SMART Global Holdings, Inc.

I would now like to hand the conference over to Mr. Ryan Stokes, CEO and Managing Director. Please go ahead.

Mr. Thank you. Good morning and welcome to the SGH half-year results presentation for the six-month ended 31 December 2024. I am Ryan Stokes, MD and CEO of SGH. Joining me today is our CFO, Richard Richards. SGH is a leading ASX 100 diversified operating business. We own and operate market-leading industrial services businesses with additional exposure to energy and media. We deploy incremental capital domestically towards industrial and energy opportunities. Our approach to capital allocation is complemented by a disciplined operating model that prioritizes customer execution and accountability. Our owner's mindset approach guides decision-making and promotes a performance culture. It also drives a strong belief in the power of continuous improvement and long-term value creation. These core values and strategies have supported our ability to deliver long-term outperformance, including a 19% EBIT CAGR over the past decade and consistently top decile total shareholder returns. Slide 3. The half-year result delivered revenue and earnings growth. Revenue of $5.5 billion was up 2%, led by capital sales and services growth at Westrack. EBIT of $800 was up 10% driven by earnings expansion across Westrac, Borough and Beech. NPAT of $508 million was up 7% with EBIT growth partially offset by higher interest and tax payments. Operating cash flow of $821 million was up 15% and reflects stronger earnings along with a 6% improvement in EBITDA cash conversion to 75%, largely driven by Westrac. Slide four. The strong half-year result and long-term outperformance are underpinned by our purpose, objective and values, and the disciplined application of our operating model. Our purpose is to recognise and serve exceptional businesses while delivering sustainable value creation and maximising returns for our stakeholders. This purpose is guided by our four core values, respect, owner's mindset, courage and agility. Of these values, our owner's mindset is particularly important in an SJH context. and is deeply embedded into our operating model through four core characteristics. First, we integrate an owner's mindset into our operating cadence, which drives a focus on execution and growth over unnecessary process. Second, each business operates under a dedicated board structure, ensuring clear accountability for performance and results. Third, decision-making is pushed to the front line wherever possible, creating a lean and empowered workforce. And fourth, Our lean operating structure and focus on accountability make SGH inherently scalable. Slide five. This slide demonstrates our capital allocation in action. Our diversified operating structure allows us to preferentially allocate capital toward our portfolio of businesses or into new opportunities depending on where we identify the strongest opportunity for risk-adjusted returns. Our incremental capital allocation is focused on Australia and guided by the thematic exposures of industrials and energy, where we target high-quality businesses that benefit from long-term structural demand tailwinds. Our highly cash-generative industrial businesses allow us to take on and rapidly reduce leverage through operating cash flow. We can achieve that at investment-grade pricing given our consistently strong earnings profile. Importantly, the cost of that leverage is well below our long-run EPS growth rate. so it can be used to effectively amplify return on equity. We combine that financial leverage with operating leverage and disciplined execution to drive long-term TSR outperformance. Slide six. SGH is focused on deploying incremental capital in Australia toward the industrial and energy sectors, where we have identified long-duration growth opportunities This disciplined approach to capital allocation combined with our operating model has supported SGH to deliver consistently strong financial results. In infrastructure and construction, the outlook remains strong with 1.8 trillion investment expected over the next seven years. In mining production, iron ore volumes continue to grow and coal volumes have remained consistent year on year. Both commodities are expected to remain strong through this decade and beyond. In energy, strong demand and tightening supply are expected in the domestic gas market from FY26 onwards. In LNG, demand growth remains strong with supply risk skewed to the downside. Slide seven. The earnings growth in industrial services led by Boral and in energy through Beech were the core drivers of growth in the half year 25 result. Revenue was up 2% with operating leverage supported an EBIT margin increase to 15.3%. EBIT of $843 million was up 10%, and NPAT of $508 million was up 7%. Key strategic outcomes for the half included the completion of the borrower acquisition in July, after which leverage peaked at 2.3 times before being brought down to below 2.2 times by December. We have also lifted our interim dividend for the first half by 30%, to 30 cents per share fully franked, representing our 30th consecutive period of stable or growing dividends. Slide eight. Our focus on people and safety continues to deliver tangible results across our businesses. In safety, we've seen significant progress in our lost time injury frequency rate, improving by nine percent, and in our total recordable injury frequency rate, improving by 12 percent. In sustainability, the Boral Barama Chlorine bypass is now complete, improving the facility's alternative fuel use capability to 45 percent. At beach, The Moomba carbon capture and storage facility was commissioned over the half and is now operating at full capacity. Slide 10. Westrac delivered revenue and earnings growth over the half against a low single-digit parts price reduction effective 1 July. Total revenue of $3.2 billion was up 8%, driven by a 13% growth in capital sales of $1.2 billion and a 5% increase in services revenue to $2 billion. The EBIT margin contracted slightly to 11.1%, with component growth