Pact Group Holdings Ltd (PGH) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 2022 Annual General Meeting of your company. My name is Raphael Geminder, and I'm delighted to address this meeting as your Chairman. I would like to welcome everyone attending and remind everyone that the presentations being given today have been lodged with the ASX and are available on our website at pactgroup.com. A recording of the proceedings of the meeting will be made available on the company's website. The Notice of Meeting was sent to shareholders and the ASX on 12 October 2022, as amended by announcement to the ASX on 8 November 2022, and I will take the notice as read. The Company Secretary informs me that we have a quorum present. I therefore declare this Annual General Meeting of Pact Group Holdings Ltd open. I would now like to introduce your directors and certain senior managers who join me online today. Directors in attendance are Mr. Jonathan Ling, Ms. Lyndsey Cattermole, Ms. Carmen Chua and Mr. Michael Wachtel. We also have our Managing Director and Group Chief Executive Officer, Mr. Sanjay Dayal; as well as Mr. Paul Washer, our Chief Financial Officer; and Ms. Kathryn de Bont, our Company Secretary. I would like to thank our directors and senior management for their efforts, strong focus, ongoing diligence and governance. Also in attendance are David Shewring and Wilfred Liew, our lead audit partners from Ernst & Young. David and Wilfred are available to answer any questions regarding the conduct of the audit and the preparation and content of the auditor's report. Ms. Christina Piccolo of Computershare, the company's share registry, is also with us today and will be acting as our returning officer. The minutes of the 2021 Annual General Meeting have been approved by the directors and are available for inspection by any shareholder by contacting the Company Secretary. At the conclusion of today's meeting, Ms. Lyndsey Cattermole and Mr. Jonathan Ling will retire from our Board. On behalf of the Board, I would like to thank Lyndsey and Jonathan for their invaluable contributions and outstanding service to Pact since joining in November 2013 and April 2014, respectively. Lyndsey and Jonathan, I hoped this day would never come because you have both been incredible Board members and have done a remarkable job for all of our shareholders over a very long period. I don't know how to thank you both enough for everything that you have done and for the many years you have dedicated to our company. We are all the better for it, and you are leaving behind an incredible legacy in a company that has reinvented itself in innovation and in Leading the Circular Economy. I hope you are proud of what we have built together and that Pact can continue to grow and prosper as a result of the foundations that you both painstakingly helped build over so many years. We wish you both the very best for the future. And on a personal note, I will miss having you around the boardroom table. Turning to Slide 5, how to vote. So firstly, for some housekeeping matters. Today's meeting is being held online via the Computershare meeting platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can listen to the live webcast of the meeting and watch the presentation. In addition, shareholders and proxyholders have the ability to ask questions and submit votes. Voting will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. The final results of the polls will be available later today on the ASX website and on the Pact Group website. If you are eligible to vote at this meeting, a vote icon will be visible at the top of the platform. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit the enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. On Slide 6, how to ask a question. Shareholders and proxyholders may submit questions at any time. [Operator Instructions] I will address questions at the end of the meeting. We will allow a reasonable amount of time to ask questions. If we run out of time to answer all of your questions, we will endeavor to answer them in due course via e-mail or posting responses on our website. If you require assistance during the meeting, please refer to the online meeting guide or call +613-9415-4024. I now declare voting open on all items of business. Please submit your votes at any time. I will give you a warning before I move to close voting. I'm holding open proxies in my capacity as Chairman, and it is my intention to vote all such proxies in favor of the resolutions. Any directed proxies that are not voted at the meeting will automatically default to me as Chairman of the meeting, and I'm required to vote those proxies as directed. Before we commence with the formal proceedings, I'd like to reflect briefly on the company's performance over the last year. I will then invite the CEO to provide an overview of the company's businesses, its products and brands and strategies for future growth and development. On Slide 7, our year in review. During the 2022 financial year, we experienced unprecedented volatility in demand in the markets in which we operate as a result of the COVID pandemic. In addition, we saw significant disruption in both domestic and global supply chains, the scale of which we have not experienced before. In this context, I'm very proud of the way our teams have worked together to respond to these factors and with the financial results that we have delivered. The group delivered revenue of $1.8 billion, which was up on the prior year, and underlying EBIT of $156.2 million, which was in line with the underlying EBIT guidance that we provided the market at the time of our half year results announcement. Our underlying NPAT was $70 million, and reported NPAT was $12 million. Our balance sheet continues to be well managed with net debt lower than the prior year by $24 million and gearing at 2.7x. In anticipation of this uncertainty, our Board resolved to pay a final dividend of $0.015 for a total dividend for the full year of $0.05 franked to 65%. Our target dividend payout ratio remains at 40% of underlying NPAT, and we expect to return to this level once these external factors abate. The company has demonstrated a fair degree of resilience during these unprecedented times and at the same time, continue to make significant progress towards our strategy to Lead the Circular Economy with a range of innovative solutions that will help our customers achieve their sustainability goals. Sanjay will provide further detail on the progress we have made towards our strategy shortly. Turning to Slide 8, sustainability. At