DUROC AB INTERIM REPORT
JULY-DECEMBER 2021
SUPPLY CHAIN CHALLENGES CHARACTERIZED THE QUARTER
Second quarter, October-December 2021
- Net sales increased by 12 percent to MSEK 825.1 (735.3).
- Adjusted EBITDA* decreased by 63 percent to total MSEK 14.2 (37.9), corresponding to an adjusted EBITDA* margin of 1.7 percent (5.2). Altogether, several companies show good profit. Extensive losses in the French part of Cotting Group and a weak profit in Drake Extrusion have lowered the profit.
- Adjusted EBIT totaled MSEK-10.7 (13.0).
- Operating profit (EBIT) totaled MSEK-5.0 (13.0).
- Cash flow from operating activities totaled MSEK-59.0 (5.4). Increased material prices have resulted in more capital tied up.
- Profit after tax was MSEK-4.8 (6.3).
- Adjusted earnings per share totaled SEK-0.27 (0.16).
- Earnings per share totaled SEK-0.12 (0.16).
- Equity amounted to MSEK 1,108,5 (921.3) and an equity/asset ratio of 54 percent (49).
First six-months,July-December 2021
- Net sales increased by 17 percent to MSEK 1,690.3 (1,439.0).
- Adjusted EBITDA* decreased by 28 percent to total MSEK 61.5 (85.8), corresponding to an adjusted EBITDA* margin of 3.6 percent (6.0).
- Adjusted EBIT totaled MSEK 11.8 (35.5).
- Operating profit (EBIT) totaled MSEK 17.5 (33.0).
-
Cash flow from operating activities totaled
MSEK -21.7 (59.8). The material price development has tied up capital, in inventory above all. - Profit after tax was MSEK 10.1 (17.5).
- Adjusted earnings per share totaled SEK 0.11 (0.51).
- Earnings per share totaled SEK 0.26 (0.45).
- Cash and cash equivalents at the end of December totaled MSEK 35.9 (120.1) and net debt excluding lease liabilities from IFRS 16 totaled MSEK 202.3 (97.3). Unutilized credit facilities totaled MSEK 215.4.
2021/2022 | 2020/2021 | 2021/2022 | 2020/2021 | 2021/2022 | 2020/2021 | |
Group (MSEK) | Q2 | Q2 | Q1-Q2 | Q1-Q2 | R12 DEC | JUL-JUN |
Net sales | 825.1 | 735.3 | 1,690.3 | 1,439.0 | 3,505.8 | 3,254.5 |
EBITDA | 19.9 | 37.9 | 67.1 | 83.3 | 173.8 | 189.9 |
Adjusted EBITDA* | 14.2 | 37.9 | 61.5 | 85.8 | 199.9 | 224.2 |
Adjusted EBITDA*-margin, % | 1.7 | 5.2 | 3.6 | 6.0 | 5.7 | 6.9 |
Operating profit/loss (EBIT) | -5.0 | 13.0 | 17.5 | 33.0 | 73.1 | 88.6 |
Adjusted EBIT* | -10.7 | 13.0 | 11.8 | 35.5 | 102.1 | 125.8 |
Profit/loss after tax | -4.8 | 6.3 | 10.1 | 17.5 | 48.0 | 55.4 |
Profit per share, SEK | -0.12 | 0.16 | 0.26 | 0.45 | 1.23 | 1.42 |
Adjusted profit per share, SEK* | ||||||
-0.27 | 0.16 | 0.11 | 0.51 | 1.97 | 2.37 | |
Cashflow from operating activities | -59.0 | 5.4 | -21.7 | 59.8 | -10.9 | 70.6 |
Net debt excl. lease liability from IFRS 16 | 202.3 | 97.3 | 202.3 | 97.3 | 202.3 | 139.9 |
Net debt incl. lease liability from IFRS 16 | 336.1 | 230.0 | 336.1 | 230.0 | 336.1 | 283.3 |
Net debt/Equity ratio, % | 30 | 25 | 30 | 25 | 30 | 26 |
*Adjusted for items affecting comparability. A reconciliation of amounts can be found on page 17
Duroc acquires, develops and manages companies with a focus on trade and industry. Using their profound knowledge of technology and markets, the Group's companies aim to achieve leading positions in their respective industries. As the owner, Duroc actively contributes to their development. Duroc is listed on Nasdaq Stockholm (short name: DURC). www.duroc.se
D U RO C I N T E R IM R E PO R T Q 2 2 02 1 /2 02 2 | 2 ( 1 9 ) |
CEO'S COMMENT
The second quarter was characterized by the same patterns as previously reported with continued severe effects from the pandemic, which depressed earnings in some parts of the Group even though we noted strong order intake and good earnings in others. Duroc increased sales by 12 percent to MSEK 825.1
(735.3). Adjusted operating profit totaled MSEK -10.7 (13.0). The situation is heterogenous, with high profitability in several units, but extensive losses in Griffine, the French part of Cotting Group and a weak result in Drake Extrusion. Thus, all other companies show a positive EBIT amounting to 61.2 MSEK during the first six months, while the losses in Griffine and Drake Extrusion sums up to MSEK
