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

Good morning, ladies and gentlemen, and welcome to the Big River Industries Limited 2021 Annual General Meeting. I am Malcolm Jackman and Chairman of the Board and Chairman of this Annual General Meeting. In spirit of reconciliation, Big River acknowledges the traditional custodians of country throughout Australia and their connections to land, sea and community. We pay our respects to the elders past and present and extend that respect to all our Aboriginal and Torres Island -- Torres Strait Island people joining the meeting today. It's now 11:00 a.m. and the nominated time for the AGM, and I've been informed that a quorum is present. I note that the AGM has been validly constituted, sorry about that, and I'm pleased to declare the meeting over. Let me start by introducing my fellow directors who are online today: Martin Kaplan, who's a Non-Executive Director; Vicky Papachristos, who's Non-Executive Director; Brendan York, who's also a Non-Executive Director; Brad Soller, Non-Executive Director; Martin Monro, Non-Executive Director; and, of course, Jim Bindon, our Managing Director and CEO. Also online today is Steve Parks, our CFO and Company Secretary; and I'm also pleased to welcome David Haines, our audit partner from Deloitte Touche Tohmatsu. David will be available if you're asking any questions on the conduct of the audit or on the audit report. You should now be on Slide 2. The Notice of Meeting convening this meeting has been forwarded to all shareholders within the required period. The Notice of Meeting, including details of how shareholders may exercise their rights to vote, ask questions and make comments at the AGM. I now table the Notice of Meeting, and unless there are any objections, I will take the notice convening this meeting as read. The items to be discussed are shown on the screen of our agenda. Again, the meeting is being held via video and teleconference technology. Shareholders have the opportunity to participate by voting and submitting questions via the virtual meeting platform and by asking questions via telephone. Shareholders are encouraged to start sending in questions now online or dial in to the phone line. We will try to ensure that all topics of interest are addressed in our responses to the shareholder questions. Questions submitted online, be it telephone or through proxy, will be moderated and may be amalgamated if they're model questions on the same topic. Voting on resolutions. And I'm sorry that it's a bit a lot of formalities around the meeting, but given the fact that we are online, it's the best way of handling all of this. During the course of the meeting, I will put forward various resolutions to the meeting, giving an opportunity for discussion. In accordance with the company's constitution and as set out in the Notice of Meeting, I have determined that voting on each of the resolutions will be conducted by a poll. The results of the poll will be released to the ASX and will be available on the company's website as soon as possible after the meeting. I've been advised that all proxies received for the meeting have been checked, and I declare them valid for voting. As voting will be conducted online, voting will close 5 minutes after the end of the meeting. I will disclose proxy votes on the screen prior to the vote being taken for each item. These figures are as of the closing time for receipt of proxies, which was at 11 a.m. on Monday, the 25th of October. There are a number of voting exclusions that apply to the resolutions being put to today's meeting, and these were outlined in the Notice of Meeting. If we experience any significant technical issues today, we may take a short recess or adjourn the meeting until 3:00 p.m. Sydney Time today. If this occurs, I would advise you accordingly and to the extent possible and an ASX announcement will be made. I will now address the meeting. And after that, I'll ask Jim Bindon, our Managing Director and CEO, to make his presentation. Following that, we will proceed with the formal agenda of the meeting. My address and Jim's presentation have been lodged with the Exchange this morning and available for any shareholders wishing to access them. Any comments and questions received by shareholders in advance of the meeting have been considered and where appropriate and possible have been addressed within my address and Jim's presentation. I might note that there were no questions submitted previously. So let me kick off with my speech. For the second year in a row, let me start by acknowledging the commitment of all stakeholders to the ongoing success of Big River in the last financial year. It was again a 12-month period dominated by the COVID-19 pandemic, and we were lucky to be supported by our customers, all our hardworking staff, Jim and the management team, my fellow directors, our support of shareholders and suppliers and not least our financiers. The detached housing and renovation markets were particularly strong, although this was somewhat offset by the multi-residential and commercial markets being below mid-cycle levels. Business interruption was a feature of the year with multiple COVID lockdowns and significant disruptions to our supply chain. Fortunately, Jim and the Big River team were up to that challenge, and we are able to deliver a credible performance in FY 2021. Revenue for the year was up 13% to $281 million, driven by both organic and acquisitive growth. Operating EBITDA grew 30% to a respectable $22.5 million, aided by the Timberwood Panels acquisition that completed in late March. A highlight for the year was distribution gross margin improving by 150 basis points. We also announced the pending closure of the Wagga Wagga New South Wales manufacturing plant and subsequent consolidation of manufacturing at our Grafton New South Wales facility. This decision was prompted by the uncertainty of wood supply and receiving funding under the New South Wales Bushfire Grant Scheme. I'd like to acknowledge the service and dedication of both past and present staff who have worked with Big River at the Wagga Wagga plant. The Board determined a final dividend of $0.03 per share that brought the full year dividend to $0.056 per share, and they were fully franked. I'm pleased to say that all our sites have and continue to be COVID-free. And whilst the varying degrees of COVID restrictions across Australia and New Zealand have disrupted the business, we are continuing to keep the doors open to support our customers, the broader construction sector and the economic recovery in both countries. We have also had some changes at Board level. Brendan York made a career change and joined NAOS Asset Management in the senior executive role, which meant he was no longer deemed independent. We were no longer -- given we no longer had a majority of independent directors, a search was initiated to appoint 2 additional nonexecutive independent directors. I'm delighted to say that Brad Soller and Martin Monro have agreed to join the Board. Both Brad and Martin bring a wealth of relevant industry experience plus both having worked in senior executive roles in the listed company environment. Their networks and knowledge will be invaluable to executing the company's growth strategy. And of course, I'd like to commend to you the efforts of my fellow directors who have continued to work diligently on your behalf. Despite current conditions, the strategic direction for Big River remains unchanged, given the broad social, economic and political settings that exist for our core markets. We will continue to pursue both organic and acquisitive growth with our diversified strategy of focusing on our key market categories of formwork, building supplies and panels. We have announced the acquisition of Revolution Wood Panels in August and United Building Supplies in October, both of which are excellent bolt-on acquisitions and earnings per share accretive from year 1. None of this would be possible without the significant effort of our people led by Jim and his senior leadership team. Living in such an uncertain world means our people at every level need to be flexible and ready to adapt to a changing market at a moment's notice. So it's a great reflection on both the culture and the work ethic within Big River that we've delivered such a good result. We're lucky to have so many hard working and dedicated staff. I'll now invite Jim to address the meeting.

