Mader Group Limited (MAD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Mader Group full year results webcast. [Operator Instructions] I will now like to hand the conference over to Mr. Justin Nuich, Executive Director and Chief Executive Officer. Please go ahead.

Thanks very much, Darcy. Good morning, everyone, and welcome to Mader Group's results presentation for FY '23. With me today is our CFO, Paul Hegarty; and our General Manager of Marketing and Investor Relations, Natasha Marti. We've come off an exceptional financial year, which marked another record performance for the group, something we as a team are very proud of. Together, we have continued to deliver on our strategic objectives, growing a global diversified services business whilst maintaining a focus on building a business for our people. Our team's hard work and commitment has enabled us to continue diversifying our revenue base and service offering, opening up new avenues for growth and strengthening our position as an employer of choice. So thank you to our team in the field and in the office for your efforts and dedication throughout FY '23. I would also like to take this time to thank our Board of Directors for their support throughout the year. Luke, Craig, Patrick and our outgoing Chair Jim. Your guidance and leadership are always appreciated. Okay. Let's get into it. Before announcing our financial results, I'd just like to give a brief overview of who we are as a business for those that are less familiar with our story. We are a global provider of specialist technical services across multiple industries. Having started in 2005 with one man, Luke Mader, providing mechanical support out of your service vehicle in the Kimberly region of Western Australia, we now operate across the globe. Closing out the financial year, we're active in 8 countries, servicing 380 customers in more than 530 locations. Our team continues to grow with a global workforce of over 2,900 who, today, are supporting our customers in more industries and regions than ever before. As you can see from the history of our revenue portfolio, for several years, the business has been focused on broadening its portfolio, effectively building a larger and more resilient business year after year. We continue to prove up our service delivery model across multiple sectors and clearly demonstrated the strength of our unique value proposition. This includes offering specialist technical services across heavy mobile equipment, fixed infrastructure, transport logistics, power generation and marine and the energy sector. We have a track record of successfully replicating and applying our unique business model into new addressable markets and the compounding effect of this is reflected clearly in our financial results. You will hear more about our achievements in this area as we progress through the presentation, particularly when we dive into the performance of our organic startup in Canada, which commenced at the start of FY '23. Now moving on to Slide 3. We provide a breakdown of our specialized workforce. You will notice that just over half of our business is made up of heavy duty diesel technicians. Now this reflects the evolution of the group into a diversified services business. The suite of other qualified technicians include auto and high-voltage electricians, welder makers and fabricators, light vehicle technicians and road transport specialists. On the left, we have highlighted the age of our workforce. 66% of our workforce are under the age of 35. And whilst we encourage applicants at any age of their life and build meaningful careers for all ages, our company culture and the lifestyle we offer typically attracts an adventure-driven demographic. We invest in our people heavily and are proud to build careers that offer flexibility, variety and career opportunities that are unparalleled in the industry. We can offer varied rosters, site variety and wide equipment exposure across multiple industries and geographies while working alongside your mates. Our 2 culture focused programs, Global Pathways and 3 Gears, are deeply embedded across our operations and designed to attract and retain the world's best talent. Global Pathways allows our people to access work opportunities around the world, whilst our adventure division, 3 Gears, creates bespoke meaningful experiences for our people and their loved ones from camping to hiking, canyoning, biking, yachting, [ fall diving ] and much more. Building a culture-led business is key to our success and will continue to place a strong focus on growing as an employer of choice. Our goal of 0 harm remains an absolute priority across our business, and we're pleased that our total recordable injury frequency rate improved with 3.92 recordable injuries per million man hours worked. The improved figure is a testament to our continued investment in our leadership as well as an enhanced safety systems, processes and targeted safety-focused campaigns for our large remote workforce. While there has been a definite improvement, we'll continue our unwavering commitment to achieving 0 harm across our operations. Coming to Slide 4 and moving to the executive review, I'm really pleased to be able to deliver these financial results. The highlights for FY '23 include delivering $608.8 million in revenue, an increase of 51% from $402.1 million in FY '22. Surpassing $600 million of annual revenue and twice upgrading guidance throughout the year is an incredible achievement for the group. We have delivered a 57% increase in EBITDA, delivering $75.1 million. NPAT closed out at $38.5 million, an increase of 48% on FY '22. Our net debt closed the year at $42.7 million, which is in line with the expectations given the year of significant growth. Finally, we've declared a dividend for H2 FY '23 of $0.034 per share, taking total dividends declared for the period to $0.058 per share fully franked. This represents an underlying NPAT payout ratio of 30% and an increase in dividend payments of 45% versus previous financial year. All of these financial results demonstrate outstanding value for our shareholders. Okay. On to Slide 5. Active in 8 countries, we diligently expanded our operations geographically to support our large growing customer base. A high level view of our operations demonstrates our ability to apply our service delivery model across different markets. Our strategic approach has enabled us to achieve unprecedented growth in FY '23. Strong growth was evident in Australia with revenue up 37% versus the last financial year. The core mechanical business performed well with the outlook of the segment bolstered by continued demand for both our core and ancillary services. In North America, our revenue grew an incredible 164%. Our organic start-up in Canada was a large contributor to this growth, exceeding expectations as we delivered mechanical services across 5 provinces and territories and multiple commodities. Across the rest of the world, we provided specialist support and training to customers in 5 countries across Africa, Asia and Oceania. Despite the decline in revenue, the business unit is operating steadily and plays an essential role in providing exciting overseas opportunities for our adventure-driven workforce. Okay. That wraps up everything for me now, and I'd like to hand over to our CFO, Paul, to run through the financial review.

