Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Trifast PLC (LSE:TRI, Financial) achieved a 22% growth in the light vehicle sector, driven by new business wins and recovery in the automotive sector.
- The company improved its net debt-to-EBITDA ratio to 1.3 times and significantly reduced net debt through a GBP 15 million improvement in cash from reduced inventory.
- Completion of the Atlas project, implementing Microsoft D365 ERP platform, which replaced outdated legacy systems, enhancing operational efficiency.
- Trifast PLC (LSE:TRI) has a clear strategy to focus on three growth sectors: automotive, smart infrastructure, and medical equipment, aligning with their value proposition.
- The company has set a medium-term goal to achieve double-digit EBIT margins, with a structured plan focusing on margin management, focused growth, organizational effectiveness, and operational efficiency.
Negative Points
- Trifast PLC (LSE:TRI) experienced a decline in revenue due to a slowdown in the Asia economy and global distribution channels, impacted by lower China GDP growth and customer destocking.
- Interest costs doubled from GBP 2.7 million in FY '23 to GBP 5.4 million in FY '24, affecting underlying profit before tax.
- The UK & Ireland region saw a 10% revenue reduction due to customer destocking, reduced demand, and lower market pricing.
- The Asia region faced a 9.3% decline in revenue, driven by distributor sector weakness and subdued China demand.
- The company acknowledges a gap in operational efficiencies compared to industry best practices, which they are addressing as part of their strategic review.
Q & A Highlights
Q: Could you talk about the industry and how you go about increasing margins to over 10%? Do you currently have any pricing power?
A: Iain Percival, CEO: Improving margins involves value-based pricing and enhancing customer value through engineering solutions. We focus on fact-based pricing discussions, recovering inflationary costs, and offering higher-value products. Additionally, managing supplier costs through spend aggregation and supplier selection is crucial.
Q: Do antidumping tariffs or tariffs in general have an impact on your business?
A: Iain Percival, CEO: Tariffs like the Carbon Border Adjustment Mechanism impact us, but we see opportunities in compliance and localizing supply chains. Our Italian manufacturing facility positions us well to manage these challenges and support European customers.
Q: How do you go about having better visibility to forecast your demand?
A: Iain Percival, CEO: We use customer forecasts, macroeconomic data, and industry insights to guide demand visibility. While it's challenging without retail-like data, focusing on growth sectors with expected mid- to high single-digit CAGR helps us align efforts.
Q: How much will it cost to set up a manufacturing facility to serve the American market? Can this be financed from the company's debt facility?
A: Kate Ferguson, CFO: We have significant headroom in our debt facility, allowing for potential acquisitions or joint ventures. Costs will depend on the target's value, and we apply price discipline to ensure returns align with our strategic goals.
Q: What percentage of customers are small, the ones you want to pay more? How are negotiations going?
A: Iain Percival, CEO: We have a broad customer base, and while we focus on growth sectors, we continue to support profitable customers. We actively manage our customer portfolio, making tough decisions on low-profitability accounts.
Q: Could you guide on your expectations on timing to hit the 10% EBIT target, please?
A: Iain Percival, CEO: We aim to accelerate margin recovery faster than past erosion, focusing on steady progress through strategic initiatives. While cautious of macroeconomic factors, we target medium-term achievement.
Q: How will you develop your people to gear for EBIT growth?
A: Kate Ferguson, CFO: We're embedding strategic initiatives into performance objectives, creating a culture focused on EBIT growth. Enhanced control environments and negotiation tools support commercial teams in achieving better terms.
Q: Any intention of ceasing doing or making lower-margin products?
A: Iain Percival, CEO: We evaluate product profitability and are prepared to exit low-margin products without acceptable returns, aligning with our strategic focus on value-added offerings.
Q: Why pay a dividend? Why not save money for a couple of years?
A: Kate Ferguson, CFO: We balance shareholder expectations with financial prudence. While cash management is crucial, we've reduced net debt significantly, allowing us to maintain dividends while supporting strategic investments.
Q: How much percent of your sales are value-added versus commoditized fasteners?
A: Iain Percival, CEO: We supply a range of products, from specialized to standard fasteners, all specified and engineered. Our value proposition focuses on supply chain simplification, supporting customers' full fastening needs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
