Lindsay Australia Limited (LAU.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Lindsay Australia Limited Fiscal Year '25 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Clay McDonald, CEO.

Good morning, and thank you for joining us for Lindsay Australia's FY '25 full year results presentation. I'm Clay McDonald, CEO of Lindsay Australia. I'm joined today by our CFO, Justin Green; and our Chief Operating Officer, Craig Baker. We will be available for questions following the presentation. I'd like to start by acknowledging the traditional owners of the land on which we are located today. This is a traditional Turrbal and Yuggera country, and I'd like to pay my respects to the elders past, present and emerging. Lindsay Australia is a national leader in integrated rural services and refrigerated transport. We operate across Australia's major horticultural regions and freight corridors, delivering essential inputs, packaging and logistics solutions to the agricultural, manufacturing and temperature-controlled food sectors. Our mission is to be the first choice in refrigerated transport throughout Australia. To achieve this, we need to create a compelling value proposition to our customers so they choose us, recommend us to others and grow with us through the cycles. By building on 70 years of network development and providing customers with the benefits of our unique integrated operating model, we're able to connect more growers to markets, wholesalers to retailers and exporters to international buyers. Our recent investment enables us to provide flexible road, rail and [ transpass ] shipping services, whilst utilizing our depot and cross-dock infrastructure across 60 unique locations. At approximately 12% of the national refrigerated transport market, we have plenty of opportunity to grow and become the first choice for refrigerated transport services for many more customers. The operating environment in FY '25 remained challenging, shaped by elevated cost pressures, flat consumer demand and heightened competition, particularly in the transport sector where excess capacity continues to weigh on pricing. However, as seen in this slide, we're seeing early signs of market rationalization with sector exits and industry consolidation increasing. In the short term, we expect both the operating competitive environment dynamics to persist, how Lindsay's scale, integrated model, renowned customer service level and strong balance sheet position us to navigate this volatility. Looking further ahead, the long-term fundamentals of our core markets remain compelling. Population growth, evolving consumer preferences and increased demand for fresh, high-quality produce, dairy and protein are driving structural growth in both the horticultural and refrigerated logistics sectors. These trends, combined with our combined investment in the network expansion and operational transformation provide a strong foundation for sustainable growth. FY '25 marked a significant year of strategic execution across both network expansion and operational transformation. Through targeted acquisitions, including GJ Freight and SRT, we extended our footprint into Southwest WA and Tasmania, enhancing our national coverage and diversifying our earnings base. These moves strengthened our counter-seasonal capability and deepened our presence in the fast-growing horticultural regions in lower-risk areas. Our targeted geographical expansion lessens freight seasonality, improves freight balance and reduces earnings volatility. And as you can see by the graphs on the right, over the last few years, we've been diversifying our region and by product and we've had positive gains in both the commercial and grocery plus the high-value protein and dairy categories. On the transformation front, we continue to embed efficiency initiatives across procurement, systems and fleet utilization. The shift to higher capacity combinations will enhance capital returns, facilitate operational scalability and bring transit volume benefits to our customers. To support the larger combinations and future growth, we have continued to invest in and develop key flow connecting infrastructure. The Adelaide expansion has reached practical completion and Perth's new 35,000 square meter facility will be operational by November this year, removing a significant growth bottleneck in the West. As the slide indicates, pursuing opportunities to move more freight more efficiently is a key pillar of our transformation journey. Work is underway to trial AB-triples on discrete long-run corridors. These high productivity units can carry 56 pallets, 65% higher than the current B-double industry standard. Constantly looking at ways to do things better is central to our long-term strategy, enabling Lindsay to deliver consistent, high-quality service, unlock synergies and build a resilient platform for future growth. I'd now like to turn to the FY '25 performance highlights. Despite challenging industry conditions, Lindsay delivered a resilient full year result. Revenue grew to AUD 849.8 million, up 5.6% on FY '24. Underlying EBITDA was AUD 81.4 million, down 11.7% and aligned to the midpoint of our guidance provided in May. The result reflects a combination of deliberate capacity and capability investments, weather impacts and margin pressure from elevated costs and competitive pricing. Underlying NPAT was AUD 22.3 million, down 26.6%, impacted by lower EBITDA and higher interest and depreciation charges following our recent investment cycle. Our key safety metric of lost time injury frequency rate improved by 11%. However, we have significant opportunity for further improvement as our safety systems and leadership develops. The company's financial performance enabled the Board to declare a fully franked final dividend of AUD 0.015, bringing the full year dividend to AUD 0.038. Taking a closer look at segment performance, Transport delivered core revenue growth of 6% or AUD 28 million, excluding the impacts of fuel. Growth with existing retail customers and new customer wins in protein and dairy categories helped offset softness in horticulture. Rail revenues grew by 2.8% and road revenue increased by 7.3%, supported by GJ Freight acquisition and expansion into regional Victoria. Earnings for Transport decreased AUD 7 million with EBITDA margins tightening by 1.7% to 16.7%. Corridor imbalances in Queensland, weather impacts and cost and rate pressure contributed to the result. Rural revenue rose 8.7% to AUD 165.5 million, with EBITDA up 10.3% to AUD 10 million, its second best year on record. Positive gains in higher-margin categories, cost control and market share gains underpin performance. The Rural business is an important part of our unique integrated operating model and its performance this year has been very pleasing when considering the difficult trading conditions. Hunter contributed AUD 110.2 million in revenue, up 26.1% with EBITDA of AUD 3.6 million. While retail sales remain subdued, integration of the Nagambie and Seymour stores progressed well and product diversification continues. Michael Moroney, the CEO of W.B. Hunter, announced his retirement earlier this year. I'd like to thank Michael for his leadership and contribution to the Hunter’s business over many years. We have appointed the GM of our Rural business, Chris Kerton, to oversee W.B. Hunter. We are confident that bringing Rural, Hunters and our Transport divisions closer will result in improved outcome in the Hunter business going forward. I'd now like to hand over to Justin to take us through the numbers in more detail.

