Aimia Inc. (AIM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Aimia announces Tufropes' acquisition conference call.[Operator Instructions] I would now like to turn the conference over to Mr. Albert Matousek. Please go ahead, sir.

Thank you, Laura, and welcome, everyone, to this morning's call. Today's presentation is available on SEDAR and on our website. Before we get underway, I would like to remind everyone to review our forward-looking statements and the cautions and risk factors pertaining to the statements, as well as the non-IFRS measures and presentation of financial information disclaimer, all of which can be found in the presentation in the Investor Relations section of our website. My name is Albert Matousek, Head of IR and Communications. With me on the call today are speakers, Phil Mittleman, Aimia's CEO; Michael Lehmann, our President; and Steve Leonard, our CFO. Phil will cover the strategic highlights of our announced Tufropes transaction, followed by Michael, who will review the investment rationale for the acquisition, and Steve will speak to some of the financials. With that, let me hand it over to Phil.

Good morning, everyone, and thank you for listening in today. We have been hard at work pursuing an exciting pipeline of investment opportunities with long-term track records of free cash flow generation and strong growth prospects. Today marks an important milestone for Aimia as we have announced the signing of definitive agreements to acquire Tufropes, which will be our first acquisition since the sale of our PLM stake in the second half of last year. We are very excited about this acquisition. The family-owned business founded in 1992, Tufropes is a global leader and the manufacturer of high-performance synthetic ropes, netting solutions for the aquaculture and maritime sectors as well as numerous industrial end markets, including manufacturing, construction, safety, agriculture and horticulture, sports and recreation and transportation. Aquaculture is among the fastest-growing sectors within the food industry and now supplies more than half the world's fish for human consumption. Tufropes produces high-performance synthetic ropes and netting products that provide compelling lower-cost solutions for the aquaculture industry with higher reliability. Tufropes' revenue is geographically diverse with its products sold in over 70 countries with 34% of revenues generated in Europe, 34% in Asia, 20% in the Americas and 12% in Australasia. Tufropes reaches these markets through a strong global sales and distribution network, supported by over 2,700 employees operating within five manufacturing plants based in India. It produces high-quality advanced products on a cost-efficient basis with the manufacturing capacity to produce up to 70,000 metric tons of rope and netting solutions per year. Tufropes is expected to achieve annual revenue of approximately $130 million for the fiscal year ending March 31, 2023, and industry-leading EBITDA margins of 18%. Based on reasonable assumptions, such as operational improvement initiatives as well as the optimization of product mix, EBITDA margins are expected to grow above 20% within the next two years. Since 2001, the company has grown revenue at a compounded annual growth rate of approximately 20% with limited capital investment requirements and high free cash flow conversion. Aimia will add key senior management and sales and marketing positions in Canada and Europe, strategically located near key customers and allowing Aimia to use its tax attributes. Tufropes represents an outstanding opportunity for Aimia to acquire a global market leader with a long track record of organic revenue growth, leading EBITDA margins and strong free cash flow generation. And with that, let me turn the floor over to Mike to provide some further detail. Mike?

Thanks, Phil, and good morning to everyone. As Phil noted, we're really pleased to have found such an attractive business to acquire. Of the two business lines within Tufropes, ropes represents 76% of overall sales and the higher-margin netting segment represents 24%. One of the primary initiatives is to increase our penetration of the netting market. Tufropes is a top three global manufacturer of high-performance synthetic fiber ropes with a 12% market share. We see the high-performance synthetic rope market currently at USD 0.5 billion, taking a greater share of the $12 billion global rope market as industries look to move away from steel ropes and cables to lighter weight and durable high-performance synthetic rope products. Businesses are looking to manage their total cost of ownership and high-performance synthetic ropes offer lighter-weight solutions to save on energy costs and provide for safer and more productive solutions for personal handling of these products. Tufropes is the second largest global player in the aquaculture and net solutions industry, currently holding a 5% share in the highly fragmented market of over $450 million. We expect the market will continue to grow at a high rate as the world continues to source more fish protein. Tufropes uses the same high-performance synthetic fiber to produce nets to the aquaculture market. Aside from being a lighter product, the netting solution offers customers higher reliability in terms of ensuring the cages are durable and mitigates the risk of loosing fish due to netting failures. This is a significant advantage over the cheaper synthetic and nylon net used within the industry. The netting market remains highly fragmented, and we believe there are significant opportunities to grow the segment, both organically as well as through strategic acquisitions. Finally, let me highlight our strategic rationale for the acquisition. First, we'll be acquiring a global market leader with a number of sustainable competitive advantages, including technologically advanced products driven by an in-house R&D team as well as advanced manufacturing expertise and scale across its five manufacturing facilities. Second, the company is selling into a highly attractive, large and growing end market bolstered by the secular trend of fiber ropes replacing steel wire as well as the growth in aquaculture. Third, the company boosts an attractive financial profile and cash flow dynamics. They have a 20-year track record of 20% compounded annual growth in revenue and industry-leading EBITDA margins and strong free cash flow conversion. Fourth, we see opportunities to grow and improve margins by building on the company's existing strength through operating initiatives, investment in leadership, sales and marketing and pursuing strategic acquisitions. And with that, let me turn the floor over to Steve to provide you with some details on the transaction. Steve?