Thanks very much, Justin. Good morning to everyone that has joined us on the call. Thanks for taking time out of your day to follow our story in what is a very busy results week. Right. On to the financial performance for the group. As Justin mentioned earlier, we delivered $608.8 million in revenue, up 51% versus PCP. That result was delivered with very strong growth from the most mature segment of the group, Australia. We were pleased to see our operations in North America continued to gain momentum, delivering revenue growth of 164% versus the PCP. This is a solid achievement for a market that is still very much in its infancy for us with our Canadian operations being barely a year old. Collectively, throughout the North American continent, we are now supporting customers across 32 states in the U.S.A. and 5 provinces throughout Canada. Importantly, all of this revenue growth has been delivered with slightly improved operating margins, with gross and EBITDA margins increasing year-on-year. EBIT and NPAT margins were marginally lower than FY '22 due to the growth in our service vehicle fleet, which has increased depreciation expense as well as higher interest costs associated with the asset financing onset vehicles. All in all, to be able to deliver these operating margins in today's environment 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 22% of total group revenue, up from 12% in PCP to be able to deliver compounding growth in North America at this exceptional rate is an impressive feat for our team on the ground locally. From a shareholder perspective, EPS was up 38%. Our profit payout ratio closed at 30% and our total dividend payments increased by 45% versus the PCP. We believe that all shareholders will be happy with the continued delivery of strong, consistent returns year-on-year. Moving on to the financial position on Slide 7. As you can see, our asset base primarily consists of cash on hand, trade receivables and property, plant and equipment. We don't have contract positions or any intangibles to be concerned about. And therefore, we consider it a relatively simple balance sheet. Our trade receivables position is largely with Tier 1 owner miners and large mining contractors. And as a consequence, we generally don't have any abnormal credit risk profiles in the data book. Property, plant and equipment increased year-on-year as we continue to invest in growth. We added over 200 service vehicles to our fleet, and we now have over 1,100 service vehicles deployed across multiple continents. All CapEx deployed in FY '23 was growth CapEx. Whilst it was a record year for CapEx, a large portion of the expenditure will fund growth into FY '24 and beyond. This really shows up our supply chain in the new financial year to support an expanding business. From a leverage position, we continue to view our business model as CapEx light, and we closed out the year with net leverage at around 0.57x, which was stable year-on-year. We are well supported by our lenders with strong working relationships established in the U.S.A. and Canada during the year, and we continue to be well supported in Australia by our primary lender, [ Nav ]. The flexibility in our finance facilities allows us to respond quickly and dynamically to opportunities as they are presented. Now on to the cash flow slide. Our net cash flow from operations was $41.1 million, which is a really solid result given the significant top line growth experienced during the year and the investment in working capital that is required to fund that growth. We maintained an intense focus on operating cash flow before interest and tax conversions, closing out the year at 70% of EBITDA. This reflects the quality of our client base, as I mentioned earlier as well as the investment in working capital to fund 50% revenue growth year-on-year. I've already spoken about our growth CapEx for the year, which was $47.5 million on a cash basis. Net financing cash flows and dividends round out the remainder of the waterfall, and I have already discussed the dividend profile for FY '23. So I will leave it there. That's all for me. I will hand back to you now, Justin, to discuss the outlook of the business.

