U.S. Markets open in 7 hrs 7 mins

Edited Transcript of WGN.AX earnings conference call or presentation 19-Aug-19 7:30am GMT

Full Year 2019 Wagners Holding Company Ltd Earnings Call

Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Wagners Holding Company Ltd earnings conference call or presentation Monday, August 19, 2019 at 7:30:00am GMT

TEXT version of Transcript

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

Corporate Participants

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

* Cameron Coleman

Wagners Holding Company Limited - CEO

* Fergus Hume

Wagners Holding Company Limited - CFO

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

Conference Call Participants

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

* Adrian Prendergast

Morgans Financial Limited, Research Division - Senior Analyst

* John Hynd

Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst

* Keith Chau

MST Marquee - Building Materials & Packaging Analyst

* Peter Wilson

Crédit Suisse AG, Research Division - Associate

* Peter Steyn

Macquarie Research - Analyst

* Raju Ahmed

CCZ Equities Pty Limited, Research Division - Equities Analyst

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

Presentation

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

Operator [1]

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

Ladies and gentlemen, thank you for standing by, and welcome to the Wagners Full Year Results Briefing for 2019. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Cameron Coleman, CEO of Wagners Holding Company Limited. Thank you, and please go ahead.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [2]

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

Good evening, everyone. Welcome to today's presentation to discuss our results for the past 12 months. I'll have Denis Wagner, our Chairman; and Fergus Hume, our CFO, on the call with me today.

As you can see on the slides, we have increased sales as a result of strong activity in the transport and quarry business. However, this has been partially offset by lower cement sales as a result of our dispute with Boral and lower-than-anticipated activity in the precast business.

Our pro forma EBIT of $25.6 million is down on prior year but is also in line with the latest guidance we gave. Our operating cash flow is only slightly lower than last year, reflecting a better performance in cash management.

We'll now look into these in more detail on the next slide. Total sales have increased compared to FY '18 due to improved volumes in concrete and quarries, along with over 200% growth in our bulk haulage transport business. As expected, we've been impacted by our dispute with Boral as per our notice to the ASX on the 18th of March.

Revenues from both large domestic and international work were significantly less than prior corresponding period which has had a negative impact on our performance. And the investment we made in our sales efforts throughout the year is presenting some opportunities for the Construction Materials and Services business into the future.

Given our desire to continue to pursue growth opportunities, particularly with CFT in the U.S. and globally, the Board has determined not to declare a final dividend.

Now onto the Construction Materials and Services area. Cement, as I previously mentioned, we've been impacted by our dispute with Boral. However, our volumes, excluding Boral, have grown from last year due to an increased geographical spread, including bagged cement into New South Wales. There is an increased competitive market in South East Queensland with pressure on pricing and a new entrant coming into the market in FY '20.

Onto Concrete, we now have 4 operational concrete plants with an additional 2 sites to be operational by the end of September. Further to this, we have secured an additional 4 sites, and 3 of these are currently under construction. To establish this network, we have invested heavily in people, plant and equipment, which has impacted this period's result. The pleasing thing is that we are seeing the concrete volumes continue to grow as a result of this investment.

Our quarries have also seen revenue growth. The South East Queensland market has become more competitive in this first half of the year -- sorry, this half of the year with tighter pricing due to lack of major infrastructure project work in the region along with the downturn in the construction market.

Now onto Transport. Our transport revenue has increased due to significant capital investment made to service the long-term contracts commenced during this year. Due to project commencement timing, revenues for both large and domestic international work were significantly less than last year. The BD efforts made in this period will see us well-placed to grow the business in the year ahead. We've made the decision to close our precast facility as it's a loss-making business without a major project. We will reassess the closure once major project work recommences in this region.

And now we turn to our New Generation Building Materials business, which is continuing to grow internationally as consumers become aware of our products. Our CFT electrical crossarm business continues to grow as new clients in Western Australia, Victoria, Tasmania and New Zealand realized the benefits of our technology. These represent growing markets for CFT in Australasia. Our investment in our global CFT sales force has delivered a significant increase in external sales of bridges and boardwalks. We have diversified and expanded our customer base and geographical markets to replace the $5.3 million revenue we earned on the Pinkenba Wharf project in FY '18.

