Trajan Group Holdings Limited (TRJ) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen. My name is John Eales, and I'm the Chair of Trajan Group Holdings Limited. I'll begin today by acknowledging the traditional custodians of the land on which we meet today and pay my respects to their elders, past and present. I extend that respect to Aboriginal and Torres Strait Islander peoples who have joined us today. It's my pleasure to welcome you to the 2024 Annual General Meeting of Trajan Group Holdings Limited. It is now 10:00 a.m. Australian Eastern daylight savings time. As we have a quorum, I declare the meeting open. Today's meeting is being held virtually via the Computershare meeting platform, where attendees can watch a live webcast of the meeting, and shareholders and proxies can ask questions and submit votes online. For those participants joining online and who might be unfamiliar with some of the functions of Computershare's platform, such as asking questions and how to vote, we will display instructions on the screen shortly. Please note that this meeting is being recorded. I would now like to introduce my fellow directors. Stephen Tomisich, Founder, CEO and Managing Director; Robert Lyon, Executive Director and General Counsel; Tiffiny Lewin, Nonexecutive Director; Sara Watts, Nonexecutive Director; and Dr. Rohit Khanna, Nonexecutive Director. Also in attendance today, we have Alister Hodges, CFO and Joint Company Secretary. The company's auditor, RSM Australia, is represented here by Billy Chan, whom I also have a pleasure of welcoming today. The auditor will be available to answer questions on the conduct of the audit and the audit report for the year ended 30 June 2024. Representatives from Computershare, our share registry provider, are also in attendance. Procedural matters. I will start today's meeting by walking you through some procedural guidelines for voting and question submission. After that, I will provide an overview of Trajan's highlights and outlook. I will then pass the floor to Trajan's Founder, CEO and Managing Director, Stephen Tomisich, for an update, before we turn to the formal business of the meeting. Following the conclusion of today's formal business, Nonexecutive Director, Rohit Khanna, will present an update on the emerging trends in our industry. The Notice of Meeting was made available to shareholders on the 26th of September 2024. I propose that the Notice of Meeting and Explanatory Memorandum be taken as read. Proxies received prior to the meeting will be shown on the screen on each resolution dealt with today. For those shareholders who have not submitted a proxy for today's resolutions, once I have declared the poll open, you will be given the opportunity to vote on all resolutions. As stated in the Notice of Meeting, as Chairman, I intend to vote those proxies left to the discretion of the Chairman in favor of all resolutions. Resolutions 1 and 3 through 7 are subject to voting exclusions as detailed in the Notice of Meeting. These exclusions will be considered when the poll is conducted. Finally, I note that shareholders were afforded the opportunity to submit written questions to the auditor, and are advised that the auditor has received no questions in writing. Only shareholders' validly appointed proxies and corporate representatives are entitled to ask questions. To submit a written question, you may do so at any time during the meeting via the Speech Bubble icon on your screen. Type your question in the chat box on the right of the screen and then select Send. Confirmation that your message has been received will appear above. Please note that while you can submit written questions from now on, I will not address them until the relevant time in the meeting. While time constraints may prevent us from answering all questions, we'll do our best to address all your questions during the meeting. Please also note that your questions may be moderated or, if we receive multiple questions on 1 topic, amalgamated together. For those shareholders who wish to ask a question verbally, please follow the instructions shown below the broadcast window on the online platform, which will take you to a phone number to call. If you're asking a verbal question, please state your full name before asking your question. Please limit your questions to only 1 to 2 questions at a time, and then rejoin the queue to allow others to ask questions. To provide you with sufficient time to vote, I now declare voting open on all items of business. Voting today will be conducted by way of poll on all items of business, and Computershare will act as the independent returning officer. For those eligible to vote, as the poll is open, a Voting icon is available on your screen. Selecting this icon will bring up a list of resolutions and present you with voting options. You are free to submit your votes at any time. To cast your vote, simply select one of the options. There is no need to hit submit as the vote is automatically recorded. Please ensure you cast your vote for all resolutions. You will receive a vote confirmation notification on your screen. To change or cancel your vote, click the link, Click Here to Change Your Vote, at any time until the poll is closed. Both may be changed up to the time I declare voting is closed. I will give you a warning before I move to close voting. Now I'll move to my Chairman's address. The past year was marked by 2 distinct halves. In the first half, we faced industry-wide destocking challenges that impacted our performance. However, customer ordering patterns returned to long-term normal growth rates late in half 1 that underpinned a strong rebound in the second half. This resilience highlights the strength of Trajan's position in bringing best practice products to sustainable market segments across the diversity of application areas, customers and geographies. While we are disappointed that our results fell short of our expectations, we are reassured by our ability to navigate the challenges we faced. Achieving revenue within 5% of our target from the previous year, coupled with a more than 50% increase in EBITDA in the second half, gives us confidence moving into this new financial year. As a Board and management team, we're encouraged by the improved operating environment, but risks remain, particularly in the pharmaceutical sector. Shortly, you'll hear from Nonexecutive Director, Rohit Khanna, whose 40 years of experience across major OEMs provides us with valuable insights. Rohit will share his thoughts on the cyclical nature of pharmaceutical growth, where periods of strong performance are often followed by temporary softness. At Trajan, we are driven by our purpose: Science That Benefits People. This principle guides our global operations and causes us to constantly seek best practice as we head towards a world of personalized, preventative and data-driven health care. It's not just an ideal but, along with our 5 core values, is a practical commitment seen in our daily work. We also believe strongly and have demonstrated that, as a guiding purpose, it drives our behaviors, which will deliver results that, in time, translate into shareholder value. I'm proud of our continued progress as a global business and, more importantly, of the positive impact we are making on the health and well-being of society. Our products are used in the analysis of biological, food and environmental samples, and our expanding portfolio supports the move towards decentralized personalized health care. I'd like to extend my thanks to Stephen and our global leadership team as well as every employee across our operations worldwide. To my fellow directors, thank you for the diligence and expertise you bring to the Board. Lastly, to our shareholders. We've seen significant consolidation in our register, and we greatly appreciate your continued faith in Trajan. While short-term valuation pressures are frustrating, particularly given our commercial scale since IPO, we remain focused on delivering our growth strategy. and we are confident that success will ultimately drive a positive reset in valuation. Thank you. I would now like to hand over to the company's Founder, CEO and Managing Director, Stephen Tomisich, who will provide an update on some of Trajan's achievements. Thanks, Stephen.

