Vulcan Steel Limited (VSL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Vulcan Steel First Half Results for 2026 Financial Year. [Operator Instructions] I would now like to hand the conference over to Mr. Gavin Street, MD and CEO. Please go ahead.

Thank you very much, and thank you to everyone for joining the call for Vulcan Steel Half Year FY 2026 results. On the call today, we have our CFO, Kar Yeo, our CEO, Adrian Casey; Luke Cadman, who leads our New Zealand business, and we'll also get our Company Secretary, Sarah Jane. If we could turn to the agenda on Page 4, in the call this morning, we'll cover the overview of the results. We'll have look at financials and operations. We'll then cover our priorities and outlook, and then we'll leave some time for Q&A. If we go to Page 6 and to cover off a few points on the performance of our business for first half '26, the revenue was up at $535 million, up 8.6% on the prior year, which included the 3 months of sales from the acquisition of Roofing Industries. Our adjusted EBIT was flat at $57 million and again, included the impact of Roofing Industries from the first of October. Gross profit per tonne was down 2.6%, reflecting the impact of mix and also margin pressure, which was down 0.2% to 33.9. The Vulcan Board also approved the interim dividend of $0.025 per share, flat with last year. If we go to Page 7, and we'll have a quick look at the strategic and operational highlights. The team has finalized the acquisition of Roofing Industries on 30th September. The integration of the business is on track, and the highlight has been the alignment in the culture and the values of the teams. We've also continued to focus on our delivering full on-time metrics, the dialog metrics, ensuring we have the right stock in the right location at the right time. We continue to execute on our hybrid rollout strategy with 3 sites completed in the first 26. We recorded sales growth year-on-year with an improvement in the underlying performance of the Steel division, and the first half 2016 also included the 3 months impact of Roofing Industries. Cost management has continued to be closely monitored with investment into hybrid sites and increasing capacity where we've required it. And we continue to generate cash flow and managing working capital to support the investment in our business and focus on continuing to reduce our debt levels. If we turn to Page 8, and we'll have a look at Balkans highlights. So with the purchase of refinish, we now operate in 7 verticals, 4 divisions under our Steel segment, which now includes roofing and roll filming and folding; and 3 existing divisions under our metals. As a mix, we now see New Zealand represent 39% of our sales, with Australia 61 and interesting that Queensland is still our largest state in Australia at 23% of total sales. If we turn to Page 9, we have the map of our current footprint across Australia and New Zealand. And with the addition of roof Industries, we now have 81 sites across Australia, New Zealand, supported by 1,600 employees serving over 25,000 customers. If we go to Page 10, we have our growth strategy, and we have very clear principles in place, and we've had them now for a long time. on our focus on growing the business, and we'll continue to look at opportunities to improve and expand our business to support our customers and also to grow. If we turn to Page 12, and we'll have look the operating backdrop during the first half of FY '26. So in Australia, the economy is showing signs of improving with some activity increasing in our Steel division, particularly in the second quarter of FY '26, albeit what has been off a low base. Industry profitability is still improving, but providing some challenges. At this stage, we've seen no Olympic project or activity in Queensland, and this is unlikely to impact in this current year and likely be pushed out to FY '27 and beyond. In New Zealand, with the reduction of the cash rate, we're seeing evidence of economic recovery starting to emerge, and we've seen some positive signs of improvement in activity over Q2 of FY '26. But again, industry profitability is still a challenge. From a global economic perspective, uncertainty in geopolitical environment continues. Steel prices have remained subdued, but we are seeing some pressure on pricing of aluminum and nickel, both increasing over the last couple of months. In cost pressure, we have a very tight labor market, particularly in Australia, with a pickup in the economy and Olympic projects likely to place further pressure on labor costs and inflation. I will hand you over to Kar Yeo, who will take us through the financial performance.

