SKS Technologies Group Limited (SKS) Earnings Call Transcript & Summary

Okay. Thanks, Catherine. Welcome, everyone, to the SKS Technologies First Half of FY '26 Results Presentation, and I certainly appreciate everyone taking the time to join us this morning. So Catherine, if we can just turn to Slide 3, we'll jump straight into the financials. So just to recap the first half of really right across the board of all of the financial metrics, a strong increase across all profit metrics. We can see revenue for the first half of '26 at $132 million, which is up 13.6% on the prior corresponding period. And as we get a little bit further into the presentation, we'll break down what the revenue looks like first half versus second half. Obviously, we're well poised for a significant uplift in the second half versus the first half. And then probably really interesting to see how we're shaping up for FY '27. 42.9% increase on the prior corresponding period in relation to EBITDA at $14 million and an even further increase on the profit before tax at 52.8%, which represents a 9.7% profit before tax number and certainly putting us on track for our full year guidance of $340 million and 10%. Cash flow from operations is also very strong, increasing 47% on the prior corresponding period. And certainly, we finished the December half with a very strong cash balance, which Gary will go through shortly. And because of all of those strong financial, particularly profitability metrics, the company has also announced an interim dividend of $0.035, which is up from the inaugural $0.01 interim dividend paid in the first half of '25. And I'll go through our safety statistics in a lot more detail further in the presentation. Catherine.

Okay. Thanks, Catherine. Thanks, Matthew. So the key takeaways from this slide is obviously the increase in margin for profit before tax 7.2% up to 9.6%. Continued improved return for shareholders in terms of the balance sheet improving its strength there. When we look at the detail of the P&L, there are a couple of takeaways from that. So we can see that sales has gone up 13.6% and total expenses have gone up 11.1%. Now the mix is a little bit different when you look at each of those lines. We can see that raw materials has come back in percentage terms. Now that's a function of where our current work on hand sits. So with the MEL02 Stack job with Hickory, we're still in the engineering and design phase. We were coming to the conclusion on the air trunk project. So both those 2 projects had a much lower material spend during that period just based on where their stages were at. So that explains why raw materials and employee expenses mix is different to prior periods. When you combine those 2 expenses, their increase on the previous period is 10.4%, which is less than the sales increase of 13.6%, which is a key driver of profitability. Some other overhead costs, occupancy, admin and depreciation. Those increases were more in line with what the full year increase in revenue will be, which is anticipated to be somewhere around about 30%. The other key takeaway from this particular slide is that we feel our fixed cost base can handle revenues in the order of $400 million. Thank you.

Thanks, Catherine. Yes. So for those new to the company or you've not seen any of our slide presentations over the last couple of years, it's really important to the business that we continue to grow the traditional sectors of our markets. Obviously, the data center revenue, when you look at those -- particularly those last 3 pie charts, there is starting to get a significant weighting in terms of the business really purely because of the sheer scale of what's happening in that sector. But certainly, it's really important for the company that we continue to grow the underlying traditional revenue sectors of the business. And we can see here that a little over 14% in growth and quite an even split between the data center revenue and our traditional revenue for the first half. We do have an anticipation and expectation that in the second half, the data center revenue will probably start to swing a little bit higher than the traditional revenue, but certainly really pleasing from our perspective that the traditional revenue of the business continues to grow. Jumping over to the working capital and cash slides.

Okay. So the business has continued to produce strong cash flows from operations, which has been our pattern for some time now. So cash flow from operations, $27.8 million versus $18.9 million. Net cash flows are also up on the prior period, which is $19.2 million to $16.2 million. And obviously, that's then translated into a very, very strong cash on hand position of $51.7 million versus $19.6 million last year. And obviously, with the profitability of the business and the conversion to cash, we're also seeing considerable improvement in our working capital position from $18.3 million to $9.85 million. In terms of the trade payables table there, so probably the key takeaway there is that the unearned revenue/contract liabilities has dropped from $45.6 million to $39.9 million. Now that's just a function of where the mix of projects are at where we're really in the early phases of one project and in the latter phases of another project. So that's really come back a bit. And our bank facilities at $32 million. And obviously, we've relinquished the bank overdraft as we have no further requirement for that as we can tell by the cash position. Thank you.

