Robit Oyj (ROBIT) Earnings Call Transcript & Summary

Welcome to Robit's quarter 2 and H1 2025 results webcast. My name is Arto Halonen. I'm CEO of Robit. I'm here with Ari Suokas, our CFO. We are using a chat functionality in this webcast. So throughout the presentation, feel free to post questions through the chat. And we will then have a Q&A session at the end of the presentation where we will cover the questions that we have received. Here's a standard disclaimer about the forward-looking statements. Second quarter was a challenging one for us. Orders decreased by 18%. The decline was driven by in the DTH segment through to the major supply contract that ended mid last year and was still impacting the comparison period numbers. On the other hand, in the Geotechnical segment, the demand, the project activity was still weak and also the timing of the project was such that we did not see major orders for quarter 2. In Top Hammer, also, the major orders were not received in quarter 2 despite the fact that the running basic business is doing okay on the Top Hammer side. Market demand as such remained at a good level in the mining market, but the construction market was still weak. And the, let's say, anticipated recovery in the construction market is still on a, let's say, uncertain grounds. Net sales dropped by 20.4% in constant currencies, 17.8%. All in all, currencies played a major role in the results for the quarter. Our EBIT declined to negative EUR 600,000 from positive EUR 700,000 on a comparison period. And this was largely coming from exchange rate losses, which accounted for the quarter EUR 900,000. For first half of the year, the losses from currencies accounts to EUR 1.4 million. So they have really played a major role in the profitability development during this year. Positive development we saw in improved gross margin. The many initiatives we have had to improve our product competitiveness also to control pricing. They are paying dividend and showing improved gross margin. We are seeing in the first half of the year, the improvement on gross margin, both in money terms as well as naturally then in a relative basis. Also, the reduced freight costs have had a positive impact on the gross margin development for the quarter and for the first half of the year. Due to the challenging situation in the market and declining sales, we also initiated a change program to renew operating model and target savings. We are targeting through this program EUR 2 million annual savings basically from employee-related costs. Majority of the actions related to this change program have already been implemented, and the final actions will be implemented by the end of quarter 3, and we expect roughly an EUR 800,000 positive impact through to this change program for 2025. Cash flow from operations remained relatively stable during the quarter, resulting to EUR 1.8 million positive. We were able to turn during the quarter, the development in inventories. Still at the end of the first quarter, we had too high inventory levels but the trend was clearly turned then during the second quarter of the year. There is still a lot of work remaining on that front, but we already took good steps forward in that front during the second quarter. On the sustainability targets, there is steady progress towards our targets. And one key highlight is this emission intensity where we are now 44.8% below the benchmark year, which is 2020 for us. We saw a further 5 percentage point decline and progress towards the target during the first half of the year. Our target is to halve the emission intensity by year 2030. If we look a bit closer to the first half and development there. In constant currencies, our net sales have dropped 12.2%, and Top Hammer declined 3.6%. Top Hammer also had a weaker second quarter, as mentioned, no major orders or deliveries were timed to second quarter. All in all, the basic business in Top Hammer is doing -- is running well, and there are also some new customers that are then being ramped up during the third quarter of the year. In Down the Hole, we have seen a large decline in sales. First half of the year, is 40.1% coming from this -- largely coming or you could say, more or less all coming from this one major contract that has ended in the Down the Hole segment. On a positive note, we were able to secure new customers in Down the Hole segment, including one major supply agreement in Africa, where then deliveries are being ramped up towards the end of quarter 3 and then full impact in quarter 4. Geotechnical net sales have decreased by 16.7% during the first half of the year. The construction market has still been weak, and that has impacted heavily on the geotechnical market and the competition in the projects as there are fewer out there remains quite tight. EBIT year-to-date, we are pretty much at 0. The decrease is EUR 1.7 million to 2024. Out of this EUR 1.4 million comes, again, from the exchange rate losses. We have the change program ongoing. As mentioned, most of the actions implemented that will then impact positively the profitability during the second half of the year and full impact in 2026. And also what gives us good foundation is the improved gross margin levels, and that is then supporting our profitability development for the second half of the year. Cash flow from operations is negative EUR 300,000. But as mentioned, we saw clear improvement in the second quarter. So sequentially, there's a good improvement as a result of turning the trend in the inventory development. We look a bit sales development by market area. Asia has been the best performing market area for us this year. There we have delivered a small growth, which is a good result as Asia is very construction-driven market. We've won a lot of tunneling projects, especially in Korea during the year. For some of those deliveries have started already. For many of them, deliveries will then start second quarter -- second half of the year. Australasia remains to be challenging for us, and we are working hard to recover the sales from the lost accounts. EMEA sales have declined 7%. The mining market and the mining segment demand and sales have been developing better in the area. But obviously, the construction market remains weak and there is also fairly construction-heavy sales area for us is EMEA, and that has impacted the sales for this year. Americas, we've seen 6% decline this year. On a positive note, Down the Hole segment, we've seen growth in Americas, and Americas, especially North America is one of the focus areas we have for the Down the Hole segment and good to see that some results are coming from the strong sales actions we have put there, especially on the quarry and construction segment. The tariff situation has obviously created uncertainty in the market. But in quarter 2, it did not have a major impact on the net sales. And good thing is that the situation has been now clarified at least for the time being. When it comes to the sustainability goals, I already mentioned this CO2 emission intensity reduction. That's a great highlight in -- on this front. Another highlight is the improved safety performance, the consistent work on proactive safety work has now -- is now also visible on the LTIF development, LTIF was 2.7 for the first half of the year, a 2.7 in our numbers means basically 1 incident that resulted into lost time, but good progress there, and it's obviously a constant work that needs to continue. We have also continued on the innovation and offering renewal front. Now the recent product launches we have had is Robit Mbit series. It's a really revolutionary drilling concept especially to the surface drilling market, and it's providing our customers straighter holes, safer operations, longer lifetime of the drilling gears. And all this results all in all to CO2 reductions and more sustainable drilling operations. We've also launched a Marathon version of our H-series Hammer family. With the Marathon Series, our customers are able to get even longer lifetime out of their H-series hammers providing another great alternative and option for our customer base. Now I'll hand it over to Ari. Ari, will cover the financials more in detail.

