Matrix Composites & Engineering Ltd (MCE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome you to the Matrix First Half Fiscal Year '26 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Aaron Begley, Chief Executive Officer. Aaron, please go ahead.

Thank you very much, and welcome to Matrix's 2026 half year results presentation. I'm here today with Brendan Cocks, our CFO, and we'll be presenting to the presentation that's been loaded up on the ASX platform. So we'll be talking to each slide. And as I turn through the slides and Brendan turns through the slides, we'll refer to the page number that we're talking to. So I'll get started. Turn directly to Page #3, just a quick description of who we are and what we do. Matrix is a manufacturer of engineered products for the Subsea, defence and resources sectors. Specifically, we manufacture advanced materials and provide other services to those 3 markets. And we are located in Western Australia, where the majority of our manufacturing takes place in our state-of-the-art facility, just South of Perth in the Australian Marine Complex, and you can see the image of our plant in the image displayed on Slide 3. And we refer to that facility as the Henderson facility. So an overview of our first half results on Slide 4. Look, this is very much a full year story. We saw revenue from projects that we secured early in the year and late last year pushed from the first half into the second half. So this resulted in lower revenue than we would have expected at around about $26.9 million, and that was lower than the prior period due to the timing of some large Subsea Buoyancy projects. Our second half work is -- secured work is greater than $50 million on improved margins from the first half. So we expect our full year revenue to exceed $80 million, which is -- which will result in growth year-on-year from 2025. So very much a full year growth story, the shift of revenue and associated margin from the first half to the second half, but we've secured enough work at this point in time to grow year-on-year. So we expect to do at least $80 million this financial year. We continue to see a strong pipeline of opportunities for the business with a significant forward pipeline of work for contracts that are going to be executed by our customers. And we've had ongoing infield success in our key markets. So we've seen our equipment being successfully installed in areas, like Brazil for companies like Petrobras, where we've installed equipment in deepwater field operations down to 2,500 meters seawater. So this has continued to reinforce our position in the market, demonstrates the quality of our products and our position in the market, and we expect to be able to capitalize on that in the future. We've also seen recovery in some of our historical markets that have been very flat and depressed for some time, in particular, the drilling sector. So I'll talk to that in more detail as I get into the outlook slides further into the presentation. And we have continued to build out our product suite to diversify our product offering within the Subsea market, but also in growth markets in both defence and also in the resources sector. So we did record an underlying EBITDA loss of $4.1 million as a result of that production shift from the first half to the second half. We do carry a fixed cost base, which is not that variable across that period. So that's resulted in both earnings and our gross margin production shifting towards the back half of this financial year. Cash on hand remained robust at the end of the period. It was about $18 million and net cash of $10.4 million. So all in all, a full year story for the business skewed to this current half, the second half. So that just concludes the introduction. I'm going to pass on to Brendan now, who will take you through the financial results in more detail. Over to you, Brendan.

