Welcome to the Somero Enterprises full year 2023 results webinar. All attendees are in listen-only mode. At the end of the presentation, there will be the opportunity to ask questions. You can submit a question at any time by clicking on the Q&A button. This webinar's being recorded. I now hand over to Jack Cooney, CEO, and Enzo LiCausi, CFO. Jack, over to you.
Thank you, Tim. Thank you, everyone, for joining us tonight. I hope you have a lot of good questions for us to answer. It's been a great week here in London, and we've got to see a number of people. What we'd like to do is run you through the presentation, and then we'll take the questions afterwards. Non-residential construction last year was very good. It's very consistent. Our customers are reporting high levels of activity and backlogs. Growth in Europe and Australia was driven by new customers in parts and services. We expect to be continued healthy and good, strong profits this year and significant returning to cash. Taking a look at sales by territory, we put out a downgrade in June. At that time, we mentioned that there was not any jobs that were being canceled, but they were all being pushed.
And that is the situation that remains today. In that process, a lot of the projects that were pushed were in the boom screed category. That means that they were larger projects. And you can see by the sales in North America that the sales are down equal to the change in our forecast from the beginning of the year to the middle of the year. So this shows the indication of what you'll see is a shortage of sales and boom screeds as we go along. Europe had a very nice year, growing slightly. Australia continued to grow very strongly. In each one of these cases, there was a significant amount of new customer contributions to both territories, along with growth in sales of parts and repairs.
Rest of the world is just a group of the smaller companies that tend to be very lumpy that we put together every year. There are opportunities for us in the future. They just haven't begun to grow enough to put a single person in place. Going to page four and looking at the sales by product, as I mentioned, the boom screeds are down. One of the things to know when we're looking at categories of products that are down or up, the type of machine that a customer is going to buy is based on the size of the slab that he's going to be doing, he or she is going to be doing.
So therefore, when you see a reduction in the boom screed side of things, it tends to say that things are not as we thought they would be in large projects. And those are exactly the ones that are being pushed. You'll notice that the ride-on screeds are very flat from the previous year. And what that indicates is that our customers had plenty of work on the small slab side of slabs. It wasn't on the large slabs that they had the kind of volume that they hoped to have. And the other categories all looked very good for us last year. And with that, I'll turn over the financial highlights to Enzo.
Thanks, Jack. So as a result of the delays we experienced in North America, total revenue declined approximately 10%, which was the primary driver for the reduction in profitability that we see here from year to year. That said, our margins remain relatively within range of our historical results, albeit at the low end of the range. We continue to generate excellent cash flow from operations with over $24 million. That enabled us to end the year with over $33 million in cash comparable to the end of last year. That'll allow us to fund our ordinary dividend as well as pay out a supplemental dividend, here in March of excuse me, May of 2024. Digging into the P&L results a bit deeper and picking up with our gross profit, in 2023, our gross margin was approximately 56%, again, within the range of our historical results.
We target mid-50s, as we look forward. Our operating expenses ticked up a bit, primarily in sales and customer support as we added personnel, primarily outside the U.S., in Europe, and Australia, which are the customer-facing personnel. We did divest our China operation at the end of 2023. That expense is reflected within our other expense line item. Our effective tax rate was 16% compared to 23% or 22% last year. However, that's primarily a result of a reversal of an uncertain tax position where we received a favorable ruling from the IRS and therefore were able to reverse that through our tax provision. That was entirely non-cash, and not a recurring item. Moving on to our balance sheet, you know, we pay particular attention to our working capital. Our accounts receivables remain moderate relative to our trading levels. Inventory did tick up year-over-year.
However, that was a function of bringing in more trade-in machines at the end of 2023 than we normally do. Excluding trade-in machines, inventory would have actually declined $1.4 million as we unwind some of the excess safety stock we had built up during the pandemic. Moving down to the current liabilities, you'll note a significant decrease from the end of 2022, which is a bit of an anomaly. At the end of 2022, we had elevated levels of payables as we received in a bolus of inventory as we prepared to stock up our international locations for the beginning of 2023, which was settled in in the beginning of 2023 as well. We also had the Houghton facility expansion final settlement that we paid out in the first quarter of 2023.