Thank you, Paul. Some great financial results here, which are supported by a solid foundation of building blocks that continue to drive our growth trajectory forward. These building blocks encompass a multidimensional approach to growth that extends beyond financial metrics. Probably the most significant growth driver behind our business today is our company's culture, a fundamental cornerstone that allows us to reward our people with exciting global opportunities and incredible lifestyle experiences that are unmatched in the industries we operate in. Other building blocks for our business stem from our diversification across various industries and services. This approach allows us to fortify our resilience and bolster our portfolio to stand strong against macro market influences. In the resources sector, we are just getting started in several large addressable markets. In the infrastructure space, we are still largely supporting customers in the mining industry. However, we have the ability to win significant market share both within and beyond this sector. On to Slide 10, our primary growth drivers include the energy market, in which we have entered the industry delivering maintenance and natural gas compressor stations. This entry point is just the tip of the iceberg with several stages of the upstream and midstream sectors also requiring equipment support. We have also repositioned our service offering within the transport logistics industry, providing maintenance for rail and road transport. We are now supporting customers in several states across Australia for these services and look forward to the expansion of our operations in this area. Last but certainly not least, an integral building block involves a deliberate entry into emerging markets. We are currently conducting market research into new industries to assess the suitability for the major business model to be deployed. We'll continue to do this, exploring opportunities that will allow us to penetrate large addressable markets, some of which are directly relevant to our existing operations and others, further removed. While capitalizing on emerging opportunities, we plan to leverage our proven business model to foster sustained growth and create more opportunities for our people than ever before. As a business, we continually seek to improve the diversity of our revenue profile. This is a pivotal step toward achieving our ambitious 2026 financial year target of $1 billion in revenue. Through the strategic enhancement of our service offerings, we are able to tap into new markets that allow us to expand the group revenue. We are constantly assessing addressable markets that we can apply our culture-led business model to. Having successfully launched over 40 organic start-ups throughout our 18-year history, we have developed a tried and tested formula that gives us access to new opportunities, new customers and new talent pools that significantly widen at the network of potential candidates that can join the Mader family. This is key to driving future growth and ensuring long-term sustainability of the business. Our diversified operations will create compounding returns for our shareholders with our historical growth rate of around 30% year-on-year expected to continue into FY '24 and beyond. Moving on to our outlook for the financial year. Our geographical footprint will continue to be central to our growth strategy. We are excited to have multiple geographical beachheads driving our expansion and look forward to further growth as we enter new localities and diversify our commodity exposure. As you can see, North America now contributes 22% of group revenue. We have established strong foundations in the U.S.A. and Canada with our business model well received to date. Demand remains largely unfulfilled, presenting significant opportunities for the business. Our Australian business continues to generate a large portion of revenue for the industries we operate in and have confidence in our ability to increase our market share in this segment. Our Rest of the World segment contributed 1% to the revenue across the business. Whilst this is a modest number, we believe in the value this segment brings to our adventurous workforce, and we'll continue to support customer requests in this area. If we circle the globe, you would find someone proudly wearing a Mader shirt on 4 continents, and we intend to ensure that such opportunities remain available to our people. And now on to the slide that you've all been waiting for. We are pleased to announce that current market conditions and our unwavering focus on expansion have provided us with the confidence to forecast strong financial guidance for FY '24. Mader anticipates achieving a revenue milestone of no less than $770 million alongside an NPAT of at least $50 million. These projections are a testament to the company's calculated approach to growth, which is underpinned by a multidimensional diversification strategy. We take pride in our impressive track record, having achieved a 30% year-on-year growth rate for the past 10 years, and we anticipate this momentum to continue into the future. On to our investment case, and it's an exciting time and a growth journey of the Mader and it's a privilege to be part of this process to get here. The current and prospective investors Mader represents a robust investment opportunity with many prospects ahead. We have clear goals, a disciplined approach and the ability to recognize our strengths. We have grown to a market cap of around $1.35 billion while focusing on the right things, our people. This is an outstanding effort since listing on the Australian Stock Exchange in October 2019. Today, we remain committed to achieving our vision of becoming a global diversified services business. Our eyes are firmly set on the future, and we are ready to embrace the road ahead with confidence to seize new opportunities, disrupt markets and provide a culture-led workplace worthy of our people. Thank you to everyone that has supported us from day 1 and to those who have jumped on board along the way. On behalf of the entire Mader Group, I would like to extend our sincerest gratitude to our team, our shareholders, customers and suppliers. Thank you very much, and we'll be pleased to take your questions at this time.

