Pro-Pac Packaging Limited (PPG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is John Cerini, and I am your Chairman and CEO. I begin today by acknowledging the Traditional Custodians of the land on which we meet and pay my respects to Elders past, present and emerging. I also acknowledge the Traditional Custodians of various lands from which you all join the meeting today. I extend that respect to Aboriginal and Torres Strait Islander peoples here today, whether in person or virtually. On behalf of the directors and management, I extend a warm welcome to everyone joining us today. I'm pleased that you could join us for our 2024 Annual General Meeting of Pro-Pac Packaging Limited. I am informed that a quorum is present, and I declare the meeting open. Before we progress further, I will spend some time explaining how the meeting will be conducted. Firstly, during today's meeting, shareholders or their appointed representatives will have the opportunity to ask questions or make comments to the company, either personally or by raising their green or white card, or if joining us remotely, via the Lumi platform you have logged into today. On that platform, questions will be moderated and may be amalgamated where there are multiple questions on the same topic. For those online, to ask questions during the meeting, click on the speech bubble icon at the top of your screen. Type your question and then click the arrow to submit your question. You will receive a confirmation that your question has been sent after you click on the send arrow. The question function is open now, so it would be helpful if you could submit questions as early as possible. When you submit your question, please identify which resolution it relates to, or if it does not relate to any resolution, please indicate that it is a general question. Secondly, today, all voting will be conducted by poll. For those here in person and entitled to vote, you would have received a green voting card at the registration desk. Relevant instructions are printed on the reverse side of your voting card. Please ensure that you print your name where indicated and sign the voting card. Please note that any unsigned voting cards will be deemed invalid. When you have finished completing your voting card, Boardroom will collect them. For those online, I declare the voting open on all items of business. You will be able to see an icon on the Lumi platform that resembles a bar chart. By clicking this icon, each of the resolutions and the voting options will appear on your screen. And you may vote for a motion, against a motion, or you may abstain your vote. Shareholders and proxyholders can change their vote at any time before the polls close. The poll will remain open until the conclusion of the meeting. But if you need to leave the meeting early, you may wish to cast your vote now. At the conclusion of the meeting, voting will be collated to include all proxy votes and those cast at today's meeting. The final poll results will be announced on the ASX later today. I would like to introduce you to my fellow directors. Rupert Harrington, a non-executive director, our Chair of Remuneration and Nomination Committee and a member of our Audit, Business Risk and Compliance Committee. Rupert is retiring at the end of this meeting, and I would like to formally thank him for his contribution to the Board. Mark Blackburn, a non-executive director, Chair of Audit, Business Risk and Compliance Committee and a member of the Remuneration and Nomination Committee. From our executive team, I would like to introduce Ian Shannon, our Chief Operating Officer; Patsy Ch'ng, our Chief Financial Officer; and Kathleen Forbes, our General Counsel and Company Secretary. Also in attendance today is Kylie Bodenham, representing our external auditor, Ernst & Young. This past year has seen several changes at Board at executive level with Jonathan Ling retiring as Chairman at the 30th of June this year, handing over that role to myself. CFO, Domenic Romanelli, also resigned at the end of the financial year-end, and Patsy Ch'ng took over as CFO. Ian Shannon joined us as Chief Operating Officer on the 1st of June. As announced earlier today, I am pleased to confirm that Ian will be replacing myself as Chief Executive Officer effective from today and will also be joining the Board as Managing Director from the end of this meeting. Ian has over 15 years of experience, leading businesses with local manufacturing operations that produce high-volume, low-margin products. On behalf of the Board, I congratulate Ian on his important -- appointment. His leadership skills, manufacturing, operational experience make him an excellent fit for this role, and I'm looking forward to working with him. In addition to the Chairman's role and remuneration, I will also remain an executive -- in an executive role to support the business on a part-time basis, beginning with 3 days a week on a prorated base salary. Building a safety culture. Safety is at the forefront of everything we do at Pro-Pac and must be a priority at all times. We continue to progress in our behaviors, practices and procedures throughout the group to achieve a cohesive and aligned safety culture. This is starting to show in our safety results with improvements in the FY '24 for both LTIFR, which reduced by 20%, and TRIFR, which reduced by 12%. 