SKAN Group AG (SKAN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the SKAN Group AG Full Year 2023 Results Conference Call. I am Mina, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Thomas Huber. Please go ahead, sir.

Thank you very much. Ladies and gentlemen, I would like to welcome you to this -- to this conference call to talk about the financial results, 2023 of the SKAN Group. The agenda of today is first, I would like to give you an overview of the business year, '23. Then I will talk a little bit about the execution of our strategy, what we achieved in '23 and on the third point, volume [indiscernible] some details about the financial results. And on point #4, I will try to give you guys an outlook into 2024 and the future, and then we are happy to take your questions. On this slide, you can see the highlights of the financial year 2023. I think what we can say that we have now stabilized the order intake on a healthy level again after the large order intake in 2022, which was about 60% higher than in '21. We now are on a -- let's say, on a more regular level again. Net sales, we achieved a growth of 15.5%, which is absolutely within our guidance to CHF 320 million. We also were able to increase the EBITDA by about 24.9% and reached an EBITDA margin of 15.7%, which exceeds our guidance. We invested about CHF 35.3 million, mainly in preapproved services and our order backlog currently at CHF 312 million, that gives us a book-to-bill ratio of about 0.9 on the whole group from the whole group point of view. Equipment Solutions and Services and Consumables are the 2 business segments that we are reporting on. Equipment and solutions are more the hardware part, machines that you can touch and feel. In '23, we can say that the incoming orders were again more evenly split between large customized machines that are typically used for high-speed filling compared to the smaller, more standardized isolators. You might remember last year, it was the big machines, we had a lot of orders for big machines because most of them were consider to go into COVID manufacturing. Now the split is again pretty even, pretty much 50-50 and plus/minus as it was prior to COVID. We also made progress in our strategic initiatives. I would like to mention specifically standardization. You remember early '23, we reorganized our group and we have now dedicated groups that are really focusing on standardization and I'm happy to report also first progress is there. Once again, we have invested about 7% of our sales into development, research and development. This is expensed to the year directly to the -- into the year and also allows us to keep on top or to stay 1 step ahead from a technical point of view. On the services and consumables side, basically, that segment was the key driver for the margin. I think we can say that in the reporting year. Our automated process solution for closed vials from our Belgium subsidiary were also in a very high demand. We can also say that our strategic initiative, preapproved services is well on track. We are absolutely within our time line and are still very positive to meet authority approvals in the next year and go live in '26. When we look at the strategy execution, you remember this slide, showing our 4 pillars in our strategic initiatives. #1, we want to fortify our market leadership in our core business. #2, we want to expand addressable markets towards integrated process systems, so more integrated systems. #3, we also want to increase our life cycle services program and our consumables. And on the fourth pillar, we talk about digitalization, which is kind of key and an integral part of the work that we do. On the next slide, you can actually see the progress. So on Pillar 1, I think what we'd like to mention is that we have launched our [ brand Sphere ] so which is a digital platform that allows us to monitor the health of our equipment, our decentralization process progress, right? This is also taking place quite well. We have integrated data management systems to increase the efficiency at customer side. And I think we can also say that the Annex 1, right? The new regulation that was published about 18 months ago has now really come into play and is pushing the bar even higher from a technological point of view, which actually allows us to -- we profit from that because our machines comply with these new guidelines. On Pillar 2, I think we can say that we have done quite some progress on the integrated side, together with AT. We launched several new robotic projects that we have installed, but we also have new drugs in our vials. So we currently have about 7 drugs in closed vials approved in 14 different countries. Very important for us to have an outlook in the future or the 450 substances that are being tested in close trials in the different clinical phases. So this gives us an idea of what potentially can come into the profile. And good to see here is that the 450 is like about 10% more than it was the last time we published figures. So although investments into R&D have been reduced last year significantly and fundings were not flowing as good as anymore, which could still increase the number of substances being tested. We increased our stake in AT to 85%, as you know, and we have already announced that we will increase our stake to 90% as per this year. On life cycle support, I think it's also important to see that in general, our services are more and more in demand. We also have a very high demand in our retrofit business. We -- and we are also progressing very well in preapproved services, as I already mentioned. When we talk about digitalization, I think here we can mention the VR mockup -- virtual mockup that allows our customers to virtually test the ergonomics of an isolator and which saves us, let's say, of building a one-to-one mockup and also transferring the information from the mockup into design. Now this can be done all in 1 with this virtual mockup. And the last point I would like to highlight the one button release, which is kind of the digitization of the paperwork that comes with the batteries, which will give a significant automation that to the pharmaceutical industry, but also a significant reduction of potential mistakes. When we look at the group, we have been growing again in the whole group. I think important to see is that our decentralization approach is working. When you look at the number in the middle below the 112 employees that we have hired in Switzerland, actually 30 out of those go to our subsidiary in Stein. And if we look at decentralization that is pushing resources to our subsidiaries, we can say that about 60% of the growth of the company of the Group has happened in the subsidiaries and 40% in a headquarter only. So from that point of view, decentralization is slowly taking place and is also now seen in the figures. When we look at AT, right, AT dose 7 drugs that are registered in our vials are listed here. You see the companies that have their products on the left side. Important is also to understand, let's say, the different flags that you see, which represent where those drugs are registered or approved. And so compared to last year, where we had about 5 drugs in 9 countries at this time. We currently have 7 drugs in 14 countries. So registering a drug in different countries is obviously also good for sales and good for the volume. As I already mentioned, the 450 active ingredients are a good indicator that we expect this number to further grow as we have initially planned. Good. So then I would like to hand over to Burim for the financial results.

