Wagners Holding Company Limited (WGN) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Wagners full year results briefing. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, CEO, Mr. Cameron Coleman. Thank you. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the Wagners FY '20 Full Year Results Presentation. I'm joined me today by Fergus Hume, our CFO; our Chairman, Denis Wagner; and Michael Kemp, the GM of our New Generation Building Materials business. FY '20 has delivered disappointing results and will walk you through the contributing factors throughout this presentation. Fergus will go into the financial results in more detail later in the presentation. However, in summary, overall sales for the year were up on the previous year at $252 million. However, with the majority of this sales growth coming from sectors operating in lower-margin work environments, the pro forma EBIT result of $9 million was significantly less than FY '19. These results reflects a number of challenges we faced during the year. There was a significant reduction in cement volumes, reduced demand and pricing pressures in the concrete industry, increased operational costs, particularly in our Bulk Haulage business necessary for maintaining business stability during COVID-19 and an inability to achieve growth aspirations internationally given the travel and lockdown restrictions in various states and countries. We did, however, invest significant capital into the business throughout the year, approximately $33 million to ensure we're well positioned for growth moving forward. The Wagners business comprises 2 units that we report separately to the market. They are the New Generation Building Materials and our Construction Materials and Services, with separate specialist divisions within each that are vertically integrated to support each other, providing a structured channel to market. As each area feeds into the next, we can achieve the most competitive prices for our customers, control quality and guarantee delivery. The expertise and integration within this business is combined to provide comprehensive end-to-end solutions for our customers. As we take you through each of the businesses, you will understand how each of them are integrated. But before we do that, Fergus will take you through the financial results for the year.

Thanks, Cam. Looking at the full year '20 pro forma results, revenues have increased 5.1%, with Construction Materials and Services contributing $7 million, a 3.4% increase; and New Generation Building Materials contributing a $4.6 million, a 15.6% increase. But the gross profit has been impacted by lower margin work. We have seen increased repair and maintenance work, particularly across the Transport, Concrete and quarry divisions. And these, together with increased rental costs, mainly associated with the fixed concrete plants, has led to a lower EBIT. We've also experienced high depreciation due to the higher capital spend over the last few years. We'll move to the pro forma segment results. As I previously mentioned, the sales in Construction Materials and Services are higher due to increased activity in quarry, Concrete and Transport divisions, but this has been partially offset by the lower cement volumes. Whilst it's pleasing to see the increased activity in these areas, the overall EBIT margins achieved by these businesses are at a lower level than the historically achieved cement margins. This is due to a number of reasons. The first is increased costs associated with the startup and establishment of the concrete plants, higher repairs and maintenance costs associated with a high utilization in mobile assets, such as trucks, trailers and crushers; and increased costs and loss of utilization due to measures taken to ensure the continued safe operations during the COVID-19 pandemic. The New Generation Building Materials business has seen an increase of 15.6% in sales and a corresponding increase in EBIT of 21.7%. In CFT, we have seen the pedestrian infrastructure part of the business grow revenue by over 47% with growth domestically and internationally. These numbers could have been higher without the COVID-19 impacts on some of our overseas projects. The EBIT number has been impacted by a higher spend in the R&D and the business development areas of the CFT and EFC businesses, especially surrounding the new product lines and the geographical expansion. For the remainder of the business, we've seen a decrease in EBIT of $4.9 million compared to the prior corresponding period. This is mainly due to the sale and leaseback and recognition of contract assets associated with concrete plant fabrication, construction and installation recognized in FY '19 of over $3 million, which was not replicated this year. The remainder of this variance is many due to increased leasing costs associated with our dispute with a major cement customer and higher insurance costs. We move to the cash flow. Working capital has been impacted by the timing of trades. There were some significant invoices raised at the end of June reflecting our increased cement volumes, given the prior price selling period had no sales to a significant cement customer, increased activity in our Bulk Haulage business and significant revenues compared to the prior corresponding period from our contract crushing business. These trades have all been received since the reporting date. We have spent $32.6 million on capital expenditure this year. And together with the $32.1 million spent last year, leaving close to $65 million during some challenging times of the business to enable us to grow our business both domestically and internationally across both of our segments. The $32.6 million of capital expenditure this year has been spread across the business with close to $10 million spend in Transport with the majority of being to move truck and car trailer combinations. Over $11.5 million has been spent in quarries, including the acquisition of the Shepton quarry and new equipment for the last project of the Carmichael mine and new equipment at the fixed quarries. Over $5 million has been spent in EFC and CFT, including a Crossarm automation line and the Pultrusion Machines for U.S.A. As I mentioned earlier, it should be noted the majority of this CapEx spend is growth CapEx, not maintenance CapEx. Looking forward, our policy is to fund our capital expenditure from earnings. On the working capital and net debt. As I mentioned previously, net working capital has increased mainly as a result of timings of trade receivables at 30th of June 2020, which has subsequently been received, reflecting the increased sales in cement, pulp boards and contract crushing compared to the prior corresponding period. So the net debt has increased -- sorry, decreased with the application of funds received from the rights issue being used to reduce debt. But this has been partially offset by the new borrowing to fund the acquisition of both assets. I'll now hand you over to Michael Kemp, who will take you through the New Generation Building Materials business and its performance through the year.

