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

Hello, and welcome to the H1 FY '26 presentation for RPM Automotive. My name is Daniel Ireland from Data IR, and I will be the host of the call today. We have Clive Finkelstein, CEO; and Rebecca Payne, CFO, who will take you through the call. There is a Q&A function at the bottom of your screen, so please write questions in that and they will be read out at the end of the presentation. I will now hand it over to Clive.

Thank you, Daniel, and welcome to the FY '26 RPM Automotive Group half year 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 summary accounts of the mid-year 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. Let's talk about RPM. For those of you that don't know, RPM Automotive Group is a leading provider of wheels, tyres, accessories, and apparel to both wholesale and retail customers across B2B commercial, industrial fleet, and consumer markets. More recently, we have introduced a tyre recycling program and have established a tyre recycling plant that has been operational in Victoria for almost 1 year. Our core belief centers on offering our customers excellent service through our team of specialists in the field, representing reputable brands and providing the highest quality products and services. Here is the breakdown of our 4 divisions. Repairs and Roadside, our Tyre Retail division focuses on B2B and B2 fleet customers; Motorsport, where we continue to be the market leader in soft or safety racing gear; Performance and accessories, focusing on fleet and OEM business; and wheels and tyres, our tyre wholesale division and the backbone of our organization. As you can see, the divisions are segmented into both retail and wholesale and their respective 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. Moving to Slide 6. 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. 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 future success. Financial highlights. In the first half of FY '26, our reported revenue decreased 11% to $54 million compared to the prior corresponding period, reflecting the softening demand, specifically in the tyre wholesale business. As a result of the reported revenue decline, gross profit was down 12% to $19 million. Gross profit margin remained stable as we continue to focus on chasing better, more profitable business. Reported EBITDA grew by 8% with EBITDA margin also increasing slightly on PCP. The net profit before tax was a negative $1.1 million as a direct flow-through from the reduced top line revenue. Financial highlights continued. On this slide, we provide more detail to what we discussed on the previous one. RPM remains within banking covenants with the necessary funding to cover working capital requirements and further organic growth. The return on investment from tyre recycling and our other new strategic initiatives have been slower than expected. However, we remain committed to unlocking their value in the medium to long-term. Industry. This slide examines the total addressable market for the tyre industry. We are well positioned to capitalize here, having already invested in not only infrastructure, but in highly qualified people. Financial snapshot and segment summary. This slide presents RPM's historical key financial metrics. We have demonstrated resilient growth in both revenue and gross profit over a 6-year period. We are now far more disciplined in the sales that we chase, focusing more on the gross profit than the top line turnover. That said, we are less than satisfied with our half year results, but understand the variables and parameters that have -- and have already begun addressing these issues with our traditional business. On this slide, we summarize divisional revenue. Repairs and Roadside, our Retail Tyre division faced a challenging period, driven by softer industry and economic conditions. While performance did not meet expectation, we remain confident in its medium- to long-term prospects. Motorsport. Motorsport continues to deliver strong performances, underpinned by margin expansion and market-leading brands. Wheels and Tyres. Our wholesale Tyre division suffered the most from softer demand, particularly in Victoria. Given our investment and medium-term organic growth strategy, we expect to see real improvements in the second half. Performance & Accessories. Revenue was down during the period. This was primarily due to the sale of an underperforming division -- business during the first half of FY '25, coupled with the delays in delivery of a fleet contract during this period. I will now hand over to Rebecca to go through the financial review.

Thank you, Clive. Good morning, everyone. Reported revenue declined at negative 10.9% or $6.5 million to $53.5 million versus $60 million PCP. Gross profit was $18.5 million, reflecting a slight decrease in GP margin from 34.8% to 34.5%. Operating expenses increased $1.7 million to $17.2 million versus PCP. Reported EBITDA increased 8% to $2.5 million versus PCP. Reported EBITDA margin increased 80 basis points to 4.7% versus PCP. Net profit before tax was negative $1.1 million, down from the $1.7 million PCP, primarily due to the lower revenue leading to lower gross margin flowing through to the bottom line. EPS decreased to negative $0.006 versus a negative $0.0048 PCP. Equity increased $1.7 million to $56.6 million versus PCP. Net debt remains moderate at $28 million versus $25.2 million PCP. Okay. I'll now hand it over to Clive to take you through the remainder of the presentation.

Thanks, Bec. Let's move to the outlook. Looking ahead, stabilizing divisional profitability is a focus in the second half of FY '26, particularly in wholesale and retail tyres. Management continues to focus on improving cash generation and building stronger free cash flow whilst reducing gearing levels. The group continues to pursue ways to unlock value across all divisions, but particularly the tyre business. Given the macroeconomic conditions and the changes made in the first half, we anticipate an improved result in the second half. The divestment of noncore assets remains a Board priority with strategic options currently under review. Active investments in new strategic imperatives continue to unlock growth and opportunities in the medium to long-term, specifically with our forward integration of collections and recycling of tyres as well as the expansion of our geographic platform and product range offerings. We can now take questions or move to the Q&A component of this.