Thank you, Thomas. Also from my side, welcome to this call. In the next 15 minutes, I will give you some more insights of the figures. When we look at the order intake on Slide 12, we have as mentioned -- as already mentioned, we see clearly that the order impact has stabilized at a healthy level with CHF 295 million compared to the previous year in 2022, where we had this extraordinary order intake as a post COVID catch-up effect in 2022. But more important is also to see the growth trajectory, which is from 2020 to 2023, we see a CAGR of 13.6%. If we compare it with the study that we did during our IPO from the LEK study, there it's mentioned that the market will grow about 11%. So we are outgrowing, still outgrowing the underlying market with 13.6%. On the right side, when we look at the regional development, we see clearly also the impact of this stabilization of the order intake. We see also clear that Americas has -- in the Americas region, we have a bigger dip, but this is -- there is a special effect there. We had some -- during the year, we had some cancellation of projects, but also an order that has been -- or a customer has ordered the project for the American market. And during the publication, they decided to close this site and shift this project to Europe to Ireland. So this effect is also -- or this effect has also an impact in the decrease in the American region. Very important also to see that we have already first orders received from the GLP-1 production capacities. But this is -- or to mention it's at the moment is single-digit in the overall order intake currently. The growth or the decline from -- on the constant currency rates is about 26% compared to the normal decline of 28.3%. What we are also seeing regarding the order intake is that the order pipeline, that means quotes that we are sending out for customers is increasing, which gives us, again, a very good visibility for the future growth. On the next slide, when we look at the net sales. Here, we have a very good growth rate with 15.5%. We have been growing from CHF 277 million to CHF 320 million. If we'll look at the growth rate on the constant currency rates, the growth is at 19.2%, which is on the upper end of our guidance. In the middle, we have the separation of the both half years, and we clearly see that in the second half year, we had a stronger growth of about 30% stronger compared to the first half year. The main reason which drives this growth in the second half year is that the shift of revenue intensive phases in the project business has taken place in the second year. That's why we grow faster in the second half year. The order backlog is coming down again from CHF 360 million to CHF 312 million. And this is a positive effect or let's say, we still have a very good visibility for the future growth, but it's also positive impacting our delivery times for our customers as they are getting more and more attractive downloads. On the next slide, when we look at the margin improvement, we had a very good EBITDA. We improved EBITDA from CHF 40.2 million to CHF 50.1 million, which results in an increase of about 25%. Regarding the EBITDA margin, we also improved from 14.5% to 15.7%, and this is overshooting our guidance. On the right side, we also see clearly the impact of the shifting of the project milestones in the second half year, where we have 70% stronger growth in EBITDA in the second half year, driven by the project business and/or let's say, project milestones shifting in the second half year. But the main driver also here for the margin improvement is the service and consumables business, especially the aseptic technologies closed vial and the consumers from aseptic technologies, but also the spare parts business, which is increasing also with the installed base and also the retrofit business in the service and consumables segment. But now [indiscernible] so when we look at the left side, the cost development, we clearly see also here that we have increased our in-sourcing of the production. That's why the material and external services are more or less on the same level as previous year with a slight increase, but in relation with the net sales the ratio is decreasing from 27.6% to 24.8%. On the other side, we have for the resulting for this in-sourcing, we have increased also our employees. As you see, we ramped up resources for another 216 employees, which is increasing our -- is also resulting in an increase in personnel costs. But when we look at the ratio of personnel intensity, which is slightly increasing from 45.1% to [ 46.6% ] is still on a good level. The other operating expenses are increasing in line with our net sales growth. On the next slide, we have the segment equipment and solutions. Here, we clearly see the -- again, the stabilizing of the order intake, where we booked CHF 213 million. From a net sales point of view, we have been growing about 14.2% corrected under constant currency rate, the net sales grew about 17.3% and the portion of the overall net sales from Equipment & Solutions is slightly decreasing to 74.1%. We have been able also to increase our -- or to improve our margin from CHF 23 million to CHF 26.8 million, which results in an increase of almost 17%. We have been able also to close or to complete about 70 project, which is promising for the growth in the segment of service and consumables as our installed base is increasing. Here is also, again, important to understand that we have invested about 7% of the group net sales in research and development and directly expands it to the P&L in 2023. On the next slide, the service and consumables also here, a very nice growth in order intake from CHF 75 million to CHF 81.8 million, which is resulting in 9% growth rate, but when we also here look under constant currency rates, it is a double-digit growth of 15.2%. From a net sales point of view, the segment is growing on a faster pace with 19.6%. And the main driver here is, again, the consumables business, especially the -- [ half the ] closed vial, but also the parts business from the conventional service, what we are providing, but also the retrofit business. The margin has been improved or we were able to improve the margin from -- EBITDA margin from 24.8% to 28.1%. Again, here, the main driver for this improvement is the consumables business from AT. On the next slide, when we look at the cash situation, the cash position has decreased from CHF 111 million, about CHF 26 million to CHF 85 million. The main driver here for this decrease is the operating cash flow, which is -- compared to the previous year, is a decline. We -- last year, we had an operating cash flow of CHF 61 million and in the reporting period, we are -- we have -- we are showing an operating cash flow of CHF 8.7 million. The main driver is the stabilized order intake, as mentioned at the beginning and the related down payments or advanced payments from our customers. In general, the operating cash flow is also fluctuating due to our project nature of our business. In the middle, the investing cash flow, we have been -- or we have invested about CHF 42.3 million. The main investment went for the preapproved services, but also expansion in Switzerland, but also in Germany and also the increase of another 5% stake in Aseptic Technologies. The CHF 25 million fixed term deposit, we have invested this CHF 25 million. This has been how to say, [indiscernible] expired. So it has a positive impact in the investing cash flow resulting in a CHF 17.3 million investing cash flow in the reporting period. The financing cash flow with minus CHF 15.8 million is driven mainly by repayment of the loans from banks that we have with -- in connection with the production site in Görlitz and also the payment of the dividend of last year. On the right side, very positive is also -- again, if we go back positive is the development of the ROCE, despite the significant investments or the growth investment, we have been able to maintain a strong ROCE at 19.7%. On the next slide, when I look at the balance sheet, we still have a very strong balance sheet or, let's say, strong finance structure. The cash development I already mentioned and on the right side, we have a decrease on financial liabilities. As I mentioned, with the repayment from loans in connection with the production site in Görlitz. From a equity ratio, we have a very strong equity ratio at 47.2%. On the next slide, we are suggesting to the general assembly of the 7 May to a dividend of CHF 0.35 per share, which is 40% higher dividend proposal compared to the previous year. This is resulting in a cash distribution, about CHF 7.9 million, resulting in a payout ratio of 30%. 50% of the payout will be from the capital contribution reserves, which is tax-free and 50% comes from their retained earnings. On the next slide, a short summary. It was, again, a very successful financial year for the SKAN Group. We have been consistent, growing at -- if you see on the right side with 19.2%. We have very good visibility with order backlog of CHF 312 million. We have been improving also the margin, which is overshooting the guidance. Both segments has contributed to this nice result. We have been able also to improve the service and consumables margin to 28.1% and also being able to maintain a strong ROCE with 19.7% despite the significant investments in the future growth. We have a very strong finance structure to finance the future growth. And, I will hand over to Thomas for outlook.