Thanks, Fergus. Our New Generation Building Materials business consists of 2 separate business units: Composite Fibre Technologies or CFT, as we refer to it as; and Earth Friendly Concrete or EFC. Starting with CFT, it's a lightweight, noncorrosive, nonconductive fiberglass material produced through a process called pultrusion using fiberglass and resin as raw materials. Our engineering team, along with our tradesman based at our Toowoomba workshop facility, designed and build the Pultrusion Machines that manufacture this product. These machines are not readily available for purchase from equipment manufacturers. Our in-house design and manufacturing capability provides an additional level of protection for our intellectual property. It is this manufacturing methodology that allows us to achieve a consistent, predictable product removing any variability that other building materials may be subject to, for example, rust in steel structures or rotten timber, allowing our product to be engineered into many community infrastructure projects. This means that composite fiber product overcome the limitations of traditional construction materials, such as steel, concrete and timber. They're used extensively in the electrical distribution networks. Wagners nonconductive crossarms replaced traditional timber crossarms that are used to hold up power lines in electrical distribution networks. We have approximately 50% of the replacement crossarm market in Queensland and New South Wales. We also target pedestrian infrastructure projects with CFT replacing steel, timber and precast concrete structures, particularly around marine and corrosive environments. Wagners CFT also provides an excellent alternative to timber, steel and concrete beams used in short-span road bridge construction projects. In FY '20, we invested significant funds in research and development, building a pultrusion machine that is capable of producing circular poles, cable for replacing timber poles, [indiscernible] and light poles or indeed [indiscernible] poles for distribution. We're now selling these light poles and expect the demand for these products to grow quickly. Since listing in December of 2017, we've manufactured 3 additional Pultrusion Machines. 2 of these have been commissioned in our Toowoomba factory, doubling our production capacity, and the third machine is currently awaiting installation in Texas, USA. We have slowed down the progression into the U.S. due to COVID-19 and the restrictions on international travel. CFT has truly developed into a global business. In FY '20, we made sales into international markets, including New Zealand, the Middle East, U.K., Canada and U.S.A. We have increased our sales force to ensure we have dedicated sales team for each of these regions. Before I move on to talk about the performance of the Australia and New Zealand sector of the business, I'd like to draw your attention to the CFT structure included in Slide 10. This is a staircase that goes down to a prominent dive location in Western Australia. Our CFT was selected by the local government because of its noncorrosive properties. Our CFT business across Australia and New Zealand achieved a 13% increase in sales from the prior year. We completed over 350 pedestrian infrastructure and bridge projects, and you'll see some of these pictures throughout the presentation. The CFT team's major focus on automation and improvements to the manufacturing process has resulted in increased EBIT margins, particularly in Crossarms. Throughout the year, we've renewed a number of our long-term crossarms supply contracts for networks within Australia, and we're also supplying crossarms for 2 electrical networks in New Zealand. The New Zealand prospects for our business were impacted by the lockdowns imposed by the New Zealand government due to COVID-19. Over the last 2 years, there has been a real focus on increasing business development in CFT, and we now have sales representative servicing every state of Australia and New Zealand. The sales team has achieved a 44% increase in sales in our pedestrian infrastructure and bridges division, and we expect this growth will continue now that the team is embedded. As noted earlier, we expanded our facility at Wellcamp by 1,500 square meters to house our new automated crossarm manufacturing cell. The benefit of the production efficiencies and additional capacity from this automation will start to be realized during FY '21. Another photo of one of our projects on Slide 11. This project is the Anzac Memorial Walk in Newcastle. And typically, on Anzac days, we get up to 100,000 people walking over it. I'll now move on to the international division of CFT. Due to COVID-19, we have not achieved the growth we had planned in the U.S. As I mentioned, we've manufactured Pultrusion Machines, specifically for the U.S., that arrived in February this year. However, due to international travel restrictions, we've been unable to install and commission the machine ready for production. While we had initially identified a site for our manufacturing facility in the U.S., we feel the