GenusPlus Group Ltd (GNP) Earnings Call Transcript

Welcome, everyone. GenusPlus Presentation for Financial Year '25. We have Damian Wright, CFO; and David Riches, Managing Director. Today, we're just updating the market from the numbers we put out last night and give everyone an update on where GenusPlus is. First of all, we've had a fantastic year. We couldn't be prouder, I suppose, take a second step back in time. But as a Managing Director, we've really put out a good season, and it's a really call out to all of the Genus team for their hard work throughout the year, some 3- and 4-year strategy sort of really came off this year with some heavy lifting through the services and Energy and Engineering segment, which used to be called GIS. We saw those 2 areas really power on through the season and obviously, our Infrastructure segment continue to dominate with contract wins over the last 6 to 12 months, a record revenue of $750-odd million, certainly no small business today. Really, really, really strong result in the EBITDA section as we saw that come through and NPAT was again a very strong result. Net cash was up. Our cash balance is up, and we've obviously been able to really convert the order book from the tender pipeline over the 12-month period. We've seen that through some of the contract wins we've announced. I'll go through them in a bit more detail, but we've got the order book page there, where we can show you how we've backed up the tendering as well. But I think overall, we really need to take a second to really thank the wider Genus team and thank everyone's support from the market throughout the year as well. On behalf of the Board and myself, we just couldn't be in a prouder position with what we're leaving today. I will give a snapshot into the segments themselves. So another strong result from infrastructure. Infrastructure is a power distribution involved in rewiring the nation and all sorts of connection. We do everything from maintaining a distribution power pole at the front of your house to building HumeLink, which is a major transmission line feeding Snowy 2 and anything in between. Infrastructure welcomed an acquisition this year or a start-up into rail, so we can start to look at how we -- there's power lines and power infrastructure running down the road and through the suburbs, power infrastructure and comms infrastructure running along the rail. So we're widening our infrastructure into new ground, but certainly a very strong result from infrastructure and yet to really see material growth out of those larger projects that we've been announcing over the last couple of years. This is more organic, in my opinion to -- we still that step change is probably still on the horizon. We did see some revenue come through from HumeLink and Clean Energy North and the design component of TasNetworks, some of the larger projects that sits in infrastructure, but I don't think it's at a material size yet where we've seen that step change. Energy & Engineering, which used to be our GIS segment, we've rebranded that through a couple of acquisitions this year and the fact that we did buy an electrical company 4 or 5 years ago called ECM, where it was predominantly more E&I electrical work. We sort of converted that business more into substations and renewable assets and BESS and solar, et cetera. In doing the acquisitions of CommTel and Partum, we now have a fully rounded service offering, where we can take control of the whole project and the life cycle of the project and now look towards how does the maintenance side and the recurring work start to come in alongside those projects, but an outstanding result from GIS or Energy and Engineering. We did a lot of heavy lifting this year, wound off a couple of projects in the second half of that -- wound off some of the projects in the second half, where we saw some of the contingency come through from those projects. So well-run projects and a very strong effort from Energy and Engineering. Services, Services used to be cold comms for us. It's always traded as Genus services, and we always had the plan to widen out the services offering in this segment. That's been a 3- or 4-year journey as we step through rebuilding Tandem that we bought out of administration and comms business that had quite a significant footprint of comms at one point in Tandem's life. We also had a very small organic comms business. So we joined those 2 together a few years back and had some real tough times rebuilding that. And you can clearly see now we have got through that. I told everyone it was worth doing and now it is. It's had a very strong result. And throughout that year, we sort of a 2- or 3-year strategy was met when we bolted on the asset management and the vegetation management to our service area. So now we have a multiple services offering. We still want to strive to be a bigger business in this area. And we still -- our M&A outlook will still look towards the services area for opportunities to bolt on further service offering, but a real strong result from all 3 segments. Some of the highlights, just to recap on the year, TasNetworks in infrastructure, we're very, very proud to be working alongside TasNetworks in Tasmania on the Northwest project. It's a significant project in our own right. We've got -- we're through the design or we're getting through the design phase of that project currently. It's just -- it's a very large project in our own right and a very good customer with TasNetworks. So we're very, very happy to have secured this project. We worked hard for a long time to secure it, and