Thanks, Aaron, and good morning, everyone. We just turn to the slide, key financial metrics, which is the first one in the financial section. As Aaron mentioned, we recorded a revenue of $26.9 million, generating an EBITDA loss of $4.1 million. I'll just touch in a bit more detail on the project timing and what Aaron was referring to. So as a business, we run with a fixed overhead to support an $80 million to $100 million per annum business. Those fixed overheads come through a pretty similar level each month. We've got a good handle on what those overheads are. But the project profile that we run, we win these large projects that go for about 18 months. But then the vast majority of the revenue recognition happens within a 4- to 5-month production window for those projects. So what we're seeing this year is we have one really large project, but 3 larger projects that we've been working on during the first half. Our engineering team has been very busy working with our clients on the design phase, procuring the tooling and ready for production. But that production of those 3 projects will happen effectively between November and May. So then the profitability profile for the business looks like making a monthly loss each month for the first 4 months. And then for the next 8 months, we run a strong profit. So that's what gives us the confidence that as a business, we'll have a really strong second half. We'll do in excess of $50 million in revenue, which is effectively double the revenue that we've done in the first half, and we'll make a strong profitable second half and return to profitability across the full year on an EBITDA basis. You'll see cash there $18 million, which is at a similar level to where it was at the end of the year. So that's a healthy level, which is good for what's the start of a pretty busy period for us. Just turn to the balance sheet slide. There's not too much detail here. It's -- effectively, a lot of the movements reflect our working capital movements. We've had a reduction in our trade receivables. So that's collection of receivables for projects that we delivered late last financial year where the back end of all those receivables come in during this half. We've also had a buildup of inventory, which just reflects the activity levels we're facing over the coming period. With our debt end of last financial year, we had a convertible note sitting in our current liabilities. Now during the period, we put in place a new banking facility, with a big 4 bank in NAB, which means we've now got some term debt sitting there of $7.5 million. Other thing I'll just note is it doesn't sit on the balance sheet, but we've still got a tax asset, $140 million of tax losses. The tax effect of that in excess of $40 million, which we've got the ability to use in future periods to offset any tax expense we get. If we just turn to the cash flow from operations and probably as I was mentioning on the last slide, the movements in this cash bridge reflect our working capital during the period and movements in those working capital accounts. I will note CapEx and intangibles, we've spent $1.2 million for the period. So a little bit of that was sustaining CapEx, but there was also a significant amount of money that we spent on development of new products and offerings for the served market as part of that product build-out strategy, which Aaron will refer to in his coming slides.

I will.

So I'll hand back to you now.