partially offsetting the impact of the past price reduction. EBIT of $352 million was up 5%, reflecting strong underlying customer demand and operating discipline. Westrack delivered an improved cash result, with operating cash flow of $258 million up 146% and EBITDA cash conversion lifting to 67%. The cash result was supported by stronger earnings and a lower relative build in working capital. Slide 11. Underlying demand for Westrac's parts and services was strong, with revenue growth of 5% and a CAGR of 11% over the decade. The headline growth delivered reflects the strength of the underlying demand of Westrac, supported by major rebuild activity and the growing installed mining machine base. The outlook for both capital sales and services remains positive, supported by production expectations for key commodity exposures. Strong fleet investment also continues, with the ageing installed base supporting demand for both R&M to extend asset life and capital sales to blend fleet age down. Slide 13. Borrower delivered a strong earnings and margin result. Total revenue of $1.8 billion was down 2%, supported by pricing traction, and resilient infrastructure activity offset by softer residential construction. EBIT margin of 14.3% was significantly up, supported by operating discipline, performance improvement initiatives, cost variableization, and pricing traction. The margin expansion drove a 29% uplift in EBIT to $259 million, as well as significant growth in borrower's return on capital employed to 15.3%. The performance improvement initiatives delivered over the half focused on operating efficiency and enhancing customer service, including a significant improvement in concrete DIFOD, delivery in full on time, to 83%. SG&A expenses were 8% lower for the half and cost of sales are expected to improve further as volumes grow. Investment in heavy mobile equipment renewal has commenced and is expected to drive production and cost efficiencies. Progress was also made in increasing the performance of the network, supported by initiatives to reduce costs and increase P&L accountability across the business. Slide 14. Volumes were supported by robust demand for concrete, offset by variable demand for other products, including lower asphalt and quarry volumes. Pricing discipline held across all product lines, with concrete pricing increasing by 3%, and quarries by 4%, and recycling by 7%, helping to mitigate the revenue impact of softer volumes. The outlook for Boral remains positive, supported by a robust infrastructure investment outlook that has improved compared to the previous forecast, as well as an expected rise in residential activity needed to meet the National Housing Accord targets. The result shows continued progress on Boral's good-to-great performance journey. The focus remains on driving customer service outcomes, operational efficiency, cost-variabilization and control, price leadership, and enhancing the network performance. Slide 16. COATS revenue of $546 million was down 4%, normalized the sale of COATS Indonesia in the prior period. The modest revenue decline reflects resilient customer activity in the east, west, and north, and lower activity in Victoria. COATS' focus on cost and pricing discipline drove growth in EBITDA and EBIT margins to 46.4% and 28% The result also was supported by operating leverage in R&M, logistics efficiencies and non-operational cost out, including a 7% reduction in personnel costs. The margin improvement helped to offset revenue decline, leading to a 2% drop in EBIT when adjusted for the sale of coats in Indonesia. Slide 17. Time utilization at 59.2% was down 1% and slightly below the high performance target of 60%. The utilization was impacted by softer demand in the south region, which was partially offset by fleet repositioning leveraging our national footprint. Repairs and maintenance efficiency improved with R&M costs as a percentage of sales reducing to 17.3%, supported by the continued rollout of the hub and spoke model. Market conditions remain mixed for Coates, with softer trading conditions in Victoria ongoing due to major project deferrals, park share offset by resilient activity in the east. Coates has maintained pricing discipline across all regions against this increasingly competitive backdrop. The outlook for Coates remains positive, supported by utilities and transport infrastructure spending, which is expected to grow by 11% and 4% respectively in calendar year 25. The cost out and efficiency gains delivered over the half at Position Coast Well to capitalise on this expected market recovery. Slide 19. Beech delivered 15% growth in production to 10.2 million buoys, reflecting the connection of new offshore wells and production optimisation initiatives. The production growth coupled with favourable pricing saw Beech deliver 5% higher sales revenue for the half. Beach also grew NPAT by 37% supported by the higher revenue, as well as ongoing cost out from the organizational restructure. This included the delivery of a 30% reduction in headcount and a 20% reduction in field OPEX to $12.50 per BOE. At SGH Energy, our share of the crux development investment was $128 million for the first half. The project is progressing to schedule and First Gas remains targeted for CY27. SJH Energy continues to collaborate with Amplitude Energy to assess bringing the long-term gas resource in the Gippsland Basin to market. This supports our strategy of advancing domestic energy supply. Slide 21. 7 West Media's half-year revenue of $727 million was down 6%, leading to a 41% contraction in NPAT to $37 million. Half year 25 costs were down 2%, with full year costs expected to be 20 to 30 million lower than FY24. These efficiency gains coupled with moderating market conditions are expected to support modest year-on-year earnings growth in the second half. In other media, SGH realized eight million from CMC in half year 25, bringing the last reported money on invested capital of fund one to 2.5 times. I now hand you over to Richard for a more detailed run-through of the financial results. Richard.

