Mader Group Limited (MAD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Mader Group full year results for the financial year ended June 30, 2024. [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, Harmony, and good morning, everyone. Welcome to Mader Group's Full Year Results Presentation for the 2024 financial year. With me today is our Chief Financial Officer, Paul Hegarty. It's been another impressive year for the group and one that I'm very proud of. Through hard work and determination, we have continued our evolution into a global diversified services business. This year, we expanded our footprint and capabilities across new markets and industries, resulting in record revenue of $774.5 million, a 27% increase compared to at FY '23. Now before we dive in, I just want to take a moment to extend my sincere thanks to our entire team. They have been instrumental in achieving these results that we're presenting today, and I couldn't be more appreciative of their hard work. With that said, let's get into it. On the first slide. For those here unfamiliar with our story, Mader started back in 2005 with Luke Mader, our Executive Chairman, Founder and first-ever tradesmen on the tools. What started out as a one man providing mechanical support in the Kimberley region of Western Australia has since evolved into a global business with technical services being provided across multiple industries. 19 years on, we proudly have a team over 3,200 skilled technicians who this year have operated in 7 countries and supported over 430 customers in more than 570 locations. As you can see here, we've evolved into a truly global diversified business with our business model replicated across multiple industries worldwide. 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. The effect of this success has reflected clearly in our ability to achieve compounding financial results. Moving over on to Slide 3 and a little more on our specialized workforce. Evolving from one mechanic to today having almost half of the business made up of other trades, we're proud to have a diverse skillset. This includes, but is not limited to, auto and higher voltage electricians, heavy road and light vehicle mechanics, fixed plant trades and many more. Throughout this presentation, you might hear us mention adventurous careers, and this is simply the cadre to the demographic of our workforce. Two-thirds of our workforce are under the age of 35. And while we create meaningful careers for people in any stage of life, and me included, our company culture and adventure-driven lifestyle particularly resonate with a certain demographic drawing those who seek more than just a job. From tailored rosters, site variety, wide equipment exposure across multiple industries and locations, we invest heavily in our people to provide opportunities that are unparalleled within our industry. The centerpiece of our efforts lie in our global pathways and Three Gears programs, which have been continuously refined each year to align with the evolving aspirations of our people. I will expand on this a little bit more later on. As always, we're dedicated to achieving 0 harm across our operations. This year, our focus on safety led to the creation of our Geared For Safety initiative. The safety embeds safety into every aspect of our business, emphasizing the shared responsibility among our people, leadership teams and customers to prioritize and maintain a safe working environment. With this underpinning everything we do, we're pleased that our total recordable injury frequency rate improved with 3.49 recordable injuries per million hours work. Over the past financial year, we undertook a major vehicle safety upgrade project, equipping our fleet with advanced driver monitoring tools, including driver fatigue monitoring systems. We remain committed to continuous improvement, and we continuously seek ways to ensure our people return home safely to their loved ones. Okay. Moving on to the executive review and the results, I'm sure you're eager to see our FY '24 financial highlights. In FY '24, we delivered a total revenue of $774.5 million, an increase of 27%, up from the $609 million in FY '23. Our EBITDA was up 32% with $99.2 million delivered. NPAT closed out at $50.4 million, an increase of 31% from $38.5 million in FY '23. Our net debt closed at $31.2 million, which was down 27% from $42.7 million at June 2023. And finally, we have declared a $0.078 per share fully franked dividend for the full year period ending June 30, 2024. This presents a 34% increase from $0.058 per share last financial year. The progress we made is evident in these results showcasing our continued transformative growth. Looking over on to Slide 5. You can view our revenue profile segmented by region. In Australia, revenue was up 25%, delivering $585.7 million. Our core mechanical services remains strong nationally, growing by 24%, whilst our growth drivers infrastructure maintenance delivered 35% increase versus the pcp. In North America, revenue increased by 34%, producing $177.8 million for the full year. Operating in 37 states in the U.S. and 8 provinces and territories in Canada, we significantly broadened our reach. In Canada, the region was supported by our Global Pathways Program, which mobilized more than 65 technicians just in FY '24. Mader Energy will continue to target gas compression across multiple shale formations and customers across the United States. And jumping over to our rest of the world operations, we provided specialist services and technical support for customers in 4 countries across Asia and Oceania. With revenue up 36% versus the prior corresponding period, this year has been the best growth we've seen for this segment since rebuilding the operations following the COVID-19 pandemic. I'll wrap it up here for now, and I'd like to hand over to our CFO, Paul, to run through our financial review.

