Symal Group Limited (SYL) Earnings Call Transcript & Summary

Good morning, and welcome to Symal results briefing for the full FY '26. My name is Simon Hinsley, and I will host today's briefing. I'm pleased to welcome Joe Bartolo, Symal's Co-Founder and Managing Director; Nabeel Sadaka, CEO; and Scott McQueen, CFO. Before I hand it over to Joe and the team to go through the presentation up on the screen, just a reminder on Q&A. [Operator Instructions]. But with that, I hand it over to you. Joe?

Good morning, and thank you for joining our FY '26 results call. Today, I'm joined by Nabeel Sadaka, CEO of Symal's Operations; and Scott McQueen, Symal Group CFO. I'm excited to share what we've achieved this year through our diversified services platform, where vertical integration of our brands gives us the right to win in our key end markets. Our strategy is positioning Symal to continue the exceptional consistent growth that we've delivered to date. Doing what we say matters to us, and we are pleased to report we have delivered on our commitments across FY '26. At an operational level, we have delivered our best ever safety performance. This is not just statistics to us. It means we send our people home safely. Our work-in-hand and pipeline is at record numbers, but we have also continued to deliberately diversify our book. We're not leveraged to one sector nor to one state. We have also delivered financially with FY '26, not just hitting guidance but delivering financial records. Our revenue comfortably exceeded $1 billion for the first time. We have record EBITDA and record NPAT despite our investment in acquisitions, plant and equipment, facilities and people to support growth. We've been deliberate in our capital allocation. We completed 4 strategic acquisitions and announced an agreement for a fifth, which will close very soon. The intent with these investments is clear: increase our recurring revenue, expand our geographic footprint and increase our capacity and capability to win in key end markets. We have done this prudently and deliberately, and our balance sheet remains strong. Our debt levels are low, and we retain capacity to deploy, but only where it matters. Our focus remains on growing organically as it's still at our core. Our allocation principles also target consistent returns and in line with what we've declared a final dividend of $0.049 per share. Now turning to Slide 3, which has more detail on our safety performance. We are proud of what we've achieved in FY '26. It's a team effort and reflects company-wide buy-in, diligence and commitment. Despite our record growth, our rolling TRIFR was 1.4, some 76% below industry average. This included 0 lost time injuries. Keeping our people safe is justification enough, but it's worth noting safety does have financial benefits, too. With virtually 0 WorkCover claims, our WorkCover premiums are 30% below industry average. That translates to millions of dollars to the bottom line. Moving to Slide 4 and more details on our FY '26 highlights. As already mentioned, work-in-hand is at its record level, sitting at $1.9 billion and is more diverse than ever. Our total tendered pipeline and ECIs sits at approximately $9.1 billion. That, too, is more diverse than it's ever been. Financially, FY '26 has been another strong year of growth and record delivery. Our revenue was well over $1 billion. We delivered $124.3 million of EBITDA, which was in the upper half of our guidance range. Normalized NPAT was also a record at $49 million. In terms of capital allocation, we invested strategically in accretive M&A, spending just over $81 million on 4 key acquisitions. These acquisitions have delivered us more recurring revenue, greater geographic spread, access to new markets. And more importantly, these acquisitions provide the right platform for Symal to scale and grow organically. We invest with discipline. We believe a strong balance sheet and prudent leverage through the cycle are the hallmarks of a well-run company. And with leverage of 0.4x at the end of FY '26, we remain strong, but ready to continue to invest opportunistically and strategically. As previously mentioned, the Board have approved $0.049 per share as a final dividend. We're also making operational our dividend reinvestment plan alongside the FY '26 final dividend to provide shareholders a choice. Moving to Slide 5. We continue to grow and diversify our work-in-hand and pipeline. As already mentioned, our work-in-hand stood at $1.9 billion, whilst our tendered pipeline, including ECIs, was at $9.1 billion. The charts on this slide show how we have diversified our book, both in terms of end markets and geographically. Looking at end markets, we see that energy and resources, utilities, defense, digital infrastructure and other markets combined now account for 54% of our total work-in-hand. Also, our work-in-hand geographic spread continues to diversify too, not by shrinking our core, but by expanding our reach, with more than half our pipeline now outside Victoria and growing. You can also see from the table on the right, our strong established work-in-hand position across infrastructure, energy and utilities. And this continues to grow geographically. Despite our success to date, the opportunities for further growth across other key end markets, including digital infrastructure and defense, remain enormous. We'll talk more about our key end markets and the opportunities they present later. We are growing deliberately into an integrated services company as illustrated by our organic pipeline, our acquisitions and our strategy. We aren't linked to one sector, one geography, one theme or 1 or 2 major contracts. Moving now to Slide 6 and our record of performance. Whilst we've been listed for under 2 years, we have been around for more than 25 years. We have demonstrated consistent organic growth and returns for such a long time. We've also hit or exceeded all the guidance targets we have set as a listed company. In the first half, we produced 10.2% EBITDA margin, and we stated we expected margins to be stronger in the second half. And we produced with a margin of 11.5%. This translated to a full year margin of 11%, right where we said it would be. I've talked to our 2030 $200 million EBITDA aspiration. This is now less of an aspiration and more of an expectation. With our FY '26 performance delivered, our FY '27 forecast and a track record of demonstrated growth, I am more confident than ever we will get there, and we're going to get there sooner. I will now hand you over to Scott, who will walk you through our FY '26 financial performance.

