Bapcor Limited (BAP) Earnings Call Transcript

Good afternoon, everyone. My name is Maggie Haseltine. I'm Chair of the Board of Bapcor Limited. On behalf of the Board, it is my pleasure to welcome you to the Bapcor Limited 2020 (sic) [ 2022 ] Annual General Meeting. I 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. And I extend that respect to Aboriginal and Torres Strait Islanders peoples here today or either online. After 2 years of conducting this meeting online format due to COVID, it's our great pleasure to be returning to a physical meeting while still enabling online participation to allow shareholders to ask questions and vote electronically. Allow me to begin today by introducing my fellow directors in the room. We have Noel Meehan, Chief Executive Officer and Managing Director; and our other independent nonexecutive directors. We have Jennifer Macdonald, Mark Bernhard, James Todd and Mark Powell. Looking to the future, we are very pleased to welcome Brad Soller to the Bapcor Board as a new independent director effective 1st of November 2022. Brad will serve as Chair of Bapcor's Audit and Risk Committee upon his appointment as a nonexecutive director. Further, I would also like to acknowledge very sincerely Therese Ryan, who recently retired as an independent nonexecutive director. For the sake of completeness, I should note that I am also an independent nonexecutive director. Also in the room today, we have Stefan Camphausen, who's at the back of the room. Stefan is our Bapcor's Chief Financial Officer. And we have George Sakoufakis, he's here, who is our Company Secretary, as well as other members of the Bapcor's management team. I'd also like to welcome to the company auditors. See, Jason just snuck in there, PwC represented by Jason Perry. And due to the requirements of audit partner rotation, this will be Jason's final year as lead auditor of Bapcor. And I sincerely would like to thank Jason for his contributions in delivering Bapcor's independent audit over multiple years. It's been a fabulous ride. Looking to the future, we also have in the room today, Bapcor's lead auditor will be [ Alison Milner ] of PwC. And we welcome you, [ Alison ]. Finally, I would like to welcome Wayne Hopkins, a representative of the company's share register, Wayne is somewhere down the back, I believe, of the Computershare Investor Services. So given it's now past 1:30 and the company secretary has advised me that a quorum is present, I now declare the meeting open. The notice for this Annual General Meeting was circulated to shareholders within the required period. If there are no objections, I would like to move that the notice be taken as read. Today's meeting is being held physically at Bapcor's Tullamarine offices and online via the Computershare meeting platform. This allows shareholders, proxy holders and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. In addition, shareholders and proxy holders have the ability to ask questions and submit votes online. Before we move to the formal part of the business of the meeting, I'd like to run through a few process and housekeeping matters so that we can ensure this hybrid meeting proceeds smoothly and is conducive to a manner for everyone's benefit. At this meeting, there will be 8 items of business, including 7 shareholder resolutions. Each resolution will be proposed and voted on as a simple majority except for resolution 4, which is a special resolution which is, to be passed, requires 75% of the votes cast to be in favor of the resolution. So we are now going to -- thank you. This is a how to ask a question slide. So before I put each resolution to shareholders, I will give shareholders the opportunity to ask questions on the resolution. Again, to ensure an orderly meeting, I will only be taking questions that relate directly to the resolution at hand. I will seek to address any other general questions at the end of the meeting. Online attendees can submit questions at any time. [Operator Instructions] Although you can submit questions now -- questions from now on, I will not address them until the relevant time in the meeting. And please also note that your questions may be moderated. Or if we get multiple questions, we will amalgamate them together. To ask a verbal question, please follow the instructions written below the broadcast. The next slide is how to vote. If you're 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 one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You'll receive a vote confirmation notification on your screen. You can change your vote until the time when I declare voting is closed. For those attending the meeting here in person, when questions are invited, you can ask a question by approaching the microphone, showing your attendance and providing your name. If you're attending in person and are eligible to vote, you may complete the voting items on the reverse side of the attendance card. These