IPD Group Limited (IS6.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the IPD Group's Platinum Cables acquisition call. [Operator Instructions] I would now like to hand the conference over to Mr. Michael Sainsbury, CEO. Please go ahead.

Thanks, Ashley. Much appreciated, and welcome, everybody. Happy New Year to everybody. I hope you've all come back refreshed and excited and looking forward to a big year. It's certainly been a big start to us, an exciting start to us for 2026 at IPD Group, and we're really proud and excited and enthusiastic to talk to you today about the acquisition of Platinum Cables. So thank you for joining us. I'll walk through the slide deck today. The first slide there is obviously just the title. If I move through to Slide 2, talking about the key highlights of the acquisition. And obviously, there, it's playing to see that Platinum Cables are a leading Australian provider of high-performance cabling solutions, predominantly for the mining sector, not exclusively, but predominantly for the mining sector. They do diversify into the resources area, into rail, but predominantly the revenue is derived from the mining sector. The acquisition further strengthens our position in the mining sector. We have a really good touch into the mining sector with the CMI business with the Minto Plugs, and the IPD business with power distribution into the mining sector amongst other things. So there is some very good synergies there across certainly CMI and across the IPD business. And in fact, in the EX Engineering as business as well with a lot of their business going through mining applications and oil and gas where there's certainly opportunity for cable as well. The complementary nature of Platinum Cables to the group obviously is covered by that. And our focus for the first 12 months will certainly be around the sales synergies from IPD's relationship in some of these key mining environments and assisting the Platinum business to grow in that space and vice versa with the relationships that Platinum have in the mining space and allowing IPD to leverage off that. The purchase price, as shown there in the boxes on this slide here is a $37.5 million upfront payment, which represents 5.2x multiple of the EBIT. That represents an earnings per share accretion of 11.5% on the group on a pro forma basis. The revenue of the Platinum Cables business is $44.8 million in the financial year of 2025, and an EBIT and an excellent EBIT of $7.2 million on that $44.8 million for the financial year of 2025. So at a headline perspective, a good overview of the business, very accretive and strong EBIT and EBITDA margins. If I move through to Slide 3, where we talk in a little bit more depth about the overview of the acquisition, it obviously enhances our presence and capability in the mining sector, as already discussed. The transaction itself, obviously, Platinum, as I mentioned, a high performance, power, communications and optical fiber cabling solution, the total consideration shown there, consisting of $37 million in cash and $0.5 million in shares issued to the CFO for the business. The contingent cash payment for that will then be a maximum of $7.5 million, which is the earn-out period, which is based on for every dollar of EBIT growth in the calendar year of 2026, 5x that dollar of growth on the 2025 results. So -- and it's capped at that a maximum of $7.5 million there. The completion date, obviously, is already completed. We completed on the 31st of December. So under our full ownership already. The strategic rationale, it's really -- it's an amazing fit for the business. The complementary nature of Platinum and the group's respecting offers reinforced our position again and it reinforces some of those key customer relationships. Importantly, the management of Platinum Cables are all staying with the business with no expectation of any of them moving on. They're all remaining as part of the acquisition and obviously, very, very keen to close on the earn-out for the next 12 months. Internal priority is the leverage of the sales synergies. Longer term, there will be focus around efficiencies and utilization of the IPD Group's shared services to be able to enable the platinum business to expand and scale in a cost-effective manner. But in the short term, we'll certainly be focusing on the sales synergies that will no doubt be there between the businesses. The business model, as I mentioned before, the $44.8 million of revenue, the EBITDA of $8.2 million, which wasn't on the previous slide and the EBIT at $7.2 million. Our EBIT margin at 16.1% in 2025. And the business has a very strong record of organic growth with revenue growing at 10%, cumulative between the years of 2021 and 2025. So certainly a growing business and some opportunities in the investment into renewable solutions in the mining sector means that there's a significant pipeline of opportunity there for growth well into the future. The funding of the acquisition will be primarily through cash and debt by the new debt facilities, which we've secured through CommBank, resulting in very, very limited, in fact, minimal shareholder dilution. The funding will be -- via an expanded core debt with a limit of $56.1 million, which covers the $37.5 million upfront consideration and the $7.5 million earn-out and the $11.1 million of existing debt we already have. In addition to this, we have a new working capital facility, which has a $10 million limit secured through Commonwealth Bank at very, very good and attractive rates. The financial impact of the acquisition results in a pro forma EPS accretion of 11.5%, excluding any synergies and costs, and it certainly increases our pro forma EBIT margins from 11.5% (sic) [ 11.1% ] to 11.5%. So a good uplift there. In terms of debt leverage, we will be at 0.9% (sic) 0.9x of the pro forma 2025 EBITDA, which is well below -- we have a policy of -- we are comfortable at 1x up to a maximum of 1.5x. So you'll take note the fact that we still have plenty of room in our balance sheet there to support the business moving forward. Moving forward, again, to Slide 4, a bit of an overview of the Platinum Cables business. I won't go through all of the stuff on the right-hand side because we've covered a lot of it