Thanks, Gary. So in terms of the ongoing strategy of the business, by and large, this has not changed over the last 2 or 3 years, and we don't anticipate it to change in the short to medium term. Obviously, the business is experiencing exponential growth really right across the board. So it's really important for us that we're maintaining -- recruiting the right people and bringing the right people into the business, really important for us obviously, to continue and have a rigorous approach to managing the cost base of the business to ensure that with the scale benefits of the growth that we're ensuring that margins are growing with it. We certainly have a very strong culture and approach to safety. Obviously, we work in some very volatile and changing environments, and it's very, very important that we do that. We have had to invest into the training and recruitment process and the onboarding processes, again, bringing significant amount of resources into the business. We want to make all of those people feel welcome as we introduce them into the business and we feel that we're doing a good job from that perspective. Certainly, the operating platforms of the business as well, we've had to obviously continue to scale that as the business is going and exponentially growing with it. We have spoken over the last couple of years in maintaining an opportunistic approach to acquisitions and looking for good fits if and when we feel that comes across our desk. And I'll talk a little bit on the next slide around the Delta Elcom acquisition, which we settled on the 12th of January, but that's been quite a successful integration and transition to this point. And we certainly see some significant opportunities in New South Wales with what that business will bring, coupled with the presence that we already have in New South Wales. So just to sort of expand on the Delta Elcom acquisition, as I just touched on, we settled on that on the 12th of January. The transition and the integration of that business has gone very well. 100% of the employees of the Delta Elcom company have transitioned into SKS Technologies. For those that aren't aware, Delta Elcom is a Sydney-based specialist electrical solutions provider, particularly within the data center and digital infrastructure as well as health projects where they do a lot. So very complementary to the SKS Technologies business. We saw very strong alignment with Delta Elcom and the team that -- and the management team that comes with Delta Elcom, and we did feel it was an excellent strategic and cultural fit for the SKS Technologies business. We had adopted the SKS Technologies brand effectively from day 1. That was done in consultation with the management of Delta Elcom. And collectively, we felt that, that was the best approach as we integrate the business into the broader group. And then obviously, the expectation and the anticipation that we have to continue to grow that business with significant opportunities that we're seeing in New South Wales. So one company, one brand, as I said, a very, very excellent culturally aligned and certainly, obviously, bringing Delta Elcom into the business transitioned on to the SKS Technologies operating platforms. And with that transition now brings us 9 sites around the country. So -- and just to further touch on some of the synergies. Obviously, the Sydney data center market is the largest data center market in Australia. The Melbourne data center market is growing faster than Sydney at the moment. But certainly, I think you've only got to open the newspaper on any given day, and we can sort of see, I think, more broadly, the Australian approach to the digital infrastructure boom that's happening. And obviously, Sydney and Melbourne effectively make up between 70% and 80% of that overall Australian market. So really important for us to have presence in New South Wales, and we're quite excited about what Delta Elcom can bring in terms of opportunities for the broader business. Thanks Catherine. I won't go through this slide line by line. But certainly, what you can see here, particularly on the right-hand side, when we look at some of the short-term planned data center projects in Australia, this is certainly not an exhaustive list by any imagination, but it certainly gives you a strong flavor of the sorts of facilities that are either in planning or in construction at the moment. And certainly, it is a sector that is getting a lot of attention, and there's certainly, I suppose, not just the facilities that are being constructed at the moment, but the facilities that are in planning. Those facilities are much bigger than what we've seen in previous facilities. And we are certainly seeing a significant amount of new players that are coming into the sector. So overall, particularly through Victoria and New South Wales, a very strong outlook for the data center sector. So just moving into work in hand. Obviously, in terms of the flow from pipeline, the pipeline for us is obviously where it begins in terms of opportunity and the proposals that go out into the market. Once we convert that pipeline to firm contracts, that then becomes work in hand. And obviously, the work in hand is the key metric of future revenue. So $325 million of work on hand that's up $125 million from June 30 of '25, so a significant increase. I did touch on earlier, first half, obviously, $132 million for the first half. And so where we talk about guidance of $340 million, that obviously translates to a much bigger second half than the first half. And that's really well obviously supported by the work on hand position. And certainly, when you now look at FY '27 of $177 million, I think when we last presented just post the Annual General Meeting in late November, we were talking about FY '27 having $150 million, which being 6 to 7 months out from starting in the financial year, that is certainly a metric that we've not seen before. So obviously, we're very pleased about that. As we've come into January, we obviously announced -- or coming into the new year, we announced a further $60 million of contract wins. Obviously, that bolsters that $150 million up to $177 million as portrayed on that slide because obviously, some of that work will overhang into FY '27. So again, heading towards the end of February, effectively still 4 months out from the beginning of FY '27. And obviously, we would have an expectation