Verbrec Limited (VBC.AX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Phillip Campbell, and I am the Chair of Verbrec Limited. We have a quorum, so I declare the meeting open. As in previous years, we are holding today's AGM in a hybrid format, and I thank you all for the attendance, both those here in person and those online. Joining me here today are Matthew Morgan, Independent Non-Executive Director and Chair of the Audit and Risk Committee; Brian O'Sullivan, Non-Executive Director; Mark Read, our Chief Executive Officer; Richard Aden, who's our CEO (sic) [ CFO ] is in the front row; Brad Love, our Executive General Manager, also in the front row; and Joel Voss, our Company Secretary, also in the front row. Throughout the room, and online, we have some of the general managers across the business. We would normally have Cameron Smith representatives from Grant Thornton, our auditors here in person. But today, he's online. He was unable to -- at the last minute to get here in person, but he's online and is available if required. And now I'd like to start today's meeting by outlining some procedural matters. Today's meeting is being held online via the Computershare meeting platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. Online attendance -- online attendees, sorry, can submit questions at any time. To ask a question, select the Q&A icon. Type your question into the text box. Once you have finished typing, please hit the send button. Please note that while you can submit questions from now on, 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 the same topic, then they'll be amalgamated together. To ask a verbal question, please follow the instructions written below in the broadcast. We'll save any verbal questions made via the broadcast platform until the end. For those who have attended in person, we will allow an opportunity for questions to be asked verbally before we commence the business of the meeting. Now how to vote. Voting today will be conducted by way of a poll on all items of business. I will shortly open the voting for all resolutions. If you are eligible to vote, once voting opens, press the vote icon, and all resolutions will be activated with voting options. To cast your vote, simply select 1 of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. You can change your vote up until the time I declare that voting is closed. For those share and proxy holders attending in person, you would have received a blue voting card at the registration desk. On the reverse side of the card are the instructions to vote on how to vote on each of the items of business. I now declare voting open for all items of business. Now I will now move to say a few words about Verbrec and our operations. Our Chief Executive Officer, Mark Read, will take you through Verbrec's '25 operational performance and provide commentary regarding this current financial year. So shareholders, welcome on behalf of the Board, welcome to our Annual General Meeting of Verbrec Limited. To those who could not be here in person and are joining remotely, thank you for your attendance remotely. Verbrec is a unique professional services company, operating across Australia, New Zealand and into the Pacific with core markets in energy, mining, water infrastructure and defense. In all 4 segments, we provide essential engineering, asset management as well as operations and maintenance of critical production assets. Key clients look to Verbrec to assist in navigating the transition in the energy markets, underway across the region, leading to more sustainable mining, increased water security, lower emissions by substitution of interim gas into the -- in lieu of coal, electrification, energy storage and automation. From due diligence and advisory to innovative engineering, construction, commissioning, life cycle management and then end-of-life support, Verbrec is providing asset stewardship to many of the region's most important industrial companies. Through strong relationships built on trust, Verbrec enables a sustainable future for our clients, and for their customers. And I'll deal with safety. We have the safety of our people and the communities we serve at the center of every -- sorry, all our endeavors. In 2025, business continued its record 0 lost time injuries for a ninth consecutive year. This is a result we're very proud of. The Board will continue to support the executives in the pursuit of industry-leading health and safety performance and has championed in recent times, the introduction of a comprehensive leading safety indicator program to complement the lag indicators, which have served us well up until this time or to date. A little on the financial results. Financial year '25 was a year of solid performance that enabled us to resume dividend payments for the first time since 2013. Verbrec produced its highest gross margin since 2015, and its highest EBITDA result adjusted for the performance right expense since 2013. As at the end of the financial year, our work in hand has grown since the last time we reported upon it, a positive sign in what was a very choppy market, amply demonstrating our management team's operational execution of the strategy to establish Verbrec as a leading professional services company across Australia, New Zealand and into the Pacific. Spearheaded by our team consisting of the CFO, the CEO, Executive General Manager and Contracts and Procurement Manager, a reduction in indirect nonessential expenses helped deliver a significant improvement in cash of $1.7 million, a year-on-year improvement, ending the financial year with a robust balance sheet. At 30 June, the company has recognized deferred tax assets of $17.3 million on balance sheet, in addition to off-balance sheet unrecognized tax losses of $14.2 million, with a high likelihood of their recoverability. By recommending a final dividend for the year, the Board has -- was pleased to deliver on his oft repeated promise in recent years of resuming dividend payments. With an eye on the forward outlook, we expect to announce more of these periodically. And for the foreseeable future, they will be fully franked. We have $5.7 million in franking credits as of the end of the financial year 2025. As you will have all noticed, there's been some very significant developments after the end of the financial year. The first was the divestment of Competency Training to RelyOn for $11.5 million cash consideration. The transaction is expected to complete this calendar year. The funds from the sale will improve Verbrec's balance sheet, allowing us to invest in growth, both organic and through further value-accretive acquisitions. The other transformative development was the well-priced acquisition of Alliance Automation, a respected professional services business, highly complementary from both the skills and a geographic perspective. Our Executive General Manager, Brad Love, will lead the integration with Alliance into the Verbrec family. The CEO, Mark Read, will tell us a little bit more about that shortly. The Alliance Automation deal is balance sheet funded with a small adjustment to our group financial facility to fund the purchase price and working capital requirements. No capital was raised or equity issued in securing this transaction. Over the last couple of years, we've had delivered improvements in our operational and financial performance. These achievements are a direct result of the dedication and hard work of more than 400 employees led by an executive team I consider part of excellence. On behalf of the Board, I want to sincerely thank them all for their ongoing commitment. To my fellow Board members, thank you also for your support and dedication this year and over the last couple of years. Last but not least, to our shareholders. Thank you for your continued support and confidence in the direction we are taking. We have entered financial year '26 with a solid foundation, a clear strategy, and a shared commitment to delivering long-term value for the shareholders. I will now hand the meeting over to our CEO, Mark Read, to take you through Verbrec's operational performance for the current financial year and to talk about those exciting developments a bit more in detail. Thanks, Mark.

