Shine Justice Ltd (SHJ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Shine Justice Limited's Annual General Meeting. I would now like to hand the conference over to Mr. Graham Bradley, Chairman of Shine Justice. Please go ahead.

Good morning, ladies and gentlemen. It's Graham Bradley. I'm the Chairman of Directors at Shine, and it's my pleasure to welcome you to the 2020 Annual General Meeting of Shine Justice Limited. Due to the COVID-19 pandemic and having regard to government and health authority directions and advice, including the travel and gathering restrictions, the company decided this year to hold the AGM as a virtual event. It's a first for us. This approach is in line with temporary modifications to the law and current regulatory guidelines. So welcome to our virtual AGM. Let me start by saying, as we celebrate NAIDOC week across Australia, I wish to acknowledge the traditional custodians of the various lands on which we join this meeting and the Aboriginal and Torres Strait Islander people participating in the meeting. I pay my respects to their Elders past, present and emerging. But thank you all for taking the time to attend today and for your interest in the company. If we experience any technical issues today, a short recess or an adjournment may be required, depending on the number of shareholders affected. If that occurs, I'll advise you accordingly. As a quorum is present, I declare the meeting open. The notice of meeting was made available to all shareholders, and I will take it as read. I would now like to outline the format for the meeting today. My introduction and the address will be followed by an address by the Managing Director, Simon Morrison. We will then turn to the business of the meeting when you will have the opportunity to ask questions online. Please note that only shareholders, proxy holders and shareholder company representatives may ask questions or vote at this meeting. [Operator Instructions] I'll ask the company Secretary to inform me if there are any questions and to read them out and to identify the person who's asking the question when we get to relevant items during the meeting. I encourage you to send through any questions as soon as possible, so please ensure that your questions are clear and succinct. Please also refer to the virtual meeting online guide and use the help line specified if you experience any technical difficulties. I understand it should be there at the top of your screen. Attending today's meeting are my fellow directors, Teresa Dyson, our Executive Director and Chair of our Audit and Risk Committee. Teresa is in the Shine office in Brisbane today. David Bayes, a non-executive director. David is a Melbourne-based director, so he is at home in Melbourne. I'm here in Sydney. We also have Simon Morrison, the Managing Director and CEO, who's with us today, along with Ravin Raj, our Chief Financial Officer; Annette O'Hara, our company Secretary. Now Simon Neill of PricewaterhouseCoopers, our external auditor, is in attendance today also. Simon is available to answer questions regarding the conduct of the audit and the content and preparation of the audit report. So before Simon presents his summary of the company's performance over the past year and outlook for the year ahead. I'd like to make a few observations. As the recently appointed Chairman of Shine Justice, I'm delighted to be with you today. It was a privilege to be invited to join the Board last May and to assume the chair on the 1st of July. I was attracted to Shine as a values based organization that Champions justice for its clients and for the wider community, and I have been inspired by the passion and commitment to these values by Shine management team members since I joined the Board. The tumultuous challenge faced by business and the entire community in 2020 were met by the team at Shine Justice with remarkable adaptation, adoptability and resilience. We have continued to produce outstanding outcomes for our clients. The group settled or resolved more than 5,600 cases during the year to 30 June and achieved settlements and judgments in excess of $730 million. A noteworthy result during the year was the successful outcome in court proceedings in one of Australia's largest product liability class actions, commenced back in 2012 relating to faulty, prolapse mesh and tape implants. The court decision followed a trial that ran from July 2017 until February 2018, so quite an extensive period. And the decision is subject to an appeal, which will be vigorously defended and is likely to be heard early next year. If ultimately successful, the litigation is expected to deliver justice to many thousands of Australian women left with life-altering complications from the defective implants. Settlement was reached in class actions against Commonwealth Department of Defence for residents in the Queensland town of Oakey and in Katherine in the Northern Territory in relation to claims for property and business losses due to exposure to toxic firefighting chemicals. An action has now been filed for property losses affecting up to 40,000 residents in 7 other affected Australian locations similarly exposed to firefighting chemicals. A class action has also been filed on behalf of the passengers and their families affected by the deadly outbreak of coronavirus onboard the Ruby Princess cruise ship earlier this year. Last month, we filed a class action against the Western Australian Government to recover wages withheld from indigenous workers who were forced to labor in slave-like conditions in the 19th and 20th centuries for little or no money. Our work is continuing to compel governments to investigate practices employed in stonemasonry workshops where dry cutting of artificial stone is exposing workers to the risk of deadly lung disease, silicosis. Turning to financial matters. The group achieved earnings before interest, tax, depreciation, amortization and impairment of $51.15 million compared to $47.44 million in the previous year Net profit after tax of $21.55 million compared to $14.03 million, including $5 million of impairments in the previous year. Gross operating cash flow, an all-important metric, of $34.5 million was achieved, representing a solid outcome for the group. Adoption of the Australian Accounting Standards Board standard 16 on leases in the first of July 2018 has impacted on both EBITDA and gross operating cash flow, resulting in previously reported operating leases now disclosed below EBITDA as a combination of depreciation and interest. On a like-for-like basis, therefore, our EBITDA was $42.5 million, and our gross operating cash flow was $25.89 million, both very satisfactory increases on the previous year. The directors are pleased to declare a final dividend of $0.0275 per share, unfranked. When added to the $0.015 per share unfranked interim dividend declared last February, dividends for the year totaled $0.0425 per share. In March 2020, shareholders approved the change of the company's name to Shine Justice Limited. The change was proposed as a simple but significant step to reflect the purpose, culture and values, which are important to our group and our strong commitment to justice. Over the past year, the group's leadership has strengthened and strengthened our capability at all levels in the organization to deliver consistent, high-quality service across all work types and regions. We are refining our corporate culture with the aim of improving efficiencies and our corporate structure as well to further integrate our brands across the Shine Justice banner. Our leadership embeds a culture within the group that respects our history, embraces our values and inspires high performance. We're grateful to all our team members for their willingness to adapt and ensure continued delivery of outstanding service throughout a year like no other. The group's philanthropic initiative, the Shine A Light Foundation, awarded a $15,000 grant to a new charity partner, the Red Rose Foundation, which actively works to end domestic and family violence-related deaths in Australia, including homicide, suicide and accidental deaths. In wrapping up, I'd like to take this opportunity to thank the former Board for their valuable contribution to the group. Tony Bellas, Carolyn Barker and Greg Moynihan ably guided the business since its listing back in 2013 and their leadership has left the business with a solid foundation, we believe, for future growth. I'd also like to welcome my new fellow directors, Teresa Dyson and David Bayes, each of whom brings considerable skills and expertise to the ongoing governance of the group. With a strong leadership team, ably led by Managing Director and CEO, Simon Morrison; and the dedication of all of our people, I am confident that Shine is well placed for future success. I'd like to thank shareholders for their ongoing support, and I'll now hand over to Simon Morrison for his address.

