Enedo Plc Half year financial report January 1 - June 30, 2020 and specified estimate of financial performance
ENEDO Plc Half year financial report 13.8.2020 9.00 am
Enedo Plc Half year financial report January 1 - June 30, 2020 and specified estimate of financial performance
January – June 2020 in brief, continuing business
- Net sales EUR 19,7 million (EUR 23,0 million)
- Operating profit EUR -1,9 million (EUR -1,1 million)
- Adjusted operating profit EUR -1,7 million (EUR -0,9 million)
- EBITDA EUR -0,1 million (EUR 0,9 million)
- Adjusted EBITDA EUR 0,1 million (EUR 1,0 million)
- Earnings per share EUR -0,28 (EUR -0,27)
 | 1-6/20 | 1-6/19 | 1-12/19 |
Key indicators, EUR million | 6 mo | 6 mo | 12 mo |
Continuing operations | Â | Â | Â |
Net Sales | 19,7 | 23,0 | 43,3 |
Led Drivers | 4,2 | 6,3 | 11,5 |
Power Supplies | 12,7 | 14,6 | 27,5 |
Systems | 2,7 | 2,1 | 4,4 |
Adjusted EBITDA | 0,1 | 1,0 | 1,2 |
EBITDA | -0,1 | 0,9 | 1,1 |
Adjusted operating profit/loss | -1,7 | -0,9 | -2,4 |
Operating profit/loss | -1,9 | -1,1 | -2,6 |
Profit/loss before taxes | -2,4 | -1,0 | -2,7 |
Profit/loss for the period, continuing operations | -2,4 | -1,0 | -2,6 |
 |  |  |  |
Profit/loss for the period, discontinued operations | 0,0 | -1,3 | -2,4 |
Profit/loss for the period | -2,4 | -2,3 | -5,0 |
Earnings per share, continuing operations, EUR* | -0,28 | -0,12 | -0,31 |
Earnings per share EUR* | -0,28 | -0,27 | -0,60 |
Solvency ratio, % | 4,1 | 15,4 | 11,5 |
Net Gearing, % | 1182 | 155,2 | 342,1 |
Cash flow from operating activities | -1,9 | 2,1 | -1,0 |
 |  |  |  |
 |  |  |  |
 |  |  |  |
Key indicators Half year, EUR million | H1/2020 | H2/2019 | H1/2019 |
Continuing operations | Â | Â | Â |
Net Sales | 19,7 | 20,3 | 23,0 |
Adjusted EBITDA | 0,1 | 0,2 | 1,0 |
EBITDA | -0,1 | 0,2 | 0,9 |
Adjusted operating profit/loss | -1,7 | -1,5 | -0,9 |
Operating profit/loss | -1,9 | -1,5 | -1,1 |
* The number of outstanding shares of comparison periods have been revised to correspond the number of outstanding shares after the reverse split.
 | 1–6/20 | 1–6/19 | 1–12/19 |
ADJUSTED OPERATING PROFIT/LOSS, EUR million | 6 mo | 6 mo | 12 mo |
Operating profit/loss | -1,9 | -1,1 | -2,6 |
Adjustments in operating profit/loss | Â | Â | Â |
Resctructuring costs related to personnel | 0,0 | 0,1 | 0,1 |
Production re-organisation | 0,1 | 0,0 | 0,2 |
Provision release relating to a claim | Â | 0,0 | -0,2 |
Enedo planning related expenses | 0,1 | 0,0 | 0,1 |
Adjustments in operating profit/loss Total | 0,2 | 0,1 | 0,2 |
Adjusted operating profit/loss Total | -1,7 | -0,9 | -2,4 |
 |  |  |  |
 |  |  |  |
 | 1–6/20 | 1–6/19 | 1–12/19 |
ADJUSTED EBITDA, EUR million | 6 mo | 6 mo | 12 mo |
EBITDA | -0,1 | 0,9 | 1,1 |
Adjustments in EBITDA | Â | Â | Â |
Resctructuring costs related to personnel | 0,0 | 0,1 | 0,1 |
Production re-organisation | 0,1 | 0,0 | 0,2 |
Provision release relating to a claim | Â | 0,0 | -0,2 |
Enedo planning related expenses | 0,1 | 0,0 | 0,1 |
Adjustments in EBITDA Total | 0,2 | 0,1 | 0,2 |
Adjusted EBITDA Total | 0,1 | 1,0 | 1,2 |
Estimate of financial development in 2020 and 2021 financial period
Old Estimate:
Company estimates that continuing operations net sales, operating profit (adjusted for items affecting comparability) and EBITDA (adjusted for items affecting comparability) improve from 2019. However operating profit is estimated to still be negative in 2020. The 2021 profit for the period is estimated to be positive.
