Redox Limited (RDX) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen, those in the room and online, and welcome to the Annual General Meeting of Redox, its second year as a public company. My name, as you well know, is Ian Campbell. I'm the Chair of the company, and I will be chairing the meeting today. It's after 10, we've got a quorum, so I think we're ready to roll. The agenda is going to be broken up into two parts really. First part is going to be a brief introduction from myself, make a few comments. I'll pass over to Raimond to give a review of the 2024 results and the current quarter, and then we'll progress to the formal part of the business meeting and the resolutions that have been mailed to you in the Notice of Meeting. So for the introductions, we've got Raimond, the Managing Director and CEO. We've got Renato sitting beside him, Executive Director and Marketing Manager. We've got Mary Verschuer, Non-Executive Director. Then there's Kim, the CFO; and we've got Erika Jasarevic, the Company Secretary and Legal Officer. Garry Wayling, also a Non-Executive Director, is not here, he's actually in Perth, but is online for the meeting. I think, first of all, I just want to say that this is quite a remarkable story, Redox, in that a little over 12 months ago, we were still a private company. And just in that period, we've not only gone to the public market but become an ASX 300. So I think that's quite an achievement that we should all be very happy with the shareholders, and congratulations to all who are involved in that process. So I'm pleased to report the company has continued to prosper during FY '24 despite the significant geopolitical, macroeconomic headwinds, which have affected the global chemical and ingredient distribution sector across the board and the broader economy. But against the backdrop of ongoing price discovery across the sector, Redox maintained a focused strategy and clear purpose, which resulted in a range of operational improvements and helped to drive gross profit margin higher, more than offsetting the top line decline. And pleasingly, Redox was able to deliver an 11.8% increase in the pro forma earnings per share versus the previous corresponding period and a strong 19.1% underlying after-tax on invested capital. In our first year as a listed company on the ASX, the Board was delighted to declare an interim dividend of $0.06 per share, followed by a final dividend of $0.065 per share. The full year payout to $0.125 per share represented a payout of 73%, which was at the upper end of our stated dividend policy of 60% to 80% of net profit after-tax. So before I hand over to Raimond and his address, I did want to take the opportunity of thanking him for his excellent leadership of Redox as CEO. And I must say and congratulate management, particularly executive directors, of their ability to move from a private company with solid governing to a public company where they have, in effect, no overall control, being fully independently controlled by the independents. I'd also like to call out the management staff, my fellow directors, for their outstanding contribution and support in FY '24. As the team look forward to the year ahead with excitement and optimism, I hope you will continue to be with us for the journey that lies ahead. I'll now hand over to Raimond to go through his presentation.

