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

Thank you for standing by, and welcome to the Maas Group Holdings Full-Year 2025 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Tim Smart, Head of Corporate Strategy and IR. Please go ahead.

Thank you very much, and good morning, everyone. Welcome to our FY '25 annual results presentation and call. In a moment, Wes will take you through the results strategy, hand over to Craig, and then we'll have time for Q&A. If there are further questions, obviously, beyond this call, don't hesitate to reach out to myself and we'll endeavor to answer your queries as needed. But without further ado, let me hand over to our CEO and Managing Director, Wes Maas, please?

Thanks, Tim, and good morning, everyone, and welcome to our financial year '25 results presentation. In terms of the agenda, I'll go through the first 2 sections, and then I'll hand over to our CFO, Craig Bellamy, who will go through the group level consolidated financials, after which I'll wrap up and be sure to leave enough time for questions and answers. Moving on to Slide 3. Starting with our FY '25 highlights. We delivered an underlying EBITDA of $219.4 million, representing growth of 6% on the prior corresponding period and against the backdrop of renewable energy project delays and project losses impacting the CCH division as well as some inclement weather. The standout contributor to the growth was Construction Materials, which delivered EBITDA of $110.7 million, 38% growth on the prior corresponding period, driven by 9% organic growth and strong contributions from the acquired businesses. Notably, our disciplined focus on working capital saw cash flow conversion at 97%, a 9% improvement on the prior year. Our business is asset-backed, with tangible assets growing 20% to $1.7 billion, including the residential land bank recognized on our balance sheet at a historical cost of around $15,000 per lot. The successful capital raise in November, along with the execution of our capital recycling initiatives that realized $107 million in proceeds enabled the transformative acquisitions in Construction Materials division while maintaining a leverage ratio well within our targeted limits and far below the banking covenants. After a challenging period of rapid interest rate rises, our residential real estate business continues to gain momentum and the 201 land lot settlements in the year were ahead of the target and 34% above the prior year. On the safety front, while we've made substantial progress in recent years, it is still the top priority of the group to focus on actions to reduce this, which are in place. Moving on to Slide 4. Our values-driven culture is the foundation for our success and growth and a true differentiator. While we continue to expand our footprint through strategic long-life assets, critical to the continued success is that the new team members not only understand our values, but embrace them. To that end, we've recently held our annual strategy review where 90 of the key managers and staff across the business attended. Pleasingly, I can report that our culture and values remain a core strength and very much embraced across the broad management team, including those that have recently joined the group. Moving on to Slide 5. Our overarching aim is to compound capital, delivering attractive returns through the cycle. We've been doing this now for over 20 years. Since FY '20 through this year, we have delivered an EBITDA CAGR of approximately 28%. We invest for the long term, and our success is a function of our disciplined investment framework and underpinned by our fundamentals, namely an asset base, which we can continue to invest in is directly exposed to renewable energy and infrastructure projects, which have long-term tailwinds, a highly aligned and incentivized founder-led team focused on being the lowest cost producer in each end market, a successful established track record of organic growth and accretive acquisitions complemented by prudent capital allocation, and we continue to see highly attractive long-term opportunities in Construction Materials and investment capital will continue to be focused in this division. Moving on to Slide 6. Underpinning our competitive advantage is the strategic locations of our operating hubs across the East Coast. FY '24 saw expansion into new regions, including the Illawarra region through the acquisition of Cleary Brothers. We've also further strengthened our Greater Melbourne hub through the addition of a hard rock quarry in the Western growth corridor and more recently added asphalt and recycling business, expanding and enhancing our integrated Construction Materials model. Moving on to Slide 7. We are committed to operating in a sustainable way, recognizing the importance we play in reducing environmental and climate-related impacts. There are a number of initiatives underway across our business that target reducing our environmental impact and a number of the cases, also generating positive financial outcomes. As a company, we understand the increasing expectations around sustainability, and we are committed to developing a road map to meeting and exceeding sustainability reporting requirements. As part of the implementation of a comprehensive environmental data collection, this is the first time we have reported our Scope 1 and Scope 2 greenhouse gas emissions data. Moving on to Slide 8. Ensuring our staff return home each night safely is a top priority. In FY '25, the lost time frequency rate increased marginally from FY '24, while the total recordable injury frequency rate saw a small improvement. As newly acquired business are integrated into the Maas safety culture and systems, we expect continued improvement over the coming periods. Moving on to Slide 9. As a values-driven company, we are committed to the well-being of our people, the communities we operate in. We are very much growing our own ethos, and the Maas leadership development program we're investing in. As part of this, we've put 161 trade apprenticeship positions across the group across the year. Moving on to Slide 10. Turning to the current trading conditions and outlook. Infrastructure and renewable energy-related projects continue to underpin demand for our Construction Materials business, whilst there is some