SP Group A/S (SPIR.OL) Earnings Call Transcript & Summary

Hello, everybody. Welcome to this webcast on our acquisition of Idè-Pro. We have decided to share some more information on this acquisition since it is a very large acquisition for us, and it is much bigger than what we have done previously. Feel free to ask questions in the chat below. And you may also write in Danish if you are not comfortable to write in English, and then we will translate. I have good colleagues here to help me and we hope we will be able to answer all your questions. We will do this webcast in English, so we can also have listeners in from outside Denmark. If there's any issues around the technical stuff, please write in the chat as well, and then we will try to solve it as well. And finally, if there is something in the end we have not been able to answer or we have not gone through all the questions, always feel free to reach out if there's anything else you want to know about this. We acquired the company Idè-Pro, in Danish Idè-Pro, on December 17, 2 days ago. It was a great day. It was a project that we have been working on for several months. And we were very happy with the result. Idè-Pro is a Danish company built by the Nors family, led by Morten Nors, and Morten will continue as the CEO of Idè-Pro going forward. The company is built -- started out in 1994, and has always been focusing on having a high growth, and especially in the last years, where Morten cooperated with Blue Equity, it has really developed positively. One of the things I would like to emphasize that we really like is that Idè-Pro has a very large and a strong sales team that are working very close to customers located several places in Europe, one of the things I believe we can learn a lot from in the rest of SP Group. Idè-Pro also has some very strong business concepts, especially around the prototypes, making the process of selling plastic parts very, very efficient. On the technical side, I will say I've been with the Danish plastic industry for many, many years. And for many in the industry, Idè-Pro is seen as a technical powerhouse within our industry. They are extremely skilled in many different technologies, and they have developed these technologies very, very much since the beginning. Idè-Pro focuses on 3 main production technologies. The major one is injection molding. The specialty is that they are using soft tooling. They are also using normal tooling, but the specialty soft tooling, where the tools are made in aluminum. It gives the benefit that the tooling are cheaper and they are faster to make. They have had a huge focus on prototyping because being able to do a tool fast and cheap enables them to help R&D departments to get functional prototypes for real-life testing of their products very fast and also traditional injection molding typically with low-volume production. Another strength that they have is that they are very good at making very large parts in injection molding. Idè-Pro is operating one of the largest injection molding machines in Northern Europe, enabling them to do parts that are normally very, very expensive to do in traditional tooling. But with aluminum tooling, it is much more affordable. Another area where Idè-Pro is strong is expanded polypropylene or expanded polystyrene, EPP or EPS, different types of technical parts of these foam products, an area that we think is really, really interesting. We do sell a number of these type of products today in SP Group, but we have to buy them outside the group. This we can now do inside the group, and we can expand it much more than before. This is also an area that is an alternative to some of our polyurethane production, while the EPP and EPS materials are fully recyclable. The last area that we also believe is very, very interesting is metal parts, and that is something we have to learn to say now because we have been all plastic. Idè-Pro has developed some strong competencies for producing die casting of light metal parts in an extremely efficient way. Coming from the injection molding, they are actually treating the whole process as injection molding. So you could say, to a great extent, this is injection molding where you are pushing metal into a mold instead of pushing plastic into a mold. We think that the die casting of the light metal parts are very interesting because we will now be able to help our customers in SP Group with products that are stronger or have a better heat transfer. And there are cases where the plastic is not sufficient, giving us much better opportunities for the future. The core of Idè-Pro behind the technologies and why we really believe it's interesting for us is the tool production. In SP Group and for many, many other traditional plastic manufacturers, tooling is something that you buy outside to a big extent, it is bought in Asia. Idè-Pro has developed over the years an in-house tool production that is highly automated, both for prototype tooling, but also for high volume tooling, able to make tools that are extremely large. On the picture here, you see a very big injection molding tool, actually so big that colleague can sit inside the tool while building it. On another picture here, you can see one of the tooling machines, and it actually operates 24/7. There is a robot that is feeding the milling machines, creating parts for the tools. The tools are produced both in Denmark and in India, and is also