China’s leading industrial robot player Efort (埃夫特, 688165.SH) recently announced its estimated full-year 2022 results, reporting a net loss attributable to shareholders of the company of between 195 million yuan (US$28.74 million) and 170 million yuan on revenue of 1.25 billion yuan to 1.33 billion yuan.
On an earnings call, the company, based in Wuhu of eastern China’s Anhui Province, blamed the subpar performance on a string of factors, in particular supply chain crunch caused by Covid, rising raw material prices, a shortage of components like chips, and the pressure to deliver on time, among others.
These combined to dent Efort’s results in 2022, the company explained.
Efort’s sales in 2022 increased 20% from the levels in 2021, but due to the impact of Covid, the company’s robot business did not meet growth expectations, while its system integration services sustained a lesser blow overseas as the pandemic subsided, the company said.
Apart from Covid shocks, intensifying market competition at home and abroad, coupled with an overhaul of its sales and distribution system, also helped to depress the company’s gross profit margins.
Notably, Efort has posted losses for seven years in a row. From 2016 to 2021, it recorded 50.18 million yuan, 36.45 million yuan, 25.57 million yuan, 53.19 million yuan, 169 million yuan and 193 million yuan in net losses.
Losses started to widen dramatically since 2020, the year of the coronavirus outbreak that took a toll on countries like China and Italy, where Efort manufactures and markets its products.
Another reason for Efort’s continued losses is its consistently low gross profit margins. Between 2017 and 2021, the company’s gross margin made up 11.29%, 12.80%, 17.03%, 12.26% and 11.32% of the revenue, lower than the industry average.
Efort’s third-quarter 2022 financial statement shows that its gross margin fell 4.5 percentage points to 12.29%, amid inflationary pressure, rocketing costs, and a more cutthroat market.
In response to a subsequent wave of industry-wide price hikes, Efort adjusted the price tags on its products, raising prices by 3%-10% across the board.
Traditionally, Efort derives a significant chunk of its revenue from robot manufacturing and system integration, with each accounting for 35% and 65% of the total. Nonetheless, manufacturing yields a higher margin than system integration.
Efort’s attempt to boost its margin has been held back by a slow pace of adopting self-developed key components, including controller, gear reducer and servo motor.
These parts comprise 70% of a robot’s cost. Owing to a low rate of in-house innovations, Efort has had to source them from outside suppliers, a decision that pushed up its production costs. Its gross margin for the robot business stood at 17.87% in the first half of 2022.
On the other hand, system integration, with a lower barrier to entry, is a market characterized by intense competition and low profit. In the first half of 2022, Efort reported a gross margin of 12.72% for system integration — already high enough compared to 5.66% a year earlier.