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

Thank you for standing by, and welcome to the Big River Industries Limited FY 2024 H1 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. John Lorente, Chief Executive Officer. Please go ahead.

Thank you, and thank you all for joining us today. I appreciate you taking the time to meet with us in what I know is a busy reporting season for everyone. My name is John Lorente, I'm the CEO and Managing Director of Big River Industries. It is my pleasure to present the first half results for the financial year '24. I will go through the business overview, the strategic initiatives and the divisional performance. John O'Connor, our CFO, will then go through the financial detail, and I will wrap up at the end on the outlook. If we move on to Page 3, Business Overview. Now this is a slide I'm sure that many of you have seen before. A key pillar of our strategy is the diversity of our supply chain, market segment and geography continues to be a competitive advantage for our business. Some key points to note by exception on this slide. This half saw a change in our supply chain mix with an increase in local supply as we consolidated purchasing post the COVID supply constraint period. We saw a change of mix in manufacturing with a decrease in frame and truss volumes, which was offset with growth in panel and manufactured products. Our market segment splits were a decrease in residential as that came off, predominantly in frame and truss. Pleasingly, our commercial market grew despite extended site delays with continued strong pipelines of work still to be delivered. The state mix remains similar to previous period, and we continue to have 26 sales and distribution sites across Australia and New Zealand and 7 manufacturing sites across frame and truss and panels. Now if we move on to Page 4, performance highlights -- Performance Headlines. Despite the softer half, which was cycling off a very strong post-COVID market in calendar year '22, we continue our growth journey over the last 5 years. The business is delivering solid historical metrics across most measures. As communicated previously, our first half revenue of $218.8 million was in line with the previous half, up 0.8% in the second half financial year '23 and down 5.9% on a strong first half financial year '23. Our operating expenses have been managed very well within an inflationary macroeconomic backdrop. OpEx was up 3.8% and flat on -- flat like-for-like. As discussed, we have been actively increasing investment in the business to deliver efficiencies, synergies and future growth. We've invested circa $1 million in these initiatives, and this is included in the flat like-for-like OpEx result. EBITDA was $20 million, down 28.3% on a strong previous half, in line with consensus forecasts and pleasingly in line with our target to achieve average 10% EBITDA margins through the cycle. Our cash management continues to be a highlight. Our investments are delivering excellent results with improved discipline in systems and processes. Our working capital to revenue was 15.7%, with continued improvements in debtor and inventory management. Our cash conversion was strong at 98%, and we delivered a return on funds employed of 20.6%, in line with our long-term targets. The positive result allowed us to deliver an interim dividend of $0.055 per share at a payout ratio of 64.5%. Now if we move on to Page 5, Progress on strategic priorities. We will continue with our proven and successful strategy of focusing on servicing trade customers, acquire value-accretive businesses in a fragmented market, and leverage our scale while delivering local service. We will also continue to invest in the business to deliver scale benefits, efficiencies, synergies and growth. The safety and development of our people is a key value for our business. We have accelerated investment in safety initiatives this half, with external safety audits, site improvements and increased engagement and training. We've also invested in key talent and developing our greatest asset, our people. We've made good progress on our organic growth initiatives across the group, in particular, growth in focused product groups, including our MaxiWall panels and fiber cement as well as timber flooring. There's been an increase in acquisition opportunities over the last 6 months, and we will continue to look to add quality acquisitions to the group. As discussed earlier, we have made significant investments in systems and processes, which are delivering positive results and will set up the business for future growth. We've had good progress in our supply chain initiatives, including the appointment of Gareth Watson, ex-Dulux and Boral, to head supply chain and manufacturing. This will help us continue to align the business and realize scale benefits. Lastly, one team, Big River. We are consolidating and extending the Big River branding and marketing initiatives. On to Page 6, our new branding. We had a preview of our new brand at the AGM. This has now been officially launched to the market on the 12th of February. The new branding unifies our 18 brands under one banner, one Big River. It's a modern brand that will foster synergies, deliver scale benefits and drive growth as one team. The construction division branches will now be branded Big River Commercial and Big River Trade Centres. The panel division will be Big River Panels, Big River Panels by -- sorry, Timberwood Panels by Big River and Plytech Panels by Big River, aligned with the strength in those brands in key customer segments. This has been an 18-month journey, and I'm sure you will all agree, the team have done an excellent job. If we go to Page 7, Historical Performance. Again, you would have seen this slide previously. Despite the decline for the half cycling on a very strong calendar year 2022, we've continued our growth journey over the last 5 years. The business is in a strong financial position, investing for future growth and with positive medium- to long-term outlook. Revenue, as discussed, was slightly down from the first half '23, but in line with the previous half. Profit was down on a strong previous result, but continued with the growth trajectory of the last 5 years with solid profit margins. Our cash and gearing continues to be a highlight, giving us good headroom to navigate the market and capture future investment and acquisition opportunities. As discussed, our return on funds employed remains above 20%, in line with our long-term targets. Now if we go on to Page 8, Divisional Performance. The construction division volume and margin was impacted by a decline in frame and truss, cycling off a very strong previous period post COVID. That business also experienced deflationary impacts on structural timber and LVL. The construction division delivered good commercial market growth despite considerable site delays. This has meant the project pipeline continues to be strong and push into the next 12 months. Our organic growth initiatives delivered positive growth in lightweight cladding and timber flooring categories, as the team is focused on winning a larger share of wallet. In the panels division, panels experienced softer market conditions in Victoria due to that market dynamics. This was partly offset by a very strong performance by our Queensland business, and that growth has seen us moving to a larger site in Brisbane, which will enable us to deliver expected growth in that market. New Zealand performed well in a soft market, flat on previous year, with strong performance from our Decortech business in the commercial market. Scott Barclay has joined us as EGM of Panels. He has a strong market and sales management background, previously from Laminex and James Hardie, and will drive growth for the business. The increase in head office costs were investment in key appointments, including finance, IT and HR. Now I'll pass it on to our CFO, John O'Connor, who will run through the financials.

