Earnings call transcript: Scarco Q2 2025 sees revenue rise, stock drops

Scarco, a company known for its vibration equipment, reported a mixed performance in its Q2 2025 earnings call. The company achieved a revenue increase of 13% to DKK 139 million, while its earnings per share (EPS) was 0.88 USD. Despite the revenue growth, Scarco’s stock fell by 9.41% during the open market, closing at 61.6 USD, down from 68 USD. According to InvestingPro data, the stock is now trading near its 52-week low, with a current market capitalization of $30.34 million. The decline in stock price reflects investor concerns over a 34% drop in EBIT and a decrease in gross margin.

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Key Takeaways

• Revenue increased by 13% to DKK 139 million.
• EBIT decreased by 34% to DKK 6.7 million.
• Stock price dropped by 9.41% during the open market.
• Positive cash flow of DKK 27 million, reversing previous negative trends.
• Strong order backlog of approximately DKK 190 million.

Company Performance

Scarco’s performance in Q2 2025 was marked by a significant revenue increase, driven by strong sales in the Minerals segment, particularly from large projects in Morocco. However, the company faced challenges with a declining EBIT and gross margin, which impacted investor sentiment. The Fastener segment in Northern Europe experienced subdued market conditions, contributing to the mixed results.

Financial Highlights

• Revenue: DKK 139 million, up 13% year-over-year.
• Earnings per share: 0.88 USD.
• EBIT: DKK 6.7 million, down 34% from the previous year.
• Gross profit: DKK 36.3 million, up 3.8%.
• Gross margin: Declined by 2.2 percentage points.
• Positive cash flow: DKK 27 million.

Earnings vs. Forecast

Scarco’s actual EPS of 0.88 USD missed the market’s expectations, which contributed to the negative market reaction. The revenue increase was a positive aspect, but the decline in EBIT and gross margin overshadowed this growth, leading to a stock price drop.

Market Reaction

Following the earnings announcement, Scarco’s stock price fell by 9.41%, closing at 61.6 USD. The stock’s decline reflects investor concerns about the decreased EBIT and gross margin, despite the company’s revenue growth and positive cash flow. Based on InvestingPro analysis, the stock is currently fairly valued, with a beta of 0.87 indicating lower volatility compared to the market. The stock is now trading closer to its 52-week low of 60 USD, indicating a cautious market sentiment.

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Outlook & Guidance

Scarco maintained its original guidance for the year, projecting revenue growth between 30-40% and an operating profit before special items of DKK 27-31 million. The company expects significant growth in the second half of the year, supported by a strong order backlog of approximately DKK 190 million.

Executive Commentary

CEO Leonel Giroux emphasized the company’s focus on innovation, stating, "We say that Scarco vibration equipment move, separates and cleans bulk materials." CFO Thomas Pilisson expressed confidence in meeting the company’s guidance despite lower-than-expected revenue and EBIT in the first half of the year.

Risks and Challenges

• Market conditions in Northern Europe impacting the Fastener segment.
• Temporary capacity costs associated with large projects in Morocco.
• Workforce transitions with some employees retiring.
• Potential delays in project execution due to external factors.

Q&A

During the earnings call, analysts raised questions about the delays in the OCP projects in Morocco. Management clarified that these delays were due to administrative issues and assured that there would be no financial penalties. Analysts also inquired about the potential in the defense/ammunition sector, which Scarco is currently exploring.

Full transcript - SKAKO A/S (SKAKO) Q2 2025:

Philip Coombs, Moderator, H. C. Anderson Capital: Hello, and good afternoon. On behalf of H. C. Anderson Capital, I’d like to welcome you all to this presentation of the Q2 half one twenty twenty five report from Scarco, which was published last week. My name is Philip Coombs, and today, I have the pleasure of welcoming Scarco CEO, Leonel Giroux, and CFO, Thomas Pilisson.

They will take us through the numbers today. And before I pass over to them, I’d like to quickly thank everyone for joining us and remind you that you can ask questions in the chat box below. So with that said, I’d like to pass over to Thomas.