already. But one area that we haven't touched on is that they have 41 full-time employees as at June 2025. The business was established in 2001. So it's not a new business, 25 years of trading and very, very well established and a strong name, strong brand recognition, strong reputation in cable, in the mining space. And they do have a national presence. They operate from two distribution centers, one in Wetherill Park, ironically in the same street as our corporate head office in Wetherill Park for the IPD Group business. And then another distribution facility in Perth to be able to support the West Coast requirements and they have sales, operations all around the country. It specializes in durable, compliant and innovative cable products for the mining and resources sector. They have a really strong track record of supporting major projects, and I'll talk to more to them in coming slides, particularly in mining, but certainly some opportunities and growing opportunities in that transport infrastructure space as well. The core capabilities of Platinum Cables, what separates them, very, very, very strong emphasis on engineering supply of mining, specialized cable for harsh and environmental environment. So not dissimilar to the IPD business, put a very strong focus on the engineering specification and the EBIT margins and the gross margin that it's able to achieve are reinforced by that strong focus on engineering. They supply power, they supply communications and optical fiber cabling. They have that dedicated engineering team for technical support and sales representation in every state to build strong relationships with all of the key customers and they are able to provide rapid delivery and logistics with the warehouses in both New South Wales and WA, as I mentioned. The key differentiators of this business is a very, very strong focus on certification of their systems for quality, environmental and safety management. They have end-to-end traceability and stringent QA processes around their cabling and mining grade cables engineered for extreme durability and safety. There is no crossover with the CMI business. And just to give some context to that, when you consider that CMI using cabling, how can that be the case? It's a very long drawn out process to get approval for your cables to go into mining applications. A lot of the cases, in fact, all of the cases, it means having to take large mining companies and these end users over to the manufacturers to do QA assessment of the manufacturing processes and quality assurance and a large investment in doing that to get the mines to approve your cable. And certainly, Platinum Cables has done that with all the mining applications. So there's an approval for the Platinum Cables in that environment, which was not present in the CMI business, and potentially would have been a very expensive exercise for CMI to do that and potentially may not have even been able to happen in the next 10 years, it can take such a long time to get those approvals. So the acquisition of Platinum takes us into that space immediately and gives us a really strong position. And they are certainly known as one of the key players in that mining environment for cables and related products. On to Slide 5, we talk about a couple of case studies there. Because of confidentiality reasons, we're not allowed to nominate who the end users are, and we don't have their permission to do so. But there's 2 big projects there. There's one that's sort of Western Australian gold and copper mine. Platinum has supplied over 15,000 meters of high-performance trailing cable since 2016 to support the heavy-duty operations in an open pit gold and copper mine there, one of Australia's largest gold producers. East to West Coast, both -- right across the country, a customer that is common across East and West Coast, Platinum has supplied over 5,000 meters of cable to 2 major mining sites in the Pilbara and in Central Queensland, supporting large-scale iron ore operations. And so it is very, very accustomed to dealing with large complex project orders and have a very -- again, a very strong reputation and heavily specified in that space. The strategic rationale, again, highly complementary, no overlap with CMI and enhances IPD's position in the mining sector. One of the key messages we talk about in any of our presentations is growth and one of the acquisition pillars for that growth is around strategic acquisitions. And this certainly strengthens and expands our position in that mining sector through the acquisition of a highly specialized cabling offer. So it fits perfectly into that space. It provides us with additional cross-selling opportunities for IPD Group. As I've mentioned, into CMI with no overlap and respective product offerings with sales in synergy into the Minto Plugs. What is really important to point out here, the Minto Plugs go into these mining environments, has been a major gap of CMIs for the last decade that they're able to sell these plugs into mining environments, but they're not able to sell the cable into the same mining environment to hang off the back of the Minto Plugs because they didn't have a mines approved cable. Now we have the ability to offer a packaged offer with the mines approved cable and the Minto Plugs. And you can see that picture there on Slide 5 in the middle there. That is actually a Minto Plug, which is hanging off the end of those cables there. So it shows you the attachment of the Minto Plugs. Previously, we would have sold that Minto Plug and potentially Platinum would have been reselling the cable but the group wouldn't have been seeing the revenue for that. So that's an instant cross-selling opportunity for us there. Technical expertise, obviously, being so heavily specified and so heavily skewed towards engineering. There's a strong technical expertise that drives that value add. And given the specified nature of the cable into these environments, that is important, and it will again create additional synergies with the other highly engineered products. Moving on to Slide 7, we go into a bit of an overview about the pro forma financials of the business, and I'll hand over to IPD Group's CFO, Jason Boschetti, to cover off those for you. Jason, over to you.