Thanks, Justin, and thank you to everyone who has taken the time to join us on the call this morning in what is a very busy results day. I'll be going over the financial performance for the group and Justin maybe stole my thunder on a fair bit of this, but there's a few things I'd like to point out. As Justin mentioned on Slide 4, revenue delivered was $774.5 million, up 27% versus the pcp. Importantly, this revenue growth has been delivered with improved margins, with EBITDA and NPAT margins increasing year-on-year as our higher-margin segments continue to scale. To be able to deliver these margins in today's environment is a testament to the flexibility of the Mader business model. From a shareholder perspective, earnings per share increased to $0.252 per share, an increase of 31% versus the pcp. Total dividends related to FY '24 were paid or declared at $0.078 per share fully franked, representing a profit payout ratio of 31% of NPAT. All in all, some decent results, especially in the context of the compounding growth that has been delivered in recent years. Moving on to the financial position on Slide 7. As you can see, our asset base primarily comprises 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 think we have a relatively simple balance sheet. Our trade receivables position is largely with Tier 1 principals and large mining contractors, and we generally don't have any abnormal credit risk profiles in the deal book, touchwood. Property, plant and equipment increased year-on-year as we invested in growth. We added circa 300 service vehicles to our fleet, taking our total to over 1,400 service vehicles deployed across multiple continents. Supply chains improved during FY '24, and we're well positioned for FY '25 with our vehicle build pipelines. From a leverage perspective, we continue to view our business model as CapEx light, and we closed out the full year with net leverage at around 0.3x. We are well supported by our lenders, in particular, with our primary lender NAB in Australia and have strong working relationships established across all regions in which we operate. The flexibility that has been established within our finance facilities allows us to respond quickly to opportunities as they are presented. Finally, we announced earlier in the financial year our plan to transition the business towards net cash in the medium term. This will allow greater flexibility and freedom to make strategic decisions around future growth. Pleasingly, net debt closed at $31.2 million, a 27% reduction over the last 12-months. We forecast CapEx in FY '25 to be between $40 million to $45 million. We expect the business to transition into a net cash position in line with our medium-term target. Now on to the cash flow slide. Our net cash flow from operations was $68.7 million. Our intense focus on EBITDA conversion was maintained throughout FY '24. Operating cash flows before interest and tax as compared to EBITDA was 88%. This reflects the quality of our client base and trade receivables ledger, as I mentioned earlier. I've already spoken about our investment in growth CapEx for the year, which was $40.7 million when considering the cash flows for these continued investments in growth. That's all for me. I'll hand back to you now, Justin.