Thank you, Malcolm. So for those looking at the screen, I think we're on Page 7, which is an image of some product where we supplied into the Taronga Zoo upgrade. So I just would like to confirm that photo there despite Malcolm playing second row in his former Rugby days, that is not actually an image of him. That is a draft as part of that enclosure. So just moving on to Page 8 there, folks. This is a slide you may have seen before, so I won't go through it in detail. It's really just to confirm that the spread of the Big River business here is -- reflects our FY '22 pro forma numbers. Malcolm touched on a couple of the acquisitions there. So it's been included in this vision in terms of the mix of our business. But I won't dwell on that slide given we've had it there many times before, but it certainly has been updated. Just moving on to Slide 9. Again, these results, apart from Malcolm touching on them, they've certainly also been addressed in the full year results in August of this year. So I won't go through it line by line. I think suffice to say that on most measures, we had strong growth during the year. Certainly, at a top line level that flowed through to all components of the bottom line, depending on which measure you like to look at. There was a small reduction in our cash conversion ratio from last year, predominantly linked around the additional tax payments that were required to be made during the year, and that will largely relate to deferred tax from the prior period. The other point on this slide, that's a touch different is, we just noted that, obviously, we've got a comparison period with FY '19 being on a pre-AASB basis and FY '20 and '21 being on a post-AASB basis, AASB 16 that is, just the bottom right-hand graph there just shows the -- let's call it, the normalized growth in EBITDA versus that change as a reflection of the new accounting standards. So just moving on to the more relevant and updated points on Page 10 there, the trading update. I certainly can say that the first quarter continued to remain strong as the construction cycle comes out of the FY '20 trough. Certainly, worth noting that due to some of the COVID restrictions around either state-based restrictions or indeed the construction sector restrictions that occurred in some jurisdictions, there around 8.5% of our available dispatch days were lost during Q1, particularly Victoria, New South Wales, New Zealand and ACT were the most impacted. So notwithstanding that, we've seen and our assessment is that the addressable market has grown more than what our original expectations was that we communicated in our FY '21 results in August. We see that market has grown circa 7% versus our original expectations of around 4%. So the strength of the market is quite clearly despite some of those restrictions due to COVID. Some positive signs on the multi-res sector. That's clearly been a weak market for several years now. So pleasing to see some of the August ABS data showing, in particular, for the first time in 3 years that the rolling 12-month approvals have actually grown. So that's consistent with our expectations that the multi-res sector will come back on board, certainly to a much stronger level in FY '23 and beyond. Just a couple of the highlights with respect to the sales or indeed our categories. Group sales were up 12% on a like-for-like basis in Q1 or 35%, including the acquisition contribution. So particularly good growth as we come out of the trough of the construction cycle. Our growth was achieved in all categories, which Malcolm touched on. I think that's pleasing part of the strategy. Our products have got applications in many and wide and varied applications. So the fact that there was strength across all 3 pillars of our business show the strength of the market. From a geographic point of view, growth was seen in all states, except New South Wales, which was flat with the prior year. But clearly, New South Wales during that period, July to September, had significant restrictions in place with that substantial COVID outbreak in Sydney in particular. And whilst New Zealand had 5 weeks of Level 4 lockdowns, our business is still trading particularly well and on track after the first quarter to achieve the final year earnouts as part of that acquisition deal that was done several years ago. From a financial front, a quick summary on Q1. So our EBITDA performing ahead of our expectations, so up over 70% on the prior year or 30% on