Thank you, John, and good morning, everyone, and thank you for attending today's meeting. We are 1 quarter into the new financial year. We want to provide a business update. We've had the feedback over the years to receive more frequent updates about our performance. And so the update was completed on the ASX this morning. Entry on the net revenue. What we have seen is net revenue in the first quarter was up high single digit over the previous quarter from the prior year. If I have a look at that by segment, in Components and Consumables, first of all, one of the reassuring factors was that we saw the product lines previously impacted by the destocking activity in the industry, up strongly, circa around 20% up on the quarter from the prior year, pretty much as we expected. We could also see, though, that those Components and Consumables related to pharma applications were relatively flat. There was 1 significant setback in that 1 biotech syringe was down by about 50% or about $1 million compared to the quarter from the prior year. Nonetheless, even including that, overall, the Components and Consumables segment was up around 4% compared to Q1 last year. When we look at Capital Equipment, everyone will be aware that when we spoke about our guidance for this year, we were somewhat concerned about how the pharma-related Capital Equipment would perform. And we've seen in Q1 that, that part of our Capital Equipment is down by about 30% compared to Q1 last year. However, the growth in our food-related business in that segment has been quite strong, more than offsetting that pharma shortfall, such that the Capital Equipment segment in total for Q1 is up 15% compared to Q1 last year, and the order book remains strong. Overall, no doubt, as Rohit will talk about later on today, we've seen these industry cycles before, and there is no significant structural changes that we can observe in the market in which we compete. The underlying drivers for our business remain an expectation worldwide for a clean environment, safe food, safe water, an aging population and the emerging need for analytical measurements that could impact human health and well-being. A couple of notable things I think to take out of Q1. First of all is the growing adoption of our MOSH/MOAH instrument system. MOSH/MOAH about detecting the presence of mineral oils in the food chain. And that system, where Trajan has a leading position, has continued to see global adoption. We also had, in Q1, an order from the U.S. FDA for that system. Secondly, you'll see that we completed a small acquisition of a platform called Mass Spec Studio. This is a mass spectrometry data processing package from the University of Calgary. That's a leading team there, particularly in areas related to proteomics. And it's another step in the direction of Trajan climbing the value chain towards the conversion of data into actionable information. Finally, there are still many moving parts in the industry and in the landscape. But keeping all of that in mind, we're able to reconfirm our guidance for fiscal '25 and expect to see full year revenues still fall within the $160 million to $165 million range, and the normalized group EBITDA within the $17 million to $19 million range. So on that note, I'll pass back to the Chair for the business of the day.

