Earnings call transcript: Skako sees strong order growth in Q1 2024

Skako A/S reported a mixed financial performance for the first quarter of 2024, with a notable decline in total revenue but significant growth in order intake and backlog. The company’s stock saw a decrease of 2.82% following the announcement. According to InvestingPro data, Skako maintains a strong financial health score of 3.32 for profitability and has demonstrated impressive revenue growth of 131.11% over the last twelve months. Skako’s ambitious growth outlook and strategic focus on the recycling segment are key highlights from the earnings call.

Key Takeaways

• Total revenue declined by 4.3% in 2024.
• Order intake surged 59% to DKK 378 million.
• Order backlog increased 227% to DKK 203 million.
• Skako aims for 30-40% revenue growth by 2025.

Company Performance

Skako’s performance in the first quarter of 2024 reflected challenges in revenue generation, with a 4.3% decline. However, the company demonstrated strong operational momentum, with order intake and backlog showing significant increases. This suggests robust demand for Skako’s products, particularly in the recycling and mineral segments. Despite a decline in EBIT by 13.3%, Skako’s strategic initiatives and market positioning remain strong.

Financial Highlights

• Revenue: Declined 4.3% year-over-year.
• Order Intake: Increased 59% to DKK 378 million.
• Order Backlog: Increased 227% to DKK 203 million.
• Gross Profit Margin: Increased by 0.6 percentage points to 13.7%.
• EBIT: Declined 13.3% year-over-year.
• Extraordinary Dividend: DKK 122 million paid out in 2024.

Market Reaction

Following the earnings announcement, Skako’s stock price fell by 2.82%, reflecting investor concerns over the revenue decline and EBIT reduction. Based on InvestingPro’s Fair Value analysis, the stock appears to be slightly overvalued at current levels. The company maintains a moderate P/E ratio of 2.95x and operates with a reasonable debt-to-equity ratio of 0.64. The stock is currently trading near its 52-week low of 66 DKK, with the last close value at 78 DKK. This decline comes despite positive developments in order intake and backlog, suggesting mixed investor sentiment.

Outlook & Guidance

Skako has set an ambitious growth target, aiming to increase its business by 50% between 2023 and 2028. The company’s strong financial foundation is evidenced by an Altman Z-Score of 6.7 and a current ratio of 1.33, as reported by InvestingPro. For 2025, the company projects revenue growth of 30-40%, exceeding DKK 300 million, and EBIT guidance of DKK 27-31 million. Skako plans to double its recycling segment revenue by 2028, driven by national policies and green initiatives.

Executive Commentary

• "We expect that the recycling segment will have a larger growth than the mineral and fastener." - Lionel Chion, CEO.
• "We still keep our guidance about growing the business with 50% over the period and receiving an operating margin at around 10%." - Thomas Peterson, CFO.

Risks and Challenges

• Revenue Decline: Continued revenue declines could impact financial stability.
• EBIT Reduction: Lower EBIT margins may affect profitability.
• Market Saturation: Competition in the recycling and mineral sectors could hinder growth.
• Macroeconomic Pressures: Economic downturns could affect order intake and backlog.
• Supply Chain Issues: Potential disruptions could impact production and delivery timelines.

Full transcript - SKAKO A/S (SKAKO) Q4 2024:

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Hi, and good morning. On behalf of Hans Christian Andersen Capital, I’d like to welcome you all to this presentation of the annual report for 2024 from Skako that was published yesterday. My name is Asmus Kloipo, and I have the pleasure of welcoming both the CEO of Skako, that’s Lionel Chion, and we have CFO of Skako, that’s Thomas Peterson. They promised to take us through the 2024 numbers, the new guidance for ’twenty five, and also sort of the latest developments. So a warm welcome to you two.

And before I hand over, also a warm welcome to those of you who signed up for today’s presentation. As usual, you can ask questions in the chat. And if you’re not comfortable writing in English, you can do it in Danish, and we’ll do the translation here. We’re also recording the presentation. If you wanna see it afterwards, you don’t miss anything.