Pact, sustainability is not a nice to have in our business. It is our business. Sustainability underpins our vision, strategy and our business decisions. We have been a leader in this area for many years. And for us, it is an ongoing journey of development, seeking to improve our performance and making innovative changes. We work closely with our customers to develop sustainable solutions that are helping them to solve their own sustainability targets. Pact's latest initiative is an emissions reductions target. We have committed to reducing greenhouse gas emissions by 50% by 2030 off a 2021 baseline in Australia and New Zealand. This target is in relation to both the emissions produced directly at recycling and manufacturing facilities, our scope 1 emissions; and the indirect emissions from purchasing electricity from the grid to power those facilities, our scope 2 emissions. Pact has already made significant progress towards achieving this target with a number of initiatives underway that will further maximize the energy efficiency of our machinery, reconfigure our processes and increase the use of renewable energy. At the same time, we are investing in new and efficient equipment and installing solar panels on existing and new sites. For example, we have significant solar panel projects underway in both New South Wales and Victoria. I am very proud to advise you that in a first for an Australian-based manufacturing company, Pact Group has reached an agreement to convert $420 million of existing loan facilities into sustainability-linked loans. Under this arrangement, Pact will receive loan margin benefits if annual sustainability performance targets are achieved and a margin penalty if it underperforms. The sustainability performance targets cover the level of recycled content across our packaging portfolio, the amount of recycled material we process and distribute, our scope 1 and scope 2 greenhouse gas emissions and targets to eliminate the gender pay gap. We have made great progress in all of these areas, and we are committed to continuing the journey. We are confident we can achieve these targets, and that is why we have entered into these sustainability-linked loans. In relation to our recycled content targets, Pact's 2025 End of Waste promise is to eliminate all nonrecyclable packaging and offer a 30% average recycled content across Pact's plastic packaging portfolio. We are progressing towards this goal that will see Pact investing $75 million over the next 3 years to install new technology and equipment with the capability to increase the recycled content in products, including milk bottles, food packaging, mobile garbage bins and industrial packaging across our Australian network. We track our progress. And by way of example, I'm pleased to advise that we have reduced our production of polystyrene packaging by 34%, decreased production of polyvinyl chloride packaging by 51% and we use an average of 10% recycled content across our plastics portfolio. We recently announced a strategic partnership with Woolworths that will see Pact use approximately 18,000 tonnes of recycled plastic each year to manufacture and supply packaging for Woolworths' own brand range, including milk bottles, meat trays, fruit and vegetable punnets and beverage bottles. As part of this partnership, Woolworths plan to increase the use of Pact's reusable plastic produce crates over the next 3 years, increasing usage to over 80 million crates a year. This is an important sustainability partnership for Pact, and it highlights that our strategy is on track. It is also good for the planet as together, we will increase the use of recycled plastic at a very significant scale. Turning to innovation. At Pact, innovation is critical to our ongoing success, and we walk the talk. We develop innovation solutions in partnerships with our customers so that they can switch to more sustainable packaging and reuse solutions. I'm delighted to be able to advise you that Pact has been recognized as one of Australia's Most Innovative Companies by The Australian Financial Review and BOSS Magazine for the 10th consecutive year, a fantastic achievement. This year's award is in recognition of Pact building and operating Australasia's largest PET plastic recycling facility with its joint venture partners Cleanaway Waste Management, Asahi Beverages and Coca-Cola Europacific Partners. This facility was opened early this calendar year, and in doing so, we have taken a giant step towards rapidly increasing the use of Australian-sourced recycled resin in Pact's packaging and in those of our joint venture partners. This really is fantastic news and a reflection of the progress we are making at Pact towards Leading the Circular Economy. Of course, there have been a number of other innovative solutions developed across the year, including: the design and manufacture of a 50% recycled polypropylene 15-liter paint pail for Dulux, the first for a major Australian paint brand; developed Australia's first 50% recycled HDPE bottle for skin care for Ego Pharmaceuticals; working with Goodman Fielder to transition their packaging for Praise mayo and aioli to bottles and jars with 100% recycled PET, an Australian first in the mayonnaise category; the transitioning of one of our dairy customers, Norco, to 100% recycled milk bottles; and introducing fully recyclable meat trays and films in New Zealand. These firsts for recycled content showcase the kind of solutions that can be achieved by an integrated, industry-wide approach, and each of these innovations represents another step towards the End of Waste. It is also a testament to the hard work and vision of our people at Pact and is evidence of the value we are creating. Before handing over to Sanjay, on behalf of everyone at Pact, I would like to pay tribute to Ray Horsburgh, who passed away in August this year, and to convey our condolences to Ray's family and friends. Ray was a highly respected industry leader who served on the Pact Board for 5 years between 2015 and 2020. We remain grateful for his invaluable advice and the contribution he made towards growing our business. On a personal note, I will miss Ray's huge personality, sector knowledge and managerial and personal advice. He was a mentor and a friend. He will be deeply missed and remembered fondly. I would like to thank our customers because without them, we do not have our business, our dedicated team at Pact and to thank you, our shareholders, for your support. And I will now hand over to Sanjay Dayal, our Managing Director and Group Chief Executive Officer. Sanjay?