Well, thank you, Chairman, and welcome, everybody. I'd like to start by acknowledging the traditional owners of the land on which we are meeting today, and pay my respects to their elders, past, present and emerging. As the Chairman noted in his address, we've had a very successful financial year 2025, with record profit margins, strong cash position, and improved operational performance. It's been truly a game-changing year for Verbrec. Verbrec operates under several verticals, these being engineering, asset management, operations and maintenance, training and stacks on. Each of these verticals works across Verbrec's entire geographic coverage. And we will also very shortly add another exceptionally important vertical to our business called Alliance Automation. It's our client partnership approach that will make us successful in growing our business and leveraging the combined strength of Verbrec's engineering pedigree and Alliance Automation's digital innovation. Where we differentiate ourselves from others is our commitment to partnering with our clients across their entire life cycle of their assets. We aim to be a valued partner of our clients as they go on their sustainability journey. The addition of Alliance Automation is a critical path -- a critical part of that strategy. Verbrec has signed an agreement to acquire Alliance Automation from Telstra. Alliance Automation is a digital-first company with a strong focus on the convergence of information technology and operational technology, commonly referred to in the marketplace's Industry 4.0. They have a developing capability in cybersecurity, machine learning and artificial intelligence. These skills are in high demand for our clients in Australia and beyond. Better than ever, Verbrec will be able to meet our clients' needs across the entire asset life cycle today and into the future. On a pro forma basis, the transaction is expected to add in the order of $60 million in annualized revenue to Verbrec. Quite a step change when you consider our financial year 2025 revenue was around $86 million, including the soon-to-be divested Competency Training business. It also increases our scale with a combined headcount of around 700 people across 18 locations in Australia and New Zealand. Alliance Automation is one of Australia's largest independent electrical engineering and industry automation service providers. The company was founded in 2010, and much of the management team, including the current CEO has been there since its founding. They have overseen its operation from the time Alliance Automation was a start-up until now. Their culture is very aligned to that of Verbrec, and I'm delighted to welcome them into the Verbrec family. The specialized and innovative digital services that Alliance Automation provides have massive growth potential. The strategies employed by both Verbrec and Alliance Automation that are aligned and there's enormous room for synergy. While Verbrec primarily generates its revenue from the energy sector, Alliance Automation predominantly services the mining and water sectors. This creates a fantastic opportunity for us to complement, diversify and balance our revenue streams. Verbrec stands as a robust, leading multidisciplinary engineering and asset management firm, whereas Alliance is more concentrated on digital innovation at its core. This alignment presents an excellent opportunity for collaboration, enhancing our capabilities and engaging our combined client base. I thank the Chairman for providing an overview of our financial year 2025 results. And on this slide, we have used the combined accounts of Verbrec and Alliance Automation to provide a pro forma and indicative aggregation for the combined business. The right-hand column provides the aggregation on a continuing operations basis with Competency Training divested from the group. Alliance Automation brings a strong uplift in revenues and strong gross margins to the group. One of the key focus areas for us now is realizing of the synergies from this transaction. We have expanded national footprint. We have a larger and growing client base and improved combined capability set. We aim for increasing our revenue by managing synergies with relationship clients and our integrated delivery model. It's important to take a step back and look at where we've come from. The management team at Verbrec has increased Verbrec's own EBITDA margins from a net negative position in financial year 2023 to 9.2% in financial year 2025. We've done that by being smarter about our projects we choose to take on delivering the projects more effectively and continuously driving down our expenses and overheads. For this reason, we're strong in the belief that over time we can realize these synergies and bring the combined group's EBITDA margins to 8% to 10%, and that is our aim. We're off to a great start with the combined work in hand over double what Verbrec had prior to this transition -- transaction, sorry. Alliance Automation over time has had a strong growth rate, strong growth line there, you can see a compounded annual growth