day and thank you for standing by. Welcome to the Big River Industries 2021 Full Year Results. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I'd now like to hand the conference over to your speaker today's CEO, Mr. Jim Bickin. Thank you. Please go ahead. Thanks, Kevin, and thanks, everyone, for joining this morning.
I seem to say this every year, but I know it's to be the time of the year for small companies reporting, so I'll try and scoot through the presentation fairly quickly, if that's okay. Just quickly, I'm going to run through the results presentation documents that are uploaded this morning. So I'll just be reading from that. Just starting, as I've got in front
of you, the first page,
I just thought I'd mention there, in this Olympics year, now that all of Australia are super fans and experts in both skateboarding and BMX, you'll notice there on the front page some photos of a skateboard ring. We've got a good customer on the Sunshine Coast who's actually supplied over 1,000 of these in the last 6 years where we supply all the materials, including 3 different types of plywood. So there's a bit of useful trivia for you just on that front page. So just moving on to the 3rd slide, folks, which is an update of the mix of our business there on Page 3. So just some key changes really as this is a slide that we include in each of the presentations, both half year and full year.
So just in the top right category there, just on the key product categories for the group, major change there, obviously, is the panel business, which has grown to 35% of our business with the full acquisition of Tinglewood, which was announced in the first half results as well as the New Zealand business, which we acquired a couple of years ago. On top of that, you may have seen this morning an announcement about the acquisition of Revolution Wood Panels, which is another strong panels based business in Queensland. So that ratio will probably tick up towards about 37% when that new business is included. Just the mix of our construction segments, obviously, quite diverse there. The ratio changes every year.
Commercial segment just down a touch, as you'd expect, when that construction type has been hit quite hard through COVID with retail, office, the airport type work, obviously, particularly soft. On the flip side, detached housing is strong there at 35%. Both medium density and high rise construction there is an area around 18% of revenue. So there have been 22% 23% in years going past. Obviously, that multi res side of construction has been quite soft and is well below mid cycle, in fact, probably at the trough of the cycle for those 2 segments.
The manufacturing or the OEM and the alterations and additions in signal sort of up there towards 10%. So a good mix in our business there. Just on the asset mix, I think it's just worth noting there that we have manufacturing assets in all three of our key segments, so formwork materials with steel and form foil, in building products, the frame and truss plants, which we have in Adelaide, Geelong and Perth, and then in panels, the plants in Auckland, in Victoria and also the main plywood side of Grafton. So I think we've got a good mix between direct importation, in house manufacturing and obviously partnerships with local suppliers in all three categories, so good diverse supply chain. And then just finally on the bottom right there, just the mix of our business now, Victoria, the full southern region, as we call it, be quite strong now with Tim Hortons business, particularly strong in Southern Australia.
Those number of trading accounts will be up over 9,000 now with the addition of the Revolution business we announced today. So I think a really good, pleasing, diverse mix in our business there.
So just moving on to Page 4, Guy. This is a slide I haven't included before. Just with respect to ESG. Obviously, the company
has been around 120 years. He might be he's got a really strong story around ESG. And particularly, timber just on the environmental front. I think something not very well understood by the industry, but I think the public is learning about this pretty quickly. And that is the hugely sustainable nature of timber products.
This particular graph refers to the greenhouse gases emitted during the manufacturing process, and it uses a standard health in the various components of it as the example. So the floor structure, the floor coverings, the wall framing, the roof frame and indeed the windows. And without going through all the detail, you can see the timber for all of those categories, where timber is used in those applications, the greenhouse gases, and it far, far lower than any other building material. Obviously, what goes hand in hand with that is the timber has got the lowest embodied energy of all building materials. And part of that comes from, obviously, the carbon sequestration nature of a growing forest and a working forest.
It's certainly worth noting that a working forest will manage, whether that be a regrowth or a plantation. Well, certainly, it's a little more carbon than a mature forest lift to its own devices. So I think there's a really good news story in good, effective and sustainable working forests in Australia, and we're certainly part of the major solution for climate change there. And then from our own perspective, all of our manufacturing sites are certified with European Standard PFC, which is one of the benchmarks in China custody certification for tracing the source of all logs that have processed. So I think there's some very positive stories there.
With respect to timber in general, and I think that's been recognized now. You may have heard of some high profile projects around tall buildings there, I think, including some in Australia. Some of the tallest timber buildings in the world are now being highlighted in multiple countries up to 50 and 60 stories. So I think the use of timber products in conjunction with other products, even in large scale construction, has been well understood. And there's a great story there.
Just on the social front, just a couple of examples. Again, business like ours support a whole range of community
programs and so forth.
But certainly worth highlighting the one with respect to our partnership with Clarence Correctional Centre. That's part of, obviously, the corrective services industry because we've got a 15 year partnership with corrective services. This particular jail facility here, we supply all the plywood for a really important program called Toys Saves Lives, which is an indigenous inmate program. It's more like art, to be honest. You can see those images there.
