AMA Group Limited (AMA) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for taking the time to join us for this presentation at the AMA Group FY '24 Full Year Results. For those of you joining us via webcast, you should be able to view the presentation on your screen. If you are joining us by teleconference, you should have access to our investor presentation via the ASX web platform or our company website. I'll begin today's presentation with a business update, along with details of our portfolio business results. I will then hand over to our CFO, Geoff Trumbull, who will take you through the group financials. I will then return to cover the outlook. We will be taking questions through the webcast facility today. You can submit these questions at any time during the presentation, and we will address them at the end. Let's begin on Slide 4. AMA Group continues to have a positive growth trajectory and a strong operating performance in FY '24. We are a people business and have continued to focus on growing and retaining our team. We increased 146 team members in FY '24 and reduced voluntary turnover by 8.4 percentage points. Capital S.M.A.R.T performed ahead of expectations. Pricing and scope criteria under the Suncorp contract were reset effective 1 July 2023, and the business delivered over $20 million of annualized pre-AASB 16 EBITDA benefits through Project Shift. AMA Collision completed the network reset and through Project Wallaby is now building on these foundations to improve further. Wales outperformed with the South Australian site relocation delivering solid results, and the refreshed Board brings a strong depth of experience. Group revenue of $895 million increased $64.5 million on FY '23, a 7.8% increase. Normalized FY '24 pre-AASB 16 EBITDA of $49 million is up 125.1% on FY '23. Including ACM, FY '24 pre-AASB 16 EBITDA of $45.3 million is within the guidance range of $44 million to $49 million. Operating cash flow after the payment of lease costs was positive at $10.5 million, an improvement of $24.9 million from FY '23, where there was operating cash out of play. Underlying growth is expected to continue into FY '25 and beyond, which will be covered later in the outlook. Recapitalization completed in August 2024 facilitates funding certainty, which allows the business to focus on profitable growth. The details of this will be covered later in the presentation. Now to Slide 5 and the vehicle collision repair segment. This segment includes vehicle repair operations of AMA Collision, Capital S.M.A.R.T, AMA [indiscernible], Tech ride and track right. Network rationalization and consolidation is now complete, and the vehicle repair business has a stable platform from which to grow. Revenue increased $56.3 million to $820.8 million, an increase of 7.4% year-on-year. Normalized FY '24 pre-AASB 16 EBITDA of $61.4 million is up 64.6% on FY '23 repair volume reduced with the full year impact of network consolidation and continued increase in labor hours per repair partially offset by operational efficiencies and increased productive labor. Now turning to more detail on our portfolio businesses, beginning with AMA collision on Slide 6. The collision business has more work to do to drive improvement. This business unit was most impacted by cash constraints leading to the loss of volume of team members in early FY '24. Revenue fell slightly and normalized FY '24 pre-AASB16 EBITDA of $8.9 million is down $6.3 million on FY '23. We have more work to do to improve underlying performance and customer relationships in this business. Through our structured project quality program, the business is targeting to increase pre-AASB 16 EBITDA in excess of $20 million over the next 3 years. This will be achieved by further repetitive base business, building stronger customer relationships, providing exceptional and consistent customer experience and refreshing and growing the network. The key focus has been on investing in insurance relationships to restore confidence resetting the balance sheet with the equity raise completed in August 2024 will support that confidence. Now Slide 7 and Capital S.M.A.R.T In FY '24, Capital Spark delivered ahead of expectations and delivered the benefits of Project shares earlier than anticipated, pre-AASB16 EBITDA run rate benefits in excess of $20 million were achieved through this well-executed change program. These benefits more than offset transitional support provided by SunCorp. Capital S.M.A.R.T added more than 3,000 units of additional repair capacity through site conversions, moves and reopenings. Revenue increased $67.7 million to $464.5 million, an increase of 78.1% year-on-year. Normalized FY '24 pre-AASB 16 EBITDA of $47.8 million, is up $43.7 million on FY '23. Capital Smart will pursue further improvement in growth with a focus on optimizing operations, expanding the workforce with more people being more effective in their roles, investing in the network with both refurbishment of existing network and growing by 3 to 5 sites annually and improved customer satisfaction through convenience, communication, service and speed with a reduction in average paybacks. Now to Slide 8. Specials businesses were recently separated to ensure these unique business opportunities have the right focus. AMA's Prestige performance suffered with operational disruptions through the Harrison AMAs site relocation and prior year positive impact of the ships going insurance quote. The initial TechRight investment of $500,000 saw 5 sites operational by the end of financial year. Procurement arrangements have been agreed for ADAS calibrations across the network. TechRight had a solid performance. Capacity expansion is underway in Daniel with transition to a larger site. These businesses all represent margin optimization opportunities and have their own growth profile. This growth will be pursued in an orderly and structured manner. Now to Slide 9. Wales heavy vehicle has grown normalized pre-AASB 16 EBITDA to $9.8 million, an increase of 23.5% year-on-year and has further upside. It operates from 8 repair locations and has a strong and growing customer base. Revenue increased $8.4 million to $73.8 million, an increase of 12.8% year-on-year. The new format site in Adelaide has performed well. By removing further bottlenecks in the existing Wales footprint, we are targeting to deliver earnings uplift of $1.5 million EBITDA on an annualized pre-AASB 16 basis over the next 2 years. Further, we expect the network to grow through acquisition. Now to Slide 10. The team has reset the ATM parts business over the past 2 years and is poised for profitability. We are seeing strong underlying sales growth in the new part categories where the business growth focus has been. Parallel import daily part sales were up 36% in Q4 '24 versus Q4 of '23. Headwinds from higher auction prices and lower scrap commodity prices have continued to challenge reclaimed margins. The Boards made decision to sell ACM Pass and focus on pure collision repair business moving forward. Picture partners have been appointed to advise on the style process. ACM Parts are now classified as assets held for sale. The business will continue to focus on growing ACM as this sale process continues. We will focus upon the sales by internal and external customers, growing the range and therefore, making the offer even more compelling, addressing recycling and productivity to improve efficiency and margins and further optimizing our consumables offer. I will now hand you over to Geoff to take you through the group financials.