New Estimate:
The company estimates net sales from continuing operations to be EUR 40-44 million in 2020. Full year 2020 EBITDA (adjusted for items affecting comparability) is estimated to be EUR 0,0-1,5 million and operating profit (adjusted for items affecting comparability) negative EUR 2,1-3,6 million. At the moment, the company will not give guidance of financial development for 2021 due to increased uncertainties.
Vesa Leino, Enedo President and CEO
The first half of 2020 was full of events. In February, we launched the company's new Enedo name and visual identity, streamlined our product offering by dividing our products into three separate product categories, reorganized the company's sales organization and implemented a reduction in the number of shares. Since March, much of the focus has been on minimizing the effects of the COVID-19 and running a business in a new situation and environment.
Net sales for the first half of 2020 fell clearly short of our target and was EUR 19,7 million which has decrease of EUR 3,2 million from comparison period. The half year result was negative as expected. The development in net sales was mainly caused by Tunisia's national measures to prevent the spread of the COVID-19. As a result of these measures, our Tunisian plant was completely closed or understaffed for more than two months. Production restrictions were almost completely lifted towards the end of the first half of the year, and despite the challenges of restarting the plant, June was the strongest month of the half year in terms of net sales. The target is to clear the delayed deliveries caused by the COVID-19 by the end of September. We estimate that the impact of the COVID-19 on net sales in the first half of the year was approximately EUR 3-4 million negative.
We reacted proactively to the temporary decline in net sales by initiating cost-saving measures in March, which included among others, temporary part-time lay-offs for most of the personnel in Italy and Finland during April, May and June. In addition, we cut the salaries of the management and the management team during the corresponding period.
Due to the reduced delivery capability, the development of the Power Supplies product category fell clearly short of our expectations during the review period. About 70 percent of our Italy Power Supplies are manufactured at the Tunisian plant. The negative impact was mitigated by two significant healthcare power supply orders for the European and US markets. Power supplies for ventilators and extracorporeal oxidizers (ECMO) are manufactured by our Asian partner. Most of these deliveries took place during the first half of the year. Net sales of our Finland Power Supply products increased slightly from the comparison period.
The development of the net sales in Led Driver products also suffered from the same delivery challenges as about half of our Led Driver products are manufactured in Tunisia. With regards to Led Drivers, the development of net sales was also negatively affected by a more focused new strategy, as a result of which we abandoned the production of simple LED strips for one of our customers. Demand for the new higher-power Led Driver, launched last year, continued to develop positively, and we gained several significant new customers for the product, which we believe will have a positive impact partially already in the second half of the year.
The Systems product category grew by 29 percent compared to the comparison period. The growth was driven in particular by the launch of sales in the US market and new customers, mainly due to the new Modular High Efficiency (MHE) family of rectifiers. The transfer of Systems Module production from Tunisia to our contract manufacturer in Estonia, which began in autumn 2019, was completed during the first half of the year. The Tunisian plant will continue to focus entirely on the production of products designed in Italy. Demand for rail products picked up and was almost double the comparison period. The cooperation agreement made with a partner focusing purely on Central European train customers has started well.
Cash flow from operating activities during the first half of 2020 was negative at EUR 1,9 million. The weak cash flow from operating activities was mainly due to the limited production of the Tunisian plant and higher-than-average trade payables payments in the early part of the year. To prepare for the implementation of the strategy and the impact of the COVID-19, we have planned and partially completed financing arrangements in both our Italian subsidiary and the parent company.
Despite the positive start for the new sales organization and solid order book, the review period was disappointing for us in terms of financial development. The main factor contributing to this was delivery issues caused by COVID-19. On the other hand, we were able to anticipate and respond to these effects relatively well, which contributed to some mitigation of the overall effect. Moreover, due to our wide customer portfolio, the overall impact of the COVID-19 on our customer demand remained relatively limited during the first half of the year. Due to various social assembly restrictions, the demand for entertainment and culture-related Led Drivers decreased during the review period, but at the same time the demand for products and solutions related to, for example, healthcare and emergency supply, remained stable or even increased. However, cooperation projects and campaigns planned with customers in the United States began to shift forward at the end of the half-year due to the limitations and market uncertainty caused by the COVID-19. To respond to the uncertainty in the U.S. market, distributors have also reduced their inventories.
In the second half of the year, we expect Systems products to continue to grow and also other products and total revenue to grow from the first half of the year. However, the uncertainty that began in the US market towards the end of the first half of the year is expected to continue in the coming months. If realized, this will have an impact on the magnitude of short-term revenue growth. Due to the uncertainties relating to the US market and clearing deliveries after production shutdown, we have updated the financial guidance for the financial year 2020.