Thank you, Ryan, and good morning. SGH delivered another compelling financial result for the half, achieving revenue, margin and earnings growth in varying market conditions. Revenue of $5.5 billion was up 2% or 3% when adjusting for the sale of Cotes Indonesia completed in April 24. The revenue growth was driven by 8% expansion at Westrac, partially offset by a slight contraction at Boral and Coates. Expenses for the six months rose 2%, mainly due to Westrac, where cost of goods sold grew in line with revenue. This was partially offset by cost efficiencies delivered at Boral and Coates. The lower relative increase in expenses compared to revenue reflects SGH's characteristics disciplined cost management and realising operating leverage, which when combined with higher equity accounted earnings, drove significant margin expansion. This increasing operating leverage amplified revenue growth, driving EBITDA up 8% to 1.1 billion and EBIT up 10% to 843 million. When adjusting for the sale of COATS Indonesia, EBIT growth was 11% period on period. Net finance expense of $162 million was up 14%, largely referable to the increased net debt associated with the completion of the boral acquisition. The underlying tax expense of $173 million was up 17%, driven by higher taxable earnings for the period. Underlying NPAT rose 7% to $508 million, while statutory NPAT rose 134% to $526 million. The larger statutory delta reflects substantially lower significant items losses from our equity-accounted investments relative to the prior comparative period. Moving to slide 24. SGH's statutory result includes 45 million of pre-tax significant item losses, primarily driven by a 32 million mark-to-mark impairment of our seven West Media investments. Other notable pre-tax significant items include SGH's $8 million share of Seven West Media's significant item losses, our $4 million share of significant item losses from Beach, and a $5 million net income from discontinued operations, reflecting the receipt of deferred consideration, partially offset by additional liabilities recognised for previous divested Boral US businesses. SGH also preliminary recognized 60 million in positive post-tax significant items attributable to the tax benefit on ACA tax value reset on Boral's entry into SGH's tax consolidated group. Combined, these significant items resulted in an 18 million net benefit to after-tax statutory earnings for the six months. Moving to slide 25. This slide presents an EBIT bridge detailing the underlying EBIT movement for each business, as well as the reconciliation to statutory EBIT. Westrac's EBIT increased by 18 million, overcoming the EBIT headwinds from a parts price decrease, highlighting the strong underlying customer demand for both new equipment and services. Boral's EBIT growth of 58 million, with marginally lower sales volume, more than offset by pricing traction and performance initiatives, driving significant margin expansion to 14.3%. Coates EBIT declined by $8 million or $4 million when adjusting for the sale of Coates Indonesia. The decline reflects softer revenue due to project deferrals in Victoria, partially offset by margin growth from cost reductions and R&M benefits from the continued rollout of the hub and spoke model. Energy EBIT contribution increased by $20 million driven by a 37% rise in NPAT at Beach, enabled by a 15% production growth and a 20% reduction in operating costs per barrel. Media EBIT contribution declined by 5 million, reflecting a softer total TV advertising market, partially offset by cost-out initiatives. In aggregate, these movements delivered 79 million increase in underlying EBIT to 843 million, or 797 million statutory EBIT after accounting for the $46 million of above line significant items. Slide 26. Underlying operating cash flows for the period increased by $106 million to $821 million, largely driven by stronger cash flows from Westrac. Westrac's operating cash flow rose by $153 million to $258 million, supported by earnings growth and lower machine inventory. This was partially offset by higher PEX inventory and lower advance payments. The higher cash flows from Westrac were partially offset by lower cash from Boral on unfavorable working cap movements and coats due to modest earnings decline. EBITDA cash conversion at Westrac grew 39% on an absolute basis to 67%, partially offset by lower conversion of Boral and coats. These businesses delivered 75% EBITDA cash conversion for SGH ahead of the 70% conversion in the prior comparative period. Net interest paid increased by $35 million to $163 million, reflecting higher interest rates on floating rate debt and the increased debt used to fund the BORAL acquisition. Net income tax paid rose by $87 million to $152 million, primarily reflecting the higher taxable income and the utilization of Boral's carry-forward tax losses in the prior period. Net investing cash outflows for the year increased by $130 million to $274 million, reflecting higher CapEx for Crux, coupled with lower proceeds from disposals. Net financing cash outflows rose $517 million to $701 million, driven by higher repayment of debt, increased dividend payments, Payments for both shares and transaction costs associated with the Boral acquisition. Closing net debt increased by $248 million to $4.6 billion, primarily due to the completion of Boral's transaction and foreign exchange impacts on our US dollar denominated debt. Slide 27. SGH's net assets increased by $625 million to $4.7 billion as of 31 December. largely referable to the decrease in trade and other payables and an increase in the oil and gas assets partially offset by a decrease in inventory. The $504 million decrease in trade and other payables primarily relates to the closeout of the $335 million for boral shares purchased required to achieve full ownership. The increase in oil and gas assets reflects a $137 million rise in the carrying value of Crux. comprising $128 million in development expenditure and $9 million in remediation provisions. The $155 million decrease in inventories was predominantly driven by working capital issues at Westrac, enabled by the easing of supply chain constraints. The combined impact of these items, along with other lesser balance sheet movements, resulted in net debt of $5.6 billion, or $4.6 billion excluding leases, representing a 6% increase over the June 24 debt levels. Slide 28. Adjusting for the $197 million of positive mark-to-market debt-related derivatives, SGH's adjusted net debt to EBITDA, or leverage, was 2.18 times at 31 December. This represents a 4% decline from the peak of 2.3 following the Boral acquisition in July and is flat relative to 30 June. We expect to continue deleveraging in the second half through strong operating cash flows, supporting financial flexibility and growth. SGH fully repaid the $700 million Borel acquisition facility early in the half, utilizing the proceeds of a six-year, $600 million Asian term loan. SGH also took on $600 million incremental fixed rate hedging at 3.6% swap rate, increasing the fixed portion of our drawn debt from 49% to 65%. We've also extended two SFA tranches early in the second half, totaling $1.3 billion. These initiatives diversify our funding base, and the level of support from our new and existing lenders reflects our strong balance sheet, earnings profile, and stronger credit metrics. At 31 December, 65% of SGH's debt was fixed, with an average drawn tenor of 4.9 years and an average rate of 4.8%. Post the refi, average duration has been pushed out to over five years. We also have no further material corporate bank maturities until FY29. I want to hand you back to Ryan.

