Top Shelf International Holdings Ltd (TSI) Earnings Call Transcript & Summary

[indiscernible], everyone. Welcome to the Annual General Meeting of Top Shelf International Holdings Ltd. My name is Julian Davidson, and I'm delighted to address this meeting as your Chairman. It is a great pleasure to be here, and I welcome all those here today. I'd like to take this opportunity to thank those present for taking time to attend today's meeting. Your support and interest in the company's affairs is appreciated by the Board. Before commencing the meeting, I would like to acknowledge the traditional owners and custodians of the land on which we each respectively meet today and pay my respects to their elders past and present. I extend that respects to aboriginal and Torres Strait Islander peoples here today. Before we begin, 2 housekeeping matters. Firstly, if you have not already done so, could you please switch off your -- or switch your mobile phones to silent? Secondly, in the unlikely event of an emergency, we ask that you to remain calm and follow the instructions of staff who will advise the necessary action and guide your accordingly. Today's meeting is being held in person and via online -- and online via the platforms provided by the company's share registry. Firstly, I would like to introduce my fellow directors Adem Karafili, Peter Cudlipp and Stephen Grove, who are present today in person and online. Also present at today's meeting is our CEO, Trent Fraser; CFO Ben Kennare; Company Secretary Carlie Hodges; and our FY '23 audit partner, Salim Biskri from BDO. Representatives from our share registry, Boardroom, are also present and will be acting as returning officer and scrutineer. [indiscernible]. Before we commence with the formal part of the meeting, I would like to provide an overview of the business. I'll then invite our CEO, Trent, to provide [indiscernible] on the company's recent performance. If you have any questions, please hold off until the CEO's presentation. We will then open the floor and online platform for questions. If I was to characterize the year in a single word, it will be best described as transformational. We have raised capital and, in doing so, changed the company capital structure and shareholder composition. We're now in the process of refinancing debt. We have appointed a new CEO and made significant people changes across all elements of the business. Business strategy has been overhauled, seeing a focus on profitable revenue growth; significant cost reductions; and a transition from capital investment, being the agave project, to an FMCG-disciplined company. There have also been significant Board governance changes. I'd like to address these governance changes and pass to Trent Fraser to discuss business operations. Firstly, we've had 4 directors who resigned during the year or who are not seeking reelection. Drew Fairchild resigned as Managing Director during the year. I'll address Drew's contribution to Top Shelf shortly. Peter Cudlipp will be departing the Board at the end of today's meeting after almost 6 years as nonexecutive director. Peter has been a long-term shareholder and supporter of the company. His expertise was instrumental in the creation of both the NED and Grainshaker brands. He departs with our deep gratitude. Thank you, Peter. We also think Michael East and Lynette Mayne [ for their contribution ] as nonexecutive directors and committee members over recent years. Secondly, I would like to discuss the Board Chair transition. Adem Karafili transitioned from Executive Chairman to Executive Director in July and, at the close of business today, will move to a nonexecutive director role. In his term as Chairman over more than 5 years, Adem oversaw all of the elements that today form the foundations of our company: brand development and launches, agave investment, ASX listing and capital raising, to name a few. Adem, thank you for your stewardship of the company in the Chairman's role. I look forward to your continued service on the Board. With these changes, I was appointed to the Board in April and became Chair in July. At this time, we also welcomed shareholder Stephen Grove to the Board. Stephen's business acumen and drive has already been felt and valued. The Board refresh continues to progress. And we look forward to concluding this process in the very near future as the company evolves from an investment phase to that of an established fast-moving consumer goods business. There was, of course, significant change at management level [ during the year also ], most notably Trent Fraser succeeding Co-founder Drew Fairchild as CEO. TSI would not exist if not for Drew's vision and ambition to create a modern Australian spirits company. Drew co-founded TSI in 2014; and led the company through a period of significant change and growth, including the construction of its distillery and [ production ] facilities, establishment of an Australian agave spirit farm, listing the company on the ASX, navigating the challenges of the global pandemic and most importantly the creation, launch and growth of the first 2 brands [ in our Australian premium ] spirits portfolio. I'd like to acknowledge and thank Drew for his leadership and tireless drive towards [ the delivery ] of Top Shelf's goals. With change comes opportunity, and we entered the new financial year clearly focused on delivering on the company's [indiscernible]. The Board objectives over the next 12 months are clear: delivering on the pathway to profitability; completing the agave development, bringing brands to global markets; debt refinancing Longreach; establishing local and global distributor relationships; ensuring [indiscernible] financial and operational plans are in place. However, we can never lose sight of our ambition to build a modern Australian spirits company with [indiscernible] premium brands that are both profitable and accessible to consumers. At the heart of the company are our brands. I'm sure Trent will elaborate. However, it is pleasing to see our brands recognized in the market during the year for their quality. Each brand was awarded gold medals at either domestic and international spirit competitions, the highlight being Top Shelf and Grainshaker awarded international vodka producer of the year at the international wine and spirits competition in London last week. With the launch of our Act of Treason agave brand imminent and further retail and on-premise distribution gains to come, there's still much to look forward to. Before handing over to Trent, I thank [ shareholders for their ] support of the changes that have been made and that are underway. These changes, along with management's focus on creating value in our brands and for shareholders, will see Top Shelf [ a vastly different ] company to what it was 6 months ago. Thank you to Trent and to Top Shelf staff for the way in which they have managed change throughout the year and the way they have embraced these opportunities and challenges. I will now pass over to Trent to present the company's activities over the [ past year ] and provide an update on our plans for the [ year ahead ]. Trent?

