Would now like to hand the conference over to Mr. Raimond Coneliano, CEO. Please go ahead.
Thank you. Good morning and welcome to Redox Limited half-year 2025 results briefing. I'm Raimond Coneliano, CEO and Managing Director of Redox, and presenting with me today is our Chief Financial Officer, Kim Yap. Moving to slide two. Slide two outlines the agenda for today. I will open the presentation with some performance highlights before talking through some current issues that have impacted the operating environment this half. I'll then pass to Kim to take you through the financials before I come back and add some comments on our strategy and outlook. We will then be happy to finish with Q&A. Turning straight to slide four. While demand in the first half of 2025 was generally subdued due to the operating environment, Redox's volume was robust and sales revenue increased 8.6% from the prior corresponding period. This was a good result.
In line with expectations, gross profit margins eased to 21.6%, settling within its long-term historical average range of between 20% and 22%. Importantly, our gross profit increased by 1.7% to 137 million for the half. I've included a new measure that some of you may recognize, the conversion margin, being the gross profit to EBITDA effects, which was 45.8% in the first half. This metric demonstrates the impact of cost growth on our results, and the outcome is consistent with what our largest competitors are reporting. Meanwhile, the business continues to generate strong cash flows, and overall, our net cash position at the end of the half was a healthy $138 million. This provides us with significant capital for M&A as and when opportunities arise. Pleasingly, we also signed two new channel partner agreements in the half, being Dow and Zebra Energy.
These partnerships provide us with access to new markets, products, and customers, and I'm confident they will be positive for future growth. For our shareholders, we produce pro forma earnings per share of AUD 0.077 and an after-tax ROIC of 14.8% in 1H 2025. The board has declared an interim dividend of AUD 0.06 per share, which equates to a payout ratio of 78% of NPAT within our 60%-80% target payout ratio range. Moving to slide five. Slide five provides a more granular look at the drivers of sales revenue during the half and associated impact on gross profit. As I said earlier, sales revenue increased by 8.6% over PCP, which we think is a good result. Pleasingly, our recent acquisitions have now started to contribute to sales growth. However, most of the uplift this half has been generated organically.
Driving sales growth in the half was a strong contribution from crop production and protection, which has recovered from a weak 1H 2024, and Water Care sales, which benefited from portfolio addition, share of board initiatives, and customer acquisition. Of the sectors that were weaker, mining and explosives sales declined due to lower cyclical demand in various subsectors such as nickel. From a geographic perspective, APAC sales grew by almost 10%, while U.S. sales fell around 8%. Given that the U.S. is still in its early stages of development, we expect business to be lumpy period to period, but we remain confident in its long-term potential and prospects. Indeed, despite the decline in sales, the U.S. business grew active customers and invoices during the period. Overall, commodity prices were broadly stable in 1H 2025 despite lapping high comps in the first quarter.
While volumes were considerably stronger than their historical average, sales revenue was impacted. As anticipated, with the rebound in large volume, low margin agricultural sales during the half, plus the contribution of lower margin acquired businesses, gross profit margins declined by 1.5 basis points to 21.6%, which now sits within its average historical range. Turning to slide six. As you know, the vast majority of Redox's products are imported, with containerized freight rates being a key driver of price for our customers. As you can see from the chart on slide six, the China Containerized Freight Index has remained relatively elevated as geopolitical events impact availability, costs, and shipping times. These higher costs will flow through to customers while we assist them in smoothing out the impact of any delays. During the half, we completed two acquisitions, Oleum and Ozchem. Oleum specialized in surfactants and specialty chemicals.
The sale was completed and fully integrated into Redox in July 2024. Ozchem is a distributor of solvents and specialty chemicals and also provides Redox with bulk storage facilities and blending capabilities, including a distribution deal with Zebra Energy Australia, of which we see great potential. This acquisition was completed and fully integrated in November 2024, again made possible by leveraging our CRM ERP system Redebs. All acquisitions are in line with our stated acquisition strategy and have added new products, customers, suppliers, expertise, and capabilities to Redox, which we believe will drive stronger growth in the future. We continue to review several strategic acquisition opportunities in APAC and North America. I'll now pass over to Kim, who will take you through the financials.
