U.S. Markets open in 1 hr 43 mins

Edited Transcript of NMG.AX earnings conference call or presentation 30-Aug-19 1:01am GMT

Full Year 2019 Acrow Formwork and Construction Services Ltd Earnings Call

Sep 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Acrow Formwork and Construction Services Ltd earnings conference call or presentation Friday, August 30, 2019 at 1:01:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew Crowther

Acrow Formwork and Construction Services Limited - Group CFO

* Steven Boland

Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director

================================================================================

Conference Call Participants

================================================================================

* Alexander Lu

Morgans Financial Limited, Research Division - Analyst

* Alexander McLean

Bell Potter Securities Limited, Research Division - Analyst

* Will Corkill;Morgans;Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the Acrow full year results conference. (Operator Instructions)

I would now like to hand the conference over to your host today, Mr. Stephen Boland, Chief Executive Officer. Thank you, sir. Please go ahead.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [2]

--------------------------------------------------------------------------------

Thanks very much, Shawn, and thanks, everybody, for joining us, taking the time to join us on our results call this morning.

In -- on the call today, I'm joined by Andrew Crowther, who's the new CFO of Acrow. Andrew started with us in the second week of July and is responsible for giving these results out in a timely fashion. He's done a terrific job in a very short period of time since he's joined the business. So you'll hear from Andrew over the course of the presentation on some of the points today.

I guess by way of introduction, I'd just like to say -- how proud I am with the results of the businesses in its first year -- first full year as a listed company. And as I'll walk you through these results, I believe they're complete justification for the strategy of our business that we've enunciated at the time of listing, and that's the strategy to refocus the energy in the business, investment-wise and also in terms of people, et cetera, on the formwork and, primarily, the civil infrastructure market and formwork, which is less competitive, less fragmented and less price-driven than the general residential scaffold market. And again, I'll walk through the numbers. I'm sure that we'll perceive that very strongly in the presentation.

I believe 15 months ago when we made the decision to focus our energy into that area that we were very much ahead of the game in terms of what was going to go on in the economy in general. Every decision we make in the business over the life of it now and, certainly, over the last 12 months, be it from an investment perspective or a hiring perspective or in our personnel or structure, has been consistent with the addition and strategy around becoming a leading provider of formwork, engineered formwork solutions for the Australian market.

It's now about execution. From a personal product range and geographic footprint perspective, I believe we're now very well positioned to execute on that strategy, and I'll talk through some of the opportunities and some of the things that I'm already seeing in the business over the last 12 months and really happening right now in terms of the implementation of our strategy.

So I'm going to sort of start on Page 6 of our investor presentation in terms of walking through the presentation. Financial highlights. Revenue of $71 million was up 9%. Underlying EBITDA of $11.6 million was up by 9%. That represents the fifth consecutive year of EBITDA growth. And I think it would be not right to not point out debt-to-EBITDA growth in an environment where the previous main focus market is a business being residential scaffold is at its lowest point in that period. But despite that situation, we've been able to record another year of EBITDA growth 5 years in a row.

Operating cash profit of $8 million (sic) [$8.8 million], being the way we represent it as our EBITDA less maintenance CapEx. And we've announced another interim [paid] on the dividend of $0.01, making a full year dividend payment of $0.02.

I will comment now on the Natform acquisition. The Natform business is now fully integrated into Acrow. And like -- similar to our situation across all of our Formwork business, our focus now is become a leading provider of edge protection services and screens across the Australian market. I'm going to give more detail around Natform and how it's tracking and, certainly, what we now see in front of us a little bit later in the presentation. But we are now seeing not just as the -- in their traditional markets. They've always operated in New South Wales and Queensland. We are now operating screens businesses as well in South Australia and Victoria. We're looking into the Western Australian market. And we're getting some very good successes in those areas.

I will -- I've mentioned in the executive summary the potential acquisition of Uni-span. I'm going to go into a little bit more detail, as much detail as I can do, a little bit later in the presentation. But I will say that the announcements that we put out in relation to Uni-span's -- the potential acquisition of Uni-span a few weeks ago, we needed to do off the back of Uni-span themselves actually putting out an announcement to their staff that they were going through that process without letting us know they we're going to do that. So under our disclosure obligations, we were then -- we then needed to make comment on our relation to the fact that we are looking at that business.

As I said earlier, the 2019 financial year has been about pivoting our business into focusing on the different markets than we've traditionally focused on. And I would classify this year as being very much a transformational year for Acrow. It is the first full year as a publicly listed company, and that is what it is, but it does have its own challenges. And we've risen to that challenge. It creates a whole different, I guess, layer of management requirement and financial requirement. And the guys in this business and the girls in this business have done a great job in rising to the challenge of now becoming a listed company.

As I mentioned, we've rebased from the highly fragmented residential scaffold market to the engineered civil formwork solutions market. We've spent $5.5 million of growth CapEx this year to service that opportunity. And again, I'll go into a bit more detail later on about how that's been used, the returns we're getting and how we are now positioned to capitalize on some of the major projects that are now underway in the -- on the East Coast.

We've made the decision a few months ago as part of this transformation of the business to completely exit the 2-story residential household scaffold market in Melbourne. It was very clear to us that the operation of that business was not compatible with what we were looking to do in the Melbourne market in formwork and civil formwork, primarily. And we could also see that, that market was going to be probably in continuous decline. We made the decision to exit that business in April.

