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

Thank you for standing by, and welcome to the Big River Industries Limited FY 2026 Full Year Results. [Operator Instructions]. I would now like to hand the conference over to Mr. John Lorente, Chief Executive Officer.

Thank you, [ Surndju ], and thank you to everyone who has joined us today. My name is John Lorente. Joining me is John O'Connor, our CFO, and it is our pleasure to present Big River's results for the 2026 financial year. I'll start with an overview of the business and our performance for the year, including some of the key areas of progress across the group. I'll then hand over to John to take you through the financial results in more detail. I'll come back after that to talk through our strategic priorities, the broader market environment and our outlook for FY '27 before we open up the call for questions. If we turn to Slide 3, business overview. This is a slide many of you will have seen before, and it highlights the diversity of Big River across geography, end markets and supply channels. We now operate 25 sites across Australia and New Zealand, including 7 manufacturing facilities. Queensland remains our largest individual region at 31% of revenue, while Western Australia and South Australia now represent 23%. Western Australia has been one of our stronger performing markets and the acquisition of Johns Building Supplies has materially strengthened our position and capability in that region. Our supply chain also remains deliberately diversified. Approximately 20% of our revenue comes from products manufactured by Big River, 15% from direct imports and 65% from local supply partners. That mix gives us flexibility and supports our ability to offer differentiated products while maintaining strong supplier relationships. Across our end markets, detached housing represents 37% of revenue, but we also have meaningful exposure to multi-residential alterations and additions, commercial, civil and OEM markets. Importantly, our largest customer represents less than 2% of our group revenue. So the key message from this slide is the breadth of the platform, we have diversity across customers, products, regions and construction markets, which remains particularly important in the current environment. If we go to Slide 4, divisions. Big River operates through 2 complementary divisions, construction and panels. Construction generated $295 million of revenue in financial year 2026 across 16 sites. It incorporates our building trade centers, frame and truss operations and formwork and commercial businesses. Panels generated $131 million of revenue across 9 sites and remain a leading supplier of differentiated decorative and technical panel systems across architectural, fit-out, residential, commercial and OEM applications. Across both divisions, our execution focus is consistent. We are focusing on areas where Big River has a clear competitive advantage, strengthening trade customer and supplier relationships, growing higher-margin and differentiated categories and continuing to improve the efficiency of the network. We are also investing selectively in profitable growth, both organically and through targeted acquisitions. The objective is to grow above the market while continuing to improve margins and create operating leverage through the existing platform. We now go on to Slide 5 and the performance highlights for financial year 2026. Overall, this was a solid result in a market that remained challenging. Group revenue increased 5.3% to $426.4 million, reflecting resilient trading across the group and the partial year contribution from Johns Building Supplies. On a like-for-like basis, revenue was down approximately 1%, which reflects the continued softness in residential construction markets in some geographies. Despite that, we were able to grow both gross profit and earnings. Gross profit margin increased a further 30 basis points to 26.5%. That continues the margin improvement we have reported over several periods and reflects disciplined pricing, better product mix, procurement initiatives and closer alignment with our key suppliers. Underlying EBITDA increased 8.4% to $31.1 million, with EBITDA margin improving to 7.3%. So importantly, earnings grew faster than revenue despite the underlying market environment. Cash performance was also strong and a highlight of this performance this year. Cash conversion increased to 101.5%, while net working capital to revenue improved materially from 17.7% to 15.9%. Gearing reduced from 20.1% to 17.9% despite completing the JBS acquisition and continuing to invest in the business. The Board has declared a fully franked final dividend of $0.02 per share, bringing total dividends for FY '26 to $0.04 per share. Overall, financial year 2026 demonstrates good execution across the areas we can control, margin, earnings, working capital and the balance sheet all improved, providing us with a stronger base entering into financial year 2027. We now move to Slide 6 and divisional performance. Now starting with Construction. Revenue increased 7.1% to $295 million, supported by the partial year contribution from JBS. Construction EBITDA increased 19.4% to $27.7 million with EBITDA margin improving from 8.4% to 9.4%. Formwork and Commercial remained comparatively resilient and delivered positive organic growth with particularly strong contributions from Western Australia and New South Wales. We also saw strong organic growth in South Australia and Western Australia more broadly. JBS performed ahead of expectations in its first partial year of ownership and has further strengthened our presence in WA. The improvement in construction earnings also reflects the operational and network efficiencies we have been working on over the past 2 years. Now moving to panels. Revenue increased 1.3% to $131.4 million. We continue to see organic growth in bespoke and value-added categories, which was partly offset by softer conditions in New Zealand and ongoing weakness in the recreational vehicle market. Panels EBITDA declined 8.9% to $12.3 million. That reflects competitive pricing and product mix pressures together with the investment we are making in targeted growth initiatives. Importantly, the areas where we have deliberately -- we have been deliberately investing continue to gain traction, particularly decorative bespoke panels and other differentiated higher-value categories. At group level, corporate costs increased $0.9 million, reflecting inflation, employee costs and investment in group capability and governance. The overall message is that construction delivered strong earnings growth while panels differentiated categories central to our long-term strategy continued to grow despite challenging market conditions. I'll now hand over to John O'Connor to take you through the financial results in more detail.

