Senetas Corporation Limited (SEN.AX) Earnings Call Transcript & Summary

Good morning. I'm Francis Galbally, Chairman of Senetas Corporation Limited. It is now 9:30 a.m. This is a properly constituted meeting and a quorum is present. I therefore declare the 2025 Annual General Meeting of Senetas open. Thank you for your online attendance this morning and your ongoing support as Senetas shareholders. Shareholders and proxy holders in attendance online today have the ability to ask questions and submit votes. Our CEO, Andrew Wilson, will provide a report on our 2025 financial results and business operations shortly. But first, I would like to touch briefly on some of the highlights from the past financial year. 2025 was a transformative year for Senetas. With the successful sale of the Votiro business to Menlo Security, we have streamlined our operations and are now fully focused on our core defense technology business, including our high-speed network encryption business and SureDrop, our secure document exchange business, which is profitable and cash generative. But we've also retained an interest in the future success of Menlo and the Votiro business within it. The Votiro business becoming part of Menlo represented a significant opportunity to accelerate the growth of the underlying Votiro business. The financial strength of Menlo and its backers, the seamless fit of Votiro in Menlo's portfolio and significant number of customers that Votiro and Menlo had in common made Menlo an obvious choice for the growth and development of the Votiro business moving forward. And the ongoing exposure that Senetas has to Menlo and Votiro via the component of consideration received in the form of Menlo shares ensures that Senetas shareholders will have the opportunity to benefit as Menlo and Votiro grow. Senetas finished the 2025 financial year in a strong cash position and with our largest ever sales pipeline. This positions us exceptionally well for sustained growth in the years ahead. The company's growth outlook is in part being fueled by significant opportunities arising with new customers in regions where Senetas has traditionally not had a large presence, including the Middle East, Asia and South America. These new customer opportunities are some of the largest Senetas has ever participated in, and whilst the timing of finalizing these large transactions can be difficult to predict, they have the potential to commence delivering significant revenue as soon as the current financial year. We have also seen in the past 12 months, as a result of the growing global geopolitical uncertainties, increasing interest from many countries in implementing their own sovereign encryption algorithms. Senetas is currently engaged with 4 countries, and we believe this may open up potentially significant revenue growth for the company. In the longer term, Senetas' strong cash position provides the opportunity for additional investments in projects such as our participation in the AUKUS submarine industrial base pilot program, our work on autonomous vehicles and pursuing opportunities for revenue growth through achieving higher security clearances for our encryption hardware devices. These additional development projects are unlikely to provide any meaningful revenue growth in the short term, but they represent opportunities to broaden the company's revenue base over time. Our strong financial health and positive outlook have enabled the Board to propose a significant capital return to shareholders along with the share consolidation that we are recommending shareholders approve at today's meeting. This is a testament to our commitment to delivering value and our confidence in the future of the business. Senetas has applied to the ATO for a class ruling to confirm whether the payment to shareholders can be treated as a return of capital rather than income in the hands of shareholders. The proposed 100:1 share consolidation should result in the number of shares on issue reducing from over 1.6 billion fully paid ordinary shares to just over 16 million fully paid ordinary shares. We have entered financial year 2026 with a clear strategy and a robust pipeline of opportunities, some that have the opportunity to provide meaningful revenue upside in the near term. And the Board will continue to review further capital management activity as cash from operations and further Votiro sales proceeds build our cash levels above business requirements. I want to take this opportunity to thank our partner, Thales, for its ongoing work as Senetas' global partner. I also thank our Board and management team and all our employees for their efforts over the past financial year. On the topic of the Senetas Board, this morning, we announced that effective Monday, the 17th of November 2025, Dave Hansen will retire from the Senetas Board and be replaced by Chris Fedde. Dave has served on the Senetas Board since August 2015. His extensive background in the global cybersecurity industry has proven invaluable to Senetas over the past 10 years, and I'd like to take the opportunity to thank Dave for his contribution to the company. Chris Fedde is well known to Senetas initially as the CEO of SafeNet Inc., which was Senetas' global distribution partner prior to its acquisition by Gemalto and more recently as the Chairman of Votiro prior to its acquisition by Menlo in February this year. Chris has had over 30 years of experience in the cyber industry, including as Founder and President of Hexis Cyber Solutions, Inc. and was also formerly the CEO of Bandura Cyber, Inc. Chris' U.S. government and defense experience and ongoing relationships will bolster Senetas' efforts in expanding its U.S. presence. Chris remains Chairman of VGM Aust Holdings, the former Votiro holding company, and Senetas USA LLC. We're thrilled to have Chris join the Senetas Board and look forward to his contribution. Now I will hand over to Andrew Wilson, our CEO, for his presentation.

