Big River Industries Limited (BRI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the Big River Industries FY 2020 Full Year Results. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Mr. Jim Bindon, CEO. Thank you. Please go ahead.

Yes. Well, good morning, everyone. Thanks for joining the call this morning. Quite an important year for Big River, 100 years incorporated last month. Even though the various other entities operating back into the late 1800s, actually Big River was incorporated, just July 28, 100 years ago, so it's great milestone for the company. So thanks for joining. We'll hear from myself as well as Steve Park, the CFO. It's a busy time of the year. As always, I try and move through the documents fairly quickly, if that's okay. So we quickly make a start on Page 3 of the investor presentation. Yes, I won't go through this in full detail. Perhaps just highlight a couple of areas where there's been some slight change from prior periods. I guess the key things that are new this year is the completion of the acquisition in Adelaide and Townsville. Adelaide and Townsville, we merged our business together with the acquired one. Still just a single site in that city, but the second site in Adelaide. So on a pro forma basis, they're now -- you can see the split by segments and regions, and you'll notice there on the bottom regional split there. That southern region being Victoria, South Australia and Western Australia, now the largest segment or the largest geographic region in the business at about 34% of our revenue. And then certainly, our exposure to the resi sector between the detached housing, medium density and high-density now over 50%, and that obviously also correlates in the segment split with building products, which predominantly goes into the housing and renovation markets. Now we're tracking at just a little over 50% of the group revenue. Most of the other factors there in terms of the mix of the business is fairly similar to what you may have seen in prior presentations. Perhaps the only other thing to note there on that page is the growth of our number of trading accounts. Clearly, that's been aided by a couple of acquisitions, but certainly working hard during a tough stage of the construction cycle to expand our client base up to around 6,500 active trading accounts now that was versus about 5,500 at the same time last year. So yes, it's been obviously an active decision to try and grow and diversify our business as certainly some states and some things struggled as the construction sector declined. So just moving to Page 4, which is the headlines. So you folks, just with respect to revenue, just to click under $250 million for the year going around 14% higher than the year before. But as was the case last year, a slight decline on a like-for-like basis, down around 4%. Our view is that's about half the decline in the addressable market, which we assess basically our segment split or our construction segment split from the previous slide. And then using the average forecasting from a range of bodies, including, [indiscernible] for HRA, ACIF and then some other industry-specific forecast. Our view was that the overall addressable market for Big River was down around 8% for the year. So whilst obviously disappointing to go down in sales, I think we held in a reasonably tough time with a credible result there on the revenue front, but clearly, at a group level, still growing with the contributions from acquisition there, pushing sales up 14%. From an EBITDA point of view, and again, I should have started by saying all of these comparisons at this stage, we'll continue to use the old language pre-AASB 16, at least so that we're comparing apples and apples, clearly from next year we'll have a comparison period that's under the new accounting regime, so we won't need to do this, but at least for clarity's purpose, you'll see Steve will have the statutory results quite clear, but also went on quite in these percentages, it's all on a like-for-like basis, pre-AASB. So EBITDA of about $12.3 million, there was around $350,000 benefit there unwinding of the earnouts not achieved. So obviously, that's been written back to the P&L as is required. So around -- between 22% and 25% growth over last year on EBITDA, depending on when you want to include or exclude that one-off benefit to the P&L of those earnout payments. From an earnings per share perspective, obviously, less there because of the capital raise that was completed in July last year, but again like-for-like under the old pre-AASB, we still grew earnings per share. So I think pleasing a tough year for us still got growth in those 3 key indicators of revenue, EBITDA and EPS. From a working capital perspective, obviously, a key part of financial management. Most companies had an extremely high focus on that during this particular year, obviously. Working capital performance for us was particularly pleasing, 17% trade working capital sales ratio is at the sort of top end of our range as such. And that's certainly the best result for some years. Cash conversion. Steve will go through the full details of that later, but certainly, 112% headline figure was again strong and the strongest we've had for some years. And obviously, that help -- allow us to make the final dividend declaration, which has been made at $0.024 per share, even though, obviously, you'd be aware, we canceled the interim dividend. But, yes, that strong working capital position that's been achieved over the last few months has enabled that final dividend to be paid, which is pleasing. Just a few of the highlights from an office perspective, a distribution margin, pretty key criteria for us, given that's the main area where our business is growing, is in distribution rather than pure manufacturing. And continuing to get expansion in our gross margin, up 270 basis points this year as we skew towards higher-margin specialty plywood categories, and particularly, there was a strong contribution from the New Zealand business as well as building products again, which has come at higher margins than the historical form of business. If we included the new Frame & Truss sites in that, there would be a further gross margin expansion, I'll strip that out because semi manufacturing function, let's call it, a fabrication function. So it's not quite the same as our fuel distribution margin. But certainly, if we add that, then our exposure to some higher-margin products is a pleasing change in the business mix. Our formply, which is a key product in our Formwork segment grew by 9% in the declining market. So I think that was pretty pleasing. Our Formwork sales were down as a whole as a category, but that particular product has grown nicely. So as we've made -- as we have rejigged our supply chain, which is for those who have been on calls in the past, we've spoken about for some time now and lowered our scale here in Australia and increased our import supply chain to perform for the range. Certainly, that supply chain strategy has not only been good for profitability, but it certainly helped with our market share as well and to be growing volumes in a declining market when we're already the market leader is a pleasing outcome. The cost-out initiatives at manufacturing, which we did substantial changes to shift structures last year. We