Verbrec Limited (VBC) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. With great pleasure, I'm here to present to you Verbrec full year financial results. My name is Mark Read, I'm Chief Executive Officer of Verbrec. Here with me today is Richard Aden, Verbrec CFO; and Joel Voss, Company Secretary. I'd like to begin today by acknowledging the traditional custodians of the land on which we meet today and pay my respect to their elder's past, present and emerging. This presentation may contain forward-looking statements and forecasts, but the information should not should not be relied upon to make a judgment of future performance or results. At this time, Verbrec is not providing any earnings or revenue guidance for the full year. Verbrec, for those who need a refresher, is a leading engineering, asset management, infrastructure, training and mining technology provider operating out of Australia, New Zealand, Papua New Guinea and the Pacific Islands. Through strong relationships with our blue chip clients, Verbrec enables businesses to transition to a more sustainable future. We offer traditional services with emerging skill sets to address the electrification of everything the transition of the gas market from a baseload fuel source to a peaking fuel source and support clients on their journey as they look to capitalize on investments in sustainable technologies. This focus has led us to refresh our strategy for growth, which I'll get into later in this presentation. What differentiates Verbrec from our competitors is that we provide services across the entire life cycle of a client's assets. We are effectively a one-stop shop for our clients. This means that Verbrec is in a unique position to create a truly long-term relationship, long-term partnership with our clients. Let's start with engineering. Through our robust engineering approach, we add significant value to our clients from the concept and feasibility stages of the project through to a fit-for-purpose detailed design. We've been able to step through into procurement, construction and commissioning either directly by providing a turnkey construction experience or as an owner's engineer managing quality and schedule on behalf of our clients. The next segment is asset management, where we integrate the best early to develop methodologies and operational practices to increase efficiency, reduce asset costs and improve productivity. Our Infrastructure Services division stays on that journey, physically managing the asset, offering best-in-class on-site operations and maintenance services. As an example, we are currently operating and maintaining over 2,000 kilometers of gas pipeline in Australia. And finally, our training division provides targeted education to clients in the growth areas of high voltage, hazardous areas and renewable energy solutions, ensuring that our clients' teams are suitably qualified to construct and operate their assets and sites. We think of financial year 2024 as a recovery period where we took the time to close out some underperforming projects and divisions that were holding us back and set a new foundation for profitability and growth. The outcome has been particularly pleasing. Over the next slides, I'll walk you through our financial results for financial year 2024. On an absolute basis, we have achieved the best EBITDA and profit margin performance since Verbrec was formed by the merger of OSD and LogiCamms in 2019. Indeed, we've achieved the best EBITDA and profit for our business since financial year 2015. This is an $11.5 million turnaround of comprehensive profit from financial year 2023 to financial year 2024. You'll note that our revenues have reduced slightly, but it's important for us to advise you that we don't see this as a point of concern. It's primarily due to more diligent and focused approach to clients and projects that we have taken on, ensuring that they have favorable economic prospects. This approach means we have produced a far better return on our revenues than in previous years. Importantly, we have passed all our banking covenants in both the half and full year. In this graph, we sketch out our gross profits and revenues on both an absolute and margin scale. You'll notice from the bars in green from FY 2020 onwards, which was the first period post-merger, the additional EBITDA generated on our revenues are over and above what was achieved in the previous years. The results shown for financial year '23 and '24 are now provided on a continuing operations basis, which, in our view, is a more appropriate way to view the business given the impacts like the vesting part of the training business won't affect results moving forward. Other than presenting these reports from the perspective of continuing operations, the financial year 2024 results statutory and are not otherwise normal. On this slide, we present some points of note from our profit and loss statements, balance sheet and cash flow statement. Importantly, we have reduced our liability over the past financial year from $41 million to $28 million, while owners equity has increased from $13 million to $19 million. We have also produced an operating cash inflow of $2 million, contrasting with the net outflow in financial year '23. Pleasingly, our cash reserves at the end of the period remained stable. Where we think of last year as a year of recovery, we are looking ahead to financial year 2025 as a year of sustainable and profitable growth. In this slide, we present a view of the financial year '25 outlook. Importantly, we have been careful to filter the commentary here to opportunities that we expect to be awarded in this year. Over the past year, we placed a great emphasis on improving our win rates. With this in mind, it's pleasing to report that Verbrec increased its efficiency in converting opportunities to contract award in 2024 with an average tender win rate of 36% against 31% in the previous year. Our expectation is that we will equal or better this win rate in Financial Year 2025. I'd like to highlight that there's another segment, a fourth part of the funnel, if you like, where we track opportunities beyond 2025. Many other companies opt to include this in their results. There are more blue sky future year opportunities and a less useful for analysis. As a result, it's our preference to keep those only for internal management purposes