Thank you, John. Good morning, everybody. So starting on Slide 7, the profit and loss account. Revenue for the year was $426.4 million, up 5.3% on FY '25. This included the partial year contribution from Johns Building Supplies, following the completion of that acquisition in December last year. On a like-for-like basis, revenue was down approximately 1%, reflecting the subdued residential construction environment that John has discussed earlier. Pleasingly, despite those market conditions, gross profit increased 6.5% to $113.1 million, with gross margin improving a further 30 basis points to 26.5%. This continues the improvement we have reported around pricing discipline, product mix, procurement initiatives and that tighter alignment that we have with our key suppliers. We are particularly pleased that the margin improvement has been achieved despite the ongoing competitive environment and lower volumes across some of our larger markets. Operating expenses increased by 5.8% for the year, largely reflecting the addition of Johns Building Supplies and continued investment in capability across the group. Importantly, on a like-for-like basis, operating expenses increased by approximately 2.8%, which is below underlying inflation and reflects the ongoing cost discipline across the business. The combination of the stronger gross profit and controlled costs resulted in an underlying EBITDA of $31.1 million, up 8.4% on FY '25 and with the EBITDA margin improving from 7.1% to 7.3%. That return to full year EBITDA growth is important. We have achieved it despite the continued softness in the underlying construction market, which gives us confidence in the operating leverage available as volumes improve. Moving below EBITDA. Depreciation and amortization increased to $18 million, predominantly reflecting the impacts of the JBS acquisition and continued above-inflation increase in lease costs that came up for market review during the period. Our net finance costs reduced modestly to $5.3 million, notwithstanding the acquisition during the year, reflecting the disciplined cash and debt management. As a result, NPAT before significant items increased 20.5% to $5.2 million. Looking briefly at significant items. These included approximately $1 million of acquisition costs, predominantly associated with Johns Building Supplies, together with restructuring and rebranding expenditure. And then costs associated with the implementation of a new HR system and a subsequent payroll data review. These were partially offset by a $1.4 million fair value gain associated with contingent consideration. The reported NPAT attributable to shareholders was therefore $4.9 million compared with the prior year statutory loss following the $20 million impairment recognized in FY '25. I would also highlight the contribution from JBS. During our partial ownership period, JBS contributed approximately $25.2 million of revenue and $3.1 million of EBITDA, ahead of our acquisition expectations. Looking at Slide 8, the profitability waterfall. This slide helps to explain the movement from the $28.7 million EBITDA result in FY '25 to $31.1 million in FY '26. The first point is that the like-for-like revenue decline resulted in reduced EBITDA of approximately $1 million. That was more than offset by approximately $2.6 million of benefit from that gross margin improvement, reflecting that pricing, product mix and procurement initiatives I mentioned earlier. Like-for-like operating costs increase reduced EBITDA by approximately $2.3 million, although those increases were partly mitigated by continuing operating and network efficiencies. The JBS acquisition then contributed approximately $3.1 million during the period of ownership. So the important takeaway here is the margin expansion and contribution from JBS more than offset softer underlying revenue and higher operating costs, allowing the group to return to EBITDA growth. This is particularly encouraging given we have not yet seen a meaningful cyclical recovery in many of our end markets. And it reinforces our view that the business is well positioned to capture operating leverage when volumes improve. Moving now to the balance sheet on Slide 9. We finalized FY '26 with what we believe remains a strong and appropriately positioned balance sheet. Cash at the end of the year was $24.5 million, up from $22.8 million last year, while total borrowings were broadly stable at approximately $49.3 million. This resulted in net debt of $24.8 million, a modest improvement on the $25.5 million at June last year. Importantly, this was achieved after funding the cash component of the JBS acquisition during the year. Our gearing ratio improved to 17.9% from 20.1% at June '25, supported by that strong cash generation across the business and the equity raising completed alongside the JBS transaction. That remains comfortably within our target range and provides us with ongoing flexibility to invest in the business and consider future growth opportunities. Working capital was also well managed. Our net working capital to revenue improved to 15.9% from 17.7% last year. We placed a strong focus on inventory and debtor management through the year, and we are very pleased with that outcome. This is an area where we have consistently demonstrated good discipline. But we're not getting ahead of ourselves, and this continues to be a major focus for us. The increase in intangibles and contingent consideration largely reflects the JBS acquisition. Moving to Slide 10, the cash flow. The cash performance for the year was particularly strong. Operating cash flow before interest and tax increased to $31.7 million, representing a cash conversion of 101.5% compared to 100.1% last year. This was underpinned by both the quality of earnings and the disciplined working capital management that I just discussed. Cash generated from operating activities after interest and tax increased to $25.2 million compared to $23.3 million in FY '25. During the year, we used approximately $13.1 million in cash for the JBS acquisition. We also successfully completed approximately $10 million renounceable entitlement offer, which helped fund that acquisition while preserving balance sheet flexibility. Gross capital expenditure for the year was approximately $4.4 million, with expenditure continuing to be focused on essential replacement assets, branch and manufacturing improvements and initiatives supporting operational efficiencies and future growth. And we also paid approximately $3.6 million in dividends during the year, slightly up on the prior year. Despite the acquisition, capital investment and dividend payments, cash increased by approximately $1.8 million over the year. This is a very pleasing outcome and demonstrates the cash-generative nature of this business. Finally, looking at Slide 11, capital management. As mentioned, the net debt finished the year at $24.8 million with gearing of 17.9%, down from 20.1% last year. Our banking facilities remain well positioned. We completed the extension of our existing NAB facilities during FY '26 with maturity dates extending through into 2027 and 2028. At the year-end, we had approximately $16 million of unused acquisition loan capacity, providing appropriate liquidity and flexibility for the business. As I noted earlier, net working capital to revenue improved to 15.9%, which also remains within our target range. The Board has determined a fully franked dividend of $0.02 per share, taking the total dividends for FY '26 to $0.04 per share, consistent with FY '25. And this represents a payout ratio of approximately 76.9%. We continue to balance 3 priorities in our capital management approach: investing in organic growth and operational improvement, pursuing disciplined value-accretive acquisitions where appropriate and maintaining sustainable return to shareholders. The combination of strong cash conversion, lower gearing and available debt capacity leaves us well placed to pursue those objectives. I'll now hand back to John, who will take you through our investment priorities, financial ambitions and outlook for FY '27.