It's beautiful, and we supply all the supply for that as well as having a two way partnership with the correctional center where we supply product and the workshop, obviously, using new main labor adds value to those products. So that's something that we're very proud of. And over 30 years of contribution to the helicopter services in both Australia and New Zealand, we've had long partnerships with that organization with the employee contributions or payroll deductions that's been going on for many years. And then from a governance point of view, look, our industry is heavily governed and the illegal logging legislation, which is federal legislation, is something that we obviously very closely manage both locally and also with a lot of our international suppliers, so to the China responsibility, accountabilities. Modern slavery, we've rolled out during the year to all our international supplies.
And then from a board perspective, just currently in the process of recruiting a couple of directors, given the change of status of one of our existing directors, just to ensure that independence ratio, which is obviously, which is good governance and best practice. So I think we've got some really good stuff going on. And I could talk all day about the ESG story, but I won't because I think there's great news in a business like ours here, and it's going to have a real impact on the climate change story. Just moving on to Page 5 there, folks. Just a couple of images.
And the reason I've got these, I think it goes to the story about our diversity and the strength of our results, and that is these vast and varied products that all of our that or sorry, I should say it's applications that our products go into. So fully prefabricated timber bridges there, which we installed in one day, right through to the big renovation of the Taronga Zoo and a major large formwork construction site there in Brisbane, obviously, being the casino project. And then if you went back to the front page as well, apart from the skateboard ramps, you've got a commercial fit out of a major hotel and then obviously a large residential project with Air and Guinea flooring. So some really good applications there, which shows how diverse our range of products are. So just moving to Page 6, guys, on the headlines of the results.
I think, yes, certainly very pleasing year, in my view, the revenue of $281,000,000 which was up 13%. I think more importantly, good growth on a like for like basis, which we haven't seen for some years as the construction sector has declined. So 4% like for like growth across the year or indeed 7% in the second half. And I'll give you the most important part of that was that growth accelerated every quarter from Q1 to Q4. The underlying EBITDA there of 22.5%, up 30% on last year or if EBIT in this the post AASB 16 world is the language you prefer, so 13.1%, up 47% on last year net pat.
The gain underlying given we had some significant items we identified in the first half results, up 68% despite substantially higher tax payments. So good news there. And then EPS growth also up about 25%. Just worth noting that builds on the 5% EPS growth last year. So I know there's some particularly good ratios and numbers for the company this year, often because they had a pretty average last year.
But I think in FY 'twenty for us to hit share sales, EBITDA, net payout and EPS growth during that pretty tough COVID year. We've built on that, obviously, with even more growth this year. And then just finally, on that first section, the treatment of the closure of the Wagga site, which we detailed in the first half, that consolidation project, the net effect of that project, negative $4,500,000 after tax. Now we actually reported minus $9,400,000 in the first half. So you'll see that's obviously an improvement as the full project, including the government grant, has been brought to account in the first half.
Steve might talk a little bit more about that when we get to the financials. Just a few of the operating highlights there in the middle section still on Page 6, folks. Margin continues to expand. It's been a good news story from the day we listed. We've had some other challenges, but the expansion of gross margin has been a really good story and another 150 basis point improvement for the year despite those pressures of international supply movements and the real challenges in freight.
So I think that's been a good news. So more importantly, growth across all product categories, panels, building products and formwork, there was an expansion of margin in all of those categories. And from a weighting perspective as well, that's certainly been a contributor now. That business is up That's circa 35% from that panels category. As somebody may be aware, that is the highest margin category in our business.
And the acquisitions there are continuing to weight up that. So that product mix is certainly a factor in that growth of margin. And then from a pilot point of view, again, we've referenced the consolidation strategy and the looming closure of Wagga. But a good turnaround in our pilot manufacturing business contribution, up 80% on last year and volume growth of 5% after many years of decline is a good news story. I think a good mix of products, labor efficiencies, energy costs, all positive in terms of the result.
And just finally, on Page 16, just from a strategy perspective, we've talked about gross margin, but it's just worth noting that some of that's come from starting to get some good traction with our new ERP system we put in last year. Obviously, they aren't simple projects. And when you start to yield some good results from it, that's particularly pleasing. Timberwood, we've already talked about. Obviously, that's expanded the company's size to 21.
And again, from a strategy point of view, trying to fix the squeaky wheels is always a goal for everyone. And the fact that we got profit growth from every region and every business category was pleasing, and it certainly shows that, that upswing in the construction cycle has created much more favorable conditions for us. So that's pleasing and certainly a part of the improved performance. Just moving on to Page 7, guys. Just a little bit more color on some of the operating metrics.
Certainly, revenue I've already talked about. I won't go through that. It's worth saying that the former category in New South Wales was the only area where we really did decline. Obviously, large exposure the company has got there to both high rise construction and commercial, the 2 soft segments. So the fact that we held that segment decline to only 3% to 3% when there were some considerable pressures around supply chain and indeed soft markets, I think, was a pretty good result.
