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

Good morning, everyone, and welcome to Wagners' First Half FY '26 Results Webinar. My name is Sam Wells from NWR, and joining me from the company today is Managing Director, Cameron Coleman; Chief Financial Officer, Fergus Hume; as well as Karen Brown, General Counsel and Company Secretary. Following a brief summary of the results released to the ASX yesterday afternoon, we will have some time for Q&A with the management team. There will be a choice of 2 options. First, research analysts will be able to raise your hand via Zoom at any stage throughout the presentation should you wish to ask a verbal question or we'll also take written questions via the Q&A function at the bottom of your screen We will endeavor to get the majority of questions asked in some cases, combining questions on the same or similar topic. Thank you, and over to you Cameron.

Thanks for the intro there, Sam, and it's great to join you all today to talk about Wagners' first half results. We've seen pretty good performance across all areas of our business over the past 6 months. The Construction Materials business centered in Southeast Queensland has continued to deliver strong results on the back of the increased activity we're experiencing. The Composite Fibre Technologies business has taken another significant step forward from a financial performance perspective, which we're all very proud of. And whilst we don't have a major project of note in the Project Services business, our Bulk Haulage business has continued to deliver strong EBIT performance despite the lower revenue due to the completion of some projects. However, we now have a better mix of much more profitable work in that area. The group's revenue for the first half was almost $252 million, which is a 12% increase on the first half last year. Revenue in our Construction Materials business grew 21% to $156 million, and the Composites business revenue grew 36% to $47.3 million compared to $34.7 million in the prior period. While the project services revenue at $47.8 million was down on the prior corresponding period, it's an 8% increase on last half with improvement expected between now and the end of June. Expansion in margins across the group has delivered an operating EBIT result of $35 million, which is a $15 million improvement on the $20 million we delivered in the corresponding period. Our net profit after tax is up 70% on the prior period to $21 million. The results have enabled the business to deliver strong operating cash flows. Along with the $30 million raised through the placement in September, the business is well positioned to continue to invest for longer-term value and take advantage of growth opportunities. I'll now take you through the performance of each of our operating segments, and I'll start with Construction Materials. So as I've just mentioned, revenues have increased by 21% on the prior year to $156.5 million. This improvement was driven by an increase in volumes, strong market conditions and a disciplined operating environment. EBIT increased by 44% to $28 million as a result of the demand we're seeing in Southeast Queensland and the leverage the increased volumes provide in terms of plant utilization. Cement volumes increased by 10%, predominantly due to the expansion of our concrete plant network as we continue to execute our growth strategy. Improved margins due to raw material savings and production efficiencies delivered an improved EBIT result on the prior period. Volumes from our concrete plants increased by 57% with 2 new plants commissioned during the period. We've now got 9 concrete plants operating across Southeast Queensland and 1 at Caboolture under construction, our future site at Rocklea working through the planning process and another site under contract just west of Brisbane. The growth in our concrete volumes is adding value right across the construction materials business through our vertically integrated supply chain model. As concrete volumes improve, so does the performance of our cement, quarry and transport businesses. Margins continue to improve across this segment as volumes increased, meaning improved utilization of plants, and we realized the benefit of good operating discipline through the period. The quarries business also improved on the prior period with a 10% increase in volumes, mainly from our quarry in Toowoomba. The prior capital investment in the plant there has resulted in a significant improvement in margins and capacity, enabling us to service the increasing demand in that region. During the period, we also continued the early phases of developing our greenfield quarry site at Frazerview, west of Brisbane. If I move on to the project services area. The decline in revenue compared to the prior corresponding period was anticipated, and it reflects the cyclical nature of project work. Bulk Haulage was the main contributor to the revenue in this segment with a number of haulage projects under contract. While its revenue was down on the prior period due to the completion of a couple of projects and lower volumes from some projects impacted by weather, the EBIT result was a significant improvement due to rate increases and a better mix of more profitable work. Late in the half, we secured an extension on 2 of our projects through until 2030. I'll move on to CFT. So whilst we've been really happy with the growth in the construction materials sector and the performance of our Bulk Haulage business, we're even more excited about our Composites business, which is finally starting to deliver on our expectations. Overall, the revenue for CFT increased by 36% to $47.3 million. We delivered an EBIT result of $9.7 million, which is a $5.5 million increase on the prior period, and that's reflecting significantly improved margins across all products, crossarms, poles and pedestrian and bridge infrastructure projects. Looking at the business in Australia and New Zealand, the growth in revenue has been driven by a 22% increase in crossarm volumes, a 320% increase in pole volumes with almost 8,000 poles sold in the first half and a large number of pedestrian infrastructure projects delivered throughout the period, all at improved margins on the prior period. Demand for all CFT products has been extremely strong during the period. And with further improvement in margins, the business has delivered a great result. In the U.S., we've seen an improvement in revenue. However, we're still not meeting our expectations at the EBIT line. I'll now hand over to Fergus to run you through the balance sheet and the cash flow.

