Ebos Group Limited

Thank you for standing by and welcome to the eBoss Group Limited FY25 four-year results conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session, at which time if you wish to ask a question, you will need to press star 11 on your telephone keypad. You can cancel your request by pressing star 11 again. I must advise you that this conference is being recorded today, the 27th of August, 2025. I would now like to hand the conference over to your speaker today, Mr. Adam Hall, CEO, eBoss Group. Please go ahead, Adam.

Good morning, everyone. Thank you for joining us for the eBoss Group's FY25 results presentation. I'm Adam Hall, the Chief Executive Officer of eBoss Group, and I'm joined today by Alastair Gray, our Chief Financial Officer, and Martin Krapskoff, our Chief Strategy and Corporate Development Officer. I'd like to say it's an honor to lead the eBoss team, and I've taken the opportunity to get to visit many of our businesses in Australia, New Zealand, and Southeast Asia since joining last month. I'm excited for how eBoss's capabilities are well suited for the opportunities ahead. Turning to the results, FY25 was another solid year for eBoss, reflecting the quality, scale, and leadership positions we hold across the various businesses within the portfolio. We delivered solid organic growth, which was supported by new customer wins in pharmacy wholesale, where we added over 320 stores nationally, particularly across both New South Wales and Victoria. Continued expansion of our pharmacy store network with 34 net new TWC stores added. We also expanded our medical technology business, including adding the Pacific Surgical Team in the Philippines. We also saw steady performance from our pet brands business, despite a softer market. We also maintained a sharp focus on cost management, delivering a 20 basis point reduction in operating expenditure through labor productivity, procurement savings, and animal care ingredient costs. By the end of FY26, we will have concluded our distribution center renewal program, which will have delivered eight new sites and enhanced existing systems over four years. These facilities enable us to serve more customers more efficiently. Alistair will talk about the benefits this program has brought later in the presentation. Our bolt-on acquisition strategy also continues. In July 2025, we purchased Next Generation Pet Foods, which enhances our manufacturing capability and expands our route to market through the exciting channels of hardware and club retail. Our ongoing growth prospects remain strong, with advantage positions in each of our major divisions, community and hospital pharmacy wholesale, retail pharmacy, medical technology, and animal care. The stage is set for growth, but first, how did this translate into the 2025 results? Turning to slide four and the financial performance. On an underlying basis, excluding the Chemist Warehouse Australia contract, revenue grew by 12% to $12.3 billion, and underlying EBITDA increased by 7.5% to $585 million. This is within the guidance reaffirmed in April 2025 of between $575 and $600 million in EBITDA. On a half-by-half basis, our second half was slightly ahead of the first half at $294 million versus $291 million. This growth was achieved in a pharmacy wholesale market that has been highly competitive since the CWA contract transition and also has seen softening discretionary consumer spend within animal care. Underlying EPS was $131.3 per share, and we declared a final dividend of $61.5 per share, bringing total dividends for FY25 to $118.5 per share, unchanged from the last year and reflecting the Board's continuing confidence in the future growth of the group. Our leverage ratio remains well within our target range at 1.9 times, and our ROCE was marginally down 20 basis points to 13%. This reflects a period of significant investment in long-lived DC assets, and this program will continue in 2026. As we flagged before on a statutory basis, our results are down on the prior corresponding period, reflecting the loss of the CWA contract. It is important to note that the commentary this morning is predominantly based on our underlying results excluding the impact of the CWA contract in the prior year. We have included a reconciliation between statutory and underlying numbers in the appendix of the presentation. Now, turning to the performance of the divisions, I'd like to start on slide five with an overview of the highlights. First, within the community pharmacy, we are pleased with the new wholesale customer wins. which equate to approximately $540 million of revenue on an annualized basis, and that the continued store rollout of the TWC network led us to 626 stores. In addition, the outcome of the first pharmacy wholesaler agreement, together with the new CSO accord, will provide better medication availability to all Australians and provide far more sustainable industry funding. Secondly, institutional healthcare was again a major growth driver for the group. Hospital medicines, particularly oncology products and the Southeast Asian medical technology business, maintained their growth momentum from the first half. This growth was also supplemented by several strategic acquisitions, as previously announced. Alistair will expand on these later. Thirdly, contract logistics delivered customer growth across both New Zealand and Australia, enabled by our new warehouse capacity completed in this area last year. These new warehouses were timely with the additional refrigeration