SciDev Limited (SDV) Earnings Call Transcript & Summary

Welcome to SciDev's Half Year FY '25 Investor Update. I am Sean Halpin, Chief Executive Officer; and I also have with me Anna Hooper, the CFO. And the format will be a typical presentation and then we will open things up to Q&A. So, if you have any questions through after the presentation, please put them into the Q&A chat below, and we will try and address them. And we've got a bit of ground to cover, so we'll move on pretty quick. And we'll try and get this wrapped up by the half hour. So, for those of you that might need a bit of a refresher, at SciDev, we're focused on delivering innovative solutions to solve the industry's most complex water problems. We're a portfolio of industry-leading and water-centric businesses. And currently, we're divided into 2 operational business segments; one being Specialty Chemistry or Chemical Services, where we provide specialty chemistries into heavy industry, reducing the amount of fresh water that's consumed in these industries, increasing their operational outputs and their operational outcomes, making them better at what they do and reducing the amount of contaminated water that's produced by these industries; and within Water Technologies, that business is centered around the design, construct, operation and maintenance of water treatment plants underpinned by our proprietary technologies to harmful contaminants from groundwater, surface water and liquid waste. One of the main driving -- one of the main drivers of that business at the moment is the ever-increasing global PFAS market. And SciDev, we're proud to say, what we firmly believe is a market-leading technology in our FluorofIX technology, one that's been fully commercialized here in Australia and now one that we're successfully taking into these international markets. We'll try and answer the question why SciDev. Well, we've got leading market technology. We're a technology business through and through. Each one of our business units has their own -- each have their own portfolio of technology. And I think it's our approach to the development of tech that really sets us apart. Each innovation from within SciDev comes always to solve a problem that a client has currently or/and that they know that they will have either tomorrow or further into the future. And our approach to tech development is agile. It's very client-centric and it allows us to continue to stay ahead of the game and be a leading technology provider for our client base. We've got diversified revenue streams. We spoke about the business being a diversified portfolio of businesses. We have different business units operating across multiple geographies, each with their own portfolio of technology and operating across a diverse range of end markets, meaning that there's an intrinsic strength in this diversification across the business and we're not overly exposed to any one business unit, any one market, any one technology or any one geography. And we're delivering strong financials. We're on a very aggressive and steep growth trajectory at the moment. The metric that we like to put out or the picture that we certainly like to paint is that in 2018, the business did just shy of $2 million in revenue. Last year, we did just shy of $110 million. So, in terms of that top line growth, we're really delivering we'll talk a bit about in the coming slides on the half year results, what that means for the remainder of the half and how confident we are, which we are very confident of continuing on that organic growth trajectory at the top line. But really, when we look at our financials, the improvement in profitability, both in gross margin and EBITDA contribution is also something that we're certainly very proud of here and we've made great forward strides on over the last number of years. And additionally, the global PFAS opportunity. Again, we have a fully commercialized high-performance technology that we firmly believe is market-leading and the most efficient, effective and also cost-effective technology currently available on the market for PFAS treatment. This is an enormous addressable market, a truly global problem and one that SciDev is uniquely positioned to be able to capitalize on it. Looking at the half year financial highlights, we did revenue of $49.9 million, which is in line or a flat line trend when compared to the PCP. It's worth noting -- certainly worth noting that this year's half year revenue was impacted by a Q2 that saw a seasonal downturn within the U.S. oilfields, which reduced in a reduction in sales volumes from that particular vertical within the business. This is due to, again, a planned maintenance and annual leave period that happens traditionally in the oilfield from around about Thanksgiving through to New Year's Day. But it's worth noting when we compare this revenue to PCP that last year's half year results were not impacted by this downturn. This downturn did not happen within the oilfield in December of last year. So taking that into account, you can see that there's an underlying growth trend within the business. What's also important to note is that the market activity within the U.S. oilfield ramped up aggressively from here up to the 2nd of January. And again, we're very confident in the fact that our energy business has returned to its previous sales levels and also in our ability to be able to continue to grow that business and improve our top line results over the remainder of the year. I spoke about improvement in profitability, delivered strong gross margins of 29% and a really good EBITDA result of $3.4 million. From a balance sheet perspective, we closed the half with cash and cash equivalents of $11 million and that hand-in-hand with our working capital facility that we secured with Westpac early in the half puts us in a really good position to be able to self-fund our and continue [Technical Difficulty] strong top line growth as well as improved profitability throughout the half. And that is underpinned by a very healthy and very strong business development pipeline across each one of our business units, which we will talk to now. So, a bit of a segment overview. Looking at our Chemical Services business. As I mentioned previously, PCP, we saw a 2% downturn. This is largely due to the impacted sales volumes this year that we didn't see last year from the oilfield. And some of the real highlights within that business in the half were the amount of field trials that we successfully secured and delivered within the half. When we think about the overall sales pipeline for our sales process for chemical service, this starts with receiving a water sample and bench scale product optimization through to bench scale product qualification and then it leads to field trial and following successful field trial that's when we then progress to securing these ongoing revenue-generating contracts. So, the fact that we've delivered so many of these across both our Energy Services business and our Mining business throughout the half is a great lead indicator on the top line growth that we're expecting for the remainder of the half and into the next financial year. In addition to that, it's important to talk about the developments and the momentum that we're starting to build within the Nuoer SciDev joint venture with some early revenues generated within