Thanks, Clay. Welcome all. Clay touched on the market dynamics that have impacted our earnings. And you can see that impact flow through to a reduction in a number of our key metrics. On the next few slides, I will touch on key financial highlights and go into more detail on how we are well positioned to manage this current cycle. Firstly, I just want to call out on the earnings per share table that just under AUD 0.01 of the reduction in the EPS came from higher depreciation and interest costs. At the half year, we called out the accelerated depreciation on the second-hand assets we acquired in '23. The higher depreciation will continue for the next 6 months, but will normalize in the second half of '26. Recent interest rate cuts is a positive as those cuts will flow to a reduction in our funding costs. We anticipate the '26 CapEx program will be funded on average around 1% less than 2025. Whilst ROIC for the year is below our long-term target of 20%, we remain positive on this result given the long-term investments we have made. At the end of the year, we have AUD 280 million in invested capital, which was an increase of AUD 24 million. Invested capital has increased close to AUD 100 million in the past 4 years. Taking a short-term focus by deferring investments until market conditions improve would have a negative impact on future profitability. Investments we have made will unlock future growth and drive efficiency and puts us in a competitive position. You see here on the CapEx slide, a breakdown of the AUD 50 million we invested for the year. Growth CapEx focused on the larger trailer combinations as part of the transformation program and AUD 9 million we invested for the year in freehold facility expansions will unlock growth constraints and improve operational performance. Just to note on this slide that the '25 CapEx spend does not include SRT Logistics. SRT's investment in fleet has been significant, coming to almost AUD 31 million in the past 3 years. Investments made by SRT was a major attraction for that deal. We have included SRT in the '26 forecast at a normalized AUD 6 million per annum. Following on from the CapEx slide, we wanted to show how the Lindsay fleet profile is well positioned. Advancements in safety tech, driver comfort, efficiency and carbon reduction are all key attractions for operating a modern fleet. Fleet investment will continue to remain a priority so that we take advantage of those advancements. We also want to highlight on this slide the facility expansions over the past few years, which have been significant. With Perth coming online in the next couple of months and Adelaide now complete, all Capital City facilities have capacity for future growth. The investments we make in facilities do have a negative short-term impact on ROIC, but we look past that short-term impact as these investments drive long-term sustainability for Lindsay, our customers and our shareholders. For borrowings, you will see on the bottom table that our net leverage ratio finished the year at 1.53x, comfortably within our target range. On a pro forma basis, post the SRT acquisition, net leverage comes in at the top end of our range. A path back to the midpoint occurs over the next 18 months as the SRT earnings flow through. We were comfortable to go to the higher end of the range for such a quality asset. Post the SRT acquisition, the Group still maintains ample funding capacity with over AUD 100 million of headroom across our funding facilities. We remain well positioned to move swiftly if opportunities arise, which is really important in the current trading environment. I'll spend a little time on the cash flow slide as there are a few moving parts I want to call out. Capital-intensive businesses, the COVID-related tax incentives meant businesses were able to accelerate tax depreciation and defer cash tax payments. You'll see here in the Lindsay example, no cash was paid between '21 and '24. The initiative only deferred those tax payments though with a catch-up due in future years. In '25, we see the first year of catch-up for Lindsay's with AUD 22 million in cash tax payments. At Lindsay, we prepared well and kept sufficient cash reserves to meet these obligations and we'll see further unwinding in '26, but not to the same extent as this year. This will mean that our operating cash has fluctuated a bit over the past few years. Historically, op cash conversion is around 80% and we expect that conversion rate to continue in future years. On the free cash flow table on the right, we have normalized this year's cash tax payment as this is a better indicator for free cash flow for the year. As Clay mentioned, the Board has declared a final fully franked dividend of AUD 0.015 per share, bringing the full year dividends to AUD 0.038 per share fully franked. Post 3 key acquisitions in '25, we retained a disciplined approach to capital management. Our strong, resilient and flexible balance sheet provides confidence to continue to invest for growth, transformation, while balancing our shareholder expectations. Thank you, and I'll hand back to Clay.

