in all in quarter 4. And partly, I think when the crisis started, for example, on the construction side, there wasn't necessarily that many projects were a bit postponed as we have communicated already early. And I think we see a bit of that impact also in quarter 4 orders. Now it seems that there is also already kind of resuming of those projects. Whether they will definitely move ahead, that remains to be seen. But at least there's a fair amount of activity on that front as well.

So I guess reflecting to Erkki's question about the guidance. It's a tough start for the year that you have a bit of a poor capacity utilization start of the year basing on the orders, and then it takes time before the price and cost adjust and so forth.