Thanks, Joe, and good morning, everyone. Turning to Slide 7, which provides some additional detail on our FY '26 financial results. Starting at the top with revenue. We delivered strong top line growth with revenue reaching $1.14 billion, the first time Symal has exceeded the $1 billion mark. Moving down to normalized EBITDA. We achieved FY '26 guidance coming in above the midpoint at $124.3 million despite some unexpected second half cost headwinds. This was a solid 17% growth rate, so just over 10% of which was organic and just under 7% related to acquisitions. Before we move on to the bottom line, it's worth noting the drivers for the step-up in D&A. This reflects 3 key things, all of which represent an investment in future growth. Firstly, $75 million of CapEx invested. This was an unusually large investment and a level of CapEx that won't be sustained. We will cover more on that in our guidance later. Second, the new D&A associated with the 4 acquisitions completed, both tangible and intangible assets acquired. Thirdly, the investment in new leases on facilities to support the 2030 ambition Joe has laid out. Moving to the bottom line. We delivered NPAT of $49 million or $0.206 per share. I note the slight reduction in year-on-year NPAT margin. This reflects the P&L impact of the growth investments mentioned, investments that will rightsize the business structure for growth well into the future. And as you'll see in our guidance, we don't anticipate that rate of CapEx to continue. Joe has already covered the dividend, which is consistent ratio with the prior half. This reflects balance in our capital allocation approach: consistent performance, maintaining prudent leverage and a strong balance sheet, retaining capacity to pursue opportunistic growth where it is on strategy and value accretive. Turning to Slide 8 and the major segment results. I won't spend too long on this for 2 reasons. Firstly, we see these segments as interrelated. Symal is an integrated business. Small changes in relative margin between the segments period-on-period is not something we focus on. We seek to maximize the utilization of our plant via both internal as well as external wet and dry hire. What we are focused on is the group margin, and that was delivered at a healthy 11%. Secondly, as Symal has diversified and grown, it's timely to ensure the organizational design is fit for purpose. So Symal is undertaking an organizational design review, which we expect to complete in the coming months. This review will likely impact how these segments are presented and reported moving forward. Moving on to Slide 9. Here, we provide additional context on the key drivers of the year-on-year growth in NPAT. As previously mentioned, we delivered 17% or $18 million EBITDA growth, $11 million organic and just over $7 million associated with acquisitions. In the D&A section, you can see the year-on-year earnings impact of these investments I talked to earlier, plant and equipment, new facility leases, and the acquired D&A associated with our 4 completed acquisitions. Finally, in the purple, we see a modest increase in borrowing costs. Part of the increase related to the interest on the new facility leases, the balance reflecting a modest increase in borrowing costs on drawn debt. As we predominantly funded our FY '26 investments from cash, a significant portion of our debt facility remains undrawn. However, we pay a margin on our bank guarantee and bonding facilities also. And naturally, the combined value of these is increasing as the business grows. Moving to Slide 10, where we provide some analysis of our FY '26 cash flows. On a statutory basis, cash conversion was 95%. This was lower year-on-year due to the absolute reduction in margins, along with additional cash acquisition costs and working capital movements, but it remained within the 90% to 110% target range previously outlined. For me, the bottom line here is, are we getting paid? And the answer is absolutely, we are. Symal has a history of extremely low bad debts and debt has remained very current. If we continue that focus, we will maximize cash, all things being equal. Moving to the right, we see interest and tax paid, combined at around $23 million. In the investing cash flow highlights, we clearly see CapEx and acquisitions. CapEx shown here, $64 million is net of around $11 million proceeds on the sale of excess plant and equipment. In terms of financing, given we predominantly funded our acquisition and investments from cash, we don't see a significant increase in drawn debt, keeping borrowing costs low. And finally, we also see lease repayments of $7 million and dividends paid of $22 million. Moving to Slide 11. This covers the key elements of our liquidity, debt and leverage as at 30 June. Despite cash funding the majority of FY '26 investments, we retained a strong liquidity position of almost $260 million. This included $82 million of cash and $177 million of immediately available credit facilities. While we have moved from a net cash position into net debt as shown, this is not unexpected given the significant capital investments made and the 4 completed acquisitions during the year. But our net leverage is low at 0.4x, and we retain significant funding capacity to grow. In addition, our return on invested capital across FY '26 was an extremely strong 23%. As I mentioned earlier, our bank guarantees and bonding commitments do continue to grow with the business, and these totaled $107 million as at June 30. Thank you, everyone. I'll now hand back to Joe.

