RPM Automotive Group Limited (RPM) Earnings Call Transcript & Summary

Welcome to the RPM Automotive Group Limited's FY '25 Investor Presentation. My name is Daniel Ireland from DataIR, and I will be hosting the call today. I will introduce Clive Finkelstein, CEO and Managing Director; and Rebecca Payne, CFO of RPM Automotive Group. We will be recording the webinar today. [Operator Instructions] Clive, I will hand it over to you to begin the presentation.

Thank you, Daniel, and welcome to the FY '25 RPM Automotive Group Financial Results Presentation. For your quick reference, here is the agenda. I will provide an overview of the company and its performance, followed by a detailed account of the results presented by Rebecca. I will then discuss our current strategic initiatives as well as the company's outlook. And finally, there will be time for Q&A. So, let's talk about RPM. In summary, RPM Automotive Group is a leading provider of wheels, tires, accessories and apparel to both wholesale and retail customers across B2B commercial, industrial, fleet and consumer markets. Since listing over 6 years ago, we have grown both revenue and EBITDA through steady, strategic and consistent performance. Our focus is on cross-selling and expanding product ranges to drive greater economies of scale with margin growth. Operating within highly fragmented markets, we see significant opportunities to expand across all 4 of our divisions. Our core belief centers on offering our customers excellent service through our team of specialists in their fields, representing reputable brands and providing the highest quality products and services. Here is a breakdown of the 4 divisions. Repairs & Roadside, our tire retail division focusing on B2B and B2Fleet customers; Motorsport, where we continue to be the market leader in soft or safety parts; Performance & Accessories, focusing on fleet and OEM business; and Wheels & Tires, our wholesale tire division and the backbone of our organization. As you can see, the divisions are segmented into both retail and wholesale and their various revenue percentage contribution is highlighted. Looking ahead, we see significant opportunities to expand into new market segments while continuing to grow and strengthen each division. Our Board and executive team bring extensive experience across automotive, financial and industrial sectors. Their leadership drives strong governance, strategic growth and responsible decision-making. At this point, I'd like to officially welcome our newest Board member, Kevin Berkowitz. Kevin is a highly accomplished businessman with a proven record in building and scaling successful enterprises. This slide introduces our executive leadership team. They work tirelessly, and we are proud of their achievements. We look forward to their continued contribution to the company's growth and success. FY '25 financial highlights. In FY '25, our reported revenue decreased 5% compared to the prior corresponding period, reflecting the discontinued operation or disposal of a noncore business in the first half of the financial year. Despite the reported revenue decline, gross profit was in line with FY '24 at $40 million, reflecting the focus on chasing better and more profitable business while demonstrating the resilience of our operations. Gross margin improved to 36%, up from 34%, highlighting our progress in driving efficiency and margin expansion. Pleasingly, EBITDA grew 4% to $13 million in line with the top end of guidance provided, supported by strong operational execution with the EBITDA margin increasing to 12%, up from 11% in the prior year. Net profit before tax was $6 million, underscoring our ability to deliver solid operational performance as we position the business for further organic growth in the coming financial year. On this slide, we provide more detail to what we discussed on the previous one. Given our investment and implementation of new strategic initiatives and some of the headwinds we have experienced in the retail sector, we are happy with the overall performance of the group and look forward to continued improvements over the coming 12 months. Strategic Update & Industry. Our vision for the business is to deliver excellence through quality service and trusted brands in the automotive market. We are committed to doing this by providing best-in-class range of products and delivering service excellence, which results in an outstanding customer experience. By executing on our 5 strategic goals, we are confident that we will achieve our ultimate objective, which is to be the market leader in auto services and to provide attractive consistent returns to our investors. On this slide, we outlined how we are tracking on each of our strategic goals, becoming a leading auto services business by continually building brand equity and driving market share gains, focused on scaling a national network by leveraging our scale and nationwide infrastructure to capture greater share of wallet with our customers. Deliver first-class solutions for our retail clients. This is achieved by focusing on our clients' essential requirements and providing both product and service solutions. Controlled focus on operating expenses. We are focused on controlling our operational cost spend. This is evidenced by the EBITDA margin improvement we achieved during FY '25. Build scale through adjacent growth plays. Our key adjacent growth play is the introduction of tire recycling to our tire vertical model. This places us in a unique position in the market and highlights our focus on growing return on capital. This slide examines the total addressable market for the tire industry. We are well positioned to capitalize here. We have already invested not only in infrastructure but in highly qualified people. The key points I'd like to highlight are; the tire industry is experiencing a once-in-a-generation consolidation, our competitive advantage lies in our unique ability to both supply new and collect end-of-life tires employing reverse logistics, offering unmatched service in the industry and enabling us to capture previously unattainable margins. We hold less than 5% market share in an industry that consumes 563,000 tonnes of tires annually. As you can see, there is substantial growth potential ahead and success will come from effective implementation. Financial snapshot & segment summary. This slide presents RPM's historical key financial metrics. We have demonstrated both revenue and gross profit growth over a 6-year period. That said, we are now far more disciplined in the sales that we chase, focusing more on the gross profit than the top line turnover. We have achieved both gross and EBITDA margin improvement since FY '23 with gross margin moving from 32% to 36% and EBITDA margin increasing from 9% to 11.6% over the 2-year period. As you can see, with a number of new strategic initiatives being introduced throughout the course of FY '25, we were still able to maintain operational profitability. On this slide, we summarize the historical divisional performances. Repairs & Roadside, our retail tire division faced a challenging year, driven by a softer industry and economic conditions. While performance did not meet expectation, we remain confident in its long-term prospects. Motorsport; Motorsport continued to deliver strong performances underpinned by margin expansion and market-leading brands. Wheels & Tires; our wholesale tire division generally traded well throughout the year, meeting expectations and contributing steadily to the overall group performance. We expect further improvements given our investment and medium-term organic growth strategy. Performance & Accessories; this division had an exceptional year and remains the most profitable segment within the group. Strong demand and disciplined cost management contributed to its outstanding performance. I will now hand over to Rebecca to go through the financial review.