Thanks, Paul. Some great financial results there, which are indicative of our progress against our strategic goals. And this takes me on to our next slide of the strategic plan. Three 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 company. Since then, this has been a blueprint to guide our growth. Without going into too much detail, essentially, the strategic plan set out some strategic growth targets and operational goals in 4 key areas: geographical diversification, service line diversification, expansion of industry verticals and of course, to scale the existing business. Further, targets were in -- that were set out 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 that leads us on to Slide 9 and 10, which should outline our building blocks. So the building blocks we've developed over the years embrace a comprehensive approach to growth that goes beyond just financial metrics. Starting off with probably the most significant growth driver behind our business, which is our culture. You may have heard the term culture-led business used by us quite frequently, and this is no mistake. It underpins everything we do and all facets of operations are driven with culture in mind. We're proud to have a number of exciting programs like Global Pathways and Three Gears. With these, our employees really get the best of both worlds: to travel a world whilst working and then spend their downtime with our internal adventure division, Three Gears. This is truly unmatched in the industries that we operate in. Excitingly, this year, we delivered Three Gears of ventures in 4 countries: Australia, New Zealand, the United States and Canada. I was lucky enough to go on some of these experiences, which range from exhilarating thrills like canyoning and zip lining to tranquil camp-outs and relaxed barbecues as well as family days. Our adventures are designed to be as diverse as our people, and I commend the team for extending these experiences globally to mark the final stage in our rollout of Three Gears. Additionally, and almost as important as culture are our building blocks across different industry vehicles. Applying our tried and tested business model into new addressable markets allows us to create a compounding effect and diversify revenue streams. For instance, there are a wide range of opportunities in several large addressable markets in resources and infrastructure maintenance, and we're only just getting started in these. Over to Slide 11, let's dive into 2 more of our large addressable markets, energy and transport, logistics. In the energy market, we have primarily been focused on delivering maintenance for natural gas compressor stations in the United States. In the transport and logistics industry, we have really expanded our efforts to provide maintenance for rail and road transport, now operating in a number of states in Australia. Given the critical role of transport and logistics in and outside of Australia resources industry, there's significant growth potential that aligns with our existing operations. And finally, our building block that is key to our future growth involves deliberate entry into emerging markets. And as necessary, we will conduct market research into new industries and assess the suitability for the Mader business model to be deployed within them. Slide 11, up to this point hasn't given it away already, we really do have a proven track record of organically replicating our unique business model across multiple industry verticals. Exploring opportunities outside of our core services will allow us to capitalize on extending across industry verticals and geographies, effectively creating more opportunities for our people and diversifying revenue streams for sustainable growth. And in addition to enhancing our service offerings, geographical expansion remains central to our growth strategies. We have multiple geographical beachheads and are always looking to enter new locations and diversify our commodity exposure. As you can see, North America now contributes 23% of group revenue. Our North American segment continues to perform in line with business unit maturity. There is a significant runway ahead for us with demand in the region largely untapped. Our Australian business continues to generate a large portion of revenue for the group at 75%. We are confident that we'll continue to deliver strong results in this area with diversification across sites, customers, industries and service offerings. Our Rest of the World segment contributed 2% of the revenue across the business. And while this is still a modest number, we believe in the value this segment brings to our adventurous workforce as a method of attracting and retaining skilled specialists. This year, we continue to actively engage in opportunities with customers in Asia and Oceania to meet this demand. As a business, we continually seek to improve the diversity of our revenue profile. This is a pivotal step towards achieving our FY '26 target of $1 billion in revenue. Through the strategic enhancement of our service offerings, we're able to tap into new markets that allow us to expand the group's revenue streams. We are constantly assessing addressable markets that we can apply our culture-led business model to. This is key to driving future growth and ensuring the long-term sustainability of the business, and 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. If you cast your mind back to Slide 9 where we first touch on our strategic plan, this slide here shows our progress against those NPAT targets that were set. As you can see for the first 3 years of our strategic plan, we have not only achieved but exceeded our NPAT targets. This is an exceptional result and one that will continue to strive towards maintaining in FY '25 and FY '26. We are more determined than ever to achieve these ambitious goals and believe we have to drive the team and the financial discipline to do so. Now the highly anticipated FY '25 guidance. So with working capital intensity, a unique culture led business model and opportunities identified to accelerate growth, Mader has the confidence to reaffirm FY '25 guidance of at least $870 million of revenue and an NPAT of at least $57 million. We have delivered a 10-year compounding annual growth rate of around 30%. As the business continues to mature, we are excited to continue to deliver the compounding effects of the Mader business model to existing and new markets. In doing so, not only will we deliver continued growth in FY '25 but solidify our longer-term target of $1 billion of annual revenue and an NPAT of $65 million in FY '26. So as I reflect on FY '24 financial year and the few before that, the transformation of the Mader into a global diversified services provider is nothing short of extraordinary. To current and prospective investors, Mader presents a truly robust investment opportunity with many prospects ahead. Acting with confidence, seizing opportunities and creating adventurous careers for our people, we have grown to have a market cap of around $1.3 billion today. We remain laser focused on delivering a superior service for our customers, driving value for shareholders and above all, strengthening our workforce. I'd like to extend on gratitude to each of those alongside us for this journey, our valued team, customers, suppliers and shareholders. So this concludes our presentation, and we'd be pleased to take a few questions at this point in time.