Thanks, Scott. As we turn to Slide 12, I'd like to remind everyone of a few key points that make Symal unique within our sector. We're a diversified and national services platform. We're not a civil contractor. This is only one part of our business. We provide contracting services to Australia's largest growth markets: infrastructure, digital infrastructure, energy and resources, utilities, and defense. For clarity, our business is designed to excel in these themes, but be diverse enough not to be reliant on any one to achieve consistent returns. As a founder-led business with 69% of the stock held by Symal executives, we have a long-term view on our strategy, and our management team are fully aligned to our outcomes. We are vertically integrated and self-performing company with over 1,800 staff and 12 separate businesses. Where possible, this means we're not reliant on the external market to dictate terms, rates or any inflation costs. We minimize our concentration risk via an average contract size of around $20 million. This removes the lumpiness you will see with larger contracts, supports greater staff retention and eliminates any high-risk exposures. Our work-in-hand and pipeline continues to grow at record numbers. We have the work, the people, the opportunities. Symal is positioned better than it's ever been to deliver on our strategy. Moving to Slide 13. I've talked about growth and expansion. And here, you can see it. Today, we have 22 national offices and yards ready to deliver. FY '26 included significant milestones. We established our first permanent position in South Australia through Davison's. We're very excited about South Australia and what it brings. We have doubled down in Queensland by including 3 new businesses, creating a truly integrated group that can work in unison and leverage the vast Queensland infrastructure pipeline, which is larger than these contractors could ever individually deliver. We opened our purpose-built operations and maintenance facility at Avalon and relocated to our new corporate office in South Melbourne. Late in the year, we announced an agreement to acquire Queensland-based Shamrock Civil, and we expect to close that very soon. It's been a big year, and yes, it's quite a lot. But we have the people, the systems and processes in place, and we are all energized and excited about the opportunities ahead. And if there's one thing Symal's good at, it's growing whilst maintaining culture and profitability. Moving to Slide 14. We will talk more about our key end markets. Digital infrastructure is the hottest topic in town, and it's no different inside Symal. Digital infrastructure is not new to us. We built our first data center in Victoria in 2020, and we have 18 completed data centers to our name. In the last 12 months alone, our digital infrastructure packages span 15 separate data center projects, which, once complete, will have a combined value of approximately $380 million. This equates to an average of $25 million per project. Let's break this down. If these were generally 50-megawatt data centers, think about the size of the average contract on a 200-megawatt-plus build. I'll let you do the maths. While typically, our scopes have to date vary between 5% and 17% of the total base build costs, we're looking at ways to expand our potential value capture through the expert electrical capability of Searo and Locale. Despite what we've already delivered and all the work we've already seen, we're potentially only at the tip of the iceberg. The size of the addressable market is truly one of scale that may exceed anything we have ever seen before. Our pipeline is stronger than it's ever been. And with what we are seeing, it's just the beginning. We have the relationships, the demonstrated capability and the credibility to deliver fast, efficiently, effectively and safely as required to sustain success in this space. On Slide 15, we cover off energy and utilities. Energy is another key growth market being driven by the energy transition, population growth or to power the digital infrastructure boom. Energy is the second largest market in our work-in-hand and the biggest in our overall pipeline at $6.6 billion. Over the last year, we've secured over $200 million of energy projects and with over $6 billion in active projects in the pipeline. Energy is firmly in Symal's wheelhouse. It's worth noting with a $500 billion addressable market in front of us, we expect to keep winning and growing in energy. In utilities, Locale's success has been a highlight for FY '26, laying waste to every target we set. Locale has established a solid position in the highly regulated Victorian energy distribution network. Locale's workforce has also grown by 75% since the acquisition, second only to its geographic expansion. Locale is now servicing Powercor across hubs, including Brooklyn, Geelong, Bendigo, Ballarat and all the way to Shepparton and Mildura, and we service 80% of CitiPower's network