At an overall level, that growth in the overall addressable market, about 2% after a few years of decline, I think that's pleasing, but obviously still being impacted by the weakness in the multi res and the commercial market. So So not bad overall and really good to see some growth starting, but certainly still held down by some of those large markets where we have a significant exposure. Supply chain has been talked about a lot during the last year in the press, and everyone seems to be able to quote the lumber index now, which is interesting. So that has had some impact on our business and certainly it's had some impact on builders' ability to roll out the homebuilder program as quickly as they'd like. But notwithstanding some of those real shortages of structural timber products, we actually grew the product categories that were kind of most affected by 15% on the prior year.
So I think we've managed that particularly well. And it hasn't held our business back. It's fair to say, albeit that we'd like to have more, but that's just the reality of a supply constrained market. And then obviously, once we drop down to a SKU level, in fact, we got growth across 90% of our SKUs. Again, that just highlights the breadth of the market recovery.
This is not just a great lumpy result from one little corner of our business. This is across the board, which is the most pleasing component of the result. Just quickly on manufacturing and ops. Yes, look, some really good internal controls just continuing to do better there. I think the ERP system helps in just maturing as a small public company.
It's all part of that. So
from a stock performance point
of view, aged debtors and hence EBITDA margin, we've got really good improvements in all three of those metrics. Ploward manufacturing, I've already talked about and really good to see some volume growth there, again, which sets us in a really good position for when we consolidated onto the 1 manufacturing side. We've got a good strong base of demand, and that's a good way to go into that particular project. And look, investment in inventory, you're seeing Steve's notes there that we did grow inventory for the year, which sounds a bit counterintuitive where there's been some shortages. But I think we have taken advantage of our scale and our strong supplier relationships and the diversity of our supplier, and that certainly helped somewhat with the revenue growth, which I touched on, and the margin expansion during times when there's been some real shortages.
So I think we've managed that side of the business well. And just on acquisition, the final category there. Just worth noting that the New Zealand business achieved the maximum earn out for the 2nd year of that earn out schedule. So that's obviously pleasing and goes to the strength of the New Zealand result even though commercial construction is quite weak in New Zealand as it is in Australia. And we do have a reasonable exposure to commercial there.
So a really good result to sort of hit the top category of EBITDA targets there. Strong start from timberwood, only Q1 sorry, only Q4 contribution from the timberwood business, but the run rate is certainly tracking ahead of our numbers or our expected numbers. So that's a pleasing start. And then of all the acquired businesses, one of the things we focus on is trying to broaden the product range and add some of the other Big River specialty products to their core. And in all cases, those noncore categories to those new businesses all grew at a higher rate than the rest of the growth in Big River.
So I think that suggests good positive revenue synergy as we integrate those businesses. So good news story there as well.
Just my final slide before
I hand on to Steve with the actual financials. Just a quick update on the strategy. Some of these points have already covered off, so I should be able to move through it quite quickly. But yes, that product diversity has really been a good news story throughout the year and certainly helped with our results. Obviously, the execution of T Mobile would help that deal.
The geographic diversity, that's been particularly important during these periods of lockdowns. There's been modeled lockdowns in certain states. ACT construction is down at the moment, as is New Zealand. Victoria has been cut back materially. Sydney has still got restrictions.
But the fact we've been spread all over Australia and New Zealand, I think that's worked in our favor. Like for like revenue growth accelerated every quarter. I touched on that earlier. That's some real momentum in the market. And the consolidation project remains on track.
So good news there, and we continue to roll out that plan we've outlined for some time. Growing scale, obviously, a critical part of our overall strategy. We've already spoken about both Team Wood and Revolution. So we continue to expand our network there and particularly pleasing that all of those businesses are in the highest margin category and the most specialized where there's distinct product differentiation, which is not the case in all market segments we're involved with. So I think that's pleasing.
And there's really good traction on our in house organic growth as well. A range of civil products we've expanded during the year. We've got particularly good growth in FY 'twenty one, and there's some really good prospects for the new financial year as well. So blending organic and non organic growth is a critical part of the strategy. I think we've done well on both those fronts.
And then financially, obviously, we believe we do need to improve the financial performance of the business. And we've been achieving that in the last 2 years. So gross margin, I've already talked about underlying EBITDA margins up 100 basis points, which is pleasing. Good cost control, margin expansion and revenue growth. So all three levers of the business have played a part in that.
It's not just about stripping costs or anything like that. We've got good contribution from those three levers. And we talked about supply chains despite the fact we've had to invest more in some of our international supply chains. I think working capital and indeed cash conversion stayed within our target range, notwithstanding a little bit of growth in inventory, but that certainly set ourselves up well for the future period as well. So that's just finished on Page 8 for
you folks. I'll just hand over to Steve
to run through a couple of financial pages and then I'll sum up at the end if that's okay with the outlook. Thanks, Steve.