Thank you, Mr. Chairman. We might start at Slide 3. Thanks. Firstly, look, it's been a good year at Shine Justice, as our Chairman pointed out. Importantly, we changed our company name during the fiscal year to Shine Justice to better reflect who we are and what we stand for. The group operates across a number of practice areas from personal injury to class actions to commercial litigation to family law and first-party insurance disputes. Our purpose as a company is to shine a light on injustice and make the world a better place one client at a time. As we've demonstrated in FY '20, we are relatively immune to economic cycles that other companies endure. And significantly, we have good growth opportunity, which we'll come to shortly. Could we move to Slide 4? During the fiscal year, we completed our Board renewal program, and I'm delighted that our new Board is in place, led by Graham Bradley, our Chairman; Teresa Dyson and David Bayes. In the short time they've been on this Board, their impact has been profound. Like our Chairman, I would like to thank our outgoing directors, Tony Bellas, Carolyn Barker and Greg Moynihan, who've been us -- been with us from the start of this journey. If we can move to Slide 5, touching on the financials for the year. Revenue was up marginally to $183 million. NPAT at $21.5 million, a 53.6% pcp increase, but taking into account, we had a $5 million impairment in the fiscal '19 year, that increase reverts back to about a 13.2% increase. EBITDAI at $51.15 million. The underlying number is the one we obviously were watching most closely. In respect to guidance, it came in at $42.5 million, a 10.9% increase on our previous year. Operating cash flow, again, on an underlying basis, came in at 25.9 and, very pleasingly, a 17.1% increase on prior year. A final dividend of $0.0275, rounding out a full dividend of $0.0425 for the year, a 13.3% increase. And earnings per share was up by a healthy margin. So all in all, a good year on the financials. If we can move to Slide 6 and a quick discussion on the year-end review. FY '20 has been an interesting year for many companies in Australia. Like most companies, we were nervous with the impact of COVID and what that might mean to Shine. But pleasingly, we've been able to weather the restrictions in COVID and actually come out in a better place, which is testament to the underlying strength of this company irrespective of economic cycles. We actually saw growth in key metrics of inquiries and leads into the company. As the Chairman announced, we secured the massive judgment in the Johnson & Johnson mesh class action. As indicated, that matter is on appeal. We believe we are in a very strong position in respect to that appeal. We expect to recover our costs for that litigation during the course of this fiscal year. We also have a very strong pipeline of registrant into that class action, numbering in the many thousands that will see a pipeline of work for a number of years to come as we assess those cases. We've been working pretty hard on our class action pipeline and growing that as a future generator of revenue for this company, which I'll touch on in a moment. Led by our CFO, we've been executing on our litigation and disbursements funding strategies to continually improve our cash conversion rate, and I'm pleased to say that's improving as planned. And finally, we've been testing our Claimify innovation and, more recently, rolling that technology out to other parts of the Shine operation. If we can move to Slide 7, and a couple of areas that we're focusing on -- in particular areas. I'll start with our class action practice. We see class action as a key area of growth for this company moving forward. For the first time, we've published the total number of actions that Shine has either commenced in courts in Australia or has pending in a pipeline. We have 37 actions in total, which is a very strong position for the company to be in, in terms of future revenue moving forward. Significantly, we settled the first tranche of our PFAS cases, and we have more of those filed and to come. We did secure one loss last week in the Worley Parsons class action. It was a case that we inherited on an acquisition of a small boutique practice in Sydney. The case was litigation funded, and Shine had a very small carry on the case. The case is currently under consideration for appeal. Moving forward, we expect our pipeline to keep growing, and we expect this in the medium-term to be a good growth area of this company. I want to touch briefly on the personal injury opportunities at Shine because we have earmarked this as an area that whilst we haven't seen a lot of growth in recent years, we think there is great growth potential. The 3 largest law firms playing in this space being Shine, Maurice Blackburn and Slater & Gordon, among them only occupy 25% of the personal injury market in this country. So we see great opportunity to make inroads into the remaining huge part of that market, and we are turning our attention to that as we speak. If we can move to Slide 8 and the outlook for FY 2021. We are focusing on growth. Shine has historically been a growth company, and we are turning our mind to accelerating that growth plan. We are pleased that the FY '20 results demonstrated that this company is on the right trajectory to keep growing. The 2 practice areas that are on our radar are our personal injury practice and our class action practice. Inside the company, we continue to try and improve our WIP management initiatives and reduce our cycle times. We want to apply more of the technology from our Claimify offering to other parts of our Shine business. And we've got a particular focus on improving our client communication offerings, which can only assist the organic growth of our company. Finally, back in August, we issued guidance for the FY '21 year, which was an expected continuation of EBITDAI growth in FY '21 in the order of a high single-digit percentage increase, subject to unforeseen COVID-19 impacts. We have baked into our guidance what we believe may impact this company. We don't think there are significant impacts, but they're built in. So the qualifier is in respect to anything that the market generally isn't aware of. That concludes the presentation. Back to you, Mr. Chairman.

