MaxiPARTS Limited (MXI) Earnings Call Transcript & Summary

Good morning, everybody, and thank you for joining us for this video presentation on the financial year 2026, the full year results for MaxiPARTS. We have joining us here to present and discuss the results, Managing Director, Mr. Peter Loimaranta; and Chief Financial Officer, Anu Parikh. Following the presentation, there will be time available for some Q&A. And this webinar is recorded, so we'll be able to distribute it following this morning's event. I'm going to hand it over now to Peter.

Excellent. Thanks, Peter, and thank you, everyone, for making the time to dial in. Look, we'll work through our full year presentation now. So if we jump to the next slide, Peter. For those that aren't familiar with MaxiPARTS, we operate in 2 operating divisions. So MaxiPARTS Operations is a commercial vehicle spare parts business, predominantly road transport. And then we have a smaller segment with the Forch Australia business that is a workshop consumable business. So if we can jump through to the Slide 3, please, Peter. So the investment case, we just thought it was worth outlining at the start. So we are a leading commercial vehicle parts and workshop consumable distribution platform with an attractive growth profile. So if we look at that investment case, we do operate in what we consider an attractive and growing market. So road transport task in Australia continues to grow across the medium to longer term, generally made up of nondiscretionary products. And we have been seeing an increasing share of aftermarket product that links into one of our key competitive advantages. We look at the competitive advantages. Certainly, we have a broad product offering that goes across multiple equipment brands. We offer both OE and aftermarket parts distribution, which is becoming critically more important for large customers, and we certainly own our own company-owned distribution channel that allows us to provide and control a consistent service level to our large multisite customers. The business also has a number of growth opportunities as we move forward. Now we have had a history of successfully implementing strategic acquisitions. But certainly, in terms of organic programs, our Japanese parts program and our Forch Australian business both have been and are expected to continue to grow in low double-digit rates, and they offer a higher than traditional margin opportunity for the MaxiPARTS business, and we expect that growth profile to continue for a number of periods. We also recommenced some network expansion last year that we'll talk about later, and we certainly think there's a significant opportunity for further network expansion over the coming periods. And certainly, from an investment point of view, one of the key items is we have an extremely strong balance sheet position at the moment, and that allows us to both increase capital returns to shareholders, but also to fund these growth initiatives as we move forward. With that, if we jump to the financial highlights on Page 4, and Anu will go into a lot of these financial metrics in more detail. So outside of highlighting, it's fantastic to see a full set of green results in what was a challenging half 2 period with the significant disruption caused by the Iranian conflict in March. If we just look at the operating environment, as I mentioned, we did see a significant step back in market activity during March, and that was certainly at the height of diesel pricing and uncertainty fears as we move forward. And obviously, a bulk of MaxiPARTS customers are heavy transport users with diesel and fuel being a key cost base. So we did see a short-term setback, but I guess, demonstrating the resilience of the transport industry, we did see a market recovery and stabilization through April, May and June as we ended the financial year. In terms of capital management, we completed the acquisition of the Forch -- minority holding of the Forch Australian business at the start of the year. And then we also communicated a change in dividend distribution policy at the 2025 AGM and then successfully started to implement that through both the first half and second half dividend distribution rates. The financial results were driven by a number of key strategic initiatives that we implemented throughout the year. We started a greenfield store in Kalgoorlie that commenced trading at the very end of July. That site was not only profitable in year 1, it generated a strong return, particularly in the half 2 of the financial year. I touched on before in the growth opportunities in terms of the impact of the Japanese parts program in Forch, but both of those programs delivered low double-digit revenue rates at margins that are traditionally higher than the MaxiPARTS business. And once again, they have a number of periods to go in terms of future growth. And certainly, a significant program that was implemented was a redistribution of localized excess and slow stock throughout the MaxiPARTS network. That drove significant working capital improvements and cash returns. Those -- that program is sustainable, and it certainly didn't come at the expense of any service level impacts. As I said, Anu will go into the financials in more detail, but I guess just to touch on a couple. Certainly, nearly 13% of EPS accretion was extremely pleasing in a difficult period to end the year in a net cash position is extremely satisfying and sets us up as we move forward and to see the full year dividend distribution increase by over 55% on the prior year is certainly a successful period. With the next slide on Slide 5, what we did was look to just break down the last 3 financial years into halves to demonstrate the growth that we've seen across that period, certainly in the operating net profit before tax, the EBITDA and the EBITDA margin rates. You can see from these slides, we actually take some very strong momentum into the new financial year in terms of half 2 performance. And pleasingly, the confidence of the business and the Board, not only in what has been achieved, but what we expect to see and achieve in the coming period gave us confidence to not only -- gave us confidence to lift the distribution -- dividend distribution rates, which combined with the increased earnings, certainly drove that significant year-on-year increase in dividend distributions. So with that, I will hand over to Anu to talk through a little bit more detail about the financial performance.

Thanks, Pete. Peter, next slide, please. I'll take everyone through to the FY '26 financial results where the business has delivered profitable growth despite the short-term market contraction that we saw in March. So at a top line level, our revenue grew by 2.7%, taking our year-on-year growth to $7.3 million, which is a pleasing result given the growth has come from all segments, including Forch and our contribution from the Kalgoorlie site. Despite the market contraction, our EBITDA actually grew faster than revenue by 5.5% with margin expansion of 30 basis points to 10.5%. This margin improvement, it comes from a disciplined execution of our pricing strategy throughout the year and as well as managing the cost profile of the business, specifically in the second half of the year where there were tough economic conditions in March. The other factor that impacted our EBITDA growth is a favorable mix shift towards higher-margin growth areas and that included our Japanese product range and Forch. Pleasingly, these strategies have led to a direct flow-through of growth to the bottom line with operating net profit before tax of $14.2 million, which is 11.8% up on the prior year. Next slide, Peter. On our balance sheet, we have a really strong balance sheet that's supported by a net cash position of $7 million at year-end compared to a net debt of $7.2 million in the prior year. This is an improvement of $14.2 million. And the significant cash generation for the business, it comes from working capital strategies and our growth in operating earnings. From a working capital perspective, the year-on-year improvement is $4.6 million, which I'll talk to in the next slide, but it's largely driven by a lot of work that's been done in our network inventory optimization program as well as improving our supply chain management processes. Next slide. So this slide covers one of our key achievements in FY '26. So the chart tracks the monthly inventory value in the second half of the financial year from December '25 to June '26, which shows a consistent month-on-month decline of inventory with a total reduction of $9 million across the network purely in the second half. This gradual reduction came from internal improvements in the underlying systems and processes that enabled our staff to better manage inventory effectively. This primarily focused on reducing our excess and slow-moving inventory across the network. More importantly, our customer service metrics have been maintained throughout the period given that the changes that we have made in the business relate to underlying systems and process improvements. So we are confident that we have built a consistent operating discipline that is sustainable moving forward. Next slide. Our cash flow performance was a highlight of the year with continued strong cash generation from operations alongside record earnings. With the work done across our inventory network program and our working capital management, this translated to a cash conversion of 118%. If I look down towards the cash flow, we have also paid down further debt of $6 million during the year to our lender, and we have been supported by our lender with an improved fee structure and lower interest rates, which will help us manage our finance costs going forward. We also continue to maintain strong capital discipline and retain a capital-light business model where we have spent $1 million on CapEx in this financial year. Next slide, please. Underpinned by our strong cash flow generation and continued capital discipline, we have continued to progressively lift the dividend payout ratio from 40% of net profit after tax in the prior year to 50% payout ratio at the interim dividend and the final dividend at 60% of net profit after tax. We have declared a fully franked dividend of $0.0546 per share, which brings our total dividend for FY '26 to $0.0961 per share, and that represents a dividend yield of 6.7%. That's up 55% from the prior period. On debt funding, we have $11.5 million available for drawdown under our borrowing facility and our leverage is 0. This strong cash position gives us the flexibility to sustain higher dividend distributions as well as fund organic and inorganic growth initiatives. I'll pass it back to you, Pete.

