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Edited Transcript of BRI.AX earnings conference call or presentation 27-Aug-19 1:00am GMT

Full Year 2019 Big River Industries Ltd Earnings Call

Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Big River Industries Ltd earnings conference call or presentation Tuesday, August 27, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* James Bernard Bindon

Big River Industries Limited - MD, CEO & Director

* Stephen Thomas Parks

Big River Industries Limited - CFO & Company Secretary

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Conference Call Participants

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* Robin Morgan

Taylor Collison Limited, Research Division - Equity Analyst & Head of Research

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Big River Industries Limited 2019 Full Year Results Conference Call. (Operator Instructions)

I would now like to hand the conference over to Mr. Jim Bindon, CEO. Please go ahead.

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [2]

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Okay. Thanks, everyone. Appreciate your time this morning on the call. So you'll be hearing from Jim Bindon, that's myself; and Steve Parks, the CFO of the organization. Yes, and it's a busy time of the year, so thanks for giving us your time this morning. I have a plan, which is to run through the results presentation, which was uploaded this morning onto the website and the ASX. So hopefully, you have a copy of that in front of you. So I'll just refer through that, if that's okay. And then Steve will cover off some of the financial components of the presentation.

Just quickly, if I just move to Page 3, folks. Just I'll give a little bit of an update on where the -- our structure as of today because we had quite a few changes in the last year, in particular, so it's just worth a little refresher on the mix of our business. So you can see there we've got 3 key segments in our strategy: one is formwork supplies, obviously, to the placement of concrete; one is general building products, which predominantly go into residential construction. We have ply and specialty that leverages the back of our manufacturing assets and has a wide range of applications in industrial, construction and architectural markets.

From a revenue by construction type, obviously, we tried to build a diverse business over recent years, the wagon were there on construction type. Hopefully, despite that, you can see, like most companies in building products, detached housing is a significant part of the business at 26%, but commercial construction is very important for us, and that's both from an interior fit-out component and also on the structure. High density, meaning potentially residential. Yes, there are certainly meaningful components, again, on the concrete structure side, but as well as at a whole range of other building materials which go into those applications. Our civil construction is about 10%. And then industrial market and the alterations and additions market have certainly meaningful slices there as well.

So just a bit on the asset mix of the business, which has changed a little over recent years. So around 17 distribution sites around Australia and New Zealand, including the 2 plywood factories. So we have those legacy manufacturing assets, which certainly form a core of the business. Two frame and truss sites. So they are new investments as we seek to expand our position in that very large frame and truss space, which is sort of a $2 billion market, and we think it's a critical product to be in if you want to be a genuine supplier to the general, let's say, building trade, and particularly residential markets. Three steel rolling lines, which are predominantly for the formwork industry. And then 2 sites processing our high-value architectural panels, one here and one in New Zealand. So I hope you can see that in the map details here.

And then on our revenue by region. Around 29% out of Queensland, 31% out of New South Wales. The Southern region is 30% and 10% coming out of New Zealand, which is the new fourth region we've got. And just to give you a feel of the spread there, about 5,000 trading accounts across the business. Again, to give you a bit of a feel of our business, around 90% of our sales by value are delivered. And we have about 75 trading accounts who would purchase more than $0.5 million a year. So again, just to give you a bit of a feel for the mix of our business.

And just moving to Page 4, folks, just some of the headlines of the results. So from a revenue perspective, $218 million for the year, was up 3.3%. But that was obviously contributed too by some of the acquisitions, which all occurred quite light in the year. Our like-for-like revenue is down around 3.5% or around 2.5% from our distribution activities. As we've spoken about, for those who've been on other calls, as we scale back the manufacturing of commodity products in some of those sales out of our manufactured sites to third party, to the wholesale fraternity dropping, obviously, that's by intent, so you can see the sales decline out of our distribution outlets is certainly lower than what the group result is as we reduce our exposure to that wholesale commodity line.

So from a profitability point of view, EBITDA came in at $9.8 million pre-acquisition costs here. That's got 1 month of New Zealand acquisition into it, which I can speak about in a little bit more detail. So this is just -- so that's at the midpoint of the guidance that we gave. In fact, December, I think, was when we first came out with that guidance. And it was about 4% ahead of the capital raise documents, which also had an updated number for EBITDA in there. So I think, obviously, in a reasonably tough environment and some challenging market conditions in the overall construction industry, I think, we have had a -- some reasonable result, I'd say. So it's certainly, down 10.6% on the previous year. Probably some good things happening, which hopefully I can work through during the call.

