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Edited Transcript of MPG.NZ earnings conference call or presentation 22-May-19 10:00pm GMT

Full Year 2019 Metro Performance Glass Ltd Earnings Call

AUCKLAND Jun 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Metro Performance Glass Ltd earnings conference call or presentation Wednesday, May 22, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Fraser-Mackenzie

Metro Performance Glass Limited - CFO

* Simon J. Mander

Metro Performance Glass Limited - CEO

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Conference Call Participants

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* Aaron Ibbotson

UBS Investment Bank, Research Division - Director & Research Analyst

* Arie Dekker

Crédit Suisse AG, Research Division - Research Analyst

* Matthew Allan Henry

Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities

* Stephen Hudson

Macquarie Research - Head of Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Metro Performance Glass 2019 Full Year Results Briefing Call.

I'll now hand the call over to Simon Mander to begin.

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Simon J. Mander, Metro Performance Glass Limited - CEO [2]

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Good morning, everyone. Welcome and thank you for joining our call. I'm Simon Mander, Metroglass CEO; and with me is our CFO, John Fraser-Mackenzie. This morning, we'll provide you with an overview of the company's results for the full year to the 31st March 2019. We'll then turn to a Q&A at the end of the call.

Now we'll now start our presentation on Slide 1. During the 2019 financial year, the company has been focused on its strategy to improve execution, deliver financial performance from the investments we've have made in additional production capacity and to leverage our strong market position. We've made progress across all parts of the business, but our full year result demonstrates that the delivery strategy is different across New Zealand and Australia.

There are 4 primary topics we will focus on today: firstly, New Zealand's operational performance, which has delivered pleasing incremental improvements in customer experience, operational performance and culture; secondly, our Australian performance, which has been impacted in the year by challenges with variable operational and service performance; thirdly, our competitive landscape and potential future changes; and finally, an update on our approach to capital management and expected outlook for the 2020 financial year.

On Slide 2, you will see some of the group's key events in the year. The group delivered an EBIT in line with our March guidance and continued to focus on debt reduction to achieve a stronger debt reduction level. New Zealand, which is approximately 80% of group revenue, had improved financial results with a particularly strong commercial segment performance with flat residential and Retrofit performance. We made good progress on our people and customer focus with our initiatives in New Zealand. And our operational performance with customers improved significantly, along with employee voluntary turnover, which reduced from 31% to 22% in the year and absenteeism reducing by approximately 10%. Balancing that, however, was a disappointing result in Australia, including an impairment of the intangible asset. Operational and service improvements are now emerging in Victoria and New South Wales, following the buildings treated during the year with the remedial plans in place.

Turning to Slide 3. Our vision to be the leader in glass solutions and our strategy to deliver this vision remains consistent.

Slides 4 and 5 provide an update on the group's achievements in each of our 4 key strategic initiatives, and I'll briefly highlight some points.

Now on Slide 4, at the center of our strategy is a dedication to excellent service for our customers. This covers many important factors, including quality, delivery accuracy, product range, technical support, distribution capabilities and strong customer relations. In the year, we also conducted a New-Zealand-wide customer survey to further understand our customers and how we can better support them. The feedback enabled us to focus our initiatives, resulting in an improved operational and service performance with late-tail-DIFOT increasing to 93%. We have invested in our people by recruiting new management talent and capability across the group, increasing the leadership and supervision within our plants, improving sales systems and aligning our wage rate with an increasingly competitive labor market. This is reflected in our retention rates with voluntarily leavers reducing from 31% in FY '18 to 22% in FY '19 and absenteeism reducing by 10%. Health and safety of our team is of utmost importance. Glass is a fragile, heavy and hazardous product to work with so we must ensure that our people are well trained and equipped and have safety at the forefront of their minds. We continue to focus on prevention initiatives and embed a culture of home safe every day.