Thanks, Cam. The working capital has increased by $2.9 million, with the reduction in inventory, reflecting reductions in raw materials and finished goods in the Australian CFT business as a result of the increased sales and production, partially offset by increased finished goods volume in the cement business in preparation for our major maintenance shutdown in early January. This movement in inventory partially offsets the tax payments made during the period, which has reduced the tax liabilities. The business had a net cash position of $2.9 million at the end of December 2025, a $36.9 million improvement from a net debt position of $34 million at the end of June 2025. Improved operating results, as explained by Cameron, have funded the increased capital and tax payments during the period and the successful placement in September, securing $30 million for both existing and new institutional investors, together with the improved operating results, provides significant undrawn debt facilities, meaning we are well placed for growth opportunities, including the ongoing expansion of the concrete plant network, increased production capacity in the CFT business and the expansion of the quarry network. Looking at the cash flow statement. Good cash conversion from the operating results, together with reduced interest costs, partially offset by increased tax payments has resulted in good operating cash flows. The increased capital expenditure in this period has mainly been on growth with over 50% in the concrete plant network expansion, increased manufacturing capacity for the CFT business and capacity improvements in cement and quarries. The company carried out a successful placement in September, securing $30 million from both existing and new institutional investors. These funds will be deployed on the expansion of the concrete plant network and the growth in the CFT business. The full year dividend declared with the release of the full year results was paid in this half. I'll pass back to Cameron now to give you an update on the outlook.

Thanks, Fergus. So looking forward, it's all fairly positive. And therefore, not much has changed on our outlook for the business. Whilst we're currently experiencing a reasonably high level of activity in Southeast Queensland, we expect the infrastructure requirements for the Olympic Games to provide even further demand for our products and services. As our concrete volumes grow with the expansion of our concrete plant network, so will our cement volumes. Cement margins will be slightly down on the first half as the business is subject to some increases in raw material and shipping costs, which came into effect on the 1st of January of this year. These costs will be incorporated into selling prices as soon as our customer contracts allow us to do so. With the growth in our concrete volumes, we expect some margin expansion as we achieve better operating leverage, particularly from the newer sites as volumes ramp up. Quarry volumes should improve from our quarries in Emerald and Castlereagh in Cloncurry as flood recovery works commence. In Project Services, we've secured a good baseload of bulk haulage through until 2030, and we look forward to the opportunities the infrastructure spend in Southeast Queensland should provide our precast business. We continue to pursue new concrete and quarry project opportunities, both domestically and internationally, and the business remains well positioned to respond to these opportunities as they arise. In our Composites business, Australia and New Zealand utility networks will continue to provide opportunities for power poles and crossarms. There are a number of utility networks with our poles currently on trial, and we are hopeful these trials will result in longer-term supply arrangements with those networks, many of which already buy our crossarms. We did see a number of our customers increase their crossarm and pole inventory holdings over the first half. So we do expect the pole and crossarm orders for these customers to be slightly down in the second half. During the first half, we commenced building 3 new pultrusion machines. These machines will significantly increase our pole manufacturing capacity, both here in Australia and in the U.S. enabling us to meet the increasing demand we are experiencing beyond FY '26. As we've highlighted previously, there is going to be a step-up in CapEx in the second half and through to FY '27, which will enhance our capacity and support the future growth of the business. We're investing in a number of new concrete plants. We are upgrading some of our storage facilities at Pinkenba, which will provide operational efficiencies in the cement production process, and we're investing in additional plant capacity in our CFT business, as I've just mentioned. With extensions secured on 2 of our bulk haulage contracts, we will be also investing in some new haulage assets for these projects, which will improve margins given the reduction in repair and maintenance costs and the efficiencies the new equipment provides. So in summary, we are really pleased with the performance of the business for the first half of FY '26. The growth in the underlying Construction Materials segment and our CFT business has been extremely positive and is demonstrated in the results we've taken you through today. Volumes have continued to increase throughout the period and the improvement in margins driven by excellent operating discipline right across the group and positive market conditions has enabled the delivery of this great earnings result. Based on the strong performance in the first half and the continued demand that is forecast for the group's products and services, we've revised our FY '26 guidance and are now forecasting a full year operating EBIT result in the range of $62 million to $66 million. I'd like to take this opportunity to thank the great team of people we have working at Wagners across a number of countries. It's been a great start to FY '26, and I'm confident together, we can continue to deliver positive results. So that concludes the formal presentation today. Thanks for joining us. And as always, Fergus and I are here to answer any questions you may have. Thanks.

