Redox Limited (RDX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Redox Limited Full Year 2026 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Raimond Coneliano, with CEO. Please go ahead.

Thank you. Good morning, and welcome to Redox Limited's FY '26 Full Year Results Briefing. I'm Raimond Coneliano, Redox's CEO and Managing Director, and I'm joined today by our Chief Financial Officer, Kim Yap. Moving to Slide 2. I will begin with the FY '26 highlights and discuss our sales performance. Kim will then take you through the financial results, after which I will return to cover our strategy and outlook. We will conclude with questions. Turning to Slide 4. Sales revenue increased 6.9% to a record $1.33 billion in FY '26. This was a good result in a generally subdued operating environment and was driven primarily by organic growth, supplemented by contributions from previously acquired businesses. Gross profit increased 11% to $298 million, supported by an improved product mix and strong growth in North America. Gross profit margin increased by 0.8 percentage points to 22.4%, again, demonstrating the resilience and breadth of our operating model. EBITDAFX increased 9.9% to $134 million, and our conversion margin remained highly competitive at 44.8%. Statutory NPAT increased 19.2% to $92 million. Pro forma basic earnings per share increased 19.2% to $0.175, while after-tax ROIC increased by 1.1 percentage points to 14.6%. The Board declared a final dividend of $0.065 per share, bringing total FY '26 dividends to $0.13 per share and representing a payout ratio of 74%, within our target range of 60% to 80%. Moving to Slide 5. Sales revenue increased 6.9% to $1.33 billion. This was driven primarily by organic growth, including fully integrated acquired businesses and a full 12-month contribution by Molekulis. As the chart demonstrates, Redox has consistently produced sustained long-term growth, achieving a 30-year revenue CAGR of 10.1%. We believe this validates our business model and broader strategy. Geopolitical volatility affected product availability, demand and replacement pricing during the year, particularly through the Middle East conflict and its broader macroeconomic and supply chain effects. Importantly, selling prices were broadly flat with FY '25, although they increased in the second half. Growth was therefore, primarily driven by volume and mix rather than inflation. Gross profit margin rose to 22.4%, supported by an improved product mix in APAC and a strengthening margin profile in North America. Turning to Slide 6. Australian sales increased 6.1% to $1.120 billion, supported by growth across several of our largest industry segments and a healthy contribution from Molekulis, which continues to build sales transformer oils to the energy generation and transmission sectors. We were particularly pleased with the momentum in our North American business. Revenue exceeded $100 million for the first time, increasing 33.8% on the prior corresponding period. This growth reflected new customer wins and increased share of wallet across the industrial, food, human health and personal care segments. We also broadened our product range, adding 47 new active products during the year and achieved further progress in the U.S., Southeast and Canada. Moving to Slide 7. This map demonstrates the breadth of our North American footprint. California remains our largest market, but we are now generating sales across most of the United States as well as in Canada and Mexico. We have people on the ground in Seattle, Portland, Los Angeles, Columbus, Dallas, Houston, Orlando and New Jersey, giving us a genuinely coast-to-coast presence. This growing local capability brings us closer to customers, improves our responsiveness and allows us to offer innovative solutions to their chemical and ingredient sourcing needs. The North American market is highly fragmented and truly enormous. The United States alone presents a potential addressable market measured in the hundreds of billions of dollars. As such, we believe there is considerable opportunity to greatly expand our presence across the continent. Kim will now take you through the financial results in more detail. Turning to Slide 8.

