Home 190827 RoodMicrotec | Progress in SCM bodes well going forward (Issuer Sponsored Report)
190827 RoodMicrotec | Progress in SCM bodes well going forward (Issuer Sponsored Report)

190827 RoodMicrotec | Progress in SCM bodes well going forward (Issuer Sponsored Report)

No. pages 12
Description

At first glance, RoodMicrotec's 1H19 results look slightly disappointing. The top line was down by 6.6%, whereas its net profit – even though it was inflated by one-offs – almost completely vanished, shrinking to a mere EUR 5,000. Since industrial production (and activity in the Automotive sector in particular) has come under pressure in 1H19, this influence on sales and results is hardly surprising. RoodMicrotec management nevertheless issued a rather upbeat outlook for the second half of the year, as well as for the future.

This optimism is based on the good progress the company has been making in growing its Supply Chain Management (SCM) business. In our initiation study (May 2019), we already labelled this increased focus as a potential game changer.

At this point, five of the company's SCM contracts have entered into the industrial phase and have thus started to generate meaningful revenue for RoodMicrotec. Once full-volume production is reached, these five projects combined could contribute between EUR 8.4m and EUR 9.5m in revenue. To illustrate: In 1H19, the combined contribution of these projects was approximately EUR 1.6m, whereas RoodMicrotec's 18FY overall revenue amounted to EUR 13.4m; therefore, these projects could become very important.

Apart from these five projects, RoodMicrotec has an additional three signed SCM contracts (two of which are expected to reach the industrial phase by 2020) and is in negotiations for another four contracts.

As outlined in the initiation report in May, the most important advantages of SCM for RoodMicrotec are:
• Improved visibility regarding the production load (can be up to 26 weeks), which helps to improve the planning;
• More stability in revenue. The longer-term nature of these contracts helps the company to raise the share of more stable revenue versus the more volatile revenue from ad-hoc orders for individual services;
• It enables the company to engage on a deeper level with its customers; and
• It can help drive individual business within RoodMicrotec as well.

Most of these SCM contracts are for clients in the Automotive and Industrial sectors. The most important driver for the demand from Automotive is the increasing electronic content of cars (e.g. connected cars, autonomous driving, etc.). The Automotive industry endorsed a zero-fail policy, i.e. all components have to be tested before they are installed in a car. This puts companies such as RoodMicrotec in a different position to the traditional parts suppliers. The main driver for Industrial is the fourth industrial revolution. For additional background information on both, we refer to our initiation report.

The combination of the aforementioned has resulted in a book-to-bill ratio of more than 1.0, which has provided RoodMicrotec management with enough confidence to issue its upbeat guidance for the second half of the year.

Although this is an encouraging, the company is of course not immune to the general economic developments, whereas it also continues to depend on the success of its clients' products.

Content
  • Summary & Conclusions
  • SCM impact is beginning to show
  • The 1H19 results
  • Other financials
  • The importance of SCM
  • Five SCM contracts in production stage; an additional three to follow
  • More SCM contracts on the horizon?
  • How safe are SCM contracts?
  • Outlook
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Download report RoodMicrotec | Progress in SCM bodes well going forward
Created Date: Tuesday August 27, 2019 07:59:43
Last Updated Date: Tuesday August 27, 2019 07:59:43
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