Great. Thanks, Jim. So just on Page 9 there with the earnings summary, we've got headline revenue up there 13% on the previous financial year coming in at €281,000,000 That includes 3 months from the Timberwood acquisition that contributed revenue of about $15,000,000 into those numbers. That overall growth saw our distribution EBITDA up 22.7% from $19,100,000 in the previous year,
up to
23.4 percent this financial year. And that's sort of flowing from those increased margins that you mentioned and also that increased sales flowing to the bottom line. That extra revenue for a business like ours. It's good to see that dropping to the bottom line. The manufacturing sites there at Waggan and Grafton increased EBITDA by 86%.
So that was particularly pleasing, going from 1.8000000 up to 3.3000000. That's on the back of some of those lower energy costs that we had this year and some of the higher margin products that we've been selling out of Grafton, in particular, and some good cost efficiencies, which is pleasing to see after some of the recent years we have had declines in that particular category. Corporate costs there, so we're growing roughly about $500,000 mainly from the improved financial performance, as funny as that sounds, from resulting payment of bonuses to the senior executive team as there was minimal that was paid in
the last year. And that led
to our overall EBITDA, operating EBITDA before significant items being up 30% at $22,500,000 So a particularly leading result there. Those significant items include the Wagga and Denimann restructure costs, some acquisition costs and some share based remuneration that we've had for the first time there. We've used that operating EBITDA metric just to try and give some clarity on the underlying EBITDA. So we can see exactly what's happening there with the business. The largest item there in that significant item is the Wagga Wagga impairment and restructure costs.
We've got that sitting there at a net $4,500,000 amount, and that there are sort of break up on that. It's about $12,300,000 worth of property, plant and equipment, some restructure costs and things like redundancy and rehabilitation of the site, etcetera, adding up to about $4,300,000 There's also government grant that we will brought to account in there in about $7,700,000 I'll touch on that in a little bit more detail in a sec. And then the tax benefit that we get from that impairment or write down of about $4,400,000 So that comes down to that net expense that we've got on the accounts there of $4,500,000 So just on that government grant, so that's non assessable income. So the grant itself is actually $10,000,000 That would only brought $7,700,000 into the into offset against some of those associated expenses because part of that site consolidation involves some capital expenditure around about $6,000,000 at the Grafton site. So we're expanding our operations at the Grafton as part of the site consolidation.
And so that remaining $2,300,000 gets recognized over the life of the capital assets as we spend that money at Grafton. So overall, I think we've mentioned this at the half year, but overall, the Wagga to Grafton site consolidation is actually going to free up circa around about $9,500,000 worth of cash after we take into account the receipt of that government grant and release of some working capital from the Wagga site, utilization of those future tax benefits and the sale of the land and billings at Wagga in due course, with, of course, the capital expenditure investment at Grafton and some of those restructuring costs that we'll have to pay as part of the process. So that bottom line overall, overall net pack of 4 significant items, up 68% to $7,800,000 so a very strong result. Bottom line, obviously, reached a little bit less than that with those impairment charges and things going through there. So impact coming in at 1.8% versus last year at 4.4%.
And just, I guess, the earnings per share that we've coming through there before significant items at $0.11 per share, up 49% on the previous year. So again, a good result. Just moving on to that next page, Page 10 on the balance sheet. Trade working capital, as always, for a business like ours, mate, remained a big focus. And it was pleasing to see that we managed to come in at 17.9% average for the year despite some of those increases in inventory and the 1st year working capital requirements for the Timberwood acquisition as well.
That was roughly about $2,000,000 of working capital contribution for the business. But that's we've had that in there for the Q1 now, so we wouldn't expect to see any further working capital requirements for that business. Excluding timberwood, we have an increase in stock of about $4,500,000 and that was mainly due to some price increases for some stock line items plus, of course, the additional stock that we took on board just for those products that have been in demand just to try and make sure that when we're caught with any shortages or anything in that strong demand environment. Pleasingly, debtor days had a significant improvement down to 49 days. So we did have some increase in provisioning during the year, but we still had a P and L impact of less than 0.4% of sales.
And some of the new businesses and things that we've acquired over the years help with those data days as well. It's less reliant on formwork customers, which traditionally have high data days. Some of the other large movements here in the balance sheet are mainly all related to the Timberwood acquisition with the stock fixed assets and intangibles all increasing. The net bank debt pretty much finished the year where we started off at just under $22,000,000
And our gearing based around net bank debt is around about $18,700,000 So just, I guess, factoring into account the recent
well, today's announcement of the Revolution Lift Panels acquisition that would take our bank debt up to about $28,000,000 on a pro form a basis and gearing sitting around about 23%
thereafter.