in Melbourne. With $64 billion of regulated nondiscretionary spend across the NEM over the next 5 years and opportunities to expand to South Australia, we see a pathway for Locale to double its revenue. Water is another area we see great potential with $9.6 billion committed nationally to servicing and upgrading water infrastructure. McFadyen is the prime candidate to participate in this sector. Infrastructure is at the core of Symal, and we are not losing focus in this area. We see a record of $240 billion of addressable infrastructure investment planned across the locations we operate in. Of course, we are still having great success at EBTA, and it continues to progress extremely well. We still have over $300 million remaining on the project through to completion in FY '29. Our work-in-hand and pipeline of opportunities and infrastructure remains strong at $2.6 billion. And whilst infrastructure may not be as front of mind for some, it is for us at Symal, and we expect to continue to win and grow in infrastructure nationwide. On defense, late in FY '26, we took a significant step to acquire Shamrock Civil. With an addressable market of $425 billion, we're at the beginning of a boom in defense, too. Success in defense requires specialist accreditations and established relationships built on track record of delivery and success. These attributes take time and are hard won. Shamrock has this pedigree. Shamrock also bring defense capability where the growth will be, with a span from South Australia through to Darwin and Northern Territory and even into the Pacific. Combined, we will have the scale, the experience, the reputation and the strength to grow further and faster as defense investment accelerates. We've included some details of our Shamrock acquisition in the appendix. Moving to Slide 17 and a recap of our strategic focus. I've covered this before, so I won't dwell on it. We're growing deliberately and with purpose, and much of the exciting progress made can be directly linked to our 5 strategic focus areas. We've strengthened our core, with a proven platform we can double by investing ahead of assets, facilities and resources required to take us there. Our earnings are more diversified than ever as is our work-in-hand and pipeline. We're unlocking group value via geographic and end market aligned acquisitions that are stronger together. We don't buy earnings, we buy growth opportunities. And every day, we innovate to find better ways to do what we do, whilst building capability in our organization. Today, Symal is too big to rely on a few. Whilst we retain our founder-led approach, the capability in our people runs deeper than ever. Moving to Slide 18, our last slide. Let's talk about FY '27. We've extended our guidance to include EBITDA, D&A and CapEx. Let's start with the EBITDA guidance. We're providing a range between $153 million and $163 million. As you can see from our order book, we have lots of opportunities ahead of us. In saying that, we're comfortable with our guidance. It's only early in the year. And as always, our focus is on positive outcomes for our shareholders. D&A of $55 million to $60 million is included to provide clarity. We invested heavily in our future in FY '26, and some of that shows up as D&A. These D&A charges will be annualized in FY '27. And finally, capital guidance of $25 million to $30 million pre any acquisitions. Of this, we expect around 60% to be cash and 40% to be funded via leases or other financing as it relates to fleet and light vehicle upgrades. Our key focus areas, be it in business as usual or M&A are also outlined here. These include continuing to win both geographically and across our key end markets. We like recurring revenue like Locale provides. We want to grow that. Here in Victoria, we see ourselves as the incumbent digital infrastructure contractor. We want to leverage those skills, experience, relationships and reputation more widely as this sector booms. Searo is a key growth opportunity and a key vertical integration play. We want to continue to capture more of the pie when we win. Being disciplined in our capital allocation is important to us also. Strong financial results allow us to deliver consistent returns, maintain prudent leverage and pursue accretive growth, all important components of our capital allocation framework. This also extends to M&A. We'll maximize the synergies and value from the acquisitions completed. We still have the capacity to grow, but we view M&A as opportunistic, and we remain on the lookout for opportunities that align with our strategy. I expect that most would likely mean adding skills and capacity to grow faster and capture a bigger share in specific key end markets. However, no matter what it is, it must pass all our hurdles and ultimately deliver value for our shareholders. Thank you all for your interest in Symal. And to those who have already invested, thank you for your support. I'll now open the floor for Q&A.