Turning to Slide 5. In New Zealand, we have increased margins through favorable product mix and pricing with efficiency gains offsetting cost pressures in labor, distribution and materials. The Australian business, AGG, had been challenging. The market support is supportive and the recent capital investment program is showing promise on the -- in production capacity and improving manufacturing efficiency. However, it has taken longer than originally planned to reset AGG's operations, people and culture. This has impacted its first year-to-date financial performance and highlighted further capabilities that we are working to address. Pleasingly, operational and service performance has markedly improved in the second half, and we'd like to build on this in the coming year. Despite the current challenges, we believe in the longer-term opportunities that AGG offers. The market, while very competitive, is significantly larger than New Zealand, and we have seen continued regulatory moves supporting the uptake in double glazing, which is at the core of our product offer.

I'll briefly highlight our key FY '19 financial results, and John will give more details shortly. So on Slide 6, group revenue of $268 million is in line with the prior comparable period and EBIT before significant items of $25 million, resulting in an NPAT before significant items of $14.2 million, impacted by poor trading results in Australia. New Zealand revenue grew 2% to $217 million and an EBIT of $31 million, an increase of 6%. North Island activity was offset by further South Island declines with sustained service improvements achieved. AGG, our Australian business, delivered an EBIT loss of $4.8 million from an EBIT of $3.2 million in FY '18. This was driven by operational challenges across Victoria and New South Wales and our Tasmanian start-up. With the new senior leadership team in place, operational improvements have emerged over the second half of FY '19. We decreased reported net debt by $11 million to $83 million, and we have continued to prioritize debt payments. As previously communicated, no dividends have been declared.

Looking at Slide 7 briefly. In New Zealand, you can see the elevated levels of residential and nonresidential construction in New Zealand. This has broadly been the case for some time now. Strong economic fundamentals continue to support strong activity, but supply-side constraints are limiting growth. In Australia, we note the softening of leading indicators of Australian residential construction activity, particularly multiresidential approvals. Australian glass growth is primarily involved in the new detached houses and alterations and additions in the Southeast of Australia. These segments and regions have been less impacted to date, however, they are also expected to soften in the coming 12 to 24 months. Countering this, however, we continue to see the penetration of double glazing increasing alongside supported regulatory changes in our target markets.

Updating you then on our New Zealand operations on Slide 8. In May, when we released our FY '18 results, we spoke about our focus on 4 fronts: getting back to basics in operations, putting the customer at the center of everything we do, building our capable -- people capability and taking ownership throughout the organization. We are pleased with our progress to date. Specifically, our service levels have improved with strength in the leadership in our plants and focus on process disciplines. We have been pleased with the continued drop in voluntary staff turnover, declining from 31% to 22% over the last year. We've also developed a clear understanding of our customer needs and have reprioritized our internal initiatives as a result. Financially, this has begun to show improvements with our revenue growing by 2.1% despite the drop-off in activity in Canterbury.

On to Slide 9, the New Zealand glass window market is rapidly evolving and with the buoyant housing and construction markets encouraging investment from new and existing players. We have previously spoken of impact to new entrants on Metro. Today, our customers already can select between multiple glass suppliers and yet choose to work with us. We're working hard to continually improve our customers' experience and have made good progress this year. Metroglass is well placed to succeed having already significantly invested in new manufacturing capacity and people capabilities. The company will continue to focus on differentiating and reinforcing its value proposition to its customers through continued execution of our strategy.

Turning now to AGG in Australia. Tasmania on Slide 10 was commissioned early in the calendar year and, following from initial start-up challenges, has achieved its first year EBIT objectives and is offering a better local service on the island.

On to Slide 11, Victoria, which equates to about 2/3 of AGG's business, continues to be profitable. However, variable performance and underutilized latent capacity due to the transfer of volumes to the new Tasmanian plant having impact on the year. New South Wales also had a variable operational performance which impacted its profitability in the period. Following the reset, organization and process changes are now embedded and beginning to take effect as noticed on the external reworks trending down and the AGG combined DIFOT improving. Overall, we're disappointed with the performance of Australian Glass Group. But with their fresh leadership team in place, we're in the process of building a best-practice production culture which we are confident will deliver benefits in restoring our reliability and service levels.

I'll now hand to John to discuss the financial details results in more detail.