43.7. An action program has been launched to turn the development in Griffine around, while lower polypropylene prices and a higher labor supply will result in successively increase profits in Drake Extrusion
Second quarter, October-December 2021
Consequences of semiconductor shortages and raw materials price increases have been difficult to predict, and they have affected Duroc to a greater extent than previously envisaged. The Cotting Group is a supplier to the French automotive industry, which has been more affected by the semiconductor shortage than their industry colleagues in e.g. Germany, and volumes were successively reduced during the first half of the financial year. Meanwhile, intensive efforts were made to broaden the customer base in both the automotive and other segments in order to mitigate vulnerability.
Drake Extrusion in the US suffered a reduced order intake in the staple fiber segment, driven by high raw materials costs and semiconductor shortages among costumers in the automotive industry. Many American employers, including Drake Extrusion, are finding it difficult to attract and retain employees. Labor shortages in yarn production have resulted in delivery delays. Despite the delivery situation, the company has not had losses in market shares.
Other parts of the Group have developed satisfactorily. Despite reduced volumes in automotive, IFG has improved its earnings. This is a direct result of the mix shift, which is proceeding according to plan. The DMT Group, which sells machine tools and tools, enjoyed a strong order intake and an all-time high order backlog at the end of the quarter. Cresco has grown with continued profitability and increased its market share in North America, where potential is growing. Driven by strong demand, Duroc Rail continued to improve sales and profitability. Growth and profitability in the Small Company Portfolio increased despite delivery delays from some subcontractors.
Our acquisition ambitions remain, and related activities have continued during the quarter, but without resulting in any new addition to the Group.
As already mentioned, disruptions in the Cotting Group and Drake Extrusion burdened the result to a greater extent than predicted during previous quarter. Duroc increased sales by 12 percent to MSEK 825.1 (735.3). The operating profit totaled MSEK -10.7 (13.0).
In conclusion, I recognize that low demand, from the automotive industry in particular, has been the biggest challenge, while demand in the engineering and metal-processing sectors has contributed to a sharp increase in order intake.
First six-months,July-December 2021
All portfolio companies except the Cotting Group increased their sales. Growth in IFG and Drake Extrusion was mainly driven by price increases. Demand was strong in most segments except the automotive industry.
IFG, DMT Group, Duroc Rail and the Small Company Portfolio all showed a sharp improvement in earnings. A mix shift has been in progress for quite some time in IFG in favor of products with a higher value content and thus better margins, which has contributed strongly to the improvement in earnings.
Net sales increased by 17 percent to MSEK 1,690.3 (1439.0). Operating profit totaled MSEK 17.5 (33.0). Combined, the Cotting Group and Drake burdened operating income in the amount of MSEK -43.7. Thus, the other portfolio companies made a positive contribution totaling MSEK 61,2.
Future prospects
Short-term demand during the next quarter, is rated as good for all companies except the Cotting group. While the situation is difficult to assess, the French automotive industry is showing signs of an improvement in the supply of critical components and it forecasts a return to normal by mid-year. Measures have been taken to reduce costs and, as previously announced, a significant order from a key customer in automotive has recently been secured. Although the months ahead will be weak in terms of earnings for Cotting Group, in our estimation the company will show positive results and cash flows in a medium to long-term perspective.