rate of around about 15.4%. Together and with a larger addressable market than either company would have had alone, we hope to skew a greater market share and grow our revenues sustainably and profitably. Alliance Automation currently derives most of its revenue from industrial automation solutions, electrical engineering and project delivery services. This is a great, sustainable revenue base and currently makes up around about 85% of their business. Verbrec does some of this too, though to a lesser extent than Alliance Automation. But it's the smaller but faster growing part of the business in operational technology and cybersecurity consulting, including developing capability in machine learning and artificial intelligence that is really exciting. It's a massive growth potential as we'll see on the next slide. Where Alliance Automation really excel is in the convergence between the information technology and the operational technology or Industry 4.0, as it's called. Each asset owner is looking to leverage data to get the most out of their assets. This is an important and desirable sector to be in, and it's growing hugely. Cybersecurity is seen as the #2 external business risk and rising fast year-over-year as well. 95% of global manufacturers have either invested or planned to invest in artificial intelligence and machine learning over the next 5 years. It's a strong trend. Alliance Automation is wonderfully positioned to benefit. Industry's ability to benefit from this massive market disruption that we're talking about is simply limited by industry's ability to imagine where they can take their businesses. And there's enormous amounts to be excited about, tremendous growth potential on the Internet of Things, Cybersecurity, Artificial Intelligence, Machine Learning, et cetera, in markets in Australia and beyond. The adoption of Industry 4.0 technologies is important to every client striving to guarantee their future success. And critical infrastructure providers are being rapidly forced to modernize cybersecurity defense. There's a strong adoption and uptake Australia wide, and there is a growing need for real-time data and information providing greater opportunities for Alliance Automation. We can see from this graphic that the combined group has a balanced and diversified revenue base. Some of the areas where Verbrec's not traditionally well known like manufacturing, Alliance Automation has a much stronger presence. Verbrec's capability is well suited to support clients in the sustainable mining and water security sectors. So there's incredible amounts of opportunity to cross-sell with these clients and to increase the proportion of revenue the combined business will get. Similarly, there's a great opportunity to increase Alliance Automation's market share in the energy sector by clearly messaging our new capabilities and capacities to our existing relationship clients. We're excited about the opportunities available to Verbrec with the enhanced digital capability of Alliance Automation. This is an important step change for Verbrec. The transaction provides over 80% increase in revenues on a continuing operations basis. The work in hand position of the group has doubled -- more than doubled. Verbrec's exposure to automation control, cybersecurity, data and AI projects is over 8x greater. I think it's truly transformational. It's really truly transformational. So a summary of our strategy that's setting Verbrec on a path towards a sustainable future. First, we signed an agreement to sell Competency Training to rely on for $11.5 million. The sale is attractive as it strengthens our balance sheet and allows us to reinvest in growth opportunities. Second, our acquisition of Alliance Automation from Telstra will add over $60 million in annualized revenue and expand our team to approximately 700 members across Australia and New Zealand. The strategic alignment between Verbrec and Alliance Automation will significantly enhance our digital and automation capabilities. This positions us as a key partner for our clients. And finally, the acquisition not only expands our capabilities but also creates synergies that will enhance our financial performance. Our management team has a track record of improving business performance, and we aim to increase EBITDA margins to 8% to 10% over time. These strategic changes enable us to pursue growth, deliver comprehensive services and enhance Verbrec's ability to partner our clients on their sustainability journeys. When we combine our capacities, we can better service our shared clients and engineer innovative solutions for energy transition, sustainable and smart mining and robust water security. The future is bright. And in summary, I would like to thank the Chair and the Board and the people of Verbrec for their efforts over the last year. The team we have at Verbrec, Alliance Automation is truly exceptional, and I look forward to the future. I'd also like to thank our very loyal shareholders for their ongoing support. So thank you very much, and I'll hand you back to our Chairman, Phillip Campbell.

