Mader Group Limited (MAD.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Mader Group Full Year Results Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Justin Nuich, Executive Director and Chief Executive Officer. Please go ahead.

Thanks very much, Rocco, and good morning, everyone, and welcome to Mader Group's full year results presentation for FY '25. Also today with me is our Chief Financial Officer, Paul Hegarty. All right. To get started, I'm proud to announce that we have exceeded our revenue and NPAT guidance targets of $870 million and $57 million, respectively, having successfully navigated several unexpected headwinds throughout the financial year. With record annual results of $872.2 million in revenue and $57.1 million in NPAT, this achievement marks a significant milestone for our business as we enter the final year of our 5-year strategic plan, and we do so with growth momentum and encouraging market conditions. This year marks 20 years of operation for Mader, a milestone that speaks to the hard work, grit and determination of our people. These qualities were on display throughout our global operations in FY '25. Our team's commitment to getting the job done wherever and whenever it's needed is what drives our success, and I'd like to extend my sincere thanks to our entire team. With all that said, let's jump into it. Okay. For those who are unfamiliar with our story, Mader was founded back in 2005 by our Executive Chairman, Luke Mader, Identifying an underserviced niche in the industry, Luke started providing flexible maintenance solutions to our customers with no more than a you or a truck for our North American investors, some tools and a vision. And 20 years on, that vision has certainly come to life. Today, Mader is a truly global business, delivering technical services across multiple industries in 9 countries. And backed by a team of close to 4,000 technicians with diverse skill sets, we proudly supported over 490 customers in more than 640 locations across the globe in FY '25. Okay. As you can see, over the past 20 years of operation, we have successfully evolved into a truly global diversified business with our unique business model replicated across multiple industries across the globe. By launching fully organic start-ups in new markets, expanding geographically and broadening our suite of trades, we have been able to achieve an average compounding annual growth rate of around 30% over the last 10 years. This growth is significant and importantly, all organically derived. Our ability to tackle new markets and geographies successfully is a testament to the unique business model that Luke established back in 2005. And we also acknowledge that none of this would have been remotely possible without our passionate and hard-working team, which leads me to our next slide, our specialized workforce. So touching briefly back on Luke's vision. He had a dream to build a workforce where people not only had pride in what they do, but they got to get the job done working alongside their best mates. Now that camaraderie echoes loudly to this day, and we're proud to lead the market when it comes to investing in our people and our culture. As you can see, 66% of our workforce are under the age of 35. Now while we're an equal opportunity employer that provides options for those at any stage of life, our adventurous career pathways typically attract the demographic that are looking for more than just a job. From tailored rosters, site variety, wide equipment exposure, international secondments and more, we invest heavily in our people to provide opportunities that are unparalleled across the industries in which we operate. At the core of this are our 2 culture-led programs, Global Pathways and Three Gears, which have both been continuously refined to provide the best employee experience possible, and we'll touch a little bit more on these later. And last but not least, our commitment to safety remains at the center of everything we do. With a TRIFR of 3.71 recordable injuries per million hours worked at June '25, we acknowledge that safety is a continuous journey, and the work here is never done. Ongoing education, innovation and investment in our geared for safety programs and culture are key to driving further improvement. Coupled with our investment in technology-based tools, Mader remained at the leading edge of safety across the industries in which we operate. So before heading to the financial review, I'd like to provide a quick snapshot of our FY '25 highlights. We delivered yet another record annual revenue of $872.2 million, an increase of 13% on the prior corresponding period. This was coupled with a solid net earnings of $57.1 million, up 13% on the PCP. Further, our balance sheet was strengthened with net debt down an impressive 73% to finish the financial year at $8.3 million. Amongst current competitive conditions and a destabilized talent pool throughout Western Australia, particularly in the first half, we continue to deploy our multidimensional recruitment and retention programs to deliver net headcount growth of circa 600 throughout the year. Demand remains strong across most regions with our core mechanical and other industry verticals consistently meeting our customers' demands. Pleasingly, North America returned to growth in the second half, expanding its revenue base by half -- by 8% half-on-half and positive customer sentiment and new customer acquisition are continuing, and we remain extremely optimistic around what the future holds throughout the U.S. and Canada. And we're more focused than ever to achieve our 5-year strategic plan, which I'll touch a little later on. So flicking over to Slide 5, we'll drill down into each segment's highlights for the financial year. In Australia, revenue increased by 17% versus the PCP, delivering $686.2 million. Our core mechanical services remained strong nationally, growing by 14% despite a softer customer demand profile, particularly in the first half. Importantly, that customer demand profile has corrected and is now on an upward trajectory with very strong momentum. In addition to this, our key growth platforms continue to perform. Our Infrastructure Maintenance division increased its revenue profile by 30% versus the PCP and our road transport team, while still small, expanded their revenue profile by an impressive 64% versus the PCP. In North America, revenue increased by 8% on a half-on-half basis. And this is a really important data point as this segment returned to growth in both revenue and headcount in the second half. Operating in 25 states across the U.S. and 8 provinces and territories in Canada, we significantly broadened our reach during the financial year. New customer acquisition remains at the heart of our growth strategy with the number of active customers in this segment increasing by circa 20% versus the PCP. And jumping over to our Rest of the World operations. We provided specialist services and technical support for customers in 9 countries across Asia, Africa and Oceania. This segment has returned to pre-pandemic activity levels with positive growth opportunities ahead. And whilst it's still a small portion of our revenue base, it remains a strategically important career pathway for some of our most talented technicians. Okay. I'll now pass you over to our CFO, Paul Hegarty, to run through the financials in some more detail. Over to you, Paul.