softer end demand persists in the Melbourne market impacting volumes. Renewable energy projects, including commencement of the delayed transmission projects are driving improved outlook and utilization for the Civil Construction And Hire business. Demand and pricing for childcare, self-storage and industrial projects remains robust, supporting our asset recycling initiatives. Pent-up demand -- pent-up housing demand, low rental vacancy and the likelihood of ongoing interest rate cuts is underpinning positive momentum for our residential land sales and development business. The overall outlook for FY '26 is solid in revenue and profit growth. Factors contributing to the FY '26 outlook include full-year contributions from the FY '25 acquisitions, some softer end demand persists in the Melbourne market with residential-led improvement expected in the second half of '26, solid external project pipeline in the Civil Construction and Hire division and also the commercial construction. We have a number of strategically located quarries to take advantage of key infrastructure and renewable energy projects, which have already commenced and are forecast to commit further growth in FY '26. Proceeds from the property development sales of $41 million since the year-end underpins the strong outlook for FY '26. Expectation that the residential land lot developments will see ongoing improvement over FY '25, with the Ellida Estate in Rockhampton contributing in the second half of '26. We plan to provide further update on the trading conditions and the outlook at the Annual General Meeting later in the year. Moving on to Slide 11. Moving to our business unit overview. It's worth noting that Construction Materials business now accounts for almost half of the group's EBITDA despite the challenges faced by the CCH division. Combined with CM, these 2 industrial businesses account for almost 70% of the overall EBITDA. Moving now to Slide 12, and turning to our Construction Materials business and the FY '25 results. Construction Materials delivered strong growth, with EBITDA up 38% on the previous year, driven mainly by 9% organic growth and strong contributions from the acquired businesses. At the product level, there was pleasing organic growth from the quarries and asphalt. Overall, Construction Materials' margins increased slightly on FY '24, driven by the cost of production improvements in concrete and quarries, partially offset by the disproportionate increase of lower-margin revenues from asphalt and spray seal. FY '24 was a transformative year for the Construction Materials division, with acquisitions significantly increasing our footprint and capabilities. I'm very excited about the synergies and growth opportunities that these businesses will present in the future. In terms of the outlook, FY '26 will benefit from the full-year contribution from the recent acquisitions. We also expect further organic growth from the quarries, which are positively leveraged to the infrastructure and renewable energy project delivery. The Melbourne market continues to experience soft end demand, impacting on volumes. Independent forecasts see an improvement in the second half of '26 as residential construction improves from historically low levels. Moving now to Slide 14, and turning to our other industrial operating business of Civil Construction and Hire. Since listing our Civil Construction and Hire business, it has grown strongly and consistently. FY '25 was a challenging year with project delays and a few isolated project losses, resulting in a 35% decline in EBITDA. Major projects, including the CWO REZ did not commence and ramp up over the course of the second half, which saw EBITDA increase by 40% over the first half. EBITDA margins in FY '25 were impacted by a roll-off of higher-margin civil projects in the prior period, low plant utilization and isolated project losses, which have been completed. Prudent capital management saw cash flow conversion very strong at 123%. Our outlook for FY '26 is positive, with increased utilization benefiting plant hire as the renewable energy and transmission projects continue to scale up. Strong secured pipeline of works, including for electrical, indicates that the improving momentum will continue through FY '26 and beyond. Moving now to Slide 16 and our residential business. EBITDA, excluding fair value gains, decreased by 9%, driven by an englobo sale in FY '24, contributing 29% of the FY '24 EBITDA, which did not repeat in FY '25. Pleasingly, the business achieved settlement on 201 land lots, up 34% on the 150 we settled in FY '24. We generally guide for land gross profit per lot around $100,000. And indeed, for the year, it was being closer to up circa $112,000, driven by estate product mixes and overall pricing remaining stable. Home construction completions were significantly down as the late cycle exposure to land development, although margins improved through disciplined cost control. The outlook for FY '26 and beyond is strongly positive. Our carry-in of 66 lots compares with 32 in the prior year, with the Ellida Estate in Rockhampton expected to deliver settlements in the second half '26 and potential for further rate cuts. We expect strong improvement on the FY '25 settlements. Moving now to Slide 18 and on to our commercial real estate business. While revenue decreased marginally, EBITDA increased by 35%, driven by the increase in fair value gains on our investment properties. Significantly, $8.3 million of fair value gains related to properties contracted for sale in the subsequent year-end with associated proceeds of $41 million realized. EBITDA decreased by 19%, driven by the reduced activity for the commercial construction and building supply business. The segment achieved proceeds on sale of developments of $81.3 million in FY '25 as part of the group's capital recycling program, which are in excess of book value, providing validation for our fair value gains recognized previously. In terms of the outlook, we continue to focus on self-storage, childcare and industrial assets. We have $70 million sold or contracted for sale and have identified further assets for sale, which should see a reduction in overall capital employed. I will now pass over to our CFO, Craig Bellamy, to go through the group's financial performance. Thank you.

