FOS Capital Limited (FOS) Earnings Call Transcript & Summary

Good morning, and welcome to the Frost Full Year '27 Results Presentation. My name is Constantine Scrinis, the Managing Director. And once again, thank you all for jumping on this call and hearing the update. As usual, this video is being recorded and will be available and distributed later on today. [Operator Instructions] There's been a number of questions that have been submitted. I will be incorporating those questions in the presentation as I go through it. But anyone else who wants to jump in, just let us know. So Obviously, '27 -- sorry, '26 was not the year we wanted it to be. And we recorded sales down and a significant loss for the year. When I stood here at the half year update, we also had that half year loss. And at that time, the roots were there that we thought that the bounce back would come in the second half. It's taken longer than that, and it's resulted in that second half being fairly miserable in line with the first half and ended with this full year result as that loss. I'm going to -- I'll go through a little bit of what involved that to happen and how we got there and then move to where we are today because the picture has changed significantly in the last 2 or 3 months. So the slowdown came based on general industry slowdown, but it just took a long time for orders to get placed. Things were delayed through the various activities, both locally and around the world. And although we were quoting and designing jobs and expecting orders, they just didn't fall in that period. That led to the order book reducing and that led to the slow of the sales being lower. And given what our cost structure was throughout that year, we couldn't get the recovery with those sales where they were. So as that year was unfolding, we decided we would also move to remove costs from the business to try and get us into a leaner position going forward to avoid that problem happening again. So as we have sort of announced a couple of times throughout the last few months, we've undertaken a $2 million cost reduction program. $1 million of that has already been executed. The other $1 million is in progress to be done over the next few months. And it's involved headcount reduction. It's involved removing certain overheads. It's involved reducing occupancy costs by renegotiating terms of certain leases. And we've also implemented a new imported product line to replace one of our manufactured product lines, and that's enabled -- that cost of that product to be reduced dramatically to improve margins. So all of that work was being actioned over the past sort of 6 to 9 months, but effectively didn't really get any direct benefit of it until now. So like I said, the first $1 million has already been done and the second million is earmarked for the next few months. So that will bring our cost base lower going into '27. And that, combined with the sales increase, which I'll come to, should put us right back on track to where we were a year ago. In relation to the Aldridge ATS business, we've stripped out the cost in that business and shown you the loss of $1.3 million just to identify what we had to go through, through the year. When we bought that business in June of last year, we bought it out of administration. There were no staff. We had to rebuild it from scratch. We had to put a team together. We had to get stock back in line. We had to see suppliers and get them back on board because they've been burned through the administration process. And effectively, because that business was shut for the best part of 6 months, really any work that was available, we had to start from scratch. So we did that in that first 6 months between July and December. All of that work was done, and we started quoting jobs and designing jobs. And then coming into the second half of '26, we started to see the results of that work. And we announced the Eastern Freeway project, which is one stage of that Eastern Freeway project, which is -- there was 2 orders that made up $0.7 million. And that's the first sort of significant order from Albridge that we've received in that 12 months. But in effect, it took us that 12 months to get that business in line and running properly and getting out to see the customers and getting reengaged. So the pleasing thing from where we sit now with the ATS business is that there are more Eastern Freeway contracts soon to be let, and we're confident we're in a good position for those. We are also quoting a bunch of other contracts around Australia. We have about $8 million worth of work that is tendered at the moment for ATS. And I strongly believe that we're in a really good position with ATS going forward in the next 1, 2 or 3 years. And it's giving us a revenue stream into a new area outside of the commercial lighting industry that we think will put us in good stead going forward. ATS is really 1 of only 2 or 3 products that are specified on roadways. And it's just going to take us a little bit of time to get the runs on the board. But once that starts happening, which it sort of has, we expect that will continue and it will be a profitable cost center for us. So we have no regrets about the APS acquisition. We're very happy with it, and we're in a good spot going forward. Similarly, with Glowing, we bought that also just over 12 months ago. We've had a good time sort of integrating that within the broader business. And the purpose for Glowing was it's a design business that allows us to generate specifications of our lighting products onto the jobs that they design. And we're reporting that there's about -- we've already got about $3 million worth of specifications generated that are active in the quote space at the moment. So that's progressing the way we expect it to do as well. So that's the sort of work that was being done in the last 12 months with the 2 acquisitions and the cost reduction that we had to do whilst we sort of wrote out what was a fairly horrible year. Having said that, things have changed. So the last few months, the activity that we thought was going to happen in the second half has started to come through. Quotes have increased again, and the phone is ringing a lot louder at the moment with the order book now starting to flow. So our orders have increased and our order book currently sits at about $10 million, which is really the second highest level it's been for -- sorry, the highest level it's been for at least the last 2 years. And our measure of sales going forward is directly reflected by the size of that order book. So as it sits at 10, and we expect it to increase over the coming months because we can see the work that's being generated and we can see what's coming through. We expect that order book to increase from where it is at the moment. And as a result, that will translate into higher sales into full year '27. We will most likely give an update in the next few weeks about how we're traveling for that first quarter, and we're possibly going to put a bit of an outlook for full year '27 coming up in the next few weeks as things stabilize. But we're quite bullish about '27 compared to what happened in '26. And the signs are there that we're back on track to where we left off. I want to thank our staff and our suppliers who we've all sort of gone through a rugged period, but we've sort of come out the other end. And I want to thank shareholders for sticking with us and supporting us through this period. And believe me, we've got much greener shoots ahead.

I have some questions. The question just come through about full year '27 guidance. We are working on -- that's what I just alluded to about coming up with something in the next few weeks. We're not ready to give that right this minute, but we will be giving some guidance over the next couple of weeks, maybe 3, 4 weeks as -- which is something we haven't really done before. We've sort of avoided really coming out with guidance because we're still a young company and still a lot of moving parts. But we -- this year, we're lining that up, and we expect to come out with something shortly. I have another question about revenue targets for ATS. Yes. So we're aiming broadly to try and do around about $3 million in sales for ATS in the full year '27, moving to $5 million or $6 million, maybe even $7 million in the following year. To put that into perspective, 3 years ago, when ATS was under TT and before they got themselves into trouble, that business was doing over $10 million a year. I'm just talking about the ATS business itself, not TT as a whole, was doing about $10 million a year. and had about 10% to 20% market share of that industry. So our goal is to get it and has always been to get it back to that level within the space of a couple of years. At this stage, we believe we're on track for that. I also have a question about equity raise. We have been balancing a tight rope in the last 6 months, not hiding away from that. There's been no decision made at this stage about whether we do or don't need a raise. We're working through it at the moment. Okay that is all the questions I have sent to me. As you know, this is -- my stuff is short and sharpened to the point. Again, thank you for your support. Thank you for jumping on this call, and feel free to reach out to me directly any time you like. Have a great day.