Thank you, Burim. Let me give you a few words about the outlook about the future. For those of you, who have seen the left and middle part of this slide before, you remember that 2005, none of the blockbuster medication wasn't injectable. Back in 2020, already 50% of the top 10 blockbusters were large molecule injectables that are qualifying to be filled in an isolate. If you look at the statistics in 2023, already 70% of those top-selling drugs are injectables for large molecules. In other words, are requiring Aseptic. Feel finished, which basically our technology is top notch. I think that's very important to understand, when we think about can the growth of SKAN continuing for the coming years or really come to a stop sooner or later. So from my point of view, when I look at the development of those drugs. And also, when I look at other trends that are all showing into the direction of injectables. So when we look into the -- into injectables, so basically, we are convinced that -- the markets continues to grow and that we will be able to play a major role in this growing market. So when we look at this, so we assume that the momentum will continue to grow, the underlying growth of the global biopharmaceutical market is still there, it's still to be considered in the -- I think it was expected to be about 11%. When we look at the injectable drugs, right, which are growing faster within the biopharmaceutical market, we expect that we can ride -- continue to ride this wave and grow at a faster pace than the underlying market. On top of that, we also see still a shift from traditional clean rooms into isolate technology. So basically, I would say, most of the new investments are being done in the latest technology, which would be isolated technology. And also still in the West, we see the positive impact of reshoring. Western companies are trying to regain independence from Asian markets, and so we also see a lot of investment going into reshoring. As a consequence, we expect that our market for our equipment, but also our services and consumables will continue to grow. When we look at the current year, right, we started the year with a healthy pipeline and are kind of positive that this will continue throughout the year. We also see that we continue to see a robust growth in our core markets, which is mainly North America and Western Europe. So also from an investment point of view, we continue to push our initiatives in North America, but also Switzerland and Germany to grow and to prepare enough capacity to meet the future demands. So from that point of view, I think we can say that we are confident to achieve growth, our growth targets also in the coming year. When we look at the guidance, we will -- we keep the guidance similar to how it has been last year. So basically, we expect sales growth still in the mid-to-upper teens. So somewhere between 15% and 19%. Equipment Solutions will grow a little bit slower than service and consumables. When you look at the margin, you have seen that we have overachieved the margin this year with 15.7%. Our guidance remains with the 13% to 15% first of all, because we are still in a, let's say, in a lumpy business environment with our large projects. We also have to see that the Swiss franc has gain strength again that is basically eating some of the margin that we win through standardization to efficiencies, basically consuming this margin. Again, plus we also have to see that customers, since money is again has, again, a value. So since we are in an environment with interest rates customers are more, let's say, more careful of spending money. So we expect that 2024 will be a nice year again, but we want to stay conservative on the EBITDA margin and prefer to correct the value after midyear, if we see the progress of the business here more closely. Okay. So I think that was the global overview of the -- of the figures of 2023, and we are happy to take your questions.

