Chairman’s and Chief Executive Officer’s Statement

Overview

The Board is pleased with the Company’s ability to adapt swiftly and meaningfully to sustain profitability to mitigate external factors, while remaining steadfast in executing its long-term growth strategy of introducing new products and deepening its penetration in international markets. Taking into consideration the magnitude and persistency of factors outside of Somero’s control impacting the pace of trading in North America and the inclement weather in North America and Australia, the Board believes the overall performance in H1 2024 was sound. Group H1 2024 revenues totaled US$ 51.8m (H1 2023: US$58.9m), with the 12% decline driven by the trading decline in North America and Australia.

Leveraging the Company’s flexible cost structure, which enabled it to quickly adjust to the changing circumstances, H1 2024 adjusted EBITDA margin remained healthy at 23.8% (H1 2023: 29.5%). H1 2024 adjusted EBITDA was US$ 12.4m (H1 2023: US$ 17.3m), with the decline primarily due to lower volume and to a lesser degree to strategically added headcount to support the new Belgium service, repair and training facility. The Company was able to partly offset cost inflation affecting wages and material costs with price increases and operational efficiency gains. As a result of all these factors, H1 2024 gross margin remained within the targeted range at 54.6% (H1 2023: 57.0%). Operating cash flow in H1 2024 was US$ 2.9m (H1 2023: US$ 8.8m), translating to a June 30, 2024 cash balance of US$ 20.8m, notwithstanding the dividend payment of US$ 11.4m in May 2024. The Company is taking steps to minimize inventory levels in the second half of the year and maintain accounts receivable at moderate levels which is anticipated to have a positive impact on year-end cash.

Regional Review


North America

H1 2024 North American sales declined 8% from H1 2023 to US$ 38.8m mostly driven by lower sales of Boomed screeds. Customers in the US continue to report healthy project levels, however they are not operating at full capacity due to project start delays and pauses caused by elevated interest rates, labor shortages and concrete rationing, as reported in the 30 July 2024 Trading Update. Underlying non-residential market demand remains positive driven by onshoring of manufacturing, electric vehicle and battery plants, and chip manufacturing, which provide long-term demand for our products. Furthermore, the long-standing and worsening shortage of skilled labor necessitating the need for automation and work productivity continues to drive demand for our products in the territory. 

Europe

Europe continues to deliver strong results, reporting sales of US$ 7.1m in H1 2024, up slightly from US$ 7.0m in H1 2023. The Company’s investments in customer facing resources and capabilities continues to deliver good results from new customer acquisitions and penetration of new and existing products, alongside continued strong parts and service revenue. Moreover, the European market, which is more environmentally conscious, has embraced the first Somero electric powered laser screed, the S-940e, which meaningfully contributed to H1 2024 results in this territory. The Company remains focused on attracting new customers by leveraging entry-level equipment such as the SRS-4 and the newly launched SRS-6 in the boomed screed category and the EcoScreed in the ride-on category. Furthermore, a third new product planned to be released in H2 2024 is expected to also be well received in Europe.

Australia

Australia is also a target international market where we see meaningful opportunity for growth through increased market penetration across our product offering. However, in H1 2024, sales declined 40% to US$ 3.2m, from the US$ 5.3m in H1 2023., with inclement weather in H1 2024 having a significant impact on trading. Nevertheless, new customer acquisitions remained high. We continue to focus on growing revenue in this territory by broadening awareness and educating the marketplace about Somero’s value proposition premised on delivering quality and productivity.

Rest of World

Our Rest of World region, which includes Latin America, the Middle East, India, Southeast Asia, Korea and China, reported H1 2024 sales of US$ 2.7m, representing a 39% decrease compared to H1 2023. The main contributors to H1 2024 revenues were Latin America and India, which reported respective sales of US$ 1.3m and US$ 1.1m, compared to US$ 1.6m and US$ 1.1 in H1 2023, respectively. Middle East reported sales of US$ 0.1m in H1 2024, down from as strong H1 2023 of US$ 1.1m. As previously stated, given the relatively small base of business in each region, trading will fluctuate from period to period. The Company intends to maintain the resources allocated to the regions and add personnel as appropriate.

Product Review

Demand for our product categories is impacted by the type and size of projects, and applications, which are ultimately driven by end users. Large Boomed screeds are suitable for large footprint projects such as warehousing, medical facilities and manufacturing facilities, while Ride-on screeds are suitable for smaller footprint projects and smaller concrete slabs. Different applications drive demand for other equipment, such as exterior applications for the 3D Profiler Systems and the Somero Broom+CureTM. As these variables shift, our product mix fluctuates accordingly.

