Hansen Technologies Limited (HSN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Hansen Technologies BGH Capital Proposal Withdrawal. [Operator Instructions] I would now like to hand the conference over to Mr. Andrew Hansen, CEO. Please go ahead.

Thank you, Darcy, and welcome, everyone, today. I'm actually joined here with Graeme Taylor to try and to discuss the BGH withdrawal and then answer any questions. I suppose the number one reason probably most of you on the call at the moment is to probably understand the reason why BGH have actually withdrawn their offer. And to be brutally honest, I probably can't provide any further details on what's currently in the market. What I can say that we had nothing but a perfectly good commercial relationship with BGH. We probably, in a funny sort of sense, enjoyed the process, learning about ourselves as we went through. But we're not necessarily having any insights to the BGH business case. We can't quite understand why. What I can tell you all that was a very detailed due diligence. They had a very large number of external consultants reviewing the business. It was an extensive due diligence process. That was extended, as we know, for 2 weeks, but that was progressively just getting down to the last few items they were wishing to look at. So it probably came to us as a bit of a surprise that BGH had withdrawn. But as I stated earlier, without knowing someone's business case, it's a bit hard to understand what they're actually doing. We had some areas that hadn't been finalized. So there were areas around myself and the shareholding structure incentives we haven't really got to the bottom of it. But what we do know, the whole way through the process, there were no red flags. They did comment, it was a highly effective business, outstanding management and our prospects all looked very, very good. They probably were aware that the shareholders -- certainly, the institutional shareholders were a little bit vocal in suggesting the share price and whether they were going to support it or not was probably of interest to BGH as well. But from my point of view, you go to the very start of this. BGH knocked on the door. Their credentials were stand out. It seemed fantastic for shareholders to pick up a 25% premium. I was happy to support it on the behalf of shareholders. I thought it was good. But when someone then doesn't want to go ahead, you remember what I was concentrating 100% of the time in the business moving forward. So at no stage did I personally or the broader executive team take their eyes off the prize. This is a very, very successful business. We have -- the results which I know I've spoken to the whole marketplace recently were a great result for the year we've just had, et cetera, and our future going forward. I'm just as excited. As you know, my view was, with BGH, I was not looking to do a sell-down. I was going to stay in the business. So I'm 100% committed to the business, and what was a great year behind us and a great future ahead. I very, very maintained my absolute focus on where the company was actually going. We have put in the marketplace in the next 4, 5 years to get into $500 million became part of our process. So I suppose at the conclusion, but not really knowing the absolute reason and that's their business, et cetera, I just took it on the chin and said thank you very much and just got straight back to business, and that's what we're doing now. There were no red flags which came out of it. But there is also positives of this. And certainly the positive, the takeaways, it's actually interesting when you actually go through due diligence. And they had well in excess of 100 different consultants, which are registered in due diligence with the whole time. And you do, therefore, get quite experienced in actually answering the questions about yourself. It was great probably in many cases to validate our business, to validate the audit, validate all the areas they looked at inside of our business because they almost had completed due diligence. I think it will help us going forward. I think there's areas about how we define ourselves, how we redefine and that messaging about what Hansen is all about, had some great takeaways, we take it. So to be honest, whilst the process didn't go through, I'm just as happy to lead the company as I was before. It does give clarity to the staff of Hansen just to continue the business where it is. As a public company, the door is always open. If someone wants to offer more to shareholders, we, the Board, correctly, as they did, accepted the bid, and we're happy to provide a period of exclusivity because as we should when someone provides that sort of premium to the marketplace. So I think as an organization, we have learned a lot from this. We don't begrudge the process. It was a detailed process. But once again, we've got that chance to look at ourselves going forward. And I think our future looks bright. Graeme, I'm not sure if there's any added words. I think I've covered most of the topics. I know everyone probably jumped on the call, hoping for the reason what it was. But any more color you'd like to add?

Look, I think I'd just echo the fact that spending a period looking inward at yourself is always valuable. We've been able to do a full assessment of the business. I know from my perspective, we've looked at every aspect of tax and every single thing as we've gone through working with the BGH team. So I think a little bit like going to the doctor and having a health check, we've come out. We've been given a great tick of health in the way that the company is looking to progress going forward. So great to have that reinforcement by someone that's external to the company. And look, as I say, as Andrew has already said, great future ahead of us, and we look forward to now executing on the plan.