And one of the pleasing things in the second half, EBITDA was actually stronger than the first half. That probably goes a bit counter to what the general feel of the market was. I'd say that there's -- the market's probably tightened a little bit more in the second half in general. That's at a broad construction level. I think that's probably being reflected in some other company's data as well, but it was pleasing that we improved our result in the second half. So that was good.

And excluding the acquisitions, just a couple of points on the financial side, which Steve will cover in more detail, [held that] trade working capital is stable. Obviously, it's a critical part of our business. So when we're growing revenue, it's obviously important we don't (inaudible). I think we did that well. And cash conversion, pretty stable with our long-term average there, 86% or 76% when you include the first month of working capital associated with New Zealand. So overall, financially, obviously, it's not good to go backwards, but the improvement in the second half was pleasing.

Just a couple of highlights, which we'll go into more detail later. The formwork segment actually grew in the second half despite the challenges in the high-density resi market. So I think it was really a story of two halves there. So for those who are on the call, the first half, of course, spoke about some delays in commercial projects, which saw some fall short in the formwork sector in the first half. We're down about 3.5%. We grew about 5% in the second half, and that was on the back of some of those commercial projects starting to come through. So whilst the unit development side started to slow up in the second half, which is well publicized, some of those delayed commercial projects certainly gave us the little shot in the arm that saw that segment actually grow in the second half in raising the challenging conditions. So market share in the 3 key formwork products grew in all cases. That's some industry data that we've got access to, so I think that was pleasing.

From a pure gross margin point of view, again, when markets tightened, that's often quite challenging, but we continued to grow, albeit mostly but 29 basis point improvement in our overall gross margin is pleasing. And that was even though we had a lot -- our formwork sector, which is the market segment that grew the most, and that's certainly our lowest-margin segment. But we still went out and increased our overall gross margin. That's pleasing.

We grew our formply volumes on our (inaudible) product, but it's a key product for the business, both from a manufacturing and imported point of view. So we've got good traction with our new imported range there. So increasing those volumes was pleasing. And pretty major cash cost reduction at the manufacturing sites, around $4.5 million for the full financial year. That's just what's required as we resize those manufacturing assets.

From a strategy perspective, again, some good things happened during the year, I believe. The capital raise that we undertook early in the year to complete the acquisition of New Zealand, that was pleasing, whilst we didn't get as much as we originally planned. Hence, it's haven't quite got a debt headroom that we might have otherwise had. It was certainly pleasing to get that acquisition away. And as mentioned here, acquisitions in Geelong just before Christmas, Perth in May and Townsville, which actually posted the reporting period, we completed that on the 1st of August.

Stabilizing manufacturing. So there was a small decline in EBITDA from manufacturing, which we'll come to, but we've seen a challenging time stabilizing, that was quite pleasing. And the early entry into the frame and truss industry, which I spoke about earlier. We've got a goal to have a key frame and truss asset in each of the major cities, supported by a cluster of our branches. We have -- so we think that's going to be good business to be in, in the long term. And in our imported supply chain, it's certainly expanding and putting ourselves in a really good position from a supply point of view. And the New Zealand acquisition as well gives us -- yes, certainly, we've inherited a very good supply position, particularly out of Europe. So that's an important part of the expansion of the business, too.

So just moving on to Slide 5, guys, just a little bit more detail on the operational side of the business. We've spoken about revenue, so I won't go back to that again. The formwork side, as I said, grew strongly offsetting that decline in the first half. I've talked about the growth by product. And the volumes, that's the first time we've grown formply volume in several years. Obviously, as our manufactured products come under pressure from cheaper Chinese imports, our overall volumes at a group level have been dropping for the last couple of years. As we've got that mix right between importing and our local manufacturing to grow the overall volume of formply in what was generally a contracting construction market, I think, was a really good new story.

And then, yes, clearly, the residential markets slowed, particularly in the second half. Our building products segment, which as I mentioned earlier, is largely gauged into residential construction. We grew 9%. We are sure that was largely on the back of acquisition. It was around flat on a like-for-like basis. But we've got some good individual product examples. So for example, the fiber cement sales grew 5% as fiber cement continues to achieve market share gains against brick and other products. Our MaxiWall product, which is the aerated concrete panel products, grew by around 30% on the previous year. So some good new stories in some of those individual residential products.

