SP Group A/S (SPG) Earnings Call Transcript & Summary

Good afternoon, and welcome on behalf of Hans Christian Andersen Capital. I would like to welcome you to this presentation of the report from the first half of '24 and also the second quarter of '24 from SP Group that was published Friday. My name is Rasmus Køjborg, and I have the pleasure of welcome both departing CEO of SP Group. That's Frank Gad. We have the coming CEO of SP Group, Lars Bering and we have the CFO of SP Group, Tilde Kejlhof. They promise to take us through the numbers and highlights from the quarter and expectations going into the further part of 2024. And of course, also ask questions -- answer questions, sorry. So welcome to you and also welcome to those of you who signed up for today's presentation, you can ask questions in the chat, even either ask them in English or you can also do it in Danish, and we will help with the translation. But with that, I'll leave the floor to the 3 of you.

Thank you, and thank you for joining us for this presentation. We have had a good first quarter and an excellent second quarter. So we are back on the growth track on the top line. We have sold more of our proprietary products, and we have improved the bottom line. The group management looks as you can see here in the picture with the 3 of us. Søren Ulstrup. Søren is busy with our customers today. And then you can take the next one. And I have decided to step down as CEO from September 1, and the Board has appointed Lars Bering as my successor. So Lars will be the CEO from 1st of September. Until he has been appointed to the Executive Board and as the CFO. And Tilde and Lars and Søren and I have been Executive Board now for 4 years, and we work very well together. And I'm leaving. So the 3 other team members will continue under Lars' leadership. Take the next one. And why now? Well, I'm turning 64 in September, and I've been the CEO for SP Group for 20 years. SP Group is back on the growth track, and we have a healthy economy. Lars is ready to take over. And the team Lars, Søren and Tilde has worked well together for the past 4 years and can run without me. And we are well on the way to fulfilling our 2024 ambitions, which we will highlight during the presentation there. Next. So this is the new management, and you can take the next. And we are now -- we established in 1972. We have sold our products and services in 98 countries last year, and we have subsidiaries in 12 countries on 3 continents. So we're in North America, in Europe and in Asia, and we are 2,351 committed employees. Take the next one. We make Surface Solutions and Plastic Solutions and approximately 30% of our business is proprietary product, where we sell own products and 70% we make is subcontracting work, we call it customer-specific solutions. We have added 2 new names to this slide since our latest presentation and this SP Moulding Inc. in Atlanta and the SP Meditec Inc. in Atlanta. We'll come back to that a little later. Take the next one and the next one. We have in the first half of this year, increased the top line with 8.4%. It was a lower growth in the first quarter, higher growth in the second quarter, and it was the third quarter in a row, we'll be back on the growth track. We have sold many more of our proprietary products. So own brands is up with 38%, and is now DKK 438 million. EBITDA increased to 31.2% to DKK 302 million and EBITDA margin improved 3.5 percentage points to 20.3%. And the huge improvement in the EBITDA margin and in the EBIT is thanks to the high growth in proprietary products. Next one. We have made a profit before tax of DKK 176 million, that is 63% more than the same period last year. Earnings per share is also up with 63%. We have produced a net interest-bearing debt with DKK 107 million. So it is now DKK 924 million, and we have increased the equity with DKK 112.5 million to DKK 1,576 million and this is after we have paid DKK 36 million in dividend. We have decided now to launch a new share buyback program, and that will start today and until April 10 in 2025 and we'll buy shares back for DKK 40 million to hedge our one programs. Take the next one. This is some of our own products. This is fenders and floats. We sell to fishermen along the world and also the people who has sailing boat or motor boat. Take the next one. Here, you can see we have become a bigger company, a more profitable company with a stronger balance sheet over the years, and we will go into details on the next slide. This is the top line growth. And here, you can see we're back on the growth track. Now in the first half of this year with 8.4%. And historically, we have been able to grow around 10% since 2010 and in the second quarter, we were actually growing 15%. Next one. This year is EBITDA and the EBITDA is up with more than 30% in the first half of this year. And we are now back on the growth curve again here after we had a slow 2023, where interest rates went up and our customers was focusing very much on the working capital to reduce the inventory level. And that gave us a little decrease in the sales and we have been planning for growth. So we have invested in people and equipment, and therefore, our EBITDA went down. But I'm happy that we are back on track now on the way up. But you can see we have also in the past seen a couple of times, a slowdown and then we came back on track. Next one. This is the EBITDA margin, and this is 12 months -- last 12 months and then we are around 19%. But in the last 2 quarters, we are around 20% and that is a nice improvement over the last decade from a level above 10%. And this is mainly thanks to the higher focus on proprietary products that now consist of 30% of the sales up from less than 15% a decade ago, but also because we have invested a lot of money in new equipment, new technologies, launch new products and invested heavily to become much more international. Next one. And the EBT is also during up again after a downturn last year. We were surprised by the high interest rates that took money away from the bottom line. We are now on the way back. And I'm pretty convinced that during the next quarters, we will surpass the previous all-time high. And looking back here then in 2010, we made DKK 25 million in profit, and that was the highest ever, and we made a plan to double that to DKK 50 million within 5 years, and we reached that. Then we made a plan to double that within 5 years to DKK 100 million, and we did that. Then we made a plan to reach DKK 200 million within 5 years, then we did that. And now we are chasing a plan to reach DKK 400 million soon. And after a difficult '23, then we are back, and we are getting closer. Take the next one. And we have reduced the gearing. So the net interest-bearing debt to EBITDA is down to 1.8 and we expect we will be around 1.5 at the end of the year, and this is taking into consideration that we continue to invest in new equipment and we will also start the share buyback program. And in the first half of this year, we have completed the building of what is going to become a new factory in Atlanta in the United States, so we get more presence