Thank you, Chairman. I will cover the highlights for the 2022 financial year. Focus on our people. Starting with safety. The safety of our people continues to be our primary focus. We are committed to caring for our people and cultivating a culture of safety, collaboration and success at Pact. This is reinforced by our Pact values of safety, customer, integrity, innovation and respect. The group continued to invest in safety programs and processes, and I'm pleased to report that our total recordable injury frequency rate improved significantly to 9.6. We are determined to drive further improvement in that metric. At Pact, we have a diverse and engaged workforce who are Proud to be Pact. We have introduced leadership and sales excellence programs, which have also been a great success in empowering our people, and these programs will assist in selling our Circular Economy proposition. I'm extremely proud of our talented and dedicated people for embracing our vision and values and driving our strategy forward. FY '22 results headlines. Pact delivered a solid financial performance in FY '22 despite the very tough operating conditions we faced. We saw substantial increases in raw materials, energy, shipping and labor costs in addition to experiencing continual uncertainty from COVID-related disruption to supply chains and labor availability. Despite these conditions, we delivered revenue ahead of last year, earnings in line with guidance and a reduction in net debt. These results reflect our ongoing effort to grow our core business combined with a strong focus on management of controllable costs as well as recovery of increased material and input costs through pricing. In FY '22, we delivered revenue of $1.838 billion, up 4% on the prior year. Despite the challenging market conditions, demand for Pact products in our core segments was strong. We reported volume growth in both Packaging and Sustainability and in crate pooling, and this was driven by increased demand for recycled content. Underlying EBIT was $156.2 million for the year. Whilst it was 15% lower than the prior year, it was a resilient performance given the environmental challenges. Lower earnings were predominantly driven by our Contract Manufacturing segment. The combined earnings in our Packaging and Sustainability and Materials Handling and Pooling segments were essentially in line with the prior year. Underlying NPAT was $70.2 million compared to $93.5 million in FY '21. I'm pleased to report that our balance sheet remains strong with net debt of $561 million, which was $24 million below the prior year-end. Operating cash flows were solid and reflected us holding higher inventory through the year to service our customers while being impacted by the shipping reliability issues. We continue to maintain a strong focus on managing cash flow and working capital. Gearing was consistent with the half year at 2.7x, comfortably at our target range of 3x. And as previously outlined, the Board resolved to pay a final dividend of $0.015 to bring the total dividend for the year to $0.05 franked to 65%. Our vision is to Lead the Circular Economy. I'm really delighted with the progress we have made on our strategic journey this year. It has taken a number of years of investment and planning. However, Pact is now recognized by industry, customers and government as a sustainable packaging solutions provider, Leading the Circular Economy in our region. The Circular Economy is driven by customer demand, and our customers include many household names with their own commitments to increase the recycled content in their packaging. And that is why we are the logical strategic partner for Asahi Beverages, Coca-Cola Europacific Partners, Woolworths Group and other retailers when they are looking to increase the recycled content in their packaging. In line with the progress made, particularly in the U.K. and Europe, to use local waste for recycling and to increase the level of recycled content in packaging, Australia and New Zealand are committed to progressing a legislative platform that advances sustainability and the Circular Economy. Policies such as container deposit scheme and the waste export ban are providing the right environmental platform to grow Australia's recycling industry and increase demand for Australian recycling content. With our strategy to Lead the Circular Economy, we are well positioned to help our customers achieve their sustainability objectives. Strategic priority highlights. Our strategy to Lead the Circular Economy through reuse, recycling and packaging solutions is certainly on track. We have made further significant progress on several initiatives during the year, including: commencement of operations at our new Circular Plastics Australia (PET) joint venture recycling facility in Albury and attaining international food safety approval for the recycled resin produced at the site; completion of the acquisition of Synergy Packaging for $20 million, enhancing our ability to supply recycled packaging in the health and beauty sector; converting numerous customers in Australia and New Zealand to recycled products, including milk bottles, closures and meat trays; and the Woolworths strategic partnership. We have 2 additional recycling facilities under construction that will further increase the amount of recycled resin we produce. These facilities are due for completion during 2023, and a further 3 are in the planning stage. With this pipeline of new facilities, combining with our investment in new technology and equipment at our packaging manufacturing facilities across Australia and New Zealand, we are leading the way in the manufacture of high-quality recycled products. Strategic growth targets. At Pact, we are focused on bringing the Circular Economy to life and in doing so, growing returns to our shareholders. There are several targets that we will achieve through FY '23 and beyond that will provide you with insight into our strategic direction and the financial and sustainable benefits of our strategy. These are to: deliver value from the Circular Economy of at least an additional $25 million of EBIT with the run rate achieved by end of FY '25, increase the recycled content across plastics to 30% by the end of FY '25, lift EBIT margins in Packaging Australia to 10% by FY '26, refine the portfolio and reset gearing levels to below 2.5x by FY '24, achieve a safety target of TRIFR below 8 by FY '24 and achieve an emissions target to reduce our scope 1 and 2 greenhouse gas emissions by 50% by 2030 in Australia and New Zealand from FY '21 baseline. I'm delighted with our strategic progress and look forward to sharing our success as we move towards achieving these targets. Now to the outlook. Global and domestic supply chain has improved but remains challenged and continues to impact our cost base. We expect further cost recovery via increased pricing, but pleasingly at lower frequency and lower rates than previous increases. In relation to segment performance, Packaging and Sustainability is currently similar to last year, reflecting continued improvement in our largest division. Materials Handling and Pooling is slightly below last year due to a poor growing season across ANZ, weak U.S. retail demand and lockdowns impacting retail accessories. And Contract Manufacturing is at breakeven, having recently renewed major contracts. We expect underlying EBIT in the range of $68 million to $73 million and underlying NPAT in the range of $20 million to $25 million for the first half of FY '23. We will provide a further update in February. I'm very excited for the future of Pact as we continue to deliver on our strategy, and I thank you for your support. I will now hand back to the Chair, who will take us through the formal resolutions.

