SPC Global Holdings Ltd (SPG) Earnings Call Transcript & Summary

Full Year Results for FY '26. I'm pleased to introduce Robert Iervasi, SPC's CEO and Managing Director; and Brant Clutterbuck, our CFO. Before we get started, a reminder that this webinar is being recorded. [Operator Instructions] We have also received questions in advance to today's call. We will try to get through as many of your questions in the allotted time and may aggregate similar questions. The webinar will be available later today on our Investor Center. Over to you, Robert.

Thank you, and good morning, and thank you to our shareholders for joining us today for our FY '26 results. Today, we'll take you through SPC Global's full year results and the progress we've made in building a stronger, more credible platform for sustained growth. FY '26 represents our first full financial year as a merged group, and it was a year defined by disciplined execution, improving earnings quality, strengthening the balance sheet and sharpening the platform for future growth, and we're excited to be sharing those details with you today. Of course, I'll let the disclaimer speak for itself. I simply note that today's presentation includes some forward-looking statements and investors and shareholders should read those statements in the context of the assumptions, risks, qualifications, et cetera, as set out in our presentation materials. And here, noting that we suggest you view today's presentation along with our formal ASX announcement and annual report, which will provide you with a more fulsome view of the FY '26 outcome, the basis of comparison and the strategic and operating context behind the numbers we'll talk about today. Now as has been mentioned, I'm joined today by Brant Clutterbuck, our Group Chief Financial Officer. I'll open the discussion with an overview of the year and the strategic progress made across the entire group. I'll then hand over to Brant, who will take you through the financials in more detail before we turn to expectations on outlook and questions. So our presentation today is structured in 4 key parts. First, the business overview. Second, how the strategy translated into action and tangible action in FY '26. Thirdly, the overview of the FY '26 financial results. And finally, our outlook for FY '27 and beyond. I hope you take away the key message throughout is that FY '26 was about moving from an integration mindset to performance and establishing a stronger foundation for growth in FY '27 and beyond. So I'd like to begin our sessions with a reminder of what SPC Global is today. We are now operating as a more diversified food, beverage and dairy group with a broader opportunity set domestically as well as internationally relative to the legacy businesses when they existed on a stand-alone basis. When I reflect on what SPC Global is today, it represents a market-leading Australian food, beverage and dairy business with 3 operating categories: food, beverages and dairy. The group was formed through the December 2024 merger and relisting, bringing together SPC, The Original Beverage Co, as it's now known, Nature One and Natural Ingredients under one listed structure. And as I mentioned before, FY '26 marks the first full year operating as that combined group. We have around 800 employees, approximately 1,000 products and importantly, a presence in 15 markets, underpinned by sovereign Australian manufacturing capability and a portfolio of both staple resilient products and high-growth wellness and nutrition exposure. One of the defining attributes of SPC Global is that we're simply -- we're no longer simply a domestic pantry staples business. We now have a meaningful international footprint across North Asia, Southeast Asia, the Middle East and North America with live market presence in 15 markets and a growing export pathway for our privileged Australian-made products. During and after FY '26, we secured important ranging and launch milestones, including Costco Japan for our OJC Black Label offering, E-Mart Traders in South Korea, Cold Storage in Singapore and Nature One's very own hypoallergenic and specialized infant formula range in China, again, delivering on those commitments we've made to the market about our global execution strategy. Which brings me to our investment thesis, and it's straightforward and evolving. First, we have solid foundations in a diversified portfolio spanning staples, beverages, wellness and specialized nutrition. Secondly, we are improving the quality of growth through product mix, pricing discipline, tight trade spend controls and supply chain efficiencies where we've been able to exploit our scale and size to deliver tangible benefits to the organization. Thirdly, international remains a high-margin growth engine, particularly through Nature One and premium Australian brands in Asia Pacific. And fourth, the FY '26 equity raise materially strengthened the balance sheet, leaving the group better capitalized for disciplined growth. Turning now to execution. As I mentioned before, FY '26 was the year in which the strategic rationale for the merger began to show up more clearly in the numbers, in the operating cadence of the business and what you were able to see as a consumer in either the domestic or the international market. Across domestic and international, the focus continued on profitable growth, margin quality, synergy delivery and a more disciplined operating model. So let's talk about the domestic business in the first instance. The domestic business remains the anchor of the group, contributing 59% of the FY '26 group EBITDA, and it's increasingly being run through a value over volume lens. As we have mentioned previously, we've deliberately reduced lower return private label volumes, tightened promotional discipline, increased branded mix and accelerated beverages and on-the-go as a channel as scalable, high-margin platform. This is consistent with the broader commentary you'll find in our annual report and our ASX release. Domestic is moving from optimization towards a platform-led acceleration with a sharper focus on beverages as a category, on-the-go as a channel and a brand and mix value optimization across our mainstream brands being SPC, Goulburn Valley and ProVital. Now we turn to the important international growth. And that growth platform or engine represented about 41% of the group EBITDA in FY '26 despite having a smaller share of revenue. The strategic focus here is clear, and it's all about premiumization. Specialized proteins, branded dairy and nutrition, functional beverages and premium food products that earn structurally better margins than low-value generic export contracts. In FY '26, that strategy that I've just articulated and previously spoke to the market about has translated into stronger EBITDA, better gross margins and encouraging proof points in Japan, Korea, Singapore and China, while also establishing a medium-term export ambition of approximately $37 million over the next 3 years across various growth initiatives. I am pleased that you can see that what we've outlined, what we do in the domestic market and international markets has been executed. And you can see that throughout our FY '26 results, not only in the presentation today, but all the supporting materials that I spoke about earlier. When we turn to the next slide, I wanted to also share with you some highlights on the breadth of execution delivered throughout the year. As I already mentioned, we completed the $100 million equity raise. We've realized $20 million of synergies since the merger. We've strengthened the Board and leadership and, with the full support of the Board, approved our 2026 to 2030 midterm plan, which really sets out our growth horizons for the next medium term. We've secured new domestic and international ranging wins, advanced new product launches and continued the operational integration agenda, including the Mill Park transition and the Shepparton capability uplift. The common trend that I want to share with you today is that these actions were not isolated actions. They were connected steps to improve strategic coherence, lower risk, diversify our portfolio and earnings and also increase the quality of our future earnings. I'll now hand over to Brant to step you through the financial results in a lot more detail. The headline is the group has delivered a materially stronger earnings result in FY '26, while also resetting the balance sheet and improving the underlying quality of the business. And I'm pleased that Brant can now take you through how that's been brought to life financially.