we have a team down in Tasmania delivering it. The Ausgrid Hunter Central Coast job, again, stand out here. We were very, very small when we went into Sydney 3 or 4 years ago for us to build the confidence in Ausgrid for them to award us a large project like this. It goes to show the hard work that goes into building a national footprint. And likewise, the support of our home ground Western Power, we've done a lot of work with Western Power over the years and to see us come out and win a significant piece of the Clean Energy North Link for Western Power, as well as you see throughout the year, we backed up our maintenance panel work with $65-odd million coming through there. So some real standout project wins for infrastructure. The acquisition of MGC in infrastructure. So again, as I said before, just widening out a little bit and seeing where we can pull those synergies from power transmission and distribution service offering into the rail power sector. I'm sure your eyes will see some of the infrastructure that sits along the railway line, some of the infrastructure that sits along a road or in a [ paddock ], very similar skill set. So we're looking to see on how we can merge those 2 sorts of areas together and get the synergies out of the trades both from a rail and a transmission and distribution point of view. Energy and Engineering, some callouts there. We won another best project with Atmos and very happy to be working alongside Atmos as well as Alinta, another best project with Alinta. These projects will back up all the work we've done in Kwinana and the battery projects or BESS projects we've already completed. So very, very happy. We've got a strong team that's delivered these BESS projects over the last couple of years, and they've moved into these next projects to continue that. But the real -- again, the real strategy has been for our GIS business was how do we round in this business out over the last couple of years. How do we turn it into business that just wins the best or does some electrical work to a full round of servicing and throughout the year, Partum Engineering has done a lot of work with us in the past, and that made sense to do that acquisition. And then opportunistically, we ran into CommTel throughout the year and CommTel found itself in administration, and we pulled it out of administration. But these 2 acquisitions was timing of the essence. This fully rounds energy and engineering off. We've got control of our destiny on the projects from a design and a full life cycle point of view and can now offer that maintenance and operation type work into the future. It rounds off the segment, but it also rounds off the fact that we're looking for repeatable type and some softer work to come up alongside some of the harder bigger projects in the energy world or the renewable world. So it also rounds off more from a doing point of view and allowing us to have that softer sort of recurring type work through the engineering when they work on FEED studies and general works for some of our customers. Services segment to back up our NBN contract throughout the year was fantastic. We've been working for 3 or 4 years to become an NBN partner. We've backed that up now with 2 significant contract wins, and this is a second one coming off the back of the first one. We also integrated the vegetation management business or 2 businesses into this as a third service offering. And obviously, our asset management for our power network still sits in services, giving 3 -- really clear service offerings. The vegetation management and asset management is still focused on our power networks. So we need to broaden our horizon there into other networks and asset management and veg control, as well as continue to work on our long-term relationship with Telstra and nbn from a comms side. Not to take away from some of those large projects we saw this year. We're certainly very, very happy to be a part of the transition in Australia and probably one of the main contractors in that realm. But we're certainly not forgetting where we came from. We're certainly not forgetting about balance. We're certainly not forgetting about discipline. We started off some of the names you see on this page is some really big authorities across the country, which rely on us on an everyday basis to fix, maintain, work with help on their assets. We want to keep the business balanced between long-term panels, small sort of recurring type projects, $5 million to $20 million mark, capital expansions and rebuilds and et cetera, et cetera, in the grids we work on. But this page certainly points out the fact that we're not forgetting about long-term contracts and long-term recurring work and really working with these customers on this page to work into the future. Obviously, workforce, Australia is very busy at the moment and finding people is tough, but we've got 1,500-odd people working with us now. Our apprenticeship and trainee scheme, we put a lot of effort into that throughout the year on how to streamline our visa strategy, our apprenticeship and traineeships through engineering and that. We've had a really good look at that throughout the year. I'm expecting the numbers in the apprenticeship and trainees to increase over time. We've been working -- we have got a team of people working with the general management level to look at their balance and look at where we can train people. There is a rewiring the nation and renewable transition coming to Australia, and we need people to do that. So we're certainly not sitting on our hands here. We're spending money. We're