Thank you, Raimond, and good morning, everyone. Let's move straight to Slide 9. This slide sets out the key profit and loss measure for FY '26 compared to FY '25. Revenue increased 6.9% to a record $1.33 billion, with organic growth, particularly in North America, supplemented by contribution for Molekulis. Gross profit increased 11% to $298 million, while our underlying EBITDAFX increased 9.9% to $134 million. The underlying EBITDAFX margin increased by 0.3 percentage points to 10.1%. Underlying NPATFX increased 8.8% to $87 million. Pro forma basic earnings per share increased 19.2% to $0.175, reflecting the higher statutory profit and the company capital structure. ROIC increased by 1.1 percentage points to 14.6% as higher operating earnings more than offset the additional capital invested in acquisitions and working capital. Moving to Slide 10. Slide 10 provides further details on the revenue and gross profit by geography. Australian sales will represent more than 84% of the total revenue increased 6.1%. New Zealand sales declined 4% with a softer demand in Human Health segment while weighing on the results. North American revenue increased 33.8%, driven by expansion into new industry sectors, additional active products and further customer wins. Gross profit margin increased 0.8 percentage points to 22.4%. The improvement reflected product mix include a greater contribution from higher-margin activity in North America. Turning to Slide 11. Underlying operating expenses increased by $19 million to $176 million in FY '26, reflecting both higher activity levels and increased investment in our capabilities. Distribution and storage expenses increased by $6 million, principally due to higher sales volume, while fuel and transport costs also contributed. Administration expenses increased by $8 million due to additional headcount, wage growth and incentive payment. We continue to invest selectively in our workforce despite subdued market conditions because we believe this will support future growth, strengthen our capabilities. Other expenses increased by $5 million, primarily reflecting a $4 million movement in foreign exchange outcome on receipts. This was offset by the corresponding movement on payments, which reduced cost of goods sold. Despite these investments, our margin conversion remains highly competitive at 44.8%. Moving to Slide 12. Cash flow from operations increased by $40 million to $88 million. Cash before financing was $84 million compared with $59 million in FY '25. Free cash flow conversion improved by 21.8 percentage points to 62.5%, returning to our long-term range of 60% to 80%. This demonstrates that the improvement in earnings translated into strong cash generation while the business continued to grow. Turning to Slide 13. Net working capital was at $417 million at year-end. As a percentage of revenue, it improved by 1.3 percentage points to 31.4% and remain within our long-term range. Cash and cash equivalents, including short-term deposits were $123 million, and the group remained in a zero net debt position. This provides substantial capacity to fund organic growth and pursue strategic acquisitions, which meet our investment criteria. Moving to Slide 14. The Board has declared a final dividend in FY '26 of $0.065 per share, in line with the FY '25 final dividend. This brings total dividends of FY '26 to $0.13 per share, an increase of 4% on the prior year and represents a payout ratio of 74% of net PAT. We hit our target range of 60% to 80%. The record date is 26th of August 2026, and the final dividend will be paid on the 22nd September 2026. I will now pass back to Raimond to cover our strategies and outlook.

Turning to Slide 15. Thank you, Kim. The FY '26 results demonstrates that Redox remains in a very good shape, both operationally and financially. Moving to Slide 16. At Redox, our vision remains unchanged: to develop an enduring network of customers and suppliers that creates mutual value. We support that vision by providing quality, competitively priced raw materials for responsive personalized service. Today, Redox connects more than 8,700 active customers with more than 1,200 active suppliers across more than 5,500 SKUs and over 100 stock locations. This network is supported by our 494 team members and our internally developed Redebiz platform. Our long-term growth record reflects the strength of this model. While market conditions remain dynamic, our diversified platform, strong balance sheet, asset-light model and disciplined approach to acquisitions position us well for the future. Turning to Slide 17. Although market conditions remain subdued and geopolitical uncertainty continues, the chemical distribution sector remains highly attractive. Its fragmented structure, essential role in global supply chains and scope for consolidation provide meaningful opportunities for both organic growth and disciplined acquisitions. Redox is well positioned to capture those opportunities. We have strong commercial teams, proprietary systems, a robust balance sheet and a diversified business model spanning industries, products and geographies. We will continue investing in our people and product portfolio, expanding our North American platform and assessing acquisitions that meet our strategic and financial criteria. Thank you for your interest in Redox. Kim and I will now be pleased to take your questions.

[Operator Instructions] Your first question today is a phone question from Vignesh Nair with UBS.

First question, it looks like the backdrop of sort of supply chain stress and a real tailwind for the business, particularly over the 2H. I suppose I just want to get some further color on the durability of the gross margins you've delivered. You've got sort of 80 basis points of an uplift against FY '25 over FY '26 and particularly 180 basis points in the 2H versus the 1H. As I understand it, a lot of the benefits from the market disruption sort of should flow into 1H '27. But I just wanted to get some color on what style of gross margins investors can sort of expect into 1H '27 and maybe beyond as well.

Yes. Thanks for that question. You're right. I guess what you have to think about is the sort of volatility that we've experienced, particularly through the Middle East conflict. What that does is it increases the value of the service and the products that Redox provides because we're, in a way, helping our customers deal with that volatility. And I think they realize that and recognize that, and there's more value in those times. So naturally, we're rewarded for our ability to help them through those sort of problems. So yes, you're right. In the second half, there was some tailwinds from that. But you have to also recognize that there were products that were -- we'd like to have got more product out of the Middle East, obviously, or other partners who weren't able to supply. So it's not all upside. There is some downside there. And -- but we're very good at managing that and managing disruptions and volatility and our customers obviously reward us for that. And we consider going into FY '27, which is the second part of your question, what's our outlook. We think there's more inflation to come, more higher prices. Those higher replacement costs, which started somewhere in February, March, that will start being reflected into our selling prices coming into FY '27. Obviously, we'll do our best to help clients through, but we can't shield them from every price increase.

