Robit Oyj (ROBIT) Earnings Call Transcript

Welcome to Robit's Second Quarter and Half Year Analyst and Press Conference. My name is Arto Halonen. I am the Group CEO and I'm here with Ville Peltonen, Interim CFO. We had an excellent second quarter and I'm very proud of the Robit team who delivered these results. We made a record both in net sales as well as in EBITDA. Our net sales totaled EUR 31 million and was supported both Top Hammer and Down the Hole segment. Both of the businesses grew by 23.7%. Orders were flat resulted to EUR 26.4 million. We are seeing the impact from Russia order decline faster than -- in orders than in net sales. Also, we were pleased to see that all of the market areas delivered growth in the second quarter. This was enabled by also completing the investment plans we have had for, especially our Top Hammer business. We successfully executed the profitability improvement measures. And that shows in the strong EBITDA. EBITDA resulted in EUR 4.1 million and 13.1% as a percentage of net sales. The improvement actions were focused on pricing management, procurement savings, as well as addressing some of the lower profitable customers. In all of these action points we made good progress during the quarter. Strong profitability resulted also into positive net cash flow from operations. One of highlights from beginning of the year is also that we took good steps towards our sustainability targets. And as an example, the CO2 emission intensity took a great step towards the right direction and towards our targets. We are very pleased with the strong quarter 2. First half of the year, we also saw good growth. Net sales grew by 19.2% and fixed currencies 15.5%. Growth was mainly driven by the Top Hammer business, which grew 27.7%. But thanks to the strong second quarter, we saw also growth in the Down the Hole business growing with 8.8%. EBITDA went back to growth curve, thanks to the strong EBITDA and profitability development during the second quarter of the year. We have seen also strong improvement on the cash flow from operations, which improved EUR 5.1 million and was a positive EUR 1 million during the first half of the year. We are still seeing some challenges in the trade market, and the transportation lead times are still longer than normally, which is negatively impacting on the net working capital. Although, there has been some improvement on the freight market, it's not yet visible on the, let's say, lead times as such. Also, the cash flow from -- before changes in net working capital improved to EUR 5.6 million. As mentioned, we grew in all market areas. Growth was strongest in Americas during the first half of the year, where net sales grew by more than 60%. Also, we had a good growth in East, where we delivered the existing backlog we had for the Russia order. We entered the year with a very strong backlog for our Russia business. And now we are finalizing the deliveries of that backlog during quarter 3. And gradually, we will see, let's say, Russia, Belarus business to, let's say, decline from the levels it has been. On the sustainability front, we took good steps in many areas. And as a highlight, the CO2 emission intensity that I mentioned already, there we have, for example, increased the share of renewable energy at our Perth factory, and that was one key contributor that we achieved 21.3% reduction in our CO2 emission intensity as compared to the baseline year 2020. And our target is to halve our emission intensity by 2030. I will hand over to Ville. Ville will cover the financials in a bit more detail.

Okay. Thank you, Arto. Like Arto said, we had an excellent second quarter. Our key financials reached new records in Q2. Net sales, strong growth, 23.7%, higher than the second quarter in 2021, which was also a record-breaking quarter for Robit. In fixed currencies, we grew by 17.4%. So we got a little help on the top line from the currencies. EBITDA continued to develop positively and improved by EUR 2.2 million from the second quarter of 2021. And we reached the 13% level that has been our key financial target. So we reached that level in the second quarter. EBIT for the second quarter was also positive, reaching 8.4%, improving from the 1.8% in the second quarter of 2021. Also, our result for the period was positive EUR 2.1 million in the second quarter and EUR 1.3 million in the first half of the year. Well, let's look at the net working capital development. NWC totaled at EUR 51.1 million, slightly decreasing from the level we were at the end of the first quarter, and the trend is starting to decline. Inventories increased to EUR 47.4 million, and the increase was impacted by the cost inflation we've seen in the past months, as well as the FX rates. Receivables increased to EUR 25.7 million as a direct result from the strong growth in sales and invoice. Net working capital will be and has been in the short-term focus of Robit and we have several actions ongoing to lower our inventory levels. We have reduced the amount of SKUs, and we have optimized the product offering of our business segments. Cash flow developed positively as a result of the strong profitability. Cash flow before changes in net working capital improved to EUR 4.8 million and EUR 5.6 million in the first half of the year. Operating cash flow was EUR 1.4 million in the second quarter and EUR 1 million in the first half. Cash flow from investing activities was minus EUR 0.4 million, mainly related to the Top Hammer investments we have made and cash outflow from financing activities resulted in minus EUR 1.6 million, which includes the EUR 1.5 million loan amortization we had at the end of June. Here, you can see the trend of cash flow before changes in working capital. We are back on a positive trend as a result of the strong second quarter. Our financial position remains steady. Cash and cash equivalents at EUR 7.1 million, and total interest-bearing loans and utilized credit limits were EUR 38.8 million, including EUR 7 million from the lease liabilities of IFRS 16. This year, in the first half of the year, we have lowered the level by EUR 2.7 million. Capital structure. So our net debt was EUR 31.7 million, slightly down from the beginning of the year. And our net debt to 12 months rolling EBITDA ratio was 3.47%. The equity ratio remained solid at 45.7%. So loans from financial institutions at the end of the second quarter totaled at EUR 29.1 million. And we still have EUR 3.5 million from the loan agreement made in 2021 remain to be raised at later stages for possible investments or else. Our loan amortization schedule is EUR 1.5 million by annually. So at the end of June and then at the end of December. In May, we also agreed to extend our financial agreement to a new 2-year period, and we still have one extension option left for next year. We also have an interest rate swap of EUR 10 million, which will take effect at the end of June next year for a 3-year period ending at the end of June 2026. Back to you, Arto.

