Saunders International Limited (SND) Earnings Call Transcript

Good afternoon, everyone, and thank you for joining today's investor webinar. I'd like to begin by acknowledging the traditional custodians of the lands on which we meet today and pay my respects to their elders past and present. My name is Trevor Walker. I'm the General Manager of Growth and Innovation at Saunders, and I'll be moderating today's session. I'm pleased to be joined by our Managing Director and Chief Executive Officer, Mark Benson, along with Alex Dunne, our Chief Financial Officer; Angelo De Angelis, our Chief Operating Officer; and Manish Pancholi, Executive Vice President, Saunders Aqua Metro. We'll begin with a short presentation from the team covering our FY '25 results and key highlights. After the presentation, we'll move into a Q&A session. [Operator Instructions] And while we'll do our best to address as many as possible, please understand that if a question is price sensitive or outside today's scope, we may not be able to provide a response. With that, I'll hand over to Mark to take us through today's presentation.

Sorry, something's come up on the screen. We always love technology here. There we go. Thanks, Trevor, and hello, everyone, and thank you for joining today's results webinar. Before I begin, I'd like to welcome Manish Pancholi and the Aqua Metro team to the Saunders Group and thank everyone for their time today. Both Saunders and Aqua Metro teams are excited on our future and this strategic coupling. Today, I'm pleased to present Saunders' FY '25 financial results and share an update on our performance, our strategic direction, growth opportunities and outlook for the year ahead. Saunders is a multidisciplinary Australian company delivering engineering, construction and industrial asset and maintenance services across the complete asset life cycle. Proudly Australian owned and operated since 1951 and listed on the ASX since 2007, our portfolio blends traditional construction contracts with annuity-style earnings. We serve clients across our key markets, which are defense and government, water, energy and resources and industrial, partnering with some of the world's largest energy companies and Tier 1 contractors and all levels of government. Our core capabilities include: fluid storage and transfer infrastructure; structural, mechanical and piping; industrial automation and electrical; civil and water infrastructure; and industrial asset services and maintenance. I've got something come up on the screen here, excuse me for one second. We have a national footprint with 11 offices across Australia, including operations in Papua New Guinea and New Zealand. Our Saunders One Team now includes over 580 employees, including the recent acquisition of Aqua Metro. With 72 projects currently in delivery, we're well positioned to meet diverse client needs while maintaining our high standards of safety and quality. And the chart on the left shows our corporate milestones over the past decade, including acquisitions, market expansions and the first U.S. defense project, alongside a decade of consistent revenue growth, delivering a 10-year CAGR of 17%. On the right, you'll see our substantial shareholders, including the recent addition of the Ahrens Group to our register. FY '25 brought both opportunities and challenges. While unforeseen project delays and weather impacts have led to our FY '25 results falling short of achieving a sixth consecutive year of record growth, we remain confident in the company's future. Margin erosion during these periods reflected challenges in complex project delivery with cost pressures, scheduling impacts and a cost base set for higher revenue. In response to the FY '25 market environment, we have taken decisive steps to enhance our operational efficiency and reduce costs. In addition to having record levels of work-in-hand and pipeline value, the recent acquisition of Aqua Metro represents a strategic and significant milestone, enhancing our capabilities and accelerating our growth in the water sector. Supported by a solid financial foundation, a comprehensive service offering and a refocus on disciplined execution, we're now well positioned to deliver improved performance in the years ahead. Revenue was $214.5 million, which was down 0.7% on last year's record result. Our adjusted EBITDA was $9.3 million, down 56.3% on FY '24, reflecting project delays, weather impacts and reduced operating leverage. Adjusted NPAT was $3.2 million with an EPS of $0.0268. A key highlight was our record pipeline. The pipeline reached a record $4 billion as at the 30th of June 2025, double last year's level, supported by both organic growth and the acquisition of Aqua Metro. The Aqua Metro acquisition is a significant strategic milestone, expanding our capabilities in the water sector, strengthening our national reach and providing direct access to long-term utility contracts as well as Australia's most active and resilient infrastructure markets. I'll now hand over to Alex, our Chief Financial Officer, to walk us through the FY '25 results.

