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Edited Transcript of AMA.AX earnings conference call or presentation 26-Aug-19 12:30am GMT

Full Year 2019 AMA Group Ltd Earnings Call

Sydney, New South Wales Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of AMA Group Ltd earnings conference call or presentation Monday, August 26, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Hopkins

AMA Group Limited - Group CEO & Executive Director

* Steven Becker

AMA Group Limited - CFO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the AMA Group 2019 Full Year Results Presentation. (Operator Instructions)

I'd now like to hand the conference over to your speaker today, Andy Hopkins, Group CEO of AMA Group Limited. Thank you. Please go ahead.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [2]

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Good morning, everybody, Andy Hopkins here. I'm joined this morning with Mr. Steven Becker, our Group CFO.

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Steven Becker, AMA Group Limited - CFO [3]

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Good morning.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [4]

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And Steven and I are delighted to present you with our results for the 2019 financial year. 12 months ago, we outlined our long-term plan for AMA Group. Our key priorities, which included consolidation and continued consolidation of the panel business, including further greenfield opportunities and also identifying and executing strategic acquisitions in our ACAD business, automated components and accessories, and we are pleased to say that, that plan is well on track and delivering success.

We finished the financial year with the strongest set of results in the company's history. AMA's strong growth in 2019 is best reflected by a 21% increase in revenue to more than $616 million, up from just over $500 million in the previous year, and our current run rate is over $700 million. We achieved a normalized EBITDA of $58.2 million, up $6 million on last year's result and consistent with the market guidance.

We delivered a 39% growth in reported basic earnings per share. That's an increase from $0.288 per share to $0.04 a share. And I'm very pleased to declare a final increase in the dividend to $0.225 per share, which is up from $0.02 last year. The Vehicle Panel Repair division, which accounted for nearly 90% of our business in the last year, completed 21 acquisitions and opened 4 greenfield sites, which is an impressive feat. Of these acquisitions, 6 were within the heavy vehicle repair industry, and that's a very attractive new growth market and a strategic focus for me personally in the AMA Group.

The ACAD business, automotive components and accessories, delivered a positive result with a significant increase in their revenue and a focus on improving the performance of the more recently acquired 4-wheel drive business. The ACAD business has embedded now the right mix of personnel in their teams and further developed new designs and innovative product ranges, so that division is set up for future growth.

It's fair to say the whole AMA team now is looking forward to a very busy 2020 and a continued focus on improving the quality of revenue and identifying and executing strategic acquisitions.

AMA will continue to pursue an extensive pipeline of potential acquisitions and greenfield development sites in the years ahead as we work towards our $1 billion run rate by 2021 and our $100 million EBITDA run rate. To achieve this goal, we will require both strategic acquisitions and a whole of company continuous improvement. And these priorities include, but not limited to, realizing the full potential of all our teams. Enhancing our process and systems is a one-platform approach, one AMA, as we build the company into one business, strongly aligning our brand with our customers.

The economic outlook and conditions remain challenging for the motor industry. However, I have great confidence that the combination of the defensive nature of our business, in particular, and our proven acquisition strategy, our ability to increase revenues while containing cost and the quality, high-performing people within our business will ensure that your company will deliver strong results into the future.

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Steven Becker, AMA Group Limited - CFO [5]

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Thanks, Andy, and good morning. As Andy mentioned, overall results are consistent with our guidance of normalized EBITDA coming in at $58.2 million. We just want to go through some more details and set out on Page 11 of the presentation are our key financial performance and key metrics.

Key points to note, reported revenue was up nearly 21% to $616 million. Reported EBITDA was up nearly 15% to $50.1 million. Normalized EBITDA was up nearly 12% to $58.2 million. Reported net profit after tax was up nearly 44% to $21.7 million. And normalized net profit after tax was up nearly 17% to $28.1 million.

In terms of key metrics, our normalized EBITDA margin was up 9.4%, and although down slightly on year was up on the half at 8.3%. Earnings per share was $0.04, up nearly 40% on last year.

In terms of leverage, our net debt to normalized EBITDA has grown slightly to a modest 1.2x. With all the normalizations, one thing to note, the normalizations are considerably reduced from last year, down nearly 18%.

In terms of our balance sheet, on Page 12, this is robust and well positioned for growth.

In terms of cash flow, cash flow was strong. Cash conversion, premarket incentive, amortization and tax and -- now increase in inventory was strong at 96%. Other key points to note were we received a market incentive installment of $31 million. The Gemini earnout was finalized at $15 million for the year in the first half. We had a ramp-up in inventory for procurement, which Andy will cover off. That increased by nearly $11 million year-on-year. We also raised $9.5 million in the first half. And any other cash flow items set on Page 13 and 14 were largely consistent with our acquisition and expansion activities.

I'll now hand over to Andy to talk a little bit more around the divisional performance.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [6]

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Thank you, Steve, and a pretty impressive result.

