Aimia Inc. (AIM) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today at Aimia's Annual General Meeting of Shareholders. My name is Joe Racanelli, I'm the Vice President of Investor Relations. Our agenda today is going to be as follows: Rhys Summerton, Aimia's Executive Chairman, will be making a presentation. And following his remarks, we will open up the floor for questions, both here in Toronto and as well as online. At the conclusion of the question-and-answer session, we will then have the formal meeting of shareholders. And for those who have submitted their proxies voting will only be done here in person. We will be making use of statements in our presentation today. Please refer to those risks in the presentation as well as in our disclosure material available from our website as well as on SEDAR+ and including forward-looking statements, we will be making note of GAAP and non-GAAP financial measures. Reconciliation of these numbers is provided in the appendix of our presentation. With that, I'd like to now turn the presentation and our discussion over to Rhys Summerton.

Well, thanks, Joe. Good morning. Thank you for joining us today. I think what we're going to go through is -- some of the highlights from the most recent set of results and also what's happened at Aimia since the last AGM. And we will then have a slight change of format. We're going to have a question and answer. If there's any questions, as Joe said, submit them, we'd be happy to answer them, and then we'll go to the formal part of the presentation. So first, slide that we have is just highlighting the results that have come through the 2024 results and then continued momentum into the first quarter, which was great. We then had this cooperation agreement signed as the largest investor, which we'll touch on, launched the NCIB, which generated a benefit for all shareholders who are part of EMEA going forward, and then we have the SIB and the reduced board size as well, which we're going to touch on. And then really the most interesting part is the most probably for shareholders is what the strategy is going to look like going forward, to create shareholder value. So let's just run through what the numbers look like. You'll see here there's been consistent progress in terms of EBITDA. Revenue, there's been a little bit of volatility with that number. But really, it's progress, and even into the first quarter of 2025, you'll see that EBITDA is continuing to grow even sequentially, which is a good number. And it really just shows the strength of the underlying businesses coming off a low base but continued improvement. This is the guidance that we've given, so just a word on guidance. In the future, we're not really going to be a business or a company that provides guidance or earnings guidance. This is going to be a business that is rather going to deliver. You can see what the results are going to be. but we thought we'd keep the guidance going for now because we've already provided it. Any changes to the group going forward, we will remove the guidance and we would rather then have a situation where we deliver results, and then report them. But as far as guidance is concerned, in 2024, the guidance that was given was achieved really at the bottom end of the range, but it was achieved. And that helps us to understand what drove that and those were the core holdings. So the core underlying holdings, which you'll see are Bozzetto as a reminder, that's a specialty chemicals company headquartered in Italy. In 2023, it was acquired for $258 million, which was 94% of it. And it's a business that's been going for over a century in terms of operations, it's got a very long-term track record. And in on a trailing 12-month basis, it's generated about $348 million of revenue and $60 million of EBITDA. So that's the size of the business in Canadian dollars. Three parts of the market that it operates in, textiles, dispersion solutions and water solutions. So what are those? What you can see on the textile side, that's the apparel and home textiles, dispersion solutions, really any business that's involved in construction, benefits from that in mining and then water solutions, that's home care, personal care and industrial water treatment. I'll just draw your attention to some of the competitive advantages here, which are kind of interesting to think about, because if you think about textiles, they've got a very broad product range of 900 solutions. And then on the dispersion solutions side, one of the strong advantages of this business is its proximity to customers. So it's able to service the customers because of being based in Italy. And then Cortland, just a bit of background on Cortland. You might remember, this was an interesting one. It's a rope and netting solutions business. It should be a very simple business on paper because it's made up of 2 acquisitions that were made back in 2023. The one was tough ropes, which was based in India and the other is Cortland Industrial, which was in the U.S. combined those entities were -- I think Aimia paid $263 million for those entities. And so it's been off to, I'd say, just analyzing it from the outside. I think when we look at it, there's been a bit of volatility at the start of the holding of the investment in those two businesses. But slowly, we started to see some consistency come through. And you can see that on the next slide -- sorry, let me just go back a slide here. You can see that these are the two groups of business, as I said, Tufropes and Cortland. On the commercial fishing side, that's on the Tufropes part and then more on the offshore oil and gas on the Cortland side as the key markets. Then what we'll do is look at some of the other developments. This is nonoperational and what's happened over the last 12 months or since the last AGM. The first one which tied a little bit to do with was this cooperation agreement with Mithaq, which came through. I think there's been a lot of discussion and talk about what happened with the various shareholder agreements that Aimia was part of. I think what's important, and I want to make this point publicly is we've put all that behind us. So as of this AGM, I think this marks the first AGM where no shareholder has been required to vote in a particular way. And I wanted to make sure that no