FOS Capital Limited (FOS) Earnings Call Transcript & Summary

Good morning, all. Thank you for joining me for the FOS Capital half year results presentation. Once again, thank you for taking some time out of your day to join me. We've had a quite successful first half, which I'll run through in a minute. But just to get through some housekeeping, you have -- this video is being recorded, and it will be posted on our website later today. [Operator Instructions] And I'll go through my presentation and then address all questions that we have. So kicking it off, really pleased with the first half. Sales continued to grow predominantly off the back of the KLIK acquisition, which has gone extremely well since we acquired it in October 2023. Sales $14 million for the half, up 42%. Organic growth is still running at between 10% and 15%. That's been consistent over the last couple of years. EBITDA, up $1.4 million, up 60%, 62%, and we've now sort of reached the 10% margin on sales, which is one of the numbers that we've been targeting to get to, and we're able to get that, I think, for the first time in this first half of '25. Net profit after tax of $0.8 million and one of the most pleasing numbers, operating cash flow of positive $2.5 million. So just justifying all of the work we've put in over the 3 or 4 years building up to this and integrating the acquisitions. And another sort of outstanding number is the export market sales, $1.3 million for the first half, up 149%. Again, this is off the back of one of the KLIK products, which is a handrail product. We export that predominantly to the U.S.A. and the U.S.A. sales have been growing at a healthy rate, but we have now opened up the U.K. and European markets with that product. And one of our goals over the next 12 months, 24 months is to really grow the export market potential for that product and some of our other products. Earnings per share came in at $0.015, up 500% from the previous corresponding period. So all the numbers were heading in the right direction and have been year-on-year since we listed in '21. In the half year also, we announced that we have entered into an exclusive distribution agreement with RP Group, which is a German-based Emergency & Exit lighting company, one of the leading companies in the world in Emergency & Exit lighting. And Emergency & Exit lighting is an area that we, up until now haven't dabbled in. It's relatively a market that only the Emergency & Exit light players are playing directly. But it's a big market. It's over $700 million in Australia. It's well suited to the way we go to market with our products in the specification project way where we specify our lighting into projects. And every commercial project we do, it has Emergency & Exit lighting in it. So we announced that in November. It's -- we've started to get some specifications in place. But this will be a sector that will gradually grow over the next couple of years. We're not expecting huge P&L impact on it in the first 12 months, but we need to break through and start getting some specifications and getting some smaller orders and they'll build up to bigger orders as time progresses. So there are some of the key financial highlights for the first half. If you look at the graphs, just about -- each period has its own growth, whether it be revenue or EBITDA or net profit. We continue to grow the business, and we continue to pull synergies out of these businesses as they integrate each day. We've now fully moved all of the linear product from Brisbane into the KLIK factory in Sydney. So now all linear product is coming out of the one area. And we are modifying the FOS VEKTA and Hawko linear products using some of the KLIK technology that is in-house at KLIK. So all of that, again, brings better margin to the product, more control over the product, actually helps us lower the stock holding as well, because as we've consolidated multiple lines that we're crossing over, we've been able to start reducing some of our stock holdings, especially on aluminum extrusions and the LED control boards, LED boards as we consolidate those lines. So they'll -- we continue to find operating advantages as time wears on. Just touching on cash flow again. So operating cash flow for the first half was $2.5 million off the back of strong sales in that first half. And also, we have a very blue-chip customer base where a lot of our payments are coming in right on time. We've got no bad debt. We've got very little debtors outside of 60 days. So that all helps to keep the cash flow flowing with the business. And because of some of the cost controls and stock controls, some of that converts into cash in certain periods, and that's what happened in the first half of '25. We also paid the final payment of the KLIK acquisition. That was $1 million that came out in October of '24, and we paid a dividend in the same -- at the same time, that was around about $0.5 million. So that all came out of that operating surplus that we generated. And our debt position is -- the net debt was about $0.7 million at the half, but the actual debt was sitting at about $2 million with about another nearly $3 million of headroom on that facility should we need it. So we're really comfortable with the debt levels. We're comfortable with the cash flow and really looking forward to trying to replicate all that all over again in the second half, and hopefully, also bring a few other exciting developments to the business in that period. Balance sheet. Not a lot of movement there. Again, its pretty strong. Payables are right down to about $1 million, borrowings, as I mentioned, under control. And we have no real CapEx requirements in this business and haven't had done any in the 3 or 4 years we've been operating because effectively, all of our plant and equipment and other sort of equipment has come by the acquisitions that we've made along the way. And as a result, we haven't had to really spend any money on new equipment or even upgrading equipment other than some just general