Year-end Report January - December 2012
21 February 2013
Fourth Quarter 2012
- Sales revenue amounted to EUR 67.9m (77.6m)
- Revenue decrease of 12% Y-o-Y (16% in local currency)
- Operating profit amounted to EUR 1.5m (0.9m)
- The Operating margin was 2.2% (1.2%)
- EBITDA amounted to EUR 4.6m (2.8m)
- The after-tax result amounted to EUR -0.1m (-0.2m)
- Cash flow from operating activities amounted to EUR 14.5m (-16.3m)
January - December 2012
- Sales revenue amounted to EUR 275.8m (268.0m)
- Revenue growth of 3% Y-o-Y (0% in local currency)
- Operating profit amounted to EUR 3.1m (5.9m)
- The Operating margin was 1.1% (2.2%)
- EBITDA amounted to EUR 13.4m (12.3m)
- The after-tax result amounted to EUR -5.8m (-1.8m)
- Cash flow from operating activities amounted to EUR 16.6m (-51.1m)
*Comparative figures for last year are in brackets.
Lars Corneliusson, the CEO of Ferronordic Machines comments:
All time high revenue despite market slowdown in second half
Ferronordic Machines generated all time high revenue of EUR 275.8m in 2012, a 2.9% growth compared to 2011. Whereas new machines revenue decreased by 2.8%, the number of new machines sold increased 4.6% to 1,370 units, which is also all time high deliveries of Volvo CE machines in Russia. Revenue from parts and service grew almost 16.5%. EBITDA in 2012 was EUR 13.4m, a 9% increase compared to EUR 12.3m in 2011. We managed to increase our gross margin through a changed revenue mix and improved price realization. The higher gross profit was offset by increased operating expenses as the Company continued its expansion throughout Russia, albeit at a slower pace than in 2011. Net loss, excluding amortization of transactions related intangibles, was negative EUR 1.2m, primarily due to EUR 0.4m of unrealized FX losses and higher financial costs as a result of the Company’s financial indebtedness position. Cash flow from operating activities was EUR 16.6m and cash used in investing activities was EUR 8.9m, resulting in an ending net debt position of EUR 63.9m. As a result, our bond covenant was 2.8x at the end of 2012.
In the fourth quarter, the Company experienced a 12.5% decrease in revenue compared to the same period the year before. During the quarter, 331 new units were sold, corresponding to a 18.1% decrease compared to the fourth quarter 2011. Revenue from parts and service increased 21.6% and revenue from the rental business doubled. Despite lower revenue, the Company increased its EBITDA by 64% to EUR 4.6m thanks to increased gross margin at the same time as operating expenses were kept at the same level as in the fourth quarter 2011. Net income, excluding amortization of transactions related intangibles, for the period was EUR 1.0m. Cash flow from operating activities was EUR 14.5m during Q4, primarily as a result of increased payables and a reduction in receivables. The Company spent EUR 3.1m on investing activities during the last quarter of 2012.
2012 has been a year with four fairly different quarters.
• The first quarter showed very strong growth with the number of machines sold increasing almost 70% Y-o-Y to 294 units. The product mix however shifted somewhat towards smaller machines, e.g. backhoe loaders, resulting in a smaller increase in revenue of 37% to EUR 58 million.
• In the second quarter, the Company experienced for the first time a decline in revenue compared to the same period the year before. Both revenue and new units were below 2011 numbers with revenue decreasing 6% and new units 2%. The slowdown in revenue from machine sales was primarily related to a slower than expected market development, as a result of a relative slowdown in GDP growth, and the uncertainties surrounding the Russian presidential election and governmental cash disbursement to contractors. The unexpectedly low total market development started to push inventories up in the industry, including our own inventory.
• In the third quarter, despite a continuing weaker market, the Company experienced a 9% increase in revenue compared to the same period the year before. During the period, 391 new units were sold, a 9% increase over the third quarter 2011. During the quarter we managed to capture market opportunities in geographical areas previously operated by smaller independent dealers with low market shares, outside of traditionally stronger territories for VCE in Russia (such as North West and Central Russia).
• The fourth quarter was fairly weak from a revenue and unit perspective as some competitors pushed prices down following the inventory build-up in the second and third quarters. Despite this, we saw a strong improvement in our gross margin during the quarter following several price realization and efficiency measures implemented by the Company.
There have been two positive market developments in late 2012 which hopefully will have an effect on the market in 2013. Firstly, the government announced that property tax (2% annually) will be abolished on machines starting with registrations in January 2013. Secondly, the government around Christmas time fully cleared its debts ranging from up to a year with some selected road construction companies. Given that road construction customers is our largest customer segment we hope this could have a positive effect on the Company in 2013.
In 2012, we have continued to increase our presence throughout Russia and have now established a very strong platform from which to further grow the revenue. The number of sales- and/or service locations increased from 53 to 69 and employees from 540 to 654. During the year we have established a firm foothold in Siberia and Far East, two regions traditionally weak for the Volvo CE business. We expect to see strong growth in these two regions in 2013.
As mentioned in previous reports, we have worked hard during the year in consolidating our organization and making it more efficient. These initiatives produced results mainly in the second half of the year. Furthermore, we have been more selective in opening new outlets and in recruiting new personnel. Following a build-up of a high inventory in Q2 and the beginning of Q3, as a result of the slower than expected market, we have worked hard in optimizing our inventory management and reaching an optimal inventory level and mix and believe that we are getting close. Our focus on competence development is continuing and our own training center in Moscow has been operational since mid-year 2012.
The year has also seen big changes in the oil price. Following an average USD 119 / barrel price during the first quarter, the oil price dropped significantly during the second quarter to as low as USD 88.7 / barrel on June 25. The price then increased in the last two quarters and averaged USD 110 / barrel in both the third and fourth quarter. With an oil price forecasted to continue at above 100 USD / barrel and a budget deficit as low as around 0.3% of GDP the consensus forecast for the GDP development of the Russian economy in 2013 remains one of the highest in the World at around 3.5%. There is usually a strong correlation between the oil price level, GDP growth and the spending in the construction equipment market and hence our revenue generation. We continue to monitor the oil price development closely.
Overall, we remain cautiously optimistic as we look forward into 2013, but continue to follow the key risks created by the international economic instability and the potential effects on business conditions in Russia.
Anders Blomqvist, CFO, Telephone: 46 70 7766 485
Hovslagargatan 5B, SE-111 48 Stockholm, Sweden
Ferronordic Machines is the Authorized Dealer of Volvo Construction Equipment in Russia. The Company began its operations in June 2010 and has since then shown strong growth:
2012 revenue of EUR 276m vs. EUR 74m in 2010
69 own outlets vs. 6 in June 2010
654 employees vs. 162 in June 2010
Ferronordic Machines has expanded all across Russia through its 69 outlets and is today well established in all seven federal districts. In addition to distributing and providing aftermarket support to Volvo CE machines, the Company has also been appointed Aftermarket Dealer for Volvo Trucks as well as Dealer for Volvo Penta in certain parts of Russia. The company has also signed up some other high quality brands such as LogSet and several attachment manufacturers. The company intends to become a leading service- and sales company in the CIS markets.