Thanks very much, Julian. And if we can go to the next slide, we can just dive straight into it, please. That would be great. Hopefully -- next slide, [ please ]. Can we go to the next slide, please? Thank you. Hopefully, everyone is [ very familiar ] with this setup in terms of the overview of the company. I think it's important just to touch on what might have changed a -- since a year ago that we last [indiscernible]. And I've used the word "respected" to build on Julian's word, a respected modern Australian spirits company: winning share, making noise, ankle biting at the competitors, all great progression and furthering along the journey that we set out to achieve. If we can go to the next slide. It's a good segue. As Julian mentioned, it's all about executing a portfolio [ and how our ] brands are dedicated to [ product ] excellence. Even for our little, unknown and unlaunched brand yet, Act of Treason, we've submitted some trials and R&D [ leads to a few of the shows ], also taking out golds and silvers [ for a brand ] that is yet to have launched. The next slide also encapsulates what Julian touched on, to take [indiscernible] wines and spirits producer of the year at London. This is the equivalent, I was sharing with the Board this morning, of Brownlow Medal or an Oscar, so incredibly proud [ of our ] distillation team out at Campbellfield. [indiscernible] prior to this was Four Pillars. And we know what that did in terms of their prestige and their [ growth ] over the last few years, so incredibly honored and humbled to have won this award and to transition this into sales. Moving to the next slide, FY '23, another year of acceleration and growth but also one of change and course correction [Audio Gap] revenue plus 74%, mostly led by NED and its continued expansion into retail but also Grainshaker [ in retail ] with a really strong summer [ delivery across festival and ] the on trade. Gross margin at 44%. And I'll talk a little bit more in terms of the evolution and the progression that we have in terms of the new and improved model, which is a key focal point for our priorities. The investment-propelled brands further strengthened the whiskey [ bank yield ] but also, of course, the quality. And of course, we will talk a little bit about the agave build and distillery. The great news is our powerful asset base is near completion and words like CapEx expenditure will be in our rear-vision mirror. We immediately launched a strategic review when I jumped in, in April. [ Main action ] to that was resetting of the cost base, [ actioning ] a cost-out of $7.5 million annualized. Much of that was pouring -- impairing back investment sponsorship; vendor cleanup; some labor, unfortunately; and also some of the noncore strategic assets. We obviously launched a capital raise led by much of the key stakeholder group, which I'm incredibly appreciative of, to make sure funding and coverage into the future. All in all, a big year of change. And very quickly, we've been [ turning ] our attention to 2024. If we go to the next slide [ and talk ] a little bit about Q1. Most pleasingly, for those who saw the 4C that was published on Monday, it's a very solid start to the year: revenue and margin accelerating, mostly attributable to the pivots towards a value creation business model, including margin accretion, product efficiency and cost reduction initiatives. The successful onboarding of Endeavour Group has certainly helped that, as well as some fantastic brand awareness. And hopefully, you've seen the robust distribution that has happened in September [ and October ]; expanded ranging with Coles, also helping deeper penetration for the Grainshaker brands; the org structure reset and business streamlining, supporting the cash EBITDA and improvements you will see on the screen here. Next page talks to the highlights for this year and a few of our key priorities in terms of the H1, 2 major priorities, accelerating major retail; and the other, further refinement in the business model, continued margin improvement that I mentioned and keeping the cost control under good maintenance. As stated, we also [ entered ] conversations with strategic partners at the moment as it pertains to distribution opportunities, both domestic and international, and exploring the sale of noncore assets, which we have shared in the raise. It's probably best to talk to agave on the next slide, please. It's no longer about watching plants grow. It's very exciting; almost a completed distillery, as you can see here, a factory to start producing a fantastic liquid for the Act of Treason brand. We're basically only putting on the final finishing touches on the connectivity part of the plant but all in very good working order to start a seeding of the brand into market in December, with a more scaled version early next year, so I hope you're all very incredibly thirsty for an all-Australian margarita when Act of Treason launches. With that, I hand it back to the order of business; to our Chairman, Julian Davidson.

