FOS Capital Limited (FOS) Earnings Call Transcript & Summary

Good morning. Welcome all to FOS Capital's Full Year '25 Results Presentation. My name is Constantine Scrinis, Managing Director. And once again, welcome all and taking the time out to join me in this presentation. As always, this is being recorded. So I'll just jump straight into it. Full year '25, overall, pleased with the result. It was a solid year. We had sales of $25.5 million, just above the '24 sales. And really, we had a strong first half, and we softened in the second half. And I'll talk more about that as we go through the presentation. EBITDA was up at $2.1 million. Net profit after tax of $0.9 million. We're paying EPS earnings per share of 1.72%. We're paying a $0.01 dividend as well. Operating cash flow, positive $2.3 million and export sales at $2.7 million, it was up 84% from the previous year. So there are some of the high-level metrics that we've delivered through the year. All of those numbers are an increase on full year '24. And if you look at year-on-year, we've increased both our sales and our net profit after tax margins consistently year after year, and we expect to continue that path going forward. We did 2 acquisitions towards the second half -- the latter second half of the year. The first one was Glowing Structures and then we acquired the Aldridge Traffic Systems businesses. So 2 acquisitions and a fairly solid year throughout. We're pleased with the result, and we're set up really well to move into the next 12 months and beyond. I'll talk first to the Glowing acquisition. Glowing is a lighting design consultancy business. They work on lighting designs for clients and they get paid -- it's a paid-for-service business. And they generate somewhere around $14 million or $15 million worth of lighting specifications throughout the year. Our motivation for acquiring Glowing is that we are trying to convert as much of that $14 million or $15 million specification into FOS lighting sales. To help do this, we have inserted one of our FOS sales employees full time sitting inside the Glowing Structures offices so that as they're designing the jobs, our salesperson is there to help them put as much FOS product onto those jobs. That's been going well since it's only been 3 or 4 months since we've had the business, but that process is going well. And we'll start to see the benefits of that towards the latter part of this calendar year and into next year. That's the time cycle it takes to design a job, get the specification out, then go to tender and then win the order and supply the goods. So this is a way of us growing sales without having to put on additional salespeople. And in effect, the Glowing business because they're getting paid for service, it costs us nothing to generate those sales. So our job is to try and just convert as much of that $14 million as we possibly can. We don't really have an exact target of what we expect to get out of that but somewhere between 5% and 10% is the longer-term goal of how we go about it. And we should have some results of that by the end of the year to be able to measure against properly. The Aldridge acquisition was completed right at the end of June 2025. It operates in the road lighting sector. The road lighting sector is a unique sector within the lighting industry. You have to be approved to be supplying products on the roads, has a high level -- high barrier to entry because of that approval process and Aldridge had all those approvals in place in all states around Australia. Aldridge was bought out of the administration of the Traffic Technologies Group. And what we've been doing in the 2 months since we've acquired the business, there's 2 principal things we've been doing. The noncore assets that we acquired, we are at the late stages of disposing of all of those assets. All have agreements in place and all are in the process of completing. We will update the market down the track once we've completed all those acquisitions, and we'll be able to set the exact funds that we've received from that. But it's heading towards the $700,000 to $800,000 of asset sales that are coming through that process. Whilst we've been doing that, we have been putting together a new team to run the Aldridge business. We've hired 7 -- some existing and some new staff, mostly in the sales area and all have experience in that road traffic area. So we put the team together. We've been out seeing the road authorities and the customers, reengaging with them, letting them know the new ownership, going through a process of getting the products that are approved, transferred across to the FOS name. And we're out there tendering and winning work. And as of today, we've received orders and/or sales over $500,000 from the Aldridge business. and we've quoted over $1.8 million worth of new work in that time. So we're pretty pleased with that result in that first 2 months. And in reality, we have to rebuild the Aldridge business because when it was shut down through administration process for close to 4 months, it lost all that momentum. So we're in the process of rebuilding that. And we're looking at realistically, the first 12 months is a rebuild year. And then by the second year, we should be able to get back to the numbers that they were doing a couple of years ago, which was close to $20 million in annual sales of street lighting product. So that's the 2-year goal. First year, we'll look at rebuilding. And like I said, so far, it's been going to plan, no nasties and really pleased with the progress that we're making on that front. So they are the 2 acquisitions. And just going back to the numbers a little bit. Our second half was much softer than our first, down by about 25% in sales in the second half. And sort of the order book sort of plateaued at around that sort of $8 million to $9 million figure, even