In addition to that, at the end of 2023, our liabilities were a bit lighter just as a result of lower incentive compensation given that we had not hit our targets in 2023 from a revenue perspective. Moving on to the cash flow, I commented a bit about our working capital. So I'll move down to investing activities. We didn't have any major projects in 2023. Our ongoing run rate is typically around $2 million. However, in 2024, we do anticipate slightly higher CapEx. Certain sections of our Houghton facility, which date back to the original building over 20 years ago, are needing some updating. So overall, we would expect approximately $13 million, excuse me, $3 million in 2024. We continue to pay healthy dividends, almost $20 million.
That is comprised of our final 2022 ordinary dividend as well as a supplemental dividend as well as an interim dividend for 2023. We continue our share buyback program. Overall, net cash changed very little compared to the end of 2022, exiting 2023 in a very strong cash position, which will allow us to return capital back to shareholders through our dividend policy, which is on the next slide. We pay out 50% of adjusted net income as an ordinary dividend. After the interim dividend that we paid at the end of 2023, that leaves $7.3 million that will be paid out in May. We'll also have a supplemental dividend, which would be 50% of adjusted 50% of $25 million, which is our threshold for cash.
That will translate into $4.1 million, both of which will be paid on May 10th to shareholders of record as of April 12th. And with that, I'll hand it back to Jack.
Thank you, Enzo. It was a very active year with product development. We're able to come out with 3 new products this year. The first one is an electric battery-powered S-240 machine. The S-240 is for medium-sized slabs. It's our largest-selling product category that we have in the line. The second machine we came out with is an SRS-6, which is a boom screed. It fits into a niche in our boom screed line. Once again, just a reminder that our customers buy different-sized machines because of the types of slabs that they have in terms of size and, in some cases, in the equipment they have to transport our new machines. The final new product is one that will be produced in the late second third quarter, early fourth quarter.
We will announce at that time exactly what it is. On slide 11, you can see the S-940E. It's been a lot of demand for battery-powered equipment through the years. We've just spent time trying to understand which machine we should put our first battery-powered equipment on. By choosing the S-940, as I said, our highest-selling machine, we think we've bought the right product for the categories that people are looking for. There's a big difference between the desire for battery equipment in Europe than there is in the United States. You're quite a ways ahead of us on the ecology side of things.
But with that being said, there is a significant amount of interest in the U.S. for battery-powered equipment because we have a number of projects that need to be done with no fumes in the building while the building's being built. So this is so far, it's been out for one month from our World of Concrete show. We've had excellent results from people that have been looking at it and interested in it. And it has the capability to run for eight hours. And we also measure timing with the number of square feet you can do a day, which is 35,000 sq ft. The second machine is the SRS-6, it's the next step up from our SRS-4, which was introduced a number of years ago.
As I said, it's the perfect machine for a number of our customers for the different jobs that they have. Going to slide 12, talk a little bit about international growth. Revenue from new customers represented 39% of our total. The new customers that we find are people that are moving up from the residential screeding part of the industry. And in residential screeding, all of the floors are put down by hand. And it's a very commodity-type business. And it's a very difficult business to do manually. And what we find is each year, there's a significant amount of customers. On average, it's somewhere in the 20s that we get each year for new customers that wanna move up from the residential market to the largest screeds that have specifications for flatness. And there's a greater opportunity to make better wages and earnings.
Parts and service revenue grew by 19%. We've had some additions, key additions of salespeople in Italy, Germany, and the Czech Republic. We're also adding a new training center in Belgium. This was due to information we received from our customers as we survey them about what can be done to make their life easier and more effective. And so we're in the process of opening that center right now. And we will be hiring people there. And we will do parts repair. We'll be doing service most of the time in our facility, but sometimes in the customer's facility, along with the training for anybody purchasing a machine. Turning to page 13, Australia also had a very, very good year. Their revenue from new customers was 62% of our sales down there.