But with that, I’ll leave the, the floor to you. I think you would, you will start, Thomas.

Thomas Peterson, CFO, Skako: Yeah. Thank you very much, Rasmus. And, also from our side, welcome to all the participants for this presentation today on our annual report for 2024. As normal, we have the disclaimer saying that, of course, we are looking forward also at our guidance with some uncertainties towards that. We have the agenda for today.

I will go through Scott at a glance the results for 2024, then Landel will take over and give us a more deep dive into the vibration business. And then I will finish with our guidance and our financial ambitions for 2028. And we will, at the end, have a Q and A session where you are more than welcome to give us some questions, and we will try to answer them as good as possible. Then if we look at SKAGCO at a glance, since 2023 and also during 2024, we have not seen any changes in the business that we have. We have the migration business in three segments, recycling, minerals and fasteners.

We are now 132 employees, have the headquarters in Fabo, but also production facilities in Strasbourg and San Sebastian. And we have approximately 2,000 shareholders here of 95% in Denmark. And the directors and the management team holds approximately a third of the shared capital. One thing we also have to be aware of that is that we actually in 2024 paid out an extraordinary dividends to our shareholder at $122,000,000 based on the divestment of SKAGCO Concrete activities end of twenty twenty three. In ’24, we were hit by the negative impact in the European market, but we focused on making sure that we are actually in a good position for the coming years.

So we have focused all our activities on many of our activities to secure the future. And, it was a success that we, in August, landed two major contract with OCP and Morocco for the mineral segments of more than 150,000,000 Danish kroner. We have also, as you are aware of, a big focus, as you can see in both our annual report, but also in our ambitions to focus and also to look into the recycling segments, which is the tree the one of the three segments that is growing fastest. We have in Denmark and Spain established and also built bigger pilot plants to secure the possibility to show our customers our solutions in real life. We have also hired a new sales force in both UK and Germany to secure the recycling segments as well as we have made some agent cooperation around in Europe.

And in all three segments, we are also participating in a lot of exhibitions to secure that we are present. Then when we look at the financial report for 2024, then some of the numbers that, of course, is the most positive for us is the order intake and the order backlog. We had order intake at DKK $378,000,000, which is 59% above last year. And the order backlog end of year, DKK $2.00 3,000,000 is actually 227% above last year. What we also saw was a decrease in Q3 and especially the end of Q4, which, of course, impacted the numbers that I will present on the next slides, both towards revenue and EBIT.

We saw a decrease in our revenue for the current year at 4.3%, and that was driven by both a decrease in plant sales, but an increase in after sales. And that is, of course, the decline is related to the uncertainties that we saw in the European market and also some postponement of some orders from ’twenty four into ’twenty five. This decline in the revenue was mainly driven by the fastener segments, the European automotive and Constructing Industries. And it was also related to mainly Q4. If we look at the highlights, the key figures, then we can see, as I mentioned, plant sales decreasing by 7.5% after sales increasing by 2.6%.

That gives us a total decline in revenue on 4,300,000.0 four point three percent, sorry. Gross profit declined by 2.5%. And on EBIT level, we ended at 13.3% below last year. We also saw an increase in the gross profit margin by 0.6 pp to 13.7%. And that is driven by the split between plant and aftersales.

The margins on aftersales is normally higher than the margins on plant sales. We’re entering ’25 with a good and huge order backlog, which also will impact the year ’twenty five, and you will see that when we go down to our guidance for the year. Then if we look at our balance sheet, then you can see that we have a significant decrease in our total assets. That was mainly driven by the big cash on hands that we had end of twenty twenty four based on the divestment of the concrete activities. Cash flow from operating activities ending at a minus on twenty four point one compared to 16.8 in the same quarter in 2023.

That was mainly driven by an increase in our net working capital due to the fact that we invoiced OCP, the big order that I mentioned before in Q4. But a part of that payment has actually first been paid in Q1 ’twenty five here in January and February. That impacts both net working capital and the cash flow from operating activities. Then we can see that we saw a decline in net debt to EBITDA from minus 4.7 in 2023 to 1.3 in 2024. And that is also driven by this divestment of Comm Creek end of twenty twenty three.

