Verbrec Limited (VBC) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to our half year results webinar. My name is Mark Read, and I'm the Chief Executive Officer of Verbrec. I'd like to begin today by acknowledging the traditional custodians of the land on which we meet today and pay my respects to their elders, past and present. I'd also like to extend my thoughts to all Queensland and New South Wales residents who are currently battling the effects of Cyclone Alfred, all the best. Due to the cyclone, though, in Queensland, my support team may have connectivity issues. And as such, we'll review any questions asked throughout this session and we'll respond after this webinar. This presentation may contain forward-looking statements and forecasts, but the information should not, I repeat, not be relied upon to make a judgment of future performance or results. Per usual, Verbrec is not providing any earnings or revenue guidance for the full year in this presentation. First up some highlights for the half year. We've achieved higher period-on-period gross margins, establishing another multiyear high. In fact, this is our third profitable period in a row. Our unweighted opportunities and work in hand have increased since our last publication, though as I'll cover later, much of which is expected to land in financial year 2026. We've utilized cash reserves to pay down debt and owner's equity has increased. We are living and breathing our strategy, becoming a recognized partner for a sustainable future with an increased proportion of revenues being generated from energy and gas market transition sectors. For those of you who are not familiar with the Verbrec's story, I'll briefly cover who we are and how we add value to our clients. Verbrec is a leading professional services company operating out of Australia and the Pacific. We have 3 core markets: energy, mining and infrastructure. Through strong relationships built on trust, Verbrec enables a sustainable future for our clients and their customers. Our focus, electrification of everything and the gas market transition. This slide shows some of our blue-chip relationship clients leading the way in the evolving energy landscape. Our strategy requires a deep understanding of our clients' needs and their sustainability development road map. It is through this deep understanding that Verbrec will continue to deploy its capability and become a recognized partner for a sustainable future. Verbrec adds value across the entire life cycle of our clients' assets. We forge strong long-lasting relationships with our clients. A substantial proportion of our revenue is generated through multiyear operational contracts and multiyear panel agreement. I'd now like to turn to the main focus of this webinar that is presenting our financial results for the first half of the financial year and also provide some commentary on our outlook and strategy for the future. We have posted our third profitable half year period in a row. We now have a solid foundation on which to grow, supported by our sustained higher gross margins. Our revenues in the first half were affected by several factors, including political uncertainty, the economic downturn in New Zealand and reduced capital expenditure from our mining clients. Along with this, a trend we encountered was a deferral of opportunities we expected to be awarded in the first half, which now appear more likely to come online in financial year 2026. It is important to note here, though, that this appears to be deferred client expenditure, not canceled projects. Our work in hand is $3 million stronger than we posted a few months ago, and our opportunity pipeline is over $30 million stronger. This indicates to us that these conditions are temporary and we'll see some recovery in 2026. This slide shows some statistics on our source of revenue. A key point to note, revenue from the mining sector is down. The orange segments in the middle of the chart, as you can see on the right there. And this is not surprising given the financial performance of the major mining companies in the first half. But fortunately, the bulk of our revenues are generated from the energy sector where the proportion of revenue has increased. This aligns with our focus on energy security, decarbonization and gas market transition. As a company, we continue to strengthen. We've improved our balance sheet and cash remains stable while we pay down our loans. Owner's equity has increased from $19.1 million to $20.5 million. You will see from this graph that our results in the first half of financial year 2025, consistent with those produced in the second half of financial year 2024. Albeit we didn't see the revenue growth we're hoping for, we maintained levels of revenue performance due to our relationship client approach and growth from the energy sector, particularly gas market transition. We'll talk more on the EBITDA results on the next slide. The table on this slide bridges NPAT to adjusted EBITDA. Adjusted EBITDA is the EBITDA disregarding the impacts of the performance rights. In our view, this is a balanced way to present these figures given the performance rights expenses in this period are higher than previous periods due to the introduction of our new performance rights scheme. Between the first and second half of financial year 2024, you can see that the impacts of revenue reduction have been offset in part by management's focus on reducing overheads and introducing a more disciplined approach to selecting and delivering on our portfolio of projects. Importantly, this groundwork has left us in a position where we are comfortable that the company can remain profitable at a lower revenue base than would previously have been possible. We expect that when revenues do grow, it will flow to our bottom line more effectively and efficiently than it has in the past. Given we believe the opportunity deferrals trend to be temporary, you'll note that between the second half 2024 and first half 2025, we have invested in growth, including bringing on some talented people to help us secure a greater share of those energy transition projects into the future. This slide shows our forward pipeline. On the left is our weighted forward pipeline. Since we last published this pipeline, work in hand has increased by over $3 million and weighted opportunities have increased by over $30 million. This gives us a lot of optimism for the future and the growth potential for Verbrec. After considering factors including the changing political landscape, delayed projects and capital expenditure reduction in the mining sector, we've revised our weighted pipeline for the remainder of 2025. This is provided in the table on the right-hand side of this slide. It is our expectation that many of the deferred opportunities will reach award decision in the first half of financial year 2026 rather than the second half of financial year 2025. Opportunity pipelines are, by their nature, ever changing with opportunities being won and lost, added and removed on almost a daily basis. This is an internal management tool that we monitor very closely. I'd like to spend some time talking about the energy transition in Australia and the Pacific and the exciting projects that Verbrec has been working on, contributing to the energy security for our clients and the communities they serve. AEMO's 2024 Integrated System Plan lays out a proposed road map to net zero by 2050. They predict that whilst coal-fired generation retires substantially by 2035, Australia's energy consumption will increase. There's a tremendous amount of investment required to reach this goal with AEMO predicting a net present value of $122 billion annualized by 2050. The Australian Energy Transitions Initiative (sic) [ Australian Industry Energy