AMA Group Limited (AMA) Earnings Call Transcript

Thank you for standing by, and welcome to the AMA Group FY '25 Results Call. [Operator Instructions] I would now like to hand the conference over to Raymond Smith-Roberts, Group Managing Director. Please go ahead.

Good morning, everyone. Thank you for taking the time to join us for this presentation of the AMA Group FY '25 Full Year Results. For those joining us via webcast, you should be able to view the presentation on your screen. If you're joining us via teleconference, you should have access to our Investor Presentation via the ASX platform or our AMA company website. I will begin today's presentation with a business update along with details of our portfolio business results. I'll then hand you over to our group CFO, Domenic Romanelli, who will take you through the group financial results. I will then return to cover the outlook. We'll be taking questions throughout the webcast facilities today. You can submit these at any time during the presentation, and we will address them at the end. Let's begin on Slide 4. AMA Group continues to have a positive growth trajectory with a significantly improved operating performance in FY '25. The new Board, with its strong depth of relevant experience has now been functionally operating for a little over 12 months, and I took over as Managing Director on the 1st of April 2025. In August '24, the company completed a $125 million rights issue which reshapes the company's balance sheet and assisted us in completing a $110 million 3-year refinancing in February '25 and the repayment of the $50 million in convertible notes in March '25. The group's balance sheet now has the strength to facilitate the company's optimization, growth and development aspirations. We will go after this growth where opportunity, capability and customer capacity needs are aligned. We are a people business and have continued to focus on upskilling and growing and retaining our team. We've increased our team members by 181 in FY '25, and we have reduced voluntary turnover. Our businesses. Capital SMART's operating performance was ahead of expectations. The Motor Repair Service Agreement with Suncorp was updated on the 1st of April this year and effective on in July '24 and has a clear annual repricing mechanism. The business delivered improved customer outcomes with better optimized operating performance and extended repair scope, resulting in increased revenue from a higher severity and complexity of work. We continue to solve more complex problems for our customers. Moving on to AMA Collision. AMA Collision continued the good progress in its optimization and capability improvement program with a $9 million EBITDA for the second half of the financial year. With continuing focus in our very disciplined approach, there is significant further opportunity for improvement and improved financial performance. In our heavy division, Wales, it delivered a strong result via a range of initiatives and projects. Key optimization and growth activities provided these results in FY '25. The Specialist business continues to develop the TechRight and TrackRight locations whilst its Prestige sites continues on an improvement journey with an improved result expected in FY '26. In relation to our ACM Parts business, the Board continues to work towards a range of possible outcomes whilst we continue to prove its underlying performance. We are currently progressing 2 initiatives. And when complete, it will allow an outcome for this business. ACM Parts produced an operating breakeven result for the second half of the financial year after returning a loss in the first half, importantly, without consuming cash or requiring corporate financial support. Group revenues of $1.014 billion increased $81 million on FY '24, an increase of 8.7%. With revenue from our core vehicle collision businesses increasing by 8.3% and to $968.7 million. Normalized FY '25 pre-AASB 16 EBITDA of $62.6 million. This is up $17.3 million or just over 38% on FY '24. Our EBITDA margin increasing from 4.9% in FY '24 to 6.2% in FY '25. However, the numbers reported for FY '25 include the results and balances for ACM Parts as it's no longer classified as a discontinued operation. Therefore, the EBITDA percentage margin from our core collision -- Vehicle Collision Repair businesses increased from 5.6% in FY '24 to 6.9% in FY '25. Operating cash flow after payment of lease costs was a positive $44.1 million, an improvement of $33.6 million or just under 318% on FY '24. Underlying financial performance improvement in key strategic growth is expected to continue in FY '26 and beyond, which will be covered later in outlook. Now to move on to the more details around our businesses. Slide 5 for Capital SMART. In FY '25, Capital SMART was ahead of expectations with continued operational and optimization improvements. The Motor Repair Services Agreement was updated with Suncorp on the 1st of April and was effective back from July 2024. Our relationship with Suncorp is strong with Capital SMART delivering improved customer outcomes focused on extended repair scope, resulting in higher revenue that more than offset the transitional support in FY '24. In addition, the 5 transitions have been fully integrated with benefits from additional repair capacity realized. Revenue increased $25.8 million to $490.3 million, an increase of 5.6% year-on-year. Normalized FY '25 pre-AASB 16 EBITDA of $58.4 million was up $13.3 million on FY '24. Capital SMART will pursue further optimization and growth with a focus on optimizing operations through insourcing, timely repairs and utilizing technology, developing the workforce further by attracting, training and mentoring high-performing teams. Investing in the nationwide network with both refurbishment of existing sites and growing our sites by 3 to 4 annually in key opportunity locations aligned to our customers' needs, and we'll continue to evolve and enhance customer experience and convenience. Moving on to Slide 6 in our AMA Collision business. AMA Collision business continues to show the benefits of the transitional change program, which facilitated the delivering of a significantly improved financial performance in half 2 FY '25. Revenue increased to $360 million for the year and a normalized FY '25 pre-AASB 16 EBITDA of $7.4 million, which is up $3.2 million on FY '24. Importantly, the second half of the financial year return on EBITDA of $9.4 million versus a first half loss of $2 million. The operational and optimization and key capability focus within the business continues to achieve results. This discipline focus will continue in FY '26, where we expect further upside from existing operations will be derived. Key insurance customer relationships continue to improve and strengthen. The business will focus on network optimization, including investment in vehicle repair capacity, team capability and customer experience. In addition, it will -- we will seek strategic growth where opportunity, capability and capacity are aligned. Moving on to Slide 7, our Wales heavy business. Wales heavy vehicle continued to grow and deliver strong results, with the normalized pre-AASB 16 EBITDA of $10.5 million, up $2.5 million from FY '24. Wales has a strong and growing customer base and now operates from 9 repair locations with the acquisition of the Darwin business in May 2025. Revenue has increased $4.1 million to $77.9 million, an increase of 5.6% year-on-year. Optimization and capacity improvement projects have delivered ahead of expectations and with both Adelaide and Newcastle sites outperforming. In addition, the Wales Perth project was completed in the second half of the financial year. The business continues to experience strong work provision from key insurer and transport fleet partners with increased throughput, a very pleasing result. Slide 8, looking at our Specialist and Prestige business. AMA Prestige site revenue and EBITDA were behind FY '24. Its financial performance was impacted by a lack of volume and a range of operational challenges with a revised key focus now in place to address and improve this position. This will remain a very high priority in FY '26, and we expect with a range of resetting initiatives, the financial performance of this part of the business will improve significantly. Our TechRight expansion continues with 5 new sites installed in FY '25, taking the group to 10 TechRight locations. Development and rightsizing plans for TechRight continues where appropriate. TrackRight, our mechanical business, had solid performance and further development is progressing. Work on optimizing the Queensland sites to continue with new sites opened in Victoria and WA in FY '25. These businesses all represent margin optimization and growth opportunities. However, growth will be pursued in an orderly and structured manner with the same guiding principles where opportunity, capability and capacity are aligned. Now turning to Slide 9, the ACM Parts business. ACM Parts business continues to improve its underlying performance and has done so on strong revenue growth. Revenue was up 17.5% on FY '24. Excluding the $4 million increase in inventory provision, ACM achieved a breakeven result in the second half of FY '25 and was $3.8 million -- was up $3.8 million for the full year versus the prior year. The Board continues to work towards a range of possible outcomes whilst the business continues to concentrate on improving its operational and financial performance. Key initiatives are currently progressing. And when complete, will allow an outcome for this business. I will now hand you over to Dom to take you through the group financials.