Thank you, Gavin, and good morning. As outlined on Slide 13, our 8.6% year-on-year revenue growth in the first half was a combination of three things: One, first time contribution from roll forming; two, improvement in underlying volume in our Steel divisions; and three, lower revenue per tonne, which offset the first 2 items that I mentioned. Earnings before interest, tax and depreciation and amortization or EBITDA for the half was flat year-on-year basis at $57 million. Profit contribution from roll forming was offset by continued industry pressure on other parts of our businesses. Some participants we observed are continued to trade off margin for volume. Despite our earnings hovering year what we believe to be the bottom of the industry cycle, our cash flow and return on capital, encouragingly, remains at sound levels. On the next slide, compartmentalizing the key drivers of our earnings change in the first half, if we included roll forming an 11% higher overall volume contributed to $18 million to profitability. This was offset by lower GP doll per tonne and higher operating costs, which is partly driven by our investment for growth. At a segment level on the next slide, please. Steel segment resulted -- Steel segment results in the first half was ahead of a year ago. Revenue GP doll per tonne EBITDA improve year-on-year, inclusive of reforming as well as on an underlying basis. In our Metals segment, the performance was mixed across Australia and New Zealand. Segment EBITDA fell 18% year-on-year to $37 million. This reflected a combination of volume and margin outcomes and investment for growth, as I mentioned earlier on. Now turning to our cash flow on the next slide, our business generated $39 million in cash from operations after paying CapEx and also capital expenditure and also lease liabilities. Our operations generated $16 million in free cash in the first half. This is before including capital raising, the initial payment for acquisition and also any dividend payments. including roll forming our revised expectation for capital expenditure to come in at between $30 million to $35 million for the full current financial year. Also noting that $22 million final settlement for Roofing Industries acquisition was paid in January of 2026. Now turning to Slide 17. As Gavin mentioned earlier on, the interim dividend has been set at $0.025 per share. This will be fully franked and [ acute ]. Our net debt finished at $202 million for the first half year. with a net debt-to-EBITDA cover of 2.9x. And as you expect, that's conventionally done on a pre-IFRS 16 basis for EBITDA calculation purpose in terms of debt covenants. Handing the session back to you, Gavin.

Thanks, Kar Yeo. Now I'll turn to Page 19, and we'll run through our priorities. So we'll continue to focus on our delivery and full on time and supporting our customers whilst focused on managing our returns. We'll manage through the recovery in the economic cycle in both Australia and New Zealand. And we'll work on completing the integration of industries and to continue to build on our aspirations of growth in that space. We'll continue to develop our people across all levels and explore opportunities to further grow our business within ANZ. If we turn to Page 20, whilst conditions are still challenged in both countries, we're beginning to see some signs of recovery. In New Zealand, the low strengths are starting to provide some stimulus and we're expecting to see a gradual recovery of volume into the second half, although industry profitability still remain a bit of a challenge. Activity in Australia has also started to pick up, but with inflation and watch and skilled labor shortage providing a challenge. Increasing activity of Olympic volume unlikely to impact us into FY '26 and likely to be into FY '27 and beyond. With that done, I will now open up to Q&A.

[Operator Instructions] Your first question comes from Tom Peon with RBC Capital Markets,

Congratulations on the results. Just a quick one on the Roofing Industries and the earnings contribution for second half '26, is it better for us to take the sort of a run rate version of the first half of the $3 million? Or if you had used the full 6 months of closer to $10 million? And then a follow-up question around the CapEx guidance shift provided if you could just offer some commentary around that.

Appreciate Thanks, Tom. I'll hand across to Kar Yeo, who will take us through those numbers.

Great Thanks, Tom, for your question. So if you think about the numbers before we actually dive into what the outlook looks like for the second half just note that we're very early in the stages of our ownership of this business. And so we're still building our understanding for things like seasonality the mix in terms of commercial versus residential, which in itself has got its own differences in terms of seasonality. So I would be cautious and necessarily extract led in just 1 quarter for the rest of the financial year. The performance was encouraging, no doubt. I wanted to be clear on that. But certainly, the December quarter typically from what we can see from our data, represents a slightly higher contribution in terms of volume to a typical year.

Great. And the CapEx guidance, am I right in saying that, that's shifted higher are you able to speak to that at all?

Yes, sure. And for clarity, the previous CapEx guidance was in the range of 25 to 30. So that increase really reflects the additional CapEx we will now have going forward with roofing in this industry as part of our business.

Your next question is from Harry Saunders with E&P.

Firstly, just wondering if you could provide your thoughts on the recent news flow around the productivity commission inquiry into allegations of dumping in the steel industry with reference to fabricated steel imports. And if safeguard measures have found to be justified and implemented, I mean how material the benefit could be? Maybe how long would that take?

