Verbrec Limited (VBC) Earnings Call Transcript & Summary

[Audio Gap] this afternoon by Richard Aden, our Chief Financial Officer; and Joel Voss, our Company Secretary. Financial year 2026 has been the most significant year in Verbrec's recent history. We divested a business, we acquired a business. We grew revenue by more than 50%, strengthened the balance sheet and increased dividends. Today, I'll take you through the Verbrec highlights. the commitments we have delivered against, who we are today, our financial performance and our outlook and guidance for financial year 2027. This presentation contains forward-looking statements and forecasts. The statements should not -- should not be relied upon as a guarantee of future performance or results. And unlike prior years, this presentation does include earnings guidance for financial year '27, which I'll come to later. Let me start with the headline numbers. Revenue from continuing operations grew 52% to $118.5 million. Adjusted EBITDA grew 47% to $8.7 million. Net profit after tax before the amortization of acquired intangibles has more than doubled, up 107% to $4.2 million. Our cash and cash equivalents increased 182% and up from $7.1 million to the $20.2 million this year. Our balance sheet is materially stronger. Our net cash position, that's cash less borrowings was $11.7 million against the $2.3 million a year ago. And we have declared total dividends of $0.25 per share for financial year '26, an interim of $0.01 and a final of $0.015. This is a 150% increase on financial year '25. During '26, we divested competency training. So that business is presented as a discontinued operation and the financial year '25 comparatives have been restated on the same basis. The $77.9 million financial year '25 revenue figure on these slides is the restated continuing operations number, not the $85.6 million we reported last year, and every growth rate in this presentation is a like-for-like comparison. Before I go to the numbers in detail, I'd like to spend a moment on this slide because it actually matters more to me than any other slide in this deck. Over the last 3 years, this Board and this management team have made a series of specific public commitments to shareholders. We keep track of them internally. In 2023, we said we'd divest the unprofitable parts of the training business and return the company to profitability. By 2024, we had done both. We said we would grow the proportion of revenue from relationship clients and improve gross margins. Both have moved in the right direction year after year. We said we will restore a net cash position on parcel on banking covenants. Net cash was restored in 2025 and stands at $11.7 million today. Every covenant has been passed since we made that commitment. We've said we'd reintroduce a dividend. In 2025, we did, for the first time in over a decade, and now we are growing. We said we would consider acquisitions aligned with our strategy and release capital from noncore assets. We acquired Alliance Automation from Telstra, and we sold competency training to rely on Australia. We said we would grow revenues in financial year 2026 and deliver against guidance, and we did. 10 commitments 10 delivered. We are proud of our track record and aim to continue to deliver against our future commitments. This slide summarizes why we believe Verbrec is a compelling investment story today. We have made -- we have strong growth. Revenue was up 52%, adjusted EBITDA are up 47%. We have strong visibility, work in hand is up 77% to $78 million and our opportunities pipeline has more than doubled, up 111% to $277 million. For financial year 2027, we are guiding revenue of $140 million to $160 million and adjusted EBITDA of $10 million to $12 million. Half of our financial year '26 revenue was repeatable or recurring generated under multiyear panel agreements and operations and maintenance contracts. We have a strong balance sheet. We are cash generative with a balance sheet that can fund further bolt-on acquisitions without material dilution. And lastly, we have a strong strategy and our go-to-market strategy has not changed. We land early through advisory order feasibility in front eng engineering. We embed our teams alongside our clients. We expand by cross-selling across the life cycle of the asset and we compound that into multiyear recurring revenue. For those of you who are not familiar with the Verbrec story, I'll cover who we are today. Verbrec is an integrated engineering and digital transformation company operating across Australia, New Zealand and the Pacific. We work in the energy, mining, water and defense industries. What makes us different is that we work across the entire life cycle of an asset. We advise, plan and secure. We design and engineering. We control automation and integrate. We build commission and operate. We improve, optimize and extend. And when the asset reaches the end of its life, we decommission, repurpose and close it out. Very few companies of our size can do all 6 means we can enter a client relationship at any point and stay in it for many years and future designs are constantly being improved by applying our operations and maintenance experiences. Below that, you will see our 6 growth markets to pick up just a couple of those markets. First one, gas market transition, electrification and energy storage. Australia's East Coast is facing a gas fit gap and much of the infrastructure that moves gas around the country is aging. That means new