Thank you, Stephen. The business. There are 9 items of business for the AGM today as set out in the Notice of Meeting, 8 of these are to be voted on. The first item of business is to receive and consider the annual financial report, together with the directors' and auditors' reports, for the year ended 30 June 2024. As previously mentioned, we have our auditor present, if you wish to direct any questions pertaining to the audit to him. Are there any questions or comments in relation to the directors' and auditors' report?

Yes, we have received 1 question. Which of the 5 main proxy advisers, ACSI, ownership matters, Glass Lewis, ISS and ASA cover Trajan?

Beck, do you have that information yourself there, please?

Sorry, say that again, John?

Do you have that information yourself?

Yes. So perhaps I'll answer that just in a little bit, but sorry, there's a second part to that. Let me just continue the question. Apologies, John. Also, thank you for disclosing the proxies to the ASX, along with the formal addresses and when disclosing the poll results. Could you please include the data in terms of how many shareholders voted for and against each year? Computershare has this data, and this was a disclosure initiative done by Suncorp, Tabcorp, Qantas and the ASX itself over the past week. So perhaps, just to answer the first question. We are currently covered only by ISS, and we met with that group in the lead up to this AGM.

Thank, Beck. And just on the second part of the question, we'll release our results or the results of the polls in relation to -- in compliance with all ASX resolutions -- ASX listing rules, I'm sorry. But we'll also take on notice the suggestion to release in more detail. So thank you for that.

Thank you.

So there being no further questions, we now move to the items of business for which a vote is required. As previously stated, voting on all resolutions today will be conducted by a poll, and you can submit your vote at any time during the meeting. Details of the proxy votes will be displayed on the screen as each resolution is considered. Resolution 1 relates to the adoption of the 2024 remuneration report. The voting in respect of the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 1?

No, there are not, John.

Okay. Thank you. As there are no further questions or comments, I'll now put the resolution to the vote. [Voting]

Resolution 2 relates to the reelection of Robert Lyon as a Director. The Explanatory Memorandum in the Notice of Meeting contains particulars of Robert's skills and experience, which I will not repeat here. Voting in respect of the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 2?

No, there are not.

Thank you, Beck. As there are no further questions or comments, I'll now put the resolution to a vote. [Voting]

Resolution 3 relates to the renewal of long-term incentive plan. Voting in respect to the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 3?

No, there are not.

Thank you. As there are no further questions or comments, I'll now put the resolution to a vote. [Voting]

Resolution 4 pertains to myself. So I'll hand over to the Chair of the Audit and Risk Committee, Sara Watts, to take the Chair for this resolution. Sara?

Thank you, John. Resolution 4 relates to the grant of options to Director, Mr. John Eales. Voting in respect of the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments for Resolution 4?

Yes, we do have a question for this resolution, Sara. It is not good practice to issue options to NEDs. Why are we doing this?

Thanks, Beck. Look, I think there are 2 reasons. One is that there is a trend towards ensuring that shareholders' Nonexecutive Directors have a shareholding interest in organizations. And so the way that Trajan has chosen to do that is that half of the shareholder fee is paid in cash and half of the shareholder fee is paid in options. And it ensures that we have a long-term obligation and interest in the effective running and the effective performance of the organization. So we have chosen to do it that way.

Sara, I might add to that. It's also consistent with the practice that we adopted before the IPO 3 years ago.

Thanks, John. Beck, are there any other questions in relation to this resolution?

