Announcement
To Nasdaq Copenhagen A/S and the press
Nørresundby, Denmark, 28 April 2020
Announcement no. 30/2020
Interim report for Q2 and H1 2019/20
(the period 01.10.2019 – 31.03.2020)
“Our Q2 was affected by deliveries moving from March and into our Q3 due to the temporary effects of the COVID-19 situation in China on our supply chain thereby postponing revenues from Q2 to Q3. With the COVID-19 situation now unfolding globally these are unprecedented times. I am impressed by the way in which our employees across the world are handling this situation with commitment to RTX and to our customers and with flexibility to find new ways of working. Coupled with the strong position of our customers and the resilience of RTX’s business model, the dedication of our employees is the basis for RTX being able to maintain our 2019/20 outlook at present. I acknowledge the fundamental uncertainty in the global business environment, and this may impact our financial year 2019/20, however, with the present visibility we are able to maintain our outlook for 2019/20.”
Peter Røpke, CEO
HIGHLIGHTS Q2 2019/20 FOR THE RTX GROUP
- Net revenue decreased by 18.3% to DKK 112.7 million in Q2 2019/20 (Q2 2018/19: DKK 137.9 million). The decline is primarily caused by the impact of the COVID-19 outbreak and countermeasures in China on RTX’s supply chain which has postponed revenue from Q2 into Q3 mainly in Business Communications.
- Business Communications: Revenue decreased by 14.8% to DKK 78.2 million. The decline is caused by the COVID-19 outbreak and countermeasures in China which postponed the opening of RTX’s suppliers (providers of electronic manufacturing services) in China after the Chinese New Year. This has postponed production and thus deliveries from March 2020 into RTX’s Q3 of 2019/20 leading to revenues also being postponed into Q3. The underlying business performed solidly in Q2, however, with quarter-on-quarter fluctuations during the ramp phase of the large framework agreement announced during 2017/18 impacting revenues from these large framework agreements in Q2.
- Design Services: Revenue decreased by 25.2% to DKK 34.5 million caused by lower revenues from engineering services (hourly-based engineering), partly due to delayed finalization of certain engineering projects for customers and partly as a result of the development activities in the division focusing increasingly on generating recurring revenues instead of executing pure engineering projects.
FX corrected revenue development amounted to a decrease of 20.2% as revenue compared to last year was positively impacted by the USD exchange rate development to a minor degree.
- Gross profit decreased by 15.4% to DKK 66.3 million in Q2 2019/20 (Q2 2018/19: DKK 78.3 million). The gross margin increased by 2.0%-points to 58.8% (Q2 2018/19: 56.8%) impacted by the revenue mix.
- Operating performance was impacted by the lower revenue with EBITDA reaching DKK 11.3 million in Q2 2019/20 (Q2 2018/19: DKK 23.1 million) and EBIT reaching DKK 5.7 million in Q2 2019/20 (Q2 2018/19: DKK 19.6 million). In addition, to the impact from the revenue development, EBITDA and EBIT are impacted by higher capacity costs related to ramp-up of activities and investments in capacity related to the major framework agreements announced over the last years. Thus, the average number of FTEs reached 292 in Q2 2019/20 compared to 272 in Q2 2018/19. Also, EBITDA and EBIT are impacted by implementation of IFRS 16 regarding capitalization of leasing costs, which increases EBITDA (and to a minor degree EBIT).
- Cash flows from operating activities (CFFO) increased to DKK 23.7 million in Q2 2019/20 compared to DKK 15.0 million in Q2 2018/19 impacted by developments in earnings and working capital fluctuations.
RTX POSITIONED TO MANAGE UNCERTAIN IMPACT FROM COVID-19 SITUATION
- RTX’s key priorities during the unprecedented global COVID-19 outbreak are the health and safety of our employees and societies at large, as well as protecting the commercial and financial health of our business. We are implementing significant actions to protect our people and our business in the short term while still ensuring the long-term health and development of RTX.
- At present the impact of the COVID-19 outbreak and countermeasures on RTX’s business is difficult to predict as various effects will impact over different time horizons. In Q2, postponed deliveries due to the delayed opening of RTX’s suppliers in China after the Chinese New Year caused revenues to be postponed from Q2 to Q3 2019/20. After this impact in February and March 2020, the manufacturing sites of our suppliers are now again fully operational and keeping up with demand.
- In the near-term, Q3 and the early part of Q4 2019/20, we see increased demand for RTX’s products within healthcare (products for critical patient monitoring solutions) and business headsets as societies around the world increase intensive care capacity and as companies and organizations prepare their employees for increasingly working from home. RTX is ramping up short-term supply chain capacity to meet this increased demand. Conversely, products related to large scale events in the ProAudio segment see reduced demand in the near term.