From an EBITDA perspective, it was still generating about $100,000 a month at the time that we decided to exit that business. And so yes, you could look at that and say, okay, so we've forfeited $300,000 of EBITDA in the current financial year that we could have done in July, but it was the right time to do it. It was the right operational time to do it. And delaying that any further would -- we'll be able to bring forward opportunities that will present 2 or 3x that value [as we looked] into the coming year.

Significantly strengthened our senior management team in the year. I'll go into more detail about that later on. But we had -- obviously, we had 2 major issues in the senior team that was managing Acrow: one that -- I can't -- we're unapologetically an aging senior management team that had come into the business from its previous ownership structure. And as part of that process, our CFO who did a tremendous job over a long period of time, Dave Williams, decided to retire, and Andrew Crowther has now come in to replace him. So we've had those -- we've had 2 issues: One, we needed to refresh the team in terms of succession planning and age profile, and we've done that very well. And secondly, we've brought in some highly experienced, knowledgeable people from the formwork, civil infrastructure market into our business over the last 12 months, both from major competitors and actually also from major customers. We've made one hire recently, and I'll go into more detail about that shortly. A gentleman who's actually probably used our product in the civil infrastructure market more than anybody else in Australia over the last 10 years, and he's now selling that product to other businesses.

And then obviously, then there's our first significant acquisition being Natform. It's broadened our product offering now to screen systems, where we've now been able to enter more geographic markets with Natform, and I'll talk a bit about that, as I said, a little bit later on. And there are some really significant -- and on top of these opportunities we are actually quoting right now and are waiting on contract awards for the contracts that are utilizing the Natform and Acrow products together that, in isolation, neither of our businesses would have quoted on. And now because we'll be able to provide a full package service, we're quoting together and opening up very significant opportunities.

I'll now turn to Page 9 of the presentation. You've seen all this before, I'm sure, from some of our -- people familiar with the story it's like [maybe some of you heard stories like this.] Okay. Thank you. We've seen all this, but there's a couple of things that I really want to point out in relation to the infrastructure pipeline in the country. And there's been a lot of press recently about clearly the softening of -- the continual softening of residential. And I'm going to talk a bit further about what that means for us later. And the federal and state government are going to have to get cracking with their investment into projects to keep the building industry buoyant.

From our perspective, there's a slightly different position here. So if you look at this chart on Page 9, again, those of you who are familiar with our story will know that we were always and always have been and continue to be the market leader in the civil infrastructure market in Queensland but that we basically had 0 presence in that market in New South Wales and Victoria. We are now a significant presence in New South Wales and Victoria in that market. We are now basically bidding on every major civil infrastructure contract that's coming up in both of those states.

And if I point you to a couple of opportunities that are on this chart, doing the Sydney Metro, Sydney and South West Rail project that is sort of just commencing now and will be a very significant project in Sydney over the next 4 years and also the Melbourne Metro Rail process. We won a contract bid today that was $500,000 of hire revenue for Sydney Metro starting in about 2 months' time. Now that is the contract that we would not have even known existed or wouldn't have had a look in 12 months ago, and we won that yesterday. And we have bids in for another, probably, 4 or 5 of the Sydney Metro stations at the moment. I'm not saying we're going to win them, but we're bidding, and we're right in funnel for those now. Same thing applies in Melbourne Metro Rail.

We have a [little bit] and I'll point it again, the rail project, the Cross River Rail, which is Brisbane. So Cross River Rail on this -- one of those ones near the top of that -- of this chart, that's the -- very similar to the metro rail projects in Melbourne and Sydney. It's the -- it's a new rail system for Brisbane. It incorporates the building of a bridge across the Brisbane river next to the Story Bridge -- with Story road bridge, which is the current road bridge, and also a whole range of the stations in Brisbane that are being upgraded. So for example, the biggest railway station in Brisbane is Roma Street, like Central in Sydney and Flinders Street in Melbourne. And Roma Street is being demolished and rebuilt. And we currently have a tender in for very significant part of that project that incorporates the use of both our formwork and our screen system.

On Page 10, just in terms of the state of the market, the main thing that I want to point out in here, and I've, again, I've made this comment quite frequently in previous presentations, is that there is no one Australian construction market. There are various state markets that all have different drivers and different strengths and weaknesses of any particular given time. And this chart highlights that. I mean, clearly, there are economic conditions, and that's to do with central governments and banks, et cetera, et cetera. Who is a bit more -- could have an impact across the country. But I'm a strong believer that every state has its own driver. And the fact that we've got a significant geographic spread, better than probably any of our competitors, the ability to move gear and be able to concentrate on different markets in any given time puts us in a very good position.

I'll give you a very small example. Tasmania is currently, actually, compared to performance to expectations, is actually our best business at the moment to expectations. It's going very, very well. Conditions in Tasmania are strong. And across the rest of the country, you can see we believe there's various strengths and there are, certainly, various weaknesses. Western Australian commercial market, as an example, is not in a good shape at the moment. We don't -- but their civil market is very strong.

Taking to Page 11. This picture is just a flavor of where we sit at the moment in terms of the contracts that we've been winning over the last 12 months, and then also the strength of our pipeline. So on a like-for-like basis, year-on-year, our new sales are up by 16% for the first half of last year and 12% for the second half. So this is telling us how much hire revenue we have won that's going to start at some later point over these periods. And that's a good lead indicator as to where we think we're headed. But most importantly for me is our pipeline of potential hire revenue, and it includes Natform, so it includes the screens business, is up 61% on the same period last year.

