Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is David Trude. And as Chairman, I welcome you to the 21st Annual General Meeting of Hansen Technologies Limited. Today, we are very pleased to welcome those of you participating online through our first virtual meeting platform provided by our share register, Link Market Services Limited. While providing a COVID-safe platform, we hope that holding a virtual meeting will encourage greater participation and engagement amongst our shareholders. If we experience any technical issues today, a short recess or an adjournment may be required, depending on the number of shareholders being affected. If this occurs, I shall advise you accordingly. Voting on resolutions is open and will remain so until 5 minutes after the end of the meeting. If anyone has questions throughout my or the CEO's presentation, please submit them, and we will answer them at the end of the AGM. Now for the formalities of the meeting. The Notice of the Meeting has been duly given, and the meeting has been properly convened. We will turn to resolutions later in the meeting. Please note that only shareholders, proxy holders or shareholder company representatives may vote. I note that there is a quorum present, and I declare the meeting open. I'd like to introduce my colleagues joining on me at this AGM: Andrew Hansen, the Managing Director and Chief Executive Officer; Bruce Adams, the Deputy Chairman; David Osborne; Jennifer Douglas; David Howell; and Don Rankin. I'd also like to introduce our Company Secretary, Julia Chand, as well as representatives of our auditors, RSM. Like previous years, today's meeting will comprise 3 components. I will begin with some high-level commentary on Hansen's financial year 2020 performance. Our CEO, Andrew Hansen, will then go into some greater detail of the year's highlights in the context of the longer term as well as talk to current trading and the 2020 outlook. Once we have completed the presentations, we will move on to consider the formal business set out in the Notice of Meeting. Voting on the resolutions will be conducted by way of poll. Shareholders attending the meeting online will be able to cast their vote using the electronic voting card received when online registration is validated. As previously advised, voting on resolutions is open and will remain so until 5 minutes after the end of the meeting. Please refer to the virtual meeting online portal guide or use the help line specified. [Operator Instructions] I encourage shareholders who have questions to send their questions through now or as soon as possible. Shareholder questions that are specific to a resolution will be responded to as the applicable resolution is introduced. General business questions received either prior to the meeting or during the meeting will be responded to at the end of the meeting. We're looking forward to delivering this AGM in the new virtual format. This done, just let me provide you with a high-level overview of financial year 2020 and how this sets us up for the future. Financially, the financial year 2020 was a record year across all key metrics, exceeding guidance and showing the strength of our business model in challenging, uncertain and volatile times. Revenue was up 30% as we recognized the full year contribution of the Sigma acquisition with 2.9% organic revenue growth. EBITDA was up 34%, driven by continued Hansenization and other cost-saving initiatives. Hansen received immaterial government grant or other support during the pandemic. NPATA was up 41% due to a lowering of the company's effective tax rate and ongoing capital management improvements. EPSa was up 40%, driven in part by the use of debt to lower the cost of capital, with group margin expansion driving significant EPSa upside. Our strong cash flows led to a reduction in net debt with our leverage now 1.46x, down from 2.16x for the year ended the 30th of June '19, providing significant headroom for more aggregations. Financial year 2020 was a very strong year operationally as we adapted to the global pandemic. We accelerated the Hansenization of the Sigma acquisition with an ongoing focus on profitability improvements across the business. We transitioned to working from home quickly to a remote working environment with a focus on near to customer, high customer satisfaction with a net customer gain of 103% and customers not deviating from upgrading or refreshing technology with us, strong company investment of $25 million plus of strategic R&D investment in our products and development centers. Our long-term aggregation journey has delivered strong annual growth over the long term with 5-year compound growth rates of 23% of revenue, 19% of EBITDA, 20% of NPATA and 16% for EPSa. We continue to build on this journey with significant customer wins, the recruitment of senior appointments and a focused M&A team, which Andrew will talk about later. The Board declared a final dividend of $0.05 per share for financial year '20 with an additional $0.02 per share special dividend. When combined with the interim dividend of $0.03 per share, the total contribution for the year was $0.10 per share. This is higher than prior year payments, showing the confidence that the Board has in our cash generation while allowing for significant further investment. The level of dividend is at the discretion of the Board, subject to available cash and activity being undertaken at the time. However, we are now targeting the $0.05 base final dividend on an ongoing basis. Our capital management policy remains unchanged, being a balance between retaining flexibility to fund growth through acquisitions against the payment of dividends. Before I conclude my address and hand the presentation over to our CEO, Andrew Hansen, I would like to thank each of our shareholders for their loyalty and support. There is definitely [indiscernible] as we continue to grow the company in the years ahead. I would also like to thank my fellow directors and the entire Hansen team for their continued passion and commitment to building a strong and sustainable business that delivers long-term value to our shareholders. I will now hand over to our CEO, Andrew Hansen, who will present the year's highlights in the context of the longer-term strategy. He will provide an update on the company's trading so far in 2021 and talk to the 2021 outlook. Thank you.