Thanks, Justin. I'll let you get a drink of water, and I'll start going through some of the questions that have come through online.

The first question here from Jonathan Higgins at Unified Capital Partners. His comment or question is, gentlemen, well played on results to date and the company you've built. Everyone will ask this, but looks like a reasonably conservative guide. You're probably not -- you're probably run rating not far of this in Q4. Can you provide some context to the run rates and what's going into that number? Clearly, I wrote guidance and not Justin. But Justin, comments on guidance seems to be a common theme in the question.

Yes, obviously, you're expecting a bit of that. Look, I guess, if we look back at the year that's been, we saw a few things that we probably didn't expect and looking at a few of the, I suppose, outlooks, I guess guidance just reflects, I think, a prudent approach to making sure that we can deliver on that. It's still another $100 million of revenue on last year. Our path to debt-free remains unchanged. Our organic growth, again, is all in on that number. It leaves us well on track for our FY '26 target to exceed that and still having a growth CapEx of sort of that $40 million to $45 million for the year. But I guess with things like lithium and nickel this year having a bit of a wobble up, we've got maybe some softer iron ore targets coming out our outlook and U.S. elections sort of pending. We just want to make sure that we're well and truly poised to deliver what we say we're going to do as we always have.

Yes, fair enough. Pretty early on in the financial year as well, given it's the 20th of August, it is yet to play out still. Another one from John, could you perhaps provide some comments on Canada versus U.S.A. in the context of North American growth in the second half? And what should that look like into the FY '25 and beyond.

Yes. Thanks, John. Yes, the North American segment was an interesting one for the year. I guess we saw a fair bit of movement in the U.S. markets. We saw a fair bit of -- our coal activity come off and sort of some sites coming to end of life or going into care and maintenance. So that was, I guess, a bit of a headwind for us in FY '24. Canada, we talked early on about our diversification sort of out of the oil sands. And I guess we saw some cost-cutting pressures in the oil sands through that period of time, and we strategically started growing into different regions in Canada. So it was good to see us being able to sort of hold our head above water as we sort of reallocated people across from the oil sands into different regions across Canada. That said, I think with both regions, we're sort of seeing a reasonably strong start to FY '25, Canada in particular, and looking forward to some really good sort of growth opportunities there in FY '25. I guess still pending the U.S. election as well, I guess, is a reasonable amount of uncertainty there, and we don't know what that's going to look like once that comes out, but we feel like there's a few tailwinds there under a few different scenarios, I guess, John.

It's a real thing that U.S. federal election uncertainty is an adjusted, right. It's hard to believe that when you sit here in Australia with the system that we have, but it is a real thing, isn't it?

Yes. No, we've definitely seen some -- I suppose some volatility or probably lack of decision-making or investment decisions being made, particularly in the U.S. And yes, to your point, if I didn't sort of see it with my own eyes, I probably question it, but look, companies are really waiting for, I suppose, some clarity and direction on where the election is going to fall before they make sort of major investment decisions based on what that looks like. So we stand poised for November, and hopefully, there's a bit more, I suppose, fluidity in decision making and business growth from there.

Yes, for sure. Question through from Joe House from Bell Potter. Could you provide some color on how we should think about guidance on a segment-by-segment basis, keen to get your thoughts on activity for the U.S.A. and Canada separately over the next 12 months? Kind of went into that U.S.A., Canada story a bit already. I just quickly to go through the segment by segment and then I'll throw it over to you, Justin. Sort of, Joe, I guess -- thanks for the question. We're sort of thinking Australia within the guidance number that has been put out, working backwards sort of around that 9% to 10%, North America around the 25% and rest of world at 10%. That's the buildup for guidance into the $870 million number. Hopefully, that answers that question. U.S.A. and Canada, you kind of spoke to that already a little bit, Justin, for the sort of first half outlook? What are you seeing? You spent a fair bit of time out there in the last 12 months. What are you seeing in that region?