Thank you, Clive. In FY '25, total revenue declined 0.9% to $119.9 million versus $121 million PCP. Like-for-like revenue increased 1.5% to $116.9 million versus $115.2 million PCP, which was pleasing. This removes the AFT automotive contribution that was recognized in FY '24. Reported revenue declined 5.2%, which was lower due to the aforementioned business sale. Gross profit was in line with FY '24 at $40.4 million. However, with GP margin increasing from 34.1% to 36%. Personnel costs increased 1.3% to $19.8 million versus $19.5 million PCP. However, these costs improved on half year with half 1 at 17.8% of revenue and half 2 at 15.2% of revenue. Adjusted EBITDA increased 3.9% to $13 million versus $12.5 million PCP. And adjusted EBITDA margin increased to 11.6% versus 10.6%, a 101-basis points improvement. Finance charges were up 46.1% to $2.8 million versus $1.9 million, partially due to the paying out of the convertible note, and this is a one-off expense, and it will not be repeated in FY '26. Adjusted NPAT increased to $4.6 million versus $4.5 million PCP, an increase of 3% during the financial year. Adjusted EPS decreased to $0.0176 versus $0.0222 PCP due to the share count increasing. This was associated with the deferred acquisition earn-out. Now on the balance sheet. The ending cash position was up 7.6% to $6.8 million versus $6.3 million PCP. Receivables were down $4.8 million to $17 million versus $21.8 million PCP, partly attributable to the improving receivables collection, which was a positive for the group. Inventories increased $1.6 million, up 6.4% in FY '24. Payables reduced $5.4 million during FY '25. This is partly due to improving supplier payments. Property, plant and equipment increased $2.9 million, attributable to the additional vehicles and investments made in the newly established tire recycling plant. Net debt as at 30th of June was $27 million versus $25.7 million PCP. Gearing remains well within banking covenants with ample funding to cover working capital requirements and organic CapEx. Please note that the impact of the discontinued operation is felt across multiple entries in the balance sheet. Moving to the cash flow. Operating cash flow declined to $6.5 million due to an increase in working capital and one-off non-recurring payments. CapEx of $2.9 million attributable to the tire recycling facility investment in Stage 1, acquisition costs of $1.4 million related to deferred earn-out payments and lease payments of $3.8 million. Cash flow is a key consideration for the Board, we're determinant on how capital is deployed in FY '26. Selling of non-core assets is a current consideration. However, divestment opportunities will only be considered if immediately accretive to shareholder value. The strategic approach aims to extract value and profitability from existing operations, improving operational cash generation and building stronger free cash flow. Okay. Now I'll hand it over to Clive to take you through the remainder of the presentation.

