RPMGlobal Holdings Limited (RUL.AX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. As the time is 10 a.m. here in Brisbane, I want to welcome everyone online to the 2024 Annual General Meeting of RPMGlobal Holdings Limited. My name is Steve Baldwin, and I am Chair of the Board of RPM. As we have a quorum, I now declare the meeting open. Today's meeting is being held online via the Computershare platform. This meeting platform allows shareholders, proxies and guests to attend the meeting virtually. Shareholders may participate in the AGM via the online platform from their computer, their smartphone or their tablet by entering the URL detailed in the Notice of Meeting and deal browser. The online platform allows RPM shareholders to view the meeting presentation, to vote and to ask questions in real time. Further information regarding the online platform, including how to participate, to vote and to ask questions during the meeting, is set out on the slide and is also attached to the Notice of Meeting. [Operator Instructions] Finally, due to time constraints, we may not get to answer all of your questions. And if this happens, we will endeavor, wherever appropriate, to answer them in due course via e-mail and/or ongoing disclosure to the market. A reminder on how to vote will be displayed in the presentation when we reach the formal business part of this meeting. With those formalities now complete, I want to formally welcome you to the RPM 2024 AGM, which has been called under the Notice of Meeting that was issued on 16 September 2024. I propose the Notice of Meeting be taken as read. In RPM's Brisbane head office, here today with me are my fellow directors consisting of Chief Executive Officer and Managing Director, Richard Mathews.

Good morning.

Non-Executive Director, Angeleen Jenkins.

Good morning.

Non-Executive Director, Paul Scurrah.

Good morning.

And Non-Executive Director, Ross Walker.

Good morning.

Key management personnel are also in attendance at today's meeting. From RPM's Brisbane office, we have James O'Neill, our Group General Counsel and Company Secretary.

Good morning.

And Michael Kochanowski, our Chief Financial Officer.

Good morning.

Mr. Cameron Henry, RPM's audit partner from BDO Audit, is also present in our Brisbane office here today.

Good morning.

Before we proceed with the formal items of business, our Managing Director and CEO, Rich Mathews, will provide a short update on the RPM business.

Thanks very much, Steve. So good morning again because we had a fair share of that. So hi, everyone. Well, what a difference a year makes. We obviously had a very good year in the previous year and the share price didn't move. We had a good year this year and the share price doubled. And so it's always nice coming to an AGM where the market cap has doubled. This time last year, it was about $328 million. And as of yesterday, or a couple of days ago, it was $660 million. So a huge improvement. That takes into account that we actually bought stock and removed them from issue, about 3.7 million shares in the last 12 months. So I think the result, all of our shareholders can be happy with. So I was looking forward to the day. So now that increase in share price and increase in market cap saw us be admitted to the ASX 300 Index at the start of September. And it really is a result, I guess, of a lot of work by a lot of people, current and past, and it's something that we're really, really proud of. It has meant that we have our new shareholders come into the register, which is a real positive for the business. Last year, we sold $77 million worth of software, which was up 9.2% on the previous year. And interestingly, 53% of the software sold, about $41 million of software was sold under a global framework agreement. Now we've got a couple of questions, which have come in already, and there's a couple of questions on global framework agreements, which I'll expand on later in the meeting. But these are agreements which are between ourselves and large organizations. Given that 53% of our software is sold under 7 global framework agreements last year, you can really see the value in them. It's something which is important to the customer. It's important to us. And I'll talk about that a little bit more later in relation to the questions. We have added 3 additional global framework agreements this year so far with 3 of the largest gold miners in the world, and they provide a facility for those customers to buy software and advisory services. So while I quoted the software percentage, these can also be used in advisory as well. In essence, the GFA is an acknowledgment that we're a valued provider or a trusted supplier to the major mining companies and that we do what we say that we're going to do. I want to talk a little bit about XECUTE. Again, there's a couple of questions about XECUTE. I have been talking about those for the last couple of years, and I believe that calendar year 2005 will be the inflection point for that product. Some of the world's largest miners are putting XECUTE through its paces right as we speak. And we believe these pilot projects will cement XECUTE as the go-to product in the ultra-short-term space, which is currently serviced by internal customer systems. We also just recently released our Open Pit Design product, and the response to that has been nothing short of spectacular. We started showing some of the prototypes to the user groups over the last 6 months. And in Indonesia, for example, we had a standing ovation, which is the first time I've seen it with a product release. We've now taken that product out to some of our largest customers, and they're very, very happy with it. So if someone wants to ask a question about that, I'll go into that in a little bit more detail. It's a different way of building a design. It's a parametric approach. And it really replaces what's historically been a very slow, repetitive, and iterative sort of manual process, which we think has had its today. So while it's still fresh out of development, it will be interesting to see the customer uptake on that product over the next year or so. I think it's going to go gangbusters. Having said that, the software division wasn't the only division that had an excellent year. Our advisory division increased revenue by 20% or up $6.2 million on the previous financial year. That team really has a great and respected understanding of the batteries and critical minerals market. And again, they've gone off to a great start. I just approved another 7 heads for that business yesterday. So it's a business which is growing, and growing quite quickly. In terms of underlying EBITDA for last year, we achieved $15.3 million, up 28% from the previous year, $12 million. And in May, the company announced its intention to extend the current on-market share buyback, which started in May 2022, for another 12 months, which is a major part of the company's ongoing market capital strategy. I can confirm to date that the company has acquired 15.6 million shares at an average share price of $1.81. So we've invested over $28 million in that important capital market management initiative. The Board met earlier this morning, and we are comfortable reconfirming our 2025 financial year guidance, which is total revenue in the range of $120 million to $125 million, operating EBITDA in the range of $17.5 million to $19.5 million, and profit before tax in the range of $12.5 million to $14.5 million. I'll now return control of the meeting back to Steve.