All testing for our Earth Friendly Concrete to obtain approval for its use in Europe is now complete, and our specimen samples have been cast and submitted to the Bureau of Indian Standards for approval. Whilst EFC has not generated any significant revenue in FY '19, the product has been specified as an acid-resistant concrete on a large sewer infrastructure project in Auckland, New Zealand.

I'll now pass over to Fergus to speak to our financial performance in more detail.

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

Fergus Hume, Wagners Holding Company Limited - CFO [3]

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

Thanks, Cameron. I'll now look at our consolidated results for last year. As previously mentioned by Cameron, we have seen higher revenue for Wagners despite the lost sales due to the Boral dispute and the lower infrastructure-based work. But pleasingly, our gross profit is stable at 62.8%.

The last year included significant contributions from several infrastructure projects in our mobile concrete and precast businesses. This project-based work achieved higher margins compared to the core business work that we've done this year.

Our operating costs have increased by $15.8 million compared to the prior corresponding period. Our employee costs have increased due to the increased sales efforts here in Australia and internationally across all areas of our business and the higher number of employees required to service the bulk haulage contracts.

Repairs and maintenance costs have also increased mainly due to the increased utilization of our transport and quarry assets. Travel and freight is higher than the prior corresponding period as a result of extensive overseas travel to develop international markets for both CFT and EFC as well as our major infrastructure services division. The increased depreciation mainly reflects the investments made in transport assets, which Cameron mentioned before, has led to an increase of contracted transport revenues of over 200%.

We'll now have a closer look at the segment results. Firstly, to Construction Materials and Services. Whilst revenue has grown, EBIT margin has declined for the following reasons: the timing or lack of higher-margin operations, mainly project-based work and a lower cement volume as a result of the Boral dispute; and an investment in people to establish the concrete and quarries business in South East Queensland; and higher operating expenditures such as repairs and maintenance, depreciation and other related costs associated with our transport, concrete and quarry businesses.

During FY '19, we have continued to expand our transport business through secured contract work. We have achieved high utilization of our transport assets purchased during this year.

We have growing market presence for our quarry materials having reentered this market in 2018. The quarry acquisition in North West Queensland has been a positive addition to our quarry assets. This asset also complements the transport business in this region.

We've increased our sales team in South East Queensland. And although the expenses associated with this have impacted our full year results, we are now well positioned to obtain our targeted share of the market as our new concrete plants and quarries are commissioned.

Now to the New Generation Building Materials. Whilst revenue and EBIT are almost flat, we're very pleased with the results as the prior corresponding period had a large project in Pinkenba Wharf. Without this sale, the pedestrian infrastructure and bridge section of CFT has seen an increase of over 60% in sales, along with a 5% increase in the crossarm revenue.

This year, we've seen record crossarm production out of our Toowoomba CFT manufacturing facility, our first supply of the pedestrian walkway into the United States and another into Canada and our first bridges installed in the U.K. The second half saw our first supply of pedestrian walkway into the UAE in Abu Dhabi.

Increased production capability has allowed us to build inventory to quickly respond as new asset owners adopt this product. International demand has seen us now providing revenue streams from New Zealand, U.S.A., U.K., Canada and the UAE, particularly in the pedestrian infrastructure and road bridge sector of the business. We continue to have a focus on sales in international markets. In particular, U.S.A., we have an experienced sales team on the ground. This investment in the sales team is over $1.5 million higher than what we spent in the prior corresponding period.

We made continued effort in R&D for production efficiencies in Pultrusion and have secured a grant from the Commonwealth Government. This research and development will commence in the 2020 year. We have also incurred increased testing cost in EFC as a result of our continued effort to pursue international approvals in the international markets.

Now to cash flow. Our cash flow conversion is in the expected range. The prior period was impacted by some unusual better activity. We've improved our working capital position through better management. And there's also increased capital expenditure as a result of the high spend on transport, our concrete plant expansion, CFT manufacturing capacity and the quarry acquisition. All capital expenditure remains within approved limits with no project overruns as a result of our robust capital management program. This level of expenditure in transport should decrease in the coming year.

