Atlas Arteria Limited (ALX) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Atlas Arteria's 2020 Annual General Meeting. As the meeting is being conducted entirely online, there are a few important things to cover before we start. For today's meeting, you will first hear from the Chairs and the CEO. After those addresses, we will turn to the formal business of the meeting. The Chair of Atlas Arteria Limited will take shareholders through the business of the meeting by introducing each resolution. As you will be aware, voting on the resolutions is by way of [indiscernible] prior to this meeting. The proxy positions, including open proxies, will be shown after each resolution is introduced, and results will be announced after the end of the meeting. As foreshadowed in the Notices of Meeting and on the Atlas Arteria website, the chairs hold all of the proxies for each of the resolutions and will cast all directed proxies in accordance with those directions and all undirected proxies in favor of the resolutions. Shareholders may ask questions at any time during the meeting via the Lumi platform, and those questions will be answered at the end of the formal business. To ask a question, select the questions icon as shown on the screen. And then to submit a question, select the box that says Ask a Question, compose your question and select the Send icon. If you're experiencing any technical issues, please call the number on the screen. And with that, I hand over to Nora Scheinkestel, the Chairman of Atlas Arteria Limited. Thank you.

Good morning. Welcome to Atlas Arteria's 2020 Virtual Annual General Meeting. My name is Nora Scheinkestel, and I am Chairman of Atlas Arteria Limited. I declare open this 2020 Annual General Meeting of the Shareholders of Atlas Arteria Limited, and I am advised and therefore declare that we have sufficient shareholders in attendance to constitute a quorum. We meet today in the ether, and that may well be a concept understood by the traditional custodians of the lands in Central Melbourne where Atlas Arteria's executive team is usually based. In times like these of great disruption and uncertainty, it is even more important to pay respect to elders, past, present and emerging for more than ever do we need wise leadership. Acknowledgment of country continues to serve as a simple act of reconciliation and an opportunity to also acknowledge the diverse peoples and cultures who have made our nation and indeed, our company. We are an Australian-listed stapled group with operations over 3 continents and a workforce comprising over 12 different nationalities. The COVID-19 pandemic is affecting communities and markets worldwide. And our businesses in the U.S. and Europe are no exception. The diversity of our Boards and management team is more important than ever to bring the best thinking to the table as we navigate our way through the challenges ahead. As you will be aware, the Victorian and federal governments have imposed restrictions in response to COVID-19 in order to protect the community's health. As a result, it was not possible to meet in person for our AGMs today. As announced in our Notice of Meeting, we are conducting a fully virtual meeting. All votes were required to be submitted by proxy in advance of the meeting. We have posted up on our website as much information as we could so that you were well informed before casting your vote. We encouraged shareholders to send through any questions in advance of the meeting and provided answers on our website. Shareholders and proxy holders will also have the opportunity to ask questions today if you have any further queries that arise from the material previously made available or from the conduct of today's meeting. I will respond to these questions at the end of the formal business so that you have maximum time to hear from us first and to submit any questions that you may have. The format today is not ideal, and we thank you all for your patience, support and participation, both ahead of today and for this meeting. We have sought to provide shareholders with an opportunity to cast an informed vote on the matters to be considered and the ability to question the Boards both before and during the meetings, while also ensuring the health and safety of our team, our shareholders and those helping with the conduct of the meeting today. We've also discussed the approach being taken with the Australian Shareholders' Association, who represent many of our retail shareholders. Due to Atlas Arteria's stapled structure, there will be meetings taking place this morning for both Atlas Arteria Limited, the Australian parent company that forms part of the Atlas Arteria Group and its stapled entity, Atlas Arteria International Limited, the Bermudan parent company of the group. Most of you will be familiar with the relationship between the 2 companies, but it is set out on the screen for ease of reference. This morning, I will refer to the Australian company as ATLAX, our stapled entity as ATLIX and the group as Atlas Arteria. In addition to Chairing ATLAX, I'm also a Director of ATLIX. The Chairman of ATLIX is Jeffrey Conyers, who joins us today together with our fellow ATLIX Directors: James Keyes, Derek Stapley and Fiona Beck from their respective homes in Bermuda. Good morning, or should I say good evening, Jeff.