Thomas Pilisson, CFO, Scarco: Hello everybody and good afternoon also. Welcome here from Scaco. And as normally, I will take the introduction and the agenda and the financial part, and then, Lyonel will take over and give us a deep dive on a part of our vibration business. And, at the end, we will touch base on our guidance for the current year. Then at the beginning, we have this disclaimer due to the fact that we could end up mentioning something about about forward looking numbers and so on.

And of course, they are they are based with some assumptions and also some uncertainties. The agenda, as I mentioned, is as follows here. And then the key figures, Skarco at a glance, we are still one focused company in the vibration business. We have those three customer segments which is minerals, recycling and fasteners. 130 employees worldwide, headquarter in Fabo, and then main offices in Strasbourg, and San Sebastian in France and Spain.

We have approximately 2,000 shareholders here of 95% in Denmark and a board of directors and management holds more than a third of the share capital. Then looking into the H1 report here we have H1 twenty five in brief and I would like to mention here that as you maybe also have written then we are hit a little bit about the subdued market, which especially have hit us negative in the fastener segment in the Northern Of Europe. Even though that we have increased our revenue with approximately 13% to DKK 139,000,000. And also we see an increasing order backlog at approximately DKK 190,000,000. But we also see a decrease in our EBIT with 34% down to DKK 6,700,000.0.

Then if we jump into the profit and loss, then even though that we increased the revenue with 13%, then we realized a decline in our EBIT. Revenue increased due to the big increase in our Minerals segment driven by the two large projects for OCP in Morocco. As you maybe have realized then in August, we really we reached two big orders in the mineral segment for more than DKK 150,000,000 and those should be delivered in ’25 and ’26. The gross profit increased by 3.8% to DKK 36,300,000.0, but the gross margin ratio actually declined with 2.2 pp. And that is, of course, due to the higher share of plant sales, which increased in this first half of the year with 20%, but the margin on plant sales is lower than on the aftersales.

And also, we saw a decline in aftersales with 5.2% to approximately DKK 35,000,000. Then we have invested in saved people to reach a growth in recycling business. Also, we have invested in temporary capacity cost for the OCP product projects in both France and Morocco. And that when the revenue actually is not coming 100% from the beginning of the year, impacts the capacity cost and therefore we saw a decrease in our operating profit EBIT. The order backlog is still high, 190,000,000.

And it is, of course, driven by a significant order backlog for the OCP, but we also saw an increase in order intake and order backlog for the remaining part of the business. So that is positive. Then if we look at the different segments, then of course due to the big OCP order, we see an increase in the mineral segment, which we also saw in Q2, which was different than in Q1, was an increase again in our recycling revenue. So for the first half of the year, the revenue for recycling was actually a decrease, but it increased in the second quarter. Fastener is still struggling very much and we saw an increase in the first half of the year at approximately 33%.

What we also can see here is, if we look at the three customer segments, then we can see that fastener is in the first half of the year approximately 12,000,000 out of DKK 139,000,000 or so. So the share from Fastener is below 10%. Then looking at the balance sheet and the key financial ratios, then we as we have been always, we are an asset light company. So most of our assets is actually non current and short term assets. We saw even though an increase in our assets with 5.6% that is mainly driven by higher cash enhanced.

We saw a decrease in net debt and we also saw a decrease in our net working capital. That is driven by the huge prepayment that we received from the OCP projects, which

Leonel Giroux, CEO, Scarco: more or

Thomas Pilisson, CFO, Scarco: less all the time during the project is cash flow positive. The cash flow from operating activities was positive with 27,000,000 compared to a negative cash flow in the same period last year at DKK 23,000,000. Then on one of the numbers that we are looking into, then it is our net debt to EBITDA, 0.5% compared to our target of being below 2.5%. And that was what I would like to say about the financial figures. Then I will hand it over to Lionel to give us a little deep dive.