Thanks, Wes, and good morning, everyone. Starting at Slide 21. As Wes has already highlighted, MGH delivered a record EBITDA for FY '25 of $219.4 million, representing growth of 6% for the year. This growth has been largely driven by Construction Materials and the Commercial Real Estate segments, which has offset the softer performance from our Civil Construction and Hire business. With respect to the EBITDA growth, our Construction Materials division achieved approximately 10% organic growth, with significant organic growth also achieved in the Commercial Real Estate and Manufacturing segments. This was, however, offset by the performance of Civil Construction and Hire. Revenue for the year increased by $115 million, which represented a 13% increase. This was underpinned by the significant growth in our Construction Materials business of 37%. Our EBITDA margin of 22% reduced slightly from FY '24 due to the drag impact from the performance of CCH. Our other income of $48.8 million for the year was driven by a combination of fair value increase and profits achieved on asset recycling. The timing of asset sales of a number of commercial property developments has impacted the change in fair value, as Wes has already highlighted, with approximately $70 million of sales either contracted but not settled at June or contracted subsequent to year-end. This attributed a further $8.3 million of fair value for FY '25. Of note, we've received $41 million of proceeds since year-end, settling some of these contracts, which has already crystallized over $6 million of the fair value gain booked at FY '25. Turning to Slide 22 and looking at the operating expenses for the year. They increased by $112 million or 16% from the prior year. Removing the impact of the FY '25 acquisitions and also the acquisitions made in the second half of FY '24 to get an understanding of the year-on-year expense burdens, there was a $7.7 million increase in expenses attributable to the organic business, which is largely driven by the CCH margin compression, but was offset by an improved cost of production in our quarries business. With respect to the underlying adjustments of $47.7 million, you can see from the table, the majority of this relates to the 25% minority interest in our asphalt business. As a reminder, we recognized 75% of revenues and expenses from our asphalt business, whereas the statutory accounts recognize 100% and then deduct the net amount at the non-controlling interest line. Depreciation for FY '25 was $57.3 million, with a $12 million increase attributable to the acquisitions during FY '25 and the second half of FY '24. Amortization for the year decreased by $2.6 million to $5.6 million due to a number of the previously acquired customer contract intangibles now being fully amortized. Turning to Slide 23 and looking at the cash flow, the group's underlying cash flow for the year. You can see our operating cash flow has increased to almost $171 million in FY '25 with a cash conversion rate of 97%, our highest conversion rate in the last 5 years. This was a great result for the group with all key segments achieving strong cash flow positions driven through strong working capital management and our group target cash conversion rate of a minimum of 80% remains unchanged. The group also invested $45 million into land inventory development during the period, with net maintenance CapEx remaining stable at $9 million for the year. Slide 24 looks at the cash flow per segment. And as you can see from this slide, there's been improvement in each segment's cash flow conversion from the prior year. Our Construction Materials' cash flow conversion of 84% highlighted prudent working capital management in a period where there were significant acquisitions, whilst our Civil Construction and Hire also managed working capital effectively, notwithstanding the challenging operating conditions and achieved a cash flow conversion of 123%. On Slide 25, we've got a breakdown of the capital investment. As you can see, MGH has again invested in long-term strategic growth assets, with a focus on the Construction Materials segment with approximately $245 million invested in our quarries, concrete and asphalt footprints. The Civil Construction and Hire acquisition relates to the civil and plant hire business acquired with the Cleary Brothers' quarry and concrete acquisition. The group also invested into real estate platforms during the period, but maintained its focus on capital recycling of the Commercial Real Estate segment, which as previously noted was the main contributor to realizing approximately $107 million of proceeds through the sale of property investments and inventory. The group also invested $13 million into growth CapEx, largely in the Construction Materials segment, with our net maintenance CapEx remaining stable at $9 million. Looking at our capital management on Slide 26. Our net debt, excluding AASB 16 at year-end was $624 million. The leverage ratio at June '25 was 2.7, sitting well within our target range of 2 to 3x, noting the banking covenant is 4x. With respect to the leverage ratio, taking into account the $41 million of proceeds that I've mentioned that we've received in relation to commercial properties that we thought may have settled by June '25, our net leverage ratio would have been 2.5x as at 30th of June. We expect that through forecast operating cash flows for FY '26 and our continued asset recycling within the commercial property segment, the leverage ratio will be at the lower end of the target of 2 to 3x for FY '26. The group continues to retain significant balance sheet capacity with undrawn facilities as at year-end of approximately $210 million, which noticed above we expect to be further enhanced through our forecast operating cash flows and continued asset recycling. Our final dividend is fully franked at $0.035 per share, which takes our yearly dividend to $0.07 per share fully franked. Turning to Slide 27. And before handing back to Wes, looking at the capital employed, you will note a decrease in the return on capital employed for the year from 13% to 11%. This has been largely driven through the underperformance of Civil Construction and Hire for FY '25 due to the previously mentioned project delays and isolated project losses. With an improved outlook for this segment for FY '26, we expect a significant improvement in its return on capital metrics for FY '26. With respect to the Construction Materials segment, returns are relatively stable given the softness in the Victorian market and the high level of acquisitions over the last 12 months. As previously noted, our acquisition business case on average operates on a 3- to 4-year window of achieving our targeted return metrics. So, we would expect our returns on capital employed to improve on a similar trajectory, also aided by the expected improvement in the Victorian market. This concludes my presentation. And I'll now hand back to Wes for closing comments. Thank you.