a like-for-like basis, if you strip out the contribution from Timberwood, which, obviously, wasn't there in the prior period. So strong growth at an EBITDA level. Obviously, when that drops down to a net PAT level, the growth is even stronger with our first quarter '22 net PAT being more than double the prior period. So a pleasing transfer of that sales growth down to the bottom line. Just on some working capital that points, inventories have grown around 10% in Q1. Some of that is obviously associated with the cost increases that the whole sector has faced and some additional volumes we've secured given some of the supply chain shortages. On the flip side, our debt has continued to be strong and partially offset that growth in stock or inventories. Just moving on to Page 11, guys, which is the outlook for the balance of the year. As Malcolm touched on the homebuilder, the detached housing market remained strong. The homebuilder scheme is only really in the early months of getting fully rolled out and the supplier restrictions certainly continue to guarantee that detached housing pipeline is going to be stretched, and that will push well into FY '23. So the strength of the housing market will continue the rest of this year and certainly next year in our view. Clearly, some good evidence starting that the commercial and the multi-res sectors across most geographies are looking better, and we expect that again to flow through in FY '23, given some of those projects have quite a long gestation period given the size of those projects and the amount of work to be done before [indiscernible]. On the infrastructure, the A&A market, the renovations and our manufacturing sector, all 3 of those categories, which you saw on the pie chart on one of the earlier slides remain strong. And the acceleration of the market improvement, which I talked about in FY '21, where each quarter was stronger than the previous quarter, that acceleration has continued with the first quarter of FY '22, showing greater growth than any quarter from the prior year. So I think our thesis around the cycle and the acceleration up the curve continues to hold true. Just a quick update on strategy. Malcolm touched on the plywood consolidation strategy, where the Wagga plant will be closed and the extra capacity and equipment put in the Grafton, that continues to progress well and the second tranche of our funding has been lodged with the government, and we expect payment to be there for that particular component of the Bushfire Grant Scheme. Obviously, a component of strategy is always organic growth. And clearly, from those like-for-like sales numbers, we've got good traction there. And in particular, in some key differentiated products, there are some strong market and product development work there to build a good pipeline for some key differentiated products as well as some of the mainstream building products. And then on the acquisition side of our business, which is clearly a key part of our strategy. Timberwood showing really strong growth in the first quarter, up over 15% versus the prior year and trading at record levels. That's been pleasing to see. The Revolution acquisition, Malcolm touched on, again completed on the 1st of October and the first trading month progressing well. The United Building Products announcement that was made around 6 weeks ago, we expect to complete in early November. Everything on track there and then multiple other acquisitions as has always been the case, I should say. They'd actively assessed and we still see that our industry is right for consolidation, and there's plenty of opportunities. And then on the financial front, just on the outlook, certainly, our revenue is now tracking at the upper end of our previous guidance. And our EBITDA growth, where we guided that it was going to be in line with our revenue growth, we expect our EBITDA growth to now exceed the revenue growth percentage. And then it's also worth noting that in addition to the previous guidance, we've got 8 months contribution from United to add to that previous guidance number. And then the final slide for me, I won't go through it. It's just the appendix with some history there that runs through the history of our whole range of measures, and it's a standard slide at the back of our presentation, so I don't propose to go through that. So that's the end of my presentation, folks. I'll just hand back to Malcolm to continue to chair the meeting. Thank you.