Leonel Giroux, CEO, Scarco: Yes. Thank you, Thomas. Good afternoon to everybody. Today, I will introduce Kekou to you, and I will share key reminders and updates on our strategy. And as Thomas said before, Scaco Vibration work for three segments, three industrial segments.

The first one is and the most important in terms in revenue in the Minerals segment with the revenue churn, which has increased for the last months, as Thomas said, too, due to these two large orders that we got in the ’24 for the American customer, OCP. And then we have the second historical segment, which is the fastener segment, for which the revenue share has decreased, is quite low due to the mix of revenue and these two order coming from OCP. And the last segment is recycling industry, and that’s a segment that we have been developing for the last years in the group. We have still in the group six companies and three main companies, I would say, on the six. The first one is in Denmark, in Farborg.

That’s the mother company. And that’s as well the the expert center for the the fastener segment. The second company is in France in Strasbourg close to to Germany, and that’s Expert Center for Minerals. And the last one in San Sebastian in Spain, that’s Expert Center of the group for the recycling segment. What do we do?

We say that we develop and we design, we manufacture and we sell machine for processing bulk product, and we are specialized on the laboratory technology. We have a quite wide range of product. And we say we usually say that Skyco vibration equipment move, separates and cleans back materials. A short focus on the two historical segment. The first one is the mineral segment.

This is an industry where we process minerals bulk products like stone and ore and so on. And we and for us, this segment is split in three subsegment. The first one is a mining segment. For us, it means mainly customer out of Europe, especially in Africa, and customer and company which own large mining site. The second subsegment is the construction sector, and it includes for us the quarries, the sandpits, cement plants, concrete plant and all of this kind of industry.

And the third one is iron and steel industry. And in this segment, our machine are used in the first part of the steelmaking process where there are material like iron ore, coke and these kind of things before the steel is made. The second segment for us is the fastener segment and is split in three success three subsegment as well. The first one is automotive sector. And you know that this industry is experiencing and facing some challenge currently.

The second one is the construction sector. So fastener industry is an industry where small metallic parts are made like a screw, nuts and washer. And for sure, we use that in the automotive sector. But also in the construction sector, yes, screws are very used in this industry. And the last subsegment for us is ammunition.

It’s not I would say, it’s a subsegment which has been developing for the last years, I would say, with an increased demand from our customer and from a company which work in this segment. Recycling is the third segment. This is a segment, as I told you, that we have been developing for the last years. We do that by two ways. The first way is that we made the acquisition some years ago of the Spanish company, Dartech, which became Scaco Dartech and which had a very strong experience in processing of waste and old bulk material of waste bulk material.

And the second part come from our own old, I would say, no hole from the mineral fastener segment, and we use that to develop the business in the recycling segment. But I will come back on that a little bit later to give you some good example. What is important to know in the recycling segment is that sorting technologies are keys in this industry. So we yeah. The the the goal of all process, more or less, is to sort the different ways and the different material.

And there is no competition between the different type of sorting technology. So we are our type of sorting equipment is complementary to other type of sorting equipment like, I don’t know, something like optical sorter and so on. You cannot have an optical sorter without having before a screen or to have to absorb by dimension the the bulk material. So that’s very important to know. And we we propose four function for for for this this industry.

The first function is sorting by dimension. We’ve got that screening. So we separate the the material by different size. And then the second function that we propose is sorting by density or difference of density. For instance, it’s could be very useful if wants to make the recycling of electrical wires to separate the plastic or the rubber to to the copper, for instance.

And then the third function is the feeding of other sorting equipment because with vibration, you have very you can control the the feeding and the the flow rate of feeding, and you have a very good as well distribution of material in all of the wheels of the the sorting equipment. That’s a self function. And the last one is washing and scrubbing. It’s used to remove the the darkness and the the mud, for instance, for some some some waste. And especially, it’s used in subsegment we call CND, Construction and Demolition Waste Recycling.