Hello, everybody, online and in the room. We could probably have a smaller room next time. Look, I'm very pleased to say that the business, your business, has performed very strongly and, as Ian said, against the backdrop of price deflation, an uneven economy, let's be frank, with high interest rates and the specter of uncertainty around geopolitical things like in the Middle East and, of course, the Russia-Ukraine and, of course, the Red Sea problems as well. So it's always an interesting time to be in our business. We faced these challenges many times over our 60-year history. And actually, 2025 will be our 60th year of operation. As I was saying to an investor in the hallway, the great thing about this business is its resilience and its toughness, and its ability to absorb stress and bounce back and adjust. And Richard, our COO, he's always said that we think of Redox as having all the advantages of a global powerhouse with all the resources that come with that but also the mindset of an agile start-up. And we never want to lose that as well. For those new to the Redox story, I wanted to just sort of talk a little bit about the vital statistics, the numbers of Redox. And you have them up here on the screen. It's again one of the reasons for the resilience, and people who've seen our results for FY '24 have said what a wonderful job we've done and how we're able to do this. And I think it's very simple. It's the strategic decisions that the company has made over its history that have fortified our position, that protect us from deflation. We have 7,000 active customers; 5,000 different SKUs. In fact, we think that this can grow to 50,000 SKUs over time, so we've got a lot more to do expanding our product range but already very, very diverse. 100 stock locations, and we've got strong purchasing power. We've got a great team, a large team, that helps us get through times like this. And of course, it's all underpinned by our ERP/CRM system, Redebiz, a unique platform, a unique piece of software that we've built ourselves and continue to improve, and it's part of that agility and the way we run our business and keep ourselves efficient as we grow. Next slide, please. You can see here on this slide, again, no one customer is more than a couple of percent of our sales and no supplier is more than a couple of percent of our purchases. And again, this is a strategic decision by the company: to have a large team of salespeople, of product managers; to be active in many, many products; to talk to many, many customers, and don't discriminate, don't just go for the big customers, they go for the medium and small customers, too. This is an important way that we outperform our peers, that we keep profits high from getting the largest number of transactions, small transactions. We're, of course, active in many, many different industries. So if you've not heard, Redox is a very diverse business in the industries it caters to. And we're having a lovely meeting yesterday with a potential M&A target, and we're getting briefed about a whole new industry. And Richard, myself and Renato were thrilled by the possibilities of this new industry, that one we don't even scratch the surface of at the moment. So very exciting, very exciting. Over the next slide, I think when you buy into a family business, what you are buying into also is the values that underpin our business. And our family values inform the way we run Redox. And I hope you can appreciate that we're always trying to improve, too. No one is a finished article until, well, ever. One thing we did this year was we got an engagement survey done with Great Place to Work. I'm very happy to say that our people endorsed the company as a great place to work, which is wonderful. Over to the group strategy, perhaps, on Slide 9. I know this is of special excitement to everyone. So please leave the questions until the end, we'll have a very fulsome Q&A where you can throw all the questions I won't answer later. But of course, on Slide 9, please. So of course, always interesting what's happening with the volumes, what's happening with those. I can say, over our long history, we've grown around 11% over 30 years. Out of that, sort of 8% to 9% is usually volume and the rest is sort of price inflation, if you think about it that way. We've grown much faster than that in FY '25 Q1. We've also established a new entity, a new legal entity in Canada, and that is going to facilitate our sales into that country. We already do sell there from the United States, but this is planting a flag and allowing us to be deeper in touch with our customers. We've got clients in the U.S. who are very excited for us to set up there. We've got suppliers who are throwing agencies at us out there, Renato, trying to get us to enter that market, which is great, really exciting, and we want to help them. Lastly, again, talking about those products and the different products we can add to our portfolio. I just wanted to give you one example of one we've added in Q1 FY '25. It's a sunscreen active. It goes into a product you all find on your chemist aisle, and it's a UV-A absorber. And a new product like this, it's really exciting because we have many, many customers for this item. And already, in the first quarter, we already have $0.5 million worth of sales. So very exciting. And Renato's team, the product managers, are always finding new items. In every acquisition we make, we're getting new products to sell. And we're using this platform. You got to think about Redox as a giant platform where you bring customers, suppliers, logistics, all these parts into Redebiz, connect them all up. It's that sort of thing. On inorganic growth, we're continuing to acquire businesses. We had an agreement to purchase the business and assets of Auschem signed last Friday. Completion is expected in Q2 FY '25. In fact, that conversation has been going for some time, and they're great friends of the family, and we've known that business for a long time. Very tough negotiators, I think everyone will know. If you know Auschem, you know how tough they are to negotiate with. But great business, great business, and it comes with a wonderful relationship with Viva Energy, a local refiner. And we've already had expressions of their support and signed a distribution agreement, which will be active upon completion of that purchase. I'll say that, that gives us a new capability. So this is another way an acquisition can improve Redox. They've got a site in Western Sydney, in Wetherill Park. It has underground bulk tanks. It has special drumming and blending facilities. They have a bulk truck that we can use to deliver goods. So another dimension, another capability. So these are different ways we can grow and improve Redox, and we're excited. They've only got 1 salesperson at the moment. We have hundreds, literally, that would love to get these products to sell to their customers. We have a pipeline behind that. And as I was mentioning before, they're in new products, new industries, new areas, new geographies, and we're continuing to work on those. The only other thing to say here is our north star is, can we improve this business? Is there a quick win from the synergy of our people, our platform, Redebiz, and the business? Can we grow? And so that's our north star, and is it value accretive for shareholders, of course. Over to the FY '24 highlights, please. Ian already mentioned some of this, but I'm going to read it again because I'm so proud. $94.8 million underlying NPATFX, that's 11.4% growth versus PCP. A very strong gross profit margin of 23.4%, this is 2.6 percentage points above PCP. And again, this is due to the way we push our salespeople to get small clients. That's our most profitable business. So it's a fantastic dynamic, and our people respond really well to our direction. Underlying EBITDAFX margin, 12.2%. I think if you look at our listed peers, you'll be very impressed by this number. It benchmarks us very well against them. Cash flow, again, strong. Pro forma basic earnings per share growth, 11.8%, also very impressive. And as Ian said, a strong dividend, which is very important. Over to Page 12, please. But yes, of course, revenue did fall. That's largely out of our hands and pretty normal in our business to talk a little bit about this. But this is because there was a run-up at COVID, and this is now the tail end. We think about prices falling to about whereabouts they are right now in about October last year. So we've got FY '25 Q1, there's still a little bit of that passing higher comps in pricing. So from Q2, there won't be that as a background. On to outlook. During FY '25, we're going to continue to expand our geographic footprint in North America; bolster our product portfolio, as I talked about earlier; increase our share of wallet, and there's a lot more to do on that as well, and our client base. Our strategy, our resilient business model, has delivered consistent long-term growth and business expansion. The fundamentals of the Redox business are strong and remains well placed to grow into the future. I'll now just pass you back to Ian. Thank you.