On the working capital and net debt. Our working capital has increased as a result of increased inventory in the CFT business. This reflects the higher production capacity requiring higher levels of raw materials to make the increased demand, together with the increased finished stock of CFT.

Our net debt has increased compared to the 2018 levels. Our increased CapEx spend, as mentioned on the previous slide, is the main driver for this increase. In the short term, we expect to maintain this level of leverage with an outlook to reduce at an appropriate time in the future. We continue to have access to funding sources sufficient to fund our growth strategy.

I'll now pass back to Cameron to provide an update on our strategy and outlook.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [4]

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

Thanks, Fergus. We continue to invest in our underlying Construction Materials and Services business. As we've discussed, we are building a concrete plant network across South East Queensland and we're expanding our quarrying materials business. This strategy provides significant value to our cement and flyash businesses.

We will continue to expand geographically, pursuing opportunities in our construction materials business in other regions of Australia. The resource sector, along with large infrastructure projects, both domestically and internationally, will provide significant opportunity and remain a focus for our sales team.

Our CFT business is investing in more Pultrusion machines to ensure we can meet our expanding market. We are focusing on cost of production and are investing in a new, fully automated electrical crossarm production line. Our CFT R&D engineers are continually working on new product lines.

The international demand for our New Generation Building Materials is continuing to grow. We are actively tendering on international crossarm opportunities, taking advantage of increased production capacity and lower manufacturing costs we will achieve from our new automation cell.

We continue to seek the relevant building standard approvals for EFC in various countries and are pursuing opportunities for EFC throughout Europe, Singapore, India and New Zealand. The commissioning of the Pinkenba Wharf in Brisbane during the year provides us with a case study and an asset to showcase the world. All of our new concrete plants in South East Queensland are capable of producing EFC.

We continue to develop and refine the EFC manufacturing process of our activated chemicals, now manufacturing more of our product in-house, further protecting our IP and reducing our costs.

The concrete plant rollout has initially focused on high-growth areas of South East Queensland. The sites shown on the map have all been secured with 4 sites currently operational and 5 sites to become operational in FY '20 with 1 potential site to identify west of Ipswich. The funding model has all the sites owned by external parties. The group has various leasing and commercial models in place to secure the long-term operational rights of these sites.

Moving on to our outlook. The outlook for the Construction Materials and Services business is challenging. There is continued competitive pressure in the South East Queensland market. And as a fully integrated supplier, we are well-placed to meet this challenge. As our new concrete plants come online, they provide downstream value to our cement, flyash, quarry and haulage businesses.

Boral have an obligation to recommence cement offtake and meet their contractual obligations until 2031. Our bulk haulage business will continue to provide a significant contribution as a result of the investment we've made to service the long-term contracts we currently have in the resource sector.

The renewable energy and resources sectors continue to provide opportunities for our contract crushing and mobile concrete batch plant services, not only in Australia but also internationally. We are following several large LNG gas processing plants around the world and are excited about the opportunities that these present to our business.

Capital expenditure in the transport business will reduce compared to last year. And the precast business has been closed, as I said, and this will be reassessed when major project works such as large infrastructure and tunnel projects present themselves.

The outlook for our New Generation Building Materials is exciting. The new automated crossarm manufacturing line that I spoke of provides us the capacity to triple our production output. This is a key investment allowing us to meet the demand the global electrical crossarm market presents. We will be manufacturing CFT in the U.S.A. this year, meeting the growing demand over there for our product.

European approval is imminent for EFC, allowing construction companies in Europe the ability to use this product in precast applications such as tunnels. JSW in India will be commencing field trials with EFC in the coming months. We look forward to supplying our EFC technology into the previously mentioned sewer project in New Zealand. This will provide another great case study showcasing the benefits of our product.

That concludes our presentation, and we're happy to take questions. Thanks.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Your first question comes from the line of Adrian Prendergast from Morgans Financial.