the U.S. mining market, which is great to see. Within Water Technologies, again, 6% growth PCP on the top line. We did see a $3 million downturn half-on-half. This is largely due to the phasing of revenue from the projects that we're operating in. And again, we're very confident in the ability of that business to grow and deliver an uplift in revenue in the second half of the year. The real call out and the star of the show of the half, in my opinion, was the fact that we delivered our first or secured our first revenue-generating contracts within the European Water Technology segment. So, 2 contract wins; one in Sweden and one in the U.K., both for PFAS treatment. Again, this is off the strength of our FluorofIX PFAS treatment technology. These early contracts are really important. The biggest milestone or the biggest hurdle that we've had in developing these markets has been centered around the fact that we haven't delivered works and we didn't have client references within the region. We now have that. We have multiple references. And not only that we've got a really good channel partner in Sweden with that first client, Swedish Hydro, who have been generating a number of leads and a number of opportunities for us since that initial purchase order. So, things are looking really good on the European front and great to see those first PFAS treatment wins. In addition to that, the sales pipeline or the BD pipeline for domestic Water Technologies business has been strong. We've had a number of new contract wins, again, adding to our confidence in being able to predict that revenue growth within the second half of the year. So, what have been driving these positive trends in the business? One, we've seen that margin improvement and that's been primarily as a result of us successfully transitioning customers away from the lower-margin commodity style products -- projects [Technical Difficulty] in our Energy Services division across to our higher-margin Specialty Chemistry. We've seen great growth in Water and through our ability to be able to secure and deliver higher value design and construct projects and that's -- that was certainly a big contributor to that 88% uplift in top line revenue that we saw from '23 to '24. Our expanding global footprint is certainly something that's been beneficial and that's has been driving recent growth, but will drive future growth as well. And all of this is underpinned by strong disciplined financial management across the business, but also a disciplined approach to capital management. Every business at our end of the market in that small and microcap space has limited capital to deploy and we're very much focused on ensuring that we're putting that capital to work in the right areas of the business that are going to give both short-term returns and generating free cash, but also delivering that long-term value for shareholders. So, this slide is just a bit of a retouch on strategy. The last time we spoke about this was at the AGM. So, we just want to run over it again. And it brings us back to the idea side of this being a diversified portfolio of water-centric businesses. Strategic market focus is centered around businesses with growing or sorry, markets with growing addressable markets driven by strong regulatory tailwinds and we're centered on industrial and government clients and areas of the market that are requiring tech-driven solutions. So, we've narrowed that down to sort of 4 pillars within the quite broad water sector where we feel we are going to play and where we can be very successful. One is in water treatment technologies that, again, strongly established business and a rapidly growing addressable market. And we're seeing a water sector and a water market that is now accepting technology at a much quicker rate than it ever has traditionally. Specialty water chemistry is certainly core to our business. PFAS remediation, we've already spoken on as being a huge opportunity and one that we're uniquely positioned to capitalize in. The other is industrial water processes. And that is, again, looking at avenues within heavy industry where water is being used and that we can provide added benefit going forward. So, we're going to -- there's 2 key ways that we're going to be able to deliver on our growth strategy, on our growth objectives and deliver long-term value for shareholders. We spoke about that aspiration. We've defined the global markets that we want to play in. And to be successful in those areas, it's going to come down to ensuring that we've got an operating model that can support that and the essential capabilities that sit within the business that will enable us to deliver on that strategy. Our operating model is very much centered around an owner mindset that's how we can operate as a portfolio of businesses, ensuring that our business unit heads and the teams that sit within them are empowered to drive the ongoing success of their business and they have that on our mindset. They act like they own their business that there's a delineation between the group and also business unit delineation, strong governance within the business, which goes without saying, but also ensuring that we are scalable and agile as we continue to grow. The capabilities that will support that operational excellence, making sure that we are the best at what we do and that we continue to develop the best technology with ongoing capital management, obviously, a very key pillar to success going forward. And then M&A. M&A will be something that will support the future growth of this business when we're looking at global addressable markets and global opportunities, particularly in the PFAS space. M&A and being good at M&A internally is something that's going to be very important for us in order for us to ramp up our operational capabilities and operational presence within these regions and ensure that we are in the right place at the right time with the right technology and the right operational support to be able to deliver. So, our outlook will be to continue the momentum that we've been building year-on-year. We've got a strong robust balance sheet, a good cash position and a strong working capital facility or a solid working capital facility to allow us to continue that organic growth trajectory. Growth in the oilfield will be focused on diversifying our customer footprint within that market and driving the growth of our CatChek and XSlik product lines, in particular, again, focusing our efforts in increasing sales volumes of our higher-margin proprietary chemistries. Within the global mining market, we'll be leveraging that joint venture, but also looking to secure new contracts directly. And within our Water Technologies business, we know that we have a huge strong ability to grow our domestic Water Technologies business, we will be leveraging the strength of our FluorofIX and RegenIX technologies to be able to grow our Water Technologies division internationally. Outside of that, we will certainly be exploring inorganic opportunities as they present themselves to increase the regional operational capability again to ensure that we have all that we need to fully capitalize on that growing PFAS opportunity. So that marks the end of the presentation and we will move on to Q&A. And we have Sarah Stewart that's going to facilitate the questions. Over to you, Sara.