- With the impact from these directly affected segments and product types and with current visibility, RTX is maintaining the communicated outlook for 2019/20. However, given the unprecedented nature of the COVID-19 situation a fundamental uncertainty as to any impact on other segments must be acknowledged. While RTX’s customers are typically strongly positioned in their respective industries, they may yet experience a further near-term impact from the COVID-19 situation which could impact RTX’s sales in 2019/20. Similarly, a potential tightening of global supply chains for key components or restricted logistics flows as a result of the COVID-19 situation could impact deliveries and thus revenues in 2019/20. RTX is thus monitoring the situation closely and taking mitigating actions where possible. The outlook for the financial year assumes that RTX can maintain production and logistics flows at current and forecasted levels without major supply disruptions and that additional near-term impact on customer demand is limited.
- The mid- to longer-term impact from the COVID-19 outbreak, countermeasures and resulting economic development is also uncertain. While a longer-term economic downturn will also affect RTX’s business to a certain degree, certain structural changes resulting from COVID-19 countermeasures within societies and organizations are likely to continue to be advantageous to RTX within areas such as headsets (Enterprise framework agreements), conference microphones (ProAudio framework agreement) and healthcare. Additionally, RTX’s business development with several new large framework agreements added within the last 2-3 years will to a certain degree increase RTX’s resilience against any adverse effects from a global economic downturn.
- RTX’s balance sheet and liquidity remain very strong with a significant net cash position. As a precautionary measure to safeguard the strong cash position, the Board of Directors of RTX suspended the ongoing share buy-back programme until further notice on 13 March 2020.
- Considering COVID-19 and its impact on the global economy, RTX is actively managing its cost base and has therefore among other things delayed additional headcount investments and instead redeployed employees internally to maintain full momentum on the development activities for the large framework agreements which hold significant growth potential for RTX.
HIGHLIGHTS H1 (FIRST SIX MONTHS) 2019/20 FOR THE RTX GROUP
- Net revenue decreased by 5.2% to DKK 241.0 million in H1 2019/20 (H1 2018/19: DKK 254.4 million) mainly due to revenue being postponed from Q2 to Q3 2019/20 due to delayed start of RTX suppliers in China after the Chinese New Year due to COVID-19 countermeasures in China.
- Business Communications: Revenue decreased by 0.8% to DKK 167.7 million positively impacted by solid underlying growth of approx. 13% compared to last year especially from the large framework agreements, however negatively impacted by postponements of deliveries from Q2 to Q3 2019/20 due to COVID-19 impact on the supply chain in China.
- Design Services: Revenue decreased by 14.0% to DKK 73.3 million. While recurring revenues from product sales and royalties increased in line with the strategy to increase resource scalability within Design Service, revenues from engineering services (hourly-based engineering) decreased compared to last year as the development activities in the division focus increasingly on generating recurring revenues instead of executing pure engineering projects.
FX corrected revenue development in H1 2019/20 amounted to a decrease of 7.6% as revenue compared to last year was positively impacted by the USD exchange rate development to a minor degree.
- Operating performance was impacted by the lower revenue level. Thus, EBITDA decreased by 2.8% to DKK 32.7 million (H1 2018/19: DKK 33.7 million) while EBIT decreased by 19.7% to DKK 22.0 million in H1 2019/20 (H1 2018/19: DKK 27.4 million). In addition to the revenue development, EBITDA and EBIT are impacted by increased capacity costs related to ramp-up of activities and investments in capacity related to the major framework agreements announced over the latest year. Also, EBITDA and EBIT are impacted by implementation of IFRS 16 regarding capitalization of leasing costs, which increases EBITDA (and to a minor degree EBIT).
- Cash flows from operating activities (CFFO) amounted to DKK 30.1 million in H1 2019/20 compared to DKK 28.0 million in H1 2018/19.
OUTLOOK FOR 2019/20
- As detailed above, the impact on RTX from the COVID-19 situation is mixed. With current knowledge and visibility RTX maintains the expectations for revenue between DKK 620-650 million, EBITDA between DKK 105-120 million and EBIT between DKK 75-90 million for the financial year 2019/20. However, given the unprecedented nature of the COVID-19 situation an uncertainty as to a potential future impact from COVID-19 on RTX’s financial year 2019/20 must be acknowledged. As stated in the annual report for 2018/19, it is expected that the revenue and earnings distribution over 2019/20 will be relatively backloaded towards the end of the year.
RTX A/S
PETER THOSTRUP PETER RØPKE
Chairman CEO
Investor and analysts meeting
On Friday, 1 May 2020 at 9.00 am, RTX will hold a conference call for investors and analysts hosted by ABG Sundal Collier. In this conference call, the Company’s management will comment on the interim report for the second quarter of 2019/20. To register for the conference call and receive dial-in details, please email [email protected].
Enquiries and further information:
CEO Peter Røpke, tel +45 96 32 23 00
CFO Morten Axel Petersen, tel +45 96 32 23 00
RTX’s homepage: www.rtx.dk
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