Yes, I think so. As I said, no ill feelings towards BGH. They've been nothing but professional organization, and we wish them well. It's a [ penny with carve ] as you couldn't catch up with them at the end of it, but I'm sure they've got other things on their table as we have. And I think the most important thing for those investors on the call at the moment now is to make sure that you know that at no stage during the process did we actually stop moving forward as far as making sales, expanding our company, looking for opportunities. Not once did we actually deviate from what the plan was. So I wish I could probably give you more detail on that, but it is what it is. As I said, without having the details of their business case, I really can't say what reason why they moved on. But we wish them well. And to tell you the truth, it gives me certainty and clarity and I'm happy to keep on leading the business as I was before anyway. So if there's any questions, I can answer questions. I'm not sure what questions I can answer, Dave, but I think there's a couple of questions there. And I'm more -- Darcy, to hand back to you if we can have those questions, please.

[Operator Instructions] Your first question comes from Garry Sherriff from RBC.

Andrew, Graeme, you did flag that they haven't stated anything to you about the Hansen business. But I'm just wondering, I mean, were there any external issues that they may have talked to you about, i.e., from a financing perspective? Do you know whether they were maybe bidding with other partners or other competitors? Just trying to get a sense if there's anything else outside of what you've disclosed that they may have led on to in terms of not being able to proceed?

Yes. Garry, look, to tell you the truth, no. I think that's a process, which is probably privy to them and wasn't that close. We were very much focused on the due diligence process. And look, we do due diligence and everyone knows we acquired businesses, and we do due diligence every year on various businesses. And like ourselves, they were trying to find if there's any red flags early in the process. And that almost completed due diligence. So -- and I'm not privy to the world of private equity, their investors, co-investors, their bankers, et cetera, all of those areas there. No doubt they have a business model. I guess, Garry, also, they were -- they came through -- Morgan Stanley would have had some assumptions of what they were looking at. And not being IT specialists, they probably have to engage in a lot of third parties. But there was no questions whichever came in, which actually they showed any concern about as we know. It was only about 1.5 weeks earlier, they wanted to extend the exclusivity because they could actually finalize. And that was really down to some very small questions which were coming through, which we're more than happy to answer. So look, we were surprised as well. But it's one of those things. Given the fact that there's a bunch of barriers from the business going forward and sharing that I've not been privy to, it probably saved some of those more detailed conversations. So I wish I can give you more, but I really can't.

Yes. That's fine. And I wonder, have there been any other overdues, I guess, that you've received on the back of BGH's interest?

Look, we ran the process correctly so because I was happy to align with BGH. I think it was the right thing for shareholders. It wouldn't have come to me. The IBC, our Independent Board Committee and UBS, our advisers, if it's come through there, but I've not been made aware personally. We're yet to have a debriefing of the process, which we will undertake. But to the best of my knowledge, no, but I wouldn't have been privy to any of those overdues, Garry.

[Operator Instructions] Your next question comes from Jules Cooper from Shaw and Partners.

I've just got a couple. I guess, first, Andrew, you had a cooperation agreement with BGH. So I guess over the last 3 months, you would have worked reasonably closely together, I assume. But did you get any sense sort of through that period whether potentially BGH might have had differing views on how to create value or execute on Hansen's growth strategy at all? That's the first one. I've got a couple of follow-ups, too.

Yes. Look, Jules, the cooperation agreement really just meant that it was a no talk -- no-shop, no-talk clause, and I was more than happy to support it. Look, I only had, what I'll say, excellent conversations with them the whole time. I think that BGH were able to see a track record of Hansen for 30 years and what we've done. They seemed highly incentivized by the plans we had and the management team, et cetera, as it went forward. I must admit, a fair amount of my time was actually assisting in the due diligence process. And it's all those things, too. You've got to line these things up before I could have any details about my own potential shareholding or the structure of the business. You don't really get to those until you get the acquiring company wants to go ahead with the process. So they weren't that advanced, but all of my meetings and discussions with certainly the principal partner, somebody with the executive were all cordial and very good. There's no issues at all. I suppose, Jules, certainly, the feedback from -- and you would understand this, some of our institutional shareholders were probably disappointed. All they saw themselves as long-term shareholders, et cetera, and wanted to stay. That was certainly -- when our results came out, I think they made their feelings thought about the valuation and wanting to stay on board. That may have had starting to play in their minds, knowing they have to get to 75% of the shares outside of mine. That may have played into a bit as it was not detailed to me.