We still have a bit of headroom in our acquisition facility to do a similar sort of size deal. But after that, we need to look to raise capital as part of some further acquisitions and things further down the track.
That final slide for me, just on Page 11 there on
the cash flow. Cash conversion was at 77%, jumps up a tad to 80% when we exclude all the WAGA related one off type payments and restructuring items in there. Again, particularly pleased given our growth in stock and some of those 1st year working capital requirements on Cinderwood and those two items partially offset by the improvement in debtor days. But there were some impacts from some product sourcing that we changed from local to imported that did impact working capital a little bit. But again, that's, I guess, finished in terms of where we wouldn't see any further impacts from that in terms of FY 'twenty two.
So we'll be looking to see an improvement on that cash conversion ratio in FY 'twenty two. Of the government grant side, I think we actually received $4,000,000 of the cash in FY 'twenty one. So there's still a fair $6,000,000 to be received, and we'd expect to get the majority of that through in FY 'twenty two, if not ordered. And that will obviously help us meet some of those order closure costs as well. CapEx just mainly staying business type CapEx.
Some initial payments from the Grafton site expansion that we've we'll have circuit $5,000,000 to $6,000,000 over the next 12 to 18 months as site expansion is rolled out and completed. A couple of the other items during the cash flow, just the acquisitions, which is the cash component for the Timberwood deal. And there's there's further payments to the vendor over the next 3 years depending on the earnout targets in there. But it was pleasing to see that the vendor did take up $4,000,000 worth
of Big River shares as
part of that acquisition. So that underpins the commitment to the future success of the timberwood business. So that was pleasing. And the net proceeds from the capital raise that we undertook during that period coming in at around about 19,000,000 dollars And just finally, the dividend payments that we've paid during the year and the of $3,400,000 and the dividend that we've determined the final dividend that we've determined in respect of Q2.21 there of $0.03 per share. So that's up 25% on last year's final dividend of $0.02.4 That's it for me, Dan.
All right, Steve. Thanks, mate. Yes, look, I'll just try
and speed through these outlook slides really quickly to leave a few minutes for some questions. So yes, the outlook, there's a few moving parts, it's fair to say. Certainly, we expected the overall market in FY 'twenty two to grow by circa 4%. That's our addressable market, assuming no significant lockdown impacts. Now of course, that's a bit of a strange statement given there is already considerable restrictions in place.
But having said that, we've continued with that growth pattern that we saw throughout FY 'twenty one has continued in FY 'twenty two. So Saar was starting off particularly strongly in the 1st 7 weeks, notwithstanding some of those restrictions and lockdowns have actually lost about 6% of our working day equivalent so far when you take the shutdowns in Sydney, Wollongong, ACT, Adelaide and New Zealand on a cumulative basis. That's sort of ended up being 6% of our available cumulative working days. So notwithstanding that, we're still growing at a faster rate than we did in FY 'twenty one in the 1st 7 weeks. So the fundamental market is strong, albeit that as further restrictions get put in place, obviously, that creates some doubt for us.
The taxi housing, as I mentioned before, I think continues to be strong and construction lags approval. So everyone's focused a lot on the approval numbers. But cumulatively on our assessment in FY 'twenty one and for the rest of FY 'twenty two, there'll be a cumulative 22,000 shortfall in starts versus approval. So that's obviously just extends out that overall pipeline of the detached housing market, obviously partially into the homebuilder scheme, which just further underpins 423 and onwards. So we're planning a bit to catch up here in part because of those shortages and in part just because of strength of that particular market.
We've got some good things going on in multi res, albeit that it's at its low point, there's some good new projects being announced, particularly from the big players, the Tier 1 developers. So I think growth is expected from 2023, and that's obviously been a drag on the overall addressable market in recent times. We actually see the next peak in construction being FY 'twenty four, so that's a bit of a cumulative assessment of all the major forecasting bodies in Australia and all their expectations for the main six segments we're exposed to there in construction. If you use the sort of the average data across all those organizations, that's when the next peak of the cycle is expected to be. That would be along with our thinking and works on the normal 8 to 9 year phase, which has been consistent for many, many years.
So we think it's not just a story about growth in FY 'twenty two. There's still a good 2 to 3 years of growth as we swing up the cycle. Look, I've already mentioned the 4th point there is just some of those restrictions in place. We just deal with those, and it's creeping our business a little bit. We're certainly pleased with the run rate so far.
And freight is an issue. You've seen some press about that. Perhaps freight rates have skyrocketed again, particularly leading up to Christmas. And there's about 25% of our business is exposed to direct importation and hence, obviously, those international freight rates that are going. We're well diversified there.
So I'm sure we can manage that. And some of the supply restrictions that have been talked about a lot, I think there's some positive signs there, some of the lockdown. The scenarios in terms of construction has allowed manufacturers and so forth to catch up a little bit. So we're seeing some easing in some of the key structural products that have been in short supply, appear a touch better. Just from a strategy point of view, the project we've talked about many times and as Steve mentioned, still $6,000,000 in cash to come in under the grant there.