Thanks very much, Justin. We'll jump into the questions that have come through online. The first one up, it's no surprise, it's from Jono Higgins at the new Shaw Unified Capital Partners. Thanks for joining us today, Jono and all the best for the results -- in your new shop. First one coming through from Jono is regarding North American margins, Justin. With Canada in the mix, can you tell us a bit more about what you're seeing across that market and across that segment?

Yes, no problems. Yes. Look, I guess not a whole lot has changed at the moment, Jono, still seeing some great margins out of the U.S.A. business. Canada is still reasonably early days. I mean we've grown so quickly into that space and we're up to sort of close on 200 technicians in Canada at the moment. But still penetrating a bunch of new markets there in provinces, but are still seeing really strong margins and returns from Canada, still somewhere between Australia and the U.S. and probably tipping towards closer to the U.S. sort of margins there, Jono.

Justin, another one from Jono. Just a breakdown of people in North America, where we've given it straight. Can you give us an idea of the mix between Canada and U.S.A. at the moment?

U.S.A. is still peeping at the post there, Jono, but we're probably around 220-odd technicians in the U.S.A. and probably coming up pretty close to 200 in Canada, but Canada is approaching pretty quickly.

Thanks, Justin. Moving on to a question from [ Mickey Smith from Pen Capital ]. What are our expectations on CapEx for FY '24?

Yes, Mickey. So do you want to answer that?

Yes, might as well. Let me give you a break. We're forecasting CapEx for FY '24 at $45 million. We think that we can deliver continued growth with a $45 million CapEx number without holding the business back too much. And that's going to be delivered by continuing to diversify into non-vehicle based services verticals. So things like infrastructure maintenance, vertical such as rail, those verticals are very CapEx light. So we are able to grow the revenue base of the business without having to tip service vehicles in. So that's how we're thinking about FY '24 CapEx. Question from Joe House from Bell Potter. Thanks for joining us, Joe. I appreciate the support. Are we able to provide some context on the segment split for FY '24 revenue, the million dollar question? Look, it's a good question, Joe. We don't break down revenue in our guidance number by segment. But what we do say is we're looking to have a really strong -- continue really strong growth in North America. We've talked about plus 100% growth expectations in that segment in previous years. And we think that we can come close to that, if not top that in FY '24. And then we'll continue to support that North American growth profile with the rest of the core business, which will still continue to grow at healthy rates. All right. Question from Gavin Allen from Euroz Hartleys. Thanks for the support, Gav. How do we think about the very strong American margins in North America? I think it's similar to Joe's -- sorry, to Jono's question, but how do we think about those margins going forward in -- particularly in Canada and also in the U.S.A.?

Yes. Look, I guess margins across North America, look, we haven't seen any reason for those to sort of change in any significant sort of way. As I said before, Canada is still early days, and there's a whole bunch of markets that we're sort of penetrating at the moment that sort of time will tell. But we're not seeing any reason why we should see any margin deterioration across North America.

Right. Other one from Gav. Just looking at the [ RoM ] numbers increasing in the North American segment on our RoM targets there, and they've increased compared to a few years back. Thoughts behind that one, Justin?

Yes. So probably the main one there, Gavin, just the addition of the aggregates market into that set of numbers. So I guess we'd look more at the mining numbers wholly and solely and then obviously, moving into that aggregates market. We've realized how big opportunity that is, and the change in those numbers would be the addition of aggregates into that mix.

Yes, nice one. Thanks, Justin. Question from [ Jay Chan ]. Please discuss the competitive landscape and elaborate on the disruption you referred to around the disruptive business model. We're obviously taking market share and where is it coming from OEMs?

Yes. So I guess it's a bit of a multilayer question. I mean certainly, yes in North America, we see most of our competition out of the OEMs. When we talk about the disruptive business model, our flexibility, we're OEM agnostic, so we can work on any particular type of equipment in any state across America. Whereas you sort of see the dealers over there being limited to one top of equipment in one state that OEM franchises are essentially state-based franchises bar a couple that may be spread over 2 states. But we're sort of seeing our competitive advantage of being able to work on any piece of equipment. We're able to bring specialist labor from anywhere to the customer rather than being sort of stuck with what labor is in that province. In Australia, look, it's a little bit of everything. There are some competitors that are sort of smaller versions of what made to do, there are OEMs. And then obviously, our customers essentially are our competitors to a degree as well.

Thanks, Justin. Switching gears a bit to labor markets. There's no question that we're operating in tight labor markets. And maybe a question for you, Tasha. Thanks for joining us today. How does Mader continue to grow in the current market given slight layer conditions?