Beautiful. Thanks, Michael. I'll just cover off Slide 7 and 8 around those pro forma financials. We've presented a table there to represent IPD Group from FY '25 actual and pro forma in Platinum Cables results for FY '25. As part of that pro forma results, we have added in expected interest expense as if the acquisition happened prior to the start of the financial period. But we've also excluded sales synergies and sales -- and potentially synergies across the group in that. What we have included is some assumed costs around $300,000 of ongoing integration-related costs as part of our pro forma result. We're really proud to present that 12.6% top line accretion, taking IPD Group on a pro forma basis to that $400 million revenue mark and because of the margins across Platinum Cables, it is a lot more accretive at an EBIT and EBITDA perspective, showing 17% to 17.6% accretion across EBITDA and EBIT. Net PATs after interest brings it down to 11.8% and at an earnings per share and a rounded earnings per share basis. We're proud to present an earnings per share accretion of 11.5%. The EBITDA margins and EBIT margins of the group are also accretive because of the nature of Platinum Cables. And just on a rounding nature, the net PAT margin looks like it's a 0.1% decline. It's very much in line. It's more of a rounding nature at the net PAT margin line. I'll move on to Slide 8, really highlighting the group sales at $400 million on a pro forma basis, having Platinum Cables make up 11% of the group and an EBITDA perspective of $54 million being 15% of the group. The pro forma revenue by product type has shifted. We've presented this on a pro forma basis as well. Cable is now representing 30% of our product type, up from 21% on IPD's actual FY '25 results. And really proud to show you the diversification of our end markets. We have now -- as that's the bottom graph on the right presents infrastructure, industrial mining now makes up our largest end market now at 32% of the group's revenue. That has shifted from 23% on an IPD stand-alone basis. The infrastructure industrial mining now becomes our largest end market, pushing the commercial construction market and buildings down to our second largest market at 28% on a pro forma basis. So really proud to show that end market diversification in that last graph there. I'll hand back to Mike Sainsbury for Slide 9.

