Redox Limited (RDX) Earnings Call Transcript & Summary

Well, good morning, everybody. Thank you for stepping out for the AGM of Redox and welcome. My name is Ian Campbell, I'm the Chair of the company and have been since the company floated in 2023 and very pleased to see you here today. Just after 11:00. So with that, I'll inform the Company Secretary that we've got a quorum present. Pleased to declare the meeting open. As for the agenda, the format of the meeting will commence with a brief introduction of my fellow Board members and company representatives, then pass over to CEO Raimond, to provide an overview of the company. and we'll progress to the formal business of the meeting, allowing time for questions on the way through. Introductions. We've got here Raimond Coneliano, the Managing Director and CEO; Renato, beside him, the Executive Director and Marketing Manager; Mary, the incoming Chair and Non-Exec Director; Garry Wayling, a Non-Executive Director; and we've got my friend, the CFO or sometime friend, Kim Yap; and Company Secretary, Erika, of course; and Sheila online. And Sheila is the new Director and we'll say hello to Sheila, wherever you are. Just a few comments on my role as the Chair. This has all been sent to the ASX already, but I will just go through it. So everybody is fully aware of what I was saying. It has been another strong year for Redox with the company achieving record revenue and strong profitability despite the subdued operating environment. Sales revenue growth was primarily organic and volume-based as higher replacement prices only started to be felt during Q4. Gross profit margins increased as product mix improved, and we were rewarded for helping clients navigate more volatile market conditions. As a result, I'm pleased to say we delivered a 20% increase in earnings per share. For FY '26, the Board declared total dividends of $0.13 per share, 4% higher than FY '25 and represents 74% of net profit after tax, which is comfortably within our stated policy, dividend policy of 60% to 80%. While our business continues to deliver consistent returns, we recognize future growth will not come from business as usual alone. Although no acquisitions were completed during FY '26, I can assure shareholders our domestic and international opportunity pipeline remains very much active. This includes an increased focus on the strategically important North American market, where we aim to build on revenue of just over $100 million, a good effort in a short period of time with cash and cash equivalents of $123 million, 0 net debt and a conservatively geared balance sheet Redox is well positioned to fund the right or emphasize the right acquisitions comfortably. Technology continues to underpin our operation, bringing both opportunities and rapidly evolving risks. Our internally developed Redox Redebiz system is central to the way we manage and control many aspects of the business, and in particular, it supports commercial and marketing strategies that have been refined through many years' experience and expertise. We protect these systems and the valuable information they contain through a disciplined approach to cyber and information security, supported by rigorous and ongoing testing. During the year, we benchmarked Board and executive remuneration and incentive arrangements to ensure that we remain appropriately aligned with the market and shareholder interest. FY '27 performance rights for executives now contain 2 weighted performance hurdles: one, total shareholder return relative to comparative group; and two, growth in earnings per share. Board succession has also been an important focus. We announced my retirement, which occurs at the end of this meeting, with Mary Verschuer to succeed me as Chair following the AGM, together with the appointment of Sheila Lines as an independent Non-Executive Director. The Board remains strongly committed to diversity and to maintaining Redox's reputation as a great place to work. In FY '27, our focus will remain on delivering revenue growth, both organically and through acquisitions, while managing operational and logistics costs in a volatile, uncertain and inflationary environment. We'll also continue to optimize inventory and embrace the benefits of artificial intelligence where it can add genuine value to our business. Now I've enjoyed my time with Redox been fortunate to witness a long-standing family company's transition successfully to the public market, while continuing to deliver consistently strong results. It's been a privilege to serve the company and to work alongside a talented Board, the company's management team and a dedicated group of employees. I thank them all for their support and contribution. And I'll now ask Raimond to provide an overview of the company's performance during FY '26.