current economic climate presents an opportunity to procure a more advanced facility than we had originally anticipated. We remain committed to the U.S. Until we are able to commission our machine, we will continue to pursue opportunities where we can manufacture in Australia and ship to the U.S. for installation. We have secured a facility, which allows us to store and distribute the products manufactured in Australia. While our U.S. progress has slowed, we have completed a number of large projects in the U.K. at Cambridge, and the UAE in Abu Dhabi throughout the year. We have also commenced another large project in Abu Dhabi recently. This region will present many opportunities for our international CFT business, and we now have a dedicated business manager focused on the region. The photo you can see at Slide 12 is the boardwalk manufactured at our Wellcamp facility and shipped to the city of Ocala in Florida, U.S.A. This project is a water recharge part used by the city to put reclaimed water back into their aquifer. There's no water in the photo, but the best time to build a Boardwalk is before the water goes in. Now I'll move on to another segment of our New Generation Building Materials business, the Earth Friendly Concrete division or EFC. Our Earth Friendly Concrete team have made great progress in FY '20, although not yet reflected in the financial results. Earth Friendly Concrete is a new class of concrete based on geopolymer activator technology developed by Wagners. EFC uses industrial waste byproducts, fly ash and slag as a binder system. The product has multiple benefits over traditional concrete. Not only are there the obvious environmental benefits, it is performance benefits and is more durable than conventional concrete, in applications such as corrosive surge and chloride environments. It also has demonstrated structural benefits in heavy load-bearing pavement applications. Since inception, we've invested in excess of $20 million in research and development, and the product is now being commercialized. I mentioned the environmental benefits of EFC. For every 120 cubic meters of EFC, it saves 28 tonne of carbon compared to traditional cement-based concrete mixes. which Is equivalent to taking 10 cars off the road for 12 months. Our strategy is to have 2 different commercial models to bring to market. In Southeast Queensland, where we have an established concrete plant network, we now offer EFC to our customers delivered in our fleet of trucks. In other markets, where we do not have established batch plant networks, we are partnering with existing concrete manufacturers providing them the rights to license the IP and selling them the necessary material to manufacture and deliver EFC from their plants to customers. This year, EFC has been used in the construction of projects, including a heavy-duty airfield pavement, road construction and residential homes. We continue to develop EFC for use in additional applications. You can see here at Slide 15, the actual placement of EFC for the Qantas Pilot Training Academy at Wellcamp outside of Toowoomba. In Australia, 5 of our concrete plants in Southeast Queensland are now capable of producing EFC, which can be supplied to the general market. Additionally, EFC is a bag product is currently under development. While sales to date have been negligible, we believe over time with education, demand will grow significantly. We've also expanded our EFC team. A recently appointed General Manager will focus on both our Australian and international operations. The team also now includes specialists accredited with the placement and use of EFC. There are dedicated sales representatives who will initially focus on Southeast Queensland, supported by a number of laboratory technicians. On the international front, the second half of FY '20 saw some exciting developments. The photo at Slide 15 shows some trials being conducted for the use of EFC in Central London with our U.K. partners, concrete supply company Capital Concrete and specialist contractor, Keltbray. Following our success in obtaining DIBt approval or German standards approval, we've performed a number of EFC projects with interested parties in both Germany and London. In London, we established a supply chain that allows concrete consumers' access to our product, and we are seeing repeat orders and expect demand to increase over the coming year. In India, we continue to work with our partner, JSW, to obtain the Indian standards approval required for the application of EFC in projects. Once approval is obtained, JSW has exclusive distribution rights in India as part of this commercial framework. While we are progressing the required approvals, JSW are using EFC in their own internal projects, and are estimated to require up to 5,000 cubic meters of EFC over the next 12 months. In summary, we're pleased with the progress made by our New Generation Building Materials business during FY '20 and are excited by the opportunities that exist for FY '21. I'll now hand over to Cameron to take you through our Construction Materials and Services businesses.