Thanks, Francis. Good morning, everybody, and welcome to the Senetas 2025 AGM. This morning, I'll take you through a couple of highlights from the 2025 financial year and then move on to a brief business update in the current year and talk about strategy going forward. So the most significant development in 2025, as Francis mentioned, was the successful disposal of Votiro in return for cash and shares in Menlo. This has effectively returned Senetas to its core operating business segment that remains profitable and cash generative and has been cash generative throughout the ownership period of Votiro. And I'll get into a little bit more detail about the Votiro transaction later on in this presentation. In terms of key business financials for 2025, the Senetas business segment generated revenue in 2025, $19.3 million. This was in line with our expectations for that year but was a bit lower than the 2024 financial year. And the reason for that, there were some large-scale opportunities that may have provided revenue upside in 2025. However, the completion of these transactions were delayed beyond 30th of June. And as I've often said in the past, these larger transactions can have very long lead times, and the precise timing of those transactions is often difficult to predict given that they're mainly with government defense organizations around the world. The Senetas business operating profit before tax and noncash impairments was $3.4 million in 2025. And Senetas ended the 2025 year with a strong profitable underlying business with a record high sales pipeline. The business had $11.6 million in cash on hand at 30th of June 2025 and an indirect investment in Menlo valued in excess of $17.5 million. And we expect an additional cash inflow as a result of the Menlo transaction roughly March -- during the March quarter of 2026. So that strong cash and balance and outlook has resulted in the proposed capital return to shareholders and the share consolidation up for consideration at the AGM today. Next slide. Now looking at a bit more detail on the Senetas business segment and operations during 2025. It was pleasing to see maintenance revenue grow this year, and as a proportion of total revenue, it's roughly 50% -- over 50%. This is an annuity style revenue, so it is predictable. Most of our customers purchase maintenance as part of a product sale and renew that maintenance every year. On a regional basis, revenue in the Asia Pacific region was stable, and North America was slightly up on the prior year. However, Europe and the Middle East was down, which was a bit of a disappointment. But as I said, a few large deals, which we do expect to close in 2026 were not closed in 2025, so it may provide some upside to the 2026 result. Our R&D remains focused on the core business of Senetas. Our R&D activities this year include ongoing product certifications, both to renew existing approvals and to enhance access to new markets and security certifications; further development of our post-quantum encryption capability, which is very topical and will become more important over the next 3 or 4 years; continued development of our sovereign encryption capability, which has become an area of significant demand. And so we're seeing some pretty exciting opportunities in countries like Malaysia and Japan and Latin American countries that provide, I think, potential upside in the future for Senetas revenue growth and profit growth and other enhancements to reinforce Senetas' product capability and competitive advantage. Next slide. One of the key things in the sale of the investment of Votiro has been -- has allowed us to refocus on the Senetas core business and the product and market expansion activities that we've been undertaking, we're accelerating over the next couple of years that I think is going to generate sustained growth in the business. In addition to providing the opportunity for the Senetas Board to consider capital management options going forward, a strong cash position provides the opportunity for necessary investments in projects that will grow the -- Senetas' unique capabilities in the cybersecurity industry. In addition to the ongoing R&D investments on the previous slide that I mentioned, we're also participating in the AUKUS submarine pilot with Honeywell, and we're investing in encryption to tactical environments and platforms for potential uses in sea, air and land, that is, autonomous platforms. While some of these other developments -- development projects are less likely to provide any significant revenue growth in the near term, they represent important opportunities to broaden the company's revenue base over time. Of the current projects underway, we're seeing significant demand for sovereign encryption capability in particular, and they are most likely to produce meaningful revenue in the near term. As an example, Senetas encryptors have recently been certified under Malaysia's PKTN scheme, obtaining a Secret certification. This is the first time a product has been certified at the Secret level in Malaysia, so it's a pretty exciting opportunity to assist the Malaysian government with important means of cybersecurity and encryption protection for their sensitive information. Now a brief update on the sale of the Votiro back in -- that we made back in February 2025. The structure of the sales has been well documented. We have reported that in our ASX announcements. The Votiro business was sold to a company called Menlo. Votiro is now called VGM Holdings and retains an interest in Menlo and also a cash receivable that Senetas will receive some of. Part of the consideration was held back for up to 12 months and was conditional on the renewal of some key Votiro customer contracts, which we expect to be renewed. The first 2 tranches of cash and shares have been received by VGM, and most of that cash was used to partly repay outstanding loans to key shareholders, including Senetas. The remaining cash and shares are expected to be received in the March quarter of 2026. The total of VGM shares in Menlo, once the final tranche of consideration is issued, will represent about 1.7% of total -- Menlo's total shares on issue. And as I mentioned earlier, the Senetas share of cash still to be received is about $5 million, further strengthening our cash on our balance sheet. And Senetas' share of the total amount of Menlo shares to be received is valued in our accounts at $17.5 million. The value of Senetas' interest in Menlo shares will be updated in the half year accounts going forward, half and full year accounts going forward, and that valuation is expected to be adjusted each period depending on foreign exchange movements and the performance of the Menlo business. So turning to the outlook now. I'll provide a brief overview of the outlook of the business and progress made in 2026 financial year-to-date. The priority for Senetas in 2026 has been expanding into new markets, particularly with our sovereign encryption solutions and leveraging our distribution partnership with Thales in each of these markets. These initiatives have a number of aspects, including some of which I've touched on earlier, expanding certifications in order to grow use cases for Senetas products and access to markets -- in markets that we haven't previously been strong in, markets such as the Middle East, South America and parts of Asia, a relatively new market but provides significant growth potential. We're already seeing good customer wins in the Middle East over the past few years. We have many more opportunities in the Middle East, and new opportunities in South America and Asia are well advanced. Using the growing footprint of Thales by expanding our presence in these geographic markets to date, we've had limited success, but as I've mentioned, Senetas itself is focused on growing these markets in conjunction with Thales activities, and this is yielding results. Product development such as quantum readiness and enhanced encryption platform agility and capabilities are an increasing demand. As I mentioned earlier, we're seeing significant opportunities arise with new customers who are requesting bespoke products that Senetas is uniquely positioned to build and deliver, particularly in the area of sovereign encryption algorithms. A strong underlying cash balance, profitable cash-generative outlook for the underlying Senetas business operations and further cash realizations from the Votiro sale are expected to provide the Senetas Board both with the resources to invest -- continue to invest in our product road map to build long-term growth but also the capacity to consider ongoing capital management initiatives. Meanwhile, the indirect investment in Menlo Security shares represent a growth asset and expected to create increasing value for shareholders over time. Next slide. So turning to the year-to-date. Year-to-date revenue for the Senetas business is similar to FY 2025, the same time last year but with some potential for some large sale transactions providing opportunities for upside. So some of the business we didn't close in 2025, we are expecting to close in 2026. There are some large deals. The defense opportunities in Europe and the Middle East and other key opportunities being explored in Asia and South American markets are progressing, and all of them have potential to contribute additional revenue in 2026. As we often repeat, however, lead times on these significant opportunities along and the precise timing of these large opportunities can be difficult to predict. However, Senetas, as I mentioned, expects some of them to be closed in 2026 and contribute to revenue and profit growth. Overall, the sales outlook remains very encouraging, particularly in these new markets and increasing demand for sovereign encryption algorithms are expected to provide revenue growth in the near term. We continue to expect the Senetas operating business revenue and profit will grow in 2026 off the back of higher sales and increased focus on these growth markets. That concludes my presentation. Thank you very much for listening. I'll hand the meeting back to Francis Galbally.

