Vulcan Steel Limited (VSL) Earnings Call Transcript

Good morning, and welcome to Vulcan Steel's 2026 Annual Shareholder Meeting. My name is Rhys Jones. I'm the Chair of the Board, and I'll chair today's meeting. We have a quorum of shareholders present, so I declare the meeting open. This is a hybrid meeting with shareholders here at MUFG's offices in Auckland and online. It's Vulcan's fifth Annual General Meeting as a listed company and my first as Chair. Thank you all for joining us and for your continued support. I'll firstly cover off a few housekeeping points. For those present, if an alarm -- fire alarm sounds, please follow the directions of the MUFG staff who will guide us to the nearest exit. If you're online and have any technical issues, please call MUFG's help desk at the relevant phone number shown now on screen. We'll take questions after the Chair's and CEO's addresses, on each resolution, and during general business at the end of the meeting. I'll take questions from the room first then online. If you're online, you can submit questions at any time using the Ask-a-Question function. When you ask a question, please give your full name and say whether you're a shareholder, proxy holder or other interested party. We'll answer as many questions as time allows. I'd like to introduce my fellow directors. Starting from the far right, Adrian Casey, our Chief Operating Officer; and 3 of our 4 independent directors, Carolyn Steele, Russell Chenu, and Bart de Haan. Unfortunately, our fourth Independent Director, Nicola Greer, is unable to attend today. Nicola, just so you're aware, has got a very bad virus and is quite ill, so she was unable to travel due to illness. To my left is Gavin Street, our Managing Director and Chief Executive Officer. Also with us is our Company Secretary, Sarah-Jane Lawson. Vulcan's Board has 7 directors, and our backgrounds are set out in the FY '26 annual report. Bart de Haan and Nicola Greer are standing for reelection today. Our auditor, Deloitte, is represented by our lead audit partner, Andrew Dick, who can answer any questions for the audit team. Our agenda and other -- and order for today's event starts with my Chair's address. Gavin will then present on Vulcan's performance in FY '26 and our trading so far in '27, and we'll take your questions. We'll then turn to the formal business. Five ordinary resolutions. We'll take questions on each as we go, and voting will be by poll. Once voting is closed, there will be time for general questions. Just a reminder that Vulcan's financial statements for the year ending 30th of June 2026, together with Deloitte's audit report, are on our annual report dated the 25th of August 2026. The annual report is on our investor website and printed copies are available at MUFG's registration desk. I'll now give my Chair address. Fellow shareholders, Vulcan delivered a resilient performance in FY '26 despite continuing economic challenges. Cost of living pressures, weak business confidence and high interest rates in Australia weighed on our economic activity levels. Conflict in the Middle East added volatility to our energy markets as well as challenges to freight routes and supply chains across our markets in Australia and New Zealand. Against that backdrop, Vulcan strengthened its competitive position in both countries, growing its sales volume by 18%, revenue rose 22% and adjusted net profit after tax increased by 28%. The Board declared a final dividend of $0.045 per share, bringing the total dividend for FY '26 to $0.07 per share, up from $0.06 last year. That totals $10.3 million or 47% of net profit after tax before significant items within our policy range of 40% to 80%. Gavin will cover the FY '26 year in more detail shortly. FY '26 was our third year for climate-related disclosures under New Zealand law and our first under Australia's new climate reporting standard. With Roofing Industries joining the group, our total Scope 1 and Scope 2 emissions rose 8% to 13,395 tonnes. However, our emissions per tonne of products sold improved by 8%, helped by investment in solar power and our hybrid vehicle fleet. On the 1st of January 2026, we completed our planned leadership transition. Gavin Street became Managing Director and CEO and joined the Board, and I moved from CEO to Chair. Russell Chenu, who had chaired the Board since 2021, became our Lead Independent Director. On behalf of the Board, I thank Russell for his leadership as Chair and for his continuing contribution. Thank you, Russell. Gavin has quickly built strong relationships with our people, customers and other stakeholders across both countries while continuing to execute our strategy. The transition was completed without disruption to the business, which reflects the strength of our leadership team. The Board continues to have a majority of independent directors. Good governance means planning for Board renewal well ahead of time. As part of that planning, the Board has begun a search for 2 new independent nonexecutive directors, who will, in time, succeed Bart de Haan and Russell Chenu. Bart has served on the Board for more than 11 years. Russell has served more than 5 years, including as our Chair until the end of 2025. Both have agreed to remain on the Board through a transition period so that new directors can be appointed and settle into the role before Bart and Russell retire. This will give the Board continuity, retain their valuable knowledge of Vulcan and support an orderly handover. The search for new directors will focus on the skills and experience the Board will need as Vulcan grows, guided by our Board skills matrix and set out in our annual report and our commitment to diversity. We expect to announce new appointments during 2027. Any new director will stand for election by shareholders at the first annual meeting after their appointment. Bart is standing for reelection today on that basis. His reelection will provide continuity during the transition and is likely to retire once his successor is in place and following an appropriate transition period, however long that may be. On behalf of the Board, I thank Bart and Russell for their commitment to Vulcan and for their support in making this a smooth transition. On behalf of the Board, I thank our employees for their hard work, our customers there for their continued support and you, our shareholders, for your confidence in Vulcan. I'd now like to invite Gavin to give his address.