Our ambition is still to keep our gearing below 2.5. And as you can see here, we are at 1.3. That still leaves us room for future acquisitions if we see some possibilities in the market that actually could support the growth business that we have in the future. And it also leaves us to pay out continued dividends for our shareholders. The capital structure, as you see here, was during 2023, ’20 ’20 ’4, impacted by the extraordinary dividend to our shareholders in February 2024, where we paid out all of the amount that we received from the concrete activities sold to Safia end of twenty twenty three.

We suggest, the board suggests to pay out a dividend on 2.5 per share. That is the half of what we paid out in normal dividend in 2023. And that relates to that we now is a smaller business. We have actually sold approximately 50% of our activities by selling the concrete business. And that gives us a dividend yield of 3.1% compared to 4.9% in ’twenty three and a payout ratio at 72% compared to 113% in ’twenty three.

And with those words, then I will leave the word to Langer.

Lionel Chion, CEO, Skako: Yes. Hello. Thank you for everybody to be here. As Thomas already said to you, we have three key industrial segments at Skyco Vibration. And those key industrial segments represent 90%, ninety five % of our revenue.

The first one is the mineral industry. This is the historical core business for SKECO and the largest contributor of our revenue with 46% of our revenue. The second one is the Fastener Industry. That’s the smallest contributor of our revenue, but we are the market leader in this industry in Europe. This is usually the smallest contributor of our revenue compared to the mineral and the recycling industry.

And the last one, the recycling industry, this is, for us, the fastest growing segment and the most strategic segment as well. It’s a bit complex segment compared to the other one because there are innovation daily innovation in this segment compared to the two other one. And furthermore, we end up with very diversified industry and material because we are working in the glass industry as well in the household industry as well in the paper or metal recycling industry. And And it’s very, very different to work with a glass recycling of glass and recycling of paper, for instance. But I will come later with a description of this segment.

Few words about the company overview and our organizations to go a little bit in detail compared to what Thomas said to you previously. We are 130 employees and there are six companies in the group, including three production sites, one in Denmark, the headquarter, which is as well the center of expertise for the fastener segment. And then the second one is in France, in Strasbourg. This is the center of expertise for the mineral industry. And this is a location where we produce, we design and produce the largest product of our range of product, of machines.

The machines can reach 40 to 50 tons, to give you an idea, 40 to 50 square meters. So very, very large product due to the fact that we need a very large capacity in the mineral segment. And of course, the machine are bigger than the other than the machine of the other segment. And then the last one in the North Of Spain, in San Sebastian, the Basque Country, that’s the location of Scacodarte, who joined the group. We joined the group end of ’nineteen.

And Scacodarte is a center of expertise for the recycling segment. So each production site contribute to the complete portfolio of Skyco vibration. And in each company of the group, we offer the complete catalog of products. So it means that, for instance, a Danish salesman, which is located in Fagbon, for instance, can sell a Danish, Spanish or or French product according to the requirement from the market. A few words about our market, yes.

Our reach extend from China and India in the East and The US in the West, knowing that the markets depend on the segment. For instance, in The US, we are only present on the fastener segment because we think that the buyer for the market are B2I for the mineral segment. There are a lot of local competitor, which have been established for a long time in The US. And regarding the recycling, The US has a different policy than than in Europe. We know that the rules are different from state to state.

So it’s not the same way of recycling in California than in other states, for instance, I don’t know, Alabama or Ohio. So it would mean for us a different way of doing according to the state and knowing as well that the recycling is less developed in The US than it is in Europe. And to finish, the two main market for us, Africa, which is mainly, of course, a mineral market, and Europe, that’s a place where we have our strongest sales network and where there are the three segments present, so fastener, mineral and recycling. A very short introduction to our product range. All of our products are based on vibration technology and or a round product with vibration technology, and they are designed to integrate into customer and real processes.

