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

Good morning and welcome to the SKS Technologies Full Year Results for Financial Year 2026. The company has released their presentation, which is up on the screen to the ASX this morning. And we've got the company's CEO, Matthew Jinks, on the right, and the company's CFO, Gary Beaton, on the left. Before I hand it over to Matthew to go through the presentation, I'll just remind you, analysts can raise their hand and ask a question audibly, or those others can submit a question by the Q&A button at the bottom of your screen. But with that, Matthew, I'll hand it over to you.

Great. Thanks, Simon, and welcome, everyone, and thank you for taking the time to join us this morning as we run through a presentation for the company's FY '26 results. Gary and I are very pleased to sit with you today and run through the FY '26 results, which sees another consecutive year of record performance across all metrics. And if we just -- yes, thanks, Simon. So just running through sales revenue, up 33% from FY '25 to FY '26, which is a quantum leap, but probably more importantly, a 64% increase from the first half of FY '26 to the second half, closing the year at just short of $348 million, which we're very pleased about. EBITDA, up 81%. Net profit before tax, up 89% and a 93% increase on our net profit after tax. Again, significant quantum leaps across all of those metrics. The company continues to produce strong operating cash flows of $45.66 million for the year. And linked to the strong performance and the overarching performance of the business in FY '26, the Board has declared a dividend of $0.065 for the second half, representing $0.10 for the full year to give back to the shareholders that have been on the journey for quite a number of years. Maybe if we just jump to the next slide, please, Simon. Gary can run us through the P&L.

Okay. Thank you, Matthew. So the main takeaway from this page is that we've seen revenue growth of 33%, but really expense growth of 28.2%. So with the exception of depreciation and amortization, every expense line has grown at a lower rate than the revenue line. So obviously, the increase in depreciation reflects the increase in CapEx that we've undertaken during the year. So as Matthew mentioned, sales revenue is up 33% and 64% up on the previous half. We're currently sitting on a fixed cost base that we think can support $500 million of revenue. And at this particular stage, that is all quite logical. One of the other key points that comes out of this particular page is the continued increase in profit before tax margin, where we can see that graph out to one side where we've got 11.2% for the year. So thank you. Matthew, again.

Thanks, Simon. So just getting -- as we get into the detail of the business, we might just start with the traditional revenue of the business, and we'll get to the data center revenue and unpack that a little bit further in the slide deck. But really pleasing continued growth of traditional revenue of the business. We can see there a compounding annual growth rate of 19.1% over the last 3 years and 16% from FY '25 to FY '26 with a representation of a little over $140 million or 40% of the business we saw in the traditional revenue of the business. We are obviously seeing some really significant growth in the data center revenue at 47.6% from FY '25 to FY '26, and that is really becoming a significant part of the business. But certainly, within the 4 walls of the business, the traditional revenue of -- the generation of revenue for the business is really important to us. We embarked on a number of initiatives over the last few years, and it's really important to us that we continue to see that growth. So really pleased with 16% on the traditional revenue of the business. Thanks, Simon.

Thank you, Matthew. So on this particular one, cash flow from operations, obviously, another strong year, up from $35 million to $45 million, obviously, a very strong first half. Working capital is very similar to the previous year. We just point out that's on the back of the Delta acquisition, the increased CapEx and dividends that have been paid. Obviously, net cash flow come back as a result of the Delta CapEx and dividends. Just moving over to the trade payables column. So trade payables increased overall in line with sales as at 30 June '26, and consistent with the stages of our major projects as well as the corresponding reduction in contract liabilities, which also aligns with the stages of the current projects. Bank facilities, we've just continued to increase them over the years. So we're now sitting at bank guaranteed facilities of $52 million, and we finished the year with a cash on hand of $49.6 million.