Thanks, Ray, and good morning, everyone. Slide 11 is a summary of the FY '25 financial performance, which where FY '25 includes the financial results of ACM Parts. In accordance with accounting standards, the ACM Parts business has been reincluded within the overall AMA Group results. The financial performance is presented on a post-AASB 16 basis below EBITDA. However, we have included a supplementary analysis on Slide 19 which provides a comparison of FY '25 results on a pre- and post-AASB 16 basis. As Ray has outlined, our FY '25 financial performance was a continued improvement on the FY '24 results, with revenues up $80.6 million or 8.6% on to $1,013.7 million and normalized pre-AASB 16 EBITDA of $62.6 million up $17.3 million or 38.4% on FY '24. This reflected an EBITDA margin improvement from 4.9% in FY '24 to 6.2% in FY '25. If we look at purely our core Vehicle Collision Repair businesses, our revenue in FY '25 was $968.7 million and the EBITDA percentage margin grew from 5.6% in FY '24 to 6.9% in FY '25. This uplift was largely driven by the continued operational performance of our Capital SMART and Wales businesses, together with the recovery of our AMA Collision business, particularly in the second half of the financial year, where it produced an EBITDA pre-AASB 16 of $9.4 million versus a loss of $2 million in the first half of the financial year. Finance costs in total were up $2.3 million for the financial year, $1.5 million in relation to our leases and $0.8 million on other financing facilities. However, within our finance costs -- other finance costs, it included $3 million associated with the early redemption in March '25 of our $50 million of our convertible notes and the associated unwinding of the discount associated with them and $3.7 million in relation to the write-off of up-front borrowing costs once we complete the refinance in February '25. These up-front costs related to previous refinance activities, including the extension of facilities that took place in July 2024. In FY '25, we started to incur an income tax expense, which arose from the taxable income position of our Capital SMART tax consolidated group. This resulted in a $5.1 million movement in the income tax expense line from the previous financial year. The normalization we've called out to FY '25 by $3.5 million relates to a legal settlement line incurred in the first half of the financial year, relating to an earn-out of an acquisition that took place in 2018. Turning to Slide 12 and the summary position. We ended the financial year with net debt of $17.7 million, a significant reduction 30 June 2024 balance of $143.9 million. This was predominantly due to the $125 million equity raise that completed in August 2024. The proceeds of which were used to repay $53.8 million in senior debt in August '24 and the $50 million of convertible notes in March 2025. The remainder of the improvement in the net debt position was due to our strong EBITDA performance, together with an improvement in our trade working capital position due to the stronger balance sheet position the group has now to negotiate better terms with us. With this stronger balance sheet position, the company was able to refinance $110 million of its debt facilities for a 3-year period to February 2028 at significantly improved interest rates and conditions. The 3-year term of the debt facility resulted in the classification of this step from current liabilities to noncurrent liabilities. The majority of the remaining net movements that you'll see in the balance sheet results from the reclassification of ACM Parts from being listed as an asset held for sale to its various specific balance sheet classifications. Now to Slide 13. The group had positive operating cash flows of $44.1 million for FY '25 once the principal elements of lease payments into account, which is a substantial improvement of $33.6 million, an increase of 37.9% from FY '24. This was driven by the group's stronger EBITDA and improved cash management, resulting from the improved credit terms the company was able to obtain from its suppliers. In turn, this then resulted in a reduction of net interest paid from $39 million in FY '24 to $33.8 million in FY '25. Improved terms within these debt facilities allows the company to spend more on capital expenditure than had previously been planned, in part as a catch-up on productive assets that have been underspent on in previous financial years due to our cash constraints. This resulted in our capital expenditure payments being $30.5 million in FY '25 versus $16.4 million in FY '24. The remaining movements within the cash flow mainly relates to the equity placement and debt refinance that has already been discussed. Turning to Slide 14. Normalized corporate costs were $1.2 million higher than the prior year, predominantly due to the costs incurred in relation to international recruitment of $2 million. These costs were partly offset by various cost reduction initiatives. I'll now hand back to Ray.