Yes. Sure. Okay. All right. No, that's good. And I guess you made a good point there about you go through a process like this, you can reflect internally. If you -- you probably had an opportunity just to reflect a little bit on the private equity model. And I guess, just in your mind, sort of the benefits that you saw private equity bringing to Hansen and its strategy. But also, did you learn anything maybe about how Hansen, going forward, might be able to use its balance sheet, et cetera, to create value for shareholders? Like has there been any process just through getting closer to private equity to understand if there's some takeaways?

I thought that, number one, and I think, Jules, when this first came and I talked -- certainly, I talked to staff about what would be the benefits of private equity. We were thinking of opening doors for us. They do talk the same talk with other private equity firms, which actually own some assets, and we thought that was some advantage. Certainly, private equity's gearing aspects are totally different. I've got to manage capital management between debt, dividends for shareholders, et cetera. Would have a totally different structure and our private equity is probably more happy to take on debt and not looking for dividends, et cetera. So it could be a little bit more aggressive. But at the same sense, Jules, it's never we've ever been short of money. Our banks have been highly supportive of this -- the whole way through. And I know some of our banks are on this call now. This has been an amazing company, the amount of debt we paid down in the last 12 months and the year before. I don't think whilst the debt profile of the company probably could have increased, but there's probably been no acquisitions that Graeme and the team have ever looked at, has ever seen beyond our current banking arrangements anyway. I think that, that probably is -- look, it's never been a bad journey. We didn't advertise for this. We didn't go out the door, knocked and we opened the door appropriately. So it wasn't we thought, oh, we can grow the company quickly than private equity. You did see the values of being private equity. We thought opening those doors was going to be good for us. I think that's probably some of the reflection on it, but just how many doors they could open up, we never probably did that much establishment that, Jules, of the marketplace to see whether that could actually work for us or not anyway.

[Operator Instructions] The next question comes from [ Marshall Kimber ], private investor.

A couple of questions. Partially, you've covered in the last conversation, what was the perceived advantage for you, Andrew, to be under a private basis rather than being a listed company?

Look, to be honest with you, Marshall, we probably never accelerated the conversations that far down. We've been a public company. This company, we listed 21 years ago. Would I not have to do calls like this? Do you not have to manage 20,000 interested parties which sit around the table? No, you'd sit with just private equity seeing the table as an investor. But that's nothing to do with really running the business to be honest. That's all about accountability as it went forward. And because we never really had accelerated too deeply into my own shareholding or the structure of the business, I'd never really quite got to those conversations to be brutally honest with you. I just had an open mind. I go back to the basics of this myself and the Board. BGH office, which is a credible bid, a credible organization, the gentleman behind it have fantastic reputations in the marketplace. Public company, they offered a 25% premium. It would have been remiss of us not to open the door to let them in. If this happens again, we're all a bit smarter, we're all a little bit smarter. And next time around, there's probably some of the lessons learned. But if you're a public company, you must -- you understand right in for scrutiny. You happen to answer to shareholders and investors is what we actually do. And so -- but the absolute focus has always been on running the company. And hence, I was happy to move my shareholding into it because I had no interest in stepping down, retiring or an exit. I just want to keep on doing what I've been doing. So some of those conversations -- and it's not as though BGH from the profile, I understand, they didn't have like a business that wanted to merge in or take this anywhere else that we're really wanting. I think they saw the foundation of Hansen of what it's doing. Now I said, we wish BGH well. I'm not sure they may have other things they're bidding on at the moment, other opportunities. We wish them well. I don't think the market should, for one moment, think any ill of it. They had a look. We did the right thing. The fact that it wasn't quite right for them, mate, is good. We just move on. I said nothing came up anywhere. Due diligence, as I said, there's [ no ] any black holes, red flags inside of our business. So I'll just keep on emphasizing that. And they would have found that early if they weren't particularly happy. That said, I don't understand their business case, but I wish them well.