pipelines, new compression and life extension on the assets already in the ground. We designed that infrastructure, we build it and then we operate it. The Beetaloo Basin in the Northern Territory is 1 of the most significant new gas developments in the country. We are already working on it. The electricity grid is being rebuilt. The scale of this country is not attempted before, and data center demand is now adding to that mode. Enormous capital is flowing in. Our contribution is power systems, electric and high-voltage engineering, building management systems and operational readiness work. Every phase of that cycle has worked for us and it is in the market we know best. Automation, machine learning and cybersecurity. Our clients are replacing legacy technology, chasing asset efficiency and trying to turn the operational data they already own into decisions they can act on. This is the capability that Alliance Automation brings to our portfolio. Much of it is recurring, and we sell it to existing clients. A great deal of Australia's critical infrastructure was designed to build long before anyone to contemplate are being attacked and control systems or emphasis isolated on the plant and they now find they're connected. So we can offer digital -- so we can offer digital transformation aligned with the latest in cybersecurity standards and requirements. There's not many that can offer both those capabilities under 1 roof. In summary, Verbrec is positioned where Australia's infrastructure spend is expected to grow. We operate under 5 brands, Verbrec engineering services, delivering multidiscipline engineering and project delivery for concept and feed, front-end engineering design through to EPC construction and commissioning. Verbrec Asset Management that improves efficiency, reduces cost and extend asset life with a specialist SAP and data management capability. Verbrec operations and maintenance cost effectively and reliably operates more than 2,000 kilometers of critical gas pipeline and the associated compression and process plan. Alliance Automation acquired in December 2025, it's one of Australia's leading independent industrial automation, cybersecurity and electrical engineering firms. And StacksOn in is our own digital twin software for mining stockyard management licensed on a software-as-a-service basis and deployed at every BHP iron ore mine and port in Western Australia. This slide is new this year, and it's here because Alliance Automation is the biggest change, the single biggest change, the single biggest opportunity for Verbrec in financial year 2026. Alliance brings us industrial automation and control, cybersecurity for operating assets, data and machine learning, electrical instrument execution and project and program management. In the 7 years we owned it during '26, Alliance produced $39 million of revenue. We expect to see revenue growth as Verbrec offers a broader range of services to our existing clients as well as increasing our client numbers. But the number I'd like to focus you on is the margin. In the period before we owned it, Alliance was running at an EBITDA margin of about 1.1%. In the 7 months under Verbrec ownership, that has improved to 4.8%. And a lot of that is credit to the great management team we acquired along with the Alliance Automation transaction, who now have more flexibility to improve their business operations and delivery. Strategy is similar to the journey Verbrec went on between 2023 and 2025. It's about being more selective about the work we take on delivering it more effectively and holding the overhead base down while revenue grows. We can already demonstrate the impacts and it's only just the beginning. There's more to come. The revenue base and the scale of this acquisition gives us real integration benefits to realize over time, and our stated goal remains to bring group margins to 8% to 10% on a much larger revenue base. As I discussed previously, our whole of life business model builds very strong long-term client relationships. These relationships are what generate our reliable revenue. We have 20 key clients, 87 multiyear panel agreements and 15 multiyear operations and maintenance contracts. Over 60% of our revenue in financial year '26 came from our top 20 relationship clients and 50% came from multiyear agreements. Looking at the sector chart on the left, we are a business overwhelmingly weighted to energy at around 60% of revenue. Today, we are genuinely diversified. We now have over 700 team members across 14 regional locations in Australia, New Zealand and Papua New Guinea and clients in every state of Australia. Three projects from the year that show what the combined group can do. And the first one, the McArthur River Pipeline bidirectional upgrade for Power and Water Corporation with an approximate value of $21 million. This project will help unlock first commercial gas from the Beetaloo subbasin and materially strengthened security of gas supply in the Northern Territory and beyond. We are supporting one of the most significant new gas developments in Australia. The second Alliance Automation has been engaged to modernize the distributed control system at Kalgoorlie consolidated gold mine, the super pit, if you like. This is recognized as one of the largest automation and modernization projects in Australia's gold sector upgrading legacy infrastructure to improve reliability and operational performance across mining and processing systems. And thirdly, South Australia Waters regional