Wellington Drive Technologies Limited (Wellington) revenue for the fourth quarter of 2020 (3 months ended 31 December 2020) was around $10.4m, consistent with guidance provided on 28 October 2020. This is a significant and trending improvement over the rates of decline in second and third quarters. The Company believes this trend improvement may indicate returning confidence in the food and beverage market.
The year’s revenue was $36.9m, well down on $61.7m in 2019 due to the previously disclosed impacts of COVID-19 on customer demand.
Quarterly revenue performance:
|Q1 – 31 March||Q2 – 30 June||Q3 – 30 Sept||Q4 – 31 Dec|
Cash at 31 December 2020 was $4.6m with $1.9m of unused debt facilities, which is sufficient on current expectations to meet 2021 operating needs.
The trading result for the year is currently being finalised. Audited financial statements are expected to be released on 24 February 2021.
2021 will be an important year for Wellington, as the Company launches three new products in the IoT and Motor space. Wellington will commence the first volume shipments from its recently announced relationship with Imbera Cooling and continue progressing initiatives to expand the Connect IoT range of solutions beyond its core ‘bottle cooler’ market segment.
The decision in 2020 – to continue to develop new products and maintain business development despite COVID-19– has already started to pay off. Wellington has increased market share for its ECR motor in Europe and created new wins for its Connect IoT with South American customers. The Company is also increasing electronic assembly capacity at East West’s factory in Vietnam to ensure it can support increases in demand. It is anticipated that these developments will provide the opportunity to deliver additional revenue streams in 2021 that will somewhat mitigate ongoing COVID-related risks.
Although Wellington’s revenue doubled when comparing Q4 2020 to Q2 2020, and demand is further strengthening in Q1 2021, market conditions remain uncertain and volatile. This volatility could cause rapid changes in demand between quarters and in the event of further restrictions by local governments, order delays or cancellations.
The current business planning assumption is that beverage cooler customers will take around two years to fully recover to the revenue levels seen in 2019. The 2021 financial forecast reflects that recovery timing assumption, with revenue expected to improve materially compared to 2020.
Wellington’s current US dollar revenue forecast for 2021 is in the range US$37m to US$42m. The higher end of that range would be in line with 2019 and approximately 75% ahead of 2020. Q1 2021 revenue is forecast to be approximately US$11-12m compared to US$10.4m in Q1 2020, and a sequential improvement from Q4 2020 of US$7.1m.
With 2021 US dollar revenue in this range, the Company is targeting EBITDA earnings of around NZ$2.0-2.5m which would deliver a modest pre-tax loss. Forecasts have been prepared at a 0.70 US$/NZ$ exchange rate and are sensitive to the US$/NZ$ exchange rate (i.e. each 1c movement has an estimated $0.2m impact on EBITDA).
Items that could impact the current forecast are:
- The Company considers that Q1 demand may be front end loaded as customers look for early delivery of coolers in case of further COVID-related shutdowns. This front-loading of Q1 makes the Company cautious about Q2 and Q3 sustaining the same pace.
- COIVD outbreaks continue to be more serious in some geographic markets. While vaccination programs are starting, there is risk of either more lockdowns or other supply chain impacts that result in end customers reducing investment later in the year.
- The new variants of COVID-19 that are being reported could set-back the global response to COVID-19, and the Company remains cautious that the short-term improvement trend could be negatively impacted as countries and business may return to more restrictive practices. It is important to note that while New Zealand appears to be managing through the pandemic relatively well, Wellington is a global business that operates in countries that are more seriously impacted.
- Wellington is experiencing significant disruption to its global supply chain. These include well reported global constraints in shipping container and airfreight capacity, significant increases in logistics costs and component supply shortages as a result of suppliers reducing capacity and inventories during 2021. While the Company is currently navigating this disruption successfully, conditions could worsen rapidly with knock-on impacts to revenue and cost of goods.
- The Company is continuing its COVID-19 policy of effectively supporting staff health, safety, and wellbeing. Travel restrictions and flexible office working will remain in place for the foreseeable future. It is possible that those restrictions and in particular reduced travel could impact the ability to support customers.
Wellington’s CEO, Greg Allen commented “We are pleased with the way 2020 finished; with a healthy cash balance, reduced debt usage and signs that revenue is returning. We are cautiously optimistic with how Q1 2021 demand is shaping up, but retain a degree of caution around the outlook for the balance of the year.
We will find the right middle ground in a planning sense to ensure we are ready to deliver while not overextending on inventory investment. It would seem that confidence around global vaccination programs and a need to restart cooler installations after nine months of restrictions is driving the current strength in demand. Cash management remains our priority, with customer demand delivery a close second”.
CEO transition update
The board has progressed to the next stage of the CEO election process. A shortlist of suitable candidates has been selected and initial board-level interviews will commence in February. The board is pleased with the level of candidates seen so far. With the current CEO stepping down at the end of March, the board believes it is unlikely a new CEO will be in place by that date. Appropriate internal interim management may be appointed to bridge any major gap in timing.