Thank you, John. Now let's move to Slide 12, investment and building for the future. This slide brings together the work we have been undertaking across the group and importantly, where we are now directing investment. Over the past 2 years, we've done a significant amount of work to improve the operating platform. We have consolidated parts of the network, improved manufacturing efficiency, strengthened supplier alignment, improved working capital and maintain discipline around the cost base. At the same time, we have continued to invest in the business. The more efficient cost base gives us greater capacity to invest behind the opportunities where we believe Big River has a genuine competitive advantage. On the market side, that means targeted business development, category management, pricing and mix improvement and further growth in areas such as cladding, plywood and differentiated decorative panels. Operationally, we continue to focus on supply consolidation, value-added products, manufacturing utilization and supply chain efficiency. Internally, we are investing in people, systems, processes, governance and cyber capability to support a larger and more scalable business. I also want to call out safety. Our lost time injury frequency rate reduced to 4.2 from 5.8, while the total recordable injury frequency rate reduced to 14.4 from 38.6. That is a significant improvement and reflects several years of investment in safety systems, leadership and operational processes. There is still more work to do and safety remains a core priority for the group. The objective across all of these initiatives is straightforward, build a more efficient and scalable business while selectively investing in the areas capable of delivering sustainable sales and margin growth. We move on to Slide 13, financial ambition and growth. Again, this is a slide many of you would have seen before. Our long-term financial ambition remains unchanged. We are targeting revenue growth above the market, continued gross profit margin expansion and EBITDA margin above 10% through the cycle, working capital below 20% of revenue and sustainable fully franked dividends. FY '26 represents further progress against those ambitions. Gross profit margin expanded another 30 basis points. EBITDA margin also improved. Working capital reduced to 15.9% of revenue. Cash generation remains strong, and we have maintained fully franked dividends. The balance sheet gives us flexibility in how we allocate capital. We will continue to look at targeted value-accretive acquisitions. We will continue to invest organically where we see attractive returns, and we will maintain our focus on sustainable shareholder returns. We have now completed 16 acquisitions since listing with JBS being the most recent in December 2025. As outlined at the bottom of this slide, the Board has also engaged Greenstone Partners to assist with the review of the group's strategic options. That review remains ongoing. There is no certainty that it will result in any specific outcome, and we will update the market once the review is concluded. To move on to Slide 14, investment highlights. Rather than going through every point on this slide, I would highlight several things. First, we've returned to full year earnings growth despite an unsupportive macroeconomic environment. Underlying EBITDA increased 8.4%, while gross margin has improved -- has now improved against the prior corresponding period for at least 3 consecutive reporting periods. Secondly, the quality of our cash generation and balance sheet remains a significant strength. Cash conversion was above 100%, gearing reduced to 17.9% and retain capacity for further investment. Third, our growth strategy is increasingly focused on differentiated higher-margin categories where we can combine our national distribution capability with specialist product knowledge, strong supplier relationships and local manufacture. And fourth, our acquisition strategy remains disciplined. We've completed 16 acquisitions since listing. Johns Building Supplies contributed $25.2 million of revenue and $3.1 million of EBITDA during the partial ownership period and performed ahead of expectations. There is also meaningful operating leverage within the existing platform. We have invested in the network, manufacturing, supply