Thank you, Richard. Slide 30. SGH remains focused on deleveraging stronger operating cash flows in FY25 while driving discipline execution and operating leverage. At Boral, our focus is on locking margin expansion and improving customer service in support of our ambition to deliver through the cycle mid-teen EBIT margins. At Coates, we'll continue to drive operational efficiencies targeting a return of time utilization back above 60% while maintaining R&M to sales below 18%. At Westrack, the focus remains on efficient execution of the capital sales and rebuild pipeline to support customer fleet productivity and growth. We'll also continue to allocate capital across our businesses where we see the strongest potential for risk-adjusted return. These priorities will be executed in line with our discipline operating capital allocation models, which have underpinned earnings outperformance and top decile TSR for over a decade. Slide 31. The strong first-half earnings result and positive outlook for our core sector exposures gives us confidence of achieving our full-year earnings guidance of high single-digit EBIT growth expected in FY25. Westrack's outlook remains strong, supported by underlying growth in services activity and a robust capital sales pipeline. Volumes are expected to remain under pressure, borrow in FY25, while cost discipline, operating efficiencies, and improved customer service support the outlook. Trading conditions remain challenging for the south region for COATS, while the infrastructure activity in other regions ongoing cost out and the fleet profile support the outlook. At beach, the strong first half production supports the narrowed FY25 guidance of 18.5 to 20.5 million BOEs for FY25. At SGH, we remain focused on deleveraging through operating cash flows, targeting an adjusted net debt to EBITDA ratio of two times. We look forward to capturing these opportunities and delivering for our customers and stakeholders in FY25 and beyond. Thank you for your interest and continued support. We're now open to questions.

Thank you. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. If you wish to cancel your request, please press star two. And if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Sharia Vizen from Bank of America. Please go ahead.

morning ryan morning richard congrats on the results and thanks for taking my questions but two questions please and start with portal uh ryan just looking at bottle right you're talking about you know ebit margins of 14.3 percent uh if you look at you know what you've sort of told us in the past you know those targets of mid-teen ebit margins uh is there a view internally to think that these margin targets should be set higher? And also, what numbers are we looking at? I had a quick follow-up, but maybe you want to go with that.

Yeah, sure. I mean, if we just step back in the moral journey, originally when we acquired a 20 cent plus stake and then became active, we set out our delivery of a low teen EBIT margin. Since then, we've seen the performance journey executed, I think, superbly, and that's kind of stepped beyond that. So we lifted that low teen, 10 to 12 even margin to somewhere closer to low teens, mid teens. And our view is that needs to be achieved through the cycle, not just at a peak moment. I'd just note we're not quite at mid-teens yet. We'd say we're at low teens and performing well. We expect this to be a journey that'll occur through FY26 and beyond. What's been pleasing in the experience with Boral and the way the team with Vic's leadership have executed has been the unlock of that margin has come quickly. There's still more potential for further performance improvement. So I don't think we're necessarily done with that target, so to speak, and we've capped out as a potential for improvement within Boral. The more we see that the team execute, and this is not just leadership team, this is every level within Boral perform and deliver the results, we see that margin potential improve, but this will take time. So we're not expecting that to cap out. Certainly this financial year and FY26, as we move into 27 and beyond, we still have an ambition to see that EBIT margin just edged further up.