stripped out $4.5 million of cash costs in FY '19, around $1.2 million stripped out again in FY '20 as we've moved to slightly lower manufacturing levels. Again, as we leverage those import supply chains as an alternative source. So that's been pleasing. Most of that is in labor, small amounts in energy and freight, but the majority of that $1.2 million came in labor savings. And again, on lower volumes to have stable manufacturing EBITDA contribution is pleasing. And obviously, at lower volumes, that's translating into a higher EBITDA margin, about 50 basis points better than the prior year. So I think our strategy around scaling down our Australian manufacturing to focus on customization and specialized products and importing from both Europe and China, the higher volume commodity products is starting to yield some fruit for the company. From a strategy perspective, new ERP package rolled out across all Australian sites. That's not a simple process for those who have been involved, and that's been pleasing that we've got through that without any disruptions to the business. Obviously, some further upside in the next financial year as we fine tune that new system and particularly around working capital and gross margin efficiencies, which is the primary goals and project outcomes that we're looking for. So first stage done, second stage are now starting to extract some good improvements out of that new package. Completion of the Adelaide Frame & Truss acquisition in March now takes our position in that product segment to 3 sites around Australia. Again, we have an aspiration to have a fabrication site in each of the large capital cities to supply our range of branches in those regions. So still some opportunities as we continue to expand our footprint there, but certainly got a good meaningful position in that very large product category now. New Zealand, it's been a strong result, notwithstanding the substantial total lockdown that we experienced there. So certainly performed strong enough that triggered earnout payments for the vendors in the first full year of ownership. So that was a pleasing outcome. And then as we continue to expand our specialty products, the bridge system range, which has moved from 1 product 3 years ago to a whole full solution, including complete prefabricated bridges, including the full bitumen in all done in the factory. So there's been some good steps in that part of the business as well. So there were some good pleasing initiatives from both an operations, but also a strategy point of view and a pretty tough year, I have to say. Just moving on to Page 5 of the guide, which is the operational summary. Some of this I've already mentioned, so I'll skip past. But just on the revenue front, a few things to note. We did actually achieve organic growth in Western Australia, Queensland and New Zealand, offset by weaker results in New South Wales and Victoria, particularly as housing market's full. So as we mentioned, our view around the addressable market of about 8%, resi starts down another 7%, 8% in FY '20. So it's down 30% off the peaks, which was a little different in each state, but somewhere between FY '16 and FY '17 was the peak of the residential cycle at about 230,000 starts. So down 30% from the cyclical highs. So that's certainly the most significant factor the business has faced in the last couple of years. Building products, which is a good story because it's predominantly exposed to that residential product -- sorry, the residential construction sector. Flat like-for-like sales growth at a headline because of the acquisitions, but flat sales in significantly a declining market was quite pleasing again showing some small market share gains, and we're only a relatively small player nationally there. So there's plenty of upside to come in the years ahead. Formwork, which is a sort of core long-term position we have. Sales fell 10%, as I mentioned, some good stories within that category where formply grew, but really the high-res -- multi-res market, which is coming off quite considerably as well as the commercial markets was the main driver of that decline in like-for-like sales in the Formwork segment. In our specialty plywood category, some really good growth in our architectural and industrial products. Good growth of sort of plus 10% there. Some of the other mining product categories or products within that category had small declines, but certainly, the key specialty products in those 2 constructions [indiscernible] types, being both civil, industrial and architectural products, some good growth there. So that was quite pleasing from a revenue perspective. Again, just a couple of the highlights on manufacturing operations. We got through that whole COVID issue without any product outages. So I think our team did well with respect to how we leveraged our own assets and the import supply chain. And we've certainly started to expand the products that we are sourcing from overseas now with one of our other large Formwork products, which was predominantly sourced locally. We've increased our exposure to both European and Chinese production there to expand product offer and indeed margin. And the other thing that's probably coming out of COVID, which is interesting is an increased demand for Australian made. And I think, certainly, the -- perhaps the most positive sentiment towards Australia made that are the impression I've had over maybe the last 10 years or so. So I think, obviously, retaining our manufacturing assets, which has been a key part of our strategy for some time. I think augers were well. Upgrades at 3 of our distribution sites. So again, Toronto, obviously add value there in improvements to the trade dispatch, the ranging and the showroom components of the facilities. So they're good -- they've been good initiatives, and there was good growth in in those 3 sites where those improvements had been made more plans for FY '21. And then again, manufacturing, pleasing results to be expanding the margin base in a pretty tough year where we faced a whole range of issues, which I'll come to. From an acquisition point of view, all the acquisitions we've done since listing, if we want to go back that far. So EBITDA, just a touch down on FY '19 at a cumulative level. So I think that's pleasing. There's no sort of fundamental holds in the businesses we've acquired. They've been integrated well and given a key part of our strategy is diversifying that platform we've acquired and rolling out our specialty range through there. For the year, the Formwork sales grew 37% versus last year in those acquired sites. Again, that's one of the key goals we've got. And in the ply and specialty category, again, 26% growth across those acquired sites, which were predominantly building products businesses. So I think that diversity, which has been a key goal there continues to do well, and that's what's probably helped us to get a credible result, I think, during this reasonably tough year. So just on Slide 6, folks, I just thought I'd go through a couple of those significant events, obviously there with respect to both COVID, but also our exposure to the bushfires given that they had a significant impact on our log supply. So just quickly on COVID. What was the high level impact for us. So the revenue impact was around 1% decline in group