IPH Limited (1IP.F) Earnings Call Transcript & Summary

And welcome to the IPH Limited 2025 Annual General Meeting. I'm Peter Warne, Chairman of the company, and I'll be chairing the meeting today. I would like to welcome those shareholders that are present in the room today and those who have joined us online. I advise that today's meeting is being live streamed on the company's website. Shareholders have also had the opportunity to submit questions prior to the meeting. I would also like to acknowledge the Gadigal people of the Eora Nation. I pay my respects to elders past, present and emerging. I'd like to take this opportunity to introduce you to members of our Board of Directors, senior executives and auditors. Our Non-Executive directors, John Atkin, Vicki Carter, David Wiadrowski, Kate Mason; and Jingmin Qian. Our CEO and Managing Director, Dr. Andrew Blattman. In the front row here, we have our Chief Financial Officer, Brendan York. Put your hand up, Brendan, so people come and see you later. Our Company Secretary, Tamsyn Hoff; and representing our auditors, Deloitte, Xenia Delaney, our engagement partner. I'd also like to thank EY again for hosting our AGM. The Notice of Meeting has been circulated and a copy of the Notice of Meeting and annual report are available on the IPH website. I take the Notice of Meeting as read. I'll be keeping to the order set out in the Notice of Meeting, and shareholders are requested to keep their questions until the particular resolution is dealt with by the meeting. Please note, there will be a general discussion period at the end of the meeting. I'll be calling a poll on each of the resolutions, and I declare the polls open now. Before moving to the formal business of today's meeting, the Managing Director and I will first provide you with an update of the group's highlights for the year. These addresses were lodged with the ASX prior to the commencement of the meeting today. In my Chairman's address, I will briefly discuss our financial results for FY '25 and how we are responding to the current market challenges in FY '26. I'll also discuss enhancements to our remuneration framework following shareholder feedback last year and an update on the Board renewal and CEO succession. In a challenging operating environment, IPH reported statutory net profit after tax of $68.8 million compared to $60.8 million in the prior year. Underlying EBITDA lifted by 6% to $207.2 million as a result of increased earnings in Canada from acquisitions. Underlying NPAT, an important measure given the material amortization profile of acquired intangible assets in IPH each year, increased by 7.3% to $120.6 million, which delivered underlying earnings per share of $0.453. Net debt at 30 June 2025 was $356.3 million, slightly down on the 30 June 2024 number of $359.9 million with a leverage ratio of 1.9x, which remains within the company's maximum target leverage ratio of up to 2x. Given the company's highly cash-generative operations and low capital requirements, the Board will continue its active capital management program by utilizing free cash flows to increase returns to shareholders, including through buybacks while remaining cognizant of the target leverage ratio. The Board declared a final dividend of $0.195 per share, 30% franked at the corporate tax rate, bringing the FY '25 total dividends to $0.365 per share, up 4% on the prior year. IPH remains focused on improving shareholder returns through the continued dividend stream. Andrew will provide further detail on the financial results in his CEO address. Like all shareholders, we're obviously disappointed with the decline in the IPH share price over the last year. External factors, including the significant downturn in U.S. PCT filings, causing a corresponding decline in filings into secretary markets where IPH operates and delayed revenue from the disruption caused by systems issues in the Canadian Intellectual Property Office or CIPO, have impacted our business. Pleasingly, the disruptions in Canada have started to abate, and we are seeing improved performance both in terms of CIPO activity and subsequent revenue. While we can't afford -- can't control the share price, I can assure shareholders that the company is working hard to respond to these challenges in FY '26. That includes targeting additional jurisdictions beyond the U.S., including Western Europe, Japan, South Korea and China for incoming filings into key secondary markets to diversify our revenue base, driving new business development activities at the member firm level to grow market filings and market share, together with a focus on additional activities to drive other forms of revenue such as case transfers, reducing our cost base to align to the operating environment and driving further operational efficiencies and implementing a fresh group-wide set of incentive program to focus on driving member firm performance, business development and improved working capital management. Andrew will provide further details on our progress in FY '26, including trading results and metrics for the first 4 months of the year. The Board carefully considered feedback from shareholders and proxy advisers on our executive remuneration framework received prior to last year's AGM. In response, we conducted a thorough review of our remuneration framework and have implemented a number of changes from FY '26 to enhance the alignment of executive reward with shareholder value. These include an increase in the proportion of STI delivered in equity and the introduction of a relative total shareholder return as an additional vesting condition for the LTI program. KPIs have also been restructured in FY '26 to reflect the organic growth ambitions of the company. Further details on these changes are outlined in the FY '25 remuneration report. Over the past year, we continue to progress Board renewal. Kate Mason joined the Board on the 1st of September 2025 and is standing for election at this AGM. Kate brings extensive executive experience across human resources, business transformation and information technology and is a welcome addition to the Board. Having served on the Board since 2019, Jingmin Qian will retire from the Board at the conclusion of today's AGM. On behalf of the Board, the executive team and our shareholders, I extend our sincere thanks to Jingmin Qian for her contribution to IPH and wish her every continued success in the future. Before closing, I want to make special mention of Andrew Blattman, who has announced his intention to retire as MD and CEO during the second half of calendar year 2026. I want to acknowledge and thank Andrew for his exceptional leadership and contribution to IPH through a remarkable 30-year career with the group, including nearly 9 years as Managing Director and CEO. Under Andrew's guidance, IPH has grown its platform significantly through acquisitions in Australia and New Zealand, expanding throughout Asia and more recently, building the market-leading presence in Canada. Andrew's vision, dedication and commitment have been instrumental in positioning IPH as a global market leader in secondary IP markets. We are deeply grateful for Andrew's continued leadership during the transition period to ensure a smooth handover to our next CEO. In closing, I want to acknowledge Andrew, his leadership team and all our people across the IPH Group for their contribution over the last 12 months. I'd also like to thank my fellow directors for their diligence and commitment to IPH. Let me conclude by thanking you, our shareholders, for your continued support of IPH and look forward to sharing more progress with you next year. I now ask Andrew to deliver his Managing Director's address.

