SKAN Group AG (SKAN) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining today's conference call. This morning, we published our half year 2026 results. Joining with me today is our CFO, Burim Maraj; and our Investor Relationship Manager, Thomas Balmer. Together, we will walk you through the key highlights of the period before opening the call for questions. Let me briefly walk you through the agenda today. I will begin with an overview of the first half, followed by an update on our strategic progress. Burim will then discuss the financial results in more detail. I will conclude with our outlook, and then we will be happy to take your questions. Let me highlight a few key achievements from the first half. We delivered strong growth and improved all key financial metrics compared to the previous year. Order intake increased by 16.3% to CHF 247.6 million. Market momentum improved, particularly in the U.S., while demand in Europe remains solid. Our sales teams did an excellent job in winning several large and complex projects. In addition, we successfully converted a number of engineering contracts into orders for complete systems. As a result, our order backlog increased by 27.8% to CHF 442 million. The backlog includes several major projects extending into 2028 and provides good visibility for the coming years. Net sales grew by 22.2% to CHF 165.5 million (sic) [ CHF 164.5 million ] or 24% at constant currencies. Growth was supported by both our existing businesses and acquisitions completed last year. Profitability improved significantly. Project execution was stronger than in the prior year. The contribution from Service & Consumables increased and our efficiency measures delivered first results. As a result, EBITDA increased to CHF 15.3 million, while net profit reached CHF 5.4 million. Overall, we are pleased with the first half performance. The strong order intake, growing backlog and improved profitability gives us confidence in achieving our full year targets. Looking at our segments, both businesses contributed positively to the first half performance. In Equipment & Solutions, demand remains solid, particularly for large and complex projects. Customers continue to invest in new production capacity for oncology drugs and increasingly for biosimilars. We also saw very strong interest in our Ebeam technology. In Service & Consumables, growth was even stronger. The business benefited from healthy organic growth, contributions from acquisitions and the continued expansion of our service offering. As a result, the service now accounts for almost 40% of group net sales and continues to make an important contribution to our profitability. Together, these developments demonstrate the benefits of our increasingly balanced business model and support our long-term growth and margin ambitions. Let me briefly update you on our strategic progress. We continue to execute on the 4 priorities we presented at our Capital Markets Day last year. First, we strengthened our market leadership by winning most of the larger fill/finish line projects in the U.S. market. Second, we continue to expand our addressable market through the development of our next-generation Ebeam solution. And in the third pillar, we made strong progress in Service & Consumables. The share of the group net sales increased to 39% there. As a highlight, we secured several multiyear service contracts, which is great to see our progress there. We also continue preparations for the launch of our Pre-Approved Service offering. And finally, in the fourth pillar, we delivered first digital twin projects, supporting customers in improving equipment performance and productivity. This is an additional differentiation layer in our sales process. Overall, we are executing consistently against our strategy and are making tangible progress towards our long-term objective of growth recurring revenues and improved profitability. Let me now turn the call over to Burim to cover the financial results. I will come back with some additional commentary on the outlook later.