sales for the 30-day lockdown in New Zealand. So relatively minor, it will be -- yes, we effectively lost 1 whole trading month in New Zealand. In Australia, largely unaffected to a pretty cautious purchasing through that period, March to May from customers. But no huge dislocation at all in our Australian business. From a profitability perspective, the other $0.5 million of EBITDA that was clearly lost in New Zealand. Notwithstanding a couple of the points below here where we did get some assistance. It certainly -- it wasn't enough to offset that full closure of the site. So around $0.5 million impact on the bottom line. A couple of things we did get. So the New Zealand wage subsidy was just under $300,000. We have got [ $299,000 ]. In Australia, no JobKeeper or whatsoever. Clearly, if our revenue was only down 4%, we didn't go anywhere equal or following for that criteria. So no assistance there. Landlord relief across the 2 countries, around a couple of hundred thousand in total, spread over those couple of affected months. So relatively minor, but it certainly all helps tax payments. Obviously, we appreciate the government's help there. And obviously, that's just helped with cash flow, but it's got to be caught back up by September. So that had a positive impact on cash flow of about $2 million. Steve will -- he'll cover that up when we get to the cash flow slide. Deferred payments from some suppliers who help to gain some small cash flow benefits there of about $0.5 million. The flip side of that was a significant spike in our inventory in New Zealand because of the long lead time out in New Zealand to pass [indiscernible] out of Europe, I should say, to lose an entire trading month. Obviously, when you've got long lead times on supply, pushed our spots quite a bit higher than we'd like. So there was the negative working capital impact there. And then from a staffing perspective, 1/3 of our staff took remuneration reductions during the period April to June. And of course, including all the Board management. So I think there was a good contribution there from suppliers, from landlords, from the government, from shareholders. Obviously, when we delayed the -- or deferred -- sorry, I canceled the first half dividend as well as our staff. So I think all the stakeholders certainly helped to get the business through that pretty strange period. From the fires perspective, and I noted this at the half year results, force majeure declarations in both our manufacturing sites there with respect to our log contracts. Minimal impact on our revenue as we had enough raw material stocks within the system to get through in those categories, and around -- yes, just $100,000 shortfall in EBITDA impacted the Grafton site due to that -- the reduced log contract supply. With respect to some cost and efficiencies, whilst we did get some price relief from Forest Corp. with respect to the softwood logs at Wagga. Certainly, dealing with wood has material impacts on your operations and efficiencies. So around a couple of hundred thousand off the bottom line here as we dealt with that. And clearly, long-term there, whilst there's been a large amount of the resource loss there, we continue to work with forestry about the long-term log supply both sites. We don't use large quantities of wood so we're always confident that there's a good business there for us to be having the manufacturing side of the business. So hopefully, that covers off all the key issues there with respect to both of those events, but particularly COVID, where those exact contributions from the various stakeholders need to be high-low there and it certainly may have to appreciate. Okay. So just quickly on the strategy before we move on to Steve and some of the financials. Again, some of this is information I have mentioned before, but certainly, the diversity across products and segments and geography, I think, is the strength of our business. So we're continuing to work on that. All that growth in those specialty segments in the acquired sites, I guess, is case in point there in terms of improving that diversity. So that's -- certainly, it's a key part of our strategy, and we want to continue to do that. Our leverage in the Frame & Truss sites. We now have to further bundle to our product offers. We've just secured a good new contract with a large national project homebuilder on the back of that in one of our states. So that's certainly -- that's one of the benefits as we roll out those Frame & Truss sites across the main capital cities is that we got the ability to bundle that together with some of the other key building products. On a client point of view, I mentioned earlier there, the growth in the number of accounts obviously, there's a share of wallet opportunity there. Some of those are trading at relatively low levels. So we've got good growth opportunities by increasing our share of wallet on that expanded client base. Just to give you feel, our top 10 clients have -- their contribution to group sales over the last 2 years has fallen from 16.5% to about 11.5%. So obviously, as we've diversified, and that's taken that exposure or the waiting of those top clients, which again is part of the clear strategy to try and diversify the business well. Growing and expanding our distribution. That's a key plank of our strategy and our fundamental reason for listing some years ago, continue to take advantage of that consolidation opportunity in a fragmented market. 2 new acquisitions completed in the year, although New Zealand was actually completed in July, that's why I've mentioned 3 there. So the acquisition pipeline looks particularly good. We did pause our acquisition strategy quite clearly and deliberately when COVID sit in, but certainly, our view is that, that acquisition pipeline and opportunity is not weaker. Indeed, it will be stronger due to a reasonably tough stage in the construction cycle. So we still believe there's really positive opportunities to expand the size of this company. On the specialty manufacturing side, as I mentioned earlier, I think, some really positive sentiment towards Australian made, that all goes well for the long term, given we've still got a stake in Australian manufacturing in the specialty products, that's pleasing. And further capital on the distribution side of the business has certainly helped our ancillary sales opportunities, and that typically comes at higher margins. So 3 more upgrades to be completed in FY '21. From a financial perspective, obviously, improving the financial metrics of the business being a key goal. And gross margin continues to expand at a branch level, as I mentioned, distribution level, and hence, the ERP side, as I touched on, will certainly further improve that. EBITDA margin improving up 50 basis points there for this year and that working capital and cash flow side, obviously, pleasing results for the year, as I mentioned, and certainly the best sort of cash conversion rates we've had for some years. So I think those key components of the strategy, albeit, it's quite a strange time in business and some things that had to be put on hold or stop. So I think we've made good progress in all 3 of those categories of our strategy. Okay. Steve, so I might just pass the [indiscernible] to run through the 3 main slides on the financials. Thank you, Steve.