So we are -- we believe -- there's no doubt that there has been -- there have been across the range of the sector some project delays. And there's certainly contracts that we have won -- in South East Queensland, as an example, there were contracts that we won in April and May we expected to start in June that are starting now. So there's a bit of a trend around that. But I've commented previously that's a so-what for me. If a project gets canned, that's a different kettle of fish. If it starts a couple of months late, okay, it starts a couple of months late, but it still doesn't change the opportunity, doesn't change what we're going to generate in revenue from that contract when it kicks in.

Now for the -- this is the headline financial results, Page 13. You can see, again, the sales revenue going, from $65 million to $71 million, up 9%, has a 10-month contribution from Natform, and it definitely has stronger Formwork revenue in it. And we'll talk about the segmented picture later on.

Sales contribution up from $39 million to $42 million, the margin holding at 60%. And EBITDA from $10.6 million to $11.6 million, $11.55 million, again, the company EBITDA margin holding at 16%. We continue to have the opportunity with our $40 million of tax losses to be able to utilize it against future profits.

I want to now go into some detail around the performance in the segment. So you can see on Page 14 that significant increase in Formwork revenue of 20 -- of hire revenue, 27%, and reduction in scaffold revenue year-on-year of 7%. You can see total contributions, again, significant improvements in formwork, reduction in scaffold.

On the expenses line, like-for-like without Natform, our expenses were down 3% year-on-year. So the cost control in this business in my view continues to be very, very good.

I think, though, it's really -- and I want to get now onto Page 15 and 16 to give you the flavor of what's been going on, really, across the segments. And I hope that this will again indicate and justify the whole vision of what we wanted to do 15 months ago and having us delivering on that. So Formwork hire revenue, 39% up year-on-year; like-for-like, without Natform, is up 5% over the same period. And that's despite -- we actually came off a record year in Queensland in 2018. And so the Queensland revenue has reduced between '18 and '19, but that's been more than offset by improvements in Victoria and South Australia, which is where the vast majority of our growth CapEx had gone to. And now, just over this last few months and now into the new financial year, we're getting growth in New South Wales. So good growth in that area.

And as I explained earlier, where we're absolutely now positioned is that we've got the right people in New South Wales and Victoria, we've got the right equipment mix, we've got -- we've developed the right relationships. And I can say now with confidence that in terms of the civil infrastructure market, there are very few projects that we are now not completely in the mix for. And I'll be out bidding on things that, again, I've said earlier, we wouldn't have even been considering or looked at 18 months ago. And there are very few noticeable infrastructure projects where we're now getting a look in.

Look, I'll give you a really small example. We've got the first formwork equipment now in the Western Sydney Airport. It's a small amount, right? We're talking thousands of dollars a month. But we've got first bid gear. It's on -- sitting on the Western Sydney Airport is the -- sort of the clearing is going on for that project.

So in terms of Natform, the overall Natform business didn't perform at the level that we would have liked for the year and certainly finished up overall below expectations. But I just want to point out a few things with Natform. Firstly, it's quite a long pipeline for the screens as compared to some of the other parts of our business. So you're working on contracts that are probably 6 to 9 months in their gestation. And that's been the case with Natform. So in terms of the initiating cross-selling opportunities for that business and opening up in the new geographic markets, it's really only now bidding quarter 4 last year and certainly more predominantly now in quarter 1 in the new year, where we're actually now starting to see revenue from the growth opportunities that we've opened up with Natform.

I mentioned earlier we have our first screens up in South Australia. In Adelaide, we have contract that's generating $50,000 a month today. That wasn't -- there was nothing from Natform previously in Adelaide, and we've now got another 3 or 4 significant projects in that pipeline. In Victoria, we've relocated one of the senior Natform sales guys out of New South Wales to Victoria now full time. He's won -- we've already got 3 projects underway, and we're confident there's more opportunities in that market.

In New South Wales, we're just starting now the first is our big cross-sell scaffold and screens contracts with one of our major customers, Deicorp, at a site in Redfern, that will generate in excess of $1 million of revenue between screens and scaffold. And in Queensland, we've started 2 contracts, again, one in July and one now in August that were won by the Acrow sales team complementing our scaffolding service. So -- and we are now looking at opportunities in Western Australia.

So Natform's always been a Sydney, Brisbane business primarily. We know it's now a national business, and so the strategic imperative for buying Natform remains really intact. And as I mentioned earlier today, one contract, and I won't go into all the details nor say that we're going to win it, but there is a very big contract that we are in the final bidding for. That's a combination of screens and scaffolds in Queensland that we wouldn't have been able to be just as Acrow and, definitely, Natform wouldn't have been able to be just as Natform.

In terms of scaffold, so -- and the story here is pretty well known. And we're seeing it, and we're not surprised by it. So we made a decision -- again, we understood that there's a bit of a gestation period in the way that you -- the work that you quote for scaffold actually finishes up, showing up on your numbers and when it comes through. So you've got -- we're like I said, 9 months with screens. It's about 6 months with scaffold. So the work that we're quoting today for scaffold projects, you won't see that work in our revenue until January or February. And the work that you're seeing us -- the revenue we're generating today is actually work that we quoted in maybe October, November, December of last year.

So we made the decision 9 months ago because the volume of work actually hadn't really reduced, but the rates were significantly reducing. So we made the decision in New South Wales and Queensland 9 months ago that we would meet the market in terms of price to get that utilization up. And you can see on Page 16 in the chart that talks about commercial scaffold hire tonnage, over a 12-month period, we improved our utilization by 17%. So we've got year out -- we're up by 17%, but it's come at the issue around price. So the drop in revenue of $5 million in scaffold hire year-on-year is all in revenue and not in utilization. Now I can say today that the work that we're quoting today is between 10% and 25% at different rates from what our current average rate is. So has the market bottomed out in terms of price? I don't know. All I know is what we're quoting, and we're not quoting -- we're quoting at rates, as I said, between 10% and 25% higher than what we were 9 months ago.