Thanks, Sean. We've just got 2 questions come into the Q&A so far. The first one, both related to the Trump administration. So, there's a lot happening in the U.S. with the Trump administration. Can you talk to us or put a bit of color on what your potential exposure to the tariffs are, please?

Yes. Thank you for that Sarah. I'll hand that one over to Anna to answer.

Okay. So in the States, the business -- the oil and gas business we have over there, they don't import very much directly. So, most of what we're importing is through U.S. companies or most of what we use is through U.S. companies. Having said which, some of what -- we are going to be impacted by tariffs because they're bringing in from various places. So, not a whole -- the whole heat from China, but from other parts of the world. The way the industry is set up in the U.S. is that we are able to reset our prices on a regular basis. So, we reset the prices as we need to. None of the prices are locked and loaded for more than, I guess, 2 to 3 weeks of period. So, we will be able to react accordingly and the industry moves around or the prices in the industry move around according to the sort of input prices and that's normal. So, we'll be able to sort of manage the tariffs as and when they arise.

Thank you, Anna. And Sarah, over to you again.

Thanks, Anna. Sorry. Second question also related to the Trump administration. What are your predictions around the market impact of the potential changes to PFAS regulations in the U.S?

Thanks, Sarah. Look, that's been a big question but one that's been raised internally for some time now and certainly one that we've been addressing in the market recently. I think what is happening is what we predicted and that is that there will be very little reversal or unwind on PFAS regulations that have already been established. That goes to the designation of PFAS under circular in the environmental space and the drink and water, in particular, the drink and water regulations. They're lock and loaded. They're going to be very difficult for the current administration to unwind and it's very unlikely that given the potential public reaction that they are going to be unwound. What we did expect and what we are seeing is delayed rollout of any new regulation or any new legislation surrounding PFAS. So that talks to some more of the industrial generation of PFAS contaminated waste and certainly in the wastewater treatment sector in the sewage sector, we're not expecting to see any huge advancements in regulation in those areas with the current administration. But our focus within SciDev is on immediately on the remediation sector. That's the market that's available to us now. That's certainly not going anywhere and that's certainly growing at the moment. And then in the more medium to long term is positioning ourselves and securing revenue in the drinking water side. So, in terms of our immediate addressable market and the areas of the market that we're focused on, we see -- we're expecting and are seeing very little impact at the moment.

Thanks, Sean. Another question just come in about what is the percentage of your annual revenue that is purely from the sale of Nuoer products?

Over to you.

So, mining construction business represents about 20% of our business. And of those, maybe 70% or thereabouts the sales are from Nuoer products. So, let's say, 15 -- about 15% of our sales are from Nuoer products. Most of that -- those sales are into Australia. And so not -- they're not -- we don't import Nuoer products or very little Nuoer products is imported at this stage into the U.S. for sales in our oil and gas business.

That's great. Thanks. And Sean, that's all the questions we have for today.

Great. Thank you very much, Sarah. Thank you, Anna, and thanks to everyone else for taking the time to join us. We are ahead of time, which is a first at the side of webinar. But yes, we're certainly very excited to see what comes for the remainder of the financial year and very confident in our ability to continue to grow this business. And we will keep the market posted as things develop and we'll talk to you all soon. Thank you very much.