Ambertech Limited (AMO) Earnings Call Transcript & Summary

Good morning, and welcome to Ambertech Limited's FY '24 results webinar for the period ending June 30, 2024. Presenting today is Ambertech's Chief Operating Officer, Robert Glasson. Today's format will begin with a run-through of the results presentation, followed by a Q&A session. [Operator Instructions] I'll now pass to Robert.

Thanks, Mel, and welcome, everybody, and good morning to those watching this live this morning. I appreciate that we've just very recently got these results to the market this morning. So we'll try to provide some information for you. If you've got any questions, as Mel said, provide them to her. And yes, looking forward to going through the results but also continuing the journey of talking to you about our company, what it is, what we do and explaining the story to you. So let's get started. Some of you may have seen this slide before. It's an overview of what our business is. We are a leading value-added distributor in the high-technology audio space across -- and visual space across broadcast and communications as well. In each of those three operating segments, we obviously have divisions within those of the types and styles of solutions that we're providing to the market. We'll spend a bit of time talking about that shortly. We've been in business for over 35 years now. Our staff has grown to over 140 across Australia and New Zealand. We have a highly skilled operations team centralized here in Sydney with sales capability and brand support across the country and into New Zealand. And we are recognized as an industry's preferred supplier across multiple segments. We're continuing to work towards being seen as industry authority across the many markets in which we operate. Without further ado, on the highlights for the year. These have been out this morning. So $95.5 million in revenue this year, up -- pleasingly up 13.3% from the prior year. The results in terms of EBITDA and NPAT are down on the prior year. We'll spend a bit more time talking about that shortly. Earnings per share, as a result, also down on the prior year. We've had significant payout ratio on dividends this year. There was a $0.012 interim dividend earlier in the year. We've had, as we said, organic growth across the business in sales through existing agencies, which have been very pleasing. We continue to have significant headroom on our funding, which will enable us to be agile in terms of pursuing further business growth. And our working capital position is a strong one at present. So business update. Looking to provide the market with a bit of information across the various operating divisions and what those segments look like. So breaking down the revenue for the current year into those three operating segments and looking at where we do business, who we do business with and trying to give the market a bit of guidance on the size of the addressable market in each of those segments. So looking at Integrated Solutions. Obviously, we have a very sophisticated dealer and integrated network there. Over 1,200 active dealers at present through commercial, residential and specialist Hi-Fi dealers. Quite a number of brands in that space, each of which is very important to us and serviced by dedicated brand managers. Management estimates of that market, addressable size of $500 million plus at this point in time. That is based on the solutions that we currently provide to the market. Obviously, the market size could be significantly higher, but we don't service the entire of that market. But it gives the market a bit -- our investors a bit of an idea of the size of the market that we may be able to address certainly with what we currently sell. We have some key growth areas there. We see significant growth opportunity in unified communications. We've recently moved into building automation and lighting control solutions. And you can see at the bottom of the slide there the brand, ABB, very significant international brand that we now represent in Australia. And we continue to see opportunities to grow export sales of our Australian Monitor brand. In the Professional area, a number of large broadcast customers there along with some sophisticated users of our communications technology. Again, some key growth areas there in the UAV market, where we are positioning ourselves with a number of accessories solutions for the UAVs, not UAVs themselves. But some of you may have seen a number of pronouncements in the marketplace about the amount of money being spent in that space. And we have a number of solutions for attachment to that, whether it's in communications or in control solutions. We are looking to continue to grow our MI brand representation, and we have a very talented and experienced engineering capability in this business that we're looking to continue to leverage future business with. In the Retail space, most importantly there, in that CE retail space, we continue to position ourselves with brands that have a point of difference, whether that's on features or on technology difference. We have a very strong base to deal off there in terms of some brands that are well established in the marketplace. And we continue to be a strong partner to a number of those major CE retailers here and in New Zealand. Most importantly, as we look to continue to grow the business, we retain focus on existing brands. Each of those is very important in the marketplace we're in. We see opportunities for those brands to grow in the total addressable market that we talked about in the previous slide. So obviously, there's significant capability to continue to grow those brands. We've added resources in order to drive growth so that we don't compromise the support that we have for those existing brands in our portfolio. In some cases, obviously, we can add brands in and the existing team can manage those. But where there's significant growth potential in new brands, we obviously add the resources as appropriate. We've expanded into aligned verticals. Certainly, we talked about the ABB brand one there. And that -- what that's done is that it helps to grow the total addressable market for our business. And we're continuing to introduce our dealers to our suppliers. Now really, that does create connection right through from the dealer to the principal within the supply partner. And so that creates a good connection and loyalty going forward. You can see some of those brands at the bottom of the page there. They've been involved in things like meet-the-maker events, where we've had our international partners in Australia to meet with those dealers. Those have been really important events. Looking at the financials. So a bit of a snapshot of what we released today. You can see what we talked about earlier, there's been growth in the top line. Unfortunately, that growth has not matched the same