Strong synergy extraction from our panels category, which has grown really nicely in recent years. So there's some really good synergies with our manufacturing operations there as well as product extensions, so some good profitability upside in the future there. We've already talked about the revolution panels again that will contribute from quarter 2. And we continue to assess other acquisitions as well, and we certainly expect them to contribute to the FY 'twenty two results with some initiatives well advanced there as well. And then finally, just on the financial side, obviously, a fair moving piece, but my best expectation is sales revenue in the range of 3.35% to 3.50% sort of circa 22% growth on FY 'twenty one if you take the midpoint there.
Now again, obviously, that does assume there's no major problems for the industry, and that does include the contribution for 3 quarters from the Revolution Panels business. And then from the profitability metric, whether you look at EBITDA, net debt or EPS, we expect that to be at least in line with or above revenue growth with some of the operating leverage the company is seeing at the moment and cash conversion to certainly be within our long term averages there of around 80% to 90%. So that's it, ladies and gentlemen. I won't pass through the appendix. We'll just leave that there for people to mull over.
But perhaps I could throw back to the facilitator now and see if you have any questions. Thank you very much.
We'll now begin the question and answer session.
Thank you.
Our first question comes from Raju Ahmed from CCG. Raju, please ask your question.
Hi, James. Hi, Steve. Thanks for the time. Two questions. I have 3 groups of questions, I should say.
The first one is, Jim, on your guidance, what is it, dollars 3.35,000,000 to $350,000,000 in revenue, subject to market conditions. I presume that had factored in the Greater Sydney construction shutdown. Can you just give us a sense of what's going to be the split first half, second half? And also, the mixed revenue, I suppose, over that period of time, will there be a catch up?
Or is that sort of
lost forever, so to speak?
Yes. Okay. So a few points here. So yes, look, that revenue guidance assumes all the different lockdown scenarios. So it's not specific to Sydney.
I guess, we're in an environment with some limited operating conditions in Sydney as we are in Victoria. So that's just assumed. I haven't made an assumption there that that's going to fix itself in any particular period of time. I think on balance, that is still our estimate unless there's major shutdowns occurring, which at this stage don't seem to be planned, particularly in New South Wales, where obviously, the COVID situation is at worst. So in general, that's the answer to that question.
With respect to the catch up, how much of it was lost? I guess the only the best goal I can give you is cumulary 6% of lost days. I think there's about 7 70 working days if you take the 35 days so far in 7 weeks' times, our 21 sites, and we've lost 55 working days out of that 770 if you take in every individual site. So that's 6%. So could our revenue be 6% higher if none of those state based construction lockdowns had occurred?
That's possibly a number for you there, Raj, in terms of the total loss. And our view is it's not necessarily caught up the next day because or the next month, the builder can't all of a sudden do twice the work for a week or a month to catch up those loss days. What it does do, Budd, is extend out the pipeline. So work that would otherwise have been finished in FY 'twenty two extends into 'twenty three and so on. So look, there will be some additional overtime, maybe construction work starts working more Saturdays as a bit of a catch up.
But in general, we can do more stretches of the pipeline rather than there being a month or so where there's a big catch up. And seasonally, which is the third question, I think, Raj, we're just our business has always been very close to 49%, 51% first half, second half. Even now we've got some of these restrictions in place, we don't see any material change to that long term seasonality of the business, Raj.
Okay. That's helpful. The next question
is around the gross
margin, solid margin expansion there. I just wanted to get a sense of where you talked about trucks, procurement scale and that sort of stuff more than offsetting some of the supply side challenges. That's fairly clear right now. Can you just give us a sense of what is how much of that margin accretion is from any changes in product mix? And how much of that is through scale of the business?
Is it possible to get that sort of
Yes. Look, yes, I'm looking. I'm going to give the answer to the 2nd decimal place. Effectively, about half of that growth is due to enhanced product mix. So that's obviously as we increase higher margin categories.
So that's a product weighting impact. And the other half, say 75 points, is due to improvement in both procurement and pricing discipline. So you can put those 2 together in terms of like for like products, but us doing better. I mean, as we change some of the supply chain that Steve talked about, as we direct imported versus bought locally, that does come with a small working capital cost. But it means higher margin.
We're effectively taking a leak out of the chain, dealing directly with overseas factories. So there is higher margin, albeit at the working capital requirements, a touch higher. So that puts that into both the procurement and pricing control, and the other half of that growth is due to the enhanced product mix. So I think you covered that, operator?
Yes, it does. And the last one here is the enhanced product mix, is that something you expect to be sustained for the foreseeable future? Or should we anticipate variations through cycle?