Thanks, Gary. Just moving to the next one. Yes. Thanks, Simon. So over the last sort of 4 or 5 years, we widely talk about an aggressive organic growth strategy. We break down our strategy into growth, consolidation, growth, consolidation. And we are -- and have achieved many things through FY '26, whether it be on the growth or the consolidation side. We continue to pursue an aggressive organic growth strategy, and we do feel that we've got a lot more to get out of that organic growth. We do remain opportunistic to acquisitions. And as part of that, and we've spoken about that over the last couple of years. And in January of this year, we acquired a New South Wales-based business called Delta Elcom. And again, I'll talk a little bit more about that further in the slide deck, but that was fully integrated through the early part of this calendar year. We have significantly grown our work on hand by 56%, now sitting at $312 million off a $200 million base level. So really some significant achievements across that. We maintain a rigorous approach to all of our investment opportunities, and we're always keeping a constant eye on our capital needs. And as Gary said, we have seen continued support from the Commonwealth Bank, who is our banker, now having bank facilities of $52 million. And we've maintained our working capital level even despite the $10.9 million related to the acquisition of Delta Elcom. We maintain a really high percentage of repeat business, now currently sitting at 95% of repeat business across not just the data center space, but also the traditional revenue of the business. And as I touched on earlier, a 16% increase in our traditional revenue up to $140 million for FY '26, again, which is a really pleasing metric for us. Thanks, Simon. Just to expand on the Delta Elcom integration. So as I mentioned, January of 2026, we acquired Delta Elcom, which is a New South Wales-based business, quite a small business in the scheme of things in terms of turning over roughly $25 million and bringing with it 40 resources, primarily working in and around the data center space, but at a small level. And we did feel that bringing the businesses together to pursue -- continue to pursue the data center opportunities and much larger opportunities as time goes, it will be a stepped approach. And we -- you would have -- if you've heard us talk before, you would have heard us say that you won't be hearing us announce a major project in the data center space in New South Wales off the back of Delta Elcom. It will be a stepped approach. We do know what it takes to deliver these sorts of projects. And the last thing that we want to do is take on something that we haven't got solid capability for that will give us a poor performing contract or fracture a relationship that we're already seeing really great results with. And so we will build capability and have already begun that process. We have begun tendering work at a larger scale than what traditionally Delta would have prior to the sale to us. But again, it will be a stepped approach. The integration is 100% completely done. It is important to note that in consultation with the original owners of Delta Elcom that we decided to rebrand the business from day 1 to SKS Technologies. So it does operate in the New South Wales region as SKS Technologies and has done now for the last 4 or 5 months since the acquisition. And we're really pleased with how more broadly the company and everyone in it has embraced that acquisition and how the original founders and the resources that have come with that acquisition have morphed into the broader group. So in terms of the consolidation as the business continues to grow, really important for us that we've had a strong focus on recruiting the right people. We've seen significant top line growth in terms of sales. We've got a significant growing work in hand position and another step change in our pipeline that's coming behind it. And we can't deliver -- we can't convert that work and deliver all that work without the right people. We've had a strong focus on that. And as I sit here today, including our group training apprentices, we now hover around 1,300 staff members and growing. We feel that the team has done a great job in terms of resourcing, in terms of our recruitment, getting the right people in the business with the right skill set. Over the last 12 to 18 months, we've introduced the HV division to the business. We've obviously had to attract the right people with the right skill set. Whilst that is electrical work, high-voltage work is very different to medium and low-voltage work. And so the right resources need to come into the business to do that. And that is a significantly growing team, and we are pursuing some greater opportunities on the HV side of what is the electrical infrastructure work with some of these facilities. We've introduced a company-wide leadership program where we've identified the first 12 cohort of people as the future leaders of the business and put them through leadership program to arm them with the right skills for their future development. We continue to build on our systems and processes. Obviously, a much larger scale business needs much stronger and growing operating platforms, and we continue to work hard at that. At the same time, we have a really strong focus on maintaining the fixed cost base of the business, which we feel we've done a great job at. And with that comes the scale benefits. We being very selective with the projects that we pursue and ensuring that we maintain our margins across all of our projects linked to that -- maintaining the cost structure of the business means that we can benefit from the scale benefits. And I think we've seen that in FY '26. And we'll progressively continue to align sort of security controls as part of the Essential Eight with our IT frameworks. We've spent a lot of money, and we invest a lot of money into our IT systems to support the growth of the business and building those operating platforms. And that all dovetails into not only the deliverables of the project, but also maintaining a really strong safety culture, which we need to do, and I'll again talk about that a little bit in more detail shortly. I'll just jump straight to the data center forecast slide, Simon. Next one, please. So this slide is definitely not meant to be an exhaustive list. It's really just to give the reader a flavor of some of the key players within the data center sector, whether that be from a hyperscale perspective or a data center operator perspective. And there's a lot of varying forecasts out there around the sorts of opportunities and the size of facilities that these types of companies are pursuing. And -- but even though those forecasts vary, really what all of the forecasts show is an extraordinary level of growth