Great. Thanks, Cam. Thanks, Fergus. [Operator Instructions] First verbal question comes from Max Andrews at Unified.

Are you able to hear me now?

Yes.

On the good results. Just my first one, just on the EBIT margin expansion in Construction Materials. That was pretty good like despite the 50% growth in concrete. I was just wondering if you could sort of unpack that and unpack the drivers in the margin expansion and talk to concrete and cement separately.

Yes, Max. Look, the concrete for the first time in a long time, we've probably delivered a small EBIT contribution from the concrete business on the back of a good solid 6 months' worth of demand and those couple of plants coming online at the end of the period didn't really impact the EBIT too much because they were right at the end of the period. There wasn't a ramp-up costs associated with it. So the concrete came in better than what we have been achieving. Cement, we had good utilization and good volumes. So we've managed to pull through some good margin there. Now as Cam called out, we have got some margin pressure coming in the second half with the increase in the raw material costs in cement and the shipping of that -- sorry, in the clinker and the shipping. The quarry results were an improvement as well, especially at the Wellcamp quarry, where we saw the benefits of that investment that we put in there over the last couple of years start to pay off with increased volumes and just the volumes and you're spreading your fixed costs a lot across a larger number of volumes. So therefore, you're getting a better margin. So it was really across the board, Max, it's a bit hard to sort of break down into one area over the others, but I guess that gives you a flavor for it.

I guess you only got to go back a couple of years though, Max, and we were losing significant money in concrete and at $100 to the average selling price and all of a sudden, we're making a pretty reasonable contribution of the concrete plant gate, if you like. So that really moves the dial.

Yes. And are you able to touch on the potential timing of the pass-through on the increased cost base in the second half?

Yes. About 25% of our customers went up on the 1st of January and the rest go up on the 1st of July. That's pretty much it.

Perfect. And just the last one. Could you just remind us on the timing of those 3 new pultrusion machines when they might come online? And are they all going to be based in Toowoomba?

No. Yes, I can. The 2 will be based in Toowoomba and the timing on the first one of those is September this year. And as soon as we have that one commissioned, we'll send the team over the U.S. late September and commission the one in Texas, and then we'll come back and commission the third one in Toowoomba. But the same team will do the 3 machines, one in Toowoomba in September, then they'll go to the U.S. and do that one. Then they'll come back and do the third one in Toowoomba.

All 3 of them are currently being built as we speak.

In our Toowoomba workshop, we build those machines ourselves.

Next question from Liam at Morgans.

Can you hear me there?

Yes, we got you, Liam.

Perfect. Congratulations on a great set of results. I was just sort of reflecting on some of the EBIT that you were delivering back in 2021, '20. You're now doing more EBIT in a single half than you were doing in a full year then. Can you just sort of comment on what's changed, whether it's price, market share? And how much of this is cyclical and how much of it is structural?

