Metro Performance Glass Limited (MPG.NZ) Earnings Call Transcript

It's just gone 10:00, so I think we will call the room to order and make a start on the meeting. My name is Peter Griffiths. I'm the Chair of the Board of Metro Performance Glass, and I will be chairing the meeting today. We are running a hybrid meeting today. So in addition to the people who are here physically in the room, we also have the opportunity for people to join us online where they should be able to hear us. They should be able to see the presentation. They should be able to vote, and they should be able to ask questions. So from time to time, during the meeting, I will be just checking in with our technical operators to make sure that everything's going okay for our online participants. All right. So on behalf of the Board and the staff of Metro Glass, I'd like to welcome you here today for the 2022 Annual Meeting. For those of you in the room, just a couple of housekeeping points. In the case of an emergency, there are 2 exits from the building -- or from our room rather, 1 on the side here and 1 on this side here. Our assembly point is out in front of the building we're in over here. Should we be required to evacuate, some staff from the venue will be with us to help us get out of the building safely. The toilets, if you need them are on the stairs as you came in. And after the meeting, we'll be inviting you to join us for a cup of coffee and something like to eat. For those online, if you do have any issues getting through technically, please ring the help line, which is 0800 200 220. If you do have questions, please send them through as soon as you can, and this will help us with the flow of the meeting. It will give us a bit of time to collate them, and we'll attempt to address as many as we can during the day. If there are any that we are unable to get to during the meeting or that they require a more detailed response, our Investor Relations team will connect with you, and we will come back to you directly either on your e-mail or at your registered address, and we'll also aim to post answers on our website as well. For those in the room, we'll take questions at the end of the presentations, and then we'll also take them as we go through our 3 resolutions. I'd now like to introduce my colleagues to you. To my left, these are in no particular order. We have Graham Stuart. Jenn Bestwick, Rhys Jones, Mark Eglinton and Julia Mayne, they are my fellow directors, and you can find details of their backgrounds and experience in the annual report and on the company website. Two of the directors that have been appointed since our last ASM, Julia and Jenn are seeking election today and they will speak to you when those resolutions are put. We also have our Chief Executive Officer, Simon Mander, with us. He is enjoined by our Chief Financial Officer, Brent Mealings. We have our company Secretary, Tracy Taylor. And we also have a number of our senior managers in the room. They each have a name badge on, and I encourage you to talk to them after we adjourn. In addition, I'd like to welcome Troy Florence, who's from our auditors, PwC, and our legal counsel, Bell Gully, are represented by James Cone today. So to our agenda for today, I'll make a few remarks. I'll then hand over to Simon, who will talk in more detail about the year 2022 and update on our first quarter's performance and our forward view of things. After that, we'll be happy to take questions. We'll then move to the formal resolutions. And as I said, shareholders will be able to ask questions at each of those. We will be taking a poll on each of the resolutions. The members from our share register, Link services are in the room, and they'll collect voting cards from you at the end of the meeting. My fellow directors and I hold a number of discretionary proxies, just something in the order of 54 million. We intend to vote those in favor of all the resolutions, and we've also received postal votes for about 60 million shares, which is 32% of our issued capital. I note that our company statements for the 12 months ended March 31, 2022, together with the auditor's report are set out in our annual report, and that was released on the 22nd of June this year. It's available on our website, and I think there will be a few hard copies around here today, if you wish for 1. I can confirm that the Notice of Meeting has been sent to shareholders and that we have a quorum. I therefore declare the meeting open. Metro Glass' vision is to be a leader in glass solutions, and our strategy to deliver this is made up of 4 pillars, delivering leading customer service to our customers, developing and maintaining our organization's capabilities, using our scale and leadership position across the channels we operate in and the quality of the assets that we have to deliver a glass solution efficiently to the market. The Board believes this strategy still holds despite the difficulties in uncertain times we are in. The financial year 2022 was a hard one and a challenging one for Metro Glass, and we recognize that our bottom line result was very disappointing. Simon will give you more detail on that, so I will just highlight a few points. Our resilience was truly tested during the year. The business had to operate under a range of complex pressures all the while seeking to continue to supply our customers with their requirements consistently and safely. We were heavily impacted by the pandemic for a further year in 2 ways, by it's a local effects through sickness and absences of our own staff and those of our customers and also by the restrictions placed on us, particularly in New Zealand, and particularly here in Auckland, where we were locked down, and we lost many days sales, while, of course, continuing to incur the costs associated with the business. The construction sector -- across the construction sector, the ongoing effects continue to be with us today. They were felt quite harshly for a number of months after the lockdown was eased, but they still clearly continue, and they're with us today. Additionally, there were more global impacts from the pandemic, principally to our supply chain, where we experienced high costs and unreliable shipping schedules. These continue today and shipping today is less reliable than it was last year. Additional to that, we had the rapidly rising costs of our raw materials. During the latter part of last year, we moved to reestablish our gross margin by applying a series of price increases, and this pricing increase action continues into the current year. These are the 2 main factors that consumed our expected surplus and contributed to a lower profit and a reduced operational cash flow for the period. Our working capital increased because of these effects being driven by the greater volume of stock that we needed to ensure the supply chain worked, and we actually received some stock in New Zealand. And of course, the cost of that inventory went up significantly as well, and that has a flow-through to debtors. Despite the reduced operating cash flows last year, we elected to continue with the majority of our capital program, which was largely made up of long lead items designed to improve our double glazing capacity and increase our furnacing capacity to place Metro Glass in a strong position ahead of the significant regulatory changes that are coming into effect in November this year. Our capital investments and working capital changes meant that our net debt increased during the year and the associated ratios consequently declined. However, at year-end, we were still within our agreed covenant boundaries and our lenders have been supportive. As this year's operations proceed in a more typical fashion, we believe we've now passed the peak and can expect to see our debt reducing once again. of course, providing that the global and local effects of the pandemic continue to diminish as well as noting the challenges of the pandemic, -- we should also remember we're in a competitive marketplace with a significant overhang in processing capacity. In New Zealand, our efforts to diversify our customer portfolio are progressing well, and there've been significant changes in our customer base during the year. Sales in some of our segments and geographies have grown strongly, while in others, we've only managed to maintain our position. Our operations in Australia pleasingly have continued to improve. Our reputation is established us a reliable supplier of high-quality double glazing, and this is reflected in increasing sales demand and the associated improvement in bottom line performance. Our customers do have a real choice and our strategic focus on strong customer relationships, quality good service performance and quality products is what will help us sustain our market leadership position. Looking ahead, we see a continuation of the challenging times. Residential construction costs are rising and will eventually dampen demand. Some economic indicators are already showing the early signs of a decline in construction activity. Additionally, the New Zealand building code changes aimed at providing better performing New Zealand homes will require a significant increase in the use of high-value glass, our LowE product principally. This will further increase the cost of a house and will come at a time of rising interest rates, housing affordability challenges and broader inflationary pressures in the construction sector. And of course, COVID is still with us. And as we have seen in the last year, it can make a material impact at quite short notice. The Board and management continue to monitor a wide range of inputs and indicators, and we are preparing for a number of potential outcomes, including a reducing demand. With this expectation of a challenging future, the Board remains focused on keeping the company as successful and enduring glass processor. To do that, we need a steady cash flow and a strong balance sheet. As I outlined previously, our debt has increased during the year. But as we move away from the effects of last year and cash flow is restored, our focus returns to debt reduction once again. As we have consistently communicated in the past, we continue to aim for a conservatively geared balance sheet at elusive ratio of 1.5x net debt to EBITDA. When we get to that point, and we do expect to get there, and other circumstances allow, we will be in a position to declare a dividend. To conclude, I would like to take this opportunity on behalf of the Board to publicly thank the Metro Glass employees for their determination and resilience during this last year. Our customers have stuck with us. Our suppliers have been supportive, and we thank you as our shareholders as well. I'll now ask Simon to join me. And following his presentation, we'll take questions. Thank you very much. Simon?