Thanks, Ryan.

Very helpful. Just to be clear, mid-teens EBIT margin, so we haven't pivoted from that focus at this point. So why not pushing beyond that from an ambition we're calling out?

Yeah. Thanks, Ryan. Richard, quick one for you. Just in Bottle, if you look at seasonality Look, Boral is more first half rated. If you think about last year, you know, your EBIT was 54.46. I mean, look, I'm not trying to get to an exact number, but is there a good ballpark to think about, or there's something that's happened this half that we should be mindful of? Thank you.

I think the seasonality usually displayed by Boral reflects elements like Easter, Anzac Day, falling in the second half, slightly different weather patterns. I think that is, at this stage, that's probably the best reflection of what we would expect in terms of the 525.

Thanks. Thanks, Richard. Ryan, last one for you. Look, I need to ask this. Just on the guidance, right? I mean, look, first half is very strong. Of course, it's not change of guidance. Is it fair to say that is holding it back?

No, I'd say there's a few aspects. Visibility is a question mark for us in second half. There's a past price dynamic playing in second half of Westrack as well, which does take some of the upper end of that opportunity off, to be quite frank. And that's a similar past price dynamic in first half. We don't have the reval, but we do have the dollar margin impact in second half. They're probably some of the factors playing into it. We're focused on that guidance, but there's a few aspects that are going to take that guidance away, but again, Where we sit today, that's what we're aiming for. But as we go forward and get further clarity through the year, we're hopeful we can continue to deliver consistently. So it's just based on what we see today, it's prudent to hold the guidance where it is.

Thanks, Ryan. Thanks, Reggie.

Thank you. Your next question comes from Niraj Shah from Goldman Sachs. Please go ahead.

Good morning, guys. Hope you can hear me. Just a follow-up question on the boral margin. It seems to be a pretty healthy sort of balance between gross margin improvement and SG&A efficiencies. Just on the SG&A piece, you know, how much of those savings do you view as sort of cyclical versus sustainable through the cycle?

Yeah, that's Good question. I mean, if we stand back and look at where we think we are in the cycle, I mean, certain attributes across Boral are positive from an activity context, but the overall volume is not at a high point in the cycle. You know, we look at, you know, there's still a large amount of the Boral opportunity set that sits in residential. We're kind of at a low end of that overall activity context, and we know that needs to step up. That is an opportunity for us. From a cycle context, we're not at a high point. So I think you're better to think through the current cycle as kind of more mid-cycle than anything else. So the question, where we see the efficiencies today, we do see them being able to be locked in. I think the core element of the good to great strategy is actually embedding those changes so they're not just one-off, that they're actually locked into the way the business operates. they've become quite just core to an efficient business operation that we do expect to sustain. And we do see more opportunities as we can kind of improve network performance that ultimately is going to further lock in improvement within the business.

Great. Thanks. And just a follow-up on Boro, could you just perhaps remind us of where things are at with logos or, you know, and more generally, I guess, progress against a broader property strategy within Boro?

Yeah, Deer Park is kind of in the background and moving through its stages. At the moment, we've got various stakeholders we're engaging with, including government in relation to the land, nature of that partnership with Logos is about taking that forward. We've been relying on their expertise, if you like, on that development context. So it's modeling up what's gonna be the highest and best use for the site from an industrial perspective. And it's enabled us, in a borrower context, to focus on core business. But it's something that we don't envisage seeing that play through in medium, this side of the five-year outlook. It's probably in the latter side of the five-year outlook before you see any real progress there, but it is moving along in the background. But it's not a near-term expectation that we're going to see that physically commence and then move into having kind of rental income. Understood. Thank you.

Thank you. Your next question comes from Peter Stein from Macquarie. Please go ahead.

Morning, Ryan and Richard. Congratulations to the team on a good result. Just, if I may, on Westrack, Ryan, you've obviously cited the margin effects of that parts pricing decision by CAT in the second half, but in the context of the strength in the US dollar, what are your expectations around pricing going forward, and what are the likely impacts on Westrack

The pass price is traditionally set twice a year, so where the decision from a 1 January perspective is a pretty similar reduction to 1 July, so that's where we're working within half two, and hence that comment around the guidance. It's difficult to say what that will be for FY26. We don't have any visibility on that. The currency has moved in such a way that at the moment that looks more positive than not, but we don't quite know. And that's a process we'll get better visibility, to be frank, in that kind of end May, June period. But at the moment, what we're focused on that dynamic in half two. What I would call out is even through that, we've seen a step up in service revenue activity remain strong. And if you looked at that past price dynamic through, it's pretty close to that 10-year CAGR from support growth. So we still see that activity demand remaining strong. We haven't started the big fleet rebuild program. So we've had delivery of new replacement trucks. We haven't seen some of the big fleet truck rebuild processes occur yet, so that will play more into 26 and beyond as well.