And here, you can see the split our split of the main subsegment of recycling. There are five main subsegment for us. The first one is the most known for everybody. That’s household recycling. And then there is the metal recycling, the glass recycling, the paper and plastic recycling.

And the last one that I would like to focus a bit on that is construction waste recycling. So you can you can see that it’s a complex industrial segment for us because working with metal is absolutely different with working with glass or or paper or plastic. So it requires a lot of a lot of knowledge and and and different, yeah, know how from our technician and engineers. But I would like to focus now a little bit on this fifth subsegment, the construction and demolition waste recycling coming from the construction. You understand that.

And you can see on the screen a typical plant of recycling of construction and demolition waste. On the top of this of this flow sheet, of this this picture of this plant yeah. Actually, sorry, the the the plant can be divided in two. On the top, you can see the part of the plant which is mainly used to clean and wash and separate the stones or the similar to to stones, I don’t know, part of concrete or this kind of things, this kind of size of material or big material. And in the bottom of the plant, it’s more the the the plant which process to yeah.

Process with water, mud and sand, some smaller particles. And we are we have a very, very good range of product to for the first part of this plant with screens and to separate by dimension or washers. And this equipment have been developed in the mineral segment originally to work, to wash and separate stones, for instance, for the different customer that we have in the mineral industry. So more or less, for us, this subsegment of the recycling segment is driven by mineral players. So the player are more or less the same.

And nowadays, we call that urban mining to yeah. So it’s another solution for our customer to get some raw materials. So the player are the same, the technology are the same, and I would say the equipment and the range of our product are the same. So you can see the strong link between an historical segment that we had for decades in the group and this new segment in the recycling. Yes, that’s all for me for today.

So I’ll let you now, Thomas, about the guidance.

Thomas Pilisson, CFO, Scarco: Thank you very much. And as you probably all of you are aware of then, the first half of the year has not been as expected for the Scaco business. But despite the lower than expected revenue and EBIT in H1, we still expect to reach our guidance. And that is because of the strong order backlog that we have and also the ramp up of the OCP project. So the guidance maintain, as stated earlier this year, revenue growth between 3040% and an operating profit before special items on 27 to 31,000,000 Danish kroner.

Of course, when we are looking into the first half of the year, then it also means that we need to reach a significant growth and earning in the second half of the year. But going through the budget and the estimate that we have, then we still feel that we are in the range of reaching our guidance. So with that said, then we are ready to take your questions.

Philip Coombs, Moderator, H. C. Anderson Capital: That’s great. And thank you for the presentation. We have got some questions, so I will get straight into them. We just had a good walk through of the recycling part, and we’ve got a question here that asks if if the ramp up of sales personnel in the recycling business, when we can expect that to materialize. We saw that there was a return to growth in q two, so maybe it’s already impacting.

But maybe you could add a little detail on the the sort of timeline for converting sales activities into active projects and and how you expect this to evolve.

Leonel Giroux, CEO, Scarco: I can get it. Yeah. I would say that what we can say as well is that our back our current backlog is quite high. So and it’s coming from this first good last year that we have in order intake and as well from this OCP order that we had last year. The that’s that for sure, the I would say the activity and the order intake end of last year in in recycling was not as high as expected that could explain the, yeah, the the the, yeah, the the average performance that we had beginning of the year.

But the the the first the first half year was was good, better than than last than the first half year of of last year in all segments. So we are still quite positive about the the the the rest of the year.

Philip Coombs, Moderator, H. C. Anderson Capital: Okay. No. That’s great. And so I’ll move on to the OCP project where we have a question about the delays that I mentioned in the the first half. And it says that these delays come with any financial impact as sort of a penalty for OCP or anything like that.

Leonel Giroux, CEO, Scarco: Not at all. It’s come it’s coming from the administration of of of Morocco. It’s a quite big project. And, yeah, we we we we had faced some some delays coming from, yeah, administrative administrative issue, but nothing more. And I would say, and Thomas can say can confirm that that the the the cash part of the of the project is is is very good.

