Hansen Technologies Limited (HSN) Earnings Call Transcript

I do apologize to everyone, but there's a slight glitch, which has now been hopefully rectified. Good morning, ladies and gentlemen. Please let us know if you can't hear this. My name is David Trude. And as Chairman, I welcome you to the 26th Annual General Meeting. This is our sixth year running the AGM virtually, and we are very pleased with how this format allows all our shareholders to participate easily and equally no matter where you are. If we do experience any technical hiccups along the way today, we may need to pause briefly or if necessary, adjourn. If it happens, I'll let you know straight away. Voting on resolutions is open and will remain so until 5 minutes after the end of the meeting. Now for the formalities of the meeting. The notice of the meeting was duly given, and the meeting has been properly convened. We will turn to resolutions later in the meeting. Please note that only shareholders, proxy holders or shareholder company representatives may vote. I note that there is a quorum present, and I declare the meeting open. I'd like to introduce my colleagues joining me at this AGM listed on Page 3, Andrew Hansen, our Global CEO and Deputy -- sorry, our Managing Director; our non-executive directors who are off camera but with me here in Melbourne; Bruce Adams, our Deputy Chairman; David Howell; Don Rankin; Lisa Pendlebury and Rebecca Wilson. I would also like to introduce our Company Secretary, Julia Chand, as well as representatives from our auditors, RSM Australia Partners. Beginning with operational highlights. Commercial momentum was a clear feature in financial year '25. In January '25, we signed a transformative 50-year (sic) [ $50 million ] 5-year agreement with VMO2, a joint venture between Telefónica and Liberty Global. We have also signed a strategic 5-year agreement with one of U.S.A.'s largest renewable energy portfolios for an estimated contract value of $16 million. We scheduled Vattenfall in Finland -- we secluded -- sorry. We secured Vattenfall in Finland with a $5.5 million contract supported Å Entelios in Denmark and grew Hansen Trade recurring revenues through multiple new developments. In Germany, our transformation of Power Cloud is delivering results. We've streamlined operations, relaunched as Hansen Germany, acquired assets from CONUTI and achieved positive underlying EBITDA. These are important milestones that strengthen our European presence. We are continuing to invest in and leverage the opportunities that AI is enabling across many parts of the business, lifting productivity and quality, whilst maintaining robust profitability and a strong balance sheet. In summary, financial year '25 was a good year for Hansen. Moving to Page 7. I'll briefly summarize the results for the financial year '25. Operating revenue was up 11.2% to $392.5 million. Underlying EBITDA increased 20.9% to $111.7 million with a margin of 28.5%, and cash EBITDA rose 21.5% to $93.4 million with a 23.8% margin. Underlying net PAT of $56.9 million was up 43%, and statutory net profit after tax more than doubled to $43.3 million, up 105.7%, reflecting improved efficiency, disciplined cost management and continued progress in Germany. By operating segment, Communications & Media grew 15% to 117 -- sorry, $171.3 million, benefiting from ongoing digital transformation and modernization programs. Energy & Utilities revenue grew 8.3% to $221.2 million, supported by resilient demand and the contribution from our German acquisition. In short, we delivered double-digit top line growth, strong operating leverage and material earnings improvement while strengthening the balance sheet and positioning the group for continued growth and further operational efficiencies. Before handing over to Andrew, I want to take a moment to acknowledge my fellow Director and Deputy Chairman, Bruce Adams, who is retiring and will not be seeking reelection for his remarkable contribution to Hansen over the past 25 years. Throughout his time with Hansen, Bruce has been a trusted voice on our Board, bringing excellent legal insight and steady guidance to every chapter of our journey. His unwavering dedication and integrity have left an indelible mark on our business. On behalf of the executive team, the Board and myself, I extend our deepest gratitude to Bruce for his exceptional service and support and wish him every success in the future. I will now hand over to Andrew.