Thanks, Peter. Good morning, everyone, and thank you all for joining us here in Auckland and online. My name is Simon Mander, and I'm the CEO of Metro Performance Glass. I'd like to start by recognizing our people right across the Metro Glass group. The pandemic presented significant challenges for our teams again this year. Their resilience has ensured that we've continued to deliver our market-leading products and services to our customers. Once again, in New Zealand, our operations were shut for a sizable period as a result of the lockdowns in August and September. The immediate impacts of the lost production days, while still incurring the costs, the flow and impact on inventory holdings, supply disruption and escalating input costs significantly impacted financial performance. Australian Glass Group progressed on their turnaround plan with stable operational performance and delivered a modestly improved EBIT result despite the impacts of COVID-19 and the heavy flooding in New South Wales. While our net debt has increased this financial year, we have built buffer into inventory levels to deal with ongoing supply chain disruption and invested in a series of capital items that are set to improve their capacity, quality and capability for the future home insulation changes in both New Zealand and Australia. I'm also proud of the progress we have made in our environmental, social and governance commitments. Our safety performance continues to improve, and this remains a key focus for the leadership team. Our apprenticeship scheme provides development opportunities for our people to grow. 79 staff are currently enrolled in the program in New Zealand and 8 apprentices are qualified during the year. We're also beginning to bring together our sustainability program of initiatives with the focus for the coming year and understanding our carbon emissions and how we can take action to reduce this over time, along with the climate risk-related disclosures in future reporting periods. Metro Glass is in the process of converting its loan to 5R Solutions Limited to a 50% equity position, which will be equity accounted in our financials going forward. 5R, a glass recycling business, capable of processing the full spectrum of waste flat glass that is generated by commercial and post-consumer markets and includes all of the processing glass waste from Metro Glass in New Zealand. 5R have reprocessing facilities in Auckland and Christchurch that recycle waste glass into various new life products, such as filter mediums and feedstock for glass wall insulation. We are proud to be partnering with 5R. As the largest processor of flat glass in New Zealand, we have the opportunity and responsibility to take positive action in our efforts towards sustainable outcomes for our communities and the environment. Over the last year, Metro Glass has received recognition and a number of awards, and I'd like to share some of them with you today. In the 2022 Window & Glass awards, Metro Glass won the designing with glass residential award. As you can see in the picture, the architect designed to stylize Ships Bridge protected wind break, which was installed by a Metro Direct fine team using large and heavy, tough and single-glaze units. We're also the finalist on many other award categories and also including the New Zealand Health and Safety Awards, business leaders, health and safety forum of the year, reflecting Metro Glass' commitment and continued drive for safety and well-being performance. I'll now provide you with a summary of the group's financial performance for the 2022 financial year. Group EBIT of $5.9 million was at the low end of our range of our February guidance. The impact of the New Zealand COVID-19 shutdown during the year was severe. The rapid escalation of input costs also had a significant impact on profitability compared to last financial year. Our leverage ratio is above our capital management targets. And consequently, our focus for FY '23 will be on essential capital-only and debt reduction. While net debt has increased from last year, we built contingency in our inventory holdings to navigate the ongoing supply chain disruptions and invested in future capital equipment capability in both New Zealand and Australia. In May 2022, we conducted the seventh of our 6 monthly customer surveys. These surveys provide us with valuable feedback and guide our initiatives to address specific issues in general service levels. They also help us develop ways to generate value for our customers. Overall, our ratings in New Zealand and Australia were largely consistent with previous surveys despite prolonged COVID-19 operating challenges throughout the year. Customers were again complimentary of our people, our communication and customer service and overall responsiveness to their needs. The supply disruptions right across the construction industry are also of concern for our customers, and we continue to make efforts to reduce volatility and impacts with our own supply chain. I'd like now to take a moment to outline the support of regulatory changes that are occurring in both Australia and New Zealand. In Australia, we have talked previously about the 2022 National Construction Code changes that are about to be introduced early in the 2023 calendar year, the changes to the thermal performance requirements like those seen in New Zealand between 2007 and '08. These code changes will necessitate the use of double glazing of a minimum standard to meet the NCC standard requirements for the colder climate zones of Australia. In some cases, where standard aluminum frames are used, there will be a requirement to use high-performing Low E double glazing. NCC changes in 2019 were for commercial buildings and AGG saw an uptake in double glazing sales as a result. In New Zealand, the Ministry of Business, Innovation and Employment are introducing changes to the minimum thermal performance requirements to comply with the new building H1 energy efficiency code. This is the first major change since the introduction of double glazing in 2007 and '08. There is a significant amount of detail available in the MV consultation documentation. But I'll briefly summarize for you now. New Zealand will move from the current 3 climate zones to 6, reflecting the differing local climates across the country, with each zone being set new