DUROC AB INTERIM REPORT
JULY-SEPTEMBER 2022
THE MACROECONOMIC SITUATION HAS AFFECTED EARNINGS IN THE MAJORITY OF THE PORTFOLIO COMPANIES - RADICALLY REDUCED NET DEBT
First quarter July 2022 - September 2022
- Net sales were in line with the corresponding quarter last year and totaled MSEK 862.7 (865.1). Organic growth stood at -7 percent.
- Adjusted EBITDA* decreased by 66 percent to total MSEK 15.8 (47.2), corresponding to an adjusted EBITDA* margin of 1.8 percent (5.5).
- Adjusted EBIT* amounted to MSEK -12.4 (22.5).
- Operating loss (EBIT) totaled MSEK -12.4 (22.5). Griffine, the French part of Cotting Group, presented an EBIT of MSEK -7.2; EBIT for the remaining parts of the Group totaled MSEK -5.2.
- Cash flow from operating activities totaled MSEK 131.8 (37.2).
- Loss after tax was MSEK -11.1 (14.8).
- Adjusted earnings per share totaled SEK -0.28 (0.38).
- Earnings per share totaled SEK -0.28 (0.38).
- Cash and cash equivalents at the 30th of September totaled MSEK 47.1 (60.4), and net debt excluding lease liabilities from IFRS 16 totaled MSEK 159.4 (129.7) which is a decrease by MSEK 107.9 since the previous quarter. Unutilized credit facilities totaled MSEK 271.7 (275.0).
- Equity totaled MSEK 1,267.0 (1,101.6) and the equity/assets ratio was 56 percent (54).
2022/2023 | 2021/2022 | 2022/2023 | 2021/2022 | |
Group (MSEK) | Q1 | Q1 | R12 SEP | JUL-JUN |
Net sales | 862.7 | 865.1 | 3,718.0 | 3,720.5 |
EBITDA | 15.8 | 47.2 | 167.9 | 199.4 |
Adjusted EBITDA* | 15.8 | 47.2 | 160.6 | 192.1 |
Adjusted EBITDA*-margin, % | 1.8 | 5.5 | 4.3 | 5.2 |
Operating profit/loss (EBIT) | -12.4 | 22.5 | 48.1 | 83.0 |
Adjusted EBIT* | -12.4 | 22.5 | 55.2 | 90.1 |
Profit/loss after tax | -11.1 | 14.8 | 39.0 | 64.9 |
Profit per share, SEK | -0.28 | 0.38 | 1.00 | 1.67 |
Adjusted profit per share, SEK* | -0.28 | 0.38 | 1.18 | 1.85 |
Cashflow from operating activities | 131.8 | 37.2 | 57.7 | -36.8 |
Net debt excl. lease liability from IFRS 16 | 159.4 | 129.6 | 159.4 | 265.7 |
Net debt incl. lease liability from IFRS 16 | 288.9 | 267.8 | 288.9 | 396.0 |
Net debt/Equity ratio, % | 23 | 24 | 23 | 32 |
*Adjusted for items affecting comparability. A reconciliation of amounts can be found on page 19
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 URO C IN T E RIM RE PO RT Q 1 2 02 2 /2 02 3 | 2 ( 1 9 ) |
CEO'S COMMENT
During the first quarter, strong demand and good earnings were noted in Duroc Machine Tool, Duroc Rail and the Smaller Company Portfolio, operations related to mechanical engineering processing industries and industrial trading. Unfortunately, units with their own, heavy production in the plastics industry, namely IFG, Cotting Group, Drake and Cresco, i.e. the major part of the Group in terms of both sales and capital tied up, burdened overall earnings through an unfavorable combination of events. By and large, these are most likely of a transitory nature.
First quarter July 2022 - September 2022
For the portfolio companies in the plastics industry, the quarter was characterized by rapid, severe price drops for import goods and this has clearly entailed customers holding back on their short- term purchases pending a stabilization of prices at a lower level. The price drop has also resulted in significant inventory impairments, which affects earnings trends, but not cash flow, negatively. Further factors depressing earnings were the exceptionally severe price rises for electricity and gas, which we were unable to pass on to the customers during the quarter.
However, in the medium-to-long- term, falling raw materials prices are positive for the operation as there is more room for contribution margins, while at the same time capital is released from inventory and accounts receivables.
Demand in Duroc Machine Tool, Duroc Rail and the Smaller Company Portfolio continues to be good with high order intakes.
Duroc's sales for the first quarter totaled MSEK 862.7 (865.1). The operating loss totaled MSEK -12.4 (22.5). Sales excluding Griffine, which is not part of the central financing system in the parent company and whose debt Duroc is no longer liable for, totaled MSEK 773.3 with an operating loss of MSEK -5.2.