Thank you, Richard. I'll now proceed with the formal part of proceedings. I may note that once we've dealt with these formal items, Richard will address some of the operational questions that we have received from shareholders. The meeting has been called under the Notice of Meeting, which was issued on 16 September 2024. Voting today 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 the first 3 resolutions. Voting on the final resolution, being the conditional spill resolution, will only be opened if votes and proxies received for the first resolution, which is to adopt the FY '24 remuneration report, are 25% or more against the resolution. At that time, if you are eligible to vote at this meeting, a new voting icon will appear. 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. A tick will appear to confirm receipt of your vote. You do, however, have the ability to change your vote up until the time I declare voting closed. I now declare voting open on the first 3 resolutions. The voting icon will soon appear. Please submit your votes at any time. I will give you a warning before I move to close voting towards the conclusion of today's meeting. The first item of business is to receive and consider the financial statements and the reports of the directors and auditor for the year ended 30 June 2024. Please note there is no voting applicable on this item of business, instead this item gives you, as shareholders, the opportunity to ask questions via the platform about the company and its operations. Any questions in relation to the executive remuneration policies will be considered when we come to the next item of business, which covers the adoption of the remuneration report. Questions may also be asked of our auditors, BDO, in relation to the conduct of the audit, the content of the audit report, the accounting policies adopted by the company and the independence of the auditor in carrying out the audit. As such, I would be pleased to take any comments or questions via the platform you may have in relation to the audit, the financial report, the directors' report or the operations of the company. We have not received any written questions for the auditor prior to this meeting. And as such, I will now pause to see if there are any questions relating to this matter on the portal or on the phone.

Steve, we've received two questions on this item of business. The first question received on behalf of the Australian Shareholders' Association is in respect of the method of the meeting held today. ASA noting on the survey of its members that it prefers a hybrid meeting as compared to a strictly virtual AGM to enable all shareholders full participation and face-to-face accountability at the AGM. Would the RPM Board consider a hybrid meeting format?

Thank you for the question, I note, from David. We certainly held traditional AGMs pre-COVID when we're a much smaller company. I think now that we're in the ASX 300, we will consider it for next year. We will canvass people.