that we convert further works between now and then, certainly starting FY '27 with a book of work in that order really sets us up for effectively not just the balance of this year, but into FY '27 as well. So very pleased about that. And certainly, the continuing strength in repeat business sitting at 91% is obviously a true testament to the broader team in terms of delivery and execution on the projects, and we are seeing 91% of our clients that want to continue to come back and use us, which is also very pleasing. Thank Catherine. So in terms of our work on hand order book, and again, data centers gets a lot of air time, rightfully so, it is a significant portion, certainly and a growing portion of our book of work, close to 85%. It is, I guess, just the sheer scale of it. It begins to dwarf some of the other market sectors that we operate in just in terms of percentages, but really important for us, as I touched on earlier, that we continue to maintain a focus across all of the sectors and all of the states where we operate. But obviously, the current work on hand position is dominated by the data center sector. And jumping over to pipeline, it's a similar thematic in terms of looking at the top line there where the data center pipeline of opportunity continues to run off the page in comparison to other market sectors. But again, really pleasing for us, we've seen a strong increase in the pipeline of activity since November of '25. $572 million of open tenders. And when we talk about pipeline, pipeline is real opportunities, real proposals that are in the market that we're actively working on to convert. And certainly, we are seeing a significant increase in those pipeline of opportunities as they come to us, even though our work on hand is continuing to grow as well. So really excited about the metrics that sit behind that and how that will play out into the future of the company. Thank Catherine. Just to quickly touch on SKS Indigenous Technologies, obviously, an initiative that the business embarked on a little over 3 years ago now. The business has done a fantastic job led by Chris Johnson as the Managing Director of that business, built a really solid foundation that continues to set us up for the future. Currently, work on hand in excess of $13 million and revenue for the half just short of $13 million. And one of the really key metrics that we talk about, which we're quite proud of is a 90% employee retention rate with our indigenous workforce. And that really is a testament to Chris and how he vets the indigenous workers that come into the business, which now sits at approximately 40. And creating those employment opportunities for indigenous people is something that we're very very proud of. And at the same time, it creates commercial opportunities and gets the business into some of those valuable markets that we otherwise wouldn't get into, which obviously underpins and supports the growth of the business. Thanks, Catherine. Just to touch on a few of the major projects completed in the first half of '26. So MEL01B campus with stack infrastructure. That's been a significant project for the business and again, a testament to the team in terms of delivery capability. We did complete a significant portion of the MEL01A campus, which dovetailed into MEL01B, and we're currently a significantly portion of the way through MEL01C. And, yes, I guess, the continuing and repeat business to do with that client, again, is a testament to the capability of what the company has built and the team has built. Up in Northern Territory, we've come towards the end of upgrading and expanding the communications capability to support the ADF operations in quite a remote area in Mount Bundey in the Northern Territory. And then in Victoria down at Geelong, the brand-new Geelong Convention and Event Center, which is in the final stages of handover down there and a fantastic facility, which really gives, I think, a little bit of a flavor of the broad services that the company provides and the diversified projects that we get involved in right across Australia. Thanks Catherine. In terms of our safety record, obviously, the exponential growth of the business, we are a people business. And so the growth of the business comes with a significant increase in productive working hours. You can see 14.2% on the prior corresponding period. And as you sort of work through that bar chart, obviously, a significant increase in our employee numbers, which is a direct correlation to the increase in project activity and pleased to report 0 lost time injuries against nearly 608,000 work hours in the first half of '26. Obviously, with a much bigger second half that I've spoken about, we will and have been continuing to employ a significant amount of employees. And so we do have an anticipation and expectation that the second half '26, we'll see a further increase in those productive working hours, and we'll continue to maintain a rigorous approach to maintaining our safety culture. Thanks, Catherine. So in summary, in terms of the outlook and the FY '26 forecast, we're pleased to report that we continue to see very strong demand across all of our market sectors, obviously underpinned by a significant and accelerating growth in forecast in the data center sector. Our project pipeline continues to grow, both in data center work and strong drivers across our traditional business. We plan to see significant organic growth. Obviously, again, we'll remain opportunistic to acquisitions, but we are not actively out there looking for acquisitions given the significant growth prospects underpinning the organic growth of the business. We have a very strong level of working capital and significant levels of working capital support all of that organic growth. And obviously, we'll continue to enhance our operating systems and platforms to continue to keep up with the scale and the pace in which the business is growing at. And that all combines into a revenue forecast of $340 million at a profit before tax margin of 10%, so -- which we're very confident in achieving and very pleased to report. So thanks, Catherine. That brings an end to the presentation and happy to take any questions.

No. I think we're all fine with the questions, so we might stop there.

Okay. Fantastic. Well, thank you once again, everyone, for joining us this morning, and we'll conclude there. Thank you.

Thank you.