I think it will continue for the next 12 months because, obviously, we're going to have the full 12 months of timberwood. We're going to have 9 months of revolution and then some of the other in house organic growth in those differentiated civil manufactured products I talked about. So I think there's still contribution to be had. But then at some point in time, yes, we hit sort of equilibrium as such there as you. And then obviously, building products and formwork are still critical parts of our business, and that certainly adds to our diversity story.
And then at some point, we'll find our natural sort of level. And I think the growth from product mix will start to change. And obviously, there will have to focus on things like procurement scale and pricing discipline to continue to etch out improvements in gross margin.
Okay. I'll leave it there. That's very helpful. Thank you.
All right. Thank you.
Our next telephone question comes from Sean Kirwan from Melbourn Australia.
Just hoping you could just talk a bit more about the acquisition announced today, Revolution Wolf Panels, just in terms of the product mix, the margins and I guess what it brings to your business in Asia to you?
Yes, Sean. Look, really synergistic business with the Tin Wood Panels acquisition that we made 3 or 4 months ago. So really similar product range in plywood and overlay panels from with end applications from an architectural perspective, from a joinery, industrial and civil products. So very, very consistent product mix with timberwood and with the Big River core plywood business. So in our view, highly synergistic there.
Revolution was actually a very large customer of Timberwood with a really strong position in Queensland. So there's a lot of familiarity between the founders of Revolution and the Tingwood business and also Big River. We've known the guys there, and particularly one of the founders there who had a long history in the plywood industry before establishing the business. So it's about as neat as you can get, Sean, is what I'd say. It's really synergistic.
It's absolutely core to what Bigro has been doing for 80 years, and it gives us a really good market extension into Queensland for a critical high margin product range.
Got it. And in terms of
margins, can we assume sort
of similar to the new business there?
Yes, correct. Correct. And yes, it's sort of in there between the timberwood and the New Zealand businesses. The margin sits up at that level, which is materially higher than the rest of the Big River group.
Yes. Got you. And going forward, is the strategy to continue to look at further acquisitions?
Yes, sure, it is. In all three segments, obviously, the last couple of acquisitions have been in this panel space, but that's not to say that there's not still real good growth opportunities in building products and formwork material. We think there is, and we think that diversity is what's held us in such good stead in the last few years. So we want to continue to make sure that we've got a strong position in all three of those product categories. And hence, we're looking at acquisitions in all of those categories, Sean, and then also in all geographies, all four of our operating regions.
So I think that's an important part of the acquisition strategy. And certainly, as I mentioned in the strategy update slide, then yes, we're certainly continuing to look at more acquisitions, and we still see the thesis in terms of industry consolidation, aging business owners. We have a succession plan that absolutely holds true. And in my view, it's only been enhanced with lots of people thinking about their future in this COVID environment, particularly aging business owners. So I think there's great opportunities to continue with that roll up strategy that I think has worked well for us so far, and certainly, we can extend it much further than what we've already achieved.
Got it. So a couple more from me. With the guidance, revenue of $3.25 to $3.50 What's the recent opportunities in terms of coming in at the bottom end or at the top end of that? What sort of assumptions have you made around providing guidance range?
Yes. Look, I think the biggest risk there is really just the operating conditions. I don't believe it's market because I think very clearly, the cycle has been playing out over recent years pretty much exactly as we expected and as the long term ADE construction cycle has shown. So I don't think there's fundamentally going to be all of a sudden a reversal of the cycle trends. I think it's much more just about operating conditions associated with COVID.
That to me is the single risk there in terms of whether we're going to end up at the bottom or the top end of that range. Obviously, there's good organic growth opportunities we're looking at, and some states are operating and growing better than others. So but I'd put all that in the usual pot there, Sean, and say that that's probably the only major downside. Obviously, the upside, to answer your question, is if we see a distinct reducing of those restrictions. As I said, if we've lost 6% of our sort of cumulative working days in the 1st 7 weeks, if that starts to decline, then obviously, that's going to be good for our business and it's going to get us closer to the top end of that range.
Great. And just final one. Obviously, strong margin performance on your bps improvement into 2019, so you're currently around 8% EBITDA margins. What's the scope for further margin improvements, not necessarily into 'twenty two, but in the sort of medium term, just given the additions of, I guess, higher margin, more specialized product ranges to the overall sort of product offering?
Look, I mean, that's absolutely a key financial goal we've had from day 1, Sean. Obviously, as a small public company, we did have to take on some reasonable lumpy costs, particularly coming out of a family ownership environment. So obviously, there's a little bit of a headwind in the early years of being listed as well as the cycle going down and then obviously some pressure on our manufacturing core legacy manufacturing businesses given the change in the industry structure. I mean those three headwinds have all affected either gone or turned into tailwinds as the cycle improves. So absolutely expanding EBITDA margin above the 8% under the new WSP language.
We see that as absolutely possible and an important part of our goal because we believe we can be and should be operating at higher margin levels and the mix of our business with recent acquisitions as well as for the cycle impact, Sean, says we should be able to do that, and I'm confident we're going to be able to achieve improved margins in the medium term.
