Smart Gas Metering growth beats expectations, while Group fundamentals remain strong
SIT for Q1 2023 reports:
- Consolidated revenues of Euro 83.6 million (-10.9% on Q1 2022);
- Heating Division sales of Euro 62.7 million (-17.6% on Q1 2022);
- Metering Division Sales of Euro 20.4 million (+23.2% on Q1 2022), including Smart Gas Metering sales of Euro 13.7 million (+33.0%) and Water Metering sales of Euro 6.7 million (+7.0%);
- Consolidated EBITDA of Euro 8.3 million (-43.5% on Q1 2022);
- Consolidated adjusted net profit of Euro 1.3 million (1.6% margin), compared to Euro 5.3 million in Q1 2022 (5.6% margin);
- Operating cash flow of Euro -10.3 million, after investments of Euro 5.0 million;
- Net financial position of Euro 143.1 million (Euro 124.8 million in Q1 2022).
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Padua, May 18, 2023 – The Board of Directors of SIT S.p.A., listed on the Euronext Milan segment of the Italian Stock Exchange, in a meeting today presided over by Federico de’ Stefani, the Chairperson and Chief Executive Officer, approved the consolidated Q1 2023 results.
Federico de’ Stefani, Chairperson and Chief Executive Officer of SIT stated:
“SIT in Q1 2023 operated within an environment in which inflation and high interest rates impacted end consumption propensity, and which was shaped also by the uncertain regulatory environment in terms of sector incentives.
Against this backdrop, SIT’s Heating & Ventilation division was affected by continued destocking, due to the exceptionally high stock levels throughout the supply chain as a result of the volatility experienced in 2022.
The Smart Gas Metering business unit of the Metering division beat expectations by leveraging its domestic market leadership, while the Water Metering business unit performed in line with expectations.
Against the wider global economic backdrop which continues to be affected by uncertainty and complexity, we have taken both short and long-term focused actions to offset the impacts of these external factors. These include cost-cutting, the optimisation of capex and the strengthening of our internal structure, which was possible thanks to the development of the organisation in March with the launch of the “Ventilation” business, alongside the original core “Heating” business. This shift shall allow us to focus more effectively on our core markets, paying closer attention to technological innovations so as to supply products which ensure ongoing domestic appliance energy efficiency improvements.
We also confirm the Group’s solid fundamentals, as highlighted by the global role of gas in supporting the energy transition and SIT’s leadership on its core markets”.
KEY FINANCIALS
| (Euro.000) | Q1 23 | % | Q1 22 | % | change % |
| Revenues from contracts with customers | 83,552 | 100.0% | 93,810 | 100.0% | -10.9% |
| EBITDA | 8,293 | 9.9% | 14,668 | 15.6% | -43.5% |
| EBIT | 1,597 | 1.9% | 8,031 | 8.6% | -80.1% |
| Result before taxes (EBT) | 172 | 0.2% | 14,110 | 15.0% | -98.8% |
| Net Profit | 1,338 | 1.6% | 12,389 | 13.2% | -89.2% |
| Adjusted Net Profit | 1,338 | 1.6% | 5,251 | 5.6% | -74.5% |
| Cash flow from operating activities | (10,330) | (17,119) |
| (Euro.000) | 31/03/2023 | 31/12/2022 | 31/03/2022 |
| Net financial debt | 143,087 | 130,503 | 124,752 |
| Net trade working capital | 77,846 | 73,752 | 70,350 |
| Net trade working capital/Revenues | 23.0% | 18.8% | 18.5% |
Sales performance
Consolidated Revenues by Division
| (Euro.000) | Q1 23 | % | Q1 22 | % | diff | diff % |
| Heating & Ventilation | 62,659 | 75.0% | 76,062 | 81.1% | (13,403) | (17.6%) |
| Metering | 20,382 | 24.4% | 16,546 | 17.6% | 3,836 | 23.2% |
| Total sales | 83,041 | 99.4% | 92,608 | 98.7% | (9,567) | (10.3%) |
| Other revenues | 510 | 0.6% | 1,201 | 1.3% | (691) | (57.5%) |
| Total revenues | 83,552 | 100% | 93,810 | 100% | (10,258) | (10.9%) |
Consolidated Revenues by Geographic Area
| (Euro.000) | Q1 23 | % | Q1 22 | % | diff | change % |
| Italy | 25,044 | 30.0% | 24,587 | 26.2% | 457 | 1.9% |
| Europe (excluding Italy) | 40,168 | 48.1% | 41,436 | 44.2% | (1,268) | (3.1%) |
| America | 11,957 | 14.3% | 19,475 | 20.8% | (7,518) | (38.6%) |
| Asia/Pacific | 6,383 | 7.6% | 8,312 | 8.9% | (1,929) | (23.2%) |
| Total revenues | 83,552 | 100% | 93,810 | 100% | (10,258) | (10.9%) |
Consolidated revenues in Q1 2023 amounted to Euro 83.6 million, decreasing 10.9% on the same period of 2022 (Euro 93.8 million).
