TIDMMCON
RNS Number : 1517M
Mincon Group Plc
26 April 2018
MINCON GROUP PLC
("Mincon" or the "Group")
INTERIM TRADING UPDATE
Mincon Group plc (ESM:MIO AIM:MCON), the Irish engineering group
specialising in the design, manufacture, sale and servicing of rock
drilling tools and associated products, today provides an interim
trading update for the period from 1st January, 2018 to date,
incorporating the first quarter to 31st March 2018.
The Driconeq acquisition is not reflected in any of the figures
below, as this transaction completed in late March, and will only
be included in the Group consolidation from Q2 forward.
Key elements (comparison of Q1, 2018 to Q1, 2017):
Continued improvement in our product sales mix:
-- Mincon manufactured product sales up 19%
-- Third party product sales down 27%
Resulting in:
-- Revenue up 6% overall
-- Gross margin: up to 39.5% from 37.4%
-- Operating profit: 13.6% up from 11.5%
-- Profit before tax: 12.4% up from 10.8%
-- EBITDA: up to 17% from 14.7%
We continue our strategy of improving our product mix by
manufacturing what we sell, where this provides commercial
advantage. This has resulted in Mincon product representing 81% of
sales in the quarter compared to 73% last year. The mix improvement
has resulted in an improvement in margins alongside the revenue
uplift.
Revenue
The Group continues to develop the full range of hammers, bits,
and the drill string elements. We continue to invest in better
engineering as our core proposition, delivering value, and
positioning ourselves where this quality provides differentiation
in the markets and with the customers we serve.
Revenue from Mincon manufactured products rose 19% in Q1, 2018
compared to the same period last year, and while we continue to run
key factories, machinery and our people beyond the levels of
maximum efficiency, this increase in own manufactured revenue
underwrites our profit uplift. We will continue to seek growth for
our own manufactured products, as this is where our margin is
created, with third party products as ancillary to our own
sales.
As additional capacity and the planned process upgrades are
scheduled to come on-stream during the remainder of 2018, the Group
is confident that the quality of our products will continue to
improve, and some cost inefficiencies will be mitigated. Mincon
product sales rose to 81% of total revenue, from 73% last year for
Q1, with strong growth in Mincon Nordic and Australia in
particular.
The Group did not increase prices through the quarter, but
flagged a wide ranging and general uplift through the rest of the
year where the competitive context facilitates this. However if we
are able to improve cost efficiency by normalizing manufacturing
and delivery, this may mitigate the need for price increases.
In the same quarter last year we noted that we had delivered
third party rigs in Africa at very little margin, so the third
party product in the first quarter this year represents a more
normal level, and the reduction in revenue from third party sales
has not been as significant in profit terms. We have not set
revenue growth for its own sake as an objective of the Group;
instead we have placed focus on improving our manufacturing mix
which should drive continued improvement in our margins and
profits.
Margins
As the sales mix improved, so did the gross margin, by 2% from
37.4% to 39.5%, and we managed to keep all of that improvement at
the operating profit line as the operating margin improved to 13.6%
from 11.5%. The EBITDA margin improved to 17% in Q1, 2018, from the
first quarter comparative for 2017 of 14.7%.
The Group is still making start-up losses in Mincon Nordic as it
begins to mature from the start-up phase, but we expect to see
volumes continue to ramp up with the build out of the full service
team in the region. We have also absorbed some forex losses in the
numbers above, but the margins are still making progress.
We should bear in mind that the Driconeq Group, which we
recently acquired, currently makes a gross margin of about 22%, and
as this represents approximately a fifth of our revenue going
forward, this will have a dilutionary effect in the period
immediately following acquisition. Improving the gross margin of
Driconeq is a key objective for the year, and we believe efficiency
in production, and normalization of supply terms will assist in
this regard.
Balance sheet
During the first quarter of the year, the Group completed the
acquisition of Driconeq for c. EUR8 million, and some EUR2 million
was additionally invested in inventory. In H2, 2017 we decided to
put another EUR5 million into raw materials and work in progress,
to mitigate price increases and to reduce stock depletions due to
demand. Even with this we have still seen lengthening order periods
and while we are gaining market share, we believe we are losing
further opportunity due to constraints in key factories.