Thanks, Jim. And as I said previously, thank you to you, your senior leadership team and all the staff for a great outcome in FY '21, and that seems to be continuing as we move forward. We're now on Slide 14, I think, for everybody, and we progressed to the formal business of the meeting. [Operator Instructions] At the time each resolution is considered, I will invite any questions specific to that resolution beginning with the phone questions. and then following with the online questions. Questions that are relevant to the business of the meeting will either be read out allowed to me by Big River staff member or might moderated via the phone, and we may amalgamate questions if there's model questions on the same topic. [ We'll say that ask questions ] specific to the resolutions until the relevant time. Shareholders will be asked to consider the 6 resolutions set out in the Notice of Meeting, which was dated 24th of September 2021. As I've previously explained, voting on each resolution will be by poll. The poll for each resolution is now open and will close 5 minutes after the end of the meeting. For the purpose of -- for each proposed resolution, I'll introduce the resolution. There will be an question to ask questions, okay, and then persons entitled to vote will may cast their vote at that time. So item 1 on the agenda is the financial statement. The first item is to receive and consider the financial report, the directors' report and the auditors' report for the financial year ended 30 June 2021. No vote is required on this item. However, we would be pleased to deal with any questions or comments you may have in relation to these reports or general questions to the Board or to the auditor. Are there any questions on this item, moderator? No questions on the phone?