I will now move to the formal business of the meeting. Before we consider the items of business, there are a number of procedural matters which I wish to draw to your attention. I will now go through the formal resolutions of today's meeting. There are 6 items of business. Each resolution will be put separately. As previously indicated, questions can be sent through at any time but will be addressed after all of the formal items of business. Questions should be addressed to and through me as Chair. It is my intention to vote all undirected proxies in favor of the resolutions. Any directed proxies that are not voted at the meeting will automatically default to me as Chairman of the meeting, and I'm required to vote those proxies as directed. I will now move to items of business to be considered at this meeting. The first item of business relates to the tabling of the company's financial reports for the year ended June 30, 2022. The Corporations Act requires the financial report, the directors' report and the auditor's report to be received and considered at the AGM. Shareholders are entitled to ask our auditor questions relevant to the conduct of the audit and the preparation and content of the auditor's report and other related matters. As mentioned earlier, David Shewring and Wilfred Liew of Ernst & Young are in attendance online, and David Shewring is available to answer any such questions. I'm advised by the auditor that there have been no questions received for their attention prior to the meeting. I ask the Company Secretary to record that the financial report for the company and its controlled entities for the year ended June 30, 2022, together with the directors' report and auditor's reports, have been received and considered by shareholders. We will now proceed with the resolutions to be considered. Again, please note that only shareholders and proxyholders may vote. I now move on to item 2, the adoption of the remuneration report. The Corporations Act provides for a vote on the remuneration report. Under the Act, this vote is advisory only and is not binding. The Board will, however, take into consideration discussion on this resolution when considering the future remuneration arrangements of the company. Pact Group's remuneration report is contained at Pages 42 to 56 of the 2022 Annual Report. Pact Group's executive remuneration strategy is designed to attract, retain, reward and motivate high-performing individuals so as to achieve the objectives of the company in alignment with the interest of the company and its shareholders. These remuneration arrangements comprise fixed remuneration, variable remuneration and discretionary bonuses. The variable remuneration consists of both the short-term incentive measured over a 12-month period; and a long-term incentive available to the CEO and select senior executives, which is measured over a 3-year period. The fixed component is structured to attract high-caliber executives with the right mix of experience, qualifications and industry expertise. The short-term and long-term incentives are to reward executives for their role in achievement of the group's financial performance targets and their own individual performance targets. For short-term incentives, group EBITDA and cash management are the key financial measures assessed against budget on a half yearly basis along with nonfinancial measures. A discretionary bonus may be paid for an executive's performance in relation to specific projects. No short-term incentives or discretionary bonuses were paid in the financial '22 year. Voting exclusions, as set out in the Notice of Meeting, apply to this resolution. I will now put the resolution to the meeting that the company's remuneration report for the financial year ended 30 June 2022 be adopted. Please now record your vote online for item 2 if you have not already done so. Valid proxy votes received for this resolution are shown online. As indicated in the Notice of Meeting, I intend to vote valid undirected proxies given to the Chairman in favor of the resolution. As item 3 relates to the reelection of myself as a director, I will now hand over to Mr. Michael Wachtel to Chair the meeting. Michael?