capacity supporting increased GLP-1 prescriptions. Please note that the New Zealand business also saw a decrease in earnings as certain COVID area programs ramped down. And finally, in animal care, our branded products delivered ongoing growth supported by new product developments. We also completed two acquisitions with SVS establishing a leading position in the New Zealand vet wholesale sector and Next Generation Pet Foods providing an entry point for new high-growth, high-value products, including air-dried treats. In the second half in particular, Animal Care continued to face headwinds from consumers under cost of living pressure, choosing to delay or downside premium discretionary purchases, including puppy purchases. The team did a terrific job to offset part of this trend by continuing to grow our branded revenue through share gains. Now turning to page six, I'd like to provide an update on the near-term growth objectives that were established in FY25. I'm pleased to report that the team have achieved all near-term objectives. Specifically, they have delivered base business growth within both the animal care and healthcare segments. We won approximately $540 million of annualized sales from new pharmacy wholesale customers. We achieved cost savings of $30 million against our target of $25 to $50 million per annum by FY26. And we also executed five strategic investments across medical technology and animal care, deploying capital to strengthen our segment positions and diversify earnings. This slide completes our report out on these four initiatives. On the next slide, we have an overview of our ESG commitments. I'm pleased the group continues to make sound progress on its ESG program. During the year, the group advanced several environmental initiatives that focused on improving renewable energy generation, offsetting our carbon footprint, and transitioning grocery brand packaging to recyclable materials. EVOS also enhanced its safety standards for high-risk activities. Our efforts have reflected our commitment to improving health outcomes and supporting our communities. I'd also like to add that I have found the eBoss team to be focused on safety. There's always more to be done, but my experiences with our frontline colleagues demonstrate their commitment to keeping themselves and their teammates safe at work. Now, I'd like to move to how our individual businesses performed. I'm first going to share healthcare, and then within healthcare, the highlights of community pharmacy, TWC, institutional healthcare, and contract logistics. Then I'll move to our second reporting segment, animal care. Turning to slide nine in our healthcare segment. Our healthcare segment delivered a solid performance with revenue growth of 11.8% and EBITDA growth of 6.9%, again, excluding the CWA contract. You'll notice that EBITDA growth was lower than revenue growth, driven by two factors. First, a rise in the proportion of high value medicines, which are profitable for us, but come with lower percentage margins. For example, an increasingly popular oncology drug has a sale price of approximately $3,700, but effective profit margin of around 1.5%. And secondly, with recent CWA changes, the competition for pharmacy wholesale customers is strong. We expect the tighter margins that we have seen in pharmacy wholesale in 2025 to continue through FY26 as wholesale providers and customers realign. Healthcare's performance was well supported by Community Pharmacy, Terry White Care Mart and the institutional healthcare business. But turning to a geographic perspective, our underlying Australian healthcare business grew revenues in EBITDA by 12.9% and 5.9% respectively. Whereas our New Zealand and Southeast Asia business grew revenue in EBITDA by an impressive 8.1% and 10.8% respectively, driven by a strong year from Transmedic in Southeast Asia. Now, drilling down within healthcare, how did community pharmacy perform? On slide 10, you can see that the business has responded well to the changes in industry dynamics, achieving meaningful share gains and benefiting from continued demand for high-value medicines, such as GLP-1s. Cumulatively, this has seen the underlying business grow both revenue and gore by 15.8% and 7%. As I mentioned earlier, 2025 saw both an increase in high-value medicines and a period of tighter EBITDA margins as the market went through a period of heightened competition. This industry went through a similar process in 2019 when EVOS won the CWA contract. We expect this to be the last period of such competition as the largest single retailer has backward integrated into the wholesale pharmacy chain. I'm very proud of the way that the EVOS team has very methodically prepared for this transition. From the physical challenge of overnight restocking when the contract ended, to the cash conversion challenge of ensuring working capital release, to the commercial challenge of securing an alternate customer base. Our business has managed this transition well. The goal margin improved by 40 basis points to 9.1%, reflecting a positive shift in both product and customer mix, new business wins, and enhanced service revenue. The increased CSO funding relating to the first pharmacy wholesaler agreement commenced in the second half of 2025. and we expect a further step up in FY27. Now, one part of the community pharmacy business that's worth further expanding on is Terawight Chem Mart, which is Australia's leading health service-focused, excuse me, leading health-focused pharmacy