Queensland, I think it's probably been under some real pressure. That particular market that we grew our revenue 2.7% despite some of the challenges in that state, so I think that was quite solid. Melbourne as well, which has started to slow, particularly in recent times. We had like-for-like growth of 10% out of our Melbourne branch. And we had a -- certainly a very solid start to the business we acquired at Geelong, so that's pleasing. So a couple of regions there, I think, have done quite well. And certainly, expanding our client base, so not only through acquisitions but a real focus from the sales and marketing team to expand the customer base of the business. Yes, it was obviously going up over that 5,000 trading accounts.

Ply and specialty is the third segment there. So sales were down in the order of 10% for the year. It's sort of spread across a wide range of areas. So our bridge systems, which is really back ended in the last quarter, in particular, our sales ended up being down around 24% there versus the previous year. So that was a bit of a kick at the profitability we didn't get this year. Fortunately, a lot of that's carried over into this financial year. And some of that was due to the funding structure where there was some additional federal government funding available for regional roads and regional bridges in particular that came as part of the draft package. So a lot of the councils and the right authorities who would usually spend that money prior to the end of the financial year have actually deferred those purchases so they can access that new source of funding. So it makes sense to spend someone else's money rather than your own budget, and I think that's what some of those organizations have done. So certainly inquiries in that sector in the early part of the year are much stronger than we've ever seen before. So that's a bit of a glass-half-full story here.

And then a lot of the architectural products as that commercial market had been a bit soft in the first part of the year, so the interior fit-out and certainly the high-end flooring range, which also goes into the alterations market as people started to spend less on renovating. They have -- as the price growth started to slow, so we saw that reduction in our flooring product range as well. So a bit of a mixed basket in ply and specialty, albeit that there's a good pipeline starting in that sector.

Just at a manufacturing level, I mentioned we had a major reduction in cash costs. Around $3.3 million of that was in labor. And then rest is obviously in energy costs, in repairs and maintenance, in freight and then a few other also there. But obviously, we wouldn't have to strip those costs out.

There are a lot of products there in steel, so it actually grew volume. But that obviously had plywood volumes contracting as we resized those plants. But the steel ones actually got pushed out about 5 percentage for volume, so it was pleasing. Again, market share gains there according to the BlueScope data we see was pleasing.

We renegotiated our long-term wood supply agreements just to reflect the lower manufacturing volumes that we're now doing at both sites. So we've always had long secure wood from the government there, which we still have. But we just tweaked those contracts a little lower. So obviously, we didn't have too much wood for our requirements.

New gas and electricity contracts. That's the first time I could remember, at least 10 years, where we've seen some price reductions for this year onwards, particularly in gas. The electricity savings come more in '21 and '22, so the years 2 and 3 of the contract. And this year was the first year that contract is about flat. So some pleasing signs after a really tough period on energy costs.

And then as a summary, the manufacturing contribution, down about 12% on last year, even though our volumes were down over 20%. So again, that's a movement towards the high-value products, which is a key part of the strategy. And that tight cost control has helped contain that profit shortfall, which you might have expected to be larger when volume has been down that much.

Just on the acquired businesses there. As I said, the frame and truss position in Geelong and Perth is a good start. Executing the acquisition in New Zealand gives us now even stronger diversity across the group, and certainly leverages our core confidence. Big River's building plywood and veneer-based products for over 60 or 80 years, so it's very core to what we do. It's certainly not sort of getting outside of our comfortable core competencies there. So I think that's going to be a really good part of that business in the future.

Again, the Townsville acquisition, which is settled in August. Obviously, combining 2 sites into 1 because we already had a site in Townsville gives you the textbook synergies you'd expect. And that's going to sort of turn that into a good, meaningful business for us and a much stronger contributor from a profitability perspective. And the organic growth that we get by putting our key differentiated products into the acquired businesses, which is one of the key synergies we look for. So we're not so much trying to strip costs out to get growing the revenue base there, and we continue to do well there and averaging about 5% revenue growth in those new segments, the specialty segments out of the acquired businesses.

Just quickly on -- just a couple of graphs on the next page there, Page 6, on the operational side, just to really give you a feel of how the business is changing between manufacturing and distribution. So clearly, our investments in recent years have been expanding our sales and distribution base. So manufacturing is becoming our lesser part of the business. We still see it as an important part of our strategy, and it gives us a little bit of technical, let's say, excellence and a little bit more depth to our strategy. But a lot of our growth is coming from distribution as you can see. So around 14% contribution in FY '19 from manufacturing, that will probably be reduced to about 10% on a pro forma basis when the acquisitions are included. So it's a meaningful part of our business, but you can see where the growth is coming from. It's coming out of our distribution business.