David, thank you, and welcome, everyone, for joining the call today. And certainly, everyone has noted now an impressive result for last year, which sets us up for the future. It would be probably remiss of me, David, not to probably also comment on Bruce Adams. Whilst I probably understand the investment community has probably had enough examples where they like to have independence. But at the same time, Bruce Adams was an external lawyer to Hansen before he joined the Board, has been invaluable as a sounding Board to myself and the rest of the executives. So he will be surely missed and certainly some of his guidance and his advice has been paramount. It was -- I know when Bruce handed in his resignation, it was one I sat for a number of days. So Bruce, you remain a friend of Hansen, a friend of mine, and we wish you all the best for the future going forward. Just a little bit now on Hansen for those who are joining us. But as was noted, I think to be sitting in a business which has about 14.5% CAGR since 2008. My time since leading this business to have it continually growing and making more money year on, year out. I think even, David, the way we talk about cash EBITDA, it's the hallmark of our business to not only be able to provide dividends for our shareholders but to provide working capital and [indiscernible] to use additional capital for acquisitions, I think, is exceptional. We're a business now with about 1,600 employees with some efficiencies flowing through, but I'll get to some of that in a moment now and with software in 80-plus countries. So very industry-specific what we do, and we're having a fantastic year and our future looks brilliant. Moving to sustainability. Certainly, this is a topic which is dear to a lot of people and need to understand and also some pressure from some of our customers in the Nordics, which were very early adopters of it. But it's been a good eye opener for Hansen and what we do. We do have some limitations because we're not a distribution manufacturing or retailer. We're really largely a workforce with laptops. So a lot of our work is probably where our offices -- where we operate in our offices. David, also probably some of the areas like where we're in data centers where we're minimizing some of the work which we actually do. We've listed some highlights there. I think the best one will be a 40% reduction in our emissions here in Australia, et cetera, as we go forward. Certainly, some of our software applications and some of the AI focus is actually pointing to much better decision-making processes. Diverse workforce, I think Hansen probably leads the way and has for decades now having a very strong female leadership council inside our business. We are pushing our suppliers equally to actually address these things, and it's probably one of those areas where literally buying laptops, et cetera, or clearly we're asking our own suppliers to come to the market on that. Certainly, the Australian Sustainability Reporting Standard, reaching those new levels with the ASSB compliance. And also on top of that, when you see some of the recognition which we're receiving, David, in carbon neutral, EcoVadis, et cetera -- ratings, et cetera. So we've got a team of people which work on this at the moment now. And I know our staff strongly participate in those successes, et cetera. A lot of internal projects where we talk about sustainability. So once again, I thank you for the team leading this force. What started off is going to be an expense to the company, but we're seeing it play out in just some of the rewards receiving and recognition from our third parties. Driving operational efficiency. Look, there probably is not a company which doesn't talk about AI these days. It's the forefront. And I think everyone on the call today, [ one shape ] and actually she was using some AI themselves now and seeing some of the benefits of doing it. We took a view around AI and the reasonably early adopter into AI. And balance sheet, to actually work with a lot of our tools, which we use to support our applications has not only giving our own staff quicker decision-making, but also for our customers to quickly align with data -- quicker data to make better decisions. We're seeing the benefits enormously flowing through now and optimizing a workforce, which the productivity has been able to improve. So we've been able to improve our productivity and also a sharper workforce because we're now -- our ability is now to develop software to test, regression testing or [ fault find ] that AI has made a big difference to our business. We will continue to invest largely in AI. We've got a couple of initiatives before us at the moment now, which is to even go even further. Strong consult with our customers as well about their own expectations and what they're looking for. So we see this as a start of a journey. It's a continuing journey, David, with AI and one which I think we are seeing enormous benefits through the organization as we embark on it. A lot of people are talking about it, but we're doing a lot of doing rather than just talking about it as well. Just turning to M&A. I joined Hansen from an M&A type background and have continued. I think we've been exceptional in our ability of focusing on M&A. We have very targeted in what we believe is the right process. We certainly look at expanding our M&A into our existing marketplace, which is the energy and utilities marketplace and cross communications. We see that where we're finding adjuncts to our own applications or moves to new locations, et cetera. And I know we've been speaking for a few years, and some would be, what are you doing with a potential third vertical? Hansen's recognized our strength is we are a global organization with corporate services, account management and servicing the whole world and trying to find opportunities to go into those marketplaces. We feel good, and we've talked about whether it be the financial services, the insurance markets and industries, where we also have in-house knowledge of dealing with data, compliance, et cetera, which work well for us. But we stay very true to what our focus is. And we put up there on the slide, we've always like mission-critical applications. We like that. It's