Growth markets with double-digit growth rates / Free cash flow positive / Board of Management adjusts annual forecast for 2019 and remains confident about 2020
An unexpectedly weak revenue and earnings performance by the subsidiary gwk Gesellschaft Wärme Kältetechnik mbH (gwk) along with a slowdown in economic activity substantially restricted the economic performance of the technotrans Group in the third quarter of 2019. Consolidated revenue of EUR 153.4 million for the nine-month period was 5.7 percent down on the prior-year figure. Operating profit (EBIT) fell to EUR 6.6 million, representing an EBIT margin of 4.3 percent.
The main factor behind the fall in revenue and earnings was the surprisingly ongoing weak business performance of gwk. Following the ERP system changeover the company managed to increase its production output from the second to the third quarter again but fell well short of expectations for converting orders into revenue, especially at the end of the period. The Board of Management has taken further action to clear the production backlog at gwk as swiftly as possible.
Counter to the industry trend, gwk achieved an encouragingly good order intake in the past months.
In addition, the economic environment in the markets of the printing industry and the laser and machine tool industry weakened more sharply than expected in the third quarter, weighing additionally on the Group’s figures. The success stories in the first nine months of the current financial year were the growth markets, though their double-digit growth rates were not enough to compensate in total for the decline in revenue elsewhere.
The technotrans subsidiary termotek GmbH (termotek) opened its new plant in Baden-Baden on schedule in time and in budget in August 2019; this now paves the way for further growth based on lean, resource-light production operations.
“Both gwk’s business performance and the economic slowdown had such a marked impact in the third quarter that the Group’s revenue and earnings for the nine-month period are down on the previous year, despite the growth markets’ pleasing performance. After bracketing out the gwk share, the remaining Group companies achieved overall revenue growth of around 2 percent, with an EBIT margin of 7 percent,” commented Dirk Engel, Chief Executive Officer of technotrans SE.
The free cash flow remained positive at EUR 1.0 million despite increased capital spending e.g. on the new termotek location (previous year: EUR -1.3 million).
In the Technology segment, the strain caused by gwk in the period under review had a substantial effect on the segment’s development. In addition, the sharper-than-expected slowdown in the economy put the brakes on the Group’s new machinery business in the markets of the printing industry and the laser and machine tool industry, as mentioned. Double-digit growth rates in the growth markets did not suffice to compensate for these effects. Revenue for the segment fell 7.8 percent to EUR 109.1 million. The operating result (EBIT) came to EUR 0.3 million, compared with EUR 6.5 million in the previous year. The rate of return in the Technology segment declined correspondingly to 0.3 percent (previous year: 5.5 percent).
The Services segment achieved revenue on a par with the previous year at EUR 44.4 million despite the restrictions mentioned. The operating result, too, was robust with EBIT of EUR 6.3 million, after EUR 7.1 million in the previous year. The rate of return for the segment of 14.2 percent (previous year: 15.9 percent) was in line with expectations. “This demonstrates the stabilising effect of our activities in the Services segment,” stressed Engel.
Measures to improve performance
gwk’s weak business performance is largely attributable to its restricted output following the introduction of a new ERP system. The causes were continuing capacity bottlenecks as a result of a changed product mix, isolated system-related disruptions to processes and the increased cost of sourcing materials and processing delayed deliveries. To improve the performance in the short term, the Board of Management has taken additional measures including giving existing capacities the flexibility to handle the changed product mix, and further optimising the process chain to streamline project completion times. The Board of Management now sees an improvement in sales and earnings at gwk to take effect in the first months of the coming financial year.
“gwk’s healthy order book is being underlined by a continuing high level of incoming orders, as further evidence of the high customer loyalty,” emphasised Engel.
In view of the development shown, the Board of Management has adjusted its forecast for the 2019 financial year. For the current financial year, the Board of Management expects consolidated revenue of around EUR 205 million and a consolidated operating result (EBIT) of between EUR 7.6 and 8.4 million. It had previously anticipated revenue to come in at the bottom end of the EUR 218 to 226 million range and EBIT of between EUR 12.0 and 16.0 million. Free cash flow is expected to remain positive.
The new termotek plant came on stream in August according to schedule. It already puts into practice the principle of lean production that the Board of Management is targeting for the Group as a whole, contributing to the improvement of the profit performance. Today, the Board of Management believes that the coming financial year, with its comparable economic environment, will offer the technotrans Group every prospect of returning to the path of growth. This assessment is based on a reinvigorated gwk and on additional potential in the growth markets. “As such, we are able to approach 2020 with confidence,” remarked Engel.
The full Quarterly Communication is available to download from Investor Relations / Financial Reports section of the company website.