Thank you, Ian. Yes, I want to -- on behalf of the whole wider Redox family shareholders, the Coneliano family, especially thank Ian for his service to the company. He's been unwavering in his support and cheerleading us through many stages of the company. And again, it's been a real pleasure and for myself, a great help to me. So I want to say thank you again, Ian. Deeply respect and appreciate everything you've done. Okay, on to my presentation. So if we can flip to the next slide, we're going to sail through this is going to be the fastest part of the day. $1.33 billion sales revenue, that's nearly 7% growth versus PCP. Very good, I think, especially under the circumstances. Gross profit, very strong, up 11%. Gross profit margin above our long-term average, fantastic. And I think I'd draw you to the conversion margin, which is gross profit to EBITDAFX. This is a key metric for benchmarking whether our operating costs are set at the right amount. So for a 45% conversion from gross profit to EBITDAFX, very good, very happy with that, very proud of the company and what we've been able to achieve this year. Next slide. As Ian pointed out, increasing dividend. I think everyone is very happy about this. Also my wife is able to go out and buy another purse or bag or something, it will be gone. A car may be yes. I bought a new car recently, but a house. Well, we don't need more of those. But wonderful to see. And I guess I want to kind of share with you my thinking on dividends. We'd like them to sort of grow steadily over time, not jump up and down and around and that sort of thing we like them to be ever increasing, ever growing in a reasonable, disciplined way that doesn't surprise or shock anyone, okay? Next. So just a bit more color. I guess, I love this red graph on the right-hand side, I hope you all do too. This sort of shows you, and there's 2 bumps there in that graph. I don't know if the crowd knows what each of those bumps is. But the first one there is around 2008, 2009, that's the GFC. The second one is COVID. And you can see that in bad times, this company does even better, which is great. It's a great thing. It's a very resilient business. And we've shown over the very long history of the company, more than 65 years now. that the business can sail through any kind of short-term pain in the economy or geopolitical issues around the world. Our North American business grew to over $100 million for the first time, which is fantastic. Maybe we can jump to the next slide. So increasing 33.8% is quite good. We had good wins in Canada, one of our key expansion markets. Early days, but we're excited about that market. And in Australia, where the bulk of the business still sits, we grew into the energy generation and transmission area. It's one of the key megatrends that Redox has been following is the investment in reinforcing the grid and renewable power and data centers. And this transformer oil acquisition helps us picks and shovels kind of way get involved in that sort of area as well. Next slide. I think you've all seen this before, so probably not super exciting, but these days we're servicing almost 9,000 active customers from -- with a team almost in dedicated employees, more than 1,200 product groups, 5,500 SKUs are still a lot more room to grow. A lot more products we're doing. I think I was telling someone at the full year that we're now doing $1 million of garlic powder or tried to or have mutual -- what a fascinating business that we can be selling transformer oil and garlic powder. But that's the sort of the diversity of the business. It's quite exciting. And yes, more to come. Next slide. To give you an update on this financial year, as some of you would have heard the full year our inflation that's being generated principally by what's been going on in the Middle East, but also other places and is sort of starting to trend into our prices. So the end of FY '26. We started to see that effect come through but not much. Here in Q1 FY '27, almost 9% or roughly 9% higher prices than the same time last year. Volumes sold were broadly in line with this period last year. The other thing we're seeing is a rise in inward sea freight sea freight is getting a little bit more difficult to project with everything that's going on in the world. Outbound freight costs are increasing, of course, with the higher fuel costs, diesel. And very reassuringly, gross profit margins have remained very resilient and above the FY '26 mark of 22.4%. So all good. I think we're going to have a great year. I think shareholders should be excited and happy with the way the business is trading. And yes, I think the other thing to say is in the news lately, it's been a lot about productivity. Australia is in a productivity crisis. Why are we more productive? And I think Redox is one of those companies with such a broad set of products that can solve so many different problems and improve our customers' businesses and improve their processes and be the picks and shovels to help the energy industry, but also recover critical minerals and generate a lot of growth and economic growth, true economic growth. And that's exciting. And I think as shareholders, as employees as suppliers and customers, I think we're all very excited about the future here in Australia. So I'm not worried about productivity growth. I think, at least from a Redox perspective, we've got a play into this and be the enabler to unlock that growth. So we're excited about this year. Next. So on to Q&A and myself and of course, everyone here is available to you if you've got any questions. Yes.