right across the board, and we feel that we're very well positioned to pursue those increasing opportunities and increasing size and facilities with the current customer base that we're working with. And so just to sort of go into a little bit more detail around the data center side of our business now where we've seen 47.6% growth in that data center revenue between FY '25 and FY '26. We're seeing quantum leaps in the pipeline of activity now sitting just short of $1.5 billion. Through the course of FY '26, we secured our largest contract size to date of $210 million, which goes to the capability and the delivery capability of the company and our ability to resource those sorts of projects of that size. Throughout FY '26, we've handed over approximately 107 megawatts of data center capacity, which has generated close to $208 million worth of revenue, and we start FY '27 with $245 million of work in hand in the data center space alone. So really significant growth when you look at FY '24, '25 and '26 across all of those numbers. And as each year goes on, the capability of the business is just getting stronger and stronger off the back of those foundations year-on-year. So looking at the order book more broadly, $312 million is where we start FY '27 with. We -- that is a significant increase again from any prior year. You can see $200 million was the base when we started FY '26. So a quantum leap in terms of our starting work in hand position. Data centers make up now 78% of that, just over 78% of that. But really pleasingly, too, that the work in hand position in our pipeline, which I'll talk about shortly with the traditional revenue of the business is continuing to grow as well. So really strong growth in our order book, which obviously drives future revenue. So in terms of the pipeline, just touched on, the traditional work pipeline is continuing to see strong growth. It's a little bit hard not to notice the top line there of the data centers, which nearly runs off the page. Again, another quantum leap. I think in May of this year, we were talking $1 billion of pipeline of activity. That's now jumped up close to $1.5 billion. I think once we reported it in May to now, whilst we've made some small announcements around early work packages and things like that, we haven't announced any major project or conversion of a major project in its entirety. And so whilst the timing of those projects is still to unfold, there's further projects and opportunities coming on and hence, why that number is continuing to grow. And now representing 87% of the overall pipeline is data centers. So really, really buoyant and unrelenting demand within the data center space, and we continue to see that. In terms of SKS Indigenous Technologies, this is an area of the business that we're very proud of and what we've achieved in a very short period of time. We feel we are making really meaningful contributions to indigenous households by providing job opportunities. We now have over 43 indigenous people working within the business. FY '26 saw revenues of $28.6 million and a net profit after tax of $432,000. So for those that aren't aware, SKS Indigenous Technologies is a for-profit business, and we use the opportunities that come through that business in order to support future pathways for indigenous people as well as providing back to community through a number of initiatives. So really pleased with the result of SKS Indigenous Technologies and how that continues to develop. I won't spend too much time on this, but some of the major projects that we've either commenced or completed through FY '26. New Footscray Hospital was the largest health project that has ever been done in Victoria, where we did the audiovisual services for. And now that, that project is at completion, it is up for a number of the industry awards. So I'm really proud of what the team has delivered there. We're involved in the redevelopment of the Westfield in Mt Gravatt in Queensland. And just coming to the final stages of handover for MEL01C, which is the third project that we've done for STACK Infrastructure as part of that MEL01C facility, 52 megawatts of completed data center capacity being handed over, and the team has done a great result there. In terms of the safety -- so safety for us is of paramount importance. We have a much -- an increasingly growing workforce, a 22.7% increase in number of employees throughout FY '26 and a 32.1% increase in productive working hours on FY '25. So you can see, as you've gone through the last 5 years, there are significant changes in our employee numbers with more employees and more productive working hours brings a higher risk to injury, and we have a very rigorous focus and safety plans associated with that. Very pleased to report that we've had no lost time injuries throughout FY '26 and certainly no serious injuries over the last 12-year history of the business. So a fantastic safety record, and we continue to maintain that. So I guess in terms of -- in summary, the current state of the business and the outlook, where we find ourselves, we do find ourselves in an area where there is an unrelenting market demand across all of the market sectors that we work in, but particularly accelerating growth forecast in terms of the data center sector. We have a really large and growing and accelerating pipeline that's coming in behind that, again, led by the data center sector. We do feel that we remain flexible in terms of our growth strategy, whether that be organic where we've got a lot more to get out of that off the back of laying some really strong foundations over the last 5 years or so. We will continue to remain opportunistic to acquisitions. We're not working on anything at the moment, but we will continue to remain opportunistic to that. And if we do feel something aligns with the overarching strategy of the business, we'll have a closer look at that. We feel that we've got a solid level of working capital, and we have a strong ability to fund the future growth of the business. We continue to see strong support from Commonwealth Bank in terms of increasing our bank facilities. And so when you sort of wrap your arms around that, we feel that the ability to grow and take advantage of our opportunities, we can do comfortably. The operating platform of the business will continue to have a strong focus on that and making sure that we provide efficiencies to all of the people within the business to make it easy to get such a growing and increasing large number of projects delivered. And when you sort of, I guess, wrap all that up, we're comfortable in saying that our FY '27 forecast earnings will be roughly or approximately $500 million of revenue with a $60 million representation of profit before tax. So thank you, and I might hand it back to you, Simon, for any questions.

