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Earnings call transcript: Keytran Group Q4 2024 sees revenue decline

Published 2025-02-13, 04:46 a/m
Earnings call transcript: Keytran Group Q4 2024 sees revenue decline

Earnings call transcript: Keytran Group Q4 2024 sees revenue decline

Keytran Group, with a market capitalization of $656 million, reported a challenging fourth quarter for fiscal year 2024, with revenue declining by 16.5% year-over-year to €161 million. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.11, indicating strong fundamentals despite current headwinds. The company remains optimistic about its future, projecting revenue between €600 million and €700 million for 2025. The company’s stock performance remained stable, reflecting investor confidence in its strategic initiatives and strong performance in the defense sector.

Key Takeaways

  • Q4 revenue declined by 16.5% to €161 million.
  • Full-year revenue reached €647 million with a 7.4% margin.
  • Defense and aerospace sectors showed 22% growth year-over-year.
  • Workforce reduced by nearly 20% as part of restructuring.
  • Positive outlook for 2025 with revenue forecast of €600-700 million.

Company Performance

Keytran Group experienced a significant decline in revenue for the fourth quarter, down 16.5% from the previous year. The company faced challenges across several sectors, with a notable 33% contraction in the industrial market. However, the defense and aerospace sectors provided a bright spot, growing by 22% year-over-year. Keytran’s strategic focus on these areas appears to be paying off, as evidenced by new contracts and expansion plans.

Financial Highlights

  • Q4 Revenue: €161 million, a 16.5% decline year-over-year.
  • Full Year Revenue: €647 million, with a 7.4% margin.
  • Net Income: €4.9 million, down from €12.3 million the previous year.
  • Underlying EBIT: €54.1 million, representing an 8.4% margin.
  • One-time restructuring costs amounted to €4.8 million.

Outlook & Guidance

Keytran Group’s guidance for 2025 indicates optimism, with revenue expected to be between €600 million and €700 million. The company is focusing on its defense, aerospace, connectivity, and industrial electrification sectors. InvestingPro data shows analyst consensus is moderately bullish, with a median price target suggesting potential upside. The stock has already demonstrated strong momentum with an 11.95% year-to-date return. An increase in order backlog by 3% quarter-over-quarter to €472 million and a book-to-bill ratio of 1.02 supports this positive outlook.

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Executive Commentary

CEO Peter Nelson expressed confidence in the company’s future, stating, "We are in a strong position for 2025." He acknowledged ongoing inventory destocking but anticipated it would conclude by the second quarter. Nelson also affirmed that the company’s mergers and acquisitions strategy remains active.

Risks and Challenges

  • Economic uncertainty and potential trade wars could impact global operations.
  • Supply chain disruptions remain a concern for future growth.
  • Margin pressures in Nordic operations present ongoing challenges.
  • Market saturation in certain sectors could limit expansion opportunities.
  • Electrification sector recovery is not expected until 2026.

Q&A

During the earnings call, analysts raised questions about the potential recovery in the electrification sector, which is anticipated to pick up in 2026. They also inquired about margin challenges in the Nordic region and the company’s capacity expansion plans driven by strong demand. Concerns about trade wars and supply chain issues were also addressed.

Full transcript - Keystone Investment Trust (KIT) Q4 2024:

Peter Nelson, CEO, Keytran Group: I’m Peter Nelson, CEO of the Keytran Group. And joining me as usual is Ms. Katrin Nelander, CFO. Following today’s brief presentation, we’ll have a Q and A. So please post any questions you may have in the Q and A section of the webcast.

Thank you. Next (LON:NXT) slide, please. Let’s take a look at an overview of the quarter and the full year 2024 numbers. Heaton delivered a Q4 revenue of close to EUR 161,000,000 with a 7.3% margin, contributing to a full year revenue of just over EUR $647,000,000 or a 7.4% margin. Throughout the year, demand softened across key sectors such as connectivity, electrification and industry, leading to a 16.5% year over year decline.

