Gale Pacific Limited (GAP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Gale Pacific Limited FY '22 Results Investor webinar. [Operator Instructions]. I would now like to hand the conference over to Mr. John Paul Marcantonio, Chief Executive Officer and Managing Director. Please go ahead.

Thank you. Good morning, good evening to everyone, no matter where you are. My name is John Paul Marcantonio, and on the call today with me is Sheryl Smith, Chief Financial Officer of Gale Pacific. We'd like to officially welcome you to the full year financial year 2022 results presentation for Gale Pacific. This morning, what we'll do is we'll follow a relatively straightforward agenda where we'll talk about the company and give you a bit of a glance on how the company is built and what we do, our brands. And then I'll hand the call over to Sheryl who will take you through our results for the second half of the financial year, as well as the full financial year results. I'll then go through a regional update for our 3 main selling regions in the Americas, Australia, New Zealand and MENA and Eurasia. And then we'll end the presentation with an outline of the company's strategy moving forward as well as our outlook for the coming financial year. So thank you very much for taking the time to join us this morning, this evening. As I mentioned, Gale Pacific is a global company. It's a fast-growing world-class global fabrics technology business. We're a market-leading manufacturer and innovator of technical fabrics used in consumer and commercial applications really the world over. And our products are found and used in many different applications and in end-use industries around the world. We have a global footprint and a global team located across the world in Australia, the United States outside of Ningbo in China, as well as in Dubai and in the United States, as well in Los Angeles outside of the Orlando area as well. Our main brands that we go to market with in the consumer space is the Coolaroo brand, and it's a market-leading, globally recognized brand for consumer shade and pet products in the markets it serves. You can find that Coolaroo brand mark on several categories of products around the world, but most notably in roller shades, shades sales, shade in garden fabrics, as well as in structures and in pet beds in major brick-and-mortar and online retailers really the world over, some of the largest retailers on earth. In the commercial side, we go to market primarily under the Gale Pacific commercial brand and several individual product categories and product names and serve different industries and different end-use markets under that primary brand mark in the industries in which we serve. And before I hand it over to Sheryl, I want to give everybody a bit of an overview on how we finished up the year. I just wanted to reiterate to you, our shareholders, how energized we are by the momentum with which we finished the second half, where we posted double-digit year-on-year increases in revenue, earnings and profit for the second half, setting records for the company for a third consecutive year, second half revenue and setting a new high mark for profit in the second half. That was driven primarily by performance in our 2 core anchor markets of Australia and the United States and a return to growth in the Middle East and North Africa. And we believe that our results provide further evidence that our growth and our operating strategies are working well and our business and our team are highly resilient in the face of these continued challenging and complex global operating conditions. I think we were, as a group, able to manage complexity and headwinds across international shipping, logistics, input cost inflation and operating restrictions in our main manufacturing facility in China. And overall market volatility, I think we managed very well as a group as well, both this year and in prior years leading into this year. Our pricing measures throughout this year offset a meaningful portion of the significant increases in input costs that we've experienced, and there have been additional price increases that we've taken and implemented heading into the FY '23 year across all selling regions, and we're encouraged by some early signs of stabilization in the inflation rate of input costs. We're a stronger company entering FY '23 with a reorganized team operating efficiently and collaboratively to build on the existing foundation of our business. And we have grown and continue to invest in the future of our business with a particular focus on investing in our growth strategy and plans through these difficulties over the last 24 months, and as we look to grow the size and scale of the company and profitability well is in the future. And later in the presentation, we'll articulate to you how our Growth Acceleration Plan, we believe, will drive the company's revenue and earnings well into the future. And so with that, I'd like to hand over the call to Sheryl Smith, the company's Chief Financial Officer, who will walk you through our results for the second half and then the full financial year. So Sheryl, over to you.