The Group's net debt excl. IFRS 16 decreased by MSEK 108 compared to the previous quarter and totaled MSEK 159.4 on September 30. Excluding Griffine, the net debt for which Duroc is liable is MSEK 125, compared with equity well in excess of SEK 1 billion. The balance sheet is overwhelmingly dominated by real assets.
IFG performed weakly during the first quarter with significantly lower volumes than the previous year. Lower volumes mean short- term challenges with costs that cannot be recovered quickly. At the same time, escalating energy charges contributed to lower margins. In general, this means significantly poorer results than expected in this cyclical business.
Drake Extrusion, the portfolio company in the USA, performed well in respect of staple fibers, but the effects of inflation on the more profitable yarns led to hesitation among American consumers, resulting in inventory adjustments, due to low demand for newly produced products. These negative effects on IFG and Drake are projected to be of a short-term nature, characterized by the turbulent world we currently live in. However, because the long-term business plans are not jeopardized by these events. Their long-term earnings capacity is deemed to be good.
Energy prices in Europe have led to short-term postponements in major farming projects as profitability is eroded when new, large energy-intensive greenhouse installations are established. On the other hand, there is continued pressure to replace equipment that has reached the end of its economical service life, i.e. the aftermarket business in Cresco continues to be strong. The portfolio company's energy efficiency-enhancing product offering also means that higher energy price levels bring market potential.
DMT and the Smaller Company Portfolio presented excellent earnings and noted strong order entry during the quarter. No signs of weakening demand were seen in these businesses. The Nordic and Baltic mechanical engineering industries continue to experience full order books and high employment. The Small Company Portfolio drastically improved its earnings compared to the previous year.
In line with expectations, Duroc Rail enjoyed a strong quarter, but as it is still in low season, the quarter does not reflect the earnings capacity of future quarters.
In the Cotting group, Griffine continued to burden earnings as a result of low sales and ongoing low order entry. Efforts to find an industrial party to take over the operation continues. Excluding Griffine, the groups EBIT for the last twelve months amount to 129,5 MSEK. The estimation is that the groups EBIT will continue to strengthen significantly. Plastibert, the Belgian unit, enjoyed good order entry during the quarter, like other units it was affected by cost-push inflation.
Outlook
At the time of writing, gas prices in Europe were on the way down, to the benefit of the majority of Duroc's units. There are signs in the USA that inventory adjustments are on the wane, which should generate an increase in demand.
All companies that use plastics as input goods (77% of Duroc's net sales) benefit from the decline in gas prices now taking place in the market. However, if polypropylene prices continue to drop, there is a risk that customers will continue to postpone future purchases until the anticipated lowest price is reached. However, significant volume increases and a return to more normal, stable volumes should then be noted.
Duroc Machine Tool, the Small Company Portfolio and Rail had well-filled order books at the beginning of the second quarter, but there are also signs of greater customer hesitancy than before regarding new investments.
To sum up, the majority of businesses are already in recession and there are signs that the mechanical engineering industry and thus industrial trade is approaching the same condition. Against this background, future quarters are also difficult to assess.
Duroc's position continues to be strong with a low, and decreasing, debt/equity ratio and a high level of preparedness to make any necessary adjustments in the business, and also for the Group to draw benefit from new business opportunities.
There are significant values in today's Duroc, both in the form of real assets and businesses that generate highly satisfactory returns on capital employed.
John Häger
CEO
D URO C IN T E RIM RE PO RT Q 1 2 02 2 /2 02 3 | 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, October 2021
- September 2022. Read more about developments company by company on pages 4-7 and in Duroc's segment report on page 16.
SHARE OF NET SALES (R12) | ADJUSTED EBIT PER PORTFOLIO COMPANY (R12) |
Duroc Rail | Smaller | 60 | |
3% | Comp Portf | 40 | |
5% | |||
DMT Group | |||
20 | |||
15% | IFG | ||
Cotting | 37% | 0 | |
-20 | |||
Group | |||
14% | -40 | ||
Cresco | Drake | -60 | |
7% | Extrusion | ||
19% | -80 | ||
IFG | Drake | Cresco | Cotting | DMT Group | Duroc Rail | Smaller |
Extrusion | Group | Comp Portf |
First quarter July 2022 - September 2022
Net sales were in line with the corresponding quarter last year and totaled MSEK 862.7 (865.1). Organic growth stood at -6,5 percent, mainly driven by lower sales in IFG and Drake. DMT presented higher sales than the year-over-year comparison quarter as did Cresco, the Smaller Company Portfolio and Cotting Group.
Adjusted EBITDA totaled MSEK 15.8 (47.2) and the adjusted EBITDA margin was 1.8 percent (5.5), driven by lower gross earnings which were affected by inventory adjustments and higher costs for energy, shipping and labor. The Smaller Company Portfolio and Cotting Group presented a better EBITDA than the year-over-year comparison quarter, mainly driven by increased sales where price rises could be passed on to the customer.