Thank you, Rhys, and thank you to everyone for joining us at our 2026 Annual Shareholder Meeting, both here in the room and also online. This is my first Annual Shareholder Meeting as Managing Director and CEO. And I want to thank Rhys, our Board, our people and you, our shareholders, for the support during my year in the role. Vulcan's success over more than 30 years comes from our culture and our people, and it is a privilege to lead the team as we grow our value for our shareholders. Market conditions stayed challenging for much of 2026. New Zealand's recovery was gradual, and restrictive interest rates in Australia weighed on investment. Even so, the business moved forward, and we saw clear improvement in the second half of the year. Revenue grew to $1.16 billion, adjusted EBITDA rose to $130 million and adjusted net profit after tax increased to $22 million, reflecting 9 months contribution from Roofing Industries and a return to some volume growth. Sales volume rose 18% to almost 253,000 tonnes on a like-for-like basis increased 8%, with a stronger second half in 2026 financial year. Like-for-like costs were up 8%, excluding the impact of foreign currency and reflecting the impact of inflation, investment in our people to support increased activity in processing, the rollout of our hybrid strategy in Australia and investing in our leadership capability in both Australia and New Zealand. Stock management remained a key focus for our business leaders in FY '26. We took a balanced approach supporting higher volumes while keeping product availability for our customers high. We kept investing for growth. We opened a new greenfield hybrid site in Toowoomba, west of Brisbane, and implemented 5 hybrid sites across the network. We also kept customer service high with an industry-leading order fulfillment rate, or DIFOT, of 98% across all orders in FY '26. Vulcan generated $73 million in operating cash flow. That was lower than FY '25, which did benefit from significant reduction in working capital in the prior year. Net debt fell by $5 million to $227 million, and our net EBIT -- debt-to-EBIT ratio cover improved to 2.9x, down from 3.4x in the prior year. Our return on capital employed or ROCE was 7.5% for FY '26 compared to 8.8% in FY '25. This partially reflects the capital we invested in Roofing Industries, which contributed only the 9 months of the earnings. As a team, we're not satisfied with that return, and improving it to between 20% to 30% remains a clear focus for the Board and management. It is now a year since Roofing Industries joined the Vulcan Group on the 1st of October 2025. That was our first step into roofing and cladding, and a new vertical for Vulcan. The business has been successfully integrated and has performed ahead of our expectations. In our first 9 months, it contributed $135 million in revenue, and its strength through the second half of FY '26 has continued really into this new financial year. In the recent July to September quarter, our roll-forming business has secured 2 major projects in Christchurch and Auckland, the start of the 2027 financial year, and I want to thank the Roofing Industries team and our local owner-operator partners. Their service mindset and shared ownership are exactly what we hope this business would bring to the group. Vulcan's network is now -- covers 82 sites across Australia and New Zealand. Our principles and ethos remain the foundation of Vulcan and how we work as a team. Our team now consists of over 1,650 employees working across 82 sites in Australia and New Zealand, and we believe our people are our greatest strength, and we continue to invest in creating an environment where they can develop, perform and thrive. Our 2026 employee engagement survey reflected a positive experience, the business -- a positive experience across the business with 85% of employees prepared to put the extra effort in for Vulcan's success. 80% agreeing they have clear goals and 75% saying Vulcan puts the team first with respect for the individual. We continue to invest in the well-being and development of our people, including our first network-wide well-being step challenge, our graduate program, leadership development, coaching and mentoring and expanded our online learning. Turning to health and safety. Vulcan is committed to providing a safe and healthy work environment for everyone. We are now expanding the rollout of the in-cab safety cameras to support safe driving for our business. Our total recordable injury frequency rate improved to 7.1, down from 7.8 in the prior year. We'll keep working on to improve that. Our commitment also extends to the communities in which we operate. During the year, we support organizations, including MATES in Construction, Auckland Westpac Helicopter Trust (sic) [ Auckland Rescue Helicopter Trust ], the Halberg Foundation and Arts Centre Melbourne, alongside many locally led community initiatives identified by our people. Our priority for FY '27 and FY '28 is to build on the momentum. We will keep driving organic growth through customer service and margin improvement. We'll be ready to capitalize on the business cycle as it turns, and we'll keep investing in our roll-forming roofing industry business. We will use our bench strength and the investment we have made in hybrid sites to grow volumes, and we'll keep exploring other opportunities. Turning to our financial performance so far in FY '27. It is still early in the year, but the first quarter has been encouraging. In the first 3 months, group revenue was up to $353.7 million, up 39% on the same period last year. Sales per tonne per day in first quarter FY '27 increased year-on-year by 27%, with improvement in our steels and metals segments and contribution from Roofing Industries. Sales tonnes per day in New Zealand, excluding Roofing Industries improved by 16% year-on-year and 13% year-on-year in Australia. EBITDA was up 51% compared to the same quarter last year. Our steel segment led the improvement. Underlying EBITDA, excluding Roofing Industries, lifted 21% year-on-year, with EBITDA contribution from our Roofing Industries was $9.1 million in the first quarter of FY '27. At the 30 September 2026, net debt was $216 million, an improvement on the $227 million from 30th of June. Look, 3 months is a short period and monthly results can vary, but these results show the momentum we are building, and the second half of FY '27 has carried on into the new year. The industry is beginning to stabilize and there are signs of recovery, acknowledging that conditions remain challenging, and the overall pace of recovery is still uncertain. In New Zealand, the economy is beginning to recover with business confidence improving and activity starting to strengthen. Interest rate levels should support households and businesses through FY '27, while construction and export activity provide further support. The recovery is likely to remain uneven, however, with inflation, energy costs and global uncertainty continuing to create some headwinds. The Australian economy is continuing to grow at a modest pace, but the recovery is expected to be gradual. High interest rates, persistent inflation and elevated household costs are likely to constrain consumer spending with Queensland Olympics infrastructure and population growth to provide some support. Overall, we expect a steady but challenging environment, with a pace of recovery dependent upon inflation continuing to moderate and interest rates eventually easing. We will stay disciplined on product availability, service levels and cost to serve. As conditions improve, we are well positioned to benefit. The FY '27 half year results are due to be released in mid-February 2027. As always, our employees are the most important asset in our business. Our culture, customer focus and teamwork has carried us through a difficult period and into the early stages of recovery. I want to thank all of our people across Vulcan and Roofing Industries for their commitment and our customers and suppliers for their ongoing support. Thank you, and I'll now hand you back to Rhys.

