Enero Group Limited (EGG.AX) Earnings Call Transcript

[Presentation] Good morning, ladies and gentlemen. I'm your chair, Ann Sherry, and I'd like to welcome you all to the 2022 Annual General Meeting of Enero, being held virtually via a virtual meeting platform. I've been advised that we have the necessary quorum of shareholders present, and I declare the meeting open. I would now like to introduce my fellow directors, CEO, Brent Scrimshaw; Non-Executive Director, David Brain; Non-Executive Director, Ian Rowden; Non-Executive Director, Anouk Darling; and Non-Executive Director, Louise Higgins. Company Secretary, Catherine Hoyle and representatives from our share registry, Link Market Services, will be assisting with the conduct of the meeting. Our external auditors, KPMG, are also in the online meeting via audio conference and are available to answer any shareholder questions on the audit of Enero Group's 2022 financial statement. The notice convening this meeting has been made available to all registered shareholders. I will take the Notice of Meeting as read. As we are again meeting remotely this year, I'd like to outline how we will conduct the meeting. An online virtual meeting guide, which explains how shareholders may participate in the meeting, is available in the Download section of the online platform and on our website. At the bottom of the screen, there are 2 boxes. These allow you to get a voting card, Ask A Question and you can also download relevant documents. Thank you to those shareholders who submitted questions prior to the meeting. We will address those questions in our prepared speeches. If you have a question that you'd like to ask today, there are 2 ways to do so. Firstly, you may type questions into the online platform. To do this, click, Ask A Question and follow the prompts. There's a limit of 532 characters for written questions. To ensure you have enough time to type and submit to your question, I encourage you to start typing now instead of waiting until later in the meeting. Online questions that are relevant to the business of this meeting will be read aloud to me by Company Secretary, Catherine Hoyle. We may aggregate questions if we receive multiple questions on the same topic. The second way to ask a question is by phone. To do so, you must enter your unique pin obtained from Link Market Services prior to the meeting. If you have your pin, the details for joining the call are on the screen. If you do not have a phone pin and would like to ask a question over the phone, please contact Link on 1800-990-363 to request the PIN. We will first take questions from shareholders using the online platform and then take questions received over the phone. We will save each question until the relevant item of business. I will now summarize the voting procedures. All items of business will be voted on by poll, which is now open. If you did not cast your vote prior to the meeting, you may cast a live vote using the online platform. Please click Get A Voting Card and follow the prompts. You may cast your live vote at any time during the meeting. Live voting on the online platform will close 5 minutes after the close of the meeting. At the conclusion of the AGM, you will see a red bar appear along with top of the online platform with a countdown timer of how long you have remaining to cast your vote. You must be logged into the online platform to cast a live vote. You cannot cast a vote over the phone. I confirm that where undirected proxies have been given to me as Chair, I will vote in favor of the resolution to the extent permitted. During the meeting, we will display on the presentation slides the number of direct and proxy votes received prior to the meeting on each resolution. The final results will be released to the market as soon as they are available. If you experience any difficulty using your online platform, a helpline number is displayed at the top of your screen. Please ring 1800-990-363. If we experience any technical issues today, a short reset or an adjournment may be required, depending on the number of shareholders being affected. If this occurs, I shall advise you accordingly. A market announcement will be made and our website updated. Shareholders, proxy holders and guests who have registered to watch the meeting will be notified by FMS to their registered device. The agenda for the meeting will be as follows: I will give a short welcome address. I will then invite CEO, Brent Scrimshaw, to give the business review. We will then conduct the formal business of the meeting, which includes the resolutions of the meeting. Full year '22 was another outstanding year for Enero and I'm pleased to have the opportunity