Thanks, Matthew, and thanks, Gary, as well. Just before we get to some of the analysts, I had a couple of questions come through. What's factored into the $500 million revenue guidance in terms of work in hand, win and do and the Delta incremental contribution?

Yes. So we started the year with $312 million. We -- you'll see in the traditional revenue of the business, and we sort of often talk about $10 million to $11 million every month that we need to win and do just as business as usual. So I think when you look at the FY '26 traditional revenue number of $140 million, so that effectively, in essence, almost puts us at a starting position of $450 million. So roughly $50 million of work that needs to be won and done over the last -- for the balance of the financial year. So whilst we have, I would say, some really strong conviction around converting our pipeline, that's yet to be done. So we're comfortable in saying $500 million. We've obviously got a bit of work to do to win and do that $50 million. But depending on project timings and things like that, there might be opportunity to increase that in time. But for now, that's what we're comfortable in saying.

Thanks, Matthew. Just a quick question around STACK and potentially being up for sale. Does the change in ownership affect SKS at all? Or is the data center operator removed from the head contractor's decision?

Yes. So we don't. We actually saw that with AirTrunk a couple of years ago when AirTrunk sold. That actually didn't affect us at all. Actually, if anything, accelerated what their plans and growth -- strategic direction look like. So no, I don't see that as halting in what they're doing. I don't think businesses buy other businesses and then stop what they're doing. I think they will take that on and maybe even accelerate what they're doing. And yes, they certainly have quite a number of years of activity in their pipeline. So not concerned about that.

Question from James Filius at Morgans.

Congratulations on a fantastic result. I guess just one question for me to start off with. Obviously, you've seen quite a marked step-up in your pipeline even just from May. Can you sort of give us a feel for whether that sort of expansion of, I guess, projects that currently exist in your pipeline or whether it's new work being tendered? And maybe just the composition, is it still very much Victoria-centric? Or can we expect to see now that you're sort of integrated Delta Elcom, some more New South Wales-based projects in the mix?

Yes, sure. Thanks for the question, James. Yes. So in May, we were talking $1 billion on that pipeline. And now obviously jumping up to $1.5 billion. By and large, it's for existing customers that we've traditionally worked for. And it's either further growth in existing facilities or in one case, it's the next facility for that company. So by and large, it's -- yes, in summary, it's for the customers that we've traditionally worked for, more work within existing planned facilities. And in one case, it's their next campus.

And very Victorian-centric as well.

Yes.

Understood. And maybe just another one for me. Obviously, you've talked to Delta Elcom and the integration of that business. I think when you acquired it, you called out that there are about a $25 million in revenue sort of run rate business. Now that you've integrated it in, we haven't yet sort of seen any material contract wins out of that New South Wales side of things yet. But how should we think about the ambitions for that business over the next few years and how that ties into your existing business and I guess, your presence in Victoria?

Yes, sure. Well, I guess it's coming off a relatively low base being a $25 million business. And so when you talk about materiality, some of the projects that they may convert is material in the sense for what was Delta Elcom, maybe not so much the material for what is the group now. We -- it would typically kind of do work up to sort of $5 million. We are now sort of tendering opportunities that are north of that, but more in that sort of $10 million to $15 million sort of range. We're not working on any major facility in New South Wales using the Delta Elcom business that looks like the size of contracts that you see in Victoria. And we've widely spoken about that because we do feel it needs to be a stepped approach. And so you'll continue to see growth in that -- or we have an expectation to see growth in that business. But it is going to be off the back of maybe contracts that are material to what was Delta Elcom, but maybe not material to the group at this point in time.

Next up we've got Warren Jeffries at Canaccord.