Thank you, Andrew. Before I move to the formal part of the meeting, I'd like to introduce Brock Mackenzie, who is in attendance from Grant Thornton, should shareholders have specific questions for our auditors in respect to the 2025 financial year audit. We also have Peter Renda from Computershare, who will act as the company's returning officer for this Annual General Meeting; and James Hill and Spike Woods from our solicitors, Piper Alderman. The Notice of Meeting was made available to shareholders on the 13th of October 2025, and I propose that it be taken as read. Voting restrictions were set out in the Notice of Meeting. We will address shareholder questions not pertaining to the business of the meeting once I've run through each item of business. [Operator Instructions] Please note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all of your questions. If this happens, we will answer them in due course via e-mail, posting responses on our website. 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 now open voting for all resolutions. If you are eligible to vote at this meeting, a new polling 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. There is no need to hit or submit or enter the button as the vote is automatically recorded. Please submit your votes at any time. You do, however, have the ability to change your vote up until the time I declare voting closed. Where the Chair of the meeting has been nominated as a shareholder's proxy, all open and available proxies have been voted in favor of all items. So that shareholders can see the full picture of voting instructions received in advance of the meeting, direct and proxy voting will be displayed on the screen as we move through each item of business where relevant. Today, we have 8 items of business on the agenda. The order of business will follow the Notice of Meeting, which has been made available to all shareholders, and voting today will be conducted by way of a poll on all items of business. The first item of business is the consideration of the financial report, directors' report and auditor's report. The Australian Corporations Act requires the directors to lay before the Annual General Meeting the financial report, the directors' report and the auditor's report for the last financial year. Shareholders may raise questions through me as Chairman to the auditor on 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 preparation of the financial statements and the independence of the auditor in relation to the conduct of the audit. Are there any questions concerning the company's financial reports?