In terms of the straight residential, in the 2-storey house business, I mentioned earlier that we've exited Melbourne, and we exited Melbourne in April. And we're continuing to look at the situation in Sydney. And we'll make a decision over the next 6 months. We don't need to rush into a decision about exiting that market at the moment. But certainly, it's not part of the long-term strategic game for Acrow at all.

The other thing that I want to mention around scaffold is around the nonresidential and noncommercial markets, for utilization of scaffold equipment that we're now also seriously looking at. One prime example is we've actually won the contract for the Victorian Spring Carnival (sic) [Spring Racing Carnival] for Flemington to provide the temporary equipment required for grandstands and seating, et cetera, for the Spring Carnival. That's about a $350,000 contract we've won it for 3 years. We've got equipment -- we've now bought some specialized equipment that takes us into a different market. So we've not been in that sort of temporary structures market previously. You can think about Grand Prix, motorbike and GPs, et cetera, Formula 1. There is another market out there for events -- provision of events for temporary structure. And it's a new revenue stream for us, and this deal will be generating about $350,000 of hire revenue over the September, October, November period this year for the Victorian Spring Carnival.

The other area we're seriously looking at is industrial. There was a market out there for major shutdowns and maintenance work for industrial plants, which again is area we've never played in. We're looking at it very seriously now. And when I talk a bit further about the Uni-span acquisition, that is a significant part of their business. And we also have the opportunity there to leverage what their expertise is in the area opens up other opportunities for us.

So that's pretty much what I wanted to go through in terms of the performance and the view of where we are and how it sort of positions us this year.

I'll now hand over to Andrew Crowther, and Andrew will take through -- take you through to the balance sheet, cash flow and CapEx information.

--------------------------------------------------------------------------------

Andrew Crowther, Acrow Formwork and Construction Services Limited - Group CFO [3]

--------------------------------------------------------------------------------

Great. Thanks, Steve, and thanks to those that have joined the call.

So I'll just take you through the balance sheet Page 17. As you can see, the balance sheet remains strong. However, that's significantly changed through the acquisition of Natform and the shift towards formwork and civil infrastructure.

So just to take you through, you see that the cash position has changed from -- or the net debt position has changed from a cash position of $4.9 million in the previous year to a net debt position of $3.6 million. Now we'll go through the next page, we'll take -- we'll show you the uses of that cash.

Essentially, during the year in October, Acrow secured a $15 million facility with Westpac. $7 million of that was an acquisition facility to acquire Natform. There was a $5 million equipment finance facility which was $1 million drawn -- just under $1 million drawn at 30 June. And we also have a $3 million working capital facility and overdraft facility that wasn't drawn at all at 30 June. So essentially, we have a very -- we have 60 -- $6.9 million drawn on a $15 million facility. So very healthy there.

From a working capital point of view, our working capital increased by $2 million during the year. And as you'll see, one part of that was an increase in receivables balance by $3 million. Now $1 million of that was brought about due to the acquisition of Natform. The balance of the $2 million, a large part of it is because our debtors' days have increased marginally during the period. Now that's pretty consistent across the industry. And we're not overly concerned about that for 3 reasons: Firstly, we are almost fully insured on our debtors, apart from some specific exceptions. The debts that are -- where the days have increased, they're being very well managed, including payment plans. And most importantly, we've just gone through an audit period, including the implementation of IFRS 9, and we're well provisioned where we need to be.

Moving further down, we have -- you'll see there's an intangible balance which you would have seen in the interim period, and that relates to the goodwill on the acquisition of Natform. We also have as part of working capital our creditors have gone up by about $2.5 million. Now that's a combination of having Natform and also the fact that we're managing our payments along the lines of debtors. You'll see the loan and borrowings, which I have already talked about, and we have deferred tax liabilities, which came on as part of the Natform acquisition as well.

So essentially, we're a well-capitalized business that has remained strong. We have strong working capital and a net debt position, in particular, with a lot of room to grow.

So I'll move you over to page -- to Slide 18, which is our cash flow. So Steve's already mentioned the way that we look at operating cash profit, which is essentially our underlying EBITDA less the maintenance capital. So that's our cash profit of $8.8 million, which is pretty consistent with the previous year.

Now I'll take you down -- or move your eyes down to the bottom waterfall cash flow bridge. Now this explains -- this goes both from basically net debt to net debt. So you'll see on the left side, we had $4.9 million cash at the end of last year, and that's moved toward a net debt position of $3.64 million.

So moving from the left to the right, we had cash flow from operations of $11.6 million. Now this is broken in between $8.6 million of cash flow from operations, as you would see on -- put on the cash flow and financial statements. But we add on to that, our sales of ex-hire stock of around $2 million, $2.1 million. We see those as just cash flow from operations. So that's $11.6 million.

The usage of that cash, we then went into -- we had acquisition and integration costs of about just under $900,000. We had net interest payments of around $800,000. We then had our capital expenditure of $9.8 million (sic) [$9.6 million]. Now this is split between growth CapEx, funding for the future, of $6.9 million. Now of that $6.9 million, approximately $1 million was funded through the equipment finance facility. And the balance is $2.7 million, which is the maintenance capital, which you can see at the top.