Thank you, Trent. We will now open the floor [indiscernible]. For the formal part of the meeting, only shareholders, their attorneys, proxies and authorized company representatives are entitled to ask questions and vote at this meeting. However, we will allow everyone in attendance to ask questions regarding the CEO presentation before we move to the formal part of this meeting. Those present here today, please raise your hands if you have a question. [Operator Instructions]

No online questions.

No online questions. This now brings us to the formal part of the meeting. The company Secretary has informed me that we have a quorum present. I therefore declare this Annual General Meeting of Top Shelf open. Voting today will be conducted by way of a poll on all items of business, [ 13 ] items of business, including 13 resolutions, which have been listed in the notice of meeting. The notice of meeting was sent to shareholders in September, and I will take it as read. Before we consider the items of business, there are a number of procedural matters to which I would -- to which I wish to draw to your attention -- that's quite a bit. And for online attendees, to vote [indiscernible] the instructions on screen -- is that correct?

Yes.

[ To know that you can get a ] vote at this meeting. If you [Audio Gap] haven't already done so. Attendees present today, if you're entitled to speak [ and vote at ] this meeting [Audio Gap] speak but not vote at this meeting, you will have received a blue admission card on registration. If you're a guest at today's meeting, you will have received a white admission card. Today, voting will be conducted by way of a poll. For those of you present in the room, the poll will be conducted at the end of the meeting, after each resolution has been put to the meeting for any discussion. For online participants, in order to provide you with enough time to vote, I now declare that voting is open [indiscernible]. The final results of the polls will be available [Audio Gap] set out in the notice of meeting. At the time of discussion of each resolution, I will disclose the way in which proxy votes have been passed on the resolution. [Operator Instructions] Please note that, while you can submit questions now, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on one topic, amalgamated together [Audio Gap] Are there any questions on this resolution?

No.

As there are no questions, I will move on to the next item for business. And as the next resolution relates to myself, I will pass over to Adem Karafili to chair the meeting for this item.

Thanks, Julian. Resolution 2. Resolution 2 is an ordinary resolution. The resolution seeks shareholder approval to reelect Chair and Nonexecutive Director Julian Davidson. Details of Julian's qualifications and experience are set out in the notice of meeting and in the company's annual report. The resolution and proxies received are shown on the screen. The Board, other than Julian, recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I'll now pass back to Julian for the next item of business.

Thank you, Adem. Resolution 3. Resolution 3 is an ordinary resolution. This resolution seeks shareholder approval to reelect Nonexecutive Director Stephen Grove. Details of Stephen's qualifications and experience are set out in the notice of meeting and in the company's annual report. The resolution and proxies received are shown on the screen. The Board, other than Stephen, recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item of business, resolution 4. Resolution 4 is a special resolution. This resolution seeks shareholder approval for the company to have the additional capacity to issue equity securities up to 10% of the issued capital of the company over a 12-month period from the date of this meeting, at a price no less than that determined pursuant to ASX listing rules and otherwise on the terms and conditions set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item for business, resolution [ 5 ]. Resolution 5 is an ordinary resolution. This resolution seeks shareholder approval for the issue of 193,000 STVR performance rights to Adem Karafili, director, under the company's rights plan, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board, other than Adem, recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item for business, resolution 6. Resolution 6 is an ordinary resolution. This resolution seeks shareholder approval for the issue of 176,527 STVR performance rights to Trent Fraser, CEO, under the company rights plan, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the addendum to the notice of meeting, and the resolution and proxies received are shown on screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

Resolution 7. Resolution 7 is an ordinary resolution. This resolution seeks shareholder approval [Audio Gap] issue of 926,402 FY '24 LTVR performance rights to Adem Karafili, director, under the company's rights plan, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board, other than Adem, recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

There are no questions.

