MAAS Group Holdings Limited (MGH) Earnings Call Transcript & Summary

Welcome to MAAS Group Holdings FY '22 Results Presentation. MAAS Group's had a very successful year, especially with the backdrop of how wet we've been in the last 12 months and also the COVID and supply chain challenges. We've achieved financial highlights of pro forma revenue of up 90% to $539.1 million, pro forma EBITDA up 65% to $125.1 million, pro forma EBIT up 58% to $94.2 million. Statutory EBITDA up 78% to $125.3 million, statutory NPAT up 77% to $61.6 million and total tangible assets up 87% to $814.3 million. We've given out a very strong earnings outlook, strong growth expected across all segments and our guidance range in the vicinity of $180 million to $200 million, which represents growth of between 44% and 60% growth. Some of our key assumptions, obviously, a full year contribution from the acquisitions, namely GARDE, Schwarz, Blackwater and Brett Harvey Homes that didn't contribute to a full year in FY '22. Our residential settlements increasing to between 360 and 400 lots, house starts rising to around 250 lots. We've had some very strong key project wins in the civil construction and hire segment with well over 50% secured and already on track. Our construction material volumes significantly increased in FY '23. Obviously, we're at a really strong run rate at the back end of FY '22, and we closed a number of acquisitions very late in the year. The maturation of our commercial property portfolio, so significant rental income stream to start coming through and the delivery of some of those projects. The manufacturing headwinds are expected to ease over FY '23, and we've got a strong order book. So we expect material increase in the Manufacturing and Sales division. In addition to that, we've had a strong track record of successful acquisitions. We do have 2 near-term acquisitions that we expect to complete in the first half of FY '23, and we've called out that, that will contribute roughly $22 million in FY '24 as we don't know exactly when they will complete in FY '23. If you look at the table on the right-hand side of the presentation, if you've got that in front of you, you can see our strong growth over the last 3 years and then our forecast, which we're very, very confident of. On Slide 8, we've sort of given a pro forma segment performance with both revenue, EBITDA and EBIT showing really strong growth across each of the areas in line with expectations and a quite diverse income stream. I'll hand over to Craig to run through the financials.