Good morning, everyone. I would like to extend a warm welcome to all investors and other visitors and reiterate Nora's thanks for your support in joining us today to this online forum. I now declare the 2020 Annual General Meeting of the shareholders of Atlas Arteria International Limited, or ATLIX, open and on advice, declare that we too have a quorum. While I will Chair the ATLIX meeting today, I have asked Nora Scheinkestel as a Director of ATLIX to assist with the running of the meeting to make the process smoother. Before I hand back to Nora, I would like to mention the changes to the ATLIX Board, which were announced in an ASX release earlier today and which will take effect from the conclusion of today's meeting. As foreshadowed, James Keyes will retire from the ATLIX Board at the end of today's meeting. James has been on the Board since 2013, and during this time, has made a substantial contribution to the strategic direction and growth of the business. On behalf of the Atlas Arteria Boards and management, I would like to thank James for his input and wise counsel and wish him the very best for the future. I have also a great pleasure to announce the appointment of Caroline Foulger to the ATLIX Board, also effective immediately following the close of today's meeting. Unfortunately, we were unable to complete formalities in time to allow Caroline's election to be included in the 2020 Notice of Meeting. And so Caroline will stand for election at next year's AGM. Caroline has extensive Board and executive experience in the financial services sector, with a particular focus on insurance and advisory services. In her executive career, Caroline was a partner at PwC for 12 years, finishing in 2012, where she led the insurance practice in Bermuda. Caroline currently serves as a Nonexecutive Director on the Boards of the London Stock Exchange-listed companies, Hiscox Ltd and Oakley Capital Investments Limited. Caroline is also the Founding Chair of the Bermuda Business Development Agency, a position she held from September 2012 until December 2016. Caroline's appointment further strengthens the Board's mix of skills, knowledge and experience and continue the orderly process of Board renewal while maintaining continuity. I will now hand back to Nora Scheinkestel.

Thank you, Jeff. In addition to those who've already been introduced to you, also in attendance today are my fellow ATLAX Directors. Calling in from Sydney, David Bartholomew; from Melbourne, Debbie Goodin; and based in Paris, France, Jean-Georges Malcor. We are also joined by our senior executive team. First, Graeme Bevans, our Managing Director and CEO, who you'll hear from later; Nadine Lennie, our CFO, both of whom are here in Melbourne; Vincent Portal-Barrault, our COO based in Luxembourg; and Clayton McCormack, our General Counsel and Company Secretary, also in Melbourne. Also in attendance are Chris Dedrick of Computershare, our registry, who will be the returning officer for today's meeting; and Stephanie Smith, our signing partner from PricewaterhouseCoopers, our auditors. As set out in the Notices of Meeting, today, we're holding the Annual General Meetings Of both ATLAX and ATLIX. These virtual meetings will be conducted simultaneously and are held entirely online. A number of the Directors are up for election at both companies. Given the online format, these Directors will not be speaking today. However, messages from each of them were posted up on our website. As we meet here today, the world continues to deal with the impacts of the COVID-19 pandemic. The countries where our operations are located, France, Germany and the U.S., as well as our corporate offices in Melbourne and Luxembourg have been in varying stages of lockdown for now going on 2 months, and there is no question that these measures have had a significant impact. However, we believe that the significant achievements of 2019 have positioned Atlas Arteria well for the challenges we face. Last year was bookended by significant milestones. At the beginning of the year, we achieved full internalization of management for Atlas Arteria under the leadership of Graeme Bevans, who, in turn, has built a world-class management team. Graeme and the Boards have established a strong values-based culture founded on the STEER principles: Safety, Transparency, Engagement, Environmental Responsibility and Respect. And these inform all our decision-making. The end of the year was marked by the announcement of the APRR transaction, which saw us increase our ownership to just over 31% of both APRR and ADELAC. Importantly, it improved transparency and gave us direct influence over our largest business, including through Board representation at every level of the structure. The transaction was facilitated by a $1.35 billion capital raising, which was significantly oversubscribed. Turning now to 2020. As announced in our release to the market on March 23 and updated on April 22, the impact of lockdowns implemented in Europe and the U.S. has resulted in severe traffic declines on our roads. However, we remain in a strong liquidity position with substantial cash or undrawn facilities on hand, both at the corporate level and at each of our businesses. Given the uncertainty about the length and severity of the lockdown measures, the Boards resolved to defer the announcement of a distribution reflecting the performance in the second half of 2019 and to suspend guidance for distributions reflecting the performance of the first half of 2020. Depending on the duration and impact of government directives and lockdowns across Europe, in particular, the Boards will consider the most appropriate use of funds later in the year. I will now pass to Graeme to provide you with more detail on the businesses and how we are responding to the challenges created by COVID-19. But before I do so, I would like to acknowledge the outstanding performance of Graeme, our senior management and the broader Atlas Arteria team in 2019. They started the year off as a new management team and yet within the space of 12 months developed and executed on a focused strategy that saw Atlas Arteria deliver significant ongoing value to our shareholders. I would also like to thank my fellow Directors who worked extremely hard during all of 2019, culminating in the APRR transaction and the associated capital raising and are now fully engaged with the management team in dealing with the COVID 19 impact. To you, our shareholders, thank you for your continued support and investment. 2020 is proving to be a challenging year, but we believe the work done to date has positioned us for a strong and sustainable future.