We then had the acquisition of Natform, which was about $6.7 million of cash. Now as discussed in previous page, that was funded through the acquisition facility of $7 million. Then we had dividends, which was $2.1 million, which was the gross dividend less the DRP. And basically, working that through, we ended up with a $3.64 million net debt position.

Now essentially, our debt was increased by the Natform acquisition, the majority of the growth CapEx and the acquisition integration. So a lot of the debt -- a lot of the cash that has been used was to fund the growth CapEx that hadn't gone through to the equipment finance facility, and that's to grow -- set ourselves up to growth in the next year.

Now I'll move to Slide 19 into our capital expenditure year by year. So from the left, we have capital expenditure from 2015 to 2019. You'll see that from a maintenance capital perspective, we usually hold between $2 million and $2.5 million. That's the gray part of the bar charts. Now in the current year, we had $2.7 million, which was inflated from previous years, but that was basically because of the additional maintenance CapEx brought around from the Natform acquisition.

Now from a growth CapEx, that is $6.9 million in the current year, which is significantly higher than previous years. However, as Steve has already explained, this is part of the shift towards civil infrastructure and what was required for the coming years.

Importantly, when we look at our growth CapEx, we do look at annualized returns growth of 40%. And we are -- we can actually confirm we are achieving those returns on investments.

And that's me.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [4]

--------------------------------------------------------------------------------

Thanks, Andrew. So I'll just -- just talking about going back at -- just going back over our business strategy, some of the changes that have come into the business that was in line with our strategy and then I'll talk a little bit about our outlook. On Page 21, this is consistent. We're executing on a strategy around becoming the leading engineer Formwork, hire equipment solutions provider in Australia. We are recruiting and training and retain the best management, and I'll give some examples of that. We're now in a position where we can cross-sell. We've got a greater range of product, and we've got a geographic spread that gives us an opportunity to open up other new markets. And we're continually looking at the opportunity for earning accretive acquisitions, and I'll give a little bit more color as much as I can at the moment in relation to Uni-span in a second.

Look, it's really now -- I want to reiterate that it's going to be around the people in this business as much as the product that's going to make the difference. It's around the attitude throughout their urgency, the can-do attitude. It's how we are working now to develop in-house expertise really at engineering. I mean this is going to be one of the critical differences between Acrow and our competitors. This is going to be the way we focus our engineering services provision to be about outcomes and solutions provision rather than not that. Our engineers are an integral part of winning work. And in fact, in a lot of cases, they are the main difference that actually provides us from winning workers, not winning work.

Over the course of the year, we've recruited some exceptionally good talent to the business. Spoken about Andrew, Andrew has just come into the business in the CFO role. But in previous presentations, they get a half year. I spoke about Jan Pienaar, who's now the Queensland GM of Acrow. Proving to be an excellent acquisition to the business. Nicolas Dunn, who is our business development manager who came from working for one of our major competitors for a long period of time. He's really playing a crucial role in opening up especially at the moment, the New South Wales [typical] infrastructure market. So he's actually got the whole range of opportunities that the next gentleman, which we refer to, Mick Miller, who's just come in to our business in the last 2 months is now delivering on. So Mick -- as I mentioned earlier, Mick is probably one of the most experienced people in the Australian market in terms of using our equipment. He comes as the external manager in one of our major clients in Queensland. He always more familiar with our gear than we are. So in terms of being able to sell that solution to contractors in the New South Wales market and being able to give them first-hand understanding of how to use the gear and get the best outcome for themselves in terms of way to savings and efficiency, I don't think there's anybody better positioned than Mick to be able to do that, and that's already paying significant dividends for us.

Page 24. Look, this is just giving a picture of how we can [submit] this whole opportunity now and what our leverage positions are. It's about equipment flexibility, it's about our product range, it's about our geographic spread, it's about our engineering capacity. If you go through all that, that's really what it means. One of the major things that I didn't mention earlier, I should have, is the split now between the sales contribution that comes out of Formwork and comes out of scaffold. Yes, that's now up to 64% from Formwork compared to 40% at the same time last year, and it's heading pretty rapidly towards 70% into the current year. So that's really indicative of the geographic spread for the Natform products and how we're now getting penetration in the Sydney and Melbourne civil markets.

In terms of outlook, with the new financial year [commencing along to fourth quarter 1] -- sort of fourth quarter '19, sorry, I'll point out that we're up 61% in terms of potential pipeline on the same time last year. And whilst there's been some press around civil infrastructure, because we're coming from a 0 base to New South Wales and Victoria, it's a different picture for us. If others are talking about it as being flat to slightly improving, for us, it's a far different picture than that because we had no market at all and now we're basically into quoting on every major project in those states.

There's no hiding for residential construction activity going to remain soft. But in our business, all I can say now is that we've got more volume now than we did 12 months ago and that we're now quoting at a higher rate than we were 12 months ago. So whilst this is not the story, I believe the actions that we've taken in the residential market in the last 12 months to maintain market share, keep product moving or pay dividends as logically, at some point, that stock will turn. And we believe it's not going to be a dramatic turn, but we're seeing some improvement in price opportunity now.

We'll talk a little bit about Uni-span. As I said, we'd sort of had -- we came out of the box a little bit earlier than we'd like to in terms of having to make an announcement on the continuous disclosure. Due diligence on that business is continuing, and a few things are coming out of that process that I want to highlight.