Well, we're enjoying going to work a whole lot more now than we were back then, Liam. I can tell you that has changed. It really is volume and selling prices. And I guess, coupled with really good operating discipline, we got a great team of people doing a really good job driving that operational efficiency across the business. So really, really dedicated people doing a good job keeping costs out of the business, coupled with average selling prices that are now appropriate and giving us an appropriate return on the investment that we have in this business. And then you couple that with some pretty good volumes that we're experiencing in Southeast Queensland, both in Composites and Construction Materials. And then the Construction Materials business, once we really get that concrete volume cranking, the vertically integrated model, having our own cement, our own fly ash, our own aggregates, all our own trucks to transport it all really gives you that leverage to get decent profits out of the business.

And so your presentation, it touched on some really strong volume growth. What about the price lever? Is that continuing to go up as well?

Absolutely.

And just a quick question on CFT. You did 8,000 poles thereabouts in the first half, which is a fantastic run rate. Is that repeatable in the second half? Or was it -- is there some sort of timing going on there?

Look, we'd love to sit here and say we'll do -- we only did 4,000 poles last year, and we've done 8,000 in the first half this year. So we'd love to sit here and say we're going to do another 8,000, but we know that many of our customers have very, very high inventory levels. So we're anticipating a little bit of a drop-off in the second half because they've really stocked up and they have high inventory levels. So we're not sure is the answer, but we're anticipating a drop off due to the fact that they've over-ordered in the first half.

Yes. But full year run rate, if you're doing 12,000, clearly, that's a big improvement on where you've come from.

Yes, yes. We needed to get that CFT business cranked up and deliver what we've always said we could do. And finally, it's starting to demonstrate through the financial performance that it's a great business and has a huge future within the Wagners portfolio, and it's taken us too long to get there.

Thanks, Liam. Next question is on cement margins. You mentioned the cement margins will be down in the second half until you recover the additional costs through price. How much benefit do you get from the higher AUD/USD in relation to clinker export? And when should you see that benefit?

Fergus can handle that one. He's a FX guru.

Not a guru, but we have a hedge in place, Sam, where we sort of hedge out about 80% of our 6 months exposure. We're sort of covered for 50% to 80% of our next 6 months' worth of exposure.

At what rate roughly? 68 or...

Yes. we had a budgeted rate of 65. We did it at 67 to 69 and it's gone to 70. So we'll miss out on some of that pickup in the FX over the next 6 months. But it's allowing us to lock in further out at these higher rates. So we won't get the full impact of the increase in the FX over this period because of the hedging that we've got in place. But it's a good problem to have. It's better than it going down.

We would have looked really good if it went down.

Step up in guidance from the AGM in November. You've partly touched on it, but the question is what's changed to give you the confidence to lift that guidance and what needs to come in to achieve the top end of that range?

Volume, it's all -- cubic meters and it's all cubic meters of concrete for us. And then coupled with that, it's strong performance in our composites business, particularly in the custom build area, where we're really striving for much higher margin work in that business now rather than trying to be everything to everyone. We only do work that we're very particular on what contracts we take in that custom build pedestrian infrastructure and boardwalk area. And then we just need the Bulk Haulage business to perform as we've got it contracted to do. So we're reasonably -- we put that guidance out. We put a lot of thought and effort into arriving at the number, and we're pretty comfortable we will arrive at the end of June in that range.

And just on the industry dynamics, how would you describe industry conditions in the Southeast Queensland concrete market today versus 6 months ago? And what's the current outlook for the coming year?

I would say very rational behavior among all business operators in Southeast Queensland. Finally, all of the concrete producers in Southeast Queensland are expecting their batch plants to deliver an appropriate commercial return or appropriate economic return, if you like, on the investment they have in those plants, whereas previously, people would sell concrete just to pull aggregates and cement through. And there's a lot of investment in concrete plants, trucks, people that was not being appropriately recovered in the industry. And finally, there is a recovery on that now, albeit a small recovery, it's heading the right way. So some good operating discipline among all competitors. And then as far as pricing goes, we're out for -- we've got a price rise in the concrete business as at the 1st of March, and we really need that to come into play. We're starting to see aggregate or quarry material pricing finally starting to move, which is long overdue, and that has to be passed through in the price of concrete.

Great. Next question on balance sheet. Where do you expect net debt to land at 30 June, acknowledging the step-up in CapEx through the second half and strong performance in underlying cash generation in the base business?