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [3]

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Thanks, Simon. On to Slide 12, our group revenue for the financial year 2019 was flat to the prior year at $268 million. The New Zealand market revenue increased by 2% and EBIT by 6.3% to $31 million. Our commercial glazing revenue grew by 9% to $52.5 million. Our residential and Retrofit revenue were broadly flat year-on-year. Residential revenue in South -- declined in the South Island, which was offset by growth in the North Island. Retrofit was disappointing to us, and we changed our marketing mix in the second half of the year, and we're looking forward to the impact of these in the winter, in which business has seasonal peak. In Australia, revenue declined overall driven by underutilized capacity in Victoria and operating and service issues across all states in the first half of the year.

Slide 13 reflects our full year results. I draw you first to the segmental results on the right-hand side of the page. New Zealand delivered a pleasing performance with our EBIT up over 6% versus last year. This resulted on the back of higher revenue and improved margins. Our EBIT in Australia declined as a result of lower revenue and our operational difficulties but also reflects the economies of scale that's from starting up our greenfield operation in Tasmania.

Turning to the group results. Net profit before significant items declined by 23% on account of the performance in Australia. We took a $9.6 million charge against the value of our Australian intangibles, and this resulted in a drop in the net profit to $5 million.

I'd like to move on to the waterfall on Slide 14. New Zealand EBIT results are shown in gray shading on the left. This included a healthy improvement in underlying gross profit margin that was driven by improved pricing, product mix and savings in material costs following improved inventory management. Offsetting this improvement were price-increased distribution costs, which is largely fuel; increased spend on New Zealand factory management; and also higher depreciation on the FY 2018 capital project.

Turning to the Australian performance, which is the green-shaded area of the waterfall. The Tasmanian operation incurred a small loss. But additionally, we did not utilize available capacity in Victoria, resulting in further impact in the Victorian business, and we lost revenue in New South Wales versus the prior year.

Turning to the balance sheet on Slide 15. The New Zealand operations continued with its progress, reducing working capital by $3 million for the second successive year. The net operating cash flow is down on lower EBITDA and payment of FY '18 at normals along with higher interest in tax payments. In Australia, working capital increased slightly with a high inventory balance as expected sales did not eventuate. Pleasingly, reported net debt decreased by $11 million with group gearing decreasing from 37% in March 2018 to 34.7% in March 2019.

Slide 16 and 17 give an update on the cash flow gearing of the group, which has been a significant focus for us. And we remain well within our banking covenants and our facilities. We're pleased with the reduction on net debt and, as you'll see on Slide 17, had strong cash generation from operations driven by performance in New Zealand. No dividends were declared or paid in respect to FY '19, but we did pay a final dividend in respect to FY '18 of $7 million during the year.

With that, I'll pass back to Simon to pick up on the outlook for FY '20.

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Simon J. Mander, Metro Performance Glass Limited - CEO [4]

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Thanks, John.

Turning to Slide 18 and our outlook for the FY '20 year. In New Zealand, we expect building activity to remain at current levels, while in Australia, further declines in building activity is expected. However, we anticipate our core market of detached residential and additions and alterations to remain stable on our markets. We'll continue to execute against our strategy: resetting our AGG business with a focus on building upon the improved customer service metrics further emerging and delivering customer value, focus on improving safety across the group through prevention, continuing to develop our customer-centric business model, focus on developing our capabilities and our people and building a nationally aligned Retrofit business model.

That's the end of our formal presentation. We're happy to answer any questions that you may have. Thanks.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll go first to Arie Dekker from First New Zealand Capital.

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Arie Dekker, Crédit Suisse AG, Research Division - Research Analyst [2]

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Yes, I guess first question, just in relation to Australia, almost $5 million loss on sort of circa $50 million of revenue. I mean you talked a little bit to the potential you still see in the long term, and then closer, you talked about operational improvement in the second half. I mean I guess it's a pretty significant loss. There's been a bunch of stuff going on, and you sort of explained the bridge in that.

Can you give a bit of a guide to what the potential is from this business in FY '20, particularly around where the cost base sits and any potential levers there if revenue continues to be challenging? Yes, just, I mean, obviously, it's reasonably big swing factor this year and just looking for as much guidance as you can think -- can provide in terms of how we should think about it for FY '20. First question.

