TIDMMCON
RNS Number : 2639U
Mincon Group Plc
23 October 2017
MINCON GROUP PLC
("Mincon" or the "Group")
TRADING UPDATE at 30th September, 2017
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 nine months of trading to 30(th) September
, 2017.
In the numbers below we exclude the contingent gain and
exceptional costs disclosed at the first half reporting. These were
broadly neutral for earnings.
Key elements (comparison of nine months to end Q3, 2017 to the
same period to end Q3, 2016):
-- Revenue up 29%
o Mincon engineered product sales up 32%
o Third party product sales up 20%
-- Gross margin 39% compared to 41% in 2016
-- Operating profit margin 15.7% from 14.3%
(excluding Mincon Nordic start-up costs, 14.3% when
included)
-- ebitda margin reaches 19%,excluding Mincon Nordic start-up costs
-- Profit before tax margin of 13.2 % compared to 15.7%, after adverse forex charges
Revenue continues to grow at 29% year on year
We had expected that growth would moderate in Q3 this year, as
the second half of last year had a higher sales baseline. In fact
the growth has been sustained so that revenue for the year
continues at a level 29% ahead of last year (26% on a constant
currency basis) at the end of Q3, and we are seeing a more
favourable mix towards Mincon manufactured products as we move to
replace the largest bought-in categories where this offers value to
the Group. The acquisition growth is not very significant in 2017,
so the great majority of the growth is organic.
We are seeing growth across all the business units and
territories, save for South America where the loss of a key
customer delivered a set-back at the end of last year. Africa has
been strong, as has Northern Europe and the USA. The reorganization
of Mincon Australia Group at the start of the year, and their beta
testing of the new range for 2018, has great potential on top of
their existing growth. Overall we are satisfied with the continued
progress on revenue in the third quarter.
Mincon Nordic
Our Mincon Nordic hub has been a key area of investment for the
Group this year. The hub now comprises the Viqing drillpipe
factory, Mincon PPV, our business that addresses the markets for
piling, construction and tunneling, and the new team for managing
Mincon product sales in the region, both directly and
indirectly.
Mincon Nordic therefore addresses a diverse set of markets and
customers. Viqing is on an investment path to supply the Group, to
a degree the same as Marshalls, the carbide plant we acquired,
while continuing to build external customers. We are developing an
investment plan for that business to treble the turnover as quickly
as is commercially sensible. The business has stepped up to three
shifts already, recruited some new people, and is working with
Group to develop the team and the capital investment path.
The market for the Mincon PPV products is mainly large scale
projects extending over years, such as tunnels, piers, and
foundations. We did not take on any projects in progress upon
acquisition, so we have a time gap before we win new work, and the
costs associated with that. We are currently selling some lower
margin smaller product into established accounts. We are also now
quoting across our sales network for a number of live projects, any
one of which will be a substantial launch for the business to our
Group. We are confident in the company, the products and the
team.
We are staffing up the Tampere regional hub through the
recruitment of experienced senior personnel, and expensing the
start-up costs of the Mincon Nordic strategy. The losses this year
are just over EUR750,000. While it is early days, we expect the
sales run rate to approach EUR10 million on an annualized basis
and, as we said at the half year, expect Mincon Nordic to move into
profitability in 2018.
Margins
The mix of the start-up businesses with the existing sales
network has brought down the gross margin a couple of per cent, but
this should improve over time as the new businesses come up to
expected volumes. In general, businesses have been moving inventory
faster than expected and reordering more than planned in our
production schedules, commensurate with the rate of growth. This
sustained demand is now having to be planned into further capacity
increases in the core factories.
While we have increased capacity through the downturn, this
market share growth is beyond what we had anticipated. We are
accelerating our systems development roll-out to improve
communication in the Group. We will also be reviewing margins in
the context of this order strength.
Excluding the Mincon Nordic start-up costs, the operating profit
margin is 1.4% ahead of 2016 at 15.7% compared to 14.3% for the
same period in 2016. We have an adverse foreign exchange charge of
EUR844,000 in the first nine months compared to a gain of
EUR785,000 for the same period last year which explains the change
in the profit before tax. Work to mitigate the foreign exchange
volatility continues.
The new product category
We successfully designed and manufactured the larger size of
hammer requested by our development customer in Australia, and it
has delivered some very encouraging early results. The project is
managed by our own team on our own development rig on the customer
site. We are analysing the results, and breaking down the product
to see what modifications may be required to ensure the performance
and longevity of the products in the range. This will continue
through the rest of the year, as previously flagged, with
capitalised expenditure at the end of Q3 rising to EUR936,000. The
rest of the research and development expenditure on extending and
improving our ranges has been expensed, in keeping with our
policies on those project categories.
The balance sheet
The Group continues to have a strong balance sheet with EUR28.5
million of net cash after capital expenditure of EUR4.7 million, an
acquisition spend of EUR5.6 million, and dividends of EUR4.2
million in the first nine months of this year.
Working capital has fallen by several million euro even as sales
have risen by 29%. We believe this is the new sustainable sales
baseline and as a result we will revisit our production capacities
in the upcoming three year plan to reset inventories to support
this new trading level.
Since availability of product plays a key role in sales we will
need to rebuild the faster moving inventory to levels that satisfy
the current needs of our customers. Our large hammer strategy is on
hold while the plant we acquired to manufacture them has been
applied to supporting existing ranges, or to meet the development
requirements of the new product range being beta tested in
Australia.
The operating margin growth to 15.7% for the first nine months,
excluding the Nordic region start-up, is demonstrating the
operational gearing in the Group, as we track the conversion of the
gross margin to the operating profit line. We believe there is
potential for additional margin gains if we can recreate the
dynamic equilibrium between our production and sales over 2018 to
improve efficiency scheduling and delivery. Part of that is rolling
out the scheduling and ordering systems currently in planning, and
this is a core objective for the coming year.
We may have to expand capacity again and to consider the balance
of advantage on where products are manufactured, not to cheaper
production locations, but to be closer to customers while
continuing to improve the quality associated with the Mincon name.
To that end the Executive has been tasked by the Board with the
development of a rolling three year plan, in a process that is
ongoing.
Market comment
The sector continues to make a broad based recovery, as can be
seen by the results of the market leaders. We are producing and
selling beyond our optimum levels at present and delivering those
products in some cases uneconomically in order to maintain a high
level of service to customers. That is acceptable in the short term
as we come out of the sector downturn, and it is clear that we have
the products to sell, and both the customer base and markets in
which to sell and that these provide an excellent platform for the
next phase of growth.
What we need to do now is plan what our new production levels
should be to continue to build margins, quality and service
delivery through this sector upturn. The planning we are engaged in
over the next three and six months will be key to the performance
of our business in this next phase. With this rate of organic sales
growth, and the underlying operating profit improvement, the Group
is in a very strong trading and cash position for the future.
S
23(rd) October, 2017
For further information, please contact:
Mincon Group plc
Joe Purcell - Chief Executive Officer Tel: +353 (61) 361099
Peter E. Lynch - Chief Operating Officer
Davy Corporate Finance (Nominated adviser and ESM adviser)
Anthony Farrell Tel: +353 (1) 679 6363
Daragh O'Reilly
Forward looking statements
Any forward looking statements made in this document represent
the Board's best judgement 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.
The company news service from the London Stock Exchange
END
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