Ambertech Limited (AMO) Earnings Call Transcript & Summary

Good afternoon, and welcome to Ambertech Limited's FY '26 Results Presentation for the year ending 30 June 2026. This afternoon, we have COO, Robert Glasson, presenting. There will be opportunity for Q&A at the end of the presentation. [Operator Instructions] I'll now pass to you, Robert.

Thanks, Mel. Good afternoon, everyone. Thank you for joining me today. Just a quick apologies from Peter Amos. He had hoped to join us from Outback New South Wales, but technical difficulties have made that impossible. So you have me today to run through the presentation. No doubt, FY '26 was a challenging year for Ambertech, and the financial result reflects that. Revenue did decline modestly. Our profitability was impacted by some softer conditions across parts of the business, and we made a deliberate decision to undertake a number of strategic reset actions during the year. Those actions resulted in a statutory loss, but we believe they were necessary to better position the business for the future. What I would emphasize is that FY '26 was not simply a year of reporting a result, it was a year of taking action. We reviewed inventory quality, reassessed the carrying value of goodwill simplified parts of the organization, strengthened capital discipline and began to release cash from working capital. While we're not satisfied with the earnings outcome, we are encouraged by the operational progress we've made during the second half of the year and believe the business enters FY '27 from a much stronger position than it did 12 months ago. So I'll now step you through the detail. I think Ambertech at a glance. Most investors on the call would be familiar with Ambertech, but it is worth reflecting on the breadth of the business. We operate across integrated solutions, professional and retail segments and we represent a diverse portfolio of specialist technology brands across Australia and New Zealand. What differentiates Ambertech is not simply product distribution. Our value comes from technical expertise, customer support, after sale service and our long-standing relationships with vendors and customers alike. And those capabilities remain intact and continue to provide a strong foundation for future growth. Looking at the executive summary at a high level, revenue was at $97.8 million, which was down 3.4% from last year. And the adjusted profit before tax was $200,000. After recognizing those strategic reset costs, the company reported a statutory loss after tax of $2.3 million. Now while that statutory result is disappointing, I think it's important to separate the underlying performance of the business from the deliberate reset actions that we took during the year. There are also some encouraging indicators beneath the earnings result. Gross margin remained resilient at 32.4%. Operating cash flow improved substantially to $2.2 million and inventory was reduced by $5 million during the second half of the year. And those metrics are important because they demonstrate the business has started to improve the quality of earnings and efficiency of capital employed. I think the key message from FY '26 is simple. We used this year to reset the operating base and strengthen the platform for future execution. Looking at a snapshot. As I said, revenue declined 3.4% this year. Performance across the business was mixed. There was some growth within the potential -- within the Professional segment, which helped offset some of the market weakness that we saw. The retail group did remain affected by some softer consumer demand and some parts of our Integrated Solutions business also experienced some challenging trading conditions. But as I mentioned earlier, one pleasing aspect was the gross profit and gross margin. Despite softer revenue, gross margin improved from 32% to 32.4%. That reflected disciplined pricing and our continued focus on portfolio management. Our operating expenses increased only modestly despite the inflationary pressures, meaning the business retains significant operating leverage should revenue growth return or when revenue growth returns. The statutory result was heavily influenced by the reset actions. I'll discuss that next. And of course, no final dividend at this point in time. I appreciate shareholders would prefer to see earnings growth and dividends. In 2026, our focus has been on protecting the balance sheet and positioning the company for recovery. So the strategic reset, I think this is critical to look at. That explains the difference between the adjusted result and the statutory result. So during the year, we recognized a goodwill impairment a targeted inventory provision and underwent some restructuring of the operating costs. These actions have reduced the reported earnings, but were, of course, undertaken deliberately. In particular, the inventory review has allowed us to address slower-moving and low-quality stock, which ensures the balance sheet better reflects the future strategy of the business. And similarly, the restructuring actions have aligned resources and cost structures with where we see the greatest opportunities going forward. I think I'd characterize these actions as drawing a line in the sand rather than pushing problems into the future. So the objective was to enter FY '27 with a cleaner balance sheet, better inventory quality and a stronger foundation for improved returns. As I said, there was some mixed performance amongst the segments. Integrated Solutions remains our largest segment, generated $46.5 million in revenue. While that did decline, the focus moving forward is on improving, as we said, inventory quality, return on capital and prioritizing the brands where we see the strongest long-term opportunities for the business. Professional delivered some growth during the year. It was supported by improved project activity in the period and some return to more normalized delivery cadence, which has been an issue. The retail group remained the most challenging area, I think, in terms of reflecting the broader consumer discretionary pressures that we