Thank you, Robert. Before I jump into the numbers, I just want to explain the change -- an upcoming change in our segment reporting going forward. To better reflect our ongoing operations of the business, we will be transitioning to reporting under 3 distinct segments: Food, Beverages and Dairy. In addition to 2 geographical segments, we will maintain focus on domestic and international operations. You'll see this feature a little bit throughout the presentation today and supporting materials. But note that this is a transitionary year and our statutory accounts continue to reflect the 4 original business units being SPC, the Original Juice Company, Nature One Dairy and Natural Ingredients. So let's jump into the numbers. So FY '26 net sales revenue was $331.8 million with a normalized EBITDA of $38.5 million. Domestic EBITDA represented $22.8 million and international EBITDA of $15.7 million. Other headline numbers include net debt, which has reduced to $85.8 million following the successful capital raising in May 2026, reducing our net leverage to around 2x, and we've delivered an inventory result of $129.3 million, which was favorable to the guidance that we set of $130 million. Importantly, we continue to realize our synergy benefits. And as Robert has previously mentioned, $20 million of synergistic benefits have been delivered since the time of the merger. From a divisional perspective, this slide here just reflects the diversity of our portfolio. The SPC Group remains the largest contributor to group net sales revenue of around 69%, while EBITDA contribution is more balanced across the SPC Group, the Nature One business and The Original Beverage Company. This just reflects profit quality and of our international and beverage assets, which has continued to gain momentum throughout FY '26. The diversified earnings mix is strategically important because it gives us both resilience and also gives us access to multiple growth levers. From a profit and loss perspective, net sales revenue, again, $331.8 million was below our FY '25 pro forma revenue number of $376 million. That decline was deliberate and reflects the exit of lower-margin, lower-quality revenue, which we have discussed previously to the market. Pleasingly, however, the gross profit improved to 31.9% from 28.8%. Normalized EBITDA increased to $38.5 million from $30.3 million delivered in FY '25. That's an improvement in our EBITDA margin lifting from 8.1% to 11.6% or 3.5 basis points (sic) [ 3.5 percentage points ]. In other words, we traded some top line volume for materially better earnings quality. This is consistent with our demand-led margin-focused model described in our results release and also the annual report. The Domestic business is the clearest example of that trade-off. Domestic net sales declined from $325.4 million to $287.7 million as a lower return volume was removed. But Domestic normalized EBITDA increased from $16.7 million to $22.8 million, supported by improved margin, impacts of range rationalization, tighter promotional spend and higher branded mix. That is exactly the type of portfolio and channel discipline we wanted to embed in FY '26, which will continue into future years. The International division delivered a high-quality result. Whilst there was net sales revenue declined from $50.8 million to $45.9 million, this again reflects the move away from lower-margin contracts. Normalized EBITDA, however, improved from $13.6 million in FY '25 to $15.7 million in FY '26 with the EBITDA margin, as a result, increasing materially from 26.8% to 34.2%. The International division experienced very strong second half results, particularly in the last quarter, which was led by Nature One and growing beverage momentum across Asia, showing us that the premiumization strategy is taking effect and working. Normalizations. Total normalization adjustments in FY '26 totaled $16.7 million. This comprised redundancy costs, integration costs and costs associated with excess inventory clearance. Importantly, however, the cash impact of this was $6.7 million in FY '26. So the underlying cash burden is materially lower than the headline number of $16.7 million. These items are consistent with our business undergoing continued integration, reorganization and product rationalization following the transformational merger that we've just gone through. Balance sheet is significantly stronger at year-end. Cash increased to $48.9 million. Total equity increased to $157.2 million and net debt reduced to $85.8 million from $123.7 million when we closed FY '25. The main drivers were the successful capital raise, which reset the balance sheet, the repayment of borrowings, continued working capital discipline, all of which materially improved liquidity and reduced our financial risk. From an inventory perspective, as I mentioned before, we closed at $129.3 million, which was favorable to the guidance that we issued to the market of $130 million and represented a significant decline year-on-year from $136.4 million that FY '25 closed at. We do note the increase from December, however, reflects the normal seasonality in our production cycle, but the broader trend remains firmly downward, expecting to be around $122 million by the end of FY '27. This is an important marker of improved working capital discipline and better alignment between production and demand. Cash flow. Closing cash at 30 June was $48.9 million, with the year-on-year increase driven primarily by the net proceeds from the capital raise. Financing cash inflow more than offset the operating and investing outflows. And on a free cash flow basis before movements in working capital, we achieved an improvement of $18.8 million year-on-year. The next step now is to convert the stronger EBITDA base and lower debt costs into sustained positive free cash flow. I'll now hand back to Robert.

