MOVE Logistics Group Limited (MOV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the MOVE Logistics Group FY '26 Results Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Paul Millward, CEO. Please go ahead.

Hello, everyone, and thank you for joining us. I'm Paul Millward, CEO of MOVE. And with me is Lee Banks, our CFO. Today, we will talk through our performance and results for FY '26 and the progress we're making on our new Horizons 4-year road map. We'll be happy to take your questions at the end of the presentation. Two years ago, we set out to reshape MOVE into a stronger, more resilient business. FY '26, the evidence of our strategy is delivering. We delivered on our commitment to return to positive normalized earnings and also reported positive free cash flow and a return to profit after tax. All our businesses delivered improvements with profitable earnings from 3 of the 4 businesses. Warehousing, however, continues to perform below our expectations, and I'll talk to the actions we are taking there in more detail shortly. The last 2 years were all about resetting the business. We are now firmly focused on the step-up phase of our road map with the primary goals being customer value, operational excellence, alongside smart profitable business growth. we still have a lot of work to do, but we're making good progress. Looking at our top line financials. Revenue increased slightly despite the subdued trading conditions. This was pleasing to see and driven from a stronger second half. Importantly, we delivered an 11.6% improvement in normalized earnings and a return to profit. This is a significant milestone and demonstrates that the actions taken over the past 2 years are working. Gross margin dollars and percentage also continued to improve, reflecting better pricing discipline, productivity improvements and operating leverage from significant cost-out initiatives over the last 2 years. These gains have been achieved while maintaining the capability and network coverage were required to be a scale player. Free cash flow is an important focus, and this has improved to $6.3 million, with net debt reducing almost 40% year-on-year. Lee will talk to the financials in more detail shortly. In August last year, we introduced our 4-year new horizons road map. To recap briefly, this sets out our pathway to FY '28 as we reset step up and then stand out. We have clear goals in place and our focus is firmly on achieving these and becoming the preferred logistics provider and New Zealand. The reset phase of our road map is now complete. We have simplified the business, significantly reduced costs, strengthen the balance sheet, optimize our network, improve productivity and embedded greater commercial discipline across the organization. Today MOVE is a leaner, more capable and focused organization with a cost base and network better aligned to market conditions. The frac logistics sector long being recognized as a leading indicator for the broader economy. When activity is down, fewer goods need to be moved around the country. Conversely, as confidence returns, Freight is often 1 of the first sectors to recover. This was the environment we operated in throughout FY '26. Initial momentum earlier in the year was then tempered by significant global uncertainty towards year-end. Customer demand remained inconsistent and competition for available work remained intense. Across much of the industry, pricing pressure continued as operators competed for lower freight and warehousing volumes. Higher fuel prices in H2 impacted demand in certain sectors, such as hospitality and FMCG. And obviously, in the fuel sector directly at Kiri had less disposable income in their profits. Against that backdrop, delivering positive normalized earnings represents an important achievement. It does demonstrate that the structural changes we've made over the past 2 years are delivering tangible benefits. Book snapshot of our results by division. MOVE operates 4 businesses with 3 of the 4 businesses growing top line, whilst all our businesses improved their normalized earnings performance compared with the prior year. This reflects stronger execution and better commercial discipline. The successful frac turnaround has resulted in growing revenue, translating into positive earnings. Customer relationships have been strengthened and disciplined cost management and operational improvements have driven increased profitability. Freight still remains sensitive to economic conditions, but the business is now significantly better positioned than it was 2 years ago. Our fuel partnership with Zed Energy continues to perform well, and we have a close working relationship with them. One initiative we have coming up in the first half of FY '27 as the launch of a new customer portal. This will provide our customers with greater visibility, reduce incoming inquiries and make MOVE easier to business with. We're also moving all of our businesses to a single data platform resulting in higher quality and more timely operational data to drive better business in source and support stronger operational decisions in a more timely manner. Warehousing is an important part of our MTM supply chain with meeting key customers also utilizing freight services. However, its current performance is well below our expectations. The sector has changed dramatically in recent years. During Page, there was a massive investment in domestic warehousing as international supply chains opened up again, demand reduced leaving significant fixed capacity. In addition, customers have reduced their stock holdings in response to lower consumer demand and move back to just in time models, all taking Warehousing in-house. Signing up to a new warehousing contract as a big business decision and takes time, I mean, currently, it's a buyer's market. Our focus is on providing customer value through our expert team strategic locations and access to our freight network. Our team has done a good job of managing costs and improving productivity, although there is still significant cost pressure from some legacy leases, particularly in Auckland and Christchurch. We have a clear plan in priorities in place. Rebuilding revenue remains the absolute priority. We need to improve utilization through expanding and diversifying our customer base to strengthen profitability. Earnings growth will come from a continued focus on site productivity alongside disciplined pricing, but most importantly, revenue. We've made some changes in some key sites to gain certifications to broaden who we can target and the team is very focused to win new business. This was the strongest result from specialist in 3 years. It is a very project-focused business and a lighter first half year was offset by a stronger second half as the number of larger projects commenced. And while some project timing does remain subject to customer delays, the pipeline of work remains encouraging, and reinforces our strong position in specialized transport and lifting. Specialists will move to a new improved site this calendar year. The International division delivered a material year-on-year earnings uplift with the Ocean Shipping service now delivering consistent profitability. Our freight forwarding and agency businesses are also well positioned to benefit as international trade and investment activity strengthens. I'll now hand over to Lee to talk about financial results.