Good. Well, thank you very much, Simon, for that address. Ladies and gentlemen, we'll now move on to the formal business of the meeting. If anyone had any questions arising out of either my address or Simon's, we'll come to those on the first -- in relation to the first item of business. For convenience, for those of you who may need to leave the meeting early, I'm formally declaring the poll open now. That means you can vote on the resolutions before you leave if you need to leave early. Each resolution set out in the notice of meeting is to be considered as an ordinary resolution and, as such, must be approved by a simple majority of the votes cast by shareholders entitled to vote and voting. Each item will be discussed in turn, and you'll have the opportunity to submit questions relevant to each item. Voting on each resolution will be determined by way of a poll, and the company's share registry, Link Market Services, will conduct the poll. All valid proxies that have been received within the prescribed time have been admitted. Details of how proxy votes have been cast in relation to each resolution will be displayed in relation -- when we come to each resolution. I confirm that as Chairman of the meeting, where I am appointed as a proxy with discretion as to how to vote as proxy holder, I intend to vote all shares in favor of all resolutions. If you have been appointed a proxy to vote at the meeting, there is no need for you to vote as your proxy will vote on your behalf unless you wish to change your vote. The results of the voting will be announced to the ASX after the close of the meeting but as soon as they are available. So let me move now to the first item of business, which is to receive and consider the company's financial statements for the year ended 30 June 2020 as well as the reports of the directors and the auditors. As no resolution is actually required on this item, there is no voting on this item at this meeting. Simon Neill Of PwC, who audited the accounts for the financial year, as I said earlier, is present today and is available to answer questions relevant to the conduct of the audit and the preparation conduct of the auditor's report. We did actually receive a question for our auditors, from Mr. Neil Goss, a shareholder, in advance of this meeting. Mr. Goss queried why the percentage of gross work in progress, which the company holds in provisions, was not disclosed in the annual report? The auditor's response to this question has been lodged with the ASX and thus announced to the market this morning and provided to Mr. Goss. The auditor advised that work in progress was disclosed in our accounts in accordance with the relevant accounting standard, which is Australian Accounting Standard Board 15, Revenue from Contracts with Customers, which prescribes that work in progress should be recognized at amounts for which it is highly probable that a significant reversal in the amount of WIP recognized will not occur. In other words, the company has provided the disclosure required now under that accounting standard, which differed from the previous situation. Having said that, the company appreciates that knowledge of the gross WIP, as distinct from the net WIP, which has been disclosed in the account, is potentially useful to our investors, and we're not opposed to disclosing the percentage of gross WIP, which we hold in provisions in the future. Now would anyone like to ask any questions about the financial statements reports or Simon and my reports? I will please -- if so, please submit your questions online. Company Secretary, do we have any questions?