Now, it's important to note that in our customers do not buy something every year. They buy something based on the new bids that they win and the size of those bids. So in a lot of cases, our customers have the right machines to do the jobs they win for bidding in a year. And then at other points in time, their bidding is such that they end up with a number in a category where maybe they only have one machine, and they need two or three. So those are the things that determine their buying habits. And the team in Australia increased to 11 people. And we secured a larger facility there. On page 14, we're gonna take a look at the outlook for the year. We expect the markets to remain very consistent and very strong. As I mentioned, our customers all have very healthy backlogs.
We're gonna get continuous contributions from Australia and New Zealand. We're also putting an investment into new staff in those locations. Just going down to kinda summarize everything, the Board expects the company to deliver revenue, profits, and cash flow in 2024 comparable to 2023 with a modest downside and in downside based on the investments in Belgium and a year-to-year cash flow comparable. With that, we'll be more than happy to take some questions.
Thank you very much, Jack. To ask your question, click on the Q&A button and just type your question in. The first question here, based on the North American and Australian sales figures, what are management sales expectations for the medium or long term for the European market once this region regains normalized non-Resi construction activity?
Well, that's a good question. The problem we have in forecasting the future is we're not sure when things are gonna get normalized and what normalized means. Right now, there's a tremendous shortage of labor all over the United States. It's not just in our category of laser screed floors. It's in all parts of construction. It's also in all parts of the economy. That's what's slowing things down, as I mentioned. That's why jobs were pushed early in 2023. They weren't canceled because there's tremendous labor shortages. The products aren't getting to the ready-mix companies so they can produce enough cement. It's affecting a lot of different industries. We're not sure when this is going to end and what the speed of it is when it's gonna end.
What we do know is that our customers have a lot of demand right now. They're very optimistic about the year in the future and actually, the future going beyond that because they see our customers, their customers being very, very busy.
Great. Thank you very much. Is there any update on concrete availability in the U.S.?
The issues with concrete availability have not changed. There are still many days where just give you an example of one contractor who called the ready-mix company. And he said, you know, "In four days from now, I wanna get enough to do 40,000 sq ft." And they said, "We can't give you 40,000 sq ft of concrete. We can give you enough for 10,000 sq ft." It's not practical to build a 40,000-sq-ft slab in 10,000-sq-ft additions. So he said, "When would it be available that I could get enough for 40,000 sq ft?" And he said, "Probably a week from now." So those are the kinds of things that are slowing down our customers so that they are not working at their full capabilities.
Tremendous. What would lead to an improvement in concrete availability?
There's many things that go into the concrete business being more productive. As we just mentioned, there's a labor shortage in truck drivers. But there's also other things like permitting that has to be done in each town that the building's being built in. And there's a shortage of people who know how to do permitting. So it's not unusual to wait one or two years to get a permit through. So a lot of it seems to come back to the shortage of people. And the general thought behind why there's a shortage of people is that during the pandemic, a great many people who were over the retirement age all retired at once.
Great. Thank you very much. And what's caused the reduction in gross margins?
Our gross margins are gonna vary from period to period. They do fluctuate. There are material price increases, plant efficiencies. You know, volume is gonna have an impact, our pricing. So there are a variety of things. But is there any one major issue that we see and we do target, you know, 55, mid-50s from a gross margin standpoint.
Great. Thank you very much. Has there been a structural shift towards renting screeds rather than purchasing them as with other plants? If so, how are you responding?
The answer to the question is no. The rental people do not want to rent equipment that goes in concrete because it's driving in wet concrete. The concrete sets up very quickly. If it's not cleaned quickly and properly, it basically cures on the machine. Then in order to get it off the machine, you have to take a sledgehammer to break it apart, which ends up damaging the appearance of the machine, which makes it harder to rent. That's, that's the major problem behind it. Training is another difficult thing because the laser screed requires somebody with experience and knowledge to be able to operate it. So as of now, none of the rental companies rent any screeding equipment.
Thank you very much. And the question there says, "I understand broad market acceptance will be a gradual process. But why, if new machines aim to remedy pain points for customers, have these products launched since 2019 only provided $2 million of revenue? Surely, it can't just be a matter of sitting around. Can we deploy more capital here?" And somebody else has asked a question specifically about SkyScreed and the progress there.