Thank you, Brendan. Okay. So if we could turn directly to Slide #10, please, the 3 business pillars. I'll just touch on this very briefly. These 3 pillars of business, Subsea, Advanced Materials and Coating Technologies are really what we refer to in terms of our capabilities and how we service 3 distinct markets, which are Subsea, defence and resources. So across Subsea, Advanced Materials and Coating Technologies, we have a suite of product solutions, manufacturing technologies and capabilities that enable us to service those 3 markets in Subsea, defence and resources. Subsea includes, just for clarity, oil and gas Subsea production, exploration, deepwater drilling, deep sea mining, marine and Subsea marine and the emerging floating wind opportunity that we see. So jumping now to Slide 11 in a bit more detail. So we've traditionally been known for buoyancy. We are -- that is still the biggest part of our business, deepwater buoyancy. But our customers use a lot of other engineered products in the projects that we service that are made of polymers. So we've had a strategy over the last few years to build out our product portfolio, so we can supply more products to the projects that we're supplying into. And some of these products include things like our protection systems, VIV suppression, which is a very big opportunity for the business, something we've done a bit of in the pipeline sector for a number of years, but we're now starting to service the riser market, and we have lots of opportunities. Pretty much every project we bid buoyancy to, we're bidding VIV suppression products into. Installation products as well. Installation buoyancy is something that we supply to most of the SURF projects or at least bid most of the SURF projects that we're active with. opportunities for large structures, which are used in both Subsea oil and gas and potentially offshore floating wind and a growing market in support services. So something we haven't really done a lot of before. We help our customers install our equipment, maintain our equipment, repair our equipment as needed. We do that in country. So we currently have people offshore Brazil at the moment, about to deploy people into areas like the Gulf of Mexico as distinct to the Gulf of America and also in other parts of the U.S. So turning to Slide #13, Subsea production SURF. As you'll see from the graphic on the top right-hand side, year-on-year, we're growing our presence and growing our revenues from the SURF market. And this came from a standing start in FY '22 when we were doing nothing really in this marketplace. If you go back pre-COVID, again, it was quite limited to the amount of work we've done in SURF. So we've leveraged our materials technologies and our production capability to enter a market that we haven't really been present for up until reasonably recently. And each year, we're continuing to grow our market share and growing our presence in that market. So we've secured $170 million of projects since August '22. We've successfully deployed over 2,000 ultra-deepwater modules in locations like South America and other parts of the world. We've continued to build out our product suite, so we can sell more products to the projects that we're bidding into. Most of those products are polymeric. They're polymer-based, and they're almost all engineered products that have some mechanical complexity to them. So there's a good moat around them. Look, there is some competitive pressure. We've come into this market, not quite out of the blue, but come into this market and taken market share. So there is a bit of a churn in that pipeline, but we're continuing to win work with our key customers. What we are seeing is a greater number of smaller to medium-sized orders across our order book. So we tend not to announce those orders. They do get aggregated when we do an update with our backlog, but we are seeing a greater number of small to medium-sized orders. And this is a good thing because it helps sustain the business on a quarter-by-quarter basis. It tends to be less lumpy, a little more overhead intensive, but we're adapting the business to continue to be able to service that. We've got a long runway, long visibility of forward visibility of projects in this space. Unlike the drilling sector, which can be very patchy and very short term, the investments that are required in these deepwater fields is immense. And so the project planning tends to go out 3 to 4 years. We've got customers like Petrobras, Woodside, Exxon, Total who are doing forward planning on projects mainly around sort of the Atlantic places like South America, West Africa and North America. And they're looking at projects that are many billions of dollars per project. So you do have a long runway. And we're seeing that with the forecast global Subsea EPCI spend. We've got a graph there that we produced from various data sources and that shows a very solid period of activity from '26 to 2030. This is something that's cooperated by our clients like Technip, McDermott, Saipem, Subsea 7, et cetera, that see a long period of EPCI spend. What's not in that graph and probably understates the spend is the amount of refurbishment work that has to take place in some of these areas such as Brazil where towards sort of '27, '28 onwards, there will be a big spike in demand for umbilicals and rises and corresponding ancillaries that we manufacture. So we expect things to be very busy in that sector for a long time. Okay. Turning to Slide #15. We have seen recent drilling market recovery, which is very encouraging. This is after really 10 years of very flat demand, a little bit of sporadic demand here and there. But what we're seeing is demand, in particular, for our drag and fatigue suppression systems that we incorporate into our buoyancy patented product that we have the exclusive rights to. So we are seeing demand for this product come out of places like Mozambique, Brazil, Gulf of Mexico, anywhere where there are high currents or inclement sea state conditions. It's a great market for us. We're very well regarded in that sector. When we left off our, I guess, our peak in drilling, we had 60%, 70% market share and we retain a very strong market share in that area, reinforced by this technological moat that we've got around our LGS system. So we are seeing our product now specified in those drilling operations that are occurring in these inclement weather areas. So the great thing about this product as well for us is we've got a very big tooling suite. If a customer rings us and needs some buoyancy, we can very quickly produce it. So one of the projects that we announced recently was for a customer in Europe, who needed some deepwater buoyancy, another one needed some LGS product. The deepwater buoyancy customer placed the order with us beginning of last week wasn't it, Brendan, something like that?

Yes.

