DGL Group Limited (DGL) Earnings Call Transcript & Summary

Welcome. Simon Henry, CEO, DGL Group. I'm here to take you through the FY '23 full year results presentation. This presentation is also available on our website under the investor link. Turning to Slide [indiscernible]. DGL has had a solid FY '23. Sales revenue rising 26% to $466 million. Underlying EBITDA is up 27% to $64.1 million. We've increased our employees to over 800; our active customers to over 4,200. We operate from over 70 sites across Australia and New Zealand and significantly increased our transport capabilities. Turning to Slide 4. DGL continues to perform strongly. Sales revenue, up 26%; gross profit, up 25%; underlying EBITDA, up 27%; and underlying EBIT, up 25%. Turning to Slide 5, operational highlights. DGL Group continues to expand its scale and its capabilities, expand its -- expands products and services that we can offer, expands the geographies that we cover. And we're able to bring all of our segments together and achieve significant cross-selling between the segments and further increase our sales to the existing customers and attract new customers. We're expecting ongoing efficiencies and improvements by integrating our businesses and centralizing key services. Slide 6. DGL continues to grow. Revenue, FY '23, increased as a result of increased sales volumes to existing customers, price increases to reflect higher input costs and the acquisitions and increased cross-sell. We increased fleet, trucks, tankers and trailers. Revenue growth flowed through to underlying EBITDA but, at the same time, partially offset by inflationary pressures on employee benefit expenses. FY '23, our net profit after tax decreased on a prior corresponding period, primarily as a result of increased financing costs from higher interest rates and increased borrowings and a prior period tax adjustment and more conservative treatment of available tax loss utilization in New Zealand. Turning to Slide 7, increased capabilities and scale. Since FY '21, staff numbers have increased 69%. Trucks and trailers and tankers have increased 166%, and sites that we operate have increased by 58%. Turning to Slide 8, performance, a 26% increase in sales revenue in line with our June '23 guidance. Able to push through price increases. Cost of sales increases are in line with revenue, including higher raw material prices, higher employee benefits expenses were integrated and the integration of 270 acquired employees. Underlying EBITDA was up 27%, in line with revised guidance provided in June '23. Second half of FY '23 we encountered a significant shortage of lead-acid batteries, particularly in the final quarter of FY '23 and also experienced uneven ordering patterns from key customers. We have higher -- and higher effect of FY '23 tax rate of FY -- of 33% due to a more conservative treatment of available tax losses -- tax loss utilization in New Zealand and a prior period tax adjustment. Turning to Slide 9, segment revenue. Chemical Manufacturing, up 126% or 126% compounded annual growth in revenue since FY '21. Strong demand for our increasing range of products. Logistics, 59%, our compounded annual growth rate since FY '21, experiencing a very high rate of utilization in our warehousing facilities across Australia and New Zealand. And acquired four businesses in FY '23, which contributed $29.3 million to the segment. Environmental Solutions segment, 32% compounded annual growth in revenue since FY '21. FY '23 was a challenging year for our recycling business with the shortage of lead-acid batteries but offset by strong demand for our water treatment services plus the contribution there from four acquisitions contributing $28.5 million in revenue to the segment. Moving on to Slide 10, the balance sheet. Strong and conservative balance sheet, providing us with the flexibility and headroom to support further growth and to meet customer demand in FY '24. Net assets increased to $336 million. Property, plant and equipment increased by $27.6 million. And net debt running at around $91.1 million at 30th of June, which is about 1.4x net debt-to-EBITDA. Inventory days are down from 76 to 46. Slide 11, cash flows. Robust operating cash flows of $59.3 million, very impressive cash conversion there of 118%. No dividend was paid in FY '23. The dividend policy remains unchanged with all earnings being reinvested to support growth. Slide 12. DGL has performed strongly in the face of price volatility and inflationary pressure. Well capitalized. We have a diverse range of customers and we're exposed to growth industries and are located in key geographies. We have strong relationships with raw material providers and end markets. We continue to provide essential services to key industries and consistently in demand with a growing customer base. Seeing robust demand from a broad customer base in our Chemical Manufacturing division and ongoing supply chain disruption, and customers looking to be partnered with reliable vendors. Logistics once again, we're seeing fewer players carrying out chemical logistics and record high utilization of our warehouses. Environmental, our segment there, increasing demand for our water treatment services, increasing demand for our chemical dosing requirements into mining and working in a highly regulatory -- regulated environment is driving growth. Moving on to Slide 13, FY '23 achievements. Continue to cross-sell between our market -- between our segments; acquired new businesses that enable us to provide more material, more products, more services and cover more geographies. We are extracting better value out of our assets across the group through having these segments work closer together. We have invested in capital and new projects. We've expanded our production capacity in Victoria. We've acquired a number of new sites to meet growing demand for chemical formulation and production. We will continue to -- our strategic companies. We carried 11 acquisitions in FY '23. These acquisitions added skilled employees, customers, wider range of services and products and cover geographies that we might haven't covered previously. The acquisitions that we've made since IPO in 2021 are well on their way to being fully integrated into the group. Moving to Slide 14, our planned activities for FY '24. The ongoing integration of our acquired businesses, a central focus on organic growth opportunities, using a wide range of assets and our customers and capabilities to further increase our sales, to further develop up our procurement department, to reduce the cost of raw materials through bulk buying, the expansion of our DGL formulation and transport offerings. We've commissioned a new industrial battery breaker in Victoria, which we hope will be a significant contributor to our environmental division. We have a new liquid waste treatment plant coming on stream in New South Wales. We have expanded our chemical production capacity across Australia and New Zealand. And this will be further enhanced throughout FY '24. We are implementing a new ERP and payroll system to automate our shared services across the group, and these will be rolled out through FY '24; continue to acquire well-priced and strategic companies when they come along. And obviously, with the focus of these companies, just to fill out our service offering and bring in new customers into the group. Slide 15, senior management team, all experienced and working well and looking forward to the future. ESG, the process of appointing a senior full-time manager to further enhance and develop the ESG element of the business. Health and safety environment, pleased to be able to report there were no health and safety or environmental events that came about in FY '23 of any significance, a remarkable achievement. We are a chemical company, so operating safely is key to everything that we do. We certainly hope to continue this good record moving through FY '24. Summary and outlook, Slide 18. We are continuing to experience unprecedented demand for our products and services, and we certainly have the opportunity to sell more products and services, particularly along the East Coast of Australia. Our challenge will be to add in the additional capacity needed to meet this demand. Our priorities are to increase sales whilst being measured with new capital commitment and extracting greater value from our existing asset base and infrastructure, continue to deliver on our pipeline of organic growth investment. We will maintain a selective approach to assessing and selecting potential strategic acquisitions, focus on the ongoing centralization of services and support functions to increase return and drive efficiencies across the group. The outlook. DGL has experienced a solid start -- a solid trading start to FY '24, giving the Board confidence that despite ongoing volatility and uncertainty, the company's strong growth trajectory will continue throughout FY '24. The company will remain focused over the next 3 or 4 years on our current markets in Australia and New Zealand to execute its long growth runway before looking further afield. That's all. I thank you very much for your time.