thermal performance requirements for insulation, windows being 1 of them. Currently, to comply with the building code, a complete window, including the frame, must achieve thermal performance rating of R 0.26, and this applied to all zones. The new building code increases performance requirements in all zones and 3 phases. This consents from this November, all zones increased 42% over today's thermal performance to R0.37. And from May 2023, zones split into 3 R value requirements, with the coldest areas requiring R0.5, an increase of 92% on today's thermal performance. And the final step in November 2023, which brings Zones 1 and 2 in line with Zones 3 and 4 at a thermal performance of R0.46, an increase of 77% on today's thermal performance. The use of standard aluminum frames in most residential applications will not achieve code compliance once the full extent of the changes has introduced. And almost universally, these changes will require all double glazing to use high-performing Low E. To put this into perspective, our Low E mixes are currently around the mid-20 nationally, and this change will see the shift to 90% to 95% over the next 2 years. We are excited and supportive of this change, and we are an active participant through the consultation period. Metro Glass is well positioned with world-class facilities underpinned by our staff development programs, technical expertise, furnace capital strategy and our range of high-performing Low E glass products. I'll just touch briefly on the activity levels in the markets we operate in. In New Zealand, headline residential consents of over 50,000 reached historic levels in the 12 months to March 2022, as shown by the black line on the chart on the left, well above assumed industry capacity. Recently published research by Stats New Zealand indicated that the rate of code of compliance issuance or residential dwelling completions has remained steady at around early to [ 30,000 to mid-30,000 ] as you can see shown by the red line on the chart on the left. The delta between intentions to build and building activities continues to widen. In Australia, the graph to your right, similar effects are being observed with strong approvals growth, but the rate of completions again in red, lag taking longer. In the prior 12 months, the landed weighted average cost per square meter of glass increased significantly and rapidly. Consistent with other industries, inflationary cost pressure has been evident across direct and indirect costs. In New Zealand, Metro Glass has responded with a series of price increases cumulatively 26%, with a further price increase of 5% effective for September. These price increases are focused on improving gross profit performance from Q2 onwards. In Australia, which is a market that has traditionally had lower market pricing for glass, AGG have implemented a cumulative price increases of 39% in part reflecting cost inflation pressures but also supported by the increasing value of high-performing glass being recognized throughout the market. I'll next share our trading update for the first 4 months of FY '23 being April to July. All comparisons are the same period in FY '22. Year-to-date, group revenue is similar to prior year with the New Zealand business softer and the Australian business above the prior year. The strong residential consents and approvals are balanced by industry capacity constraints and should support a stable pipeline in New Zealand and Australia. New Zealand activities continued to be impacted by ongoing market disruptions and industry-wide material and labor shortages and this poses a risk. Raw material and international shipping costs, while remaining historically high, have stabilized through quarter 1. The successful introduction of price increases and improved pricing disciplines are beginning to demonstrate positive trends of the margin recovery from Q2 onwards. Sales in Australian Glass Group year-to-date are ahead of last year and are profitable, supported by a strong market activity and consistent service and operational performance across each of the regions we operate in. Recruitment remains challenging with a tight labor market and associated wage pressure. Higher inventory costs lead to increased working capital funding requirements. Our outlook for FY '23. New Zealand residential building consents are at record levels for the last 12 months. Capacity constraints in the industry mean that we expect building activity to continue, but the rate of execution due to why the industry issues are likely to be a drag. Strong approvals across activity in Australia and a similar capacity-constrained industry have created a solid pipeline of work there. Current construction sector conditions continue to drive a challenging outlook in the short to medium term. Our focus remains on gross margin improvement with the inflationary pressures in our supply chain and the constraints on labor are not expected to improve in the near term. Our strategic program continues to unlock the potential of the business with investments in capability, quality and a strong focus on improving our offering to customers. This creates value opportunities for the business alongside building insulation, regulation changes to be introduced to our markets during FY '23. We will be focused on our cost base and we're ready to adjust and respond to future demand and activity levels. Given the levels of uncertainty that are prevalent, we will not be providing full year guidance at this early stage. We will update shareholders further on the group's financial performance through our interim results announcement in November. Finally, our focus remains firmly on being a resilient organization that provides excellent operational performance, maintain strong customer connections and investment and supports its people. I'd like to reiterate our key goals, which are to build resilience and defend our leadership position in a competitive New Zealand market; to grow profitability in Australia, benefiting from the increasing demand for double glazing there; and ensure our balance sheet is robust to cope with future risks and opportunities. Before I hand back to Peter, I'd like to take the opportunity to thank all our shareholders, customers, suppliers, staff and the Board for their support over what has been a challenging year for all thank you.