So the 3 market businesses that we have are the Vehicle Panel Repair business first, and their reported sales were $530 million for the year, which is up 21%. And normalized EBITDA in the panel repair business was $51 million just short up, which is an increase of 14%.

And the key achievements for the year were 21 acquisitions that were integrated and 4 greenfield sites, as I said previously. So it's been a really busy second half because most of that was done in the second half.

We commenced operations in the second half into the heavy vehicle repair industry with 6 businesses across 3 states. And we appointed Darren Wales as our new CEO of Heavy Motor, and Darren comes with second-generation and 30 years experience in the heavy motors zone. So I'm personally pretty excited about that sector.

I also recruited a new CEO to lead the Panel Division to take over from my role, Mr. Steve Bubulj. Steve Bubulj has got extensive history in this industry, albeit from the insurance side and brings loads of knowledge and contacts to the job, and I'm very excited to have such a caliber as Steve Bubulj as the CEO of Panel to go forward.

You've heard me talk about the ERP NetSuite and the iBodyshop quite a lot, and we completed that rollout now, which gives us full transparency over the business. That's why it's easier to predict our numbers going forward because we've got full transparency and control over the whole business now, all in one place. So I'm super excited that, that's all in and settled down now.

We relocated the support center for the Panel business as well to Bundall in the Gold Coast and have launched the digital centralized estimating service, which is mainly for our fleet clients, but also our insurers. And we completed the rollout of GemSafe and commenced the rollout of Torque, which is a corporate governance tool inside the business.

The national footprint of panel shops now, as we closed on June 30, were 130. But even since then, we're just about to settle on another 8 businesses. So we'll be close to 140 stores by the end of August.

The ACAD business, automotive components and accessories division, the results there are nothing less than impressive. The reported revenue was $86 million, up 21%. The normalized EBITDA was $13.5 million, up 16%. So it's a strong year-on-year growth in sales. And we still see ACAD, our automotive components and accessories division, as a leading vertically integrated player. And we've completed now all the major restructuring inside that business and integrated -- integration of the related acquisitions.

We also look at an opportunity this year that you might have seen reported in the press, which was a company called Global Horizon (sic) [Horizon Global] and that was -- the Australian part of that business was Hayman-Reese, which was a very good quality towbar and towing business with revenues in excess of $200 million and EBITDA in excess of $30 million. And we had a really good shot at that business, and I thought it was very good to bring that in alongside ACAD, but we failed at the last stage on price, and we held fiscal discipline. And it's worth pointing out that we can still buy businesses at reasonable multiples, so we won't be overpaying multiples. And it's very difficult to compete on those big acquisitions with private equity, but we must hold fiscal discipline, and it's all about when you buy these acquisitions. So I'm disappointed we didn't buy Horizon Global, but I'm rather chuffed that we didn't pay the heavy price that the private equity firm paid to buy it.

Procurement is an interesting space. The procurement division was piloted in 2019 and it was established really late 2019, and that the procurement business has leveraged off our buying power from the Panel business with a list of consumables that we already created and manufactured overseas. It's a massive market of about $5 billion and there's no established market leader. So we are taking a staged approach to the business, but we do now have signed agreements with key customers, and we've started generating external sales. As Mr. Becker said, we've increased our inventory to nearly $11 million in the consumables business, but we are quite excited about that going forward.

Finally, I would like to talk to you about Mr. Ray Malone, our Group Chairman. And AMA would like to announce the decision of our Executive Chairman, Mr. Ray Malone, stepping down from the Chair role and the Board effective 31st of August 2019. Mr. Malone's involvement with the company started in 1984 with the founding of his Mr Gloss panel repair shop in Melbourne. That was then acquired by the AMA Group in 2007. Trading difficulties in AMA led to Mr. Malone taking effective control of the whole company, which, in his terms, at the time, had barely a pulse. Under Mr. Malone's control, he grew the ASX company by acquisitions and developed it into a $100 million business. When in 2015, Gemini joined the fold to help create today's Australian panel repair market leader with over $600 million in revenues and $800 million market capitalization and 140 stores as we close at the end of August. I would personally like to add that Ray has been very instrumental in the development of the AMA Group, from the struggling chain when he took control to the panel to the growth that we've got today. His entrepreneurial spirit and understanding of the panel repair industry are without peer. On behalf of the Board, the management and all shareholders, we sincerely thank him for his service, and I do personally. Mr. Malone has agreed to serve as a special adviser to the company, assisting management with the execution of the overseas procurement division.

Finally, it's important to note that while under the escrow arrangement entered into November last year, right decision to step down from the Board and Chairman triggers the release of provisions from the escrow shares held by his related entities. I would like to point out that Mr. Ray Malone, at this time, have no intention of disposing of those shares.

I'd also like to welcome Mr. Anthony Day to the role of Chairman of the AMA Group. I'm very excited to be working alongside Anthony. I've enjoyed having him on the Board for the last 12 months and very much looking forward to working with him as Chairman. So congratulations, Anthony, on your new appointment.

