Metro Performance Glass Limited (MPG.NZ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Peter Griffiths. I'm the Chair of Metro Performance Glass, and I will be chairing today's meeting. So on behalf of the Board and the management and the staff of Metroglass, I welcome you here to the 2023 Annual Shareholders Meeting. We're hosting this meeting through a hybrid format. So shareholders are joining us here in the room in Auckland, but we have also a number of others participating through the virtual meeting platform. For those of you in the room, just a couple of housekeeping points. If there is some sort of emergency, there will be a siren. There will also be a voice announcement with some instructions. If we need to evacuate the building, the stairs -- there are 2 stair exits, both to our right, one in the far side and one just behind the screen here. And they take us down to the ground floor, 30 floors below. And the bathrooms are also in that area. For our attendees online, you can vote and ask questions at this meeting. And if you haven't done so in advance, you can vote during the meeting, and you can also ask questions online. I'll prompt you with further instructions as we go through the meeting. If you do have questions right now and you're online, it'd be a good idea if you could type them in and send them into us. That will allow our collator an opportunity to collect them together, and we'll try and answer questions of a common type at -- all at once. If there are questions that we can't get to or require a more complicated answer, we'll come back to you on your e-mail, and we'll also post the answers on our website. For those of you in the room, of course, there will be opportunities to ask questions at the end of the addresses. And at each resolution, we'll also take further questions. I'd now like to introduce my colleagues at the top table here. On my right, we have Graham Stuart and Julia Mayne. And on my left, we have Jenn Bestwick. Our other Director, Mark Eglinton, is a very late apology. He was particularly poorly yesterday at our Board meeting, and he's now exceedingly unwell at home, and so sends his apologies and regrets for not being here today. The other Director that's not present in the room is Rhys Jones, who resigned last week. I'd just like to acknowledge Rhys' contribution and performance to the company, and his expertise and business acumen will be missed. I'd also like to introduce our CEO, Simon Mander, who you'll be hearing from shortly. There are a number of other AGG -- sorry, MPG staff in the room. They've all got a name tag on them. Please take opportunities to talk to them over a cup of tea. We also have Troy from our auditors and Toby from our legal advisers. And we also have representatives from Jarden, who are our advisers, also in the room. Now to the agenda for today. We have a couple of short addresses and then we have 3 resolutions to consider. I will make a few remarks, and then I'll hand over to Simon to talk to you more about the year-end review and the trading of the company since that time. I'm sure there's quite a bit of interest in the room about events that happened after the balance date, and we'll attempt to address those during the meeting. My fellow Directors and I hold a number of proxies, discretionary proxies. We intend to vote all of these in favor of the resolutions in the Notice of Meeting. To date, we've received 83.9 million votes of the shares on issue. And in light of the proxy vote, it appears that resolution 2, which is the election of Mr. Graham Stuart, will not be successful. Graham is here today. If there are questions for him, he's happy to take them. But in the light of the outcome, he's unlikely to address the meeting. Okay. The financial statements for the year, 31st March, 2023, together with the auditor's report, were set out in our annual report. It's on our website. We have a number of hard copies in the room for people if they want them. And the Notice of Meeting was properly called. We definitely have a quorum, so I declare the meeting open. Turning to the year-end review financial year 2023. This was another challenging year for Metro. The hangover of COVID stayed with us. International supply chains continued to be severely disrupted, and freight costs remained high, and raw material costs went up. We increased the level of stock we held to cope with these challenges so that we could ensure the service to our customers remain at a high level. And as a result, our working capital increased, and that leads to higher debt. During the year, we introduced a number of initiatives to free up cash, to improve price and reduce cost. Consequently, in the latter part of the year, margins started to improve as price increases were embedded in the market, and the highest costs of international freight started to ease. Our business cost-out program resulted in annualized savings of between $8 million and $9 million, and our cost reduction program will continue as demand softens. Throughout the second half of the year, construction activity in New Zealand started to soften, and this has continued through into this year. And as at the end of the first quarter, just to give you some idea of the degree of change, the number of square meters that MPG processed in New Zealand was some 24% lower than it was for the quarter the previous year. It's clear now that we're in a prolonged period of reduced activity. The Board and management team considered -- continue to consider a range of scenarios, and we have further initiatives to reduce cost should demand soften further. As in previous years, our capital program was focused on increasing the capacity and capability for processing higher quality and higher performing Low E glass in New Zealand and increasing the double glazing capacity in Australia. This program is largely complete and has enabled the company to service the changing demand that the new building code in both countries has now brought to the market. MPG has been able to satisfy that demand very well. Sorry, I just managed to pick up the wrong page. Just give me a moment. I do apologize for this. I've managed to pick up most of Simon's presentation by mistake. Here we go. Two step together. Okay. So as I was saying, MPG and AGG have managed to respond to the changes in the building codes in both countries very well. AGG, should we say, finally or currently has now achieved a significant improvement in profitability, and this is supported by high levels of operational stability and customer satisfaction. The Board remains focused on achieving the best value for all shareholders and ensuring that the company is successful and an enduring glass processor, and we're open-minded to all options that may come to us. It remains the Board's intention to reduce debt. And as we've consistently communicated in the past, we're focused on reducing debt to 1.5x net debt to EBIT. Previously, we've made good progress on this. However, the impact of the pandemic has negatively affected our earnings and margins, and the current period of softer market activity creates a further challenge for us. It still remains the Board's intention that once debt is significantly reduced that we resumed dividend payments in line with the company's stated capital management framework. It is, however, the Board's current view that cash flow from operations alone, particularly in a downturn, will not reduce debt rapidly enough, and alternatives need to be considered. In February, we announced the start of a sale process for AGG, and we are progressing with the AGG transaction in accordance with those announcements. There is real interest in the asset, and a transaction would result in a very positive outcome for the group. Of course, a deal is not done until the deal is actually done. And therefore, we have developed some alternative strategies that will allow us optionality if the deal isn't concluded or completed on the terms we expect. Based on the options we have available and with the assistance of our advisers, we continue to believe that the rejection of the nonbinding indicative offer received on the 18th of July at that price was the right course of action and in the best interest of the company and shareholders. I guess to conclude, I would like to take the opportunity on behalf of the Board to thank the Metroglass employees for continuing to work hard in difficult times. Their resilience has been admirable. Our customers and suppliers recognize them for their commitment to the company. Now thank you all. I apologize for losing my place there for a moment, but thank you all for listening. I'll now hand over to Simon, who will talk more on the FY '23 performance. At the end of that, we will take some questions. Simon?