Yes. Thanks, Jim. Yes, so just looking at that next slide there with the earnings summary, you can see the headline revenue, as Jim mentioned, they're up 14% up to $249 million from the previous financial year. And then when we look into the next section there, just pointing out the effect of AASB as with other companies. This is the first time that we're reporting under this new AASB 16 accounting standard, and we've included both the before and after impacts there in the presentation, so that the comparatives have a little bit more meaning. For us, that statutory impact was to positively increase the EBITDA by $5.3 million. But also increase the depreciation though, by $5 million and the interest by $0.7 million. So the overall NPAT there of $4.7 million on a pre-AASB 16 number came down to $4.4 million after taking all those adjustments into account. When we look at the distribution EBITDA there, it's up 23% to $13.8 million. That includes the first full year of the New Zealand result in that number. Last financial year in FY '19, we'd only had 1 month in there. On the corporate costs, pleasing to see that they're flat from 1 year to the next, but that does include the unwind of the earn-out payments not achieved in there that Jim mentioned earlier on. So -- and then on the manufacturing contribution side, the things that was flat at $1.8 million -- sorry, yes, $1.8 million after stripping out the further cost there of $1.2 million on that lower volume. So overall, that left our EBITDA before acquisition costs at $12.3 million, an increase of 25.7% over FY '19. Just moving on to the next slide there on the balance sheet. One of the key things for us, obviously, is the trade working capital management, that was flat in dollar terms at $44.5 million compared to FY '19. We have an increase from acquisitions, but that was offset a little bit by some of the COVID-related payment deferrals. We did have around about $2 million worth of tax deferrals and about $0.4 million from suppliers that assisted us a little bit there in relation to that. But overall, we still managed to bring that trade working capital down as a percentage of revenue from 17.8% last year to 17.2% this year. So that was certainly a pleasing result. And on an even more pleasing result basis, the average debtor days there improved to 56 days from 58, always a little bit of uncertainty as to what might have happened around the whole COVID-19 thing. And from a data collection perspective, it was pleasing to see that money was still flowing fairly freely from customers and from us to our suppliers as well. So that was particularly pleasing for us. The increase in inventory was from acquisitions. We had a little bit of an increase there in New Zealand, as Jim mentioned, because of the imported stock that we couldn't defer when New Zealand was shut. But we have had some good strong stock management in that last half, especially, and that's borne some fruit and helped with that trade working capital reduction and also in the cash flow as we'll see on that next slide. The change in the deferred consideration there, you'll see a big jump where it's gone from $16.6 million down to nothing. That was basically the payment for the New Zealand acquisition. Even though we took that over at the end of June last year, the payment for it wasn't until July of this financial year. So there was a cash payment of about $14.7 million that was paid out there and some shares that were issued to the vendors of about [ $1.9 million ]. Pleasingly, with the good cash flow and the trade working capital management, our net debt reduced by $3 million from the December '19 period, and that was despite us spending $3 million on the acquisition of Pine Design as well. So we were setting that $25 million at the end of December '19 and that's come down to $22 million at the end of this financial year. I won't go through all those numbers there, but the impact from AASB 16 there on the balance sheet is sort of spelled out there with the extra right-of-use assets that have come on board and the corresponding lease liabilities. Moving on to the next slide, you have the cash flow. As I've mentioned there, the operating cash flow, particularly strong at 112% on a pre-AASB 16 basis. Even allowing for those deferred payments that would still come in at 92%. So still a very good result for us, and that compares to 76% cash conversion last year. On capital expenditure, not a large number there, $1.1 million. That was mainly Australian business expenditure, a few minor little projects as well, but that was the bulk of it. Intangibles, the increase there is really from the goodwill on acquisitions and run our -- sorry, the intangible payment of $1 million is from the ERP rollout. And that's the bulk of that, that's been spent now. We've got basically all of our branches on that new platform now except for the most recent acquisition. And that will be coming on board at the end of this month. I'm sorry, the business acquisition figure there of $19.6 million, that included the New Zealand payment there of $14.7 million. And then the other 2 that came on board during the year became a $1.8 million and Pine Design of $3.1 million. And I guess lastly, there, just in relation to the dividend side of things, we've declared that dividend of $0.024 per share. And the record date for that is the 4th of September and the intended payment date is the 6th of October, and we've got the DRP in effect at a discount of 2.5% applying as well. I think that was it on the cash flow there, Jim. So back over to you.