Thanks, Justin, and thanks to everyone who has taken the time to join us on the call this morning in what is a very busy results week. I'll be going over the full year financial performance for the group, and Justin has pretty much stole my thunder on most of these points, but there is some additional color I'd like to add. As mentioned, we delivered $872.2 million in revenue, an increase of 13% versus the PCP. Importantly, this revenue growth has been delivered with a consistent margin profile year after year. In fact, at the 4-year mark of our 5-year strategic plan, having expanded the business' revenue profile by an average of 30% over the last 4 years, our NPAT margins have remained steady, varying by not more than 60 basis points from the highest to the lowest financial year. Whilst this stability is impressive, it gets more exciting when you consider our North American segment returning to growth, up 8% half-on-half. With North American EBITDA margins close to double that of our Australian segment, as this business continues to scale, it represents real margin leverage for the future earnings profile of the group. From a shareholder perspective, EPS increased to $0.2835 per share, an increase of 12% versus the PCP. Total dividends relating to FY '25 were paid or declared totaling $0.088 per share, fully franked, of course. This represents an NPAT payout ratio of 31%, in line with the PCP. Now moving on to our financial position on Slide 7. As you can see, our asset base primarily comprises cash on hand, trade receivables and PPE. We don't have contract positions or any intangibles to be concerned about. And therefore, we think we have a relatively simple balance sheet. Property, plant and equipment increased over the year as we invested in growth. We added around 450 service vehicles to our fleet, taking our global fleet to over 850 service vehicles deployed across multiple continents. Our trade receivables position is largely with Tier 1 principals and large mining contractors. And due to this, we don't generally need to manage poor credit risk profiles in the debtor book. Pleasingly, average DSO for FY '25 came in at 69 days, an 8% improvement versus the PCP. This improvement in collection activity, coupled with an increase in free cash flow, which I'll talk a little bit more about on the next slide, enabled the group to report a net debt reduction of 73% versus the PCP, closing out FY '25 with net debt of just $8.3 million. With forecast CapEx in FY '26 expected to be in the range of $35 million to $40 million, we expect the business to transition into a net cash position during FY '26. This reduced leverage will allow greater flexibility and freedom to make strategic decisions around future growth. We remain well supported by our lenders, in particular, by our primary lender NAB, here in Australia. In addition to this, we have strong working relationships established across all regions in which we operate, in particular, with UMB in the U.S. and JPMorgan in Canada. The flexibility that has been established within our finance facilities will allow us to respond quickly as opportunities present themselves. Now on to every CFO's favorite slide, the cash flow. Our net cash flow from operations was $76.8 million, an increase of 12% versus PCP. Our intense focus on EBITDA conversion was maintained throughout FY '25. Operating cash flows before interest and tax as compared to EBITDA was 101%. This reflects the quality of our client base and trade receivables ledger, as I mentioned earlier. Now this next data point is perhaps my favorite for FY '25. Free cash flow generated during the year was $42.7 million, a 52% increase versus the PCP. This is the second full financial year in which Mader has generated positive free cash flow or fifth consecutive half year period. As the group continues to scale its revenue profile into non-vehicle-based services, the Mader business model is transitioning into an even more CapEx-light setting. This means we can continue to grow top line revenue without purchasing a service vehicle for every new employee. The result of this is twofold. The business can pay down its debt facilities, reducing our interest burden, which in turn leads to improved net margins. And perhaps more importantly, it positions the group in such a way that we can build a war chest to tackle new growth opportunities in the future. As I mentioned on the previous slide, this will allow greater flexibility and freedom to make tactical decisions around future growth. Now everyone can wake back up as I hand it back to Justin to talk about the strategic plan.