Thank you, Raimond, and good morning, everyone. Moving to slide eight. This slide sets out some of the key P&L numbers for the first half. Comparing them to the performance of the business in the first half of 2024, I will talk to some of the key highlights. We are pleased to announce the top-line revenue increase of 8.6% in the first half. Despite the subdued demand environment and price deflation in the first quarter, gross profit rose 1.7% to AUD 137 million. As anticipated, gross margin eased to 21.6% in the first half and is within the historical average margin of 20%-22%. As the company captured high volumes, low margin commodity sales, which impacted the ratio.
The earnings per share of 7.7% reflected a 1.7% increase on the PCP basis, and the return on invested capital, while down from the first half of last year, remains strong at 14.8%. Turning to slide nine, revenue and gross profit. As we have done previously, we have split our total revenue by region. Australia-New Zealand accounts for AUD 592 million, which is about 10% higher against PCP. This was a good result and reflected product portfolio expansion, some customer wins, and a turnaround in the crop production and protection segment.
We also witnessed a positive contribution from the acquired business. As Raimond mentioned earlier, much of the growth is derived organically. Meanwhile, growth momentum in North America slowed during the first half. This should not be a surprise because, as the business in the U.S. is in its early stages of development and will naturally be lumpy from period to period.
Growth will also be particularly strong in the first half of 2024, reflecting a higher base for the first half of 2025 comparison. Moving to slide 10, operating costs. Slide 10 shows the operating costs in more detail. Total underlying operating expenses increased by AUD 12 million in the first half to AUD 79 million. Breaking this down, there was a six million increase in admin costs in the period equally spread between the salary inflation, increase in headcounts as we expand and invest in the business, and higher incentive payments on the improved volumes. Distribution and storage costs increased by AUD 5 million in the first half. Four million of them were due to volume growth, and one million was due to inflationary forces. Turning to slide 11, cash flow. Slide 11 is the money side, which you will see the strong position that Redox is in.
In the first half, we generated AUD 12 million in cash from operations. This was down materially from the first half in 2024, but represented an uplift in inventory, principally related to longer shipping times and the timing of Lunar New Year shipments. Net working capital increased by AUD 50 million to AUD 387 million in the first half, equating to 30.7% of revenue, which is within our normal historical range of 30%-32%. The increase of 1.7 percentage points from PCP was due to higher inventories. Even after acquisitions, the net cash position remained very strong at AUD 138 million at the end of the first half. And with zero net debt on our balance sheet, we have the flexibility to take advantage of organic and inorganic growth opportunities. Slide 12, dividend and dividend policies.
As Raimond noted earlier, our board has declared an interim dividend of AUD 0.06 in the first half of 2025. This represented a payout ratio of 78% of the net profit after tax, and within our stated target policy range of 60%-80%. The interim dividend will be paid on the 25th of March. I now pass back to Raimond to cover our outlook and strategies.
Slide 13. Thank you, Kim. I can see that the business remains in good shape. Moving to slide 14. Slide 14 outlines the key elements of our strategy. They’re clear and unambiguous and, importantly, consistent with what we’ve previously discussed. We’re consistently looking for ways to expand our product portfolio. Currently, we have more than 1,100 active products and around 5,000 SKUs. I believe we can grow these significantly in years to come. We will also explore new sectors, new geographies if they make sense for our customers. We’re always consistently adding technical experts to our team who are specifically tasked with supporting our customers to innovate utilizing our ever-expanding product suite. For example, we have recently added an experienced metallurgist to our WA team to assist us to grow and develop our mining business.
Of course, we're always looking to refine and improve our internal CRM ERP system readiness. That, in large part, has underpinned the growth and success of Redox, and we'll continue to make strategic acquisitions, which encourages faster growth. With respect to the outlook, we expect the challenging macroeconomic environment to remain in 2H 2025. However, we believe that Redox remains well positioned to take advantage of recovery with strong fundamentals, and volumes will continue to grow above their historical average. With gross margins now back within their historical average range, we also do not expect much change for the remainder of FY 2025. For 2H 2025, operating costs are expected to be similar to 1H 2025. Turning to slide 15. So, to finish up before we move to Q&A, a brief summary. Redox operates in a large and attractive sector, which has traditionally grown faster than GDP.