Thanks, Mark. I'll start off with some P&L highlights. In FY '25, revenue was $214.5 million, which was down less than 1% on last year with top line growth impacted by project delays and weather. The employee benefits expense increased 19%, reflecting a full year of Piping Solutions compared with 9 months in FY '24 and a cost base which was set for higher revenue. This led to an adjusted EBITDA decrease of 58% to $9.3 million, driven by cost pressures during complex project delivery and, as mentioned, the cost base set for higher revenue. This is on an adjusted basis, which excludes acquisition and integration costs. Our effective tax rate was 34.7%. This was impacted by nondeductible acquisition-related expenses, while adjusted earnings per share was $0.0268 compared with $0.0996 in FY '24 as a result of lower net profit after tax and an increase in the ordinary shares on issue due to equity consideration for acquisitions. Overall, while FY '25 earnings were affected by timing, weather and integration costs, our revenue base remains solid, and the group absorbed the impact of bringing together 2 acquisitions. Now looking at the balance sheet. We closed the year with a cash balance of $22.1 million, which was up on the prior year by $2.3 million, reflecting reduced working capital requirements and timing of cash flows. Contract assets decreased by 34% to $13.6 million driven by improved contract terms and lower revenue in the second half. We also saw a decrease in other financial liabilities following the payment of the Piping Solutions earnout and a reduction in our right-of-use assets due to lease runoff. Overall, net assets remained strong at $51.9 million, supported by a stronger cash position and lower liabilities compared to last year. On the cash flow summary, our operating cash flow was strong, coming in above adjusted EBITDA with a cash conversion rate of 171%, driven by improved working capital and timing of cash flows. Investing cash outflows of $6.3 million reflect the financial earnout payment for Piping Solutions and capital expenditure. Financing cash flows were primarily dividends, lease liability repayments and repayments on the insurance premium funding. We closed the year with $22.1 million in cash on hand, which was an increase of $2.3 million on FY '24. Now looking at some of the corporate highlights in FY '25. We launched a graduate program, promoted diversity and well-being, and we celebrated long-serving team members. Our employee engagement survey achieved a Net Promoter Score of 34, which was almost double the sector average. We recorded 0 LTIs and reduced our TRIFR by 34% to 4.91 and maintained our Office of the Federal Safety Commissioner low risk rating and ISO certifications. Our Together for Safety and Together for Quality programs continue to deliver for the business by driving accountability and uplifting standards. We completed our first Reflect RAP and strengthened our ESG reporting. And then in FY '26, we're on track to progress to an Innovate RAP, deepen First Nations engagement and expand modern slavery risk management. We recently announced the acquisition of Aqua Metro, which will expand our water infrastructure capability and expands our secured long-term utility contracts and strengthens our position in key growth markets. We are excited about what this will bring to FY '26 and beyond. I'll now hand back over to Mark.

Thanks, Alex. Our market outlook reflects strength across all 4 key sectors. In defense and government, spending is set to rise with acceleration expected late in FY '26. Our pipeline is $754 million, up 55%, supported by projects like HMAS Stirling and the Bunbury Hospital Central Energy Plan. In water, ongoing investment in security and climate resilience, along with the Aqua Metro acquisition, has driven exceptional growth. The pipeline is now $1.66 billion, up 519%, with major projects for Melbourne Water, Greater Western Water and Sydney Water. In energy, fuel security work remains strong, and the energy transition is creating new automation opportunities. The pipeline stands at $1.14 billion, up 39%, with projects from AGL, Quantem, Ampol and Mobil. In resources and industrial, record gold prices are driving demand for processing infrastructure. While sustainability goals open new opportunities, our pipeline here is $441 million, up 5.1%, including works for KCGM, Visy and Coogee Chemicals. Looking at our pipeline. At the 30th of June 2025, our pipeline reached $4 billion, up from $2 billion last year, driven by strong tendering activity and the addition of the Saunders Aqua Metro pipeline. Over the past 5 years, our pipeline has grown from $0.8 billion in FY '21 to today's record level with a solid portion already tendered. By market, it is well balanced: water at $1.66 billion, energy at $1.14 billion, defense and government at $754 million and resources and industrial at $441 million. Regionally, New South Wales leads now at 31%, followed by Victoria at 26%, WA now 16% and Queensland at 10%, with the rest of the spread across South Australia, Tasmania, Northern Territory and the Indo-Pacific. The diversity across sectors and regions underpins our resilience and supports long-term growth. Defense remains one of our most important growth markets. Despite continued delays in the fuels resilience program, we strengthened our position with active projects across the defense estate and annuity-style maintenance contracts. We now have the largest defense pipeline in our history. We short-listed on pending tenders across more than 20 bases and programs. Our national footprint positions us strongly for regional delivery, and we're focused on high-security, high-compliance scopes. Importantly, we're targeting long-term reoccurring revenue opportunities under the defense fuels resilience program and other strategic programs. Our pipeline also includes international U.S.