network. On slide 11, you can see two key dynamics for TWC. First, network size increased. During the year, 34 net new stores joined the network, growing our total to over 620 locations nationwide. These stores are frequently existing community pharmacy customers, so we understand their performance well and are happy to have them on board. We expected net store growth to moderate in FY26. Next, network performance also improved. Here, we delivered 2.6 billion in sales, representing total sales growth of 10.2%, or 8.5% on a same-store basis. I'm delighted that our care clinic service continue to scale, delivering approximately 976,000 vaccinations administered across the network through the year. Our understanding is that's more vaccinations administered than anyone in Australia, but I'd be glad to be corrected. Clearly, our customers want to be engaged with their Terry White Kenmart pharmacist on health. Not only that, but they want to keep that engagement going online. Over 1.2 million prescription transactions were placed online in FY25 through the MyTWC app. reflecting strong customer engagement and digital adoption, generally initiated from an in-store interaction with our knowledgeable TWC team. There's more to come in this space, but what about institutional healthcare? Turning to slide 12, our institutional healthcare business was again a significant growth driver for the group. This division delivered revenue and gore growth of 8.4% and 11.4%, respectively. This positive operational leverage was driven by particularly strong growth across Southeast Asia and also in allografts and oncology. Our Symbian hospital business maintained its growth momentum largely due to the ongoing demand for high-value oncology medicines. Growth in medical consumables was partly offset by a normalization in vaccine activity post-COVID. Transmedics performance was particularly pleasing, and I was glad to meet some of our team in Indonesia and Singapore. The improvement of gore margin by 40 basis points to 15.7% reflects the ongoing expansion of the medical technology business within institutional healthcare, which is high margin. Looking beyond community and institutional healthcare, what about contract logistics? On slide 13, you can see our contract logistics business delivered a solid overall performance with gore of 154 million in the period, up 3.3%. Both the Australian and New Zealand businesses were able to grow their customer base with Australian Gore up 15.3% as the new warehouse capacity was completed in FY24. The New Zealand business was down overall as we had previously flagged, which is due to the result of the progressive ramp down of the COVID-19 related contract. We are continuing to invest in our footprint systems with a new facility in Perth expected to open in FY26 and further cold storage expansion in Sydney, which will support continued demand growth for GLP-1 and other specialty medicines. And Alastair will talk more about this shortly. Beyond healthcare, we have a wonderful second reporting segment, animal care. And how did that perform in FY25? On slide 15, we can see animal care revenue and EBITDA increased by 16.3% and 10.4% respectively. This was due to the resilient performance of the branded business and the acquisition of SVS. The performance of the branded business reflects the leadership positions of our flagship Blackhawk and Vitapet brands, as well as investments in new partnerships and new product developments. Consumers have been affected by cost of living pressures And we saw a flattening of the Australian puppy cohort, particularly in the last six months of the year, as consumers defer adding a companion pet to their family. I'm pleased that this has been partially offset by share gains for eBoss brands. In the affordable premium space in the specialty channel, we've seen consumers trade into the Blackhawk brand. And in New Zealand, we've seen some consumers trade into our value-focused but high-quality Chunky and Possum dog roll brands. The vet wholesale business also grew significantly, largely due to the acquisition of SVS in April of this year. I'm pleased to report that the acquisition has performed in line with our expectations and reflects our disciplined approach to capital allocation. The SVS team are great additions to the eBoss ecosystem. and we look forward to continuing to build opportunities together. Due to the acquisition of this lower margin wholesale business, the Gore margin for the segment was down 170 basis points to 32%. However, excluding SVS, Gore margin was up 90 basis points on the prior period. In addition to the SVS acquisition, on July the 1st, 2025, we purchased Next Generation Petfoods, And on slide 16, you can see details of the business, including photos of the two dedicated facilities focused on the manufacturing and packing of premium pet products. This acquisition is a strategic expansion of our pet brand business into new high-growth, high-value products, including air-dried treats. It also gives us an entree into the club retail and hardware channels through the Evolution brand. That's what you can see in the photos, by the way. The air dryer is in the top right, and allows us to introduce new BlackRock air-dried trees, which you can see on the bottom left. The transaction was fully funded from our balance sheet, and we expect that the transaction will be marginally EPS accretion in its first full year. With that, I'll now hand over to Alasdair to take you through the group's financial performance in more detail.