Thanks, Justin. Before I go to closing remarks, I'm pleased to provide an update on the acquisition of SRT Logistics that we announced in May and completed on the 1st of July. As outlined in our announcement, SRT offers a range of positive benefits to Lindsay customers and shareholders. These include attractive financial outcomes, the ability to extend and connect Lindsay's network, geographic and service diversification and synergy and capability benefits. SRT's scaled platform provides a compelling entry point into the attractive Tasmanian road freight and transpass shipping markets. The transaction is expected to deliver financial -- the transaction is expected to deliver positive financial outcomes for Lindsay and its shareholders with 15% EPS accretion on an FY '25 pro forma pre-synergies basis. SRT's FY '25 results finished in line with our due diligence expectations. The consolidated logistics network unlocks opportunities to offer existing customers transport and logistics services on a national scale, enhancing the value and competitiveness of Lindsay's service offering. The geographic and customer diversification achieved through the acquisition increases operational resilience and reduces exposure to high-risk regions. In addition, SRT is a renowned secondary freight carrier. Incorporating this capability into the Lindsay business will enable us to develop secondary solutions for our customers in a market we have previously not competed. In our May announcement, we identified AUD 1 million of synergies that could be delivered in FY '26, and we remain confident of that number. But most importantly, we have been impressed with the performance culture, capability and professionalism of SRT's people and leaders. Our cultures feel very aligned and early integration has been positive. Rob Miller and the SRT leadership team bring tremendous capability to the Lindsay organization, and we look forward to creating value for customers and shareholders as we bring the businesses together. FY '25 has demonstrated the strength of our unique integrated operating model, the resilience of our diversified operations and the execution of our strategy through key investment decisions. This year's progress adds to the 70 years of continued investment in the network and the additions of GJ and SRT enhance our operating reach and capability, whilst delivering strong earnings per share growth to our shareholders. We continue to evolve from the regions we service to the products we carry and the customers we serve. And whilst conditions are expected to remain challenging in the near term, we continue to make strategic through-cycle investment decisions. And we focus on no regrets key value creation levers, servicing the customers, building capability within our people, cost control and transforming our business to be as productive and efficient as possible. Our focus and how we create value in the near term will be to integrate quickly and effectively to grow sustainably and to utilize our unique operating model to become the customer's first choice in refrigerated transport throughout Australia. Thank you.