Thanks, Wes, and good afternoon, everyone. As Wes has already mentioned, FY '22 was a record year for MAAS with respect to its financial performance. Pro forma EBITDA of $125.1 million represented an increase of 64.9% from the prior year, driven by both organic growth and acquisitions. Our pro forma EBIT was $94.2 million, which represented an increase of 57.5%. Our pro forma revenue growth of 90% to $539 million was once again driven by both organic and acquisition growth. We've also maintained a strong EBITDA margin of 23.2% despite the impacts of weather, COVID-19 and also against the backdrop of cost pressures associated with global conditions. Depreciation increase was driven by a combination of increased plant usage, business acquisition and fleet growth, and our increase in amortization was driven almost primarily through the amortization of acquired intangibles associated with business acquisitions. Turning to our statutory results. You can see that our statutory and pro forma results are basically in line and achieved strong growth from the prior year. The table on the right of the presentation shows a reconciliation of the statutory NPAT to the pro forma NPAT with the major reconciling items being pre-acquisition NPAT, transaction costs associated with business acquisitions and the fair value gain with respect to contingent consideration for business acquisitions. Net of tax, these adjustments totaled $400,000. Turning to the next slide, Slide 11, expenses. This slide provides some background with respect to the increase in expenses for the group during the year. The key takeaways from this slide are the expense increase is in line with revenue growth. Excluding depreciation and amortization, approximately 70% of the growth in expenses was associated with businesses acquired post IPO, noting we had minimal contribution from the acquisitions in FY '21 with Amcor and Willow Tree completing in June '21. Expenses increased by $61 million across the existing business. Looking at our depreciation, it's increased by $10.8 million from the prior year. $4.1 million of that increase is associated with acquisitions, while $6.6 million has been driven by a combination of increased productivity and growth CapEx for both the Civil construction and Hire Construction Materials segments. With respect to amortization, the increase of $4 million for the year is driven by $2.6 million of acquired customer relationships, which is the intangibles associated with the business acquisitions, $700,000 of acquired leasehold quarry amortization and $700,000 relating to AASB 16. Turning to the pro forma cash flow. MGH has continued to reinvest within the business to provide a strong platform for future growth and cash generation. There has been significant investment in working capital during the year of approximately $43 million, along with a further $28 million reinvested into our residential land inventory, which reflects both the growth in both the scale and size of operations across our business, but which provides the essential foundations for the business to deliver its FY '23 targets and beyond. This investment has impacted FY '22 cash flow conversion, although the conversion rate is less than last year, as you can see from the line graph to the bottom right of the presentation, it is not uncommon for MGH to have years of lower cash conversion due to its disciplined focus on reinvesting within the business to achieve sustainable future growth. Looking closer at the pro forma segment cash flow. You can see that the working capital investment, excluding land inventory has occurred primarily in the Civil construction and Hire, Construction Materials and Manufacturing segments, which I'll step through further. Starting with Civil Construction and Hire, over half of the working capital invested by the group for the year has been invested in this segment with a total of $24.2 million. Revenue for this segment grew by 38% for the year and EBITDA growth was 27%, which supports the reinvestment back into the segment. The key drivers for this are our growth in our Civil business with the value of work on hand at June '22 being close to 200% larger than prior year and reflective of the growth in the business, which is the primary driver of pull-through for the group. The increase in business growth has seen an increase in turnover across the group compared to the prior year, leading to an increase in debtors driven by the increased turnover. So our debtors have grown based on volume and turnover and aging remains the same. We've also had a strategic increase in machinery inventories to assist with growth targets for FY '23, including new regions. For Construction Materials, approximately 33% of the working capital invested by the group has been invested in this segment with a total of $14.3 million. Revenue for this segment grew by 150% and EBITDA growth of 78%, again, supporting the reinvestment back into this segment. The key drivers were growth in quarry inventories of approximately $7 million. We expanded into concrete during the year for a further $1 million reinvestment of working capital. We also had a GST receivable of $1.4 million relating to a recent acquisition, and like Civil Construction and Hire due to the increase in the size of the business, we've seen an increase in the debtors due to the increased turnover, once again, all in line with prior aging. Manufacturing business, we invested approximately 10% of that total working capital into this segment with an investment of $4.4 million. Despite its results for the year, a strategic decision to invest in inventories was made to mitigate the lead time and supply chain risks to assist with this segment's growth targets for FY '23. As a result of the working capital investment across these 3 segments, we are anticipating a higher EBITDA cash conversion from each of these segments for FY '23, along with additional EBITDA growth. Turning to Slide 14, the capital investments. This slide shows the breakup of capital invested for the year. We had growth CapEx of $42 million with $24 million of that invested in the construction materials and $17 million in Civil Construction and Hire. We had net maintenance CapEx was approximately $9 million and combined growth and maintenance CapEx of approximately $50 million, which, as you can see from the bar graph, is consistent with recent years, again, demonstrating a consistent and disciplined approach with respect to investment within the business. Looking at the group's capital structure. Excluding AASB 16, the group has a net debt of $262 million, which represents a 2.1x trailing EBITDA. As for the table to the right, the group has a pro forma liquidity of $142 million at 30 June 2022. This includes the capital raising proceeds net of any contracted commitments previously announced, not yet paid as well as potential acquisitions that were noted in the previous cleansing statements. With respect to dividends, a final dividend of $0.035 per share fully franked was declared, taking the full year dividend to $0.055 per share, which is within the target payout ratio and represents a 10% increase in DPS from the prior year. The DRP remains operative at a 2.5% discount to the 5-day VWAP price commencing 2 days post the record date. Looking at the debt maturity, the schedule of drawn debt and contractual maturity is displayed. FY '25 represents the largest single maturity point for the group. With respect to interest rate risk management, we've traditionally managed our exposure through our asset finance facility, which has been fixed, and we continue to look at interest rate risk management strategies going forward. Looking at our assets. Our assets have grown by approximately $460 million during FY '22 with total assets of $947 million. The growth in the assets is shown in the bar graph with a consistent increase across all categories, largely driven by acquisition and reinvestment back into the business as previously highlighted. Total tangible assets were approximately $815 million, representing growth of $380 million for the year. Looking at our liabilities and equities on Slide 18. Our total liabilities have increased by approximately $180 million -- $190 million, sorry, with the primary driver being the increase in debt for the year of $172 million. Total equity increased by $200 million with issued capital increasing by $152 million associated with the capital raise proceeds and the issuances of shares for business acquisitions. I'll hand back to Wes.