in the very important North American health care market, but also for injection molding for technical applications. Next one, group financials, you can see we had an excellent second quarter. We had also a good first quarter, so in the first half, top line is up with 8.4%. EBITDA is up by 31.2%. EBIT is up with 56% and profit before tax is up 63.5% and equity is up 12.9%. And if you go to the bottom, then you can see equity ratio is 49.9%, up from 45.7% 12 months ago. We've had a strong cash flow from operations. We have continued to invest in the future, and we have repaid debt and paid dividend. And this year's proprietary products, and then we had a dip last year. And now you can see we're back on track. So we follow now the nice development in the curves from first half of 2020, '21, '22 and now '24. And we are growing in more or less all their own product brands and all the different product lines. So we are selling more ergonomics. We are selling more animal housing, ventilation, more guidewires, more medical packaging and more industrial standard components. Next one. And we have increased the revenue from the cleantech industry, from the health care industry, but then we've seen a decline in other demanding industries and a small increase in the food-related industries. Next one. And you can see there's quite a lot of dynamics here. So when we last year had a decline in health care, then we had a very strong growth in health care this year. We have continued growth in cleantech after also a strong '23. The food related is back on track and growing. And then, however, automotive has slowed down to minus 30% here compared to last year. Other demanding industries is down with 17% and own brands is up with 38%. One of the own brands where we are very successful is ClearVials produced by MedicoPack and the lady here is -- on the picture is doing visual inspection of ClearVials. And the ClearVials is used for medicine to people, and it has been growing very, very fast in the first half of this year, and we hope this growth can continue. And the FDA has told a number of drug makers that for some applications, glass is not good. They have to use plastic. And we're, of course, very happy that we didn't have an application that is ready for use. Next one. 40% of the revenue in the first half came from health care, 29% from Cleantech, 12% from food related, 4% from automotive and 15% from all other demanding industries. And we have more than 1,000 customers. We have 1 customer that is more than 10% of sales, and the 10 largest customers are 46%, the 20 largest are 56%. Next one, and we have all these plants here around the world. We will soon open the new one in Atlanta in the United States. Now we have 1 in Ohio, 1 in Iowa, and then we have 2 in China, 1 in Bangkok in Thailand, 2 in Finland, and then we are in Sweden, Poland, Latvia, Slovakia, Denmark and we have sales offices that is the red dots in Canada, Norway and the Netherlands and in Sweden. Next one. We have made a number of acquisitions during the last decades. We have not made acquisitions in '23 and in '24 because we've not been able to find good companies that fit in and where we could buy them at an attractive price. But the companies we have bought between '14 and '22, we were happy with it they have contributed with new customers, new technology, a more global footprint and the number of good and exciting colleagues proving what we had and what we have got. And we can now offer much more to our customers in terms of competencies and local presence around the world. Next one. And here, you can see we have generated 75% of our sales in the first half outside Denmark that is in line with our '24 ambition, 30% of that is coming from own product that is also in line with our aim of 28% to 30%. We have now 70% of the employees outside Denmark and we are in the phase of hiring in North America for our new plant, and we have 17 plants around the world outside Denmark and 14 in Denmark. So we have 31 now. And then we will, during the second half of this year, open in Atlanta and that will take us to 32 plants globally. Without making further acquisitions, and of course, we are still looking for that. Next one. Our share price has improved a little in the first half of this year, but we have not been able to follow the market during '22, '23 and '24. We did pretty well until the end of '21, but when the interest rates went up, then that hit our valuation. But we have also to admit that the decline in the sales and in the profit in '23, of course, also have affected the share price. But now we are back on the growth track on the top line and on the bottom line. And hopefully, interest rates will soon come down again, and our share price will hopefully come up again. We have paid a dividend of DKK 3 this year, in line with what we have put up as expectation. And you can see in the long run since 2010, we have outperformed the market. We have also outperformed the market from '16 until '21. But then we have underperformed in '22 and '24, '22 and '23, and I think in '24, so far, we are more or less in line with the market, maybe a little bit better. Next one. We have approximately 4,000 shareholders. And among our larger shareholders, we have ATP, at the inspection front, Lannebo Fonder in Sweden and Odin in Norway and our largest shareholder is still Schur Finance. Hans Schur is our Chairman. And Schur Finance has acquired more shares during the last quarter. And I have also a significant number of shares. And if you take the management team as such, then we have approximately 1/3 of the shares. Other Danish investors has 1/3 of the shares and the people or investors from outside Denmark has the last 1/3 of the year. And over the years, we've got many more shareholders, and we have still room for more. Next one. Well, our customers, they want better and cheaper products. We help them to substitute wood, metal and glass with plastic and composite, we manufacture globally with a powerful team, the right equipment and divide technology, customers focus on core business and outsource plastic production to our specialists and we make a customer solution that gives him lower CapEx, lower OpEx, better quality and delivery on time. Customers want few and better suppliers. Our ambition is to be the preferred supplier. So if the customers want to reduce number of suppliers, then it is important for us to be one of the few they decide to continue with. And then we have the megatrends that is a growing aging population, the climate and the scarcity of resources. So we have decided to have a strong exposure to growth industries, like health care, cleantech and the food industry, and we believe there is a good structural growth in these areas because we're getting more and more people on the planet. We want to live longer. We want to have a healthier life, we want to avoid getting pains. We want to have better food and better health care when we get old. And in all these industries, you need is groups products and competencies. Next one. And then we come to the outlook for '24 and here, I'll hand over the floor to Lars.