Second question on this side of our business states, again, from the ASA, congratulations on FY '24 performance. Now that the share price has risen significantly and looks expensive on PE and based on future cash flows, is a share buyback program still the best use of the company's surplus capital over an unfranked dividend?

Once again, thank you for the question, David. Look, we continually assess capital management at the Board level. Shareholders may have noted that we have not bought back any shares in the past 7 weeks since late August. We got admitted to the ASX 300 in the month of September. And we will continue to assess the best uses of our cash going forward, which includes paying dividends versus share buybacks.

Chair, there are no other questions on this side of the business.

Thank you, James. As there are no other items, we'll move to the second item of business, which is the remuneration report. Our next item of business is a nonbinding advisory vote on the adoption of the remuneration report. The proxies that have been received for this resolution prior to today's meeting are now being shown on the presentation slide. The directors have prepared a remuneration report for the 2024 year, which is included in the annual report that has been made available to shareholders. The Corporations Act requires companies to put to shareholders a nonbinding vote to enable shareholders to voice their opinion on the matters in the report. In line with the legislation, this vote will be advisory only and will not bind the directors of the company. However, the Board will take the outcome of the vote into consideration when considering the remuneration policies applicable to the company. At the company's 2023 Annual General Meeting, 26.28% of the votes were cast against the resolution to adopt the remuneration report for the financial year ended 30 June '23, the '23 remuneration report, meaning that the company received what is commonly referred to as a first strike. Under the Corporations Act, if 25% or more votes are cast against this resolution, to adopt the remuneration report, the company will receive a second strike and shareholders will be required to vote on resolution 4, known as the spill resolution. The company certainly took its first strike seriously, has engaged with shareholders, including during open investor briefings that were held in both February and August of 2024, to explain the rationale for the company's executive remuneration strategies, in particular, the rationale for having short-term incentives linked to growth in TCV from software subscriptions and how TCV delivers long-term shareholder value. The company has also ensured it's engaged with shareholders, noting that at the 2023 Annual General Meeting, the total votes cast represented only approximately 40% of the company's shares then on issue, and several large shareholders voted for the resolution but missed the proxy cutoff date, meaning their votes were not counted. If those votes have been counted, the company would not have recorded a first strike. The Board notes on an average over the past 5 years, it has received a full vote on the equivalent of this resolution of greater than 96%. The FY '24 remuneration report is contained in the company's annual report, which is available on the company's website, and it explains the Board's policies in relation to the nature and the level of remuneration paid to directors and other KMP within the RPM Group. It discusses the link between the Board's policies and the company's performance. It sets out the remuneration detail for each director and for each other member of the company's key management personnel. And it makes clear that the basis for remunerating non-executive directors is distinct from the basis for remunerating executives, including executive directors. The company did not receive any specific feedback at that AGM nor during the year on its remuneration policies. I'll be pleased to take any comments or questions via the platform that you may have in relation to executive remuneration policies or the remuneration report. And as such, I will pause now to see if there are any questions relating to this matter on the portal.

Thanks, Steve. So we have one question on the portal. It's actually in two parts, but I'll read the question in full. The first part of the question relates to the short-term incentive. It's from the ASA who prefers a short-term incentive is paid with 50% deferred and not all cash upfront. That's the first part of the question. The second part is the ASA encourages the Board to implement a second performance measure relating to the long-term incentive. However, they do note the performance hurdles in the current framework are aligned with shareholders and, therefore, support the remuneration report.

Thanks, James. I might hand this over to Paul who's Chair of our Remuneration Committee to answer that.

Yes. Thank you, Steve, and thanks, David, for the question. We're, as a Board and as a Rem Committee, aware of what's considered good practice in the ASX 300 context. So as we move forward, we'll consider that suggestion in light of that. As a part of that deferral is also related to our retention strategy, we will take it into account with how effective the LTI is. So we'll also consider the measures of the LTI, noting that the FOs that we currently do, we think are very aligned with the interest of shareholders, and noting that we have to outperform the index by 7.5% in order for everyone to get 100% of that bonus. But just in summary, we will consider both of those in the due course of governing the company.