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

Adrian Prendergast, Morgans Financial Limited, Research Division - Senior Analyst [2]

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

Just a couple of quick questions from me. Just on the concrete plants that you're rolling out. So I can understand that you've got 5 more sites you're planning to bring out in FY '20. Just strategically, if you got any plans beyond that or do you think that's a good size for a downstream network?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [3]

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

Adrian, thanks for the question. Look, we are starting to consider additional plants over and above our initial strategy. And we do have a team now working on identifying further sites in sort of key areas across South East Queensland, which will give us an even greater presence and an even greater opportunity for cement and flyash sales.

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

Adrian Prendergast, Morgans Financial Limited, Research Division - Senior Analyst [4]

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

Great. And just a quick one on CFT, good to see the traction in the U.S. continuing. Just whether you plan on keeping the investment -- CapEx investment at the same sort of level or is the -- really led by the opportunities in sales growth, yet you're saying that you may ratchet that up a bit further.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [5]

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

Well, we're hoping we'll be required to ratchet it up, Adrian. We've got an investment level planned there now that we see meets the immediate opportunities that we've identified. However, what we are noticing is -- or what we're realizing is the market is far greater than we'd imagined over there. And it is likely we will require another couple of Pultrusion machines a lot quicker than we'd originally identified. So that for us is quite exciting and yes, it will consume more capital.

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

Operator [6]

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

Your next question comes from the line of Peter Steyn of Macquarie.

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

Peter Steyn, Macquarie Research - Analyst [7]

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

Just -- I appreciate this may be pretty hard to comment on, but once the court process with Boral is complete, how quickly would you foresee your supply returning to normal?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [8]

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

The supply will return to normal, we see, later this year, and that will be the case regardless of the court proceedings. So Q2 this year, we'll see supply recommence regardlessly.

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

Peter Steyn, Macquarie Research - Analyst [9]

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

Perfect. So how do -- is there any possibility that you can give us a sense in the process suppose the court ruling in your favor or vice versa?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [10]

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

Well, I guess the process, regardless of the court ruling, will be Boral have an obligation to resume at a point in Q2, and that's regardless of the outcome of the court hearing. That obligation, as I said in the presentation, runs through until 2031.

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

Peter Steyn, Macquarie Research - Analyst [11]

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

Yes, yes. Perfect. Then just very briefly, curious on your experiences, in terms of the market environment, you noted that it's been tough in south -- SEQ. But could you give a sense of what's happening in the price environment in particular, Cam?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [12]

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

Yes. We're seeing quite a bit of pressure on concrete prices throughout South East Queensland, and that's become sort of more prevalent in the last couple of months. So concrete pricing is certainly a challenge in this market.

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

Peter Steyn, Macquarie Research - Analyst [13]

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

Yes. Okay. And then just last one very quickly was, Fergus, if you could, could you give us a sense of what your anticipated CapEx spend for next year would be?

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

Fergus Hume, Wagners Holding Company Limited - CFO [14]

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

Well, Peter, we have got some numbers in mind, but they could change depending on the opportunities that come forward with CFT in the U.S. In terms of what we're looking to spend on our traditional businesses, so we have a significant investment in transport last year which we will not repeat this year. We purchased a quarry last year, which, unless another deal comes up between now and the end of the year, we're unlikely to repeat. So those 2 would definitely not be repeated. We will continue to spend money on CFT, especially around the automation and the Pultrusion. And we'll obviously look at some of that expansion into the U.S. We'll be spending some capital over there as well.

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

Operator [15]

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

Your next question comes from the line of Peter Wilson from Crédit Suisse.

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

Peter Wilson, Crédit Suisse AG, Research Division - Associate [16]

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

I was hoping to the extent that you can, if you could give us some idea of the run rate of profitability in that CMS business? And by what -- by that, I mean that it was only really in the fourth quarter, I guess, that this dispute with Boral arose and the secondary market impacts. So I'm wondering if you could give us some kind of estimate of -- actually, profitability of that segment in the fourth quarter.