Our next telephone question is from Sebastian Evans from NAOS. Sebastian, please ask your question.
Thank you. Steve, welcome on
the good results. Just
a couple of quick ones. Just in regards to Wagwan closing, obviously, moving the facility
or some further degradants, can you just explain to me what do
you think the net cash flow effect is going
to be in the next 12 months when
you're factoring working capital, the government payments, even availability and things like that,
which that might actually be in 'twenty three?
Yes. You want to take that?
Yes. So you can take that on that.
Yes. I'd say we've received that $4,000,000,000 so far from the government grant. And we've sort of said overall, the net cash impact is going to be positive, dollars 9,000,000 to $10,000,000 if you like, overall. So we see most of that balance to come through in this financial year. The only delay might be around the actual sale of the land and building.
So it just depends on when we might be able to dispose of that.
Obviously, there's a chunk
of money associated with that. So if that falls into this financial year, then great. But possibility that, that could roll into 'twenty 3.
Yes. Okay.
And Jim, just in regards, obviously, well done on
the result out of the manufacturing division. With while we're sort of going through this period, we're going to be pretty disruptive, not so much maybe even for growth in as well. How confident are you that you can maintain 3.3? Yes. Obviously, we're only now going to be talking about Grafton if we report in the same way as we have this year.
So more than likely, I mean, without getting off topic, we'll probably end up having to change the way we report because having one product manufacturing facility has the same kind of reference line. Given we have other manufacturing in panels and steel and in frame and truss in New Zealand, we probably need to recut the way we report our business. But notwithstanding that, yes, the part in the medium term, absolutely, we're confident that we've done all the modeling 10 times over in terms of the economy to scale the product mix out of Grafton after the consolidation. There's some risk in year 1, obviously, when you're doing the changeover, you're ramping up whilst you're putting in equipment and you're ramping up capacity at Grafton and you're winding everything down at Wagga. So if there's ever a risky year in terms of that manufacturing contribution like for like, 3.3 you referred to, it's this year.
From 'twenty three onwards, I'm very confident because we know what the consolidated model looks like, particularly once all the new equipment is in. There's some risk issue, but I think it's pretty modest. To be honest, I think even if things didn't travel well in terms of the project or we had some hiccups in terms of gearing up production at Grafton, I think it's going to have a fairly immaterial impact on that particular line. So I don't see it as a major risk to our earnings in FY 'twenty two. Yes.
And just last one.
In regards to timberwood, I know you obviously haven't had it for that long, but I know there was a lot of shit around
the product range they had
and obviously getting it through the bigger than their work.
How progressive is that? And did it occur like you thought it would even though we've got lockdowns and whatnot? Yes. Really good early signs. So obviously, the timberwood business is now a really strong part of our in house manufacturing order book, so to speak.
So that's all volume that didn't used to be done with timberwood, given we only we didn't really have much of a trading relationship with them at all. But now it's a standard part of weekly production in a range of products that are destined for timberwood. So I think in the Q1 or it's now sort of 4 or 5 months since we took over, I think we've got some really good early traction and some really good ideas from the guys within timberwood of product extension and of R and D. And they've come and looked and said, well, hang on, you can make this for me, country. Yes, we can.
But that's sort of the same. Some of those new product opportunities from having some really good market development guys and then them having at their access now plywood mill to potentially make a whole range of different shapes and sizes. I think that's starting to yield some fruit. So early days, but I think some really good signs, and they're becoming an important part of the mix from the plywood factory.
Okay. Actually, maybe last one. In regards to inbound interest in regards to acquisitions, has that sort of changed over the past sort
of 12, 18 months?
Is it a bit more active than some of
the timberwood acquisitions? Is that correct? More people approaching here? Look, certainly, I'd say perhaps more so this time last year when COVID first happened. I think then there was we got quite a lot of proactive calls.
And whilst we got some really good prospects in the pipeline, there probably hasn't been as much in the traffic in recent times.
I think most of these got through
the challenges of COVID, some of those nervous early days when particularly some of the older business owners thought, well, maybe it's time for me to clear out and think that's eased a little bit. But certainly, we're still very active. And as I said, I think the thesis still holds true absolutely, albeit that the phone's perhaps not ringing as much as it was a year ago. Yes. Okay.
Well done again. Yes. But just worth saying, just to finish off on that question, every acquisition we've done since I've been in the company have all been us cold calling. So they haven't had the profile up. They haven't approached us.
We've not got it through a broker or an adviser. We've cold called them. And that's 13 of the 14 deals we've done in 20 years have all been like that. So that continues to be our best prospects to find business to extend our network.
Network.
Kevin, I might just butt in there if there's no more questions. I know it's a busy time of the year, and that's just under an hour now. So we might just leave it there unless there's any final questions.
No more further questions.
Great. Thanks everyone for your attendance. Appreciate your time.