at this point in time and present this filter view for investors. In the next couple of slides, I'd like to talk about our refreshed strategy we developed in financial year 2024 and how we're going to achieve growth in '25. We recognize that as the market evolves, so must our strategy, we have taken a ground-up approach to developing a strategic direction that maximizes Verbrec's potential and closely aligns with our clients' journey to achieve a net 0 future. This starts with our clients. We are fortunate to partner with a number of very loyal blue-chip organizations that make up a material portion of our revenues. It is our goal through a key account management and strategic business development to be a provider of choice for those organizations in the areas where we currently excel and be recognized as their partner of choice for a sustainable future. But we won't get there without the best people. We have a solid and talented group of people serving our client base, delivering great projects, but we need more. There is so much happening in our industry with the drive to a more sustainable future that we are continually searching to ensure we have the broadest capability set to serve today's projects and tomorrow's initiatives. We have empowered our management team to partner with the right groups to deliver solutions to our clients who are on this sustainability journey. In part, this will require us to embrace and understand new and emerging technologies in order to become an enabler of client success in energy transition and decarbonization. We also need to learn from the past. We will continue to drive to improve our delivery on time and to budget solidifying our reputation and reliability with our relationship clients and eliminate those things in our business that erode growth margins and hinder their efficient conversion in the bottom line profit. In 2025, we expect to grow our revenue and profits. And in this slide, I'll go over the ways we will achieve that. Firstly, we have a great set of blue-chip clients, and we're poised through our performance to secure a greater portion of their portfolio projects. Through this relationship focus, we expect to achieve organic growth and increase our market share in areas where we are strong. Geographic expansion is key on the list. We've made good inroads into the Western Australian market through our asset management and infrastructure services teams and expect there to be further growth in this region as we build local track record and capability. Our competency training business has increased its footprint from 6 locations to 11 over the past financial year, driven by increased demand for qualified electrical labor to support bits on their energy transition journeys. And our innovative digital twin for the mining industry stacks on is making a real difference and producing meaningful efficiencies and returns for the clients who have adopted it. For StacksOn, we're really at the beginning of the journey. We have a lot of iron ore clients in Western Australia who would benefit greatly from adopting this technology and are investigating how to adapt the software to suit other commodities like coal on the East Coast and copper in South Australia. The energy transition is the other major pillar of our growth strategy, which I'll focus on later in the presentation. We have four sustainable focus areas at Verbrec. These are the areas where we see ourselves best fitting into the evolving energy landscape and our clients' sustainability journeys. It's the sweet spot where our in-house capability is well suited to adapt to our clients' changing goals and assets. The first of our four sustainable focus areas is Electrification and Energy Storage. You will know that I've read in the media commentary about this and be aware that the energy transition is well and truly underway. Right now, there are a lot of opportunities in early-stage concept and feasibility study areas, but as industry funding grows and the cost of renewable energy decreases, we will see many more opportunities emerge through concept and selection, engineering design, operational readiness, installation and ongoing asset operations and optimization. There are a lot of smaller specialists in this area, too. So Verbrec is actively working to increase its partnerships to provide a broader skill base to its clients, where in-house capability is not yet economically justified. The point I'd like to emphasize here is that this is core business for Verbrec. We are already working in this space, providing innovative solutions on things like system modeling, battery technology trials investigating geothermal energy and hydro-energy solutions and actively pursuing opportunities to more meaningfully contribute to the solar and wind energy sectors. A particular area of focus for Verbrec is the gas market transition. This fully aligns with Verbrec's core capabilities and client base. It is a critical area where Verbrec can maximize its offering as we transition from gas as a baseload fuel to a firming or peaking fuel. Peaking gas-fired generators will play a crucial role as an on-demand fuel source during extended periods of low renewable energy output as significant coal-fired generators retire. But this isn't the entire story as gas peaking isn't the only consideration in this space. Verbrec is already well established in this area, undertaking services for clients on their peaking gas plants along with biogas projects, hydrogen, carbon capture and storage and other emerging technologies. This is an exciting time, and Verbrec is at the heart of it. Along with providing training, Verbrec traditionally services the mining technology sector with automation and control, instrumentation and asset management services designed to optimize mining assets and supply chains. We are well positioned to continue to support these clients on their sustainability and efficiency journey as they seek to meet their net 0 goals. As I noted earlier, Verbrec's digital twin product stacks on enables our mining clients to deliver on spec product in challenging conditions, while increasing throughput and reducing downtime, contributing to more profitable, sustainable stock yard management. Verbrec is also an important contributor to water security through Australia and New Zealand. We provide our expertise to water authorities and other