Yes. Those are all good questions. When we develop a new product, we do it by inviting our customers in certain categories for certain types of machines to be on an innovation council where we sit down and try and understand the problems they have on their jobs every day and try and find out how we could make their life safer, more efficient, and more profitable. And that's where we start to understand what are some of the options to build new products for. When we do that, the customers will help us do the prototyping. We will do a certain amount of marketing to try and find out the acceptance from people. But when you're inventing a brand-new machine that nobody has ever seen before, people do not, they say they're interested in it. And they're being very honest with us.
But until they get that piece of equipment out on their job site to test it, they're not sure that it fits their actual needs. Now, I will say in the condition of the SkyScreed that the SkyScreed, when we originally went into it, we thought that, "Gee, this is the same as slab-on-grade screeding." And it is because the floor, even though it's put down on high-rise buildings, is screeded flat. What we didn't understand fully was that the concrete contractor does not control the entire job site in taller buildings. The plumbers and the electricians work for the main contractor. And they need certain access to the slab to be able to put their plumbing and their wiring in. And they put sleeves that are set up so that after the floor has been put down, they have stubs sticking up.
Therefore, they're stubs sticking up. We're not able to laser screed it. It's gonna be one of those things, like a few other things that we've done during our lifetime, where we're ahead of the industry a little bit. We've had a very, very popular machine. I know we did not have a very good.
Could you just repeat that sentence? You cut out for about 30 seconds.
Okay. I forgot what it was. The 3D. The 3D Profiler was one that we invented, back in 1997. But it was 10 years before the market finally accepted it. And now, we've had very good results year on and year in since then.
Tremendous. Thank you very much. Do you have any indication of the potential impact of new products? For example, are there any orders in the book?
Yes. We just introduced the product a month ago. And since then, we've already had two orders from Europe for the 940E. And we've had one order for the SRS-6 that the customer has purchased. We haven't even demoed that machine yet. It's not due to come out of production until March. So that tells you that there's really quite an interest in these products. Now, it's the hard thing to forecast is, are you gonna sell 10 of them, 20 of them, or 30? We don't know until we get out and show it to the customers because it's something that's brand new.
Sure. And do you have an order booked all for the SkyScreed?
We have a lot of people interested in having the demonstration for the SkyScreed. I will tell you that last year, we did not sell any SkyScreeds. And already this year, we're off to a roaring start because we sold one at the World of Concrete in January. So we've already exceeded last year's sales. And here we are in only the second month of the year.
Tremendous. Thank you very much. And how profitable are parts or services on its growing revenues?
The margins are relatively comparable to the total gross margin, slightly better but comparable. So if anything, it should be a credit to the business.
Tremendous. Thank you very much. Would you consider share buybacks with the cash?
Yes, is the quick response. We have been speaking to a number of our existing shareholders as well as non-holders. And there clearly seems to be a shift in sentiment from dividends to share buyback where historically, it was predominantly dividend-driven. Therefore, we are gonna go back and have conversations with the board and reconsider our share buyback program.
Great. Thank you very much. And could you explain why the staff have generous options rather than being remunerated so that they could buy shares if they wanted to?
Sorry. Let me take that.
Yeah.
I assume what they're talking about are the RSUs that we give to employees. The main reason is it's very difficult for our employees in the United States to buy shares on the AIM. The brokers do not like to handle it in very small volumes. And since we're not on the market in the U.S., it's very expensive for them to do that. So we want our employees to be engaged as owners of the company. And therefore, giving them restricted stock, is a way of having them have ownership in the stock and therefore be equal to the shareholders in trying to make the company grow and be more profitable.
Great. Thank you. That's a nice segue to the next question, which is, given the recent spate of U.K. companies moving their listings to the U.S., would management elaborate on why remaining U.K.-listed makes commercial sense given that the Somero board and executives, so U.S., and the significant majority of companies' revenues are derived in North America and the financial results are reported in U.S. dollars and the headquarters and manufacturing are also there?