Thanks, Gavin. Now I'll just invite any questions on my address or Gavin's address from the audience here. And later on, we'll have some questions from online. So any questions from anybody? Okay. Any online questions, Bogdan?

Not on this topic.

Okay. Thank you. We'll now return to the 5 resolutions set out in the Notice of Meeting dated the 21st of September 2026. The Notice of Meeting will be taken as read. Each is an ordinary resolution, which must be approved by more than 50% of the votes cast by shareholders entitled to vote and voting on it. The proxy votes received will be shown on the screen for each resolution. Voting will be by poll run by MUFG. The votes will be counted after the meeting, and the results will be announced on the ASX and NZX shortly after the meeting. To vote online, click Get Voting Card and follow the prompts. If you're here in the room, please use the voting paper you received at registration. MUFG staff will collect it. As Chair, I intend to vote all discretionary proxies I hold in favor of each resolution. Now we start with the first resolution. Deloitte has been Vulcan's auditor since 2011 and will be automatically reappointed under the Companies Act. I move as an ordinary resolution that the Board is authorized to fix the fees and expenses of Deloitte Limited New Zealand as Vulcan's auditor for the financial year ending 30th of June 2027. The Board unanimously recommends that you vote in favor. Are there any questions on this resolution from shareholders in the room? Any online questions, Bogdan?

No.

No. Okay. Thank you, Bogdan. Resolution 2 is the reelection of Bart de Haan as a Director. Bart is an Independent Non-Executive Director and Chair of our People and Rem Committee. He joined the Board in September 2015 and was last reelected in 2023. He's an experienced strategy consultant, having worked with boards and senior management of leading companies in Australia, the United States and the Netherlands. The Board, with Bart abstaining, unanimously supports his reelection and recommends that you vote in favor. I will now invite Bart to speak. Bart?