The company has much scope and opportunity to grow across various industries, geographies, and products. Redox retains a strong and flexible balance sheet with zero net debt, and with fragmentation of the industry, the company has ample opportunity to grow strategically. Despite various challenges in the first half of 2025, we were proud to report an interim dividend of AUD 0.06 per share in the first half. On that note, I would like to thank you for your interest in Redox. Kim and I will be happy to now answer questions.
Thank you. If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the ask a question box. Your first question comes from Tim Piper from UBS. Please go ahead.
Hey, morning, Raimond and Kim. First one just on gross margin. So you've kind of guided the second half being similar to the first half. I guess you've talked to the fact gross margin was to return to the historical range over the medium term. Maybe that's come around a bit quicker than expected. But as we roll forward, is 21.7 at the upper end of that historical range sort of sustainable, or should we expect further moderation in the future?
Yeah, thanks for the question, Tim. I think we have to go back to what influences the margin, right? The GP margin in a business like Redox. The first thing is how much volatility in pricing there is. As prices stabilize, generally, the margin is compressed. Secondly, the average size of invoices. The smaller the invoices, the higher margin you can achieve. And then there's product mix. So each type of product or product segment will have a different margin potential, let's say. And so it is quite difficult to predict, but that's why I always talk about the long term. The long term average of the business is 20%-22%. 21.6, or I think it was, is well in that range and towards the upper end. Can we grow some of those specialty chemicals faster than our commodity business? Perhaps that will increase that GP percent.
Can we increase the number of small invoices? And that'll happen naturally over time as we grow in places like the U.S. and acquire these businesses that we've been buying. And the other thing is, obviously, the business that we've purchased, Oleum and OzChem, had slightly lower average GP margins than Redox. And so peppering in that business, at least initially, will negatively affect our GP percent, our GP margin in percentage terms. But over the longer term, we think we can improve and build on those businesses, yielding a much better margin. So hopefully that answers your question. I think 21.6% is not terribly surprising to me. As I said, 20%-22% is the range you can expect from Redox. I think last year's number I pointed out many times was pretty unusual.
Yeah, got it. Can we just better understand the OpEx numbers that did come in higher than expected, particularly, I guess, the admin cost side of things? Can we just unpack a little bit what kind of headcount increase was rolled through and if that's to continue through the second half? And then maybe what the incentive payments, just trying to understand cost growth kind of being single digits for the last few halves and now has increased significantly to closer to 20%. So is this to continue through the second half, or has this just been a rebate higher in headcount?
In terms of the admin cost, and because we have added about 19-20 headcounts, as we mentioned in there, that accounts for about a AUD 2 million increase in the admin cost. And then in terms of the wage inflation, that also accounts for is around 5% increase in our wage cost. That also accounts for about the AUD 2 million mark. And in terms of the incentive payments, because in a certain piece, our business unit, the manager of the business units, are paid based on the gross profit of the business. But the hurdle they had to overcome is their much increase in sales. In FY 2024, most of the business did not increase in sales. That's why there was a lower than incentive payment for them.
In this first half, there was an increase in sales, and that's why they are entitled to the incentive payment. That's why the incentive payment this year was slightly higher than last year.
Okay, got it. So wage inflation 5%. Is there some annualization of those added 20 people to roll through in second half? And then what would your expectations be over the next 12 months in terms of new heads you'll be bringing into the business?
In terms of new heads, I think most of them have been added throughout the whole year, and the growth in the headcounts will slow down as we try to train them up to digest them so that they are fully integrated into and understand our ready-to-be systems.
Yeah, I think what Kim's trying to drive out there is some of the headcount came from acquired businesses, right? So it really depends on what the acquisition execution looks like in the second half, but also natural growth. As we grow sales, as we grow volume, as we grow the business generally, we want to be adding people to it to expand our potential, right? To expand our ability to capture market, increase sales, increase profit. So yeah, I don't have a headcount prediction for you right at this moment, but we aim to grow headcount around the same sort of roughly margin that we grow sales. So if over the long term we grow 11%, probably a little bit less than that is what you can expect headcount to grow year on year.
