SP Group A/S (SPIR.OL) Q3 FY2025 Earnings Call Transcript & Summary

Hi, and good afternoon. On behalf of Hans Christian Andersen Capital, I'd like to welcome you all to this presentation of the Q3 2025 report from SP Group that was published yesterday. My name is Rasmus Køjborg, and I have the pleasure of welcoming CEO, Lars Bering; and CFO, Tilde Kejlhof. They promised to take us through the quarterly numbers and recent highlights. So a warm welcome to you, too. And before I hand over, I'd also like to give a warm welcome to all of those of you who signed up for today's presentation. As usual, you can ask questions during the presentation in the chat room on your lower right corner. If you're not comfortable writing in English, you can write in Danish, and I'll help with the translation. So please don't hesitate to ask any questions you have for the management of SP Group. But with that, I'll leave it to you, Lars and Tilde. Please go ahead.

Thank you very much, Rasmus, and welcome to our Q3 presentation from SP Group. We are a global manufacturer of plastic solutions. 73% of our revenues comes from customer-specific solutions where we work as a sub-supplier and 27% of our revenue comes from our own products. This is own brands that are sold globally as a small niche products. We have a global footprint with 30 factories, and we are a little more than 2,400 employees working with many different plastic technologies. 40% of our revenue comes from products that are used within health care, 28% is related to Cleantech, 13% is related to FoodTech, and then we have approximately 19% coming from other industries outside the first 3 areas. If you take the next one, Rasmus. First, we have had a very exciting year. We had a first quarter that was record high. Then we saw a tariff bomb in the start of Q2 that was actually giving us problems, and we saw a lot of orders being postponed and that continued into Q3. The main message from us today is that despite all that, we maintain our guidance for the full year, and we estimate that we will end the year similar to the record year in 2024. During the first 3 quarters, we saw sales reduced by 3.3%. But we also saw in the end of Q3, a strong growing order book for Q4. We also noticed that we have had nice growth in our sub-supplier business, but -- and the slowdown is related to sales of own products. We have had success creating many new agreements for future business within Healthcare and within Cleantech. And we can see that this will contribute to the growth going forward. We have also made agreements on several new products within the defense area. And we have continued our streamlining and optimization in the group during the quarter. If you take the next one, Rasmus. We have started up a big project on expanding our capacity for medical device production in Poland. We are building 1,700 square meters of control environment in an existing factory. During Q3 -- Q2, in relation together with our announcement of first half year, we also expanded our share buyback with DKK 40 million. So in total now, it is DKK 80 million. And finally, we also announced yesterday that we have hired a new colleague. Based on dialogue on how to develop SP Group, how to develop the organization, we found that we needed more resources. And together, we decided that the best way for this would be to find a new CFO and have Tilde to take on some more business-related tasks in order to strengthen the organization and keep momentum all the important stuff that we do.

And I must say it have been 6 very exciting years as CFO for the group. I warmly welcome Allan in the new position and looking forward to the setup.