see, and they continue to face those retailers. The encouraging aspect is that we've got a clear plan for each of these segments. Our focus isn't just on growing revenue. It's on generating better returns, improving inventory efficiency and maintaining margin discipline. So inventory and cash flow, two very important things. I think this is probably one of the most important slides. During the second half of FY '26, we actually managed to reduce inventory from $27 million to $22 million, which is quite a significant reduction across that 6 months. But the significance is not just the reduction itself. That translated directly into improved cash generation, with operating cash flow increasing to $2.2 million compared with $600,000 in the prior year. So importantly, I think the message is this is not just a one-off cleanup exercise. We've tightened procurement disciplines across the business. We've increased focus on inventory productivity. We're ensuring any future investment in inventory is linked more closely to expected returns. I think for some time, investors would have questioned our focus on working capital efficiency. The second half, I think, demonstrates that we're making tangible progress in this area. In terms of balance sheet and funding, I think the balance sheet remains sound and our funding flexibility has been maintained. Net debt did reduce significantly during the second half as that inventory was converted into cash, operating cash flow strengthened. Our funding facilities have been extended for a further 12 months, very importantly. At balance date, we had a substantial amount of undrawn funding headroom, which is most important. While our net assets and our NTA did reduce as a consequence of those reset actions, I think the quality of the balance sheet has improved, that's a really important distinction. So whilst for an accounting value, it's lower, the underlying balance sheet is cleaner. We're carrying less risk, and it gives us greater flexibility to deploy into higher-return opportunities moving forward. So as we move into FY '27, we are focusing from that reset into execution now. 6 main priorities that you can see there, portfolio focus, capital efficiency, customer experience, cost discipline, capability and systems and growth in our own brands. You can see, you'll notice that many of these priorities relate to quality more so than scale. The objective is not growth at any cost. The objective is sustainable growth, supported by stronger margins, improved capital efficiency and better execution across the business. I think that discipline is what we think will create long-term value for shareholders. In terms of outlook, we've got some pretty clear priorities. First thing, maintain that inventory discipline. The second is obviously to restore profitability. And the third would be to redeploy the capital we've freed up into areas where we see stronger long-term returns. In particular, we've highlighted in the past and continue to highlight building control, smart building technologies, critical communications and into our own brand opportunities for growth. And finally, I think we'll continue to be transparent as we can with shareholders. Although at this point in time, no earnings guidance for the first half, that could change. I expect that to change, and we should be able to update shareholders at the AGM regarding progress through the first half. So we start FY '27 with a cleaner base. I think the work that we've undertaken in particular, during the second half of last year, gives us greater financial flexibility, a simpler operating structure and improved disciplined capital discipline. So there's still work to do but we think the business is now better positioned to capture opportunities as market conditions improve. So I think in closing, it was a difficult year. But it was also a very important year. We recognized issues. We've addressed those directly, improved what we can in terms of inventory quality and strengthen cash generation. We've simplified the business where possible. That statutory loss doesn't reflect where we want to be as a company, but we think the actions we've taken during the year will improve profitability or improve the probability, sorry, of delivering stronger returns in the future. Our focus now is on execution and accountability and converting that progress into sustainable earnings improvement. And on behalf of the Board, I would thank you for your continued support. And over to Mel, if there are any questions.

Yes, there are a few, so a quick question. What's the risk of further impairments or provisions in FY '27 if trading conditions don't improve?

Well, I think split that into two, there's very little goodwill left on the balance sheet. We've cleaned up most of that. What's left is in relation to the acquisition of the Hills AV business in our Integrated Solutions division, which is performing quite well. So I see little risk there. I think in terms of inventory, it's important to note that targeted provision was not raised as a result of seeing impairment. It was a strategic decision to move aged inventory through faster than what we would normally clear it so that we can fast track moving into more strategic areas going forward.

Thank you. And in terms of Integrated Solutions, are you -- is management confident that the segment's underlying brand portfolio is appropriate? Or should there be some further brand rationalization?

Well, I think there's been a reasonable amount of rationalization in that area already. Obviously, we continue to assess brands as we move forward from a number of perspectives, not just financial but also there are other factors that go into why we might be representing a brand in Australia and New Zealand. There's -- I think what we've done is positioning ourselves well to be attractive to Tier 1 international brands, and we've got a number of those already. So we're quite comfortable with the portfolio that we have, but we always assess moving forward. And we think that we're focused. There's significant growth potential out of the brands that we have.