Thanks, Raimond. And just a few extra comments on that is that, whilst these acquisitions have been in Australia and New Zealand, don't think for a minute that we haven't had, in our pipeline, a number of opportunities in other markets, particularly the U.S. And a number of early discussions have been held with a number of companies. But at the same time, we're in no rush. It's got to fit in with what our strategy is. Firstly, you know that our footprint in the U.S. is already selling into 35 states, to give you some example, we're not there just having coffee, we're right into that market. So now we're going to have a look at the formal part of the business, and it's in line with the notice that was sent on the 9th of September. If there are no objections, I'm sure there won't be, we'll take the notice statement as read. Shareholders should note that it's my intention to vote all open and undirected votes available to me in favor of the resolution. And as Chair, I hereby demand a poll in respect of all resolutions, 1 share, 1 vote. When voting on all resolutions is complete, the results of the votes will be released to the ASX as soon as practically possible following the conclusion of this meeting. I've been advised by Computershare's share registry that 89 valid proxy forms have been received from shareholders who are accordingly declared present by proxy at the meeting. Richard Powell from Computershare has been appointed as returning officer, thank you, Richard, of the meeting today to conduct the polls. And I now instruct Mr. Powell to formally open the poll. If you go to Slide 15, so you can see on Slide 15, time to absorb it all that this is how you vote. Poll is open, select the icon, for and against, vote confirmation, change if you so wish. Wait a little moment for that. Into Slide 16, this is how you ask a question for those online. [Operator Instructions] Okay, next slide. So they're the items of business we're going to go through here. And at the end of this, we'll obviously have open questions. So item 1, the purpose of the AGM is to consider the financial -- by the way, I forgot to acknowledge the attendance of our beloved auditors that we fight with regularly, Deloitte, and also our lawyers who we just pay lots of money to, Herbert Smith. Thank you. Now the purpose of the AGM is to consider the financial report of the company and to consider and, if thought fit, pass various resolutions regarding the adoption of the remuneration report, reelection of directors and the grant of performance rights. First item of business is to receive the financial report, directors' report and auditor's report for Redox for the period 1 July 2023 to 30 June 2024. There was no need for shareholders to formally approve these reports. I will now take shareholder questions on the financial statements to the Board or Deloitte as auditors, remembering they're in relation to the audit and their process. Any questions from shareholders? Written questions? Questions to the moderator?

There are no questions online.

Thank you. So I'll now move to the formal resolutions. Redox had proposed the following resolutions to be put forward to the company's shareholders for voting. Note that on some votes in which a director has a personal interest, the Board unanimously recommends that shareholders vote in favor of these resolutions. Item 2, a nonbinding resolution, remuneration report. Proxy results are on the screen. Resolution is to consider and, if thought fit, pass the resolution as a nonbinding ordinary resolution of the company. And for the purposes of Section 250R(2) of the Corporations Act, the remuneration report for the year ended 30 June 2024 be adopted. I note that vote on this resolution is advisory only and does not bind the directors or the company. A voting exclusion statement applies to this resolution. Refer to the notes related to the voting contained in the Notice of Meeting. Are there questions? Are there any questions from shareholders in the room? Any written questions we've received? Questions through the moderator?

There are no questions online, Chair.

Proxies are there, and voting is now open. For those that have not previously voted, please cast your votes now. As the next item involves myself, I'll invite Mary, an Independent Director and Chair of People and Safety Committee, to take the chair.

