EFORE PLC Half year financial report August 15, 2019 at 9.00 a.m.
EFORE PLC Half year financial report January 1 – June 30, 2019
This release is a summary of Efore's Half year financial report January – June 2019. The full report is a PDF file attachment to this stock exchange release and is available on the company's website at the address www.efore.com.
January – June 2019 in brief
- Net sales totalled EUR 34,7 million (EUR 24,6 million)
- Operating profit EUR -2,3 million (EUR -4,0 million)
- Adjusted operating profit was EUR -1,8 million ( EUR -4,0 milj. million)
- EBITDA EUR 0,6 million (EUR -1,6 million)
- Adjusted EBITDA was EUR 1,1 million (EUR -1,6 million)
- Earnings per share was EUR -0,01 (EUR -0,08)
Efore has adopted the new IFRS 16 standard effective January 1, 2019 using the modified retrospective approach and the comparative figures have not been restated. More information of the adoption of IFRS 16 is presented in accounting policies.
| |
1-6/19 |
1-6/18 |
1–12/18 |
| Key indicators, EUR million |
6 mo |
6 mo |
12 mo |
| |
|
|
|
| Net Sales |
34,7 |
24,6 |
52,4 |
| Telecom |
11,8 |
8,2 |
18,7 |
| Industrial |
22,9 |
16,5 |
33,7 |
| Adjusted EBITDA* |
1,1 |
-1,6 |
-2,3 |
| EBITDA* |
0,6 |
-1,6 |
-2,9 |
| Adjusted operating profit/loss |
-1,8 |
-4,0 |
-6,7 |
| Operating profit/loss |
-2,3 |
-4,0 |
-7,2 |
| Profit/loss before taxes |
-2,3 |
-4,5 |
-8,5 |
| Profit/loss for the period |
-2,3 |
-4,3 |
-7,8 |
| |
|
|
|
| Earnings per share, EUR |
-0,01 |
-0,08 |
-0,14 |
| Solvency ratio, %* |
15,4 |
7,5 |
20,6 |
| Gearing, %* |
155,2 |
562,6 |
100,6 |
| Cash flow from operating activities |
2,1 |
-5,3 |
-2,8 |
| |
|
|
|
| |
|
|
|
| Key indicators half-year, EUR million |
H1/2019 |
H2/2018 |
H1/2018 |
| |
|
|
|
| Net Sales |
34,7 |
27,8 |
24,6 |
| Telecom |
11,8 |
10,6 |
8,2 |
| Industrial |
22,9 |
17,2 |
16,5 |
| Adjusted EBITDA |
1,1 |
-0,7 |
-1,6 |
| EBITDA |
0,6 |
-1,2 |
-1,6 |
| Adjusted operating profit/loss |
-1,8 |
-2,7 |
-4,0 |
| Operating profit/loss |
-2,3 |
-3,3 |
-4,0 |
*IFRS 16 standard had EUR 0,4 million positive impact to period’s EBITDA and adjusted EBITDA. Excluding IFRS 16 standard adoption group solvency ratio would have been 16,1 % and gearing 128,7.
Estimate of financial development in 2019 financial period
Efore published an updated estimate of financial development for 2019 in the stock exchange release dated 31st of July as follows:
The continuing business (Efore excluding Telecommunications business) updated financial targets for 2019 are clearly positive EBITDA (adjusted items affecting comparability) and net sales of EUR 43-47 million.
Previous estimate was:
The target for 2019 is to achieve over EUR 70 million net sales, clearly positive EBITDA (adjusted for items affecting comparability) and positive cash flows from operating activities.
Vesa Leino, Efore President and CEO:
”Net sales development in first half of 2019 was positive and also profitability developed to the right direction. First half net sales was EUR 34,7 million with EUR 10,1 million growth from the corresponsing period a year ago and EUR 6,9 million growth from second half of 2018. Net sales growth was based on organic growth and Powernet acquisition. Operating result for the reporting period was however still negative.
Organic net sales growth was coming especially from the sales start of new Industrial business products and improved delivery capability in both Industrial and Telecom business. After the second half of 2018 we set a target to clear the Telecom delivery backlog in the beginning of 2019 and in Industrial business by the end of April. Both of these targes were met as planned.
Cash flow from operating activities in the first half of 2019 was EUR 2,1 million and clearly positive just as the guidance given.
Integration of Powernet acquisition has proceeded as planned and during the first half the former Efore DC-Systems product line and Powernet business were consolidated and are now lead as one entity called Digital Power Systems. First half a year after the acquisition has confirmed our confidence in achieving synergies in both sales and operational activities.