Yes. Okay. So obviously, it's been well publicized around the safe card users, which has really been driven by the Australian issue of steel. There was a proposal submitted pre-Christmas. That is now obviously, as you mentioned, Harry, gone to the product commission, and we're not expecting anything to come back to later this year. So I think it's quite a process they go through. What that is, in essence, means is that pre what we've seen a buildup in offshore fabrication coming into Australia was the base of about 300,000 tonnes. And that actually jumped about 700,000 tonnes over the last 18 months. So the impact of that will be to potentially cap that and look at putting a charge or putting a tariff on top of that amount above 300,000 tonnes. Now if that happens, then clearly, there's going to be some activity that will come back into our customers. The impact of that is unknown, but I think it's really important from an industry perspective that we see our customers get given the opportunity fabricators to be able to compete in a level playing field. And I think that's really difficult when we're seeing some of the product coming from offshore at lower prices. So that will play out, I think, at the back half of this year, and we'll watch it closely. But yes, we haven't got any forecast or projections to give you at this stage.

Understood. I'm just wondering if you could provide an update on some of those competitive pressures you're seeing across New Zealand and Australia in both steel and metals. Any improvements in profitability in the industry in either region and maybe what you would need to see change for that to subside?

Yes. Look, if I starting in Australia first. I think what we're seeing is there's some changes in some of the competitive landscape, particularly in Australia. So we've seen one of our competitors closed down some locations in each of the main states and that has started to flow through. So initially, the impact of that was seeing some additional volume coming to the market at lower levels as they've tried to clear our stock, but that is now starting to rationalize and sort of self out. We are still seeing some pressure in some end markets at the moment, particularly from the metal side in Australia, and those pressures will come from both mining and other end markets that we're seeing some volume and activity a little bit slower than what we've seen in the past. From a New Zealand perspective, again, we're seeing some pricing pressure that we really talked about, I think, when we released our full year results back in August from some of the competitors here, and I don't think that's really changed. I think there is both a pressure on working capital in this environment in New Zealand, but there's also a drive to grow volume and impact get lower margins. So we're seeing that continue to play out here. And look, we stick to what we do. We manage our business and we continue to look at how we provide great customer service and delivery.

That's great. And maybe just the last one. could we discuss working capital requirements through the balance of the year relative to your improved net debt performance to date?

Yes. I'll give a brief over then I'll throw across to Kar Yeo, who will give us a further overview. So for us, we're absolutely focused on -- and you've sort in the comment, having the right stock the right location at the right time. And I think that's making sure we understand as the second of activity gives teams you build that we actually have the right level of stock we need. We understand our customers' requirements. So that's a balancing act. We need to make sure we continue to do it. But it's also making sure that we understand the stock and the requirements that we need to have in location by location. So it's a very big focus for us. Kar Yeo, do you want to talk about some of the working capital needs?

Yes, sure thing. And so really just to echo Gavin's point around optimization of stock level, we hold ourselves to high standards in terms of stock availability with customers rings us for certain SKUs. So it has to be down to individual -- not just category stock, but individual stock unit. And so those are the context. But in terms of overall directionally, over the next, I would say, 18 months or so, 12 to 18 months; you should expect some increases in overall working capital in no small part because you've got, as Gavin mentioned earlier on, material prices are starting to rise, whether it's aluminum and nickel, which then feeds into stainless product, obviously. And then on top of that, when the cycle recovery does emerge in this full flight over the next 12 to 18 months, we would expect in terms of stock that we want to carry is sufficient to meet those ramp-up in demand. But that's a very managed and gradual process, I would say, rather than be a short and sharp.

Yes. So remember, the lead times that we have in most every quite a few months. So the impact of this financial year won't be substantial.

Your next question is from Rohan Koreman-Smit with Forster.

First of all, on roofing industries and the sequential numbers. It looks like the revenue in each of the quarters was pretty similar. If you look at that 6-month versus 3-month ownership stats and the impact kind of goes from 6 to 3. Is that a margin issue in terms of you have seen some margin contraction in Roofing, just given your comment on higher quarterly volumes in the December quarter?

I'm happy to take that on. Thanks for the question. So I would say, it's probably a tad relating to margin. But we took ownership, obviously, of the business effective 1 October. And so the accounting standards require us to provide some commentary around the basis as if we had taken had ownership effective from 1 July. So in that respect, there was some synchronization of accounting standards and policy that we needed to go back and rework the historical data that was within the numbers. And as a result of that, you -- that contributed to what appeared to be a relatively small contribution in the September quarter. But also, as I mentioned earlier on, there is some seasonality in these numbers here or certainly seasonality during the year in any given year for the Roofing business as well.