Got it. Just one last quick one, if I can. Just on the outlook for the second half in terms of volume growth, obviously your forward order book provides you with some good forward six-month visibility. So what you're seeing in the order book sort of right now, is that predicting that sort of above historical average volume growth for the second half?
It's a great question, Tim, that I think you've asked me 18 different ways since we floated. We're not disclosing our order book, but just suffice to say that we've got high confidence that the current rate of growth is sustainable and volume growth that isn't. Yeah, so we're comfortable anyway. We do have a healthy forward order book, of course.
Great. Thanks for taking the question.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone or type your question into the ask a question box. Your next question comes from Chenny Wang from Morgan Stanley. Please go ahead.
Yeah, good morning, guys. Thanks for taking my questions. Maybe just firstly unpacking some of that sales growth in the first half. You guys delivered that 9% and kind of talking volumes above historical. And I think you guys previously gave some disclosure that to kind of start the first half, you were running at that quarter 13%-14% level. So kind of putting that together, price still looks to be about a 4%-5% headwind in the first half of 2025. I mean, is that kind of a fair assumption? And then how much of that would be, I guess, price versus maybe product mix? Yeah, how should we kind of think about that?
Yeah, great question, Jenny. Yeah, certainly, as we pointed out in the prezo and the speech, Q1 FY 2025, there, we're lapping much higher prices, and so there was quite a bit more headwind effect in Q1. That dissipated over the period. So yeah, hopefully that answers your question.
Cool. So does that mean that price in the second quarter was flat versus kind of the PCP, or was that actually up versus the PCP?
It's dead flat. I mean, up and down within a range of if we're talking about average selling prices per ton, they go up and down 2%, 3%, maybe 4% a month on month-on-month basis. But in that, as you pointed out, Jenny, rightly, there's product mix, which is different month to month. And so it is a little bit hard to sort of speak to price in any real specific way. But generally speaking, prices have been relatively flat since sort of October last year, something like that.
Got it. Cool. That's helpful. Then just, I guess, in terms of that coloring to second half of 2025, and apologies if I remember this incorrectly, but I thought price deflation had a larger impact in the second half of 2024 than it did in the first half of 2024. So I guess given some of the price stabilization that you're now seeing into the second half of FY 2025, yeah, can you kind of help us assess what the potential price tailwinds will look like into this half, if any?
Yeah, sure. So pricing tailwinds you're asking about, right? So what sort of tailwinds have we got for pricing? Well, I think if you have a look at the presentation, there's a slide there on freight. Freight costs have been elevated now for quite a little while, although they're coming back some amount recently. But those will feed higher sea freight will feed into our selling prices with a delay of a few months, maybe longer. So there is some tailwinds from some of those costs that we pass on to customers, of course. I think now there's tailwinds for inflation. I think there's more chance of inflation in some of these products than deflation anymore. It's certainly been flat for the last, like I said, since October.
So what the future looks like for pricing, we're not prepared to sort of make any grand statements other than say it's been fairly flat. And I don't see as much chance of prices falling as I do of prices going up.
Got it. And then maybe just on those freight costs, can you just help us understand the net impact of all that in the first half? Because it was and has been kind of volatile over the half. And while you guys do recoup those freight costs, I thought there may have been a lag. And I think you just mentioned that there's a delay of a few months. So yeah, I guess just kind of interested, given that freight volatility over the first half, what the net impact to the P&L actually was. And it sounds like you should be getting a bit more of that back in the second half. Am I interpreting that correctly?
No, I don't think you should be thinking about it that way. I think what you should be thinking about is if sea freight prices go up, our selling prices go up. We have to pass those prices on. There's no real great risk in that because as we book shipments, as we negotiate with customers, we're passing the actual freight rates to them in those prices. So what I was trying to sort of mention before was that the freight costs, sea freight costs have been elevated since sometime in January 2024. And so that impact will be seen throughout the year past that in slightly higher pricing because, of course, we're passing on.
Got it. Thank you.