No questions.

There are no questions, so I declare that the financial report, directors' report and auditor's report have been received and considered at the meeting. The next item of business is resolution 2a. As this item relates to my reelection as a director, I will hand the chair over to Mr. Ken Gillespie.

Thank you, Francis. Good morning, everybody. In accordance with the requirements of the company's constitution, Francis Galbally retires at this meeting and being eligible to do so, offers himself for reelection as a director. Francis held the positions of CEO and Chairman of the company from its commencement in 1999 until, for family reasons, Francis retired as an executive in February of 2006 and as a director in May of 2007. In 2012, Francis led Senetas' significant capital and business restructure and rejoined the company as a significant shareholder and Board member on the 10th of May 2012. He was reappointed the Chairman on the 30th of April 2013. Francis has over 35 years of experience in international business and commercial law. He is a graduate with first class honors in law at the Melbourne University and worked in professional legal practice for 15 years specializing in business law. Further information on Francis' background and experience is provided in the Notice of Meeting. The Board, with Francis Galbally abstaining, unanimously recommends that shareholders vote in favor of this item of business. Are there any questions in relation to the reelection of Francis Galbally? As there are no questions, I will now formally put the resolution 2a to the meeting in accordance with the Notice of the Meeting. Direct and proxy votes received in advance of the meeting for this item are now displayed on the screen. Please record your vote now if you have not already done so. [Voting]

With that, I'll hand the meeting back to Francis on his reelection to the Board.