Chairman, there are no questions on this item.

Okay. Well, thank you. If we do receive any, we can deal with them later in the meeting. So I declare that the reports have been received, and we will move on to the next item of business, which is the adoption of the remuneration report. This is a nonbinding resolution required by the Corporations Act in relation to the remuneration, which formed part of the annual report. The preparation of the remuneration report is a requirement for all listed companies. Information concerning executive and director remuneration was included in the directors' report under the heading Remuneration Report, and it is to be considered at this meeting as an item separate from consideration of the annual report. In accordance with the legislation, the resolution to adopt the report is subject to a nonbinding vote only. However, the Corporations Act provides that if 25% or more of votes that are cast are voted against the adoption of the remuneration report at 2 consecutive annual general meetings, shareholders will be required to vote on, at the second of those meetings, on a resolution that a further meeting be called at which the company's directors other than the Managing Director who were in office at the date of the approval of the directors' report must stand for reelection. The resolution to approve the remuneration report was passed on a poll at last year's Annual General Meeting by 98.8% of the votes cast. I'll just say a couple of words about our remuneration arrangements before calling for questions on this resolution. Our remuneration arrangements in FY '20 were very straightforward and in line with the previous year. In addition to the non-executive directors, only 2 of our executives qualify as key management personnel under the relevant definition, that is our Managing Director and CEO and our Chief Financial Officer. Now their remuneration comprises fixed pay, including superannuation and, in the case of the Chief Financial Officer, an annual cash incentive based on achievement of preset financial and nonfinancial objectives; and also a long-term incentive, which, if the 3-year performance hurdles are achieved, is paid in the form of equity in the company. Due to his substantial shareholding of the company the managing director does not participate in either the short-term or the long-term incentive plan. In the past year, the fixed remuneration for the Managing Director was not changed, and it has remained the same since 2016. And the fixed remuneration for the Chief Financial Officer was increased modestly by approximately 3%. Also, after evaluating his performance against relative -- relevant objectives, the Board awarded the Chief Financial Officer 75% of his maximum award for FY '20, and this amounted to $75,000. While the company's executive remuneration policies are, we believe, essentially sound and appropriate for a company of our size, the Board will review both the short-term and long-term incentive plans for FY '21, including the hurdles we wish to set to ensure continued full alignment with the interest of our shareholders. So I'll ask now whether anyone has any questions in relation to the remuneration report. If you do, please submit them, and I'll turn to our company Secretary. Are there any questions so far?