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Simon J. Mander, Metro Performance Glass Limited - CEO [3]

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Yes, sure, Arie. Look, we'll be giving some guidance on Australia, I assume, in July, but I guess what we've seen year-to-date currently is the continued improvement in our delivery performance and production performance, and also, quality is improving as well. So we're very positive and confident about how the business is tracking on our plans.

You just asked that start specific question about cost base there, we just in the last 2 weeks restructured the business there and removed about $1 million worth of costs out of the business. So I think it is more appropriate that we update in July there on what's happening when we have more data points to communicate on how the business is tracking. But where we're sitting at the moment, we're pleased with its improvement plans.

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Arie Dekker, Crédit Suisse AG, Research Division - Research Analyst [4]

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Yes, I guess the challenge is that, I mean, if you look at second half performance, deteriorated on a financial basis, notwithstanding the operational improvements you saw. And so I guess putting the question in another way, the ongoing operation or improvements that you saw -- that you're seeing year-to-date, and I know it's early, are they translating, and perhaps with the cost stuff you're doing, into financial improvement as well in -- as part of FY '20?

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Simon J. Mander, Metro Performance Glass Limited - CEO [5]

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Yes.

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Arie Dekker, Crédit Suisse AG, Research Division - Research Analyst [6]

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Okay. Just in terms of revenue in New Zealand. I guess in residential and Retrofit, they were -- it was modest, but there's sort of modest decline on the pcp in second half, and all of the growth in the full year came from commercial.

Can you just talk a little bit about what you're seeing in residential and Retrofit, the extent to which it's sort of a market versus deliberate decisions to focus on higher-quality revenues; and then just on the case of commercial, whether there were some lumpy projects that contributed to the growth that you saw in commercial in FY '19; and what your expectations are in terms of growth of commercial, if any, of that base in FY '20?

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [7]

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So Arie, John here. I'll start on commercial and work backwards. So commercial was very split between the North Island and the South Island. So no specific big projects. I think probably our biggest project that we had on in this year was an entry called the [Horizon Hotel], which is the new [Star Sydney] hotel, will probably be our biggest project in the year. But it's really been -- we've seen our book building and building in the upper North Island, particularly that starts (inaudible) in Q, and it's really been -- and I think we've been saying it's coming, it's coming, and I think a lot of that has started to come through for us in the last year. So really strong performance in commercial in the North Island and then offset by a drop in the South Island is really how that plays out.

On the Retrofit, I think what we did -- so Retrofit's always a function of how many leads we generate, how many of those leads -- and how many of those leads we convert, I guess, kind of determines the revenue. So our conversion of leads was better during the year, so we had a high-percentage conversion and we had a lot -- a number of leads generated during the year. And so -- and I think that's what we attribute that to is that we need to kind of improve our -- I think our marketing has got a bit stale in marketing the same message to the same people. And we've as we've kind of grown through, we think we need to change that. So we're changing it to more of a focus on home shows, more digital activity than we've had in the past and changing some of the messaging on our television. So we have seen Retrofit grow and changes and flatten up and changes and flatten up. And so I mean so we think there's a bit of that where we reinvent the messaging and delivery and go again.

In residential -- for residential, definitely, we're split. So we declined in the South Island on our residential business, and we improved in the North Island. So it's pretty mix and match. We probably lost a little bit of share in the South Island, and -- but no, we don't believe we lost any significant chunks of residential share in the North Island. So we're pretty much sort give and take, but we don't think, in the year, we lost any significant share in the North Island. So it's really a South Island versus North Island kind of mix.

From a kind of channel perspective, we found, I think, residential windows were kind of flat year-on-year, and then -- and our merchants in retail were slightly down year-on-year. So kind of a little bit of movement in the channels but, again, nothing significant.

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Simon J. Mander, Metro Performance Glass Limited - CEO [8]

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So Arie, I think if I add to that, it's essentially that the growth [is concealed]. We just want to recall that there's a lag in those [concealed]. So that lag in prior year sort of happens in the financial year just finished. So we would have -- you'd be expecting actual construction activity to increase again in this calendar -- coming calendar year. The issue will be you'll have that capacity in the market to actually do that work.