Thanks, Craig. Moving on to Slide 19 on the capital employed. You can see there was a significant increase in the capital employed for the year. We've hit 21.8% return on capital employed being $125.1 million on the average capital employed of $573.4 million. The business has always stated that we look for a 30% return on capital, but some of that comes in arrears. And the other anomaly there is that we've got a lot of property assets, significant asset backing, especially in the property, but not only in the Real Estate division, but also in the Construction Materials division. And if I step through each of the segments, starting at Construction Materials, we've seen significant growth, 77.6% growth from $16.1 million to $28.6 million, all that in the background of significant rain events over the last 12 months. It was a very pleasing result. We've now got 31 strategically located quarries, 25 in operation. We've invested in our plant and equipment to lower our cost of production. We are or we will be the lowest cost producer in almost all of our operations. We've built out a significant Central Queensland hub now with the grouping of Rockhampton being the center of our hub up there with Gladstone Blackwater Quarries, Dawson Quarries and the recent Clermont group. We've now got 6 -- 7 fixed concrete plants and 5 mobiles, so 12 concrete plants. We're looking to expand further in that to shore up the downstream side of our Construction Materials group. In logistics, it's obviously a common theme in our business is to control our own destiny and capture the margin. So we've looked to shore up the supply chain with the trucking assets, not only in the truck and dogs delivering quarry materials, but the agis for delivering concrete tankers and other logistics fleet. So that fleet has grown to 104 assets. Looking further ahead, we've obviously got a few acquisitions in tow, but we've also got some other identified opportunities that we'll work through over the coming periods. Inland Rail ramping up. And we're also implementing a lean program right through our construction materials organization led by Peter Hewson. And we are very confident that we're going to see significant upside in that group over the coming periods. I won't step too much through the numbers. I think I'll sort of take them as read. You can see a small decrease or a decrease in the EBITDA margin, but it's more about the composition of earnings. Obviously, we had concrete come on in FY '22 that didn't exist in '21 and concrete is a lower margin operation, but obviously supports our quarry business. Also, the growth in the transport is a lower margin. Remember, our #1 metric in this business is return on capital invested. So we don't necessarily -- we don't look so much at the margins. We're more about return on capital invested. If you move into civil construction and hire, it was a very pleasing result. We've got a very, very strong team. We've had 26.7% growth from 39.2% to 49.7%, the business is a mature business. It's our most mature business, being operational, obviously, since the beginning. We've had strong growth across all parts. So in the civil, plan, hire and electrical business, we've seen strong secondhand machine sales, which supports our business model of recycling the plant and equipment. We've seen an increase in higher assets to enhance our capability of self-performing and also for future growth. Our outlook remains very strong. So the next 3 to 5 years and beyond, we believe will be very strong. We're enhancing our capabilities and growing our internal capabilities to take on larger projects. As I already said, we're very strong in our ability to convert. So we've got a strong win ratio on what we tender. Our typical project term is 6 to 12 months, probably pushing out sort of the 9 to 12 months. So the projects are quite nice. We're focusing on business excellence and development leadership, bringing through our teams and really strengthening and building on our culture that we have. We've added a couple of businesses there with Schwarz and GARDE, very strong family founder, sort of founder-led type businesses, and we've been able to retain those key people in those businesses and also hopefully have them adopt our culture and build and enhance their culture. So we're confident in our outlook with those businesses as well. On the numbers, you can see there revenue growth, 38% from $182 million to $252 million, EBITDA growth of 27%, EBIT growth of 12%, a nice even spread of planned hire and sales, civil, electrical, so a pretty diverse revenue stream, and we're very confident in our ability to continue to grow, noting that these results here don't have those couple of acquisitions that came right at the back end or in early '23. So we expect significant growth into FY '23. On the real estate, we've had a very successful year, which we've been flagging for sort of the last 3 years. We've got a significant pipeline or portfolio of property assets that are undeveloped and really give us no value from a profit sense in the past, but will deliver further growth over the next 2 to 3 years, the result, $54.2 million, up 138.8%, obviously, strong residential sales. We had some 30 in our build-to-rent portfolio as well. Average regional land prices up from over the last 2 years of roughly 25%. We run a very vertically integrated business model where we capture the margin all the way through. So we definitely are the lowest cost producer in where we operate and it gives us a lot of stability in our ability to forecast and control costs, et cetera. FY '22, we had an average of about $100,000 per lot profit, exiting a little bit higher than that. We expect in FY '23 for that price point to remain flat, but the volume to continue on its same trajectory. So we're not seeing any material changes in the market. FY '22 acquisitions, we added in excess of 3,300 lots, so 70% growth in our pipeline, consistent with