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The CE market fell by 34%, primarily due to weakened electrification demand, while Asia declined 19% affected by reduced connectivity investments driven by downturn in capital investments in manufacturing. Defence and Aerospace was a bright spot, growing quarter over quarter and year over year, as well as the backlog growing 23%. To navigate shifting market conditions, Ketan initiated a restructuring program in early twenty twenty four, which resulted in EUR 4,800,000.0 of one time costs. These operational adjustments streamlined costs, optimized production and increased efficiency. In Q4, Ketron accounted for an additional EUR 1,300,000.0 in accruals related to customer impairments.

Excluding these onetime costs, the underlying EBIT reached $54,100,000 with an 8.4% EBIT margin, demonstrating strong operational control and profitability improvements. With no further restructuring plan, Keytrum is well positioned now to capitalize on growth opportunities in 2025, driven by strengthened order backlog and continued sector demand. Next slide, please. Over the past four months, we’ve announced several new deals. Let’s review some of those markets driving growth.

In the fourth quarter, we announced a EUR 15,000,000 maritime IoT deal for Smart Asset Tracking. We also announced the $5,000,000 U. S. Army defense contract, expanding our U. S.

Footprint in defense solutions. Now in addition, this January, ’2 major contracts were secured. First, a EUR 25,000,000 naval strike missile contract with Kongsberg, then a EUR 30,000,000 contract for advanced UAV optics, strengthening our expertise in aerospace surveillance and autonomous systems. As announced before, by the end of twenty twenty five, our Nordic sites will start to see capacity constraints. So to accommodate growing demand, we are investing in two new facilities to focus on high level assembly and systems integration, a new 7,000 square meter facility in Longung, Norway planned to be operational from Q1 twenty twenty six an additional 6,000 square meter building next to the site in Sweden expands capabilities in the fourth quarter from the fourth quarter this year.

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Our M and A strategy remains active, focusing on technology driven acquisitions and regional expansion. For 2025, we expect revenues in the range between EUR 600,000,000 and EUR 700,000,000 with an expectation to exceed EUR $650,000,000. The book to bill ratio in Q4 of EUR 103 confirms a positive momentum heading into 2025. Next slide, please. Let’s move on to some fourth quarter sector trends.

Connectivity saw mixed results. After a poor first half of the year, we saw a turnaround in the second half. The order backlog grew 28% year on year. Sensor and asset tracking solutions remain key growth areas, while traditional network and infrastructure started to pick up towards the end of the year. Going forward, new customer wins and smart integration of emerging technologies are expected to drive recovery.

Inventory destocking continues to an extent but should be exhausted by Q2 this year. The electrification sector showed regional disparities, declining 32% overall year on year, driven by a 50% drop in the CE region, whilst The Nordics and The U. S. Grew 28%. Energy transmission saw strong growth, but consumer driven electrification, including home energy storage, solar inverters and EV infrastructure and connecting equipment around that declining.

Looking ahead, industrial electrification investments are expected to drive a recovery in 2025, but consumer driven adoption remains uncertain due to economic pressures. The industry sector contracted 33% year on year, although AI infrastructure subsea applications remained resilient against the overall slowdown. Demand for automation and maritime equipment is beginning to pick up, while traditional manufacturing equipment remains somewhat weak. Moving forward, renewed investments in industrial automation and maritime applications present long term growth potential. Finally, Defense Aerospace was the best performing sector with 22% growth year over year and 6% quarter over quarter.

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Avionics, surveillance, missile systems were leading growth categories. Looking forward, the government defense budgets continue to rise and NATO related investments are boosting long term demand. Next slide, please. Let’s talk about our order backlog, which is continuing to improve. We ended Q4 twenty twenty four with an order backlog close to $472,000,000 a 3% sequential increase.

The strongest performing sectors were Defense Aerospace, which grew 23% and Connectivity improving 28%. However, Electrification and Industry saw declines. And with the late update, the January 2025 order backlog grew further to $5.00 $5,000,000 the highest level since mid-twenty twenty three, mostly driven by Defense Aerospace and somewhat by Electrification. Looking ahead, our six month rolling outlook stands at $331,000,000 representing a book to bill ratio of about 1.02. Overall, we’re optimistic about 2025, especially in defense aerospace connectivity and industrial electrification investments.

