Mercator Medical is optimistic about 2020!

Review of the provisional estimated financial results for Q4 2019 and the challenges related to the coronavirus epidemic.

It has been a rough year for Mercator Medical, however the company managed to reach satisfactory results. Based on the published preliminary estimates for Q4, in 2019, for the first time in history, consolidated revenues exceeded half a billion zlotys (PLN 541 million), and the EBITDA result was at the level of PLN 24 million.

“We increased the scale of our business by almost 30%, and in two years – by 80%. In Q4 alone we had a shortage of goods in the distribution segment due to a record-breaking Q3, in addition to the technical downtime at the factory or a postponed receipt of a portion of gloves ordered by one of our large customers for Q1. We also experienced a base effect, as in Q4 2018 we already had all production lines in the new factory running. As a result, in Q4 the YOY sales growth rate flattened. In the current year, based on expectations concerning the prices of gloves and development of the distribution segment, we would like to achieve a two-digit increase in revenues”, indicated Witold Kruszewski, Member of the Management Board for Finance at Mercator Medical S.A.

“2019 started with an unfavourable supply of gloves from China, which lowered prices on the market, whereas we had large stock of gloves from 2018 in the distribution segment. In the production segment, an unfavourable circumstance was the Thai baht appreciation in respect of the dollar and Malaysian ringgit (most competitors are located in Malaysia), as well as a stronger dollar in respect of currencies in our region (distribution margins). This resulted in a significant shortfall in profitability. Our target remains 10% at EBITDA level”, added Witold Kruszewski.

However, since the beginning of this year, the baht has been significantly depreciating whereas raw materials remain stable, and even pressure on the price of nitrile is evident as a result of a lower demand from the automotive sector. This is a favourable environment for the Mercator Medical Group’s performance.

“In addition, we have implemented a savings programme for PLN 10-12 million per year; we have also carried out the planned conversion of four natural latex production lines into synthetic production lines. As a result, we currently manufacture approximately 210 million nitrile gloves and approximately 40 million natural latex gloves per month. Market trends are clear, and nitrile gloves – especially their thicker non-medical version – provide significantly higher margins. Market turbulence caused by the coronavirus can be an opportunity for us. We are certainly observing the market and we will manage our positioning to gain as much as possible”, emphasised Dariusz Krezymon, Member of the Management Board of Mercator Medical.

“So far, we see no threat from the coronavirus for the functioning of our factory or to our logistics. However, some of our competitors may have problems. At the same time, it should be stressed that we are focused on long-term activity, and above all we are assuming increased results based on organically growing business efficiency and its scale, and we will consider any additional sales and margin as a business opportunity to be taken advantage of”, added Dariusz Krezymon.

The representatives of the company indicated that the demand for personal protective equipment should, of course, decrease, but should at the same time stabilise at a level higher than before. Especially in China – a large market where there was a lot of room for a change in the approach to hygiene. Its society should be thinking more about protection even after the immediate threat has ceased.

In January, the beginning of the media offensive concerning the coronavirus stirred investors, and Mercator Medical seems the only company in the WSE to profit from it. At the turn of January and February, the share price practically doubled; currently we see some adjustment, but the turnover remains high. Looking historically at the SARS epidemic or the swine flu pandemic (Mercator was not yet a listed company then), stock market quotations of glove manufacturers were able to soar by as much as 400%.

“We see considerable stirring in the medical industry, increased demand and emergence of completely new customers who are prepared to pay cash and buy larger volumes. While protective masks are marginal for us, we are counting on positive trends in gloves which account for more than 95% of our sales. We approach the current situation very calmly, and we will know much more about the possible developments after the end of the New Year’s celebrations in China”, indicated Witold Kruszewski.

The participants in the meeting were wondering whether – in a situation where face masks were currently sold with a margin up to 10 to 15 times higher – stopping the production at the Polish nonwoven production facility had been a mistake. It had not, as it turns out.

“There was no real possibility for that facility to be profitable. We did not manufacture face masks there and, in addition, production materials came from China, so to be used now they should have been ordered in July or August last year. As a result, maintaining this facility this year would not give us anything other than continuous generation of losses. In the meantime we already have an attractive facility ready to sell with a clean room and a large area in a good location. We expect that we can gain approximately PLN 4 million in that transaction”, said CFO Kruszewski.

For more information, see the below presentation and press release, as well as the statements from the company’s representatives available as video recordings below.

LINKS:

• Press release on the estimated results in Q4 2019