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

Fergus Hume, Wagners Holding Company Limited - CFO [17]

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

Yes. Look, from a -- well, that is a hard one, Peter, because yes, we were heavily impacted by Boral. Our transport business is actually -- had a better performance in the last quarter as we had full utilization of our assets and the reduction in South East where -- and then the rest of it -- so the other area is, I guess, we didn't have a concrete project or a major concrete project contributing anything which we did in the first half. Our precast business was not performing, as we have said, that we've made the decision to close it.

It's a bit hard because they do move around. Our concrete business is growing. So it's going through a growth period at the moment where when you start up a site, you don't actually achieve a margin or very little or low margin on that site when you start it up. And -- but what we have seen -- so that's on the CMS side of things. On the New Gen side of things, we had a massive increase in the pedestrian infrastructure and road bridge network. For work that came through, we were doing record production out of there, together with the record production of our crossarms. So...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [18]

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

And I guess the growth there, Peter, is looking pretty good. We're sort of expecting 30-odd percent growth in the next 12 months out of that New Generation Building Materials sector.

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

Operator [19]

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

Your next question comes from the line of John Hynd from Wilsons.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [20]

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

I might start with precast. So you've closed your facility. Does that mean you don't expect to win anything with the Cross River Rail? And how quickly can you switch it back on?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [21]

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

No, it doesn't mean we don't expect to win anything with Cross River Rail. We run our precast business very much like a projects business. So if there's large infrastructure work out there, it fires and it performs exceptionally well. When there's not large infrastructure work out there, we wind it back, and that's the decision we've made again now. The reality of it is for any revenues to flow from Cross River Rail, that is a little over a year away before any sort of real production would be likely to start on site. So to -- it's pretty typical for us to wind that business up and down as the opportunities present themselves.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [22]

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

Okay. How long -- I'm assuming you've had it opened since you listed. What were the projects? Can you just remind me what the projects were that you had it open before?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [23]

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

Well, it's still operating at the moment. The current -- there's a current large overpass project we're doing in Brisbane in conjunction with the Brisbane International Cruise Ship Terminal. So they are underway as we speak, and they'll wind up in the next couple of months. Prior to that, it was the Toowoomba Second Range Crossing which was sort of one of the larger jobs we've done out of that business since listing, which is a massive viaduct structure up at Toowoomba, up the Great Dividing Range just east of Toowoomba. They're the notable ones. There's been a myriad of other projects in there, but they're the sort of big-ticket items.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [24]

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

Yes. That's quite, and with concrete, what's your capacity now with the -- what you've added this half? And I think also, where do you expect to get to in FY '20?

And if you could also maybe discuss what the utilization levels are at the moment and then where you expect them to get to looking forward into FY '20?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [25]

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

Okay. So I guess if we talk concrete plant numbers, we've got 4 operational today. Over the next couple of months, that will change to -- well, over the next month, it'll change to 5. Another month further on, it'll be 6. So within 2 months, we'll have 6 operational plants. And then we've got another 3 sites currently under construction that are at least 6 months of commissioning. So that will give us 9 concrete plants. We originally had a target of 10. We've got the block of land identified and secured for the 10th plant, which just sits on the west of Brisbane. So that will get us to our target of 10 within the next 12 months.

And our goal at the time was to sort of target sort of -- basically, what we saw is the growth in the South East Queensland market over the next few years, which in reality only actually reference that it's about 7% of the concrete market here. We are actually getting a fair bit more aggressive than that now, and we are targeting a higher market share than that original 7% that was our initial target. And we are actively looking for additional sites. So that puts a bit of flavor around it, I guess.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [26]

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

Sure. I guess...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [27]

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

Now we've had these recent issues with some of our -- with one of our large customers, so the reason for that is really about predicting our position in the market here.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [28]

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

Sure, I can understand that. I guess to help us understand now the, I guess, the revenue and earnings profile going forward, it would help to have an understanding on what sort of volumes you're expecting to do for that business.

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

Fergus Hume, Wagners Holding Company Limited - CFO [29]

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

I can answer. So John, our original plan was to sort of do 420,000 to 450,000 cubes of concrete at about 120,000 to 125,000 tonnes of cement is what that sort of equates to. That's still well and truly on the cards with the 10 plants -- or actually with the 9 plants that we have, right, that we have in the current strategy for the entire place.