Thanks, Matt, and good morning, everyone. I will take you to Slide 12 for a summary of FY '24's financial performance. Firstly, I will call out that we have separated the ACM Parts financial results and presented as discontinued operations. So I'll largely talk to results from continuing operations. The financial performance is presented on a post-AASB 16 basis below EBITDA. However, we have included a supplementary analysis on Slide 21, which provides the comparison of FY '24 results on a pre- and post-AASB 16 basis. As Matt mentioned, our FY '24 financial performance significantly improved compared to FY '23, with revenues from continuing operations up $64.5 million or 7.8% to $894.8 million and normalized pre-AASB16 EBITDA from continuing operations up $27.2 million to $49 million. This reflected an EBITDA margin improvement from 2.6% in FY '23 to 5.5% in FY '24. This uplift is largely driven by the recovery of our vehicle collision repair segment, in particular, Capital S.M.A.R.T, which has delivered ahead of expectations following the reset of commercial terms from the start of the financial year and delivery of the project shift initiatives ahead of plan. Finance costs were fairly flat year-on-year with higher interest costs offset by the $35 million debt repayment in December 2023. A reminder that $18.6 million of this finance cost line is associated with lease accounting. I will talk to funding later, but confirm we did pass our 30 June 2024 covenants prior to the further debt reductions in August 2024. Normalization adjustments resulted in a reduction in EBITDA of $0.4 million, with a gain on the early surrender of a lease largely offset by restructuring costs, legacy legal costs and insurance claim costs. Turning now to Slide 13 and the summary financial position. We ended the period with $39.9 million in cash, including $3 million in ACM Parts, which is classified within assets held for sale and, therefore, not reflected in the summary table. This incorporates the net $51.9 million of equity raising proceeds during FY '24, of which $35 million was used to repay senior debt. Given the intention to divest ACM Parts, the assets and liabilities of this business unit are classified as held for sale in FY '24, reflecting a net asset position of $45.8 million. I will also note that our senior debt is included in current liabilities in the FY '24 balance sheet given the debt extension to December 2025 was agreed subsequent to 30 June 2024. A pro forma balance sheet showing the impact of the recent $125 million equity raising and debt extension is provided on Slide 24, which illustrates the pro forma reclassification of residual senior debt to noncurrent liabilities. Now to Slide 14. As mentioned earlier, we repaid $35 million of senior debt during FY '24, which left $130 million of drawn senior debt at 30 June 2024. Taking into account capitalized interest and cash balances, this provided a net senior debt position of $93.9 million and a total net debt position of $143.9 million once the convertible notes are included. Following the successful $125 million equity raising announced in July 2024 and a further $53.8 million repayment of senior debt and capitalized interest in August 2024. Our pro forma net debt has fallen to $26.8 million, which reduces net leverage from 3.18x to 0.59x. As announced in July 2024, we have agreed an extension of our residual senior debt facilities to 31 December 2025, with the effective date of that extension being 15 August 2024 when all conditions precedent are satisfied. Further details on the key terms of the extension can be found in our investor presentation released to the ASX on 18 July 2024. As part of the bank extension, a revised covenant profile has been established with net senior leverage stepping down over time and the fixed charge cover ratio stepping up over time. When combined with escalating margins from the start of calendar year '25, we intend to proceed with the refinancing of the residual debt as soon as possible. Importantly, the bank extension provides us with flexibility on CapEx and acquisitions over the next 18 months such that our business plan and growth initiatives can be implemented. Refinancing ahead of the December 2025 maturity is expected to result in a facility of $80 million to $100 million, including $25 million to $35 million of bank guarantees and working capital facilities or approximately $45 million to $75 million of gross term debt facilities. After the $53.8 million debt repayment in August 2024, the pro forma cash balance is $103.2 million noting that $50 million of this amount has now been set aside in an account held by senior lenders to settle the expected redemption of convertible notes in March 2025. AMA Group has received bank consent to proceed with the sale of ACM Parts with a 12-month window to complete the transaction. The higher of $25 million or 75% of net proceeds will be applied to further senior debt repayments. Following the completion of this sale and the further reduction in senior debt, we would expect to be in a net cash position. Now to Slide 15. The group had positive operating cash flows of $10.5 million for FY '24 once the principal elements of lease payments are taken into account, which is a strong improvement year-on-year, largely driven by the EBITDA improvements. FY '24 operating cash flow included $5.9 million of spend on onerous leases and exit costs. Offsetting that, we had a $6.4 million tax refund under ATO tax carryback rules. Neither of these are expected to continue in FY '25. The cash flows do include ACM Parts with $3.1 million spent on inventory growth through the year. I also note the increase in interest payments year-on-year. This is partially driven by the $6.1 million swap termination benefit in FY '23, but also impacted by higher variable interest costs and a changed quarterly interest payments on senior debt from the second half FY '24, effectively, meaning we had an extra quarter of interest payments at the back end of FY '24. Now turning to Slide 16. Quickly touching on corporate costs. We saw these reduce year-on-year following cost reduction initiatives and the settlement of historical legal claims. I'll now hand it back to Matt.