trying to get in front of the curve. I'm not sure what the other competitors are doing in this space, but we're not going to sit on our hands. We're going to try and be in front of the curve. And if that costs a little bit of money to get there at the start, then we're going to need them for the end. So we're trying to be, again, disciplined and balanced with our apprenticeship and trainees. Obviously, our injury statistics, we are -- the #1 thing in our game is to get everyone home safe at night. That's the main thing. We -- our workforce, one from a respect level is without our workforce, we're nothing and then obviously, getting our workforce home every night. So -- we've been working on our safety system and safety stats for a very long time here. It's a founder-led business by myself. So I know from the very start of the business. We can always make some more money on another job, but we can't rebuild a person if we hurt them. So we're not letting go of our safety standard. We're going to push hard to continue to have the best safety record and create zero harm wherever we can for the future. And sustainability, we have taken all our data over the last couple of years. So we're even looking as a part of the Corps Act, we need to step up and look at our transition plan. We haven't done 0 here either. We sort of saw this coming. Damian and his team saw this coming over the last couple of years. So we've got all the data we need now to work into the future to follow the Corps Act. That's a bit of the doing. Now if we look at the outlook, I was -- I knew it. We've been working very hard at tendering and we've obviously increased the size of our pre-contract and tender teams across all 3 segments. But to convert the work we converted this year and back it up with a tender pipeline is a -- is a sheer -- shows you the effort that we've -- from business development, George, the other director here at the business runs the relationships and business development side of the business. George has been out in front finding those next opportunities and then the pre-contract team has been picking them up and pricing them. And it all gets a bit overwhelming sometimes that we price the next job, but we've been able to increase those teams and keep them balanced, so that we are able to tender that pipeline. I think that's a very, very strong point in the presentation in my book and allows us to give guidance for next year, which is in line with what we've been aiming at the 20% growth for a little while, and we'll see how that goes over the next few years. But very happy to convert some of these significant projects and it's the step change that Genus has been waiting for, for probably up to 5 years, to be honest. So again, as talked about, we're not letting go of our recurring revenue. Our recurring revenue continues to grow, and we've even cleaned up our segments a little bit this year and nailed down a few of the strategies we've been working on as talked about so that we set that up to continue to grow from small services type work, whether it's inspecting a power pole or trimming a tree branch to building a facility to fixing and maintaining a power or railway line, that's what we want to do. The opportunities in front of us behind that tendered book, I think there's enough going on out there that everyone would read on a daily basis. There's a raft of opportunities behind that tendered pipeline for Genus. If we printed out our system that tells us all the phone calls and things we get, it's quite a large number. So we're very confident that, that tendered pipeline is going to continue. We can't tell exactly how it works because we tender them at different months and different days of the year. But the one thing is there's a raft of opportunities through BESS solar substations. We've still got 0 wind in our offering. We're certainly trying to look at wind. And if we start to look at Genus more holistically and say, well, what's next for Genus, only 58% of our revenue this year came from WA. So still very, very strong in our home state, but the larger East Coast markets are still very much open for Genus, and we need to continue to convert that national strategy. Genus will also -- we're going to keep looking at M&A opportunities. We certainly did a couple of them this year, and we think they are all pretty smart. So we'll continue to look for smart opportunities when it comes to M&A [Technical Difficulty] performance, I'll skip through that. Everyone can have a look at that at [ their ] leisure. Jump into a little bit more of the numbers. So as talked about record revenue of $751 million, record EBITDA. We're very happy with our EBITDA and in PAT lines this year, we converted quite well. Strong result across everyone in our opinion. Normalizations, we obviously did 4 or 5 acquisitions through the year. So the legal and advisory costs are there as a normalization. The ECM claims, we took on ECM 4 or 5 years ago that had some claims we need to clean up for the administrator. That's come to an end pretty much now. So we shouldn't see that any more moving forward and $2 million worth of amortization still coming through from Tandem and Pole Foundations Australia, which is pretty normal. The revenue from the acquisitions produced $90 million for us this year out of those acquisitions we did and $7.9 million in EBITDA. So if we take that off the $67 million, it's still a fantastic result from the organic business. Very, very strong year across the organic business as well. Strong cash balance, $160 million, net cash of $113.5 million. We worked with our bank