Thanks, Michael. And I'll start with the quarries business, which performed well in FY '20. This business operates under 2 different models. The first is permanently established fixed quarries, and the other is our contract crushing and services business. We have 7 quarry sites spanning from the New South Wales border through to Far North Queensland. Each of these sites services its local market, some are supplying materials to construction and infrastructure projects and others to mining and resource operations. From these quarries, we supply materials such as gravel for road construction, aggregates for high-specification concrete works and rock for the use on projects such as rail infrastructure. We also provide hauling services to ensure that these products are delivered in a timely manner to our customers. FY '20 delivered a 26% increase in quarry volumes from our fixed operations compared to the prior year. This should continue in FY '21, particularly given we will have the full year contribution from the Shepton quarry, which was acquired in June 2020. You can see here at Slide 16 a photo of the Shepton quarry. The second part of the quarry business is contract crushing, which focuses on the mining and resources industries in addition to the large infrastructure projects. We mobilize our crushing plant and equipment, along with our highly experienced workforce to unidentified rock deposit. We then crush the materials to meet the requirements of the project. We carry out these services for clients throughout Australia and internationally. Slide 17 shows a good example of this. This photo is of South Back Creek Quarry, which is a quarry we established for a client from a greenfield site and are now crushing the rock for their Carmichael mine project. In FY '20, we have secured contracts for projects ranging in size from 15,000 tonnes to an excess of 1 million tonnes. Our customers include large mining companies, local councils and large civil contractors. We've already secured a number of opportunities for FY '21, which we expect to contribute significantly to our performance. We've invested over $21 million in our quarry business since we listed across both quarry operations and contract crushing and project services, including the acquisition of the Castlereagh and Shepton quarries, along with significant upgrades and investment in new plant and equipment. Given the already confirmed infrastructure and mining projects, including Cross River Rail, Carmichael mine and the expected increase in public spend on infrastructure and construction across Australia, our fixed quarry operations and our contract crushing operations are well placed to capitalize on these opportunities. This business will make a significant contribution to our group performance in FY '21. Onto our cement business, and you'll see at Slide 18, great aerial photo of the site. Here, we supply bulk and bagged cement products to internal customers [indiscernible] which are concrete and precast businesses and also external customers, predominantly in the building materials, general contracting, mining and construction industries. We distribute the bulk of our cementitious products from 2 sites: Pinkenba, servicing Southeast Queensland; and Townsville, servicing North Queensland. The majority of that product sold is collected by customers from our automated dispatch facility at Pinkenba on the Brisbane River. The cement production facility comprises 2 grinding mills, a vertical roller mill with grinding capacity of 800,000 tonne a year and a Horizontal Ball Mill providing additional backup capacity of 0.5 million tonnes a year. The site also manufactures bagged cement sold in the hardware and landscape depots. We also operate an intensive laboratory, ensuring our product meets the highest possible specifications. Our cement business also provides haulage services to some customers to ensure the timely delivery of these products. FY '20 was impacted by a significant reduction in sales volume due to a dispute with our largest customer, along with the commissioning of a new cement import terminal across the river. Recent months have seen volumes return to that of prior periods, and we expect this to continue through FY '21. We have a supply agreement with our largest customer that is secure until 2031. This supply will, however, be at a reduced margin to previous periods due to market pressures and movement in exchange rates. We expect FY '21 to see an across-the-board increase in demand for construction materials as a result of the government-funded infrastructure and building projects, which we will benefit our -- which will benefit our cement business. Our concrete business also operates under 2 different models: a fixed concrete plant network throughout Southeast Queensland; and a mobile concrete plant network, which we operate across Australia and internationally on individual client projects. Our fixed concrete plant network supplies ready-mix concrete to customers in the building and construction sector, ranging from a supply of concrete for residential homes through large infrastructure projects. We reentered the ready-mix concrete market in 2018 and now have 6 operational concrete plants across Southeast Queensland, spanning from the Gold Coast and Sunshine Coast and West of Toowoomba. On Slide 19, you'll see a photo of our new batch plant located at Narangba. These plants provide a critical channel to market for our Construction Materials and Services, including cement, flyash, aggregates and haulage services. Our concrete is delivered to our customers by a combination of our company-owned agitator fleet along with subcontractors. FY '20 was impacted by a large -- by a lack of demand in the concrete market. This decreased demand, together with industry behavior has put downward pressure on concrete pricing. Although we have had growth in volume from all plants throughout the year, the reduced sell price significantly impacted profitability, particularly as we work through the start-up phase and commissioning of new plants. Despite these challenges, we expect to be relatively -- which we expect to be relatively short term, we remain committed to the expansion of our concrete business as it plays a pivotal role in our vertical integration strategy. In FY '21, we're expecting to see increased demand for concrete with increased construction activity. The second part of our concrete business is our mobile concrete operations. The mobile nature of the plants we operate enable us to service customers in remote and regional locations. Our poor result in FY '20 was partly due to the lack of large concrete project work during the year. In FY '21, we expect there will be an increased demand for this service because of increased activity in the renewable and