And then just in New Zealand competitive environment. Has there been any behavior change or any attempt to increase prices? I mean I've heard there's been a few price increase notices potentially in the market. But I just wondered if there is anything that you can point to the year around prices hitting higher domestically or also a view on what happens in terms of potential rationalization.

Well, I think just to comment on the pricing, so I think there has been the intent to do some price adjustments throughout the first half of this year. I think the execution has been mixed. So I think we haven't always seen that come through to the marketplace. And to me, that's just a focus on capability and discipline to make sure you do that. In regards to consolidation, I think we'll leave that to play out as it plays out. over time. It's not something that will comment on here.

Okay. And then in Australia, just long steel pricing has been something that has been suppressed with the [indiscernible]. Kar Yeo, have you seen long steel prices return to normal or margins normalize in that segment yet?

They're beginning to. So what we're seeing is that Altiilehas come back on stream probably about May, June last year, and we're seeing the sort of consistency in the cost base or the price of long steel. And we've seen, I think, apart from one of the competitors began to exit some locations and sites throughout the major capital cities. And we had some excess stock floating around for a while. We've seen probably a better positioning in regards to the market over the last 6 months. So we've seen, I think, a little bit more rational behavior, which has been, I think, a positive tick. But we're still seeing some changes with [indiscernible] still to play out, obviously, over time and also a competitor who was exiting.

Your next question is from Will Wilson with UBS,

Congrats on seems like a really good result. Just on Roofing Industries, just thinking back to when you require and the potential step down this year due to it being late cycle and just where the kind of market was at that point in time, didn't seem to eventuate at least on my numbers. Was that reflective of the broader market probably being a bit better? Or was it more -- did you gain some share there?

Look, I think from my perspective on Roofing Industries. I think clearly, we've only had it for a couple of months and we're working through integration. I think the integration has been really well managed. Probably just wanted to shout out. I think the culture and the capability of the team has been excellent. And I think we've continued to focus on those opportunities through consolidation about how we actually continue to build and grow the business and invest in the business. One thing I probably just need to shut out is that I think the previous owners, Dave Gladly and the team, have always invested in the business and has put it in a really good position for us as we could take it. So it's almost been seamless for us. I might see if adrian just wants to comment quickly on the quarter results and any feedback from that?

Thanks, Gavin. Yes. So just reiterating Gavin's comments. The business is well set for the future. So if we have a look at the people and the culture and the values, they're 100% aligned to Vulcan, which was what we saw when we did. And if we look at the -- just the trading environment, I don't think it's a market share tick up this quarter. It's more the market is slightly better. But the team -- if we have a look at the footprint, 15 sites, 7 of them that moved into the last 18 months. So it's well set for the future, and there's a bit of growth there with increased capacity. So you put all that together and as Gavin said, it's only 3 months we have owned the business, but very encouraging.

Okay. That's helpful. And then just on the OpEx, obviously, extra forming like stepped up the largest amount in a few years. And I appreciate that a bunch of that is probably due to just the step-up in volumes that you experienced as well. How much is that due to cost inflation or just like you've referenced is positioning the business for growth?

So there's probably a mix of both as we look at our cost base. Clearly, there's inflation that's coming through the business that we're tuning to manage. And that will continue, I think, into the future, particularly as we see -- I think there's going to be some pressure into the market as -- particularly in Australia, we see some labor shortages and where that's going to come through. And you've seen some of the inflation print in the last month or so there, I think providing some challenges. But the other point is, yes, we are absolutely focused on continuing to invest where we need to invest, and that's both from a capacity perspective, but also as we continue to focus on our hybrid rollout as we make sure we've got the right people in the right roles. They're opportunity, which we've seen we've invested back in the business. And we want to invest to make sure we're ready to continue to grow and build on our business.

[Operator Instructions] With no further questions at this time. I'll hand the call back over to Mr. Street for closing remarks.

Thank you very much. And look, I just wanted to thank everybody for dialing in today. I appreciate your time. And hopefully, we will continue to be able to continue to grow our business and moving forward. So thank you very much.

Thank you. This does conclude our conference for today. Thank you for participating. You may now disconnect.