guarantee and security bond providers throughout the year and gained extensions there. That's a forever moving target. We continue to talk to those facility providers every 3 to 6 months, and we'll continue to extend those facilities as the growth of the business comes. And obviously, we -- a fully franked dividend will be paid in October of $0.036. Cash flow summary. So we cash funded $27 million of acquisitions and debt funded $6.5 million as well throughout the year. The forecast for the CapEx will be $30 million again with some of the growth we're seeing through TasNetworks and Clean Energy North. We are monitoring the CapEx and just -- but some of this stuff is very long lead item materials and specialized equipment that we have to have to build the job. So we are being balanced and watching our CapEx. But with the growth of the business, we do need to make sure we've got enough gear to build the jobs, and we've got a fleet team working on that all the time. But we look at infrastructure, so another strong year from infrastructure and maybe just dropping into some of these projects. HumeLink has commenced enabling work. So that's a great effort. We've been waiting for HumeLink to start, obviously, done a lot of design and preordering materials, et cetera, and testing materials over the last year to 2 years. We now have started some enabling works on the ground. So HumeLink is working towards a full ramp-up, and we hope to see that in the next few months or this side of Christmas that we've ramped right up and into the main works. TasNetworks, we were awarded a $40-odd million preworks design. We're working through that. We've got 2 more target dates to hit for that, but we're on track to get the design finished. We're at 90% around January. The teams down in Tassie [ were local ] to Tassie now. The good thing was we were doing some distribution maintenance in Tassie. So we did have a small team already in Tassie working at TasNetworks. So good to see Genus now really pushing in there and being a part of the local industry in [ Tas ] and working with local suppliers on how we're going to deliver this job for TasNetworks. Awarded the contract with Ausgrid. This may be a bit smaller contract than some of the other ones we released, but it's a very strong contract. We went into Queensland in probably 6, 7 years ago and had a very good run through the distribution side in Queensland. We're yet to see significant transmission work come out of Queensland. So that's definitely a growth piece for infrastructure. But for us to go into Sydney with a really small acquisition, it was COVID at that time, El Nino, that rain came. It was very challenging getting into Sydney to start with. and some of the senior management had to relocate for a period of time into Sydney to lead the business through. But to come out of that a couple of seasons later and be chosen on a plus $100 million type job, I'm just -- I'm very proud of the Sydney team. I think they've done a good job. It's a tough market. It's a big market, but there's plenty of people there and plenty of competition. So to see us push our way into the Sydney market and see one of these first big jobs be awarded to us, it's a fantastic effort alongside HumeLink, which is obviously a major job in the state of New South Wales. And that talks to one of the panels we won throughout the year with Transgrid one of the transmission panels. That's sort of the first main transmission panel, where we'll see repeatable type sort of $5 million and $10 million projects come through that panel, whether it's maintenance on a tower or maintenance here or a rebuild or one of those types of things we do. We've been working towards getting one of those transmission panels for the best part of 4 years. So we're starting to see that hard work really come off now, and we appreciate this size customer of Transgrid to pick Genus on their panel is a great effort from all. Awarded to Western Power. So Western Power Clean Energy Link North is north of Perth City. It starts on the edges of the city and works its way out to Eneabba, which is about 3 hours north of Perth, but quite a common network we've worked on in the past. Works have started. We've got boots on ground probably 8, 10 weeks ago. So we're up and running on this project now. Again, not a lot of material dollars into last year's, but stay tuned. This will start to come into this year. Again, we've talked about MGC, but we welcome the rail. We really want to see if infrastructure can step outside of transmission distribution a little bit and push its way into a few other areas of similar nature. That's been the strategy for infrastructure. So to nail down the acquisition into the rail and local business here in Perth and founder-led by a couple of gentlemen, very, very similar in culture to where Genus was some years ago. so far, so good. We're 6 months into integration. Everything is looking good and MGC picked up a large project in -- with Arc infrastructure. So we'll start to help the founders of MGC and start to open up rail opportunities in infrastructure. When we look at the market drivers for infrastructure, as talked about, we do transmission and distribution nationally. It's pretty hard not to see this. Rewiring the nation has to happen for the transition in some capacity, and I won't speak for the government. But there here and now, I think it was at a stage a couple of years ago, where everyone was like what is rewiring the nation. Well, some of the projects we're announcing actually gives you a look at that. The main job we had to do was be at the