Thank you, Simon. Ladies and gentlemen this is the first period for taking questions, whether related to the presentation, to the performance of the company, our financial statements based on shareholder feedback, it's been our practice for a while to discuss any general business before proceeding to the formal resolutions. For those of you online, please forward your questions and so that we can collate them, will allow a reasonable amount of time so that we can get around everybody. We have received a couple of questions prior to the meeting, and I thought I'd start with those. And the first of those is, the Commerce Commission study into residential building supplies that was recently published. Are there any implications for Metro Glass? And while -- and our response really is why we've read the draft report, we don't believe there are any significant implications for Metro Glass at this time. We'll continue to monitor how the report changes as it goes from draft to final, but -- and the recommendations that will come out of that. But we are not the principal focus of that report, and we don't generate much of a mention at it at all. The other question was around our long-term incentive scheme. And rather than me reply to all the questions, I thought I'd ask the head of our People Committee, Mark, to give a response to that question.

Thank you, Peter. I just want -- is Daniel in the room? The person who asked the question. No. So it was an online question and regarding the LTI scheme, very detailed and considered question. And Daniel, if you're online, there's aspects of the question I haven't responded to. I'm happy to directly. By way of background, the long-term incentive scheme was put in place in 2016 with -- in consultation with PwC. So it's been a long-standing program at the time it was put in place. It was considered the best practice and there's a 2-tiered structure for the participants as to whether they trigger it, ones relative to the performance of the shares sorry, the shares relative performance to the NZX peers and the other is just on a hurdle rate of total shareholder return. Without going into the calculations in your question, Daniel, the essence of what you asked is are the Board prepared to review the appropriateness of the LTI scheme? And the short answer is yes. We, at the last Board meeting and improving the issuance of the performance rights and share options this year had agreed to review it and see if it was still fit for purpose. We will have expert involvement in that. As you know, these schemes are very complex, but they do need to be reviewed, so we will be embarking on that review over the next 12 months, and we'll come to a determination on its fit for purpose for before the issuance of the next scheme. Any questions on it? Any supplementary or? Okay. I'll sit then. Bruce?

[indiscernible]

Sorry, Bruce. Could you just -- there's a microphone just so everybody can hear and just state your name for the record.

Certainly. Hello. Bruce Sheppard. I haven't been to an AGM for 5 years. I've come to this 1 because this company appears to have traveled a long journey on broken glass. Long-term incentive schemes, you made the comment that these things are complex. It's my experience, and I've served on many, many, many private company Boards and I've designed many, many, many incentive schemes for executives. If it's not simple, it won't work. Fundamentally, what's important is total alignment between the owners, the Board, the leaders and the people delivering the results around a clear and simple strategy with very simple KPIs that are easy to measure, easy to understand through the entire organization, drive alignment and are unrelated entirely to market price activity around the shares. It's really quite simple, improve margin, deliver growth and do so in a sustainable way. You can design simple metrics around that. You can take short-term results and turn them into a long-term incentive scheme by multiple different mechanisms. But the simplest 1 I have found is simple, calculated in the year, it's earned bonus bank pay it out -- and when you pay it out, allow them to convert the -- the price that you pay them into shares at the current market price or perhaps compel them to do so. The complexity that advisers put around this generally results in misalignment in my view. Let me deal with my others while I'm up.

Why don't we give someone else an opportunity while you -- thank you for your comments, Bruce. Are there any other questions in the room?