Good afternoon, ladies and gentlemen. My name is Michael Wachtel, and I'm delighted to Chair this section of the meeting for the following resolution. Item 3 is the reelection of Mr. Raphael Geminder as Nonexecutive Director. Mr. Raphael Geminder, who was appointed to the Board on 19th of October 2010, retires in accordance with the constitution and pursuant to ASX Listing Rule 14.4, offers himself for reelection at today's meeting. Mr. Raphael Geminder's qualifications, background and experience are summarized in the Notice of Meeting and in the company's annual report. The Board recommends Mr. Geminder's reelection. I will now put the resolution to the meeting that Mr. Raphael Geminder, who offers himself for reelection and being eligible, be reelected as a director of the company. Please record your vote online for item 3 if you have not already done so. Valid proxy votes received for this resolution are currently shown online. As indicated in the Notice of Meeting, I intend to vote valid undirected proxies given to the Chairman of the meeting in favor of the resolution. I'll now hand the meeting back to your Chairman.

Thank you, Michael. I now move to item 4, approval of the FY '23 long-term incentive grant of performance rights to the CEO. The company is seeking shareholder approval for the fifth grant of performance rights to Mr. Sanjay Dayal under the company's long-term incentive plan. Mr. Dayal was employed by the company on the 3rd of April 2019, and his fifth grant of performance rights represents Mr. Dayal's long-term incentives for the financial year ended June 30, 2023. This plan is designed to allow the Board to make grants of awards to employees, which provide the opportunity to acquire shares to assist with attracting, motivating and retaining employees, delivering rewards for performance and aligning the interest of employees with those of shareholders. Voting exclusions, as set out in the Notice of Meeting, apply to this resolution. The Board, with Mr. Dayal abstaining, unanimously recommends that shareholders vote in favor of item 4. I will now put the resolution to the meeting that approval will be given for all purposes, including ASX Listing Rules 7.1 and 10.14 and Section 200B and Section 200E of the Corporations Act, for the grant of performance rights to Mr. Sanjay Dayal, the company's Managing Director and Chief Executive Officer, as his annual long-term incentive grant for the year ended 30 June 2023 on the terms described in the explanatory memorandum accompanying the Notice of Meeting. Please now record your vote online under item 4 if you have not already done so. Valid proxy votes received for this resolution are shown online. As indicated in the Notice of Meeting, I intend to vote valid undirected properties given to the Chairman of the meeting in favor of the resolution. I now move to item 5, renewal of proportional takeover plebiscite. The company's constitution currently contains provisions dealing with the proportional takeover bids for the company's shares. These provisions, contained in Rule 6 of the constitution, are designed to assist shareholders to receive proper value for their shares if a proportional takeover bid is made for the company. In accordance with the Corporations Act, we propose to renew this clause for a 3-year period. This resolution is a special resolution which requires at least 75% of votes cast on the resolution to be cast in favor of the resolution. The Board unanimously recommends that shareholders vote in favor of item 5. I will now put the resolution to the meeting that the proportional takeover provisions contained in Rule 6 of the company's constitution be renewed for a further 3 years with effect from the date this resolution is passed. Please now record your vote online under item 5 if you have not already done so. Valid proxy votes received for this resolution are shown online. As indicated in the Notice of Meeting, I intend to vote valid undirected proxies given to the Chairman of the meeting in favor of the resolution. I now move to item 6, approval of financial assistance in connection with the acquisition of Synergy Packaging Pty Ltd. Pact Group Holdings (Australia) Pty Ltd, a wholly owned subsidiary of the company, has acquired Synergy Packaging Pty Ltd. Synergy Packaging Pty Ltd is now a wholly owned subsidiary of the company. As part of the arrangements to finance the Synergy Packaging acquisition, the company funded all of the purchase price for this acquisition by drawing down on its existing debt facilities. Under the terms