Thank you, Arto. Let's start with the Q2 figures. As mentioned by Arto, our net sales in Q2 decreased by 20.4% to EUR 19.6 million. And the decrease came mainly from EMEA but also from Australia with the lost customer there last year. In Q2 '25 EBITDA decreased to 1.9%, and our EBIT percentage in Q2 '25 decreased to 3.1 percentage. Our Q2 '25 result of the period decreased and was EUR 1.2 million. Exchange rate losses were significant during the review period, weakening our profitability. And here, the major impact has been the falling U.S. dollar. Q2 '25 net working capital development. As Arto mentioned, our net working capital improved in Q2 '25 compared to Q1. When we look at the comparison to last year Q2, we see that net working capital increased by EUR 3 million and totaled EUR 41.8 million. Our inventories remained flat at EUR 36.4 million. Receivables decreased to EUR 18.1 million and payables decreased to EUR 12.7 million. And with our receivables, we see our good work with the collections, but also we see the impact of declined sales. Net working capital percentage of the last 12 months sales was 49.7%. Q2 '25 cash flow. Our cash flow before changes in net working capital was EUR 1 million. Our operating cash flow was EUR 1.8 million. Cash flow from investing activities was negative EUR 0.3 million, and cash flow from financing activities resulted to EUR 2.5 million negative. Our financial position briefly. Cash and cash equivalents at the end of Q2 '25 were EUR 7.6 million. And our total interest-bearing loans and utilized credit limits were EUR 28.4 million, and this included IFRS 16 lease liabilities of EUR 3.9 million. Our capital structure. Net debt increased and was EUR 20.8 million and net debt to 12 months rolling EBITDA was 4.47 at the end of Q2. And here, we expect to have level of more close to 3 at the end of the year. So we are pretty confident that our actions with the operating model changes will have a positive impact here impacting also to this key figure. Our equity ratio remained strong at 50.7 percentage. Loan maturities. Loans from financial institutions at the end of Q2 '25 totaled EUR 24.5 million. We renewed our financing agreement in June, and that new agreement will be ending mid-2030. The new agreement enables us to support the growth, and we renewed refinanced the existing loan base but also create the possibility to invest future growth and support the working capital fluctuation. Senior loan amortizations are EUR 1.5 million biannually in June and December. And the company has an interest rate swap of EUR 10 million, which took effect on July '25 and ends on 30th of June 2030. Now back to you, Arto.

Thank you, Ari. So focus areas for '25 continues to be the same as we have had. The back to growth track is clearly the number one theme that the teams are working on in Top Hammer, Geotechnical, drive interest through product renewal, new product launches as well as channel expansion that we are working on. Then Down the Hole, as mentioned, really the focus markets we have are North America, Australia, Africa, and good to see that there is some positive results that we expect to see in the figures, especially then on the second half of the year, as mentioned, new customers, one in North America, especially Africa, and we'll expect some ramp-up of the business in the second half of the year. On the supply chain front, we are improving our end-to-end supply chain planning process. That work has been ongoing throughout the year. And the target here is that it will improve our profitability through more stable supply chain, less freight cost and also that will stabilize our cash flow. And again, I think we have seen results out of this in H1 as a result of significantly lower air freight cost compared to 2024 levels. Product competitiveness, we continue to drive with new products, new innovations that we bring to the market, but also we have focused dedicated programs to also improve the competitiveness of our existing offering. So that we were able to do profitable business in all of our target markets. Some of these initiatives on this product competitiveness front is already visible then on the improved gross margin that I mentioned earlier. We did update our guidance for the year in July. So we estimate for 2025 that our net sales will decline compared to 2024 and also our comparable EBIT profitability in euros will stay at the same level or decline compared to 2024 levels. Thank you. This was the presentation part, and then we will turn to the questions that have come through the chat. And again, feel free to post the questions as we start going through them over.

I will read the questions out loud, and I'll let you Arto to reply to these ones, especially the first ones. First one coming from Aapeli. In your market outlook, you expect the construction industry to develop positively in the second half '25. Do you see any positive indicators that you would confirm this as, it's already August?

Yes. So we did mention also in our report that we see kind of risks in this anticipated recovery. I think the market is still -- if you look at the construction market is still polarized in that sense that we are still lacking this kind of a constant baseline demand that comes especially from the housing sector. But there are then the kind of a bigger infrastructure projects where we see quotation activity and projects moving forward. Obviously, those type of projects are easier than postponed, or there's delays in the projects, and that brings uncertainty. So it is a bit binary in that sense. There's large infrastructure projects progressing, but on the other hand, still the underlying housing-driven or building construction-driven market is missing, and there's only weak signs of recovery there.

Thank you, Arto. A few other questions also from Aapeli. You mentioned that decrease in net sales from EMEA came partly due to the distributors' high stock levels. Did this happen during Q2? And what is the estimate of how long it will take to normalize?