cards will be collected at the end of the meeting. I now declare voting open on all items of business. Please submit your votes at any time, and I will give you a warning before I move to close voting. As well as those shareholders online today, the holders of approximately 222 million ordinary shares or 62% of the company's total issued share capital have sent in valid proxies. As I read out each item of business at today's meeting, I will announce the total number of valid proxies received for that item and the manner in which those proxies have been directed. These figures will be as -- at the closing time for receipt of proxies, which was -- sorry, missed it. These figures will be as at the closing time for receipt of proxies, which was at 1:30 p.m. on Monday, 17th of October. And in my capacity as Chair, I will be voting all available undirected proxies in favor of each item of business. Before we move on to the formal business of today's meeting, I would like to address shareholders in relation to the company's progress in 2022 and our objectives going forward. A copy of my address to shareholders and our CEO and Managing Director's presentation, which will be delivered to the meeting today, has been lodged with the ASX and will be also published on the Bapcor website. I'm absolutely delighted to present Bapcor Limited Chair's report for the year ended 30 June 2020 (sic) [ 2022 ]. The 2022 financial year delivered another record financial result for Bapcor. The team delivered record revenue and earnings, demonstrating our team members' focus on the customer, the resilience of our business and the favorable fundamentals in the automotive market. Bapcor clearly benefited from its diversification, demonstrating from adaptability and resilience in a challenging year with global supply chain disruptions and an uncertainty as a result of COVID. It's worth reiterating that Bapcor is predominantly a trade-based business, which mainly supplies nondiscretionary parts to keep our vehicles on our roads operating safely. As a consequence of Bapcor's strong FY '22 performance, a fully franked final dividend of $0.115 per share was declared and paid in September 2022. This brought the full year fully franked dividend to $0.215 per share, representing a 7.5% increase on the prior year. We are committed to accelerating our work to deliver on our environmental, social and governance, ESG strategy. The group's initiatives and targets are outlined in the annual report, including the vision that Bapcor aspires to become net carbon neutral. Last year, the group has undertaken important work to measure our baseline carbon footprint. This will inform the development of our road map to be net carbon neutral and will inform future decision-making for the Nomination, Remuneration, Environmental, Social and Governance Committee. That is a mouthful. I'd like to take also this opportunity to welcome Mark Bernhard as a new Independent Director. Mark joined Bapcor in March 2022 and brings significant Board and executive management experience in the automotive industry. I'd also like to welcome Noel Meehan, our Chief Executive and Managing Director. With Darryl Abotomey's retirement in December 2021, the Board enacted the existing succession plan, which included a comprehensive global search process and resulted in the appointment of Noel as CEO and subsequently, Managing Director. On the -- behalf of the Board, I would sincerely like to also thank Darryl Abotomey for his 10 years of service as Bapcor's inaugural CEO and the significant commitment and contribution he has made to the business over that time. This includes Bapcor's listing on the ASX in 2014 and driving the strong performance of the company and executing its strategic growth plan. Thank you, Darryl. Further, I'd also like to acknowledge both Therese Ryan's and Jenny Macdonald's outstanding contribution in shaping Bapcor to be the business that it is today. Therese retired from her position as independent nonexecutive after 8 years with the company, while Jenny served on the Board since -- has served on the Board since 2018, including as Chair of the Audit and Risk Committee. We sincerely wish to Therese and Jenny all the best for their future and will appoint new directors to the Bapcor's Board in light of our continuous review of our Board's mix of skills, experience and diversity. So in closing, on behalf of the Board, I would like to thank all of our stakeholders, including our shareholders, customers, suppliers, franchisees for your ongoing support. But most importantly, I would like to thank each and every one of the Bapcor team for their exceptional contribution to deliver the 2022 results. And I would say that without each and every one of the Bapcor employees, we would not have been able to deliver the results. So I really do thank every employee. I'd like now to hand over to Noel, our CEO and Managing Director, to address the AGM. Welcome, Noel.