Thanks, Peter. Good morning, everyone, and thank you all for joining us both here in Auckland and online. My name is Simon Mander, and I'm the CEO of Metro Performance Glass. I'd like to start by recognizing our people right across the Metroglass group. Their resilience has ensured that we've continued to deliver our market-leading products and services to our customers. Our teams have managed the ongoing supply chain disruption well, and as shipping became more reliable and predictable, that has allowed us to begin reducing safety stock levels and, in turn, working capital. We have also seen marked improvements in gross margin as price increases embed, our sales mix shifts to higher value Low E and freight costs eased. During the year, all our segments were impacted by disruptions to supply chains, and corresponding project delays impacted our efficiency. In spite of this, all segments remained resilient and performed well. Metroglass remains a leading glass processor and installer in New Zealand. The Australian Glass Group delivered on their turnaround plan with stable operational performance delivering a significantly improved EBIT result. AGG is well positioned for continued growth alongside the increasing adoption of double glazing as changes to the national construction code further accelerate uptake. I'm also proud of the progress we've made in our environmental, social and governance commitments. Our safety performance continues to improve, and this remains a key focus for the leadership team. Our total recordable injury rate, or TRIFR, more than halved to 2.5 in FY '23 from 5.5 in the prior year. This year, we sought to understand our carbon emission profile and have recently achieved external assurance from Toitu Envirocare for our FY '22 base year. It's a good starting point for the company to develop our longer-term carbon reduction program. I'll now provide you with a brief summary of the group's financial performance in the financial year ended 31st of March '23. The Group EBIT of $11.8 million was an increase of 100% on our prior comparable period, driven by a full trading period without a lockdown and significant price increases in both New Zealand and Australia. Net debt increased to $60.1 million, driven primarily by higher volume of inventory, which was also at higher unit cost. Our leverage ratio reduced to 3.2x on 31st of March '23 from 3.8x on the 31st of March '22. AGG had a much improved result after a number of very difficult years. Revenue lifted 32%, primarily through improved pricing and stable operations, and we delivered an EBIT result of $6.4 million. I'll now touch on how we're traveling year-to-date. For Q1, group revenue was similar to the prior year despite the amount of glass processed and meter square being materially lower than the same period last year. Revenue in New Zealand is 9% lower, but improved pricing and mix is helping offset the volume reductions from a softer New Zealand market. Gross profit percentages improved 7% on prior comparable period in New Zealand. AGG continues its momentum seen through FY '23 into Q1 '24, with glass processed, revenue, gross profit and EBIT all above the same period last year. Net debt has reduced from $60 million at the 31st of March '23 to approximately $55 million at the 30th of June '23. This is primarily driven by reductions to working capital. Our CapEx is currently at same level as this time last year, and we expect our full year CapEx to be similar to last year at approximately $7 million, and this includes the AGG full year CapEx plan. I'd like now to take a moment to outline the support of regulatory changes occurring in New Zealand. In '22 MBIE introduced changes to the minimum thermal performance requirements for compliance with the building code H1 energy efficiency. This is the first major change to the code since the introduction of double glazing in 2007. New Zealand has moved from 3 climate zones to 6, reflecting the different local climates across the country, with each zone being set new thermal performance requirements for insulation, and glass windows being one of them. The new building code requirements see an increase in thermal efficiency across all zones in 3 phases. From November '22, all zones moved from an R 0.26 to R 0.37. Then from May '23, this split into 3 increased R value requirements with the coldest areas requiring an R of 0.5, and a final step in November this year, which brings Zones 1 and 2 in line with 3 and 4 and a thermal performance of R 0.46. In effect, these changes double the thermal performance of windows. The use of standard aluminum frames in most applications will not be compliant once the full extent of changes are introduced from November this year. And almost universally, these changes will require all glass to be high-performing Low E. Now we have been talking about these changes for some time and the positive impact that we believe these will have on our business. In the last few months as these new code requirements came into force, our mix of Low E and residential double glazing has moved from around 24% in Q1 last year to 40% in Q1 this year. And over the next 12 months, we expect this to reach 90% plus. Importantly, not only are we seeing a shift from non-Low E glass to Low E glass, but customers are also seeking to move from within the Low E range towards the high performing Low Es. Now Metroglass has a long history of supplying high-performing soft coat Low E products, and we believe we have a leading Low E product offering. Glass performance, excluding mechanical and structural properties, can be summarized across 3 performance attributes as shown in the chart. The changes in the building code requirements means that thermal performance is somewhat of a product hygiene factor and that all glass suppliers must now meet this minimum thermal proficiency requirement. For example, some of their double glazing range will no longer be appropriate like classic or the clear double glazing. Low E glass will also phase out and Low E mix will have limited residential application. However, we firmly believe we will see a significant shift in the attention of the other glass performance attributes by designers and specifiers namely visual light transmission or how much natural light comes into your house and solar gain, how much heat from the sun comes into your house. If you just recall that double glazing, it typically retains the warmth within the house. And the problem with solar heat gain is the heat coming into the house gets trapped. This is a particular interest in warmer climate zones where houses can overheat in summer. Earlier this year, we brought to market our SunX Grey offering. And as you can see from the graphic, it provides strong performance across all the attributes I've just talked about, and we're excited to bring this to the market. Metroglass is well positioned with our world-class processing facilities, and we have been making targeted investments in anticipation of the increased requirements for processing high-performance soft coat Low E glasses. In the year, we installed a new furnace at Highbrook as shown in this picture here, and upgraded and relocated a furnace to Christchurch, and along with a series of other modifications to our processing lines, creating immediate benefits to efficiency, quality and debottleneck these 2 main plants. In Australia, we commissioned a second double glazing line in Victoria to service the growing demand in that region. And a significant amount of the glass process is an equipment, which became surplus when we closed Mount Maunganui, as being relocated and will be utilized across the AGG business. In May '23, we conducted the ninth of our 6-monthly customer surveys, and these surveys provide us with feedback and guide our initiatives to address specific issues in general service levels, enabling us to develop ways to generate further value for our customers. Our ratings in New Zealand, while they remained strong, declined in the May survey. We are encouraged by the high survey response rate, which climbed to 72%. Often, these surveys are reflective for the current situation when the survey is conducted. That's one of the reasons we do it every 6 months. And in around May, we did have some supply disruptions in our plants, which impacted some customers. We've addressed many of those challenges already. We continue to work with our customers to understand their feedback and work with them to develop solutions to improve service levels. And Australia AGG achieved their highest ever rating is customers continue to complement our people, our communication and customer service and our overall responsiveness to their needs. So just for an outlook for the remainder of FY '24. In New Zealand, the 12-month rolling residential consents have continued to decline. And while above estimated industry capacity, uncertainty remains on a number of dwellings that will ultimately be constructed in the year and beyond. Activity levels in key markets are expected to remain stable at the softer levels for at least the next 4 months, and economic headwinds may accelerate a further activity decline at the end of '23 and into 2024. Metroglass continues to refine plans to continue the improvement of New Zealand business profitability. The cost-out program will deliver operational and financial benefits through FY '24. And with the reduced disruption to the international supply chain, combined with the increase in demand for Low E products, the level of financial performance in the first half of FY '24 is expected to be better than the prior comparable period. In Australia, the number of detached dwelling commencements continues to decline in all states. However, the increasing use of double glazing in residential buildings is likely to partially offset the declines in overall residential construction activity. As we previously announced, for the 12 months to the 31st of March '24, management forecasts for AGG to achieve revenue, EBITDA and EBIT of approximately AUD 79 million, AUD 11.5 million and AUD 7.5 million, respectively. The group level, net debt is expected to be at the lower end of the range of $53 million to $55 million. And the first thing this morning, it was actually below $52 million. Earnings before interest and tax or EBIT is expected to be better than the prior comparable period of FY '23. Just before I hand back to Peter, I'd like to take the opportunity to thank all our shareholders, customers, suppliers and staff and the Board for this support over what has been a challenging year for all. Thank you.