Thanks, Jason. So Slide 9, there is the summary. Before I go into those points because I have touched on some of those points already, I just want to just do a bit of a deep dive onto this Platinum business. Platinum has -- is synonymous with a family -- founding family called the Bambach family. And the Bambach family, David Bambach was the largest shareholder of Platinum, and certainly, the CEO or the Chair of the business before our purchase. The Bambach family are synonymous in cable. And the fact that David has been running this business and started it 25 years ago, it is -- we're buying it off a company of a group of people that are well-established cable experts with a strong engineering, strong understanding of cable solutions. They know the cable space and the actions that they've put in place certainly in the last 5 years have driven 10% growth on a CAGR perspective. So it shows that these guys are in the trenches and certainly know what they're doing. And the fact that they're staying on for us to assist us in that growth moving forward is an exceptional outcome for us. So in summary, the market position through the group's capability that's obviously very, very enhancing position. The 2 businesses will complement each other, offering again, highly engineered solutions. It strengthens our technical expertise and product offering in a specialized high-demand market. It's not commodity in any way, shape or form, and that's reinforced by the strong EBIT margins. It unlocks significant cross-selling opportunities across the group in the mining sector with obviously growth potential in that transport sector, in particular, in rail. It expands the group's revenue base through market and diversification, and it also does take away the concentration of ABB is what -- as the largest vendor for the organization. So there's a dilution of that concentration as well. It gives us the ability to leverage the shared services model with engineering capabilities of the group to allow Platinum to enhance its overall market position and do that in a cost-effective manner and partnering with the group enables Platinum Cables to expand its national footprint over time. In some of the states, they have minimal resources and to a large extent, is a small-ish business with not a lot of capital behind it. So the willingness to invest and to put money into it to grow at the scale that the business IPD Group can do may not have been there. So that's something that we can bring to the business and bring scale and opportunity to the business in a faster, more concentrated fashion. So that really covers us for today. I will open the floor to any questions. And hopefully, I'm going to take questions and answers. You ask the questions, then we'll provide the answers. So I'll hand over to the moderator to see if there's any questions there.

[Operator Instructions] Your first question today comes from Joseph House with Bell Potter Securities.

Michael and Jason, congratulations on the acquisition and a Happy New Year. Just a question from me. Are you able to unpack that value engineering capabilities of Platinum Cables a bit more? And just how is the point of differentiation?

Yes. Like IPD, I think there's a strong focus on engineering. If you're going to -- if you're going to be playing at a specification demand creation early stage, you need to put a strong focus around engineering and working with these key end users about making sure the cable is fit for purpose, meets all the Australian standards is quality because you're talking about really high critical power environment this is going into. So certainly, a large portion of the 40 people that they have are skewed towards that engineering and design compliance, standards compliance, application compliance to make sure that they get the right product in the right place at the right time. So it's not dissimilar to IPD where we have a significant play towards that early engagement specification and not just playing at the 11th hour where it comes down to a pricing discussion, and that reflects in the EBIT margins made the fact that they're able to achieve the EBIT margins and the gross margins they have really shows the work that they're putting in at an early stage to get the products specified. So the end user has confidence that it is the right solution and price doesn't become so much of a critical component in the transaction. So big, good fit. And if you talk about the DNA of the organization there similar to that of the DNA of the IPD business.

Excellent. That's great to hear. And just 1 more question. And it sounds like there's a fair bit of compliance and regulations, I think, as you pointed out earlier. Just keen to better understand the market, like is it a fragmented market? Or -- and what's the possibility of entrance coming in?

Yes. Really good question, Joseph. And as I said earlier in this call, the fact that it would have been so expensive and taken such a long period of time for us to get into this environment with CMI, shows -- and we're already an established business that's in the cable space has got a lot of expertise and a lot of capabilities. So the fact that an established business like CMI would have been so difficult to break. And I'm saying difficult. It may have been impossible because these mines are so loyal to the companies that they're working with at the moment, and they have put so much trust in it, it can actually be difficult for someone like CMI, which made the strategic rationale for the acquisition so much more in engaging and enthusiastic for us because it could have taken up to 10 years if we got there and the cost in getting it to that stage to get it approved and then building the confidence of these end users that the product is going to be safe, secure and provide the ongoing requirements for the critical power sites is something that would be very, very difficult to do. So I take great comfort, Joseph, out of if it was going to be difficult for us where the business is big and substantial and as well respected as CMI, then it's going to be as difficult, if not more difficult for anyone else to get into that space. So any new entrants into that market would be a very, very, very difficult space for anybody to come in and that gives us great protection.