Thanks, Paul. Steve, there are no other questions on this side of the business.

Thank you, James. So this resolution is being put to shareholders to vote by way of a poll as an ordinary resolution. Your directors unanimously recommend that you vote in favor of this resolution. I advise that all available proxies for the Chairman will be voted in favor of this resolution. I remind key management personnel and their associated parties that voting exclusions apply to this resolution under the Corporations Act, and excluded parties should not vote. As previously mentioned, the company's share registry, Computershare, will continue to tally the votes and proxies on this item to determine whether shareholders will be required to vote on the fourth resolution later in today's meeting, that being the spill resolution. I will now move on to the third item of business, which relates to the reappointment of Mr. Paul Scurrah to the company Board. Rule 19.4(b) of the company's constitution provides no director who is not a Managing Director may held office without reelection beyond the third Annual General Meeting at which that director was last elected or reelected. ASX Listing Rule 14.4 also restricts a director other than the company's Managing Director from holding office without reelection past the third Annual General Meeting following the director's last election or reelection as the case may be or 3 years, whichever is longer. Paul, who was last reelected by shareholders on the 28th of October 2021, hereby retires from office under Rule 19.4(b) of the company's constitution and ASX Listing Rule 14.4 and, being eligible, stands for reelection. Paul has more than 25 years senior executive experience in international business with transport, logistics, travel and aviation companies. He started his career in the 1990s with Australian Airlines and Qantas before moving to American Express and subsequently to Ansett Australia and Flight Centre. He then went on to become CEO of Queensland Rail, DP World Australia and Virgin Australia. At Virgin Australia, he led a strong transformation program before successfully steering the company through voluntary administration that was brought about by COVID-19. Paul is currently Managing Director and CEO of Pacific National. Paul is a former Chairman of tourism technology company, ATDW, and is a former Non-Executive Director of Australia Post, the Gold Coast Suns, and Whizz Technologies. Your directors recommend you vote in favor of this resolution, and all available proxies will be voted in favor of this resolution. Paul and the Board would be happy to take any comments or questions you may have in relation to his appointment via the platform.

Steve, I confirm we've received no questions on this side of the business.

Thank you. As there are no further questions, I move that Paul be reelected as a Non-Executive Director of RPMGlobal Holdings Limited. Looking at the screen, congratulations, Paul.

Thank you.

I will now move on to the fourth item of business. This item relates to the reappointment of Ms. Angeleen Jenkins to the RPM Board. Rule 19.4(b) of the company's constitution provides no director who is not a Managing Director may held office without reelection beyond the third Annual General Meeting at which that director was last elected or reelected. ASX Listing Rule 14.4 also restricts a director other than the company's Managing Director from holding office without reelection past the third Annual General Meeting following the director's last election or reelection as the case may be or 3 years, whichever is longer. Angeleen, who was also last reelected by shareholders on 28th October 2021, hereby retires from office under Rule 19.4(b) of the company's constitution and ASX Listing Rule 14.4 and, being eligible, stands for reelection. Angeleen has held company directorships since 2007 and has Australian and international governance experience generating shareholder value in both the public and private sectors. She's presently employed as the Chair of Central Highlands Water and a Director of Tiaki Plantations and Taumata Plantations Limited. And she was formerly an Executive Director of McConnell Dowell, which is a major multinational construction group. Angeleen has a Bachelor of Arts in Psychology and is a Fellow of the Australian Institute of Company Directors and the Governance Institute of Australia. Your directors recommend you vote in favor of this resolution, and all available proxies will be voted in favor of the resolution. Angeleen and the Board will be happy to take any comments or questions you may have in relation to Angeleen's appointment via the platform.

Steve, confirming we do not have any questions relating to Angeleen's reappointment.

Thank you, James. As there are no further questions, I move that Angeleen be reelected as a Non-Executive Director of RPMGlobal Holdings Limited. Congratulations, Angeleen.

Thank you, shareholders.