Thank you, Mark. So ladies and gentlemen, we now move to the formal part of the proceedings, and deal with the resolutions. As this is a shareholder meeting, only shareholders, proxy holders, attorneys and corporate representatives are permitted to vote and ask questions. As noted at the start of the meeting, we would like to present an opportunity for shareholders who have attended in person to ask any questions they might have before we move to the formal part of the proceedings. Are there any questions from those attending here in person? Good. Thank you. We will now address the questions received before the meeting, and those questions submitted via the online platform thus far. Company Secretary, do we have any questions?

There are no questions, Chair.

Okay. Thank you. So to the items of business. The first item of business is to receive and consider the financial report of the company and the reports of the directors and report of the auditors for the year ended June 30, 2025. This item of business does not require a vote. However, the reports are open for questions, and we have arranged for Cameron Smith from Grant Thornton to be available to answer questions about the conduct of the audit and the preparation and the content of the auditor's report. All questions to the auditor should, in the first instance, be directed to me as Chairman. And if appropriate, I will ask the auditor to address the meeting. I'll now invite any questions on the financial reports, firstly from those in person. No. Moderator, are there any questions received online either written or verbal?

There are no questions for the auditor.

Thank you. If there are no questions, we'll move on. Resolution 1. Resolution 1 is an advisory resolution. It does not bind the Board or the company. The resolution is to adopt the remuneration report that forms part of the director's report for the financial year ended June 30, 2025. The report summarizes the remuneration practices of Verbrec, discusses the relationship between remuneration policies and Verbrec's performance, and details the remuneration arrangements for directors, senior executives and key management personnel. The Corporations Act requires the preparation of a remuneration report and that a resolution to be put to members that the remuneration report be adopted. Now I invite any questions related to this resolution. Are there any questions, either from the floor, or moderator from online?

There are no questions in relation to Resolution 1.

Thank you. Where I have been appointed a proxy with discretion, I intend to vote in favor of this resolution. I note to the audience that the proxy votes in relation to the Resolution 1 indicate that over 95% of votes have been cast in favor or passing the resolution whilst less than 1% have been cast against. I now put to the meeting as follows: that for the purpose of Section 250R(2) of the Corporations Act, the remuneration report contained in the director's report for the year ended June 30, 2025, be adopted by the company. So moving on, Resolution 2. Resolution 2 is an ordinary resolution and will be passed if more than 50% of the member votes are cast in favor of the resolution. This resolution is for the reelection of Mr. Brian O'Sullivan as a Director of Verbrec. Brian was appointed to the Board as an Executive Director on the June 28, 2019, and transitioned to a Non-Executive Director role on the September 28, 2020. In accordance with ASX Listing Rule 14.4 and Verbrec's constitution, a director must not hold office without reelection past the third Annual General Meeting following the director's appointment or 3 years, whichever is longer. As this is Brian's third Annual General Meeting since being appointed, he retires on the basis of tenure limitation and stands for reelection at this meeting. And I might add that the Board thoroughly recommends Brian's reappointment. I now invite any questions related to this resolution to from those here in the room or those online. Moderator, do we have any questions?

There are no questions in relation to Resolution 2.

Thank you. Where I have been appointed as proxy with discretion, I intend to vote in favor of this resolution. I note to the audience that the proxy votes in relation to Resolution 3 indicate that over 97% of votes have been cast in favor of passing the resolution while less than 1% have been cast against. I now put to the meeting that: for the purposes of Listing Rule 14.4 and 14.5, and Clause 9.2 of the company's constitution, Mr. Brian O'Sullivan, being a Director of the company appointed as an addition to the Board, who retires by rotation and being eligible, is reelected as a Director of the company. [Voting]

We come to Resolution 3. Resolution 3 is a special resolution and will be passed if more than 75% of members vote -- vote sorry, are cast in favor of the resolution. Listing Rule 7.1A enables an eligible entity to issue equity securities up to 10% of its issued capital throughout the -- through the placement of 12 months -- sorry, start again. In equity securities up to 10% of its issued share capital through placements of a 12-month over 12-month period after an Annual General Meeting. This additional placement capacity is in addition to the 15% placement capacity provided on Listing Rule 7.1. The company seeks shareholder's approval by way of a special resolution to have the ability to issue equity securities utilizing this additional placement capacity. I now invite questions related to Resolution 4 (sic) [ Resolution 3 ] either from those in the room, or moderator those online.

There are no questions in relation to Resolution 3.

Thank you. Where I have been appointed as proxy with discretion and I intend to vote in favor of this resolution. I note to the audience that the proxy votes in relation to Resolution 4 (sic) [ Resolution 3 ] indicates that over 96% of votes have been cast in favor while passing the resolution whilst less than 1% have been cast against. I now put to the meeting that: for the purposes of Listing Rule 7.1A, the issue of equity securities up to 10% of the issued capital of the company, calculated in accordance with the formula in Listing Rule 7.1A.2, and on the terms and conditions contained in the explanatory memorandum of the Notice of Meeting be approved. [Voting]

This brings to an end the formal business of today's meeting. Are there any other questions lodged or we have not yet answered?

There are 2 questions. The first 1 is, what challenges, if any, do you see with integrating Alliance Automation business into your operations?

I might ask the CEO to address that. And what's the other question while we're at it.

The second question is, when you quote historical EBITDA figures for Alliance Automation, are those pre or post AASB 16.