That's very clear. It sounds like you've got a sticky customer base. So well done. I'll leave it there.

Your next question comes from Adam Dellaverde with Taylor Collison.

Michael and Jason, thanks for giving us a few days off over the New Year to digest this one. I imagine it was a pretty busy year end for you guys. Just a quick one on the rapid completion. We sort of saw a press release and then all of a sudden, the deal was closed the next day. Is there any story around that or any information around that worth knowing that time line?

No, I think the 2 parties obviously had an enthusiasm to get the deal together as quickly as possible. We're obviously -- David, as the old owner of Platinum Cables was mindful of leakage into the market with these sorts of things. And obviously, as an ASX-listed company, we're mindful and of exactly the same thing. So once we got to a point where we had both agreed and we had both agreed on a price, it made sense to get it done. And obviously, with the legislative changes around ASIC and the ASX and acquisitions, materially, there was going to be a fairly lofty cost involved in doing it post January 1 with the new regulations that were in there. So I think it's just -- and the fact was that Jason had nothing else to do over Christmas other than to pour over all of the information -- part of now -- the due diligence. So it all just fell into place for us, mate, and both parties were enthusiastic about getting something together as soon as possible.

Great. And just on the manufacturing side, supply chain side, you mentioned the Bambach family and there's a big Bambach manufacturing business, I think, for cables. Is that related to the vendor here?

No, it's not related, mate. David Bambach was over 90% owner. I think about 92% or 93%, maybe 95% owner of the Platinum business, and some of the employees own the rest. The Bambach business is family related, but not anything to do with Platinum Cables. So complete separation distinguished -- differentiator there, mate.

Just on the sort of quality control manufacturing of these cable supply chain, is it offshore? Or is it a local manufactured solution?

It is offshore, mate. It is predominantly through 2 vendors, but it is offshore. And as I say, all of the key mining clients here in Australia have all been to that plant and done their own analysis and done their own QA and done their own assessment of the manufacturing processes, the QA processes that go on, not only at the manufacturer before it comes here, but then the strong processes that Platinum has in place to do a double check on that product when it gets here. So all of those major mining clients have already been over to the plants and done a full assessment of that. And there is a continuing QA -- stringent QA that gets done locally as well, making sure that there's no deviation around the specifications there. So a big emphasis put on quality and on importance to the QA process.

Yes. Okay. A couple more for me, other simple ones for you, [ Mike ] and very, very high revenue per employee. And when I think about trailing cables and I think about all the durability and the harsh conditions, I'm imagining there's a very fast replacement cycle. So maybe talk through like once you kind of get specked into these mines over the mine life, do you just keep resupplying these cables as they -- like is that a big part of the business, almost the recurring revenue part? Or is it sort of win on new mine formation, the key catalyst for revenue growth in this business?

I'd love to give you a really accurate percentage breakdown of what is MRO and what is new business. At this stage, I probably don't have the clarity to be able to give you a precise percentage breakdown. But your point is valid because of the harsh nature of these environments because you've got heavy vehicles and you've got potential chemicals in some of these environments and they're harsh industrial environments. And the -- I guess, the power requirement, the certainty around power requirements, there would be a large MRO play here, mate, where the cables just a little bit of damage that have to be replacing the cable. And in some, certainly in underground, as the tunnel boring gets bigger, it requires more cable with a Minto Plug as an adapter, if you want to call it there, to extend the cable into the next section of the mine. So there would be a large portion of it that is MRO. To give you my gut feel is that it would probably be -- and it's a gut feel, it truly is nothing more than that. It'd probably be 60% -- maybe 50% new, 50% replacement. But again, with the clarity of hindsight in 6 months' time, that percentage might change. That's just my reflex answer.

That's really helpful. And I guess on the other side of that then, and this is the last thing I'm trying to understand. In that $44 million of revenue, which is a pretty decent number for what I thought would be a smaller niche, how much of that would be single large projects in a given year, say, more than $5 million from a big project. Is it the nature of the business where you have 2 or 3 large projects every year? Or is it more diverse?