Yes. Thanks, Joe. Look, I guess, starting off with Canada, in particular, Joe. We've -- as I sort of said in that last little segment there, we've made a massive effort to sort of diversify our services sort of outside of the oil sands as well within Canada. And I guess we've done that fairly successfully. Yes, we've seen the last sort of 2 months and coming on third month of some really good growth in that region. We think there's a fair bit of, I guess, work ahead as the oil sand sort of comes into winter and preparation into the next phase. So we sort of see some upside there, but, but moving into the East and West areas of Canada, we've seen some really good growth with some huge addressable markets here. So we're very excited as to what that looks like for FY '25 and beyond. The U.S.A., again, we've done a fair bit of work on our business development over in the U.S.A. region. We're seeing some pretty good tailwinds in the U.S.A. Again, a lot of stuff. We're not probably expecting a huge amount of movement sort of pre-election. That said, Joe, I don't feel like there's any real change to the -- I suppose the long-term outlook and opportunity for our business over there. It's probably just going to be slight growth for the next few months. And then pending election, I think you'll really see what the rest of the year's outlook looks like.

Yes. Good stuff, cool. Thanks, Justin. Another question through from Joe from Bell Potter. In our newsletter, we've highlighted establishing a shutdown team in North America. Can you give us some color on that, Justin, what's ahead? Will you be -- will we be adding more tax to expand the service line? And how is it split across North America?

Yes. Thanks, Joe. Yes. Look, I guess, and I suppose that's really sort of following into the, I suppose, as we get into vital numbers up in Canada. And I guess, being able to expand into, I suppose, different business segments as we do in Australia, it's just really sort of the natural progression of that sort of growth profile. So looking at -- and already doing some sort of major shuts for major miners on things like shovels and truck fleets up in North America and looking to continue to grow that as we have done in Australia.

Thanks, Justin. Question 3 from Gavin Allen from Euroz Hartleys. Rest of the World showed some solid improvement off a low base. For everyone playing at home, that was up 36% of the revenue line and 31% at the EBITDA line. What's the medium-term outlook there, Justin?

We're still seeing some steady growth. The demand for our services sort of remains reasonably strong. Yes, again, we're really targeting our Tier 1 miners in sort of nice areas of the world to work for our people. And we see that -- again, I don't think that's going to grow by 300% year-on-year, but I think we expect to see still some nice steady growth as we move into FY '25 and beyond.

Another one from Gavin from Euroz Hartleys. Does ROM tonnes continue to provide a reasonable measure of possible growth, noting that North America and Rest of World is so much larger than Australia?

Yes, it definitely does, Gavin. And I think if you want to look at sort of the addressable markets, I mean, that's definitely a good way to look at it. We're still very buoyant on sort of what's ahead. Skill shortages haven't sort of gone anywhere, and we really believe our model can continue to grow both in North America and the rest of the world, as we move forward.

That sounds pretty good. Moving on. A question from Tom Grainger from Anacacia capital. Can you please talk to the shortfall of receipts from customers versus revenue in the result, particularly in the second half? I think the big factor at play there, Tom, was around the growth in the workshop facility, particularly in Q4. We had a very strong quarter in the workshop, which has a longer lead time on parts that you need to order and pay for before you end up getting paid once the invoicing is complete. So most of that will normalize or has already normalized as the 20th of August now. Most of that is already normalized now in FY '25, but that's sort of the main driving factor around that second half cash flow. Moving on to another question from Joe from Bell Potter. Depreciation rates lifted materially in North America half-on-half and year-on-year. Speak to what's driving these changes? I'll probably take that one. Back on the 1st of July 2023, at the start of the financial year, we sort of went through a sort of fleet review in North America, and we noted that due to the environmental conditions that some of the service vehicles were in particularly in Canada, that the wear and tear on those vehicles was a bit higher than, say, they are, or is in Australia, particularly on [indiscernible] in Pilbara. The snow in particular, does serious damage to those vehicles. So we made the decision to increase depreciation rates in North America. We moved both U.S. and Canada rates up, sort of accelerate the depreciation on those vehicles. So it's a bit of a conservative approach to making sure the balance sheet was fairly representative of value there. So that's what's driven that change there. And that will continue as spend in that region also continues. Question through from Andrew Walton. Great result in terms of emerging sectors, how are you approaching the opportunities in the growth of data centers as a key infrastructure for AI-enabled service economy? Right now for us, it's probably not on our radar as yet, but we do note that there is a fair amount of interest in that sector so far. Matt Chen from Moelis. Justin and Paul, just an update on the net cash target and pathway from here. Thanks. I'll probably grab that one. So in January of 2024 this year, we announced a net cash target in the medium term. That was kind of based on our continuing to grow top line significantly, continuing to pay out about 1/3 of NPAT. And as a result of, I guess, the CapEx-light business model, free cash flow starting to spin out quite significantly. From all things considered where we see FY '25 shaping up, that target is well in track, we said medium term, which is 2 to 3 years. And I think we're comfortably inside that time frame at the moment, all things considered. Question from Marcus Burns. Can you give us some more color on CapEx in FY '25, please? You said $40 million to $45 million for FY '25, you just spent $40 million in '24. So you still see strong demand? Or are you replacing a lot of existing fleet?

