Company Interview / GALE Pacific flags return to profit in FY25

Key points:

GALE Pacific (ASX: GAP) reports a net loss and lower revenue amidst tough market conditionsMarket share gains in the US with new placements in major retailersEncouraging growth in developing markets, especially the Middle East

GALE Pacific (ASX: GAP) has reported a net loss of $300,000 for the year, with revenue dropping by 7% to $174 million. Despite setbacks, the company improves its cash position to over $26.5 million. CEO Troy Mortleman attributes these results to tough market conditions in Australia and the US, and higher operating costs, including a $5 million investment in a new computer system. No dividend will be paid this year, but a return to profit growth is expected in FY 25.

Troy highlights macroeconomic headwinds, inflation, and adverse weather conditions as significant challenges. Consumer spending constraints and lower grain yields also impact revenue. However, GALE Pacific (ASX: GAP) is focused on managing costs effectively to counter these issues. Troy notes market share gains in the US, with new placements in Walmart and The Home Depot, and a rollout of the Heat Shield product.

Troy sees encouraging trends in developing markets, particularly in the Middle East. GALE Pacific (ASX: GAP) gains share through government-funded projects and new customers in Saudi Arabia. Performance in Europe is also positive, with growth in Spain and Italy offsetting challenges in Israel. The company aims for profit growth in FY25.

Full unedited transcript below:

0:11

High performance fabrics provider Gail Pacific has reported a net loss of $300,000 for the year, revenue dropping by 7% to $174 million. Despite the setbacks, Gail managed to improve its cash position, with net cash reaching just over $26.5 million. And the chief executive, Troy Millman, has expressed disappointment with the results, attributing the numbers to tough market conditions in Australia and the US, as well as higher operating costs, including $5 million spent on a new computer system. The company will not be paying a dividend and looking ahead, it expects a return to profit growth in FY 25 will get. Let's get some further detail now. Gail Pacific's chief executive Troy Waterman joining us now. Troy, welcome. Thanks for joining us. You've I've just mentioned there you're disappointed with the result. What do you attribute that to?

1:05

Yeah, a couple of things. Uh, Andrew. Uh, certainly, uh, macroeconomic headwinds, uh, really impacted our performance across, uh, both our Australian and United States business. On the consumer side of our business, is there the persistent high inflationary pressures, uh, constrained consumer spending. We also had some adverse weather conditions, uh, with in the first half of the year that impacted our commercial business in Australia, particularly on the agriculture and water containment side of our business. So so those things, you know, combined, um, you know, put a put a damper on, on, on demand from, from consumers and impacted sell through our major retailers. So overall there you summarising higher costs, lower revenue. Do you see that turning around.

1:51

Yeah we do I mean look we we're going to see persistent um impacts of those high inflationary pressures we think persist into FY 25. I mean, those things aren't going away as quickly as what we'd like. Uh, and so we do expect to see some challenging trading conditions coming through, which is why we're really focused on being able to manage our costs more effectively, particularly on the operating cost side of our of our business, and making sure that we manage that appropriately so that we can somewhat, um, you know, head off some of those more macro forces that are a little bit more outside of our control. So I see in Australia, New Zealand revenue down by some 10%, you're saying obviously affected by those economic headwinds, but you also point to a poor grain season. Just just tell us the impact that that's had on on your business. Yeah. Look, it's a significant driver of revenue for our business. I mean, we are the largest provider of of fabric that is used to cover harvested grain on the east coast of the country. And so when grain harvests and grain yields were significantly lower than they

2:51

were over the last number of years, where we've seen record harvests come through. A lot of that fabric is still, um, is still used out into the marketplace. So we saw demand contract on that. We didn't lose any share in that business. It's purely market driven based on on what that market really needs. And so it is it is quite material to us when that happens. Uh, and so uh, with uh with adverse weather as well impacting some crops in across the northern part of Victoria and southern part of New South Wales going into November last last year, that that really impacted our ability to be able to to drive revenue growth in Australia and Troy, outside of Australia. In the Americas, you also saw a 7% fall there in revenue. However, you point to the fact that you're making market share gains there, particularly for some of those major retailers.

3:40

Yeah. Look, in the in the United States, if we're picking up placements, uh, in a number of locations, particularly across, uh, Walmart, where we've secured an additional 1400 stores, uh, placements for our pet products there, we've also secured some additional placements in The Home Depot, as well, as well as roll out a brand new range of our proprietary Heat Shield products in our outdoor roller shade range throughout Lowe's stores throughout the United States. So we feel that we're well positioned that when the market does come back and some of those macroeconomic forces ease that, we're well positioned to be able to drive growth going into the North American summer in which is in Q4 of our financial year. Elsewhere in developing markets such as the Middle East, um, how's that performance and where are you seeing growth there?

4:27

Yeah, we're really encouraged to, to get, uh, revenue growth back into our developing markets. And this is our business across the Middle East, Asia and Europe in particular. The Middle East in particular, has had some challenging times over the last number of years through, uh, coming off the back of the pandemic, but also some, some really challenging credit conditions that we've been able to face, which has impacted our ability to grow revenue. But, you know, our team have been able to maintain It's a very tight credit discipline. So we've reduced debtor days, but importantly we've been able to pick up share as the market has recovered through particularly government funded projects. But also we've we've we've gained share through new customers in new regions, uh, particularly into Saudi Arabia, picking up some some additional specification work, uh, for some large projects in Neom and areas like that. So, uh, so we're really encouraged by what we're seeing in the in, in the Middle East in particular, Europe are also growing uh, as well. We have a business, um, or some customers in Israel, of course, that's been impacted by the ongoing

5:27

conflict there. But we managed to, uh, to offset that by growth in our, in our, um, business in, in Spain and also in Italy. So, so, so, so some encouraging momentum happening outside of our core markets of Australia in the United States. Sorry. Overall then in terms of your guidance, what are your expectations for FY 25? A see, you're seeing a return to profit growth. Does that mean you're actually going to get back into profit then?

5:53

Yeah. Look, that's that's what we're saying. Uh, we will we will certainly do that into our guidance going into this year. And we'll have more to say on that as we get further into the year in particularly, uh, what's happening at the moment in Australia, um, with, with our agriculture business. And as we get closer into a peak season, from a consumer point of view, that'll give us some more, um, some more indicators on exactly how we're going to be travelling, which we'll be able to talk to, uh, at our annual general meeting later in the year. Troy, I'm just interested, too, in those products that you provide, and like many Australians, would probably be well aware of, uh, of some of those products, including those shade cloths. Uh, given that that, Gayle, what you actually came up with, what HDPE the, the high density polyethylene fabrics that are used obviously in playgrounds and houses and the like. How competitive is this space? What is your product offer? Is there fairly unique offering if you like.

6:49

Yeah. Look, there's a couple of things that we offer. Um, that's unique. I mean, we control that end to end manufacturing process. And so these products need to, you know, to be tensioned and need to be installed for, for a long time. And so that's where our point of difference from the quality side of things really comes into it. Our customers have trusted that over 30 to 40 years that we've been in that in that space. But we also offer, um, your new technologies coming into our products. So Heat Shield is a good example of that, which is an additive that's gone into the fabric that reflects the ultraviolet rays and infrared rays, that makes the surface temperature of that fabric anywhere up to ten degrees Celsius cooler, which means then that underneath that shade sail or underneath that shade structure, you're getting a better experience. And so these are proprietary technologies and innovations that we've been able to to bring into our fabric. That also adds additional consumer benefit, which is why our customers, you know, choose to prefer, uh, gal specific fabric or cooler fabric, um, for, for their projects.