Thank you, Peter, and good morning, ladies and gentlemen. In my address today, I'll provide a summary of our FY '25 financial results and an update on our strategic focus and sustainability. I'll conclude with commentary on how we are responding to the current challenging external environment, together with an update on trading for the first 4 months of FY '26. I'll commence with a summary of our FY '25 financial results. Group revenue increased 16.5% to $710.3 million, while underlying EBITDA increased by 6% to $207.2 million, primarily due to the Canadian acquisitions of Bereskin & Parr, Ridout & Maybee and ROBIC. On a group like-for-like basis, which, as you know, removes the impact of acquisitions and foreign exchange movements, revenue was flat on prior year, however underlying EBITDA declined 4%. In Australia and New Zealand, like-for-like revenue increased slightly despite a drop in filings, while like-for-like underlying EBITDA declined by 2.4%, reflecting inflationary cost pressure and increased IT costs, including cybersecurity upgrades. Conditions remain challenging in Australia and New Zealand to date in FY '26. In Asia, like-for-like revenue was flat on the prior year with underlying EBITDA down marginally by 1.7%. IPH Group filings across the Asia region increased by 16.5% in FY '25, the first year of filing increases in 3 years, which provides a stronger revenue and earnings platform into the FY '26 and beyond. IPH has an unmatched network in Asia to support global clients' secondary IP market needs, and we expect Asia to continue to facilitate the company's growth plans. Our Canada segment was significantly disrupted by the Canadian Intellectual Property Office, which I'll now refer to as CIPO because it's a term which I use a lot today. So CIPO is Canadian Intellectual Property Office, as we call that, the systems issues causing a backlog of workflow, which delayed revenue in FY '25. As these issues are resolved, we expect an improvement through FY '26 and beyond. Despite the disruption, the Canadian segment underlying EBITDA was only down 5.4% as stronger trademark activity partially offset the shortfalls in patent activity. The integration of Bereskin & Parr into Smart & Biggar in March 2025 was successfully completed with synergies achieved above target, and we saw a continued increase in client referrals from our Canadian business to the IPH network. Our strategic focus in recent years has been on acquisitions and on integrations, including the creation of the market-leading IP presence in Canada with a simplified member firm brand structure. Having now successfully completed these Canadian acquisitions, our focus is now on enhanced organic performance and operational excellence across all markets. Through our transformation efforts, we are focusing on building long-term value by strengthening the member firms already within our group. The core of our strategic plan is to empower our member firms with the group providing strategic guidance and shared capabilities. This will allow each member firm to retain its own identity, culture and client relationships. This model balances the strength of local brands with the benefits of IPH Group's scale and support. We are looking to embed AI into our core operations from patent drafting prosecution to administrative functions, thereby streamlining workflows and reducing costs. We also restructured group corporate services in late FY '25 to better support member firm level growth. In FY '26, we'll focus on further supporting member firms by investing in targeted technology upgrades and operational improvements to boost efficiency, enhance service delivery and drive stronger commercial returns. In FY '25, we advanced our sustainability agenda by focusing on those areas most material to our business and stakeholders. We refined our greenhouse gas emissions measurement in preparation for mandatory climate-related disclosures commencing in FY '26. We also finalized a group-wide diversity, equity and inclusion strategy, reflecting the increasing global nature of our business and received endorsement for our inaugural Reflect Reconciliation Action Plan in Australia. Shareholders can find further details of these and other initiatives in our FY '25 sustainability report. Now in terms of our FY '26 focus, while the macro environment has been challenging, we are focused on driving organic growth and generating operational efficiencies. Given the ongoing decline of U.S. PCT filings into Australia and New Zealand, we are refocusing our business development activities to target second-tier associate firms for filings into our member thermal jurisdictions. We also deliberately refocused and significantly boosted our business development activities to target Western Europe, Japan, South Korea and Chinese incoming filings. Our focus in Canada is to leverage our integrated platforms and to harness the beginnings of a recovery in patent workflow following the CIPO systems issues that have challenges to date. While in Asia, we are building on the current filing momentum to deliver revenue and earnings growth. As we detailed at our full year results, we have realigned our cost base to drive operational efficiencies, which will deliver annualized cost savings of $8 million to $10 million from FY '26. I'll now provide an update on trading for the first 4 months of FY '26, 1 July to 31 October '25 compared to the prior corresponding period. Year-to-date trading has been in line with our expectations with a pleasing return to earnings growth in Canada and Asia, partially offset by a decline in the Australia