resources sector as well as several large infrastructure projects commencing. We are well positioned to capitalize on these opportunities as we have the necessary plant, equipment and personnel to mobilize for immediate deployment. We operate a major precast and prestressed concrete products business from Wacol in Brisbane. Typical uses for these products include large bridges, overpasses and tunnels. You'll see at Slide 21 a great example of products we supply for the construction of the viaduct on the Toowoomba Second Range Crossing. Our precast factory is one of the only high-volume tunnel segment manufacturing facilities in Queensland, providing Wagners with a significant competitive advantage. Similar to our concrete business, our precast operation provides the essential channel to market for our vertically integrated businesses, including concrete, cement, quarry materials, flyash, steel and haulage. In FY '20, due to lack of major infrastructure work, we effectively closed the operations until we won the $40 million tunnel segment package for the Brisbane Cross River Rail project. This is approximately a 12-month project, which will mostly be delivered in FY '21. The transport business also operates under 2 different models: one is supporting our other construction materials businesses; the other is providing bulk haulage services. The services we provide in our Bulk Haulage business are primarily for the transport of bulk minerals and materials in the resource sector. We currently operate on 9 projects across Queensland and the northern territory. The size and versatility of our fleet enables delivery on-demand haulage solutions throughout this region. Since listing in December 2017, we've invested around $20 million on both 3 and 4 trailer road train combinations to service the long-term contracts we have in place. In FY '20, we secured 3 additional projects, which required further investment in trucks to meet the contract requirements. In FY '21, where we expect to see a high-utilization rate for these assets as they service the current projects under contract. The resource sector continues to provide significant opportunities for our Bulk Haulage business, as evident from the high level of tendering activity we've seen in recent months. Moving on to our major projects. We have a proven history of executing major projects. We've supplied concrete and quarry materials to a number of large international LNG projects. We did not win a project in FY '20, and we are unsure what FY '21 is going to bring with the travel restrictions and challenges imposed by COVID-19. We do, however, continue to invest time and effort into international opportunities for this part of our construction materials and services business. I'll now move on to the outlook for each of the businesses. Before I do, you'll see in Slide 25 here a photograph of light poles manufacturing from CFT that have been installed at the Wellcamp Business Park at Wellcamp in Queensland. In CFT, we look forward to improving the margins generated from our new automated crossarm manufacturing sales. Revenue growth is expected to continue this year from the pedestrian and bridge markets across Australia and New Zealand, given our increased manufacturing capacity and our larger sales team. Large projects in the UAE are continuing to be negotiated and are of much higher project value than the average size project we see here in Australia. With a dedicated manager for this region, we expect further growth. The product we supply will only be manufactured and shipped from our Toowoomba factory. You'll see here at Slide 25, one of our projects completed in the UAE. In the U.S., we will start commissioning the pultrusion machine once the COVID-19 restrictions are lifted, and we are able to do so safely. In the meantime, we will pursue sale opportunities across the U.S. that can be manufactured in our Toowoomba factory. Our Earth Friendly Concrete business now has the product ready for commercialization. Our focus now is to increase sales through our concrete batch plant network in Southeast Queensland and through our commercial partners in London and Germany. We will continue to support our partner, JSW, in obtaining Indian standards approval, which is expected to take a couple of years as it did in Germany. Onto the outlook for the Construction Materials and Services business. Last year, we generated very little revenue from our precast business. This year, we look forward to the Cross River Rail project, adding a significant contribution. We expect continued growth in our Bulk Haulage operations following the renewal of several contracts. Our Cement business experienced significantly reduced volumes last year. However, we anticipate the stable volumes that have returned to be consistent throughout FY '21. And we expect our Concrete business will improve given the plant commissioning and staff training costs are now behind us. However, we also expect the market in Southeast Queensland to remain challenging. We anticipate further growth in our quarries business with a full year contribution from the recently acquired Shepton quarry along with the benefit of contract secured in our contract crushing and services business. We look forward to further major project opportunities, particularly with the government planning increased spending on infrastructure and bringing forward shovel-ready projects. So in conclusion, FY '20 has been a challenging and disappointing year. Due to this and our continued focus on reinvesting in our business to achieve growth, the Board has decided there will be no dividend declared for FY '20. We are committed to and remain confident that we will achieve our planned future growth, through innovation and investment in research and development as we continue to develop new product lines and create production efficiencies across all businesses. Through, continued integration of our various business units and international expansion. With a particular focus on establishing new markets for our CFT and EFC products. Our business relies on revenue from the manufacturing, construction and mining sectors. Today, these sectors have all managed to continue operations safely. However, we are cautious of the challenges which lie ahead with the uncertainty of COVID-19. We do expect to still experience some adverse impacts to the business, particularly given the travel restrictions. We will face increased operational costs, particularly in our Bulk Haulage business as clients continue to manage their own COVID management plans. However, we see these challenges as relatively short term and remain committed to our long-term strategy around growth of our business. So that concludes our presentation this morning, and we're happy to answer any questions you may have.