Thanks, Maggie, and good afternoon, everyone. As Maggie said, my name is Noel Meehan. I'm the Chief Executive Officer and Managing Director of Bapcor. I'm delighted to present to the 2022 Annual General Meeting after my first year of leading Bapcor as the Group CEO. Bapcor is a group of specialist businesses with scale, operating in a resilient industry and rational marketplace. We continue to strengthen our market position, and our reach now extends to approximately 1,100 locations, employing more than 5,000 team members across Australia, New Zealand and Asia. Bapcor provides a comprehensive range of vehicle parts required to safely keep cars and trucks on the roads of Australia, New Zealand and Asia with around 90% of our revenue attributable to nondiscretionary items. This significant portion of revenue linked to nondiscretionary spend and our integrated business model across wholesale, trade, retail and networks differentiates Bapcor in the marketplace and enable Bapcor's FY '22 record results despite challenging economic conditions due to COVID and global supply chain disruption. The safety and well-being of all of our team members continues to be of paramount importance to Bapcor. To ensure it remains front of mind for all team members, the group continues to invest in resourcing, in systems and training to ensure an appropriate and effective safety culture is in place and applied. An example of our focus on safety and culture -- safety and well-being in the organization is the group's paid pandemic leave policy. The paid pandemic leave policy as well as the paid parental leave policy and flexible working arrangements were initiated during the year to look after our team members. Our performance in safety, as you can see on the slide, is improving, but there's always more we should do and could do to ensure the safety and well-being of our team members. FY '22 was a successful year for Bapcor, and I'd like to thank each and every one of our team members for their hard work and contribution to delivering these record results. Revenue increased 4.6% to just over $1.8 billion, and net profit after tax increased just over 1% to $132 million, with all business segments delivering revenue growth and increasing own brand sales throughout the year. The sustainability of our growth is also evident over a 2-year period where we saw revenue increase by 26% and profit increased by 48% over that 2-year period. Bapcor has been a highly successful business since listing on the ASX in 2014 with 2022 being another outstanding year. In line with our long-term record of delivering sustainable shareholder returns, we paid an FY '22 dividend of $0.215 per share, an increase of $0.075 from the prior year with a payout ratio of just over 55%. Capital efficiency is a key area of focus and priority to ensure we further optimize Bapcor's full potential. Additional focus on return on invested capital going forward will enable us to continue our long-term record of consistently delivering shareholder returns. The F '22 record results were achieved against the global backdrop of supply disruptions across manufacturing, transport, staff shortages, which resulted in product shortages across the network. Inventory availability is one of Bapcor's key competitive advantages. We applied prudent operational procurement strategies to mitigate this risk, which led to temporarily elevated inventory levels. But very importantly, Bapcor's inventory is durable, nonperishable in nature, which means it doesn't easily become obsolete over time and will generate future revenue for Bapcor as it is sold to customers in the future. Inventory availability is one of Bapcor's key competitive advantages. Our objective is to have the most effective and efficient supply chain in the industry. The AGM today is being held at one of Bapcor's state-of-the-art facilities in Melbourne at the Victorian distribution center, which has significantly ramped up its performance in the second half of FY '22 and is on track to achieve steady-state performance. I'm excited about the opportunity ahead as Bapcor progresses the construction, commissioning and ramp-up of our Queensland distribution center. Enhancing our supply chain capability will provide Bapcor with a competitive advantage as markets and customer requirements continue to evolve. Bapcor continued to expand its network through acquisitions. During FY '22, we welcomed new team members from Blacktown Auto Spares in New South Wales into the Bapcor Trade family. We also strengthened our commercial vehicle business through the acquisitions of Gibbs Truck & Trailer Parts, Peninsula Truck Parts, Truck & Auto Parts and Wrights Truck and Trailer Parts. Growing our footprint in Asia remains a strategic option for Bapcor. Despite COVID challenges in Thailand, we opened 1 new Burson store in Siracha, our first location outside of Bangkok. We also have a 25% equity interest in a company listed in Singapore called Tye Soon Limited, which has just recently delivered strong half year results in August '22, demonstrating good operational and financial performance. Our team members have always been and will be the heart and soul of Bapcor. We continue to invest in our people, in their training and their development, making it easier for their team members to do their jobs and enabling them to unleash the full potential of the team. During the year, Bapcor concluded its first workplace culture review, which confirmed that the awareness of the Bapcor values is strong. And generally, team members expressed positive views about their teammates, their leaders and their standards of workplace behavior. The review also highlighted some areas of potential concern and long-term risk for the organization. As a consequence of the review, a series of recommendations have been formulated with initiatives implemented in response to these findings. Bapcor is committed to being a great place to work and a sustainable employer of choice and always doing the right thing. Turning to Bapcor's future direction. And based on Bapcor's solid foundations and record results, we have the potential to be a more outstanding business going forward by unlocking new ways of working and realizing the full potential of Bapcor's talented team members. At this time, given the history of the business acquisitions, Bapcor's group efficiencies have not been fully leveraged. And therefore, significant opportunities exist going forward. To realize Bapcor's long-term strategic goals, we've commenced a transformation project focused both on Bapcor's culture as well as the integration of our operations. We want to make it easier for people, our people and make it easier to create more sustainable business outcomes. Whilst Bapcor's transformation is already underway, we'll also continue to perform operationally. Bapcor has started positively into the FY '23 financial year with revenue after the first quarter up in the low double-digit percentage, mostly driven by higher like-for-like sales compared to the same time last year. Profit has increased in the mid-single digits in the first quarter compared to a year ago as we continue to build critical capability, invest in safety resources, grow our teams and expand our geographic footprint. Altogether, we expect a solid underlying trading results in FY '23. In summary, Bapcor remains focused on improving operational efficiencies, team performance and delivering results for all of our stakeholders, including our customers, our people and our shareholders. I'm excited about what the future holds for Bapcor. The opportunity before us to make Bapcor better than before will enable sustainable growth for both the mid and the long term. I look forward to providing more details about the road ahead better than before at our upcoming Investor Day on the 22nd of November. Thank you for your attendance and listening. And I'd now like to hand back to Maggie.