and New Zealand segment, which continues to be impacted by lower U.S. PCT filings and the economic downturn in New Zealand. Our group performance reflects the enhanced resilience and diversity of our earnings base, which comes from having exposure to a number of IP jurisdictions. While Australia and New Zealand remain challenging, this segment now comprises only 43% of our earnings, excluding corporate costs for the year-to-date period to 31 October 2025. For the first 4 months of trading to 31 October '25, unaudited IPH Group revenue was $241.7 million, up 7% on the same period last year, with group underlying EBITDA of $72.4 million, up 13% on the same period last year. The growth was a result of the prior year acquisition of Bereskin & Parr, organic revenue growth in both Asia and Canada as well as a positive movement in foreign exchange rates. The average AU-U.S. dollar exchange rate for the first 4 months of FY '26 was $0.654 compared to $0.67 for the PCP. The group underlying EBITDA improvement was also assisted by a reduction in corporate costs, which will remain a focus across the rest of the financial year and beyond. Our performance on a like-for-like basis, which excludes the impact of foreign exchange movements, both gains and losses as well as constant currency adjustments, together with the impact of acquisitions made during the prior period. Now while group like-for-like revenue was 2% below the PCP, pleasingly, like-for-like underlying EBITDA was 3.5% up compared to PCP, reflecting cost reductions implemented in FY '25. I'll now discuss each of these 3 segments. Firstly to Canada, which delivered a strong improvement in earnings from acquisition cost synergies implemented in late FY '25 and some early signs of a CIPO workflow recovery. In Canada, the cost synergies achieved from the Bereskin & Parr acquisition we implemented late last financial year and continued cost discipline are assisting in improved results in this segment. We're also seeing the beginning of a recovery in workflow following the disruption from the CIPO systems issues experienced across much of the last 12 months. We are experiencing the start of an improvement in the clearance of backlog workflow with some CIPO activities operating at higher average monthly volumes than before disruptions commenced in July 2024. So Canada like-for-like revenue was 3.1% up for the PCP with underlying EBITDA 12.9% above the PCP. Now to Asia, which showed a promising return to revenue and earnings growth, coupled with IPH filings continuing to increase across the Asian region. We see positive signs of recovery in our Asian business with a pleasing return to like-for-like earnings growth this period. As we indicated at the FY '25 full year results, this improved filing performance across the second half of FY '25 and into FY '26 is starting to yield revenue and earnings uplift with like-for-like revenue up 3.3% ahead of the PCP and underlying EBITDA improving 1.6% for the first 4 months of trading to 31 October 2025. Finally, in Australia and New Zealand, we continue to be impacted from the decline in U.S. PCTs being filed and a general slowdown in the New Zealand economy. As detailed previously, IPH member firms have a significantly higher exposure to U.S. clients relative to the market and IPH's Australia and New Zealand segment is impacted by the decrease in market filings from U.S. applicants. Moreover, the Australian patent market has also included an unusually high number of self-filed provisional applications. These are applications which are not attached to a filing agent. These have increased by 222% for the year-to-date compared to the PCP. At this stage, it is unclear what is driving the somewhat unusual activity. Excluding these self-file provisional applications, the Australian patent market increased 3.5% for IPH declining by 7.1% for the same period. Australia and New Zealand segment like-for-like revenue was 7.7% below PCP with underlying EBITDA down 10% for the first 4 months of trading to 31 October 2025. While this segment is operating in a challenging economic environment, member firms are responding to the challenge with increased new business efforts, particularly across primary markets outside the U.S.A. There have also been further cost rightsizing programs when necessary to protect the EBITDA margin, which continues to hold at the FY '25 level. We are confident that our actions taken this year will ultimately yield better results in this segment. However, it will take some time to see through this cycle. As some shareholders may be aware and as referenced by Peter, I recently announced my intention to retire as Managing Director and CEO of IPH during the second half of 2026. This will enable a suitable transition period and smooth handover to a new CEO. It has been a privilege to have led this company for the past 8 years, and I wish to thank everyone in IPH for their support during this time. I finally also like to thank shareholders for your support of the company. While we recently have faced a challenging period, particularly with the unprecedented decline in U.S. PCT filings, IPH remains a resilient business. Despite the short-term disruptions, the medium-term fundamentals for IP remains supportive for growth, and we are confident in restoring value in the long term. Company's intellectual property remains one of the most valuable assets, which will always require protection across global markets. As a market leader across secondary IP markets with an unmatched global network, IPH remains well placed for servicing that growth. Thank you again.