So just a quick update on strategy. I won't go into this. Obviously, we've got an extensive document to try and summarize it in one page for a couple of minutes. But there's a couple of key themes here. So first point is, I think, we've got a little bit of a unique business model in the building materials space, what we call the 3-in-1 business model. So each of our sites is going to keep a key goal to have a good strong position in all 3 market segments: Formwork Supplies, Building Products and Ply & Specialty. We can do that under the one roof. Most of the competitors we compete against would only have a play in one of those 3 segments. Certainly, there's some strong niche businesses in formwork, there's some strong niche businesses in specialty architecture products, and there's plenty of building materials, supplies and such. The fact we can deliver all 3 under the one roof, in our view, gives us a cost leadership position. And from our assessment and from our benchmarking, we have the lowest cost to market distribution business. So whilst our gross margins might be lower than some, we certainly have the lowest cost model. That's something that you don't want to give up on easily. I think it creates a bit less volatility in the business when you have such a lean cost base. So that's an important part of our strategy. And certainly, being successful in all 3 segments, which gives you some lumpy project-type work, that's what helps maintain that low cost-to-sales ratio.

So here, key markets. It's really key for us to have that strong market position in those niche segments, which is formwork supplies and specialty plywood side. As I said, the building materials market, very large space, maybe a $10 billion-plus market into -- the all key trade building products is our language. So it's a very large market segment. So clearly, we need to continue to build scaling in that very large market, and that's what a lot of our expansion of our distribution network's about.

And then -- so scale is really the first key plank of that strategy. We need to build the size of this business, in our view. We've had to invest upfront with a reasonable amount of cost for a smallish business. And that's both from a corporate perspective but also from a sales and marketing point of view. So we'll get our payback as we build scale there. So whilst we've added 5 sites or 4 sites to the business in FY '19, plus Townsville in the last month, we want to continue to roll out that acquisition plan of around 2 to 3 per year, if not 4. Yes, and all those major capital cities or major centers are our target markets. All those markets where there's a blend of civil, commercial, multi-res housing and alteration-type market are our target markets, which is going to come from the large population. So clearly, in a market like Sydney, we've got a single branch. It's an extremely large city, so we need to have certainly notable dots on the map in a market like Sydney, and the same can be said about other cities. So we've got plenty of expansion still to do there.

The multi-site pickup as we get a cluster of branches within a region becomes a key customer service tool. We need to improve our efficiencies and customer service, thereby leveraging our whole network. As I mentioned earlier, over 90% of our sales are delivered. So as we expand our network, that will increase our customer offer, in our view, so it's important to do that.

And the scale benefits from being larger. Obviously, that comes in many forms, not least of which is buying power, but also as we see more builders and more contractors develop a national footprint. Obviously, having a model nationally will allow us to service here much better than some of the isolated, let's say, competitors of ours who are only operating one geographic market. So we're starting to see plenty of customers now where we're trading with them across 4, 5 and 6 geographies, whereas 5 years ago, they may have only operated out of one region.

And obviously, leveraging that national exposure, I just mentioned that. So there's just some of the trading metrics there. And we think that's something that we haven't done as well as we should. We've got a long tail like lots of businesses do. We probably don't use data as well as a lot of more sophisticated companies. We came from a little bit of a rural family background. I think we've got a great market knowledge and a great technical position, but we need to probably start to use the data we've got and improve our marketing. And I think we can leverage our wide customer base by doing that a little better in the future.

And then from a financial perspective, obviously, there's a need to improve our margins through the specialized products. And we've got some really good ones there that are going to help widen up our margin over time. The implementation of a new ERP system, which is underway, we know will improve our pricing discipline and margin as the team's been working on a whole range of separate systems, which comes from Macquarie, and I think certainly less disciplined around pricing structures. That's a medium-term project to improve our gross margin, too. Certainly improving scale will increase our EBITDA and gross margins as well. And that refocus on specialized manufacturing, we will continue to see that gross margin enhance.

So just moving on to Page 8, guys, which is just a quick summary of the New Zealand acquisition. Yes, so for those who haven't read the capitalized documents, around AUD 16 million was the upfront consideration. There's an earn-out of NZD 3.5 million there as well over 2 years if the profitability targets are met. So revenue is roughly AUD 24 million out of those 2 businesses. And we certainly expect the EBITDA contribution to be north of $3 million. The core product range, it's really about plywood, veneer-based products and architecture, which is very core to Big River. So some really key plywood products, not just for architecture but for industrial and construction applications. And then the small manufacturing business we go, it's more fabrication rather than traditional manufacturing. That's very light manufacturing, specializing in fire-rated, acoustic, machine-profiled, pre-finished painted panel. So a real specialty range but some really great products there, particularly with the commercial fit-out focus there. The bottom photo you can see on that page is the Auckland University. So just an example of some of those wall lining-type products, which our business makes.