shareholder was required to vote based on some agreement from the past. This is a complete freedom for any shareholder to vote if they support us, that's fine. If they don't, we're very open to discussion. And we want to ensure that when we look back in 20 or 30 years' time, that no shareholder was ever forced to vote in a particular way. And the cooperation agreement with Mithaq was kind of the first little step in cleaning up the whole shareholder situation that Aimia found itself in. This was the SIB $54 million gain from the SIB that was really buying back the preferred shares and then issuing debt, which matures 2030. So that has an annual saving of about $5.1 million and an overall gain of over $50 million. And when you put into the context of what the net asset value or the equity values of Aimia, it's obviously a material benefit. This again, I think what we wanted to allude to is the size of the Board. We've reduced the size of the Board. I think at one point, Aimia had 10 Board members recently, and we've reduced that down to 5. I think we've got a very good mix of Board members now, both ensuring some continuity from what's happened in the past. There's been a lot of deals that have been done, acquisitions made. So it's important that we kept that institutional knowledge, and then, I think importantly, we added Steve Leonard on to the Board. And in Canada, it's never a bad thing to have a Leonard on your Board. So we've got Steve. He's the one without the beard. He's been the President and CFO up until now 35 years of experience. And then we've also got Tom Little, who is Canadian and helps us on the audit and risk committee as well. This is an interesting part maybe for shareholders to think about is what does Aimia look like going forward? And there's always questions about how will the capital be allocated in the future. And we're very happy to talk about that. But that's kind of the opportunity that's going to be left into the future. We're not there yet. We've got to do two things before we even get there. And that is first things that are now in our control, reducing Holdco costs. Holdco costs, I think at one point, Holdco costs were running even $20 million, $30 million, $40 million for this business, they've slowly come down. And I think there were about $12 million and dropping to $11 million. We hope to get that number way below the guidance that we've issued. Long term, we want that Holdco cost number to be below 1.5% of NAV, and not just a little bit below, we wanted to be substantially below that. So that any investor that looks at putting money into Aimia or looks at putting money into another fund or another structure, Aimia is comparable and there should be no reason why we can't get there. That's within our control, we have a plan in place, and we want to execute on that. And then the next part is reducing this discount that Aimia trades at to, what is an NAV or an equity value. Now nobody knows exactly what the NAV is, because you only know that when you have a market value in place. And these are privately held assets. So we have a best guess or a range of where we think the value should be. And what we think is that we're going to reduce that discount as much as possible, using available cash resources. At the moment, every share we buy back, we add significantly without taking much risk on to the value of all the shareholders that stay in Aimia. And so it's a very easy decision to say what we're going to allocate the cash in the short term, and that is buying shares back. But then the interesting part comes in, how do you allocate capital after that? So what happens once you've reduced the discount and cut Holdco costs? Well, then whatever cash we have, we can start looking at possible investment opportunities, and those investment opportunities eventually will be to utilize the tax losses that Aimia has from the past. So let's just discuss the Holdco cost a little bit more. Already, we've drawn attention to the director compensation. So we have the size of the Board. We went down to 5 Board members, it's fit for purpose. It's a good board. In the process, we've saved $1.3 million. We've looked at the audit fees. We've had some very good discussions with our auditors. And we think we've made some good progress there, and you'll see the benefit of that in 2025 and 2026. And then office rent, we've already implemented that change. You'll start to see that in the second half of 2025. And then other -- let's call them nonessential costs. You can have costs which are luxuries and you can have costs which are absolute essentials. And we're looking at continuing with the essential part of the Holdco. So you'll see the benefit of that. But like I said, we hope to be significantly below the guidance that we've given. Then, there's a progress on the buybacks. You'll see, I think in the first quarter results, we showed this graph without the graph on the right there without showing the shares that we've been able to buy back since the blackout period has opened. And so, I think we bought back 142,000 shares since that window has reopened. You can see that there's been a step up in the pace of buybacks and we'll look to continue that. As I said, it's a very easy decision to buy back shares when you're trading at such a discount to the value. And then finally, on how the capital gets deployed into the future. Eventually, what we see is, the opportunity to utilize over $1 billion of tax losses. And those tax losses are both capital, which will give us a shield for the different ideas that we have on utilizing that. And then obviously, the operating losses between the U.S. and Canada. So that's how we will start deploying that eventually. So, I guess the summary is, we're on track. The first quarter was good, continue to deliver. There's obviously, some uncertainty in these times about how operations, particularly in the sectors that we operate in, how they will perform. But I think we're fairly confident that we'll continue to deliver on the guidance that we've provided, especially the guidance that are in our hands to deliver on, so like the Holdco costs, closing the discount. That's where we can really achieve what we've set out to. And with that, before we go into the formal part of the meeting, if there are any questions, we can take them now.