forefront and actually be there to be counted on the day. And we've really -- Genus has worked for them to get there. And not to keep repeating myself on how hard we work. That's not what it's about. We get paid to do that. We all understand that. But just positioning yourself sometimes in such a hot market and a large market has been the -- we have to get that right. And I think we've positioned Genus well. We do what we say we're going to do. We push hard. We've got a tough team across all 3 segments that are really good people. So 60-odd projects going to application approval. All of those projects are going to -- near all of them will somehow or another affect the backbone in some way, which is the backbone of the energy grid is the rewiring the nation. But all of those projects will require some sort of connection or feed or work on the grid to allow them to come on to line. And over the last 18 months, we've positioned 2 project teams in West and East to look at that connection work. So we've got our teams on our big jobs like Clean Energy North and HumeLink. But we've got business as usual type teams in East and West now settled down. They've got the gear, they need yards, et cetera, to take on some of these connections of these approvals that we're seeing come through. And as talked about previously, 10,000 kilometers of transmission project is an enormous amount of work. Like we would -- if you can build 100,000 to 150,000 of decent transmission line a year with a team, that's a very -- that's a good effort. So it shows you the scale that we'll need to be able to do 10,000 kilometers. But the momentum is coming. It's been probably a little bit slower than some people would have wanted even outside of us. But there is a lot of environmental approvals and sensitivity with the environment that does need to be respected as a contractor or a local contractor here in Australia, we want those approvals in place, and we want that done properly and then there's a plan that we can follow to build the job. So it does take a little bit sometimes to get those clearances, but it hasn't affected us too much, and we'll just keep putting those -- as we learn more about those approval stages, we can put them into our forecasting and keep the market informed. Energy and Engineering, formally known as GIS, we had a fantastic season. Energy and Engineering has done some serious heavy lifting for the year. Kevin and David Fyfe are fairly -- are really into this segment for us. And we saw some projects come to a finish off throughout that second half and they managed the -- they have managed the contract very, very well, good discipline, good behavior, spread to across East and West. This business has been through from an administration process 5 years ago was an electrical business, where we bought ECM and had to finish off some claims for the administrations, which I mentioned earlier, to building a business of this strength. That's taken a lot of hard work and -- but it's been really, really enjoyable. This segment has been really enjoyable to watch develop and grow. The opportunities for this business is endless, anything from a charger in a mine site to a solar farm, one of our bespoke customers to a BESS, anywhere across the country. But still have some new places. We've got a strategy of 3 or 4 new things we want to bring into this segment, still plenty more to look at and go and find. But to become a constructor of choice in the BESS and the types of projects we've been announcing and doing over the last couple of years is -- and to build a business of this strength from a $1.6 million acquisition, it's a strong value in my opinion. But again, to pick out a few of those highlights, we were a bit quiet on the BESS coming out of Kwinana. We missed a couple. So we had to get our expectations realigned, and we got that sorted throughout the year and are now back up in front winning jobs like Atmos and Alinta. The acquisition of Partum and CommTel, as I talked about this it's all about how do you balance and have discipline as a contractor. And you need your small work and you need a big work in my opinion, that's how we've done it here at Genus. But it's very hard to find when you're out there building big BESS facilities, how do you find something small. So with Partum and CommTel joining this segment, CommTel and Partum have a number of panels that they sit on as an engineering panels where it's softer type work and do and charge type work. So not only I think there's 2 very key strategies here. We've rounded off our offering. We're not just send the builder out there to [indiscernible] [ BESS in ] and get it done. We now have control of the life cycle of the project like we have done in infrastructure for many years. And we've rounded off that, that do and charge type work. There'd be 300-odd engineers between these 2 businesses, which is no small feat to put 300 engineers together. So a strong year from Energy and Engineering, and we look forward to seeing what's next. If we look at some of the drivers, first of all, with some of the new stuff that's coming in around the renewable world, you need to be trusted. So first, you got to do it, then you've got to work with value for your customer, and then you've got to have a proven track record. So there's endless amounts of opportunity. These guys see a lot of projects in that $50 million to $100 million to $200 million mark. and they rotate through. Not to say there's not the smaller ones. We do a lot of mining services work and shutdown work and now we're even starting to see some charges or large