From a synergies perspective, that's a really great product range that this business has built up over 30 years coming out of particularly Europe. So we want to introduce some of those products into our Australian network. Expand the Plytech site in New Zealand to include our core formwork range. So that's obviously a key competence of Big River. And we have done business in New Zealand in the formwork space before. And we've got a couple of good early successes there, including the fact that 2 of our Australian contractors as well as one New Zealand customer (inaudible) on a new line to Westfield in Auckland. So that's an example where, hopefully, coming from Australia with our formwork leadership position will put us in a good place for that large project when that starts in the coming months. Clearly, we also want to range some of our specialty manufactured products into the New Zealand operation, and they're well placed in that space. And after the first couple of months, I can say that the trading results have been particularly pleasing and a little ahead of our plans. So that's a good start.

Well, I'd like to hand over to Steve now. You can read through the 3 financial pages, and then I'll sum up with the outlook after that.

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Stephen Thomas Parks, Big River Industries Limited - CFO & Company Secretary [3]

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Great. Thanks, Jim. Just moving on to that Slide 9 then, we've got the earnings summary. The headline revenue, as Jim mentioned, it's $218 million, up 3.3% from previous financial year. That includes 1 month from New Zealand, a couple of months from Midland Timber in the west and 7 months of MB Prefab down in Geelong. As mentioned there, same-store basis distribution revenue was only down 2.5% but 3.7% overall, and the manufacturing decline is included in there. And pleasingly, the gross margin from distribution was up 29 basis points to 18.2%. That was enough to offset the CPI type and cost increases or the lower same-store revenue, which saw distribution EBITDA decline of 6.4% over the previous year.

Corporate expenses, whilst up on the prior year, have been flat for the last 3.5 years. So that's been around about $1.6 million to $1.7 million per half for each of those last 3 halves and cash costs coming out of that manufacturing contribution of $4.5 million, as Jim mentioned earlier. So that we ended up was $1.8 million. Probably it's worth pointing out that the first half of the year, we had $0.7 million contribution from manufacturing and the second half was $1.1 million, so well up top of that last quarter. Specialty product that we get out of Grafton will be -- that was down a little bit this year compared to last year. Overall, that resulted in the group EBITDA of $9.8 million before acquisition costs, down 10.6% on the prior financial year. And then that bottom line NPAT, $3.9 million.

So moving on to the balance sheet. As always, trade working capital is a major focus for us, and we came in at 17.8% as a percentage of revenue on a rolling 12-month basis. That improves to 17% when New Zealand, which carries the highest level of inventory, is excluded. Debtor days went a little bit backwards for us, they are up to 58 from 56 the previous year. And the increase in intangibles is really just from acquisitions, with New Zealand accounting for $13 million of that increase. Our overall gearing sitting at around about 20% at the end of the year. It's just worth pointing out that, that initially rises to 27% post the payment for New Zealand and Big Hammer, which both happened in -- after the year-end. And we did receive some $6 million in funds from the recent placement as well, which also happens after the year-end.

So our bill facility after all those things have happened at the end of July is sitting around about -- with a headroom around about $7.5 million. And -- because it obviously helps for us to be able to get some of those acquisitions away with some increased funding there as well as the capital that was raised.

So looking at the cash flow. Overall, our cash conversion ratio was 76% as well our -- really just due to that working capital requirement from acquisitions. All of those acquisitions come with an initial first year working capital requirement. And as an example here, when we exclude New Zealand, that actually jumps up to 86% for the year, so a very good result as far as that's concerned.

CapEx, with just some specialized manufacturing equipment we have Grafton along with some sand business, replacements, things like mobile plant and tool of trade vehicles, et cetera. As Jim sort of mentioned briefly there with the ERP side of things, we're growing at a replacement ERP system. The first site went live in August, and we'll progressively roll that out over the rest of FY '20 to the rest of the Australian group. And we will expect to see some benefits flowing from that in FY '21, things like margin improvements and purchasing costs and those sort of things, et cetera.