2024 results. FY '24 was a difficult trading year with revenue from continuing operations down 13%. This reflected the impact of pass-through of lower material costs, primarily resin, to customers as a result of price adjustment mechanisms built into contracts. Revenue was also impacted by a significant reduction in volumes from our major customer in the Middle East. This was a material change with an impact of more than $17.2 million, of which $12 million occurred in the second half of the year. In addition, difficult trading conditions and the impacts of weather conditions negatively impacted our agricultural volumes in both Australia and New Zealand. Despite these impacts, the overall volumes in our Flexibles segment, excluding our major customer in the Middle East, were only down by 0.5%. As a result, our pre-AASB 16 EBITDA before significant items from continuing operations decreased during the year to a loss of $7.6 million. The Board is focused on ensuring the business cash generation improves and that sufficient funding arrangements are in place to support the business. We are working on a range of options over the coming months. Strategic priorities. Cash generation and revenue growth remain at the forefront of our strategy. We also continue to focus on cost management across the organization, particularly in the current challenging market environment. We have implemented significant cost reduction initiatives, which include a reduction in our head count by 10%, lower cost and overhead structures and improved profitability. Our priority is to use our manufacturing capabilities, improve service levels, leverage our expertise to convert other pipeline opportunities into profitable revenue. Investing in the circular economy. We continue to progress our investments in recycling with a project to build a 15,000 tonne per annum plant in Albury to recycle soft plastics. The development application has now been formally approved, and the required trade waste agreement is close to finalization. The recycled raw materials will be used in packaging films and products manufactured by PPG and our business partners. We aim to be at the forefront of the Australian market in enabling mechanically recycled post-consumer waste to replace virgin plastic in our film products. Field extrusion trials have been successful with several customers using imported recycling materials that will closely resemble the materials that ultimately our facility will produce. We have, in principle, support from several key industry participants and are currently seeking equity and sponsorship partners to share the future costs and benefits of the project. We have the support of our major shareholder as owner and developer of the site. We will provide any further material updates as the project progresses. Business outlook. The trading environment remains volatile and challenging. We continue with the process of seeking to win new business, increasing revenues, improve service, deliver on our cost reduction programs and improve profitability. First half FY 2025 performance has shown an improvement on the second half FY 2024. We expect our full year 2025 EBITDA performance before significant items to be an improvement over FY '24, albeit not yet at a positive EBITDA. On behalf of the Board of Directors, I would like to thank you, our shareholders, for your ongoing support of Pro-Pac. I would also like to take this opportunity to acknowledge the efforts of Pro-Pac's employees and management team during another busy and challenging year. We thank them for their commitment, hard work in support of the company. Now turning to the formal part of the meeting. The explanatory statement provided with the notice of meeting sets out the reasons for each resolution, and I propose to take it as read. Shareholders voting at this meeting should also note the voting exclusion statements in relation to each resolution as set out in the notice of meeting. All voting exclusion requirements imposed by the ASX listing rules and set out in the notice of the meeting have been taken into account in determining all proxy counts in relation to the resolutions proposed. I intend to vote all open proxies that I hold in favor of the resolutions. Item 1, financial report, directors' report and auditor's report: to receive and consider the financial report of the company and of the consolidated entity for the year ended 30 June 2024 and the reports by directors and auditors thereon. The annual accounts including the directors' statement, the auditor's report have been provided to shareholders. This item of business does not require a vote. However, the reports are open for discussion. The company's auditor is in attendance and is available to answer questions from shareholders relevant to the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the conduct of the audit and the independence of the auditor. Are there any written questions relating to this item?