Thank you, Jonas, and hello, everyone, also from my side to this half year financial results presentation. So let me start with the order intake and first briefly put the market environment into the context. So the market activity was healthy in the first half with particularly good momentum in the U.S., supported by investments in new production capacity, the regionalization of critical supply chains and ongoing onshoring initiatives. Europe also showed a solid demand environment. At the same time, the market continues to normalize after the exceptional growth phase during COVID. So customers are more selective, decision cycles remain longer and competition has intensified. So against this backdrop, we increased our order intake from CHF 213 million to CHF 247.6 million, which is up 16.3% year-on-year. We consider this as a good result, which demonstrates solid demand for our solution despite a more selective investment environment. The largest contribution to growth came from Service & Consumables, as you see, which accounted for around CHF 30 million or almost 80% of the increase at constant currency rates. Equipment & Solutions contributed a further CHF 8 million to the growth. When we look at the book-to-bill ratio, it remained at 1.5x after 1.6x in the prior year period. So the key message is that even in a more normalized market, order intake continues to run ahead of net sales, together with a healthy order pipeline, this gives us confidence in our growth trajectory. With that overall picture in mind, let me turn to the regional development. Starting with Europe, our largest market, order intake increased from CHF 125.3 million to CHF 138.6 million or by 10.7%. This confirms that the region continues to provide a stable base for the group. The more pronounced development came from the Americas, where order intake rose from CHF 66.1 million to around CHF 100 million, an increase of almost 50%. As a result, the region's share of group order intake increased from 31% to around 40%. This brings the Americas back to a level broadly in line with the range we have seen historically. The prior year was subdued, as you all know, mainly because a number of customer decisions took longer to materialize during the first half year, several of those decisions progressed into firm orders. In Asia, order intake declined from CHF 20.8 million to CHF 9.1 million. This is a fluctuation or this fluctuation is largely driven by the timing of larger individual orders and should, therefore, not be overinterpreted for -- in that quarter. So in summary, Europe remained a stable backbone with a solid increase, while the Americas regained a more normal share of the order mix. Turning to the net sales. We increased sales from CHF 134.6 million to CHF 164.5 million, representing a growth of 22.2% year-on-year. At the constant exchange rates, growth was 24%, while organic growth reached 13.3%. This growth was broad-based with Service & Consumables accounting for roughly 2/3 of the group net sales increase and Equipment & Solutions also making a meaningful contribution. Of course, the acquired businesses also developed very well and provided an additional contribution to the reported growth. So overall, the increase in net sales was supported by a healthy underlying business across both segments, complemented by the contribution from acquisitions. Importantly, the higher level of net sales was achieved while maintaining a strong order base. So as you see, the order backlog increased from CHF 346.1 million at year-end to CHF 442 million or around 28%, which provides us visibility -- good visibility for the coming periods. As you also see within this backlog, approximately CHF 15 million to CHF 20 million remains subject to potential cancellation risk. It's important to understand that this is the same exposure as we have already disclosed at year-end and does not represent a new risk. So the matter remains currently unsolved, and we are closely working constructively with our customers towards a commercially sound, mutual acceptable solution that supports the long-term relationship with our customers. So despite the strong increase in net sales, we entered the second half with a higher order backlog and good visibility for the coming periods. Now turning to the profitability. EBITDA improved from CHF 0.9 million to CHF 15.3 million, lifting the margin from 0.7% to 9.3%. At group level, you see on the right side, both segments, Equipment & Solutions and Service & Consumables contributed to this improvement. In addition, strong revenue conversion, more favorable project progression and the measures taken to improve the cost base supported the result. On the left side, this is visible in the cost development, and we see the operating expenses increased from CHF 135.7 million to CHF 154.5 million or by 13.8%, while the net sales grew by 24%. So the key point here is that the net sales grew materially faster than the cost base, which results in an improved operating leverage at group level. At the same time, we are really clear that this 9.3% EBITDA margin remains below our target range. The progress is, as mentioned, encouraging, but there is more work to do with our focus remaining in the second half on execution, product mix and also cost discipline. With the group level picture established, let me now turn to the segment performance, starting with Equipment & Solutions. In that segment, the order intake increased from CHF 160.4 million to CHF 166.4 million or by 3.7%. So compared with the subdued CHF 88 million recorded in H2 2025, this represents a clear step-up in the market activity. The Americas contributed meaningfully, as already mentioned, as customer decision progressed after the longer approval cycle seen previously and in parallel prior year slot reservation, as we have announced and engineering orders continue to convert into equipment orders. When we look at the nature of the orders, the majority were for large and complex customized filling lines, and we saw particularly good demand in high-speed lines featuring with the Ebeam technology. So this demand was supported by new drug projects, especially in the core field of SKAN, the oncology applications and increasingly also by biosimilars. This order development supported an increase in backlog of around 24% from CHF 293.1 million to CHF 362.5 million, providing a substantial base for future execution. In the middle of the graph, net sales increased, as you see, from CHF 90.7 million to around CHF 100 million or by 10.2%, supported by less project delays, better execution and higher share of projects, which came in, in the value-added or value-intensive phase. This operational improvement also translates, as you see on the right side, on the profitability where the EBITDA moved from minus CHF 9.1 million to plus CHF 2.3 million, which is an improvement of CHF 11.4 million and the margin improved from minus 10% to plus 2.3%. So Equipment & Solutions is moving in the right direction, but profitability still has further to go. Turning to the Service & Consumables, a different picture. So the segment Service & Consumables continued to develop very well in the first half. As you see in the order intake increased from CHF 52.5 million to CHF 81.2 million or by almost 55% with organic growth of almost 27%. The important point is the quality of that growth. So the underlying Service & Consumables business remained strong, while the acquired businesses provided an additional contribution and broadened our offering. So growth is, therefore, being supported by both the existing business and the acquired activities. When we look on the net sales, same pattern is visible, which increased -- or the net sales increased from CHF 43.9 million to CHF 64.6 million, representing a growth of 47.2%, including an almost 15% organic growth. At the same time, the order backlog, as you see, almost doubled from CHF 40 million to around CHF 80 million, supporting activity into the second -- in the second half. This development increased Service & Consumables share of group net sales to 39.3%. This is strategically very important. Over the medium term, we aim to increase the contribution from Service & Consumables and thereby strengthen the share of recurring business within the group. EBITDA on the right side increased from CHF 10 million to CHF 13 million or by 29.7%. The margin remained healthy at 20.1% compared to 22.8% in the prior period. The softer margin mainly reflects the product mix and a timing effect across parts of the Service & Consumables business. So in other words, activities in that segment are aligned with our customers' operating plans, while the related personnel costs are recognized throughout the year. So as scheduled customer activities are executed over the remainder of the year, we expect the related revenues to increasingly come through and drive the margin development in the second half. Overall, the segment Service & Consumables remains an important contributor to group growth and profitability and its increasing weight in the group is, as mentioned, strategically relevant. Now let's have a look on the cash generation. On the left side, the operating cash flow was CHF 16.3 million in the first half, supported by the improved operating result. A key structural feature of our business model is customer advance payments, which are an integral part of project financing and remains an important driver of operating cash flow. On the investment side, cash outflows amounted to CHF 13.6 million and primarily reflected continued investments in our Pre-Approved Service offering. Even after these investments, free cash flow remained positive at CHF 2.7 million. And when we look at the cash and cash equivalents, which moved from CHF 94.1 million at year-end to CHF 88.5 million at end of June. The important message is here that customer advance continue to provide structural cash funding, while the working capital remained controlled despite the higher level of activity. This cash discipline supports a solid financial position, which brings me to the balance sheet. Net debt stood at CHF 42.2 million at the end of June, corresponding to a net debt/EBITDA of 0.8x. This is particularly relevant in the context of the acquisitions completed over recent periods. Despite those investments, leverage remains below 1x, preserving capacity for operations and selective growth. On the right side, the equity stood at CHF 125.5 million, corresponding to a reported equity ratio of CHF 26.1 million (sic) [ 26.1% ]. This figure needs a little bit of context that is materially affected by the accounting treatment of the acquisitions-related goodwill. So when we look at this KPI on an adjusted base, excluding this effect, the equity ratio would be above 40%. Taken together, the balance sheet remains solid, leverage is controlled and the group retains adequate financial flexibility. Let me close by summarizing the key message of the financial results from the first half year. So the market remains attractive even as customers are more selective and decision cycles are longer, our order intake and order pipeline shows that demand for our solution remains healthy. Operationally, we made clear progress in the first half with higher net sales, improved profitability and strong momentum in Service & Consumables. At the same time, our priorities remain clear: drive margin improvement across the business, execute the backlog and maintain cost and cash discipline. We have a good basis for the second half, and our focus remains firmly on execution. With that, I hand over to Jonas, who will take us through the outlook and our priorities for the remainder of the year and beyond.

