Earlier this week I posted a straw in relation to Mader's results where I expressed some yellow flags over what was otherwise an excellent result. Following that I contacted Mader's CFO - via investor relations - and I wanted to give you their response (a) so you have that information if it's an investment you have or are considering and (b) highlight what excellent investor relations looks like given they both emailed me and phoned me to give additional context. My email and their responses to it are below (I have added italics so you can differentiate their response):
To Paul Hegarty (and team),
Firstly congratulations on an excellent result for Mader in 2021. As a shareholder of Mader it is gratifying to see the growth strategies playing out. I appreciated you taking my question on the investor call and will relay that positive experience to the shareholder forum of which I am a member (not Hot Copper!).
I had a few queries from your Annual Report (one main one and a couple of ancillary ones):
- Just following up on the question I had about the receivables balance of $67.9m. In order to get comfortable with that number:
- Can you provide a breakdown of the ageing of this balance? Or at least some commentary on the ageing or receivables write off in the past 12 months? We don’t typically provide this level of balance breakdown however we have not written off anything in the past 12 months.
- The annual report states terms are generally between 30 and 90 days. Does this mean your credit terms are literally more than 30 days or is that the payment period you accept given the counterparty is typically a tier 1 mining company. I understand how that might be but I’m just trying to get my head around what is the biggest number on your balance sheet. Our credit terms vary according to customer and contract. Whilst terms state between 30-90 days, on average, we are paid between 45 – 60 days. Outstanding trade receivables are regularly monitored with focus being placed on customers that exceed their credit terms and who are not within the specified limits established by management. Mader is comfortable with our debt and receivables profile, which includes many top tier mining companies with low risk of default.
- An immaterial question but one that I was scratching my head about – how are you getting 5.4% on cash and cash equivalents? 5.4% is an average of our interest. Whilst the majority of our bank accounts are in Australia, we have some international bank accounts too which skews the interest rate.
- I was late to the investor briefing but I don’t recall hearing any commentary on labour cost pressures as some others in the mining industry are calling out. Is that the case and if so is that in part reflecting the benefit of your apprentice program? We are definitely seeing labour pressures as a result of the skills shortage but this isn’t new to us. We have been experiencing this for 5+ years. Our competitive advantage compared to our peers, is our method of customer engagement which offers a great deal of price protection and flexibility. You can see this on slide 4 of the annual report. Our uncontracted work is quoted day to day giving us much pricing power to maintain stable margins. Our contracted work has annual rate reviews but in a fast moving markets we can supply our labour to higher margin work as there are zero volumes guaranteed as part of these contracts
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As I said earlier in addition to the email response Paul ???????called me to give additional context and I don't think he'll mind me relaying parts of it, including an emphasis on Q4 being particularly strong (and particularly May and June being record months). He also highlighted that the growth in the U.S. works against their working capital because payment terms are typically accepted as longer.
One other thing that really impressed me was that without being prompted he said that given the interest in that number they'd consider adding an ageing breakdown to their disclosures. For a couple of minutes work he managed to get me - and hopefully now you - very comfortable with the balance of their receivables. I will post a straw (so it gets saved against Mader in the companies tab) musing on what that receivables balance might tell us.
Do you have a really good (or bad) investor relation experience to relate?