Release Date: February 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 11.4% to $104.4 million compared to the first half of the previous year.
- Gross profit rose by 15.5% to $70.9 million, with gross margin improving from 65.5% to 68%.
- Underlying EBITDA grew by 32.7%, indicating strong operational performance.
- The company reinstated its dividend, declaring an interim dividend of $0.01 per share.
- The Best Mates program saw a 19.3% growth since September, bringing in nearly 1,600 new animals.
Negative Points
- Net debt increased by $2.4 million, reflecting the impact of acquisitions.
- Operating expenses rose by 12.6%, driven by acquisition impacts.
- Like-for-like revenue was down 3.8% due to the impact of restructured clinics.
- The company faces a 30-40% drop in revenue from animals in their second and third years post-COVID boom.
- No further acquisitions are expected in FY24, potentially limiting growth opportunities.
Q & A Highlights
Highlights of Apiam Animal Health Ltd (ASX:AHX, Financial) Earnings Call
Q: What is the targeted net debt to EBITDA multiple the company is looking to achieve before embarking on another round of acquisitions, noting that it's currently at just under 3 times?
A: Christopher Richards, Managing Director, Executive Director: We don't intend to make any acquisitions for the rest of this year, which means we'll be generating some additional cash. We expect that to trend down towards 2.5 times, depending on the phasing of our future acquisitions.
Q: Do you expect earnings to be the same or higher for the second half of this FY24?
A: Matthew White, Chief Financial Officer: We expect earnings to be similar to the first half. There's a bit of seasonality in the business, but we also expect some opportunities around restructured clinics to improve the result in the second half.
Q: With the acquisitions, what's the revenue growth potential organically? Can you quantify this?
A: Christopher Richards, Managing Director, Executive Director: We expect organic growth to be between 3% and 5%. More importantly, we are focusing on earnings leverage by extracting synergies from the clinics.
Q: Will the final dividend for FY24 be at the same quantum as the interim dividend just declared?
A: Christopher Richards, Managing Director, Executive Director: The final dividend will depend on the results by the end of the year. The Board will consider several factors before declaring a dividend.
Q: Can you elaborate on why the growth this period was lower than previous periods?
A: Christopher Richards, Managing Director, Executive Director: The lower growth is due to the post-COVID pet cycle. Animals from the COVID boom are now in their second and third years, where revenue typically drops by 30-40%. However, we expect revenue to increase again as these animals age.
Q: How much more earnings leverage do you think you can get on your cost base moving forward? Will this continue to improve earnings margins?
A: Christopher Richards, Managing Director, Executive Director: Our clinic portfolio's EBITDA margin is about 4% below other large veterinary groups. If we can capitalize on half of that over the next 12-18 months, it would be significant.
Q: How do you see free cash flow building in the second half if no acquisitions are planned?
A: Christopher Richards, Managing Director, Executive Director: Free cash flow will align with our underlying EBITDA. We expect revenue and earnings to be similar in the second half, so cash flow should also be similar.
Q: Do you see Apiam as a takeover target at current market valuations?
A: Christopher Richards, Managing Director, Executive Director: We are focusing on our current business and extracting earnings leverage. We don't really think about being a takeover target.
Q: Can you comment on CapEx in the first half and the split of CapEx between growth and maintenance CapEx?
A: Matthew White, Chief Financial Officer: This varies from half to half. The first half of this financial year focused more on maintenance, catching up with vehicle supply issues. It swings from half to half.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
