Mader Group Limited (MAD) Earnings Call Transcript & Summary

Thank you for waiting, everyone, and welcome to Mader Group's full year results. I would now like to introduce your presenters, Justin Nuich, Mader Group's Executive Director and Chief Executive Officer; Paul Hegarty, Chief Financial Officer; and Natasha Marti, Group Manager, Marketing and Investor Relations.

Thanks, Darcy. I appreciate that, and good morning, everyone, and welcome to Mader Group's results presentation for FY '22. As Darcy just mentioned today, with me is our CFO, Paul Hegarty; and our Group Manager of Marketing and Investor Relations, Natasha Marti. We're really pleased to announce our performance this year, which speaks to the depth of talent we have across our entire team. Without them, we wouldn't be here today, diversifying globally exceeding guidance and launching multiple organic start-ups in new markets. It's just a testament to the strength of the team and the hard work that has gone on this year. So thank you very much to all of our team in the field and in the office via dedication and efforts, throughout what has been an exceptional year for the Group. And I'd also like to mention a huge thank you to our Board, Jim, Luke, Craig and Patrick for your ongoing contributions, guidance and leadership, are all greatly appreciated by all of us. Thank you. So let's move on to Slide 1, and I'll just give a brief overview of who we are as a business, for those who are new to our story, before we jump into the financial results. So who are we? We're a leader, we're a global provider of specialist technical services across multiple industries. Having started in 2005 with 1 man Luke Mader, conducting field service out of your service truck in the Kimberley region of Western Australia, we now operate across the globe. Active in 9 countries, we've really grown considerably, reaching a milestone of 2,200 employees this financial year. With more than 900 field service vehicles, we have collectively supported over 350 customers, in almost 500 different locations around the globe. Our technical specialists have provided 3.9 million hours of equipment maintenance through the year, supporting customers across the mining, energy and industrial sectors. Moving on to the next slide; what we do? So as you can see on this slide, we've really become a truly diversified global business. Looking at the graph below, you can see that through the years, we've continued to deliver compounding results, which is a testament to our tap-on-tap-off business model, as we penetrate new large addressable markets. With our latest ventures, Mader Energy and our Canadian business unit now added into the mix, our growth strategy is performing well and namely through additional service line and geographical diversifications. We're now offering support for mobile plant equipment, fixed infrastructure and energy compressor stations, proving the versatility of our business model in new markets and new applications. So we move on to the next slide, our specialized workforce. As you can see, just over half of our business consists of heavy duty diesel mechanic specialists. But we also have a spread of other qualified trades, being auto electricians, high-voltage electricians, light vehicle and heavy road transport mechanics, just to name a few. You notice that our specialized workforce consists predominantly of tradespeople between the ages of 25 and 35, and I think this really speaks to our company culture and the top of lifestyle we're proud to offer these employees. We invest in our people heavily, building careers that offer flexibility, variety and career opportunities that are generally unmatched in the industry, whether that's through different rosters, a variety of sites, and the wide diversity and equipment our people are able to work on. It also includes our Global Pathways initiative, which gives our workforce the chance to work around the globe, without having to change their shirt. This program has expanded significantly over the past year and is allowing us to grow and develop our people, as they explore new cultures. Attracting and retaining the right people for our business is key to our success, and we continue to place a strong focus on building our name as an employer of choice. As always, safety is a core focus for our business, and we're pleased that our TRIFR has improved significantly over the financial year, with 4.48 recordable injuries per million man hours worked. The improved figure is a testament to the leadership, safety systems, technology and processes the whole business has worked so hard to implement. Highlights of the business include the rollout of our custom-built employee app across North America, which allows us to connect our people with an online communication, learning and development platform. As a largely remote workforce, this is critically important to us as a business. With everything to do with safety, our work is never done in this space. However, there is always room for improvement, and will continue to strive towards our goal of 0 harm for our people with further investment in safety and leadership. Now moving on to the next slide, #5, there for the FY '22 highlights. So we're now moving into the operational review and again, I'm really, really pleased to be able to deliver these numbers today. The highlights for FY '22, include $402 million in revenue, an increase of 32% from FY '21. Reaching the $400 million mark and exceeding guidance is an incredible achievement for the Group. We've had an increase in EBITDA, delivering $48 million, up 34% from the previous financial year. We've had a slight increase in net debt to $26.7 million, representative of the company's continued capital investment, as we expand into new regions and areas. Finally, we've declared $8 million in dividends for FY '22, with dividends paid to shareholders increasing 33% from FY '21. We continue to deliver a fantastic result for our shareholders, delivering compounding returns for shareholders with a positive growth outlook for FY '23, with demand for our products remaining strong around the globe. Investment into fleet expansion remains significant with more than 900 service vehicles around the globe. To note, this is purely growth capital for the business and typically, orders are placed in anticipation of headcount growth. So on to Slide 6, a review of our operations. Across the world and across all commodities, demand for our services continues to remain strong. A macro view of our operations, show that an assertive growth strategy is driving diversification, both regionally and by service line. This strategy draws on market trends and operational strength to capitalize on new addressable markets. In North America, our revenue more than doubled in FY '22, even with the launch of 2 organic startups. Both startup operations have already established a strong industry presence and delivered first revenue in the first half of '22. And pleasingly, both of these have already broken even. Strong growth was also evident in our Australia and Rest of the World segments, and I'll break down our segmental performance in the slides to follow. So moving on to Slide 7, our segmental performance. $342 million in revenue was delivered by our Australian business, which saw an increase of 25% from FY '21. Demand for our core business offerings increased, representing 32% in revenue growth. A couple of areas for us to highlight in the Australian segment, are our ancillary division and also our infrastructure maintenance division, which as you can see, experienced a massive 120% revenue growth. We see infrastructure maintenance as one of our primary growth areas, and we'll continue to see this still grow in the coming years. I'll just quickly touch on the Rest of the World segment, before talking about North America. We experienced a 49% revenue growth in rest of the world, having operated in 6 countries across Asia and Africa. After calling our workforce at the start of the pandemic, we're pleased with the progress that we have made towards returning to pre-COVID levels. In saying this, however, the safety of our people has been our highest priority, and we have very selectively reengaged customers based on this. The outlook for FY '23 is looking positive and towards the end of the financial year, we've bolstered support and added business development resources to strategically drive future growth in this area. Lastly, but certainly not least, is our North American segment, delivering $50 million in revenue, up 107% from FY '21, and as I'm sure you can all agree, is an excellent result. We finished the year having provided support in 20 states across the U.S. and Canada. Our expansion into Canada was a really exciting move for the business, with first revenue delivered in Q2. Based in Edmonton, Alberta, we strategically repositioned an experienced operations manager, to drive the business unit. Headcount is tracking strongly, and has been further bolstered by our Global Pathways program, which sees us deliver highly skilled expatriate technicians into the region. Another exciting venture for FY '22 has been the launch of the organic startup Mader Energy, which is based in Fort Worth, Texas. Launched to target the energy industry across North America and operating across major shale basins currently in the United States, we see this as being a huge addressable market for the Group. I'd now like to hand over to our CFO, Paul, to run through the financial review.