Okay. Thanks for that, Simon. This is the first opportunity for questions from the floor or questions online. So let's just start in the room.

Is there anyone with any questions for Simon or myself or anyone else? I'll come to you, Philip, sorry. The gentleman behind you could ask first. There we go.

[ John Hume ]. If your Australian business is now making a profit, why would you even consider selling it when you only bought this thing when we first listed? Isn't it time to hang on to these things while they're starting to show improvements that would help to decrease your debt?

It's a good point. The purchase of Australia has been -- shall I use the word, ballast on the Metroglass balance sheet for a number of years, and a number of critiques suggested that we'd made a mistake by going into Australia. And we should -- we're making a loss, and we should cut our losses and leave. The Board felt that actually would get a better result if we could turn it around and generate profit, and that's what we've done. The issue at the moment is that our balance sheet has a large amount of debt on it, largely, as I mentioned, because of the COVID overhang and the resulting costs increases in working capital. We're faced with a hard choice. And what are our opportunities around capital management either to reduce it through cash from operations, which is your point, keep hold of everything and generate the cash and pay down the debt. And we're doing that, but it's not going to be quick enough. Our debt commitments are out to October next year, '24. But in the normal course of events, you start to talk to your bankers about renewing your debt agreements in the coming months. Now we know the expectations from that group of people that our ratios, which a couple of them we mentioned earlier, will need to be significantly lower than they have been comfortable with in the past, and we can't get there just from trading. So we're faced with the tough choices of finding capital elsewhere. And they're really only 2 ways: a capital raise or selling assets. Now the Board has thought very carefully about this and has decided that the best option for us is an AGG sale. And as I indicated in my speech, we're hopeful of a very good outcome from that sale process. The indicative bids we've received have been encouraging. We have parties and due diligence, that is due to conclude very shortly. We were kind of hoping that it would have tied up with this meeting, but they're going to be a few days apart. Should we have a bid that the Board finds acceptable and will materially change the debt position of the company, we will bring that to shareholders for them to make the decision on. If that doesn't happen, we'll have to take up one of the other options. So it's a bit of a long -- I'm not sure -- that's where we are.

And I just thought if there was -- you weren't satisfied with the debt, then do you push on? Or do you still have to make 1 of 2 choices? The banks aren't going to look after you? Or you do have to capital raise?

Well, our banks have been absolutely supportive of us. We're on good terms with them. But we also know that in an economic downturn, they look for more conservative debt terms and ratios than they have done in the past, and that's our expectation. So while we imagine we will be able to conclude terms with our debt providers, they will be on different terms from the ones we have now, and we do think we will need to find some additional capital. Of the options we've got in front of us, the sale looks to be the best. If it turns out not to be that way, we'll have to look at other options. Philip, I think you're next.

[ Philip Tlachac ]. I'm a proxy holder. I guess just starting off, you're obviously at something of a crossroads, so worthwhile exploring a few things in a little more detail and color. Just interested in your criteria that the Board has in mind by which they would assess any sale of AGG versus those other options available, and if you could provide any additional color to that provided as to what might be considered and especially in light of -- in the event of sale of ACG -- AGG is not possible.