No, Chairman. No questions in relation to this item.

Shareholders are also invited to indicate now if they would like to verbally ask a question. Being there are no questions, we will move to the next resolution. Resolution 2, remuneration report. To consider and, if thought fit, pass the following resolution as an ordinary resolution: to receive, consider and adopt the remuneration report of the company and consolidated entity for the year ended 30 June 2024. The Corporations Act requires the preparation of a remuneration report and that a resolution be put to members that the remuneration report be adopted. Voting on the resolution is not binding on the company or the directors. However, the Board takes seriously the views of members on this matter and will be given proper consideration when we review our remuneration practices and policies. The proxy votes received in respect of this resolution are now on your screen. Are there any written questions relating to this item?

No Chairman.

Shareholders are also invited to indicate now if they would like to verbally ask a question. Please cast your vote now if you have not already done so. [Voting]

Resolution 3, election of a director, Mr. Rupert Harrington. As noted in the supplementary materials sent to shareholders, resolution 3 will not be put to the meeting as Rupert has indicated he will not stand for reelection. Resolution 4, election of a director, Mr. Mark Blackburn. To consider and, if thought fit, pass the following resolution as an ordinary resolution: that for the purpose of ASX Listing Rule 14.5 and for all other purposes, shareholder approval is given to the reelection of Mr. Mark Blackburn as a director of the company. Mark's skills and experience are set out in the supplementary materials sent to shareholders. Mark has extensive senior financial management experience with the ASX and NYSE listed corporations and has held CFO roles at McMillan Shakespeare, iSelect, IOOF, Ausdoc Limited and the Laminex Group. Mark is currently a non-executive director and Chair of the Audit Committee of Lifestyle Communities Limited and a non-executive director of FleetPartners Group Limited. Mark is Chair of the Audit, Business Risk and Compliance Committee and a member of the Remuneration and Nomination Committee. He was first appointed to the Board on the 23rd of November 2022. The proxy votes received in respect of this resolution are now on screen. Are there any written questions relating to this item?

No, Mr. Chairman.

Shareholders are now also invited to indicate now if they would like to verbally ask a question. Being no questions, please cast your vote now if you have not already done so. [Voting]

Ladies and gentlemen, now that we have considered each resolution, I ask you to ensure that you have completed your voting. The poll on resolutions will be closed at the conclusion of this meeting. We now move to general questions. Kathleen, are there any general questions from shareholders?

Yes, there are. The first question is from [ Christian Halsted ], and [ Ken Marico Proprietary Limited ] has also asked the same question. The question is, given that significant cost reduction initiatives have already been implemented, yet the full year EBITDA is not projected to be positive, what are the key drivers that will enable the business to become cash flow positive moving forward? And when will this be achieved?

So what we've -- so thanks, firstly, for the questions, both [ Ken ] and [ Christian ]. There is always a phasing process that takes place in terms of introducing and getting the benefit of the cost reduction programs. So although some of those have been introduced, there is still a phase to go that will continue with those cost reductions. So I think from our perspective, we expect to continue to improve. And although we won't be positive EBITDA this financial year, we expect a continued improvement going into next year.

Next question also from [ Christian Halsted ]. Why did staff costs increase from $18.8 million in the quarter ended 30 June '24 to $20.3 million in quarter ended September 30, 2024?

I might refer that to Patsy if I can, without having the specific numbers in front of me.

Sure. I think there's probably -- there were project costs that were in place that were capitalized in terms of -- from a project, the ERP project. So therefore, the numbers coming through the P&L will reflect that differential. So it's actually not the actual impact on the P&L costs going up, but it's actually the -- from a cash perspective because part of it was capitalized in the prior period.

Thank you, Patsy. The next question again from [ Christian Halsted ] is in relation to recent government funding awards. Could you please provide an overview of recent government funding awards and explain why no commentary was included in the most recent quarterly release or any other ASX announcements?