The look forward, we are currently looking at other sites, but all of those will also be looked at to make sure that we're getting the right return on investment to what we put into it to make sure they're in the right areas. We're not moving into areas that aren't going to not be growth areas. So -- but those first numbers are the numbers that we're quite happy to sort of -- they haven't changed from when we first started talking about this a couple of years ago almost. And we're comfortable with our progress there. We're on track.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [30]

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

Okay. Moving on perhaps to -- you mentioned the bulk haulage business a few times. Can you help us understand what sort of revenue this would be doing now and what sort of margins, please?

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

Fergus Hume, Wagners Holding Company Limited - CFO [31]

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

The revenues for our total transport business is over $50 million for this year. The margins aren't as good as the overall margins. I'm not sure I want to call out the actual margins in terms of what we see. I'm not sure. But it's not as good as, say, a concrete job or a crushing job. It's a much lower sort of EBIT number. In the low to mid-teens is probably where I would say, John.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [32]

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

The key for us is these transport contracts that we've secured achieved very high -- they're long-term contracts and they achieved very high asset utilization so the return on capital is quite good.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [33]

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

Okay. And what about projects this year? You said that nothing's happened on the second half. What -- do you have a pipeline at the moment that you're looking at for FY '20?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [34]

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

We do.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [35]

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

Yes. Could you maybe...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [36]

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

We don't want to call out -- we're not going to call out the specific jobs, obviously, but we do have quite an exciting pipeline in concrete domestically here. And then there's those LNG projects I referred to in the presentation internationally that are still very much on foot and fantastic opportunities for a business such as ours that we are excited about.

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

Operator [37]

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

Your next question comes from the line of Raju Ahmed from CCZ Equities.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [38]

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

A couple of questions from me. The first one, just going back into that Boral take-or-pay discussion. Can I just understand, has Boral given you the indication that whatever transpires after your court case, they will resume taking cement from you?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [39]

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

It's probably a little different to why you've asked the question. The situation is we elected to suspend supply to Boral for a set period. At the end of that period, Boral have a contractual obligation to continue, well, resume purchasing from us. So it's quite a clear process. The court case result, aside from the actual process, we're going through.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [40]

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

Right. Okay. Okay, that helps with the understanding. The second question, on the LNG projects, you've been -- you guys have been quite active, as I understood it, with regards to the Mozambique LNG. Can you just give us an update on where things are at? I know FIDs have been approved, contractors have been approved at the yard. Where are you relative to those?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [41]

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

Okay. So our client see fit -- have -- about 3 weeks ago, been given a notice to proceed. So they're now contracted and have been given the green light to proceed. They're assembling their procurement office in Milan, and their negotiation team and the commercial team will be based there. And we expect and our communication with them indicates that we'll be invited to Milan in the very near future for discussions regarding our proposal.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [42]

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

Okay. So you haven't had any interactions in Milan before now?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [43]

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

We have, yes. We had our BD go there a number of times.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [44]

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

Okay. So when did you...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [45]

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

The various interactions have all been on technical clarifications around specification of products that haven't been commercial in nature or anything like that. They've all been more around the technical discussions.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [46]

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

Perfect. Yes, that helps. So for our benefit, I suppose, in understanding where things are at, do you have a time line as to when you can come back to the market and say, yes, we won it or, no, we haven't?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [47]

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

No, we don't, and I'd be very reluctant to put one out there given how long we've been talking about this project now. So look, all I can say is it's getting very close, and we'll either contract and do the work or we'll miss it. We're quite comfortable with our position. And we've been given no indication as to a contract award date or start date on site other than they want to get going is their words. So...