First thing is their asset base is almost completely complementary to us. And there's a lot of major civil infrastructure projects that we in the past have worked with alongside those guys. They provides a product we can't provide. We provide the product that they can't provide. We've seen that now very clearly. They've got very, very low exposure to residential in the total business. It would be less than 20% exposure to residential. They've got a significant scaffolding business, but it's almost primarily used in the industrial space. And it's -- all that's primarily in Queensland. So we think there's an opportunity if we go ahead with this acquisition to take their learnings from Queensland industrial scaffolding market, the shutdown market into the other sites.

There are sizable cost synergy opportunities. I won't go into the detail around that. But one of the first things that we had to do to convince ourselves that we should keep going with this opportunity was to look at the size of the prize in terms of the rationalization of the 2 businesses, and I'll come away very happy with the outcome of that.

And then the last thing I want to mention because it's very important for me here is that they are the sole -- they have the sole Australian license to market a product from the European Formwork company called ULMA, U-L-M-A, who are a major competitor to Doka and PERI and RMD in Europe. And that sort of has been potentially a small shoot for Acrow, and that we don't have a relationship with a major amount of European manufacturer who does a cutting-edge of what's going on in this market. Combining with Uni-span -- we're having discussions with Formwork around about how that might work. Combined with Uni-span, they have access to all their equipment. And they're understanding and their technology and their market development means that we're going to be completely on the front full year in terms of competing with the other major Australian Formwork companies that are subsidiaries of European-owned businesses. So I think that's going to be a straight benefit.

So overall, as I said, I'm pleased with the results for the year, in fact I'm more than pleased with the results for the year. If we hadn't made the initiatives we did in terms of refocusing the business, we would have been talking about a very different result. It would still be focusing on a residential scaffold market.

So thank you, Shawn. I'm now happy to open up the call for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Alex Lu from Morgans.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [2]

--------------------------------------------------------------------------------

So just got a few questions here, but I might just start off with the second half performance in FY '19. It looks like that was impacted by the wind-down of existing projects and also delays in new projects. Now you did mention, I think, some projects were delayed by a few months. But just wondering, in general, can you talk about where you're experiencing those project delays and how long those project delays are, some are 3, some are 1, some are 6. If you can just give us a...

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [3]

--------------------------------------------------------------------------------

Look, there's a feedback Alex. I think one factor, and I think we've mentioned this before, and I think you've probably heard this from -- certainly from me a few times is that the Christmas period is always an interesting period in this industry. And in the Christmas, New Year 2017 into 2018 period, we actually had record results for our business in the December and January of that year. In this year, 2018 into 2019, it's sort of went more back to almost like normal trading where everybody -- because whatever they can to get as much equipment back prior to Christmas, and then you really don't get an uptake again back until sort of February, March and then into the last quarter. So that absolutely happened this year. That's, yes, there's -- and in the previous year, we didn't see that. In fact, we saw the complete reverse in terms of the seasonal effect. So that's a large factor in the difference between third quarter, fourth quarter. Another large factor in the difference between third quarter to fourth quarter, we had the decision to shut down the northern residential business. So no, if we hadn't have done that even sooner, you would have seen sort of $300,000 shift back the other way, but we made that decision because it was the right operational thing to do at the time.

In terms of the project delay, the -- I guess the 2 major areas that we have seen is to this stage has been, I guess, lower-than-expected revenues coming out of the Melbourne Western distributor project. I can say with great confidence that we're generating probably 80% to 90% of the Formwork revenue available from that contract at the moment. However, their packages (inaudible) sort of timetable that sort of consistently change, and they're doing some of the work that's probably going to have less (inaudible). We had less revenue coming in from a forward perspective with the (inaudible) of work going forward. So we probably -- we definitely expected to see more revenue from that specific project. All I know is that the opportunity hasn't gone away. And the customer that we're dealing with (inaudible) their timetable and the way they deal with the project. And if you understand the way, sure you do, like some of the civil infrastructure projects work once they start and then stop, but the topics under the priorities of the (inaudible) contract changes. So that's been a factor. The other one has been Southeast Queensland where some major commercial projects that we have won and we have won and we have got equipment now going out on them, we expected to see revenue in sort of March, April, May, June, and we're seeing the revenue starting now. And we'll see -- and if we -- part of that capital investment was around [simply a couple of service] those contracts. And we -- it's just now that we're seeing the revenue starting to kick in, and it will be more towards the end of this year, the first quarter -- sorry, third quarter of this year. So there's 2 major areas, civil infrastructure in Melbourne and commercial in Southeast Queensland.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [4]

--------------------------------------------------------------------------------

Okay. And is that -- it has got to do to -- is that what the weakness was in the last quarter because going back to your guidance update in May, you said that second half EBITDA would fall slightly below the first half EBITDA of $6.7 million. Now you did $4.9 million. So from my numbers, it's 27% below the first half. So was that the reason why that fourth quarter was so long? And it just seems like something was quite weak then...

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [5]

--------------------------------------------------------------------------------

Fourth quarter was better than the third quarter. The major -- the 2 major things that changed were we made the decision to get out there before the residential market in April. I could have done that in July, and not cost us $300,000 of EBITDA. So I made a decision to do that. And the Southeast Queensland revenue, we certainly expected to be seeing that in the fourth quarter, and we didn't see it. That's revenue in the vicinity of $150,000 to $200,000 a month of higher revenue that we didn't get in that fourth quarter that we expected to see that we're now starting to see now. And then there's also local effect, and then we had -- we did have one reasonably significant bad debt that came up in that period that we expected a lot of the bad debt that came up, and that cost is around $450,000.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Right, okay. And just going on your current quarter activity for FY '20 -- or so, first quarter '20 you said that's at similar level to last quarter of '19. So just maybe elaborate on that, please. Is that -- so you said the fourth quarter's better than the third quarter, are you seeing kind of just...

