Their explanation for working capital : "capital light business and benefits from a favourable net working capital position as Shape typically invoice customers in advance of the work being performed".
The main challenge with this company seems to be around its gross margin. It is already low (gross margin of 10.2 % in FY 19) and it keeps getting lower (8.2 % in FY 23). It is the main reason why their EBITDA went from around 4 % in FY 19 and FY 20 to 2.2 % in FY 23.
Different explanations they gave for the gross margin decrease : - FY 20 : "completion of several large and lower than average margin projects", - FY 21 : " ...due to excess capacity in the market due to covid and site access restriction and additional project cost due to covid". - FY 22 : "...reflecting the impact of the pandemic on the operating conditions". - FY 23 : no particular explanation. Just added a comment : "increase in underlying gross margin".
Overall, the company has an interesting profile of a company : - which has an increase of its project wins : + 22 % yoy (4 months 23) vs + 2 % in FY 23, - and a gross margin which seems to have bottomed in FY 23.
Interesting also to see the conditions of their performance rights : 2.3 million existing (=2.8 % of existing shares). Exercise of performance rights if the compound annual growth of net profit is 5 % (25 % vesting), 8 % (50 % vesting), above 12 % (100 % vesting). 1 million performance rights will be able to be exercised in FY 24 is NPAT is at least 14.3 m$ (according to my calculation) or an increase of 36 % vs FY 23. I find this condition of exercising a bit weird as it pushed the company to do acquisitions, without discounting the potential impact on the number of shares.
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