Yes. Marcus, I'll take that one. Yes, look, most of our CapEx moving forward is still growth. Like almost all of it, we'll probably start looking at some of the real old clingers in the fleet around some change outs at some point. But largely, all of that CapEx will move towards growth. We're still expecting strong growth from Aussie driving services as well as the verticals in North America as we really just getting started there. So we think we can still maintain that sort of CapEx rate. And then obviously, as the business grows, all those low CapEx verticals will continue to come on as well, which I guess promotes that free cash flow and that drive down towards net 0 debt.

Question from Ari from Barrenjoey. Talking about North America first half versus second half. How do we gain comfort on some of the things that we're seeing in North America? Are they cyclical or structural?

I think probably a couple of things there, Ari. I mean one is really that -- sorry, the political landscape there with that U.S. election. So that really -- I guess that's probably cyclical as far as an every 4 years, probably going to take a bit of a slow period there. Canada, we've sort of seen the oil sands, has some sort of cost cutting, and that was really around some sort of major clients of management changes and sort of, I suppose, some direction there. So we've sort of seen that come back a little bit. Not affected as a huge amount, but our ability to diversify our business across Canada was really handy as we sort of just sort of shuffled to the beat of air drum. Coal, again, we had some major coal clients come off, and that did hurt us in the U.S.A. That said, to Gav's point before, the ROM tonnes remain as they are. And again, you got to remember, we're still very early days in those markets and with some long sales cycles, particularly in the U.S.A. But look, I think if we look at the headcount growth over the last few months, I feel pretty comfortable with how we're tracking into FY '24.

No worries. There was some comment in one of the analyst notes earlier today and Ari raised it again today, is the $1 billion revenue aspiration still by FY '26? Do you want to talk to that?

Yes, sure. I mean I guess we're looking at some and a few of those slides sort of showed that strategic pathway to $1 billion revenue and $65 million of NPAT. We're internally very, very confident of that number. Obviously, the guidance reflects that we're still seeing that $100 million of growth plus this year. And internally, we're targeting a little more aggressively than that. But I think that shows that we're confident of that organic growth continuing there. Yes, our margins remain strong and actually getting stronger as we sort of scale some of those higher-margin areas of our business. We think that FY '26 target is well and truly in our sights.

Thanks, Justin. Jason Palmer from Taylor Collison, a couple of questions here. WIP, work-in-progress sort of increased on '23 versus '24 and what's the reason for that? It's really around the timing in particular of those machine rebuilds in the Mader maintenance center here in Western Australia. Jason, it's just about the timing of when those invoices are actually issued. So that was a fair bit -- that was all done in June and in July, and it's obviously the parts and other pieces to bring those rebuilds into or to complete those rebuilds, which is the main reason for that increase year-on-year. All right. Just making sure I've wrapped up all the questions there. That's all I can see in the portal now. So we'll probably call it there and...

Yes, we got some one-on-ones.

Plenty one-on-ones in the next little bit. So thank you. Hope to see you soon.

Thank, thanks very much, and back over to you. Thanks, Harmony.

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