Great. Thank you, John Paul. Good morning, good afternoon, good evening, everybody. As John Paul mentioned, we had a very strong finish to the fiscal year. So what I'd like to do is highlight a few of those key numbers for the second half of FY '22. So revenue in the second half came in at $109.6 million. This was up from $99.2 million in the same period in FY '21. EBITDA was $16.6 million, up from $13.5 million. EBIT came in at $11.4 million, that was up from $8.5 million. Profit before tax came in at $10.3 million in the second half. This was up from $8.5 million in the second half of FY '21. Net profit after tax was $7.8 million, up from $6.3 million and our EPS was $2.85 -- $2.84 per share. So on the cash side, net cash from operating activities in the second half was $13.5 million. This was driven by customer receipts from strong business performance and profitability in Australia in the first half and from the U.S. in the second half, as John Paul mentioned. And our net debt was $5.5 million. This was a decrease due to strong operating cash flow that we saw in the second half. So as John Paul mentioned, a very strong finish to the financial year in the second half with double-digit growth in revenue, EBITDA and profit before tax compared to the same period in FY '21. So looking at the full year results, revenue for the full year was $205.5 million. This was flat to FY '21. EBITDA came in at $22.9 million, down from $28.2 million in the same -- in FY '21. Net profit before tax was $11 million. This is down from $17.2 million. Net profit after tax was $7.6 million compared to $12.3 million in FY '21. Earnings per share, $0.0276 for the full year, and we did have a final dividend of $0.01, which will be 75% franked, and we have total dividends for the year of $0.02. So on the cash side. Net cash from operating activities, we finished the year at $7.2 million. And then net debt, as I mentioned, was $5.5 million. The net debt year-on-year did increase. We were in the net cash position at the end of FY '21. And that increase was due to higher working capital needs. So we've mentioned previously, we are carrying higher inventory right now to ensure that we prioritize and service our customers appropriately and ensure that we protect against supply chain lead times. There's more weeks required in the supply chain than previous, so we do have higher inventory levels as a result of that. So overall, full year revenue was flat to prior year, but it was up, if you will, compared to FY '20. You can see in the graphics here on this slide, it was up 31%. And the full year results do include those double-digit growth in revenue, earnings and profit, as we mentioned, in the second half. So with that, I will hand it back over to you, John Paul, for the regional overview.