No, there are not.

Okay. Thank you. I'll now hand back to John, who will resume as Chairman of the meeting.

Thank you, Sara. Resolution 5 relates to the grant of options to Director, Dr. Rohit Khanna. Voting in respect to the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 5?

No, there are not, John.

Thank you. As there are no further questions or comments, I'll now put the resolution to a vote. [Voting]

Resolution 6 relates to the grant of options to Director, Ms. Tiffiny Lewin. Voting in respect of the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 6?

No, there are not.

Thank you. As there are no further questions or comments, I'll now put the resolution to a vote. [Voting]

Resolution 7 relates to the grant of options to Director, Ms. Sara Watts. Voting in respect to the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 7?

Yes, John, we do have a question. Given the interesting discussions across a range of topics today, including this proposed options grant to Sara Watts, could the Chair undertake to make an archived copy of the webcast, plus a full transcript of proceedings available on the company's website? The likes of Nine, AGL, ASX, ANZ, Domino's, IAG, Lendlease and Woolworths all routinely produce transcripts. Will you follow suit today?

Thank you for the suggestion. Certainly, we will. This meeting will be formally minuted, and we will have the record of what we do, and we'll take that under notice as to exactly how we keep that. But I appreciate the question.

There are no other questions, John.

Okay. Thank you. As there are no further questions or comments, I now put the resolution to a vote. [Voting]

Resolution 8 relates to the renewal of the proportional takeover bid provision in the constitution. Voting in respect of the proxies received prior to the meeting is displayed on the screen. Are there any questions or comments on Resolution 8?

No, there are not.

Thank you. As there are no questions or comments, I'll now put the resolution to a vote. [Voting]

I will now address any general questions that we have received.

We have received a couple, John. The first one, I'm just going to paraphrase because it's quite long. Australia is currently in the midst of an unprecedented deluge of takeovers that has contributed to listed entities on the ASX falling by 170 or 7.4% to 2,124 since June 2022. The ASX is losing long-standing names such as CSR, Boral, Blackmores, et cetera. There is a clear mispricing between public markets and private markets. And so the question is, why are public markets not valuing ASX-listed companies like ours and like Trajan more highly? And what are we doing to avoid being gobbled up, like many other companies? Does the Chair agree this is a problem for the nation, particularly with so few new floats replenishing the ASX ranks? And what does the Founder think about potentially selling our company if a compelling takeover offer was made? And who are the obvious multinational buyers?

That's a very extensive question. Thank you for the question. And look, I won't comment on other companies and anything, any other companies in particular. But I suppose that businesses over a long period of time have always considered what is best for their causes and for running their businesses at any point in time. And the ASX has been a very good and important medium for us to initially float the business back 3 or so years ago now, and we've enjoyed our time on the ASX as a listed company. We just -- we face the world as it plays out in front of us. We have no preordained idea of what will come next. But we -- at the moment, we have no other focus other than getting things right and performing, getting consistent results for Trajan month in, month out, half in, half out, year in, year out, and we just want to keep our focus on that. Stephen, I'll hand over to you if you have anything to add.

No. Thank you, John. I also appreciate the question, and you can make the same observations. Clearly, as the Founder and as the majority shareholder, we are very determined to continue to pursue our vision. And our vision is about delivering size that has an impact, and it makes a real difference in society around the world. And to some extent, I would hope people would observe that the trend that was contained in the question about multinationals acquiring Australian-based businesses, what you can see is that Trajan has been doing exactly the opposite, that most of our acquisitions have been offshore as we continue to grow and develop this Australian-based organization. So in terms of the valuation on the market and so forth, I'm a believer in the theory or thesis that, as we continue to deliver growing results and provide increased confidence, that the valuation will inevitably reflect that.

Thanks, John and Stephen. There's just 1 final question. Will the Founder and the Chair commit to holding a hybrid AGM next year so that shareholders can visit the company's headquarters in Ringwood and meet the directors personally? Why are we based in the city of Mernda in Melbourne's eastern suburbs where no other ASX 300 companies choose to do this? And have we thought about opening a Melbourne CBD office?