Thanks, Craig. So to summarize the key messages, FY '25 EBITDA of $219 million was in line with guidance, driven by strong Construction Materials contribution against the backdrop of some project delays and challenging weather. Construction Materials continues to deliver strong growth and contributed almost half of the group EBITDA and with full-year contributions from the recent acquisitions will be dominant contributor in FY '26. Cash conversion at 97% demonstrates prudent working capital management and with cash proceeds realized since the year-end of $41 million from contracted property sales, we're in a strong liquidity position. Capital recycling proceeds of $108 million exceeded our target and was above book value, incorporating $14.1 million of fair valuations previously recognized. $70 million sales contracted or sold since year-end and further assets will be identified for sale in the first half of FY '26. The outlook for FY '26 is positive with the expectation that EBITDA growth in FY '26 will be driven by Construction Materials, improvement in CCH, accelerating momentum in the residential land sales and further recycling initiatives. To wrap up, I remain very committed to the business and excited for the growth opportunities ahead. I appreciate your interest in our company, and that concludes the formal presentation. I will now open up for questions. Thank you.

[Operator Instructions] The first question today comes from James Ferrier with Wilsons Advisory.

Really just a few questions about the FY '26 outlook here. So on the CCH segment to start, do you think where you sit now and your visibility of the order book, the contracts, do you think an EBITDA number similar to FY '24? Is that a realistic achievable outcome?

The answer is yes, James. With our current work book and the roll into FY '26 gives us confidence, yes.

And building on that, especially if you think about the electrical part of the CCH segment, which has been a bit of a laggard just given the nature of the sequencing of that sort of demand, arguably, if that starts to pick up, you can push ahead of the sort of '24 run rate? Or really is that captured in your comments there?

Look, at this point in time, we would guide you that it's positive. The blue-sky opportunity and outlook is huge, like it's documented everywhere. But we would rather guide you at FY '24 levels rather than saying that we expect it to ramp up over the coming years, definitely, I mean because the opportunities are significant. But at this point in time, we wouldn't -- I don't want to guide you too bullish.

Yes, no, that's understood. And then to finish on that segment, I mean, if you did go down the path of what you were just describing there at the end in terms of sort of upside looking further ahead, given where the utilization rates are now, that would necessitate allocating more capital for more equipment purchases, et cetera, to facilitate further growth?

In the civil and plant business, yes, but not as much in the electrical space like the projects are larger and there's -- in that space, we -- whilst we talk about utilization, the assets are quite underutilized relative to the project and size opportunities. So, there's a bit of headroom with what we have in the electrical space, I would say.

Yes. Okay. That's helpful. And then on the Construction Materials side of things, when you talk about soft demand in Melbourne, are you specifically -- is that isolated to concrete? Or are you seeing that extend back up into quarry materials as well?

Look, it's isolated to our concrete business. But obviously, the pull-through from quarries has an effect. But we've actually taken -- we've maintained or taken more market share in the quarries, from external, but our concrete business, the same or similar to everyone's concrete business in Melbourne, volumes are down, but our volumes are not down in the quarries.

Okay. That's helpful color. And to finish on the Construction Materials business then, simplistically, if we sort of took second half '25 EBITDA, doubled that add-on the smaller acquisitions that were completed later in the period, plus there's some organic quarry volume growth there across the business. And then if the big concrete market around resi comes back in the second half, that's accretive to that scenario as well. Do you think that's a reasonable way to look at it?

Yes. Lots of variables in that around a bit that way. But yes, we expect to grow. And I mean, you simply annualize the acquisitions plus some growth, it's pretty easy to work out that we will grow in first half and the second half of '26.