When we came onto the AIM, we were coming to something that we had never done before. A private equity firm brought us here. We were very, very pleased with the questions that people asked and how they could understand this business. This is a very difficult business to compare to anything else because we are so dominant. We have such extremely high margins. We have such very little competition. We dominate the world in doing it. So it's hard to look and compare us to other companies that people own. They're trying to decide whether it's a good investment. We've been through some tough times. Within a year and a half after coming on the market, we went into a deep recession. The private equity firm who sold us left us a nice present, which was $20 million in debt.
It was very shortly after that that the recession started. So we were really handcuffed in the beginning of being a public company. We got to the point in the bottom part of the recession that we had to do an equity raise. We were very, very pleased that 100% of our owners stood their corner and supported us with the equity raise. We have also been very impressed by the people that can understand this business clearly 'cause, as I said, we're not similar to anything. There's an awful lot of people who thoroughly understand the business. They understand it is a business that has ups and downs in it. But they have been very loyal. We still have a long list of shareholders from our original IPO in 2007.
We're very pleased with the shareholder group that we have and see absolutely no reason to relocate anywhere.
Tremendous. Thank you very much. And can you comment on succession planning? Someone's asked even more directly, that they presume at some stage, you will retire, Jack. And what is the broader succession plan?
You're absolutely right. I am gonna retire. The thing that's in question is how soon. I'm doing a search for a President. That's been a lot of work. We're making very good progress on it. We should have a new President who would become a CEO at some point down the road. So that is definitely gonna happen in this year. There will be a point after I've had time to train this person where I will be retiring.
Great. Thank you very much indeed. The outlook and guidance is very conservative when viewed in the context of Dodge Starts data, new products, investment in Houghton and now Belgium. I appreciate delays have been a factor historically. But does this issue begin to roll off, as time-delayed projects start up?
It's a good question. We would hope that it would change as time goes on. But we're not seeing any evidence whatsoever that these delays are going to change. And so we feel very comfortable with having a year equal to the second half of last year being $120 million. And if things change as we go along with all of the opportunities to change, be it the new products that are out there or a change in the market, we would certainly then come back to you and explain what we're changing it to. But right now, we don't have any information from our customers that says that the year's gonna be anything different than what they're telling us now.
Great. Thank you very much. Somero is doing little or no business in many overseas markets that have huge potential. Australia, which is relatively small in terms of potential, has done well in recent years. European business remains well short of overall potential. Many developed economies in the rest of the world register no business at all. What plans does management have to start exporting to these untapped markets?
That's a good question. In those untapped markets, we have probably been to almost all of them, in our time at Somero. The driver for needing laser screed equipment is that the architects will specify strong flatness standards for the floors. When you think about a warehouse and you think about racking that's going in, in order to pick up racking very high, in some cases, up to 100 feet, you have to have an extremely flat floor. The areas that we have not sold equipment in is because they do not have flatness standards. And therefore, they still continue to do everything manually by hand because it's cheaper.
Great. Thank you very much. And your broker, Cavendish, suggests that current trading is close to a cyclical low. Do you agree with this assessment?
I'm not sure I understand what they mean by a cyclical low, to be honest with you. We don't get the sense that we're near a low. We get the sense that we are flat and that there's an awful lot of business out there. We're waiting and working furiously to produce new products and also to see if these supply chain issues will get better that will allow our customers to do more work that they already have on the books now but can't get the products to finish it.
Thank you very much. Do you know what market share you have in each of the three major markets? Is it growing?
The market share is something that nobody knows because these are all private companies. What we do know is, in general, these private companies tend to be very small. They're usually run by entrepreneurs. So we know that we have a significant market share. Whether it's 80% market share or 90% market share, we don't have any data that will allow us to accurately forecast what it is. But it certainly is significant.
Tremendous. And are you seeing an increase in competition which could hit sales and margin?
We've had competition since the late 1980s. They've been here forever. They will continue to be around forever. We don't see them being any different than they've always been. Our job is to produce products and satisfy our customers much better and much quicker and much more accurately than the competition.