Heating & Ventilation Division
Heating & Ventilation division sales in Q1 2023 amounted to Euro 62.7 million, decreasing 17.6% on Euro 76.1 million in Q1 2022 (-18.2% at like-for-like exchange rates).
The first quarter was impacted by sector-wide factors such as the developing regulatory framework, inflation and high interest rates, in addition to the supply chain instability of 2022, which saw stock levels increase throughout the chain. The reduction of client stock levels resulted in a significant drop in sales compared to the same period of the previous year, which in fact was boosted by the demand emerging from the post-COVID recovery and was fully supported by incentives.
The following table presents Heating & Ventilation Division core sales by region according to management criteria:
| (Euro.000) | Q1 23 | % | Q1 22 | % | diff | change % |
| Italy | 11,911 | 19.0% | 14,893 | 19.6% | (2,982) | (20.0%) |
| Europe (excluding Italy) | 32,956 | 52.6% | 34,337 | 45.1% | (1,381) | (4.0%) |
| America | 11,698 | 18.7% | 18,983 | 25.0% | (7,285) | (38.4%) |
| Asia/Pacific | 6,094 | 9.7% | 7,849 | 10.3% | (1,755) | (22.4%) |
| Total sales | 62,659 | 100% | 76,062 | 100% | (13,403) | (17.6%) |
Sales in Italy contracted 20.0% on the same period of the previous year. This contraction was seen to a similar extent across all application segments and reflects the changes to sector incentives and the uncertainty – also due to the announcements effect – impacting the home renovation market. Within the Direct Heating segment, Space Heaters (+150%) performed strongly, while Pellet Stove sales contracted (-23.2%), in line with the general market performance.
Sales in Europe (excluding Italy) in Q1 2023 decreased Euro 1.4 million (-4.0%) on the same period of the previous year. Turkey, the top shipping market with 19.5% of division sales, grew 49.0%, particularly thanks to Fans for Central Heating applications, impacted by supplier difficulties in Q1 2022. The UK, accounting for 8.6% of division sales, meanwhile reported a performance in line with Q1 2022. Central Europe saw a reduction of Euro 2.2 million (-17.2%) for the Central Heating division, while Heat Recovery Unit sales grew (+29%, Euro 0.7 million).
Sales in the Americas contracted 38.4% (-41.2% at like-for-like exchange rates). The reduction affected Water Heating Storage for Euro 4.1 million, while the Direct Heating applications of fireplaces (-Euro 3.2 million, -35.2%) were impacted by the poor new constructions performance to which this segment is linked.
Asia/Pacific contracted 22.4% (-20.2% at like-for-like exchange rates), with sales of Euro 6.1 million in the quarter (Euro 7.8 million in Q1 2022). Contractions are reported both for China (5.7% of the division), down 26.5%, and Australia (2.8% of division), contracting 25.4%, due also to the exceptionally high comparable sales in Q1 2022.