Thank you, David, and thank you to everyone who's actually joined our virtual meeting today. We are certainly going to be testing the technology and so far, so good since hopefully, everyone's hearing me and everyone's able to hear David as we go through. This is our 21st Annual General Meeting, which is quite an event in itself to get to. So what I'd like to do is take you through some of the highlights, even though David has probably stolen some of the thunder from last year. But he's left me a couple of slides to actually talk to. But mainly, I'm here really to talk about how things are progressing for the year so far with a view of what is going to be looking into the foreseeable future. To reiterate David's thing, if anyone's got any questions, feel free to send them through. And we'll do our best to aggregate them or answer them at the end of the session. If we just now move to Slide 7. As I said, as a reflection on what David was actually saying, a great start for the year -- for the previous financial year with revenue up 30%, EBITDA up by 34% and net PAT (sic) [ NPATA ] up 41%, all record levels for the organization and continues to build upon our long-term track record of really executing our aggregation M&A strategy. So these results are underpinned by probably market-leading software. We know we're in an enviable position now with probably having some of the best software in the marketplace and really taking it up to some of the market leaders. Profitability, always important to Hansen. We've never believed in profitless prosperity. We've always believed in making money along the journey. And that Hansenization is a key part of that, that generating our cash and looking after the underlying part of our business and also margin optimization by proven processes and methodologies. Long-term delivery is having our customers. As most people realize, our customers join Hansen to start a long-term journey. And the amount of money which we invest in R&D is giving them not necessarily a reason why they should look to leave our company. But more importantly, with the diversity of our business across geographics, across industry, customers, regions and currency, we like to think we're in a very, very special place that we can't have any one of those events really call undue harm to us as an organization and those shareholders. That's why you invest in us. Moving forward to Slide 8, track record. Certainly, earnings per share growth is all part of our long-term delivery of sales. And as I said, just to recap, profit and loss priority is important into Hansen. But generating cash also means it does give us the ability to not only invest in our business, but to pay down debt and recharge our balance sheet, which is important to us as we're able to -- using our balance sheet or cash to assist with growing our business. I know the Chairman has already spent a bit of time on capital management, so I don't necessarily see going into too much detail around there. But we do have the debt available to us, which we've spoken about before. We do use it carefully to invest in our growth. And whilst we're positioned to pay dividends to shareholders, including the record dividend, we are very, very proud to have actually paid that out in the 2020 financial year. Moving to Slide 9. Look, from a trading update point of view, and this is probably what everyone's really wanting to know how things are going, we are 4 months into the year. But it's important to understand that our revenues have continued in line with our expectations. We've spoken to the marketplace a number of times going through COVID, and we are still having customer wins and have a fantastic long-term outlook. We have made some investments by having a new Head who's rejoined us to head up our global strategic sales and also having a focused M&A team. I think that's an important part for our business. We're now putting together for the first time ever a professional M&A team to evaluate the opportunities which sit in front of us. The immediate outlook does look solid, but there is uncertainty. We are still in the global pandemic, a U.S. election, currency, et cetera. But we feel that more and more confident every day in the underpins of our business to move forward. I think it's also important that the productivity -- one of the benefits, I think, we saw in Hansen is that move to home, as David touched on earlier, we're able to maintain that same level of productivity when people move from home. And as we have people start to come back into the office -- and in our European offices, we already had people come back, but the second