These should help offset continued weakness in consumer driven segments. Next slide. And Katharine, you’re up.

Katrin Nelander, CFO, Keytran Group: Thanks, Peter. And on to some of the highlights for Q4 twenty twenty four. So revenue ended at 160,100,000.0 very much in line with the outlook. It’s some 19% lower than last year, which also was the case actually for Q3. Our EBIT ended in the end at SEK 11,800,000.0 in the quarter, down from SEK 18,000,000.

And as mentioned, we had some impairments in the quarter. And adjusting for those, it would have been slightly higher and a profit margin of 8.2%. ROC and other capital efficiency indicators are improved to last quarter and more in line with previous quarters in 2024. The financial situation continued to be stable with a net interest per debt over EBITDA of 1.7. Operating cash flow is below last year’s level, but still at 85% of the quarterly EBITDA.

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So net income is at 4,900,000.0 Euro. It’s down from EUR 12,300,000.0 last year. It’s mainly a result of the lower EBIT in Europe but also affected by some tax effects in Q4, which I’ll come back to. Next slide, please. Slide seven.

Revenue year to date ended at $6.47 or slightly above that and a 6.5% below last year and in line with our outlook. And as mentioned, EBIT at 48.1% at 7.4% and adjusted for the one offs and underlying percentage of 8.4, which again is in line with what we have said previously. Cash flow ended at 43.767% of EBITDA. And the board has proposed a dividend of NOK 0.35 per share. Next slide, please, Slide eight.

Now just comment a little bit on the total. Nordics and North America showed growth of 9.4% for the year and Q4 ended just below the same quarter revenue as last year. For CE and Asia, the year ended with reductions for CE of 33% compared to twenty three percent and Asia 40 Percent compared to last year. That said, Asia has stabilized now at around EUR 24,000,000, EUR 20 5 million at the quarter for the last three quarters. CE delivered EUR 51,000,000 in Q4, which is about the same level it was also in Q2.

Nordics and North America ended the year with a 7.4% profit margin, which is a reduction from last year’s 8.4%. There has been some inefficiencies in the quarter bringing the profitability down where actions have been taken to rectify coming into 2025. For CE, EBIT margin for the year was 8.2, nine point six last year and for Asia, 11 Point 6, 12 Point 6, respectively. CE in the quarter is affected by the 1.3 impairment in Q4. And adjusted for that, it would have been 8.8% for the year.

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Employees now at 2,411, it’s down five eighty nine than from the 3,001 last year. And compared to last quarter, which was 63 FT feet feet feet feet feet feet feet feet feet feet feet feet Es higher, Nordics and North America have a reduction of $54,000 CE is down $14,000 and there’s a slight increase in Asia. Next slide, please. Slide nine. Cash flow and working capital.

So cash flow ended at 14.885% of EBITDA in the quarter and for the year, 43.766%, a bit shy of the strategic target of 80%. At the Capital Markets Day in December, we estimated an operating cash flow of €50,000,000, which would have required the operating capital to stay at Q3 level. Unfortunately, it was increased with some €4,900,000 in the quarter and hence slightly below than the 50,000,000 forecast that we had. Investments are substantially lower this year. We did increase machine capacity substantially last year.

And several sites have moved some equipment around to optimize. And investments now, we ended at 1.3% of revenue which was in line also back with our estimates for the total year. So, next slide, please, Slide 10. Net working capital as a percent of sales is at 28% and down 3% in the quarter, but still up from last year’s 24.4%. Most sites have had an improvement from last quarter.

And the CE and Asian sites are closing in on strategic target on 20% for net working capital and the Nordics North America carry more working capital in general, bringing it up. CCC (WA:CCCP) ended at one hundred and six days, down from 111 last quarter, but still up from the ninety five days last year. ROC at 18%, up from last quarter’s 16.8. Net interest debt over EBITDA is at 1.7 and slightly up from 1.5 from last quarters. The debt is reduced with 4.1% but we are exchanging the rather high EBIT in Q4 twenty twenty three in the measurement.