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [7]

--------------------------------------------------------------------------------

We started in quarter 1 '20 at similar levels to where we finished quarter 4 '19. So that's exactly where that is at the moment. We're adding into end of August. I've got another forecast supply going forward. I know what our -- more importantly, I know what the pipeline looks like, and where we're now situated with contracts that are being [read]. We're right at the [point] with the number.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [8]

--------------------------------------------------------------------------------

Okay. And so just to clarify, is that growth rate or is that revenue?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [9]

--------------------------------------------------------------------------------

Sorry, I don't understand the question.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [10]

--------------------------------------------------------------------------------

So your run rate going into the first quarter '20, is that growth on fourth quarter? Are you talking about revenue...

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [11]

--------------------------------------------------------------------------------

You mean it's what we said in the release?

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [12]

--------------------------------------------------------------------------------

Yes, I'm just trying to clarify.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [13]

--------------------------------------------------------------------------------

The fourth quarter -- the first quarter results are in line with our fourth quarter results.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [14]

--------------------------------------------------------------------------------

In revenue terms?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [15]

--------------------------------------------------------------------------------

In EBITDA terms.

--------------------------------------------------------------------------------

Alexander Lu, Morgans Financial Limited, Research Division - Analyst [16]

--------------------------------------------------------------------------------

Into EBITDA terms...

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [17]

--------------------------------------------------------------------------------

EBITDA and then -- yes.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question is from the line of Alex McLean from Bell Potter Securities.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [19]

--------------------------------------------------------------------------------

Just a quick one on CapEx. Growth CapEx was a bit higher than expected. Can you give us some commentary around that? You previously guided $5.5 million, it's currently at $6.9 million and then also what that looks like going forward.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [20]

--------------------------------------------------------------------------------

$5.5 million was the original projections going back probably 6 months, Alex. Now we've ordered in the last quarter, as I mentioned, in relation to these projects in Southeast Queensland. So most of the [cutoff] CapEx specifically for the growth you're seeing in that market. So that we bought that, that's sort of into the last quarter, that spend, and it's going out now, what we generated that we'll stop generating revenue over the course of last year. So that's probably the major difference in the additional purchase of the SuperCuplok to service the growth in Southeast Queensland. The [owners] to service the growth. The service contracts we won. I think that's one of the other things in taking your question in terms of the go-forward position. But what we did with that original write-back to when we first listed into sort of April, May, June last year where we committed $4.5 million of growth CapEx at that stage, those products that we bought at that stage were not job specific. It was sort of market and what we believed the opportunity and the sorts of products we would need to be able to penetrate Melbourne, a bit in Adelaide and certainly -- but certainly, Melbourne. We -- so we -- it wasn't job specific. Any growth CapEx that we're now doing, (inaudible) we'd probably [crept up] ourselves slightly. I'll call it 80% of any growth CapEx that we're now doing is absolutely specific to a job. So to give you a number for this year, it's quite difficult because what I know right now, I've got a project in North Queensland, that I'll need CapEx for. I've got a project in Sydney that if I win, I'll need a CapEx for. So it's now become very, very job specific.

And the sources -- so you're talking about on these projects, the capital that gets something like a 60% to 70% return on the first project that goes (inaudible) . And that said, yes, I guess that's the other advantage of the work we've done over the last 12 months in terms of our supplier relationship. We weren't a buyer a lot of these products 18 months ago. So we had to work really hard over the last 18 months to establish very good supplier relationships. That means we've been able to get our orders for delivery timeframes down to as [far] as possible. We've been able to get ourselves the best terms in terms of pricing, payment terms as possible. And now this basically becomes, did you win that? Oh, yes we did okay, (inaudible) the capital.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [21]

--------------------------------------------------------------------------------

Right. Okay. And then minor data [update]. Maintenance CapEx, you said has changed based on the Natform acquisition. What should we be looking at that going forward?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [22]

--------------------------------------------------------------------------------

Look, it should run at about the level, probably slightly lower than what you're seeing there. I think I would expect our maintenance CapEx -- sorry, our [staying] business CapEx to be. It's going to be still in that sort of $2.3 million, $2.7 million range. It was probably slightly higher in Natform last year than we expect that to be going forward.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [23]

--------------------------------------------------------------------------------

Okay. that's great. And then you called out basically your revenue growth x Natform like-for-like 5%. Can you pull out that the revenue is pretty much flat last -- on last year from Natform? So you got 10 months which was, let me just pull it out, hold on, which was about 7 -- $6.5 million in revenues for a 10-month contribution. So therefore, you're sort of at $7.5 million, which is basically what it did to you before in revenue. Is that right?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [24]

--------------------------------------------------------------------------------

We didn't do that -- it didn't -- Natform didn't do that much in revenue. Right. No look, if you look at the -- on the like-for-like -- and I was talking about Formwork when I said 5%. Formwork revenue without Natform, went up -- we were looking like-for-like, went up 5% in hire revenue, right? Total Formwork hire revenue went up by about 8%, which is focused by (inaudible) Formwork sales consumables on a like-for-like basis. Okay?