We will continue taking active measures to develop supply capability, improve cost efficiency and profitability, and achieve new customer and sales synergies. The implementation of the strategy launched in February and the reversal of the company's direction, as well as the building of a healthy future, will continue even after the spring of COVID-19 restrictions.
January-June net sales, operating profit and adjusted operating profit for continuing operations
Net sales for was EUR 19,7 million (EUR 23,0 million).
The operating profit decreased from the comparison period to EUR -1,9 million (EUR -1,1 million). The decline in operating profit was mainly due to production restrictions due to the COVID-19 situation and the resulting decrease in net sales. Adjusted operating profit was EUR -1,7 million (EUR -0,9 million).
Business development
At the beginning of the year, we renewed our business reporting in accordance with the new product categorisation, and in the half-year report we have presented the development of net sales separately for these three product categories. Enedo's new product categories are Power Supplies, Led Drivers and Systems. The Power Supplies product category includes industrial power supplies, the Led Drivers category includes power supply for lighting solutions and the Systems category includes system products and rail power supply solutions.
The most significant factors affecting the result in the first half of the year due to the COVID-19 were the limited operations of the Tunisian plant, which had a significant impact on the performance of the Power Supplies and Led Drivers product categories as well as the good growth of the Systems product category supported by MHE. Net sales for the first half of the year were EUR 19,7 million and fell clearly short of our target.
The net sales of the Power Supplies product category during the review period was EUR 12,7 million which was EUR 1,9 million euros weaker than at the same time last year. The turnover of the Led Drivers product category was EUR 4,2 million which was EUR 2,1 million weaker than in the comparison period. The Systems product category, on the other hand, experienced growth. The net sales of Systems products during the review period was 2,7 million which was EUR 0,6 million higher than in the comparison period.
Market outlook
LED lighting, measuring devices, healthcare equipment and infrastructure related power supplies continue to provide many opportunities for growth. The company invests in customer segments where high reliability and long product life cycles are the determining factors.
Short-term risks and uncertainties
General economic development may affect the company's business environment. Due to the nature of the business, Enedo is subject to reclamations of which the final outcome cannot be predicted. Based on current information, these reclamations are not expected to have a material impact on the Group's financial position. Advancing to system products in the industrial business may mean an increase in product liability risk.
The most significant business risks are related to the success of key customers' products in the market. The progress of Enedo's product development projects depends in part on the schedules of customers' own projects. In addition, the fluctuations in demand typical for the market cause rapid changes in Enedo's business.
The COVID-19 has increased the level of uncertainty in the industrial market and, depending on the development of the pandemic, may have potential effects on our customers' ability to operate, the demand for their end products and the general industrial operating environment. In the Led Drivers and Power Supplies product categories, the effects of COVID-19 may be reflected in a shift in demand for leisure and sports-related lighting systems when spectator capacity is underutilized. Opening of new retail premises e.g. in the clothing business has slowed down at least temporarily, which may affect the demand for new lighting solutions and the renewal of old ones.
The delivery times of the components required by the company are partly long and there may be difficulties in obtaining certain components from time to time, which may affect the delivery capacity. The COVID-19 has also raised the level of country-specific uncertainty, which may affect our delivery capacity. The effects of the COVID-19 can be reflected in an unforeseen change in behavior in both supply chains and the company's customers. Examples of this can be e.g. changes in payment terms and orders. The company's high indebtedness, relatively low liquidity and the use of receivables financing increase the company's sensitivity to negative market changes.
The company’s own production is concentrated in one factory in Tunisia. Tunisian production is subject to a general country risk. Tunisia's national COVID-19 measures, the political environment and other factors affecting the plant's viability are partly beyond the company's control.
There are risks associated with the adequacy of financing, which the company seeks to manage through the active planning and implementation of various alternatives. Due to the increased financial uncertainty caused by the COVID-19 pandemic, the Group has updated the information provided in the financial statements on 31 December 2019 related to liquidity risk and credit and counterparty risk, as well as business continuity.
COVID-19
Throughout the review period, we have continued to take active internal measures to ensure the health of our employees and continuity of business. We have implemented internal guidelines and followed the guidelines of the local authorities in each country. Enedo has operations in Tunis (production), Italy (product development, sales), Finland (headquarters, product development, sales) and the United States (sales). Our management team monitors the development of the COVID-19 in weekly calls and responds to changes immediately if necessary.
The estimated impact of the COVID-19 on net sales during the review period was negative EUR 3,0 – 4,0 million mainly due to the restrictions on Tunisian production. There were additional costs of COVID-19 prevention, especially in Italy and Tunisia. The layoffs of employees due to the COVID-19 reduced the Group's costs during the review period. The impact of COVID-19 on the result as a whole was estimated to be negative at EUR 0,5 – 1,0 million.
