Mercator Medical in Q1 2019: continued high sales dynamics and an accumulation of adverse events for profitability

Mercator Medical, a supplier of single-use gloves in nearly 70 countries around the world, maintains a double-digit trend in increasing its scale of business. In Q1 of the current year, consolidated YOY sales increased by 36% and reached PLN 121.2 million.

“This is mainly due to our successful capacity increase and a high demand for the products we manufacture, with direct delivery from the Thai factory. The US market stands out here in particular. We are also expanding in distribution, which is clearly visible in Western Europe where we have set up another company - this time in Germany”, indicates Witold Kruszewski, Member of the Management Board for Finance at Mercator Medical S.A.

In Q1 2019, the Mercator Medical Group sold over 1.2 billion gloves, which accounts for an increase of 28% YOY. Sales of products from the company’s own factory increased by 37.3% YOY, and sales of gloves from external suppliers increased by 18.3% YOY. Looking at the production segment, we should note the sales to the USA, including the American customer performing deliveries to Malaysia, which increased by PLN 17.2 million (+135% YOY). Revenues from the Chinese market increased by PLN 5.7 million (+1726%), while revenues from Hong Kong amounted to PLN 1.9 million (a new customer). In the distribution segment, it is worth noting Poland (PLN +3.6 million, +10.7%) and Ukraine (PLN +2.6 million, +55.3%).

We consistently pursue strategic objectives, although temporarily – as we have already signalled in the first half of April – in Q1 we saw the accumulation of negative phenomena affecting margins”, comments Witold Kruszewski, Member of the Management Board for Finance at Mercator Medical S.A.

In the period January-March 2019, EBITDA result of the Mercator Medical Group was lower by PLN 5.9 million (PLN 1.8 million) than the result achieved last year, and the net result fell by nearly PLN 8 million to reach – PLN 2.9 million. To a significant extent, this results from higher depreciation (PLN +1.5 million) and financial costs (PLN +1 million) associated directly with the investment in the extension of the production plant. Due to exchange rate fluctuations, the total financial balance was lower by PLN 2.1 million than a year ago.

“The drop in the distribution segment margins was associated with fact that we had to sell gloves purchased in 2018 at higher prices than it would be possible at the moment. We were too optimistic in our estimates of the demand for the distribution segment, with the drop of synthetic latex prices at the end of 2018. On the other hand, in the production segment, especially in the USA, we saw a strong increase in competitive pressure from Chinese manufacturers, which led to decreased prices. At the same time, the price of natural latex increased and the Thai baht appreciated in respect of the US dollar”, says Witold Kruszewski, Member of the Management Board for Finance at Mercator Medical S.A.

As we expected, the situation has been visibly improving since April. We have adapted to market changes; we have also optimised our operational processes and cost base. We expect that our results will continue to improve and we will return to previous profitability levels while maintaining a high growth rate in revenues”, he adds.

At the end of March, the Group’s net debt decreased by nearly PLN 18 million to reach PLN 115.6 million, compared to the end of the year. At the same time, cash flows from operating activities improved significantly. In Q1 2018 this was PLN -4.2 million, whereas in Q1 2019 it was already PLN +28.2 million.

“This was also our response to the market situation. We reduced our receivables and inventory levels, and we increased the scale of our merchant credit with our suppliers. We pay attention to our cash position and cash flow”, notes Witold Kruszewski, Member of the Management Board for Finance at Mercator Medical S.A.