Fair enough. Other question. What -- how do you see succession planning? I wondered whether your inclination to go with their plan might have had something to do with the longevity of the business after you don't want to do it anymore. Is there anybody -- have you got any family members coming on after you? You came on after your dad. Any other members after you?

Good question. I look, coming up, I actually never worked for my father. And that was -- I came here 30 years ago. In fact, I never have even worked for my father. So I've actually been here a long, long time inside the business. Look, I don't think we ever think of nepotism in any business. I think it comes down to competence of people joining. Do I have children? Do I have children which could have a role in the company? Certainly, that would be -- if -- but you'd understand, those have to be equal standing to anyone else who would actually would have applied for the job. I think you've got to understand, [ Marshall ], this is a large organization, 1,500, 1,600 staff. I lead a very exceptionally talented bunch of managers. I can't run this by myself. I rely on a management team, which are loyal to the business and loyal to where we're going as an organization. And all of us play an enormous part of going forward. And none of us saw this journey coming to an end. We have absolute faith of where we're going. We don't see natural disruptors to our business. We think we're a great foundation. And we think shareholders like itself, which own part of Hansen will continue to own Hansen and would be great. Notwithstanding, as a public company, the door can be knocked on, like a knock on the door like BGH. And the Board and myself, of course, we have to open the door if it made sense for shareholders in what we're doing. But I'm not ready to go anywhere yet. And so -- but thank you for reminding me if I want to go one day.

Last question. It strikes me that -- I've been a shareholder on and off. I think I bought my first transfer shares at about $0.70 with a degree of trepidation because it was a very young company at the time. The dividend policy, obviously, is relatively conservative because you're continuing to grow. Do you foresee a slightly greater payout ratio with any time in the near future?

I think capital management of any organization, Marshall, is an important thing to do. I think the view of capital management is probably a little bit like the way you manage your own affairs now. That has been a very strong number of years at the moment now to pay off the credit card or an allocation of paying down debt to reset for acquisitions. We think our capital management is first rate. This is not my money, it's shareholders' money. And naturally enough, if we're not paying down debt or we're not buying a business, it belongs back in the hands of our shareholders. And I think the Board takes this very seriously. At the moment now, I think we paid -- how much we pay down? How much...

I think about $40 million, $45 million, I'm guessing...

Yes. $45 million but...

It's a big chunk anyway, yes.

Mate, it's a big chunk, but -- and that's what I think is very conservative, but good fiscal management because if we want to go and buy a business, the ability of having our bank's support and having cash available to us is paramount. Now we know our banks are highly supportive of our business model. I think we are -- we have a syndicated level of banks, maybe 7 or 8 banks. I think you probably asked them all. We're probably unique at just how quick we can pay back debt. And one of the reasons we do it because when we want to go to sort of when we enter the next acquisition, we want $100 million, $200 million or $300 million. We want absolute certainty because having -- knowing you can actually write the check out to buy the business has always been important to us. It's like negotiating to buy your house. If I had to subject to finance as opposed it was going to be a cash transaction, Marshall, those are -- or these play heavy on us. That we -- if you're doing a deal, you want certainty of transaction. So -- but as I said to -- a capital management, we look at -- if we pay our debt down, and we've got no use for the cash, this is a cash-generative business, always has been, and would not be our money to keep and we certainly would increase the dividends if we didn't have better uses for the money.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Hansen for closing remarks.

Thank you, Darcy. Look, I'd like to thank everyone for listening in. I would wish I could probably give you more answers to what it is. But all I can just is echo back, it was a process which we don't look -- we look upon and say will it happen that didn't quite work out. But we didn't want to deviate at all from where we're going as an organization. We wish BGH well. I think they're indirectly still friends of ours going forward. As I said, without knowing their business case, that's their business case to disclose if they want to. But the business has stayed in the same hands, it always was. And a lot of -- on the call now are shareholders of Hansen. And we thank you for your investment and staying with us, and we think our future looks fantastic. So thank you very much. And no doubt for all shareholders, we look forward to talking to the AGM in the next month or 2.

Thank you very much.

Thanks, Darcy.

That does conclude our conference for today. Thank you for participating. You may now disconnect.