maintenance to keep the place going. And that's envisaged going forward as well. We're not expecting any major CapEx requirements, definitely not in the near future or really beyond that. Outlook wise, order book still staying up around the $9 million mark. It's down from its high of $11 million about 12 months ago right off the back of the KLIK acquisition. We've really flushed a lot of jobs out in the last 12 months, which have converted into sales, which has dropped the order book a little bit. But our pipeline is still strong at $110 million. And we have a few bigger projects that we've been sweating on in the last 2 or 3 months that we expect to land soon, and we expect that order book to come back up to the sort of $10-plus million mark shortly. So that's the only number that really has gone a little bit against us in the last couple of months. But we -- like I said, we expect to bring that back up because we know the work is there. A lot of it's timing issues, it's project related. So our orders are lumpy. So we might land 2 or 3 big jobs in 1 month, and that restores that position overnight really. So we're monitoring that, but nothing to be too concerned about there. And overall, the industry seems to be still chugging along nicely. A lot of our work is in the government spending infrastructure area with hospitals and schools, railway stations, and transport. So I think well over 50% of our revenue is coming from one of those areas and the government is still spending money in those places. And a lot of our quotes and a lot of this work coming up is in those areas. So we expect the industry to sustain this momentum that we've had in the last 1 or 2 years going forward. And looking just a little bit beyond that, there's the Brisbane Olympics coming up and works haven't even begun on that, and we don't expect those works to start for another couple of years probably. And we'll be well placed to pick up our share of that market. We've got a big operation in Brisbane. One of our factories in Brisbane and for whatever favorable favor we get, because we're local, we'll pick up some work through that process. But that's a little bit further down the track. We continue to develop product. That's an ongoing thing for us on a day-to-day basis. It's not really going out to invent a brand-new product, but it's more enhancing our existing range and keeping it up to speed and adding some bells and whistles to it to keep up with market trends and market movements. And on the back of the export success we've had with the KLIK pod fitting, our Megabay range is currently being tested in the American markets to get type approval to be able to be sold into the U.S. And we think that product is well suited to that market. So we're going through a process of approvals, which will take a few months. But towards the end of this calendar year, we expect to have -- be marketing that product to our existing distribution channels in the U.S. Our distributors over there have looked at the product and they're really keen to take it on. So we've decided to make the investment in getting it tested and getting it approved for use over there. So that will come later in the year. And beyond that, we -- like I said, we do constant product development on our range, and we tweak it and we move it and we keep ahead of the pack as much as we can. And as always, this business from the outset was set to go and build some scale via strategic acquisitions, and we will -- we're continuing to work on that. There's a number of acquisitions in the pipeline that are currently being worked on. And hopefully, we'll have something to say about that in a bit more detail in the not-too-distant future. So all in all, our team really happy. We've got about 80-odd people. That number has been pretty consistent now for the last about 18 months since we've had KLIK. A great team. We've got these 2 factories in Brisbane and Sydney that are producing product on time and keeping customers happy, and we've got a sales team around Australia and New Zealand working hard to keep pulling in the work. So we've got a great team. We're really happy with who we've got. We continue to recruit new people where we find some holes, and the outlook is looking reasonably well, as I said earlier.

Now, I have some questions. First question, I've got is, do we expect GM for half 2 to be much different from half 1? No. I think we are sitting, I think, just above 40%. And that's the number that we've been sort of budgeting around, and we don't expect the margin to move greatly one way or the other in the next half. And another question I have, which is KLIK manufacturing to say, do we need -- do you expect any U.S. tariff impact? Or would it actually benefit from the tariffs making your competitors' products more expensive? Look, I haven't spent really any time thinking about that issue. I doubt it's going to affect us in any great way one way or the other. We compete with other imported products in the range that we're selling into the U.S. So it could just come out neutral that if it's costing us more, it cost them more, but really haven't spent any time trying to get my head around that question at this point of time. And just on that export and import side. We import a fair bit of material, mainly componentry. So we are affected by the foreign exchange from time-to-time. In recent times, the U.S. dollar hasn't been favorable to us, but it doesn't have a material impact on our overall result one way or the other. So we manage that relatively well. So there's no real impact. We prefer the dollar to be a bit stronger than what it is. But we probably gain a bit on the reverse side when we're exporting to the U.S. that our products is a bit cheaper going in on that front. Now that's all the questions I actually have. It's been a quick short sharp session. As always, thank you for joining me, and you're all welcome to reach out individually directly to me, if you want to have a chat offline. Thanks again for your time, and have a great day.