Demand for new generation high power efficiency rectifier (MHE, Modular High Efficiency) during the first half a year was good. Production for MHE product launched in the end of 2018 started during the first half of 2019 and sales have started. MHE product demand in demanding convection cooled rectifier market looks promising. Demand for rail solutions becoming part of Efore in Powernet acquisition was especially for the early part of the year a slight disappointment. After the early spring the outlook for this business has however become brighter and also here we are expecting the second half of the year to be clearly stronger than the first half.
In Digital Power & Light product line the growth of new Strato Evo product family continued and in addition to that especially the new 1500W Led driver have gotten off for a good start. The positive impact from these new products is expected to continue in the second half of the year.
Telecommunication net sales grew from the corresponding period a year ago and was also higher than in the second half of 2018. This was affected especially by improving demand and delivery backlog clearance in the beginning of this year.
Structural changes in Telecom business that have been under preparation for longer time with a Chinese power supply partner were completed when the Efore board approved July 31st 2019 the offer made by Kexin Communication Technologies Co. Ltd for purchase of the Efore Telecommunications business. Acquisition offer includes also Efore brand and name. Accepting the offer discontinued also the ongoing Joint Venture negotiations with another Chinese power supply partner.
This deal will substantially change the company structure and future. We are developing new strategy, new financial targets and also a new name. We will communicate more about these later. Company future is now developed under the project name “Efore 2.0” and it will focus on two customer centric product lines: new Digital Power Systems product line and Digital Power & Light product line established based on the acquisition made in 2013 (Roal).
Digital Power Systems product line was established as part of the new strategy in early 2019 by combining the Efore DC Systems product line with the acquired Powernet business. Digital Power & Light product line has during the last two year been remarkably renewed by among others relocating Italy operations to new building, making changes in product line management and launching new products (1500W and Strato Evo). All these actions are creating solid foundation for future growth.
The future for both of these continuing product lines looks positive which gives very good basis for the company renewal and building the new future.”
January - June net sales and result
Net sales from January to June was EUR 34,7 million (EUR 24,6 million)
Net sales in industrial business grew by 38,8% from comparison period reaching EUR 22,9 million (EUR 16,5 million). The growth in net sales was due to the acquisition of Powernet International Oy and organic growth especially in Digital Power & Light business line.
Net sales in Telecom business grew by 43,9% from comparison period reaching EUR 11,8 million (EUR 8,2 million). The growth in net sales was due to stronger demand compared to comparison period and improved delivery capability.
Challenges regarding availability of components eased somewhat during the first half of the financial year, positively impacting net sales development and partly profitability in all business lines. Securing component availability will be important also during the rest of the year.
Operating profit from January to June improved from comparison period and was EUR -2,3 million (EUR -4,0 million). The main drivers behind improved operation profit were higher level of net sales, fixed expense management and good margin development in all businesses. Operating profit includes EUR 0,5 million of items affecting comparability. These are mainly expenses related to the restructuring of Telecom business.
Profit for the reporting period was EUR -2,3 million (EUR -4,3 million) and net financial expense was EUR 0,0 million (EUR -0,6 million). Reporting period net financial expense was positively impacted by 0,3 million gain from sale of minority share in VOX Power Ltd as well as a change in valuation of the additional purchase price liability (earn-out) connected to the acquisition of Powernet International Oy EUR 0,2 million.
Business development
Industrial
During the closing months of last year, Digital Power & Light product portfolio was expanded through new product introductions and the sales have developed well during the first half of the financial year. Strato Evo product family deliveries continued to increase during the fist half a year. Specifically designed for indoor, architectonic sites and outdoor lighting, the Strato EVO products are an extension to the successful Strato product family. The new 1500W led driver launched last year also experienced strong sales growth. These products are used in lighting solutions for sport venues and airports among others. The interest in high power products has clearly increased which in turn supports our strategy and creates basis for net sales growth.
Demand for the new generation high efficiency rectifier (MHE, Modular High Efficiency) during the first half of the financial year was good. Launched late 2018, production for the MHE started during the first half and the sales have started. Demand for the MHE in the demanding fanless rectifier market looks promising. The order book for MHE was strong at the end of June which provides a solid foundation for net sales development in the second half of 2019.
Demand for rail transport solutions acquired with Powernet International Oy was slightly disappointing especially in the beginning of the year. Since then however, the outlook for this business has improved and we are anticipating the second half of the financial year to be clearly stronger than first half.
Telecommunication
Net sales of the first half of the financial year were significantly higher than in comparison period due to increase in demand and clearing of previous year’s undelivered orders during the beginning of the year. Component availability challenges originating from faster than expected increase in demand of the second half of 2018 have eased during the first half of the financial year.