charges for some of our customers come through this business. But there's still -- we've done a lot of gas work in the past as well, and there'll have to be a transition away from the coal and the dirty power stations, I suppose, into the cleaner power stations. So there's still a raft of electrical work to go and get in that space, too. And our comms segment, which it always traded as Genus services. So this was always -- this has probably been one of the oldest strategies that we've had for a long time. But infrastructure took a lot of our time to build and was always kicking gold. So it left the port services business without the attention probably for a couple of years, some years back. But it was a dream of starting to look after the veg in probably 2018, '19 in the business, we were like why are we building these power lines or fixing these power lines or maintaining grids and we're not trimming a tree. It seems quite almost bizarre that we both go to the one pole. So we searched and searched and searched for a tree opportunity. And over this last year or so, we've been able to find a couple of those opportunities. So we welcome Geographe Tree and Classic Tree Services into the Genus Group. We're working through the integration of them. But -- and we've always been very part of the energy world and the transmission and distribution grid world. But I think throughout the acquisition and throughout the year, we widened our look like we're not -- we haven't -- we have just bought a tree management business, but what else is there in vegetation management and environmental services that will help Genus grow into a larger organization as time comes. And I think we had linkers on to start with like it's a very big world, the enviro world. So we'll take in what we know, which is trimming trees and working with local shires councils and power authorities. But I think we need to stay tuned on the vegetation management enviro service. I think we've got -- that's a service offering in our service area now that probably can be widened out a fair bit. In asset management, in our Services segment, we've, again, done a lot of work over the last 4 or 5 years in asset management, pole inspecting and prolonging the life of the asset for our customer and working with our customers to -- for the best solution to keep their network up and running. Again, saturated in the power space or heavily focused on the power space, but how do we widen that asset management footprint out to other areas, and of course, building on our long-term relationships with NBN and Telstra in the comm space. So lots to do in the services space, lots more to go, hard to win long-term panels. It takes a while to win them and get a part of them. But it's -- we have the -- we know what the DNA of this business is, and it might -- the other 2 segments have the ability to win these big shining light projects, and we like that. But we're not forgetting about this business, and we'll probably aim some of our M&A strategy into here. We feel we may require another pillar or another 2 pillars to really round off that 3 to 5 services offerings. We're not sure on that yet, but we certainly know that there's a chance we need 1 or 2 more. So we may focus some of our M&A into this area and look to bolt on those services, whilst continuing to grow the 3 we already have. Some of the drivers in this area, I think we all know how big the telecommunication market is, and we're quite a small -- we're not the smallest player, but we're certainly not the largest player out there. So let's keep penetrating that market and working with that. If NBN and Telstra will really get to the bottom of where our partnership sits with those guys, look to other areas of more private communication type work, expand on our black spot contracts we already have and look to -- we've done a lot of rollout work for NBN. So how do we work back into that more services side of NBN, but really, that's a strategy of continuous growth with our already customers. The 2 other segments of asset management and environmental management, I think they are very exciting and how we move through the Australian market with those 2. And again, the strategy of M&A as well. So future looks good. I'll pause there and go if there's any questions.

Dave, can you hear me? It's Gav here. Cracking numbers. Just on cash flow, clearly a highlight. Just thinking about that now for a couple of years, you've converted cash sort of well above EBITDA, getting paid in advance in some of those big projects. Do we need -- how do we think about how that might sort of result in cash conversion in '26? Does it just unwind steadily? Maybe, Damian, you've got a view on this, too.

Yes. I'll answer that. I'll try my best. Cash is challenging to try and forecast when you're going to get paid on customers and contracts. But what we're experiencing is, as you grow, that cash conversion is actually quite strong. And given we do forecast to continue to grow, we don't see unwinding rapidly. From a modeling perspective, if people are looking at that, it probably safe to assume sort of a 80% to 90% cash conversion would be probably the best place to start. That's how we look at it. But if it's better than that, that's great. It's not going to be significantly worse than that, I wouldn't have expected.

Yes. Nothing wrong with that. And just another one, just infrastructure. It looks like you threw some costs at that business in front of the ramp-up that hasn't sort of, as you mentioned, David, taken off quite yet. How do we think about margins as that ramp-up sort of progresses?