[Operator Instructions] First question in queue is from Mr. Raju Ahmed from CCZ.

Hope you are all well? Can you hear me?

Yes. Thanks Raju.

Okay. I've got a couple of questions [indiscernible] first one is on the numbers for [indiscernible]. They just probably [indiscernible] you. Can you run us through, again, what are the one-off type costs that were included in the EBIT that won't repeat itself in FY '21?

Sure. So to say they won't repeat themselves in FY '21. If we look at the ones that we have, we have incurred additional costs, obviously, as a result of trying to deal with COVID-19, and we're still incurring some of those additional costs, especially around travel to and from sites and utilization of some of our equipment as a result of that. So some of that will continue into this year. Obviously, we had some significant legal costs in 2020, which we shouldn't see replicated in 2021. And then..

Sorry. What is the -- can you disclose that?

Sorry. Raju, what was the question?

Can you disclose or give us an idea of what was the legal cost that won't to be repeated in '21?

Yes. Look, Raju, we've probably incurred over $1 million in those costs in FY '20. There will be some, obviously, to do with the appeal, but they will be a fraction of that cost.

The next telephone question is from Kurt Gelsomino from Morgans.

Maybe if I just start on Cross River Rail. I think from memory, you're targeting to start supplying into that project from around January 2021. Is that sort of still tracking to plan? And I guess, is there any sort of risk around that time line at all?

Kurt, no, the program kicks off late September, early October for casting there. The trial ring has been cast. And so the first actual ring has been cast and measured and checked. The program is on track. The client are on track with that project and very focused on staying on track. So casting will commence there. I would say at this stage, the program says October, and we don't see any slippage there. So as we mentioned, we generated very little revenue out of that business last year. And expect the majority of that $40 million project to be delivered this year.

And some of that revenue will fall in the first half of '21. Is that correct then?

That's correct.

Yes. Awesome. And then maybe just on the Carmichael contract, too, I guess. Can you talk to I guess how volumes have been sort of progressing over the last sort of 6 to 8 months? And I guess, how they're run rating at the moment? And then just talk about maybe how you're going sort of working through getting the notice to proceed, sorry, on the second stage of those works?

Yes. That's all progressing well. Volumes, as of 2 weeks ago, started to significantly increase with the introduction of 24-hour operation there compared to 12-hour in the previous months. The project itself is tracking well. And each month, there is more and more activity as rail corridors are opened up and mine infrastructure work begins. So yes, the project is well on track, and there's a huge demand for quarry materials as that project is built. As I said, we now commenced 24-hour operation to meet that demand.

That's great. And maybe just a final 1 for me. Just on sort of your major concrete projects, I guess, you sort of talked about, that you had sort of many under tender in February. I guess, can you talk about how those concrete projects have sort of developed over the last sort of 6 months? And I guess you talked about sort of increasing infrastructure expectations in '21. I guess how sort of soon could some of those new concrete projects start to drop?

That's a moving target, Kurt. We're following a number of projects. There's some very large projects among those, including the inland rail opportunity, with a huge amount of construction materials required between Toowoomba and Brisbane, which we're well positioned to service. Coupled with that, the renewable sector has a lot of wind farm activity. This -- a number of those clients are targeting production or commencement of their wind farms over the next 6 months. So we can only be guided by their time lines, but we do see those opportunities developing this year, this financial year.

Our next telephone question is from Mr. Peter Wilson from Crédit Suisse.

Just a comment on the, I guess, the cash flow outcome. In FY '20, are you expecting, I guess, any improvement in conversion in FY '21? And can you remind us the limits of that debt facility that you refinanced in June?

We -- so the first -- as to your first question, Peter, yes, we are expecting an improvement in that cash flow conversion. The -- as was said in the presentation, we had some significant invoices at the end of June that we didn't have in the prior June, so that really impacted the working capital. So those -- you can sort of nail that down to 3 areas. One is much larger activity in cement sales, given the prior period, we were not supplying cement to a larger customer. The second is our construction materials business with the contract crushing and services. The prior period had very little activity in contract crushing. And this period, we are very, very active -- well, this June, we were very, very active in that sector. And then the increase in bulk haulage services to the resource sector. What was the next part? Would you [indiscernible] or something?

Just the limits of that debt facility and how are you feeling about your level of debt?

We're very comfortable with the level of debt that we've got. We are actively working on managing it. We are comfortable with the amount of headroom that we've got. So when we did, we renegotiated our facilities in June to get an extension on them. We thought that was probably the most prudent thing to do at this time. We feel the uncertainty around COVID-19 and the bank's doing what the banks are doing. So we're comfortable with where we are. And at the moment, we've got significant headroom to for things to manage as we go through.

Okay. And then cement market pricing. Can you comment on how prices have fared in the market, I guess, excluding that of your major customer post the resolution of your dispute given, I guess, that major customer ended up receiving what was considered to be, I guess, a bona fide cement supply offer. So I guess just commentary on the broader market price for cement.

Peter, I'll answer that one. Surprisingly, the broader market has remained quite stable. And as we sort of work with our customers out there, we've managed to maintain stability in the cement market. And it's -- as I said, surprisingly, that's been the case for us. So then if you looked into the -- away from the bulk cement into bag cement, we've sort of push ourselves to find additional opportunities, and we're now able to move bag cement from our Brisbane business into New South Wales right down to Sydney. So in some respects, those opportunities may not have presented themselves but they have as a result of the dispute we had last year and the year before.