Yes. Martin Pellet, a long-term shareholder working on broken glass with everyone else. I'd like to thank PwC for its audit and report. The CEO raised the topic of -- I think they're called [ 5R ] Solutions, and I have some concern. I'm a bear of little brain and big words are too much for me, as well you would say. So could somebody please clarify for me what exactly happened here and what the impacts of the following were on the past 2 years annual reports and this annual report? It's on Page 65. It says during the year ended 31 March, it was identified that the accounting treatment of this loan agreement as a financial asset at amortized cost was incorrect, and it should be recognized as a fair value for profit or loss. They then show the differences for the 3 years. And down the bottom, it says this was determined to be a key audit matter due to the complexity and judgments involved in determining the accounting treatment of the loan arrangement and valuing the financial asset. And due to the financial significance of the gains recognized during both years, so could I just have a clarification, what has been the impact of that? Is it positive or negative? And how is it affecting this year's report? I see there is a big leap in the figure shown in the financial reports. Thank you.

Thank you for your question. I think I'll ask Brent to talk to the accounting specifics. But just so that there's a little bit of history. Some time ago, Metro Glass provided a loan to a start-up company that wish to recycle waste glass. And one of the conditions of that loan was we could convert our loan to shareholding to equity at particular times during the period of our association. And one of those times came up last year, and the decision was, actually, we should take -- convert our loan to shareholders. Now in the subsequent period, the value of the company grew quite significantly. And it was the treatment of this growth in value of fiber that results in the accounting treatment. So Brent, I know you may have modeled that, but can you shed some more light on the -- what were the impacts historically and what are they likely to be going forward?

Yes. So yes, there was an impact in the prior financial year, which was the prior period adjustment, which you see out on the in the notes in the accounts. And then within the current year there was also a credit that was recognized within the current financial year for that fair value change and the treatment of that particular line. I think -- I mean, what you read out was actually the observations that PwC have made in the audit report.

[indiscernible]

Yes. That's right. Yes. So I think from -- maybe Troy would like to speak to this as well. But just from my perspective in terms of the way that they've described it, relative -- the reality is relative to our overall performance, it was a material credit within the current year, which is why they set it out. So it's...

Yes. Troy, do you have any other comments you wish to make or no? No. Okay. Do you have a supplementary question? I'm not sure we quite got to the point.

Sorry, yes, that seems to just slightly different to the words at the bottom that say, I understand it's only a small fish in the big sea, but the auditor says due to the financial significance of the gains recognized, so...

Just repeat what I was meaning was that -- so within this -- well, sorry, within the last financial year relative to the overall performance of the company, it was an item that needed to be -- it was significant. Yes. That's true. Okay. Bruce?

All right. This business is in the business of delivering performance glass to the market, right? And some time ago, you decided to enter into the venture capital market and you used the venture capital instrument, which is a convertible note. Look, I understand venture capital. I have invested in venture capital assets for 30 years, and I understand convertible notes. They can be tax inefficient. Now the way I think PwC have dealt with us is when you have a convertible note that is convertible into equity, the delta between the value of the equity and the face value of the loan is income. Now it strikes me that you failed to report that. These things happen. So ancillary question on your Board, Page 70. Have a look at a little dot matrix. You've listed the skill sets that you consider essential for you to effectively govern this business. Now I note that over the last 7 years, the results would tend to indicate that effective governance perhaps has been lacking. So you look at this gap. You have no one that understands on your Board strategic investment. No one. Yet you made a strategic investment in a risk market. You might like to reflect on that. You equally operate in a business where your customers are other businesses. You operate in a market where your customers are B2B not B2C predominantly. Yet you have no one on your Board that prepares or prefers any competence in B2B marketing and customer insights. And you wonder why your business is not growing. Financial expert, you're reporting and commenting on not understanding financial matters and having to rely on your auditors. Also weak. You've entered the Australian market during our time as shareholders. And you're also weak on understanding the Australian market. Now I presume this assessment of your Board Directors' skills matrix is based on the people you currently have sitting at that table, including the new people, correct?

No.

So you update this?

It gets updated every year.

Right. So tell me, in respect of your 2 new recruits, do they balance these glaring gaps out that to me at least, go some way to explaining the journey over broken glass.

The short answer to that is, I think you'll find, yes, they do to some degree. But thank you for your comments, Bruce. Sir? Going here.

Jim Fermion, shareholder. I just wondered about your market share and your competitors. Can you tell me good story where your market share is increasing and you're doing well over the competitors? You've got several different sectors like Australia, New Zealand, retrofit, new industrial, where is your good story, where you're doing best? And maybe on the other hand, you wish to where you're not doing to go. You're struggling.

Yes, sure. We would see that our share in Australia in the residential section in the markets we're in has been growing, particularly in the Tasmanian state, so in Tasmania. And also in ACT and the northern parts and land of New South Wales. That's on the residential. In New Zealand, our retrofit business, we would see that we have grown a share in that market. We're the largest player nationally in it. Commercial work, what we call commercial glazing, it's a bit harder to read on that. We think we're stable in there. And then on residential windows, for the last year, we would be staying stable but significant shift in the customer mix between the different primary die holders.

The winners trying to go better for the winners rather than worry too much about the losers.