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Arie Dekker, Crédit Suisse AG, Research Division - Research Analyst [9]

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And then just last question just in relation to, I guess, the balance sheet and debt. I mean it's good reduction in debt for the year. Can you just talk to CapEx expectations for FY '20? Do you think they can be as low as what you invested in FY '19? Or should we expect a little bit higher in '20? And where do you sort of see net debt going to in FY '20?

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Simon J. Mander, Metro Performance Glass Limited - CEO [10]

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Arie, Simon here. Yes, as far as CapEx in the coming financial year, I'd just put a range of sort of $8 million to $10 million. And on the debt, what's debt, John, please?

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [11]

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Yes, so net debt, Arie, I think the way we think about it and it's kind of why we've included the waterfall on Slide 17 is, we think, and to use round numbers, EBITDA of, call it, $40 million, we'll pay interest of about $5 million, tax of about $10 million and CapEx of about $10 million. So we'll be somewhere -- we should be somewhere between $15 million and $20 million of debt paydown in the year is how we think about it.

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Operator [12]

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And we'll take our next question from Aaron Ibbotson from UBS.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [13]

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Just on that last question on the debt reduction. So by my account, putting it all together, you should be very close to your target net debt to EBITDA level year-end FY '20. So should we expect the dividends to be reintroduced when you hit your EBITDA target? Or is it more of a gradual process? My first question.

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Simon J. Mander, Metro Performance Glass Limited - CEO [14]

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I guess we'll be looking at that when we get to that point. We're focusing on -- this year on achieving our plans and reducing our debt so when we get to that ratio that we've talked of, 1.5x, we'll be really looking at what we do then.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [15]

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Okay, but there's no change in communication from what you said last time, which was that you would reinstate it when you hit 1.5, if I recall correctly.

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [16]

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Yes, no change to that, Aaron, yes.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [17]

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Okay. And this might be me reading too much into a very small comment, but reading your little statement around "new competitor entering the market," that's APL, you sort of get the feeling that this Board is a little bit frustrated with the markets having emphasized this as being a massively significantly negative event. I appreciate that you don't have a lot of information, which is specifically also right, but nevertheless, you put it in the release. So I'm left with the feeling that you've done a bit of an analysis or the Board has and come to the conclusion that the market is overexaggerating the impact. I'm just wondering if I read that right and if there's anything in that, that you could share with us.

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Simon J. Mander, Metro Performance Glass Limited - CEO [18]

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Yes, I think you've summarized it quite nicely. Yes, we do think it's been overplayed. We talked to that in -- at the half year and talked through our thoughts on it. So we're focusing on what we're doing and making sure that we deliver amazing customer service and customer experience, and we're confident with what we're doing and where we're heading.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [19]

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Okay, but no -- have you done any further analysis? Or is there anything you can share with us versus what you shared at the half year?

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Simon J. Mander, Metro Performance Glass Limited - CEO [20]

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That would still be our view. And yes, we are doing work on this up all the time, it's -- as we are with the whole New Zealand market, so yes. We can talk more about this at the ASM. I'm sure there will be -- it's an appropriate time to talk further about it then.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [21]

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Okay. And my final question is just on Australia, but maybe we can take this offline as well because I'm trying to understand the impact on the sort of gross profit of fixed cost absorption that you highlighted. So apart from depreciation, it seems to me that your COGS have gone up more than I would have anticipated in Australia and that the fixed cost absorption seems to have sort of overshot. So I'm trying to get my head around how your cost of goods sold basically haven't gone down at all despite revenues dropping by 10% but they've actually gone up. So is that just...

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [22]

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We can -- yes, so I guess I mean you should think about it as kind of we've transferred it in terms of high contribution in revenue that was in Victoria and put it into our greenfield start-up in Tasmania, which has just made a small loss. So on the post of it, a small loss in Tasmania shouldn't have a big impact. I think the impact has been we weren't able to reduce our costs in Victoria to compensate for that transferred revenue, and we anticipate and we're working to replace that revenue. So I think it's a kind of just economies of scale of moving to a small greenfield site and, not surprising, what was I guess site contribution revenue in Victoria as the impact.

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Aaron Ibbotson, UBS Investment Bank, Research Division - Director & Research Analyst [23]

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Sorry to be boring in detail, but when you lose in volume in Victoria, surely, you have some variable cost that needs to go out.