So, we received a few questions already from investors online. First question, what type of companies will you be targeting to make investments in?

So I think that just to reinforce the point, we're not there yet. We've got these other things to do. But eventually, the companies that we're going to look for, I think, will have at least two very important criteria. The one is that they will have net cash on the balance sheet. So we're not going to buy anything that's got debt. And that's a critically important message to make, because any acquisitions that we make, we want to be able to get them to be generating cash and to be able to allocate that cash as well. It doesn't help when that company that we buy has got debt and then all the money is going into repay the debt. And then the second part of it is, we must get a very high return on equity for anything that we're looking to acquire. So we will probably tend to be on the smaller side initially, until we get critical mass or scale within Aimia before we get bigger. But in the short term, it will be smaller companies and net cash balance sheets and very high return on equity businesses.

[Operator Instructions] Second question, Rhys, Warren Buffett and Charlie Munger have disparage the use of EBITDA as a financial metric. Why does EMEA use it? And will you continue on using it going forward?

Yes. It's a good question. We had a discussion this morning. We are going to look at free cash flow numbers in future quarters. So what you'll find is a far bigger emphasis on annualized numbers. and a focus on how much cash flow is actually coming up into the Holdco, that will be able to be allocated out for different capital allocation decisions. So I completely agree. If you look at the first quarter 2025 results, we've made a slight change there. You'll see that for each division, we've actually indicated what the CapEx number was as well. And that is so that investors can actually see the level of free cash flow that's coming out of the two underlying investments that we own. But that is a very valid and good point.

How will you determine which of your core holdings you will keep and which will you sell?

Well, we haven't said we're going to sell. We've said that we're going to obtain valuations, reliable market values for them. if it ends up that there is interest in the underlying businesses, then that's a decision that we'll take. But we'll always look at things through the lens of what's the right capital allocation decision. And right now, when we can buy shares back at a substantial discount to the range of values that we think they worth. And if that number then gets reinforced by maybe what an acquirer is prepared to pay, I think the decision is going to be very easy.

Okay. And you recently acquired about 5% of the company's shares. Do you plan on adding more?

Yes. So I think we'll eventually end up with owning between 10% and 15% of Aimia. Yes.

Okay. And so for our last question that we received online. Investments made by previous management failed to deliver on the promise of taking advantage of NOLs. Has the Board implemented any controls or oversight mechanism to prevent that from happening again?

Yes. So I think if you look at the Board, the Board is made up of directors who actually own probably combined nearly 40% of Aimia. So they really do have skin in the game. I can't really speak for the previous boards or the previous management teams, but I don't think it was that high. It was probably a lot less influential than what it is now. I think if you think about the -- utilizing the NOLs, what we've said is we'll eventually get to utilize them if the strategy works well. So if we do 1 and 2, then we will get to step 3, which we'll embark on a strategy to scale up Aimia and then eventually be able to utilize the NOLs. But we're not there yet. We've got those things to do first.

We did get one more question. Can you give us a bit of background on Milkwood's track record for return on its investments?

Yes. I think like I've said before, the -- any investor in Aimia that is willing to go into the Milkwood website, this isn't a Milkwood AGM. They are welcome to have a look at the letters and all they need to do is log in, and we'd be very happy to share the dates and they can see what we've done in the past.