As there are no questions, I will move on to the next item of business, resolution 8. Resolution 8 is an ordinary resolution. This resolution seeks shareholder approval for the issue of 706,111 FY '24 LTVR performance rights to Trent Fraser, CEO, under the company's rights plan, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. Board recommends that shareholders vote in favor of this solution. Are there any questions on this resolution?

No questions.

As there are no questions, [ I move on ] to the next item for business, resolution 9. Resolution 9 is an ordinary resolution. This resolution seeks shareholder approval for the issue of 674,790 retention service rights to Trent Fraser, CEO, under the company's rights plan, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item for business, resolution 10. Resolution 10 is an ordinary resolution. This resolution seeks shareholder approval to ratify the issue and allotment of 5,333,047 placement shares issued on the 3rd of March 2023, ASX listing rule 7.1, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

Resolution 11. Resolution 11 is an ordinary resolution. This resolution seeks shareholder approval to ratify the issue and allotment of 7,166,953 shares issued on 3 March 2023 under ASX listing rule 7.1A, on the terms and conditions as set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item for business, resolution 12. Resolution 12 is an ordinary resolution. This resolution seeks shareholder approval [ to ratify ] the grant of 4,250,000 options on the terms and conditions set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

[ Resolution 13 ]. Resolution 13 is an ordinary resolution. This resolution seeks shareholder approval to the grant of 750,000 options to Grove Investment Group Pty Ltd, an associate of Nonexecutive Director Stephen Grove, on the terms set out in the explanatory memorandum. Details of this resolution are set out in the notice of meeting, and the resolution and proxies received are shown on the screen. The Board, other than Stephen, recommends that shareholders vote in favor of this resolution. Are there any questions on this resolution?

No questions.

As there are no questions, I will move on to the next item for business: other business. The final item on the agenda today is any other business that may legally be brought before the meeting. I note that, prior to the meeting, we have not received any other items that people [Audio Gap] the meeting. As there are no further items to be brought at this meeting, this concludes our discussion on the items of business before this Annual General Meeting. Online attendee voting. As set out earlier in the meeting, for those present today, a poll will be held on all resolutions at the conclusion of all other business of the meeting. If there is any person present today who believes they are entitled to vote but have not registered to vote, would you please raise your hands for -- your hand for assistance? Shareholders and proxy holders will have received on registration a green voting card that provides for the holding of a poll on any of the resolutions put to shareholders. We will now hold the poll on the resolutions. The poll results for all resolutions effectively put at this meeting will be announced via a release to the ASX after this meeting has concluded. I will now run through poll procedures for shareholders in attendance and then for proxy holders in attendance. If you wish to vote on any resolution, please mark the for or against box, on your voting card, next to the relevant resolution. If you wish to abstain from voting, please mark the abstain box, on your voting card, next to the relevant resolution. When you've finished filling-in your voting card, please lodge it in the ballot box to ensure your votes are counted. When a proxy holder does not lodge a vote on any resolution or is not recorded as being present at this meeting, the votes [indiscernible] resolution [ will be passed to me ] as Chairman [ of the event ] to exercise, provided that voting instructions have been provided. And doing so, I must comply with the voting instructions of the shareholder who has appointed the proxy. When the shareholders appointed the Chairman of the meeting as their proxy holder and no voting instructions are given to the Chairman on how to vote, I will be taken to have been expressly authorized to exercise these votes and intend to vote these shares in favor of each resolution. If you have any difficulty in completing your voting card, [ please ] raise your hand. Please now complete your voting cards, and place the card into the ballot boxes being brought around by staff.

[indiscernible]...

[indiscernible]... [Voting]

Has everyone now completed their voting [indiscernible] and lodged your votes?

Yes.

[ And so the voting are now closed ]. After the votes on the resolutions have been counted and reviewed, the results of the poll will be announced on the ASX via an ASX announcement and will also be displayed on the company's website. I now declare this Annual General Meeting closed. Thank you for your attendance and participation. And I hope this has been an opportunity for you to learn a little bit more about your company and its exciting future. On behalf of the Board, we look forward to your continuing support in the coming year. Thank you very much.