Clearly, we're at a critical point in a commercial negotiation or commercial process around AGG. But -- so I will speak in sort of broad and general terms rather than specifics. But a sale of an asset that is now profitable, there would be a number of things you would expect the Board to think about. The sale price would need to be at a multiple materially better than what the company is currently trading at. That would be one, so that it's accretive to shareholders. We'd be looking for it to significantly change the debt position of the company, and I mean significantly change to a better extent than a potential capital raise might. So those would be, I guess, the 2 major ones, that it provided materially better cash flow than our next best option and provided us with a MPG with a low or no debt situation would relieve us at the burden of interest payments and capital repayments. It would be the very best sort of position to be in at the bottom of a downturn. It would leave us with an organization that is producing glass well, its customers are satisfied, we would have the latent capability to increase that production when the market turned up, but we would be in a good position to weather however long the downturn is, which is the thing we do not know. So I guess off the top of my head, Philip, those are the 2 primary ones that we would -- the Board will consider when it was looking at the offer. Did you have a supplementary to that? I think you probably did.

Number. I know the presentation today made reference to volumes in New Zealand being down around 24%, I believe. I was wondering if you could provide some color as to what gives the Board confidence that the structural degradation that's been observed in the New Zealand business, and I guess which is -- continues at the moment that has, I guess, really started 4 years ago can and will be arrested? And what evidence you point to in support of that ability to arrest decline in volume observed in the New Zealand business? And I guess in that -- yes, that will be my next question.

I think there are a couple of points I would make there. If you go back in time, pre-COVID time, the key challenges around Metro -- around glass manufacturing in New Zealand was an overcapacity of processing. There was more capacity than demand as people invested in plants looking to take advantage of the uptick in housing. We had, if you remember, a significant competitor, APG, APL, invest in a significant new plant in Hamilton. That involved quite a large change in customer suppliers or suppliers to customers. MPG traditionally provided glass to a lot of APL fabricators. They went with APG. We have replaced those customers with other customers from elsewhere, and you've got a net change in the market. We are now at -- we then have the COVID period, which kind of threw a blue over everybody. But we now have a relatively stable set of customers. People are still coming to us, and less people are leaving us. The change for APL/APG is largely complete in New Zealand. The current downturn -- that sort of addressed the historic point a little, I think. The current downturn in sales has occurred a little earlier than we thought it would. The market has softened a little earlier than we thought, but the numbers have been pretty much stable now for a number of months. I'm just looking for Simon to nod. So we've had the drop, and we're now in some sort of stasis period. Now we don't know what that represents. Is that a plateau with another drop coming? That's what our plan expects that at some time in the future, there will be a further drop as housing activity declines. But right now, we are sizing the business so that our costs match our demand. If our demand falls further, we will be able to resize the cost of the business again at a little higher level. So we think we've caught with the market change. We think our market share is stable as any of those things can be and that we are addressing the market efficiently and cost effectively. And as indicated by our slides, even though our volumes are going down, our gross profits are going up, and our costs are coming down. So we still think we will be cash positive and profitable. So that's sort of answering your question, I think. One more and then perhaps we'll ask...

It does. No, it does close over the idea of EBIT going from over $30 million in New Zealand down to where it is today. I guess then forced to wrap it up, so we'll make it a long one. Given the sale, given any sale of AGG would reduce the geographic concentration, what would increase the geographic concentration, operational leverage, volatility, reduce the ultimate bankability and market relevance, thoughts on how the Board thinks our residual New Zealand business would trade. And then in a wider sense, the Board has intimated in public statements, it has a view on value but never disclosed the basis nor assumptions on which those opinions have been formed, nor specifically what that view may be. And if you could provide some color on the framework on the assumptions underlying the Board's view on value. And in the context of that framework, how the Board thinks about the value of the residual Metro business. I know you made comment that would hope the sale of AGG would have a substantive impact on debt. That doesn't necessarily equate to a very valuable outcome based on where the company has indicated AGG is earning and, I would note, any comparison to present share price as a share price that has been impacted by market announcements regarding an offer for the company.

Okay. There's quite a lot in there.

You did force my hand a little bit.

Okay. Understood. The key point, a New Zealand business without Australia, yes, it is a New Zealand business exposed to the New Zealand business cycle -- building cycle. It is a significant player in that market. We hold -- we are the largest glass player. We expect to continue to do that. The market in New Zealand needs to, how should we say, consolidate and rationalize. There are a number of steps that seem logical to market observers that have yet to happen, and we think New Zealand -- MPG being there has a relevant place to play in those. We will be at smaller scale. We will not be the smallest company on the NZX by quite some way. We will -- as I've mentioned, our cash management -- capital management program is to use our surplus cash to return some of that to shareholders by way of dividend. Now you don't need an awfully large dividend to work out what sort of share price you might achieve in the future on the smaller business. And I'm not going to kind of speculate in that space. I'm being coached not to. So that would be part of my response to your earlier question, and I've kind of have lost the middle somewhere. Do you want to have another go at that? Or not?

I do.

Sorry, one other -- I mean the reducing debt, the sale of AGG, that's one of the goals. That's -- we're trying to -- among others, we're trying to have a profitable company that generates returns for its shareholders. Yes, it will be New Zealand-focused. Yes, it will be exposed to the New Zealand cycle. But we think we can take advantage of that. And as I said, with little or no debt, we'll be able to survive in the downturn. And we'll have the opportunity to grow in the inevitable upturn, whenever that is, and to participate in whatever market changes may occur in the future.

It does rather gloss over the fact there is no functional liquidity in the company today. Now these numbers are a little bit dated. But in the year to '20 July, a snick under 14 million shares traded, that's 7.5% of the company. That's an average of 53,000 shares per trading day. I mean the question is it's not -- I mean, hypothetical views of what it may be worth are quite different from actually delivering functional value in the hand to shareholders who wish to achieve that. So can you provide some color around how you're thinking around delivering that functional value?