Thanks, Noel. Okay. So we will now move forward to the formal business of the meeting. I want to make sure -- so the first item of business is the consideration of the company's audited financial statements and related reports for the year ended 30 June 2022. The Corporations Act requires that audited financial statements and related reports for the 2022 financial year be laid before the meeting. I now declare that these reports, which were made available to shareholders on the 17th of August 2022 via the ASX and Bapcor's website, have been laid before the meeting. Although shareholders are not required to formally vote on the company's financial and related reports, I would welcome any discussion or questions on the reports. And as I mentioned previously, we have the company's auditors, Jason Perry from PwC, who is responsible for the company's 2022 audit, in attendance today. So if there's any question on the conduct or process, then Jason or [ Alison ] could answer. I'm advised by the auditors that no relevant questions for their attention received prior to the meeting. Is that correct? Thank you. So I will ask if there's any online questions and -- if so and also any questions in the room.

Chair, no online questions have been received on this item of business.

Thank you. No online? Any questions in the room? No? Okay. Thank you. So I note no questions have been received on this item of business. I will now ask that the company secretary record that the audited financial statements that related to reports for the year ended 30 June 2022 have been received and considered by shareholders. Now on to the 7 resolutions. The next item of business, resolution 1, relates to the reelection of Mark Bernhard as a director. Mark was appointed to the Board on 1 March 2022 as an independent nonexecutive director. And his qualifications, background and experience are summarized in the Notice of Meeting. I will now invite Mark to briefly address the meeting.

Thanks, Maggie, and good afternoon, everyone. As Maggie mentioned, I was appointed as an independent nonexecutive director in March of this year, and I've been a member of Bapcor's Audit and Risk Committee since May. I bring more than 30 years of experience in the automotive industry in finance and various senior executive roles, which saw me working internationally for about 15 years in diverse markets, from the mature markets of the U.S. and Europe to the rapidly expanding markets of Southeast Asia and China. From 2011 to 2015, I was Chief Financial Officer and Vice President of Shanghai General Motors, returning to Australia in 2015 as Chairman and Managing Director of General Motors Holden until 2018, where I oversaw the closure of our manufacturing operations. I have a passion for diversity and corporate culture, was a member of Male Champions of Change and have driven workplace gender equality citation status and flexible working awards. Since 2019, I've served as a nonexecutive director of the ASX-listed Carbon Revolution, a high-tech carbon fiber automotive wheel manufacturer based in Geelong. I've also been a nonexecutive director of Healthy Male, a not-for-profit that provides information on men's health, and I'm Chair of their Audit and Risk Committee. There's no question that the automotive industry is going to experience massive change over the next decade with vehicle changes, including the transition to EVs and low or 0 emission vehicles, connectivity of vehicles and potential changes to ownership models with car sharing and ride-sharing. These will all impact the Bapcor business over time. And while they will have minimal impact in the near to medium term, it's critical we start to prepare for these changes. In closing, I'm really excited to be able to play my role on the Board, and I hope I have the support of you, our investors, to do that. Thank you.

Thanks, Mark. The resolution appears on the screen, and I will take it as being read. Also appearing on the screen are the details of the valid proxy votes on the resolution. So I'll just now check if there's any online questions. No?

There are no online questions that were received.

Thank you. Any physical attendees, anyone would like to ask a question with Mark? No? Okay. If there's -- I note no questions have been received on this resolution, so I'll now formally put this resolution to the meeting. Thank you. Resolution 2 relates to the reelection of Mark Powell as Director. Mark was appointed to the Board on 1st of September 2020 as an independent nonexecutive director. And his qualifications, background and experience is summarized in the Notice of Meeting. I will now invite Mark to briefly address the meeting. Over to you, Mark.

Thank you, Maggie, and good afternoon, everyone. As Maggie said, I was appointed as an independent nonexecutive director of Bapcor on the 1st of September 2022 (sic) [ 2020 ], 2 years ago. And I have chaired the Bapcor's Nomination, Remuneration and ESG Committee and our ESG since February 2021. After initial training and leadership experience in underground coal mining in South Wales in the U.K., I've had over 30 years of leadership and executive experience in retail, logistics and wholesale distribution in the U.K., Spain, North America, Australia and New Zealand. This includes being U.K. Logistics Operations Director for Tesco plc, the U.K. retailer, running Walmart's logistics operations in Canada and being CEO of the Warehouse Stationery retail chain in New Zealand. I then also spent 5 years as Group CEO of The Warehouse Group, an NZX-listed retail group with multiple retail and online business units and brands and 12,000 employees. I'm currently a nonexecutive director and member of both the Audit and Risk Management Committee and the Remuneration and Nominations Committee of ASX-listed JB Hi-Fi Limited, and a nonexecutive director and Chair of the ESG Committee of NZX-listed Kiwi Property Group Limited. Since 2021, I've also served on the Board of 7-Eleven Australia, serving on both the Strategy and on the Audit, Compliance and Risk Committees. It's an honor and privilege to present myself to the shareholders for reelection, and I look forward to the journey of making Bapcor even better than before.