wave sent them back home again. So we are making plans at the moment now how we will carefully bring people back into the workplace so as not to impact our business as much as possible. Margins have benefited certainly from some of our processes but also our overseas development centers. But also the Sigma integration, the integration of that business is advanced. It's all done now, and that really did help with our margins inside our business. And once again, cash collections, so a company like ourselves, being able to pay our tax, use working capital, do R&D, pay dividends and yet still have another $7.6 million of paying down debt as of the 13th of November is just fantastic [indiscernible]. We often talk about currency. Look, 4 months in, we have no view. We don't play the currency market because we are hedged naturally in each of those locations. There is some volatility. We're not sure what the U.S. dollar is doing. But the way we see that, we have that natural hedge inside our business where we have local costs in those currencies. So if there is a headwind or a tailwind, naturally enough, our revenues move. But also, our costs actually go corresponding with them at the moment now. But what we have noticed, and I'm happy to say, is our behavior of our customers through this COVID pandemic has really seen people still continue to focus very much on their business and not be sidetracked too much. But that's the joy of the industry we're in. [ We are ] not in airports. We're not in travel or logistics, which have had some ups and downs in our business. Ours has just been very, very smooth sailing. So Slide 10, implications for the longer term. We've always been positioning ourselves for the longer term. I think since I've been heading up this company for nearly 30 years, it's always been not around the next month or the next 6 months or the next 12 months. It's always had a much longer-term accretive growth to our business. We know that with winning a customer today, that customer is going to be with us for 10 to 15 years, et cetera. And for us, that long term gives us enormous amount of stability. And as we like to talk about our staff, so that our staff can go off to buy a house, pay a car knowing that we're managing the company well enough that they can actually -- the decisions we're making is not jeopardizing their employment. We know that the strength of the Sigma business, and we all have spoken around reasons why Sigma was strategic for Hansen, but we're seeing that unwind now with a Sigma sale into one of their energy customers. We also announced a month or so ago the winning of the DISH business in the U.S.A. Now that was a tender situation against the biggest names, and to win that was fantastic. And really, well done to the -- all the staff, which originally in Sigma who brought that product and to the integration of Hansen to make that successful sale and to the leading edge of selling 5G, where we just see enormous opportunities going for the next 10 to 15 years. Western Power's win was very significant on the back of really smart metering. That smart energy solutions, which is now taking on board solar, wind, power and just having more events or more tariffs which our customers are charging, just means not only can our software deal with those opportunities, but more importantly, that the changes we can help our customers go on that journey themselves. [indiscernible] ourselves as a strategic player and strategic management, we -- I think our management team have been shown as probably leaders in actually managing through this pandemic, and that would be people leaving work and then working from home to maintain all those sort of things. It was very important for us to keep that team together. We do know some of our executives had attempted to be poached, to try and hit other companies who were -- lacked some of that leadership. We have kept our leadership team intact, which we're very, very proud of. And we've come up with an incentive plan to actually keep them in our company for the foreseeable future. And I think that Head of strategic sales was part of that. But also, I think the M&A-focused team is something which we've not done before and just having a single team to go through the opportunities, which I discussed before. But that absolute focus we have on some of those regions and to take out and pad out some of our products, those product offerings we still have, and I will look forward to, in the near future, probably giving more details, probably in the first half of those plans we have for the organization. So if we just now move forward to Slide 11, the