our strategy to buy more than we sell and continue on that growth strategy. We've seen strong regional migration, and we believe with the current noise in the market of capital cities and people about affordability, obviously, the regions come into focus because they're much more affordable and for any public servant or standard jobs, you still earn the same money in the regions. So we expect that to remain the same or be stronger. We're seeing very strong job growth and population growth in the regions, which underpins our regional property strategy. Our outlook, look FY '23, we are growing our delivery to sort of between 360 and 400 lots versus 270 settlements in FY '22. We're estimating to do 250 house starts. We're continuing to have a very diverse range of products from very small lots to large lots to appeal to 80% of the market. We're accelerating planning and development approvals to ensure that we're not inhibited going forward. We've got increased demand. So we, therefore, are building some -- a few spec homes to take advantage of a fully completed product. We're in planning stages for our land lease communities. These will commence in FY '23 and settlements into FY '24. Our build-to-rent portfolio has commenced, and it's a multiyear strategy. There's obviously significant demand for rental in the regions, and we believe we're on a winner there. In the Commercial Property segment, obviously, the acquisition of Spacey Self Storage, we had 528 units under operation at the start. We're expanding there rapidly with development planned in Canberra, Golden, Port Stephens, Kempsey, Orange, Albury, Wagga and Dubbo. So a very strong development pipeline. The acquisition of David Payne and MAAS Constructions come with very strong leadership and an experienced team and gives us the security to deliver those projects so that obviously gives us a lot of strength and ability to deliver and ensure that, that happens on time. We also acquired Astley's Plumbing and Hardware and Plaster Master in the period. That also captures more margin down the supply chain. We've got a few significant developments like the RAAF based development in Dubbo, where the master plan is well underway. The book value of our investment properties at June 30 was $87.2 million, anticipated cost to complete projects around $370 million and a GDV of $545 million. So we've got significant bank profit to come through that portfolio over the coming periods. FY '23 outlook and beyond. Again, we'll look to self-perform and capture the margin. We're working on a development program and how we recycle that capital to self-fund our future growth in that segment and others. We are seeing a lot of opportunities, and we're very confident in our ability to hit or exceed our guidance in FY '23 and FY '24. Commercial property is something that we're very confident of our ability to deliver on. The segment performance, you see revenue went from $55.3 million to $189 million, so it was 242% increase. EBITDA growth from $22.7 million to $54.2 million, so 139% growth. Growth right across all the numbers there. Obviously, we're coming off a small base. So it's quite easy to grow in those big numbers there. And as I said earlier, we expect to see significant growth in the future, so much in line with what we've been doing there. The manufacturing and sales division, it obviously had a very challenging year due to supply chain and COVID. Obviously, our manufacturing facility is in Vietnam. So we haven't been able to travel to the factory over that period, and we have recently and the team and the culture and environment, et cetera, is very, very good. We've got a really strong forward order book into FY '23, which is the best we've ever had. So we are expecting to see material change in growth over the next 12 months. We're looking to increase our toll manufacturing. There's a number of opportunities that we're working on at the minute to bring in more toll manufacturing into the factory. We're currently quite underutilizing the factory. So we're probably about 30% to 40% utilized. So significant upside without any further CapEx to spend, obviously, just bring on more staff and utilize what we have there. We've locked in our road map and development of our EV range, and we're working to deploy additional distributors in other key markets around the globe. The financial performance, you've seen a negative performance in revenue, EBITDA and EBIT. But as I said, we're looking past that, and we believe it will be a strong contributor, albeit small compared to the other segments in FY '23 and beyond. On to Slide 34, our growth initiatives and outlook. If everyone's read our presentations before, this slide is very consistent with the past. So we haven't changed. We're continuing to roll out our model that we've done for the last 20 years, and that is deploying capital and driving a return on capital invested and reinvesting in our business. So construction materials and real estate is a focus for us to deploy and grow through hard assets. In civil construction and hire, I touched on earlier, we've got a very strong business model, a strong team, a strong culture. We can grow that organically, and we will grow that organically over the next few years. It will grow -- also grow off the back of the expansion of our construction material and real estate businesses naturally, manufacturing and sales, our key initiatives have never changed. So increasing that toll manufacturing, increasing our distributors around the globe and looking at additional revenue streams, et cetera. The last slide, Slide 35, again, is just reiterating our earnings outlook. We're expecting to see significant growth. We have a tried and tested model that's in October this year, the company is 20 years old. So we've been doing the same thing for a while, and we expect to see the same results going forward. Thank you. I'll hand back over and happy to take any questions.