desalination program, providing sustainable potable water to the remote communities of Oodnadatta, Marla and Maree. Verbrec provides site-wide electrical design, switchboards and control panels, balance of plant control systems and integration into SA Water SCADA system by satellite with 4G backup. Gas, gold and water. A year ago, only one of these 3 projects would have been ours with Verbrec and Alliance Automation capabilities combined, a larger world of projects opens up for us. I'll now turn to our financial results for the year. This slide tells the Verbrec's story over the last 4 years in 2 charts from '23 to financial year '25, we're in turnaround and repair. We deliberately shrank the revenue line, walked away from work that did not make money, and we rebuilt our margins and our overhead base. Over that period, adjusted EBITDA went from a loss of around $3 million to a profit of $6 million on a smaller revenue base. Financial year 2026 is the start of the growth phase, which is evident from our year-on-year revenue and EBITDA growth. While some major energy projects were delayed during financial year '26 due to political, geopolitical uncertainty, we did not see the project cancellations. We are now seeing these opportunities reemerge supporting growth into 2027. We spent 3 years building a business that sustained profitability, and now we are in a growth phase. Our cash position too has been transformed. Net cash has grown from $2.3 million in June '25 to $11.7 million in June '26. On dividends, last year, we paid a final dividend of $0.01 per share, a first in more than a decade. This year we declared a total of $0.0225 per share. Turning to profit and loss for continuing operations. Revenue of $118 million against $77.9 million. Gross profit of $42.1 million at a gross margin of 35.5%, up from 34.8%. So we are converting revenue to gross profit more efficiently than last year on a much larger revenue base with a materially different business mix. Adjusted EBITDA of $8.7 million, up 47%. I want to address the adjusted EBITDA margin directly because it moved from 7.6% last year to 7.3%. We acquired a business in Alliance Automation that was running at a 1.1% margin. We have already lifted it to 4.8% in 7 months, but it's still below the group average. So while we're improving it, it still dilutes the group number. Our gross margins have improved, and the underlying trend is moving in the right direction. Our stated goal remains 8% to 10% over time. And most of the integration work that gets us there is in front of us, not behind us. This slide reconciles the continuing operations result to our statutory result. I don't really plan to spend too much time on this slide. The principal difference is the divestment of competency training, which after the disposal of assets, liabilities and goodwill netted a gain on sale of $6.8 million. I would encourage you to focus on the continuing operations numbers as it is a much better guide to the underlying business. The outcome of this sale is really our strong cash position to let us invest in further growth. Our balance sheet is the strongest it's been in many years. Total assets of $82 million, up from $49.5 million. Total equity of $34.6 million, up 45%. Trade and other receivables have grown to $21.3 million and contract assets to $5.1 million, both consistent with our business that is 52% larger. Cash flows from operations was $5.8 million against $6.5 million last year. The $5.8 million is after paying the external costs of both the competency training divestment and the Alliance Automation acquisition. Excluding those one-off transaction costs, operating cash inflow was $6.8 million ahead of last year. We closed the year with $20.2 million in cash and cash equivalents, including those in the term deposits. Let me turn to the outlook and to our guidance for financial year '27. Our forward revenue has improved significantly. Work in hand on a forward 12-month look-ahead basis increased 77% to $78 million. The opportunity pipeline now stands at $277 million, a 111% increase from the $131 million of a year ago. I want to be clear about what's in that pipeline number because definitions vary between companies. We only include opportunities where we have an active submitted proposal with the client. Prospects and leads attract internally, but are not reported in these numbers. The growth in both numbers is a direct result of the Alliance Automation acquisition and of our 2 businesses jointly developing proposals for clients we have in common, that cross-selling was the central thesis of the acquisition, and I'm happy to say it's working. We met our guidance in 2026, delivering $118.5 million revenue against the guidance of $110 million to $120 million and adjusted EBITDA of $8.7 million against the guidance range of $8 million to $10 million. Our guidance is based on the track record of delivery, improved visibility and substantially larger business than the one we operated 2 years ago. So for 2027, we expect revenue of $140 million to $160 million from continuing ops and adjusted EBITDA of $10 million to $12 million. At the midpoint, that revenue guidance implies compound growth of 39% from financial year '25 to '27. The markets we serve have strong structural tailwinds and energy security and sovereignty is now a national priority. Gas pipeline investment continues as the energy mix evolves, and we are seeing engineering and EPC opportunities for new gas infrastructure. The Beetaloo Basin in the