It means that rather than provided complete turnkey solution, we supply specialized equipment that performs specific function within an industrial workflow. And this function include, as you can see on the top line, moving, separating and cleaning bulk material. So the two machine on the top left corner are two machine for the mineral segment. The first one is a is a screen that can separate and wash bulk material by size separate by size. The second one is a washing drum.

These two machines are the machine that we sold to the OCP, to the two large order that we got from OCP last year. So you can understand it’s a very important machine in our portfolio. And those machine are used in the mineral segment, but they are used nowadays as well in the recycling segment to clean and wash some waste or some, and especially in construction and demolition waste. In the center, two machine for two example of machine for the fastener segment, two star machine, I would say, in this segment. These machines are used to transform a production which is made by batch to a production into a constant flow of product.

And on the right side of the slide, you can see two key products as well for the recycling segment this time on the top screen, which is specially designed for the recycling segment and which can handle difficult material, which can be sticky or light. And the second one, the densimetric table, which can separate bulk material by difference of density. Both are very used in the recycling segment. A little breakdown on two key segments, on minerals and fastener to give you a description on these two segments. And in mineral, especially, we have two, sorry, three subsegments.

The first one is a mining subsegment that include any type of mining. You can imagine iron mining, uranium mining, phosphate mining, nickel mining, any type of mining. And the primary market for this type of mining for us are outside Europe nowadays, more or less, very often. And it’s mainly in Africa. And the second subsegment, which is mainly located in Europe this time, is a building sector.

And for us, it includes quarries and sandpits, so our customer and user of machine, extra stone and aggregates to make road, buildings and or to supply the cement plant, for instance. The last one is the iron and steel industry. We have there a very strong reputation in the iron and steel industry, especially in Europe, and our equipment play a very important role in the steel production process, handling and sorting raw material like coke or iron ore and other raw material before they are melted into liquid iron. Regarding the Fasteners segment, the most important subsegment is automotive sector. This sector is struggling nowadays, and that’s one of the reason of the decline of this business for the last two years, or last two years, more or less.

The second one is the building sector. We are using, yes, many screws and small metallic part are used in the building sector as well. And the last one, which is a bit new, not new, but it has been developed for the last months, we can see there is there have been an increase of demand, of request of quotation coming from the customer and even order. It’s an ammunition industry. In ammunition industry, our customer as well works with small metallic parts, which are different from screws and so on, But they use the same type of technique and technology for their production process.

A few words about our strategic focus. We know and it’s a bit obvious that there are several, I would say, mega trends, which are driving the recycling segment forward. And we expect this momentum to continue. So we expect that the recycling segment accepted the too large order from OCP. But usually speaking, we expect that recycling segment will have a larger growth than the mineral and fastener.

And that’s why we are strategically focused on expanding our presence in this sector. We have already adapted some of our product from coming from the mineral to the fastener to the recycling segment and the needs of the recycling customer. And what we can see as well is there are some change in the fastener industry, but mainly in the mineral segment, that there are some move from this mineral segment to the recycling industry, and especially for a subsegment which is called construction and demolition waste recycling. We can see that most of the player of the European player in the mineral segment are investing a lot currently in the recycling of this construction and demolition waste, which will be used as raw material to make buildings, road or what you can imagine. So a strong trend for some industry to move to the recycling segment.

The question is, what is the role of Skyco equipment in this recycling industry? So we our equipment have four functions. They can sort by dimension, the raw material and the recycled material. They can sort by density. They can distribute and feed other sorting technologies, and they can wash and scrub waste.

And this is what the small sketch can show you on the left side of the slide. The sorting is a key function of the recycling industry. It means, more or less, all of the game is to be able to sort material in different type of size of of of of of matter. And all type of sorting technology are used in the recycling process. So for instance, our type of sorting is not in competition with other type of sorting, like optical sorters or magnetic sorters.

All of that are complementary in the process. That’s why we are sure that we will benefit to the growth of from the growth of the recycling segment in the future in SKYCO vibration. Yes. I’ll let you finalize the presentation, Thomas.