Business acquisitions includes MB Prefab and Big Hammer -- I'm sorry, Midland, noting that the payment for New Zealand and Big Hammer happens post year-end in July. Capital expenditures 1.4 -- sorry, capital proceeds from shares of $1.4 million was raised from that small placement and the share purchase plan kind of further $6 million coming later, by the end -- in July. And the final dividend fully franked declared of $0.022 per share, which will be payable on the 4th of October. That takes the full year dividend of $0.044 per share or around 66% of NPAT, which is in line with what we've got in our dividend policy.

To start on final note, probably just worth pointing out, there's some changes potentially happening in FY '20 due to the change in accounting standards on AASB 16 leases. It's affecting all companies in the next financial year, in FY '20. And that's whereby operating leases end up being capitalized on the balance sheet. For us, that's maybe around our property leases, not much else outside of that. For Big River, that's going to mean really not having that right-of-use asset coming on to the books of around about $20-odd million and the present value of those lease -- associated lease liabilities around $21 million and also resulting in an initial reduction of our retained earnings around about $0.6 million.

Potential impacts for FY '20 on, I guess, a notional basis because these are all just accounting treatment, not -- I guess not real as far as it's concerned. It's a bit of Australian standard. But that potentially will increase our EBITDA by $5 million through taking out the rent on those premises and replacing it with depreciation of $4.5 million and a notional interest component of $0.8 million. So overall, we end up -- on a pro forma basis, anyway, we're reducing our NPAT by around about $250,000. So it doesn't change the bottom line too much overall, but it does markedly change the mix there in terms of the EBITDA and depreciation.

So I think that said, back over to you, Jim.

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [4]

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All right. Guys, so just on Page 12, it's the last slide. We'll leave the appendix on Page 13 for you. It was just for your info there to sort of give you a spread across a few years as we've only been listed for, say, 2.5 years, but hopefully there's a bit of data there that you can use to benchmark how the business has changed.

But just on the outlook on Page 12. What we've got to say, it's a little bit of a volatile period in the construction sector at the moment. There's a fair bit of uncertainty and there's a fair bit of veering views and opinions. So housing, which is a significant part of our business between the 3 segments, the detached, medium and high-density, is forecast to fall by about 15% in FY '20. Everyone has got a slightly different numbers, but detached housing is probably expected to drop about 6% to 7% and multi-res as much as low 20s. Civil construction, we still see as solid at sort of plus 5% to 6%. And commercial has a good outlook there as well, perhaps in the order of 8% to 10% growth in the key transport and infrastructure markets we are involved in. We're actually much into things like the [NVME], as an example. So we exclude that component of the infrastructure forecast. But yes, there's some good upside there.

Alterations and additions, 3% and 1% growth. A little bit soft given just the whole economic metrics around house prices and consumer confidence, et cetera. And industrials are up a couple of percent. So look, on a weighted average basis, based on our exposure, which you can see on the first page on Page 3, now that would translate to revenue decline of circa 3% to 4%, but obviously, that's not our goal. And we hope to do better than that with some of the initiatives we've got in place, but that's kind of the broad waging that we might expect -- we expected for a par with the market. So we certainly do see some good positive signs in the housing market. And a lot of our clients are reporting that inquiry numbers and traffic through the display homes, et cetera, are all looking positive, albeit that the consumer is a little bit hard to get money out at the moment. So they've been touch cautious, but we certainly see that towards the very back end of FY '20, that, that housing or resi market will improve. But as mentioned, commercial infrastructure markets look more positive, so we expect growth there. And that's certainly what we saw in the second half, which I mentioned earlier, the growth in formwork came from the improvement in both commercial and the infrastructure markets. And New Zealand, we expect to be pretty stable with weaker trading conditions in FY '19, perhaps just a little bit of the open market.

From a strategy point of view, our view and our -- across all building product sectors for the 20 years I've been with this the group, I think we probably have a bit less earnings volatility because of the spread. We might not have the high highs that some players have because we're not exposed to any large market or large individual segment when they can have boom times when the planets align. But I think our lows have been quite a bit lower than a lot of our peers, too. So we've been trying to work to get that consistency, predictability and less volatility in our business. So that's a key part. And we want to continue to roll out that plan. Clearly, the staged rollout of some of the specialty products we've inherited from New Zealand is a really -- it's a great opportunity for the business. Clearly, we've got to temper that with ensuring that we don't take our eye off the New Zealand business because they're obviously meeting the numbers, and seeing that as a strong contributor to our group is the most important thing. But certainly, there's lots of great things to learn and some really experienced staff there that we want to leverage their skills to help us grow share in that same space in Australia. So that's a key part of the strategy.