Well, I guess I refer to my original answer that our performance in terms of generating a return to shareholders will generate more interest in the stock. And that's really, I think, where I will leave it.

So you're of the view that the stock will be genuinely of interest to a wide and diverse shareholder base post the sale of AGG. Is that the Board's position?

Well, I mean in the short, I'd say yes, but our shareholder base is currently what it is. I imagine that will change over time. And the opportunity for a liquidity moment, which I think what -- or greater liquidity, is not something the Board can bring about other than by doing the things it's doing now, I think.

And I guess just to wrap up. Have the larger shareholders on the register provided any feedback to the Board regarding their support of the AGG sale?

Yes, they have, and I think they've gone public in the media with that, and I think that's pretty widely known. But nonetheless, we're assuming that compelling maths will make its case. If we come to the market and it's not accepted, we will have to move to our other options.

Okay. I'll let someone have a turn. I just know reducing the debt on the stated earnings is not compelling in of itself.

Right. You've made that point a number of times, I think. So just a couple at the back there, and then we'll come to you.

[ Martin Kellett ], a shareholder for many, many years now. I am bothered by what I'm hearing. With regard to the Australian sales, it seems you are suggesting on that point that shareholders may get some crumbs by way of a dividend because of the reduction of debt, plus also the provision of business. I'm not so much concerned about that. But I am -- I have been around long enough to know that when there was a housing boom occurring in New Zealand, this company was still losing money hand over fist. Just because it picked up did not mean that this company became profitable. It's consistently lost money, consistently built up debt. I can't understand how you can claim if we hold this through, the golden weather is still to come. You pull a lipstick, you lick on it, this company is still a pig, and it's not working out for me. I cannot understand how you can see that this company has a long-term future. If we hold our breath and wait until this economic recession drops off, building starts again. And quite frankly, I can't follow your logic. Thank you.

Okay. Not sure if there was a question in there, but thank you for your opinion. Perhaps we can catch up after -- on the cup of tea, and we'll talk some more. Sir, in the back there.

[ Ethan Bradfield ], analyst. I've just got one question. In terms of capital allocation, which is the main job of management, right? Is a special dividend, really the best use of that capital?

I don't think we've said the word special dividend.

You alluded to a dividend if there was a sale of the Australian division, right? Or did I get that wrong?

Okay. I should clarify my -- those decisions have not been made. My reference around dividend was really towards the operations of the business. Even in this downturn, we will be cash positive, we will be able to -- potentially, we'll be able to consider paying dividends. I wasn't wanting to imply there was any special dividend contingent on the sale of AGG.

I suppose -- maybe I misspoke. I suppose my comment is more, is any kind of dividend paid out really the best use of your capital when the finances of the company are in the state they're in, especially with debt hanging over your head?

I think we'd only be considering dividend when debt was at extremely low levels, extremely low levels. Madam, there was a question. Behind you.

[ Coralie van Camp ], shareholder. I have 2 points of to talk on. I cannot understand how the New Zealand revenue can be $186.7 million, and your earnings, your profit before tax was only $6.4 million. Were you selling everything at cost? Because how can you have that revenue and no profit? First question.

I'll potentially have a go at that. I think the reason being that cost of raw materials have gone up. Cost of international freight has gone up. So the margin between the sale price and the cost of it declined, and it took us some time to get price increases into the market to restore margins. And so for the period of the accounts...

You are selling at cost.

Not at cost, but closer to cost than we had been historically. Yes. I mean it's never our intention to sell at cost.

Now the other thing I want to talk about is when I bought my Metro shares are $1.76. Every AGM I have come to since then has been gloomy news way before COVID. You had a lot of breakages. There were all kinds of reasons why you weren't surviving. In about 2003, I went to Owen's Freight AGM, and the writing was on the wall there that they were teary, waiting to be picked for takeover, sitting behind me with the 2 main freight guys just waiting. And they spoke after I did, and it wasn't terribly long before they made a pitch for the company and they're headed. I lost a little bit of money, but they had to take my shares compulsorily. So I then went and bought Mainfreight shares, and what a wonderful investment that is. I feel that when you sell the Australian company, you're simply making it more valuable for Mr. Masfen and his cohorts to come in and take it over. Now you're saying $0.18 a share is undervalued. What would you consider a good value? And the thing is, again, they'd have to take them compulsorily just out of a principle, but I just think you're right for a takeover.

Well, we've received an offer, what was it, 2 weeks ago? So yes, we recognize that. I'm not going to say what number I think is a fair -- is an appropriate price. I mean, clearly, that's a point of a commercial negotiation. But...

But the thing is that we received -- all the shareholders that Mainfreight wanted to buy out all received notices in the mail. So I'm expecting one. So your advice before we receive it is what?

At the moment, there are no -- there is no offer before the company to consider. So the Board hasn't got any advice to give you. But should a -- the normal practice is should an offer to buy the shares be made via a scheme of arrangement, that typically goes through the Board's consideration, a number of other steps and then there is a shareholder vote. So you would be notified of that and have an opportunity to vote for or against it depending on the value you saw in that share. That would be the normal course of things. We're not in that process at the moment. Okay. Down at the back, I think you were first.

Would you care to comment on the appropriateness of the value of goodwill on the balance sheet?

The way this company was set up when it was listed, it was set up with a very, very high level of goodwill and a low value of assets. And that is somewhat, should we say, out of the norm in the long run. And so it is an unusual way of a company being structured. We have been changing that value of goodwill. As you do during your audit and good management practices, you have a look at the level of it and say, is it appropriate? And does it represent value of the company? I think in the year just past, we adjusted it by $10 million. So we think it is appropriate at the moment, but we always review it.

Given the outlook, is it all you want to get, the review?

We look at that -- I just -- I'm looking to the orders twice a year, once a year -- we do it twice a year as a matter of course. So yes, is I think the short answer. Yes. And you're right. And if we made a change, we tell the market.