That concludes our discussion on the first 4 items of business and the first 3 voting resolutions. In a couple of minutes, I will close the voting system for the first 3 resolutions to allow the company's share registrar, Computershare, to finish tallying the votes and proxies on the first resolution to determine whether it is necessary for the company to put the final conditional spill resolution, being resolution 4, to vote at today's meeting. I will pause and provide all shareholders with approximately 30 seconds to finalize their voting. [Voting]

I now declare voting closed. We will now have another further brief pause in proceedings to allow the company's share registrar, Computershare, to finish tallying the votes and the proxies on the first 3 resolutions. Thank you all for your patience. We will resume proceedings again very shortly. [Voting]

Thank you, shareholders. Steve, Computershare had tallied the proxies and the votes for remuneration report resolution #1. And the for vote is 96.14% for today's resolution.

Thank you, James. Thank you for your patience, everyone, on the phone. As the votes and proxies against the remuneration report are less than 25%, the fourth resolution, being a conditional spill resolution, will not be required to be put to shareholders at today's meeting. So thank you all for voting. That concludes the formal resolutions of the Annual General Meeting. We have, however, received a number of questions on the portal about certain operational matters. I may ask James to read these questions out and to ask Richard, our CEO, to answer them.

Thanks, Steve. The first question is in respect to global framework agreements, or GFAs. Question is, is there typically a time lag between the signing of a GFA and the actual purchase of software and services by the customer under that agreement? And is there any particular reason why the last 3 GFAs have been with large gold miners? What specific products are gold miners interested in?

Thanks, James. Thanks, Andrew. Okay, so what a great question. The GFAs, obviously, last year, we were a little surprised about how much software we sold under those GFAs. And it did reinforce, I guess, our view of that trusted adviser, trusted supplier because, of course, in a GFA, the software can be delivered a couple of days later. There's a lot of work in them. I know I have spoken to shareholders about that before, about it can be between 9 and 12 months, the customer sends it, cyber folks in, there's a full review of the procurement prices of the commercials and all those types of things. There's a lot of efforts to put them in. That's a really good question because what generally happens is they're developed for a reason. So a customer wants to buy some software, they want to buy some advisory services. They're generally global organizations, so they want to have consistency of procurement across the whole globe. So there really is a compelling event to actually get one done. Very seldom would you just write one and agree one, and then it would sit on the shelf for 6 months. Generally, as soon as you sign one, there's license revenue or services which flow from it. In relation to those gold miners, no real driver in terms of product. One was for AMT. One was for XERAS. And one was for AMT and for XERAS in terms of purchasing software and reshaping the licenses. So the answer to the question really is, no, you sign one and it's generally software which drags straight off, and advisory. We had a great example with one of those GFAs where it actually loosened up a big advisory project, so been sitting in the procurement process for quite a while in terms of advisory. The day that GFA got signed by both parties, that freed it up, and that engagement came our way. So we think they're a really big deal. Generally, in the mining sector, Microsoft has one, SAP has one. And we think we're really the only technical mining supplier that has them. But it's really about trust between the organizations. We have strategic meetings with the customer about what we're building, what they want. So the more of those you see being signed, the more positive I am and shareholders should be.

Thanks, Richard. Second question, will AMT still be the dominant product sold in FY 2025?

Yes, another great question. I mean, I guess, a lot of people would say we've sort of been a one-trick pony for the last few years in terms of just how much AMT we've sold. I want to just assure shareholders, there still lots more to sell. Most of the big companies have purchased 21 modules of AMT, and generally, we're selling 4 or 5 of those modules. So there's still plenty of plenty of upside in terms of AMT. It's a small market. So people move around. We're finding that the sales effort associated with AMT has dropped off quite a bit. As people move to different organizations, they want those products and they've used them in the past. So AMT is still going to be a very strong product for a long period of time. However, XECUTE, I think we'll give it a run for its money pretty soon. I think there's a question coming up on XECUTE.

It's a good segue. So what is the average deal size of XECUTE, is the question.