[Operator Instructions] The first question comes from the line of Odysseas Manesiotis with Berenberg.

So first of all, when looking -- your order backlog being somewhat below your sales for full year '23 and also the normalized order intake in H2. Could you please elaborate on what product groups who are not currently in your backlog are expected to drive this mid- to high-teens sales growth that you expect for 2024?

Yes. Thank you for this question. I'm happy to answer it. So basically, the order backlog right now are with a book-to-bill ratio of 0.9 would actually assume that we might not grow in the future. Now first of all, we have been -- our order backlog has been growing significantly in the past, which had a negative impact on lead times. So our lead times became pretty unattractive over the past years. And to be honest, one of the reasons why our order intake was not as high was besides of some cancellation, it was also that we just lost some orders to competition because our lead times are just not attractive anymore. So for us actually to come back to an attractive range we have to have a book-to-bill or book-to-bill ratio of less than 1 for 1 or 2 years to get back to normal results. Now for 2024, right, we go with a book-to-bill ratio of 0.9. Now you have to see that on the Equipment Solutions side, it's still bigger than 1, since services turned much faster. So they -- yes, so that's -- the 0.9% is obviously for the whole group. So from that point of view, we are pretty confident that now lead times become more normal again. Now how -- or why do I still sleep well thinking about growth in the future? So what we currently see, and I think it's a direct consequence of what we have already in the news that Novo has acquired Catalent. Catalent one of the biggest CDMOs in North America that will now slowly, but surely exclusively probably worked for Novo Nordisk. And so this has triggered a lot of requirements for new investments on -- on all other pharma companies that are using Catalent as a CDMO. So when we look at the last few weeks, we have seen our request for quotation pipeline almost exploding. And so typically, we can see that this will translate into orders in the coming 6 to 12 months. And so from that point of view, I'm pretty confident that this wave that we had now during COVID will actually become a GLP-1 wave or I would say, an indirect GLP-1 wave that will help us to also grow in the coming years.