So [ David Grieve ], a shareholder. Three questions. Significant items, a $10 million write-down. Is that the goodwill you're talking about?

Yes. Yes.

That's a very large figure to suddenly come out below the profit line. The second item, under expenses, the last item under expenses of $16 million. I'd like some explanation about $16 million. We analyzed down to under $2 million. And then have -- and the third thing. With the big development in this country of retirement villages, how many contracts has our company got with the leading retirement villages where we're the major supplier?

Perhaps we could answer the last question first. And Scott, can you -- well, Scott is having a look at what -- I don't have that number in my head. But Simon, do you want to make a comment on that?

So I cannot tell you that off the top of my head that we do supply in proportion to our share to those retirement villages. So we do deal with major retirement villages, and we do have supply contracts with some of them.

Only some of them?

Yes. And there's a lot of retirement villages around the country.

And they're big consumers of glass.

Yes, and we do supply to the large ones.

Most of those type of contracts are a tender or in a competitive contract process.

That's how business is done, though?

Yes, yes. And that's right. And so we win some. We don't win all of them. So we are active in that market. Our -- we talked about the housing market softening. Our commercial book is still quite steady, and which is where your point was. Have you been able to pick up the '16?

Yes. I mean every year, we review the key costs...

Perhaps you want to just stand up, Scott, and just...

Every year, we're reviewing the cost, slicing there and this is just a number -- this is a number of small items. I don't know, there's nothing significant hidden in that number.

Can you give an example of what sort of things make it up?

I think perhaps maybe we can take the question and provide the detail, but the detailed outlook...

You need to have a look.

Yes.

Okay. All right. We'll come back to you with some more detail.

Nothing significant, but $16 million?

It adds up to $16 million, yes. Yes, I do. Sorry.

[ Rafael Yeend ], a shareholder. Mr. Chairman, just in terms of, I guess, in the instances of combining or acquiring a business, sometimes 1 plus 1 can equal 3. Conversely, I guess, when you're divesting some of your best performing businesses, 2 minus 1 can get close to 0 or near. So my question is, given the sale of AGG will increase the geographic concentration, the operational leverage, earnings volatility, reduce bankability, access to capital, market relevance and liquidity. In that context, in terms of the carry out of a dividend, I mean can you give us some basis to that? And I guess that also sort of comes to the underlying question, some sort of basis for parameters of residual value of the New Zealand business. I mean if you got to put out, you can be in a position to pay dividends. Really, I can't really put the maths together personally.

There was a lot in that statement. If we get an offer that we think is appropriate, that achieves the aspirations of the company, including significant reduction in debt, we will bring that to shareholders. The conversation we'll have -- this is what we propose you vote for. If you do not vote for that, this is the -- if you do vote for this, this is what we think the business will look like going forward. If you don't, this is what we will have to do, and this is what we think it will look like going forward. So we will come to the market with that. But I understand you. I hear the point you made. The New Zealand business will be post the sale, a New Zealand-only business as it was when it was floated. It's in a better position than it was when it was floated. It has better equipment, better people, better customer satisfaction. It has a stable customer base. It will be able to operate profitably and cash -- generate cash during the down cycle, and it will be in a position to take part in whatever comes in terms of market reorganization and increased growth. And I've sort of gone over that a couple of times now, and I think that would be my answer at this point. So thank you for your question. There were some more questions -- so just -- yes, we haven't talked about anybody online yet, so we'll go online. We'll go to you after. No, no, give him the mic, and then we'll go. Sorry about that.

[ Eusebius Callahan ], I'm a shareholder in the company. I've got quite a lot of questions, so I think I'll have to restrict them. I've been sitting back waiting for others to ask questions. So I'll just say how many they would dispense well. I guess my main concern comes down to when we're looking at the balance sheet, the actual total assets, so much of that is intangible assets. I mean we -- and you've got that relating to the initial public offering dating back to 2014. That's a very long time ago. It looks bad enough when you write off $10 million. But when you look at how much is left in there, I have trouble understanding that there can be so much left in there still. And then we've got the other item right of use assets, which I think that again is entirely intangible. I mean take the total of that, and there's about $100 million out of total assets of $254 million. That's a big concern because there's enough there writing it off at $10 million. It seems that a straight line method is the favored approach to writing those off. Perhaps you have reached the point where a straight line method needs to be reviewed because it's just simply not good enough. It needs to be accelerated. And if you accelerate that, this company is in real trouble.

I'll attempt to answer that. I've got -- fortunately, I've got the auditor who can answer the second part of your question. My understanding that when the company was listed, it was the way -- the transaction was structured was most of the asset value was intangible. It was very limited physical assets. Most of the physical assets that are now on the balance sheet are ones that have been added by spending capital after the listing. So I think we're stuck with the balance sheet we got given back at the listing.

One other thing, it's good not to say we're stuck?

Well, I think we are because you cannot just decide to change your mind. There's a series of accounting tests that the authorities require you to do around intangible assets if you wish to make changes to them or should they need changes to be made. It's not a case of, "Oh, I think we'll depreciate it over 10 years like a fixed asset." It has to stay there until the test show you that it no longer represents the value that it originally indicated. And I'm not an accountant or an auditor. But Troy, have I misstated the -- perhaps you could say something about how you change nonfixed assets and why it isn't just a case of us saying, "Oh, we think we'll get rid of it."

Again, in terms of questions about accounting standards, it's probably best to take that question after the meeting. Happy to go into it, but I won't sort of go on for the whole audience, and this is specific.

Well, I guess the thing is can you -- we can't just at our whim decide to change intangible assets.

There's a difference between fixed assets and intangibles. Yes.

I would like you to answer the question.

Yes. Sorry, there's been a number of questions. Just a specific question, sir, that you'd like me to address?

Why can't you...

He asked you a question about the invisible...

Troy, again, the problem with contrasting fixed and intangible assets. We use an economic line basis for one. Value and use is another.

