Microba Life Sciences Limited

I'd now like to hand the conference over to Mr Robert Bullis, Chief Executive Officer and Managing Director and Mr Rod Jackson, Chief Financial Officer of the Coventry Group. Please go ahead.

Great, thanks Darcy. Good afternoon everyone and welcome to the Coventry Group's FY25 Half Year Results teleconference. I'm Robert Bullis, the CEO and Managing Director and I also have with me our CFO Rod Jackson. So today I'll be providing you with an update on the Coventry Group's first half financial results, our key strategic initiatives, how our markets are trading and the substantial growth opportunities our business units have. There'll be an opportunity for questions at the end of the session. Any references I make to EBITDA during the teleconference will be to EBITDA pre-AASB16 and before significant items. So firstly to the FY25 half-year results. After many years of investment and repair work, the completion of the Microsoft D365 ERP implementation and related investment marks a significant milestone in the group's history. The group is set up for long-term success with the people, equipment and technology required to accelerate our strategy focused on delivery of profitable sales growth and achievement of our medium-term objective of 10% EBIT data sales. The group is well established position to take advantage of expected improving economic conditions in both Australia and New Zealand in 2025 on the back of interest rate cuts. The FY25 half-year result was delivered against a backdrop of difficult economic conditions in some jurisdictions and the destruction of the ERP upgrade go-lives across 73 branches. We estimate in excess of 10,000 hours went into the project for training alone. Significant hours were also committed by the leadership team, people within the business and the project teams during the go-live period of the project. We look forward to now having our teams back fully focused on delivering profitable sales growth in 2025. The key points in the FY25 first half results were group sales of $185.2 million in line with last year. and EBITDA growth up 0.8% to $9.9 million. The statutory net loss for the half of $700,000, this was impacted by implementation costs in relation to the D365 ERP system implementation. We are not expecting any further material costs in relation to this project which we expect will lead to improved net profit results in the second half of the year. Our recent acquisition, Steel Masters, has continued to perform to expectations. The acquisition has also provided us with valuable pricing insights that are allowing us to further improve trading margins in our Connect Australia operations. As in past years, the Board has determined that no interim dividend be declared. Our aim is to maintain dividend payments as long as the business has the capacity to do so. At 31 December 2024 the group had net assets of 140.8 million, current assets exceeding current liabilities by 31.5 million and net tangible assets of 32 million. Net debt at 31 December 2024 was 52.9 million. This was higher than planned but was impacted by some larger customer payments which were not received at the end of the half as expected but were collected in January. and the balance of the ERP project costs. Net debt will be positively impacted in the second half with the ERP upgrade behind us and the availability of tax losses in Australia. From a business unit perspective, Fluid Systems had sales for the half year of 73.3 million, down 5.4% on the prior year, and EBITDA down 23% to 7.2 million compared to 9.4 million in the first half of FY24. Fluid Systems bore the brunt of the ERP upgrade being the first business unit to go live and as such suffered the greatest distraction. We're expecting Fluid Systems to bounce back strongly in the second half with a solid pipeline of orders in place. Trade distribution had sales for the half year of 111.9 million, up 3.9% on the prior year and EBITDA up 19% to 10.1 million compared to 8.5 in half one FY24. The result was positively impacted by steelmasters, which offset some short-term softness in our Connect New Zealand and Numco operations. Connect Australia had a positive result with EBITDA up 23.6% on last year. We also expect our trade distribution businesses to deliver better second-half results. Corporate costs at 4.3% are closing in on our target of 4% to group sales. I'll now move on to updating you on some of the key initiatives and projects around the group. Firstly, to the ERP upgrade project. We're very pleased to have completed the ERP upgrade go-live stage with all business units in scope now operating successfully on the system. The ERP project has been completed broadly to plan, schedule and budget and we do not expect any further material costs in relation to the project in 2025. We're currently in the process of taking the first system upgrade, fixing some defects and configuration issues, as well as preparing to implement the first round of enhancements. The Microsoft D365 ERP system utilises the latest technology and will deliver significant customer service and productivity improvements over time. Some of these customer service and productivity benefits are already evident, but we expect further benefits during calendar year 2025 and beyond as new technology is deployed and AI tools streamline operations. Our program to accelerate profitable growth in Connect Australia is progressing well. We're on track to open five new stores in FY25. This will take us to 53 specialist fastener branches in Australia. Work on fixing underperforming branches, delivering store makeovers and completing store relocations has continued. Our Dandenong and Brendale stores are both now relocated into the right buildings in the right locations. Our buy and sell side margin initiatives that we implemented in FY24 have been maintained. Further activity continues, taking advantage of the pricing insights we gained from the Sealmasters acquisition and combining spend across business units to increase our direct import volumes. From a debt management perspective, our focus on inventory and debt management and sensible investment in capital expenditure continue. The investment in the D365 technology will provide us with opportunities to reduce stock days whilst at the same time improving stock availability. As stated earlier, the end of the D365 ERP upgrade spend combined with the availability of tax losses now puts us in an excellent position to reduce debt and strengthen the balance sheet. So moving into the outlook for our markets. We expect the market softness currently being experienced in Australia and New Zealand will be short lived. We continue to focus on what we can control in markets where we have single digit market share. The businesses within each business segment