Thank you, John. Good morning, everybody. As mentioned previously, our revenue was down 5.9% on prior comparative period. That was driven by the lower residential activity across all our markets. That, coupled with labor shortages and site delays, impacted our results for the period. Our gross profit result at $57.8 million, a 10% decline on the prior period. Our gross margin was off by 130 basis points. The previous periods, we had gained from the volume growth in frame and truss. This had enabled us to drive higher efficiencies through these manufacturing operations and as such, a higher margin. We've seen the opposite impact of that in this last period as the category has declined in line with the lower residential activity. We've also seen increased competitor activity at a general level, which means we had to be more keen on our pricing to win business generally. Our operating expenses have increased in the period. But on a like-for-like, they have remained steady. We've absorbed overall wage increases of 4% to 5% in the period, and we've continued to invest in our people and systems to deliver on those future growth opportunities. So overall, we've achieved an EBITDA result of $20 million, down 28% on the prior period. Our overall finance costs were in line with the full period impact of the additional borrowing we took on last December to fund acquisitions and, of course, reflecting the higher interest rates over the last 12 months. The resulting NPAT number was $7.1 million, a 44% decrease on the prior comparative period. Looking at Slide 10, our balance sheet. It's very pleasing to report, we've maintained a very strong balance sheet, which gives us confidence to continue with the growth and acquisition strategy we have in place. We continue to maintain a strong disciplined focus on our debtor management. Yes, we have seen some stabilizing in the market and not as many distressed customers as we had this time last year, but we will remain quite focused on how we manage this. Pleasingly, we've been able to reduce our debtor days further at 39 days. We also maintained our inventory disciplines with the overall inventory levels marginally down from our June '23 close numbers. We have reduced our debt by just over $2 million in the period, and that was in the main due to just optimizing our working capital facilities across the group. Looking next to capital management. Our net debt increased from $11.2 million to $19 million. That was primarily reflecting the contingent considerations paid in the period and the catch-up on the prior year income tax liabilities that were settled in the period. In terms of the key metrics that John alluded to earlier, gearing ratio at 13.6% is a very healthy result and within our historic ranges, and it leaves us well positioned for future acquisitions. Our total working capital as a percent of revenue remains a focus, as always, and it was again pleasing to see this average 15.7% on the period, reflecting that approach. And just finally on this page, confirming the interim dividend, the $0.055 fully franked has been determined and payable on the 27th of March, a dividend payout of 65%, a solid result. Moving to the cash flow page on Page 12. Our cash conversion, OCFBIT, came in at 98%, which again was a particularly sort of strong result given our really good result at the end of the last financial year. Our working capital has remained in good shape. Strong financial disciplines have helped us, as I said, see debtor days down again. Our inventory turns are in the right range. So overall, our working capital decreased by 17.2%, which compares favorable to the total revenue decline of 5.9%. Our CapEx is down slightly year-on-year as we cycle out of the heavily weighted Grafton investments over the last couple of years. And then just confirming that $7 million dividend paid in the year and the higher tax payment as we settled our FY '23 tax liabilities. I'll now pass you back to John, who will take you through the outlook.