Thank you, Brant, for that summary. Now as a management team, and you would have seen it in today's results, we do get asked about what has changed in driving the sustainable value of our business. What's different to what we're doing today versus what we've done historically? To better understand this, it's important that we look at the SPC stand-alone business pre-merger. And this slide provides historical context and shows why FY '26 matters. Legacy SPC had a period of weak cash conversion. Indeed, both EBITDA cash conversion at an operating cash flow level and free cash flow has largely been negative each year, meaning the legacy business was spending more than what it was bringing in. As you can see from the chart that's been presented on the screen, this resulted in rising debt and despite the negative cash position, inventory build with inventory growing at a disproportionate rate than revenue. And that placed a significant burden on Legacy SPC. Since the merger and throughout FY '26, the merged group has spent time resetting that trajectory through a demand-led operation, contract exits, working capital discipline and deleveraging. And as you can see, the merged group, which in size is greater than SPC stand-alone, holds less inventory than historical practices despite our forecast of revenue growth. It is a much more sustainable position. And the result is that the business enters FY '27 from a stronger foundation with clear guidance of a greater than 10% revenue uplift, greater than 20% EBITDA uplift and importantly, positive free cash flow. It's what shareholders should expect of a sustainable business model going forward. So I'll turn to outlook in a little bit more detail. The Board and management's view of FY '27 as a very important year of conversion. The work undertaken in FY '26 has improved the platform. FY '27 is about converting that platform into more visible earnings, cash flow and market credibility. I mentioned earlier that our Board endorsed midterm plan. And that midterm plan is built around a clear mission. And that mission is to reimagine nourishment and wellness for consumers globally. The strategic pillars span brands and products, channels and customers, supply chain and operations, responsibility and our people. What matters for investments -- for our investors is that this is not an abstract strategy document that's sitting in a drawer. It's a practical operating blueprint that links our brand growth to channel expansion that I spoke about earlier, manufacturing efficiency, debt reduction, governance and capability building into one coherent plan. So that translates into our market guidance for FY '27. Now during the course of this financial year, we are targeting a greater than 10% increase in net sales revenue across both our domestic and international markets. We're also targeting a greater than 20% growth in EBITDA on our FY '26 normalized EBITDA that Brant spoke about today. And we're looking to generate positive free cash flow with that renewed or reinvigorated discipline around working capital and strengthened balance sheet. Those targets are supported by the full year benefit of synergy initiatives, completion of our Mill Park transition that we've spoken about to the market previously, the Shepparton capability uplift and further inventory discipline. Of course, that also comes with lower debt costs following the equity raise and continued expansion in domestic beverages, on-the-go channels and our international premium route to market. Now from Brant and myself, that concludes the formal presentation, noting there are additional slides that provide more detail on half-on-half trends, inventory, leverage and historical performance that also supports our commentary on margin improvement, EBITDA growth and the momentum that we built in FY '26, especially in the second half and how that moves into FY '27. So with that, I'll now hand back to you, [ Fin, ] to open the call to any questions from the participants today.