Okay. There are no more questions, Rhys. I think we can now move on to the formal portion of the meeting.

No more questions? All good? Okay. So thank you for attending, and we will continue the meeting now with the formal part which will be -- which we will go through and I will sit over there. Let me do it again. Good morning, ladies and gentlemen. Welcome to the Annual Meeting of Shareholders of Aimia. My name is Rhys Summerton, and I'm appointed dependent Chair of this Annual General Meeting. My appointment was made pursuant to Section 7.14 of Aimia's bylaws, today's meeting has been held in person. Seated with me is Mathieu Giguère. Aimia's Chief Legal Officer and Corporate Secretary; and Steven Leonard, President and CFO of Aimia. The meeting will now come to an order. In accordance with Aimia's bylaws, I'll act as Chair of the meeting and I'll ask Mathieu to act as Secretary of the meeting and Francine [indiscernible] maybe I got that wrong. And [ Isabelle Vachon ] of TSX Trust Company to act as scrutineers. Before we begin, I will ask that you please turn off your phones or any other electronic devices. So it's not to disturb the meeting. The scrutineers will -- well, sorry, execution years have provided proof of mailing of the notice of the meeting and related form of proxy and Management Information Circular. I direct that a copy of the proof of mailing will be kept with the minutes of this meeting. The corporation's bylaws provide that a quorum of shareholders is present at a meeting of shareholders if 2 or more persons holding not less than 25% of the shares entitled to vote at the meeting are present in person or represented by proxy. The scrutineers have advised me that we have such a quorum. I direct a copy of the scrutineer's report be kept with the minutes of the meeting. With that said, I declare the meeting is properly convened and constituted for the transaction of business. This morning, we are joined by the following director and the following members of management: Steven Leonard, Director, President and Chief Financial Officer of Aimia; Mathieu Giguère, Chief Legal Officer and Corporate Secretary; and Joe Racanelli, VP, Investor Relations. Voting may only be conducted by shareholders in advance of the meeting and by registered shareholders or duly appointed proxy holders at the physical meeting in person. To the extent shareholders have voted in advance of the meeting and do not wish to change their vote, they do not need to do anything. For those voting at the meeting at the appropriate times, we'll ask you to complete a ballot as it pertains to each of the businesses. Preliminary results will be announced after voting closes for all matters and final results will be publicly available at the company's website in sedaplus.ca A simple majority of votes cast is required to approve the matters select -- voted on at this meeting. The annual meeting was called to consider 3 matters. We will conduct the votes on all matters subject to voting before us by ballot. On a ballot, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. Ballots were distributed to registered shareholders who had not previously voted by proxy and proxy holders as they are at today's meeting. If you do not receive any ballots, but think that you should have, please raise your hand and a representative of TSX Trust company will attend to you. Questions should relate to motions being considered as part of the formal business of the meeting. I encourage registered shareholders and proxy holders to submit your questions at the right moment during the meeting. In order to facilitate the timely completion of the formal business of today's meeting, certain shareholders or proxy holders have agreed in advance to introduce the second to introduce. And second, the motions on the agenda. I will invite them to do so at the appropriate time. This is not intended in any way to curtail any discussion. Now let's move to the first item of business. The consolidated financial statements for the end of December 31, 2024, together with the auditor's report thereon, were sent to the shareholders who requested them and are available on the corporation's website on sedarplus.ca. I declare that the financial statements together with the auditor's report therein have been received, and I direct the Secretary to file a copy of the financial statements together with the auditor's report thereon with the minutes of this meeting. Moving now to the next item of business on our agenda, the election of directors. The Board of Directors of Aimia have previously set the size of the Board at 5, and Aimia circular sets out a list of 5 directors for election as directors are Aimia until the end of the next Annual Shareholder Meeting or until a successor is appointed. The directors will be voted on individually rather than as a slate. Biographies of the 5 management nominees are included in the management information circular. Each of the persons nominated has confirmed that they are prepared to serve as a director of the corporation, and all nominees meet the qualification requirements for directors under the corporation's bylaws. I ask for a motion and a seconder for the nomination of the Aimia Director nominees.