of those facilities, the company is required to ensure Synergy Packaging become an additional guarantor and an obligor and gives an interlocking guarantee and indemnity for the repayment of money that may become owing and to secure each other obligor's obligations under the facilities agreement and any related document. Entering into and performing obligations under the facilities agreement will constitute or involve giving financial assistance in connection with the Synergy Packaging acquisition for the purposes of section 260A of the Corporations Act and therefore requires the prior approval of shareholders of the company under Section 260B of the Corporations Act. Further information about this resolution, as required by the Corporations Act, is set out in the Notice of Meeting. This resolution is a special resolution which requires at least 75% of votes cast on the resolution to be cast in favor of the resolution. The Board unanimously recommends that shareholders vote in favor of item 6. I will now put the resolution to the meeting that for the purposes of section 260A and 260B(2) of the Corporations Act and all other purposes, approval is given for the financial assistance to be provided by Synergy Packaging Pty Ltd ACN 006 617741 in connection with the transaction described in item 6 of the explanatory memorandum accompanying this resolution, which forms part of this resolution. Please now record your vote online under item 6 if you have not already done so. Valid proxy votes received for this resolution are shown online. As indicated in the Notice of Meeting, I intend to vote valid undirected proxies given to the Chairman of the meeting in favor of the resolution. It is now my delight to turn to questions. Before we begin the Q&A portion of the meeting, I'd like to confirm that I am here today in my capacity as Chair of Pact. We will now address questions that the company has received prior to the meeting before we address questions from the floor. We have received questions regarding Kin Group's intentions to purchase additional shares in Pact and what that means for shareholders. As I said in the opening, I'm here in my capacity as Chair of Pact, and it is not appropriate for me to speak in relation to or on behalf of any shareholder, including Kin Group. We have received a question in relation to the control capacity of the major shareholder, Kin Group, and its impact on the governance of the company. At the company's listing in December 2013, Kin Group held a 39.8% interest, which was disclosed in initial public offering documents. So the existence of a major shareholder on Pact's register is not new. Pact has governance and risk management structures in place that reflect the company's values and strategic objectives and that are consistent with its status as a high-quality Australian-listed entity. The directors of the company, myself included, are aware of our obligations to the company, including to act in its best interests. We also consider that individual directors and the Board are capable of objectively analyzing the issues before us and making decisions that are in the best interest of Pact and its stakeholders in accordance with our duties as directors. Additionally, we have various processes in place to ensure that any conflicts of interest and related party transactions are disclosed and managed appropriately. Lastly, we have received a question asking why this year's AGM is a virtual-only meeting and whether Pact will only hold virtual meetings in the future. We have a geographically diverse shareholding base with holders across Australia, New Zealand, Asia, Europe and the United States. For a range of reasons, we believe a virtual-only meeting is the most efficient, cost-effective and equitable meeting arrangement for the company and its stakeholders. We encourage shareholders and other stakeholders to contact and meet with our General Manager of Investor Relations and Strategy year-round within the parameters of our continuous disclosure policy. We have and will continue to monitor member and guest attendances to determine whether the nominated format impacts attendance. To date, overall attendance from interested stakeholders has increased following the move from in-person to virtual meetings. We will also keep shareholder feedback regarding meeting format in mind when preparing for future meetings. So with that, I will now take questions. Written questions will be read out by our AGM moderator, Carolyn Ireland, General Manager of Investor Relations and Strategy. Carolyn?