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So, that’s why it’s slightly lower or slightly higher. Finance net is a cost of £1,500,000 down from last quarter’s £2,300,000 interest rate is still around 6% for the group. And in total, the year ended with 8,400,000.0 of interest costs, 1,600,000.0 of positive ARGO and 1,400,000.0 other financial costs to a net finance cost of €8,200,000 So tax. Tax for the quarter is quite high. It’s €5,300,000 and we have some larger items in there.

So in the quarter, we had to make a financial impairment in U. S. Of €1,600,000. So this is a reversible and only a financial write down. In addition, we brought home some more dividend from China giving €400,000 more tax, so about 2,000,000 these are So those related to those two items.

And the rest bringing it down to where it should be around 23% are true about tax calculations in general. So we foresee around 23% going forward. So and at the end, we have proposed a dividend of NOK 0.35 which is 21% of net income and amounts to approximately €6,000,000 and which is in line with the dividend policy that states that we should pay out around 20% to 60% of the company’s consolidated net profit for a year. Okay. Now, and then Slide 11 and back to you, Peter.

Peter Nelson, CEO, Keytran Group: Thanks, Katharine. Looking ahead or really key takeaways from today’s presentation. The Q4 revenue closed at $161,000,000 EBIT margin 7.3%. Our order backlog remains solid with a close of $472,000,000 in total, declining 4% year over year but improving 3% quarter over quarter, providing us stability into 2025. And with the late update, January came in at $5.00 $5,000,000 for the order backlog.

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So we’re happy about that. Sector performance varies greatly with Defense Aerospace remaining our strongest performing sector and connectivity showing some positive momentum. Looking ahead, our 2025 revenue forecast is set to be between SEK 600,000,000 and SEK 700,000,000 with expectations to exceed SEK $650,000,000, provided that the market conditions remain stable. But we are keeping close watch on macroeconomic risks such as trade war, global supply chain disruptions, interest rate volatility and others that could have impact in some sectors. While some sectors faced significant headwinds last year, Defense Aerospace, Energy Transmission and some IoT solutions remain strong.

With our continued contract wins, expansion initiatives and financial discipline, we’re in a strong position for 2025. And next slide, please. So I’d like to remind you that we’ll shortly start the Q and A. So post any questions you may have in the Q and A section of the webcast. Thanks.

Hatzine, let’s take a look at some of the questions that have come in.

Katrin Nelander, CFO, Keytran Group: Yes. Quite a few actually.

Peter Nelson, CEO, Keytran Group: Quite a few, yes. Let’s start with Emily Engen. You’re expecting a material step up in electrification in 2026. On the CMD, we indicated that this was certain sub segments like power grid. However, this only explains part of the growth in 2026.

What’s remaining that what we modeled for the rest of the growth? I think we have in the second half of the year we’re seeing a return of some of the segments in EV charging. We have forecasts and orders for that starting sort of June time frame. That’s the only thing I can really think of off the top of my head on that. Any additional comments, Kathleen?

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Katrin Nelander, CFO, Keytran Group: No, I agree with you. No.

Peter Nelson, CEO, Keytran Group: What drove the sequential decline in connectivity in Q4? I would think we had a disengagement with one customer providing geostationary satellite communication on the maritime and that we shipped out in Q3, I think the remaining and then there was just sort of closing on some inventory in Q4. Yeah. And there’s a lot There’s nothing I can think of that makes any any.

Katrin Nelander, CFO, Keytran Group: There is a larger customer in Denmark that has some reduced volumes.

Peter Nelson, CEO, Keytran Group: That’s right. Yeah. Yeah. Yeah. There was some push out into January and then also above and beyond what we thought December would give.

Katrin Nelander, CFO, Keytran Group: Yeah.

Peter Nelson, CEO, Keytran Group: But nothing major really. And that’s one of our biggest, you know, it’s a top five customer, that customer, the one that pushed out a little bit out of Denmark. Yeah. Also, are you seeing some signs of the are you seeing signs of demand to stabilize the electrification in industry? Are customers still lowering forecasts?

Well, no. I mean, it’s stability looking at the late distorted backlog, right, the one that came in here in January. There’s tiny percentages changes up and down on connectivity, on industry and medical. So basically zero, basically stable. Strong growth on defense.