Thank you, Burim. Let me provide an update on the market environment and our outlook. The long-term growth drivers in our industry remain attractive. The demand continues to be supported by the increasing requirements for quality, for automation, the containment and the regulatory compliance, including the Annex 1 topics. In addition, the growing importance of biologics and antibody-drug conjugates and cell and gene therapies continues to drive investments in advanced aseptic manufacturing solutions. At the same time, the market is evolving. We have political discussions around drug pricing, which continue and many high-revenue biologics will lose exclusivity. There is this patent cliff coming over the coming years. And we also see customers becoming more selective in their investment decisions as competition and cost pressure increases across the industry. However, we see all these developments as creating attractive opportunities for SKAN. In particular, we expect continued investments in new production capacity for both biosimilars and innovative next-generation therapies. We believe SKAN is well positioned to benefit from these market trends and to continue delivering double-digit growth rates. Our strong market position, technology leadership and broad portfolio provides a solid foundation for future growth. At the same time, we are strengthening our competitive edge. We continue to advance our innovation projects. We enhance our operational excellence and expand our sales and service capabilities. In addition, we are establishing a new leadership structure with clear segment accountability. This will further strengthen the execution and increase our customer focus. Looking ahead, we will continue to accelerate the growth of our Service & Consumables business. And at the same time, we place a stronger focus on improving profitability and increasing our EBITDA margin. Based on the attractive structural growth drivers, our solid order backlog and our strong first half performance, we remain confident for the current year. And with that, we already come to the guidance. We, therefore, confirm our guidance for 2026 and continue to expect net sales growth in the high teens and an EBITDA margin between 13% and 15%. With that, we come already at the end of our presentation, and we can now go to questions and discussion section, and I hand over to Thomas.

