SHAPE Australia Corporation Limited (SHA) Earnings Call Transcript & Summary

[ In the spirit of reconciliation, SHAPE Australia acknowledges the Traditional Custodians of country throughout ] Australia and their connections to land, sea and community. We pay our respect to Elders, past, present and emerging, and extend that respect to all Aboriginal and Torres Strait Islander peoples today. I declare that a quorum is present and the meeting is open. I would like to introduce my fellow directors and members of the management team who have also joined me today. Peter Marix-Evans, our CEO and Managing Director; our nonexecutive directors, Michael Barnes, Jane Lloyd, Kathryn Parsons; Scott Jamieson, Chief Financial Officer and Joint Company Secretary; and Eryl Baron, Joint Company Secretary. Also with us today is the auditor who audited the company. As the Notice of Meeting has been circulated, I propose that it be taken as read. Please be advised that I will vote any undirected proxies given to me as Chairman in favor of all resolutions. Voting on all resolutions will be decided via a poll. The poll will be opened shortly and will be closed before the end of the meeting. The results will be announced to the ASX as soon as practical following the close of the meeting. I will disclose proxy votes on the screen when I put each resolution to the meeting. These figures are as at the closing time for receipt of proxies, which was 2:00 p.m. on Sunday, the 24th of November. I've been advised that all proxies received for the meeting have been checked, and I declare them valid for voting. There are a number of voting exclusions that apply to the resolutions being put to today's meeting, which are outlined in the Notice of Meeting. I will now take a few moments to explain the voting and question procedures that we will use today. Please also pay attention to the following slides as this will assist you with the process. Shareholders joining the meeting online have the ability to submit questions at any time during the meeting. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until the end in the meeting. Please also note that your questions may be moderated, or if we receive multiple questions on one topic, they may be amalgamated together. Due to time constraints, we may run out of time to answer all of your questions. In the event this happens, we will answer them in due course via e-mail or by posting responses on our website. Shareholders attending in person have received a card upon entering the meeting. If you hold a yellow card, you are permitted to vote and ask questions at the appropriate time. If you hold a green card, you are not permitted to vote but are permitted to ask questions. If you hold a white card, you are a guest at this meeting and you are not permitted to ask questions. [Operator Instructions] The persons entitled to vote on this poll are all shareholders, representatives and attorneys of shareholders and proxy holders who hold yellow cards only. Detailed on the reverse of your yellow card are the resolutions being put to the meeting. Relevant instructions are also printed on the reverse of your voting card. Shareholders need to print your name, sign and mark the appropriate box beside the motion going to a poll to indicate how you wish to cast your vote. Either a tick or cross is acceptable. If you require any assistance, please raise your hand and a member of the share registry will be happy to assist you. I now declare the poll open on all items of business. Thank you. With the familiars out of the way, as Chairman of the Board, I'm very pleased to be here today to speak directly to our shareholder group. As we reflect on the 2024 financial year, I'm pleased to report that SHAPE continued to demonstrate a commendable track record of profitability. Our business, which is weighted toward shorter-duration projects, less than 3 months, and internal projects, has again insulated us well against any challenges that the construction industry faced. Our resilience and strength have enabled us to deliver a strong performance across our key financial metrics, resulting in our most successful financial year in SHAPE's 35-year history. Our commitment to safety, quality, and customer service excellence remains at the core of our operations. These values have enabled us to navigate various hurdles effectively, ensuring strong business performance and contributing to our impressive Client Net Promoter Score of plus 88 in 2024. We continue to execute our growth strategy, and now operate across every capital city, with the establishment of our Tasmanian office in September, as well as numerous large regional centers. Despite persistent project commencement delays, which caused a slight decrease in revenue, cost escalations and labor shortages during FY '24, the business performed strongly. Our diligent risk management systems, combined with our ongoing growth and diversification strategy, have supported us to achieve a strong 33% increase in EBITDA to $26 million, with net profit after-tax increasing 53% to $16 million, evidencing the resilience and agility of the SHAPE business. Our diversification efforts yielded positive results across all three pillars of our growth strategy, namely growth into non-office sectors, such as hotels, health care and aged care, education, and defense; diversification of capabilities in modular construction, new build, facade remediation, design and build, and aftercare and facilities maintenance; as well as the geographic expansion to the Gold Coast, Tasmania and Newcastle, have all of which have contributed to our robust project wins, which Peter will go into further detail on shortly. Of specific note was SHAPE's geographic growth pillar, where our expansion into regional areas such as the Gold Coast, Tasmania, and Newcastle resulted in a remarkable 211% increase in sales and a 60% rise in revenue. This reflects our successful investment in customer relationships and new markets, solidifying SHAPE as a national fit-out and construction specialist. Pleasingly, and further reinforcing SHAPE's ability to grow and enhance shareholder value, a final dividend of $0.09 per share was paid, bringing the full year dividend for FY '24 to $0.17 per share, a 48% increase from the previous year. As we step into financial year '25, we begin with a strong financial foundation with a cash and marketable securities position of $98.5 million as at 30th of June '24, providing flexibility to execute on opportunities as they arise. We began the current financial year with our highest backlog of orders to date, positioning us well for continued success. As a Board, we continue to work with management to review opportunities for acquiring new and adjacent businesses that align with our growth strategy and aspirations. These opportunities aim to create shareholder value and further diversify our business. In addition, we continue to assess the alignment of the skills and experience that our directors bring to the table with the needs of the business. We will, where appropriate, make relevant changes to the Board. I would like to extend my gratitude to the dedicated and hardworking SHAPE team, my fellow directors, our partners, customers, and you, our shareholders, for your support. Together, we will continue to navigate the evolving landscape of the construction industry and build a strong future for SHAPE. Thank you. And I'll now handover to our CEO and Managing Director, Peter Marix-Evans, and I'll be back with you shortly.