I love it when you get excited, Paul. Right. Let's move on to the next slide, our strategic plan. So 4 years ago, the Board laid the foundation for our future by setting out some key areas of focus in our first strategic plan as a publicly listed business. Since then, it has served as a blueprint to guide our growth. The strategic plan set out growth targets and operational goals in 4 key areas: geographical diversification; service line diversification; expansion of industry verticals; and of course, to continue scaling the existing business. Further, NPAT targets were set, as you can see detailed on the slide. With that said, we identified the need to establish a series of core building blocks to create a solid foundation for future growth. And this leads us into Slides 10 and 11, our building blocks. Over the years, we've built a strong foundation for growth and one that goes beyond just financial metrics. At the heart of it all is our culture, which remains the driving force behind everything we do. Programs like Global Pathways and Three Gears bring this to life, offering our people incredible opportunities to travel the world while working, then spend their R&R with our internal adventure division Three Gears. This kind of experience is currently unmatched anywhere in the industries we work. We have worked diligently to expand both programs, so opportunities are bigger and better than ever before. This has seen more than 380 employees take on both short- and long-term overseas comments as well as an extensive array of adventures delivered. And of course, culture is just one piece of this puzzle. Another key driver of our growth is how we apply our proven business model across different industries. By expanding into new markets, we're creating a compounding effect, diversifying revenue streams, while tapping into large addressable markets, for example, in resources and infrastructure maintenance. And the best part about it is we're only just getting started. Moving over to Slide 11. We see 2 more large addressable markets, energy and transport logistics. In the energy market, we initially focused on delivering maintenance in the natural gas compressor stations in the United States. However, this industry represents a large untapped potential for future global growth. In the transport and logistics industry, we have expanded our efforts to provide maintenance for rail and road transport maintenance now operating across most of Australia. Given the critical role of transport and logistics in Australia's resources industry, there is significant growth potential that aligns well with our existing operations. And finally, a building block that is key to future growth involves deliberate entry into emerging markets. And as always, we'll conduct thorough market research into new industries and assess the suitability for the Mader business model to be deployed. We have a proven track record of organically replicating our business model across multiple industry verticals. Exploring opportunities outside of our core services will allow us to capitalize by extending across further industries and geographies. This is effectively creating more opportunities for our people and diversifying revenue streams for sustainable growth. In addition to enhancing our service offerings, geographical expansion remains central to our growth strategy. We have multiple geographical beachheads and are always looking to enter new locations and diversify our exposure. The Australian business continues to generate the largest portion of revenue for the Group at 79%. We are confident in the stability of this segment and know we'll continue to deliver strong results in this area. Pleasingly, our North American segment returned to a growth setting, increasing revenue and headcount in the second half FY '25. Today, it represents 19% of Group revenue with significant runway ahead in this region. Established in 2018, this segment has expanded significantly over time. And with this solid foundation laid, the outlook is positive for the mid- to long term. Our Rest of the World segment contributed 2% to revenue across the business. And while this is still a modest number, the annualized revenue exit rate for the rest of the world is now at pre-COVID levels. As a business, we continually seek to improve the diversity of our revenue profile. This is a pivotal step towards achieving our FY '26 guidance of $1 billion in revenue. Throughout the strategic enhancement of our service offerings, we can tap into new markets that allow us to expand the Group's revenue streams. We are constantly scoping addressable markets where we can apply our culture-led business model. This is key to driving future growth and ensuring long-term sustainability of our business. Our diversified operations will continue creating compounding returns for our shareholders with strong growth rates into FY '26 and beyond. If you cast your mind back to Slide 9, where we first touched on our strategic plan, this slide here shows our progress against those NPAT targets set. As you can see, for the first 4 years of our strategic plan, we have not only achieved but exceeded our NPAT targets. We're pleased with the FY '25 result, all things considered, and now we have set our sights on closing out FY '26 in line with the strategic plan set 4 years ago by the Board. With low capital intensity, a unique culture-led business model and opportunities identified to accelerate growth, Mader has the confidence to set FY '26 guidance to at least $1 billion in revenue and NPAT of at least $65 million. We have delivered a 10-year compounding annual growth rate of circa 30%. And as the business continues to mature, we are excited to continue to deliver the compounding effect of the Mader business model to existing and new markets. In doing so, not only will we deliver continued growth into FY '26, but we'll continue to build a solid foundation for future growth well beyond that. With the FY '25 wrapped up, I'm filled with nothing but confidence as we enter a new financial year. For current and prospective investors, Mader represents a very robust investment opportunity with many exciting prospects ahead. Backed by a nimble, adaptable business model, we have grown to have a market cap of close to $1.7 billion delivered over the last 20 years on an entirely organic growth platform. And these consistent results should also see us considered for the ASX 300 in the near term. The resilience and hard work of our team shines through in many areas. And with them behind us, we'll continue to deliver a superior service for our customers and value to our shareholders. So that concludes our presentation today. And I'd like to thank everybody for joining us, as Paul said, in such a busy results period. And we'd be pleased to take some questions at this time.