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [48]

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

Okay. And sorry, just last thing on that one is, number of competitors that you have on that particular project?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [49]

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

We think there's 3 of us.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [50]

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

Okay. All right, and the last...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [51]

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

These guys do run a very professional-type tender process, so we're actually not sure of that. There may only be 2, we don't know.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [52]

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

Okay. All right. And the last question was, again, on the CFT expansion into the U.S. market. Have you selected your first site? And have you actually got contracts in place with customers?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [53]

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

We are down to 2 sites. We're down to 2 sites in the U.S., and we are just going through the final stages of negotiation regarding government incentives such as tax abatements, and there are some other significant incentives that the states offer companies to set up a manufacturing facility such as ours. So we only returned from the U.S. last Thursday, and we are just waiting for those final incentives to come through now from the various -- or from the 2 states that were narrowed down to, and that decision is really based on -- we're happy with both locations. So what we're going to do is set up in the state that provides us the best commercial outcome.

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

Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [54]

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

Okay. And in terms of subsequent Pultrusion loads, would it be at the same site? Or would you open in others -- a couple of sites also?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [55]

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

At this stage, we're not sure we could open them at multiple sites. There is a lot of synergies in having all your Pultrusion machine technology in the one factory where you have your technicians there to maintain them. However, the U.S. is such a huge market that we are discussing now multiple sites for manufacturing.

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

Operator [56]

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

Another question from the line of Peter Wilson from Crédit Suisse.

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

Peter Wilson, Crédit Suisse AG, Research Division - Associate [57]

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

So I was just going to ask, if you look at the concrete network that you're building in and the revenue growth you're expecting, including the revenue going through the aggregates and flyash, et cetera, is that enough to offset the increased costs you're going to incur moving from 4 to 10 sites on a 12-month view? Or is it going to be another decline in profitability?

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

Fergus Hume, Wagners Holding Company Limited - CFO [58]

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

There will be -- obviously, as we ramp up, Peter, there will be some additional costs that will come along, and we won't be running it full utilization when we get there. We are making changes to that though. That's why we have invested in our sales team now to help people out there to say that these sites will be online sort of 2 to 3 months before they're actually online so that we've got orders to start straightaway rather than build it and then try and get the sales. So we have learned and we're trying to do that.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [59]

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

I think the key there is today, you open a batch plant, you have a desire to get to -- pick a number, 5,000 meters. The first month, you probably do 2,000. The second month, you might do 3,000. It does take time to ramp a plant up. And during those first few months of ramp-up operations, you do need to invest in the business to get it to a level when it's asked to perform.

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

Peter Wilson, Crédit Suisse AG, Research Division - Associate [60]

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

Okay, fine. And one last one. Just on -- you mentioned you've got a number of large growth projects, LNG in particular. Can you just talk us through the CapEx requirements to deploy to make those projects and how that might be funded?

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

Fergus Hume, Wagners Holding Company Limited - CFO [61]

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

The CapEx can vary quite wildly on those things. They can go from anywhere from sort of $6 million to $18 million depending on what you want to put into the projects. The funding will usually be done -- or what we've done in the past is we have negotiated for a progress payment or a milestone payment. The funding is usually -- so we'll receive the cash, we can offer up the bank guarantee, but usually what we do is we'll go and secure funding from the export credit agencies from these countries that are building them at very attractive rates. So you pay them more favorable in less time than the projects. You have the cash on hand to offset the borrowings if things do go wrong, and that's usually the way that we would do it, Peter. So we've done a fair bit of investigation into how we would do these on some of these projects, and that's the current model that we're looking at.

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

Operator [62]

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

Your next question comes from the line of Keith Chau from MST Marquee.

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

Keith Chau, MST Marquee - Building Materials & Packaging Analyst [63]

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

Just a quick question, following up on the Boral contract resumption. So when Boral comes back online in the second quarter, I'm just wondering if you can give us a sense of at which price they'll be purchasing the cement at, whether that's market price, previous price or would that be determined through a calculation of some sort?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [64]

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

That will be determined through the commercial dispute process that we've got on foot at the moment. So we don't -- we have a range, but we're not going to call that out. And that will be determined through the commercial dispute that we have on foot.

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

Keith Chau, MST Marquee - Building Materials & Packaging Analyst [65]

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

Okay. Is it possible at all to quantify the price differential between the previous contracted price and where the alleged market price is sitting at the moment?