That's very helpful. And I mean on your comments on the answer that you said book-to-bill to be below [ 1.4 ] for a year or two. I mean, looking at how your ordering -- tech normalization, you did say that you could be seeing a lot of these GLP-1 and Novo-Catalent related orders falling into H1. Basically, how should we think about order development in 2024 versus sales? Does it make sense to assume that you'll return to above 1 book-to-bill for the full year? And if not, would it be fair to assume, let's say, a lower-than-usual growth year in 2025, perhaps.

I would see it the opposite way. So I mean, the order intake that -- or the request for quotes that we see currently growing significantly will translate into orders by the end by, let's say, after 6 to 12 months, which will be by the end of this year or literally by next year. So we expect the order intake to grow significantly again in H2 of this year and also in next year. So since we still have a very healthy order backlog for this year, right? And the CHF 312 million is obviously the whole -- for the whole group. But the backlog is important for the equipment solutions for the long-term parts. So all the services that turned quite quick are not, let's say, not in this consideration. So we are comfortable that we have enough food for '24, and we will generate food for '25 this year and next year.

Very clear. And another one, please. So given that it sounds likely you're improving your product mix year. You're seeing improving utilization and in-sourcing falling expansions that you're all -- probably it's this time plans as we move to 2024. You are assuming flat margins year-to-year? And as you said, the part of that has to do with FX. I just wanted to know whether the additional margin you get from cancellation fees has -- from order cancellation fees has flattered your margins in H2 last year and whether if you could quantify that impact as well and whether that's in play for you too.

I think we can say that, yes, we got some cancellations. And typically, when we get the cancellation of an order, we at least get paid for the work done plus some profit -- proportional profit on that work. I wouldn't say that the cancellations we received last year have significantly impacted the result in either a positive or a negative way. This year also, you have to understand that the cancellations that we received end of last year were from one multinational big company, and they basically I mean, part of those machines are built and they basically canceled the orders, but also we had to give them the option that if within this year, they decide to go back right? We would have to go back and continue with this project. So from that point of view, if we would have now booked all the profit, we would then suffer from that in the future. So I think the cancellations, they are -- let's say, they are -- from a profit point of view, they are pretty neutral in 2023. What you have to understand that, right, those orders that have been canceled end of last year, we got those orders in '22 and -- mainly in '22. So actually, they contributed to the huge growth in the order intake in '22, but now are deleted out of '23. So if you would normalize this the whole growth would also look more, let's say, more stable.

Understood. And if I add another one. So on the GLP-1 side of things, you did Burim did touched on it saying you got a single-digit order intake benefit from GLP-1s last year. Is this, let's say, just the start of this benefit? Why are you benefiting a bit quicker than maybe it's lower, let's say, than how these opportunities are developing? And should we expect it to I mean it sounds like you've become a bit more bullish on the opportunity, since last time we spoke around GLP-1. So is it possible that the single-digit order intake benefit from GLP-1s last year becomes double digit this year?

I still think that on the GLP-1 side, we are kind of profiting in the second row, right? Yes, we do have orders for GLP-1 installations, but they are in the single-digit range of our sales. And so from what we profit from is, right, that -- that those companies now acquired CDMOs that will exclusively fill GLP-1 for them, right? And these are CDMOs that have been filling insulin and so on before. So in other words, they just continue to fill this GLP-1 peptide, which is -- which is an insulin -- so from that point of view, we profit from the fact that now they exclusively reserve this capacity for themselves. And now there is no capacity left for all the others, and this is where we now profit from that those companies now need to invest to compensate that. But yes. On the -- we will definitely profit from the fact that there is a need for more aseptic fill & finish capacity globally. But I don't think that we will build the next 50 isolator lines just for GLP-1.