Thank you, Ken. The next item of business, resolution 2b is the reelection of Ken Gillespie as a director of the company. In accordance with the requirements of the company's constitution, Ken retires at this meeting and being eligible to do so, offers himself for reelection as a director. Ken was appointed as an independent Non-Executive Director of Senetas on the 30th of April 2013. Ken is a retired senior military officer who has conducted a successful commercial career in the decade since his retirement from the Army. His Army career saw him rise to the rank of Lieutenant General and Commander of the Australian Army. He is a Companion in the Military division of the Order of Australia and carries prestigious awards from the United States of America and the Republic of Singapore. Further information on Ken's background and experience is also provided in the Notice of Meeting. The Board, with Ken Gillespie abstaining, unanimously recommends that shareholders vote in favor of this item of business. Are there any questions in relation to the reelection of Mr. Gillespie? No. As there are no questions, I'll now formally put resolution 2b to the meeting in accordance with the Notice of Meeting. Shareholders and proxy holders, please lodge your vote if you have not already done so. [Voting]

I now declare that Mr. Gillespie has been reelected as a director of the company. I now turn to item 3, the adoption of the remuneration report. The remuneration report is contained in the annual financial report, which is available on the company's website. It provides an overview of the company's remuneration framework. Are there any questions or comments from shareholders in relation to the remuneration report? As there are no questions, I will now formally put resolution 3 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you have not already voted. [Voting]

I now declare that this resolution has passed. The next item of business is item 4, and it relates to the approval of the grant of options to the Managing Director and CEO, Andrew Wilson. The options will be subject to a service condition and will only provide value to Andrew if the company's share price exceeds the exercise price at the end of the performance period. Therefore, the grant of options supports the achievement of the company's business strategy by linking Andrew's rewards to improvements in the financial performance of the company and aligning his interests with shareholders. Comprehensive details in relation to this item of business are set out in the explanatory notes to the Notice of Annual General Meeting. Are there any questions or comments? There are no questions. I'll now formally put resolution 4 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you have not already done so. [Voting]

I now declare that resolution 4 has been carried. I'll now turn to item 5, and it relates to the grant of potential termination benefits to the Managing Director and Chief Executive Officer, Andrew Wilson. Shareholder approval is being sought under the Corporations Act as well as under the ASX Listing Rules to permit the company to give certain termination benefits to Andrew Wilson in connection with Andrew ceasing to be an officer of or ceasing to hold a managerial or executive office in the company or a subsidiary of the company. Comprehensive details in relation to this item are set out in the explanatory note to the Notice of Annual General Meeting. Are there any comments or questions in relation to resolution 5? As there are no questions, I will now formally put resolution 5 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you have not already voted. [Voting]

I declare that item 5 in this meeting has been carried. The next item of business, item 6, is a consideration of the approval of a cash return of capital. The company proposes to implement an equal capital reduction to distribute to shareholders approximately $2 million of the company's accumulated cash balance, with such a reduction to be effected by the company paying to each shareholder at the record date of 7:00 p.m. Melbourne time on 20th November 2025 an amount of $0.00120772 per ordinary share held at that time. Comprehensive details in relation to this item of business are set out in the explanatory notes to the Notice of Annual General Meeting. Are there any questions or comments in relation to this item of business? As there are no questions, I'll now formally put resolution 6 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you have not already voted. [Voting]

I declare that this item of business has been carried. The next item of business is item 7, the consideration of the approval of a share consolidation by the company. In connection with the proposed capital reduction, the company proposes to consolidate its share capital by converting every share into 0.01 shares. In accordance with the Corporations Act, item 7 requires approval by an ordinary resolution of shareholders. If the proposed share consolidation is approved, it will be implemented by 8th December 2025. Comprehensive details in relation to this item of business are set out in the explanatory notes to the Annual General Meeting notice. Are there any questions or comments in relation to this item of business?

Yes, we've got one question from Stephen Mayne. It says thank you for doing this. It makes sense. I don't understand why some shareholders oppose share consolidations. Did we face any blowback from shareholders?

No. We received from all the major shareholders, which are the top 20 shareholders, positive support and did not receive any blowback at all.

No further questions.