Thanks, Ryan. And then perhaps just a follow-up on that. The fairly significant unwinding inventories at a group level of $156 million Presumably, the vast majority of that came from Westrack. You sort of pointed to less machines and packs in the inventory, but could you give us a bit of a forward look expectation there? Supply chain normalization is obviously an important structural development there, but what do you think is going to likely be the cash dynamics in Westrack?

We'd like to That kind of returned to EBITDA cash conversion. If you look at the period, we actually built inventory within Westrack period on period, but it was a much lower build, and you saw the release from the prior period come through, so still a pretty healthy order book. I think, to be honest, the outlook we're trying to get a feel for When we look at the big rebuild program, that's probably going to be a heavy working cap dynamic for us, but not material and not that you'd notice from the outside looking at the Westrack result, but we still see that playing through over the next couple of years. Availability is improving. That's enabling us to get back to more traditional working capital to sales level, and we would over time expect that to trend back to that high 20% level versus where it sat at kind of 30% of sales. So that's kind of long and short. We would expect that to start to normalize back to a traditional kind of inventory to sales level.

Thanks Ryan. I'll leave it there.

Thank you. Your next question comes from Ramon Lazar from Jefferies. Please go ahead.

Hey guys, can you hear me okay? Yes. Great. Yeah, just a couple more on BOL if I may. Just the 200 basis point, you're only improving in gross margin. I think mix is still a drag to that margin, just given resi's weak. So just wondering, what's driven that step up in gross margin improvement? Is it all just deadline price or something else?

I think there's a couple of factors. I mean, firstly, pricing had a big component of that. So that's price realisation across the product range and if you think about looking at it from a product context, we have achieved pricing particularly in concrete through the period. Even though we haven't got a strong resi dynamic, we've been able to get better pricing through that infra activity. I think the cost management and the efficiency is driven at all levels of the cost structure. It isn't just about a focus on SG&A. This is about the direct costs and what we can do to drive efficiency there. I think that there are all the factors. Part of that margin improvement has been pricing, but a lot of it has been that whole process to optimize and drive efficiency through the network of borrowers. Okay, great.

And just on the SG&A piece, is it, should we just assume second half sort of SG&A, like the run rate similar to the first half around that 190 mil or so SG&A costs that you saw in the first half, we just annualize that into the second half or is there something else that we need to take into account heading into the second half?

I mean, there's nothing material that stands out. To be honest, it is broadly consistent second half. There's nothing that stands out from a first half perspective on the SG&A side. I mean, there'll be further kind of marginal improvements that we'll look to make on SG&A, but I think looking at that half one v half two, pretty similar is right.

Okay, great. And just to confirm, that SG&A to sales is now sort of tracking around just over 10% of sales, which is higher than where it's been. And you think that's a sort of sustainable level, even when volumes come back?

So SG&A to sales, I think, has come down quite a bit over the period in context. But over... As far as the operating leverage in the business, there's obviously some increase in SG&A, but not a corresponding amount relative to the growth. So we do see further operating leverage as volumes grow, absolutely coming through. And hence, when we talk about the EBIT margin dynamic, our focal point on a through the cycle attribute, I mean, if you see a big step up in RISD come through, and volumes step up accordingly, obviously there'll be a natural kind of operating leverage actually come through an EBIT margin translation as well. But our focus is on how do we get this to be sustained through the cycle, not just having that peak EBIT margin and then a drop away. So yeah, the short answer is as volumes step up, there will be more operating leverage coming through. Great. Thanks, Ryan. I'll leave it there.

Thank you. Your next question comes from Gillian Mulcahy from E&P. Please go ahead.

Hi, Ryan. Just two questions. First thing on Westrack with the services business, with the growth slowing to 5%, presumably that was impacted by the swing in past pricing. But do you have a sort of a feel for what the underlying growth would have been if you sort of script that out?

Yeah, look. In short, that's right. If you think about services, the lion's share of that is part. So you're probably best to look to that single-digit impact and move that up closer to that CAGR. From a normalisation aspect, the revenue would have been closer to 8.5% in that context. Right. Cool.

And with COATS, Can you talk about the exposure to Victoria? I mean, we're broke down here in Mexico and when the big build finishes sort of next year or so, there's going to be quite a big deal higher. So can you talk about how that shape of that curve and then how easy it will be to relocate gear to other states?