Adjusted EBIT totaled MSEK -12.4 (22.5), and operating profit totaled MSEK -12.4 (22.5). Profit after tax was MSEK -11.1 (14.8).
DEVELOPMENT OF DUROC'S NET SALES
MSEK
1 000
900
800
700
600
500
400
300
200
100
0
Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
2019/2020 | 2020/2021 | 2021/2022 | 2022/2023 |
DEVELOPMENT OF DUROC'S OPERATING PROFIT (EBIT)
MSEK | ||||||||||||
65 | ||||||||||||
55 | ||||||||||||
45 | ||||||||||||
35 | ||||||||||||
25 | ||||||||||||
15 | ||||||||||||
5 | ||||||||||||
-5 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
-15 | 2019/2020 | 2020/2021 | 2021/2022 | 2022/2023 | ||||||||
-25 |
The operating profit for Q3 2020/2021 was affected by restructuring costs totaling MSEK 35.5.
D URO C IN T E RIM RE PO RT Q 1 2 02 2 /2 02 3 | 4 ( 1 9 ) |
International Fibres Group (IFG) is one of Europe's leading manufacturers of polypropylene-basedstaple 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 interiors and nonwoven fabrics, which means a
diversified customer portfolio. IFG has production facilities in Belgium,
the United Kingdom and Austria.
Share of Duroc's sales (R12)
37%
- Net sales have decreased by 7,0 percent*, of which organic growth was -10.7 percent. This is primarily due to a reduction in sales volume of around 20 percent. Because the earlier record-high PP prices have begun to fall, many customers have refrained from placing orders and are speculating on even lower PP prices in the quarters ahead.
- The effects of the macroeconomic situation with high raw materials prices, high energy prices, inflation and mandatory wage rises in Belgium and Austria, were contributing factors in the company's EBITDA total of MSEK 0.5 (21.5) and its EBIT total of MSEK 6.4 (15.2).
- Active efforts to reduce capital tied up has led to a net debt excluding IFRS 16 that is currently negative (i. e. net cash) at MSEK 2.9.
- The change management program implemented earlier this year with restructuring and a focus on niche products has progressed according to plan. Specializing the product offering mitigated the decline in profit during the quarter.
- Price mechanisms in customer agreements regarding polypropylen 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.
2022/ | 2021/ | 2022/ | |
2023 | 2022 | 2023 | |
Amounts in MSEK | Q1 | Q1 | R12 SEP |
Net Sales | 315.0 | 338.7 | 1,361.3 |
Growth, Net Sales % | -7.0 | 32.6 | 9.9 |
Organic growth % | -10.7 | 33.0 | 6.6 |
EBITDA | 0.5 | 21.5 | 79.9 |
EBITDA margin % | 0.2 | 6.4 | 5.9 |
Adjusted EBITDA | 0.5 | 21.5 | 70.8 |
Adjusted EBITDA-margin, % | 0.2 | 6.4 | 5.2 |
EBIT | -6.4 | 15.2 | 55.2 |
EBIT margin % | -2.0 | 4.5 | 4.1 |
Net Debt/Net Cash (-) | 65.9 | 75.2 | 65.9 |
of which from leasing IFRS 16 | 68.8 | 65.5 | 68.8 |
Capital employed | 467.6 | 411.0 | 467.6 |
ROCE % | 11.6 | 6.3 | 11.6 |
Adjusted ROCE % | 9.7 | 12.9 | 9.7 |
- Sales volumes declined by 12,4 percent during the quarter, and the organic sales growth of -28,2 percent was due to lower raw materials prices, where price mechanisms in agreements cause sales prices to drop.
- While demand for staple fiber from automotive has recovered somewhat, it is not back to the levels seen before the semiconductor shortage. A decline in the demand for furniture fabrics resulting from the uncertain economic environment can still be noted.
- The labor situation has stabilized but contributed to a higher cost base than the year-over-year comparison quarter, which together with reduced sales volumes was a contributing factor in the company's EBITDA of MSEK 1.9 (7.8).
- One of Drake's customers filed for restructuring in August. No impact on Drake's earnings has been determined to date.
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 | 19% | ||
including flooring, rugs, furniture, technical | |||
filters, car interiors and nonwoven fabrics. | |||
The business is located in Virginia, USA. | |||
2021/ | |||
2022/ | |||
2022/ | |||
2023 | 2022 | 2023 | |
Amounts in MSEK | Q1 | Q1 | R12 SEP |
Net Sales | 167.2 | 190.9 | 722.5 |
Growth, Net Sales % | -12.4 | 32.6 | 8.0 |
Organic growth % | -28.2 | 30.6 | -6.6 |
EBITDA | 1.9 | 7.8 | 20.5 |
EBITDA margin % | 1.1 | 4.1 | 2.8 |
EBIT | -7.5 | 1.2 | -12.4 |
EBIT margin % | -4.5 | 0.6 | -1.7 |
Net Debt/Net Cash (-) | 25.4 | 35.5 | 25.4 |
of which from leasing IFRS 16 | 10.9 | 12.3 | 10.9 |
Capital employed | 341.7 | 295.7 | 341.7 |
ROCE % | -3.9 | 3.8 | -3.9 |
D URO C IN T E RIM RE PO RT Q 1 2 02 2 /2 02 3 | 5 ( 1 9 ) |
Cresco develops, produces and sells textile- based solutions for the professional 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 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.