of updating you, our shareholders, on the company's performance. The combination of our integrated services and deep industry expertise, underpinned by exceptional talent and capability saw us deliver globally recognized results for our clients, whilst the ongoing refinement of our strategic portfolio has positioned the business for sustainable growth. Despite the challenging global macroeconomic landscape, Enero's strong portfolio of global businesses again delivered benchmark operational results with significant growth across all key financial metrics. Net revenue increasing 20% to $193.4 million. Underlying operating EBITDA increasing 40% to $62.2 million with operating EBITDA margin expanding 380 basis points to 32.2%. Net profit after tax increasing 19% to $27.1 million, with a similar increase in earnings per share to $0.309 up 17%. Earnings also converted strongly to cash flow with operating cash flow of $48.8 million, representing EBITDA cash conversion of 96%. This resulted in a strong net cash balance as of 30 June 2022 of $52.3 million, and our balance sheet remains in a healthy position to support future growth. Taking account of the strong full year '22 performance, cash generation, growth opportunities and balance sheet position, the Board declared a fully franked final dividend of $0.065 per share representing a payout ratio of 43% and taking total dividends for the year to $0.125 per share fully franked. The company continues to rapidly transform into a progressive and globally competitive business in response to the changes taking place in the worldwide operating environment and a rapidly evolving marketplace. The Enero operating model is now squarely focused on 2 strategic segments, brand transformation and creative technology and data. Brand transformation incorporates the Hotwire Group, BMF and CPR, which use creative ideas to transform the way customers and stakeholders connect and engage with brands. Creative technology and data incorporates OB Media and Orchard, which provide high-quality customer experiences enabled by technology and data. Each of the specialist businesses within our portfolio are now well positioned with a unique and differentiated service offering in the high-growth industry verticals of technology, healthcare and consumer through a suite of integrated services and deep vertical expertise and the efficiency of our operating model is supported by our global centers of excellence based in Sydney. These include people and culture, finance, technology, legal and M&A. In full year '22, Enero also continued to refine its portfolio with the sale of The Leading Edge and The Digital Edge. And given the importance of building a differentiated and truly global offering, we continue to invest in modern marketing capabilities through the Hotwire Group's acquisitions just after year-end, of ROI DNA in the U.S.A. and GetIT in Asia Pacific. Full year '22 was another year of significant achievements against our key strategic priorities. We continue to enhance our reputation as a home for world-class talent, and our NPS scores have remained consistently strong, despite the challenge of a highly competitive hiring environment. ROI DNA and GetIT have added sophisticated performance marketing capabilities in North America and broadened our reach into APAC for the first time, improving productivity and profitability through the implementation of technology and streamlined processes is reflected in our strong financial results as we continue to maintain our already industry leading margins. Finally our ambition to foster and grow an innovation engine from within Enero to deliver new business opportunities is supported by an ongoing assessment of technology and data requirements in today's global marketplace with the flexibility to support our long-term strategic plan. On behalf of the Board, I'd like to thank our talented global team of over 900 people across 15 cities around the world for their diligence and dedication during the year. I'd also like to acknowledge the leadership of our CEO, Brent Scrimshaw and the Enero executive team who are executing on our strategy and building a progressive and world-class portfolio of marketing and communications businesses with substantial scope to continue sustainably growing in full year 2023 and beyond. I would also like to thank my fellow Board members for their continued commitment to Enero throughout full year '22. Their expertise and independent judgment have been vital in progressing the company's growth strategy. And finally, I'd like to thank you, our shareholders, for your continued support of Enero. I'll now hand over to Brent, who will provide a review of the business.