outlook of our organization. Most public companies have probably been hesitant to actually talk about their forecasts and where they are in their business at the moment now. But we do have such a strong track record. We've enjoyed a very solid start to the year, which means our long-term position and immediate horizon is quite bright. We are trading very much in line with our expectations and our budgets at the moment now, and our first half operating in COVID period and the same with the corresponding period has seen an increase going forward. We've put on top of that the cost savings, efficiencies and initiatives we introduced. We'll see a vast improvement with our first half EBITDA in the range of 34% to 36%. And notwithstanding, there are some COVID-relating benefits we get. We don't have staff in offices, so we're not heating the offices. We -- some of our travel has been reduced, more in line with our regional management structure, which we put forward previously, et cetera. Also, acquisition costs, normally, we are actively overseas and are incurring legal and other costs, whilst we do evaluations in R&D, which is not part of it. Some of these costs, but not all, will come back to COVID normal as we go forward. On the full year, there is a couple of currency headwinds up until now. But we can't predict currency at the moment now, et cetera. And also, not renewing some low-margin business, we are very, very mindful on our -- that 97% of the software, which actually generates our revenues, which is our own software and that absolute focus on our business, but we are expecting a bit of a -- should be down by about 2% to 4% for the full year. But we're very proud that 4 months in, with the certainty of our business, we can give guidance to our customers to give them the surety of why Hansen is -- should be part of their investment portfolio. The full year, we think there will be some COVID return. But we still think the full year EBITDA margin will increase from 27% of last year to 33% to 35% for the full financial year and a corresponding increase in cash flow. We think the dedicated M&A team is being put in place and will drive our aggregation and M&A strategy going forward. And we will look to -- to answer what everyone's questions would be, we will look to accelerate that M&A once COVID-19 restrictions have been lifted. It is just very, very hard for us to travel overseas, to look at companies because now nearly 30 acquisitions over the last 30 years and all being successful, we don't wish to get rid of our playbook. Our playbook, the way we investigate, the way we negotiate, the way we actually look at these businesses, is important to us. And it would be dangerous for us to start doing these things by remote control. Moving to Slide 12. The reasons why you want to be investing in Hansen and to be on the journey with us. Look, you have a highly proven talented executive management team. We are extremely predictable, cash-generative focused business. We are owners of preeminent software at the very heart of our customers. So therefore, it doesn't churn rapidly. We are serving mature and established industries. Be that, they all have changed. There are high barriers to entry as we go forward. I feel, man for man, we are probably punched well above our weight for subject matter expertise. 97% of our revenue is coming off our own software; a track record of a lot of very, very successful acquisitions; and a playbook of how we acquire these businesses. We realize these businesses in different industries, different countries, et cetera. So as once again, to derisk this business overall, we feel we have a great future ahead of our business, as I would say, every year and has been proven. So before I hand this back to our Chairman, look, once again, I would like to take the opportunity of thanking all of the Hansen management, executive and largely our team of hard-working employees around offices all around the world. I think their contribution has been outstanding. And we're so proud that an industry which goes for a lot of churn, that we are the home of people for their careers and managing their careers as they go forward. I thank you all. We must thank all of our clients for their continued loyalty; and finally, to our shareholders who continue to support us and join this journey of long-term growth and value. So this concludes my presentation. Look, if there are any questions which come through, we'll answer them at the end. But once again, thank you very much for listening to me, and I will now hand back to our Chairman for the formal part of the meeting. David, thank you.