Share of Duroc's sales (R12)
7%
- Net sales increased by 6,6 percent during the first quarter. Organic growth was 2,3 percent. New market shares in Canada and the USA and deliveries of several major climate screen and mushroom farm projects were the principal drivers behind the sales increase.
- Market uncertainty because of fluctuating energy and raw materials prices, rising inflation and the war in Ukraine had a negative impact on demand in Western Europe.
- Falling raw materials prices had a negative effect on profitability in Cresco due to inventory impairments.
- The quarter was characterized by a lower production rate as the market is holding back due to the macroeconomic situation, and in anticipation of further raw materials price reductions; this has resulted in efficiency losses.
- Order entry developed positively in September and at the end of the quarter it was on the same level as the year-over-year comparison quarter. The order level totaled MEUR 10.
- The current energy crisis is expected to boost demand for sustainable, energy-efficient solutions and lead to increased demand for Cresco's climate screen range as the products contribute to a more efficient cultivation process with lower energy consumption.
2022/ | 2021/ | 2022/ | |
2023 | 2022 | 2023 | |
Amounts in MSEK | Q1 | Q1 | R12 SEP |
Net Sales | 73.5 | 68.9 | 280.9 |
Growth, Net Sales % | 6.6 | 1.5 | -5.7 |
Organic growth % | 2.3 | 3.2 | -7.9 |
EBITDA | 1.6 | 8.9 | 28.2 |
EBITDA margin % | 2.2 | 12.9 | 10.1 |
EBIT | 0.2 | 7.5 | 22.7 |
EBIT margin % | 0.3 | 10.9 | 8.1 |
Net Debt/Net Cash (-) | 34.8 | 21.7 | 34.8 |
of which from leasing IFRS 16 | 4.8 | 5.6 | 4.8 |
Capital employed | 219.7 | 175.1 | 219.7 |
ROCE % | 11.4 | 23.8 | 11.4 |
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)
14%
- Net sales increased by 30 percent during the quarter, primarily due to a major increase in sales in the French company Griffine, where the year- over-year comparison quarter was unprecedentedly weak. Cotting Group continues to be heavily affected by Griffine's lower volumes especially in automotive, which remain at a lower level due to the semiconductor shortage.
- During the quarter, EBIT totaled MSEK -7.1(-11.1) related to lower sales volumes in Automotive in the French operation. EBIT in the Belgian operation Plastibert totaled approx. MSEK 0.
- The effect of cost-cutting measures together with raised prices to customers to compensate for increased raw materials prices helped dampen the losses, but as yet the price increases have not fully taken effect. High prices for materials and energy continue to be a challenge.
- The demand for new cars is high due to the component shortage that is a factor in the inability of production to meet demand. Griffine will have to deal with low or negative earnings until the semiconductor situation improves. Plastibert is not affected to the same extent and its order intake is good.
- The assessment to find an industrial party to take over Griffine is progressing and is expected to result in a greatly increased profitability for the Duroc Group.
2022/ | 2021/ | 2022/ | |
2023 | 2022 | 2023 | |
Amounts in MSEK | Q1 | Q1 | R12 SEP |
Net Sales | 125.8 | 96.8 | 507.7 |
Growth, Net Sales % | 30.0 | -18.0 | -1.3 |
Organic growth % | 24.8 | -16.6 | -3.4 |
EBITDA | -2.6 | -6.3 | -49.4 |
EBITDA margin % | -2.1 | -6.5 | -9.7 |
Adjusted EBITDA | -2.6 | -6.3 | -47.6 |
Adjusted EBITDA-margin, % | -2.1 | -6.5 | -9.4 |
EBIT | -7.1 | -11.1 | -83.2 |
EBIT margin % | -5.7 | -11.5 | -16.4 |
Net Debt/Net Cash (-) | 168.1 | 60.7 | 168.1 |
of which from leasing IFRS 16 | 2.3 | 4.4 | 2.3 |
Capital employed | 327.0 | 309.5 | 327.0 |
ROCE % | -26.6 | -6.1 | -26.6 |
Adjusted ROCE % | -21.4 | -4.0 | -21.4 |
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Duroc AB published this content on 08 November 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 November 2022 08:43:04 UTC.