based on a digital platform where a big team is doing the design and the development, programming of the machines and verification of the programming, and that is all done by an engineering team sitting in Bangalore in India, that is also providing production support for the teams in Denmark. Idè-Pro has several locations. The biggest plant is the plant in Skive, around 16,000 square meter with 130 employees. Here, there is a tool production, plastic production, light metal production, and there's also the EPS and EPP foundries, measuring lab and warehouse. Some years ago, Idè-Pro acquired another facility in Glyngore, around 25 kilometers from Skive, where we today have 70 employees focusing on producing very large plastic parts. The Glyngore facility is also the place where Idè-Pro started up compounding of raw materials because they have had a focus on being able to use much more recycled material in the plastic production, especially of the large parts, and therefore, they have established a plastic compounding facility in that factory as well. The sales teams are placed in Denmark, in Gothenburg, in Sweden and also in Germany and in Austria. And finally, there is a very good team sitting in Bangalore in India, with 5,000 square meters and a good place where we can expand the facilities. In India, there is a smaller tool production, and there's also injection molding machines to test the tools before they are shipped to Denmark. When it comes to the customers, it is a very wide range of customers within many different sectors. You could say if you compare to what we have in SP Group today, it is spread very evenly around the sectors outside health care. So it is in clean tech, it is in food tech, and it will be a number of customers that will be in our category called Others. The customers are mainly in Europe. And the typical profile for the customers is they need prototypes before serial production or they have serial production in reasonably low quantity. The transaction itself was based on an enterprise value of DKK 700 million with a lockbox of 30th of June 2025. The transaction is fully paid now and is financed. Signing and closing took place simultaneously last Wednesday. And this will give no change to our 2025 guidance. However, the transaction cost will have an impact on our result this year. We expect that there will be synergies out of this transaction, and one of the things that we are really happy about because -- I'll get back to that a little later. But we expect synergies in the range of DKK 20 million, DKK 25 million annually, which we believe we can -- that level we believe we can realize within the first 2 years. And we also expect that we will see an increase in our revenue with DKK 450 million to DKK 500 million for the 2026 revenue. And we will have an impact on EBITDA with DKK 105 million to DKK 120 million, including the synergies. We will, as usual, come with our full guidance for next year together with our annual report, which we will publish on March 25 next year. And one of the questions I already have had is that what is -- will you continue your share buyback? And here, I can say, yes, we will continue our share buyback as planned. We do not see any reason to change this. Coming back to the synergies, which I think is very important for this case and why we are really, really happy about it. Like in all the other transactions that we have done in SP Group, we have focused a lot on cross-selling and cross-selling has helped us in all the cases. There's been great opportunities. Here, it is also a good case because Idè-Pro is operating 3 technologies that we do not do today in SP Group. And I'm very, very happy to see the reaction already yesterday from SP Group customers to the SP Group teams. We were actually yesterday already sending the first RFQs from SP Group customers into Idè-Pro, asking for prototypes on very interesting projects that we would not have been able to do in the same way. So first day -- already the first day. However, I think the area where we will have the biggest impact fastest will be the in-house tool production. Idè-Pro is having a very strong tool production and actually are making more tools than we do in SP Group on an annual basis. And therefore, they have the competencies and the know-how and the equipment to make more tools. Of course, in the near future, we would need to invest in the tool production, but we are not starting from scratch. Over the years, I believe we can move a lot of our tool production in-house, making us more flexible, making us more competitive. Then we will have a new platform in India. And this, we will use both as a place where we can do more administrative work in the future, but also expand our possibilities in India. SP Group has been expanding sales in Asia, especially in India in the recent years. And the possibility now to have our own team already working in India, and it's a team that has been there for many years. Morten started Idè-Pro India in 2004, getting the first employees, and we have a very good local managing director for the India team that I truly believe is able to also build it further and have other SP Group colleagues inside this facility. So all in all, we see great benefit from the cross-selling across the group, the in-house tool production and a new platform in India. So yes, we are very happy with this. And now I see there are already some questions here.