My assessment for Drake Extrusion is that its circumstances will gradually improve at the beginning of 2022, and that the business will begin generating positive earnings and cash flows in the months ahead. Raw materials prices in the US are on the way down, while personnel turnover decreased at the end of 2021, and the conditions for new recruitment have improved.
Even though the second quarter was gloomy, most of the portfolio companies are doing well. The companies managed to fend off all the challenges they were confronted with, and they have every opportunity to continue growing. Despite the temporary setbacks, Duroc is in good shape. The equity/assets ratio is high, the Group has significant unutilized credit facilities and is ready to address the challenges in the upcoming quarters.
John Häger
CEO
D U RO C I N T E R IM R E PO R T Q 2 2 02 1 /2 02 2 | 3 ( 1 9 ) |
DEVELOPMENTS IN DUROC PORTFOLIO COMPANIES
Duroc's portfolio companies consist of International Fibres Group (IFG), Drake Extrusion, Cresco, Cotting Group, Duroc Machine Tool Group (DMT Group), Duroc Rail and the Smaller Company Portfolio, which comprises Universal Power Nordic (UPN), Herber and Duroc Laser Coating (DLC). Set forth below are each individual portfolio company's share of net sales and adjusted EBIT for the past 12-month period, January 2021
- December 2021. Read more about developments company by company on pages4-7 and in Duroc's segment report on page 16.
SHARE OF NET SALES (R12)
Duroc Rail | Smaller | ||
4% | Comp Portf | ||
DMT Group | 4% | ||
13% | IFG | ||
Cotting | 37% | ||
Group | |||
13% | |||
Cresco | Drake | ||
9% | Extrusion | ||
20% | |||
Second quarter, July-December 2021
Net sales increased by 12 percent to MSEK 825.1 (735.3). Organic growth was 11 percent. All of the portfolio companies grew organically, with the exception of the Cotting Group. The DMT Group and the Small Company Portfolio enjoyed growth rates of nearly 50 percent. Growth in IFG and Drake Extrusion is mainly driven by price increases to compensate for higher material and transport costs, and in the case of Drake also higher internal labor costs. The Cotting Group is continually affected by low volumes to the automotive industry, due to the semiconductor shortage. This also affected volumes in IFG and Drake Extrusion, as did customers who are holding back and awaiting lower polypropylen prices. Adjusted EBITDA declined to MSEK 14.2 (37.9), depressed by earnings from the Cotting Group and Drake Extrusion. Other portfolio companies improved their earnings. The adjusted EBITDA margin was 1.7 percent (5.2). Adjusted EBIT totaled MSEK -10.7 (13.0) and the loss after tax MSEK -4.8 (6.3).
ADJUSTED EBIT PER PORTFOLIO COMPANY (R12)
60 | ||||||||||||||||||
50 | ||||||||||||||||||
40 | ||||||||||||||||||
30 | ||||||||||||||||||
20 | ||||||||||||||||||
10 | ||||||||||||||||||
0 | ||||||||||||||||||
IFG | Drake | Cresco | Cotting DMT Group Duroc Rail | Smaller | ||||||||||||||
-10 | ||||||||||||||||||
Extrusion | Group | Comp Portf | ||||||||||||||||
-20 | ||||||||||||||||||
-30 | ||||||||||||||||||
-40-50
First six-month period, July-December 2021
Net sales increased by 17 percent to MSEK 1,690.3 (1,439.0). Organic growth totaled 17 percent, driven by all of the companies in the portfolio except the Cotting Group, where volumes are low due to the semiconductor shortage. Despite supply challenges, DMT Group, Duroc Rail and the Small Company Portfolio enjoyed strong growth and improved profitability during the first six-month period. Growth at IFG is largely driven by price increases to compensate for higher material prices, but a higher proportion of niche products also boosted profitability. Drake Extrusion was negatively affected by a drop in staple fiber volumes and labor shortages in the US, which meant that the high demand in the profitable yarn segment could not be met in full. The situation is expected to improve significantly in future quarters. Adjusted EBITDA totaled MSEK 61.5 (85.8) and the adjusted EBITDA margin totaled 3.6 percent (6.0). Adjusted EBIT totaled MSEK 11.8 (35.5) and profit after tax amounted to MSEK 10.1 (17.5)
DEVELOPMENT OF DUROC'S NET SALES | |||||||||||
MSEK | |||||||||||
900 | |||||||||||
800 | |||||||||||
700 | |||||||||||
600 | |||||||||||
500 | |||||||||||
400 | |||||||||||
300 | |||||||||||
200 | |||||||||||
100 | |||||||||||
0 | |||||||||||
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 |
2018/2019 | 2019/2020 | 2020/2021 | 2021/2022 |
DEVELOPMENT OF DUROC'S OPERATING PROFIT (EBIT)
MSEK 100
80
60
40
20 | ||||||||||||
0 | ||||||||||||
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | |
-20 | 2018/2019 | 2019/2020 | 2020/2021 | 2021/2022 |
Operating profit for Q1 and Q2 2019/2020 includes MSEK 65.7 and MSEK
1.2 respectively for negative goodwill from business acquisitions. Q3 2020/2021 was affected by restructuring costs totaling MSEK 35.