Great. Thank you very much. The Colorado study showed reductions of concrete usage of about 3%. It doesn't sound particularly impressive. Could you touch briefly on the economic significance of environmental benefits for Somero? Do contractors really care?
Sure. So we did commission the study with Colorado State. And they did conclude that there was approximately a 3% savings on wasted concrete. And when you extrapolate that to the amount of concrete that's, you know, produced every year, it is substantial. Now, you know, we don't, the major contributor to the pollution is the manufacturing of concrete, and the whole, you know, manufacturing of other raw materials and the like. We don't get involved with that. We're in the process, component. There's not a whole lot of influence we have on concrete mix or what ingredients are used. Our machines are just there to flatten and level the concrete. But at a minimum, we're a good participant. And we are helping as opposed to hurting.
The other element other than the reduction in concrete is exposure when you have a finely finished floor, why the emissions that gets captured in the concrete remains in the concrete as opposed to then being re-emitted into the air. So overall, you know, we're a positive player, and do not hurt the environment. Our ability to change that is very limited.
Great. Thank you very much. Does there exist a capital deployment runway that we could deploy large sums into at the same attractive return on capital employed of the business as a whole?
Sure. So as we look at our capital allocation, we do look internally. That's where we get our greatest return on invested capital. But those investments typically come in the form of people and hires, which we've done over the years. And we do so in a measured way, going forward where the opportunity is there in certain markets to add territory sales managers or customer support. That's gonna be a gradual process. We also look for M&A opportunities. Being the dominant market player, there aren't a lot of opportunities out there that make sense for us. Our machine is the most expensive product that our customer purchases outside of the concrete. Beyond that, they're commodity-type products. And we're not interested in acquiring a commodity product that'll be dilutive to our margins.
Ultimately, we end up with the excess cash that we return back to shareholders. We'll do so through the dividends but share buybacks as well.
Great. Thank you very much. And what are the margins expected to be on the battery-powered machines compared to the conventional ones?
Actually, comparable. We're pricing the S-940e at the same price that we do our regular machines. So, no, no difference in the margin.
Great. Thank you very much. Does Somero have any data on what proportion of concrete-screeded floors currently and in previous years have been used for different market segments, so warehouses, retail centers, assembly plants, etc.?
No, that information is not available. There isn't anybody that collects that information. Therefore, we're not able to get a sense of it. Basically, that's known by our customers are the ones that know what jobs they do with the equipment. The only way we find out what types of jobs they do is if we ask them. They give us a broad look at it. But it's not something that's available throughout the industry.
Do you see increased demand from growing data center construction to meet AI capacity? Do you think that will have an impact on you?
There's a lot of things that we see coming, that are gonna impact us as we go forward. Certainly, data centers will continue to be significant opportunities going forward. There's also a lot of reshoring that's going on in the United States. And by that, I mean that they're bringing back chip plants. There's new battery plants that are being built. So there's things that are unusual in terms of the future growth because, when you bring a chip plant in, it's not driven by the economy of the United States being stronger. Those chips are already being made somewhere. And what it is, is these plants are gonna replace where those chips have been made. And so we see the reshoring part of it being very, very helpful. The battery plants are such that for the electric vehicles, they're building plants.
But they're building them so that they will have the capacity to handle what the capacity will be in 10 years. And right now, the capacity is very low. So there's an awful lot of very, very large, very significant buildings that are in the works. So, the chip plants are 10-year programs. And, and just recently, just one chip company announced with the help of the U.S. government that they're gonna build a chip facility in Syracuse, New York. And the investment's going to be $100 billion, spent at a rate of $10 billion a year. So we see significant opportunities down the road for, for the reshoring and the new companies that are coming in.
Great. Thank you. And does Somero have or is it considering a presence in Mexico to capitalize on nearshoring? One of many examples, several Chinese EV companies are building manufacturing plants in Mexico to attempt to sell their EVs into the U.S. market.
Yeah. Currently, we have dealers, representing our equipment in Mexico. It has been a small sort of lumpy business there. But to the extent we see greater, more consistent opportunities, then we would certainly consider a more permanent presence.
