Mader Group Limited (MAD) Earnings Call Transcript & Summary

Hi, everyone. Thanks for joining us, everyone. So I'm Justin Nuich; and CFO of the Mader Group, Paul Hegarty. On behalf of the Board and the team, we're really pleased to be able to present at this conference today. So thank you very much for your time. Okay. So I guess, Mader is listed on the stock exchange in about October 2019. The business is around 15 years old, founded by our founder and still Executive Director today, Luke Mader, started out in a field service unit up in the Kimberleys, and it's gone through significant change through the years to the point where we're at 1,450 people -- or over 1,450 people strong now, operating in over 7 countries, previously 17, servicing around 200 different customers. Yes, we can see on the time line here that the business has managed to grow steadily and significantly across many different market cycles in the back end of the GSC there, through the commodity price dives in 2012 and 2015, also COVID as well, and we've managed to grow through all those periods. So it show that we've got an extremely robust business model that's managed to grow through all sorts of conditions. We started out more as [indiscernible] operators, but now have diversified to all sorts of trades, auto electricians, high voltage electricians, boilermakers and into the fixed plant space as well. So very, very diversified, tap-on, tap-off payment organization. We can see here I guess this graph is quite important. We've built this business around a demographic of around 25- to 35-year-old men and women, people with, I suppose, a rite passage historically has been very much in the gold fields in the [indiscernible] for these guys. We've been able to scale out our global operations and really create some global power plays. So people at that sort of stage of their life can get in and go and see the world as well as working and make money at the same time. The safety side of things is our absolute priority in the Mader Group. We've won some great awards around our performance in safety. We continue to push our technology and build leadership and other safety initiatives to make sure that we're at the leading edge of safety for ourselves, our [indiscernible] and our customers. I'll hand over to Paul to go through the financials. Go ahead.

Thanks, Justin. So I think one of the key elements on this slide is that we continue to deliver solid financial performance, which is reflective of our long-term strategy designed to unlock growth in highly attractive, large and addressable markets. We had a very strong track record of organic revenue growth, with 5-year compound annual growth rate sitting at greater than 25%. This growth has come from a diversified portfolio of large blue-chip clients, with a balanced exposure to high-growth commodities. Throughout this period of sustained growth, net debt has remained stable and net leverage sits at currently 0.6x. That's reflective of the relatively low capital intensity of the core business model. The business continues to generate strong cash flow from operations, which support our ability to thankfully pay dividends to shareholders. Right. Move on to the next slide now. We can talk about our competitive position. What really makes us unique is where we operate in the market. We operate between the original equipment manufacturers or OEMs and the smaller operators. We've also provided a comparison to the labor houses on the slide deck such as skilled programs [indiscernible]. But we're working in a specialized quality maintenance niche, away from these bulk labor houses. Our competitive edge is that we're cheaper than the OEMs and dealers. We hold an in-house pool of labor with capacity to deliver rapid responding maintenance when needed. Labor houses like to recruit to further position once they receive the contract for that work, which means that their response times are slow. OEMs largely hold labor through warranty repairs and look for long-term support options. Conversely, they are restricted to make, model and geographic regions. We are engaged on flexible service level agreements with annual [ record ] built into that process. Our engagement durations vary from as little as 1 day all the way through to 1 year. We hold specialists in the industry and provide training and such. The people are our assets. We are not a [ temp to burn ] model, and all our people work exclusively for Mader. Back to you, Justin?

Thanks, Paul. I guess this slide is quite important as well around the ability to replicate the business model. So again, it was something that we developed early on in the piece. And we've been able to replicate that business model successfully over 20x, with 100% success rate, which has been fantastic. We've managed to do that both inside Australia and globally as well. Looking at our geographical footprint in the first half of 2021, so you can see there, most of the revenue is from the Australian operations, moving back into Asia and PNG, and also into Africa. I guess it's probably important to note a couple of years ago that international business, being Asia and Africa, was around a $28 million revenue business unit. Through COVID, we made the decision to bring all of our -- bring it back into Australia and redeploy them back into our Australian operations. So that essentially in July was at 0, and we see how that, that is starting to turn back on again and we're starting to service both old and new customers in both of those regions. The United States, again, it's been a great success story. This is wonderful. Paul actually moved over with his family for a couple of years to go and kick that off. Within 6 months, yes, that was up and running. And within 12 months, it was more than truly profitable. So again, showing that replication of that business model [indiscernible] well. Where are we going? So that's, I guess, a really important one. Looking at our ROM tonnes from [indiscernible] data. We can see that around 2 billion ROM tonnes there in Australia is our addressable market. Looking at the, particularly, U.S. and Canada, very, very big addressable markets as well as P&G, Africa and others. So again, we're servicing only a small amount of those at the moment. We're yet to go into Canada. We've learned quite a bit from discussions to move in there. I expect it to be near probably into this financial year. Looking at the outlook here, you can see that, again, that robust business model, all of our -- obviously, our key business units are growing significantly. One of the -- I suppose, a couple of the key points to note there in the Australian region is around our ancillary. When we talk about ancillary, we're talking about our electricians, our high-voltage electricians, our boilermakers. Again, setting up departments are purely focused on those services. It's been a fantastic growth effort from the team. And also infrastructure, talking about fixed plant, [indiscernible] rail, have been 27% [ period-on-period ] growth in that space as well. We are in a tight labor market. So we are pushing hard to one recruit group into our business, so making sure the culture and the business model is robust, as well as our apprenticeship program and our trade upgrade program, bringing through 56 apprentices currently. No a full intakes that happen this year. So again, we're very committed towards filling both our people and with the industry, making sure that we've got a sustainable industry going forward. We're still seeing a lot of demand in the Australian region. So again, we're nowhere near sort of saturated in that space. So we are continuing to see high demand for our [indiscernible]. Yes, to the point that if we add another 100 people today, that will be [indiscernible]. North America, again, we picked another 4 states in the last 3 months. And again, seeing that business model being able to be replicated in that part of the world and very successful, too. Yes. The rest of the world, again, as we said before, that went back to sort of zero through COVID. We are starting to see some strong demand from our customers. And we're just, I guess, being very cautious around how we bring into those regions, making sure that we put our introduction plans in place, should we require to [indiscernible] obviously, safety of our people is critical. I guess the investment case there for the Mader Group, I think this is one that I suppose we're particularly proud of. We feel that the share price is quite undervalued, but we've been able to prove over 16 years of period-on-period growth for the business. The FY '20 revenue, $274 million with a compounded annual growth rate of over 25% for the last 5 years. For the first half FY '21, $141 million for the first half. So again, moving through COVID when others have struggled to grow, we've managed to again grow from a tough market. Yes, our earnings have been distributed. 35% of our earnings have been distributed as fully franked dividends. Again, the ability to continuously roll out this business model and successfully service our customers are all reasons why this is a great investment in the Mader business.