Thank you, John. Now on to the outlook page, Page 13. We're experiencing short-term delays but have a strong medium-term outlook. In the short term, our outlook is supported by continued solid pipelines. Site delays are continuing to push the pipeline well into calendar year '24. On the macro side, housing approvals have been in decline, but the medium-term market outlook is positive given the reduced inflation, the plateauing of interest rates, elevated migration levels, low vacancy rates, high housing demand and the state and federal initiatives to boost construction. On to the market segments, the commercial project pipeline remains strong and add into calendar year -- the end of calendar year 2024, given the delays in delivery due to labor and weather. We've had good growth in multi-residential in Queensland with positive medium-term outlook to be led by the build-to-rent sector and medium-density construction. Housing is expected to continue to be softer in calendar year 2024, given slow delivery and reduced starts with a rebound expected in 12 months on that high underlying demand. On to the states, the WA market is very strong, and that should continue. The Queensland South Australian markets are also looking solid. Sydney and Melbourne are expected to continue to be soft for the short term, but bounce back on increased migration. And New Zealand is expected to be flat on a soft resi market, and a good commercial pipeline with some potential shipping delays. Now if we go on to Page 14, we'll continue with the outlook. On to acquisitions. Now this has been a key part of our strategy. Opportunities to acquire quality businesses have increased over the past 6 months. And we have several value-accretive opportunities across both divisions that we are working on, and we will inform the market in due course. The Grafton project is now complete and is delivering increased volumes of both decorative panels and formply. The grand opening is scheduled for the 3rd of April. Our supply chain strategies and plans will continue over the next 6 months as we align with key partners and deliver synergies over the next 12 months to mitigate increased competition and market pressures. As noted previously, we have several investments -- we have made several investments in the back end of our business over the past 6 months that have delivered a positive result. We will continue to prudently invest in people, systems and processes to deliver efficiencies, synergies and long-term growth while maintaining costs across the business. In terms of guidance, extended site delays have pushed the pipeline into the second half of calendar year 2024, and there are signs that the market in the short term will be less predictable than previous years. If projects continue to be delayed, then second half financial year '24 revenue could be below the first half result. The next few slides are the appendix. So that's the end of our presentation, and I'll pass it on to some questions.

[Operator Instructions] There are no further questions at this time. I'll hand the call back to Mr. Lorente for closing remarks.

Right. Well, thank you all. Thank you for jumping on the call. And we're doing the roadshow, the Investor Roadshow, on the week of the 4th of March. I look forward to seeing you all then. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.