Great. Thanks so much, Joe, and thanks to the team. [Operator Instructions] But first question is from Amanda Kelly at Barrenjoey. In the midterm, wondering if you can talk to capabilities you want to add to in the digital infrastructure space and what percentage of investment you think you could become applicable versus 17% you provided now.

Look, in terms of the digital infrastructure space and what further investment we can do, currently, we're doing the earthworks, civils, the public groundworks, landscaping, concrete works, some of the precast elements and structural steel. In addition to that, though, it's all about now using Locale and Searo for the lead-in style type works from that electrical point of view. And again, as we continue to diversify our business and grow, we -- our expectation is to continue to add some other electrical components or other areas we see to sort of add great value to Symal as a whole by way of acquisition as well. So we can definitely increase that 17%. To what number, it's probably a bit premature for me to say what that's going to be, but we definitely have our eyes on the prize, and we know what we want to achieve.

Great. Thanks, Joe. Just a question from Darcy White at Jarden. Given the size of the tender pipeline and work-in-hand, how much additional work can Symal absorb with its existing asset base? And are there any capacity constraints?

Yes. Look, in terms of the asset base, we've -- obviously, we've got $200 million worth of assets that we use on our projects. We have a fair bit of gear to continue growing Symal, and our forecast has allowed for the right level of CapEx for what we've got coming up. If we go beyond that, there may be a requirement to buy additional assets in due course, but I think that would be based on any major project that may need some sort of specialist type equipment. And if we do so, we would obviously guide the market accordingly. But in addition, it's worthwhile noting that we also have the ability to use the external hire market to add to our fleet.

Great. Thanks, Joe. And just a question from Amanda Kelly at Barrenjoey. Can you walk through the segment drivers of margin profile between 10% to 12% in FY '27? What are the outcomes that could drive this to be at the high or lower end?