Thank you. Your next question comes from Prasad Patkar from Platypus Asset Management, who asks, "Raimond, could you please elaborate on why gross margin falls when selling price stabilizes? Is that just a timing issue for COGS in any other half, or is that because your selling price and cost price move to different rhythms?
Yeah, great question. No, I think you can characterize it this way, is that if you imagine prices being very volatile, price discovery is the point at which a sale happens, right? So our salespeople and our customers are negotiating prices consistently. There's no fixed margin. We sell to the market price, and customers buy at the market price. And that's set by the activity of our people and our competitors and our customers. And so when there's a lot of volatility in cost prices or unit prices or our purchasing prices, there will be more volatility in market prices. And less visibility or understanding about pricing generally will lead to some margin expansion. I mean, it's not a huge amount, but it could, like as you've seen with the amount of volatility we've seen in 2024, FY 2024, there was a margin creep up.
That happens usually when prices are more volatile or have been recently very volatile.
Thank you. Your next question comes from Christian Angelis from Blue Ocean Equities. "Hi team, could you speak to pricing during the half and how things are tracking to date?
Yeah, like I said, the first half, probably Q1, pricing was still a little bit elevated. Our selling prices were a little bit elevated, and they sort of reduced down and have been flat since October, roughly then. So yeah, not a lot more to add to that other than pricing seems fairly stable, and some anecdotal evidence that future pricing may or may not be a bit higher than current or first half price.
Thank you. Your next question comes from Jared Grylls from Platypus, who asks, "Is there a gross margin level where you wouldn't chase volume?
Oh, of course. Yeah. Look, we have to have a return on our invested capital, and we carefully consider every piece of business and try to weigh up our options. I think if you'll indulge me for a moment, if we have a lot of cash and we have a lot of options and we're exploring them all, acquiring businesses is good, and we've been doing that, of course, as you've seen. One other way is to take business at strategic margins to secure that business ourselves without the long and arduous task of negotiating with business sellers, so look, some of it, we'll get our foot in the door with a sharp price, and that's the strategy we use, and we'll continue to do that. I think longer term, of course, you can't do that. It's not sustainable.
We'll do that from time to time to edge our way into markets, new markets, new products. Yeah, certainly, it's not sales at any margin. That's not the case.
Thank you. Your next question comes from Wayne Jones from Ganes Capital Management. "Have you seen an increase in the number of acquisition opportunities since you have listed?
Yes and no. I don't know. I'd probably say no, really. I mean, it seems like a lot of investment bankers have got our phone number and call regularly, which is lovely, and love taking their calls, and they bring a lot of opportunities to us, which is nice, but today, all the acquisitions we've made, we've had either our personal relationships with them, with the owners, or we've had some help with advisors that we've employed ourselves, so yeah, look, our M&A pipeline is pretty strong. I'm very happy with the way it's been developing. It's part of our strategy, of course. We've recently put on a U.S. M&A expert, an advisor, and he's bringing up some really interesting opportunities we wouldn't have found otherwise, but yeah, being listed alone is not the panacea to the M&A question.
It's a lot of hard work, especially from Kim, myself, and the exec team and directors. So yeah.
Thank you. Your next question comes from Christian Angelis from Blue Ocean Equities. "Hi team, another from me. Can you just flesh out the dynamic in the U.S. in a bit more detail? Is the weaker result because of the revenue is quite cyclical until you reach a particular level of customer and industry diversification?
Thanks, Christian. Yeah, look, I think just to go back to the fundamentals and what I love about Redox, right, is the diversity of our customers and the industries we're servicing and the amount of products that we're selling here in Australia and New Zealand and other places where we're more developed. The U.S. has less dimensions to it because we're newer. We've got less customers. We've got larger invoice values, and that's necessary. It's part of the evolution. It's expected, and it means that you can have some swings. The swings can be the other way too, and we had a good result in PCP. And so I think it's easy to see this one and be disappointed. But you need to look at the last one and be impressed, I think. Anyway, we're very comfortable with the way the business is growing there.