Okay. Thanks, Steve. So just finishing off with the last slide there, guys, we'll let you read the appendix in your own time, but just on the outlook, the dreaded outlook. What do we expect for the new year? Well, our view is that the addressable market will go down 10% in FY '21. Obviously, that's taking our weight into the various sectors. And what we see as the mean average -- the mean forecast from the various bodies. I know some people are more pessimistic than that. I have heard on an industry call the other day, and it was mentioned that if we just listen to our customers, we'd probably be feeling pretty good, but once you read what the journalist say, the economist and the analysts, then you feel pretty bad. So certainly some customers. And I guess, that's my second point there that the homebuilder program is showing some good early signs in boosting sales rates for project builders. And 3 of our top 5 accounts are our national project builders. So we do have a good exposure to that market. So we certainly think that's a positive albeit -- but even with that, we still believe the addressable market will fall for the year. Obviously, the commercial side there, particularly offices and retail, which has been good business for Big River historically on the Formwork side. I think CapEx will be -- will probably be minimal in those 2 spaces and certainly has been some deferred projects, which we're -- we're aware of them we've had contractors literally pulled off-site once they've started work there on a couple of commercial projects. So I think there's some doubts about the commercial construction market. It's sort of inflow in our view in FY '21. High density, again pretty tough there and still continuing to see material declines in the high density market. Obviously, we're focusing our sales and not only on some of the specialty product range, which comes at a higher margin. But the 2 key segments where there is some good growth expected or at least a more positive outlook, and that's the civil and then the alterations and additions market. We have an improved exposure towards the renovations market, the ANA sector. So continuing to channel the sales resources there, together with some of the specialty categories of the business. From a strategy perspective, certainly, continuing to diversify. We think that's what's critical in our construction focused business. So the product extensions and the segment penetration into all the acquired sites, that's certainly got to continue. So that's really critical to our sales activities during the year. I think the good investments we've made in our plywood and specialty segment during the year. Our pipeline of inquiries, quotes, tender is about double what it was last year. So that's in both the specialty architectural products, but also in the civil bridge systems. So there's some good projects there, and the hard work has been done to expand that part of the business. Certainly the pipeline is as strong as it's been, and we've certainly expanded our client base substantially in that category as well. So the new acquisition opportunities, they're certainly continuing to be explored and pursued as soon as the Board are happy that we've got enough clarity on the economic cycle. Yes, the thesis for continuing to consolidate a fragmented segment stands true still. So we'd expect some completions in the second half of the financial year and close management of working capital, which I think we've done well in the year just gone. It will certainly continue to free up capital for growth initiatives. From a financial perspective, whilst we're not putting a clear forecast in the market, we believe our sales revenue will drop by less than the fall in the addressable market. We think there's still opportunities for us to grow share. And in some of the particular sales programs we've got in place, we'll mitigate our exposure towards that overall decline. But we still believe it will be FY '22 before organic growth, like-for-like growth continue -- starts again across the whole business. Gross margin continuing to improve in our view as we enhance the scale of the group, but also weight more towards higher-margin categories. Clearly, that's been happening in the last couple of years. That's a positive for the business. And then the tight cash flow management, yes, we still think that will allow for fully franked dividends to be paid, notwithstanding the very uncertain economic environment that we face for FY '21. So that's it, ladies and gentlemen, that's one of run through, but certainly happy now. I'll just let you read the appendix of final Slide 12 in your own time. But happy to take some questions now, perhaps.