Yes. So there's been a significant change in the shares within New Zealand. And if we think about our overall share in residential would have been stable, but our customer base has changed quite significantly.

David Grieve, a new shareholder. Can you just talk more about stable percentages? And who's our biggest competitor in the residential area? I mean in our industries, everyone knows everyone. Everyone knows what's happening, and we might be keeping a close eye on our competitors, on the profitability near performance level? So where are we fitting now?

We are the only publicly-listed competitor in our set everybody else we're competing against, I think I can say this is privately held. So you don't see the profitability. We do have some insights into total glass sold nationally because the government collects that import data, and we can work out what we imported and work out what our percentage of that class is. The difficulty is the glass is used across a range of segments, and you have to start to make some judgments. But -- and I might get run down here, but I would say our market share in windows or double glazing in new buildings, we would be in the high 30s, 40. A couple of our other competitors, and I won't use names because they'll get with me, but one of our very long-term competitors is declining significantly. One of our newer competitors is growing significantly. And then there are a range of other sort of midsized operations which are moving up and down relative to each other, but they are smaller shares of the total market. The total glass market, total windows market, as Simon said, with that sort of 35,000 rough completions is way less than the 50,000 consent. So the building boom that was expected to increase the amount of glass used hasn't quite panned out as people hoped. And -- but a number of people thought that was coming and invested in processing plants, so we have a significant overhang in processing plus in New Zealand. A number of the larger players have a capacity to produce or process much more glass than their customer -- their market share demands. And so there's this constant tension around getting customers from others to improve the efficiency of your operation, but at a reasonable price. And the offer that different customers -- different processes are making to their customers, differ. I mean we are an independent glass provider, and we will sell glass to all the aluminum frame makers. Some aluminum frame makers compel their frame assemblers to buy directly from them. So the market isn't just a sort of a uniform sea of competitors? Or these different offers that are succeeding in some cases and failing in others. So some integrated players are doing well. I mentioned one, their share is growing. Others are doing less well. We are losing customers to those people who compel their frames to buy their glass, but we're replacing those with others. And we've done that reasonably successfully. We're maintaining our share, but our customer base is a different set of customers than the 1 we had last year, 3 years ago, 5 years ago, it's a different set of customers. So it's the competitive challenge I was referring to before. So there's -- I'm not sure that -- does that give you a little more?

Okay, and you ask them the question, they're not sweating the things that are broken. They're chasing the things that have opportunity. That's all good. So that's a nice segue into the things that are broken. I'll now run to my main stream of questioning, which is around risk management. and I presume the Audit and Risk Committee functions and runs a risk register. And I presume you populate that risk register by someone doing a heat map. Do you know what a heat map is, team? Okay. I'll tell you. So what a heat map is, is the Board sits down and says, we've got a whole bunch of risks. If you've ever read company's public offer document, they have a wonderful thing at the end of it, which lists everything that could conceivably go wrong, including the Israelis trying to nuke Syria, it's a long list risk register. So our heat map basically assesses the risks based on the probability of their occurrence on 1 axis and the impact on the business on the other axis, so you end up with a box at the top, which says high probability, high impact and the business manages those risks. Presume you've done that? Please all note. Have you done that?

Yes, we have.

Okay. So can you tell me, and I know in your annual report and in the audit report you have listed as have the auditors and as have you a number of systemic risks over which you have very limited control, e.g., recession, competition, interest rates, exchange rates, supply chain, COVID, there's all manner of risks. Now by the way, every single business is suffering those same risks that you are, and they're not all suffering to the same extent you are. In fact, some of them are doing down well because they have practices around human management, financial management and there I say it, balance sheet resilience. That -- and by the way, I that's 1 of your core strategies right? And by the way, you're failing in that quite clearly. So outside of those things that you can't control, what are your big 3 big impact high probability risks? And how are you mitigating them?

Well, yes, Bruce, you've raised a very long question there. And if it is to me, there's various types of risks that come. Our operational risk is 1 that I deal with on a daily basis, and our largest operational risk is a safety risk. The industry we work in is our factories are a controlled environment. But on the installation and sites and to a lesser extent, our customer base are control. So from a human perspective, our operational -- largest operational risk is a safety incident. So we've got a very large program managing safety risk. Our single largest safety risk is fall from height, which is not uncommon in the construction industry. So we have a large number of controls around that, as an example. And I'm very happy for any shareholder to audit our customer base to come and talk with us about how we're managing the safety risk in the business. And I'm pleased to say that our safety performance has been improving year-on-year. We have a range of leading indicators on that as well as a range of leading indicators. And it's something that every management team meeting is discussed and addressed every Board meeting is also a topic there. So we are managing that risk reasonably well, I'd say we always do it a lot better. And it's probably, to be honest with you, it's the 1 thing that would keep me awake at night is about the risk to our staff, even we've got 900 added in New Zealand a couple hundred in Australia and a support about 300 of those people in New Zealand. Every single day is a very different day. I think on the strategic risk balance sheet, you've mentioned that, that is 1 of our strategies that was listed up there at our resilience and part of that is our balance sheet. And also, how do you address your balance sheet as by cash flows. And so we obviously business plans and risk mitigation factors in there to respond to changes, and it has been an extremely dynamic environment and that's applied to anyone in New Zealand and Australia in the last couple of years. So we are managing that, and we have many plans in place, and we have many scenarios planned. There is a rapid downturn as to what we would do and how we would position the business. We have to balance that, of course, with what's changing in the market. And that's about what our competitors are doing and how we respond and our strategies there. And then also what happens if there is a significant downturn as to what we would do. And we have very detailed plans on that ready to go. I could list through we've got right moment, there's 38 specific initiatives that we're working on to address the structure of the business internally from an operational point of view. As to the robustness of the balance sheet, well, that's a different issue that's not really appropriate for me to talk about. I'll let Peter respond to that.