After these investments the Group had net cash of some EUR18
million at the end of March.
Capacity is beginning to arrive, with;
-- a new machining plant established in Sheffield, beside our
Marshalls carbide operation, which went live in April 2018
-- the Prototype factory in Shannon which is being commissioned
for short run and prototype engineering work. This was a former
warehouse and will go live in June 2018.
o this will clear the main factory floor for longer run
production,
-- phase 3 of our factory build out in Benton, Illinois bringing
new plant on-stream in H2, 2018
o this continues the programme that has seen US$ 6 million
invested over the last two years in the new factory and heat
treatment facilities at our main USA plant
This year will see us bring the factories to greater capacities,
with better lay outs and with key processes brought in house. We
are, in addition, stepping up the headcount in our factories and
introducing new shifts.
It is our view that this will bring this significant build-out
phase to an end, and we should normalize capital expenditure in
2019 at or around the depreciation charge unless we continue to see
growth at these current levels.
Acquisition of Driconeq
At the quarter end Mincon acquired the Driconeq group and it is
not included in the comparative numbers referred to above. However,
the Mincon team is very actively on site in the various member
companies in Perth, Sunne, Sweden, and in Johannesburg looking at
efficiencies, and dealing with the inherited issues.
Driconeq Group had sales of some EUR24 million in 2017, on
which, under its own policies, it broke even. Some EUR4 million of
that was supplied to the Mincon Group, so the addition to net
revenue in a full year will be about EUR20 million.
Mincon paid EUR7.2 million for the group, and with costs and
contingent payments this will rise to EUR8 million. We have, in
addition, addressed the working capital needs of that group to
facilitate efficient ordering on the supply side, and we have
assured key customers of continued supply. The Australian
subsidiary had been placed into Administration by the previous
owners, and Mincon funded that business being brought out of
Administration prior to completion, in order to protect the brand
and the team on site.
The Driconeq Australia business came through an administrative
process prior to acquisition whereby creditors at that time were to
be paid out over an eighteen month period. As a subsidiary of the
Mincon Group we believe this is not required, and we have elected
to pay out the agreed balances with the creditors of Driconeq
Australia as soon as possible and will fund Driconeq Australia with
AUD 1.5 million (EUR1 million) to back this decision.
We do this to normalize supply terms, to protect the brand, and
to reduce hardship on the many businesses that supported Driconeq
Australia prior to them joining the Mincon Group plc.
Market comment and position
We have seen strength in the revenue line from early last year,
reflected in our organic growth. While we had further organic
growth in Mincon product of 19% in Q1, this is beyond what we
expected as we thought our capacity would not accommodate it.
However additional capacity is now coming on stream, and we should
be better able to manage our efficiencies through the rest of the
year.
We have, to a degree, slowed order intake as an inability to
deliver is not helpful to our business or that of our customers.
Our business has continued to grow well with the early sector
recovery, though we see some caution from market commentators about
certain commodities and pricing.
We aim to produce consumables that deliver better performance
for their cost rather than adopt price competition as our main
product positioning. This relies on our engineering programmes
delivering scheduled product improvement for the existing catalogue
and a stream of new products being delivered into the market. Key
among these is the Greenhammer project, still expected to go live
at the end of the half year.
Annual General Meeting
The Annual General Meeting of Mincon Group plc will be held
later today, Thursday 26(th) April, 2018 at 10.00 a.m in the Park
Inn by Radisson, Shannon, Ireland.
Forward looking statements
Any forward looking statements made in this document represent
the Board's best judgment as to what may occur in the future.
However, the Group's actual results for the current and future
financial periods and corporate developments will depend on a
number of economic, competitive and other factors, some of which
will be outside the control of the Group. Such factors could cause
the Group's actual results for future periods to differ materially
from those expressed in any forward looking statements included in
this announcement.
S
26(th) April, 2018
For further information, please contact:
Mincon Group plc
Joe Purcell - Chief Executive Officer Tel: +353 (61) 361 099
Peter E. Lynch - Chief Operating Officer
Davy Corporate Finance (Nominated Adviser and
ESM Adviser)
Anthony Farrell Tel: +353 (1) 679
6363
Daragh O'Reilly
This information is provided by RNS
The company news service from the London Stock Exchange
END
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