Yeah, look, frankly, I think we're kind of in that period in Victoria at the moment. I mean, to... For want of a better description, we're talking about the broader economy. We see things relatively stable across New South Wales, Queensland, WA, and recession in Victoria if we looked at it from an infrastructure and construction activity. And we still feel pretty comfortable and confident in the outlook. I think the broader issue is I think that's the only thing happening in Victoria is probably the way we characterize it. There's a lot of other activities being suppressed. we haven't seen the balance of that activity. But we still see pipeline projects continuing. There's still projects that are commencing. It's a factor we're managing through. From a Coates perspective, yeah, the relocation of fleet, the rationalisation of presence and cost, that's all underway at the moment, but it's probably been the more dramatic impact in the half has been the elements in Victoria, and Coates has felt that, yes.

And so with that relocation, is that going to save on CapEx in the next year or two?

Yeah, we definitely see the FY25 CapEx being kind of under where we would have expected, so that's going to be slightly lower. We'll also certainly look at where we'll end up from an original cost perspective, so that'll probably still hover around that $1.8 to $1.9 billion range, but clearly we'll be moving gear to where there's demand, and if we don't see that demand, that's a question what we do with that fleet. But overall, the view we've had through COATS has been trying to add a long-term perspective on fleet. So we haven't fleeted for that peak. So we've got a lot more flexibility in where we move fleet around the country. And that's been happening through a half. So I'd say it's something that's going to naturally have a slightly lower capex through FY25. but not materially, but it will be lower than where we got it to originally.

Okay. Thanks, Ryan.

Thank you. Your next question comes from Brooke Campbell Crawford from Baron Joey. Please go ahead.

Good morning. Thanks for taking my questions. Just a few quick ones. Firstly, on boral margins, obviously very topical, but In the presentation, there was an explicit comment that you're aiming to lock in the bore margin improvements. Does this suggest you think the 14% even margin you achieved in the first half is sustainable into the second half?

Look, it depends. It'll be there or thereabouts. We're not projecting it to be above that. It'll probably arguably be slightly below that for half two, but fundamentally on a full year basis, it'll be in that, you know, the operating at a low teen margin range, if that makes sense. And then I think the key point there is saying that the changes are not just one-off, are not short-term. It's right in the way Boral operates that will mean that We want to continue to build on that as we go forward in the 26 and beyond.

Thanks for that. Just a couple of clarifying questions on the Westrack parts price dynamic. Can you just confirm or quantify what the headwind was in the December half just gone relating to that price fall? And then for the 1 January change, I would have thought a lower Aussie would have ordinarily led to a higher parts price in Aussie dollar terms here locally. So can you maybe just step through what we're missing there and why it's perhaps not what I would have thought, maybe I misunderstood the way that dynamic works.

Firstly on that latter point, I'll let Richie answer the first one, but that point on the way that pricing structure works, it's a period of time where a currency and then a period where it's kind of announced and implemented. So if you think about that, for a half it's kind of like six weeks out from that period, so it was set in that late November period before that, and unfortunately there was a much stronger currency period there. It's not as direct in that context that we get the same visibility as to what the drivers are, but at that point in time it was a much higher up. Where it is today, you're right, it should have been the opposite. But in relation to your first question, Richard?

So the revaluation impact was about $36 million in an absolute sense. There was obviously then a second order impact in terms of just in a revenue context. So what we did see is an increase in, again, in lines shipped. So the volumetric increased. And against that backdrop, we actually saw the average cost per line also increase. highlighting that the work that's been done is certainly moving into the larger component type rebuild work.

Got it. Thanks. Just the last one. With respect to Crooks, do you mind just providing a comment on I guess expected timing for your earnings, your share of earnings there and I guess that spot pricing and your assumptions around cost? et cetera, what would your share of EBIT be once that comes online?

Yeah, that's probably, I think timing-wise for us is CY27. So we're probably, you know, we're tailing the old FY27 in a, or early FY28. It's, difficult to say what that's going to be, but if you think through the timing, the first stage we're getting that up and into production. So first year, it shouldn't be that substantial, then we'll have a better feel for what the other years are going to be from a production perspective. But in trying to put that into the model, it's kind of in that timeframe. Richard?

Yeah, I think probably think of it more in terms of cash flow rather than earnings contribution, Brooke, because there will be amortization of the capital cost, but in terms of that, once in full production we would expect upwards of $250 million of cash flow.

That's great. Thank you.

Thank you. Your next question comes from Joseph House from Bell Potter Securities. Please go ahead.

Good morning, Ryan and Richard. Thanks for taking my questions. I've got three. Firstly, looking at Westrack, it appears your inventory remains elevated, and that's generally been a positive indicator of growth ahead. How is in-transit machine inventory holding up against historical trends and at 30 June 2024? And how should we think about the timeline of machine deliveries ahead? Does the current order book see deliveries into early FY26?

Richard, do you want to talk about in-transit? So in transit was actually up slightly and that just reflects again we're in the middle of a very strong delivery cycle, particularly for mining machines into WA. In terms of that certainly gives us confidence around the outlook for the remainder of the year and the team is currently working to then lock in the order book for next year.