Okay. That's helpful. And the second question, I suppose, no real news incrementally on inorganic growth opportunities in the U.S. Is it possible to get some more color on opportunities you're exploring in the U.S. market at the moment? Is the size of sort of the targets kind of still in that USD 50 million to USD 100 million range, I think you've mentioned in the past? And maybe some color on indicative timing would be pretty helpful.

Yes. What do I say about watching a pot and never boils. Well, look, we are very hard at work. Our teams have been hard at work through the year on that pipeline. It's a good pipeline. I'm happy with it. Things have dropped out of that pipeline, quite frankly, things that we weren't happy with during the various processes. And that's part of doing this in a diligent way, in a careful way, a considered way, looking at the full strategic benefits they may offer. And we're very careful. We don't make any apologies for that. But look, -- we would have hoped to have one done by the end of the FY '26 financial year. I'm still confident we'll get one done this financial year. But let's see, you can't predict and you can't rush or prejudge these things. So we're very happy with the pipeline of opportunities are in the, let's say, USD 30 million, USD 40 million revenue, revenue up to over USD 100 million revenue. So we feel comfortable in that range that suits us. I think I've said before, Vignesh, we're not looking for transformational M&A. We're looking for bolt-on sort of size acquisitions around that 10% of our revenue, our current revenue, we'd be pretty comfortable with.

[Operator Instructions] Your next phone question is from Chenny Wang with Morgan Stanley.

I've got a few. Maybe just firstly, on that price dynamic. Can you unpack what you saw on that in the second half. You mentioned you increased half-on-half, but how meaningful was that? And yes, I guess just taking some cues from maybe some of your global peers, it does feel like in that June quarter, there were some pretty significant price spikes on the commodity side. But in your kind of commentary, it sounded much more subdued for you guys. So just kind of interested in getting more color there.

Yes. Thanks for the question. I think if you're looking at our peers overseas for comparisons, and I know I've had a look at their results, too, if you think about it, they're much closer to the origin of a lot of these products, let's say, in Europe for the Europeans or in the U.S. for the Americans. And so whereas here in Australia, it takes many months for us to ship the goods, let alone get them into our store and out to customers. So the effect is somewhat more lagged for an Australia and New Zealand predominant business. So I think that explains the difference in timing. What you've seen there from some of those peers internationally is they started feeling it much earlier than we have. I think it's safe to say Q4 was where it started being felt replacement costs that went up in February and Q1 and so forth started to be felt towards the end of Q4. So that's why I'm saying that it's certainly more of an FY '27 story, I imagine, than an FY '26 story. I think that's good because for Redox, we pass those costs along. And we've been able to do that quite effortlessly, and we'll continue to do so. It's that sort of business.

Got it. No, that's super helpful. And maybe just on that. And yes, I guess you have kind of mentioned that, look, there's more of that price inflation to come. And I'm sorry, Raimond, but I'm going to ask for a crystal ball here because when you kind of look at some of the global data, like that price inflation can get pretty large. So yes, like is there a ballpark figure that we should be thinking about at least kind of for the next 6 months, just so we don't get carried away?

Yes, I'd like you not to be carried away. Look, I think maybe let's just think about what's happened in the past, sort of past events and maybe that can help you. During the [ GFC ] or the run-up to the GFC, I think our products inflated by about 10%, 15% and deflated some portion of that afterwards. In COVID, that inflation was more like 15%, 20%. So a very strong event. We think it's somewhere more towards the GFC side of that ledger, but we're not sure yet. I mean it will take time and let's see. But could be in that range. But we're not making any firm predictions. It's too early to do that. Let's see how things unfold. It all depends on -- at the moment, we have 2 sort of broad baskets of products, products which are very directly inflating because of the direct effects of the Middle East conflict. We can think about petrochemicals in that bucket, plastics in that bucket, urea, some fertilizers, those things directly made in the Middle East or very reliant on oil for their actual makeup. And then you can think about another basket, which just is collateral damage in things because it has the higher freight cost or the higher transport costs or higher wage costs or all the things that are coming as a macro effect of the Middle East inflation effect. So in those 2 buckets, some things are meeting very high demand and some things are meeting very low demand. So it's just to say that it's not an easy number to pull out, but it's certainly there. It's certainly a real thing, and I appreciate everyone wants to know exactly how much. I'd love to have that crystal ball too. But I think looking at the past, you can see 10%, 15% wouldn't be outrageous, but it really depends on how long things go on. And it also depends on the demand side. Higher prices will act to push down demand for some customers in some industries, and it's quite hard to always predict that. But until now, customers are pretty -- the economy is doing okay. It's not doing great, but it's going along with that.