No, Chairman. There are no questions on this item.

Okay. If that's the case, I will put the resolution to a vote. Details of the proxies lodged in relation to this motion are shown on the slide now. And as stated on the proxy form, the undirected proxies I receive, as Chair of the meeting, for this purpose of this resolution, will be voted in favor. So you'll see that the proxy votes are overwhelming in favor of this resolution with 98.9% voting in favor. The company will not count any votes cast on the resolution by key management personnel and certain related company shareholders, except certain votes cast by them as proxies. Details of the voting exclusions are set out -- were set out in the notice of meeting. Please now select either for, against or abstain for Resolution 2 on your voting cards, your electronic voting card, and we will continue on to the next item of business. I won't close the polls on all of these resolutions until the end of the meeting. [Voting]

As the next item, ladies and gentlemen, concerns my election as a Director, I will, at this point, hand over to the Head of our Audit and Risk Committee, Teresa Dyson, to conduct this part of the meeting. Thank you, Teresa.

Thanks, Graham, and welcome, shareholders. It's my pleasure to propose the resolution to elect Graham Bradley to the Board. We were delighted to welcome Graham as a non-executive director in May and as Chairman of Directors on the 1st of July. Details of Graham skills and experience are included in the notice of meeting, but I'll just invite Graham to say a few words about his election.

Thank you, Teresa. Well, I won't add much to my resume, but I would say this that taking on a directorship and chairmanship here at Shine is a great privilege and honor, which I'm very excited. It's also in a way for me to return to my first career as a lawyer where I practiced many years ago. And later on in my career, I spent 5 years as the National Managing Partner of Blake Dawson as then, now it's called Ashurst, one of the larger law firms in Australia. So it's delightful to be reengaged with the legal profession. Shine is, of course, a very different kind of law firm, and this was that, that attracted me to it because of its mission, its values and, as I've spoken about, the passion and intensity of passion of its people for what we're doing, plus our opportunity to grow our business in the future. For the last 15 years, ladies and gentlemen, I have been a professional company director. And my current chairman roles include EnergyAustralia; Infrastructure New South Wales; and one listed company, which is United -- another listed company, which is United Malt Limited. I retired from my role -- a long-term role as Chairman of HSBC Bank Australia last week, having secured my succession there, which has left me with even more capacity to contribute to my role as a director of Shine. So in short, as I said earlier, I'm very excited about the opportunity here and very committed to working with our management team and with my colleagues on the Board to create a very successful future for the company. So thank you, and I look forward. I'm delighted to offer myself for reelection.

Thank you, Graham. So the resolution is set out on Slide 16. The noncandidate directors unanimously recommend that shareholders vote in favor of this resolution. If anyone would like to ask a question about this item of business, please submit it online now. Annette, are there any questions on this item?

There are no questions on this item.

Thank you. If there are no further questions, I'll put the resolution to a vote. You'll see Slide 17, details of the proxies lodged in relation to this motion are shown on the screen. The proxy votes are overwhelmingly in favor of the resolution with 99.95% in favor of Graham's election. Please now select either for, against or abstain for this resolution on your voting card. [Voting]

I'll now hand back to Graham for the conduct of the meeting.