So you raised a point about 2 intangible assets on the balance sheet, one goodwill, one right-of-use asset. Let me deal with the right-of-use asset first. That is a representation of the leases, primarily property leases and vehicle leases. If you have a look at the other side of the balance sheet, there is a lease liability, which largely corresponds to that. That right of use asset is amortized over the period of the leases. It will disappear, that will be replaced when you enter into a new lease. Provided the company is still continuing to use those leases, you wouldn't adjust them apart from continuing to amortize them. In terms of the intangible asset for the goodwill that you mentioned, you did just writing that off over a period of time. There was a change made to accounting standards a number of years ago that, that is not something that happens anymore. That, that is instead assessed for impairment at each reporting period. When it is assessed for impairment, that requires a look at the value of the business and does that support the value of the goodwill and other assets? During the course of Metro's history, that has been reviewed, and there have been a number of instances of goodwill being impaired for both the Australian and New Zealand businesses. Yes. I spoke -- Peter?

So we can't do what you suggest is a logical step?

What I mean, the situation that we've got at present, the economic conditions in the country are very bad. That alone, which suggests to me, well, something you decided back in 2014 to write it off in a straight line. To h*** with accounting standards, if they're not realistic, can the -- society change them?

That's -- we can't do that. That's not within...

Yes, you can.

No, no, no, we can't.

It's just too unrealistic.

Look, we suggest lots of things to our auditors.

What, to the account of society?

They don't do it. International accounting standards is something way beyond this room. So perhaps if you had one more question. Thanks, Troy, we'd take that, and then we'll go online. I'm just -- I know you said you had more than one.

No, I'm not satisfied with the answer here. It's -- I think I'll leave the other ones because to me, they're minor by comparison when we're talking about something that is, as I said, totally of leases and goodwill of about $100-odd million compared with $173 million, that's a very, very significant item.

Yes, it is. So -- and that's why it gets reviewed regularly. And if it's not thought to be at an appropriate level, it gets changed.

But you're not reviewing the method of doing it. You're only reviewing...

We don't have any control over them. We have to follow the rules. That's kind of one of the boundaries we have. So perhaps we can pick that up afterwards. So thank you for your time. Madam, again, one last one and then we'll go online.

Mr. Chairman, could it be that the intangible assets were considerably overvalued at the time of the float?

I really couldn't say anything. I wasn't here at the time.

It has been ceded in the day.

It has been.

Okay. I'm not going to add.

Which doesn't make your job any easier.

Perhaps not. So can we go online, Liam? Is there something that's not in the line of what we've generally been talking about?

Yes, there's a few questions on AGG, but we won't repeat those. I've got a question from [ Neil Pit Keithley ]. MPG share price just keeps slipping backwards. What can MPG management do to make the company attractive to investors again?

Okay. I mean, I think the nature of that conversation earlier today was an attempt to tell you about what we are doing to generate a company with a greater net worth and is currently perceived by the price. So I'm not sure we can add much more to that. Is there another -- something different if you've got it. Otherwise, we'll reply to them directly.

This one's different. The New Zealand Shareholders' Association favors Directors owning shares in the companies on whose boat they sit. It's policy to ask why not when a Director owns no shares. Jenn Bestwick does not appear to own shares MPG. Could I please ask why Ms. Bestwick has not yet become a shareholder in the company, and that's from [ Barry Lindsay ].

Happy to respond to that. There have been a number of occasions when the trading halt hasn't been available that it wouldn't have been appropriate for me to purchase shares due to shareholder -- stock market requirements. As soon as the trading halt is open, and the Board isn't in possession of information that would be deemed to be insider, I will be buying shares.

Perhaps one more? Is that essentially it? I think we've got one more question at the back here. And then we'll come to you, sir.

Yes. I just want to ask if there was a sale that succeeds with the Australian business, can you put in the rights to territorial business after a few years so that you can sort of like keep -- sort of grow another business in Australia?

The restraint of trade, we can come back. We could always suggest that to them, I'm not sure they would agree to it though. That's not our current -- I was being flippant there, sorry. We have not got a completed sale and purchase agreement. So that issue hasn't been resolved, but I would think it unlikely. Sorry, there was one more down here.

Yes. [ Scott Patterson ] speaking on behalf of [ George Patterson ]. You talked about supply chain issues. New Zealand must be the only country in the world that's still talking about that. There's a lot of -- I have a lot of contacts overseas involved in this sort of industry where supply chain issue is not an issue. But my question is more for Simon, operational efficiencies. I'm involved with a large commercial project at the moment that asked the local companies, the local glass companies to tender for it. And it worked out cheaper to bring the glass in from Germany than source it locally here from Auckland. I think you've got to look at your operational efficiencies going down the track because there will be other large commercial projects doing the same. And we're talking -- we're not talking small amounts of money. We're talking several million dollars for this project. And it's very disappointing, the service and the commitment that we had offered from Metroglass -- so Metro, sorry. So I think going down the track, operational efficiencies has still got a long way to go to compete on those large projects.

Yes, I'm happy to talk directly with you on that. But broadly speaking, we have areas of the market where we see we have a competitive advantage, and there's certain areas of the market where we stay away from because we see that from the risk profile that has not suited what we do. So I don't know the specifics of your exact project. But we're very careful about what sort of work we do, and we want to make sure that we -- when we select the project that we do it well and that we make a good return on it. So I'm happy to talk to you directly. But yes, there are examples where people import product, and we prefer that we -- that's not -- that sort of work is not suitable for us. We also will import product ourself and supply. So it's really very, very job-specific. So very happy to talk directly to you on that.

Perhaps, just a skinning a building, a large building like this with Glass is not a Metroglass opportunity. Very high, high, tall buildings with these very large multi panels are not the sort of thing that we would typically do. We typically work in low rise or not very many high-rise buildings and things that we can actually manufacture in harmony with our current manufacturing process. So depending on your project, it could well be that it's something that's outside our capability and efficiency. And so you may find that's our answer. So happy to, as Simon says, he's going to talk to you more. Was there one more question? If not, okay, we'll take a final one and then move on.