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Simon J. Mander, Metro Performance Glass Limited - CEO [24]

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Yes, if you have a stable operating platform. And the issues in Australia following on from capital upgrade that were done there about December, January last year. The plant went through a period of really high instability and very high staff turnover. So that's reduced down significantly, but that's contributed to the core operational performance, but we still incurred high labor costs due to the churn and that type of thing. So the productivity was poor, resulting in a higher number, but it's a lot higher -- so you're right. Yes, you would've -- if the plant were operating stably, you would expect those costs to be variable. Unfortunately, they weren't.

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Operator [25]

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And we'll go next to Matt Henry from Forsyth Barr.

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [26]

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You talked about you'd done an extensive survey of customers New Zealand. Can you provide us with some sort of color on what the feedback was across the customer base?

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Simon J. Mander, Metro Performance Glass Limited - CEO [27]

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Matt, Simon here. Yes, look, really, with these surveys, you get very varied responses, and the key thing that came back is about customers want -- they want their product on time, they want it all there and they want it all to be good. So that's what primarily what they're wanting. And if you go back 12 months, we were not doing as well as we should've been on those fronts. And so the good thing is that we've improved on all of those fronts. And anecdotal feedback is that customers are -- I'm regularly getting feedback from our customers that our service levels that are good now. We are going into a period where we've locked in a regular customer survey where we're going to be getting consistently getting this feedback formally. So I just -- yes, sorry?

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [28]

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No, so I just -- so you've done one survey so far, I take it. Can you just -- I mean I appreciate things may have improved. Can you just -- you haven't got -- what you think the level of your dissatisfaction versus sort of satisfaction might for the customer base was? I'm just trying to get a sense of where you think the starting point was.

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Simon J. Mander, Metro Performance Glass Limited - CEO [29]

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From a year ago? Or 18 months ago?

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [30]

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Yes, from when you did the survey.

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Simon J. Mander, Metro Performance Glass Limited - CEO [31]

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As to what it is now? As an absolute percentage, it's just hard to say, but I'd say it's moved up quite significantly. The service levels and how we manage issues and service has significantly improved. We haven't -- how do you say it, I don't think our shares shifted down, if anything, we had -- it's pretty stable. We're seeing that we're getting good feedback. Our returns are lower. Our credit claims are lower, so I think it's difficult to put absolute numbers on those things, Matt.

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [32]

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Okay. No, I'm just trying to understand like what kind of base you're working off. Like, is it a very large portion is -- were dissatisfied and it's improving? Or is it a small portion? Or I'm just trying to understand here what the base that...

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Simon J. Mander, Metro Performance Glass Limited - CEO [33]

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Sure. I think -- look, as you appreciate, I've only been here like 6 months. So John's probably better placed to talk on the historical aspects.

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [34]

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So Matt, from the original survey, I guess the summary would've been better than average but not great and not where Metro used to be, as we would expect, if you can call it that. So that was the main thing. And as Simon said, in kind of order of priority, what they wanted to see from us was better quality is first, I mean, and then delivery in full was second, and then the timing of sort of delivery of was third. So that was really valuable to us because I think quality hadn't been as high on our radar as that survey communicated, and that's why we have been able to refocus the factory and the delivery guys to say quality is really important to our customers and to kind of get them really focused on that.

And that's where we look at our external reworks. For example is the kind of measure of how much its impact on the customers. That has improved in the second half of the year versus the first half, and it will take time. But as John said, anecdotally, we think the customers will have seen an improvement based on some of the feedback that they got from us.

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Simon J. Mander, Metro Performance Glass Limited - CEO [35]

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I think, Matt, I'd like to think that, for me, a really good measure of it is I've had in the last month, 2 of the primary [day holders] in New Zealand volunteered to me unprompted that the feedback they're getting from their fabricator networks is that Metro service has really improved. So that's really nice feedback to have those 2 players.

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [36]

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Yes. No, that is good to hear. Can I also just ask, you talked about you're pushing price increases here. When we look at the $4.8 million of gross margin improvement, how much has price contributed to that?

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [37]

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So price would probably be $2 million to $3 million in there, something in there, so $2 million to $3 million.