Thanks, Beck. I will now provide an update on how our new tire recycling program is performing. Currently, we are running at about 60% of anticipated first year capacity, processing more than 180 tonnes of rubber per week with scope to increase to 300 tonnes per week. We are focusing on scaling the operation through a number of initiatives over the course of this financial year. We have key targets set for this year and are progressing well towards achieving them. We are streamlining and improving production, processing and logistics efficiency. This involves integrating tire recycling with our wholesale tire business to provide our customers with a complete and unique solution, servicing existing and new clients from delivery through to collection. For a new kid on the block, we are extremely proud of our certifications, accreditations and permits we have been awarded, including ISO, which places us in pole position to win more local council and national tenders. We will provide further operational and performance updates on the tire recycling facility at the AGM. Outlook. Looking ahead, we have made a solid start to FY '26, an improvement on last year. We have an organic growth focus for FY '26. We expect further improvements to the balance sheet through the reduction of gearing levels and the possible divestment of noncore business units. Our new strategic approach aims to extract greater value and profitability from our existing operations, improving operational cash generation and building stronger free cash flow. With a solid financial base, RPM is well positioned to amend its capital management framework. The Board and management are considering its options to delivering shareholder value. We will provide full operational and financial performance updates at our AGM. I'd like to take this opportunity to thank all the stakeholders in RPM, our staff for their effort and our customers and shareholders for their ongoing support. That concludes the presentation. I'll now hand over to Daniel for Q&A.

Thank you, Clive. I'll now go to the Q&A. So, our first question is, can you provide more information on the discontinued operation?

I'll take that one. Impacted by a lack of spending on luxury items by consumers, we had a business that was losing money. Over an extended period, we actioned a recovery plan, which in truth was unsuccessful. And as a Board, we took a view that although the short-term negative impact would be significant; in the long term, it was definitely better for the business. The decision allowed us to focus our resources on other areas of the business, which have and will continue to provide stronger returns.

Okay. We have another question. Can you provide an indication of approximate [ scale ] in business CapEx levels?

[ Stay ] in business CapEx levels.

Maintenance CapEx. Yes.

It's a very good question. Beck, do you want to try and answer [indiscernible]?

So, I do know that we are at the process with our budgets, reviewing all of the individual locations and their requirements for there. I don't have a number that I have off the top of my head for that, but all of the different items and things are being reviewed. But I don't see it being a considerable outflow of cash during this financial year.

Yes.

There are no major investments that have been forecasted for this financial year.

Yes. In terms of the major initiatives, can you expand on that in terms of what are the initiatives that you're looking at going forward?

We have 3 key focuses for growth for this year. The first one is tire recycling, which opens up an entirely new revenue stream for the group, giving us the ability to better service existing customers and win new business. The second is a 6-point plan to grow revenue, margin and profitability in our wholesale business. And the third one is a more focused approach to chasing and winning fleet and national contracts given the success that we've achieved thus far. None of these require major investment. So, we anticipate seeing real benefits to them in the short to medium term.