-funded works in Japan and the Pacific. Over the next decade, national fuel infrastructure spend is forecast to be $3.7 billion to $4.8 billion, and around $2 billion of this we see as addressable for Saunders. So if we turn to our acquisition of Aqua Metro. Just as our long-term commitment in defense is now translating into momentum and our record pipeline, we're applying the same disciplined approach to accelerate growth in water and the Aqua Metro acquisition. The Aqua Metro acquisition has fast-tracked our expansion in the water sector, opening new opportunities and strengthening our national capability. Water is one of the fastest-growing markets, and Saunders Aqua Metro is central to that growth. I'll now give some detail of the Aqua Metro and the acquisition. Aqua Metro is a leading end-to-end partner for design, engineering and project delivery in the water industry with a strong presence of both -- across urban and regional Victoria. Their client-focused approach, long-term relationships and major utilities and government agencies along with positions on 4 major water authority panels provide direct access to a steady flow of opportunities. The business brings a diverse customer base that complements our own, a skilled workforce of over 100 people and a proven track record, delivering more than 300 projects with a strong recent growth. By combining Aqua Metro's specialist expertise with Saunders' national capability, we have significantly strengthened our water infrastructure offering, expanded our reach into key regions and unlocked synergies to drive growth. At July '25, Aqua Metro held an order book of $411 million and a pipeline exceeding $1.4 billion. For FY '26, Aqua Metro is forecasting revenue of $135 million and an EBITDA of $11 million with 96% of clients being government agencies. Saunders expects to complete the acquisition before the end of Q3. We will acquire Aqua Metro Pty Ltd and associated entities for up to $30 million. The total purchase price includes an initial payment of $18 million on completion, comprising of $11 million in cash and $7 million in Saunders shares, with the share component subject to a 12-month escrow period. The potential second installment will be payable based on Aqua Metro's EBIT performance during a 12-month earnout period commencing on the 1st of July 2025. This amount will be calculated as the average of FY '25 and FY '26 EBIT, multiplied by 4x and subject to a maximum earnout cap of $12 million. The acquisition is capital-light, highly complementary, underpinned by long-term program and framework agreements and is expected to be EPS accretive in FY '26. To share more about the business and its capabilities, I'll hand over to Manish Pancholi, former CEO of Aqua Metro and now our Executive Vice President of Saunders Aqua Metro.

Thank you, Mark, and good afternoon, everyone. This is my first interaction with you all, and I feel absolutely honored to be here representing Team Saunders Aqua Metro. I'm generally excited for this positive and strategic step for the company, our people and most importantly, for our clients. This acquisition brings together 2 highly aligned businesses with a shared commitment to excellence, innovation and service. The combined capabilities of both businesses will allow us to deliver expanded services to our clients Australia-wide. Over the next few minutes, I'll share some insights on Aqua Metro's capabilities, service offerings, key customers and Australia's water infrastructure outlook. Aqua Metro has built its reputation by delivering complex infrastructure projects successfully and fostering trusted long-term partnerships with our clients. We have delivered over 300-plus projects over the last 7 years, including treatment plants, pump stations, pipelines, storage tanks, civil and earthworks and plumbing services. Our service offerings include end-to-end contract and program management, engineering and construction, delivering turnkey solutions for our clients. We manage everything from procurement, planning, design through to delivery, commissioning and handover and all underpinned by robust governance systems and tools. If we talk about our key customers, our client base is built on long-term partnership with some of Victoria's leading water authorities such as Greater Western Water, Melbourne Water, South East Water and Yarra Valley Water. We deliver works as a principal contractor to these authorities under long-term framework and capital works program. We're also delivering design and construct capital projects for Veolia and Barwon Water. This long-term recurring style program of works provide consistent and reliable forecast delivery outlook and a lower risk profile. Our long-term partnerships on these programs help us to invest in our people, supply chain and the community, focusing on innovation, efficiency and delivering socioeconomical value. This is central to the growth we have achieved in this market. When it comes to core capabilities, Aqua Metro's core capabilities align perfectly with