[Operator Instructions] Our first question comes from Raju Ahmed from CCZ Equities.

A couple of questions. Looking at your addressable market FY '20, the market according to your commentary was down 8% and your like-for-like sales down 4%. I suspect you can see where my question is going. So if you're saying your addressable market is going to be down 10% in FY '21, is it too much of a broadbrush assumption to assume your revenue is going to be down 5%?

Yes. That's probably reasonable math side so I assume. I mean, obviously, a [indiscernible] but look, our view is over the -- well, certainly, over the last few years. Our tracking of the addressable market declined over the last 3 years and particularly residential construction has dropped. Our last 3-year performance would be -- would say that we've dropped by half as much as the market decline. So yes, 4% versus 8%, say 5% of those 10%, that's probably a reasonable estimate, Raju.

Okay. So when I look at your market mix, I mean, obviously, there's a high level of diversification there within residential, within commercial and infrastructure. The 10% decline in addressable market, how would you sort of characterize it across resi commercial? Is one falling faster than the other? Can you give us some granularity in those individual markets, particularly resi and commercial?

Yes, Raju, sorry, you were breaking up a little bit. So I didn't -- I missed parts of your question, I think you were just asking about which segments were expected to fall worse than others?

Yes. Pretty much [indiscernible]

Yes. Sorry, might be, you were just breaking up a touch. So certainly, resi, we think is the -- continues to be the sector that's going to be affected the most, but we expect 10% declines in the commercial market. We expect alterations and additions to be less, to decline less than that and be close to flat. Obviously, it depends a little bit on what happens post JobKeeper and also how parts of the stimulus package actually happen in reality, everyone has seen the high level rules for that. But certainly, we'd expect ANA to be close enough to flat, commercial to drop at least 10%, but resi to still fall in the area of 20% seems to be the consensus forecast there on the residential. We think civil will be flat, and that's when we quote civil, we particularly talk about roads and bridges. We have minimal exposure to, say, the telecommunications component of the infrastructure as an example, where there's minimal opportunities for our product. But the roads, bridges and that style of work, ports where we have got reasonable exposure. We expect that to be down on last year. So you certainly put all that in the pot, and that's where we get the minus 10% from, Raju.

Yes. Okay. Just on the civil or infrastructure side. You mentioned in one of our prior conversations that it's at least a couple of years away in terms of being a meaningful contributor to -- resi revenue base. I think you're referring to, for example, the second Sydney airport and the surrounding precinct. Are you seeing -- with the supposed acceleration of infrastructure projects across Australia, is there an opportunity, to -- or for BRI to sort of capitalize on that? Are you seeing any green shoots on that front?

Yes. Certainly, we have always -- we had a long history in that sector but in the scale of a project, we have relatively low purchase, I guess, it's largely about labor and those moving equipment and cranage and, yes, the materials component is relatively small. But certainly, every time there is one of those projects, we certainly have a seat at the table. So absolutely, some of the sales resources that I spoke about realigning them into the sectors that are growing, it's in exactly that area. So some extra sales resources are focused on those infrastructure projects, whereas they might have been more focused on commercial projects in a normal year. So yes, there is the opportunity for us to increase our exposure there, some of the products and certainly our bridge systems is smaller scale, if you would, but it is certainly road work and in civil improvements, particularly in regional Australia. So that's been the quite a important part of the government stimulus as well. So we think there's good opportunities there. And certainly expanding the product range into the civil space is challenging because of the nature of the materials used on those sites. But certainly, we still see some upside in that sector as you definitely.

Okay. Hopefully, a quick 2 more questions. The second question is around the gross margins. You talked about further improvements in the end of fiscal '21 year due to high -- waiting towards higher-margin product categories. Can you just give us some color around what these product categories are? And what's the driver for that? I would have thought a simple layman's terms recessionary environment probably pushes people more down the lower margin or lower value product categories or completely off track here?

Yes. So -- and you would certainly expect when there's a declining market for competition to be much hotter and that would usually push margins down. So it's much more about a product mix. So certainly, the higher -- the high-quality European plywood. So certainly the New Zealand style of product range. So that's certainly in the high-margin categories. So that somewhat of a specialty product, we don't expect it to be down as much as perhaps some of the mainstream commodity lines. So growth in that area weights up the margin. So that's about a differentiated product position. On the building products side, is certainly margin expansion there is about scale. So obviously, as we continue to grow and become more relevant to our suppliers, that typically translates to improved margins. So on the building product side, where we have been able to grow share in a declining market and our relevance to large supply of building products increases, that certainly is the main driver for the margin expansion on that part of the business. And then some of the specialty manufacturing, again, you're talking about quite differentiated niche products including our bridge systems, as an example, which is now the highest margin product we make in the group. And there's some good growth opportunities in the pipeline there looks particularly good. So there's the sort of 3 main reasons. The New Zealand product range, which obviously, apart from the growth in New Zealand industries and that in Australia, that weights it up the bridge systems and specialty products out of manufacturing and the improved scale on the building products side, you put those 3 and 3 together, and that's what's driving our margin improvement.

