Tasmea Limited (TEA) Earnings Call Transcript & Summary

Good day, and welcome to the Tasmea Limited FY '26 Full Year Results. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Stephen Young, Managing Director, to begin the conference. Stephen, over to you.

Thank you, and good morning, everyone, and thank you for dialing in. It's a pleasure to host this FY '26 results briefing. Financial year '26 was a record year and our team is proud of the results, which include an outstanding second half. We delivered an underlying EBIT of $118 million, up 54% on the prior period. Our underlying net profit after tax was $73 million, up 42% on the prior year and we generated a return on capital employed of 38% and a return on equity of 32%. Importantly, we delivered shareholder returns. Our earnings per share were $0.288, up 27% from the prior year. We declared a final dividend of $0.085, up 32%, excluding last year's special dividend. And really importantly, since IPO, we've delivered a total shareholder return of some 523%. Our operating cash flow was strong, $147 million, representing 126% growth on prior year and 125% conversion of EBIT into operating cash flow. We completed 3 programmatic acquisitions, WorkPac, Maxim and JPS. And it's with pleasure that I announce that we're upgrading our FY '27 guidance up a couple of million dollars to $205 million to $210 million EBITA and net profit after tax and amortization, $130 million to $133 million. Over to you, Mark.

Thanks, Stephen. Next page, I think, the financial highlights, Slide 3. I think the key message from here is that we grew organically at 18% as well as via acquisition, which is part of our compounding strategy. Our underlying EBITA was $118.1 million, up 54%; NPATA, $73.7 million, up 42%; and earnings per share, $0.288, up 27%. We achieved on a net revenue basis, a gross margin of 16.2%, which represents the delivery via our highly specialized margin businesses. Importantly, our return on capital employed increased to 37.8%. And we've provided an organic bridge at the bottom of this page in the table that takes $118.1 million, strips out the $8 million for the contribution that WorkPac made, which left just over $110 million against the pro forma FY '25 number of $93.2 million, signaling or generating an organic growth of 18.1%. Importantly, as Stephen mentioned, it accelerated in the second half strongly and every segment grew in the second half against the first half. If I could turn over the page. And just continuing with that, the second half run rate, we are carrying through into FY '27. We've started the first month very strongly, hence, the reason for providing an upgrade. The first half EBIT of $44.3 million versus the second half EBIT in FY '26 of $73.8 million. Margin grew from 13.4% to 18.5% on a net revenue basis. There are a number of things driving this, which included the mix skew of the higher-margin revenue businesses coming through more specialist labor being sold versus a higher proportion of materials in the first half pass-through. Importantly, greater self-performance and cross-selling across our subsidiaries, price escalations kicking in for the second half and far better labor utilization as a consequence of some deferred project work in the first half coming through in the second half, ensuring that our labor was highly utilized. On top of that, we've been driving an efficiency and cost reduction program across a number of our subsidiaries by merging a couple of our smaller ones up into our larger subsidiaries in the same segments and locations which saw a number of, I guess, headcount savings. And we've been adopting AI to streamline our back-office processes, which again has provided more rapid data and also an accurate data and also on top of that, eliminated a number of processing headcount. I'll turn over page. We're forecasting just leaving that page of our EBITA margin to sit around 14% at this stage. If we deliver higher cross-selling like we're expecting, the risk could be to the upside there. In respect of our strong and consistent growth, our strategy been one which has now been going for 3 years since we've been on the Board and it's a compounding strategy. Total shareholder return was 523%, as Stephen mentioned, since we listed in April '24. Pro forma EBIT has grown from $55 million in '24 to $93 million in '25 to $128 million in FY '26. And on top of that, our compounding annual growth has been about 56%. Underlying earnings per share has grown from $0.179 to $0.288 and around $0.47 we're giving guidance at, which is about a 38% compounding return or increase. So shareholder value has increased alongside of our earnings and has not been diluted. Importantly, our business model generates cash, 101% over the average of the 3 years, and this is what is in funding our reinvestment. If I turn over to the cash generation page on Slide 6. Operating cash flow is the engine model of our business model. We focus on it. We measure it and we ensure that our earnings is turning into cash. Operating cash flow before interest and tax was $147 million, 125% conversion to underlying EBIT. And as I said, has averaged over 100% since IPO. After interest and tax, it was $91 million. If you take out our stay-in business CapEx of just over $22 million or approximately 3% of revenue, we have a high free cash flow. What drives this is our schedule of rate contracting, predictable model, regular invoicing and recurring maintenance work for our long-term customers. We are not carrying long-dated project claims. I'll turn over to our balance sheet. We have the capacity to continue acquiring without going to the market for equity. Net debt was down to circa $60 million from $110 million. Leverage was 0.04x at 30 June, but well below our 1x net debt to EBITDA target. It stepped up to about 0.08x after the acquisitions of Maxim, which completed on 1 July for Maxim and on 3 August for JPS. So still sitting well below our 1x. Our operating working capital efficiency also improved to about 4.4x, down from 11.4x. You can see we have a low-risk contracting model. Bank guarantees represent only 1.3% of pro forma revenue and we do not carry large performance security bond exposure for the majority of our work, which is done under MSAs for maintenance. The effective cash payout rate for our dividend for FY '26 was within our target range of 30% to 50% being at 46.6%. Our DRP is taking a good proportion of that and putting it back into the balance sheet, led by the founders and executive directors reinvesting. The rest is retained and reinvested into programmatic acquisitions for high returns on capital. We're currently in live negotiations on a number of specialist opportunities, which none are allowed for in our FY '27 guidance. I might pass back to Stephen.