[Operator Instructions]

Thanks, Rocco. Okay. Into questions. Jonathan Higgins from Unified Capital Partners. Over to you for this one, Justin. North America, well played back to growth. Can you give us an idea of the interplay of the recovery, V-shaped as we've spoken about previously? Noting headcount at a record, must be some better utilization to come also.

Yes. Thanks, John. Yes, look, it's been certainly a pretty exciting time in North America the last little while. I guess getting that election behind us, I think the whole market has really settled and everyone's sort of head down and back to business. which has been a great thing for us. And as we've spoken about in previous results periods, the business development efforts targeting sort of some of those key markets are really starting to come to fruition. So we're seeing that growth happen. We're seeing a really exciting, particularly gold and copper over there and starting to see that business development really come alive and looking forward to a big FY '26 and beyond. Canada as well, continuing to expand into new regions and new areas. And remembering we're only 3 years old in that space, it's a pretty exciting growth profile moving forward for that region as well.

Thanks, Justin. Another one from John at Unified. Australian verticals continuing to grow, big business. How should we think about growth moving forward?

Yes. Good question. Thanks, John, and I appreciate your questions there. Look, the verticals, we've been talking about the verticals for quite some time now. And I guess the exciting news about that is those things are starting to become of substantial size and really tipping into to move the needle on the group numbers. So things like infrastructure, we've set up both sides of the country in Australia to really take advantage of those opportunities and essentially the same customer base as what we deal with in the mobile space. So we see that as a huge growth platform. And again, infrastructure on its own could be somewhere near the size of the core business in Australia. So when you think about that, it's a really exciting sort of runway ahead of us. And we feel like we've got some really strong teams in place to deliver those results. Road transport is another one, still far smaller. But again, we're pretty excited about the results we've seen so far. We know it's a huge industry, and we know our business model can really relate and reflect on it. So yes, good things to come.

Thanks, Justin. A question here from Anish Trivedi online. Will the Rest of World region be a focus in the next 5-year plan? Or will the focus continue to be North America?

Look, the focus will definitely be both to be able to scale that as we did last year, it sort of went up about 80-odd percent in FY '25. We still look for great opportunities. Tier 1 clients in safe regions is where we want our people to be working. It's still, as I said in the call there, it really remains a strategic focus for some of our really talented trades people that want to go and work in those areas and support local workforces. So definitely a focus for us as is North America, we see that as a huge growth platform, and we'll continue to put the horsepower into growing that.

Thanks, Justin. A question here from Gavin Allen from Euroz Hartleys. How might we think of the next 5 years? Are you in the midst of generating a new strategic plan by any chance? And I can say that question has been asked about 3 different ways by about 5 different people. So Justin, the next 5-year plan?

Yes. Thanks, Gavin. Yes, look, most definitely, we're well and truly in the midst of creating that next 5-year plan. not to be disclosed just yet, but yes, putting some finishing touches on that. And yes, needless to say, we're pretty excited about releasing that and delivering that in due course.