We have some really good prospects in some of the higher-margin specialty products that we manufacture. So I probably saw there for FY '20 early in the year. And then new sales and marketing structure, which we executed as part of the strategy that we finalized with the Board earlier in the financial year. I think that will continue to yield well for us. We have clear national leaders in each of our 3 segments. And together with our 4 regional managers, I think we've got much more focus on sales execution, which is a critical part of our business.

And from a growth perspective, look, as I said, a lot of uncertainty, so obviously not putting a firm black-and-white number in place for FY '20, but the investments that we've made in FY '19 clearly are going to deliver solid growth for us at both the revenue and the earnings per share level. Our refocused and specialized manufacturing will keep seeing that gross margin light up, which is pleasing, so we want to continue to work on that. And obviously, the acquisitions that we continue to assess, and there's certainly plenty of opportunities there. So whilst their headroom is not quite what it might have otherwise been after the capital raise, there's still some room there to continue to roll out that expansion. As I've mentioned in previous calls, getting inquiries and opportunities presented almost daily. An example, just yesterday was an acquisition we looked at 6 months ago that we couldn't make the numbers work. It wasn't right for us. That's come back around officially through and through. This is case of public sale process rather than private, but I think there's some -- I wouldn't say they're desperate sellers, but in a slightly declining market, there's some great opportunities there to invest at kind of lowish point in the cycle. So I think we really need to take advantage of that. And that's what we did to some degree in FY '19. I think the opportunities are definitely there in FY '20 as well. So certainly expect solid growth from FY '20. And certainly, our profitability in July was considerably higher than the previous July, but you'd expect that because of the acquisition contribution as well.

So that's just a little bit on the outlook there, guys. And hopefully, coming AGM, we might be a little bit clearer on how things have settled down in the market in the first quarter. We might be able to obviously give a little bit more guidance around our expectations for our earnings for FY '20.

Okay. We'll just leave you to read the appendix that's, perhaps leisurely, on Page 13. And that completes the formal part of the presentation. So we'll pass the (inaudible) back to the facilitator to take any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Robin Morgan from Taylor Collison.

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Robin Morgan, Taylor Collison Limited, Research Division - Equity Analyst & Head of Research [2]

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Good result in some pretty tough times, clearly, particularly the second half pickup there. Just, and you did touch on it, the formwork growth you saw in the second half given that declining environment, and you indicated the commercial sector was where that was coming from. The pipeline for FY '20 falling at better H2 run rates. Could you just give a bit more color on that maybe in terms of parts of the commercial market and also the geographic regions, please?

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [3]

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Yes. Yes, Robin, I think that trend is going to continue. It's a little bit patchy, fair to say, particularly solid formwork in July but a little bit caught this month in August, albeit that some of those wild winds we've had for an extended period, but it's certainly not at the big construction sites where the cranes can't operate. So it's a little bit lumpy. But having said that, I think that trend in the second half will continue. So there is a good pipeline of commercial projects. So hospitals in every state, so that helps, perhaps with the exception of South Australia. But multiple hospitals in Sydney. So you've got Campbelltown, you've got Nepean, which we've supplied early work on car parks store, but the whole hospital work is still to come. The same in the other states. So The Alfred Hospital in Victoria and the finishing of Royal Brisbane in Queensland, Hollywood Hospital in WA. So I think that's one part of it there, Robin. And obviously, commercial towers, so offices. So you got 1 Denison in North Sydney and you got Parramatta Square, which is a big project there. It's multiple towers in that, again, heavily focused around office, data centers at Ryde. You've got a quite large M-City project in Melbourne. So a blend of office, hospital is certainly strong and a little bit of mixed use. Obviously, there's a big casino project, which is really only just getting underway in Queensland. It's been deferred. I think I mentioned at the half year that there'd been some delays there. Our contract is on site but only just recently. So there's obviously a lot of stuff to come there on that major project. So a bit of a spread there, but certainly helped and underpinned by that big health spend, Robin.

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Robin Morgan, Taylor Collison Limited, Research Division - Equity Analyst & Head of Research [4]

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Yes. And in terms of infrastructure, I'm just thinking to Boral's results yesterday where they're getting commented on project timing and delays. Are you seeing...