Thanks, Justin. Good morning to everyone that has joined us on the call. Thank you for taking the time out of your day to follow our story, in what is a very busy results season. The first point I'd like to make, is that all earnings or profitability values that Justin has already mentioned or that I will go through shortly are underlying results. Earlier this year, Mader disposed off its 25% equity investment in Western Plant Hire. That divestment netted the Group $1.9 million at the NPAT line, with proceeds from the sale being reinvested in growth. The profit delivered from the investment sale has been excluded from all results reported within this presentation. Okay, on to the financial performance for the Group. As Justin mentioned earlier, we delivered $402 million in revenue, up 32% versus PCP. That result was delivered with very strong growth from the most mature segment in our Group being Australia. Given restricted workforce mobility and a very tight labor market, the result from this segment was extremely pleasing. North America continued its compounding growth year-on-year, delivering 107% versus the PCP or 100% growth when excluding the impact of foreign exchange rates, whichever one of those growth rates you consider, it was another solid year of growth in a market that is still very much in its infancy for us. The Rest of World segment grew by 50% year-on-year, with both the PCP and FY '22 being very much impacted by workforce mobility and border closures. We consider this segment to represent upside in FY '23, given we have just recently deployed business development resources for the first time since the pandemic began. Importantly, all of this revenue growth has been delivered, with slightly improved margins versus the PCP. Gross margins, EBITDA, EBIT and NPAT all increased year-on-year. This is a testament to the team's dedicated focus on efficient operational delivery. Also of note, is that the revenue contribution from North America has increased to 12%, up from 8% in the PCP. Given the strength of the Australian segment during the year, to be able to deliver continued diversification into North America, at an increasing rate is something we are all very pleased with. From a shareholder perspective, earnings per share was up 44%. Our profit payout ratio closed at 31% of underlying NPAT, and our total dividend payments increased by 33% versus PCP. We believe that all shareholders will be happy with the continued delivery of strong, consistent returns. Moving on to the financial position slide; as you can see, our asset base primarily comprises of cash on hand, trade receivables and property, plant and equipment. We don't have any contract positions or any intangibles to be concerned about, and therefore, we consider it a relatively simple balance sheet. Our trade receivable position is largely with Tier 1 owner miners and large mining contractors, and we generally, touchwood, don't have any abnormal credit risk profiles in the debtor book. Property, plant and equipment increased year-on-year as we invested in growth. We added over 230 service vehicles to our fleet, and we now have over 900 service vehicles deployed across multiple continents. All CapEx deployed in FY '22 was growth CapEx, with a portion of it allocated to support 2 new organic startups, as Justin mentioned, one in Canada and the other, our Mader Energy business unit. Whilst it was a record year for growth CapEx, a large portion of the expenditure will fund growth into FY '23 and beyond. This really shores up our supply chain in the new financial year, to support our continued growth. From a leverage perspective, we continue to view our business as CapEx light, and we closed out the year with net leverage at around 0.6x, which was stable year-on-year. We are well supported by our lenders, with new facilities executed during the year with National Australia Bank. These facilities enable the business to act quickly as opportunities present. We are also in the final stages of establishing multiple offshore debt facilities in North America, which will position the business for growth. Now on to every accountant's favorite slide, the cash flow. Our net cash flow from operations was $35.4 million, which is a really solid result. We maintained an intense focus on cash conversion of EBITDA, which closed at around 100% compared to operating cash flow before interest and tax. This reflects the quality of our client base and trade receivables, as I mentioned earlier. I've already spoken about our growth CapEx for the year, which was $39.4 million when considering the cash flows for this investment. Also, as I mentioned earlier, the sale of our 25% equity investment in Western Plant Hire, delivered $8.4 million of gross cash flows back into the business. We held that investment for a little over 12 months. So the net return, which was circa $1.9 million at the NPAT line, was a good result for all shareholders. Net financing cash flows and dividends round out the remainder of the waterfall, and I have already discussed the dividend profile for FY '22. So I think I'll leave it there. That's all for me. If you have nodded off during the financial section, I invite you to wake up, as I hand back to Justin to discuss the outlook of the business.

