AMA Group Limited (AMA) Earnings Call Transcript

Thank you for standing by, and welcome to the AMA Group Half Year 2025 Results Call and webcast. [Operator Instructions] I'd now like to hand the conference over to Mr. Mathew Cooper, Group Chief Executive Officer. Please go ahead.

Good morning, everyone. Welcome to this presentation of the FY '25 AMA Group Half Year Results. For those joining us via webcast, you should be able to view the presentation on your screen. If you are joining us via teleconference, you should have access to our investor presentation via the ASX platform or our company website. I will begin today's presentation with a business update along with details of our portfolio business results. I will then hand over to our CFO, Dom Romanelli, who will take you through the group financials. I will then return to cover the outlook. We will be taking questions through the webcast facility today. You can submit these questions at any time during the presentation, and we will address them at the end. Let's begin on Slide 5 (sic) Slide 4. AMA Group continues to improve operating performance with normalized pre-AASB 16 EBITDA of $25.7 million, up 17% on the prior comparable period. Pleasingly, operating cash flow of $10.5 million was an improvement of $15.5 million on the prior comparable period. Capital S.M.A.R.T performed ahead of expectations and their operating performance more than offset the prior year transitional support. AMA Collision turnaround is progressing well, but there is significant room for improvement. Wales continued to grow and outperform. Specialist Businesses continued to roll out new TrackRight and TechRight sites but some Prestige sites underperformed. The group continued to increase our team size and reduce our voluntary turnover. We still need more skilled trades and note that our international program is experiencing some visa processing delays. We are maintaining guidance for the full year that FY '25 normalized pre-AASB 16 EBITDA will exceed that of FY '24. Now to Slide 5 and Capital S.M.A.R.T. Capital S.M.A.R.T performed ahead of expectations. Normalized pre-AASB 16 EBITDA of $25.8 million was 18.6% ahead of the prior comparable period. This was an increase of 1.9 percentage points in EBITDA margin rising to 10.8%. The team has absorbed transferred capacity and are preparing to open new greenfield sites in line with our growth plans. Our brand refresh program is progressing with about 21% of the network expected to be refreshed this financial year. The relationship with Suncorp is strong and Capital S.M.A.R.T is delivering improved customer outcomes with higher customer satisfaction and with a 10% improvement in average repair days. The team continues to focus on efficiency and cost initiatives to further improve performance. Now to Slide 6 and AMA Collision. The transformational change program, Project Wallaby is gaining momentum with our customers and our team. A normalized pre-AASB 16 EBITDA loss of $2 million is disappointing and behind our plan. We appointed new leadership to this business unit in July. We are making good progress on the turnaround, but the business was impacted by lower volumes in December and November. Anecdotally, this has been on the back of higher excess levels, deferral of claims due to cost of living prioritization and lower vehicle use. Challenging sites like Eagle Farm and Cheltenham have now been addressed with structural changes being made within the broader AMA Group. Insurance relationships are improving and a number of new volume opportunities have been agreed and will support both the utilization of existing capacity and new greenfield capacity. This process is taking time, but it is gathering momentum. There are 3 greenfield opportunities in progress and multiple acquisition opportunities at various stages of discussion. So we are behind that plan financially, but are seeing continued momentum in both the cultural change program and improving our insurance relationships. Now to Slide 7. Separating the Specialist Businesses has allowed us to focus on the opportunities that each present. Some of the AMA Prestige sites underperformed expectations. There was improvement late in the first half as new contracted volume began to come online. We expect this additional volume will continue to improve performance in the second half. TechRight proof of concept with the initial 6 installations are progressing well. Further rollout is planned for the second half. We reviewed the TrackRight business opportunity in mechanical collision repair and are now progressing a growth program. New operations in Tullamarine and Eagle Farm have recently come online. These businesses continue to represent strong margin opportunities and our growth plans are progressing well. Now to Slide 8. Wales Heavy Vehicle has grown normalized pre-AASB 16 EBITDA to $5.4 million, an increase of 63% on prior comparable period. Investments to remove bottlenecks are performing ahead of business case expectations. Both Adelaide and Newcastle are performing well. Further investment in Parins WA is nearing completion and whilst having caused some disruption over the last couple of months, will increase site capacity and efficiency. New customer opportunities will provide further growth in the business. In addition, expansion through greenfields and acquisitions are at various stages of development. The network will be fully rebranded to Wales Heavy Vehicle. This is expected to be completed by the end of FY '25. Now to Slide 9. ACM Parts continues to show strong revenue growth and improve profit performance. Revenue grew 16% on prior comparable period to $46.9 million. This resulted in a normalized pre-AASB 16 EBITDA improving by $2.1 million on the prior comparable period. As previously announced, the Board has made a decision to sell ACM Parts and focus on a pure collision repair business moving forward. The sale process continues. Whilst discussions with interested parties are ongoing, the company is also assessing alternative strategies to maximize shareholder value. These options include a possible demerger and IPO. The company will provide further updates as material developments occur. I will now hand you over to Dom to take you through the group financial information.