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I think the majority of the increase, the net increase of around SEK 35,000,000 on the order backlog was defense around SEK 32,000,000 and the remaining was electrification. And we continue a lot of chatter in the market regarding potential pull in of demand due to potential tariffs. Are we seeing any indications as we have several customers exposed to The U. S. Market?

Right. Not that we can say where it’s been specifically mentioned to us that they are pulling in due to tariffs. We’ve seen increased short term demand, demand inside lead time, so really pull in and expedited orders, specifically out of our sites in China in the fourth quarter and I’d say accelerating into December a little bit. Even in January, we’ve seen it happen. Now I can’t say that that’s due to potential tariffs.

I can just say that on occasion that happens when the market is about to turn around and customers have been projecting lower revenue and lower orders for a while. All of a sudden, they have customer demand and they have no stock to deliver from. What drove weaker margin in The Nordics in North America in Q4? Well, it’s a two part thing, but it’s, I’d say, mostly related to efficiency losses in the ramp up in Norway. And that continues both of productivity on the workforce, driven by some difficulties on the material side to get material in on time and get everything out the door as it should be.

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So there’s a lot of focus on making sure that the plan for this year, which is significant growth versus last year, is executable. And finally, despite higher shares in Q4, EBIT margin remained flat versus Q3. What do we think about the margin development across the different sites in 2025? I think we had strong margins out of China, mostly out of CEE, even Poland which had a 50% reduction in top line is I think delivering some pretty impressive margins overall. Sweden is delivering strong margins.

I’d say it is the margin improvement is going to come without volume increase. It’s going to come out of Norway. And then in Norway, there’s additional volume increase. So I’d expect compared to the what could we have achieved if we had normal productivity? Well, we’d have probably a 10% better EBIT margin last year.

That’s the effect of it. So really important to get that get on top of that. Let’s move on to Ulaver Radovand. Could you comment a bit on new sales? Are you see what are you seeing today in the market to make you expand capacity now?

And if you could comment on dividend and the lower level relates to the and if the lower level relates to these investments? Thanks. Well, the site that we’re in in Norway was originally dimensioned for NOK 600,000,000 NOK a year. We did, what, about NOK 2,100,000,000.0 NOK last year. We have demand for NOK $2,600,000,000 without any pull ins from ’twenty six in this year.

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So there you go. There’s the demand for the Norwegian facility. And for the Swedish facility, it’s about growing them also. So it’s about there’s about a 10%, fifteen % upside, maybe 10% growth this year for Sweden. They are just being able to manage with the about 8,000 square meter facility they have now.

So we want to separate out and move all of the high level assembly and systems integration into the additional facility for both sides, right, and then focus for electronic manufacturing in the existing facility. I do not believe that the expanded capacity and these things are at all relating to the dividend for the year. The dividend for the year is, I think, more to give us a freedom when it comes to M and A. Could we comment on what we’re seeing in the market today? It makes you think that makes you make an FID on new sites and also oh, that was the same question I think.

Yeah, okay. And then Simon Green says, despite strong sales growth of 9% in Nordics, the margin is down. Yeah, I’ve elaborated on that.

Katrin Nelander, CFO, Keytran Group: Yes. Yeah.

Peter Nelson, CEO, Keytran Group: And that’s all I see.

Katrin Nelander, CFO, Keytran Group: Right. Wait a little bit and see if some more questions come in since we have the delay, Peter.

Peter Nelson, CEO, Keytran Group: Yeah. No, so we’re pretty positive, but we have a lot of work to do on getting the sites up and running towards the productivity they should have, especially in Norway. We are alleviating, hope to alleviate some of that. But because there’s a plan from our second biggest customer in Norway to start production in our Polish facility probably by mid year. We know that those things can be dicey on exact timing.

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Katrin Nelander, CFO, Keytran Group: We have talked about that before but then it was another product line we discussed to be able

Peter Nelson, CEO, Keytran Group: Yeah, this is a new generation. I think that’s it, Katrin. Right? Thank you very much. And we’ll see you in the Q2 report.

Thanks.

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