Company Interview / Seven Group soars on industrials boost

Key points:

Seven Group's earnings saw a gain of 14% to $1.93 billionRyan Stokes details the company's cost cutting measures and future plansSeven Group aims for high single-digit Ebit growth in FY25

Ryan Stokes, CEO of Seven Group Holdings (ASX: SVW), discusses the company's full year results. Seven Group's (ASX: SVW) full year earnings saw a significant improvements with a 14% gain to $1.93 billion. Its strategic accomplishment was increasing ownership of Boral (ASX: BLD) to 100%, as it showed a 61% gain in earnings to $372 million. Ryan explains the company is open to the possibility of deploying capital into areas where they can continue growth.

Ryan dives into Seven West Media (ASX: SWM), where despite profit dropping to $45 million, he considers the market has received their cost cutting measures positively. Aiming for efficiency across all aspects, Ryan states the company plans on executing numerous activities to achieve cost savings. He further highlights the importance of striving to build a superior media business that leverages their digital potential.

Ryan shares the company's outlook for FY 25, guiding towards a high single-digit earnings before interest and tax (Ebit) growth. He talks about the group's ongoing investment in personnel and technology to meet customer demand and to optimise working capital. Lastly, he emphasises the importance for the business to strike the right balance between growing and rewarding their shareholders.

Full unedited transcript:

0:00

Well. Seven Group Holdings has posted a 14% gain in full year earnings to $1.93 billion operating profit rising 20% to 1.42 billion, while revenue in the period rose 10% to $10.6 billion. Earnings at Boral up 61% to $372 million. Ryan Stokes, the CEO, saying increasing the ownership of Boral to 100% was a strategic outcome. Westpac earnings rising 25% to $623 million profit at the Coates business, up 9% to 327 million. A final dividend of $0.30 per share, fully franked, is an increase of 30% on last year's payout, and seven Group is guiding towards high single digit Ebit growth in full year 25. The market very much liking this result up 9% $40 nine. Meanwhile, Seven West Media's profit dipped to $45 million for the financial year 24, down 69% from full year 23. CEO Geoff Howard calling full year 20 for a tough result in a

0:59

challenging market. Adjusted earnings declined by 33% and attributed to the soft advertising revenues impact on the full year results. The company will be expanding its cost out program in the next year. It's already delivered $25 million cut back for the business TV advertising down by 8.2% for the year. It looks like the market is happy with that cost cutting increase. Seven West Media up 11.5%. Let's get now to the CEO of seven Group Ryan Stokes. Joining me now. Ryan congratulations. Looks like industrials a place to be.

1:32

Uh it's been a good year. We're very pleased to deliver out the 20% Ebit growth for Stewart. Thank you. So just talk us through some of the numbers. Because I mentioned that you had said the 100% acquisition of borrow was a good strategic move. Yeah. So I think the the 61% earnings growth in borrow was, uh, a very pleasing outcome. I think it also referenced the 10.5% Ebit margin. Uh, when we acquire borrow or our state can borrow and then the controlling stake we had an ambition to see, borrow, deliver on its potential and a double digit Ebit margin results. So this year it's achieved that we see more opportunity from an Ebit margin perspective. Uh, owning 100% of borrow also gives access to to the strong cash flow generation potential that the borrower has demonstrated through this year, uh, and more broadly. So we think combined with West Track and Coates, which are two other strong cash flow businesses, it does provide the group with a very strong basis, uh, to look at deploying

2:32

capital in areas where we can continue growth. When you look at the statutory net profit that was down 23% took us through why this was it's predominantly to do with seven Western media, I understand. And beach energy. Yeah. Both uh adjusted came through the the impairment uh, the beach took both to its, um, uh, I think kind of assets uh, through the year that that plays through in the SGI result. And similarly the marked market adjustment of the seven West share price, uh, for my, um, an online perspective, I think the strength really plays through in our industrial earnings, where they represent more about 90% of the earnings of the group today. Can we just touch on seven Western media, though, because you are taking more cost cutting measures there. Tell us what they involve.

3:23

Uh, I think yeah, those costs will be across um, very a number of attributes within seven West, uh, looking at how the team can continue to do things more efficiently, uh, and uh, looking to kind of adjust. Um, you know, so it relates to, to headcount and it relates to looking at investments from a, um, um, you know, programs, um, relates to the way we do things from, from an execution context. So it's a number of, uh, activities will, will yield that, that cost saving. I think the bigger point is just the discipline that the team are demonstrating and and looking at that the cost dynamic and how we can continue to to build a better, stronger media business, and particularly one that can deliver on its digital potential. Today, if you look at the digital audience, we definitely see opportunity to monetize that, that audience more effectively. And that's going to, you know, give us a better position, an opportunity to show

4:23

digital earnings growth and and change the perception of of Seven West and show that that that strong future that we think exists for seven West in terms of the interest rate picture outlook, I mean, the RBA making it very clear that they're not looking to cut anytime soon if they do start to cut as expected at the beginning of next year, does that help out the advertising market, do you think?