Thanks, Andrew. Ladies and gentlemen, we now come to the formal part of the business, matters requiring resolution, which are outlined in the Notice of Meeting. The resolutions for consideration today may only be voted on by shareholders, proxy holders and shareholder company representatives. Shareholders online through the virtual meeting website can ask questions on each matter being put to shareholders. I wish to start by tabling the '19/'20 annual report containing the directors' report, financial statements, directors' declaration and independent auditor's report. Copies of the 2020 annual report were either distributed by post or made available online to shareholders. So for the purposes of today's meeting, I tend to assume shareholders have had sufficient opportunity to review and consider the context -- contents of the annual report. As previously commented, representatives of our company's auditors, RSM, are present and available to answer questions. Are there any comments or questions regarding the various reports and financial statements contained within the annual report? Julia, do you have any questions?

No, we've received no questions [ online ].

Thank you. Now moving to the resolutions. Votes can be submitted throughout the meeting and for 5 minutes after the close of meeting, and I intended -- I intend to vote the open votes given to me as Chairman of the meeting in favor of all resolutions. The results will be announced to the ASX after the conclusion of the meeting. I will now deal with the formal resolutions [ explained ] in the Notice of Meeting. The first resolution relates to the adoption of the remuneration report. At this time, I wish to advise that all directors and the 4 executives named in the remuneration report as well as any person or party associated with any of them are excluded from voting on this resolution in respect of shares they own or control. The resolution for consideration as a binding resolution is as follows: in accordance with the requirements of the Corporations Act, adopt the remuneration report for the year ended the 30th of June 2020, as it appears in the directors' report within the annual report. Are there any questions regarding the remuneration report, Julia?

No, we've received no questions on resolution 1.

Thank you, Julia. You can see from the screen the proxy position for the resolution prior to today's meeting. I thank you. I now move to the remaining resolutions, each of which is an ordinary resolution requiring a 50% vote in favor to be successful, with the final resolution being a special resolution requiring 75% vote in favor to be successful. I will now hand over to my Deputy Chair, Bruce Adams, to pass this next resolution. Bruce?

Thank you, David. We shall now consider resolution 2, that Mr. David Trude, a director retiring by rotation in accordance with the company's constitution and being eligible and having signified his candidature for office, be and is hereby reelected a director of the company. Are there any questions regarding this resolution 2, Julia?

We have received no questions in relation to resolution 2.

Thank you. You can see on the screen the proxy position for the resolution prior to today's meeting. Thank you. I will now pass you back to the Chairman for the remaining resolutions.

Thank you, Bruce. Moving on to resolution 3, that Mr. David Howell, a director retiring by rotation in accordance with the company's constitution and being eligible and having signified his candidature for office, be and is hereby reelected a director of the company. I move to pass the resolution for the election of Mr. David Howell. Are there any questions, Julia?

We have received no questions in relation to resolution 3.

Thank you. And you can see on the screen the proxy position for the resolution prior to today's meeting. I thank you. Moving on to resolution 4, that Mr. Don Rankin, a director appointed by the Board effective from the 21st of November 2020 until this Annual General Meeting of the company, in accordance with the company's constitution and being eligible and having signified his candidature for office, be and is hereby elected a director of the company. I move to pass the resolution for the election of Mr. Don Rankin. Are there any questions, Julia?

We have received no questions in relation to resolution 4.

Thank you, Julia. You can see on the screen the proxy position for the resolution prior to today's meeting. I thank you. Moving on to resolution 5. For the purposes of Listing Rule 10.14 and for all other purposes, shareholders approve the grant of 213,189 performance rights to Mr. Andrew Hansen under the Hansen Technologies Employees Performance Rights Plan on the terms and conditions set out in the explanatory notes. We remind the AGM -- the original AGM notice for this resolution was amended from 236,877 performance rights to 213,189 performance rights through an ASX announcement on the 6th of November, and our apologies for this oversight. I move to pass the resolution to approve the grant of 213,189 performance rights to Mr. Andrew Hansen. Are there any questions, Julia?

We've received no questions on resolution 5.

Thank you, Julia. You can see on the screen the proxy position for the resolution prior to today's meeting. I thank you. Moving on now to resolution 6. For the purposes of Listing Rule 7.2 (Exception 13(b)) and for all other purposes, shareholders approve the readoption of the company's employee incentive scheme entitled Hansen Technologies Performance Rights Plan (Performance Rights Plan), on the terms and conditions set out in the explanatory notes. I move to pass the resolution to approve the adoption of the performance rights plan. Are there any questions regarding this resolution, Julia?

We've received no questions on resolution 6.