You are largely a distributor. Given that it is a diverse business, is there any impact at all much from any particular customers or suppliers? And do you have long-term contracts locked in for those customers and suppliers? Or is the business just so big in the -- sorry, the diversity of the business is so great that you're not going to be impacted by the loss of any customer or a supplier?

I love it when the person asking the question answers the question almost, that's wonderful. It saves me a lot of time. that's true. I mean the thing we love about Redox is its diversity. We can't claim to be the out-and-out leader of fertilizers able to crush enemies under our boot or anything like that. But we can be players in lots of industries in lots of products and lots of customers deal with lots of suppliers. No 1 customer is more than 1% or 2% of our revenue. No supplier is more than 1% or 2% of our revenue. So -- and when we're looking at M&A targets, for example, that's what we look for as well, a diverse supply list, a diverse customer list a large number of transactions because as you're probably worried like I am, if you pull one thing out like a Jenga tower, does it fall over. And with Redox, that's not an issue. And actually, from a macro standpoint, we have lots of industries as well. So at the moment, the plastics business for Redox quite frankly, is not doing too great because a lot of our supply was out of the Middle East. But luckily, the animal health industry is doing really well and so on and so forth. So you have these sort of swings and roundabouts. And Redox is uniquely placed to sort of benefit even despite swings in 1 industry, 1 product, 1 supplier, 1 customer.

I'm very pleased with the share, and I like the dividends too, at that level, that would be very nice, equivalent to the bank rates, et cetera. I'm just wondering, have you stockpiled a lot in anticipation of price increases -- and if your stockpile goes down and prices of everything has gone up, whether it's transport or whatever, are you expecting any pushback from your customers looking for cheaper supplies or less or along those lines?

Thank you. Thanks for the question. We don't stockpile is the answer, basically. Typically, of the goods that we sell are sold before we even go buy them from our suppliers. So actually, it's only 15% of the goods we buy don't have a home when we buy it. So that 15% is the buffer for customers who come out of the woodwork at the last minute and want to buy a few drums of this or a few drums of that or customers who forecasted 10 tonnes, but actually will use 12, something like that. So in answer, we don't take big risks. We're mostly back to back our orders and our sales. So we don't benefit a lot when things move 1 way, and we don't really lose at all when it moves the other way. So we have a little bit of the benefit we capture that 15% if prices are heading up. But because of the way you have the time from where these goods are made in Australia or New Zealand, typically, that can be months. So if a price changes, that 15%, we can actually increase the price before the goods actually will arrive or sell it very quickly if we think the price is going down. So that way, we're not ever stuck with a lot of goods. And typically, we may write off or write down the stock by $1 million, a couple of million dollars a year. So not a very large amount.

Just curious what the effect of U.S. tariffs has been?

Yes. Yes, it's a good question. And it's counterintuitive, actually, because you may think, well, Redox do a lot of importing, therefore, tariffs bad. But the true the true state of things is a bit different because what tariffs do is change the landscape of which supply may or may not be competitive. Maybe it's a local supplier, maybe it's an overseas supply, maybe it's Korean. Now it's actually Japanese or Singapore or whatever. So as a new entrant to the U.S. market, tariffs and a lot of churning in the market is quite positive for Redox because it dislodges current supply and then people are forced to look for alternatives. And one of the things Redox is really good at is being agile and finding sources to help customers through that sort of problem. So a good example is, last year, we had about $100 million plus of sales A good portion of that would have came because there were shortages or dislocations in the market. Yes?

You mentioned address -- you mentioned Canada very quickly in passing, I heard that you said something about exciting. Can you expand on that, please?

Yes. I've taken a trip to Canada recently. It is my first time. It's a lovely country. It feels very much like they're colder Australians in a way. Sympatico, a similar rule of law and lovely people, a really great market with a lot in common with Australia, right? Not a lot of domestic manufacturing, interesting critical minerals space, quite a similar industry split, a lot of agriculture and animal feed. And look, I think it's a good potential market. We're selling there now. We've got business in Canada is set up. We don't have any staff locally, but our U.S. staff is selling into Canada. And it's one of the markets in North America, we're looking at closely.