Chair, the first 3 questions are from [ Tony Flat ]. The first of Tony's questions relates to energy pricing. What is Pact's exposure to rising energy prices? And what strategies are being employed to mitigate the risk of rapid rises in energy costs?

Tony, that's a great question. And energy, as you know, is a complex global issue. So first of all, we have a professional procurement team focused on buying, hedging and dealing with energy. Secondly, we have standard [ Horizon 4 ] clauses, which include energy, and we have regular price increases that take into consideration energy escalation. Energy, in terms of our overall cost bucket, is sort of in the 5% range of our total cost. And I think in -- when I talked about sustainability, I talked about a whole bunch of measures that are happening in the group around energy efficiency that includes machinery, reconfiguration of our processes, increased use of renewable energy platform, et cetera. So there's a lot going on in the group to manage energy escalation and inflation, and there's a fair amount going on in the group to mitigate energy inflation. But nonetheless, it's a very complex issue and not an issue that Pact alone can solve. Carolyn?

Thank you, Chair. Tony's second question relates to write-downs of investments in -- over the last 4 years and what confidence shareholders have that future acquisitions will be subject to greater scrutiny and rigor.

Paul, would you like to take that?

Sure, Mr. Chair. And thanks, Tony, for the question. I suppose 2 things that should give shareholders confidence. The first is a very clear strategy, and that provides very strong guide rails as to what we would consider as an acquisition target. So that's the first thing. And then the second thing is the Board has put in a hurdle of a return on investment of at least 15%, which also makes that hurdle tough in terms of any future acquisitions. So those 2 things should combine to give confidence that any future acquisitions are well considered by the Board.

Thank you, Paul.

Chair, the third question from Tony. Management has indicated an intention to reduce debt. This seems prudent given the significant leverage the group employs. How will the group manage the competing pressures of reducing debt but also paying sustainable dividends to shareholders? The second part of this question, if the group manages to restart the currently paused sale process of the Contract Manufacturing division, does management intend to direct all future sale proceeds to debt reduction?

Thank you. Paul?

Thanks again, Tony. So on the last question on any future acquisition, for sure, the Board would consider the actions we would take in terms of proceeds, whether that was debt or some other form of use of those money proceeds. And that would be very much in the consideration at a point in time in terms of the sale.

The next question is from [ William News ]. William asks, and I'm going to assume this is in relation to the outlook, EBIT and NPAT, why is it low? And are they continuing to be impacted by external environmental conditions?

Thank you for that question. Look, there's no short answer to that question. I think we've talked about the challenges that many Australian companies and many global companies are leaning into that are as a result of global supply chain disruptions, COVID disruptions. I mean the list goes on and on, and we talked at length about that in our presentation. So I think that there's no quick fix for this. I think that it's a slow grind, and I'm comfortable that we're heading in the right direction.