I'm not showing any questions.

Okay.

I'm not showing any questions.

Thank you very much. Steve, any question online?

No online questions, Malcolm.

Okay. If there are no further questions, I'll move to the next item of ordinary business, and that is item -- resolution 1, the 2021 remuneration report, again, which relates to the adoption of the 2021 remuneration report, which is contained within the 2021 annual report. The resolution is set out under -- is set out on the screen that you should have in front of you under the Corp's Act. This resolution is advisory only and does not bind the directors of the company. However, we will -- any discussion on this resolution and the outcome of any non-binding vote will be taken into consideration by the Board. Is there any questions on this -- or discussions on this, the moderator?

No questions from the phone.

No questions. Thank you. Steve, any questions online?

No questions, Malcolm?

Thank you. I now declare the poll open and put the resolution to the meeting resolution 1. The proxies are shown on the screen. Please record your vote online. We now move to resolution 2a, election of Martin Monro as a Director. Resolution 2a relates to the election of Martin as a Director of the company. And Martin's biography is included in the Notice of Meeting. The resolution is set out on the screen. Any discussion on this? Any questions on the phone, moderator?

No questions from the phone.

Steve, any questions online?

No questions, Malcolm.

I now declare the poll open to the meeting resolution 2a. The proxies are received and shown on the screen. Please record your vote. Resolution 2b is the election of Brad Soller as the Director of the company, Relates -- resolution 2b relates to the election of Brad as a director of the company. Brad's biography is included in the Notice of Meeting. The resolution is on the screen. Is there any discussion on this resolution? Moderator, any questions on the phone?

No questions.

Steve, any online questions?

Not online.

I declare the poll open and put to the meeting resolution 2b. The proxies are shown on the screen. Please record your vote online. Resolution 3 is the -- relates to the Big River Industries Limited Rights Plan. The detail, which are included in the Notice of the Meeting. The resolution set out on the screen. Is there any discussion on the resolution? Moderator, any questions on the phone?

No questions.

Steve, any online questions?

Not online, Malcolm.

I declare the poll open and put to the meeting resolution 3. The proxies are received and shown on the screen. Please record your vote online. Resolution 4 is the approval of performance rights to Jim. Resolution relates to the issue of performance rights to Jim Bindon, the Managing Director and CEO and accordance with the company's rights plan. The rights plan has been approved by the Big River Shareholders and General Meeting. The resolution is set on the screen. Is there any questions or discussion? Moderator, any questions online?

No questions.

Steve, any question -- sorry, that was phone. Any questions online, Steve?

Not online, Malcolm.

I declare the poll open and put to the meeting resolution 4. The proxies are received and shown on the screen. Please record your vote online. Resolution 5 is the approval of additional 10% placement capacity. It is a special resolution seeking approval for the company to issue up to 10% of the issued capital of the company in addition to the company's 15% placement capacity under the listing rules. The resolution is set on the screen. Is there any questions on the phone, moderator?

No phone questions.

Steve, any online questions?

Not online, Malcolm.

I now declare the poll open and put to the meeting resolution 5. The proxies are shown on the screen. Please record your vote. Resolution 6 is in -- the renewal of proportional takeover provisions. Resolution 6 is a special resolution seeking approval for the renewal of Big River's proportional takeover provisions in the constitution which protect shareholders should have proportional takeover bid occurred. No Director is aware of a proposal by anyone to acquire or to increase the extent of substantial interest in Big River currently. The resolution is set out on the screen. Is there any discussion on the resolution? Moderator, any questions?

No questions.

Steve, any online questions?

None, Malcolm.

Okay. Ladies and gentlemen, that concludes the voting on the resolutions of the meeting. The poll will remain open for a further 5 minutes, which by my reckoning takes it to about 10:31. And therefore, shareholders who have not already voted, may now largely vote, okay. We're going to pause for 5 minutes again while that poll happens, okay. And before I can actually formally close the meeting, okay, that -- so whilst that happens, I'll just ask whether there is any general questions. Moderator, was there any other questions on the phone?

I'm showing no questions.

Steve, anything online?

Nothing online, Malcolm.

So for shareholders, I'm just going to put my phone on mute and sit and wait until 11:31 on my phone and then I will close the meeting on that. So if you've got things to do, feel free to dial out. Otherwise, we'll just wait another 4 minutes and close the meeting formally. Thank you. [Voting]

Hi, everybody. Welcome back again. The 5 minutes has now passed, okay. So I now declare the polls are closed, okay. As I mentioned earlier, the results of the meeting will be announced to the Exchange as soon as possible and as soon as they've been counted and verified, okay. There've been no further business. No general questions, okay. I now conclude the meeting and declare the AGM closed. Thank you for your time and your continued engagement and support of Big River, and we look forward to seeing you face to face, hopefully, for our AGM next year. Thank you. Goodbye.