Yes. I want to sort of explain a little bit for some of the people that may not know what XECUTE actually does. So AMT is an asset management system. We white label it for the big OEMs. So Caterpillar, Komatsu, Hitachi, and some of the other ones use it to manage the maintenance of their fleet. And obviously, we've been selling it to mining companies. So it's really tailored on maintenance of mobile and mining equipment. XECUTE is something different. XECUTE really is about the ultra short term. So it's really about controlling what happens inside the pit, where you're digging, where you're blending and those types of things. And it gives really the instructions out to the fleet management systems to do the job. So that's an interesting one. We've been building that for about 8 years. As we've been building it, the features and the functions, the depth and breadth of it, has grown. We've got a lot of Tier 2s who are using that software. Again, it's replacing really more of a meeting, right? Every day, the miners have a production meeting. You've got the maintenance guys, the production guys, the health and safety surveys with everybody else. What this is really doing is replacing that meeting. So there's quite a bit of change management associated with it. So while we've picked up a lot of the Tier 1s and Tier 2s, that product really hasn't had the depth and breadth for the Tier 1s. But now it does. And we're doing a number of pilots with the Tier 1s at the moment where they're trialing it in their environments, and it's holding up really well. So it's sort of a product which really -- and you have to get enough features and functions for the global operators to be able to operate it, who have copper mines, iron ore mines, old mines and so forth. And we've really got there now. So that's a big transaction. So it's certainly the same type of transaction as an AMT would be. So if you look at our suite of products, we got lots of products, different price points, but XECUTE is certainly at the higher end of the price point because it adds so much value. If the mine can blend and they can hit their targets, then there's a lot of money there to be made. So we're really excited about that. I don't think XECUTE will blow past AMT next year, but the following year, it's certainly going to give it a good run for its money. Very exciting, and it's one of those products which is sort of I think its time has come.

Thanks, Richard. And another question here with respect to pilot projects, both mentioned in today's speech and in the FY '24 results. If successful, how does the company quantify the sales opportunity from those pilots?

Yes, I want to be quite clear on that. I know people have asked that question before. So when we do a pilot, we don't talk about the TCV that's driven out of those pilots, right? Because most pilots, we've got 2 types of parts: one where we've already contracted for the software, so we might have a 4- or 5-year contract; but there's a part that's being conducted, and therefore, there's a termination for convenience associated with the pilot. So you won't hear us talk about those. So often, we've got a pilot we're putting into a site ourselves and the customer wants to try it, makes sure it works. Once that termination for convenience falls away, then we start talking about the TCV. So a lot of people are not convinced that's the right approach. We think it's the right approach. So in answer to your question, there will be lots of situations where we've actually got contracts, we're working on parts, but we haven't really talked about the numbers. We also got situations where customers are buying the software, right, where there is no contracts in place. So again, really, when you're talking about pilots, really you're talking about multisite, multi-commodity, multi-countries, so they're generally quite large. We're finding the copper guys are working harder on the XECUTE products, but we've also got pilots for AMT into North America. When you look at our AMT performance over the last 4, 5 years, Australia, Africa are very strong. We haven't probably been as successful as we would like to have been in the North American market. So we've signed a couple of good pilots here for AMT. And if we can get AMT into those big miners in North America, that would be a good thing for us as well as oil sands stakes. So the products aren't in any one specific commodity. We really sort of focus on what commodity products are we trying to get into what markets, how mature are we in those markets and so forth. So I mean it's going to be a really exciting year. We've got plenty of them. We're pretty excited about them. Each of them, we think, on the basis that they're successful, will lead to good revenues through the business. So yes, that's good.

Perfect. That was the last question on the portal, and I've just confirmed with the operator there aren't any questions on the phone line either, Steve, so that's the last question for today's meeting.

Thank you, James. Look, the final confirmation of the results of all votes at today's meeting, and the proxies, will be released on the stock exchange later today after they've been audited by our share registrar, Computershare. Before formally closing the meeting, I would like to thank our shareholders for supporting the company and for your continued support of the Board and the management team. Thank you all for your attendance today and for your ongoing interest in the company. We look forward to your continued support in the coming year. There being no further business, I now declare the Annual General Meeting closed.