Chair, we have received a number of questions from Stephen Mayne. The first of these, did any of the 5 main proxy advisers recommend a vote against any of today's resolutions? Which of the proxy advisers are covering us? And has there been a material proxy [ process ] vote against any of today's resolutions? Will you disclose the proxy votes before the debate on each resolution so shareholders can ask questions about the reasons if there have been any process votes? Also, why not disclose the proxies to the ASX with the formal addresses like others now do? Thank you, Chair.

Yes. So to the best of my knowledge, there have been no votes against any of our resolutions. With respect to disclosure, these reports are by independent parties, and we don't actually think it's appropriate to disclose. Interested parties can access the results directly from proxy advisers, as you know, Stephen, and they have those reports. And if you'd like to reach out to them, you're more than welcome. Thank you.

Chair, the second question from Stephen Mayne relates to Kin's intentions. Chair, I know that you have already addressed this topic, so that's already been covered. The third question comes in 2 parts. The shares have fallen $0.05 to a record low of $1.25 today. What is driving this? And the second part, could the auditor comment on the impairment assessment process and whether we need to consider write-downs to reflect market reality? Thanks, Chair.

Thank you. Again, I will refer to David Shewring in a minute. With respect to the share price, I think it's management and the Board's job to focus on the governance and the management of the company and not really comment on share price. The share price will take care of itself. Our job is to do everything we can to run the company in the best interest of all of our shareholders. And with that, maybe I'll turn to David to answer the second part of the question. David?

Thank you, Chairman, and thank you for the question. As is outlined in our audit report, the recoverability of assets, be they plant equipment, intangible assets and goodwill, was considered a key audit matter, and our work is outlined in that regard. As is required by the accounting standards, the company produces forecast cash flow models that we assess in conjunction with our valuation specialists and look at the key assumptions with discount rates, et cetera. You'll note there was an impairment expense taken in the FY '22 financial year, and that will continue to be a focus area in future audits. Thank you, Chairman.

Thank you, David.

The next question from Stephen Mayne is another question in relation to Kin's and your personal intentions. I know, Chair, that you have already responded to that.

Thank you.

The fifth question from Stephen Mayne comes in 2 parts. Net debt is $560 million, and our market cap is down to around $450 million. Are there any market covenants in our banking facilities? The first part. And the second part, has the Board considered undertaking an equity raise to pay down debt?

Maybe I'll pass to Paul.

So on the first question, Mr. Chairman, there's no covenant in respect to market cap. And what was the second part of the question?

Board consider undertaking an equity raise to pay down debt.

There's been no...

[indiscernible]

No discussion, no plan.

The sixth question from Mr. Stephen Mayne, could the CEO summarize his past LTI grants as to whether they have vested or lapsed? Also, has he ever sold any ordinary Pact Group shares or bought any on market without relying on an incentive scheme to build his equity position in the company? Thanks, Chair.

Mr. Dayal?

Thank you, Chair. Thank you, Stephen, for the question. I believe this information is already there in the remuneration report. So I would request you to go there and check that out, and I leave the question at that. Thank you.

Thank you, Chair. I note that Mr. Stephen Mayne has asked a number of other questions. I would recommend that the company respond directly to those questions.

Thank you for that. Do we have any further written questions beyond Mr. Stephen Mayne's many questions?

No further questions, Chair.

Thank you, Carolyn. We'll now take verbal questions.

Chair, there are no phone questions.

Thank you. We will now conclude questions. Ladies and gentlemen, that concludes our discussion on the items of business. I will now pause for a minute in order for you to finalize your votes prior to closing the voting system. Please ensure that you have cast your vote on all resolutions. If you are having trouble finalizing your vote, please alert the company using the Q&A function. I will now pause for a minute. [Voting]

Okay. Carolyn, are there any other holders having trouble finalizing any votes? Anyone having an issue?

Chair, we received no notification of anybody requesting any further time. Thank you.

Okay. Voting is formally now closed. I thank you for your attendance and participation, and I hope that this meeting has provided an opportunity for you to learn a little more about the company and its exciting future. The final outcome of the polls will be declared by notice to the ASX later today and placed on the company's website. I now declare the Annual General Meeting of Pact Group Holdings Ltd closed. Thank you.