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [25]

--------------------------------------------------------------------------------

Okay. So what was the contribution from Natform at a revenue and an EBITDA line?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [26]

--------------------------------------------------------------------------------

We're not going to disclose it exactly that we had this -- we've sort of had that discussion before, it's now directly -- it's lumped into the business overall.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [27]

--------------------------------------------------------------------------------

Will we see that in the accounts, the annual report when it comes out?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [28]

--------------------------------------------------------------------------------

No, you won't see it segmented. It's part of the formwork business.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [29]

--------------------------------------------------------------------------------

Okay. Well, business combination then?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [30]

--------------------------------------------------------------------------------

I beg your pardon?

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [31]

--------------------------------------------------------------------------------

Will it be included as a business combination as a note in the back end of the annual report when it comes out in October?

--------------------------------------------------------------------------------

Andrew Crowther, Acrow Formwork and Construction Services Limited - Group CFO [32]

--------------------------------------------------------------------------------

So you'll see the Natform acquisition note. But when it comes down to the segment note, it's just included. It's a product of Formwork, so it will just be included in the Formwork numbers.

--------------------------------------------------------------------------------

Alexander McLean, Bell Potter Securities Limited, Research Division - Analyst [33]

--------------------------------------------------------------------------------

All right. Okay. And then one final one for me. I know you said the EBITDA sort of lost or not lost, but contribution from Victoria and residential or 2-storey was in that $100, 000 EBITDA month on revenue number. Can you specify what the contribution was there, just so we can -- the contract pulls out?

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [34]

--------------------------------------------------------------------------------

Now that's the contribution, the $100,000 of sales contribution. So revenue less direct costs to serve in terms of the payment of subcontractors in transport was about $100,000 a month. Now there's -- that's not what the profit impact will be going forward because there's a whole range of yard costs that we're also able to pull out and some starting costs to serve that business directly. But if you go back historically and look at our residential numbers, you would have seen that kind of contribution coming out of Victoria. And -- but it was again the decision we absolutely -- we couldn't penetrate the Formwork market. The actual provisions of the services and the way you're going to run the yards are not compatible. We don't do it in Queensland. We're now going through it in Melbourne, and we're reviewing it in Sydney.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

So the next question is from the line of Will Hickson, Morgans.

--------------------------------------------------------------------------------

Will Corkill;Morgans;Analyst, [36]

--------------------------------------------------------------------------------

It's actually Will Corkill here from Morgans, but one of the other Wills. Question, Steve, is for -- in respect of, I guess, if you could break up just specifically on Formwork, so that part of business which you're growing, but perhaps if you could just specifically break up Queensland, the New South Wales and then Victoria, just talking about how you're feeling about the outlook in terms of opportunities in the next 12 to 18 months or even 6 to 12 months given the changes that you've made in each of those markets in the last 6 to 12 months.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [37]

--------------------------------------------------------------------------------

Okay. Thanks, Will. I think just I might be going slightly over some (inaudible) ground but I'll go back. I'll answer your question directly. So the Queensland -- the Queensland market, or the Queensland performance in civil this year for us in '19 compared to '18 did go backwards, all right? I mean we had an incredible unparalleled year in '18 and '19 was softer, but despite that we were able to get the result up nationally, as we mentioned, by 5%. And we're just starting to see the fruit to some of the other we're working at the moment. The main opportunity -- I think the civil market in Queensland is going to remain flat, the big change to that is the Cross River Rail project. So in terms of the road structures, there's a couple of large projects that we're working on at the moment. The city hall upgrade, it's still rolling along, albeit we think probably the biggest chance of revenue opportunity for us has probably been -- probably behind us. But the -- look, the Cross River Rail. I mentioned before was the Roma Street upgrade requires part of that, that contract award is pending. It's a very, very significant civil contract. So I think you've got to stay to Queensland. Civil activity is going to be [soft] to flat except for the Cross River Rail project. And I said that the first major part of that business is about the contract has been awarded to the subcontractor, and now we're negotiating with the subcontractor.

New South Wales, what you're finding there, clearly, there's a lot of highway projects are coming to conclusion. WestConnex is now largely done for the time being. There's still a lot of other roadwork. It's a big movement now is into the (inaudible) rail. And I think it's fair to say from an Acrow perspective, we sort of missed the boat to a large degree with both NorthConnex and WestConnex. We weren't in that market well enough. We missed a bigger opportunity there. We're right in the gaps of Metro rail. So for us, the opportunity is far better than it was probably 2 years ago when we weren't positioned to either staff or equipment to be able to take really great advantage of the road upgrade.

Victoria is where -- still where the real growth opportunity should come. The western distributor -- if you go to Melbourne, you'll see it. It's being built. It's just again the program has changed for some of the, I guess, the softer part of the program and the very significant parts of the program, the tunnel out of the West Gate. The overpass that connects the western distributor to Tullamarine Freeway. That work is still ahead of us. The metro rail again in Melbourne is underway and similar to what [was] in Sydney. For us, significant opportunities are leaping.

So let me put it this way, outside of Melbourne, civil market is definitely overall stronger, and we are better positioned. The Sydney civil market is probably flat. However, we're far better positioned. Queensland is probably flat to soft except in the Cross River Rail.

--------------------------------------------------------------------------------

Operator [38]

--------------------------------------------------------------------------------

There are no further questions at this time. I will now hand back to the speakers. Please continue.

--------------------------------------------------------------------------------

Steven Boland, Acrow Formwork and Construction Services Limited - CEO, MD & Executive Director [39]

--------------------------------------------------------------------------------

Okay. Sure. So thank you. I think if there are no further questions, I'd thank everybody for their attendance today and their support of our business. And we look forward to giving you further updates on a range of issues as they come to hand. So thanks very much.

That does conclude the conference for today. Thank you for your participation. You may all disconnect.