D U RO C I N T E R IM R E PO R T Q 2 2 02 1 /2 02 2 | 4 ( 1 9 ) |
International Fibres Group (IFG) is one of | Share of Duroc's sales |
Europe's leading manufacturers of | (R12) |
polypropylene-based staple fibers, an input | |
product with reinforcing, insulating, | |
separating or draining properties. The fiber is | |
used in the production of e.g. flooring, rugs, | |
furniture, filters, foodstuff packaging, car | 37% |
interiors and nonwoven fabrics, which means | |
a diversified customer portfolio. IFG has | |
production facilities in Belgium, the United | |
Kingdom and Austria. |
- The switch in the product mix in favor of niche products and strategic capacity adjustments in the UK strengthened adjusted EBITDA during the quarter, despite volumes being 21 percent lower. In addition to the product mix, sales growth is also affected by the increase in raw materials prices*.
- The reduced volumes are largely attributable to the semiconductor shortage in the automotive industry. Also, IFG was confronted with await-and-see market, where customers are holding back for lower prolypropylen prices*.
- The high raw materials prices lingered into the second quarter due among other things to high transportation costs from Asia. However, the European market expects prices to be on their way down in the upcoming quarters.
- EBITDA and EBIT include MSEK 5.7 from the dissolution of the restructuring reserve booked in Q3 2020/2021 in respect of the closure of a production facility in the UK.
*Raw materials prices at IFG have risen since the second half of the 2020/2021 financial year. Price mechanisms in customer agreements mean that sales increase as raw materials prices rise and decrease as prices fall. Because raw materials prices affect both the sales price and raw materials costs, gross profit remains unchanged, but with a certain lag.
2021/ | 2020/ | 2021/ | 2020/ | 2021/ | |
2022 | 2021 | 2022 | 2021 | 2022 | |
Amounts in MSEK | Q2 | Q2 Q1-Q2Q1-Q2 | R12 DEC | ||
Net Sales | 293.9 | 239.8 | 632.6 | 495.1 | 1,293.3 |
Growth, Net Sales % | 22.6 | -4.4 | 27.8 | -13.7 | 30.8 |
Organic growth % | 22.6 | 0.9 | 27.9 | -10.2 | 33.4 |
EBITDA | 17.3 | 9.7 | 38.8 | 22.2 | 60.1 |
EBITDA margin % | 5.9 | 4.0 | 6.1 | 4.5 | 4.6 |
Adjusted EBITDA | 11.6 | 9.7 | 33.1 | 24.7 | 77.6 |
Adjusted EBITDA-margin, % | 3.9 | 4.0 | 5.2 | 5.0 | 6.0 |
EBIT | 11.0 | 2.3 | 26.2 | 7.3 | 32.4 |
EBIT margin % | 3.7 | 1.0 | 4.1 | 1.5 | 2.5 |
Net Debt/Net Cash (-) | 105.0 | 23.4 | 105.0 | 23.4 | 105.0 |
of which from leasing IFRS 16 | 65.0 | 68.4 | 65.0 | 68.4 | 65.0 |
Capital employed | 454.2 | 345.0 | 454.2 | 345.0 | 454.2 |
ROCE % | 8.2 | 0.6 | 8.2 | 0.6 | 8.2 |
Adjusted ROCE % | 13.1 | 3.2 | 13.1 | 3.2 | 13.1 |
- Sales volumes decreased by 30 percent in the quarter, and the increase in sales revenues is entirely attributable to price increases to compensate for increased raw material prices and labor costs. Demand for staple fiber from automotive remains low as a consequence of the semiconductor shortage, and strong demand in the yarn business could not be fully met as the staffing situation in the USA remains challenging.