Thank you, Mat. Slide 11 is a summary of the first half FY '25 financial performance. The financial performance is presented on a post-AASB 16 basis below EBITDA. However, we have included supplementary analysis on Slide 20, which provides a pre and post comparison. The Group's revenue from continuing operations was up $21.3 million to $472.4 million, an increase of 4.7%. Normalized pre-AASB 16 EBITDA for the half year was $25.7 million, up from $22.0 million in the prior half year period, an increase of $3.7 million, 16.8%. This also resulted in an improvement of the EBITDA percentage margin from 4.9% to 5.4%. The increase in the margin percentage was driven by the Capital SMART and Wales businesses, reflecting further improvement to what we have seen in these businesses in previous periods. Finance costs were lower by $3 million, reflecting the lower level of debt subsequent to the completion of the equity raise in August. Within the total finance costs for the half year of $16.1 million, approximately $9 million is associated with our lease expenditure. I will give an update on the new debt facilities we announced on Monday a little later. And the $3.5 million normalization adjustment for the half year relates to a legal settlement over the earn-out calculation of 2018 historical acquisition. Moving on to Slide 12. The strength in the balance sheet we now have reflects the benefit of the recent $125 million equity raise. Our net assets have increased from $118.2 million as at 30 June 2024 to $234.6 million as at 31 December 2024. This also assisted in reducing our net debt from $143.9 million to $25.6 million. You will note that as was the case at 30 June 2024, the ACM Parts business is disclosed as an asset held for sale. This slide and also Slide 14 outlines how the equity proceeds were used or allocated during the period. Slide 13. Slide 13 is a high-level summary of our new $110 million debt facilities. The group has obtained binding credit-approved commitments with agreed commercial terms from two major Australian banks with a 3-year term. The new debt facilities will pay out the existing debt facilities and provide sufficient funding to support the operational and growth plans of the Group. The key terms of the facility are $80 million in revolving debt facilities and $30 million in bank guarantee lines, improved overall cost of funds of 300 basis points to 350 basis points, a suitable covenant structure for the Group to operate within, more flexible terms in respect of future growth opportunities, including capital expenditure and no specific requirement to dispose of ACM Parts. This transaction is subject to the finalization of documentation and settlement of funds. Slide 14. The Group had positive operating cash flows for the half year of $26.3 million compared to the corresponding half year of $10.8 million. The majority of this increase relates to an improvement in working capital of $10.5 million. Working capital improved from 30 June '24 to 31 December '24 by $3.3 million. Note, the cash flow does include ACM Parts with $6.6 million spent on inventory growth over the 6 months to 31 December '24. On to Slide 15, Corporate. The reduction in corporate's normalized EBITDA reflects several cost reduction initiatives implemented to help drive greater cost discipline whilst also ensuring business unit responsibility for financial results. In addition, Slides 20 to 23 details additional financial information that will assist you with your analysis. I'll now hand back to Mat to conclude the presentation.

Thanks, Dom. Now to Slide 17 and the outlook. We are maintaining our overall AMA Group guidance. FY '25 normalized pre-AASB 16 EBITDA is expected to be above that of FY '24, and we see a pathway to a 5-year pre-AASB 16 EBITDA margin target of approximately 9%. Capital SMART performance will exceed prior year. Project Wallaby is targeting to deliver more than $20 million of annualized benefits over the next 3 years to AMA Collision but is behind plan this year. Wales expansion programs are expected to deliver $1.5 million over the next 2 years and are tracking ahead of plan. TechRight and TrackRight network growth programs are progressing well and greenfield and acquisition growth programs are progressing well across the portfolio. As you can see from this half year update, there is both a significant amount of work and strong progress being made across the business. Our immediate priorities are to continue to repair the AMA Collision performance, continue to grow the workforce, grow our network, continue to improve our customer experience and solve customers' market challenges and complete the ACM separation. I will now address questions. Please note, you may submit your questions through the webcast facility.

[Operator Instructions] Your first question today comes from Ron Shamgar. Ron asks, what is the net debt position of the group post the con note redemption?

Thanks, Ron. The net debt position that we disclosed at the half was $25.6 million, and it will remain at $25.6 million when we pay out the convertibles because we took into account in that calculation, both $50 million we were holding in a cash deposit to offset the $50 million in convertible notes. So it will remain at $25.6 million.