[ Brian Allison ], shareholder. Just thinking about the American market, and your suppliers and distributors and whatnot. Are you as diverse in your American expansion as you are in Australia? Or are you specializing in some areas?

Yes. Yes, it's a good question. I think we're just -- we're starting from a small base. So we're growing continentally in percentage terms, but we have to kind of do it methodically so that we don't spread ourselves too thin. I think we've concentrated our efforts in particular markets, and we've done really well in the food industry, for instance, the beverage industry. But we're working our way through every applicable industry. And we just found we may be initially more competitive in some than others. So we'll concentrate on the ones we're hitting goals first. But it will be a long time before as diverse, for sure.

I imagine it will never be as diverse in America as it is in Australia.

I don't know. I mean I'm an optimist, everyone who knows me, I'm the eternal optimist, but you have to be the sales guy. But we could make an acquisition and have a lot of diversity very quickly. And that might be one of the real great reasons to make an acquisition to sort of bring it to be more mature very quickly and with some experience in industries we don't currently service in the U.S. Yes, even a niche is very large.

Yes. Well, good luck with the takeover there.

Any questions? Written questions questions either on the phone or online? Wonderful. I also want to say again that I presume Mary has been confirmed, but I don't know, it's a formal business. Mary Verschuer is the pronunciation of her surname. Ian forgot. She's wonderful and assuming she gets elected in the next few slides, very happy that she's chosen to to take up the Chair's position. And I'm equally as excited about Sheila's appointment, assuming that's confirmed again today. They're both fantastic people, and I'm sure you'll love having them in their respective roles going forward. Yes. Howard?

Sorry, Raimond. We have a question from Mr. Stephen Mayne.

Yes.

Stephen has asked. Australia has the world's highest minimum wage. And this federal government has produced a number of new laws in the industrial relations space, which have hurt productivity. What is our overall level of engagement with the union movement? What proportion of our staff are unionized? And how many registered enterprise agreements do we have?

Zero is the answer. Again, I think I'm very buoyant about Redox how it can contribute to productivity. I would also, at this point, since there's a question about employees, point out that Redox has been certified as a great place to work by The Great Place to Work organization in Australia, New Zealand and the U.S. We missed out Malaysia because we haven't got enough employees, but they're all very happy, excited employees. And yes thanks, Stephen, for your question. That's it. Okay. All right. I'll hand it over back to Ian.