Thanks, Paul. Yes, there's no question that we are operating in tight labor markets across the globe. We're taking a lot of steps to ensure that we're continuing to position ourselves as an employer of choice. So retention is really important across the business. We have our internal adventure division, which was launched in late FY '22, which enables us to give our people access to incredible opportunities for them and their loved ones that challenge themselves and also allow us to identify future leaders in the business. And we also are taking a layered approach to recruitment, which allows us to target different talent pools across the globe and also different talent pools across different industries as we continue to diversify our services.

Yes, that's right. Thanks, Natasha. I have question here from Jo House at Bell. Probably a question for me. Question is, in North American, the EBITDA margins declined a little bit from -- in FY '23 compared to FY '22, and it was largely offset by improved margins across the OT business, which is true, Jo. I think if we break down that particular comment, EBITDA margins in North America did fall a little bit in FY '23, and that's due to the dilution that Justin talked about a little bit earlier in the Canadian business. So what we're seeing when we enter the Canadian businesses that the margin for that region would sit somewhere between historical North American/U.S.A. margins and the Australian margins. So as that North American business has grown and Justin called out some numbers there before it sort of closed the year at 160 technicians at 30 June compared to sort of 220 in U.S.A. at the end of the year. We've seen that the total North American EBITDA margin has come back a little bit as purely an effect of diluting -- dilution from the Canadian margin. So that kind of rounds out that question. And then the next part of that question from Jo was around FY '23 EBITDA margins across the segments to be consistent going forward. I think in Australia, we'd like to keep them where they are. FY '23 was a really strong year for us in FY '23 largely due to continued diligence from our operations teams as well as a really expanded and up-and-about coal market on the East Coast, which assisted margins in that region. So we expect that Australian margins will continue into next year at the current levels. And then what we think about North American margins, we're continuing to learn a lot more about the Canadian market as we go. It's less than a year old. And in my view, I think we've got margin leverage there. We are bringing a huge amount of labor into that market from Australia. And we are holding the labor, and therefore, I think we can price ourselves accordingly. So I think there's upside in North American margins from FY '23 into FY '24, Jo, and I hope that answers your questions there. I think some questions here from India. I think you kind of touched on that one, Tasha, Indy from Dell. Thanks for joining us Indy. Question from Ary from Barrenjoey, maybe for you, Justin. How should we think about growth in the Australian business moving forward, particularly in the core mobile equipment business?

Yes. Thanks, Ari. Yes, I think pretty well business as usual for us, Ary there. We continue on a definitely a recruitment-constrained environment within the core business in Australia. So our ability to attract and retain people will essentially drive our ability to grow. But we saw good growth rates through FY '23, and we expect to continue to see those in FY '24.

Thanks, Justin. A question from -- another question from Ary around CapEx and D&A CapEx, we've talked about, just to reiterate FY '24 CapEx target of $45 million. Depreciation associated with that is circa $21 million, Ary for that one. Question coming through here from Matt Chen from Moelis. Thanks for joining us today, Matt. Would you like to clarify whether you're expecting further margin improvement across the group and some operating leverage to see top line growth, et cetera, et cetera. So Matt, I guess, the clarification there on margins is that we closed out the year at 6.3% of the NPAT north line. Guidance next year implies a 6.5% NPAT margin. So we will see some slight improvements across the group in NPAT, not much, but a little bit here and there, and that's how we're thinking about FY '24. Question from Ary on guidance in FY '24. Yes, there's a few questions coming through that one and how we break that down. Look, at the end of the day, from a contracted revenue position, the way it sits within our business is that all of our contracts contain no minimum volumes. That means that our guidance is based on our best view of forecast, headcount growth and our ability to sell those services into our customer base. It's sort of circa 30% year-on-year. We think that a big chunk of that growth will come out of North America as we continue to expand Canada. We continue to target growth in the U.S.A. And as a North American business, north of 50% growth at least at the very least, for FY '24 guidance. And then the rest of the revenue growth profile will be rounded out with the Australian business. Rest of world, we're expecting modest growth year-on-year into that segment. That's how we think about FY '24, given it's not even the end of August yet. That's how we're positioning ourselves into the new financial. I think that's probably all the questions that have come through. Yes, that's it. I think no other questions on the line. I think we'll call it there. Back to you, Darcy.

Thank you. That does conclude our webcast for today. Thank you for participating. You may now disconnect.

Thanks, Darcy, and thanks everyone for joining us.