If there are no other questions from shareholders in relation to this item, I will formally put resolution 7 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you haven't already voted. [Voting]

I declare that this item of business has been carried. The final item of business, item 8, is the consideration of the approval of a 10% placement facility. The effect of this resolution is to allow the directors to issue the equity securities under Listing Rule 7.1A during the 10% placement period without using the company's 15% placement capacity already provided under the listing rules. Comprehensive details in relation to this item of business are set out in the explanatory notes to the Annual General Meeting Notice. Are there any questions or comments in relation to this item? As there are no questions, I'll now formally put resolution 8 to the meeting in accordance with the Notice of Meeting. Direct and proxy votes received in advance of the meeting are displayed on the screen. Shareholders and proxy holders, please lodge your vote if you have not already voted. [Voting]

I declare that this item of business has been carried. That now covers all of our business before today's Annual General Meeting. Are there any questions?

Yes, there are some questions for the CEO.

Certainly. I'll hand over to the CEO.

We have a question from [ Stella Wang ]. Who are your main competitors currently, particularly for those new customer regions and in sovereign encryption algorithm space?

Yes. So I'll focus on the sovereign algorithm encryption space. The architecture of our platform is uniquely positioned to allow customers in those countries to load their own algorithms. I'm not aware of too many other companies that have delivered that capability to the market to date. Of course, we do have some competition from some companies and organizations out of Europe that can implement some sovereign algorithms, but the unique aspect of our platform is that we can allow a customer to load their own algorithm without our knowledge. So that is particularly important for many of these countries, and it's a growing importance and concern to those organizations in those countries.

[ Stella ] has another question. Regarding sovereign encryption opportunities, could you elaborate on the process of winning a typical new customer in that field? What are key investments involved?

So winning these sorts of opportunities, given that they're with government defense agencies in those markets, it's a long-term investment of business development activity, technical activities on behalf of Senetas and Thales. Those organizations are highly technically capable, so we need to understand what their requirements are. Once we get through that process, we understand what the requirements are. We develop the product, which is based on our existing platform. We then deliver it to certification bodies within those countries. They test it. They make sure that our product is appropriately developed and it's working as they expect. We then move to a proof of concept in those countries. We develop relationships with systems integrators so that our product can be delivered to the customer in question and finally negotiate contracts with those customers to generate revenue. So it's a multiyear process and is a key part of our strategy that we've been executing over the past couple of years and that we'll continue to execute. But it does take a lot of time and a lot of investment to win these sort of opportunities.

And one final question from [ Stella ]. What is the latest valuation of the 1.7% Senetas holding of Menlo? Do you expect any revaluation events such as the capital raising or sales in the next 12 to 18 months?

So the -- we have the Menlo investment valued by a professional valuer, that the Board also considers the auditor's audit. The last valuation of Senetas' share of that 1.7% is $17.5 million. We will revalue that investment at every half and full year and take into consideration the business performance of Menlo, which would include, of course, any capital raisings that Menlo undertake. As for the -- Menlo's plans in relation to its business activities and whether the company will be sold or IPO-ed. We don't have any visibility of that at this time, but we'll update the market if and when that occurs.

Thank you. We also have a question from Dr. [ Peter Wilkinson ]. Will the cybersecurity devices encryptors to be provided by Senetas for the AUKUS pilot program be employed in the submarine component production in all pre-AUKUS regions or only in the Australian region?

So at this stage, our activities with the Honeywell submarine industrial base pilot is related to SureDrop only. Over time, there may be opportunity for the use of our encryption across the AUKUS alliance, and that's something we're thinking of at the moment. But there's a slow moving activity moving at the pace of AUKUS, which is taking time. There's been some uncertainty as to whether AUKUS will, in fact, be renewed by the United States government. We're pleased to hear that the Pentagon review is now entering its final stages, and there should be no concern with AUKUS proceeding. The government shutdown in the U.S. also has had an impact on the pace of things. So the AUKUS activities are a long-term horizon for all of our countries, and I do expect it will produce opportunities for Senetas over time.

No further questions.

Thanks very much.

Thank you all for your attendance. I now formally close the Senetas 2025 Annual General Meeting. Thank you.