Northern Territory is a high priority area for us as is the emerging room trough in Queensland. Moving to electrification and energy storage. Grid upgrades are happening at unprecedented scale nationally and AEMO has forecast an energy shortfall by 2029. Data center development is likely to require a mix of traditional and renewable generation and battery storage. Then there is smart mining and critical minerals. Our clients are automating, instrumenting and applying artificial intelligence to optimize their asset and supply chains. This is exactly the combined capability of Verbrec and Alliance Automation now offer. And finally, water accounted for 21% of our financial year '26 revenue. And between the Verbrec and Alliance Automation, we have relationships with the majority of water authorities in Australia. Critical infrastructure owners are modernizing and securing their assets, and this is a clear opportunity for us to move up the food chain. I'd like to spend a moment on technology because it's what differentiates us from the pure play engineering firms. Alliance Automation gives us industrial automation, machine learning capability. completes the asset life cycle for us and it secures a greater footprint in water, mining and manufacturing. StacksOn is proven Verbrec intellectual property is deployed in every BHP iron ore mine and port in Western Australia, and that agreement was extended for a further 3 years in 2026. Cybersecurity for operating assets is a mandated requirement under the security of critical infrastructure. What makes our position unusual is that we can operate the critical infrastructure we audit and secure. Assessment work opens the door to remediation, monitoring and ongoing 24/7 support contracts. Understandably, we are seeing a significant increase in cybersecurity concerns from industries. And AI and data analytics turns the operational data our clients already own into the decisions they can act on recurring higher-margin revenue that is not tied to a capital cycle sold to clients we already serve. This is an emerging capability for us, and we hope to grow this in 2027.. Briefly, our corporate position. We have 306 million shares on issue and a share price of around $0.19. This is a market capitalization of the order of $58 million. Our registry is closely held by long-term shareholders and our founding director. My final slide covers how we intend to allocate capital and how the Board and management are aligned with our shareholders. We will reinvest organically in people, capability and technology, targeting the growing higher margin parts of the business. A key focus area is the leveraging of AI to enhance productivity creating greater value for our clients and shareholders. We will realize the multiyear synergies and integration benefits available across the group with a stated goal of 8% to 10% EBITDA margins over time. We will continue a disciplined bolt-on acquisition strategy. We are shareholders, too, and our incentives are tied directly to shareholder value. Around 26% of the shares on issue are held by your Board and executive team. So to close, financially 2026 was a year Verbrec moved from turnaround to growth. We grew revenue 52%. We grew adjusted EBITDA 47%. We more than doubled our net profit, and we increased our dividend by 150%. We finished the year with $20 million in cash and $78 million order book. 10 commitments, 10 delivered. We have now guided to $140 million to $160 million of revenue and $10 million to $12 million of adjusted EBITDA in financial year 2027, and we intend to deliver that to. I'd like to thank the amazing people across the Verbrec group of companies who did all the work that produced these results and our clients and shareholders for their continuing support. Thank you for your attendance. I'd now like to take the opportunity to respond to questions that have been submitted during the presentation.

So we have a few questions about StacksOn. I think people all care update on that business.

Yes. Okay. StacksOn. So StacksOn is exciting part of our business, as I indicated in the presentation, we have extended the contract with BHP now in iron ore for another 3 years and continue to extend sort of the offering to BHP as well. We are currently in negotiations with a number of other companies in iron ore and other commodities, looking at being able to sell our services to others. We are undertaking as we speak, a paid study for 1 other client and sort of optimistic where the future will take that product. We also have a relationship that we communicated to the market with data mine. And we are working with data mine to extend the offering beyond Australia into South America and South Africa as well.

We have a couple of audience members who would like to know about the retention of key post personnel employees after the acquisition of Alliance Automation.

Sure. Alliance Automation is -- we're really excited about where Alliance Automation is going as you probably got from the presentation, we're seeing some exciting synergies in the business, and we're seeing some exciting growth opportunities and some exciting wins -- we are really quite impressed with how the integration is going. We're seeing staff very keen to stay with the business. Turnover rates are very low, enthusiasm and energy is very high. We look forward to an having more successful '27 than we did in '26.

And there's a few questions about the revenue growth of the traditional Verbrec business to Alliance Automation.