pace as the growth in some of the expense categories, and we'll talk about that in a little bit more detail. Very strong operating cash flow this year, which has been great. So the business has been very cash positive. Obviously, some of that has been spent on financing activities with reduced debt and paid out dividends during the year. So looking into with a bit more detail. You can see that revenue growth we've been talking about. We've had some lower-margin sales in that growth to clear older stock. And that has, as you see at the bottom, created a situation where the GP percentage is a little bit lower this year. We also had some sell-through support required in the retail channel in the second half. And what we mean by that is where we have new models coming through and the channel is still full with older models, we'll assist to clear those through in order to get new sales of the new SKUs at full margin. So that has a benefit going forward. The second half result, you clearly have seen, has not been great by comparison to the first half. We have had some delayed project milestones. We talked previously about some of those projects, and that's really left about a $2.5 million shortfall on revenue in the second half. So we expect those to flow through in the 2025 financial year. And we're continuing to use a new data approach to really focus on the GP percentage moving forward. We know that's very important. Every percentage counts. And we have seen that come down in the last couple of years, so we'll be focusing on continuing to grow that moving forward. Looking at that by segment. You can see across the Integrated Solutions segment, the dealer network has been a very positive one for us in the last 12 months. We believe that we can continue to do more there as we align ourselves with our partners. There's a lot of work to continue to do there, and we can continue to grow that even with existing brands. So very positive outcome there. We've had strong project sales of our SSL consoles into ABC during the year, which grew the Professional business. Although we said there are -- as I said earlier, there were some projects not completed during the year. So further scope in FY '25. And existing brands have seen some growth in the Retail segment, and we've added some new brands there which will help us grow in the future. So impacts on the result. We've spent some time obviously strategizing growth for the business. And what we've seen in the last 12 months is the pace of growth of the business has been okay, but there have been some impacts through cost increase during that time. So breaking that down, you can see the distribution costs are essentially growing in line with revenue. But the growth strategy in spend on employment, marketing and travel costs, some of those things are ahead of the curve in terms of growth and there is a challenge in making sure that we continue to match that on a period-by-period basis. But in the current year, unfortunately, some of those increases are over and above what we've seen in revenue growth for that time. So we continue to work on that. Now where does that leave us going forward? So we're looking at business results. This is in terms of strategic priorities moving forward. We want to continue to make sure we're optimizing the scale and the timing of our expenditure to reduce our profit impacts. We are working on, as we always are, on improving our operational efficiency. So we're looking at all areas of spend to make sure that we're being as efficient as we can. In terms of our customer focus, very important for us to continue to support and educate and train our dealer network. We want to grow the market and we want to help all of our dealers grow as well. That growth for them should lead to success for us. We are working hard to understand the complete customer journey to help in that process. That's not just our dealers but the end users as well. And again, our new CRM will help us to really inform us on our focused decision-making in that space. In terms of the export market, we've successfully established our 3PL, third-party logistics, operation now for Australian Monitor. That will help us grow the European market in particular. We've added a number of distribution partners across Europe now and they are coming online and that's really a positive for us. Obviously, the more we can grow the export market in that space, the better it will be for our domestic pricing and sales of that brand. In terms of aligned market growth, we see significant potential in growing the building automation and lighting control space. This is an example of where the cost structure hasn't quite matched in terms of the time line of growth. We typically look at a larger international brand like this with potential in Australia to really take around 3 years to be a positive on the results of the business. It's really a strategic move and we see great potential on that. But obviously, we needed to put in people in order to take advantage of that opportunity. So that's one to look out for moving forward. And we'll continue to invest in that to drive growth in the future for the business. We have a long-term view in that play. In terms of merger and acquisition activity. Look, there's a focus to continue to look at any combinations that will grow our total addressable market. We were not able to complete a transaction in 2024. We've continued to explore opportunities. We just haven't had one that made sense for the business at this point in time. And look, should those come along, we feel we've got a proven track record of successfully integrating those. But it has to make sense for the business. So where are we at for FY '25? We are continuing to refine that growth strategy. As I said, we haven't met expectations in some areas, and that's in the cost structure imbalance in this financial year. So we will continue to work on that. We know we must continue to prioritize the long-term business health. But at the same time, we're aware that shareholders would like to see us restore the results performance in short term. We have now momentum on some of those deferred projects as I said, which is great, with this additional milestones in the 2025 year that we'll see come to fruition. And in terms of early results for this year, they've been positive. There are market challenges, there's no doubt about that. So we're addressing those as best we can, but the early results are positive. Now, look, just in terms of appendices. This is obviously the capital structure and who our substantial shareholders are. Not a lot has changed in terms of those substantial shareholders. But in terms of capital structure, we have seen reduction in the market cap in recent times with the results where they've been. That's pretty much the presentation for this year. As we said, if there's any questions, Mel, happy to take those now.