chain and systems over recent years. As we grow revenue through that platform, we expect a greater proportion of that growth to translate into earnings. That remains an important part of the opportunity ahead of us. Moving on to Slide 15, the macroeconomic drivers. The picture remains mixed, and I think this slide illustrates that quite well. On paper, the forward pipeline is strengthening. Dwelling approvals increased 9.2% during FY 2026 to just over 205,000, the highest level since FY '21. There is also approximately 244,000 dwellings under construction as at March, which remains near historical high levels. So the underlying demand and pipeline are there. The issue continues to be conversion. Affordability pressures, project delays and construction capacity constraints have all slowed the conversion of that pipeline into commencements, completions and ultimately, product demand. That was evident throughout financial year '26, and we remain cautious about the speed at which residential activity improves from here. There are, however, some favorable changes in the mix. The pipeline is increasingly weighted towards multi-residential and nonresidential activity and commencements have been stronger in Queensland, Western Australia and South Australia. That aligns well with our exposure to formwork and commercial panels and our broader building trade network. So our view is that the medium-term fundamentals remain supportive, but we are not assuming a sharp recovery in the near future. That is why our strategy remains focused on gaining market share, growing differentiated categories and improving execution rather than relying on the market to drive our growth. Now we'll go to Slide 16, the group outlook. We enter financial year '27 with an improved earnings base, resilient gross margins, a disciplined cost structure and a strong pipeline of targeted growth initiatives. Subject to market conditions and successful execution against our strategic priorities, we reiterate our expectation for double-digit EBITDA growth in financial year 2027. There are a number of drivers behind that expectation. Firstly, we will benefit from a full year contribution from Johns Building Supplies, and we expect growth -- continued growth in the Western Australian market. We are investing in greater market penetration across higher value categories where we have a competitive advantage, supported by additional sales specialists, technical and category capability. We expect to continue improving gross profit through pricing discipline, product mix, supplier consolidation and procurement initiatives. We are also focused on increasing manufacturing utilization, improving operational efficiency across the branch, warehouse and supply chain network and continuing the implementation of standardized systems and processes. Importantly, our outlook does not assume a strong residential market. We expect residential continues to -- residential conditions to remain variable and overall market growth to remain subdued in financial year 2027. Commercial infrastructure and formwork activity should remain comparatively resilient. We expect Western Australia and South Australia to continue to outperform with softer New South Wales and Victorian markets, while Queensland should increasingly benefit from activity associated with preparations for the Brisbane 2032 Olympics. Against that backdrop, FY '27 is very much about execution. We will remain disciplined on costs, working capital and capital investment while continuing to invest behind initiatives to deliver measurable earnings and cash outcomes. We will also continue to assess targeted value-accretive acquisition opportunities. So to summarize, we are realistic about the market conditions in front of us, but we enter FY '27 with a stronger business, better margins, a solid balance sheet and a clear set of growth initiatives. Our focus is on growing above the market, continuing to improve the quality of earnings and translating growth through the existing platform into improved returns. I would like to thank the broader Big River team for their continued effort and commitment throughout the year and to our Board and our shareholders for their ongoing support. With that, I'll hand back to the moderator, [ Surndju ], and we'll open up the call for questions.

