EUROTECH: CONSOLIDATED INTERIM MANAGEMENT REPORT AS AT 31 MARCH 2024 APPROVED BY THE BOD
Revenues down in first quarter, largely affected by phase-out of main customer on legacy embedded business in U.S. and destocking in Japan. Rising first margin and falling operating costs only partly curbed Ebitda decline. Net working capital and net financial position improving from 31 December 2023 figures.
Amaro (Italy), 15 May 2024
- Consolidated revenues of € 11.9 million (€ 24.9 million as at 31.03.2023, -50.4% at constant exchange rates)
- Consolidated gross profit of € 5.8 million and 48.7% of revenues (€ 11.7 million and 46.9% of revenues as at 31.03.2023)
- Consolidated EBITDA of € -3.4 million (€ 1.6 million as at 31.03.2023)
- Consolidated EBIT of € -4.5 million (€ 0.4 million as at 31.03.2023)
- Group net income of € -4.2 million (€ -0.1 million as at 31.03.2023)
- Net debt of € 19.2 million (€ 20.6 million as at 31.12.2023)
The Board of Directors of Eurotech S.p.A. today examined and approved the consolidated results as at 31 March 2024.
Trend of the period
The result for the first quarter of 2024 was mainly affected by the phase-out of the main customer on embedded business in the United States, accelerated by the destocking 2023. The growth of new projects in Edge AIoT could not offset the decline in legacy business in time, as it lagged behind due to the difficulty in finding specialized Edge AIoT talent. In addition, the Japanese area was affected by the destocking of major customers, while in the first three months of last year it had benefited from the opposite phenomenon of product accumulation by the same customers. Finally, the European area was adversely affected by the lengthening of the ramp-up time of some projects in the field of industrial automation underway with customers in the area, who are showing cautious and wait-and-see behavior in allocating their annual budgets.
At constant exchange rates, the year-on-year reduction in turnover is significant; however, the first quarter of 2023 had benefited from approximately €4 million in turnover resulting from orders not delivered in 2022 due to component shortages and was therefore an "outlier" compared to the historical average of the first quarters. It should also be remembered that, historically, the first quarter has never been representative of the year's performance, as it has often proved to be an interim quarter with little activity from customers.
The Edge AIoT business continues to play a decisive role as envisioned by the company's new strategic direction: in the first three months, partly as a result of the contraction of the traditional business, it accounted for 63% of total revenues compared to 32% in the first quarter of last year.
The first margin, as a percentage of sales, rose by 180bps compared to the value in the first quarter of 2023 due mainly to the increase in the first margin of the German subsidiary InoNet, thus confirming the positive trend already observed in 2023.
Operating costs benefited from the first effects of the significant reorganization of operations in the U.S. carried out in Q4 2023; the second phase of improving cash generation of the business in that area is currently underway. Both total personnel costs and service costs recorded an initial absolute reduction of 3% at constant exchange rates, which will be more visible in the coming quarters.
By virtue of the normalization of the dynamics of material purchases, net working capital was reduced by €5.9 million, accounting for 22% of sales in the last 12 rolling months, a value close to the 20% threshold which is management's target.
The net financial position benefited from the reduction in net working capital: net debt at the end of March 2024 decreased by €1.4 million compared to the end of December 2023.
Economic performance of the Eurotech Group
Consolidated revenues for the first quarter of 2024 were € 11.94 million, compared to € 24.92 million in the first three months of 2023. At constant exchange rates, the reduction is 50.4%, while at historical exchange rates it is 52.1%.
With reference to the breakdown of revenues by location of the Group's activities, Europe has become the most significant area and recorded a 65.7% contribution to the Group's revenues (in the three months of 2023 it was 35.6%); the Japanese area is in second place and
contributed 28.2% of total revenues (in the three months of 2023 it was 25.8%); in third place is the American area, which recorded a 6.1% contribution to the total figure (in the three months of 2023 it was 38.6%).
The U.S. area suffered a sharp decline in legacy Embedded business due to the phase-out of the area's largest customer, accelerated by the 2023 destocking. The European area suffered from a wait-and-see approach by customers in ramping up ongoing projects. In the other hand, the Japanese area declined due to the destocking of its major customers.
The first margin for the period was 48.7% of sales, up from both a 46.9% incidence for the first three months of 2023 and the 47.4% figure recorded for the whole of 2023. The 180bps improvement, in addition to being related to the mix of products sold, was the result of year- on-year growth in the first margin of the German subsidiary InoNet, component purchase cost improvement activities, and some price increases to specific customers.
In the three months under review, operating costs before adjustments amounted to € 10.18 million, and compares with € 10.82 million in the first three months of 2023. At constant exchange rates, the cost reduction, instead of € 0.64 million, comes to € 0.32 million and is the net effect between the reorganization in the U.S. and new hires to support the strategy.