No, to Trent, I think.

Just over to Trent. Trent?

Thanks, Mark. Operator, Slide 8, if I may. We've shared this slide previously when we announced Maxim and that image on the left. We've just given a few quick updates on the right-hand side. But what it confirms, I think the market has already confirmed that is data centers are real and they are an absolute near-term electrical market for our business. You'll see on the left that there's a forecast capacity to grow to 3.2 gigawatts by 2030, with Melbourne representing 1.1 gigawatt of that. We see that's obviously critically important to Tasmea because we own Maxim in Melbourne. And in the first 2 months, we're proud to say the group has won a few extra contracts in Victoria with their existing customer and that was already part of the DD that we forecast. So outside of Victoria, we see South Australia as the second front. There's been a lot of discussion around IREN coming to town. They've announced that they will have an investment in South Australia. And likewise, Firmus is looking at 2 opportunities in Regional SA. You'll see that AEMO has highlighted that 225 sites are in development already this year, up against 97 last year. So what does this mean? I think it's the constraint on all of this is that it's the power not the land or the buildings. So transmission, substations and connections. This is our work. This is what we're proud of and we have one of the largest remote specialist electrical workforces in the country. Over to Slide 9, please, operator. Back to our core market. So that's the sustaining spend. So this is a recurring far less cyclical than the growth projects. You'll see in the last week, BHP and Rio have touched on the market, they are about $22 billion in annual CapEx. $15 billion of this is in sustaining and replacement CapEx on assets that already are operating. This is our addressable market and what we're working towards. Sustaining spend is maintenance led. It repeats every year. It's exactly why we put so much focus on the Master Services Agreements. You'll see that BHP is very much focused on Copper South Australia. So the 3 key sites, Prominent Hill, Carrapateena and Olympic Dam. And they also got a big focus on Car Dumper 6 over into the Pilbara. What's exciting is BHP is called Copper SA, the most expandable major asset with over 80 years of life left. For Rio, the focus on the Pilbara mine system and the port replacement CapEx and a bit of work up in Weipa and Rhodes Ridge. So what does this mean for Tasmea? We've converted over $80 million worth of maintenance contracts with BHP in the last 90 days and super excited about supporting them in their growth ambition. If you go to the next slide, please, operator, Slide 10. Our most recent acquisition, so JPS, this opens a new end market for Tasmea, but the same maintenance economics that we've run in the past. So we completed with JPS on the 3rd of August. This sits inside our mechanical segment that you'll see. You'll see in the image, there's over 10 producing LNG facilities across the country. This is about 20% of the global supply. So these plants are built, they're committed and they're running. So we see decades of operations, maintenance and shutdowns. We see this as our sweet spot. JPS is also considering and pursuing opportunities in the United States with some global customers that we already service in Australia. I'll hand over back to Stephen or Mark.