Thank you, Sheryl. We'll now provide a brief overview of our results in our selling regions, and we'll start with that around the world loop and in the Americas region. The second half revenue of $62.7 million in the Americas was a record for the company. Again, in the Americas region, that's for the third consecutive year in the second half. And second half EBITDA came in at $13.3 million. And that's also a new record for Gale in the Americas region. We delivered, I think, strong second half performance on the back of new programs and new product placements continuing that work in this region and driving additional promotional gains and increased pricing across the market and across customers, and we've achieved that result in this region despite some pretty challenging operating conditions associated with international and domestic shipping and logistics throughout the entirety of the FY '22 year. And as we mentioned, there's been persistent headwinds due to sustained input cost inflation, particularly across international shipping, distribution, materials and labor. And in addition to this, we have seen some demand normalization following early surges in consumer demand across home improvement categories on the back of pandemic-related restrictions in government stimulus in this market. Moving to Australia and New Zealand. We delivered a really robust second half result as well in our ANZ region. The team did a great job of rebounding in the second half from some challenging business conditions in the first half of the year due to cooler weather across the eastern seaboard of Australia and some existing supply chain challenges, which we briefed the shareholder base with at the end of the first half of the financial year, which constrained production capacity, even though there was demand across some of our coated fabrics business in the first half of the year. Primary drivers of the second half result were increased demand for the company's coated fabrics using grain handling and water containment applications, which have been core to our strategy in this region to grow over several -- over many years, as well as we've seen increased demand for nonwoven coated products used in food handling and the food supply chain as well. Similar to our operating conditions in the Americas region, there were continued headwinds and persistent complexity and volatility in international shipping, distribution, materials and labor, and we've seen continued cost inflation throughout the financial -- throughout the 2022 financial year. And again, some normalization of demand from a consumer standpoint across the retail channels and in those retail categories for the business as well. Moving to the Middle East and North Africa next. We did see improving business conditions in the second half of the year due to increased project investment, new products and price increases. And even though we did implement and further implement tightened credit policies in the region, we saw a limited impact -- limited negative impact to revenue and we did decrease both overall and long-dated debtors in the MENA region at the end of this financial year as compared to the end of the 2021 financial year. So we believe our clients are making progress there as well. Moving over to Eurasia. Revenue and EBITDA both for the second half were down for -- the full year and the second half were down as compared to the prior periods due to some normalization in demand across both consumer and commercial end markets and despite the price increase that were obtained and achieved in those markets. Let's move over to a reiteration of our company strategy and take you through some additional information relative to how we're going to grow the company into the future on the back of this result. So we stated our core strategy. We're consistent with our core strategy. We believe that in our core strategy, we continue to invest and build the company in line with it and that's to build Gale Pacific into a faster-growing world-class global fabrics technology business. And we do that through 4 main ways. Number one is to continue to invest in and launch product innovation in our core categories. Number two is the drive and lead category growth with our core customers, distributors and end users across our core distribution channels for our core categories. Number three is to continually improve our operations and supply chain to deliver those products to our customers and end users around the world, continuing to increase efficiency and flexibility while doing so. And fourth and finally is to expand our company into new markets over the coming years as well. And as you may have seen this morning's release, we've articulated our Growth Acceleration Plan and our strategy for the coming years in a pretty detailed fashion. I'll walk you through that right now because I think it's important that we understand where we're going and exactly how we're going to plan to get there. So number one is to reiterate the vision of how we're going to grow the company. Now number two is to leverage the values we've been exhibiting as an organization for many years, and that's to continue to drive our business dealings and grow our brands and our products and our team with integrity, respect and collaboration as well as making sure that we invest and focus on people to a further degree over the coming years, and that we invest in our communities as well as in driving innovation, not only in our product categories, but in everything we do and how we operate as a group. We've reiterated and kept pretty firm to our categories and markets. We'll continue to develop and drive growth in our core consumer and commercial technical fabrics and the associated end goods that are -- finished goods that are made from those technical fabrics. You'll see a bit of a change in the markets. We'll continue to drive and invest in accelerating growth in the Americas as a primary growth market for the coming years. We'll continue to invest in, make more profitable and grow our Australia and New Zealand business over the coming years, our 2 core anchor markets. And moving forward, you'll hear us report and talk about the other regions of the world as developing markets, which will be a combined entity with our MENA business and our Eurasia business as we look to develop those markets further for the company over the coming years. And fourth and definitely, definitely not last on this ring is we want to build a team, and I think we're well on the way to doing this, that operates in a high-performance culture where there's great leadership and functional experts known for delivering best-in-class results. We'll grow the company by 4 main avenues or 4 main -- or 5 main strategies, excuse me. First, we'll grow our categories, and we'll do that by developing and launching breakthrough innovation in our core categories. As you may have seen from our announcement this morning, we're excited about what's coming up in FY '23 relative to some pretty important fabric innovation and our core categories will continue that work over the coming years and continue to invest in it. We'll accelerate the work from new categories and for new neighbor category entry in FY '23 and beyond. And then once we have those ideas realized, we'll continue to invest and accelerate our investment in driving household and end consumer penetration with leadership, brand activation and communications across our markets. We'll grow our markets by driving category growth in retail and commercial, primarily in Australia and the United States. We'll look to rapidly expand distribution for our core goods across many channels in the United States and customers in the United States. And third, we'll look to extend our borders with investments and investments to drive growth outside of those core markets with on-purpose plans in Latin America, Southeast Asia, Canada and the Middle East and Europe over these next coming years. Over the last several years, we faced complexity in the global supply chain, but I would venture to say that our team became weak a little bit. Last year, we restructured our global supply chain team around One Global Gale supply chain team and plan. This year, we'll look to leverage and extend the benefits from that -- from this coming year by aligning our planning, procurement, manufacturing, delivery, distribution and customer service functions under one leader, and there's one unit as we work to develop the business further in the supply chain. We'll enhance utilization in our facilities. We'll become more efficient and will be more flexible across our global supply chain, continuing to work from the last several years and will further expand our productivity delivery to lower costs of operating, and we'll look to, in a detailed way, attack and liberate the traps cost of failure across our business. Growing our capabilities will enable us to build the company and the business well into the future. In our announcement this morning, you saw that we've announced a streamlined and reorganized executive leadership team and group of our teams below. And we're really excited about the ways we'll simplify our business, our ways of working, improved clarity efficiency and the way we execute. As you have seen from the announcement this morning as well, we're going to build and implement the right global IT strategy, tools and team to enable our growth plans. And throughout the next 12 to 16 months, we've invested and we'll continue to invest in kicked off a project to migrate our enterprise resource planning systems across the United States, Australia, New Zealand and the Middle East, North Africa region, cloud-based dynamics -- Microsoft Dynamics 365. So that will kick off in earnest right now to help us scale the company over the coming years. We'll look to deepen our insights and innovation capabilities. We made mention of that this morning as well. We've brought some new capabilities on board that helped give us a better understanding of unmet consumer needs in our core categories, and we're developing direct innovation and benefits, new-to-world benefits in our core fabric categories based on those insights and the tools we brought into the company. And last, but certainly not most least and most important, is to grow our people in our organization over the coming years to enable this growth plan. We'll look to develop our functional leadership capabilities throughout the organization, really work to attract, engage and develop a breakthrough team throughout the coming years, and we'll work to build and empower the team to double our business by becoming an employer of choice for top talent and to grow their careers at Gale Pacific over the coming years. And most importantly, to underpin all of this, we'll work very hard every single day to deliver that with everyday great execution to enable the outcomes that we strive to achieve. So a reiteration and doubling down on our growth strategy as well as articulating further how we are going to achieve those results over the coming periods. And that's built on a foundational set of strengths that this company has had for many, many years. We have category and market-leading brands with high-quality innovative products, long-standing, very important customer partnerships to go to market with. We're diversified across commercial and consumer end markets. We have deep embedded technical fabrics expertise across our business, across vertically integrated manufacturing sites and product categories with global distribution and supply chain to get -- to arrive those products around the world to our customers and our end users. And our products sit at the core of many on-trend consumer and commercial applications the world over. And so to give an outlook and to give everybody a bit of an insight into our outlook over the coming year, we do anticipate revenue and profit growth in FY '23. And that will be driven mainly by further growth plans in the second half in the Americas region. We do see some evidence of some level of cost stabilization in the inflation rates across input cost categories, but we do anticipate that there will be complexity and volatility continuing in global supply chains throughout the first half of FY '23 at a minimum. And we'll continue to invest in line with our Growth Acceleration Plan as articulated to build not only the present but the future of the company. We'll provide further earnings outlook -- further earnings outlook for the company in our AGM in November, that's the beginning of November. And myself and the Board and the management team remain focused on building long-term shareholder value, and we continue to work with our advisers at Luminis Partners to evaluate options to further unlock additional value for the company over the coming years. And so with that, I'd like to say thank you for joining us on our call today and I hand back over to the operator for any questions that you may have.