Thank you. Would you ever consider an acquisition? The questioner here is asking about Lingxin, and asking what its estimate of the size is relative to Somero. You may not want to comment on them directly. Would you consider an acquisition of that nature?
We will consider all acquisitions that come to us. We know the people at Lingxin. We know the private equity firm that owned them and then has just recently sold them to another private equity firm. So we're very familiar with them. I would not wanna guess at what their revenue is because there's no information to do that. But we're certainly interested in those kinds of acquisitions if they're willing to come and talk to us.
Great. Thank you very much. I note Somero Machines contributed to about six or seven of the Golden Trowel Awards in January. Why haven't the company made more publicity of this?
Oh, we've been involved in the Golden Trowel since it began. And we have representatives there all the time. We do use it in our marketing. It's a very significant thing for our customers. And we think it's a great, great program. I'm not sure what you mean by not using it more. It's something that we talk about extensively.
Great. Thank you very much. And do you plan to launch more battery-powered type machines in the market this year?
We're gonna launch more battery-powered machines. I wouldn't wanna. We don't have a firm date in mind. But it's certainly something that's going to be done as we continue to go forward with our new product development plans.
Thank you. Mention was made of a customer buying machine once they know they've won a bid. You also mentioned inventory being larger than it otherwise would have been had you not taken back used machines. Are any of your sales made conditional on customers being able to return them?
No. There are no contingencies. Sales are final. We do offer a warranty, obviously, well, if there's, you know, some manufacturer defect. But there's no right of return.
Great. Thank you very much. Why do you put so much emphasis on sales in Australia, which is very small compared to Europe and Asian countries?
Well, we put a lot of emphasis on all of the regions. We talk about Australia because they've grown significantly since we took over from our distributor. And we put our own employees in there. And our employees have done a fantastic job of growing that business. But we talk about our employees in Europe all the time and also in the U.S. We think they're all doing an outstanding job. And especially in this past year where we had some very difficult times.
Thank you. It would seem that the key to Somero's equipment sales is maximum simultaneous demand, not overall demand. For example, if concrete delivery is delayed, then a customer can use one machine for all jobs rather than needing two machines for simultaneous jobs. Has the shortage of concrete and labor removed demand rather than delayed demand for Somero's machines?
No. Because the demand is based on the equipment they need for the buildings that are being built. So as there's fewer buildings being built, which is the case right now, there's less work available in for them to work on. And therefore, they don't need to buy an additional machine or more machines. So it's the demand that's driven by the building industry and by the capability of bringing those to market.
Great. Thank you very much. What's meant by completed installation of in-house painting and material preparation systems in the U.S. in the March announcement? Is this a new type of service that you're offering?
Now, this relates to our own assembly process. We were previously outsourcing the painting of our the frames and other parts of the machine as well as the prepping, the sandblasting. In order just to secure and have a little bit more control of our own supply chain, we brought those capabilities in-house. So it's part of our assembly process and not an external service.
Great. Thank you. What would you say that you've learned the most from, perhaps things that haven't gone well in the past year?
Well, I wouldn't tie things down to the past year. Every year that goes by, we learn something. Because in general, you learn an awful lot by making mistakes. We work very hard in our organization to make sure that, in a relative sense, nobody gets blamed for making a mistake. Certainly, if it happens frequently, that's a different issue. But we end up doing the best we can with the knowledge that we have because in a lot of cases, there's very limited knowledge to us. We have an incredibly talented team that works very hard. We sit down, and we take that information, whether it has to do with pricing or price increases or how we should change a program. We take the best information we have.
We make a decision that this seems to be the right thing to do for our customers. And if it turns out that there's something wrong with that, we go back and say, "Okay. We made a mistake. We're gonna change it." But, if you're not making mistakes, you're not learning anything.
Absolutely. Thank you. Please, could you explain in more detail the workforce flexibility of Somero, which appears to reduce operational leverage and make the business more resilient in slower years? What percentage of the workforce by cost is flexible?