Thank you. Yes. Please take the next one, Rasmus. We have had a great first half year, and we expect a very exciting second half year of '24. However, the global economy is still fragile, and there is a lot of uncertainty. We also face that a very limited growth in Europe. But on the same time, we have developed new products and new solutions for our customers. We have found new customers. And we have a great sales team, especially on our own products that have made a very strong execution. So we continue -- we expect to see continued growth. We also have the capacity in the factories to produce it. So we have a new guidance, we will see that our revenue growth will be in the range of 8% to 18%. Previously, we guided 5% to 15%. We also expect some of the growth will end on bottom line, we expect now an EBITDA margin of 19% to 21%. Previously, we guided 16% to 19%. And finally, EBT margin in the level of 11% to 13%. Previously, we guided 9% to 12%. Please take the next one, Rasmus. We still have a huge focus on sustainability. There's sustainability in everything we do. We have an ambition of achieving 0 environmental impact from our operations. Already today, we are powering a lot of the factories with green energy either on certificates or directly both on TBA agreements. We are measuring our Scope 1 and 2 emissions, and we have a target of being carbon neutral in 2030. Furthermore -- yes. As a last thing. Last year, we had 14% of everything that we produced was made by recycled plastics or -- and that is a process that we continue to develop and find new products where we can use more, you could say, reuse plastics into new products. And we focus on the sustainable -- the global UN sustainable development goals as also mentioned in the annual report, that is an ongoing work for all of us. Yes. And of course, plastics should not end up in the environment or in the oceans. To a great extent, the plastic that we produce is mainly components that end up in machines or equipment that I used for many, many years. We are not producing bags of cutlery, straws, and we are very limited within packaging. The packaging that we do is a high-end packaging for medical purposes. So all in all, we believe that we are part of the solution and not the problem.