During the financial period, Telecommunication business acquired a significant new customer in Asia. The customer is a subcontractor for teleoperators. First deliveries to the new customer will start at latest by early 2020.
The telecommunication market is still in transition phase which places new demands on companies in the sector. As a response to the market change, Efore has since 2017 directed its product development investments amongst all towards products utilized in smaller base stations. The product offering has also been expanded to include products that can be used regardless of specific network technology in question. Products based on 5G-technology are key in future network expansions.
Market outlook
In the Industrial business, power supplies for LED lighting, measuring equipment, healthcare equipment and infrastructure continue to offer several growth opportunities. Efore will be investing in customer segments where high reliability and long product life-cycles are key business drivers.
The product development efforts of Efore’s Telecom business customers are increasingly focused on 5G-technology. The new products introduced to the market by Efore support both current technology as well as future 5G-technology. Therefore, the new product solutions introduced to the market by Efore create opportunities for growth.
Short-term risks and factors of uncertainty
The overall economic development may have an effect on Efore’s business environment. Due to the nature of its business, Efore is facing some notices of defects, and their final outcome cannot be predicted. Based on the current information, these claims are not expected to have a material impact on the financial position of the Efore Group.
The most significant business risks are related to the market success of key customers’ products. The progress of Efore’s product development projects depends partly on the customers’ project schedules. Furthermore, demand fluctuations typical in the market cause rapid changes in Efore’s business.
The lead times for component deliveries are still long, and there are occasionally challenges in the availability of certain components. This may have an impact on Efore’s delivery capability also in the future.
Expanding the product portfolio to system-level solutions in the Industrial business may lead to an increased product liability risk.
The rights offering in the end of year 2018 improved significantly Efore’s solvency and decreased gearing. However, there are some risks related to the adequacy of financing. The Company is aiming to manage these risks by the active planning and implementation of different options.
Investments and product development
Group investments during the first half of the year amounted to EUR 2.0 million (EUR 1.9 million) which includes EUR 1.2 million (EUR 1.5 million) capitalization of product development costs. At the end of the period under review, the capitalized product development investments amounted to EUR 8.9 million (EUR 8.6 million).
Previously capitalized product development costs were impaired by EUR 0.2 million. Impairment was mainly identified because of changes in Digital Power Systems and Digital Power and Light business lines. Business line changes were due to some customers’ volume expectations of individual products.
The development expenditure amounted to EUR 3.6 million (EUR 3.3 million). EUR 1.2 million (EUR 1.5 million) of these costs was capitalized and EUR 2.4 million (EUR 1.8 million) as expenses, 7.0 % (7.4 %) of net sales.
Financial position
The interest-bearing liabilities exceeded the consolidated cash reserves by EUR 11.0 million (EUR 15.3 million) at the end of the period under review. The implementation of IFRS 16 standard had an increasing impact of EUR 1.8 million on the net interest bearing liabilities at the end of the period under review.
The cash flow from operating activities was EUR 2.1 million (EUR -5.3 million). Positive cash flow was due to the positive EBITDA and a decrease in the net working capital. The free cash flow after investments was EUR 0.6 million (EUR -7.2 million). The Group's solvency ratio was 15.4 % (7.5 %) and the gearing was 155.2 % (562.6 %). Without the impact of IFRS 16 standard’s implementation the Group's solvency ratio would have been 16.1 % and the gearing 128.7 %.
The liquid assets excluding undrawn credit facilities totalled EUR 3.3 million (EUR 2.8 million) at the end of the period under review. At the end of the period under review the Group had undrawn credit facilities excluding factoring limits EUR 0.7 million (EUR 1.7 million). The balance sheet total was EUR 46.6 million (EUR 36.3 million).
Efore Plc has started negotiations with the main financier for the new covenants during the second half of the financial year. The negotiations are part of the reorganization of Telecom business.
EFORE PLC
Board of Directors
For further information please contact Mr. Vesa Leino, CEO, tel. +358 40 759 8956,
on 15th August 2019 at 12:00-13:30.
DISTRIBUTION
Nasdaq Helsinki Oy
Principalmedia
Efore Group is an international company that designs and manufactures power electronics products. The Group’s head office is based in Finland and its sales, marketing and R&D functions are located in Europe and China. The Group also has a sales and marketing unit in the United States. In the financial year ending 31 December 2018, consolidated net sales totalled EUR 52.4 million and the number of Group personnel averaged 406. The parent company's share is quoted on the Nasdaq Helsinki Ltd. www.efore.com