Thank you, Andrew. Before I move on to the business of today's meeting, I would like to point out that the minutes of last year's AGM are available for inspection by shareholders at the end of the meeting. The resolutions for consideration today may only be voted on by shareholders, proxy holders and shareholder company representatives. The Resolutions through to -- #2 through to 5 set out in the Notice of Meeting are to be considered as ordinary resolutions. Ordinary resolutions must be approved by a simple majority of the votes cast by shareholders entitled to vote and voting on the resolutions. Resolution 7, the spill resolution is only required to be put to the meeting if at least 25% of the votes cast are cast against the adoption of the remuneration report, which is Resolution 6 in the Notice of Meeting. As I noted earlier, each of the resolutions will be decided upon on a poll and the results will not be known until the end of the meeting. So a contingent poll will be conducted on Resolution 7. If the remuneration report receives more than 75% support, Resolution 7 will have no force or effect. The results of the poll will be advised to the ASX as soon as possible after the conclusion of this meeting. And I propose to vote all undirected proxies in favor of Resolutions 2 through to 6 and against Resolution 7. Turning to today's business. If you wish to speak on a motion or ask a question, please raise your yellow card, that's for voting shareholders or blue card for nonvoting shareholders. Where you have -- when you have been acknowledged, please identify yourself before speaking, and I would ask you to only raise one topic at a time. The first item of business allows shareholders the opportunity to discuss the company's financial report, directors' report and auditor's report for the financial year ending 30 June 2025. There's no resolution or vote required for this item, but I welcome questions or comments from shareholders regarding the accounts and the performance of the company in general. Ms. Delaney, the engagement partner with our auditors, Deloitte, is present at today's meeting and will be available to answer any such questions relevant to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted in the financial statements and the auditor's independence. All questions should be addressed -- initially addressed to me and any questions to be answered by the auditor should be restricted to the matters I've just outlined. If you wish to address the meeting, please use the microphone provided and speak clearly. Also before you're asking your question, please state your name and any affiliation that you may have. Are there any questions? Yes. You have the microphone. The microphone is coming behind you now. Thank you.

[ Brian Allison ], shareholder. At the CEO's address, you mentioned briefly at the end there that there have been a decline in the American business. And I'd sort of like a bit more detail on that. Is it a decline in the American market? Or is it a decline in our share of the market? What -- how much of our business does that involve? And also how he sees the market going forward in America, where he sees our prospects or otherwise?

Thanks for that question, Brian. Andrew, can I ask you to answer that?

Yes. Well, good to get -- thanks for the question. Look, it's a good question. It's one we ask ourselves, of course, given that we are exposed strongly to the U.S. market, probably 40% of our work comes out of the U.S. What we have seen, and we announced it at the annual results in August that, that incoming work from the U.S. into Australia was down almost 8%, and we were down 9% at the time in the overall market. So I think it's a question of what does the future look like for U.S. innovation. In many ways, you look to the past, the U.S. has been the primary innovation source for over 100 years. I don't think that's going to change in the short to medium term. What we are doing is not waiting for that to happen. We're pivoting our BD efforts to other primary markets. The other primary markets of the world, places like Western Europe, Japan, South Korea, increasingly China. We are well placed in China because we have our own office in Beijing who want to receive incoming work from the primary markets into Beijing into China. But certainly, we're also seeing an increase in work outgoing from China into our business. I think in the Asian business, particularly, we're up 20% in terms of Chinese filings coming into Asia. We're not seeing that same kind of increase in Australia at this point, but certainly, that's an opportunity. The other thing we're doing to try and refocus the BD activity in the business is moving away from a direct corporate focus and moving more to the associate market. By the associate market, I refer to private practice firms across the primary markets, whether in the U.S., Western Europe, Japan, Korea. And these are firms that are law firms like Spruson & Ferguson or Griffith Hack in Australia, but they're in -- might be in San Francisco or in Munich with an end client in Palo Alto. And that's probably the largest proportion of our work, but they're a much more disparate group with a smaller volume per client opportunity. So it's a bit harder to get your arms around them individually, but certainly, they are a bigger base of opportunity than the corporate market. So one, we've pivoted to markets outside the U.S. and two, we've had more focus on that associate market outside the corporate space.

Thanks, Brian. Are there any other questions? If there are no further questions, we'll move on to the resolutions. The first resolution is Item 2A. Resolution 2A provides for the reelection of Mr. John Atkin as a Non-Executive Director. Mr. Atkin, who was initially appointed as an Independent Non-Executive Director in September 2014, retires by rotation and offers himself for reelection as a Non-Executive Director of the company. Details of Mr. Atkin's skill and experience are set out in the Notice of Meeting. I now move that Mr. Atkin be reelected as a Non-Executive Director of the company. The motion is open for discussion. I'd also like to invite Mr. Atkin to address the meeting. John?

Thanks very much, Peter. As Peter observed, I've been a director since the IPO and was appointed back in September 2014. When we commenced the process of Board renewal in 2021, when Peter accepted our invitation to come on board as Chair, I made it clear shortly after Peter joined us that we saw that as a process of Board renewal. And when he thought it was appropriate for me to be moving on, he should be simply tapping me on the shoulder, and I would be happily move on at his request. So that's very much -- and that's very much the flavor in which I'm now standing for reelection. You'll see when we discuss shortly Kate's appointment to the Board. We've recruited someone with great depth and skills in the people and culture area and very much with a view to Kate taking over my position as Chair of the People and Rem Committee in due course. And so that will free up Peter to give me the tap. Having said that, I'm very happy to continue working with the Board. I recognize and the team at IPH, I recognize we're going -- facing our challenges in the market at the moment. But personally, I'm very confident in the future of the group and the quality of the brands that we have within our stable and the potential that we'll realize through that in due course. So as I said, I anticipate this will be my last term as a director, and I'll be working it forward year-by-year, really very much at the discretion of the Board, and welcome and thank you for your support. Thanks, Peter.

