One of the largest privately-owned companies in Australia’s A$100 billion transport and logistics sector, Bis Industries, will step up efforts to validate the commercial credentials of key mining “innovation” development projects over the next year or so as it also seeks to grow its core road transport business in the domestic and selected offshore markets.
The company, owned by US private equity groups and touted previously as a potential $1 billion ASX initial public offering, recorded circa-10% lower EBITDA on softer revenue in FY21 due primarily to subdued Queensland and New South Wales mining markets. Surging coking and thermal coal prices mean these markets are expected to underpin strong volume growth this year even in the face of COVID-related supply chain disruption.
Pandemic travel restrictions have also added cost to Bis’ remote management of its Indonesia business, though it has continued to perform well.
“I would normally be travelling to Indonesia at least once a month and I haven’t done that since January 2020,” Bis CEO Brad Rogers told InvestMETS. “So that’s an example of where we’ve managed through successfully and the business has been going fine over that period of time … but it’s probably been more management intensive because of the inability to do things normally.”
Rogers went to Israel to sign a joint venture with Israel Aerospace Industries on marketing and development of vehicle automation technology before borders started closing in early 2020. COVID has slowed the progress of Bis’ Auto-mate venture, but it is one of several developments – along with the Rexx haul truck, a driver-safety AI analytics technology and a new underground haulage option – that could make a material difference to the company’s growth over the next few years.
The 160-tonne, 20-wheel proprietary Rexx truck, developed with Australian mining industry input, is designed to address a niche-market need but one potentially worth hundreds of millions of dollars if international market penetration and circulation can be achieved.
Bis thinks 2000 or more similar units could be procured in Australia alone. ‘Soft’ launched, effectively, in 2018, the truck is said to offer economic and environmental benefits in short-range (up to 40km) haulage applications, and that’s before miners start getting creative operationally. Hybrid and electric power, and automation, are in the product roadmap.
“Our research suggests the total addressable market globally is in excess of 20,000 units,” Rogers says.
“Even a very small penetration of this market would have a material impact for Bis.
“Rexx is at the stage where it is ready to go to the next level of its development journey now. We’ve had independent engineering certification of the value proposition, we’ve gone to customer sites and done paid trials, we’ve observed things that need to be improved and we’ve executed those improvements.
“We have had a lot of inbound global enquiries from existing customers and new customers in all mining markets of the world. We have been most focused on Australia and we would have been anyway [without COVID disruption] because this is our home market and this is where we are able to execute in the most controllable way to prove it up.
“But we are thinking about how we globalise Rexx to be able to make the most of its potential in a way that’s appropriately managed and there are different ways we can do that including through partnership models.”
Bis’ innovation model is straightforward enough, with projects generated organically in response to perceived customer needs and a significant in-house engineering and project management capability underpinning efficient execution. Returns come through service contracts. In its large underground coal business in eastern Australia fleet replacement offers another avenue for effective cost recovery. Last financial year the company outlaid roughly $5 million on R&D.
“As a company we’ve got two pools of product innovation effort,” Roger said. “One is around material movement, where we have a leading operating franchise, particularly on surface but historically in underground hard-rock, too, and then in underground longwall equipment.
“Supporting all of that we think the three biggest themes in innovation in an ancillary sense are automation, data and AI, and then decarbonisation. In terms of powering mobile equipment, we’re thinking about how we do that in a way that has the lowest carbon footprint and also, if it’s an underground application, the lowest diesel particulate output.
“So probably the next focus area for Bis is around electrification pathways, improvement of the DPRT [dual-powered road train] innovation into the next stage of its development journey, and then we’ve got some work going on in the background in the hard-rock underground space that we’ll be bringing forward in all likelihood in the next six months or so as well.
“We will keep going with new innovation channel ideas but there is a lot there to actually consolidate.
“It’s important that we not only demonstrate our capability to technically do things that prove themselves with their value proposition but then actually scale and achieve their promise from a commercial perspective, and that’s going to be a big focus for the next 18 months or so.
“Bis at its core is an operating business. [It has] long-term contracts with mostly large, mostly Australian, mining companies. The strategy of Bis is one that’s very much formed around being a safe and reliable operator – that’s how we pay the bills and deliver value on a daily basis to our customers – but overarching to that we want to be differentiated.
“It’s no use in my view matching what our customers can do for themselves [and] no use being identical to other services companies.
“We try to find points of difference and add distinctive, tangible value through innovation to our customers, to help us build long and enduring relationships with them. That’s going to help us stand out from an investment perspective and then also from a careers-for-our-people perspective.”
Bis currently employs about 1700 people across Australia and Indonesia, up 100 or so from a year ago.
The company has added and extended contracts in recent times in WA’s Pilbara region, central Queensland and in the Hunter Valley district in New South Wales.
Strong commodity prices almost across the board are driving new and brownfield project investment that is opening up new transport and logistics service opportunities.
“We stay away from pro-cyclical areas of servicing the mining industry, and pro-cyclical business models. So we don’t get into exploration, for example,” Rogers said.
“So you don’t see Bis either contracting or growing significantly and we’re fine with that.
“Spectacular growth for Bis in any year over the last 20 years will be 15-20%. Any more than that and we’re probably stretching our focus more than we’d like to, but conversely you don’t see us contracting even in a very challenging year any more than 5-10%. And that’s because we are underpinned by long-term contracts. The average customer contract relationship in our business is 20 years.
“We’ll add some contracts in a good year, but you’re not going to see 10 contracts added because we’re looking to be quite selective about how we grow.”
Bis has been a focus of regular IPO market talk since it passed into private equity hands in 2006.
Carlyle Group and Varde Partners took majority control in 2017. Debt was slashed by a whopping 76% to $280 million between 2016 and 2018.
The mining market went from peak to trough while Rogers was CFO at Bis and has been regaining strength since he took over as CEO in mid-2015.
But the fortunes of ASX mining transport and logistics leaders and Bis peers such as Aurizon Holdings (softer) and Qube Holdings (flat) over the past year will not have its owners rushing to the public market.
Demonstration of Bis’ ability to turn its investment in innovation into superior margins and possibly significant incremental growth, might.