4:44

Well, it's an interesting question. I mean, I think the the underlying strength of the economy has been one of the reasons that they haven't cut to date. Um, so, uh, you know, that that may, uh, cut may improve things. I certainly think it'll take the pressure off a lot of households. And that's a positive, um, in that context. So, uh, I think the more important point is moving out of what we would say was a pretty aggressive hiking stance into a into a stable stance is a positive in its own right. I think the economy is resetting and rebalancing. Uh, and all that has been been more positive. I think seeing the results for other retailers to date is reinforces that that's probably a bit more robust. Um, so, you know, the, uh, consumer environment will hopefully be able to navigate through the current rate, um, environment and managed to show some some economic growth in terms of the further cost cutting, is there further jobs to be cut as well? You flagged about 150 a month ago.

5:46

Uh, in relation to, um, that's the seven West. Um, so it's probably better for, for Jeff to comment on that. I think in relation to, uh, costs more broadly, it is a key principle, um, within, within our operating model, within that, we continue to look at where we can take operating efficiencies and, and do things more effectively. Continuous improvement is a core part of how we drive, um, and improve our business. Kind of each day and each year. Uh, Westpac's delivered operating margin expansion. Um, uh, coats has delivered that, um, margin expansion. Boral has as well. Uh, beech has got its own plans in relation to cost efficiencies, I think just in this environment. It's an important aspect to how we, uh, have business can ensure it's able to drive productivity gain just through, um, efficiency gains, that that's going to be a key focus for, you know, certainly for our businesses. And Ryan, as you focus more on the industrial side with those good numbers you mentioned from the likes of Westpac, Boral, coats,

6:45

what's your full year 25 outlook like? Yes, we're guiding to high single digit Ebit growth in FY 25. Uh, this year we deliver 20%. I mean, if we look back to what we position when we released our results last year, it was a high single digit Ebit growth. So, um, from what we see today, we're confident in the outlook from a um, certainly the markets we serve. we see that growth playing through positive from an SG perspective. And I think, uh, Westpac is positioned around that mining production. We think demand from customers remains robust. We build inventories to support that, that very active demand from customers, uh, which will play through at FY 25 and Coats and Boral playing into the infrastructure and construction sector. I mean, both have positive dynamics. Uh, on balance, we feel very comfortable where our business as a place for the results in FY 25 and revenue $10.6 billion, up about 10%. What do you plan to do in terms of investment in in

7:45

people in technology and potentially I

7:49

yeah, that, you know, it's interesting because we've spent a lot uh, particularly in the services side. So it's a frontline workforce, uh, our, you know, mechanic workforce within West Track. We've been investing in to grow that workforce, support customer demand.

8:03

Uh, so we're where there's been, uh, demand requirements. We have been investing building capacity within facilities and ensuring we have sufficient capacity to meet customer demand. In technology, we've used, uh, uh, a lot of different, uh, technology platforms, certainly elements that can drive, um, you know, kind of advanced, uh, you know, kind of, um, uh, insights and ability to better optimize, um. Uh, working capital. So for us, um, you know, we've done that through a kind of a digital workshop management tool for WestRock where we've been able to kind of get better velocity by using a form of AI, certainly a digital twin environment from a for our, our workshop. And that's been really effective at driving velocity through our business and supporting our customer growth. So the number of elements that will play through from a technology front. And for us, we'll continue to make investment. And Ryan, just on the

9:03

shareholder return, I mean a final dividend or the the full year dividend $0.53 per share fully franked. The likelihood that you can continue to grow dividend payments.

9:14

We've got an approach to dividend where it's stable and growing over time. It's been a while where it's been stable this year, it's we've increased it so that that has been a positive dynamic. We are you know, the dividend is an important component for us. It's a way to reward shareholders in a balanced way and a balance for capital management. The cash flow of our businesses will similarly enable us to continue to reward shareholders, and we aim to strike the right balance between where we can invest in our businesses to grow, as well as to ensure we're rewarding shareholders. I would highlight that. The other point that we emphasize through the results is that

9:54

over a decade, we've delivered 18% Ebit KGaA. And we look at our TSR over a decade, and there are a few companies that can sit in that top decile performance as we have. So it isn't just about, you know, one off result. This is about putting the framework in place to deliver results and superior performance over the long term.