Thank you, Adam. As Adam has mentioned, on an underlying basis, the group delivered a solid financial performance for the year, despite the significant loss of volume associated with the CWA contract. Revenue was up $12.3 billion, up 12% on an underlying basis, supported by both of our segments. Underlying EBITDA was $585 million, an increase of 7.5%. with group EBITDA margins improving to 4.8%. This result reflects a successful delivery of all our near-term growth objectives and disciplined capital allocation. Our depreciation and amortization costs increased to 120 million. This reflects the ongoing capital investment in the DC renewal program. I will talk further to this shortly. Finance costs were up 12 million due primarily to higher lease interest costs associated with the same program. Now turning to cash flow. The group generated strong cash flows with underlying cash flow before capex of $448 million, up $81 million compared to the prior corresponding period. Networking capital reduced compared to the prior year, and cash realization was strong at 109%. This strong cash generation supported our organic and inorganic growth investments and distributions to shareholders. Capital expenditure was $146 million for the period, up $27 million on FY24. Turning to slide 20, over the past several years, eBoss has made substantial investments in our healthcare infrastructure. to support long-term growth and improve operational efficiency over the next 10 to 15 years. From FY23 to the end of FY26, we have invested approximately 360 million in our distribution network and systems across both Australia and New Zealand. At completion, this program will have delivered eight new sites, representing a 20% net increase in our network capacity. The DC renewal program has already delivered additional refrigeration storage, supporting the significant growth in GLP-1 and other temperature-sensitive medicines, expanded automation, driving productivity and lowering our cost to serve, and enhanced system integration with customers, improving service delivery and scalability. We expect that the organic capital program will conclude in FY26 following commissioning of the remaining three sites. From FY27 onwards, annual capital expenditure is expected to reduce approximately 30% on a light for light basis, reflecting the completion of this strategic program. Now moving to inorganic investments in the period. Consistent with our strategy, acquisitions have continued to deliver value to the group. We completed five acquisitions across both the medical technology and animal care businesses. Collectively, these accounted for approximately $210 million of capital, with the investments being small to medium in size. We expect that each investment will be EPS accretive immediately and will support return on capital employed expansion in the short to medium term. Now turning to slide 22. The group balance sheet and liquidity remains strong. Net debt reduced to $918 million following the successful capital raise in April this year. The leveraged ratio of 1.92 times is consistent with the prior year, remaining conservative and within our target range. This provides significant capacity to fund further growth investments Earlier this year, our debt facilities were successfully refinanced, and our weighted average debt maturity is now 2.9 years. Moving on to shareholder returns and earnings growth. Underlying earnings per share were 131.3 cents, down 26.6 cents when compared to the prior corresponding period, reflecting growth of the underlying business partially offsetting the conclusion of the Chemist Warehouse Australia contract. Reflecting the board's confidence in the future growth prospects of the group, the boards have declared a final dividend of New Zealand 61.5 cents per share, bringing the full-year dividend to New Zealand 118.5 cents per share. This represents an underlying payout ratio of 83.8%, and will be imputed to 25% for New Zealand tax resident shareholders and fully frank for Australian tax resident shareholders. The group's dividend reinvestment plan, which has been strongly supported by shareholders previously, will be available for the FY25 final dividend. Shareholders can elect to take shares in lieu of dividends at a discount of 2.5% to the volume weighted average share price. I will now hand back to Adam to conclude today's presentation.