Thanks, Ann, and good morning, everyone. I'm delighted to provide a business update to shareholders at today's AGM as we look back on a year in which Enero continue to thrive, delivering exceptional results for our clients and our shareholders. Pleasingly, our financial performance is a direct result of our operating framework and its strategic execution and also the contribution of our 900-plus talented and committed team members around the world. In a rapidly evolving and dynamic marketplace, client roles and responsibilities emerging, capabilities can no longer be siloed and the role of procurement is expanding to deliver maximum effectiveness and return on investment. Clients are increasingly looking for a single integrated provider that understands both their industry and their business inside and out. Enero's portfolio approach enables us to deliver integrated and relevant functional capabilities, combined with deep vertical expertise and industry-specific experience. We believe this is a game-changing approach, and you'll continue to see us execute against this strategy in our priority verticals over the next few years. To illustrate the differentiation of our services and the depth of our offering, Hotwire now has the capability to deliver fully integrated services to B2B technology clients globally following its recent acquisition of ROI DNA in the U.S. and GetIT in Asia along with the integration of the Hotwire marketing team, previously McDonald Butler, in the U.K. and Europe. So we identified a clear gap in the market to better serve our clients, looking to directly connect the narrative from their reputation and relationship messaging to incorporate demand-based revenue-generating campaigns. For most clients, this process has been inefficient, often leading to disconnected branding and inconsistent results of both their communications and marketing campaigns. Hotwire is now a distinctive brand and stands apart from the competition by linking its existing tech expertise and communications capabilities with the account-based marketing ABM, credentials of ROI DNA, GetIT and Hotwire marketing U.K. With its full suite of integrated services, Hotwire is well positioned as the preeminent tech communications and marketing consultancy on a truly global basis. Enero has continued to grow both consistently and sustainably over the past 5 years. Our FY '22 results build on this strong trajectory of revenue and EBITDA growth taking into account our 51% economic interest in OB Media. Our net revenue CAGR of nearly 13% per annum has been built with a mix of both organic and inorganic growth. And we've also worked hard to become more efficient and profitable with an operating EBITDA CAGR of 32% per annum over the past 5 years. Operating EBITDA margin expansion from 13% to 25% has been underpinned by growth from strategic investments in higher-margin businesses, such as OB Media and a focus on delivering an increasingly efficient operating base. So our foundations are strong, and our results reflect the efforts of our talented, creative and innovative global teams who continue to again step up their performance in FY '22. We've worked hard to build in Enero group that is diversified across revenue streams, business models, geographies and longevity of client relationships. Our revenue continues to directly reflect our strategic focus with our largest categories of information technology and digital media. If we double-click into this technology revenue, we largely operate in the B2B tech marketplace and are well positioned with a relevant offering to capture opportunity in industry growth segments, including cloud computing, cyber security and digital transformation. In terms of geographic diversification, nearly 60% of our revenue is now delivered offshore and our sticky services and strong and deep client relationships continue to deliver repeatability in our revenue with 66% of our clients having been within the Enero group for 4-plus years and almost half at 6 years or longer, which is a remarkable result. Turning to segment highlights and starting with brand transformation, which achieved 11% growth in net revenue to $106.7 million and over 13% growth in operating EBITDA to $24.2 million, driven by strong performances at both Hotwire and a record performance at BMF. Hotwire continues to deliver against their vision to be the preeminent global tech communications consultancy operating at the speed of tech, completing the full integration of the NBA team into Hotwire Marketing U.K. in FY '22, along with more than 20 award wins around the world for the year. BMS is a globally renowned creative agency, famous as the home of the Long Idea and their delivery of enduring, effective and emotive end-to-end ideas. Creating some of Australia's most high profile and talked about campaigns in FY '22 and celebrating its 25th birthday, BMF delivered its best year ever, led by the creation of the COVID vaccine campaign for the Australian federal government and was also named the third most effective creative agency in the world by WARC 100; an amazing achievement on the world stage. Now moving to Creative Technology and Data, which delivered 34% revenue growth to $86.7 million and a 52% increase in EBITDA to $48.6 million, underpinned by significant growth in OB Media, our 51%-owned programmatic marketing platform. OB Media deepened its investment in artificial intelligence and automation to optimize overall campaign efficiency with a 120% increase in customers delivered to advertisers and a 30% improvement in traffic conversion. Our digital experiential business, Orchard again delivered both revenue and EBITDA growth in FY '22 with margins consistent year-on-year. Significant highlights included wins such as Epson, Tourism Tasmania and Amaysim in addition to the continued strong performance from its Australian Healthcare business unit. Orchard was also the most awarded agency at the 2021 PRIME Healthcare Marketing Awards, reflecting its innovative thought leadership in the healthcare marketing space. With the addition of ROI DNA and GetIT to the group, Enero now has 915 employees across 15 offices in strategically important international markets of significant scale. In FY '22, 58% of revenue and 74% of EBITDA was delivered from outside Australia, which provides further scope for future growth around the world, and clearly dispels historical views of our business being predominantly local. To summarize the 2022 financial year, we successfully built on our breakthrough FY '21 result by posting another successful year of strong revenue and EBITDA growth. Record margins broadened our revenue and geographic diversification all whilst navigating through COVID-19 and an increasingly uncertain macroeconomic environment. Most importantly, however, is that clients, both old and new, are recognizing us for our integrated services and deep vertical expertise, and we represent a reimagined opportunity for both clients and our talented global team to redefine expectations for modern marketing services for the future. So I'd now like to give a sense of the company's outlook for the year ahead with our key priorities for FY '23 and a Q1 FY '23 trading update. Starting first with our key priorities for the year, which cover 5 key areas. Firstly, on the core, we'll continue to drive key initiatives that strengthen and accelerate our existing business and for the first time, develop a clear ESG approach to underpin our business framework. In capability enhancement, it's critical to continue to develop and invest in new capability to ensure our ongoing relevance and leadership in a dynamic global marketplace. We'll focus on commercializing our investments with the development of a clear global go-to-market strategy of our recent acquisitions, and we'll stay focused on driving commercial success. We will drive efficiency and continue to drive efficiency through systems integration and simply our processes to improve productivity in addition to diligent cost management and focus on profitability. And lastly, to be a magnet for talent, we'll continue to lead a post-COVID workplace model for the future, through global learning and development and further diversity, equity and inclusion initiatives around the world. Enero Group saw a continuation of its sustainable revenue and EBITDA growth over Q1 FY '23. FY '23 Q1 revenue is up 35% year-on-year and up 19% on a like-for-like basis, excluding acquisitions and disposals. The Creative Technology segment has continued its strong financial performance over the quarter. The brand transformation segment has benefited from the contributions of ROI DNA and GetIT though is experiencing some impact from macro conditions in the U.S. and U.K. that may contribute to slower client decision-making continuing into Q2. Enero remains focused on delivering organic growth and strong margins in FY '23. And that concludes my presentation this morning, I'd like to thank you, all of our shareholders for your ongoing support and interest. And I'll now hand back to Ann for the formal business of the meeting.