Sure. So two-thirds of our costs are people and people-related and therefore, variable. With the downgrade in the middle of June, we did reduce our assembly folks. We did not adjust the headcount in our SG&A, that given that they're mostly customer-facing and new product development that will drive revenue in the future. Also, some of the issues that we identified, being delays that ultimately will be resolved, we did not want to adjust and make a permanent correction to our headcount given those reasons. But we've got tremendous flexibility in the event of a deeper downgrade or a downturn. We certainly can reduce both our assembly folks as well as our SG&A.
Great. Many thanks. With the battery-powered machines, do you see any warranty risk from the battery longevity? Is it guaranteed by the supplier?
Yes. It is guaranteed by the supplier. We don't see any risks that we're aware of right now. No.
Great. Thank you. And if a machine's bought for a particular job, what happens to that machine once the job's completed?
Well, when our customers bid for jobs, they bid for many, many of similar types or size jobs. So they don't usually buy it for one job. They just buy it for one category of slabs that are being built. By category, I mean, how many square feet is it? So if they never did any jobs in the 40,000-sq-ft category, let's just say as an example, and if they wanna bid to do one of them, they probably wouldn't run out and buy a screed. They would have to look for a continuous flow from their customer base that their customers were gonna build other large facilities like that and that they had a reasonable chance of winning the bid.
There's a lot that goes into the decision-making for them to actually go out and get a five-year lease on a piece of equipment that is very, very expensive. They have to have a significant amount of work lined up or the potential for work lined up to buy another screed, whatever size it is, whether it's large or small.
Great. Thank you very much. Overall, can you give us a sense of the order book? Somebody here has said in 2023, "We saw a fall in revenues. And 2024 is expected to have no growth." Why do you describe this as high demand and healthy backlogs? Perhaps just understanding a bit more about the order book and the flow, would be helpful.
Yes. Our forecast for where the year's going comes from our customers. We interview our customers. They've always been kind enough to tell us not what their company how much money they make or what their sales are. Since they live and work in about a 200-mile radius of their home, they have a good understanding of the people that work in that area, their competitors. And what we ask them is, "What are you seeing for demand? What is the bid load like? Is the bid greater than last year, less than last year, the same? What are you seeing for relative pricing on it?" And what that tells them is, if the price is going up and they can get more than they originally thought, it says that there's not as many people bidding for the job.
If the price goes down and there's a lot more people bidding for the job and the prices that they're thinking of doing is lower or higher than what they were doing, you get a sense of what's going on in the marketplace. And that's the most accurate information we've ever had about the direction that the customer's business is going in. And that's why I mentioned to begin with that our customers are all telling us that they have a very strong backlog for this year. They just can't get the cement they need to get the projects done.
Great. Thank you very much. And just expanding on that a bit, you mentioned one SkyScreed sale at World of Concrete. Were there many other sales for other products there? And is there any discounting at these events?
Yes. There's a lot of other contracts written. Everything we sell is discounted. These contractors are very hard workers. They run small businesses. And they're very, very difficult people to negotiate with. And so we very rarely sell a machine that we haven't gone through a long discussion about what their discount should be.
That's generally not just at the World of Concrete?
That's every day, everywhere.
Thank you. And, final question 'cause we are pretty much at time. And I've tried to get through as many questions as possible. But there was quite a lot of duplication. So if your question wasn't exactly asked, then, hopefully, you've got a general sense from the question that was answered. Are there any things you think we're missing when looking at Somero that questions haven't covered?
I think the one thing that stands out to us that when people are looking at the business is I don't think they fully understand how dominant a position we have in the worldwide market. And therefore, the reason that we have that dominant position is because we're not in the business of selling machines. We sell and service our customers in over 90 countries in the world. And our job is not to sell machines. Our job is to make our customers successful. Because if they're successful, we will be successful. So our focus is always on what we can do to make them more successful. Because if we can do that, we will also be more successful.
Wonderful. Thank you very much, Jack and Enzo. To everyone for joining. You'll now be taken to a web page to give feedback on today's presentation. If you're unable to complete it at this time, you'll receive a follow-up email. We'd be really grateful if you could take a few minutes to complete. Many thanks for joining. This is the end of the webinar.