All clear. And very last one for me. On the lead times getting improved that you mentioned. So was this for isolators? And could you quantify on average, how much these lead times were started from and where they are now, basically?

I think the lead times -- I mean, that obviously depends on the size and complexity of the machines, but last year, mid of last year, the lead times that we were able to offer to our customers were somewhere between 18 -- 16 and 20 months, and now they come down to somewhere 12 to 14 months, when I talk about the big -- big isolator line.

The next question is from the line of Leonildo Delgado with Baader-Helvea.

Few questions as well on my side. First one, could you please elaborate on the contribution of aseptic technologies to the overall results in 2023?

Very good question. We still don't publish any details on aseptic technologies. So their services part, their consumables part is part of our service and consumables figures and their equipment is part of equipment and solutions.

Okay. So moving on to the next one. Would it be possible for you to quantify the impact of integrated process in standardization, especially standardization on margin improvement that we have just seen in 2023? And do you think there's still possible some additional upside -- and how much would that be moving forward?

Yes. I think in 2023, we have not really seen a huge impact yet, since we have only started, let's say, dedicated teams in the beginning of '23. So we expect that this, let's say, standardization and also the efficiencies, the cost down programs that we're continuously running in our factories will continue to have a positive impact. What we have to consider is that in the past years, and I mean, that's not only in the past few years, that was more or less, since ever I joined SKAN, the same situation, that the euro used to be CHF 1.50, right now, it's something like CHF 0.90. And we have still, let's say, always reinvented ourselves and gain efficiency specifically, since all our competitors are euro companies. So from that point of view, we do this, we think it -- I mean, it does have a very positive impact, but we also have mix impact that like currency, like -- yes, like, for example, currency like inflation. So from that point of view, if you ask us about -- let's say, when do we expect that the margin will significantly move upwards, right, will actually be when we launch the new services to the market, which will be in '26.

Okay. Maybe just on this topic of launching the group services. So you said that everything is on -- it's basically on track, right You need to be launched in 2026. You expect regulatory approval sometime next year. I think...

End of next year.

Yes. Could you please just remind us again in terms of what would the peak sales potential you expect? I mean, because I have in mind that you're expecting around CHF 50 million annual sales once it's fully, fully running?

Yes. The fitting suit in the current execution that we plan to go live in '26 should be able to bring about this capacity, as we mentioned during the IPO. Yes. So of course, if this business model works well, we will continue to expand, and we are already thinking about expanding towards North America, since this is where most of our customers are.

There will be also a ramp-up phase. So it's not CHF 50 million from beginning of 2026. Of course, it will take time also there. So it has -- it will have a ramp-up phase down the road. So 2026 will be the first impact and then [indiscernible].

So -- and how fast would you expect this ramp-up to take place. So in which year would you expect to reach the peak?

We expect that this will take a few years to go up to full speed to be very frank, right? If we would be ready today, we could probably fill the full facility on day 1 with GLP-1. So it also depends on the market environment. And looking at the demand for GLP-1s and, let's say, the lack of production capacity for GLP-1s, I'm pretty positive that we probably can ramp up a little bit faster than we originally planned. But that's speculation, right? I mean that's an assumption that from today's point of view, we can take, yes.

Okay. Maybe just one final question on my side. It has to do with the CapEx in 2023. So you mentioned that most of the CapEx was basically invested in preapproved services. So is it fair to assume that this is 100% of the CHF 35 million was invested in preapproved services or it was 90%? What was the exact percentage?

It's not the majority or let me check -- it was about 40% in preapproved service out of the [ CHF 35 million ]. We have also mentioned that we will invest about CHF [ 70 ] million, it's preapproved service initiative. And currently, we have orders placed to our suppliers for about 60%. But the cash outlook will took place in '23. The majority cash out will take place in '24 as the equipment will be delivered in the let's say, in mid of the year or in the second half of the year, then we will have also the majority of the cash out in 2024.

[Operator Instructions] Ladies and gentlemen, there are no further audio questions at this time. We will proceed now with the questions from our webcast participants.

Thank you, operator. We have a question from [indiscernible] Capital, who is asking how do you protect profits against inflation in your customer contracts given the order backlog of roughly 1 year?