Thank you, Mark. So the resolution appears on the screen, and I will take it as being read. Also appearing on the screen are the details of the valid proxy votes on the resolution. So I'll just -- no online questions? Thank you. Any questions from anyone in the room? No? Thank you. So with no questions, I now formally put this resolution to the meeting. I'll now move on to resolution 3. Resolution 3 is a nonbinding resolution to adopt Bapcor's remuneration report, which is set out in the company's 2022 annual report. The resolution appears on the screen, and I'll take it as being read. Also appearing on the screen are the details of the valid proxy votes on the resolution, at least over there. Are there any online questions? No. Thank you. Does anyone who's in the room want to ask any questions on the rem report? No? I now formally put this resolution to the meeting. Resolution 4. Resolution 4 is a special resolution seeking shareholder approval to renew the proportional takeover bid provisions in the constitution for a further 3 years from the date of the meeting, which will ensure that in the event of a proportional takeover bid being made, a general meeting of the company will be convened in order for shareholders to vote on the proportional takeover bid. For this resolution to be passed, it requires 75% of the votes cast in favor of the resolution. The resolution is on the screen, and I take it as read, also details of the valid proxy votes. No online? Any in-person questions? No. Thank you. I -- No questions. I formally put this resolution to the meeting. Moving on to resolution 5. Resolution 5 seeks shareholder approval for the issue of share rights to Mr. Noel Meehan, the company's CEO and Managing Director, in relation to FY '22. The resolution appears on the screen, and I will take it as being read. Also appearing on the screen are the details of valid proxy votes on the resolution. No? So no online questions. Any questions from any of the physical attendees? No. Thank you. No questions. I now formally put this resolution to the meeting. Resolution 6 seeks shareholder approval for the issue of performance rights to Mr. Noel Meehan, the company's CEO and Managing Director, in relation to FY '23. The resolution appears on the screen. I'll take it as being read. Also appearing on the screen are the details of the valid proxy votes on the resolution. We do have a question. We have a question from online. So could I please have the first question?

Chair, the question is from Richele Janjatovic of the Australian Shareholders' Association, who represents 48 shareholders with an aggregate holding of 1.1 million shares. The question is, "The first workplace culture review highlighted areas of potential concern and long-term risk to the organization. Under the short-term incentive plan, how will people objective be tested?"

Thank you for that question. As I understand it, it's a question around the workplace culture and the testing. What I would say is that the -- in the STI metric, we have 70% financial, we have 30% nonfinancial. This year, we have -- we'll be dividing the 2 areas of nonfinancial into 2 buckets. One is around culture, and that 15% will have specific metrics within that, that will be measured not only for the -- Noel, but for the leadership team. So that's the -- and the other, just for completeness of the question, the other 15% is ESG, which is environmental, social and governance. And that also clearly picks up any cultural metrics as well. So I believe we've well and truly covered that, and I think it's a very valid and important question that's very dear to our hearts. Thank you. Other questions? No. Okay. Thank you. Any questions from anyone in the room? No. Thank you. No further questions. I will now formally put this resolution to the meeting. Resolution 7, last resolution. Resolution 7 seeks shareholder approval for the giving of certain termination benefits to the former Chief Executive Officer and Managing Director, Mr. Darryl Abotomey, following the cessation of his employment with the company. The resolution appears on the screen, and I will take it as being read. Also appearing on the screen are the details of the valid proxy votes on the resolution. So I will take that to -- any online questions. No. Thank you. Any questions in the room? No. Thank you. I now formally put this resolution to the meeting. So thank you. All resolutions at this meeting have now been put to shareholders. Before I close the polling, I will now address any questions in relation to the Bapcor's business generally. Yes, we have a question. Thank you.

There's another question online from Richele Janjatovic of the Australian Shareholders' Association, representing 48 shareholders with an aggregate holding of 1.1 million shares. Richele asks, "How is Bapcor currently tracking with additional appointments to the Board in light of its diversity objectives and the resignation of Jenny Macdonald and Therese Ryan?"