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Simon J. Mander, Metro Performance Glass Limited - CEO [38]

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But I guess, Matt, there's an aspect there of the mix as well as also a repricing and general pricing, if that makes sense. So the cost of complexity is being reflected, and then we also got a mix aspect there as well.

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Matthew Allan Henry, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of Equities [39]

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Okay. And look, I don't expect anything specific here, but just obviously, the industry is changing somewhat in structure. How open are you guys at sort of exploring your sort of broader strategic options beyond simply just operationally -- operational focus?

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Simon J. Mander, Metro Performance Glass Limited - CEO [40]

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Yes, I guess we're -- no, those types of things in business are always being looked at and discussed at a Board level and at a management level. So we are -- we're a significant player in the industry, and we're very aware of what people are doing, and we have got strategic options that we are working on. No, I don't think it's feasible for us to talk about those given the competitive nature of the industry.

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Operator [41]

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(Operator Instructions) Next, we'll go to Stephen Hudson from Macquarie.

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Stephen Hudson, Macquarie Research - Head of Research [42]

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Just a couple of quick ones for me. Just on the dividend resumption trigger, can you clarify whether or not that is pre or post IFRS 16? And then just on IFRS 16, is there a sort of $10 million bump that you're going to get there as you move the operating lease into depreciation and interest? Just wondered if you can give us some guidance for next year on that.

Thirdly, just -- and you may have given this, but just what -- when you talked about that you're comfortably within your debt covenants, can you just give us an idea of how comfortable you are? And then lastly, just if you can chop through some of your competitors, in particular, Viridian post the sale, but also, Fairview and Glass Relate after those added up some new capacity in glass processing in the last sort of 12 months, just what you're seeing from some of your key competitors, that will be useful.

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [43]

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Stephen, John here. So on the dividend, it's a good question, and to be honest, we haven't specifically discussed it with the Board. But I think the new world will be post IFRS 16. We do have quite, I think, quite fulsome disclosure, which will probably surprise you all in our financials of the impact on -- of IFRS 16, which is about $1 million at NPAT -- or sorry, net profit before tax that we haven't -- I think that's increasing still on some tax treatments. So not a significant impact, and we'll have to -- we'll consider that when we get there.

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Stephen Hudson, Macquarie Research - Head of Research [44]

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So that, John, just on that in terms of EBITDA, which is your dividend trigger, it could be sort of a $10 million bump. Is that sound about right?

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John Fraser-Mackenzie, Metro Performance Glass Limited - CFO [45]

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Yes, hold on, I'm turning to the part of the disclosure, to the page. So just to be clear, and we'll go to the banking covenants, so we'll do that. So the banking covenants are 3x, and that's in old world money. So the way we've constructed it is that's the reference point. It's pre IFRS 16. And then on the -- Stephen, on the dividends, I don't -- to be honest, given we haven't discussed with the Board, I don't want to give you a steer on whether it's pre or post. It's probably better that we hold on to that, and we will give an upside when we're getting closer to it. Sorry, competitors. Obviously, I still haven't tackled competitors, or do you want to have a go?

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Simon J. Mander, Metro Performance Glass Limited - CEO [46]

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Yes, I can talk about competitors. Look, I'd rather not talk a lot about competitors, to be honest, but it's -- we obviously have watched and observed what they're doing. Viridian has gone onto the private equity, and maybe it's better that they announce what they're doing, we're aware of stuff that filters out and they've announced some stuff. What I think is that you're going to see is that there's going to be a period of disruption that's going to occur. So -- and that will be in Australia as well as in -- and yes. As well as regarding the other people, yes, there's -- some capacity has been added. But as I said, we're focusing on making sure that we can provide amazing customer service to our customers, and that's how we keep on to -- hold on to our customers.

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Operator [47]

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And we have no further questions in the queue. I'll turn it back to you for any closing remarks.

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Simon J. Mander, Metro Performance Glass Limited - CEO [48]

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Okay. Well, look, thanks, everyone. Really appreciate you taking the time to look into our results presentation, and thanks for your questions. And yes, if there's other questions that you think of later on, please let us know. Thank you.

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Operator [49]

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And that concludes our call for today. Thank you for your participation. You may now disconnect.