Mr. Chairman, my name is Joe Racanelli, I am a shareholder, and I move that each of the following persons be nominated for election as a Director of the company to hold office until the close of the next Annual Meeting of Shareholders or until his or her successors are duly elected or appointed. The company's nominees are Robert Feingold, Steven Leonard, Thomas Little, Mohamad Asif Seemab and Rhys Summerton.

Thank you, Joe, with Mathieu Giguère, a member of the executive team, second this motion.

No, I second the motion.

Thank you, Mathieu. I note that pursuant to the terms of the corporation's advanced notice by law, the corporation did not receive advance note submission for the election of other directors to the Board. Since no other nominations have been received, nominations are thus closed. Is there any discussion on this motion? As there's no further discussion on this motion, I direct that a vote by ballot be taken on the election of directors. If you voted in advance, do not wish to change your vote, there is no further action required. Any registered shareholders or duly appointed proxy holders as they want to vote in person should do so at this time. If you have not already voted or you wish to change your vote, please raise your hand so that the scrutineers can give you a ballot. While the scrutineers will pass -- please pass out ballots to those requesting them and collect the ballots when they are done. For those now voting on your ballot, please now mark an X under either for or against next to the names of the nominees for whom you wish to vote. You may vote for up to 5 nominees for election as directors in total. Be sure to print and sign your name clearly at the bottom of the ballot. We'll pause briefly now to allow the ballots to be collected. [Voting]

Voting is now closed for the election of directors of the corporation. While the votes have been tabulated, we will proceed with the agenda. The next item of business is the appointment of auditors. I'll ask Joe Racanelli move with the resolution appointing PricewaterhouseCoopers LLP as the auditors of the corporation and authorizing the directors to fix the auditor's remuneration be approved.

Mr. Chair, I so move.

Thank you, Joe. Would Mathieu second this motion?

I second the motion.

Thank you, Mathieu. Is there any discussion on the appointment of auditors? As there's no further discussion on our call for a vote on the motion before the meeting. If you voted in advance and do not wish to change your vote, there is no further action required. Otherwise, please raise your hand so the scrutineers can give you a ballot. For the scrutineers, please pass out ballots to those requesting them and collect the ballots when they are done. [Voting]

Voting is now closed for the appointment of the auditors. While the votes are being tabulated, we will proceed with the agenda. The last item on our agenda today is the consideration of the nonbinding advisory resolution of the corporation approach to executive compensation. The statement of executive compensation section of the corporation's management information circular disclosures in a detail such an approach. Results of the vote will not be binding on the Board over the Board will consider the results of the vote together with other pertinent information or comments from shareholders when considering the corporation's approach to executive compensation. The full text of this resolution is reproduced in the management information circular. I'll now ask Mr. Racanelli move to approve the advisory vote on executive compensation, as more fully set out in the management information circular.

Mr. Chair, I so move.

Thank you, Joe. Mr. Giguère? Second this motion?

I second the motion.

Thank you, Mathieu. Is there any discussion on this topic? As there are no further -- is there no further discussion? I'll now call for a nonbinding vote on the motion before the meeting. If you voted in advance, do not wish to change your vote, there is no further action required. Otherwise, please raise your hand so that scrutineers can give you a ballot. To the scrutineers, please pass out the ballots to those requesting them and collect the ballots when they are done. [Voting]

As the other ballots -- as are there any other ballots to be collected? Voting is now closed as it relates to the approval of the advisory resolution on the corporation's executive compensation. We've completed at scrutineers. The scrutineers have completed their preliminary report according to the scrutineers report the following are the preliminary results of the meeting. On the election of directors, the following individuals proposed -- sorry, on the election of directors, the following individuals proposed slate of directors elected directors of the corporation. Robert Feingold, Steven Leonard, Thomas Little, Mohamad Asif Seemab and Rhys Summerton. The resolution appointing PricewaterhouseCoopers and authorizing the directors to fix [indiscernible] received majority votes and was passed. The advisory relation on the approach of executive compensation received a majority of those and was passed. As mentioned earlier, final details will be posted on the company's website and on sedarplus.ca. That concludes the formal business brought before the meeting. I set out the notice of the meeting. I wish to thank you for attending, and I now declare the meeting to be closed. Thank you.