Look, I'll take it back to digital infrastructure. That's where we're seeing some of the largest growth in that space. And I think the best way to be thinking about digital infrastructure today is the size of the data centers that we've been building are circa 50-megawatt data centers. And we delivered 15 data centers within that period, an average of $25 million per data center. If we just double the size of those data centers to 100-megawatt, you now got an average of $50 million per project. If we go to 150, we go to 200 or up to 800 megawatts and beyond. There's talks of 1-gigawatt data centers. I think you can start to see quite quickly the opportunities that are going to present themselves to the market. I think from all forecasts, there'll probably be more data center work than what there is going to be contractors available to deliver, and that generally will drive margins up. So I think that's an area where we can definitely see some increased margin in the business. And also favorable conditions across the market will generally drive those margins beyond that 12% mark. Our focus is delivering between 10% and 12%, but all things going well, we'll beat that.

Great. Thanks, Joe. And just a question from Darcy White again at Jarden. You've guided to lower CapEx in '27. What's driving that step down? And what do you see as the appropriate sustaining CapEx level for the business longer term?

Thanks for that question, Darcy. Look, '26 was definitely a year of investment for the company in property, plant and equipment, facilities, acquisitions. We deliberately guided CapEx this year because we expected that step down. We wanted to make sure the market understood that step down. And we would see that the '27 level is broadly more consistent with what would be expected moving forward, but it's a moving space at all times, of course.

Great. Thanks, Scott. Just a follow-up question from Darcy. Can you update us on Locale and Searo performance since acquisition? How's that tracking versus expectation?

Yes. Look, Locale's been an amazing acquisition for us. It's a well-established business, working in that regulated space. To give you some color there, we've definitely seen a huge step-up in terms of revenue and margin that's coming from that business. And if I could go and acquire 10 more Locales, I would tomorrow. But it's been a great business. There's -- we've got more works with one of our books now. We've got the on-call service contract. We've increased the amount of depots that we're servicing. So that continues to expand. And again, we've got some really good ambitious growth drivers there organically to continue growing that business, and we take on more work within Victoria, but also look at expanding into other states as well. So definitely a great one. In terms of Searo being our organic startup, that's been a great business, too, obviously, or else we wouldn't have started it. But we're starting to get some real momentum there, some really big opportunities in the pipeline. We've delivered one of our first major solar BESS projects. We've got a lot of work in terms of that EV space as well. And then now also looking at that data center space and how Searo can really participate in a larger way. So I think for the future, Searo's got some really amazing opportunities and we're going to continue driving that business organically into '27 and beyond.

Great. Thanks, Joe. Just a question from Liam Schofield at Morgans. Can you talk about the moving parts of the debt balance through the FY '27 year net debt, Shamrock, working capital and CapEx? And at what rate given the bank guarantees?

Yes. Thanks for that question. In '27, we have to settle Shamrock. We guided an upfront $51 million on that. About $10 million of that is scrip. So we're about $41 million. There's some deferred CapEx, only about a deferred consideration there. So it's only about $35 million out the door as the upfront payment. Beyond that, we've guided the CapEx. We've got pretty strong cash flow across the year. So we expect the net debt to be pretty stable or come down slightly across the year. We have floating rate interest. So we've got pretty strong margins, pretty tight margins on that. And so I think across the year, we should be in pretty good shape.

Great. Thanks, Scott. And just Darcy White at Jarden. You've highlighted $6 billion of tenders in energy and resources against roughly $570 million in work-in-hand. How should we think about energy and resources margins relative to the broader group?

Yes. Thanks, Darcy. The energy and resources sectors continue to provide a really solid pipeline for us, and we're really excited by that. You'll see from the deck that it now makes up 30% of our work-in-hand, which is great. The margin profiles out of this continue to support our 10% to 12% range that we hope to hit every year. It's probably more likely that you'll see more potential coming out of the data and digital infrastructure space for margin upside in the future.

Great. Thanks, Nabs. Just a question from Lachlan Woods at Canaccord. You've developed a strong reputation doing balance of plant work on major transmission projects. Can you go into any color of any relationships you've developed or key contracts you're looking at?

Yes, I can. So in the transmission space, we've got a really strong reputation for supporting some of the players in the market. We've formed some really great relationships with a couple of our listed peers in particular. And we're currently looking at opportunities in Queensland, New South Wales and Victoria, and we'll have more to say on that, hopefully, over the coming year.