EBOS Group Limited (EBO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the EBOS Acquisitions and Equity Raising Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to turn the conference over to your first speaker today, Mr. John Cullity, Chief Executive Officer. Thank you. Please go ahead.

Thank you, Desmond, and good afternoon, everyone, and welcome to today's presentation. My name is John Cullity. I'm the CEO for EBOS Group, and I'm joined today by Alistair Gray, our CFO; and also Martin Krauskopf, our Chief Strategy and Corporate Development Officer. I'm very pleased to be able to announce today an equity raising of up to AUD 250 million, comprising an underwritten AUD 200 million placement and a non-underwritten retail offer of up to AUD 50 million to fund 2 bolt-on acquisitions. These acquisitions comprise SBS, the leading supplier to the vet wholesale sector in New Zealand and the final 10% stake in TransMedic to bring our ownership in that business to 100%. I'll now move to Slide 9 of the investor presentation, where we outlined the 2 acquisitions we have completed in 2025 so far, which is consistent with our strategy of investing for growth. Firstly, we have acquired SBS and associated entities for a total consideration of up to NZD 125 million. This comprises NZD 115 million upfront consideration and an earn-out of up to NZD 10 million. The upfront acquisition price implies an FY '25 EBITDA multiple of approximately 7x. Secondly, and as we announced in January 2025 of this year, EBOS has moved to 100% ownership of TransMedic by acquiring the remaining 10% interest we didn't own for consideration of approximately AUD 35 million. SBS, the company, is the leading supplier of pet medicines and other products to more than 500 veterinary clinics and specialty retailers in New Zealand, supported through well-established relationships with a wide range of leading suppliers. It has a track record of strong financial performance and is expected for the 12 months ending March '25 to generate revenue of approximately NZD 280 million and EBITDA of approximately NZD 17 million. The vet wholesale distribution market in New Zealand is mature and stable and is supported by category trends such as humanization of pets and the consumer move to more premium products and services. The acquisition of SBS represents a geographic expansion of EBOS' existing vet wholesale business in Australia, Lyppard, where we hold the leading market position. We also see potential opportunities for SBS and Lyppard to share best practices through our ownership and management of both businesses. Moving to Slide 10. Regarding TransMedic, EBOS acquired its original 51% stake in TransMedic in May 2022 as part of our acquisition of LifeHealthcare, and we subsequently increased our stake to 90% in December '23. TransMedic is a leading independent medical device distributor in Southeast Asia with a presence across Singapore, Indonesia, Malaysia, Philippines, Thailand, Hong Kong and Vietnam. It has performed very strongly under our ownership and control, and our move now to 100% ownership is in line -- aligned with our strategy of continued expansion in the attractive Southeast Asian region. In connection with these acquisitions, EBOS will undertake a fully underwritten AUD 200 million placement to eligible investors. There will also be a non-underwritten retail offer to eligible existing shareholders of up to AUD 50 million. Any funds raised in excess of those required for the acquisitions will provide further balance sheet capacity for future growth opportunities. We have an active pipeline of potential small- and medium-sized bolt-on M&A opportunities within our core markets that we expect would be synergistic to existing operations, and we will apply the same financial discipline to this pipeline that we have previously demonstrated as part of our inorganic growth initiatives. Including the pro forma impact of the acquisition of SBS, the 10% stake in TransMedic and the impact from the equity raising, we expect FY '25 pro forma EPS accretion of low single-digit percentage points. Pro forma leverage as at 31 December 2024 will be below 2x. For FY '25, we reiterate the guidance previously provided to the market of underlying EBITDA between AUD 575 million to AUD 600 million. We would note that this guidance excludes any contribution from SBS, but that it does include the earnings of TransMedic, which have been consolidated in our financial statements since May 2022. Turning to Slide 12 now, where we look at the strategic rationale for our acquisition of SBS in greater detail. SBS is the leading supplier in New Zealand's vet wholesale sector, which is a mature and stable sector and supported by the category trends I mentioned previously. The company has well-established relationships across key suppliers as well as vet practices and retailers across the country. Our acquisition of SBS represents a natural geographic expansion of our vet wholesale business here in Australia. There will be in time for us to benefit from the combined strength of our enlarged geographic vet wholesale footprint, which will provide the opportunity for us to share best practices between SBS and Lyppard. We have also ensured that SBS' existing experienced senior leadership team will remain with the business under EBOS' ownership to help see these opportunities through. And underlying all of this is an attractive acquisition price, supporting expected EPS accretion and favorable return on capital employed metrics. On Slide 13, SBS through its supply to