Thanks, Robert. There are a few questions that have come in live. So let me start. [ Matthew ] has asked, he's trying to get some reasoning as to why since 2021, EPS has consistently decreased yet the remuneration in terms of STIs for all key management other than Caston has gone up from '23 to '24, in many cases, significantly above CPI. And I guess subsequent to that, how did the Remuneration Committee possibly justify STI increases of 15% to 25% for key management personnel and directors?

I think you got to be a little bit careful in terms of looking at the STIs by comparison to the results, only that what you see in the remuneration report has sometimes got a lag of 12 months. Obviously, each of those were -- we've had some turnover in the key management personnel as well and you get some growth in salaries when you do that. There's no doubt, replacing people with new people can be costly. But we think that the Remuneration Committee has things in line with the expectation of shareholders, but the outcome sometimes can be a little bit blurred there. I think the other thing to look at is what has been forfeited by each of those people during that period where the results haven't matched up. And I think that's also been pretty significant. But having said all of that, we're aware that there has been a reduction in earnings per share over that period. That's something we're focused on rectifying in the coming periods.

Thanks, Robert. What sort of prospects do you anticipate in FY '25 from the imminent economic tailwinds in the form of improved disposable income from income tax cuts and future interest rate cuts?

Yes. I think there's a couple of areas of our business where that does have an impact. A large portion of the business is more B2B and commercial and kind of broadcast space. And there's not a lot of impact there. But I think in terms of areas where we've seen some depressed activity, certainly in our kind of specialist Hi-Fi space, residential installation. We expect to see those areas continue to improve towards the second half of the year. So we're hopeful that improvement in general conditions will see a positive impact in those spaces.

Thanks, Robert. You've mentioned the revenue impact of the delayed projects. What was the revenue impact of canceled projects, if any?

Yes, we did -- there were a couple of projects. I mean, remember, of course, that in terms of our expectation of where revenue is going to be, projects can be -- they're very digital. You either win them or you don't. But certainly, a couple that we felt that had been [ specked ] for our supply. Over in New Zealand, we had around about $1.5 million, I think, in projects that were canceled. Some of those may come back in a different form in the future. But just at present, that was what was missed in the financial year.

Thanks, Robert. With AMO's niche being expertise-backed, service-backed products, do you think acquisitions over the last few years in the consumer products have not produced the expected synergy or bottom line results?

Look, I think if you look back at the acquisitions we've had, there's been a combination of ones that have been transformative, like the Hills AV acquisition. The others were smaller and designed to help give credibility in the markets in which we operate. And what that does is it opens it up for that addressable market number to grow because we're seen as having credibility in those marketplaces. Now if we look back at the results of those acquisitions, they've all been very positive. So I think that, no, I would say that there's no concern about what we've acquired during that period. They've all been successful both financially and in terms of market positioning.

Thanks, Robert. And then with another year of EBITDA reductions, on M&A activity, have you looked at whether better shareholder value is achieved by being a seller of the business or merger rather than being... [Technical Difficulty]

Sorry, Mel, you just dropped out a bit there. If you wouldn't mind repeating that one?

Sure. Sorry. So the current question is with another year of EBITDA reductions, when it comes to M&A activity, have you looked at whether better shareholder value is achieved? By being a seller of the business -- seller or merger of the business rather than being buyer of another business?

I'm not sure what's going on, Mel. I'm sorry, really just dropping in and out. I can't quite take that question just at the moment. I can't hear you.

Robert, can you hear me now?

Yes, I can.

So the question is with another year of EBITDA reductions, on M&A activity, have you looked at whether better shareholder value would be achieved by being a seller or merger of the business...

I'm sorry. I'm so sorry, Mel. As you're talking, you're dropping in and out. I'm getting every third word.

Robert, can you see the question live? Robert, can you hear me now?

No, I can't hear you, Mel.

We might have to pass to you for final comments and I'll get back to Rob by e-mail. We might just thank everyone for their time there. Sorry for the technical issues at the end. Rob, in terms of the last question there, I'll e-mail you directly. And if anyone has any further questions, feel free to e-mail me. My details are at the bottom of today's announcement or the webinar announcement. Thank you, everyone, for your time.