And we started production on Monday. So it's that quick. We can turn these around that quickly. So there's short-term opportunities there. So we're seeing some great recovery, which could give us some short-term benefits. Look, quick turn to Slide 16. I'm not going to spend a lot of time on this. We do talk about it a bit, and there doesn't seem to be much activity in terms of project wins, but floating wind is something -- a market where we have to be in it to win it. We have to be actively participating in offshore floating wind in some of the project bids to be considered for the long term. And the sort of products that we would supply to this market are things like mooring buoyancy, cable buoyancy, cable protection systems, ballast and potentially even large structures made out of composites. Lots of promise, everything keeps moving to the right, shifting to the right for this market. The first major commercial scale project is likely to be either in the U.K. or in Korea. And the Korean one, obviously, we're geographically very well positioned for that. We'll see what happens where we're making sure that we're active in participating in this. Don't expect any short-term revenue opportunities from this at all, but it is a very large looming possibility for an opportunity for the company. Switching quickly to Slide 17, Advanced Materials. So this is just a bit of an overview slide, the sorts of things that fall under the Advanced Materials banner that we sell into all of our subsets of market opportunities, Subsea defence and resources include things like engineered polymer products for mining, steel replacement composites where we're using 3D printing technologies to replace steel and mining operations, syntactic foam for unmanned underwater vehicles for the Navy and for civilian applications. And we're really targeting opportunities in large current established markets where there's existing demand for this type of product, especially in the resources space. Quickly turning to Slide 19. One of the applications of this technology is well construction products. Look, it has been a little bit of a flat year for this product as we've reorganized our global distribution strategies. We now have distributors in North America, all through Southeast Asia, Thailand, Indonesia, Malaysia. Norway, Africa. So we have a number of new distributors that we've brought on board that were established at the back end of last calendar year. We've got a fantastic track record with this product, 45,000 centralizers. They're quasi consumable. They go down hole. They're only used once they're used in the well construction process of horizontal wells that are used in fracking and other nonstandard completions. Standard size, we've got about 20 different sizes or so, and we're qualified with just about everyone. So ranging from Aramco to ADNOC to Chevron to Woodside to Total to Exxon, we've got such a broad track record. Becoming a competitive market, a bit more commoditized, but we have a very low manufacturing costs for this particular product. So we expect to see recovery in sales this year. Moving on to mining. I'm actually going to direct you to Slide 20 here, high-performance composites and mining, just to give you a bit of a feel for the areas that we're targeting. Our processes suit applications mainly in screening and in conveyor components. They are the 2 key areas that we're targeting. Secondary applications for corrosion protection and wear media. But the areas where we're getting the most traction right now in screening media and light conveyor components. So turn to Slide 21. The mining consumables market in Western Australia is enormous. It's on our doorstep. There's a surprising lack of local manufacturing of polymer products for this market. It all tends to be made in other parts of Australia or imported. So we see a real opportunity to use our advanced manufacturing processes to competitively supply consumables and wear products into this market. And the 2 key areas that we're focusing on are screening media. That market is worth more than $500 million per annum in Western Australia, and we're chasing a slice of that and products for conveyors, in particular, componentry for idler conveyors, applications in ship loaders and stack reclaimers. So again, a very large market, a local market consumable-based and we expect to be able to talk to this in more detail as we build revenue from this over the coming year. We have received some small orders already in this sector. We are actively working with Rio Tinto and others, and this is a great opportunity for the business. No material revenue yet, but it is coming. With Coating Technologies on Slide 22, we continue just to crank the handle with this product line and continuing to sell products into the LNG sector primarily. Woodside is our largest customer for this. The Humidur Coatings systems got a great reputation for being able to be applied easily into that space. Turning to Slide 23, a bit of a snapshot of some of the things that we do in defence. Now defence is a big opportunity for Matrix, not just because of the products we make, which are very niche but because of our location. So we're currently making products for submarines, the submarines. This is in the public domain for autonomous underwater vehicles, and we make other types of Subsea equipment. And these get delivered into the AUKUS partners, so the U.S., Australia, the U.K., with Australia and the U.S. being the biggest users of the sorts of products that we make. Very sticky, good margins. And in some cases, we're the only company in Australia, in some cases, the world that do exactly what we do. But turning to Slide 24 in terms of our position. We are smack in the heart of the Australian Marine Complex, which is emerging as the Henderson defence precinct. There's $12 billion committed for the defence precinct from the Commonwealth for AUKUS, defence sustainment shipbuilding. You might have read recent announcements around Australia ships and their activities there, the fact that it's likely that Virginia class sustainment will happen in the Henderson precinct and that there will be growing sustainment shipbuilding and support activities for unmanned underwater vehicles, surface vehicles and manned platforms as well. So we have a 29 years left on our lease, unique access to the port, we can see it from our office and the high wide load corridors that surround the site. So there are lots of opportunities that we're pursuing and are being actively canvass for the use of our site and how we might be able to increase our involvement in defence sustainment. We can't get into specifics for obvious reasons, but we are actively supplying materials and technologies into companies like ASC, Thales and Anduril and others. So to wrap things up on Slide 25. FY '26 is very much a full year story. As Brendan explained, the first half revenues are down because the projects that we secured the production and therefore, the revenue recognition is being shifted into the second half. So we expect year-on-year growth with the orders that we currently have today in the bag, and we're likely to continue to pick up more orders that may feed into this financial year's results. But we -- importantly, we have a very strong pipeline in front of us of opportunities across the Subsea sector in SURF, in drilling and in other sectors that will continue to feed growth for the business. And that's supported by that long-term view of Subsea spend, EPCI spend globally and our growing platform and build-out of products that we're going to be servicing into that sector. We see sustainable growth coming from the mining sector and defence in the long term. They are medium. They're not long term, they medium-term opportunities for us, but they're very important because they will give us that month-to-month sustainable revenue that the business needs to flatten out these very, very lumpy project cycles that we're experiencing. And we're going to be leveraging our position in the Australian Marine Complex to increase our exposure to defence. So that leads me to the conclusion of the formal part of the presentation. Thank you for listening, and I'll pass back to the moderator to determine whether there's any questions.

[Operator Instructions] Your first question comes from the line of Oliver Porter with Euroz Hartleys.

Just a quick one from me. So you talked to top line growth year-on-year. Just wanted to see your thoughts on how that translates to EBITDA, noting a bit of a shortfall in the first half. So we'll need a big second half to make that up if growth to carry through that line. Just wanted to get your thoughts on sort of how that's shaping up.

Yes. Look, so Oli, we're looking at -- certainly looking at the revenue growth, the profitability probably from an EBITDA point of view is going to be around where it was last year based on the levels that we're looking at.

For the full year.

For the full year where we might -- but we're still kind of working on a few near-term opportunities to see how that pans out.

Yes. So we did just under 75% last year. We'll do over 80% this year because we've had a little bit of margin compression resulting from some both competitive pressures and the fact that we didn't do a lot in the first 4 months of the year, that EBITDA margin will come down a bit. But of course, we're making up for all of the first half, and we will overall have a positive EBITDA result for the full year. That's what we expect.

Yes. Okay. And then just the other one for me. In terms of that sort of revenue mix, are you expecting something similar to the first half that split across the north of 80%, something like that, 91%, 5%, 4%? Or do you see that moving around at all?

The revenue mix, what do you mean from a product basis or market?

Between Subsea, Corrosion and Advanced Materials. So I think you split it out as 91%, 5%, 4% in the first half.

All right.

Are you expecting similar?

Yes, similar. It's going to be stronger Subsea. What we will see is there's a bit more drilling within Subsea, there's a bit more drilling, which is why we expect to get better second half, I suppose, gross margin.

And some of that will also come from non-buoyancy products as well. So we've got products that are not buoyancy-based but going into the Subsea industry. So like some of our VIV suppression products and that sort of thing.

[Operator Instructions] Your next question comes from the line of [ Franz Snyman ].

A question on -- you've mentioned competitive pressure in SURF. And now that Saipem and Subsea 7 are merging, how are you going to protect your margins against the buying power?

It doesn't make a lot of difference. Frankly, they're both big buyers of buoyancy. So there's only 3 vendors probably -- and in that space, probably only 2 that both of those companies buy from. So I don't think it's really going to make a lot of difference. Now what will happen is the Subsea 7 is likely to -- I mean, Saipem is incredibly diverse in terms of its product spaces. And I think the -- our understanding is that Subsea 7 will lead the Subsea part of that business. So we're not anticipating much of an effect from that. I mean, look, it is wait and see. The restructuring of that business is more or less happening now in terms of restructuring across those 2 groups. So we'll know a bit more over the next sort of 3 to 6 months. But right now, we think we're going to be dealing with the same people within Subsea 7 we've been dealing with for the last 3 years for the group applications, but it remains to be the same. I mean, Saipem also tends to be a bit more -- Subsea 7 is quite global in the way they procure things. Saipem is more regional. So I suspect it will become more global and Subsea 7 will just -- Subsea 7 business unit, if you like, will be playing a larger role.

And that concludes our question-and-answer session. I will now turn the conference back over to Aaron Begley for closing comments.

Thank you very much for listening. We appreciate your time and your interest in Matrix.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.