We're putting more people on the ground. We just opened an office in Ohio. We've got someone who's going to be working for us in Newark, New Jersey. And then I think we'll have pretty good coverage. And we're growing our team as well. We're doing a lot of training. And as we get those people coming online, we'll pick up more medium and small business. And that'll make us more resilient and less prone to swings between periods.
Thank you. Your next question comes from James Gouldson from Koda Capital. "How may the Trump administration's policy approach to tariffs impact your U.S. operations?
Yeah, tariffs are a thing that Redox has always lived with in the U.S. as well as other places. I would say just general comment on this is that tariffs are one tool that can give us pain, but everyone is exposed to the same thing. So I think some of our largest products we sell in the U.S. are actually made in the United States. And we're very proud of that, being able to source local and sell local in the U.S. Of course, any kind of change will upend our competitors who more often than not have the business currently. Redox is a newcomer to the U.S. We're a little upstart.
And so every time a tariff comes and dislodges maybe the current supplier, Redox has the opportunity to come in there and say, "Look, if your Chinese product you've been buying off competitor X isn't competitive anymore, we have an Italian product or a Spanish product or a Mexican product or a product from somewhere else." So actually, I think it's a bit of an opportunity. That's my view.
Thank you. We have another question on the phone from Rachael Peberdy from Ord Minnett. Please go ahead.
Morning, Raimond and Kim. Thanks for taking my questions. Most have been covered off. I might just ask a couple on the U.S., if that's all right. Maybe just a little bit more on M&A. You did mention that you've recently added a U.S. M&A advisor, and that's bringing some interesting opportunities. Can you maybe just elaborate on, I guess, what your targets are there? I know you've talked in the past about effectively trying to add a distributor where that has the relationships a bit different to the Aussie strategy. But is that still the case? Or are there any particular parts of the U.S. market you're targeting? And I guess just from a multiples perspective, is that the biggest, I guess, hurdle that you've faced up to now? And what are asking prices or asking multiples for potential acquisitions in the U.S.?
Yeah. So there's a few questions there. I guess first off, what are we looking for? It hasn't materially changed. I mean, we're looking for a business like ours with lots of relationships in the U.S. I think we're sort of open to if you want to think about the size of business we're looking at, $30 million is about the low end, and $150 million might be the top end of revenue. But we're open to a lot of different sectors. I guess we want something that's a bit diverse with a diverse range of industries it sells to. We don't want it to be all in on oil fields, for example, or all in on one sector, unless that sector is very, very resilient.
And yeah, but look, I think the reason we haven't executed on an acquisition in the U.S. till now, yes, a few years ago, I think it was more about prices. But I'd say more recently, we've probably been a little bit pickier about the quality screen that we use for businesses. And I think we've learned a lot from the acquisitions we've made, what works and what doesn't and what things to look out for. And so we're always thinking ahead to the integration, the synergies, what sort of uplift can we give it? And so I've always said I'm not going to apologize for taking our time. I know that's high on everyone's agenda and pulling one. But I think we want to be careful. We want to be measured. And we're open to businesses there in different sectors.
I think the business that we do here in personal care, in food, in animal feed, those are all really high on our agenda too in the U.S. And we've done some good work. I'd love for the acquisition to be in that area. But geographically, look, we're open to wherever in the U.S. I think it would be pretty hard to throw a dart at the U.S map and think it's a bad place to have a business at the moment.
Okay. Fantastic. Thank you very much. Maybe just one additional question, and sort of, I guess, following on from the question regarding tariffs, but just looking at your inventory position has increased a little bit. It's still very much in line with historical levels. But just in light of, I guess, some of the geopolitical tensions or aspects at the moment, how do you foresee that inventory position and, I guess, your net working capital going on from here?
Kim, the net working capital we'll continue to be in line with our historical range. So as the business grows, the net working capital will grow. But it's still within the 30% and 32% of our net sales revenue.
Perfect. Very clear. Thank you for that. That's all from me.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Coneliano for closing remarks.
Great. So thanks, everyone, for joining us today. I'm very proud of what we've been able to achieve. I think the business is in a really good position. I want you to be confident in the company. We're going from strength to strength, and yeah, look forward to speaking to you at the full year with some more good news. Thank you.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.