Thank you, Ville. We continue our focus on profitable growth. So our target has been to get profitability on a growth curve, and we took great steps on that front during the second quarter. Pricing management, procurement savings, addressing low profitable customers have been the, let's say, key action areas in this profitability improvement focus. In the short-term, we are focused heavily on net working capital. As Ville mentioned, especially, there's actions in inventory level to plan better our inventories, to control our inventory levels better, at the same time secure good availability to our customers. We have also actions ongoing, let's say, on the other elements of the net working capital receivables, payables side that we are looking in to improve the cash contribution. We have also focused sales actions to compensate for the Russia, Belarus sales that will now gradually decline as we are not taking new export orders to these markets. We are only delivering our existing backlog. And backlog, we will deliver during the quarter 3, and then quarter 4, we have only maybe some minimal sales from our local inventory that is already in the country. All in all, Russia, Belarus, they accounted for 10% of our net sales during the first half of the year. We have strengthened focused on sales distribution channel to strengthen the activity on the sales front and to, let's say, sharpen our sales management practices. All in all, we are geared up for growth. We have now finalized the investments that we have planned for -- focused on the Top Hammer side, especially, we have taken, let's say, big increase in our production capacity. During the quarter, our lead times have improved, and we are in good position to capture market share in this business. As a recap of our financial targets, Robit targets 15% annual growth as well as 13% comparable EBITDA. During quarter 2, we met both of these targets growth over 20% and EBITDA also over 13%. Also, the first half results show that we are clearly, steadily and consistently developing towards these targets. Outlook, as considering the risks in the market, we estimate that the demand in the mining and construction industry will remain at current level. We have identified the risk related to the war in Ukraine cost inflation as well as the, let's say, potential global decline of the economic development or the lower growth estimates, but we don't see that they are unlikely to substantially affect the company's operation in 2022. We also reiterate our guidance and estimate that our net sales will grow in 2022 and our comparable EBITDA in euros will improve, assuming there are no significant changes in the exchange rate compared with 2021. Now the floor is open for questions. You can just speak loudly.

Okay. Very good. So it's Erkki from Inderes. I've got a handful of questions, but maybe I'll start with just the first 3. First and then on the price versus volume component in your Q2 order intake and sales, could you give us any kind of hunch how those 2 developed?

Yes. As said, pricing management has been a key focus area for us in quarter 1. After quarter 1, we communicated that we were, let's say, late in implementing the pricing actions. And on top of that, then we hit the high peak in the raw material cost as a result of the war in Ukraine. So we have taken, let's say -- obviously, you see on the reported numbers that we have taken actions on the pricing front and the pricing level compared to quarter 2 last year has improved due to the actions we have been taken. So we don't give out the exact numbers, how these components play. But let's say, there was a big contribution also from the increased price levels in quarter 2 compared to the 2021 quarter 2.

And I guess, just still continuing on the same subject, has the new pricing methodology already been fully implemented? Or is there still something positive to look forward?

Yes. Yes, I would say that we were able to complete the pricing actions that have been decided so far well in quarter 2. And let's say, most of the impact from those actions we saw already in quarter 2.

Antti Kansanen from SEB. Just on the order intake, I mean, it was flat year-over-year, and you would expect that there's positive FX and pricing impact in there. So the volumes are a bit lower, mostly likely due to Russia. But how should we think about your lead times? I mean can you now, going into second half, achieve a faster kind of order to sales conversion than last year? Or is it just that the logistic bottleneck and things like that are still kind of limiting that?

Yes, yes. I don't think our lead times are such limiting. I see it more as an opportunity. We have significantly improved our lead times from our factories as a result of the investments we have completed and also the nature of the business is that we have a pipeline of products all the time going to the markets close to the customer. So I think we are in a very, very good, let's say, position to have a fast rotation of book-to-bill, and that's not a limiting factor for our growth.

And then kind of you referred on the inventory side, the kind of the inflation and FX is visible there. So are you kind of -- is the same magnitude visible now on your deliveries going forward? Are you kind of happy with the balance that you have and coming back to the price increase side?

Yes. I think if you think the price increases we've implemented, I think we have compensated the cost inflation on our prices, and we succeeded in that front. Obviously, then on the cost side we have actions ongoing on the procurement side to lower the cost base and create savings on that front. And there were good steps completed during quarter 2 on that front, but it is more, let's say, gradual improvement that we will see on the, let's say, procurement savings side.

Then on the receivables and then related to the Russian business in second and third quarter. You're selling, but are you getting cash out from that business to the group numbers?

Yes. Yes, let's say, we've been able to get that money out from Russia.

So again, how sustainable do you see is the Q2 profitability? I mean, given that you already reached the 13% EBITDA margin, where are the risks?

Yes. In a way, we did very timely actions on the pricing front. And as I said, kind of the results realized well during quarter 2. At the other hand, let's say, the cost impact, for example, on the spike in the raw material cost that was caused by the war that realizes again gradual, because there is a delay. So I think it is fair to estimate that quarter 3, our cost base is still slightly going up. Before how it looks based on today's, let's say, raw material steel price situation, maybe it starts to decline. But again, that will come with the lag and with the delay as it flows through, let's say, our pipeline and the deliveries come from the suppliers.

And then on freight prices, high freight prices have kind of dragged your profitability in recent quarters. You didn't say anything of freight prices in this report. Is the situation kind of normal? Or how do you see it going forward?