Thank you, Trent. Maybe just to round out Trent's comments, I urge those who are on the call that haven't already done so to review both Brendan Craig's comments for his FY '26 results. And likewise, Simon Trott you'll see that they share our outlook or maybe better put, we share their outlook, and they are excited about electrification and the fact that they are mining materials that they see will be an exceptional demand. I wanted to share that our compounding strategy is delivering value. And if we could turn to Slide 11, there are a couple of key messages. First of all, our twin pillar high-growth model is continuing to generate significant shareholder value. Our total shareholder return, as both Mark and I have mentioned, and we're very proud of, is 523% since IPO in April 2024. We seek to acquire #1 or #2 specialist operators at 4 to 5x earnings to EBIT, earnings value -- enterprise value to EBIT. We retain the leadership and that's really important. We get asked from time to time by shareholders, how can you manage so many businesses? The answer is we don't manage them. We direct the owner-operators who manage them and we support them to grow, but they do the day-to-day management. We grow earnings organically. We encourage cross-selling, which makes a significant contribution to our margin. Really importantly, we convert their earnings to cash. It's something that Mark monitors every week. And then that cash that's generated, we reinvest it in a disciplined manner. We are very disciplined about capital allocation into the next acquisition. That is the loop that you see on Slide 11, and it's absolutely critical. So our unique business model has delivered 38% earnings per share compound growth, high returns on capital employed, 38% at the 30th of June. We continue to expand our portfolio and diversify across key industries, which reduces risk overall. So it's interesting for those of you who were shareholders before we bought Maxim to consider whether post Maxim, we are more valuable, more diversified and less risky as a result of that acquisition. Obviously, we considered so, which is why we proceeded. Each business contracts and trades individually. Really importantly, Tasmea does not trade and the only parent company it's given is to our financier. So we've got the benefit of diversified customers, diversified commodities and diversified geography, reducing risk for the founders and all of our fellow shareholders. As we expand our specialist businesses, our cross-selling and organic growth accelerates and delivers strong compounding shareholder returns. It's very important, I think, to talk about alignment between us and yourselves. So we are led by founder directors who collectively own 54%. I've previously said in very Australian terms, we own a ship load of equity and we've got a lot of skin in the game. But really now very importantly, we've got more than 90 employees leaning into our results. They're included in our long-term incentive plan, which is now going to deliver most probably double the benefit they ever could have hoped when we achieve our numbers next year. Really importantly for us, I mentioned last year that we are focused on getting Jason's option package working to his benefit. Jason gets his first tranche of options today, and we hope that he will get. And obviously, our guidance would have him getting the next 2 tranches prior to the 30th of June or on the 30th of June '27 results release. Importantly, we've now put in place an options package. My apologies, we haven't put in place. We've proposed an option package for Trent that will go to shareholder approval at the upcoming AGM. The incentive plan runs for 5 years. It's tied to EBIT growth from $200 million in FY '27.

[Operator Instructions]

Hello. It's Stephen Young speaking. I understand that either my line dropped out or something similar happened. I'm back, and hopefully, everyone is still with us. I was announcing that we proposed a 5-year share options package for Trent Northover, our Executive Director, commencing the 1st of July '26, which will be approved by shareholders at the forthcoming AGM. Importantly, the incentive plan runs for 5 years and is tied to EBIT growth from $200 million, which is the guidance we've provided roughly in FY '27 to $600 million in FY '31, which requires an organic growth of 10% per annum. So we will continue to pursue our twin pillar strategy of organic growth and growth by acquisition. We will provide more details around that at the AGM. But I think just at a very high level, as set out on Page 12 in the navy blue box, 900,000 options every year for the next 5 years and the EBIT target goes up $100 million each year for the next 5 years. Whilst that may look like a stretch, it's worthwhile noting that our EBIT target this year has gone up by nearly that amount. Over to Jason now to talk about the conversion of our FY '27 pipeline.

Thanks, Stephen. If I could go to Slide 13, please, to discuss our pipeline. We have never had this much visibility this early on in any previous financial year. This is our highest ever pipeline. Our June guidance shown on the left-hand side, secured plus revenue plus tendered work was at $1.21 billion or 85% of the pipeline. Two months later, it is at $1.31 billion or 90% of the pipeline. That is the derisking of FY '27 happening in real time. We have more than 125 live Master Services Agreements with 5 recently executed and a number under current negotiation. MSAs are the reoccurring base. In regards to the contracts themselves, in the Electrical segment, Maxim has been successful with 2 data center contracts in Victoria. We've won more than $80 million of maintenance work at BHP. Tasman Power continues to win MSAs and MCA work throughout the Pilbara. Sigma Power Services has a record order book and Future Power was awarded recently the BHP Ministers North project, just to name a few. In mechanical, Forefront have an MSA in the U.S. GMS rig hire contract has been executed and TRA has won MSA with Fortescue. In the Civil segment, Flanco continue to win multiple contracts throughout the Goldfields and Northwest Mining and Civil have recently won a Rio Tinto Iron Ore rail contract with their Master Miner Works Agreement. If I could go to Slide 14, please. We're excited to provide an upgrade some 63 days after setting our original guidance because the demand shown previously has told us to. Like what Stephen has already touched on, our EBITA is up to $205 million to $210 million from $202 million to $208 million. Our NPATA is up to $130 million to $133 million, up from $128 million to $132 million. That's minimum growth of 74% and 76% on FY '26. What sits behind it all is a full 12 months of Maxim, 11 months of JPS and our continued 10% to 15% organic growth across our existing businesses. This is underpinned by our strong order book with major wins across our Electrical, Mechanical and Civil segments. We've had a very strong start to trading in FY '27, which was significantly up on the previous period of the same year. And as Stephen said, demand for our specialist services is as high as we have ever experienced. I will now hand over to Stephen for questions.