Yes. Thank you. So we are going to Q&A. We will first take questions from the telephone conference. [Operator Instructions] After the questions from the telephone conference, we will also take questions from the webcast. [Operator Instructions] Please, operator, go on with the telephone questions, please.

And the first question comes from Tanya Hansalik from UBS.

I have 3 questions, please. So the first one on the 2026 guidance you confirmed today, this requires an H2 acceleration on sales and margin uplift. Can you maybe go through for us the main drivers in the different divisions that will drive this better second half?

Well, the main driver is in the project business. As you have seen, we have a strong order backlog, and we have projects that will come in the value-intensive phase, which will drive our net sales contribution or revenue recognition and therefore, also drive the margin. And we have also shown this in the last past years that the business driven by our order intake, which came in -- which comes typically at the end of the year, which drives, also a little bit of the seasonality will be the impact. We are confident that we will make the second half year in Equipment & Solutions. And for Service & Consumables, as I mentioned, is also second half lasted (sic) [ loaded ] as customers or operation plan of customers, the timing when they set the services to be provided is this year a little bit in the second half driven. And therefore, we have also a strong backlog, as you have seen, double the order backlog -- the backlog, and we will execute our performance service in the second half, which, again, will be -- will drive the margin improvement.

Great. And the second question is in Service & Consumables, can you discuss what were the impacts on the H1 margin on an organic basis? I think taking out Metronik, you would have had a lower teens margin, which is well below the last 5 years. So...

Yes, you have to understand the EBITDA margin of Service & Consumables in the past years was also -- or 2024 was driven. We were at 28.9% EBITDA. There was an extraordinary impact from Aseptic Technologies, which is not anymore here. And now the contribution from Metronik is, of course, it's a positive impact, but also there, this business has also certain seasonality, as mentioned, also the software business will have a positive impact in the second half and improve the margin at levels that we have also seen in historically.

And the last question is, can you provide an update on Pre-Approved Services? I understand you said approval, we still expect this year. What about commercial revenues? When do you expect this? And how long will it take to ramp up to your targets for the business?

Basically, nothing has changed since the last communication. We are still working to these approvals. And we already started to do first production runs, non-GMP production runs, but there's very small revenue contributors, of course. But the meaningful business will start next year, and then it will develop over 3 to 4 years, and they will be communicated. So we are on track there. It's a complex topic to bring this all live, but we are making good progress.

And the next question comes from Estelle Bétrisey from Berenberg.

Also 2 questions from my end. First of all, from the order intake for Equipment & Solutions, you mentioned the majority is for large and complex customized lines with the duration going into 2028. Could you just please explain the nature of these extensions? What it means also for the lead times? Because I remember during COVID, these were around 18 months for larger projects and have recently gone down to around 12 to 14 months. So yes, just to understand.

Yes. Of course, these are what we -- these larger projects that we did win in the U.S. are high-speed lines. And so in the U.S., they really increase the output of their production and these super high-speed lines, they are typically then run at the limit of the technology can provide. So yes, typically, they still take 18 to 24 months to deliver, but these are also, in some cases, new technologies that some of our partners provide in this project. So we are a little bit cautious about what is the time frame we need to deliver that backlog. So maybe it's a few months on top of the 18 months when we talk about the large project.

Okay. Also just if you could guide us on how you expect the split between both segments to evolve this year? If we should expect something around like we have just seen right now, the 39% for Service & Consumables or more going back a bit more towards the full year 2025 split?

I did not fully understand your question, but I assume that you asked that what are our targets for Equipment & Solutions margins and Service & Consumables, right?

I think it was more on the split of the business, like you intend to go towards more of a 50-50 split in the midterm or long term. So how does it evolve from the first half into the second half?

Yes. We assume as both segments will develop in the second half, as already mentioned, so the split will remain more or less in this between 30% to 39%. But long -- or midterm, our goal is to have a 50-50 split between both segments, which gives us or makes us less dependent on the project business -- on the fluctuation of the project business.

[Operator Instructions] There are currently no further questions by phone. So I would like to turn the conference back to Thomas Balmer for any written questions.

Thank you. We have a written question from David Robertson from Chelverton Asset Management who asked, as we look over the coming years and if EBITDA margin rise into the teens you expect, what do you think free cash flow will look like? Will it have a stable relationship to EBITDA? And what level of EBITDA conversion into free cash flow should we expect?