Transitions Initiative ] report provides this investment required to transition the energy system could actually be as high as $625 billion by 2050. The truth is no one really knows exactly how the transition will play out or what the overall investment will be, but Verbrec is working with our clients and their advisers developing the right strategies to deal with it. As it is becoming more and more well understood, there will be an increasing need for flexible and peaking gas to firm an energy system with a renewable baseload fuel. At the same time, traditional mid-merit baseload gas will shrink, and it's expected that much of the retiring mid-merit gas infrastructure will need to be repurposed or replaced. This gas market transition is one of Verbrec's key areas of specialty. Batteries is a firming technology for intermittent renewable energy storage is -- sorry, a key for intermittent renewable energy storage and Australia appears to be embracing the technology quite quickly as solar and wind-based power becomes more prevalent. AEMO predicts just in the next 5 years, the increase in storage capacity will more than double. On the right of this slide, you can see AEMO's prediction for the rising demand for skilled labor required to install, maintain and operate Australia's battery infrastructure, another key area of focus of Verbrec. This all plays into Verbrec's strategy for growth. Energy transition is a strong focus for us as we continue to work closely with our clients to enable their energy transition goals. It is through a combination of organic growth, including geographic expansion, we will maintain the revenues we're able to achieve from our panel agreement and operations and maintenance contracts. And not -- should I say not only maintain, we will maximize and grow the revenues we're able to achieve. I will talk to our innovative digital twin product, StacksOn later on in this presentation. Verbrec's strength is in its ability to collaborate with clients early, adding value throughout the entire life cycle of an asset, a one-stop shop, if you like, leading to a genuine long-term client relationship. We often engage with clients early to conduct studies, select technologies for investment and funding decisions. We then build on this early start by engineering innovative solutions, supporting our clients to reduce their capital investment costs and maximizing their asset returns. We partner for construction, providing turnkey construction services or acting as owners engineers. In addition, we provide our clients with asset management services where we integrate the best early to develop methodologies and operational practices to increase efficiency, reduce asset costs and improve productivity. Verbrec endeavor to partner to operate our clients' assets over the long term, prioritizing uninterrupted and efficient operation of assets. We currently manage 1,800 kilometers of pipelines and associated assets across Australia. And when an asset comes to the end of its useful life, Verbrec is there to work with our clients to repurpose the asset or support them in the decommissioning process. This slide shows a selection of energy transition projects where Verbrec were at the table early developing solutions from concept. In the case of the Broadlands biogas upgrade facility, which Verbrec also designed, First Renewables recently announced that it is now in production, a significant milestone for New Zealand's renewable energy mix. We expect many more biogas facilities into the future, both in Australia and New Zealand. Verbrec continues to contribute to Australia's energy security story through our innovative engineering. This is exemplified by the energy -- the engineering work we undertook to support the onshore design and procurement for Australia's first LNG import terminal, the first of a number likely to be built in Australia. And we are also currently working on an LNG import concept for Papua New Guinea. We install, construct and commission some of our designs. Verbrec designed the electrical and control system infrastructure upgrade at the M Berth fuel import facility in Port Adelaide. We were then awarded the $4.2 million contract to undertake the installation of that design. This is a great project for us, leveraging our strengths as we provide an upgraded control and electrical system for fire safety at Adelaide's most critical fuel import terminal. We provide professional asset management services to our clients, specializing in operational readiness and extension of life programs to help our clients get the most out of their assets. By partnering with Verbrec, clients are confident their assets will operate efficiently and effectively. We are currently providing operational readiness support for Australia's largest approved battery storage project for Origin Energy. Verbrec operates gas pipelines and process plants throughout Australia with approximately 1,800 kilometers of pipeline under management. These are multiyear contracts undertaking services stipulated by regulations, and we're often the first port of call for additional maintenance and repair work for those assets. I was really pleased to see that Verbrec were awarded a 5-year extension for the Roma Gas Pipeline in Queensland and 5 pipelines in the Bass and Otway basins in Victoria, a testament to the quality of the services we provide our clients. Our competency training group specializes in delivering courses and providing qualifications for clients in areas such as hazardous operations, high-voltage, electrical and renewable energy. 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 for the Australian market. It's Competency Training's impressive reputation in the market, which has secured greater market share and it continues to grow rapidly. Competency Training has increased its domestic operations footprint from 6 to 12 locations since 2023. StacksOn, our digital twin for stockyards, enabling on-spec product in challenging conditions while increasing throughput and reducing downtime. Revenues are generated through a blend of software license fees and ongoing support and consulting services. Growth in the StacksOn business requires expansion into more of the iron ore market, both in Western Australia and globally as well as maximizing utility and introducing new features to keep the product sticky and increase annual license fees from each stockyard. We are actively discussing this product with major iron ore providers in Australia. Also, we are focusing efforts on expanding into other commodity markets and stockyards to grow StacksOn's footprint and user base. So some concluding remarks. The Board and management of Verbrec have worked exceptionally hard over the prior half to maintain profitability in a choppy revenue environment. Our opportunities pipeline and work in hand is growing, and we expect deferred client opportunities to start to reach award decision in financial year 2026. We have reduced our debt and maintained a stable cash balance. We are repairing our balance sheet and have optimized our operations to produce revenues at higher gross margins. Our strategy is in place and active, and we have foundations set for profitable growth. I'm genuinely excited about the very bright future I see for the company and the role we can play in enabling sustainable future for our clients. As I mentioned at the start of the presentation, due to the cyclone in Queensland, my support team may have connectivity issues. And so proposing we review any questions asked throughout this session, and we'll respond after the seminar. As usual you're welcome to reach out to myself or send an e-mail to [email protected] with any questions you might have. Thank you very much for your audience today. I wish you all the best. Thank you.

Goodbye.