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

Fergus Hume, Wagners Holding Company Limited - CFO [66]

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

We can't do that. We're in court proceedings. We just cannot say anything about prices or volumes about that contract at all. So sorry, but we can't actually disclose that.

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

Operator [67]

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

Your next question comes from the line of [Mike Mundisov].

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

Unidentified Analyst, [68]

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

I had a question regarding the infrastructure project in New Zealand, and I wonder if you could clarify. You mentioned that the EFC product was specified. Can you just clarify whether it was the Wagners' EFC product that was specifically specified by the owner? Or was it some generic flyash or EFC equivalent product that was specified? That's sort of one part of the question.

And the other part is if you could clarify what components of this project are going to use this product. Is it like the tunnels or the pump stations? What components and what sort of quantities of material are we talking about?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [69]

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

Yes, okay. So we responded to a tender about 2 years ago for an acid-resistant concrete, and we put our product up for 2 years of accelerated testing and ultimately ended up with Earth Friendly Concrete being specified in the tender, not for the tunnel construction itself, but for all of the connection and the inlet and outlet concrete required where it's -- all the access points for that product. So we're talking a volume probably around the 30,000 cubic meter mark, but that's still being determined. And it's the most -- it's the area of the project that is most susceptible to corrosion.

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

Unidentified Analyst, [70]

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

Okay. And how are you going to deliver that? You're going to set up plants in New Zealand? Is that the...

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

Cameron Coleman, Wagners Holding Company Limited - CEO [71]

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

No, we're purely just selling our technology. Another company will batch and deliver it.

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

Unidentified Analyst, [72]

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

So you're taking sort of a royalty in a way?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [73]

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

I wouldn't call it a royalty as such. We're taking a -- it's a unit rate arrangement.

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

Operator [74]

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

Your next question comes from the line of [Adam Ricker] from [Alteon].

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

Unidentified Analyst, [75]

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

Hi, guys. All my questions have already been answered. Thank you.

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

Operator [76]

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

And we have our last question from the line of John Hynd of Wilsons.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [77]

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

Just one more from me, guys. The -- you've made a gain on sale of property, plant and equipment in, I think, you're referring to the cement -- or sorry, the concrete plants. Is that the last concrete plant that you've just acquired? And also, can you -- given, I guess, this is a change in -- or I guess, from my point of view, it's a bit of a change in strategy in regards you're now renting the portfolio as opposed to owning them. Can you perhaps talk us through how a rental agreement works for batching plant and what sort of metrics are involved, please, yields, how long you can hold the operational lease for, et cetera, et cetera?

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

Cameron Coleman, Wagners Holding Company Limited - CEO [78]

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

Yes, sure. So there is a couple of variations of this. So...

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

Fergus Hume, Wagners Holding Company Limited - CFO [79]

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

Yes, it's not -- they're not all just the lease. But with regards to the lease, the lease was done on market rates that are, I think, independently valued by a valuer to say what the yield was for that particular plant or that particular area. It's been written into the contract with CPI up and down and those sort of things. The timing on that is up to 20 years, so with elections. So that's sort of how it works, John. It's -- we've got expansion of our New Gen Building Materials business that we'd like to fund rather than fund it into traditional concrete plants.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [80]

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

Standard property type lease, John.

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

John Hynd, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Equities Analyst [81]

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

Yes. So -- I mean I think it's been valued at 6.25%. I mean you're paying 5% on it? Or...

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

Fergus Hume, Wagners Holding Company Limited - CFO [82]

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

It's just the market rates, John. I don't have the number right at my fingertips, but it is whatever the market -- it was at externally benchmarked rates that we came through it.

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

Operator [83]

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

There are no further questions at this time. I would now like to hand the conference back to today's presenters. Sir, please continue.

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

Cameron Coleman, Wagners Holding Company Limited - CEO [84]

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

Ladies and gentlemen, that wraps up our presentation for this afternoon. Thanks very much for your interest in Wagners. And yes, we appreciate you dialing in to hear what we have to say. Thank you, and we'll close the call.

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

Operator [85]

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

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect.