Lynch Group Holdings Limited (LGL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Patrick Elliott, and I am Chair of Lynch Group Holdings Limited. As it is now 10 a.m. and as we have a quorum, I declare the 2025 Annual General Meeting of Lynch Group Holdings open. It is my pleasure to welcome you to the meeting this morning. We are conducting today's meeting physically here in Sydney as well as virtually by webinar. Shareholders present in the room or their representatives or proxy holders will be able to participate in the meeting in real time by asking questions. I would now like to introduce my fellow directors here today. On my left, I have the Group CEO and Managing Director, Hugh Toll. To his left, Elizabeth Hallett, who chairs the Remuneration and Nominations Committee. To my right, Peter Arkell, who is based in China, is a member of both the Audit Risk Committee and the Rem, Nom Committee. And to his right, Peter Clare, who chairs the Audit Risk Committee and is a member of the Rem and Nom, and I would also like to welcome Damien Cork of Deloitte, the company's auditor. Damien will be available to answer questions on the conduct of the audit and the audit report for the year ended 29th of June 2025. Before we turn to the Chair and the CEO addresses and the formal business of the meeting, I would like to provide some guidance on voting and asking questions throughout the meeting. To ensure the views of all shareholders are considered all resolutions at today's meeting will be voted on via poll. Shareholders and their attending proxies who are present in the room may vote during the meeting. During the meeting, we will display the number of proxies received prior to the meeting in respect of each resolution, and I confirm that I will vote all undirected proxies in favor of each resolution. The final results of the meeting will be released to the market as soon as possible after the conclusion of the meeting. Aaron Calder of MUFG Pension Market Services is the returning officer for this meeting. I now declare voting via poll open on all items of business. Voting will close after the conclusion of this meeting. We will address any questions on the specific resolutions as we consider those resolutions, and there will be an opportunity to address any general questions at the end of the meeting. I will now turn to my address as Chair of Lynch Group. The prior year FY '24 was in large measure a continuation of post-COVID trends. Australia experienced an improvement in its operating margins as product supply and logistic costs were normalized. Australian supermarkets continue to win channel share as more customers were attracted to the quality and price on offer. The company's China operations were buffered by a combination of weak domestic demand and strong volumes coming to the market from new large-scale and [indiscernible] state-backed projects. FY '25 was in many senses, more of the same. Australian operations reliably increased their sales and maintained or improved their margins. Whilst international inbound freight rates remained elevated when compared to pre-COVID levels, other operational improvements supported margin recovery. Sale of return stores, where the group has greater influence over assortment volume and price grew at a faster rate to core sales, evidencing the larger opportunity for the category within the supermarket channel. The company's wholesale market operations also grew with improvements in margin evident in the second half. The decision was made to close 2 of the company's 3 domestic farms due to marginal profitability and potential future CapEx requirements. The group's China operations remained volatile with earnings materially below pre-COVID levels. Consumer demand continued to be weak with new supply added over the last few years depressing prices. Pricing during the event windows was much more improved year-on-year, supporting a stronger half -- second half performance. Given the significant fixed cost nature of the growing operations, improvements in price translate largely to profit and cash flow. The company continues to have a competitive advantage in the growing and downstream distribution of floral products in China and remains cash positive. The core of the Australian business is the national supply of floral and potted product to our supermarket customers. While the group has been supplying the Australian supermarket channel for over 30 years, the supermarket floral category continues to have significant long-term growth potential. In the U.K., for instance, more than 50% of all floral products are sold through supermarkets. In Australia, that share has grown from 19% to more than 28% over the last 5 years as the quality and value proposition of supermarket floral products has resonated with customers and as value-added bouquets arrangements and products continue to drive gifting demand, particularly during key events. Our scale, innovation, worldwide sourcing capability and continued investment in our in-store merchandising teams have greatly changed the perception of supermarket flowers, providing key support to our supermarket customers as they drive increasing share of the overall floral industry. The Australian business was successful in securing a net additional 50 sale return stores, the full benefit of which will come through in FY '26. The company's ability to materially grow the category in partnership with its major retail customers will continue to drive the penetration rate of the supermarket channel. The company's investment in technology has reduced costs while driving increased sales. Automation of Floral bouquets, in particular, has created a more consistent offering whilst also derisking the high-volume event periods. We introduced automated bouquet making lines in Sydney and Melbourne operations centers during FY '25, and we'll expand this to Perth and Brisbane in FY '26. The continued refinement of our merchandising systems has made our field staff more efficient, allowing us to invest more hours in store to drive like-for-like growth. Our market sites distribute locally sourced products alongside imported lines to other wholesalers and florists. With our hub operations in Sydney, Adelaide, Brisbane and Perth and 2 satellite sites in Newcastle and Canberra, our markets operation leverages our procurement scale and provides additional flexibility in how we manage product flow. Additionally, the markets business provides important real-time market intelligence on price, product availability, which feeds back into our supermarkets business. Markets achieved a record sales year with further improvement on track to improve margins by lowering the cost to serve. The group is underrepresented in markets relative to its total floral industry share. China. Due to the historical product quality issues associated with a fragmented and developing grower base, coupled with multilayer ambient product distribution networks, the consumer market for floral products has been slow to develop. Today, the floral market in China is many times the size of most Western markets and consumer buying trends centered around self-consumption and gifting, particularly during key event periods are emerging quickly. The capita spend rates on floral products remains low on a comparable international basis. The group's China operation is the largest grower of premium flowers in the country with 4 farms and a processing facility located in Yunan province and its distribution and bouquet making facilities located in Shanghai and Guangzhou. China remains a developing market for consumer floral products and floral products remain a discretionary purchase. This contrasts Australia where demand is consistent through the economic cycle. Consumer confidence and spend has not recovered from 2022 when a combination of a property collapse and zero COVID social measures disrupted these upward trends. At the same time, several large floral products came on stream, exacerbating the supply-demand imbalance. The group's operations are differentiated in that they are lowest cost and produce a consistent high-quality product year-round with products distributed through the company's own value-add distribution and export facilities. This does not fully insulate earnings from market gyrations, but has allowed the business to remain earnings and cash flow positive at what we expect to be the bottom of the cycle. Demand during the key event windows in the second half saw materially improved pricing on the prior year, supporting a stronger second half result. In between events, demand and pricing remains weak. We expect that excess supply will be absorbed by growing demand as the penetration rate of floral products in China continues to lift. We continue to value-add our product to reduce correlation with market pricing. This includes expanding the retail channel, including SOR stores, increasing production of bouquets in Shanghai and Guangzhou and the establishment of an online B2C business, Farm Flowers. Expanding our distribution footprint beyond Kunming, Shanghai and Guangzhou will support improved selling prices and achieve margin over time. On the 20th of August 2025, the group entered into a scheme implementation agreement with Hasfarm Holdings Limited and Darwin Aus BidCo, Pty Limited, entities controlled by a private equity fund, TPG Capital Asia, under which Hasfarm BidCo has agreed to acquire 100% of the shares in the company by way of a scheme of arrangement. On the 21st of October 2025, the Federal Court of Australia made orders for the group to distribute a scheme booklet, providing information about the scheme of arrangement and to hold a meeting of Link shareholders to consider and vote on the scheme of arrangement. The booklet included an independent expert report that concluded the scheme of arrangement is in the best interest of shareholders. The meeting of shareholders is scheduled for today, 21st of November 2025 at 11:00 a.m. The Board unanimously recommends that shareholders vote in favor of the scheme as no superior proposal has emerged, and the independent expert has concluded the scheme of arrangement is in the best interest of shareholders. We would again like to recognize and thank our staff for the incredible role they played in our business during the year. Their continued ability to find innovative solutions to problems, create beautiful designs and produce year-round quality product makes the group a global leader in the floral supply. Now I'll hand over to Hugh Toll for his address as CEO and Managing Director of Lynch Group.

Thank you, Patrick, and good morning, ladies and gentlemen. Today, I will talk to you about our performance over financial year 2025 and update you on the execution of our current growth strategies and progress on sustainability. Across FY '25, our committed teams delivered outstanding operational execution whilst continuing to advance our strategic initiatives across the business. The group's full year results finished ahead of the updated guidance provided to the market in early June at both revenue and EBITDA. Results reflect a continuation of robust demand in our Australian operations and an improved second half performance from our China business with pleasing year-on-year growth in pricing across the major event windows. Our FY '25 results reflect 8% growth in group revenue year-on-year. Australian customer demand remained strong across the year with supermarket customer collaborations across rebranding and a resumption of sale return store conversions supporting a positive growth result. The Australian revenue uplift was also supported by pleasing growth from our wholesale markets channel, which predominantly services florists. China also delivered strong year-on-year revenue growth delivered by higher volumes of both roses and tulips, improved tulip pricing and increased export volumes. Event demand and pricing across the second half of the year was significantly improved on prior year. Group EBITDA of $43.2 million exceeded last year's result by 9%. Australia's result improved by 8%, driven by top line growth, supported by a 20 basis point expansion in margin. China EBITDA improved 13% year-on-year off the back of a strong second half performance during key events. Whilst we are seeing a steady improvement in consumer demand and confidence, demand remains patchy outside of event windows. For the year ended 29 June 2025, the Australian operations achieved revenue of $351 million, 6% up on FY '24. FY '25 underlying EBITDA of $34 million, 8% up on the same period last year, outperformed revenue growth through a combination of range management, profit improvement initiatives and disciplined cost control. Customer demand for supermarket floral products remained resilient across the year with early signs of an improvement in consumer confidence as interest rates ease and employment markets remain strong. The event window across the second half of the financial year was particularly strong for our Australian operations with key supermarket events across Valentine's Day and Mother's Day delivered in full, achieving excellent sell-through rates in store for our customers. Growth was boosted across the year by close collaboration with a major customer in a brand launch and range refresh as well as a resumption in sale or return store conversions. Whilst we continue to see declines in potent revenues from the peak in 2021, consumer demand for floral continues to more than offset the mix shift impact of these declines. EBITDA growth outperformed top line growth across the year as ongoing cost management and efficiency initiatives delivered improved margins on a higher revenue base. Ongoing investment in automated bouquet lines has also improved efficiency and derisked execution for our major event periods where volumes increased three to fourfold on ordinary weekly throughput. For the year ended 29 June 2025, the China operations achieved revenue of $101 million, 18% up on FY '24. FY '25 EBITDA of $10 million, 13% up on the same period last year was achieved through an improved second half rose price and stronger tulip and export sales. The FY '25 farm development program takes total greenhouse space in production to 85 hectares. The increase in revenue resulted from a combination of a 4% improvement in farm production volumes with growth in both our key rose and tulip lines, a 7% increase in farm ASP, underpinned by broadly flat year-on-year pricing for roses and a 25% lift in tulip pricing and higher export revenues from increased volumes into Australia, which also included the pass-through of outbound freight costs. China's improved EBITDA performance was primarily generated from a lift in pricing across the second half of events, which now encompass Chinese New Year, Valentine's Day, International Women's Day, Mother's Day and the 20th of May. In general, consumer demand is showing gradual signs of improvement, albeit concentrated in the event windows where gifting, consumer connection engagement to individual events tends to drive better pricing and market demand. Our multichannel sales strategy underpinned by 3 distribution points in Kunming, Shanghai and Guangzhou continues to enable price optimization for our products across the seasonal calendar cycle. We are pleased to have issued the group's third annual sustainability report, flourish as part of our FY '25 annual report. This report provides detailed insights into the group's investment activities and focus areas across our environmental, social and governance initiatives. Across FY '25, the group continued its commitment and multidisciplinary approach to ESG by creating, resourcing and expanding its sustainability team to include senior members of management from various business units and geographies. The group identified 6 sustainability pillars that constitute the underlying framework for the group's ESG road map being waste, carbon emissions, water, packaging, biodiversity and people and community. The 6 pillars constitute the most relevant and material concerns as expressed by the group's people, customers and industry. The sustainability report has been prepared on a voluntary basis and not under Australian Sustainability Reporting Standards, AASB S1 general requirements for disclosure of sustainability-related financial information and/or S2 climate-related disclosures. Due to the ongoing scheme of arrangement and shareholder meeting vote on the scheme of arrangement, which is scheduled for today, 21st of November 2025, the group has not provided a trading update at this time. In closing, the Board and I would again like to recognize and thank our teams across Australia and China for their ongoing energy, effort and dedication across the year. The commitment to deliver quality, innovation and service for our customers remains our biggest strength. Thank you, ladies and gentlemen. I will now hand back to our Chair.

Thank you, Hugh. We will now vote -- I'll move to the formal business of the meeting. The Notice of Meeting has been made available to all shareholders and is also available on the company's website. The voting exclusions that apply to the resolutions in today's meeting are set out in the Notice of Meeting. As I mentioned earlier, the poll for voting is currently open on all items of business. Item 1 annual report. The first item of business is to receive and consider the annual report of the company for the year ended 29th of June 2025, which includes the financial report, directors' report and auditor's report for the company, a copy of which has been made available to shareholders on the Lynch Group's website. While there is no requirement for shareholders to vote on this report, this item provides an opportunity to discuss the report and for the Board or our auditor to answer any of your questions on the report. In particular, our auditor is aware -- is available to answer your questions relating to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the preparation of its financial statements and the independence of the auditor. No questions have been received from shareholders prior to the meeting. And there being no further questions in relation to Item 1, we come to the items of business for which a vote is required. The next 2 items of business require a shareholder vote. Each of those resolutions is an ordinary resolution, which will be passed if more than 50% of the votes cast by or on behalf of shareholders entitled to vote on the resolutions are in favor of the resolution. As noted earlier, I confirm that I will vote all undirected proxies in favor of each of the following resolutions. Item 2, Resolution 1, adoption of the remuneration report. Item 2 is to consider and if thought fit to pass the following resolution as an ordinary resolution of the company. That pursuant to and in accordance with Section 250R subsection 2 of the Corporations Act and for all other purposes, approval be given for the adoption of the remuneration report as contained in the annual report for the financial year ended 29 June 2025 on the terms and conditions in the explanatory memorandum. Please note that the vote on this resolution is advisory only and does not bind the directors of the company. Nevertheless, the Board will take into account the outcome of this vote when considering future remuneration arrangements of the company. In the interest of good corporate governance, the directors abstained from making a recommendation in relation to this resolution. Instructions in respect to the proxies received on this resolution prior to the meeting are as follows: for, 78,029,087; open 38,838; against 651, abstain 9,912 votes. No questions have been received from shareholders prior to the meeting. And there being no further questions, I ask that you place your vote in relation to Item 2 regarding the adoption of the company's remuneration report. [Voting]

Item 3, Resolution 2, reelection of Elizabeth Hallett as a Director. Item 3 is to consider and if thought fit, to pass the following resolution as an ordinary resolution of the company, that Elizabeth Hallett, having retired from her office as director in accordance with Clause 20.2 of the constitution and ASX Listing Rule 14.5 and being eligible, having offered herself for reelection, be elected as a director of the company. Elizabeth's profile is set out in the Notice of Meeting. The Board, other than Elizabeth Hallett, who has abstained from making a recommendation on this resolution due to her personal interest, recommends that you vote in favor of this resolution. As Chair for this resolution, I confirm that I will vote all undirected proxies in favor of this resolution. Instructions in respect to the proxies received on this resolution prior to the meeting are as follows: for, 79,394,397; open, 38,838; against 389,197; abstain, 9,912 votes. No questions have been received from shareholders prior to the meeting. And there being no further questions, I ask that you place your vote in relation to Item 3 regarding the reelection of Elizabeth Hallett as a Director of the company. That includes the formal business of today's meeting. I will now respond to any general questions of shareholders. [Voting]

I note that no questions have been received from shareholders prior to the meeting. And there being no questions from those present in the room, I declare the meeting closed. Representatives from our share registry, MUFG Pension Market Services will now collect your voting cards. If you have not yet completed your cards, please put now. The results of voting in today's meeting will be released to the ASX and put on the company's website as soon as possible. Thank you once again to all shareholders for your support. A reminder that the meeting on the vote for the scheme of arrangement is scheduled today, 21st of November at 11:00 a.m. Australian Eastern Standard Time. Thank you.