close to the cash register. So we like to be where the decision is being made by businesses. We like to see where we can leverage technology or adjunct or bolt-on technology for us as well. We do like Tier 1, Tier 2. We think Tier 1, Tier 2 is important to us as well because that's the business which we're largely at the moment now. We do want to make sure we've got clear ownership of IP. [indiscernible] IP because we -- that's the way our business we do own all our own software. Predictable cash flow, revenues, et cetera, is also fundamental. And certainly, where we can leverage existing customers and grow our existing customers. So we call that basically our bulls-eye and that's what's going to sign off. And so when we take that approach, we think third vertical, we're making sure that third vertical, and we've looked at a lot so far, we do have a sustainable business, David, that we can actually maybe buy a business where we can leverage that business and grow that business beyond as we go forward. So moving to our next slide, turning to Page 14, Digitalk. So look, this has been after many, many months. This was actually a competitive process they were going through, but it quickly led to that we were the natural owner of that business. We were dealing with the founder who founded this business back in 1996. So very similar hallmarks of the way Hansen sees this business. 60-plus employees and with software in many, many countries, 30 countries and 150 operators, operations outside of London in Milton Keynes. The applications they provide are complementary to Hansen. They are not competitive to Hansen's processes. And so therefore, we just saw this as a fantastic business that we can unlock the opportunities of Digitalk by providing that global platform, which we talked about before. I know we've already spoken about, but just the highlight of that business. The purchase price is GBP 33 million for the business. That was approximately 10x the value cash EBITDA of the business. So it's earnings accretive to us. We have such strong banking relationships. We are able to provide that from a combination of cash and debt. And it will be a wholly-owned subsidiary of Hansen. As noted, we are waiting for regulatory sign-up, which we're expecting sometime in the next few weeks. But we're already effectively involved in the business and giving some guidance whilst waiting for that regulation to come through. Turning a little bit more, but the strategic rationale was it was a clear adjacency to our business. We also see the technology around the MVNO marketplace is one, which is a virtual mobile operators is a business which is growing worldwide at the moment now. It does interject across our own catalog and CPQ products. So we see the benefits there. It is already a SaaS cloud native offering, which is important to us. And we really believe that one of the conversations we had very early is how can we unlock the opportunities of the business globally by taking our footprint. And I think the management team and the owner have done a fantastic job building the business. And I think are largely excited. We will continue to have an ongoing relationship on one of our teams where the -- Justin will continue to have a relationship with Hansen going forward. It is mission-critical software. It's got a combination of Tier 1, Tier 2 and Tier 3 customers around. They're all long term. So we're -- ultimately, what we're looking here, this is unlocking the full potential of this business. And so we're very excited to bring it on board. Just turning the page to outlook. Always important slide people are looking for. We remain extremely confident about achieving our midterm growth targets, really built around the 3 fundamentals, the visibility of our business because of our recurring revenue streams, the low churn and our installed base. Our execution, I think, is second to none. Our playbook, whether it be by M&A and Hansenization. Operational disciplines of this business have always been there, then it comes into opportunities. There is no doubt decarbonization, smart grid rollout, cloud SaaS are all opportunities where our business continue to grow. And it's all about automation AI taking place at the moment now. So we have little doubt that we are confident in delivering a 5% to 7% organic growth and sustainable EBITDA margin of 30% going forward. So we sit here very confident in our business and our future at the moment now. And just to drive some of those points home, it's around customer momentum. We've listed some customers there for everyone to look at on the slide, various customers. It's always all for calling out some customers because you understand during the year. There's dozens of customers which are renewing with us at the moment now. We do have a very slow churn. But we close these deals because we're also a product which is all about fit for purpose, value partnership and best of breed, which is a combination of how we actually manage our customers, but more importantly, how we deal with things like R&D, et cetera, to become relevant for our customers going forward. Just to drive on that to continue with that confidence in our support and maintenance. I think everyone would understand we own our own software. We own the IP. It means the source code is ours. Our customers pay support and maintenance to get access not only to support of their application, but also to be able to use our application to be able to get upgrades and updates of their applications moving forward. And you can see a beautiful uptick of the growth of both our utilities and the communications sector going forward. We continue to be very pleased by speaking with our customers to get their renewals. We have lower churn, but to also see that fundamental growth in our business. So on that note, David, the outlook continues to look very, very positive for Hansen, the cash-generative nature of our business. So it goes for me certainly to thank not only all of our customers for entrusting their business to Hansen, but all the hard work and dedication of the team of people, which are key members of the Hansen family, which are able to meet those customers' expectations. So thank you to everyone. So Dave, think I hand back to you.