Thanks, Rhys. Well, Rhys introduced me. I only have one point to make. So these 11 years that I've been around allowed me to experience the high end of the cycle and the low end of the cycle. And I'm not claiming to understand cycles better than some people in this room who've been here for 25 or 18 or 15 years. My only point is that there are benefits to the downside of the cycle. And that is at the bottom of -- the point is that at the bottom of the cycle, the performance shows actually the underlying strength of the business, and that applies to any industry. So let me apply that to Vulcan. The first point is we had a diversification strategy, I don't know when it started, 15 years ago and then a turbocharged about 8 or 9 years ago, and it showed it worked. We spread our risk. The second example is we outperformed competitors, and it applies to both New Zealand and Australia. My third illustration is all of the business units in our portfolio, there's about 23 that I can count, they all showed at that bottom of the cycle or at the low end of the cycle, a continued cash contribution and a decent return on capital employed. I'm not saying that's the capital employed we want, but it is a decent capital employed. We kept our investment as per business as usual. So we manage across these cycles. And we kept that investment in upgrading facilities and upgrading systems in management development and some significant acquisitions. Last point that I make to illustrate that the strength of our business is we made no short-term disruptive interventions to manage cash. And then I refer to selling assets or discounting stock or redundancies. That hopefully shows the underlying -- demonstrates the underlying strength of the business, and that doesn't happen by itself. These are choices -- strategic choices that have been made over the last, whatever, 20 years. And it is a management -- a dedicated management that is on top of the business, and it is part of our business model. So that's all I have to say. Are there any questions that you have? Rhys?

Thanks, Bart. I move as an ordinary resolution that Bart de Haan, who retires in accordance with Vulcan's constitution and is eligible for reelection, be reelected as a Director of Vulcan. So there was no questions. Are there any questions online?

No online. No online.

Okay. Thank you, Bogdan. Resolution 3 is the reelection of Nicola Greer as a Director. Nicola is an Independent Non-Executive Director and a member of our Audit and Risk Committee and our People and Remuneration Committee. She joined the Board in September 2023 and was elected by shareholders that year. Nicola is a professional director with a background in banking and financial markets and brings strong governance and risk management experience to the Board. The Board, with Nicola abstaining, unanimously supports her reelection and recommends that you vote in favor. As I mentioned earlier, Nicola is unable to join us due to illness. However, she did prepare a speech, so I'm going to read out her speech for her, so you're aware of what her words were. This is from Nicola. Good morning. I'm pleased today to have the opportunity to seek your support for my reelection as an Independent Director of Vulcan Steel. My professional background is in the financial markets, having spent many years in New Zealand, Australia and the U.K. working for ANZ, Citibank and Goldman Sachs. My governance portfolio is varied and spans across multiple sectors. I'm currently a Board member of NZX-listed Precinct Properties and Southern Port, Fidelity Life Insurance in the New Zealand Railways Corporation, and I'm a member of the New Zealand Markets Disciplinary Tribunal. I also have strong links to the New Zealand property sector through both my private interest and listed entity experience. I believe this background provides me with a broad understanding of the varying and volatile -- often volatile business landscape in which Vulcan operates. It's been a busy and productive 3 years since I first became a Director of Vulcan. Indeed, in the last 12 months, we've welcomed Gavin Street as CEO of the business and Rhys Jones as Chair of the business. We've also successfully acquired and integrated Roofing Industries, further expanding our capabilities and market position. The last few years have been a challenging period for many businesses operating in New Zealand. Despite this, we at Vulcan have performed well relative to our competitors and are uniquely positioned to capitalize on improving conditions and accelerate our growth. Vulcan is a truly unique and very special company. We'll continue to focus on the core things we value, quality, service and our people. I have the capacity, experience and passion to serve Vulcan's shareholders well and would welcome your support for my reelection as an independent director. If reelected, I look forward to working with my fellow directors and Vulcan's strong management team to achieve ongoing success in delivering value and sustainable returns to you, our shareholders. Thank you. So that was a speech from Nicola. I move as an ordinary resolution that Nicola Greer, who retires in accordance with values -- Vulcan's constitution and is eligible for reelection, be reelected as a Director of Vulcan. Are there any questions on this resolution from shareholders in the room? No. Bogdan, any questions online?

No questions. None.

No. Thank you. This takes us to Resolution 4. I move as an ordinary resolution that for the purposes of ASX Listing Rule 10.14 and for all other purposes, the issue of 443,340 performance share rights to Vulcan's Managing Director and Chief Executive Officer, Gavin Street, under Vulcan's FY '27 long-term incentive plan and on the terms and conditions set out in the explanatory notes be approved. Just a reminder that the explanatory notes for this resolution are at Pages 7 to 9 and 13 to 17 of the Notice of Meeting. Are there any questions on the grant of performance share rights to Gavin from shareholders in the room? Bogdan, have we received any questions online?

We have one question from Stephen Mayne. I will proceed with reading it verbatim. Thank you for disclosing the proxy position early to the ASX, along with the formal addresses and well done for achieving such a strong voting support on all resolutions, including this LTI grant to the CEO. Which of the proxy adviser issued a report ahead of our meeting? And were they all in favor? Also, how many shareholders voted by proxy before the meeting? And will you release the headcount data in the poll results so that we can see the size of the turnout and better understand retail voting sentiment?