Thanks, Anu. I appreciate the update. If we just jump together, jump forward a couple of slides. We did think it was important just to give a little bit of an update in terms of some executive team changes that have been recently implemented. So we think we have a really good mix of old and new and balance in the executive team at the moment. We just heard from Anu, who recently joined the business, but certainly comes with a very strong experienced background, both from KPMG services working in large top ASX-listed businesses and also in a private equity environment. And we also had Eddie Hanaphy join the business in June. So Eddie actually rejoins the business, very strong industry experience of 20-plus years and most recently was the General Manager of the Commercial Vehicle Group within the Bapcor business. So, the combination of old and new and the changes that recently happened, we certainly think provides a capability lift within the business to not only execute on our current business strategy, but certainly work out ways to accelerate that growth program as we move forward in future periods. If we jump to the outlook, which I certainly know is topical for everyone this time of year. Look, to think we're not operating in a market that continues to have a high level of uncertainty would be a little bit naive based off the broader global and national events and sentiment that exists. But despite that backdrop, we certainly do expect and anticipate driving further growth and financial improvements through FY '27 and beyond. Certainly, within FY '27, we have the benefit of a full year of normalized earnings -- operating results from the Kalgoorlie stores as well as further growth that comes through there as it matures. We've talked fairly heavily about both our Japanese parts program and Forch Australian business, but we do continue to expect to see both of those programs grow at low double-digit rates. And as mentioned, they certainly do come with a higher -- higher profit margin than the traditional core MaxiPARTS business, providing both top line growth, but also ongoing margin improvement. We do have a focus on growing market share through both customer wins, but we also anticipate implementing some further network expansion as we move through FY '27, and we'll continue to be focused on maintaining or maximizing our supply cost benefits, pricing discipline and cost base controls. As Anu outlined, we certainly do believe that the recent improvements that we've seen in working capital levels are sustainable as we move forward into the new year. So with where we leave in terms of that strong balance sheet as well as that ongoing future strong cash generation, we certainly anticipate continuing to increase capital distributions, but also further exploring and implementing projects, both of organic and inorganic nature to accelerate our financial growth and financial returns to shareholders. The pack does -- that is online does have a little bit more detail about both the MaxiPARTS segment and the Forch segment, but I think this is probably an appropriate time, Peter, to take any questions.

Thanks. We do have a few questions coming through. Congratulations on some really good set of numbers. There's increased percentages across all those metrics. One questioner congratulates you on the results and asks about the inventory optimization through the year. Do you think there is further room for improvement into the next year?

Look, everything's got room for improvement. But look, ultimately, we think a bulk of that improvement was achieved in half 2. So we would expect the ratios between inventory and working capital and revenue to now maintain moving forward. So obviously, as we do have further business growth, there will be some working capital investments, but it will be at the percentage rates that we finished the financial year at on a material level.

Thank you, Peter. And in terms of new stores and broadening your footprint, what is your view for the expansion of perhaps new stores over the coming year ahead?

Yes. Look, we are working through some active projects in terms of store expansion at the moment. Obviously, there are a few different factors that need to be worked through in terms of sites and leases and staffing, et cetera. So we -- at this point, we would expect to have a new store come online probably towards the end of half 1 due to the commercial sensitivity, I probably won't disclose exactly where that is, but we certainly do expect to see one towards the end of this half and potentially a second towards the end of the financial year, but certainly at least one through half 1. And we do think it's in a market that will allow us to generate maybe not exactly the financial returns we had from Kalgoorlie because that was a fairly exceptional performance, but we do see it as a quicker than normal payback market as we enter.

The Forch business has grown quite strongly, a great addition. And in a sector, the mining sector, which has got a lot of momentum and strong winds behind it. Can you give viewers or shareholders a bit of an outlook on your view of that business over the next few months?

Yes. Look, so it's a business that when we bought it was predominantly Western Australia with a very small footprint on the East Coast. So there certainly has been some investment and OpEx investment that we've needed to make to put the systems and structure and sales force in place on a national basis. But look, in terms of maturity, it's extremely mature. We're. Sitting at just over $23 million worth of revenue out of FY '26. The largest, most direct competitor in that high service workshop consumable space is north of $180 million. So we have been gaining share as we grow, we would expect to continue to see that as we move forward. The growth comes from both an expansion of sales areas through the sales team, but also a continued customer relationship benefit that we see with the MaxiPARTS business. So that's been fairly key in helping us secure some larger multisite customers in the Forch business by sharing that group relationship.