Thomas Peterson, CFO, Skako: Thank you, Daniel. Yes. And we introduced our financial ambition for the period ’twenty three to ’twenty eight last year. And even though that this year has been challenging, then we still keep our guidance about growing the business with 50% over the period and receiving an operating margin at around 10%. Even though that we declined in ’twenty four, then based on, of course, the two big orders to OCP, then we expect to grow the revenue with 30% to 40% in ’twenty four.

And even though that revenue from recycling also declined in ’twenty four, then we still have the ambition of doubling the revenue in ’twenty eight. And that will, of course, be a little more backhanded than expected, but still the market and the trends will is expected to lead us to maintain the ambition in ’twenty eight. And the last slide is the guidance for ’twenty five that we have announced a couple of weeks ago. And we expect revenue to grow with 30% to 40%. That means that our revenue will be above 300,000,000 in 2025.

And we expect an operating profit EBIT before special items in the range of DKK 27,000,000 to DKK 31,000,000. And as you maybe remember, we realized an EBIT in DKK 24,000,000 at DKK 21,200,000.0. So it is a significant growth both in revenue and operating profit that we are looking into in 2025. And then, let’s jump to the questions.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Thank you very much, Thomas and Lionel. And yes, let’s jump to some of the questions that came during your presentation here. And I think we’ll go one slide back here. There’s a couple of questions related to your guidance and the Moroccan orders that came in. One is asking here, is your guidance for top line growth in 25% of the 30% to 40% only dependent on executing on the Moroccan orders?

Or does it also require new wins during 2025?

Lionel Chion, CEO, Skako: For sure, it’s not only on the American order. We will have to have a good order intake as well in 2025, of course. And the other segment will continue to provide order to the company for sure.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Very good. And we can also see some improvement on the EBIT level because there’s also a question here. Could you give us some color on margins from such a large order as the Moroccan one? Could we expect a pressure on margins? Or could you even find positive synergies also taking into account that you had previous presence in this market, so you’re quite familiar with this operations?

Lionel Chion, CEO, Skako: Quite familiar. It’s exceptional orders for sure, but we know very well the market. We have been present in Morocco for the last, I would say, twenty five years. So we know the market, and we control our margin. We do not see any upside or downside.

We control our margin. So, yeah, I cannot say more than that.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: No. Fine. And also a little bit on cash flow because there’s also a question if cash flow will improve and more specifically, it’s asked here if it will happen in Q1 twenty twenty five. Has Kaka received repayments from OCP? And if so, how lots of repayments from OCP?

Thomas Peterson, CFO, Skako: Yeah. If we go back then in the Q3 report that we presented in November, we were expecting a positive cash flow from operating activities in Q4. But that didn’t happen due to the fact that we invoiced OCP during Q4 and we, for some of those amounts, first received the payment in January and February 2025. So we, at the moment, look into a positive cash flow in Q1.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Very good. And I think we’ll move a few slides back here to the, where we can first take a question here specifically on the recycling part. Is recycling segment driven by a green agenda or is it cost savings by reusing products that mainly drives your customers and clients to buy into this?

Lionel Chion, CEO, Skako: No. The recycling segment needs support from states and nations to be developed. So, yes, that’s the fact that they are one of the pillar of the growth of the recycling come from the policy and the politics of the nation, yes.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Very good. And I think we’ll just move to this slide then. Just with the overview, there’s a few questions here. Let me just see if I can find it here. There were a few here on, that was more I would like to ask two questions with regards to the proposed German spending plans and on on infrastructure and and defense.

So first, there’s a question here. Skakko Vibration develops and manufactures equipment for querying, And I think in Danish that’s if that’s not a word that most are familiar with. Can you tell us more about your market position in Germany for this industry? And do we expect the German infrastructure program to have a positive effect on demand for the solutions that you offer in this query industry?