EBITDA amounted to € -3.37 million, compared to € 1.60 million in 2023. This trend is mainly related to the different turnover in the periods being compared.
EBIT, or operating income for the year, due to depreciation and amortization charged to the income statement in the first three months of 2024, amounted to € -4.50 million, compared to a positive € 0.37 million in 2023.
In terms of Group net income, the value for the first quarter is € -4.21 million, while it was positive by € 0.14 million in the same period of 2023.
Balance sheet and financial situation of the Eurotech Group
As of the 31st of March 2024, the Group had a net financial debt of € 19.2 million, compared to an amount of € 20.6 million as of the 31st of December 2023. The reduction in net financial debt was due to a reduction in net working capital, which amounted to € 17.96 million as of 31 March 2024, compared to € 23.85 million as of 31 December 2023. The reduction in working capital is mainly related to the dynamics of payments from customers and material purchases.
The ratio of net working capital to sales for the last 12 rolling months stood at 22%, a value substantially in line with management's objectives.
Group shareholders' equity amounts to €89.6 million (€95.3 million as of 31 December 2022).
Foreseeable evolution of operations
Low visibility beyond the short term remains as a result of customers' current preference for "last-minute" release of orders. However, signs are emerging from ongoing dialogue with customers that point to a more promising second half of the year than the first, with overall growth in the Edge AIoT business.
The second quarter will show an improvement in revenues compared to the quarter just ended, and with a first margin in line with the figure recorded in the first three months of the year. In addition, in the coming months, the reorganization actions in the U.S. business already carried out in the fourth quarter 2023 will continue to show their effect of net reduction in total operating costs, with a year-on-year benefit at the EBITDA level of about €1 million.
On the operating cost side, two initiatives are already underway:
- the first is the completion of actions to improve the cash generation of the business in the U.S., which had already begun at the end of last year;
- the second initiative, on the other hand, will concern the strong rationalization of activities in the Edge AIoT business line. On the one hand, the structure has grown a great deal in the last three years and can benefit from targeted interventions to redesign the organization to also enable integration synergies between the group's different locations in Europe and the United States; on the other hand, Edge AIoT revenues are gradually reaching a critical mass that allows for rethinking some costs and achieving economies of scale. Management's goal is to complete a large part of this world-wide reorganization project of operating activities in the next 9 months, with progressive cost savings that, when fully implemented in 2025, will lead to lowering the Group's run-rate by about Euro 3 million, incremental to the million mentioned above for an estimated total of about 4 million representing about 10% of total operating costs compared to 2023; all this without affecting the development potential of the Edge AIoT business and on the contrary making the structure more agile and dynamic.
After successfully achieving the integration of the German subsidiary InoNet, and in parallel with the sharp reduction in operating costs, management's attention is now also focused on inorganic development in the North American region. Building on the positive experience of the acquisition of InoNet, Eurotech is focusing on finding a "tuck on" target in the U.S. that can
give the business transformation to Edge AIoT the same momentum in a short timeframe that InoNet enabled in Europe. To finance the growth by external lines, Eurotech will find the necessary financial means through the most appropriate ways currently under consideration, including a capital increase; the above has already found approval from relative majority shareholder Emera.
***
The Manager in charge of drawing up the corporate accounting documents, Sandro Barazza, hereby certifies, pursuant to paragraph 2 of Article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the documented results, books and accounting records of the company.