Yes, that's a very good question. Now -- what we do actually when we -- first of all, we try to sell in Swiss francs. And still the majority of our customers they buy in Swiss francs. For those companies who do not buy in Swiss francs, we actually hedge the money, so to make sure that at least the currency that we got on day 1 is keeping the value. But we also buy the expensive long lead items very much upfront are basically plus/minus within same time line, where we got the deal, so that we have a very little exposure to inflation on that side. So from that side, I think we can also say that when we look at the way we have -- currently, we have a certain natural hedge in the group with cost in euro, cost in dollars, and costs in Swiss francs and the income in all 3 different currencies and not to forget Japanese yen. Today, we can say if the euro loses 10% against Swiss franc, the impact for SKAN is about 4% -- 3% to 4% that we -- which is literally the cost -- the salary costs in Switzerland.

There's a second question from [indiscernible] from Columbia Threadneedle, who is asking given the strong margin performance in '23, why do you expect margins to decline in 2024, despite benefiting from operating leverage and mix effects?

We have to understand that we still do 76% of our sales in Equipment & Solutions. And the Equipment & Solutions is still a lumpy project business, where it very much depends on the different project phases, how they contribute to the EBIT. Service and consumables are obviously more attractive on the margin side and are also more stable on the margin side, but they are only 24% of the total -- of our total sales. So when we discussed the guidance for '24, it was a discussion should we now go to 14%, 16%, but looking at the economic environment, looking at the fact that the customers do not as easily spend money as they used to do a year or 2 years ago, we see that we want to stay conservative. We say on 13% to 15% since this has -- the project business has the biggest effect there still has a big effect there. And we are happy to inform you guys in -- after summer if -- when we have a better feeling of how the year will turn out.

There's another question from [indiscernible] from [indiscernible], who is asking how do we see the competitive landscape changing with the acquisition of [ groninger value ] is still around, announced yesterday?

I mean if you -- I mean [indiscernible] is not a competitor of ours. I mean, [indiscernible] they make equipment, they are also making equipments for pharmaceutical industry. They also make isolators, but if those isolators they make are only for containment and we have hardly any interface to them. So I don't think it will have any impact on us or at least from today's point of view, I don't see an impact.

Okay. These are currently all questions that came in via webcast operator. Do we have additional questions from [indiscernible] conference.

Sir, we have an audio question that has just come in. The next question is from line of Manuel Peter with Helvestiche Bank.

I have one question regarding to your success rate. You mentioned in the press release, which is -- which was at around 50%. So I was just wondering on how the success rate compares to the success rate in previous years like in 2022 or 2021. And if the enhanced lead times had a negative impact on the success rate.

Yes. Thank you for your question. So our -- we call it our order win rate. The order win rate -- prior to COVID was around 30% to 40%. During COVID, we were up to right up to 80%. It's stabilized then for last year, it was somewhere around 50% to 60%, and now it is somewhere, again, back down to what it was prior to COVID. And yes, one of the reasons is definitely the lead times that actually made us lose some orders, some projects. So from that point of view, the more normal lead times will now give us a new tailwind again to yes to at least keep on top and make sure that we get enough orders to stay on top and stay #1.

Okay. And maybe with regards to that besides the lead times, what are the other reasons that a customer, a potential customer might choose not to go with SKAN and instead goes with a competitor?

I mean, one of the main reasons is price. I mean, we are up to 30% and sometimes even 50% more expensive than our competitors. Now it's difficult to actually compare apples to oranges. But in the end, both of them are fruits. And so some customers don't really understand the difference. So that's the main reason why they would not go with us. Then -- another reason can also be that if you have been working with Optima for the last 20 years and you are happy and why should you change the supplier. I mean, yes, we have those customers out there. And as we have customers that never changed from SKAN. So that's the point. But I think from a technical point of view, from a reputational point of view, we still are the #1. And if you can afford SKAN or [ Isolate ] then probably your first choice would be SKAN. And if we can live with our lead times.

Ladies and gentlemen, that was the last question. I would like now to turn the conference back to Thomas Huber for any closing remarks.

Okay. Thank you very much. I would like to say thank you for participating in this call. I hope we were able to answer all your questions. And yes, thank you for your support. You are an important part of SKAN, and I'm happy to have you on board and looking forward to see you again in the near future. Thank you. Goodbye.

Thank you very much. Bye-bye.