Revenue from sales of Boomed screeds decreased compared to H1 2023, driven by the factors in the US noted in the 30 July 2024 Trading Update and in the section above. Nonetheless, there continues to be healthy support for large Boomed screeds driven by onshoring efforts, an increase in electric vehicle and battery plants and US legislation including the CHIPS Act, a statute providing roughly US$ 280 billion in new funding to boost domestic research and manufacturing of semiconductors in the United States. There also continues to be healthy demand for our Ride-on screeds, including smaller concrete slab pours necessitated by the shortage and rationing of concrete. Ride-on screeds decreased 4.5% from H1 2023 contributing US$ 10.7m to H1 2024 revenues. Sales of 3D Profiler System contributed US$ 4.3m to H1 2024 revenue, consistent with H1 2023. Sales of Remanufactured machines increased 21% in H1 2024 compared to H1 2023 due to heightened availability as a result of a higher level of trade-ins at the end of 2023. Given the price point and product offering, Remanufactured machines are very attractive to new market entrants and offer an economical option for projects that require secondary back-up machines on-site. Although Remanufactured machines generally yield gross margins in the range of 20% - 25%, the program allows us to monetize trade-ins. Other revenues decreased 11% mostly driven by weaker sales of the Line Dragon. The products within the Other category, other than parts, which were down in H1 2024 compared to H1 2023, address niche applications and therefore demand will vary from period to period.

Products released since 2019, the SkyScreed® 36, S-PS50, SkyStrip®, SRS-6, S-940e and the Somero Broom+CureTM, combined to contribute US$ 3.1m in H1 2024 revenues, up from H1 2023 of US$ 0.8m. Most of the growth in this category was driven by the SRS-6 and the S-940e. Both products have gained immediate traction and are expected to deliver greater results in H2 2024 as availability becomes more widespread. As noted above, a third new product is planned for release in H2 2024. Our new products are inventions, some of which address entirely new market segments and customer bases, and therefore market acceptance can be gradual, and trading can be somewhat volatile. Nevertheless, we are confident in the value proposition of the offerings and will continue to work to increase the market penetration.

We continue to dedicate significant organizational time and resources to engage customers directly to develop a pipeline of ideas for solutions that address pain points. H1 2024 was an active period in this regard, with extensive jobsite visits and innovation council sessions both in the US and internationally. Additionally, we are exploring new technological advancements and investigating the impact they could have on our current and future product offering.

Our People

On behalf of the Board, we would like to thank all our global employees for their performance in H1 2024. A core strength of the Somero team is its ability to quickly adjust to changing conditions while always delivering the highest level of products and service to our customers. This core strength that underpins the Company’s highly flexible cost model that enables it to deliver healthy profits. On 3 May 2024, the Company announced a senior management appointment and succession plan appointing Jesse Aho as Chief Operating Officer of Global Operations and New Product Development. The Board and management team remain as committed as ever to providing all our employees with a rewarding and challenging working environment that is full of opportunity.

Environmental, Social and Governance

The Board closely monitors environmental, social and governance topics that materially impact our stakeholders. These topics are routinely discussed to ensure Somero strikes the appropriate balance of meeting shareholder expectations and addressing the concerns of key stakeholders necessary to ensure sustainability of the business. A primary material topic is the environmental impact of our business including the use of our equipment in the construction process. The release of the S-940e represents Company’s first step in the electrification evolution and remains committed to making further progress to support environmental, social and governance matters.

Outlook

The overall non-residential construction market remains healthy with support from on-shoring, manufacturing, electric vehicle and battery plants, and chip factories, underscored by customers reporting robust project backlogs and positive outlooks. We do not see any indications of fundamental changes in the non-residential construction market, and the factors that have impacted the pace of work have not caused project cancellations as reported by our customers.

The Company anticipates improvement in H2 2024 trading in compared to H1 2024, driven by a combination of new product revenue growth, including the launch of a third new machine, and an expectation of improved weather conditions. This confidence is supported by our primary means of gauging market health, which is direct feedback from customers.

As such, the Board remains confident that 2024 results will fall in line with the revised market expectations published following our 30 July 2024 Trading Update, with revenues of approximately US$ 110.0m, EBITDA of approximately US$ 30.0m, and year-end cash of approximately US$ 27.0m.

Larry Horsch
Non-Executive Chairman

Jack Cooney
President & Chief Executive Officer
August 29, 2024

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