And if -- yes, thank you, Rasmus. As I said before, we have experienced a reduction of 3.3% in sales compared to last year. So we have, in the first 3 quarters sold for DKK 2.122 billion -- 2.6 -- minus DKK 2.6 billion of that was organic and [ 0.7% ] was related to currency. This resulted in an EBITDA of DKK 417 million, a reduction of 6.7%. [ EBIT was reduced to DKK 270 million, a reduction of 8.9% ]. The major driver in all this was the reduction in sales of our own product, which ended up at DKK 563 million, a 16% reduction from last year. If you take -- then put the numbers together, then you will also see that the sub-supplier business grew in the same period with 2.3%, which for us is extremely nice and a good sign that our continuous focus on sales and customers really makes a difference. EBT was reduced by 9.8% to DKK 229 million and earnings per share reduced to DKK 14.8 million. The debt was reduced to DKK 723 million, a reduction on DKK 100 million compared to last year, and the equity is DKK 1.7 billion. We have had, during the first 3 quarters, a big focus on the investments in health care. Our factory in Atlanta is doing very well in terms of starting up. We lag revenue there, but there's good reasons for that. We still see strong growth opportunities for the health care also in the coming years. So we are actually quite convinced that this has been a good decision for us to start up in the U.S. with establishing our own factory there. Within this year, we reached a level where we have invested DKK 200 million in this facility in U.S. from when we started back in the beginning of 2023 and until now. And we expect that we will invest approximately DKK 100 million more in the coming 2 years. This is not for the building itself. It is for putting in machines in the remaining part of the building. We also expect that we will have breakeven in 2026 in the factory, and that is actually based on a nice growth in the sales. This year, we expect a negative impact of DKK 20 billion, DKK 22 million due to the whole start-up process. And as I said before, we continue the expansion for the health care production in Poland. We need more space. We need more capacity. And therefore, we have started a conversion of a 7,000 square meter building, which is actually the building you see on the picture on the right side in this area. In this area in Poland, we have 5 large factories. And the first one here is the one that we are in the coming years, going to convert completely into medical device production. First step is to establish a 1,700 square meter clean room that will be ready late Q1 next year. We will also -- or we already have started the process of finding 30 to 40 new colleagues in Poland to help handling all the nice orders that were coming in now. Yes, please take the next one. And as I said before, we have seen a slowdown in sale of own products. We don't see this as a structural thing. We see this as a postponement. There has been different areas where customers have postponed orders in Q2. And we have seen that starting to pick up again during September, giving us confidence in the quarter 4. Still, it was our second best ever for our own products. We had a record last year with DKK 671 million. This year, we are doing DKK 563 million on own products in Q3. If you take next one, Rasmus. If we see the first 9 months by customer groups, 40% to Healthcare. Healthcare is medical equipment, medical devices, medical packaging, from MedicoPack, ergonomic solutions, safety solutions from Ergomat. Here, we saw a drop in the sale of 4.9% in the first 9 months to DKK 841 million. Cleantech that goes for 28% of the revenue, components for renewable energy, energy reduction, insulation products. Here, we saw a little larger drop in sales. But we're also sure that this is going to pick up again. On the other hand, FoodTech increased. And we have seen a nice growth there. We see products start up again, moving fast. Projects are being activated, that has been postponed. And if we go to the category other, that is also highly related to a lot of the sub-supplier business where actually, some things are going well. This is other industries outside the first ones, maritime products, specialist vehicles, and also parts for the defense industry. Here, we have seen a growth of 3.4% to DKK 412 million. Tilde?

Thank you. If we only look at the Q3, then the top line was DKK 655 million. It was a decrease of 7.7%. EBITDA was DKK 126 million. EBIT was DKK 77 million, a decrease of 17% and EBIT was DKK 65 million, also a decrease of 17 percentage. We had cash flow from operating activities on almost DKK 100 million. We spent DKK 40 million on investments and finance activities was DKK 32 million. If we look at the full year, we had a top line of DKK 2.2 billion. It was a decreased from 3.3 percentage. EBITDA was DKK 417 million. EBIT was DKK 270 million. EBT was DKK 229 million. Earnings per share diluted was 14.8% compared to 16.3% last year. The cash flow from operating activities was DKK 328 million. We invested DKK 124 million. We used DKK 50 million to share back program, DKK 50 million for dividend to the shareholders and another DKK 100 million for paying off debt. The net bearing debt was DKK 723 million, and the gain was [ 1.3x ]. And the solvency ratio was 55%. If you look at the revenue, then we had a small decrease of 3.3%. So we are a little the if we look at the 12 months rolling, we are a bit behind. There was growth in FoodTech and other industries. There was a reduction in Healthcare and Cleantech. But we saw a nice little growth on to supplier to sub-supplier projects. If you look at the EBITDA, then it was reduced by 6.7 percentage. We had lower revenue and the changed product mix and also a reduction in own products. EBT, we had a decrease of 9.8% and this was kind of the same explanation with lower revenue and change product mix. We also had a bit of a decrease or loss in the exchange rates.

Yes. And then we come to the guidance for the full year. As I said before, we maintained the previous announced expectations. We expect a year similar to 2024. We guide that we -- revenue to minus 3% to plus 3% with the earnings of EBITDA into -- at the level 19% to 21% and EBT at 11% to 13%. And then we take the summary, Rasmus. First, expectations has maintained. We saw a lack of growth in Q3, postponed projects within own products was the main driver. We saw a slowdown in sales to Healthcare and Cleantech, but we saw growth in FoodTech and other. We have seen growth in the sub-supplier projects and our U.S. factory is still progressing as expected. And we see a nice and growing order book giving us confidence in quarter 4. And finally, as we have announced, we will expand the team and have a new CFO on board from January next year.