Yes. Got it. That's super helpful. And maybe given that you kind of touched on that demand side, and maybe you've already answered this question, so my apologies. But I was just hoping to get some color on ordering patterns over the half. Obviously, when the Middle East conflict broke out, it felt like maybe a bit of similar reaction to when the tariffs were announced last year in terms of that kind of shock. But just maybe some color on that -- those ordering patterns over the half. And as those price increases have started to flow through here in Australia, how those ordering patterns look now?

I understand the question. I guess immediately when the war broke out, there was -- we had a lot of -- we're lucky we have a lot of good stock positions around the company. So certainly, a lot of customers were very keen to get a hold of that stock. And so orders did increase pretty rapidly as it was clear what was unfolding. So they sort of flew up a bit and have come back down a little bit now. But they're still healthy, still representing 4.5-odd months of forward sales. So very comfortable where they are right now.

Got it. And then sorry, just one last one for me. Can you guys help us understand the FX impact in the second half on Redox? It sounds like there's going to be some sales headwind given the translation. But I think in your presentation or prepared remarks, you also called out some COGS benefit. So yes, just wanted to understand that better given the strength of the Aussie.

Yes. Well, I mean, it really depends on whether it's a U.S. dollar strength on its own against the basket of currencies or it's an Aussie dollar strength story. And so if, for instance, it's a story of the Aussie dollar outperforming all currencies, then you will see prices for our goods fall quite a lot. If it's just a U.S. dollar weakness, then you might not see much effect because our suppliers will increase their prices in U.S. dollars in order to receive the same sort of money in their local currencies. So I think that's pretty clear. You can't control the FX effect. So we don't spend a lot of time worrying about them. I know you have a model there, you're trying to furiously put together. The effect on -- that's called out on one of the slides there is really -- you have to kind of deep dive into it. It's the effect of when we sell U.S. dollar amounts in Australia, sell goods in U.S. dollars in Australia, the difference between the point at which we make those sales and receive payment for those sales. And then there's an equal and opposite movement when we pay our suppliers, when we receive our goods and we pay our suppliers. And so there's an accounting thing there, which offsets each other. So it's really not much of an important effect to really in the scheme of things, but it has to go on that slide, compliance to your local accounting standards bureau, I guess.

The next question comes from James Tracey with Blue Ocean Equities.

When we spoke last 6 months ago, I guess there was a bit of concern about low sort of deflation in the Chinese prices of a basket of chemicals. It appears as though that's changed a little bit with the disruption from Iran. Could you just give a bit of color on how that's evolved through the half and what your expectations are based on conversations with suppliers around, I guess, the local currency pricing for a lot of your inputs?

Yes. Thanks for the question. I guess for really the last 25 years, financial years, prices have been flat. They've not deflated. They've just been flat for that whole time. So 2.5 financial years being flat is a long time. And so it was due to some inflation and the trigger I thought was going to be more of an economic recovery and a bit more vitality in end markets. But as it turns out, really, it was a supply shock in the Middle East because of the conflict. So yes, that's the story till now. I think everyone is very keen to understand the future, and I understand why. But some products are meeting lower demand, a subdued demand environment and some are very short and hard to get a hold of. The Chinese have put in place some export controls in China to protect their fertilizer market. For instance, that has impacted the amount of nitrogen fertilizers we can source out of China, and we have to make other arrangements. So there are some swings and roundabouts and that changes week-to-week depending on policy. Yes. But prices going forward, we don't know. All we can say is the replacement costs, which started increasing as the war sort of took off are being recognized in our selling prices now in Q4 and going into the new financial year.

Okay. And just a follow-up to that because it sounds like some of the things other companies have been talking about we'll be able to see those in the first half for you with that 10% to 15% pricing that you sort of indicated. What do you anticipate the volume response would be to higher prices? Or is it relatively inelastic demand, so it won't have a massive impact.

It's really hard to tell. And all I can say is our order book is strong. And so that doesn't signal any material change in demand. And of course, we're talking about demand as if it's we've got the whole market. But actually, our market is huge, right? Our addressable market in the U.S. is hundreds of billions of dollars in Australia is $40 billion or thereabouts. So we're always trying to take market share from our competition. And so while demand can ebb and flow, really, our business is built around taking market share. So whether the market is going to grow 0.5% or 1% or 2% or 10%, it's sort of -- yes, it's important, but we can't forecast that very easily. And most of our business is taking market share from competition. So it's only so useful to us.

There are no further questions on the phone line at this time. I'll now hand back over.