Should we have a look just a few of the products you make with the recycling plastic here?

Yes, of course. Here, we have a fence and this fence is produced by Gibo Plast and is made out of household waste and not just only household waste, this actually made of the leftovers after sorting household plastic waste. So the core thing that you can absolutely find in plastics we are able to convert into some nice flanks that can be used for fencing. And one of the new products that we have developed is made in Ergomat. It is the Ergomat Sustainability mat where we have made a new program to take back customers' old products after they are worn out, then we can recycle them and turn them into new mats in different ways. It's an exciting product because the mats are made in polyurethane which is normally not easy to recycle, but Ergomat has developed this and is now offering this to their customers. Here, we have parts for TPI ventilation parts. It is a windhood that prevents air blowing directly into an animal house. The part is made of regrind plastics. And then we have added a top layer of 10% new material, so it will have a UV protection and can last for several years. On the left-hand side, there is a pallet lid from Nycopac also made in 100% recycled plastics and extremely durable. And this chair, we are manufacturing to Muuto where we have added a 25% wood fiber and 75% recycled plastic. The wood fiber makes every chair unique, and you will see a little difference in each chair. So a lot of nice applications where we're using regrind. Here is one where we are using both new material and/or regrind plastics. It is a packaging system that we make in Nycopac for industrial transportation of components, typically from a component producer into an assembly factory. It is very much used in the automotive industry. But all the parts are 100% reusable and recyclable.

Very good. Thank you very much, Lars. Perhaps we should jump into some questions, but I know you will probably say a few words about the slide here, if I change to this one.

Those of you who have followed our presentations saw that we started this project a year ago. This is our brand-new factory in Atlanta in the United States. It is 11,000 square meters. We got the permit a year ago, and we took over the delivery on end of June. And now we are busy making clean room inside and putting up the first production lines, and we will go into production during the second half of this year. And it is not photoshopping. It actually looks as nice as you see here on the picture, including all the trees and everything. It's a huge investment for us. We have been able to pay it out of the cash flow during the period here and at the same time, reduce our debt and we have built the building 2 months ahead of schedule and within budget. And I'm really happy with the result, and I would like to thank all the people who have been involved in this, and this is a great achievement they have made.

Very good. And let me say, if you have any questions in the audience, you can type them in the chat, and we will address them for the management team here. We have one when we are on this slide. There's a question here regarding orders for this U.S. factory, when are you able to start delivering to customers and do we already have some customers who have signed up for production?

We have some customers who have signed up, and we are ready to do delivery as promised here in the second quarter of this year. But I would also like to add that we have space for more customers, and we have an open phone and an open e-mail. So if there are people out there who needs good and reliable supplier in the Atlanta area, then we are ready.

Great. And I just switch a little bit back here on your slides. There was a question here that was also addressed in the Danish presentation earlier on, but that is whether you will stay with the company like on the Board, Frank, we see you have this ownership in the company here?

The plan is that Lars will take over as CEO from 1st of September, and I will stay on board until the end of September to make sure that the transition is smooth. And thereafter, I will have my phone open. So if Lars, Tilde, or Søren wants my advise or something, then they are welcome to give me a call. We have an excellent board, and we have no plans to make any changes in the board.