Thank you, Nora. As Nora explained, 2019 was a transformative year for Atlas Arteria. In a short space of time, we built an entirely new team to run the business, internalize management and acquired a further indirect interest in APRR and ADELAC. The combination of all these actions, creating significant shareholder value. The APRR transaction finalized the removal of Macquarie as a manager from the Atlas Arteria business, establishing us as a fully independent toll road owner and operator actively and responsibly managing our businesses. All of these strategic outcomes were achieved while also delivering strong financial results and creating value for our shareholders. Following the appointment of our senior executives in 2018, we worked hard in 2019 to build the broader team, ensuring we have the right skills, capabilities and mindsets to set us up for sustained success. Of course, right now, the world faces uncertain times in the midst of COVID-19. Atlas Arteria is not immune, experiencing a significant loss of traffic as a result of the crisis in the final weeks of March. Even with traffic for January and February strong relative to the prior corresponding period in 2019, the weighted average traffic for January through March this year fell by 8.8% compared to the first quarter last year. This reflected significant falls in traffic in the second half of March following the implementation of the COVID-19 lockdown measures as we reported in April, with traffic consistent with that reported experience since then. With some relaxation of constraints in France last week, we may see a consequent improvement in traffic, but it is too early to determine at this point in time. We will assess the impact over coming weeks and provide an update upon any material sustained change. While we are navigating through this current volatility, we remain confident that our successes over 2019 have positioned us well to face the challenges and maximize the opportunities we believe will arise in the coming months. And importantly, return Atlas Arteria to growth when government directives regarding COVID-19 are eased. Atlas Arteria has a strong balance sheet and the liquidity to ensure we are well positioned to continue delivering on our priorities through these challenging times. Cash within the head companies was approximately AUD 340 million, following receipt of the APRR dividend. At APRR, following recent debt transactions that raised EUR 900 million, APRR now has around EUR 3.4 billion in liquidity. The refinancing of the Eiffarie debt in February 2020 has placed us in a stronger financial position with no amortization required in the new 5-year debt facility until 2023. Our newly established independence has also given us more operational influence at APRR, which is important in the context of this current crisis and driving sustainable growth over the longer term. Both Warnow and Dulles Greenway also remain well positioned from a liquidity perspective and are able to meet their upcoming obligations. We remain actively engaged with all our stakeholders, including debt providers, to enable an appropriate response to changes in circumstances as we move through this crisis. As a result of COVID-19, we are, of course, working hard across all our businesses to ensure the safety of our people and customers on our networks, whilst also maintaining continuity of service and systems in this untested environment. A number of initiatives being undertaken across our businesses include the separation of the workforce into distinct groups to ensure availability of staff in case of a COVID-19 infection, enhanced cleaning and hygiene practices, minimization of cash-based transactions and enhanced communications to ensure real-time information to both staff and our customers. I applaud the individual management teams and all our employees at each of our businesses for their strength and resilience in navigating these unchartered waters and continuing to support the communities we operate in. Finally, I would like to reflect on a piece of work completed in 2019, namely our refreshed sustainability framework. As a new management team, we are committed to understanding how sustainability challenges drive value and impact our operations. In 2019, we undertook an assessment to understand the crucial sustainability issues for Atlas Arteria, incorporating views from a broad range of stakeholders. The output of this work was our Sustainability Framework and Strategy with 4 clear priorities around safety, customers and community, our people and environmental stewardship. This framework will be enabled through good business fundamentals and represents the start of our journey to embed these priorities operationally in all our decision-making. In closing, I would like to thank our Boards for the strong support, counsel and advice they provide to management, particularly in these challenging times. To my fellow team members, thank you as always for your dedication. Most importantly, I would like to thank you, our shareholders, for your continued support of the company and to assure you that we are focused on optimizing the performance of our businesses, while continuing to deliver accretive growth opportunities for the company. Thank you.