[Operator Instructions] Your first question comes from Mitch Sonogan from Macquarie.

Can you hear me clearly?

Yes.

Yes. Just starting on the resi. Just in terms of the EBITDA per lot, you talked about around $100,000 over FY '22 with the exit run rate at $135,000. You're still guiding to similar to the PCP over the full year. Is that just a bit of conservatism there from your behalf? Or can you just talk about any specific drivers why you'd see that come back to the $100,000?

Look, I think there's probably a little bit of conservatism. But what we tell the market, we want to ensure that we deliver. Also when -- it depends on stages and the product mix to what the exit rate is and what the average exit rate is. So if I was being conservative, I would say the average exit rate across the whole portfolio because it's sort of product mix would probably be closer to $110,000. But it's a fact it's been verified that we did exit at $135,000 in that period, but yes.

Yes. Very clear. And just in terms of the -- I know you've put out to FY '24 in terms of the forecast residential lots settled. But on the investment you're putting into Rockhampton and focusing on that area as well, looks like around 50 lots or so there. But in terms of the size of that area, is that something we should expect to continue to step up pretty materially from there over the next couple of years beyond FY '24?

The revenue and profit in that area will definitely step up in the coming periods. I suppose we've laid the seeds and bought the assets, but little -- very little revenue and profit has come through to date, but it will come out over the next few years. We plan in FY '24 to deliver 50-odd lots, and then it will grow to between 100 and 150 lots a year. Today, we don't have a civil business in that area, but we will expand off the back of the Schwarz escalations business and build internal civil capability, as well as the synergies that we get with that group hub up in that area. So obviously, quarries, concrete property, plan, hire, transport, et cetera. So we've sort of replicated that Western New South Wales model in the Central Queensland market.

Yes. Excellent. Just jumping on to construction materials, a few things wrapped up here. So maybe you can just run through those. But having a look into '23, just in terms of EBITDA margins, obviously, there's been a bit of impact or a lot of impact from wet weather. You've also got the concrete coming in around 20% of revenue for that division. Can you maybe just talk about where that might trend over the next year and probably in terms of the cost reductions you're seeing in the quarrying materials business from the investments you're making. Can you maybe just talk about what dollar per tonne in terms of revenue and EBITDA roughly at the group level we might expect over the next couple of years?

Look, in total, it's very dependent on composition of earnings. Obviously, you've got no weather. You've got quarries return and give or take, $10 a tonne, and then concrete, it's a low margin, but it obviously has the pull-through from the quarries. You're looking at around that 20% odd margin, and then you've got transport, which is a 15% to 20% margin, again, the business focus is not to focus on margins, it's more to focus on return on capital invested and build that integrated business unit. And the anomaly will be as we add acquisitions is what -- when the acquisitions come in, are they big in concrete or are they big in quarries and that will just throw the numbers around. I suppose we will obviously detail that a bit so you can understand it a bit more. Craig, you might want to add a little bit there.

