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.