TIDMMCON
RNS Number : 6111D
Mincon Group Plc
28 April 2017
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 1 January 2017 to date,
incorporating the first quarter to 31 March 2017.
Key elements (comparison of Q1, 2017 to Q1, 2016)
-- Revenue up 34%
-- Mincon engineered product sales up 27%
-- Third party product sales up 58%
-- Gross margin 37% down from 40%
-- Operating profit 11.5% up from 10%
-- Profit before tax 10.8% up from 9.8%
Revenue
Revenue in Q1 2017 has increased 34% compared to Q1, 2016 driven
by increased sales volumes achieved across all of our main
geographic regions with particular progress in Africa, but strong
growth seen also in Australia, North America, and Europe. On a
constant currency basis the growth is approximately 25%.
Very little of this uplift was driven by acquisition uplift as
we bedded down what we had previously bought and co-ordinated the
businesses better in the second half of last year. We also had a
tremendous amount of new engineered products coming through and
while this added little to the sales in Q1, the future
profitability of the Group is determined, in large part, on
additional and better engineered product being our market
advantage.
Sales of Mincon manufactured product rose 27% in Q1, 2017, while
that of third party manufactured product increased by 58%. Some of
that third party product in Q1, 2017 (c.US$800,000) was the sale of
small third party rigs in Africa at very little margin, in effect
an agency type of transaction. We still have our rigs inventory,
but see signs of the market finally beginning to move, with renewed
interest, but still with little financial support as yet.
We sell products complementary to our own manufactured ranges,
upon which we receive a distributor margin. While these products
may make a meaningful contribution to addressing the sales and
administration overhead, they do not add a great deal to the bottom
line. We make a better margin on Mincon manufactured product and we
actively consider the product ranges we make and buy to see what
adds value and what, over the longer term, may not.
Margins
Overall, due mainly to the change in the sales mix, the gross
margin came down a couple of points compared to last year in Q1 to
37% as opposed to the 40% of 2016, but the operational gearing
effect led to an operating profit for the quarter of 11.5%,
compared to 10% in Q1, 2016, and an Ebitda margin of 14.7%. A small
adverse FX charge delivered profit before tax at 10.8% compared to
9.8% last year.
What we added to the margin through capitalising the investment
in the new hammer range, we have reduced by establishing additional
provisions, so on a look through basis the results for last year
and this are directly comparable. The new hammer range and service
is progressing well, and on schedule for beta testing in H2. A new
service centre has been established and staffed in Australia,
proximate to key customers.
While there is some supplier pressure on inputs, the improving
market will, through the cycle, also offer the opportunity to earn
a better margin through engineering. The market will reward better
products in an up cycle.
Balance sheet
The Group balance sheet continues to be undergeared with net
cash at the end of Q1, 2017 of EUR37.3 million (31st December 2016:
EUR35 million), and while sales have advanced strongly the trading
working capital was unchanged with the only change being the
deposits of EUR540,000 on capital equipment approved and on order
from the year end. Working capital remains a key focus of
management.
There were no other items of significance in the balance sheet
at the end of Q1, though Q2 will see the further investment in
capital equipment as previously highlighted at the year end, and
the payment of the final dividend.
Acquisition of PPV Finland (PPV) by our subsidiary Mincon Nordic
Oy.
In April, 2017 we acquired the product range, including the
engineering, customer base, patents and brands of the PPV business.
The sales run rate for PPV was approximately EUR3 million last
year. We also signed a four year manufacturing agreement for the
existing range with the current supplier, Lehti Group, and we will
continue to build out and staff this strategic development by
integrating it in our new engineering and sales hub in the Nordic
region.
The PPV core products
PPV designs, develops and sells innovative contracting tools for
the foundation and well drilling industries. The products are
especially useful for complex ground conditions, and where ground
disruption must be minimized, such as heavily built up areas, or
for example, off-shore.
The core products are:
-- Overburden drilling systems
-- Large diameter rock bits
-- Drill string components
-- Large diameter hammers
-- Modification sets for rigs
-- Rock socket grouting systems for large O piling
-- Products that can be used on and off shore
The acquisition is strategic, with products that complement our
existing range and extend it, which reduce our dependence on
distributors that are emerging as competitors, and which will give
us opportunities to access new markets for our existing and growing
portfolio of products. We will continue to build out our hammer and
bit ranges.
The 34 inch hammer developed by PPV and the very large diameter
bits occupy the top end of our current ranges, and complement the
manufacturing capability established by Mincon last year. Since
that investment we have successfully launched our new 12 inch and
18 inch hammers, and the addition of PPV gives us a wide range of
reference sites in piling, tunneling and construction.
We are actively engaged in further acquisition discussions to
add products, companies and management teams to our Group.
Market comment
We would, in general, caution against taking this first quarter
as a new run rate, even though the growth has been spread across
most of our markets. A sector recovery, and to a degree we depend
on this for growth in revenue and margin, can be fitful at the
early part of the cycle and may not follow a straight line recovery
profile by any means. However we believe we are working towards an
improving position in products, people, customers and resource for
the next few years, to build growth and resilience in our
business.
Annual General Meeting
The Annual General Meeting of Mincon Group plc will be held
later today, Friday 28th April, 2017 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.
ENDS
28(th) April, 2017
For further information, please contact:
Mincon Group plc
Joe Purcell - CEO Tel: +353 (61) 361 099
Peter E. Lynch - COO
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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