Thanks, Paul. Okay. Let's have a look at the next slide there around the geographical footprint. Okay. If we have a look on Slide 13 there. Australia, as you can see, a large portion of revenue is coming from our Australian business, continuing to experience strong commodity markets, it's great to see that year-on-year, we're able to increase the revenue generated in this segment. We've got a very loyal customer base that we will continue to support with a range of new service lines and our core mechanical offerings, which is still experiencing very high demand. In North America, as we said, we've seen a 107% increase in revenue to that $50 million in North America. This is predominantly due to expansion of our services across the United States and slightly boosted by the inclusion of revenue from Mader Energy and our Canadian business unit in the second half of FY '22. We've invested heavily in service vehicles to continue growing our capacity over there, in line with headcount growth. And in the rest of the world, despite facing some hurdles over the year, delivered a strong result. Again, the safety of our people and ability to work around travel and permit restrictions was our key focus. If we look into our growth opportunities in addressable market, this slide gives me goosebumps every time I look at it, and that's goosebumps of excitement. So heading over the growth opportunities and addressable market slide, this really shows the exciting opportunities we have as a business. As you can see, our current market share in North American operations is relatively small, with only 1.5% in Canada and 2% in the United States, based on the number of operational sites. This makes for a huge addressable market for the Group with plenty of opportunities for expansion. And again, the United States energy market is another giant addressable market for us, as the world's largest shale gas producing region. If we move on to structural growth drivers. So as a business, we seek to improve the strength of our revenue base, with a dedicated focus on geographic service line and sector diversification in existing and new markets. Our global expansion strategy is staggered in 2 key phases: primary and secondary, to ensure long-term sustainable momentum. Our primary growth drivers, North America, Mader Energy and infrastructure and maintenance, are all in high-growth phases. Our secondary growth drivers, rail services, power generation and marine and our other ancillary services are all anticipated to reach high growth in the coming years. Okay. We'll move on to Slide 16, our outlook and guidance, which is obviously the slide you've all been waiting for. And we're really pleased to announce that our current market conditions have provided Mader with the confidence to forecast FY '23 revenue of at least $510 million, delivering an NPAT of at least $33 million. We'll continue to refine our service offerings and deliver compounding growth and impressive returns for all of our shareholders. So if we move on to Slide 17. It's an exciting time in the Mader journey. For current and prospective investors, Mader presents a robust investment opportunity with many prospects ahead. We have clear goals, a disciplined approach and the ability to recognize our strengths. We have given to hold a market cap of more than $600 million. This is an outstanding effort since listing on the Australian Stock Exchange in October 2019. Since listing, we have been proud to report earnings that are in line with third-party broker forecasts, and I'd like to thank everybody that have supported us from day 1. Those who have jumped onboard along the way and future investors ready to join the journey. On behalf of the Mader Group, I would like to extend our sincerest gratitude to our team, our shareholders, our customers and our suppliers. Thank you very much, everyone, and I would be pleased to take some questions at this time.