I was going to come in and talk about that. I don't actually agree with Bruce's point that we've been failing around managing the balance sheet. When I joined the Board, the debt was close to $100 million. And during the initial period, pre-COVID, the job was to reduce that debt, and we did reduce that debt by about 50%, which is building resilience into the balance sheet. Now COVID has come along, and I know some businesses are favored by it, and some are not. We are one of the ones that is not, and we chose last year to use some of that resilience that we had baked into that balance sheet to spend on some capital items that are very, very essential, to give us the capacity to meet the significant changes that the building codes introducing in November. Simon mentioned that the glass in New Zealand is going to change fundamentally from a very simple piece of clear float glass to a quite sophisticated, quite expensive, quite difficult to process piece of higher-value glass. To do that, you need better equipment. You need better furnacing, better double glazing units to do that. And that's what we spend our money on because that is what is going to ensure that the business can continue to compete in the future. Some of our competitors have chosen not to do that, and they have a different future in front of them when these things change. So we've used some of our resilience in the balance sheet last year. I think that was -- that's the reason you have it is to cope with unforeseen and dramatic events. Now I don't think anybody would argue that COVID was a dramatic event. We are past that now. And as we said in our presentation, our focus now is to reduce that debt back down to a conservatively geared level, and we'll use the operational cash flows with the business to do that. So I think we're operating a smart balance sheet within the confines of what we can do. And I suspect there is an additional element to the question that Bruce is asking, which I'm sure he will get to eventually, and it's something to do with bankers and debt and equity. So maybe you should ask that 1 now.

Indeed, I've been asking supplementary questions because there's a very intelligent group of shareholders are asking their key questions of you. One point I would make. Despite my criticism of you, fundamentally, the value proposition for this business is strong. What is weak is your execution of it and you're addressing that. I agree with you, Simon, that investing in change ahead of the curve makes sense, and it strengthens your ability to execute better and deliver stronger free cash flows, which are always the most preferable way to address it. One question before I get to my chance. Have any of you read the work of Ray Dalio? Put your hands up if you have. None of you. Do you know who he is even?

We're not going to comment, Bruce. Why don't you move through to your question?

Ray Dalio is a geopolitical and strategic analytical fund manager out of the U.S. He's 75 years of age, has been around forever. May I encourage you to read his latest work, which is the changing world order. Now that book is a summary of the changes that have happened over the last 600 years, long cycles. And quite clearly, we are now at the end of the debt expansion cycle. And what follows a debt expansion cycle is a debt contraction cycle. And when debt contracts, it eats equity. So whatever paradigm you think you are running on traditional investment banking thesis, and by the way, this company listed on the back of a private equity firm playing part and parcel. And we all know when private equity sells, no one should buy. Yet we did, okay? And we are stuck with the past, the parcel, they passed us. And yes, you have done a reasonable job of dealing with the ship sewage you inherited. But the balance of the sandwich of $50 million to $60 million is going to be hugely problematic over next 3 years. And you do need to have a strategy beyond earning your way out of it in a difficult environment where you will struggle to earn if you do not have strength in your balance beyond what you currently have. You will struggle. I am saying this to you because I don't intend to come to another Annual General Meeting. But if I do come to another Annual General Meeting in 3 years' time, and you haven't redressed debt, I suspect your audit reports will look very different, and I suspect we will be dealing with a corporate failure. The time to back a business is when it's got strength in its operating business proposition. This business has that. The Board is still weak on financial acumen, because I've read your CVs now, and I don't see that filled in. But I do see B2B, and I do see Australia now covered. It's still weak in high-level strategic financial analysis, and you need to redress that. But when you do, you will find that actually recapitalizing this business and asking these shareholders who are with you now and have stayed with you for 7 years over a pretty rough journey, it is now time, if you do a rights issue and recapitalize this business. Because if you don't, we will be here in 3 years' time, you'll still be struggling to eat debt. There will still be no dividends. You are better shareholders, fellow owners to put some more money and kill the debt with a big bullet payment now and get back to dividends sooner. Seriously, you are. If you're not prepared to back the things that you own, your only choice is to get out and sell, seriously.

Thanks, Bruce. Okay. So I think that was the elephant in the room behind a number of Bruce's points that he's very much in favor of the company coming to shareholders and seeking new equity. Now the Board is absolutely alive to that possibility, and it wouldn't be appropriate for me to make any comments on whether we're going to do that or not, but we absolutely understand that that's an option. But right now, we are reducing our debt through our cash flow program. And we've been successful and doing that in the past, and that's our current action set at the moment. But we're very aware of that opportunity. So thank you for your comments and your questions. Sir, back to you.