Thank you, Andrew. Ladies and gentlemen, we now come to the formal part of the meeting, matters requiring resolution, which are outlined in the notice of meeting. The resolutions for consideration today may only be voted on by shareholders, proxy holders and shareholder company representatives. Shareholders online through the virtual meeting website can ask questions by text on each matter being put to shareholders. Those joining via the phone may also ask questions verbally. Consideration of accounts and reports. I wish to start by tabling the 2025 annual report containing the directors' report, the financial statements, directors' declaration and independent auditor's report. Copies of the 2025 annual report were either distributed by post or made available online to shareholders. So for the purpose of today's meeting, I intend to assume shareholders have had sufficient opportunity to review and consider the content of the annual report. As previously commented, representatives of our company's auditors, RSM Australia Partners are present and available to answer questions. Are there any comments or questions regarding the various reports and financial statements contained within the 2025 annual report via the online platform? Julia?

Thank you, Chairman. There are none.

Thank you. There are no more questions from the online platform. I would now ask the moderator if there are any questions via the phone.

No questions via the phone at this time.

Thank you. The introduction of the resolution. Moving to the resolutions. Votes can be submitted throughout the meeting at the 5 minutes after the close of the meeting. I intend as Chairman of the meeting to vote in favor of all resolutions with the open votes given to me. The results will be announced to the ASX after the conclusion of the meeting. I would now like to deal with the formal resolutions contained in the notice of meeting. Resolution 1, adoption of Resolutions remuneration report. The first resolution relates to the adoption of the remuneration report. At this stage, I wish to advise that all directors and executives named in the remuneration report as well as any person or party associated with any of them are excluded from voting on this resolution in respect of shares they own or control. The resolution for consideration as a nonbinding resolution is as follows: in accordance with the requirements of the Corporations Act, adopt the remuneration report for the year ended the 30th of June 2025, as it appears in the directors' report within the annual report 2025. Are there any questions regarding the remuneration report via the online platform, Julia?

Thank you, David. There are no questions on the remuneration report.

If there are no questions via the online platform, I will now ask the moderator if there are any questions via the phone.

No questions via the phone at this time.

Thank you. You can see on the screen the proxy position of the resolution prior to today's meeting. Thank you. I will now move to the remaining resolutions, each of which is an ordinary resolution requiring a 50% vote in favor to be successful. Resolution 2, the reelection of Lisa Pendlebury. I now consider Resolution 2 that Lisa Pendlebury, a director retiring by rotation in accordance with the company's constitution and being eligible and having signified a candidature for office be and is hereby reelected a director of the company. Are there any questions regarding this resolution via the online platform, Julia?

Thank you, David. There are no questions in relation to the reelection of Lisa Pendlebury.

If there are no more questions via the online platform, I would ask the moderator if there are any questions via the phone.

No phone questions at this time.

Thank you. You can see on the screen the proxy position for the resolution prior to today's meeting. [Voting]

I think by that, Lisa, that you are likely to get in. That's not bad, 96.5%. Resolution 3, grant of performance rights to Managing Director, Andrew Hansen for financial year ending the 30th of June 2026. Moving to resolution 3 that for the purpose of Listing Rule 10.14 and for all other purposes, shareholders approve the grant of 113,419 performance rights to Andrew Hansen under the Hansen Technologies incentive performance rights plan on the terms and conditions set out in the explanatory notes. Are there any questions regarding resolution 3 via the online platform, Julia?

Thanks, David. Yes, we have a question from shareholder, Stephen Mayne. He said, "well done for disclosing the proxies early with the formal address and also achieving strong voting support on resolutions. This is a good a sign, different from the material process from the year gone by. What are the major changes that were made to [indiscernible] proxy advisers and institutional investors, including on resolutions like this LTI grant?"

Always good to hear from you, Stephen, and thank you for your opening comments about what we're going. Look, from my point of view, not all proxy of Hansen do openly entertain engagement done by companies. We have, I think, in the last couple of years, worked hard to listen to what our shareholders are not [indiscernible], Stephen, along with that engaging with them to explain our processes going forward. So I think it's a combination probably of getting information out early and engaging with them and also listening. But yes, appreciate it and certainly appreciate the voting in favor of my performance rights this time. Thank you all. If there are no more questions via the online platform, I'd ask the moderator if there are any questions via the phone.

No phone questions at this time.

Thank you. As you can see on the screen, the proxy position for the resolution prior to today's meeting. Are there any other questions before we close the meeting?