Good stuff. Thanks, Justin. A question here from Jon Ferguson from the Australian Shareholders' Association. Given our global operations, how are you managing currency fluctuations? The first question there, Jonathan, relates to currency FX. The way that we manage that is we create a natural hedge in country. So our operations are funded through working capital, which are established in the local currency. So Canadian dollars in Canada, U.S. dollars in the U.S. and the revenue from those operations pays down the leverage in those each -- in each corresponding region. So it creates a natural hedge. Another one here from Joe House from Bell Potter. Provide some color on the Rest of World margins in the second half. How has that played out? And what are we thinking for Rest of World in FY '26? I'll take that one, Joe. Look, essentially, we started a new contract in the late first half of FY '25, which meant that, that contract was in full force for the second half. And it's a contract of scale with a Tier 1 principle in Africa, and it's good work for our people, and that's what's driving that margin expansion. Into FY '26, we expect that contract to continue. so those margins are expected to hold at around those levels. A question from Matt Joss from Maven Funds. Free cash flow growth was huge. Tell me about it, Matt. Can you talk more about what the main drivers were? There's 2 key factors there, Matt. As I talked about, the business is transitioning to an even more CapEx-light setting. Some of our new verticals like infrastructure maintenance, road transport, maintenance, rail services, et cetera, these are service lines that are almost CapEx free. Other than some tooling containers and some light vehicles, there's not a 1:1 ratio of new employees to service vehicles. So we're getting top line revenue growth without having to invest in the capital. So that's the main contributor to where free cash flow landed for the full year, which we're pretty happy about. And obviously, as we scale those new verticals in FY '26, we're expecting that to that to continue. A question from Stephen Matt from the Australian Shareholders' Association. Thanks, guys, and well done on another good year. Just for your comment about potential ASX 300 inclusion. What are we thinking about that? How do we get to the $300 million, Justin?

Stephen, Good to see you online. Yes, look, certainly, as our market cap has grown, free float is there or thereabouts. And we continue to grow into FY '26. I think those numbers will take care of themselves over time. But yes, it certainly seems that we are close to consideration. Obviously, not a massive focus for running the business. We'll just continue delivering the numbers, but that will happen in due course.

Thanks, Justin. A question from Melinda White from Longwave Capital. To win work in Australia infrastructure or road transport, who are you typically winning work from? And what differentiates your offering versus competitors?

Yes. Thanks, Melinda. I appreciate your question there. Look, infrastructure and road transport initially are really off the back of the customers that we're doing the mobile equipment work for. So most companies that are running sort of large mining equipment are also running some sort of process plant. And many of them are also running road transport style trucks for long haul of -- to whether it be to plants or to port facilities. So definitely leveraging the vendor numbers and customer base that we have. And then also, as we build that capability, then we can also start to roll that out to others within the transport and logistics industry as we have done in the rail space.

Thanks, Justin. A question from Matt Chen from Moelis. Any parameters we can talk about, about inorganic opportunities moving forward, Justin?

Look, Matt, as always, they're certainly on the radar. We take everything that comes across our desk into consideration. Certainly, sort of sitting on the verge of net cash, that probably becomes more of a reality as we go forward. But as we said before, we're still formulating or finalizing that next 5-year plan, and that is certainly in consideration there as well.

Thanks, Justin. A question from Frank Valante online. Can we comment on what losses in FY '25 were generated on Acorns or start-up initiatives? I'll take that one, Justin. It wasn't too much, Frank, it was fairly consistent with FY '24, circa $1.5 million to $2 million for Acorn investment, as you say. Another one from Frank around North America. Maybe talk to the splits in Canada and U.S.A. more broadly because there's a couple of questions, one from Frank on that as well as another one from Tony Shields around, I guess, customer numbers, staff numbers and locations. staff numbers increased by 21%. Locations up from 540 at December '24 to 640 now. So maybe just some color on that, Justin, around the U.S.A. and Canada.

Yes, no problems. I guess as far as headcount numbers in the North American region, I think we're sitting circa -- we'd be close to sort of 400-odd in Canada now, probably 350, 370 at the end of the financial and the remainder in the U.S.A. would be our splits there, coming close to 100-odd for the Rest of the World.

That's good. A question from Joe House from Bell Potter. How is the sales cycle going in the U.S.A. now compared to the first half, perhaps? Is it shorter and easier to win new work?

Yes. Thanks, Joe. I wouldn't say it's ever shorter or easier to win work in the U.S. But certainly, I think we're reaping the rewards of a really heavy BD cycle that we were doing sort of through that whole election period and turning that into tangible work was pretty difficult at the time. But I think once that election happened and the market sort of freed up and everyone sort of knew what was happening business-wise, we've really seen it return back to a business as usual there in the U.S. would probably be the easiest way to put it.