Okay. And then on the New Generation Building Materials, the international growth there. What is, I guess, the revenue profile look like for that? And what I'm getting at is, have you been able to keep that ticking over with the COVID travel restrictions? Or has it completely fallen over and you're just kind of working through a pipeline of kind of past wins?

No. I'll flip over to Michael Kemp to answer that, Peter. But in short, we've been sort of able to maintain a business development network there and continue operations in most areas.

Yes. So we have people on the ground in the U.K., the U.S. and the Middle East. And whilst support from Australia, travel from Australia has been restricted, the guys in-country in location are continuing to do what they're doing. So we're currently still winning projects over there.

Okay. And 1 last one...

I'll just say that -- the one thing we can say there is, Michael was 3 weeks off moving his family to the U.S. to install a pultrusion machine and build a business not different to what we have here in Australia. And 3 weeks before the [indiscernible] that had been put on hold due to COVID. So we definitely haven't achieved the growth we had expected in CFT. Whilst we've achieved significant growth, we haven't achieved what we expected. We had hoped by now to be manufacturing our product in the U.S. and as we've called out, the machines there to staff, the sales team are there and in place, but we have had to put the installation of the machine on hold just because we simply can't get there. But the pleasing thing is we continue to execute sales there. Abu Dhabi continues to grow. We're creating more work there at the end of the day. We're building a very significant project here in Toowoomba today and shipping it out successfully despite the COVID challenges.

Got it. Okay. And then one last one on the Concrete market. I mean very competitive, but your commentary -- your comments seem to be quite positive on the outlook for activity and, I guess, industry volumes. Can you comment on what the industry volumes look like? And how the -- your network might fare?

Yes. Okay. So for us, we're reentering the market. So we are seeing volume growth, as you'd expect, we're just starting at a very low base. I guess the most encouraging thing for us this year is the plant commissioning costs, the training of the staff, all of those start-up costs are now behind us. And we've got a sort of stable network of clients that can participate in the market albeit a challenging market. We're not faced this year with all our start-up costs that we were faced with last year.

Okay. And the industry volumes, I mean, you talked about, I guess, an increase in activity, infrastructure projects. Do you expect the industry to record much volume growth this year?

Look, the industry overall should remain reasonably stable. And then it will be the infrastructure work that adds the growth. And you've only got to look at our precast business, for example, an additional $40 million with the revenue out of one project this year compared to last year. So a few more significant infrastructure projects, such as Cross River Rail will contribute to the sector's growth.

Our next telephone question is from Raju Ahmed from CCZ.

Okay. I've got a couple more follow-up questions, 2 more actually. Do you have any look through exposure to the Queensland housing market? And if so, what are your expectations there this financial year?

Well, we are starting to get some exposure there, Raju. We don't have -- we haven't typically had a lot of exposure to that sector. But obviously, they are a target -- that sector is a target customer for us as we build out our concrete plant network and also our reinforcing steel business focuses on those customers. So what we've seen, particularly around Southeast Queensland is a much higher level of activity in subdivisions, getting subdivisions ready for sale. And the first homeowner rents and the programs the government has in place to promote that construction activity should at least maintain stability if not create some opportunity for us.

So do you see that as an upside risk in FY '21? Or is it more FY '22 story for you guys?

Raju, Denis here. I think what we're seeing is it's fairly positive for FY '21. We do have some concerns probably for this time next year, next calendar year as to what the housing market is going to do. If the government -- or when the government subsidies have sort of have been exhausted, our expectation now is that within that time, the infrastructure market will come back fairly strongly. So what we are hearing from government, have still got to be action -- what we're hearing from government is that the infrastructure spend will ramp up. So our expectation is that will happen when the housing starts to come off about June or July.

Okay. The follow-up question is just looking at the pricing notice dispute you had with Boral, I know you've got an appeal process going on. Can I just clarify if there is any downside risk if the appeal doesn't go your way?

Yes. There's no downside risk and we don't see any downside risk from our commercial arrangement with Boral. Obviously, there is the chance that our legal costs is -- probably -- the legal cost is probably the only downside risk we see going forward.

Okay. So overall, then, I mean, looking -- FY '20 was clearly a very difficult year for us as a group. FY '21, the tone I'm hearing from you Denis as well as the management team is there's quite a strong level of optimism. Is it because you've got revenue largely locked in the form of major infrastructure projects? Or is it something -- is it the Boral relationship that's going to bring you significant revenues that you didn't have in FY '20. What are the 2 or 3 major sources of optimism that you see in FY '21 that we as analysts should be factoring in?