Thank you, Graeme. We shall now move on to the formal business for today. The formal proceedings involve the 2020 Annual General Meetings for ATLAX and ATLIX, which are being conducted contemporaneously as permitted by the constitutions of each company. I now table the Notices of Annual General Meeting for Atlas Arteria and propose that they be taken as read. As we indicated earlier, I will Chair the ATLAX AGM, and Jeff Conyers will Chair the ATLIX AGM. However, for the efficient running of the meeting, the ATLIX Board have agreed that I will take shareholders through the ATLIX AGM agenda on Jeff's behalf. I will also deal with the business of the 2 meetings together insofar as they involve related matters. I remind you again that shareholders and proxy holders are able to submit questions via the Lumi platform on any item of business to be conducted at today's meeting on Atlas Arteria's operations or on the comments that Graeme and I made earlier. You may also ask questions of our auditors, PricewaterhouseCoopers. I will answer or redirect these questions at the end of the formal business. I may respond to a number of questions together if there are very many questions or a number on the same theme. If this is the case, Clayton McCormack, our General Counsel and Company Secretary, will review the questions and ensure that those selected are representative of those which have been submitted, and we will also ensure that we comply with ASIC's recent guidance on how this process should be conducted. You will now see on the screen all of the resolutions, which form part of the business to be conducted at today's meeting. I will introduce each item of business in turn and then show the proxy position on that item. Once we have run through all items of business, we will close the Lumi platform and respond to questions. And we will then close the meetings, and the results of voting will be released to the ASX later today and published on our website. I will start with ATLAX and ATLIX item 1, the financial accounts and reports. As required by the Corporations Act, I table the financial report, directors' report and auditor's report for ATLAX for the financial year ended December 31, 2019. And on behalf of the ATLIX Chair, I also table the 31 December 2019 audited financial statements of ATLIX. The financial reports are included in the 2019 Atlas Arteria Annual Report and are available on our website or upon request. There is no formal resolution required to approve the financial accounts and reports. This item of business normally provides shareholders with an opportunity to ask questions in relation to the accounts, or more generally on our business. Shareholders were invited to submit questions ahead of this meeting, and answers to those questions have been posted on our website. And as previously mentioned, shareholders and proxy holders have an opportunity to ask further questions today, which will be answered at the end of formal business. Our auditor, PricewaterhouseCoopers, has not received any written questions in relation to the content of their report or the conduct of the audit. However, Stephanie Smith, the signing partner for the 2019 audit is present today and will be able to answer any questions that you may wish to put to her. If there are any questions for the auditor, I will refer these to her at the end of the formal business of the meeting. Next, we will consider item 2 for the ATLIX AGM. Companies to which the Bermuda Companies Act 1981 applies are required to appoint an auditor at each Annual General Meeting, and that auditor then holds office until the close of the next Annual General Meeting. Accordingly, this item of business relates to the reappointment of PricewaterhouseCoopers as auditor of ATLIX until the close of ATLIX's 2021 AGM. The ATLIX Board has recommended the reappointment of PwC to provide ATLIX's audit services for the 2020 year. PwC is an international professional services firm, which has provided audit services to Atlas Arteria since our establishment, and they are familiar with our structure and businesses. PwC has confirmed its independence and the ATLIX Audit and Risk Committee is satisfied in regard to their independence. Stephanie Smith, the lead partner on the audit, commenced her engagement at the start of 2018. However, Stephanie is Sydney based and with the Atlas Arteria head office moving to Melbourne, we have agreed with PwC to move to a Melbourne-based audit partner, Ben Gargett, who is also present today. The status of the proxy votes in relation to this resolution are now being displayed on the screen. As previously advised, all undirected proxies will be voted in favor of this resolution. I'll turn now to the resolutions dealing with the election or reelection of Directors. As I mentioned earlier, messages from the Directors standing for election were posted on the Atlas Arteria website ahead of this meeting. Let's start with Item 2 of the ATLIX AGM agenda, which deals with Debra Goodin's reelection as a Director of ATLAX. Debra