Saunders, allowing us to deliver critical water infrastructure from design and construction through to program management, technology solutions and ongoing maintenance. So what do we build? It's very diverse. Our capabilities include civil and earthworks. We build retarding basins, dams, spillways, water and wastewater treatment plants, pump stations, pipelines, water storages, small-scale solar and EV infrastructure, relining and plumbing services, all backed by a strong safety culture and governance framework. Now when you look at Australia's water and wastewater infrastructure sector, which is an annual $9 billion market projected to grow steadily through 2030, this growth is largely driven by population growth, aging infrastructure, climate resilience builds and a strong regulatory focus on efficiency. Together, these drivers create a strong and sustained project and program pipeline. Victoria's major water authorities collectively spend about $1.8 billion annually, 1/3 of which comes from Aqua Metro's client base being Melbourne Water, Greater Western Water, Yarra Valley and South East Water. This provides a great opportunity to optimize our existing customers to increase the revenue profile where we already have a footprint whilst expanding nationally. Along with the significant capital spend, major water authorities have net-zero pathways, creating opportunities in energy efficiency and low-carbon solutions. Through our technology partnerships for [ solar side ] sheds, state-of-the-art geopolymer relining solutions and PYROCO initiatives of treating biosolids, we are well positioned to add value to our customers' decarbonization strategy. As I expressed in my opening statement, we are excited to join Saunders. We're confident that the combined business will deliver enhanced value to clients, strong returns to the investors and meaningful contributions to the communities we serve. I look forward to working closely with Mark, Angelo, Alex and the wider Saunders team to enhance our service offering and accelerate our growth journey. With that, I'll hand over to Angelo, our Chief Operating Officer, to walk you through key projects in delivery and our broader operational performance. Thank you.

Thank you, Manish, and good afternoon, everyone. I'd like to walk you through some of the major projects that we secured during FY '25. In Kalgoorlie, Western Australia, we secured a $31.5 million mechanical infrastructure upgrade project for Northern Star Resources. This is a complex brownfield project that includes upgrading 6 large carbon-in-leach tanks and the associated infrastructure that are used in the gold mine processing activity. Also in Western Australia, at the same Kalgoorlie site, we secured a $27 million growth project for Primero. This project involves the construction of 15 tanks and supporting infrastructure to expand processing capacity on the site. In Victoria, Aqua Metro secured $27 million Bald Hill storage infrastructure project for Greater Western Water. This additional storage effectively doubles the local drinking water capacity for up to 10,000 properties in the region. This project provides a pre-acquisition example of Saunders and Aqua Metro working together in delivering projects and provided an early opportunity to explore the cultural and operational alignment between the 2 businesses. In addition to the major projects secured, we've also won a diverse range of projects across all 4 key markets that we operate in. In H1, this included refinery upgrades for Ampol, tank works for Viva Energy, turnaround support for AGL Bayswater, bridge works for Hilltops Council and energy management system upgrades for hospitals and transport hubs. In H2, some of our wins included tank refurbishment projects for Mobil, Vopak and Ampol, infrastructure works for Confluence Water and facility upgrade for defense and local councils. Many of these projects are with long-term clients, reinforcing our track record of effective project delivery and leveraging our trusted relationships. In terms of our major projects that are ongoing into FY '26, you can see from the slide on the screen that we have several significant projects in delivery across all 4 key markets. In Victoria, these include the $68.1 million Siddeley Street sewer pipeline upgrade for Greater Western Water, the Bellarine recycled water salt reduction plant for Barwon Water, the Brushy Creek recycled water upgrades for Yarra Valley Water and the $27.2 million Bald Hill potable water storage infrastructure project. In Kalgoorlie in Western Australia, we're delivering 2 projects at the Kalgoorlie consolidated gold mine site, totaling just under $60 million between the 2 projects. While in Queensland, we're progressing the Lytton refinery future fuels desulfurization project for Ampol. Alongside these, we're pleased to have secured and renewed 7 multiyear master services and panel agreements with major clients, including Viva, Mobil and Ampol. These long-term agreements provide strong annuity-style earnings. In FY '25, we delivered significant projects across our core markets, including major energy works for Quantem, AGL, CleanCo, Mobil, various defense projects, Western Sydney International Airport and the Redbank water reservoir in Western Sydney. These completions highlight our capability to deliver complex, high-profile projects on time and to the highest quality standards. I'll now hand back to Mark to take us through the final few slides.