All right. Thanks, Justin. I'll moderate the questions from here. I'm just working through some that have come through. A question around Canada and the early wins there and the market perception, talk us through early days in that region?

Yes. Thanks, Paul. Yes, look, we've certainly seen a massive demand in Canada for our services. We're seeing a similar skill shortage to probably what we see here in WA, if not even worse, which gives us a great opportunity to use our interruptive and flexible business model to grow into that region. And that's also bolstered by the Global Pathways initiative, allowing us to run expats from other places of the world into Canada as well. So massive demand still there, very, very high unfulfilled demand still to address in that market.

Similar question here from Johnno at Shore and Partners. U.S.A. and Canada, but U.S.A. as well, they're growing materially. Can you give us an idea of headcount in these regions, and would you expect utilization to rise? How does that come through over FY '23 in both of those regions, as headcount grows?

Yes. Thanks, Johnno and appreciate your comment there. Yes, look, expecting to continue to see huge growth rates in North America. Again, our ability to recruit, to have flexible people to get around the country and address these markets. We'll continue to be there. Headcount growth now across North America, probably around that 200 mark, just probably tipping over that now. And yes, look, no sign of things slowing up. As we said, we're only still just penetrating that market. As we build out -- as we're continuing to build that brand and customers' knowledge of our business, it's pretty exciting, as we start to see that really snowball in that North American region.

A few questions coming through, which I'll jump on that are coming through from multiple listeners. Johnno, Matt from Maven, I think Ari from Barrenjoey, and Joe from Bell Potter are all asking the questions. It all centers around cash conversion, which was around 100%, particularly given the growth in revenue, how that was achieved. I'll jump on that one, Justin. It's really -- throughout the year, we've been optimizing the way that we interact with our clients and the timing of invoicing. So making sure that we submit invoices at an improved time of the month, that gets us into payment runs and the like much sooner, which then ends up with the cash in our bank account. So that's really the key driver of a lot of those -- of that improvement, I should say. Working through some other questions. trade-up program, what's the latest on the trade-up program, Justin, and how does that look for FY '23?

The trade-up program is something we'll continue to support and get behind. We've had over 180 people through that trade-up program to date, with about 120 active at the moment. We've introduced that over in the East Coast as well as WA now, and the uptake on both ends of the country has been really strong. So something that we can get behind, we can continue to, I guess, support the industry by bringing more apprentices and more skilled people into a very under-resourced area of the industry, and we'll continue to see that grow.

A couple of other questions coming through. So many different growth opportunities, this is from Matt from Maven. So many different growth opportunities to choose from, as we talked about, how do we decide where to allocate capital and to focus on those opportunities?

Yes look, it's a good question, and we spend a fair bit of time juggling that around ourselves. I guess when we look at our addressable markets really and the regions we can sort of grow in, interrupt current business and business models and apply our business model to addressable markets, is really where we sort of see those opportunities with the right margins. So I guess, North America, as we know, has been a very successful startup for us, hence the further investment into energy and into Canada, where we're seeing those good margins as well as large addressable markets. So we'll continue to invest in those and continue to look at others, as we expand. I think importantly, we continue to invest in our people, particularly our homegrown leaders that we teach the business model that we upskill and then we're -- I guess we're able to provide those opportunities to people to go and replicate the business model in different markets in different industries as we've done successfully to date.

A couple of more boring questions coming through, which I'll quickly just answer to take them off the list. From Ari from Barrenjoey, increase in other income to $2.825 million in FY '22, that was really related to the ScoMo apprentice rebate, that trade-up program benefited from, so that's what that relates to, which will step down progressively over FY '23 and FY '24. North American EBITDA margins, second half were 18%. We've always sort of talked about a 20% plus there. The key driver, I guess, in that reduction was the investments in Canada and Mader Energy. So those -- both those business units weighed on North American margins, as they worked towards profitability, which, as of today, they both are. So that was a good result there. A lot of questions around CapEx for FY '23, given the $40 million invested in FY '22. At this stage, based on supply chains and inbound deliveries, we're forecasting $25 million to $30 million of CapEx for FY '23. Kind of works through a lot of the common themes there -- how far -- a question from Marcus from Spheria. How far ahead of the curve have we invested in U.S. and Canada with those early service trucks that we've purchased there, Justin.

Yes, look, we think we're doing pretty well in that space, the demand and the growth in those regions, Marcus is catching us really, really quickly. What we're finding in Canada, though, is we're actually able to distribute those service vehicles amongst sort of multiple tradespeople as we get these larger projects, which really helps us sort of spread out that capital and still manage great growth rates without burning the bank on service trucks. Yes, look, we've still got a few up our sleeves with a decent pipeline that we've managed to wrangle from around the place, so we think we're pretty well placed to continue those extraordinary growth rates.