Thank you very much, operator. We're prepared to take questions now. I'll leave you to handle the mechanics.

[Operator Instructions] And your first question comes from the line of Jonathon Higgins from Unified Capital Partners.

Congratulations on the results and the early upgrade. Maybe just on the first one, on Jason's point, it sounds like you started the year up pretty strongly. You've got plenty of visibility. Just the dynamics that are driving that in particular? And is that something that picked up through the half?

Maybe I'll go first and my colleagues might want to add to that. We've had a very good July, both in terms of actual performance. So July was well in front of budget, which is exciting. July is a continuity of the last quarter of last year, which was exceptional. And some of the jobs that we've won, some of the MSAs that we have secured have all kicked into touch during July and we're quietly confident about the way both the year looks and importantly, how the first half looks.

Right. Good color. A couple more from me. Perhaps on the acquisitions. So you've got JPS and Maxim coming through. You've completed those businesses. You've called out those data center wins. Just wondering if you can tell us about sort of how long they run for or do they expand from here? And then also on JPS, you've also called out the U.S., I think, for the first time. Just wondering if you can tell us what that sort of looks like.

Yes, we can. Let me do with the U.S. bit, and then I'll hand over to Trent. There are a number of Australian operating customers who have asked both Forefront and JPS to go to the United States. We did that a couple of times last year with Forefront very successfully. Believe it or not, those customers think it's better value for us to put a team on a plane. They pay for them whilst they're on the plane and the airfares, go over, do the work and turn around and come home. That's very easy to say yes to that work. We're cautious about growing too quickly in the U.S. But in the event our clients want us, we'll meet our clients' expectations. I'll get Jason to try again. I get Trent to add to those comments and importantly, deal with the Maxim part.

I'll just finish on JPS. Yes, Stephen has been vocal and supportive of where the direction is. As he said, the customers have asked for us to go over. I'm supporting JPS in the next fortnight with 7 days of visits to see about 15 customers. So the interest is there, but it will always have to come back for Board approval around our expansion. But it's exciting that JPS have been asked to go there similar to when they went to Angola 4 weeks ago. With regards to Maxim query, Jono, the 2 contracts are enabling works with the existing customers. So we did see those through DD phase. And it's always nice to see not long after settlement that those are confirmed. So they are with existing customer and enabling works.

Excellent. I might go one more, if I can. You sort of talked towards the shortage and availability of power and sort of personnel in regards to that. And you guys are one of the few sort of now multiregional operators in the electrical space. When do you sort of think you'll see -- do you have a view on when you'll start to see the remote and sort of more flying fly electrical contracting work in DCs coming through for your business?

Let me just touch on that. And then again, I'll hand back to Trent. If you look at Australia's current data centers, they're all located in CBD locations. If you have a look at what's going on in the United States, that was where they were maybe 5 years ago, and there's been a lot now that have gone to Middle America and in particular, Texas. We think the trend will be the same in Australia that data centers will have to go to where land is cheaper, power is available and water is available. Australia is unlike the U.S., a population of 28 million that live essentially around the Australia's coastline in the capital cities. As you know, our business is focus on remote, and we've got Australia's largest remote workforce, blue-collar workforce. And we think we are uniquely positioned to take advantage of that trend as and when it happens. As Trent has already mentioned, there are well beyond the drawing board projects that are coming up in South Australia. We're aware that a couple of the hyperscalers have been having a look at the Pilbara, which again is our backyard. So we see that we are very well positioned for a trend that is emerging. I know Australia's data center operators organization, whatever they call themselves, announced yesterday that there's $46 billion of data centers committed over the next 3 years. These are just extraordinary numbers, and we'll do the very best we can to keep up with them, but that's most probably a number of multiples of the amount of electrical labor that's available to build them.

Yes, I can support that, Stephen, if you like. I think we've got over 2,000 sparkies in the group, Jono. I think you know that. So that will be a mix of FIFO, DIDO. That is what we're set up to do traditionally. What's important is we've got collaboration within the group. So the Maxim business are a fantastic bunch of people and have been very open to sharing some of their insights and their skills, and we're trying to get that collaboration happening within the group to make sure we're ready for the next phase.

Operator, we're ready for the next question, if there is one.

Your next question comes from the line of Amanda Kelly from Barrenjoey Capital Partners.