Paul Brenton from MRS talks next steps following strong annual results
Last week saw Australia-based Management Resource Solutions unveil a strong set of results for the year ended 30 June 2018. The period saw its new management introduce major cost-cutting measures. Meanwhile, its mining services and earthworks divisions enjoyed strong demand. Despite this, shares in the business faced a 13.8pc hit on the day the of the results’ release. Here, MRS chief executive Paul Brenton tells us what investors may be missing.
Turnaround efforts
MRS delivered year-on-year improvements across the board in the 12 months ended 30 June 2018. For most of the period it operated under a new leadership team headed up by Brenton and chairman John Zorbas. They joined when the firm’s previous board was ousted following a period of shareholder activism.
With revenues coming in at $69.1m, up almost a third on 2017, the new management has had an immediate positive impact. Meanwhile, EBITDA hit $12.3m, up from a loss of $4.9m, and net profit after tax reached $5.4m, up from a $10.8m loss in 2017. Despite this, shares failed to bounce on the results. As such, Brenton says the market is yet to acknowledge the progress the company has made:
‘The results do not seem to acknowledge our success in turning MRS around and stabilising it so it is in a position where it now has two years of clean audits. This puts us in a great position to move forward with an excellent revenue base. We have gone from a loss to a profit over the year. This is a fantastic result for the management team. We can now move forward and drive even more profitability.’
Cost-cutting
MRS put its strong results down to two main drivers. The first of these was its efforts to cut costs by bringing together the two sides of its business. These are Bachmann Plant Hire and MRS Services Group. This has seen it align capabilities, leverage group purchasing and restructure senior management. It has also set up group HR, asset management, procurement, and financial management functions.
Brenton said the work has led to around $3.5m of cost savings from MRS Services alone. He argues that the results provide proof that the initiatives are working. The business is now in the second phase of cost-cutting, which will see it improve communications further and refine overheads.
‘As well as increasing synergies, there has been a firm focus on ensuring we get the best prices for our supplies,’ he said. ‘Now the results are in I think the proof is in the pudding. What we have been talking about is now coming through. We are now in the second phase of cost-cutting, refining overheads and doing more restructuring between the two entities. Now we have a better utilisation of communications we are seeing more and more ways to streamline and improve efficiency.’
Demand growth
MRS said its second growth driver has been strong demand for specialist services. This has been clear across both divisions.
To recap, MRS Services Group operates in Hunter Valley, New South Wales, where it offers a wide range of mining services. These include equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, and road construction. It serves many types of clients. However, it currently makes around 90pc of its turnover from blue-chips like Rio Tinto, BHP, and Glencore
Over the results period, MRS said ongoing demand for high-quality coal supported the division. In particular, this came from China and East Asia where more than 1,000 new coal-fired power stations are planned. As a result, the period has been the first full year of contribution from the subsidiary. Indeed, it generated net profit after tax of A$5m on revenues of A$46.2m. This compares to a net loss after tax of $7.4m over nine months in 2017.
Meanwhile, Bachmann Plant Hire operates in Ipswich, west of Brisbane. The arm is the market leader in the area for bulk earthworks in the civil construction industry. It also builds and rehabilitates residential and urban building pads, sports ovals & dams, and landfill sites.
As with its services arm, MRS said cost-cutting boosted Bachmann over the results period. However, it said it is also benefitted from the Ipswich Economic Development. This is a plan to attract 292,000 people to 20 local employment and population growth areas. It is set to create 120,000 jobs by 2031 and requires more than 500 new residential dwellings per month. This is resulting in the fastest growing residential growth corridor in Australia. It is also providing Bachmann with a steady pipeline of low-risk work.
Addressing concerns
One figure that may have caused some concern is MRS’s cash position, which came in at $50,000 on 31 June 2018. Brenton says this does not reflect the company’s financial health because cash fluctuates every week. As a result, this figures only provides a snapshot of time from around five months ago.
‘Our cash might look tight on the week of reporting, but we run a capital business. This means we have lots of equipment and a weekly payroll. As a result, our cash at bank balance fluctuates on a weekly basis anywhere from a couple of hundred thousand dollars to a couple of million dollars from week-to-week. As we are paying weekly, money is continuously coming in and out the door. For a growing business with capital equipment, cash management is a full-time part of the role, so we are very much on top of it.’
Another possible red flag could have been the absence of an update on MRS’s nomad situation. Last month saw the company announce that Northland had ‘voluntarily agreed to relinquish’ its nomad status. MRS has until 1 February 2019 to find a new nomad or risk the suspension of its shares. However, Brenton tells us that MRS has made steady progress here. He expects the company to announce an update early in the next calendar year.
Moving forward
Finally, the results saw MRS announce that trading in its new financial year has got off to a good start. Zorbas added that both sides of its business are operating in the strongest position they have been in years. Indeed, as it stands, Bachmann is currently working close to full capacity. Meanwhile, MRS Services Group is experiencing healthy end-market demand. It is also benefitting from ‘strong and stable’ Hunter Valley thermal coal prices. This is giving coal miners the confidence to commit to repairs and maintenance.
Speaking to Total Market Solutions, Brenton echoes this optimism. He says that the market can expect more deals and contracts on the horizon. This comes weeks after MRS announced that its services arm had secured a six-month contract to refurbish six excavators.
‘There will be a steady stream of contracts and work. As we move up to Christmas we are preparing for a lot of work, and much of it will start to be awarded between now and early 2019. We want to expand outside the Hunter Valley as well. There is quite a lot of opportunity to extend our footprint, which is what I am currently focusing on. Meanwhile, we are excited to deliver even more value for shareholders in the current financial year.’
Paul Brenton caught up with us via an audio interview which you can find here