We will definitely use some debt over the next 6 months to fund some of that capital. Where we end up, we will end up in a net debt position. We won't still be sitting in a net cash position. I don't believe it's going to be as high as it was at June, but we -- a lot of it will depend too on timing of some of this capital as well in terms of whether it drops in June or July. We've got some fairly hefty orders in for bulk haulage equipment, which could come in either June or July. And we've got some land and things like that, that we're looking at for concrete plants that once again, it's timing related. So we'll definitely be in a net debt position, but where it is, I can't give you any clear...

We're on track to spend at least $30 million in the next 5 months.

And a couple of questions on the CFT USA business. You've referenced below expectations in the materials. Is this primarily a volume issue that's impacting EBIT? And if so, what's the outlook for project growth and uptake on these projects over the medium...

Absolutely a volume issue. we're pretty happy with where we're at, at the revenue line out of the custom-build pedestrian infrastructure and bridges market. We sold our first 60 power poles there last month. And the issue we have is we can't sell any more power poles until we're manufacturing in country. With the tariffs, we're subject to exporting poles from Toowoomba to Texas. It's really just a marketing seeding exercise for us. We're just getting poles into the market at a negative margin to get customers on board. But we were really, really encouraged for one network just walk in and buy 60 poles in one order. But until we're manufacturing in country, we're really subject to being a pedestrian infrastructure and bridge manufacturer. And we've got one machine. So if we could get to sort of USD 5 million or USD 6 million in sales, we'd be pretty happy, and we're almost there, and that should have us at breakeven at the EBIT line. We -- from an EBITDA perspective, we're already generating cash. So it's not a cash drain on the business. We're not having to send funds across there to support it. But we're still not happy that we're not doing what we're doing in Australia. We need to get that pole line cranked up and get into it.

And sticking with CFT, I think this is the question. Are you able to expand on retailers you're in trials with?

Yes. Well, I guess we've got trials going on around the world. We've got poles on trial and our team were over in the U.K. 2 weeks ago. So we've got trials in the U.K. We've got trials in every state of Australia. And if you look around Australia, all those customers currently buy our cross arms and they're just starting to get introduced to our poles. But one of the things we've got to be really, really careful of is we don't go and market ourselves to these customers that currently buy our cross arms before we get the production capacity upgraded in Toowoomba. Otherwise, the orders will start flowing and we'll have to reject them because we don't have enough capacity. So we're hopeful that we'll sell out our capacity as we did in the first half in the second half. We're conscious that some of these customers that are on board have got large stock holdings, as I called out. And then we're also very conscious that some of these other customers that currently buy our cross arms will start placing orders, and we've got to be careful. We don't overpromise and underdeliver because we can't manufacture because we are at capacity. So that's pretty much a snapshot of it.

And just one follow-up on CFT around the U.S. expectations over the medium term. Is it reasonable to assume that the U.S. CFT business will be larger than the Australian business in volume terms?

That's why we're there, Sam. Yes, it is absolutely reasonable. And we've taken too long to demonstrate what the CFT business could do in Australia, and we've really got to get cracking in the U.S. to take advantage of that huge market.

And maybe just the last question we have for today. What's your visibility on precast concrete projects like? And do you have any live tender opportunities?

Yes. The visibility is a bit hazy maybe. There's a huge amount of precast required in Southeast Queensland over the next sort of 5 years, particularly associated with the Olympic Games build. We've got, I think, about $6 million or $7 million worth of work contracted now, which has got nothing to do with the Olympic Games. So we're about to start driving revenue into the precast business as of next month. So we're up and running, and it's all work that we're really pleased to have. But the amount of rail infrastructure and road upgrade and the stadiums that are about to be built in Brisbane provide a huge opportunity for our business, but I still think it's 12 months away. We are going really slow on that Olympic build. I think it's -- we're 12 months of revenue there. And the pleasing thing for our business is we're really, really busy without any Olympic spend.

That's all the time we have for questions today. If there are any follow-ups, please feel free to send them through to us via e-mail, and we'll endeavor to get back to you. And maybe with that, Cameron, I'll just pass it back to you if there's any closing comments.

No. As I said, we've got a great team of people doing a really good job. I'm very happy with the business. And thanks, everyone, for dialing in and hearing about our story today.