continue to successfully provide specialised industrial products services and customised solutions to our customers throughout Australia and New Zealand. Our emphasis on specialisation is the key to this and is underpinned by our customer value proposition of quality products, stock availability, expertise, agility and a growing branch network. For our Fluid Systems business unit, demand remains strong for our products and services in the mining resources sector. while there is some softness in the States outside of the mining industry. We are confident with the ERP upgrade behind us, our increasing capability to deliver customised engineered solutions, growth through the market shifts in automation, electrification and Industry 4.0, that Fluid Systems will deliver organic growth in 2025. We are also investing to increase our capability to deliver specialised hydraulic repairs, and are in the process of moving our largest fluids branch in Mackay to a custom-built state-of-the-art facility. We expect our key markets of mining resources, manufacturing, recycling, transport, agriculture and defence to perform in 2025 and beyond. In Australia, demand is different by geographical segment. Demand in Queensland remains positive while there is some short-term softness in the other states. We expect conditions to improve during the calendar year and interest rate cuts as they occur to be positive for our markets. We are fortunate that Connect and Steelmasters have a larger number of branches in Queensland than other states and we expect the Queensland economy to remain strong, particularly with the build for the Olympics having a positive impact. The economy in New Zealand has been challenging, particularly given our larger exposure to the residential construction market. Overall, our view is the economy will improve over the calendar year and we expect a return to sales growth year on year in FY26. So by sector we see the mining resources sector in the commodities that we operate in continuing to perform. Our customers are blue chip miners operating blue chip mines. Infrastructure projects to continue to support the economy with new announcements being made leading up to the federal election in Australia. And we also expect government spend in New Zealand to increase leading up to an election year in 2026. The commercial and residential construction markets to improve with interest rate relief and inflation at normal levels. Our core industrial and manufacturing markets improving, driven by activity in the other markets serviced by the group. And our secondary markets to be growth opportunities for us. So lastly, I'll just go to the growth opportunity for the group. Both our trade distribution and fluid systems business units have at best single digit market share. Our markets are ripe for consolidation through both organic growth and acquisitions. We have seen two examples in recent months where family owned fastened businesses have closed the doors. On both occasions, our teams have moved quickly to take advantage of these organic growth opportunities, signing up the customer base and employing key sales resources from these businesses. We expect further opportunities like this as our markets consolidate. In our trade distribution markets, our key strategic growth initiatives include increasing share of wallet with existing customers and winning new customers through our value proposition based on specialisation. Increasing market share through new branch openings combined with branch relocations and branch makers. We see a rapid return on investment when we relocate to the right building in the right location with the right team. We've improved our capability in this area recently with the appointment of a specialist property search firm, a design and construction firm to deliver these projects for us and we've also employed external expertise to help us map the ideal locations for our new stores. We're working systematically to build a network of 100 plus Connect branches in Australia and 25 plus in New Zealand. We're implementing a number of initiatives that will improve our trading and gross margins. We are continuing to enhance the capability in our sales and marketing team. We're building digital capability. D365 is improving our customer service and productivity. And we're exploring acquisition opportunities in a fragmented market where it would be difficult to enter a market through a greenfield start-up. Now, Fluid Systems Business Unit, our key strategic growth initiatives include increasing share of wallet with existing customers and winning new customers through our value proposition, diversifying into markets out of mining resources, albeit our current focus is on the mining resources sector where demand is strong, expanding or relocating facilities to accommodate growth opportunities. As mentioned, our Mackay operations will relocate to a state-of-the-art facility later in the year. This facility will give us the capability to deliver work that currently can only be completed in Brisbane and Sydney with long lead times. Our facility and equipment will also attract additional experienced employees. We continue investing in engineering capability and developing capabilities for the move to automated and electric systems and Industry 4.0. We're accelerating investment in equipment and people to make us a leader in specialised hydraulic repairs We're exploring options for branches in new geographical regions and again exploring acquisition opportunities in a fragmented market. From a group perspective, our strategic priorities for 2025 are ensuring we have the right people for growth, delivering organic sales growth in all business units, managing margins and sensible cost control, focusing on strengthening the balance sheet, and extracting the benefits from the D365 ERP system and continuing our path of digitalisation. We're committed to leveraging the scale benefits of the platform established over recent years. With the ERP upgrade behind us, all of our focus is now on profitable sales growth, improving all business units to EBITDA of 14% or better and reducing corporate costs to group sales to 4%. This is our equation for achieving 10% EBITDA. In summary, the group operates in multi-billion dollar fragmented markets that have good growth prospects. There is evidence confirming these markets are consolidating. We are implementing clear plans for taking advantage of this opportunity to accelerate profitable growth. We're operating the right markets, have a successful strategy and the right people to deliver sustainable profitable growth. So thank you. We'll now answer any questions you have. So over to you, Darcy.

Thank you. If you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Charlie Kingston, a private investor. Please go ahead.