Thanks, John. Are there any questions related to John's reelection? If there are no questions, I'll put the motion to a vote. Please now mark for, against or abstain next to Resolution 2A on your yellow voting cards. I advise that the proxy and director votes shown on the screen have been received. Thank you. We now move to Resolution 2B. Resolution 2B provides for the reelection of Ms. Vicki Carter as a Non-Executive Director. Ms. Carter was appointed as an Independent Non-Executive Director in October 2022, and she retires by rotation and offers herself for reelection as a Non-Executive Director of the company. Details of Ms. Carter's skills and experiences are set out in the Notice of Meeting. I now move that Ms. Carter be reelected as a Non-Executive Director of the company. The motion is open for discussion, and I would like to invite Ms. Carter to address the meeting. Vicki?

Thank you, Chair, and good morning, fellow shareholders, and thank you for the opportunity to address the meeting this morning. When I joined the Board of IPH 3 years ago, I did so because of the important role the company plays in enabling the protection of the world's innovators. The past 3 years have reinforced my belief in the potential we have to leverage our global presence and our specialist IP capability to deliver value for you, our shareholders. The next phase for IPH will clearly require very clear strategic intent, coupled with disciplined execution. I believe my skills and experience in both executive and non-executive roles position me well to make a positive contribution on your behalf. I have over 35 years' experience in the financial services and telecommunications sectors with executive roles in transformation, human resources, distribution and strategy and operations. My Non-Executive Director roles include Chair of Bendigo and Adelaide Bank and Non-Executive Director for ASX Limited, where I chair the People and Culture Committee and a member of the Noms Committee, the Tech Committee and the Risk Committee. For IPH, I chair our Projects Committee, and I'm a member of People, Remuneration and Noms as well as Audit and Risk Committee. I'm genuinely excited about the next phase for IPH. And with your support, I'll work hard to deliver for you, our shareholders. Finally, I'd like to echo Peter's acknowledgment of Andrew, his significant leadership of IPH and also of the sector. Thank you.

Thanks, Vicki. Are there any questions regarding this resolution? As there are no questions, I put the resolution to a vote. Please mark for, against or abstain next to the Resolution 2B on your yellow voting card. I advise that the proxy and direct votes as shown on the screen have been received. We now move to Resolution 2C. Resolution 2C provides for the election of Ms. Kate Mason as a Non-Executive Director. Ms. Mason was appointed as a Non-Executive Director on the 1st of September 2025 in accordance with Rule 6.2(b) of the company's constitution and offers herself for election as a Non-Executive Director of the company. Details of Ms. Mason's skills and experiences are set out in the Notice of Meeting. I now move that Ms. Mason, being eligible, be elected as a Non-Executive Director of the company. The motion is open for discussion. And I'd also like to invite Ms. Mason to address the meeting and provide a brief statement outlining her skills and experiences. Please, Kate.

Thank you, Chair, and good morning, fellow shareholders. I'm Kate Mason, and I am honored to serve as a Director of and stand for election for the IPH Board. Since commencing on the Board, as Peter said, in September, I have joined the People, Remunerations and Nominations Committee, the Audit and Risk Committee and the Projects Committee. In addition, I have spent 3 months really understanding the business, meeting our senior executives, our member firm MDs and other core members of our team. I've also met with proxy advisers, some of you in the room, institutional investors, both here and also globally. What excites me is similar to Vicki is the extraordinary growth opportunities that we now have at IPH. I bring over 3 decades of global experience in people and culture, specifically remuneration and leadership, transformation. I have led large-scale transformations to deliver strong commercial results. This, I believe, will be critical as we look to the next strategic value that we can create for you, our shareholders. I have also, throughout my executive career, served on numerous boards and been based in over 5 countries and in particular, some of the countries of which we are privileged to have some of our member firms. I've also served since stepping out of my corporate life 4 years ago as an adviser and executive coach to some of Australia's top leading companies and some of the global companies. At IPH, we are focused for you on what matters most, which is maximizing our value across all our member firms. I know what it takes to drive organic growth after significant M&A investment and to deliver results through our people, our smart execution and our range of cultures. I confirm that I have the time and the capacity to give my full attention, my leadership to this portfolio and this business. My portfolio is deliberately structured to be complementary and the insights I think I gain from advising a lot of other organizations across a range of industries can directly enhance my value as a Non-Executive Director of the IPH Group. I'm committed to working with management and my fellow directors to deliver the results that you expect and you deserve. Thank you.