[Operator Instructions]. The first question comes from the line of John Hynd, Petra Capital.

Congratulations on a solid result this year. If we could start on gross margins. They're pretty strong despite panels, which, I guess, to be fair, it looks like it's stabilized. Can you tell us what were the main -- I mean, you've gone through some of the detail, but I guess, what were the main buckets that led to those more resilient margins? And is there more in them? And perhaps also an update on panels. Are we -- are you approaching an upward trajectory in terms of, I guess, earnings from that segment now as well?

Yes. Thank you, John. Thank you for your question. Yes. So look, margins and they were different across our different geographies, but they've grown for several reasons. Firstly, we've worked pretty hard as we've already reported previously on the front-end pricing. And part of the maybe decline or not a strong growth on the top line has been that we've actually been very disciplined around not discounting where we don't necessarily need to. So we've been talking about profitable growth. So the front-end pricing has been the first bit. Secondly, we've been working over the last 2 or 3 years on aligning with key strategic supply partners and consolidating purchasing where that makes sense. And we have been able to get some slightly better deals on that. And then third has been the mix. So we've had a value-added product strategy over the last few years, which is really looking at areas where we don't make the margins in particular product categories that we need and differentiated products and looking to increase the margin from where it is at the moment. So that initiative has gone quite well. So they are the reasons why in terms of panels, a couple of reasons. So firstly, both the New Zealand business, the Melbourne business and part of the SLQ business, which if you remember, that's around the RV market. Those markets were quite soft. We saw some competitive pressures out there around whiteboard and standard set of sort of commodity product. And that pricing or that margin somewhat offset some of the growth in the value-added products within the panels category. So over the next 12 months, we're seeing good growth in those value-added products. We're seeing the pipeline grow. It's important that we've seen SLQ 1/3 of that business was that RV market. We're starting to see more growth in those specialized decorative products we've been building over the last couple of years. And we'll start to see over the next couple of years growth in both margins and volumes in our view in the panels business.

So just a couple of follow-ons from that. Is there -- you talk about those higher-margin products in construction. Are those -- is it just 1 or 2 type products? And this is obviously all with the background or during the backdrop of the Frame and Truss business is probably still under pressure from a margin perspective as well. So how does the picture look when Frame and Truss volumes improve? I mean it sounds like -- well, it looks like the leverage could be considerable?

Yes. Look, and I don't have a number for you, John. Good question. But look, in that formwork and commercial space, we benefited from supplier alignment and some cost pricing on a couple of key commodity lines and then several more bespoke products where we've been able to get above average -- well above average margins growing as well, right? So putting those 2 together and then the team at the front end, not discounting, we're being more cautious about the pricing discipline. From a pricing point of view, the formwork and commercial market, and yes, that has been growing quicker than other markets than other segments for us. But those -- both the volume end working with suppliers and the bespoke end on some of the value-added products delivered the result.

Okay. And as you reposition the panels segment to deal with your lost volumes with the RV market, do you think you can get the panels business or the panels segment back to those historical margins? Or do we need to think about -- I think you did put through a goodwill impairment maybe this time last year. Yes. Is that I mean, is there ever a risk of an upgrade again? Or have we...

Look, our expectation is that earnings will grow in panels, John. So a lot of the work has been done over the last 12 or 18 months. Unfortunately, as the market declined, we then also had part of the market for SLQ and then New Zealand, which is traditionally it is a stronger margin business being soft. So that impacted the panels business. But a lot of the work has been done. And our view is, yes, we will return to more profitable business over the next few years.

Got it. Moving on JBS beat expectations, which is great. But what is that actually, can you give us a little bit of color on what that actually means? Like what are the metrics that you were impressed with or what are the metrics that beat? And is there more -- were there any learnings you took away from that business? And is there more available? And how much of an impact did that have on the group?