Thank you, Ian. The next item of business is to consider and, if thought fit, pass the following as an ordinary resolution of the company, that Mr. Ian Campbell, a Director of the company, who retires by rotation and, being eligible, offers himself for reelection, being reelected as a director of the company. Before I go to questions, I'd just like to comment on the Board's view that, whilst Ian has been working with Redox as an independent director for a long time, he is still very much independent. When we went through the IPO process, we've discussed this at length with our auditors, our advisers and agreed that he is not involved at all in day-to-day and is definitely independent and nothing has changed since we've listed. So are there any questions regarding Ian's independence, from the floor or from the moderators? Let's view the results. The proxies are on the screen. If there are any other votes, can they please be cast now? Thank you. Thank you, Ian.

I'm a lot younger than any of the people standing for election in the U.S. and fitter, and I have a black belt. Okay, proxy results for item 4. This is in respect of the rights. Consider and, if thought fit, pass the following as an ordinary resolution of the company that and, for the purposes of ASX Listing Rules 10.14, to approve the proposed grant of performance rights under the company's performance rights plan to executive directors, Raimond Coneliano, Renato Coneliano and Richard Coneliano. A voting exclusion statement applies to this resolution referred in the notice. Are there any questions from the shareholders in the room? Any written questions? From the moderator?

There are no questions online.

I might add just as additional information that there were some questions before from a couple of shareholders who are saying it's slightly different to the way other companies issue performance rights. In other words, the price that are allocated to the rights -- the rights are set at the start and they're paid out at the end of the vesting period. We chose to cap the amount that's going to be paid out. So for example, if the shares hit $3.50, then only $800,000, all up, would be allocated to Raimond, in this case. If it was at $3.50 and they got $400,000, it would be $1.4 million. So the capping actually brings a certain conservatism. And of course, to be eligible for the rights, vesting conditions have to all be met and substantially, the only one related to total shareholder value. Voting is now open for those, so please cast your vote. And that completes the formal part of the business. Next slide. And a partner from Computershare team will now come around and collect your voting cards from those physically present. For those shareholders attending virtually, online voting will close shortly. Please submit your online votes now if you have not already done so. Thank you, Richard. This completes the formal part of the meeting, and so I declare that the poll and voting is now closed, and I ask that the returning officer count the votes. Results of these votes will be released to the ASX as early as possible following the conclusion of this meeting, which now leads on to a final part of the meeting, open Q&A. So first of all, from the room, any questions for Raimond and myself?

[indiscernible]

Raimond?

We make no apology, obviously. For the reasons you outlined, I mean, there are products that are dangerous if not handled correctly and people have to do their best. But also, we have to rely on each other, and that's important.

Other questions from the room?

[indiscernible]

One of the major strengths that we have is we have stock on hand ready to be delivered to customers. So if you're a manufacturer and you're relying on one of our competitors to deliver you stock and there's a holdup in shipping lanes or whatever, you can't make your stuff, so they come to Redox. And it's like going to your dentist. Once you moved, you're happy, why would I want to go back. So we've had a very good successful run principally because we've always had lots of stock, lots of capacity to store more, and lots of financial capacity to buy and invest in it.

Could I add one thing to that? It's not like going to the dentist because it's not painful to deal. I don't like the dentist.

Okay. Any more questions from the room? Yes.

[indiscernible]

Well, let me just say to you, Redox has always been a conservative company to the extent that over many years, any dividends that were paid out, the family would reinvest it back into the company, right, rather than in alternative asset pools. So cash has always been a big deal for us. At the moment, we've obviously got a substantial amount of cash following from the IPO, but that's also earmarked for these acquisitions that we're doing and also just general expansion. We've got our next strategy review, well, later in the month when we're going to take all these things into account. But the roll forward of the cash flows are always there before the Board on a monthly basis and they're rolled out a few years. Perhaps the last question, I apologize for those online. Last question was in relation to what are we going to do with all this money we've got and do we roll out and get rid of it all? Well, the real answer is that we're a conservative company regarding looking after our financial assets. At the same time, we're quite happy to invest where we think we're going to invest. And the money that's come from the IPO, substantially still there, will be earmarked as we go forward in relation to investments and increasing our stockholdings. Apologies again. From the moderator?

No questions online, Chairman.

None? Okay. Last chance, anybody want to make any other comments? All right. All I can say is that, as a shareholder, you've invested in a very, very strong company with a long history of continually making profits, paying dividends and always having cash to see the next day. All right. Thank you very much. I'll formally close the meeting.