Sure. Okay. And the last question is around the -- I noticed the dividend's back. So probably, it's a signal that the management and the Board level, there's more contact around outlook than probably was when you withdrew the dividend a couple of months ago. So in that sort of outlook, are acquisitions pretty much back on the agenda in that are you actively -- have you actively started to look for more acquisitions?

Yes. So we have in the pipeline, and there was obviously quite a few good, strong opportunities that we literally just paused with the vendors. So we basically just said, we just aren't in a position to go ahead to contract stage. So we certainly can reactivate and we have started to reactivate discussions there. So -- and then obviously, there's new opportunities pop up quite regularly, it's fair to say. I think there's going to be, as is always the case during downturn in the economic cycle, there's going to be stressed businesses and/or it's a catalyst for people to reassess their future and their succession plan. So we've already started to see those kind of extra opportunities as well as the quite strong and at least partially progressed acquisitions that we paused in March. So between those 2 areas, we think there's a strong pipeline there. And hence, we will be reactivating that. Now we've been quite clear that certainly for anything of a material size, we believe we would need a capital raise to execute a large -- a larger acquisition as we did in New Zealand last year. So our balance sheet remains quite clear. That's what would be required for a larger deal, or there's been smaller bolt-on deals that we've done. And again, that strong cash flow management towards the end of the year is going to aid in terms of our ability to activate some of those small-scale acquisitions just using the balance sheet as well. So a blend of those 2 things.

Okay. So just to finally dwell on one of the colors, Steve, doing the potential for distressed businesses coming up for sale. Is that a business you'd actually want to buy? Or would it be more the accounts that it offers? How should we be thinking about those?

Now look in the main, I mean, the businesses, is really stressed, and we simply wouldn't buy it. I mean our strategy has been very clear is we're buying good positive EBITDA businesses, not turnaround stories. So however, if a business has just dipped a little during a tough COVID year and it's also been the catalyst for the vendor to think about its future and the succession of his business, then yes, we can clearly look past 1 year's dip. And I think there will be those opportunities. But certainly, buying basket cases is not our game. We're not a fundamental turnaround story. So we wouldn't be looking at those opportunities, Raju, but I think there's plenty of good businesses out there, as we've always said with aging business owners and not to speak, plenty of them are contemplating their future at the moment and some of the discussions I've had just in the last few weeks, specific examples like that.

[Operator Instructions] Our next question comes from Robin Morgan from Taylor Collison.

A couple from me. Some have been asked already. Formply specifically where you said formply volumes up 9%, but your overall Formwork sales down 10%. Can you just clarify? So what are the other sales, if you like, that suggests when formply Formwork sales fell pretty heavily?

Yes. So the two other biggest categories, one is structural beams. So particularly LVL structured beams. The other one is our steel product. So our steel products fell. Again, we see a pretty common -- Robin, is as markets come off, Formworks typically want to use their existing assets. So that lends itself back towards more conventional Formwork, which is ply and timber, not steel. So that explains the reduction in the steel market. Steel particularly spikes when things are really busy and there's multiple jobs being done at the same time. They haven't got enough in-house assets to be able to do it conventionally, so they use steel. So -- and the other one is LVL beams, which are effectively a semi capital wood, Robin, because they can last multiple years if they're well looked after. So again, as the number of projects drop off, they've often got enough capacity, enough product within their system when they're recycling, putting product off a completed project. So they don't need to rebuy as much. So there was quite material declines in LVL beams, which is their second biggest product category in the group. So that's the main area. So I'll put it down to that, that changing the way the industry uses conventional assets and so forth, given that some of the goods we sell are sort of semi capital in nature.

That's helpful. And I suppose the 9% growth in the formply is indicative or a really good indication on that cross sellability you've got, where you go into or acquire a new branch, you've got an existing customer base and you're sort of pushing formply that maybe wasn't there before. Does that describe a 9% growth there?

Yes. It does. Yes. We had a couple of -- in the Formwork segment, we got -- we had $3 million of growth through some of the small and new branches, which is classic -- adding synergies and yet, yes, $10 million of decline through the big core branches, which were exposed to the big capital cities. So yes, if it wasn't for that continued improvement and adding value to those acquisitions, the fall in the Formwork market would have been larger.