Philip Coombs, Moderator, H. C. Anderson Capital: That’s understood. And if we’re staying on Morocco, something we saw in in the first half is a a slight squeeze on the gross margin from a higher share of plant sales versus the aftersales. Can we expect that aftersales will also be a part of the agreements in Morocco when these plants are up and running?

Leonel Giroux, CEO, Scarco: Yes. We can expect that, but it will not be tomorrow. It’s something for the for the years to come, but not not this year.

Philip Coombs, Moderator, H. C. Anderson Capital: Okay. Great. And maybe you could just add a sort of a bit more detail on the the margin composition of the pipeline at the moment that the order book is obviously historically very high at the moment. Should we expect that margins will normalize back towards levels where they have been once these projects are back up and running? Or maybe you could just add a little detail to how you see the sort of margin breakdown of the current pipeline?

Thomas Pilisson, CFO, Scarco: Of course, if you look into the split between plant and aftersales, then of course, due to the fact that the plant sales and driven by the OCP in Morocco has a lower margin than we have on the aftersales. Then of course, also the second half of the year will be impacted by a lower margin than normally due to the fact that we have higher plant sales.

Philip Coombs, Moderator, H. C. Anderson Capital: That’s great. And we have a question here. So we’ve seen strong growth in the Morocco part, in the minerals part, and somewhat back in the other parts. Has there been a direct link here where more resources are going towards the minerals and that’s at the cost of other business units, or is it not not related to that and it it’s individual segment by segment, the the different performance?

Thomas Pilisson, CFO, Scarco: The the performance in the different segments is, of course, not linked a 100% together. But but based on the questions that this participant has, then we can say that we have ramped up on the OCP and the revenue started a little later than the ramp up of the capacity cost. So that have, of course, impacted the result negatively due to the fact that we have not received that much earning on the project in the first half of the year than expected. Then another issue is that we have invested in salespeople in the recycling business, but we also have an overlap between some people who is going on pension and some new employees. So so that is has also impacted the the OpEx in the first half of the year.

So we have some pensions that actually will impact the OpEx in the second half of the year.

Philip Coombs, Moderator, H. C. Anderson Capital: That’s great. And I have a question, not from the not from the audience, but while we’re on the different segments, you showed in the fastener part that you have some activities within the defense segment, and we know that defense in Europe has been very topical this year with everything in in Russia and Ukraine and now with the Trump administration too. Is you say it’s a smaller part of the business, but is there a a larger opportunity within the defense space for for Scarco?

Leonel Giroux, CEO, Scarco: Yes. We can. This is something that we that we believe. So we are working on on developing this business. But for sure, it’s a business what we can say, it’s a very secure, and I would say, yeah, limited business as well so far for for for us.

And it’s a, yeah, it’s a it’s a bit difficult to enter the business because it’s a very limited number of company which work in this business. It has not been developed a lot in in Europe for the for the last year. So it’s something new, but this is something that we want to develop.

Philip Coombs, Moderator, H. C. Anderson Capital: That’s understood. Great. And then one last question from me. We we’ve seen solid cash flow in the first half of the year, and the the debt is falling. Could you add some perspectives on how you’re looking at capital allocation?

Are we expecting dividends or potentially looking at M and A? And what can shareholders expect from capital allocation moving forward?

Thomas Pilisson, CFO, Scarco: The strong cash flow in the first half of the year is mainly driven by those prepayment for the OCP project. So when we have received prepayment, then of course, we will also build up this project during the second half of the year. The positive impact will then actually be limited in the second half of the year as we use some of the prepayments to produce for the OCP projects.

Philip Coombs, Moderator, H. C. Anderson Capital: That makes that makes very sense. Well, we’re out of questions and almost out of time. So I’d like to end the presentation there, and thank you both, Lianell and Thomas, for another good walkthrough of the results. And, I hope to see the people who have listened again soon. Thank you for your time.

Leonel Giroux, CEO, Scarco: Thank

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