Thanks. So we've got a couple of questions here. So the first question we have is from [ Joel Silva ]. Which assets are considered noncore assets that you are considering to divest?

So we have a number of businesses that either work -- that work in conjunction with each other, and we have a couple of businesses that effectively sit outside of that. The noncore would be considered those businesses that don't have a forward or reverse integration to the rest of the company. And those businesses, we've been looking at various ways to either divest or unlock other opportunities in them in order to improve the group as a whole.

We have another question from Joel. How has the business traded in January and February?

So traditionally, December and January are 2 of our poorest months. So January was a difficult month, purely based on number of days trading and industry shutdowns effectively. But February, we have seen a nice recovery and is basically in line with last year's turnover numbers. I can't give you more detail on February, unfortunately, but yes, we have seen some improvement there.

We have another question. What is the CapEx expectations for the second half?

At this stage, very low, meaning we don't see any major investments at this juncture. The only investments that we'd look at would be to improve operations. There are certain small investments that we need to make in the tyre recycling to progress that program further. But from an asset purchasing point of view or major CapEx, we don't have anything specific for the second half. I would also like to just discuss revenue and revenue growth because, realistically, our single biggest issue here was that our revenue dropped substantially. I can say that our long-term strategy doesn't change based on a poor result. We understand what's happened in the industry. There has been a downturn. It has affected us from a sales point of view, and that flow-through has affected our results, obviously. We have a whole bunch of new programs in place, specifically in our wholesale operation, which is the one that was affected the worst. We've entered the agricultural space. We've spent money in investing in agricultural product, and we see that as a substantial component to our future growth as well as what we call off-highway tyres. We've invested significantly in that since probably September. And at this stage, we haven't seen any return on investment, but we will no doubt be seeing that come through towards the end of this half as well as into the future. From our retail tyres point of view, we chase major contracts all the time. We've got some reasonably good contracts that have come online over the last 2 or 3 months. And those will definitely impact our revenue results at the full year. And finally, our Performance and Accessories division, a major component of their results is a delay in the delivery of a fleet contract. This was purely due to the availability of vehicles. Those vehicles will no doubt be available through the second half, and we will see a major improvement there as a result. So we expect that to be a simple timing issue.

We have a following question from [ Lachlan Walden ]. Can you please provide an update on the Yokohama agreement and the SaaS revenue from the WHG partnership announced 2 years ago?

It's a very good question, Lachlan. Both of those have been pretty disappointing, to be quite frank. We still have a partnership agreements with both companies. And the WHG one is a very slow burn that seems to be taking a long, long time to see some sort of a return. As far as Yokohama is concerned, there have been quite a number of changes at Yokohama. And as a result, even though we still have a partnership, the intention or the expectation of where that would take us has not really materialized as well as we expected. So realistically, both programs that we anticipated being fairly lucrative have not come to fruition. I do have another question that I'd like to answer, and that is on our inventory management. We have a target goal to get to 3.5 stock turns per annum. That goal is purely based on how difficult it is to get product as well as making sure that we don't run out of stock and can't supply our customers. So the number is somewhere between $24 million and $28 million. But realistically, it's more a ratio that we work on to ensure that we have -- we can turn our stock effectively based also on the credit that we get from our suppliers and also the time it takes for us to collect our debt.

We have another question from Lachlan. Can you talk through the tyre recycling initiative and whether it's meeting expectations? Can initial profit margins for recycling still be met?

So I'll put up my hand here and say that I misread a few things. My intention was to go step-by-step in tyre recycling and monetize at each stage. We're finding it quite difficult to do that at the Stage 1 because of the value of the produced output. This is why we have decided to continue our move forward in that with regards to moving to a final processing plan. And however, the CapEx is minimal to do that, and that's why I said there would be some minor CapEx to -- involved there, but that's not requiring any equity raises just purely to improve the processing capability so that we can sell the output product at a higher price. We are also finding that with minimal assistance from government, we are competing against competitors that may or may not be doing the right thing. And as a result, they are able to charge significantly lower pricing on collections. And so as a result, there's been a reduction in value from the input and output. So while I'm still confident that tyre recycling is the way forward and the long-term -- medium to long-term, we will still make money out of it. And we are struggling to make the economics work right now.

We don't have any further questions. I might just leave it a moment to wait for anyone else.

I'd like to add something else, and that is that a short-term poor performance based on industry downturn is not going to waiver us from our strategic imperatives. And we have a long-term goal. We understand what it is. We're all working towards it. The company will continue with that. I don't think that we should score the business based on a 6-month result. There's a hell of a lot going on, and we are confident that in the long run, we will succeed in what we're trying to achieve. That's just an overriding statement that I want to put out there. But yes, quite important for our shareholders to understand.

Okay. We have no further questions. I'd like to thank Clive and Rebecca for the presentation today and for everyone who attended the call. That is now the conclusion of the call.

Thanks very much, everybody.