Look, I'll take part of that, and then throw it to you as well, Stephen. We made the decision to run an online AGM this year, partly because we had a very small turnout at our AGM in previous times when we've had it in person. We thought that this was the best way that people could access the business. We have also had opportunities for shareholders to visit Trajan at different points in time as well, which has been important. And everyone, when they have had that chance, they've really enjoyed that. But certainly, this is an open topic, whether hybrid is best, whether online is best or whether in person is best, and it's something that we do discuss and we'll keep discussing as a Board as to what suits us and what suits our shareholders best. Stephen?

Yes. Thank you, John. Just to add to that. I felt that when we had the hybrid event the year before last, it did compromise our ability to interface and communicate with the shareholders. I would just add that, in terms of having the opportunity to visit the site to see the business, we have been incredibly welcoming and opening about that. Over the 3 years that we've been listed, I've lost count of how many investors have come and visited us here, seen where we produce product, gone on factory tours. And I can't recall any situation where we've ever said no to an investor asking to come and see us here. What we did last year was we intentionally held an Investor Day to follow the virtual AGM, and we're quite open to holding further Investor Days. When it comes to the commentary of being based in the city of Mernda, I think there's an important thing to understand about our sector. And that is this southeastern corridor in Melbourne is the hub of our industry in Melbourne. It is where Agilent Technologies is located. It is where Vision Systems is located. I've worked for both of those companies before, and it's where we're located. And there's a reason for that and the scientific developments and inventions that happened in this area. There's also a wonderful pool of labor resource in this part of Melbourne that makes up our 250, 260-odd staff here. In terms of adding the expense of a CBD office, I don't think I would like to see that happen. I imagine other shareholders wouldn't like to see us add that expense either. We often are able to meet in the city and can do that any time if anyone wishes to meet us in the CBD.

Thanks, Stephen. Sorry?

There are no other questions.

Okay. Thank you. Voting will close automatically shortly. Please ensure that you have cast your vote on all resolutions. I will now pause for a moment to allow you time to finalize your votes. [Voting]

As it will take some time for the poll results to be known, once compiled and checked, the results will be announced to ASX later today and will also be made available on the company's website after the meeting. I would like to congratulate Stephen and the entire Trajan team for its achievements in 2024. There was a great deal of operational and corporate activity within the company over that period, and Stephen and the team have worked extremely hard to help position our company for future growth. Lastly, I would also like to thank our shareholders for your support and the confidence you have in the Trajan Group. I thank you for your attendance. I declare the meeting closed, and will now hand over to Nonexecutive Director, Dr. Rohit Khanna, to take us through a presentation on the emerging trends in our industry. Welcome, Rohit, and it's great to have you over here from the U.S. as well at the moment. Thank you.