And this is Philip from HC Andersen asking to the synergies. Thank you, Philip. You asked on how they are shared. I believe that we will see the biggest synergies from the in-house tool production and the new platform in India in the beginning. But as long -- when we get started, there will be huge cross-selling opportunities. And I'm actually surprised on how many reactions that we already have seen yesterday where customers are asking for the possibilities to help with different type of projects. It has been both prototypes, but also EPP products, which is interesting. Cost savings on the mold. We have a question here on the tool production. It is clear that when we move tool production inside, there will be cost savings. The main possibility for tool production or the main opportunities is, first and foremost, we can make them much faster. It will be much more easy to do change. And of course, we will see some of the earnings that are today at suppliers, we can have that as an in-house. And this, of course, is not something we just built very fast in the first 2 years. I think this will be something that will be going on for coming years because with the amount of tools that we're actually buying, it is not something that we just do in 1 year to take that in-house. Then we have a good question here on the price of this acquisition. It is true that we have previously been buying companies at a multiple of 5 enterprise value divided with EBITDA. And the acquisition here of Idè-Pro is somewhat more expensive. First and foremost, this is also a bigger company, a very well-run company, and it is to be seen as a very strategic acquisition. We have had Idè-Pro on our target list for many years. Personally, I have always had a very good eye to Idè-Pro due to their technological performance and their ability to make money. And of course, having Blue Equity as one of the owners, it is clear that it is not something you get with a big company -- you get with a big discount. But on the other hand, when looking at all the possibilities that we get with Idè-Pro, I actually believe the price is fair. I also, at the same time, would see that it is hard to imagine that we will pay the same price for, you could say, a traditional sub-supplier not having the competencies, the capabilities that we have in Idè-Pro. So I do think we are in the high range of what we are able to pay for a company here, and I don't have any idea that we could get into this level again. Then we have a good question here on visibility. Will it be easier or harder for you to forecast? I would say -- to forecast revenue, I would say this, there will not be any changes here. One of the things that affected us this year is large projects within our own products that has been postponed during the summer, and that has impacted us this year, and this is not related to the production in Idè-Pro. Idè-Pro is a sub-supplier, but still they are doing projects with prototyping, but to a wide range of customers. So you could say, yes, perhaps a little bit better visibility. But I think as usual, in SP Group with the things that we do, all the niches that we're in, we would still unfortunately could see 1 or 2 quarters that are not as we expect, but the overall trend should be positive also going forward. What we have seen this year with 2 quarters being rather poor, especially our second quarter is something that is really, really annoying. But we have also been confident through the period that we would see the orders coming back. It is not something that was canceled. It was merely just postponed. And we got the order book back in the end of quarter 3 and are busy now in quarter 4. Yes. Then we have a good question here about the Idè-Pro business and the prototypes. One of the key things with Idè-Pro is that they have been focused on prototypes. SP Group has, to a very large extent, been focused on serial production. We have done a little bit of prototyping in the company, Da Vinci, with our 3D printing, but being able to test your prototypes or just do a test production of products, then you have to make the real product in the real material. No matter if you're building something for defense, if you're building something for clean tech, if you're building something for automotive, being able to test your product in the right material in the right design is a very strong capability. And that is what Idè-Pro has been helping their customers with. What we are able to now with Idè-Pro and the companies within SP Group is that there is a platform to offer the serial production after the prototyping, giving Idè-Pro the possibility to send the customer after testing phase, for example, into SP Molding so that they can do the serial production afterwards. This is, of course, one of the other aspects of the cross-selling that we will work with going forward that is where we can see we can help Idè-Pro customers into SP Group companies. Then I think time is almost up, and we have been through most of the questions. Thank you all for listening in this morning. It has been a privilege to tell you a bit more about Idè-Pro. And as I said in the beginning, if any of you sitting back with more questions or want to have more in-depth information and understanding of what we're doing, please feel free to reach out, and we will, of course, come back to you. Thank you.