Yes. That's really helpful. And manufacturing doesn't get much of a say nowadays given distribution is so dominant. But -- and you touched on it in the presentation, just your mindset maybe around it given COVID or a post-COVID environment, where there's maybe more interest in controllable, local manufacturing. I know you've called things, cut things, rightsized it for the environment, how do you sort of progress with it going forward? Or does it leave it as it is and just adjust as the market changes post-COVID environment?

Yes. I think that's real -- I think that's it, Robin. We've obviously had -- we've had some hard years and obviously, manufacturing's declined as a percentage of contribution to the profitability of the company. But we've retained those assets, which sort of sets us apart from many of our competitors who would just trade products. So I think there's -- it still adds to the strategic story of Big River, the flexibility to customize a product for someone and we just need to continue to flex it between our import supply chain and our local manufacturing supply chain. We've got the basic manufacturing right and we've got the flexibility to go up and down a little bit if there is indeed. A spike in sentiment for Australian or indeed if they have major problems with our import supply chain. We do have that dual option of being able to flex up our own local assets. So I feel like there's no sort of big change there, Robin. I think it's probably proven to be particularly useful in this year just gone. And I think we'll continue to be an option that others don't have, that we do have. We just got to continue to fine-tune those businesses and around them as well as we can. Right size, as you mentioned, I think we've done that heavy lifting now. And then the focus is towards more value-added products. And there is R&D going on there, and you can see the EBITDA margin is expanding from that manufacturing part of the business, even though manufacturing Australia has been a pretty tough gig for some years now. So I think we've turned the corner as such there, Robin.

Grafton has always been the site where it's been a little bit more value-add products. Will it be a bit more commoditized? That might not be the right word. Is there a change to the mindset with Wagga given that?

Now, look, I think -- look, you're right, Robin, I mean Grafton has -- has been designed to be the sort of customization plant where things are made to Wagga. Wagga still does make some good volumes of higher volume plywood basis. And certainly, we do share resources between the 2 sites. Partial manufacturing happens at 1 site and is complete with the other. So the 2 manufacturing businesses are heavily integrated together. So whilst a lot of that -- the sort of stage 2 secondary processing, if you want to call it, that happens at Grafton and certainly Wagga still performs a key role in at least the base manufacturing of the deployed with blank, so to speak, and the further value adds that at Grafton.

Great. And just 2 last quick ones from me. That New Zealand COVID lockdown, you said it only impacted you by 1%. That seems unbelievably good?

Now, 1% at the group level, Robin. So a couple of million in revenue that we lost in a month is -- was 1% of the group sales. Group sales would have been 1% higher.

Was it [indiscernible]

But obviously, it's 10% or it impacted New Zealand by 8% as you'd expect, the full month trading loss.

Yes. And then finally, a slightly ignorant question, apologies, just that guidance. So we can make our own assumptions in terms of what degree of fall you have versus the underlying market. Are you talking like-for-like sales though?

Yes, like-for-like. Yes, you always like-for-like. Hopefully, there will be acquisition contribution on top of that, but like-for-like, yes.

And even thinking the acquisitions you made last year, the 2 there, that's going to give you a bit of a lift. But yes, that makes perfect sense.

Yes. Look, the pro forma sales would have been $260 million last year. So obviously, that slide 3, where we've got the split by segment region, that does pro forma the acquisition, particularly in Adelaide that was only made in March, so you annualized their sales and the pro forma revenues from last year would have been $260 million.

And just finally to sneak one last one in. I know the M&A question was already asked. But just given what we've seen and how well you've managed the business through some uncertain times. I know that they're back online and the pause in discussions has maybe started back up again with potential vendors. But it doesn't actually increase your appetite or increase your urgency to acquire coming out of this?

Look, I think it remains a critical part of our strategy, Robin. I'm not sure that, that sort of increased the urgency, I think there'll be plenty of opportunities. And I think it's a real -- it can be a real strength in the business. I mean obviously, we've got to continue to grow organically, and we haven't had that in the last couple of years, but it's a really critical internal goal of the sales team. And the cycle hasn't helped us. Obviously, that addressable market clearly been falling for some years now. So we do need to fix that. But certainly, acquisition is a critical part of the strategy. So we haven't wavered from that in any way even though COVID has changed things for, obviously, for many people. We still think that's the real opportunity that we've got in an extremely large market and hence, yes, we certainly need to continue to do that. And we're certainly focused on executing and clearly looking at some larger deals as well as the small bolt-on lines, which we've historically done since listing.

Well done on a pretty resilient result given the environment.

[Operator Instructions] Gentlemen, we have no further questions at this time. So I'll hand back for any final comments.

Okay. We might leave it at that. And folks thanks for joining, taking the time during a busy time. We really appreciate your interest in the company, and I look forward to talking again, later in the year. All right, thank you.

Okay. Thank you.

Thank you very much. Ladies and gentlemen, that does conclude the call today. Thank you so much for your attendance. You may now disconnect.