Thank you, Greg, and welcome to everybody joining us today both here in our office and also online. As we reflect on our achievements over the 2024 financial year, it's very clear to me that our success is a testament to the dedication and the hard work of our entire teams across the country. So I would like to start by thanking all of our people. Financially, SHAPE delivered a significant uplift in profitability in FY '24. Whilst strong at $838.7 million, revenue was down slightly, as Greg mentioned, by about 2.7% compared to the previous year. This was primarily due to project commencement delays of a couple of projects, which we're pleased to say have now come online. EBITDA increased by 33% up to $25.9 million. NPAT by 53% up to $16 million. SHAPE's operational efficiency and ability to generate sustainable growth was reflected in FY '24 gross margins, which increased by 19%, reaching 9.1%. This was aided by a higher than usual percentage of projects being closed out during the FY '24 year. At the time of our results, we explained that, historically, on average, our margins have improved towards the completion of projects. FY '24 did see an increase in the concluding stages of projects, which supported margin expansion, as project exit margins are higher than the operating entry margins. Importantly, we closed FY '24 with a strong balance sheet, with cash and marketable securities on hand of circa $98.6 million. SHAPE's success is built on a platform of customer service, people and culture. Throughout FY '24, these values fortified our operations, and we were rewarded with a Net Promoter Score of plus 88. A strong Net Promoter Score emphasizes our clients' appreciation for the value we provide, resulting in repeat business of around 84%. This loyalty is foundational to our success and speaks volumes about the quality of our work, specifically as approximately 90% of our clients signed off their projects as having achieved perfect delivery. Safety remains a top priority for us, and although our TRIFR increased slightly in FY '24, we do continue to outperform the industry average significantly. We continue to strive for an environment where every team member goes home safe and healthy every day. In terms of our workforce, we are proud to report an increase of 11.5% in total staff, over 5,700 hours allocated to training. This investment in our people is crucial, as 19% of our employees were promoted during the year. We continue to maintain a strong commitment to diversity, and we have a female representation of 29% across the team, and we maintain our overall focus on fairness for all people from all backgrounds. Finally, we received a Cultural Achievement Award from Human Synergistics for maintaining a constructive culture for 5 consecutive years, reflecting our belief that our greatest asset is our people. Their well-being and development are at the core of our business strategy. Diversification has underscored our continued growth; the SHAPE business has expanded beyond fit-out and refurbishment to include expertise across modular construction, new builds, facade remediation, facilities maintenance, and design and build services. This strategic approach strengthens our resilience while advantageously positioning us to adapt to market demands to avoid volatility. Our extensive experience across multiple segments allows us to navigate economic cycles effectively and demonstrate agility in bouncing back from global macroeconomic challenges. Our diversification thesis guided us to add two new capabilities in FY '24, being aftercare and facilities maintenance, AFM by SHAPE, the brand; and Design & Build. Launched in November 2023, AFM by SHAPE currently services commercial office clients in Sydney and Melbourne and helps us maintain relationships with clients beyond the initial project life cycle and also attract new clients through contracted maintenance agreements. The capability complements the existing business as we ensure the safe and efficient operation of buildings, equipment and systems through scheduled maintenance and immediate response to work. This style of work allows us to remain in continual contact with clients and their assets and will typically lead to larger projects or fit-outs. Over time, we see an opportunity to expand the offering through new clients, locations, and contracted maintenance agreements, with the potential to create regular and recurring income for the business. Additionally, the Design & Build offering, added in February 2024, enhances our ability to serve clients looking to procure workplace design and strategy services, particularly for projects typically under $1 million in value, delivering an end-to-end turnkey service, allowing us to enhance buildability and ensure cost certainty, adding to higher gross margins, and aligning with having stronger relationships over a longer period with our clients. Looking ahead, we started FY '25 with a robust backlog order book of $457.4 million. That was up 33% from the previous year. Year-to-date, backlog orders have increased by 5% up to $480 million. In the first 4 months of this fiscal year, SHAPE has secured project wins totaling $350 million. We've seen a moderation in costs and labor challenges as we head into the final months of the half, and we are pleased to confirm that the business is tracking largely in line with expectations. Our 120-day pipeline of known project opportunities remains healthy at approximately $1.3 billion, and the overall pipeline is approximately $3.3 billion. This strong pipeline consists of known projects that align with our skill set and expertise, ensuring that we can execute effectively under the right terms and conditions. At SHAPE, we are continually looking to grow our business in a sustainable manner to benefit all of our shareholders. Our strategy for growth has long been defined by three strategic pillars covering new sectors, capabilities and geographic locations, as outlined by Greg. All three growth and diversification pillars are performing well in FY '25. As SHAPE expands into new markets outside the traditional office space, we are concentrating on sectors such as hotels, health care, education and defense. All of these are expected to benefit from macro trends. These segments are leveraged to population growth, an aging population, and geopolitical tensions, and promise continued growth as beneficiaries of ongoing government investment. The second growth pillar focuses on diversifying our capabilities. I touched on two of the new capabilities added in FY '24, which we continue to grow in the first 4 months of FY '25. To date, in FY '25, Design & Build has delivered strong results, securing a number of design fees, with the potential to convert to construction in the second half of FY '25. One project for a large ASX listed client converted to construction in the year-to-date so far, and that was valued at over $20 million. Although in relative infancy and only operating across 2 cities, AFM by SHAPE is witnessing positive adoption rates. Additionally, we remain focused on implementing our modular growth plan, and FY '24 saw an expansion of the modular capability with the addition of a new 5,000 square meter facility in South Australia and also investments in several key professionals to strengthen that revenue, both in South Australian and Victorian facilities. In the first 4 months of FY '25, we've secured in excess of $10 million for modular project wins, and that includes DLG SHAPE, our associate. Our third growth pillar is our strategic focus on geographic expansion and market share growth. So this has covered the Gold Coast, Newcastle, and Tasmania, and we recently established a Hobart office. This positions us to capture opportunities in these regions. Year-to-date project wins for these regions amounted to $45.9 million, and this compares to a total of FY '24 project wins of $120 million. Notably, we've secured key projects in Newcastle with national clients such as Ausgrid and Allianz. We will continue to assess opportunities in adjacent areas and remain opportunistically acquisitive for synergistic businesses to SHAPE, which will further diversify the business and grow value for shareholders. So in closing, I wanted to thank all of our valued shareholders for your continued trust and support. Together, we will build on our successes, embrace new opportunities, and navigate the challenges with the resilience that has defined our company for over 35 years. I look forward to another successful year ahead as we continue to lead the industry in quality, service, and innovation. Thank you. I will now pass back to Greg to continue on with the formalities.