Metering Division
Metering Division sales in Q1 2023 totalled Euro 20.4 million, compared to Euro 16.5 million in the same period of 2022, up 23.2%.
Smart Gas Metering sales in Q1 2023 totalled Euro 13.7 million, up 33.0% on Q1 2022. The performance was due to the Group’s strong positioning on the Italian market and the new development and replacement projects launched by the major clients. Sales in Italy accounted for 94.5% of the total, while overseas sales accounted for 5.5% (from Greece and Central Europe).
Water Metering sales totalled Euro 6.7 million, up 7.0% on Q1 2022, in line with budget forecasts for the period, which indicated double-digit percentage growth. Spain accounts for 30.7% of sales, Portugal for 17.8%, the rest of Europe for 42.1% and America and Asia respectively for 5.6% and 3.8%.
Operating performance
Q1 2023 consolidated revenues were Euro 83.6 million, decreasing 10.9% on the same period of 2022 (Euro 93.8 million).
Consolidated EBITDA in Q1 2023 was Euro 8.3 million (9.9% margin), contracting 43.5% on Euro 14.7 million (15.6% margin) for the same period of 2022.
The comparison between the two quarters depends largely on the impact of volumes, which was negative for Euro 6.7 million, and in particular the Heating & Ventilation performance. The segment was in fact impacted in the first quarter by a drop in demand throughout the production chain as a result of operator policies to reduce stock levels in view of the supply irregularities throughout 2022.
The net contribution of prices on EBITDA was positive for Euro 1.3 million. Operating costs increased Euro 0.7 million, due to the rise in processing costs (for approx. Euro 1.2 million), while benefiting for a similar amount from the reduction in logistics and transport costs. R&D and production costs increased. The impact of exchange rates on EBITDA was substantially neutral compared to the first quarter of the previous year.
EBIT in the period was Euro 1.6 million (1.9% margin), after amortisation, depreciation and write-downs of Euro 6.7 million (Euro 8.0 million in the previous year, 8.6% margin).
Net financial charges of Euro 1.7 million are reported for Q1 2023 (Euro 1.1 million in Q1 2022), with the increase due to the increase in the financial position and the higher interest rates. Financial income of Euro 7.1 million was reported in Q1 2022 as a result of the change in the fair value of the SIT warrants, subsequently settled in the third quarter.
The pre-tax profit was Euro 0.2 million (1.6% margin), compared to Euro 14.1 million (15.0% margin) in the previous year, with this figure including the benefit previously indicated of the SIT Warrant.
Income taxes overall report net income of Euro 1.2 million, as a result of the accrual of deferred tax assets by the parent company.
The net profit for Q1 was Euro 1.3 million (1.6% margin), compared to Euro 12.4 million in the same period of the previous year. In Q1 2022, the net profit adjusted for the effect of the Warrant was Euro 5.3 million (5.6% margin).
Cash Flow performance
The net financial debt at March 31, 2023 was Euro 143.1 million, compared to Euro 130.5 million at December 31, 2022 and Euro 124.8 million at March 31, 2022.