- The high PP prices have begun to trend downwards, which together with the better staffing outlook for upcoming quarters is expected to boost earnings significantly.
- EBITDA totaled MSEK-4.1 (12.4), mainly influenced by sales volumes, but also high raw materials prices.
Drake Extrusion is North America's leading | Share of Duroc's sales | ||||
producer of polypropylene-based colored | (R12) | ||||
filament yarn and staple fiber. Filament yarn | |||||
is used mostly by customers who produce | |||||
fabrics for the furniture industry. Staple fiber | |||||
is used for production in a variety of areas | |||||
including flooring, rugs, furniture, technical | 20% | ||||
filters, car interiors and nonwoven fabrics. | |||||
The business is located in Virginia, USA. | |||||
2021/ | 2020/ | 2021/ | 2020/ | 2021/ | |
2022 | 2021 | 2022 | 2021 | 2022 | |
Amounts in MSEK | Q2 | Q2 | Q1-Q2 | Q1-Q2 | R12 DEC |
Net Sales | 161.8 | 138.6 | 352.7 | 282.6 | 692.3 |
Growth, Net Sales % | 16.7 | -13.4 | 24.8 | -11.6 | 36.7 |
Organic growth % | 7.3 | -3.4 | 19.0 | -3.0 | 38.4 |
EBITDA | -4.1 | 12.4 | 3.7 | 30.6 | 17.7 |
EBITDA margin % | -2.5 | 8.9 | 1.0 | 10.8 | 2.5 |
EBIT | -10.9 | 6.0 | -9.7 | 17.7 | -7.0 |
EBIT margin % | -6.7 | 4.3 | -2.7 | 6.3 | -1.0 |
Net Debt/Net Cash (-) | 34.7 | -7.4 | 34.7 | -7.4 | 34.7 |
of which from leasing IFRS 16 | 11.8 | 11.9 | 11.8 | 11.9 | 11.8 |
Capital employed | 292.4 | 228.1 | 292.4 | 228.1 | 292.4 |
ROCE % | -2.6 | 16.7 | -2.6 | 16.7 | -2.6 |
D U RO C I N T E R IM R E PO R T Q 2 2 02 1 /2 02 2 | 5 ( 1 9 ) |
Cresco develops, produces and sells textile- | Share of Duroc's sales |
based solutions for the professional | (R12) |
cultivation of crops and is one of the leading | |
players on the global market. The products | |
contribute to favorable environments in | |
greenhouses, mushroom farms and | |
composting installations. The most important | 9% |
product is a climate screen for greenhouses that controls the cultivation climate, contributing to a more efficient process with lower energy consumption. Cresco's production facility is in Belgium.
- Net sales increased by 6 percent organically in the second quarter, despite a largehigh-margin order for climate screens being moved forward to the next quarter.
- EBITDA increased and the EBITDA margin strengthened. The relatively low margin for the quarter is attributable to a product mix that was affected by deferred projects to which Cresco supplies climate screens.
- Cresco's business is largely dependent on the operation of the greenhouse projects to which it delivers. Thus because sales and earnings in any one quarter are dependent on the projects that fall due during the period, the outcome may vary considerably.
- Order levels at the end of the period totaled MEUR 11, a reduction from the previous quarter's record (13.6) but still at a high level.
- Cresco is well positioned to continue growing the business in a favorable market. The company has begun to capture market share in North America as a first step toward extending its geographical footprint.