Thank you, Peter. The first item on the agenda is to receive and consider the financial report of the company and its controlled entities and the related directors' and auditor's reports in respect of the financial year ended 30 June '24. The financial report was subject to audit by SW Audit, who gave an unqualified audit opinion. SW audit are represented here today by René Muller. In terms of questions, I will take questions on the financial statements now and allow you this opportunity. Any further broader questions, I'll leave until the end of the meeting. Please submit any questions that you have at the moment on the Zoom webinar platform. You may also direct any questions on the audit to René Muller. Are there any questions in the room? Mel, are there any questions online?

There are no questions online.

Thank you. We'll move to the resolutions now in that event. The first resolution relates to the adoption of the remuneration report, which explains the Board's policies in relation to the nature and level of remuneration paid to directors and key management personnel. It forms part of the directors' report included in the annual report for the year ended 30 June '24, which has been sent to shareholders. Resolution 1 is an advisory resolution and is displayed on your screen, along with proxy votes received for this resolution. I will vote the undirected proxies in favor of the resolution. So in terms of resolution 2, it's an ordinary resolution for the reelection of Ms. Jane Lloyd as a Director of the company. The full resolution is displayed on your screen, along with the proxy votes received for this resolution. I will vote the undirected proxies in favor of the resolution. The Board, with Jane abstaining, recommends that you vote in favor of the resolution. Congratulations, Jane. I will now address the questions that any shareholders have submitted through the course of the meeting and any other questions that are in the room. Mel, do we have any questions?

We have not received any questions online.

Okay. Thank you. Let me know if there are any come through. And are there any questions in the room? No. It must have been a good year. Happy shareholders. Thank you. So if we don't have any further questions, I will now ask you to complete your voting card in relation to all of the resolutions for those in the room, and then please place the completed voting cards in the ballot box. [Voting]

We're just completing the voting into the ballot box. Eryl, do you want to bring that box forward to these 2 gentlemen down the front? and one over here, Eryl. Thank you. I now declare the poll closed, and the results of the poll will be announced to the ASX following the meeting. Ladies and gentlemen, thank you again for your support for SHAPE, and we look forward to another successful year in '25. That concludes the meeting. I now declare the meeting closed. Thank you very much for your attendance and support.