I'm [ John Bane ], a shareholder. Peter, last year, I spoke to you and I put an analogy between Metroglass and the [ Ore Blacks ]. The Ore Blacks weren't doing too well. They've turned around, and they're doing exceptionally well now, but Metroglass isn't. And I'm wondering why in the meeting today you've already had proxies enough to appoint more Directors. Can you tell me what the Directors from the last year have added to the company and the one that's going to go ahead in this year, what they're going to actually do so we can see that the money you're going to spend on honorariums or whatever is going to be well spent and the Directors can be -- sorry, the shareholders can be satisfied that we're actually going to get something for the money you're spending.

Okay. When I look at the Board of Metroglass, I put myself to one side here, I look around and I think we have a good Board, an excellent Board given the size of the company. It is diverse. We have people with experience from a wide range of backgrounds. They have financial acumen, wisdom, and they are people who are committed to trying to make the company better. And I think that applies to all of them, particularly so to my colleague, Graham, who has not been successful in being reelected to the company. I think that's a great shame. He's one of the most respected Directors in Auckland. He's got a lot of wisdom, a lot of experience and a lot of insight. And we're going to lose that today, and I think that's a shame. We lost Rhys last week. Same thing, an experienced CEO, good judgment, excellent person. Our Board is being whittled down by the challenges of running this business, I should say. So I think you're actually getting value for money. People aren't doing this for the income. They're doing it for other reasons. And I think, well, I'm awfully pleased the Ore Blacks are doing well, and I live and hope that Metroglass will do well as well. We aren't defeated yet. We haven't played off the field yet. So I think the Board is actually a good one for this company. And post the events that we've got going on, we'll have to start the search for new Directors. So sorry, I didn't quite answer your question there.

I have a terrible feeling that you're looking a bit like the women's football team, soccer team, and you're about to lose the last pot by selling the golden goose, but however we all's come to that.

Well, if we'd said a win, a draw and a loss was our target before the game, we would have said that was a fantastic performance for the women's team. That's what actually turned out. We seem to be disappointed about the way things turned out. But we will only make these decisions if we think they're in best interest of the company and shareholders as a group. So thank you for your time. I think I'll call questions to a close. There will be opportunity for more, but I think we should move on to the resolutions and get those handled.

The first resolution concerns the fixing of auditor's remuneration and seeks shareholder approval that Directors are authorized to fix the auditor's fee. PwC have been our auditors since the company's listing, some 9 years ago. In accordance with the corporate governance rules, the lead partner in the audit is rotated periodically. And Troy, our current lead auditor, was appointed in 2020. Now I propose the resolution that the Board be authorized to fix the fees and expenses of the auditor for the ensuing year. Are there any questions on that? There being -- I should have said -- sorry, we will take a poll on all the resolutions. So if you could -- if you've got voting cards with you, if you could mark them. If you're online, could you please vote in accordance with the instructions on your screen? [Voting]

So everybody, there being no questions -- any online? No? I propose that we put Resolution 1, you could mark your cards accordingly. Okay. Okay. The next 2 resolutions concern the election of Directors. Under the Listing Rules 2.7.1, Directors must not hold office without reelection beyond the third anniversary of their appointment. This year, we had 2 Directors that met that, Graham and Mark. And accordingly, each is retired by rotation and offer themselves for reelection. Now Resolution 2 concerns the election of Graham Stuart. It's clear from the proxies that we have received to date, I think they're on the screen there now. It's highly likely, Graham -- that resolution is going to be defeated. And therefore, Graham has chosen not to speak to the meeting. I think I've made it clear my views on this, but I'm happy to take any questions from the floor. Sir?

I don't know whether I'll get an answer to the question, but I don't understand why there's such a large vote against Graham. I don't have any information myself to vote that way. I voted for him, by the way.

Okay. Well, clearly, shareholders with a large number of votes have voted against him. I think you'll have to draw your own conclusions as to who they might be and why they might be doing it. But Graham will not be returning to the Board as a Director.

It looks like the main shareholders are trying to weaken the Board.

I really couldn't comment on that. But I'm not -- I'm sure it's not helpful to have sort of a two and throw discussion in this room. But so I'd like to put that resolution. Those of you that haven't voted, please mark your cards accordingly, your vote online. We'll publish the results as soon as they are collated and available on the NZX, and there'll also be -- and ASX, and they'll also be on our website. Okay. So if you could vote on that, please. [Voting]

Okay. That brings me to Resolution 3, the reelection of Mark Eglinton. Now as I said, Mark is a very regretful apology. He is extremely unwell this morning or he would have been here. He would have addressed the meeting. I asked him if there are any remarks he would like made on his behalf, and he's given me 2. And with your forbearance, I'll read those to you. So Mark believes -- he seeks your support to remain on the Board. His goals are to work constructively with my fellow Board members to establish a pathway to optimize value for shareholders. That was his first point. And the second point is to work closely with management to ensure the business is performing as well as it can in the current market conditions. So those are his 2 points. Now, unfortunately, he's not here to take questions, and I don't really feel I'm authorized or confident to speak on his behalf. So unless there is a pressing point some wish to make with respect to Mark, I would put the resolution that Mark be reelected as a Director of Metroglass. And if you could mark your papers accordingly or press your buttons online, we will publish the results shortly as soon as they're available. [Voting]

Okay. That brings us to the end of the official business. I think we gave questions a reasonably good going over in the earlier session. But if there's anyone who has a burning question that won't wait for a cup of tea or coffee out in the foyer, I'm just looking around to see if there's any final ones. Looking for -- nothing online. Okay. Well, thank -- Liam has noted that there are not. Okay. I'll declare the meeting closed. Thank you very much for your attendance and your support of the company during the year. Please join us outside for a cup of coffee and a snack. Thank you very much.