was appointed to the Board of ATLAX in September 2017. Her detailed biography was included in the materials circulated to shareholders. She is regarded as independent by the Atlas Arteria Boards. The ATLAX Board, with the exception of Debra, unanimously recommends her reelection. We are now showing the status of the proxy votes in relation to this resolution on the screen. And as previously advised, all undirected proxies will be voted in favor of this resolution. Next stop is item 3 for the ATLIX AGM, the election of Fiona Beck as a Director of ATLIX. Fiona was appointed to the Board in September 2009 (sic) [ 2019], and so this is the first time that she is before shareholders. Her detailed biography was included in the materials that were circulated prior to this meeting. She is regarded as independent by the Atlas Arteria Boards. The ATLIX Board, with the exception of Fiona, unanimously recommends her election. We are now showing the status of the proxy votes on the screen. And as previously advised, all undirected proxies will be voted in favor of this resolution. The next 2 items deal with the reelection of Jeff Conyers and Derek Stapley to the ATLIX Board. Jeff has been Chairman of ATLIX since 2009, and Derek has been a Nonexecutive Director since 2010. The Atlas Arteria Boards have considered the tenure of each of these Directors and believe that each continues to exercise independent judgment. Further, given the recent appointment of the executive team, neither Jeff nor Derek have such deep associations with the management team that it would compromise their independence on the ATLIX Board. While we continue an orderly process of renewal, the Boards consider that Jeff and Derek's corporate knowledge remains of value. And Caroline Foulger's appointment, as announced by Jeff this morning and also on the ASX, demonstrates that ongoing process. I'll turn first to the reelection of Jeff Conyers to the ATLIX Board, item 4A for the ATLIX AGM. As I mentioned, Jeff has been a Director and Chair of ATLIX since December 2009, and his detailed biography has been circulated to shareholders. Jeff is regarded as independent by the Atlas Arteria Boards. The Directors of ATLIX, with the exception of Jeff, unanimously recommend his reelection. We are now showing the status of the proxy votes on the screen, and all undirected proxies will be voted in favor of this resolution. Item 4B of the ATLIX AGM is Derek Stapley's reelection as a Director of ATLIX. Derek joined the ATLIX Board in June 2010, and his detailed biography has been circulated in meeting materials. As outlined earlier, Derek is regarded as independent by the Atlas Arteria Boards. The ATLIX Board, with the exception of Derek, unanimously recommends his reelection. We are now showing the status of the proxy votes on the screen, and all undirected proxies will be voted in favor of this resolution. I turn now to item 3 for the ATLAX AGM, the adoption of the ATLAX remuneration report. The ATLAX remuneration report has been circulated to shareholders, along with a covering letter which explains our remuneration philosophy and framework and the outcomes of executive remuneration in 2019. The financial year 2019 short-term incentive plan, or STI, comprised 2 components: one for successful delivery of the internalization of management; and the second, for performance outcomes delivered in the period following internalization and up to the end of last year. Overall awards under the FY 2019 STI Plan were between target and stretch and are reflective of the excellent performance of the business and management during the year. The remuneration report and covering letter, together with further details on the STI outcomes for FY '19 can be found in our 2020 annual report and are available on our website or upon request. Whilst this item of business is advisory only and strictly only applies to ATLAX, the Directors of both Boards take serious note of the views expressed by our shareholders, and these have and will be taken into account in our ongoing Board deliberations. Voting restrictions apply to this resolution and are set out in the Notice of Meeting. The status of the proxy votes in relation to this resolution is now displayed on the screen, and all undirected proxies will be voted in favor of this resolution. I turn now to items 4 and 5 for the ATLAX AGM, the approval of the grant of performance rights to Graeme Bevans under Atlas Arteria's long-term incentive plan and the approval of the grant of restricted securities to Graeme under Atlas Arteria's short-term incentive plan. We're dealing with these items together as they both relate to the participation of Graeme in these incentive plans. Graeme has been Managing Director and CEO of Atlas Arteria for over a year now, having been formally appointed to the role on the 1st of April 2019. As outlined in the remuneration report, as part of Graeme's remuneration package, he participates in the long-term incentive plan under which he is granted performance rights to acquire fully paid Atlas