over 500 vet practices and pet retail customers holds an estimated market share of approximately 60% in New Zealand. The business offers a comprehensive suite of products for companion and large animals and supplies to New Zealand across its 5 locations covering both the North and South Islands. Revenue in FY '25 is expected to be approximately NZD 280 million with EBITDA of approximately NZD 17 million on a pre-IFRS basis with a steady growth and profitability profile. Slide 14 displays our various positions within the animal care sector with SBS providing a natural extension of our well-established Australian vet wholesaling business into New Zealand with the 2 businesses sharing similar suppliers and product ranges. Moving to Slide 16. On this slide, we wanted to reiterate the attractiveness of the Southeast Asian health care distribution market. This sector has multiple tailwinds, including a large and aging population, a growing middle class with increasing access to health care services, government initiatives stimulating demand in new segments, an attractive market structure for independent distributors and a fragmented market share providing further bolt-on M&A opportunities. The medical device market in this region based on external sources is estimated to be in excess of USD 12 billion and growing at an upper single-digit growth rate. Slide 17 provides more detail on our TransMedic business, which, as mentioned before, initially became part of the group in May 2022 as part of our acquisition of LifeHealthcare. TransMedic today operates across Singapore, Indonesia, Malaysia, Thailand, Hong Kong, Philippines and Vietnam and distributes a comprehensive range of medical technology products to surgeons, hospitals and other health care providers from a range of global OEM suppliers. Our business operates across a broad variety of therapeutic areas with the key ones identified on this slide. I move to Slide 18. TransMedic has grown significantly since our initial 51% acquisition with total revenue and EBITDA growth of 50% or more between FY '22 and FY '24. TransMedic also saw double-digit revenue and EBITDA growth in the first half of FY '25. The drivers of this growth under our ownership have included the regional industry tailwinds as described previously, as well as an expanded distribution coverage model for new OEMs across both new and existing therapy areas. We have also, in the last 6 months, completed 2 small bolt-on acquisitions, which we have previously announced, and our strategy is to continue to focus on building further scale in our key therapeutic areas. Moving to Slide 19. Our MedTech division is a key part of the group's growth engine and an area where we will continue to deploy further capital. We either distribute or manufacture medical devices across Asia Pacific and the U.S. with significant market presence in several growing therapeutic areas. We have identified our MedTech business as an area where we have a competitive advantage to grow outside Australia and New Zealand, and the performance of our TransMedic business under our ownership gives us confidence to continue this strategy. We now turn to Slide 21, we provide further details of the equity raising. The raising comprises a fully underwritten placement of AUD 200 million or approximately NZD 217 million and a non-underwritten retail offer of up to AUD 50 million or approximately NZD 54 million. The new shares to be issued under the placement will be issued at a fixed price of NZD 36.65 per share, representing a discount of 4.95% to the last close price of NZD 38.56 per share as at the 10th of April, today. This placement represents approximately 5.9 million new shares, representing 3% of our existing shares on issue. For the retail offer, eligible existing shareholders in New Zealand and Australia will receive further details in a retail offer booklet to be distributed on Wednesday, the 16th of April. The maximum application size of up to NZD 100,000 and AUD 45,000 has been selected with the objective of enabling as many retail shareholders as possible to apply for their pro rata share of the equity raising under the retail offer. Turning to Slide 22. Any proceeds from the equity raising in excess of the consideration for the acquisitions will be deployed over time into our pipeline of potential bolt-on acquisitions across our existing segments. Adjusting our net debt on a pro forma basis to include the impact of the acquisitions and the underwritten placement would see our net debt as at 31st of December 2024 be approximately AUD 1 billion, and this would imply a pro forma leverage ratio of below 2x. Slide 23 shows the expected equity raising timetable, which we would ask all investors to take note of. So in conclusion, we are very pleased to be undertaking these acquisitions and capital raising today and continuing the group's long-held strategy of both organic and inorganic growth. The acquisitions of SBS and the 10% interest in TransMedic are consistent with our strategy to invest in growing our core businesses through small- to medium-sized investments. We anticipate making further announcements with respect to the equity raising in accordance with our NZX and ASX continuous reporting obligations in due course. And we will communicate directly with investors with respect to their eligibility to participate in the equity raising. Thanks for your attention, and I will now open the call to any questions from analysts.

[Operator Instructions] Our first question comes from the line of Tom Godfrey from Ord Minnett.