Investments and product development                                       Â
Investments in the Group's continuing operations during the review period were EUR 1,0 million. (EUR 1,5 million), of which product development capitalizations accounted for EUR 0,6 million (EUR 0,8 million). At the end of the review period, capitalized product development costs in the balance sheet were EUR 5,1 million (EUR 8,9 million). The decrease is mainly due to the divestment of the Telecommunications business at the end of 2019.
During the review period, capitalized product development costs were impaired by a total of EUR 0,1 million mainly due to changes in the volume expectations of individual customers of some Italian products.
In total, product development costs for continuing operations during the review period were EUR 2,1 million (EUR 2,2 million). EUR 0,6 million (EUR 0,8 million) was capitalized in the balance sheet. EUR 1,5 million (EUR 1,4 million) was recognized as expenses for the review period thus 7,8% (6,0%) of net sales.
Financing
The net interest-bearing liabilities were EUR 15,5 million (EUR 11,0 million) at the end of the period under review. The net interest-bearing liabilities include EUR 1,1 million (EUR 1,8 million) of IFRS 16 lease liabilities.
The January – June cash flow from operating activities was EUR -1,9 million (EUR 2,1 million). Negative cash flow was caused by increased need for working capital as the sales volumes were lower than expected because of delivery issues caused by COVID-19 especially for Italy products sales. The cash flow after investing activities was EUR -2,7 million (EUR 0,6 million). The Group's solvency ratio was 4,1 % (15,4 %) and net gearing was 1181,9 % (155,2 %). The closing balance sheet was EUR 32,0 million (EUR 46,6 million).
The cash position without undrawn credit facilities totaled EUR 1,0 million (EUR 3,3 million) at the end of the period under review. At the end of the period, the Group had EUR 1,4 million (EUR 0,7 million) of undrawn credit facilities excluding factoring limits.
In the financial statement release and annual report of 2019, the group communicated plans to realign its debt financing by the summer 2020. The goal of the rearrangement is to create adequate resources for implementation of the new strategy and to increase efficiency of its capital utilization.
The planned and partially realized financial arrangement targets at additional EUR 4,3 million financing in Finland and Italy. The planned financing will be arranged with the current financiers of Enedo in Finland and Italy. In Italy, the financing consists mainly of refinancing of existing loans and additional financing as well as stand-still agreements where the loan capital will not be repaid for an agreed period. In Finland, the financing consists of additional debt financing and a new stand-still period to existing loans of the parent company with the main financier bank and Jussi Capital. The current stand still-agreement for the loans of the parent company ended on 30.6.2020.
EUR 2,3 million of the negotiated additional financing is directed for the Italian subsidiary company. Of the additional funding, EUR 1,2 million was realized in first half of the financial year. In this arrangement, a EUR 1,3 million loan was repaid in full and replaced by a new EUR 1,9 million loan. In addition to this further EUR 0,6 million loan was agreed with another bank. These loans have been partially quaranteed by Italy state backed Mediocredito Centrale. The loans have maturities of 72 months of which first 12 months have no loan repayments. The loans are made on market terms. As part of the financial arrangement, an additional EUR 1,1 million financing is planned in Italy.
In Finland, the parent company is negotiating for an additional EUR 2,0 million financing with the main financier bank. The planned arrangement includes a new 12-month stand-still agreement to existing loans of the parent company.
The completed and planned financial arrangements are aimed at providing resources to continue Enedo’s turnaround into a profitable producer of industrial power supplies and to strengthen the company’s working capital. The aim is also to realign Italian subsidiary’s loan terms and conditions with the parent company which in turn enables more efficient operations and liquidity management within the group. The board and management of the company believes in completion of the financial arrangement during the second half of the financial year and therefore, the half year financial report has been compiled based on going concern principle.
ENEDO PLC
Board of Directors
For further information please contact Mr. Vesa Leino, CEO, tel. +358 40Â 759 8956,
On 13th of August at 13:00–14:00
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Enedo
Enedo is a European designer and producer of high-quality electronic power supplies and systems for critical equipment even in the most demanding environments. Enedo´s mission is to make electricity better – more reliable, more secure, more energy efficient – and just right to fit its purpose. Enedo´s three main product categories are Led Drivers, Power supplies and Power Systems. In 2019 the group´s revenue was EUR 43,3 million. Enedo has 394 employees and its main functions are located in Finland, Italy, Tunisia and USA. The group´s head office is in Finland and parent company Enedo Oyj is listed on Nasdaq Helsinki Oy.
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