partners in this clinical industry by designing, constructing and maintaining water assets including traditional water infrastructure, desalination plants and water treatment facilities. We also advise our clients on the efficient use transport, storage and treatment of water utilized in heavy industry and mining operations. Allow me to provide a little more context. Graph on this page, as detailed in our AEMO's 2024 integrated system plan demonstrate the magnitude of the additional capacity and investment required for the evolving energy landscape in Australia. Energy storage will need to increase more than 15-fold by 2050. Gas peaking plant capacity will need to significantly increase while much of the traditional gas market assets will need to be decommissioned or retrofitted and repurposed. Energy consumption is predicted to nearly double by 2050. AEMO predicts that the optimal development path will require a net present value of $122 billion an annualized capital costs, whereas the Australian industry energy transitions initiative has placed the investment closer to an absolutely staggering $625 billion. It's a similar story in New Zealand, where we also have a strong presence. The truth is that no one really knows exactly how the transition will play out or what the overall investment will be. But Verbrec is there. we are working with our clients and their advisers developing the right strategies to deal with them. Because of this, it's important we remain flexible. And as investment in this space continues to grow we are there with the capability to support our clients and delivery partners. And we are already well on the way. This chart shows that are three main core markets in our three main core markets, more than 33% of our product project portfolio comes from our sustainable focus areas. We expect this to grow over time as industry continues its transition to a more sustainable future. Now I'd like to talk to you about some of the really exciting projects that we've been delivering over the past financial year. I'll only select one example from each of the following slides to discuss in more detail, but I really hope that you take the time to look over the others to get an understanding of the important role that Verbrec is playing in the market at the moment. Firstly, near the end of the financial year, we secured our first multiyear pipeline operations and maintenance contracted in Western Australia. Pipeline operations is a core service offering of our infrastructure services team and provides a predictable multiyear base line of revenues for the group. Western Australia is served by relatively few competitors in this space. So breaking into this market is a real achievement for Verbrec and gives us the opportunity to introduce our competitive offering into this region and secure greater market share. Our competency training group specializes in delivering courses and providing qualifications for clients in such areas as hazardous operation, high voltage, electrical and renewable energy. It's interesting to note that we are seeing growing demand from international customers looking for better training and competency assessment to meet the stringent electrical standards required by the Australian market. Its competency training is impressive reputation in this market which has secured greater market share, and it's growing rapidly. And it's not just internationally. As I noticed earlier -- as I noted earlier, competency training has increased its domestic operating footprint from 6 to 11 locations in 2024. As the demand for qualified electrical trades continues to grow. Verbrec derives the bulk of its revenues from the Energy Markets segment. As an example, a great example is the design and construction support we provided in support of construction of Australia's first LNG import and regasification terminal at Port Campbell in New South Wales. This critical project will shore up supply of gas for most of New South Wales and Victoria's needs and will help to smooth out the potential critical gas shortages in those states over the next couple of years. As imported LNG becomes more and more competitive with domestic supply, Verbrec's expertise in this area will see us in an optimal position to deliver similar projects into the future. Next section, I'd like to briefly cover our corporate profile. Our share price has seen positive momentum in the second half of financial year 2024, boosted by our improved results announced at the half year. Our market cap is now in excess of $40 million with approximately 288 million shares on this year. You will also note the Board and key management personnel hold shares in the company, many bought on market or as part of our recent capital raising. In fact, 10% of the proceeds of our most recent capital raising was directly contributed by the Board and our executive leadership team, demonstrating their strong belief in the future prospects of Verbrec. Another pleasing part of the recent capital raising was the support from our long-standing institutional investors and a number of new institutions that have now invested in urban. So some concluding remarks. The Board and management of Verbrec worked extremely hard over the past financial year to set a new foundation for profitability and growth. The outcome is self-evident with the highest profit since 2015 and the highest profit margin since the merger of OSD and LogiCamm in 2019. We've repaired our balance sheet and have optimized our operations to reduce revenues at dramatically reduced cost of sales. Our new strategy is in place and active. We are now in a position to grow our revenues and profits in financial year 2025. Our growth targeted business units, including asset management, infrastructure services and competency training are performing strongly, and we anticipate that trend to continue. Returning to produce dividend for our shareholders also remains a core goal for us. And with that, I'll check to see if we have any questions submitted through the webinar. Joel?

There's no other questions.

No question. Okay. In that case, may I finish by saying I'm genuinely excited about the very bright future. I and the Board of Management Board and management to see the company and see for the company and the role we can play in enabling sustainable future for our clients. Thank you very much for attending today.