I was just keen to sort of pick up on the earnings profile for -- or the EBITDA profile for SBS in recent years. I mean, just calling out sort of relatively flat. In FY '24, was it impacted by the same sort of headwinds around global vaccine shortages that your core business was? And just sort of any comments around that? And then for the second part of the question, you're not calling out any explicit cost synergies, and I know the management team is sort of continuing, but is there any sort of -- maybe if you could touch on what best practice with Lyppard looks like?

Yes, Tom. Look, in terms of the earnings profile, they did have a bit of a dip in FY '24, but that was some part of out of stocks, plus also some cost pressures in the New Zealand environment that's been adjusted for in FY '25. So it's returned to steady growth. I would point out that our wholesale businesses in the animal care sector, they are typically of the lower growth, right? They're lower growth than the branded profile of the business. So -- but they're steady earnings growth profile. I think I'd also comment that when we acquired Lyppard back in 2011, we've basically doubled the size of that business over our ownership, right? So Lyppard's known as being basically the #1 service provider in the market and the lowest cost service provider in the market. And we think that we can continue with those type of strategies as well in the SBS business and continue to improve its performance.

Got it. And just any comment on sort of cost base or synergies, John?

Tom, as you know, when we do acquisitions, we don't factor in any synergies, right? So all the numbers and EPS accretion that we've spoken to today, there's no cost synergies. In time, there may well be, but we don't factor those into our models. For us, the strategic rationale for this investment is really just that extension of our -- of that presence that we have and that leading presence we have in the vet wholesale market, and it just makes sense for us to have that presence across both the Australian and New Zealand markets. And we think from the combination of both businesses over time, we'll be able to improve the performance of the SBS business.

Our next question comes from the line of Matt Montgomerie from Forsyth Barr.

Just in terms of the revenue growth from SBS last 3 years, about 7.5%. Is that -- is there market share gains in that? And how would you characterize, I guess, the competitive environment in the other 40% of the market?

Yes, there are market share gains in that number, Matt. And as I believe we've called out on the [ preso, ] we reckon SBS has a market share of about 60%. The rest of the market is made up of 2 other participants, the largest one of that being private. We estimate they've got a market share of about 30% and then there's another participants got, say, a 10% share.

Perfect. And I also understand that SBS has a sort of animal health laboratories business. Does the acquisition include that? Or is it just the wholesale side?

No, no, it doesn't include that. It doesn't include that, Matt.

And then just one more, just on TransMedic, I know you sort of briefly alluded to, I guess, the opportunities you see there. But I'm just wondering if you could expand on what you're seeing in that business from both suppliers and customers that's giving you the underlying confidence to continue the investment in that market more specifically?

Yes. I think how we would probably frame that, Matt, is we feel like that the opportunity that we've got in the Southeast Asian market in TransMedic is still very strong across basically those therapeutic areas that we've outlined there on Slide 17, right? And those therapeutic areas, we don't have full coverage across all the territories, right? So each of those therapeutic areas might have coverage in, say, 2 or 3 markets, and we believe that there's further expansion opportunities into the 7 countries that we operate in the Southeast Asian market, right? The other point I would make that in terms of the Southeast Asian market, we find it very favorable to operating an independent distribution model and particularly for a company like EBOS that's got strong governance and strong capital position and being a listed company that's very attractive to some of the North American and European manufacturers who find typically going direct into that market and operating in that market really challenging and are looking for strong distribution type businesses that we can offer that are well capitalized and have expertise across these therapeutic areas. And we can invest alongside them and continue to grow their businesses. And then there's commercial benefits for our business as well by undertaking that strategy. So that's broadly how we see the market evolving. As we've commented before, we see the market as really quite fragmented. The TransMedic business is one of really only a few pan-Southeast Asian businesses that operate across that region. So we're in a -- we look at it in a very strong position. And the growth rates that we're getting and have been obtaining since our ownership have been strong, and we would look for that to continue going forward.

Perfect. And just one more. On Slide 18, you've outlined the growth rates in terms of revenue and EBITDA for TransMedic. Are you able to give us a sense of the split between organic and inorganic within that, noting the bolt-ons?

Yes. So in the organic growth on the revenue line, about 30% is organic, about 20% inorganic.

At this time, there are no further questions on the line. I would like to hand the call back to management for closing.

Okay. Thank you, Desmond. That concludes the presentation. So thank you, everyone, for your participation, interest and attendance, and we look forward to talking to you later. Thank you.

That does conclude today's conference call. Thank you for your participation. You may now disconnect.