2021/ | 2020/ | 2021/ | 2020/ | 2021/ | |
2022 | 2021 | 2022 | 2021 | 2022 | |
Amounts in MSEK | Q2 | Q2 Q1-Q2Q1-Q2 | R12 DEC | ||
Net Sales | 71.0 | 68.1 | 140.0 | 136.0 | 300.8 |
Growth, Net Sales % | 4.3 | 16.0 | 2.9 | 6.7 | 12.6 |
Organic growth % | 5.8 | 20.3 | 4.5 | 10.2 | 16.0 |
EBITDA | 5.5 | 4.7 | 14.3 | 15.1 | 46.0 |
EBITDA margin % | 7.7 | 6.8 | 10.2 | 11.1 | 15.3 |
EBIT | 4.1 | 3.5 | 11.6 | 12.7 | 40.7 |
EBIT margin % | 5.8 | 5.1 | 8.3 | 9.3 | 13.5 |
Net Debt/Net Cash (-) | 25.5 | 39.5 | 25.5 | 39.5 | 25.5 |
of which from leasing IFRS 16 | 5.6 | 4.6 | 5.6 | 4.6 | 5.6 |
Capital employed | 182.9 | 170.4 | 182.9 | 170.4 | 182.9 |
ROCE % | 24.1 | 16.2 | 24.1 | 16.2 | 24.1 |
Cotting Group has been established in the international coated textiles market for more than 60 years. Its products consist of PVC and PU coated fabrics that are used in a variety of areas, including the fashion industry, protective clothing, hospital beds, car interiors, dental chairs, furniture and wall coverings. Cotting has production facilities in France and Belgium.
Share of Duroc's sales (R12)
13%
- Net sales in Cotting Group continued to be heavily influenced by low volumes in the French operation. The 50 percent drop in volumes to automotive is attributable to the semiconductor shortage.
- At the end of the quarter, a certain increase in volumes to automotive was noted, and although lower volumes are expected to remain for the rest of the financial year, active sales efforts spotlighted several good business opportunities for a little further ahead.
- High raw materials prices, which for contractual reasons could not be fully covered by price increases to customers, had a negative effect on EBITDA. Belgian operations, which account for about 30 percent of sales, were also affected by high raw materials prices and rising energy prices.
- During the quarter, the French operation won an important order in automotive. The order value is for around MEUR 52 over six years from the end of 2023 The order involves investments in new production equipment that will strengthen competitiveness.
2021/ | 2020/ | 2021/ | 2020/ | 2021/ | |
2022 | 2021 | 2022 | 2021 | 2022 | |
Amounts in MSEK | Q2 | Q2 Q1-Q2Q1-Q2 | R12 DEC | ||
Net Sales | 111.7 | 154.4 | 208.5 | 272.4 | 471.7 |
Growth, Net Sales % | -27.6 | -17.3 | -23.4 | -16.8 | -10.4 |
Organic growth % | -26.6 | -14.3 | -22.2 | -14.1 | -7.3 |
EBITDA | -17.3 | 7.7 | -23.6 | 6.2 | -25.3 |
EBITDA margin % | -15.5 | 5.0 | -11.3 | 2.3 | -5.4 |
Adjusted EBITDA | -17.3 | 7.7 | -23.6 | 6.2 | -19.1 |
Adjusted EBITDA-margin, % | -15.5 | 5.0 | -11.3 | 2.3 | -4.1 |
EBIT | -22.1 | 3.4 | -33.2 | -2.3 | -43.3 |
EBIT margin % | -19.8 | 2.2 | -15.9 | -0.9 | -9.2 |
Net Debt/Net Cash (-) | 100.0 | 25.0 | 100.0 | 25.0 | 100.0 |
of which from leasing IFRS 16 | 3.8 | 6.1 | 3.8 | 6.1 | 3.8 |
Capital employed | 312.1 | 298.6 | 312.1 | 298.6 | 312.1 |
ROCE % | -14.6 | -1.0 | -14.6 | -1.0 | -14.6 |
Adjusted ROCE % | -12.5 | -0.5 | -12.5 | -0.5 | -12.5 |
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Duroc AB published this content on 04 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 February 2022 08:25:10 UTC.