***
Eurotech
Eurotech (ETH:IM) is a multinational company that designs, develops and delivers Edge Computers and Internet of Things (IoT) solutions complete with services, software and hardware to system integrators and enterprises. By adopting Eurotech's solutions, customers have access to components and software platforms for IoT, Edge Gateways to enable asset monitoring, and high-performance Edge Computer for applications including Artificial Intelligence (Edge AI). To offer more and more complete solutions Eurotech has activated partnerships with leading companies in their field of action, thus creating a global ecosystem that allows it to create "best in class" solutions for the Industrial Internet of Things. More information: www.eurotech.com
Contact
Investor Relations | Corporate Communication |
Andrea Barbaro | Federica Maion |
+39 0433 485411 | Tel. +39 0433 485411 |
andrea.barbaro@eurotech.com | federica.maion@eurotech.com |
ANNEXES - ACCOUNTING SCHEDULES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
(€ '000)
Sales revenue
Cost of material
Gross profit
Services costs
Lease & hire costs
Payroll costs
Other provisions and costs
Other revenues
EBITDA
Depreciation & Amortization
EBIT
Finance expense
Finance income
Profit before tax
Income tax
Net profit (loss) of continuing operations before minority interest
Minority interest
Group net profit (loss) for period
Base earnings per share
Diluted earnings per share
Q1 2024 (b) | of which | % | Q1 2023 (a) | of which | % | change (b-a) | ||
related | related | amount | % | |||||
parties | parties | |||||||
11,943 | 2 | 100.0% | 24,917 | 2 | 100.0% | (12,974) | -52.1% | |
(6,127) | -51.3% | (13,241) | (157) | -53.1% | (7,114) | -53.7% | ||
5,816 | 48.7% | 11,676 | 46.9% | (5,860) | -50.2% | |||
(3,348) | (300) | -28.0% | (3,668) | -14.7% | (320) | -8.7% | ||
(228) | -1.9% | (215) | -0.9% | 13 | 6.0% | |||
(6,345) | -53.1% | (6,715) | -26.9% | (370) | -5.5% | |||
(259) | -2.2% | (217) | -0.9% | 42 | 19.4% | |||
994 | 8.3% | 742 | 3.0% | 252 | 34.0% | |||
(3,370) | -28.2% | 1,603 | 6.4% | (4,973) | 310.2% | |||
(1,128) | -9.4% | (1,229) | -4.9% | (101) | -8.2% | |||
(4,498) | -37.7% | 374 | 1.5% | (4,872) | n.s. | |||
(482) | -4.0% | (1,058) | -4.2% | (576) | -54.4% | |||
772 | 6.5% | 873 | 3.5% | (101) | -11.6% | |||
(4,208) | -35.2% | 189 | 0.8% | (4,397) | n.s. | |||
6 | 0.1% | (46) | -0.2% | (52) | 113.0% | |||
(4,202) | -35.2% | 143 | 0.6% | (4,345) | n.s. | |||
- | 0.0% | - | 0.0% | - | n/a | |||
(4,202) | -35.2% | 143 | 0.6% | (4,345) | n.s. | |||
(0.119) | (0.106) | |||||||
(0.119) | (0.106) | |||||||
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(€'000)
ASSETS
Intangible assets
Property, Plant and equipment
Investments in affiliate companies
Investments in other companies
Deferred tax assets
Other non-current assets
Total non-current assets
Inventories
Trade receivables
Income tax receivables
Other current assets
Other current financial assets
Derivative instruments
Cash & cash equivalents
Total current assets
Total assets
LIABILITIES AND EQUITY
Share capital
Share premium reserve
Other reserves
Group shareholders' equity
Equity attributable to minority interest
Total shareholders' equity
Medium-/long-term borrowing
Employee benefit obligations
Deferred tax liabilities
Other non-current liabilities
Business combination liabilities
Total non-current liabilities
Trade payables
Trade payables from affiliates companies
Short-term borrowing
Income tax liabilities
Other current liabilities
Total current liabilities
Total liabilities
Total liabilities and equity
at March 31, 2024
84,740
6,987
4
547
4,567
481
97,326
23,348
10,477
1,637
3,477
110
90
9,324
48,463
145,789
8,879
136,400
-
55,673)
89,606
-
89,606
11,204
2,343
3,276
887
521
18,231
11,963
264
16,970
1,565
7,190
37,952
56,183
145,789
of which | at December | of which |
related | related | |
31, 2023 | ||
parties | parties | |
85,827 | ||
7,185 | ||
4 | ||
544 | ||
4,655 | ||
502 | ||
98,717 | ||
21,887 | ||
2 | 19,883 | 1 |
1,206 | ||
2,151 | ||
143 | ||
102 | ||
11,428 | ||
56,800 | ||
155,517 | ||
8,879 | ||
136,400 | ||
( 49,960) | ||
95,319 | ||
- | ||
95,319 | ||
13,481 | ||
2,382 | ||
3,400 | ||
899 | ||
740 | ||
20,902 | ||
117 | 11,668 | 137 |
127 | 127 | 127 |
18,021 |
1,779
7,701
39,296
60,198
155,517
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Actuarial | Exchange | Equity | |||||||||||