The movements in the net financial position are reported below:
| (Euro.000) | Q1 23 | Q1 22 |
| Cash flow from current activities (A) | 9,092 | 14,805 |
| Change in inventories | (9,228) | (15,431) |
| Change in trade receivables | 13,137 | (3,230) |
| Change in trade payables | (7,117) | (5,616) |
| Change in other current assets and liabilities and for taxes | (11,213) | (4,502) |
| Cash flow from changes in Working Capital (B) | (14,421) | (28,779) |
| CASH FLOW FROM OPERATING ACTIVITIES (A + B) | (5,329) | (13,974) |
| Cash flow from investing activities (C) | (5,001) | (3,145) |
| CASH FLOW FROM OPERATING & INVESTING ACTIVITIES (A + B + C) | (10,330) | (17,119) |
| Interest | (1,979) | (614) |
| Acquisition of treasury shares | – | (470) |
| Equity changes | (589) | 256 |
| FV derivative changes | 376 | 55 |
| Other | (62) | (131) |
| Change in net financial position | (12,584) | (18,023) |
| Opening net financial position | 130,503 | 106,729 |
| Closing net financial position | 143,087 | 124,752 |
Operating cash flows of Euro 9.1 million were generated in the first quarter of 2023, compared to Euro 14.8 million in the same period of 2022. In the first quarter of 2023, working capital absorbed Euro 14.4 million, compared to Euro 28.8 million. In Q1 2023, commercial working capital absorbed Euro 3.2 million, while absorbing Euro 24.3 million in Q1 2022, with the difference based on the Heating & Ventilation sales volumes reported for the two periods. An outflow for a non-recurring dispute settled in Q3 2022 is reported in Q1 2023.
Investing activities absorbed cash of Euro 5.0 million, compared to Euro 3.1 million in 2022, reflecting the pipeline of projects introduced at the end of 2022.
Cash flows from operating activities after investments of Euro 10.3 million were therefore absorbed in the period, compared to an absorption of Euro 17.1 million in the preceding period.
In terms of financial activities cash flows, we highlight in the period interest of Euro 2.0 million, compared to Euro 0.6 million in the same period of 2022.
Subsequent events
There were no significant events subsequent to the first quarter of 2023.
Outlook
As a result of the exceptionally high stock levels throughout the sector supply chain, Heating demand levels remain highly uncertain. Inflation, in addition to the high interest rates, is also impacting an end consumer affected by the uncertain regulatory framework in terms of sector incentives.
Based on the current data, Heating & Ventilation Division sales for 2023 are still therefore expected to contract on the previous year, with demand possibly improving by the end of the year.
In order to protect profitability, over the short-term actions have been taken to reduce indirect and operating costs and to optimise production efficiency.
A strong boost to operating cash is targeted by reducing working capital and optimising and reducing not strategic capex, and also by strategically reviewing the market service operating model.
In view of the global role of gas in supporting the energy transition and SIT’s industry leadership, the medium and long-term fundamentals of the company remain strong.
In the Gas Metering sector, SIT highlights the benefits from its strong competitive positioning on the domestic market, while for Water Metering the growth in Q1 2023 was in line with the budget, which forecasts growth of approx. 20% for the year.
Self-assessment of the Board of Statutory Auditors
In accordance with the conduct rules for Boards of Statutory Auditors of listed companies, the Board of Statutory Auditors of SIT has carried out the self-assessment of its members and the adequate composition of the Board itself, with reference to the requisites of professionalism, competence, integrity and independence required by law. The Board of Directors of the company examined the self-assessment report submitted by the Board of Statutory Auditors and acknowledged the adequacy of the self-assessment regarding the composition and functioning of the Board of Statutory Auditors itself.
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Declaration of the manager responsible for the preparation of the Company’s accounts
The manager responsible for the preparation of the Company’s accounts, Paul Fogolin, hereby declares, as per article 154-bis, paragraph 2, of the “Testo Unico della Finanza”, that all information related to the Company’s accounts contained in this press release are fairly representing the accounts and the books of the Company.
This press release and the results presentation for the period are available on the website www.sitcorporate.it in the Investor Relations section.
Today at 4PM, SIT management will hold a conference call to present to the financial community and the press the Q1 2023 consolidated results. You may participate in the conference call by connecting to the following link: https://shorturl.at/dfiKV
The support documentation shall be published in the “Investor Relations” section on the company website (www.sitcorporate.it) before the conference call.
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Annex 1
BALANCE SHEET
Annex 2
INCOME STATEMENT
Annex 3
CASH FLOW STATEMENT