Thank you, John. Good morning, everyone. I'm Rohit Khanna, and I've been on the Board of Trajan as a Nonexecutive Director since our IPO in 2021. I'm based in the United States. I'm very pleased to be here in Australia and present at today's AGM, as well as to meet with investors in both Melbourne and Sydney. I've spent over 40 years in this industry, having worked for and advising many of our current customers and partners, including Waters Corporation and Danaher. I've also been involved in the industry association, the Analytical Life Science & Diagnostics Association, or ALDA, for most of that period. In fact, just a few weeks ago, Stephen and I attended the ALDA 2024 Fall Senior Executive Conference in California, which focused on innovations in multi-omics, which is a new approach, where data sets of different omic groups, proteomics, genomics, metabolomics, cetera, are combined during an analysis. Trajan's products are critical to this market, and in fact, were referenced by several of the presenters. So today's presentation is timely, having just engaged with many of our customers and partners on the current sentiment of the industry. We're in a transition phase -- or the industry is actually a transition phase, and I want to give you my perspective of where the industry is headed and how it relates to Trajan's opportunities in the coming years. This industry is no stranger to change. What we've seen over the last few years, especially during COVID, has been intense. Pharma investments were high, and companies stocked up heavily on instruments and consumables, leading to a very strong industry growth. But as you might expect, the industry then goes through a period of adjustment. Over the past 4 to 6 quarters, we've seen a slowdown, even some negative growth across the industry, as customers work through that extra inventory or limit their capital investments. It's a temporary phase, though, and we're already seeing the signs that things will level out and hopefully start getting back to normal growth levels in 2025. If history is any indication, and I've been through 3 to 4 industry downturns in my time, these slow periods are consistently followed by strong growth. The key takeaway, this is a resilient industry, and the long-term outlook is incredibly positive. What makes this industry such a compelling space for investment even during downturns is its resilience. I can share with you that the U.S. investment community views it as a long-term safe bet. The need for safe water, clean food, safe environment and pharmaceuticals is evergreen, regardless of geopolitical or macroeconomic pressures. These are the pillars that ensure human survival and health, and they aren't going away anytime soon. In particular, consumables have proven to be especially resilient. The sale of consumables and quality control instruments are directly tied to the number of tests conducted. For pharmaceuticals, it is proportional to the production volumes of medications, and the demand for medication is only increasing. The shift to generic drugs, driven by shorter patent life spans, and faster market entry means more medications are being produced. Furthermore, greater access to medication by emerging markets, such as India and Africa, are driving up demand. On top of that, there are long-term tailwinds that will continue to propel our industry forward. Let's consider a few of these factors. Environmental concerns. There's a growing global attention on contaminants like PFAS, also known as forever chemicals. As regulatory standards tighten, the demand for testing and mitigation will continue to skyrocket. Another key market is food analysis. With growing global awareness to the impact of food quality and with increasing global food exports, increasing regulations and consumer demand are driving increased testing and a need for testing capabilities closer to the producer. In the area of life science research, the convergence of genomics, proteomics, metabolomics is revolutionizing the life science sector. These breakthroughs demand cutting-edge instruments and consumables for sample handling and analysis. And finally, the health care sector is increasingly leading toward advanced diagnostic instruments. In all of these areas, companies like ours are pivotal suppliers, and we are positioned to capitalize on these trends, especially as more diagnostic capabilities reach the consumer directly. Now I'm going to shift our attention to the global drivers shaping our future. China's Made in China 2025 policy is promoting innovation, self-sufficiency in its manufacturing sector. In doing so, it's also driving the volume of testing locally in the China market and driving global vendors to evaluate their manufacturing strategies. Furthermore, with increasing tariffs and resourcing issues during COVID, there is growing concern globally about resilience (sic) [ reliance ] on China for key materials and products. This has given rise to the China Plus One strategy, where companies are diversifying their sourcing by augmenting their China-based production into India, Southeast Asia and other regions. This shift presents us with strong tailwinds as India and other companies ramp up their manufacturing capabilities. In the final quarter, the U.S. BIOSECURE Act is also encouraging a shift away from China in favor of India or other geographies for drug manufacturing. Additionally, in the U.S., we are seeing policy changes that will accelerate the shift to generics. The Inflation Reduction Act reduces the duration of patents for many drugs, pushing pharmaceutical companies to transition more quickly to generic production, further driving demand for our products. And finally, as we approach the upcoming U.S. election, both major political parties are signaling an intent to continue raising tariffs on Chinese imports. In addition, both parties are advocating for policies that aim to reduce the cost of pharmaceuticals, which will inevitably drive up further demand for generics and increased production volumes. Trajan is very well positioned in a very resilient industry. The industry is at the cusp of coming out of the recent downturn and is on solid footing with strong long-term growth potential. The fundamentals remain robust. People will always need safe food, water, a clean environment and accessible pharmaceuticals. The shifts we are seeing, whether through geopolitical trends or technological innovations, only open up more opportunities for companies like ours that are at the forefront of these changes. My message to our shareholders and the broader investment market, it is that this is not just a moment of resilience, but one of opportunity. The industry has proven its ability to weather storms and come out stronger. With a sharp eye on the global landscape and a firm grip on the trends driving our sector, we are confident that the next phase of growth is just around the corner. Thank you for your trust, support and continued investment in Trajan's future. I feel strongly that we will navigate the present challenges and capitalize on opportunities that lie ahead. Thank you very much.

Thank you, Rohit, and for everyone's interest in this last part of today's meeting. With that, this concludes today's meeting. Thank you for your attendance.