Share | Cash flow | gains/(losses) on | rate | Group | attributable | Total | |||||||
Share | Legal | premium | Conversion | Other | hedge | defined benefit | differences | Treasury | Profit (loss) shareholders | to Minority shareholders | |||
(€'000) | capital | reserve | reserve | reserve | reserves | reserve | plans reserve | reserve | shares | for period | ' equity | interest | ' equity |
Balance as at December 31, 2023 | 8,879 | 1,776 | 136,400 | 375 | ( 51,270) | 102 | ( 543) | 3,380 | ( 662) | ( 3,118) | 95,319 | - | 95,319 |
2023 Result allocation | - | - | - | - | ( 3,118) | - | - | - | - | 3,118 | - | - | - |
Profit (loss) as at March 31, 2024 | - | - | - | - | - | - | - | - | - | ( 4,202) | ( 4,202) | - | ( 4,202) |
Comprehensive other profit (loss): | |||||||||||||
- Hedge transactions | - | - | - | - | ( 13) | - | - | - | - | ( 13) | - | ( 13) | |
- Actuarial gains/(losses) on defined benefit | |||||||||||||
plans for employees | - | - | - | - | - | - | - | - | - | - | - | ||
- Foreign balance sheets conversion difference | - | - | - | ( 1,948) | - | - | - | - | ( 1,948) | - | ( 1,948) | ||
- Exchange differences on equity investments | |||||||||||||
in foreign companies | - | - | - | - | - | - | 294 | - | - | 294 | - | 294 | |
Total Comprehensive result | - | - | - | ( 1,948) | - | ( 13) | - | 294 | - | ( 4,202) | ( 5,869) | - | ( 5,869) |
- Performance Share Plan | - | - | - | - | 156 | - | - | - | - | - | 156 | - | 156 |
- Other changes and transfers | - | - | - | - | - | - | |||||||
Balance as at March 31, 2024 | 8,879 | 1,776 | 136,400 | ( 1,573) | ( 54,232) | 89 | ( 543) | 3,674 | ( 662) | ( 4,202) | 89,606 | - | 89,606 |
CONDENSED CASH FLOW STATEMENT
(€'000)
Cash flow generated (used) in operations | A |
Cash flow generated (used) in investment activities | B |
Cash flow generated (absorbed) by financial assets | C |
Net foreign exchange difference | D |
Increases (decreases) in cash & cash equivalents | E=A+B+C+D |
at March 31, 2024
2,957
- 1,047)
- 3,702) ( 312)
- 2,104)
at December | at March 31, |
31, 2023 | 2023 |
1,908 | ( 363) |
( 3,112) | ( 1,084) |
( 2,186) | ( 201) |
( 3,292) | ( 409) |
( 6,682) | ( 2,057) |
Opening amount in cash & cash equivalents
11,428
18,11018,110
Cash & cash equivalents at end of period
9,324
11,42816,053
NET FINANCIAL POSITION
(€'000) | |
Cash | A |
Cash equivalents | B |
Other current financial assets | C |
Cash equivalent | D=A+B+C |
Current financial debt | E |
Current portion of non-current financial debt | F |
Short-term financial position | G=E+F |
Short-term net financial position | H=G-D |
Non current financial debt | I |
Debt instrument | J |
Trade payables and other non-current payables K | |
Medium-/long-term net financial position | L=I+J+K |
(NET FINANCIAL POSITION) NET DEBT | |
ESMA | M=H+L |
Medium/long term borrowing allowed to | |
affiliates companies and other Group | |
companies | N |
(NET FINANCIAL POSITION) NET DEBT | O=M-N |
at March 31, | at December 31, | at March 31, | |
2024 | 2023 | 2023 | |
9,324 | 11,428 | 16,053 | |
- | - | - | |
200 | 245 | 318 | |
9,524 | 11,673 | 16,371 | |
4,547 | 4,547 | 2,241 | |
12,423 | 13,474 | 12,597 | |
16,970 | 18,021 | 14,838 | |
7,446 | 6,348 | ( 1,533) | |
11,204 | 13,481 | 17,222 | |
- | - | - | |
521 | 740 | 900 | |
11,725 | 14,221 | 18,122 | |
19,171 | 20,569 | 16,589 | |
- | - | 65 | |
19,171 | 20,569 | 16,524 | |
NET WORKING CAPITAL
(€'000)
Inventories
Trade receivables
Income tax receivables
Other current assets
Current assets
Trade payables
Trade payables from affiliates companies
Income tax liabilities
Other current liabilities
Current liabilities
at March 31, | at December | at March 31, | |
2024 | 31, 2023 | 2023 | Changes |
(b) | (a) | (b-a) | |
23,348 | 21,887 | 29,676 | 1,461 |
10,477 | 19,883 | 15,590 | (9,406) |
1,637 | 1,206 | 1,559 | 431 |
3,477 | 2,151 | 2,933 | 1,326 |
38,939 | 45,127 | 49,758 | (6,188) |
(11,963) | (11,668) | (17,812) | (295) |
(264) | (127) | 0 | (137) |
(1,565) | (1,779) | (1,601) | 214 |
(7,190) | (7,701) | (8,428) | 511 |
(20,982) | (21,275) | (27,841) | 293 |
Net working capital
17,957
23,852 21,917 (5,895)
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Disclaimer
Eurotech S.p.A. published this content on 15 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 May 2024 21:24:59 UTC.