Thank you. As Paul mentioned, weak market conditions continue to affect customer activity and demand, so we were pleased to report a modest increase in revenue. Normalized earnings before tax returned to a positive result of $1.6 million and profit after tax improved by $15.7 million year-on-year. Operating cash flow strengthened, free cash flow increased, and net debt reduced to $10.4 million. Return on invested capital increased to 10.6%, reflecting stronger underlying performance. Gross margin dollars and percentage both reached their highest levels in 3 years. This reflects better pricing discipline, productivity gains and a more efficient cost base. Pleasingly, these gains were achieved despite cost inflation pressure in the second half. The year had 2 distinct halves with margin expansion in the first half as the economy and volume strengthened followed by pressure in the second half from cost inflation linked to the Middle East conflict. We have seen competitors taking market share at what we view as unsustainable pricing, and we are being very disciplined around pricing and ensuring acceptable margins. The reset phase and cost-out program have made the business more scalable, positioning us to benefit as demand returns. The cost focus transformation program was completed in FY '25 with structural savings now embedded. Total expenses for FY '26 remained broadly in line with the prior year, despite inflationary pressure and higher activity levels. Approximately 75% of our lease portfolio is property, with the remainder being sleep. While the vast majority of property leases are competitive, we had some legacy issues, particularly in Auckland and Christchurch, which are putting pressure on costs. In the last year, we successfully exited 2 leases and reshaped a few others. Transport costs increased as we continue to transition towards an owner-driver model alongside higher fuel prices. This was offset by lower people costs. Trading costs also increased year-on-year, driven by growth in our shipping services. Normalized earnings before tax has increased by $27 million over the 2 years since we launched the new Horizons road map, delivering $1.6 million in FY '26. This result was supported by profitable earnings from 3 of those 4 business divisions, embedded structural savings and stronger operating execution. Our focus on cash generation continued to deliver results during the year. Operating cash flow increased by $7.3 million. Free cash flow improved by $4.2 million to $6.3 million and net debt reduced by $6.3 million. These outcomes reflect disciplined working capital management, cost control and the disposal of surplus assets. During the year, we extended our ANZ facility through to August 2027, and agreed a new BNZ invoice finance facility, which is expected to reduce ongoing finance costs and support working capital efficiency. Net debt was $10.4 million, supported in part by the sale of surplus assets alongside higher earnings leverage improved to 1.02x. The group also has an unrecognized deferred tax asset of $15.6 million, providing potential future value as earnings recover. Return on invested capital increased to 10.6%, a significant improvement on prior years. Thank you. And I'll now hand you back to Paul.

Thanks, Lee. The recent phase of our strategy has fundamentally reshaped move, and we are now a materially stronger business than we were 2 years ago. While we are encouraged by the progress we've made, we're clear we still have work to do. Our focus has now shifted from structural change to value creation. While there are some signs that economic conditions are beginning to improve, the pace and timing of recovery remain uncertain. The price of fuel, which is highly volatile is creating pressure on demand in certain sectors. Therefore, we are focusing on those things we can control to drive our performance. We have a clear plan in place for this year. Growing revenue is a key focus. We have good operating leverage with limited incremental overhead required to scale. So increased revenue should translate into higher margin earnings. Warehouse is a critical priority where we need to build revenue and utilize excess capacity. The freight turnaround program has delivered good improvement and the focus is now on strengthening our core business, particularly efficiency and utilization given the cost pressures we are seeing. Our goals are to deliver increased positive normalized earnings, positive cash flow and a stronger balance sheet. We operate a diversified logistics business with national scale, long-standing customer relationships and deep connections across a broad range of central industries. Our market position does provide opportunities to grow as demand returns. Ultimately, our success depends on the success of our customers. Our priority is on being a trusted partner understanding what matters to them and consistently delivering the service expertise and responsiveness that make their businesses efficient and effective. Before we take questions, I have 2 acknowledgments. Firstly, to MOVE's Founder and Former Managing Director, Kim Ramzi, who passed away this year. Jim was passionate around the industry in this business and it is the real legacy, which will live on. Secondly, I want to acknowledge our team across New Zealand. The progress we have made wouldn't have been possible without their efforts and a lot of great work, particularly in a challenging market. I'd also like to thank our customers for their ongoing support and of course, our shareholders. Thank you for listening. We're happy to take any questions. Over to you, operator.