Thank you, Robert. [Operator Instructions] So the first question is, as a shareholder, I'd like to understand whether the Mill Park closure and transition remain fully on track for completion in October. What are the key remaining execution risks? And how confident is management that the expected approximately $8 million FY '27 EBITDA benefit will be fully recognized?

I might tackle that question, [ Fin. ] Thank you. So thank you for the question in relation to the Mill Park transition. We're pleased to report that the Mill Park transition does remain on track for completion in October of this financial year. The commissioning and transitioning of our Juice Lab shot lines into Shepparton is already underway, and we're building the commissioning of our co-packing arrangement in Griffith with the team working with our co-packing partner to transition volume ahead of that October go-live. In terms of the delivery of the financial benefits, we remain confident that $8 million of bankable EBITDA will be delivered in FY '27. As we've spoken to the market previously, the annualized number will approximate approximately $11 million or greater than $11 million and that benefit is on a like-for-like comparison. It's not suggesting it's relying on growth in our beverages portfolio to deliver that cost benefit to EBITDA. It's on like-for-like volume. So the project is on track, which means the $8 million is on track for FY '27 and an annualized number of greater than $11 million as a result.

Wonderful. The next question is, following the equity raise, the reduction in net debt -- and reduction in net debt, how is management tracking against its target to reduce net leverage to 1x to 1.2x by the end of FY '27? What are the principles -- sorry, what are the principal drivers of that reduction? And are there any foreseeable factors that could delay it?

Yes. I'll take that one, Rob. Thanks again. So at the end of FY '26, net debt has obviously reduced to $85.8 million, which was a material improvement from where we were in FY '25, getting us to a net leverage ratio of around that 2x mark. The ambition is to get that down to 1 to 1.2x by the end of FY '27. I guess the key bridge to get there is obviously execution of our underlying strategies and delivering against the outlook in which we've just communicated to the market. That includes continuing to deliver the synergy program, executing positively the Mill Park transition to deliver those $8 million worth of benefits in year and also maximizing the return that we're getting out of the automation productivity efficiencies across our broader footprint. The reduced debt levels, obviously, is an burden from an interest point of view, which certainly supports the free cash flow position that we're targeting going forward. So we're certainly focused on execution going into FY '27 to ensure that we get to those targets.

Thank you. Moving on to the next question. We've had several questions in relation to the share price. Despite the improvement in EBITDA, margins and balance sheet, the share price is underperforming. From management's perspective, what needs to be demonstrated during FY '27 for investors to have greater confidence in the sustainability of the turnaround and the value of the business?

Great. I'll take that one. So thank you for the question in relation to share price. And equally, we acknowledge that from our perspective, the share price is not performing to expectations. The best thing that management can do is obviously deliver on its commitments to the market and demonstrate best-in-class execution of our strategy. Certainly, over the last 18 months to 24 months as the merger came together, and we've been able to relist on the stock exchange, management has delivered on every commitment and guidance that we've issued to the market, and we expect that to continue in FY '27 and beyond. So for us to deliver greater confidence to our investors and to the investment community more broadly is to ensure that we're delivering on that strategy via execution excellence, delivering on our commitments and ensuring that the disciplines that we've spoken about today continue in practice. Not only from a growth perspective and margin and EBITDA result, but the disciplines we've introduced in relation to balance sheet management, debt management practices and working capital all deliver a balanced scorecard that makes our business, in my view, a very investment-worthy business listed on the Australian Stock Exchange.