[Operator Instructions] Our first question comes from the line of Ben Wilson.

Well done on a fairly solid result there. Just first question, a simple one. In terms of CapEx, I think you laid out AUD 6 million in maintenance CapEx for SRT in FY '26. Can we take that as sort of the level of sustainable CapEx required for that business going forward? And then from a growth CapEx point of view, you mentioned they've obviously made quite an investment in recent years. Are they sort of -- are they fairly done in terms of growth CapEx requirements for the foreseeable future?

Thanks, Ben. Yes, really great question. And we wanted to call out that go-forward CapEx for SRT because they have invested materially over the last 3 years with that AUD 31 million for growth and for their maintenance. So it was really pleasing when we picked up that business that they had gone through this massive investment profile, similar to how Lindsay's approaches its CapEx. So AUD 6 million is a normalized CapEx for the SRT business -- normal maintenance CapEx for the SRT business. I benefit with these 2 businesses now we've got obviously scale across both Lindsay's and SRT with unique equipment that will be able to be shared between those businesses. So growth CapEx, firstly, we'll internally make sure that we've got our existing assets working optimally between the 2 businesses and we will be able to share equipment between 2 businesses. But yes, it's a really positive for the business with that AUD 31 million that had already been invested for growth.

Great. Second question, I was keen to ask about the competitive environment. And your Slide 5 is really helpful in terms of showing the number of road and rail insolvencies and Prime Mover Registrations. That Prime Mover Registrations, I'm guessing, is sort of across the entire country, across all industries. Just wondering in terms of the sort of refrigerated food and beverage freight market, what are you seeing specifically there in terms of capacity increases or decreases?

Thanks, Ben. I think what we're trying to draw out here is the industry is in a dynamic state, and we've highlighted that throughout the presentation. And I think we've highlighted it leading into this presentation certainly over the last sort of 12 to 18 months. Lindsay has been through these cycles before, and I'm going to ask Craig to sort of give us a little bit of color in a second, but Lindsay has been through these cycles before. The graph on the left really is to highlight that we've seen a peak in new truck registrations. And I don't think we break those down specifically into dry and refrigerated freight, only to say that those prime movers, those heavy prime movers, the new registrations has peaked and coming down. And if you look at that line, it kind of corresponds with the same line on having to pay now tax on those assets. So it's a corresponding line with -- they all kind of line up with Prime Mover Registrations and insolvencies, right? So we've been through this cycle before. And I'll probably just throw to Craig on sort of how that's playing out. Thanks, Ben.

Yes. Look, I think one thing to highlight is at Lindsay's we continue to gain market share in multiple categories and customers, particularly those who value safety, service reliability, and more importantly, some of the recent times is a financial stable provider. That's become a real tick in the box for large companies when they look for a provider. If we -- obviously, we've touched on the voluntary administrations and the registrations that are in decline. Why is Lindsay a little bit differently is it's probably a unique integrated model, offering choices in road and rail. And now that we have the SRT acquisition, we can now do that see across Bass Strait. So I think all these solution gives our customers a broad range of services to choose the best fit for their requirements. And then you roll in the Lindsay Rural side of the business, and we have a very -- we're very flexible on our solutions into the marketplace, and that sort of differentiates ourselves a little from our competitors. I've been in this business for 27 years and we've been through this cycle multiple times. And I think we're in a great position currently, the best I've ever seen with our -- we've got a really diversified portfolio today in multiple categories and the range of services we supply, plus all the new locations we're in, we're certainly in a great position to take advantage when this tide turns.

That's really helpful color. Just one last question, if I may. Just interested in terms of outlook for upcoming weather conditions over the coming summer. Are you seeing any sort of reliable forecast as yet as to whether we're likely to see another La Nina or touch some dry conditions?

What's the weather doing? What are we thinking around weather?

I can tell you what the tide turns are on that just when the best fishing times are. But I haven't looked that forward, to be honest, but it's we've had 2 tough years in North Queensland in particular, but I think that's our strategy of being in Tasmania into the West, so we diversify our risk. So for us, guys, yes, it's an important part of our business, but the go forward is to not make it the heart and soul of our business.