I might start by apologizing to my good colleague, Richard Coneliano over here, the Chief Operating Officer and Alternate Director. And we're very fortunate to have the signing partner, Andrew from Deloitte here if his services in answering questions are needed. So now we're going on to the formal part of the meeting, and I thank you for your participation to date. It's in line with the Notice of Meeting of the 27th of August. With no objections, I'm going to take the Notice of Meeting explanatory statement as read. You'll have the opportunity to ask questions, of course, as we proceed. Shareholders should note that it's my attention to vote all open undirected votes available to me in favor of the resolutions. In other words, no news is good news. As Chair, I hereby demand a poll in respect of all resolutions. When voting on all resolutions is complete, results of the votes will be released to the ASX as soon as practicable, possibly following the conclusion of the meeting. I've been advised by Computershare share registry that 119 valid proxy forms have been received from shareholders who accordingly declared present by proxy at this meeting. Richard Powell from Computershare has been appointed as a returning officer at the meeting to conduct the polls. I now instruct Mr. Powell to formally open the poll voting cards for those in physical attendance will be collected at the end of the meeting. Let's go through the voting instructions, so there's no misunderstanding. In accordance with the Regulation 7.11.37 the Corporations Regulations 2001, the Board has determined that persons who are registered holders of shares in the company, 7:00 p.m. Australian Eastern Standard Time, Monday, 5 October, will be entitled to attend and vote at the meeting as a shareholder. Share transfers after that time will be disregarded in determining entitlements to attend and vote at the meeting. If more than 1 joint holder of shares is present at the meeting, whether personally by proxy or by attorney or by representative, and tenders to vote only the vote of the joint holder whose name is first on the register will be counted. Voting will be conducted by way of poll, whereby shareholders have 1 vote for every fully paid ordinary share subject to restrictions on voting referred to below. A vote withheld is not a vote in law, which means the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting as he or she thinks fit in relation to any other matter which is put to the meeting. In relation to the proxies I'm holding as Chair advised that the member has directed me to vote in a certain way I will vote in accordance with that direction. If I've not been directed to vote in any way, I intend to vote in favor of the resolutions. All resolutions are ordinary resolutions, meaning they can be passed by a simple majority of votes cast by those entitled to vote. On Slide 13, there, you'll see just refer to instructions displayed on the screen on how to vote via the online platform. Does anybody here have a problem is how to vote? Right. Slide 14. Once again, instructions how to ask a question. I think you're familiar with how to go about asking a question. And then Slide 15 will hold for the duration of the meeting. So item 1 is the nonvoting resolution on the financial report. The purpose of the AGM is to consider the financial report of the company and to consider thought for past various resolutions regarding the adoption of the remuneration report, reelection and election of directors and the grant of performance rights. The first item is to receive the financial statements, directors' report, auditor's report for Redox for the year to June 2026. While there's no need for shareholders to formally approve the reports, I will take questions on financial statements to the Board or Deloitte as auditors. Are there any questions on the financial statements? No questions from the moderator. Any questions? No questions. I'll now move to the formal...

Sorry, there is a question online, Chairman. From Mr. Stephen Mayne. Thank you to Ian Campbell for his leadership as Chair through the float process. It is always helpful for investors to have access to some exit perspectives from retiring independent directors, particularly Chairs. Could Ian please comment on what you regard as the 2 best decisions Redox made during his time as Chair. And if he had this time again, would he do anything differently?

Thank you, Stephen. Well I think the first thing that I've been able to bring to the Board, particularly the family members, is that -- you know a lot of stuff, but there's a lot of stuff you don't know. And that stuff is usually greatly assisted by bringing outside expertise. You don't have to do everything yourself. That's the first thing, which I think has been picked up because the word consultant from Raimond's father Robert is a dirty word, and we never use it at Redox. We don't use consultants. We'd rather use Google before we use consultants. Nevertheless, they did take that advice. The second thing is that whilst our long-term objective was to grow by 10%, as we got bigger, I impressed upon the Board you won't get there simply by generic growth. You've got to constantly be looking at the worldwide market. You've got to look at opportunities to acquire our businesses that fit in culturally and strategically with your long-term aim. So I think there are 2 things that I've certainly brought to the company. I will tell you that my whole time that I've been with Redox has been very amicable. We haven't had any standup fights. We've had stand-up arguments, but not fights. And without a doubt, I'd have no hesitation in renewing my association with the company, putting aside my age. But realistically, I've also been on the basis of all the companies I've been involved in you have to have an orderly succession to all key positions. And we do have, not only at Board level, we're going through what's going to happen with the people you see at the front table, but also with the key executives. The succession plans right throughout the company. to enable us to continue to grow successfully and to continue to pay dividends as we have done to date. Thank you. Proxy results for item 2, might put them to Slide 16. No questions of the auditor, can we leave it read out. Yes, it is a bit small. The percentages are for, 100 -- I'll just round it, 113 million. Percentages, 98%. 98% for, 1% against. Item #2, remuneration report to consider and if thought fit pass the following as a nonbinding ordinary resolution of the company. Now for the purposes of Section 250R(2) of the Corporations Act, the remuneration report for the year ended 30 June 2026 be adopted. I note the vote on this resolution is advisory and does not bind the directors or the company. A voting exclusion statement applies to the resolution refer to the notes relating to voting contained in the notice of meeting. But are there any questions in the room? Moderator? None.