Well, I think you're pretty well summed it up in the question really. If you look at cement volumes, we do expect see a 12-month period of stable cement volumes, which we just simply didn't have -- we just simply didn't have last year. We effectively mothballed the precast business last year due to lack of activity there, and we've sort of made it clear that we've got that significant project that actually fully utilizes that business this year. And that Cross River Rail project sees us 100% utilized in our precast business this year compared to effectively nothing much at all last year. And then coupled with that, as we called out in that presentation, we see the resource sector continuing to grow for us. And our contract crushing business, particularly, saw very little revenue in the previous period. And this year, we already have and have reported to the market a significant contract crushing period that will go for sort of well into this 12-month period, if not longer. Indications today would say that it's going to go at least 9 months. And as these big projects build out, volumes typically blow out. So we've got those 3 items, cement stability, precast and contract crushing services that had sort of significant value this year that we didn't have last year. Coupled with that, we did call out, we just invested some more money into the resource sector for the Bulk Haulage business. We've renewed those contracts. So we expect further growth there compared to last year. So that probably covers the highlights. And then as Michael explained in his presentation, the international demand for our composites and Earth Friendly Concrete, it is getting [indiscernible] in London, for example, and building big structures going to Abu Dhabi the platform that we've sort of built over the last 12 months to generate significant revenue in our New Generation Building materials business is exciting.

If I could also add to that. If you had a look on Slide 28, there is a picture of the 1 millionth Crossarm that the composite guys have actually produced out of the factory into Toowoomba that was a sort of a fairly significant milestone. So there is now for the composite business and particularly crossarms and pedestrian bridges, this pipeline that's just continually coming through. Crossarms, a lot of our customers are contracted long term. So the sentiment is very positive. We're excited by it. We're just seeing a few challenges. And then sort of back to the -- probably the -- back to the construction materials, concrete market is still challenging. But if you go back in history and look at particularly when there's a change in the top of the management of industry players, there's generally, people sort of take a bit more of a responsible approach to the way they approach these industries.

Our next telephone question is from Kurt from Morgans.

Fergus, I just have a follow-up. I think you've talked about those debtors sort of being collected year-end. Can you maybe give us an update, I guess, how the balance sheet sort of looks maybe at the end of July or early August? I guess has that sort of net debt position while this working capital will unwind?

We haven't unwound our debt position. We're obviously paying down debt on our channel mortgages, and we're sort of paying down over $1 million a month on that.

Sorry, the trade debtors. Sorry, Fergus.

Sorry, trade debtors. Trade debtors has come down obviously from June. As I said, we had some large ones at the end of June. Some of those have maintained. Obviously, the Bulk Haulage, the Cement and the contract crushing ones are there, but they're not as big as they were at June, there was some significant catch-up that happened in June, I think a lot of work. It's one of those things everyone wants to get stuff done before the 30th of June. So it was a big month. So we've seen the trade debtors come down, and we've collected the cash. So net debt position, yes, we're definitely sitting there with a better position because we've got significantly more money in the bank than we had previously. But we're not using that to pay off the debt at the moment apparently, so we're sort of leaving it in the bank with a little bit more security and control over what we do with it.

Yes. The question was, yes, around the net debt. So that's good -- so that has improved. And maybe just on the FY '21 CapEx outlook. Fergus, I guess, so around $32 million went today, what's the outlook for FY '21?

Not as much. We're going to closely manage our CapEx. It will depend obviously on if there's opportunities that come up, being a contracting business, if there's a large opportunity that comes up, we do have to invest sometimes. We should be right if we have to start some concrete projects, we've got the [ team ] ready to go. It would only be if there was no significant opportunities that came up. But we're expecting to continue our spend in CFT. We're looking to produce -- well, we need to do some more stuff in the automation space to get increased efficiencies. And we're also looking at further Pultrusion Machines being able to pull different size elements and things like that. So that will be the main area of spend.

So roughly the CapEx would have halved do you think in FY '21? OR...

It would be, yes, close to half, absolutely although depending on what comes up. So we closely manage it. We go through it and prioritize and make sure. So as I said in the thing, we're going to try and make our CapEx spend from our earnings this year and maintain it that way, not so much funded through debt.

Understood.

There may be a bit more, Kurt, in Earth Friendly Concrete business as we develop in international markets as well. And that may even be a requirement for some materials manufacturing in the U.K., which we have allowed for this year in our budget.

There are no more further questions at this time. I'd like to hand the call back to Mr. Cameron Coleman for the closing remarks. Please go ahead.

Okay. Well, thanks very much, everyone, for your attention today. And if there's no further questions, we'll close the presentation. And thanks again. Have a good day.

Ladies and gentlemen, that does conclude the call for today. Thank you for all participating. You may all disconnect. Bye.