Thank you, Dom. Now to turn to Slide 16 and the outlook for this year. AMA Group is well progressed on the journey of achieving a pre-AASB 16 EBITDA percentage of 10% within our core vehicle collision repair businesses in the forthcoming years. Capital SMART is expecting an underlying comparable result in FY '26 with some rationalization in the existing network, partially offset by a key focus on a specialized and value-added activities. Assisting this will be further development of high-performing, highly capable teams. The business will complement this with growth of 3 to 4 sites by expansion or new sites in alignment with our customer needs. AMA Collision is well progressed through its transitional change program with further operational capability improvements being implemented. We expect the second half run rate to be more reflective of the FY '26 result for the business. Wales will maintain its current EBITDA percentage margin performance level on steady underlying revenue growth The Specialist business will see a reset in the Prestige operational parameters and focus, and the TechRight and TrackRight businesses will continue to be developed where opportunity, capability and capacity are aligned. With the ACM Parts business, we will execute these key initiatives to enable an appropriate industry outcome. Strategic growth in all core businesses will be pursued where opportunity, capability and capacity are aligned via greenfield, brownfield and acquisition. We are targeting 5,000 vehicle repairs per week and will further develop high-performing, highly capable teams. At our November Annual General Meeting, we will propose a 1 for 10 share consolidation. We are doing this to bring a number of shares on issue down from $4.78 billion to $478 million, a more manageable number. For the FY '26 financial year, we are expecting a normalized pre-AASB 16 EBITDA to be in the range of $70 million to $75 million. I will now gladly take any questions. Please note that you may submit your questions through the webcast facility.