Yes. No, I think that's a fair summary, Wes. I think, Mitch, in terms of -- if you had no noise from weather and just with the, I suppose, the increase in volume for the quarries that were acquired in the second half, so you get a full year going into '23 and in the absence of any more acquisitions, you'd see a trend upwards, obviously, because the EBITDA margins on the quarries are far stronger than the concrete. So it would definitely trend up.

You've probably seen because of the wet weather in the last 12 months, you would have seen the investment in working capital. We've probably got double the amount of stock that we would normally hold. So we would normally hold around a 6-week stock position where we're probably holding at the end of June 30, we're holding around 12 weeks. So that's probably lost revenue in that period. It's not lost revenue overall because it will come out in '23, but we're definitely holding more stock. So we expect to see an unwind of working capital in the next 12-month period as well.

Yes. Excellent. And just a final one for the moment. Just on the manufacturing business, you talked about seeing the strongest order book that you've had. Are there any reasons why we shouldn't expect to see that getting back to FY '21 levels of profitability? Can you maybe give just a bit more color on what you're seeing over there from now having been able to visit it?

We expect to exceed FY '21 levels. So sort of jump back on to that growth trajectory that it was on before. So if we give you a range, we're talking sort of $5 million to $7 million profit range expected. We have a number of orders that had the supply chain issues been normal, some machines probably would have been delivered in '22. So we've got a bit of carry or carry in into that FY '23 period, and then we're also seeing positive market with the adoption of Jacon and the new models and the strategy that we've implemented in the factory and in the Jacon business.

Your next question comes from Liam Schofield from Morgans. .

Can you hear me okay?

Yes, I got you, Liam.

Perfect. Just on the maintenance CapEx, $17.9 million, how is that sort of split between the divisions?

That's -- the civil construction and hire carries...

I think $11 million.

Yes, I think it's about $11 million of that, Liam, on a gross, and then construction materials is the balance.

Perfect. No worries. And just in CC&H, I get that just looking at the working capital movement, I get the debtors and the contract asset movement. What in the inventories, what inventories does that division hold?

That's in the machinery sales business. So it sort of goes in there. So that's where that piece is. So there's an expansion of that machinery sales and hire component planned for '23. So it's forward buying for that deployment in '23.

Right. So it's bought equipment from other parts of the business ready for sale?

No, bought from the external market.

External market. It sourced equipment opportunistically just due to supply chain issues and plus also planned growth and things we know that's coming. So that's all it really it is going forward.

Yes, that's fine. And on to resi, in terms of additional land for resale, obviously, you bought $28 million this year. Are you thinking you'll do similar again? Is that the sort of volume we should think about? Or did you acquire this year?

It's entirely opportunity based. So we don't have a fixed budget to invest. We're opportunistic buyers. So if we find something that's strategic or is well priced and meets our return hurdles, we'll consider it. So we don't have anything locked in at this stage.

Good. And of the 8,000 lots, are they all now fully on balance sheet? Or is it put and call options for a bunch of them?

There's a couple coming up that will settle in this year that we previously announced. The settlement was subject to DA and so those DAs are coming through.

Right. Okay. So of the 8,000, what's held on balance sheet, like the vast majority or...

Absolutely.

I think it's only 100 lots of Miram Hill, in Griffith, CSA. There's probably 400 lots that -- 2 properties that haven't been settled.

Yes. Not much, and what's driving the higher margin on the build-to-rent product?

That's a reflection in terms of, as we said, you have certain stages and so on. So in terms of that exit rate that he referenced, it relates to that particular -- those particular stages. So if you do other stuff, there'll probably be a different margin, but it just relates to that particular stage of that particular project.

In the subdivision.

Yes. Okay. Just one final question. On the lot settlement, 360 to 400 with 250 house starts. Does that just presume -- or does that just imply that there's a big backlog sitting there, like if you're selling vastly more than you're starting?

No, we're not building on every single lot. We're only building on about 70% of our land, so...