Very good. And then a question here on the internationalization. As we can see, the numbers has gone up to the 75%. We're seeing now, there was a question in relation to it. Is it fair to say that customers are outside of Denmark has driven the recent growth. And would that make it more attractive to do like international acquisitions if you can find the right companies.

We -- it is fair to say that it is international customers who has been driving the growth, we actually had a fall in the sales or decline in sales of 8.2% for our Danish domestic customers. And if you have read newspapers in the last 2 days, then you can see a number of larger industrial companies in Denmark have reported a decline in top line. And that also affects us. But we have been able to find other growth areas. Outside Denmark, and of course, we want to continue to grow in Denmark as well as outside Denmark. But if you look here on this slide here, then there are 2 blue areas. And the first one that is how we look back in 2005 and at that time, we were very much a Danish company with only 37% of our sales outside Denmark and 23% of our colleagues outside Denmark. And we had a small factory in China and a small factory in Poland. And now we have 75% of the sales outside Denmark. We have 70% of our colleagues outside Denmark, and we have 17 plants outside Denmark. So we've become much more international. So this is a transition we've been going through. And here, we have also met many new exciting customers and without losing the good old customers, we still have. And going forward, then I think it will -- we want to become more international. We want to sell more of our own products. And you can also see we have constantly invested in new facilities outside Denmark. Most recently, the one in Atlanta but a year ago, we completed a similar big factory in Poland. And we have also acquired land in Poland and in Slovakia, where we intend to build in the future. We acquired that land before the interest rates in Europe went up and the energy crisis came. So we've not been that eager to get it up and running. But I'm happy that we have invested in all the capacity, so we can deal with the current growth we have. And we are growing 15% in the second quarter, and we had more than 30% growth in our own products. And that was not possible to do if we have not invested in the future.

And then looking at the map here with your global presence, are there areas where you would like to expand either with acquisitions or organically?

Not specific. I think we are very well covered geographically, but there will, of course, be a need for expand our capacity in the existing factories following the growth in the future.

But you can see we are now in North America and Europe and in Asia, and that is where we have our main business also. And then we're exporting to Australia, to Africa and to South America from our current setup. But of course, if there are customers demand, then I think also the future management would look at the investment case.

Of course.

Very good. And then questions on the revenue from own brands. There was a question here. Let me just see it here. What is driving the massive growth you have seen in own brands?

New innovative solutions and new innovative products we have developed and launched in the market and some of these products takes time before they get acceptance. But now we have seen good growth this year in animal housing ventilation globally. We have also gone to new markets. So here, we are in a transition period where we used to focus on the European market, but now we have also made sales companies in North America and in Asia and got orders. We have also put much more focus on the Middle East and South America, Central America. So we have become much more global with our animal housing ventilation. In the guidewires, we have launched new products, and we have got the CFDA so we can sell our guidewires also in China. And we are now applying for an FDA so we can start to sell our guidewires in North America. In medical packaging because we have launched new products, and some of these products are taking off now. And the standard components, also here, we have launched a number of new products. And finally, in ergonomics and foam market and health and safety, we have also launched a lot of new products, and that is also doing very well. So it is -- it is more or less all the product lines who are back on the growth track and doing better.

Very good. We don't have any further questions from the audience. So I think. We can...

You can also see that our '23 figures, we're not extremely good. So we are -- I would say we -- you should compare it with how we develop from '20 to '21 to '23 and now '24. And then we had a setback last year.

Very good. Thank you very much. Would there be any final remarks from your side, Frank, this is probably the last event we have when you're here.

I would like to thank you all for having joined today and also thank you for having joined for previous presentations, and I wish you all the best going forward. And I am convinced that SP Group will still be a good place to be a customer, an exciting place to work and a good place to invest. So good luck.

Thank you.

Thank you. Thank you very much. Thanks to you Frank, Lars and Tilde. Yes. I will conclude by that. Have a nice day. Thank you.