Arteria securities, subject to the satisfaction of performance hurdles over a 3-year period. This resolution relates to the period starting at the beginning of this year and ending on the 31st of December 2022. During the year, the Boards reviewed a number of aspects of the long-term incentive plan, or LTIP. The review concluded that the use of relative total shareholder return, TSR, as the sole performance hurdle still remains appropriate at this stage. Performance of the inaugural LTIP grant last year is being measured as against a pool of 17 comparator companies. However, following our review, the Boards have concluded that we should change the comparator group to have a more representative and less volatile group. Given the location of our businesses and business strategy, for awards under the LTIP from this year on, the Boards have adopted the Global Listed Infrastructure Organization, GLIO Group, which comprises 125 OECD-domiciled companies in the infrastructure sector. We believe that GLIO provides a more relevant basis for assessing relative performance. Graeme also participates in Atlas Arteria's short-term incentive plan, which measures performance against defined performance targets. Of the amount actually awarded to Graeme, depending on the performance levels achieved, 50% of the STI is delivered in cash and 50% is delivered in the form of Atlas Arteria restricted securities. This resolution seeks approval for the grant of up to Graeme's maximum entitlement to restricted securities. The actual number to be awarded to Graeme will depend on the outcomes of his performance against targets as assessed by the Boards at the end of the financial year, and we will report on this in next year's remuneration report. Further details of these benefits are contained in the remuneration report and the ATLAX Notice of Meeting. Voting restrictions apply to this resolution and are set out in the Notice of Meeting. The status of the proxy votes in relation to these resolutions is now displayed on the screen. And as previously advised, all undirected proxies will be voted in favor of these resolutions. Next on the agenda are items 6 for the ATLAX AGM and 5 for the ATLIX AGM. Both seek approval to refresh Atlas Arteria's placement capacity under ASX Listing Rule 7.1 in connection with the issue of ATLAX and ATLIX stapled securities under our 2019 institutional placement. As mentioned earlier, in order to complete the APRR transaction announced in November of 2019, we undertook a capital raising of approximately $1.35 billion. $452 million of this was raised through a placement to institutional investors. Under the ASX listing rules, there is a limit on the total number of shares which a company can issue by way of institutional placement in a 12-month period without first obtaining shareholder approval. This placement capacity was reduced as a result of the 2019 institutional placement. We would like to refresh our placement capacity in order to retain as much flexibility as possible to issue additional securities in the future, if required. Voting restrictions apply to this resolution and are set out in the Notice of Meeting. The status of the proxy votes in relation to this resolution is now displayed on the screen. And as previously advised, all undirected proxies will be voted in favor. You will be relieved to know that I now turn to the last item on the agenda, Item 6 for the ATLIX AGM, which seeks to make certain minor amendments to the bylaws of ATLIX. These amendments are required to clarify the time periods to be applied in determining when the service of a notice will have been affected when sent to shareholders by post, including by courier. The exact amendments are shown in the ATLIX Notice of Meeting. The status of the proxy votes in relation to this resolution is now displayed on the screen. As previously advised, all undirected proxies will be voted in favor of this resolution. Having now completed the formal business of the meeting, I will respond to any questions which have been submitted through the Lumi platform. Jeanette Royce, our Director, Investor Relations, is handling that part of proceeding. So Jeanette, have there been any questions?

Chairman, we have not received any questions.

Well, then, thank you, Jeanette. As there is no further business, I declare the ATLAX 2020 Annual General Meeting closed. And I thank everyone for attending and for your continued support of Atlas Arteria. Jeff?

I also now declare the ATLIX 2020 Annual General Meeting closed. And on behalf of the ATLIX Board, I thank everyone for your support. We wish all of you who joined us today a beautiful day.

Thanks, Jeff. The formal results of voting will be released to the ASX later today and posted on our website. Please note that the proxy forms and voting papers in respect of today's meeting will be destroyed 28 days after declaration of the poll. Regrettably, today, we can't ask you to join us for refreshments. So with the meetings closed, we will now be logging off. Thank you, and goodbye.