Okay. And you called out in your AGM that you expected a recovery in residential market activity from late FY25. Are you still keeping to that outlook? And if so, could you perhaps talk to what gives you confidence in that outlook and maybe some discussions you're having broadly with customers on incoming project deliveries?

I think the late 25 is in calendar year 25. I don't... We haven't expected to come through in FY25, so just to clarify that. And to be honest, we haven't seen any indication of that changing. I think it's a pretty well-publicized sector as far as that activity, and ABS published the data, which, to be honest, we use as our insight tool as well. Yeah, we haven't seen any substantive shift there. What gives us some confidence is just we know the demand's there, we know there's a gap in supply, there's a lot of political will to solve it, and there's yet to be a catalyst, and our view, something like a rate cut's probably a confidence catalyst that will help, so they're the factors, but we are not expecting that to change. In FY25, we're hopeful. Towards the end of calendar year 25 we'll see a shift and then there's a time before it translates to a benefit like a borrow and potentially coats, but that timing is not going to play through this financial year. It's certainly not in our expectation.

Yes, understood. And just on Boral, how should we think about the uplift in margins from the heavy mobile equipment renewal program that's underway kind of over the short to medium term?

Look, pretty frankly on that point, probably minor. If you recall... I think it was more than 12 months ago now, we called out a step up in what we term catch-up capital, which was quarry investment, HME, and then the agile truck fleet, the three years we need to deploy capital. So this is coming through that HME. There'll be some savings in RNM, some reduction in rental costs and op costs, but it's going to be relatively small. We see better just overall kind of efficiencies with having that fleet standardised, better overall performance of fleet, but it won't specifically be the catalyst to drive a margin improvement. It'll just be part of the mix that's going to drive further efficiencies of boral.

Okay, thank you.

Thank you. Your next question comes from Nathan Riley from UBS. Please go ahead.

Good morning, Ryan and Richard. Quick question just in relation to your expectation for the coats business in terms of equipment utilisation for the second half, please.

focused on and have our ambition to get that back to 60%. From a TU perspective, it's an important threshold. We were hopeful we'd be close to that through the first half, but activity and relocation of gear from south to other parts of the network have been a key focus for us. That's something we're committed to deliver on. And from our perspective, we want to see that little bit executed in half two. So that's something we would like to see kind of 60 plus percent to you.

And it looks like you've been pretty consistent on price, but in terms of outlook and demand environment in Victoria, can you talk to the competitive outlook for pricing?

Yeah, I mean, in our view, That pricing discipline is important and retaining a focus on how we drive a customer value through the overall offer versus just looking to cut price. So we work closely with customers in how we can win projects and deals based on the overall fleet offering. the quality of the service, broader attributes than purely price. But what we've known is if we pull a price leader, the industry by nature will follow. So it's not necessarily going to drive a better competitive outcome from our perspective. So it's something that we're mindful. We want to see a fair price for the gear that we have and win through. how it can drive service and value proposition of the overall offering outside of just price lever. We still see a lot of activity across other parts of the region. So for us, the activity in New South Wales, we're seeing good activity in Queensland and activity in WA. It's really just this dynamic of a shift in overall activity in Victoria that we're navigating through in our view. Elsewhere, it's been reasonably positive for the half.

Thank you. And final question, just in relation to Boral, you know, the good to great sort of progression and journey continues, but in terms of your thinking around M&A within that business, can we get a quick update on where you think the business is positioned from a bandwidth point of view, managing the efficiency process as well as, I guess, a potential growth process as well?

I mean, I think the management team's got an incredible breadth to take on multiple aspects of that. So I wouldn't say they're stretched. What we've been pleased with is how the good to great journey has been locked into an operating cadence. It's a very strong rigour. The monthly business review mechanism that's there really pushes that ownership and results into the business, so the core operating rhythm is there and driving the results. We feel very confident that these changes are being enshrined into how Boral operates, which is something which is very aligned with how we think, and that's been key as we think about that core operating model. and for the opportunities outside that. So we've still been able to progress growing other areas like recycling, looking at how we develop the property portfolio, and looking at other businesses to bolt in. But I think the key for us is making sure we remain We've got a great network. There's parts of it that we'll want to strengthen in areas, but again, back to our thought process and capital allocation, it needs to drive an acceptable return, and we are in a fortunate position. We don't need to buy something just to bolster that network. We've got an extremely strong network across Boral, and we've got opportunities to drive that. But there's been small quarries we've acquired and other assets that we've had to deal with. will continue to look to acquire the bolster, the borrowing network. But I think Troy Andrews' team have got capacity to do that from a capability context, absolutely. They've got capital support from SGH, absolutely. So it's going to be disciplined around picking the opportunities. That's great. Thank you.

Thank you. There are no further questions at this time. And that does conclude our conference for today. Thank you for participating you may now disconnect.