[Operator Instructions] Your first question comes from George Flint from Bellmont.

John Paul and Sheryl, it's actually Peter Bell here from Bellmont. Thanks for the update, obviously, a really strong second half there. Sheryl, maybe you could give me a bit of an idea of how much of the second half revenue growth was down to the pricing increases versus increases in sales volumes.

Yes, sure. So I will say that we had some reasonable price increases over the FY '22 in general. So as John Paul mentioned, it is a pretty meaningful portion of our costs that we're able to cover in those price increases. We did see some volume off. I don't have the exact number for the second half, but the volume was up slightly over the fiscal year in the Australia and in the Americas, but it was more than offset by the price adjustments.

Okay. And one other question, which might be most probably answered by you as well. How were commercial sales in the Australian market compared with last year?

Well, so I think if you look at the commercial, I don't know, John Paul, do you want to talk a little bit about like the grain, as an example?

Yes. So Peter, thanks for joining the call. Thanks for the questions as well and good to hear from you again. I think as we mentioned early on in the financial year, taking pricing to offset the cost inflation, we believe, was necessary and the right thing to do. And so we did anticipate that there would be some level of demand normalization as a result of it. I would tell you though that the pricing measures that we have taken more than offset the demand loss associated with any number of factors, which is very difficult to hone in on the exact price elasticity of our pricing measures. Given the context of what's happening to consumers and really businesses around the world over the last 6 to 12 months with the complexity we've seen. But we feel very confident that the pricing we've taken is appropriately fair to the customer base as well as to the consumers and really striving to offset our costs primarily. Secondarily, as we mentioned in the first half of the year, that complexity in supply chains and delivery and timing of shipments and container availability did put some capacity constraint on our commercial business, primarily in grain handling and somewhat in our other coating businesses in the Australia business. So we've seen some really nice rebound in the growth in the second half of this year. And I would tell you that leading into the FY '23 financial year, our team and our business is very well positioned to take advantage of this -- the crop and the harvest is coming through now. So we're encouraged about what we learned from last year, and we've done a very -- I think, a very effective job of working through with our partners to be prepared for what looks to be another really strong harvest in Australia.

Okay. And maybe for you, again, you've been thinking for a little while about the work you're doing with Luminis Partners in order to unlock shareholder value. Is there anything more you can tell us about that or is there a sort of rough time frame that you'd have for when you expect to be able to give a little bit more detail on some of those conversations.

Yes. Thank you, Peter. I think we continue to work to maximize shareholder value. We've been -- that's our charge as a leadership group and as a management group and as a Board, and we'll continue that work. We're working with, as you mentioned, our partners to unlock ways to do that, and we'll leave, I'm sure, some upcoming further information overall, I anticipate, over this half of the year. So we'll update everyone as we're able to, as the work takes further shape.

[Operator Instructions] There are no further phone questions at this time. I'll now hand over to Adrian Mulcahy to address your webcast questions.

Thanks, Harmony. Can you hear me, John Paul?

I can hear you, Adrian. Good morning.