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [5]

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Yes. Look, our exposure to those projects is nothing like Boral. And we're only a relatively small player on those sites. But it's always quite consistent for us, Robin, so we don't really have the lumpiness into that space. It's not like those contractors buy a really large amount of material and that lasts them for some months. They basically buy and use it. And they repeat purchase on a very regular basis for the type of material that Boral has. So obviously, there's been work on the Sydney Metro, on the M5, on the Northwest Rail, the M4 East in Sydney were probably the major ones. Pacific Highway, obviously, at one stage, we were trading with 8 different contractors on a 50,000 stretch in Northern New South Wales. So those projects are still taking longer way, but the Pacific Highway for us is starting to come towards an end. And then in Victoria, certainly, the Westgate tunnels and the metro rail projects are strong and consistent.

So we haven't seen any, really, lumpiness in the positive, but we also haven't seen really quiet periods either. But we're not probably the best gauge there of how those projects are tracking in terms of their time table because they typically just buy pretty small quantities on a regular basis. Sometimes, literally, as frequently as each day, we may do deliveries to some of those large projects for a relatively small amount of product, maybe 3 of 4 packs of product each day. So I probably can't give you a really good guide for how that infrastructure is tracking other than it's a consistent, stable and useful part of our business.

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Robin Morgan, Taylor Collison Limited, Research Division - Equity Analyst & Head of Research [6]

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That still helps. M&A, you flagged there still keen to do 2 or 3 a year, possibly even 4. Just a bit of clarification in terms of how you're managing your time or the distraction doing that within the business without upsetting the core?

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [7]

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Yes, I think that probably to be fair, there's a relatively small amount of people in our organization that are involved in that. We've got one full-time M&A guy in the sales obviously. And clearly, our new sales and management structure -- sorry, sales and marketing structure is really helping. So having a regional manager, so we're not -- call sites having to deal with sales and customers that we know while they still look after some of the large customers. They've been out to do some of the heavy lifting on the integration work because a branch, if it's in their region, that becomes a critical part of their business. So they've been involved from day 1 and certainly heavily involved on the integration to stop taking the sales plans and so forth. So having an extra layer of management, which we haven't had before. The 4 regional managers have certainly given the fixed resources to make those acquisitions work as well as our one full-time M&A person.

So it's not -- I don't feel at all that it's impinging on our core business. But it's -- obviously, it's a critical part of our growth strategy. That's where we see a huge long-term opportunity for consolidation in the industry. So we certainly don't want to take our foot off that. We would have liked some more headroom and we would like to raise a little bit more money last time. Obviously, it was a challenging time not only in the share market but also in the building space. And our results haven't been perfect either, so we understand why we didn't quite get the support that we otherwise might have liked, but I think there's plenty of good things going on in the business. And if there's large opportunities pop up, clearly, we're going to need to go back to the market to get further money if it's a chunky acquisition. But in the meantime, we've still got the headroom to do some good, small and medium-sized bolt-ons.

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Robin Morgan, Taylor Collison Limited, Research Division - Equity Analyst & Head of Research [8]

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So there's no slowing then of the strategy despite the fact you need to go to bend those businesses, then you're pretty comfortable with resources you've got there.

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [9]

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Yes. Absolutely. In fact, I think we're in a position now where we've got a much better structure to actually be at a speed, and I think we have the financial capacity because our new -- as I said, our new segment and regional structure has really given us good senior guys to help ensure those integrations go well.

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Robin Morgan, Taylor Collison Limited, Research Division - Equity Analyst & Head of Research [10]

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And last one for me. Just on the imported formply. So both -- the market dynamics, both in terms of your own imported formply and others, how does that sit with Aussie dollar hovering consistently below $0.70? Or is it -- this is just the new thing and there's always going to be imported formply and you're just going to balance that internally?

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [11]

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Yes. It's probably more than the latter to be honest. I think all of us have to go back and redo our Economics 101 course because some of those things just simply don't apply anymore. So the liabilities should be great for Australian manufacturing, but when 95% of the imports you compete against come from China, the metrics are very, very different -- so if you get about a low U.S. dollar -- I'm sorry, a low Australian dollar, meaning the price should go up, we've actually seen considerable -- in some cases, price declines during a period when the Australian dollar is falling. So I think the metrics on all of that are quite different. Certainly, the product you see come out of South America, and to a lesser degree, Europe, pricing is as what you would expect. Cost is going up there as the Australian dollars weaken. But out of China, I think the whole dynamics are very different, Robin. And clearly, that's why we need to stay in that product range, and it's been a good part of our growth. But -- so our specialized high-end products have done quite well in the last financial year, too.

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Operator [12]

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(Operator Instructions) There are no questions at this time. Therefore, that does conclude our conference for today. Thank you for participating. You may now disconnect.

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James Bernard Bindon, Big River Industries Limited - MD, CEO & Director [13]

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Thank you, everyone.