Very good. Thank you very much, Lars and Tilde and let's take some of the questions. And -- maybe I should start with one we had earlier today when we did the presentation in Danish also that if you are to reach like 0 growth in your top line or the revenue the DKK 2.9 billion, I think you had DKK 2.1 billion now. So we have to do around DKK 800 million in revenue in the last quarter of the year here. That could look a little bit ambitious at least compared to the Q2 and Q3 revenue?

Yes. It is for sure ambitious Rasmus. But if you see our Q1 figures and add them, then it is similar. We were also at DKK 800 million in Q1. So for sure, we believe this is possible again.

Very good. And let's take a couple of questions also related to your new site here in Atlanta, as we also had on the earlier -- the presentation earlier today. But there's one here that's sort of how is the factory performing in Atlanta? I think you were quite positive when you took the rundown earlier with this slide, but maybe we could repeat a little bit on that, Lars.

Yes, of course. The factory in Atlanta is running 24/5, so around the clock 5 days a week. We have production. But however, this year, it is rather limited, and that is also why we will have a relatively large loss in the U.S. this year. And the fact that is low comes from the whole start-up process. There's a lot of approvals. There's a lot of validation. There's a lot of training. So all this put together gives a good year, a hard year, but also a loss-making year. We see that we will have revenue -- nice revenue next year and expect breakeven on EBT, meaning also profitable on EBITDA next year.

Very good. And there was actually a question related to this. If you have seen sort of any unexpected challenges with the factory in Atlanta? Or has it mainly been the start-up costs?

That has been -- first of all, when you start a big plant like this, buying a piece of land, building a house, there's been a lot of unexpected things in the whole process, but nothing so big that we have not been able to handle it and navigate in it.

Very good. And then there's also a question. When do you expect to be at full capacity on your Atlanta site here?

As I said, we are going to invest additionally approximately DKK 100 million in '26 and '27. And I would expect the factory be fully utilized in '28, '29. It is a factory that is able at that time to have around 80 to 90 injection molding machines running inside and outside clean room.

Very good. And then there was some question related to this slide, as we could see here on the third dot that you had a growing order book for Q4. There was a question here related to if you could elaborate a bit on your order book, the size, composition, percentage growth?

We are -- we have -- the order book for us is many, many different things because we are doing business with many different industries. For some customers, we have frame orders looking a bit ahead in the future. For others, it is more a day-to-day business. We can see on the totals that it has been growing nicely. So what we have for Q4 is a lot up to ourselves to make sure that the orders are being delivered and get invoiced. One joke we have for the fourth quarter is always if there are some customers who are going to postpone orders around New Year. Sometimes, we have seen customers -- that the last part of the orders that they have actually booked for December, they postponed that to the first week of January. And that in some years, this trend is bigger than in other years. We don't know that before we are in middle of December yet.

Good. And then there's a question. What caused sort of the order delays in Q3? Was that still related to the tariffs as we saw it hit you around the Q2 result?

Yes. It was the same effect that we had there. Personally, I probably believe that it would come back a bit earlier, but -- then in July, we had some vacation and not much happened in August. But in September, things starts to look really nice again. and also the September month for us was actually quite decent, but we had a terrible July and August.

Very good. And then related to this, also, there's a question here. Have any larger projects been launched? Or are we only talking postponements now?

It's only postponement. Short answer.

Yes. And then there's also a question related to one of the -- I think it's the second last dot here, several new defense industry projects, as you have here. There's a question here. Discussion of projects in defense, what is the market opportunity here? And which markets are relevant for you?

First of all, it's a nice growing industry. We have always done a little different parts for this industry, but now we see a good potential for strong growth in this area, even though it's a nice area compared to the medical area for us. But we see a growing possibility to use more plastics for this industry. And of course, it is also an industry that covered with some very thick NDAs making us -- making it hard for us to talk about what we are actually doing in for this area. But of course, it is plastic parts, and there's many ways to use plastic parts also in the defense industry.

Very good. And then there's a last question related to sort of your gearing, as we have on this slide. Let me just see what the question goes like this. Gearing is at the low end of range. Will you increase share buybacks or dividends if you don't find attractive M&A opportunities?

I think that is a good proposal.

Good. We will probably see when you report Q4, then I guess it will be sometime in March next year. We will see the numbers from there and also with the guidance and whether we'll see more buybacks or dividends. Very good, but that concludes today's presentation here. Thank you very much Lars and Tilde for the presentation.

Thank you, and thank you to all of you who have spent the time listening in.

Yes. Also I thank from my side here, and thanks for the questions. We will conclude by that, sorry. Thank you.