Lionel Chion, CEO, Skako: For the query industry, yes, we have good customer in Germany. Germany is as well a very market where we have a very strong competition and with high quality competitors as well. But for sure, if there are some growth in the quarry sector in Germany, we will benefit of this growth for sure, yes.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Very good. And also a question, but I think you also came across that with I’ll just move to this slide here because there was also a question related to this with the defense industry. Skako Vibration also develops equipment for the faster industry to expect increased defense spending will positively affect demand for the solution Skako provide to the faster industry. And I think, Leonel, you sort of came across it that at least you’ve seen some good activity on the request for proposals or what you call it as a start?

Lionel Chion, CEO, Skako: Yes, absolutely. So we have seen a clear increase of demand coming from I do not say fortunately, unfortunately, but from the ammunition sector, there are more and more demands coming from this segment, yes.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Yeah. Very good. And I think it comes at a good timing because I guess looking at the automotive industry in Europe, which is somehow how struggling, so if you could have other parts or other industries that could attract your sales here.

Lionel Chion, CEO, Skako: We expect in our budget that the automotive sector will be very flattish for this year at least. So this is something that we have considered, of course.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: And looking at the recycling is now around 35%. Do you still expect that number to grow as part of your revenue as this is sort of your strategic focus

Lionel Chion, CEO, Skako: area? Yes. But we have this effect as well of this big order, coming, which came from OCP. And there will be a big part of this order which will be delivered in ’twenty five and the rest in ’twenty six. So the figures can be changed, and the percentage can be a little bit, yeah, drove by this big order.

But for sure, we will, as I said, yeah, the growth for the future will go from will come from the recycling segment for us, yes.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Very good. And I think you also came across it, Lionel, when you looked at the recycling industry compared to the other industries, the mineral and the fastener you’re in, this is more diverse and more technologies that you have to master here. We also came across it that you actually have room for acquisitions. Are there areas here in the recycling business where you could, yes, strengthen your business by doing some acquisitions or where your sort of technical capabilities are limited today and you could see some improvement from

Lionel Chion, CEO, Skako: We usually do not comment anything about acquisition, of course. But like any company, this is something that we are considering, of course.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Okay. Very good. And then I think I’ll move back to this slide. Just a second here. So sort of with your with the overview here and as we can see, you have also market activities in The US because there were, of course, a few questions related to sort of the ongoing the ongoing trade war, what would you call it?

One is asking here, how are your U. S. Appraisances affected at the moment? Does the extraordinary taxes also apply to your finished goods that you might export from Europe to America? Or do you have any local production in The U.

S?

Lionel Chion, CEO, Skako: No, we don’t have any local production. So for sure, there will be some challenge for that, especially for the fasteners segment. We will see what, yes, how it will be in the future for this specific product that we are delivering to The U. S. There is as well another effect that, as you could see, we have a good business with the steel industry in Europe.

And we know that this industry can be affected by the tariff, the high tariff on steel on The U. S. So yes, for sure, like all companies, what happened in U. S. Is a bit, yes, difficult to forecast, yes.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Yes, because there was also a question related to this, specifically on the tariffs on steel and other metals. I guess, it can both be beneficial for you if more production will be in Europe then. And it could also, on the other hand, you’re using you’re using metals yourself, so for your for your production. So, yeah, I guess there’s also, yes, some implications there from, I don’t know, higher prices from the tariffs. Absolutely,

Lionel Chion, CEO, Skako: yes.

Thomas Peterson, CFO, Skako: So And if I can add a little thing to this, then we can see if you look at our annual report then it is around 2% of our revenue that are going to The U. S. So it’s not significant.

Lionel Chion, CEO, Skako: Yeah. No. Absolutely. Yeah. Right.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: Okay. Very good. I think we, we got through all the questions. So I think we’ll conclude by that. Thank you very much, Lyonel and Thomas, for joining us here today.

Lionel Chion, CEO, Skako: Thank you.

Asmus Kloipo, Moderator, Hans Christian Andersen Capital: And thanks to those thanks to those of you who participated and with some very good questions. We’ll conclude by that, and I’ll just wish you all a nice day. Thank you.

Lionel Chion, CEO, Skako: Thank you. Have a nice day. Thanks.

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