That leads me to the strategy and the outlook of the business going forward. And as I said, we've got 3 streams of income for this business. Number one, panel, that we continue to lead the panel industry in Australia. The runway has never been any bigger than it is today. It's a $7 billion industry, and we got close on 10% of that market, but we still got a long way to go in the panel repair industry.

And I think it's no secret that Suncorp are running a process at the moment to sell Capital SMART. Capital SMART would be a very strategic acquisition for us, and we're part of the process looking at buying it, but we're not the only ones that are part of that process. There are obviously some big private equity companies looking at it and overseas firms. And as I said with the Horizon Global business project try, we will have to hold fiscal discipline when we look at Capital SMART. While that's a very excellent strategic acquisition with a very good company underwriting it by 25 years, we will have to hold fiscal controls. We will not be overpaying. And it'll be interesting to see where that process goes. But we're definitely in the process to look at Capital SMART. But we've got a proven track record of buying sites and paying lower multiples. So the last 21 sites at an average of 3.8x EBITDA, which is worth pointing out that we can carry on rolling up in that industry.

The ACAD business, the opportunity for that is to identify and execute strategic acquisitions as we go forward. Horizon Global was one that we really, really did like. But as I said, we held our nerve and we didn't overpay for it. I do see a lot of daylight between ACAD and the panel business, and we are currently looking at lots of acquisitions to start to fill that daylight.

Finally, the procurement business is quite exciting and still very new. Mr. Malone, although he stepped down from Chairman and stepped off the Board, will reside overseas and will help us with that business going forward. So the opportunity to leverage and grow the procurement business is still there, and we're very excited about it. As I said, we've got $11 million in stock. We've also got contracts to supply now. And we've got our first invoices produced to supply in that business. So it's up and running, although very much in its infancy.

I think I'd like to pass that over to questions now, if there's any.

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Questions and Answers

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Steven Becker, AMA Group Limited - CFO [1]

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We've had a few questions. One around the normalizations -- expectation of normalizations for next year. We haven't given a specific number, but as Andy and I both said that, over time, we'd like to sort of reduce the amount of normalizations that we have as a company and bring that more into BAU this year. As we've said, we bought that down by approximately 18% as a percentage of EBITDA, and we'd look to bring that down over time. Obviously, we'll always have some one-off items that need to be normalized for, but we'll look at that. But obviously, we'll try and reduce that and make sure most things go into a sort of more BAU numbers.

Just -- sorry, just looking through the questions here.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [2]

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I've got one. What is the timing on Capital SMART process?

Well, the timing, I believe, with Capital SMART is that we are through to the second stage. We're in doing our due diligence at the moment. And at the end of September is when the final bids need to be in for Capital SMART.

The acquisition pipeline for panel repair, I think there's a question from Tim Plumbe.

Can you talk about the revenue? We've currently got about $400 million worth of acquisitions in our pipeline that we're talking to. And we've also got about 4 this year greenfield sites as well. So it's as robust as it's ever been. We really like the heavy motor, and we're looking at quite a lot of businesses in the heavy motor zone.

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Steven Becker, AMA Group Limited - CFO [3]

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Have a question around cash flow and -- in terms of the Gemini payout and the market.

So in our payments, they all went through our operating cash flow, as we tried to outline in the presentation. And obviously, the other thing that affected cash flow, as we tried to draw out, was the increase in inventory that went through with the ramp-up in the procurement side of the business.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [4]

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A question around procurement. How do you compare it with the expectations during the Blackstone process? Well, obviously, we're a lot closer to it now. We're a lot further down the line. And as I said, we've signed a contract with a couple of suppliers. So it looks as exciting, if not more, than when the Blackstone process was going on.

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Steven Becker, AMA Group Limited - CFO [5]

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Question around corporate cost, just an increase. Really, that was just an allocation of cost between the various divisions with Andy coming in and all sorts of things as well. So there has been -- and a reallocation of some cost, but there's a bit of growth in that naturally, as we've reconstituted the Board, plus added a couple of other positions in there as well.

In terms of the -- Tim had asked a question around the split of organic versus acquired revenue. Yes. We put us

(technical difficulty)

on the accounts this year. Obviously, the organic businesses, as we've always said, is fairly low to flat. Obviously, you get some growth in the business, but a lot of -- most of that growth in the year was around our acquisitions. And our acquisitions for the year added over sort of $7 million in net profit after tax to our result.

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Andrew Hopkins, AMA Group Limited - Group CEO & Executive Director [6]

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Another question for Tim on procurement. What losses in 2019? And how do we think about it for financial year '20? No, no losses in financial year '20. The procurement business will be profitable in 2020.

Okay. Guys, well, I think that sums up the questions. Thank you very much. Myself and Mr. Becker are on the road now for the next 2 weeks, so I'm sure we've got an appointment with you and look forward to seeing everybody on the road. Thank you very much.

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Steven Becker, AMA Group Limited - CFO [7]

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Thank you, everyone. Buh-bye.