though the quotes that we're pushing out the door are increasing and have increased throughout the 12 months. So we're seeing a lot of jobs that are just taking a long time to procure to an order stage. It's been more prevalent in the second half than it has been in any time in the last couple of years. Not sure really what to put that down to. It's a combination of the economy and elections and whatever you want to call it. But we have no reason to think that, that's going to last because of the number of quotes that we're pushing out the door. And we expect to do higher sales in the next 12 months than we did in the last 12 months. And that's without the contribution of Aldridge and Glowing and we expect those 2 to contribute to really push us to the next level over the next 12 months. The operating cash flow has been really, really pleasing as we've pushed the business. We are continually pulling costs out and restructuring things as we go because each acquisition brings many pieces to it, and it takes us a while to blend them in and then unwind the unnecessary costs. So that's been an ongoing process. And the export market sales, which predominantly go to the U.S. through the Klik product that we sell into the U.S. market, they continue to grow, and we have had no negative effect from the tariffs that the U.S. have put out against Australia. In reality, our competitors in that market are all in the same boat. They're all sourcing product from countries that have the same sort of 10% tariffs. So we see no impact to date in relation to export and really not really expecting to see any negative impact, especially in the near term based on the feedback we're getting from our distributor over there. So that's pleasing, and we'll keep pushing that. And I've had a couple of questions thrown at me prior to getting on board. So one of them was the drop-off in the second half, which I've tried to explain that at the moment because of just a softer order book and the delays in winning some of the work that we've put out there. We have a question about have we sold any of the Anagenics shares that we acquired through the work we did in restructuring Anagenics. No, we haven't and have no plans to sell off any of those in the near term at least. There's a question about dividends. And as I've already said, we've announced today a $0.01 dividend for the year. We're also putting out a dividend reinvestment plan for anyone who wants to participate in that. That has also been announced today. And there's a question about Traffic Tech acquisition performance and synergies. So I've already touched on the performance side. But in relation to synergies, because this is a rebuild business. We've only put back a team together that we think we need to run this business in the first 12 months, which is the 7 people. They're operating out of our existing premises with utilizing all the FOS existing systems. So it's not so much that the synergies we're getting out. It's just no additional cost that we have other than the 7 staff themselves to run this business. So we expect that the EBIT margins on the Aldridge business will be quite high because of the low-cost environment that, that business will operate in. We still need to get the sales up to a reasonable number, and that number for us is about $4 million in year 1. That's the sort of target we're trying to get to. And with the $0.5 million in orders and sales we've had to date, that's a good start, and we expect to get somewhere close to that target number that we've outlined. Done that -- that's really the update. I don't have any other questions coming at me. I'll give you a second if you want to throw a question in there. I can also update you on the July, August sales. We've hit about $4.5 million for the first 2 months of the year. So that's slightly above what we've been achieving in the second half of the year. So in the second half of this -- of the '25 year, we did $11.5 million in sales. July and August, we hit about $4.5 million so far. So hopefully, that number will still creep up as we get back to what we might have done somewhere closer to the first half of '25. Okay. I have no further questions. If -- 1 second -- Okay. I got one question about the A1 shares, about escrow. Yes, we voluntarily escrowed those shares from -- for 12 months, I think it was from when they were issued back in around about March. And we're in no hurry to even dispose those shares regardless. But we -- the longer-term plan is to -- as that company builds up, we will exit at some point in time and take that cash back out. Second question about a half yearly dividend. I don't think we're at a mature enough stage to be honest, to be paying sort of midyear dividends. We're still growing, we're still reinvesting. There's a lot of work to do around the Aldridge business and the cash requirements of that. So we'd like to sort of keep our powder dry and just use that dividend once a year at this point of time. I've got a great question about somebody loves my shirt. So thank you for that. I've got a question about full year '26 forecast. Look, we have never been in the business of forecasting numbers. Again, we're fairly new growing business, many variables. So we would not give any forecast out until much closer to the end of the '26 year in normal season, maybe about April, we could give an update. So the really next target forecast will be what we put out for the half year. That will be the next result that we will release. We'll see how we're tracking then, but we're not really in the business of forecasting at this stage of our corporate lives. All right. So thank you for those questions. If anyone wants to reach out directly to me, just pop me an e-mail or call me any time you like. Thank you for taking the time in this presentation, and thank you for supporting FOS. Thank you. Bye.