Thank you, Brent, and I'll now turn to the formal business of the meeting. [ 456 ] million proxies were received by the company for this meeting. That's approximately 61% of the total share on issue. We'll be displaying effects of each resolution on the screen, and I will repeat the resolution. We will also display the proxy votes for each resolution. The first item of business is the financial statements and reports, which are for consideration and discussion. The annual report contains the financial accounts for the group, the reports of the directors and auditors and other information about the business performance of our company. I'll now take any questions on this item of business received through the online platform.

Thank you, Chair. There are no questions through the online platform.

Thank you. So we'll move to Resolution 1. Resolution 1 is the adoption of the company's remuneration report, which is set out in the annual report. The nonbinding resolution is on the screen. The way in which proxy votes have been cast is now shown on the screen also. As indicated in the notice of meeting, I intend to vote validly marked undirected proxies in favor of Resolution 1. I'll now take any questions on this item of business received through the online platform.

Thank you, Chair. There are no questions through the online platform.

Shareholders, please now vote on this resolution if you have not already done so. To Resolution 2, which is the election of Ian Rowden as a director. Ian has global experience as a CEO and senior executive across commercial and operational leadership roles with companies, great companies such as Coca-Cola, Callaway Golf company, Wendy's International, Saatchi & Saatchi and the Virgin Group. Ian has served as a Director of Enero since 2018 and contributes valuable industry expertise to the company, also based in the U.S., which has been extremely valuable as well. The ordinary resolution is now on the screen. The way in which proxy votes have been cast is now shown on the screen. And as indicated in the notice of meeting, I intend to vote validly marked undirected proxies in favor of Resolution 2. I'll now take any questions on this item of business received through the online platform.