[Operator Instructions] The first phone question comes from Chris Savage from Bell Potter.

Dom, probably more questions for you. You called out the CapEx increase in '25, which was a bit of a catch-up. Does that mean the level will come back in '26? Or will it be maintained?

We actually think it will be the further catch-up to come. And when you combine that with our growth profile and new sites, it will actually grow this year. But when you incorporated with the cash flow -- operating cash flow we expect to generate in the FY '26 year, we'll still have positive free cash flow. So we're seeing that CapEx number approach $40 million for the FY '26. But as I said, we still see a positive free cash flow number coming from it because of our strong EBITDA cash flow that we'll generate.

And will the catch-up then be completed this year and will fall back after that?

Yes.

Okay. And you also called out, Dom, that the corporate expenses or overheads went up partly due to international recruitment. So does that level fall back? Or again, is it maintained in '26?

No. We think it will start to come back.

Okay. And maybe more one for Ray. I know you sort of highlighted you got a couple of potential developments with ACM. Are you able to elaborate on what they are?

Not in any real detail. Look, Chris, there's a lot going on. Coming in 6 months now and understanding a range of things, there are a couple of fundamental pieces in that business that need to be different for it to be relative to what we're going to do. So look, when we talk about some key initiatives that there are some transitional areas of improvement that just need to be right. We're doing a lot of work in rightsizing and setting up the reclaim space. We're doing a fair bit of work in our ability to catalog and interpret parts properly. And we've got some pretty good opportunities in the consumable space. So -- and there are a couple of conversations afoot, but I'm far more comfortable with where we are operationally and I see a better future. Though I'm not going to sit here and say that have our views changed. I don't believe we're the rightful owner, but I certainly believe we've got some better work to do that's going to drive a better outcome. Looking backwards, it's easy to say in hindsight, but I don't think we were quite ready to put the business on the market when we did, but we did, and now we're working through it properly.

Okay. So maybe I'll phrase it a bit differently, what sort of time frame could we expect an outcome there?

I don't actually know, but I think we'll be in a much better position this year. And would I like to see something done within the next 12 months? It certainly wouldn't necessarily the target.

The next phone question comes from Jared Gelsomino from Morgans.

Maybe just a follow-up question on just the corporate costs. I mean, just the fourth quarter was obviously a bit of a step-up. Just I might have missed the answer before, but can you maybe just elaborate on sort of that sort of the run rate or what was in that and how we should be thinking about '26?

Jared, that fourth quarter is where we took up that additional hit, majority of that additional hit of that $2 million for the recruitment costs. So that's kind of the run rate.

Yes. Okay. No, that's clear. And just on the sort of the headcount, I mean, sort of the step at the sort of 5,000, can you maybe just split out sort of how much is that adding heads in efficiencies and new sites you've added?