Thank you, Geoff. Now to Slide 18 on the outlook. Repositioning the balance sheet of our makeup to turn its focus on core growth initiatives. The net leverage of less than 1 returns the business to pre-FY '19 net leverage levels. FY '25 normalized pre-AASB 16 is expected to be above FY '24. And we see halfway to pre-AASB 16 EBITDA margin target of approximately 9%. We will seek these improvements by continuing to invest in our people, taking our vacancies from approximately 250 to approximately 100, resulting in more production from the existing facilities. AMA inclusion will further repair and improve the base business through Project Wallaby, which is expected to deliver greater than $20 million in benefits and expand through greenfields and acquisitions. Capital Smart delivered on Project shift and will now focus on capacity expansion, improved volume throughput and reducing average repair days. Specialist businesses represent diversification in unique opportunities of ADAS, prestige and mechanical. Wales will continue to expand capacity through a reduction of bottlenecks, and this expansion is expected to deliver $1.5 million in improved pre-AASB 16 EBITDA over the next 2 years. We have a strong cost control culture, and this is top down. Rationalization of the Board and management team has resulted in further savings. I will now address questions. Please note that you may submit your questions through the webcast facility.

Thanks, Chris. So we've got a number of interested parties still going through their preliminary analysis. Nonbinding indicative offers are due for this next week based upon our time line, and we still expect that we'll get the transaction closed before the end of financial year as a target -- sorry, at the end of calendar year as a target.

The next question is from Chris savage. Are there ongoing negotiations with insurers around contracts? Or are these mostly done now? Or are these always ongoing?

Thanks, Chris. The contracts are always ongoing. And as part of our process, because we have such a close attention to the commercial outcomes that we're receiving under the various contracts, we're always monitoring the performance of each of these contracts and sharing data with the insurers to make sure that we're on the same page about the viability of each of the contracts. So there's an ongoing dialogue. There are some formalized sort of processes within that dialogue as well. But it's a constant process for us as an organization with the various insurers.

Also from Chris, do you expect the pathway to a 9% EBITDA margin to be fairly steady over the next 5 years? Or do you expect it to be back-end weighted?

I think, Chris, the reason that we've put it out there as a 3-year target is, yes, we are in a turnaround phase. So there -- sorry, 5 years. There may through that turnaround be some ebbs and flows. So we have that sort of longer-term target out there. You'll see that in some of our businesses are actually already performing above that target. So Capital S.M.A.R.T and the heavy business already performing above that target. So obviously, we hope to achieve that sooner rather than later. But in any case, it's there as our target over that period.

And Chris just asked to clarify the sale of ACM calendar year. Is that this calendar year or next?

This calendar year, Chris.

There are no further questions on the webcast facility. But there's just one come in. So from [indiscernible], any indication for 2025 EBITDA guidance.

So with the '25, the -- well, the guidance statement that we've put out there is that '25 million will be better than '24. And there are some one-off items in FY '24, particularly the SunCorp incentive that was in place, which we said is offset by the performance that we've had through the Capital S.M.A.R.T business. But we do expect then the '25 will actually be better than '24, but we've not put out any further guidance other than that.

We'll just wait a moment in case there are any further questions on the webcast. At this stage, there are no further questions on the webcast facility. So I will hand back to Matt.

Okay. I appreciate everyone's time today in listening in and asking the questions that you've got and the support of the shareholders as we went through the recent capital raise. Very pleased to have your support and look forward to continuing to grow this business as we get it back on track. Thank you all for your questions. We'll end the call now.