My name is John Bain. I'm a shareholder. And I listened to the very wonderful points that Bruce has put forward far more eloquently than I could possibly do. I'm more of a practical person, hands on most of my life. And I take a look at the movement in the last 6 years from 2016, Mr. Griffiths, when you took over as the coach of the team, if you like. And I look at the price then at [ $2.2 ], I'm sure that, that was correct. And it's now down to $0.25, and it's not looking like it's going to go up very quickly. So I tend to be a little bit like watching the ore blacks last Sunday and wondering whether the team itself were the right people, and I'm doing assurances by my friends who are sports people at the best people are on the field, but it's not necessarily the person who's leading that team. So my question to you, Mr. Griffiths, do you think after 6 years, that you are the best coach to take this company forward to a profit? And if you are, how are you going to do it with such a speed that I might live long enough to get a dividend?

Thanks for your comments. Yes, I am now the longest-serving member of the Board. It's been part of my remit, I think, to populate the Board with a diverse range of competent directors that are not the ones that brought the company to the market. And I look across at my fellow directors now, I'm actually very pleased with the people we have on the Board of this company, including the 2 who are standing for election today. They have greater intellect with me. They have broader experiences than mine. They have, how should we say, better balanced personalities to mine in some cases as well. So I have been coaching the team or developing the team. It is a question that I asked myself quite really, am I the right guy to continue to do this. I don't expect to stand again for election to the Board. So my time here is limited, I think I've got12 or 18 months before I have to stand again. But that's my expectation. I have been here quite a while now, the longest server. I've seen the company through the changes that I saw that were needed when I arrived. And I think those have been affected. We've got a new CEO. We have a new CFO. We have a significantly different management team. We have a different capital base. We have a different strategy than the one we had back then. So without being too humble. I think I've done an okay job today. And I do look ahead and go, can we get to dividends before my time is up? And that's my very great wish. But we have to play the hand we're dealt. This is a very uncertain time. If the world would just settle down for a moment, we could run the business without the massive global impacts that we're getting around with COVID. I think we do quite well. But I can't promise that that's the way it's going to be. But I do reflect on that, and it's a reasonable question. So I hope I've given you some view on that. I just want to check in. Are there any questions online? There are? How can we -- you've got from Tracy. Sorry, I'm looking at her. I'll just take a couple from online, and we'll then pick up a couple more in the room. Sir, could you just hold? We'll come to you in a moment. Tracy, have you got an online question?

So first question from Heiko. New Zealand is in a building boom. Glass is an essential for building houses. Building suppliers no matter whether they are supplying steel, timber or chipboard are [ creaming ] it despite the same problems with COVID and transport MPG had, only MPG continues to deliver 1 bad result after the other. Why is MPG doing so much worse than the other building supplies?

Okay. I'll have a go there some maybe sign or want to challenge it. Yes, there is a building boom. But when you look at the amount of glass that's actually been imported into New Zealand, it is not moving up at the same rate as the demand for other materials. So glass is not experiencing the building boom that people imagine. We are on a much more gentle curve. The other thing we noticed is the amount of glass per square meter going into residential units is actually contracting. So the amount of glass going into a building is becoming less and less. So while the numbers of houses look like they're going very well, and I'm sure they're using steels, cement, wood, insulation and roofing, and doing well out of that, proportionately, the amount of glass is either static or decreasing. So there is sort of a misunderstanding that a building boom is underway. 50,000 consents imply that about -- if those were to be built, it would require about 1,000 houses a week to be finished every week for the whole year. The industry, the construction industry is not achieving there. We're managing something of 600, high 600s. That's our best guess because the information isn't collected. And so delve around to find that. So there's about 600 houses a week being made. Preboom, that number was about 450 roughly. These are just my numbers, they're not validated. So that's the change that the industry has expected. And in that time, we have our new entrants, and we've had every existing processor invested a significant amount of capital in processing equipment. And everybody is all in the expectation with this market would grow massively and the share available to generate the income and remunerate people's investment. And it hasn't turned out that way. It's a much closer knife fight than I think than people thought, including Metro Glass when it started. So lumping us in with timber, steel, concrete, cement isn't quite fair. I mean there has been an increase in our market, but it is not massive. And so -- and there's a lot of people after it. So that's why we're not creating it. I think, missed the term. So that would be my answer there. Sir, your question?

Yes, Mr. Chairman. I must say it's nice to see Mr. Bruce Sheppard back at AGM with some very interesting questions. I've been coming to these AGMs for the last 4 or 5 years, regrettably and seeing the share price continue to decline over that period. But I wanted to take special note of last year where you ended up making a loss, which I find unbelievable. I know COVID affected and things like that. You, Mr. Chairman, in the annual report for the previous year said, we continue to monitor events and plan for scenarios that enable us to respond effectively to COVID. Well, you did not respond effectively to COVID at all. I know you put in price increases. Obviously, they should have been applied a lot before that particular time. So that, I guess, is more of a comment. And I guess you've just touched on what I'm going to ask through you, Mr. Chairman for Mr. Jones, to tell us why Vulcan's deal is somebody in the same construction industry has done so well while he is a Director of this company, which has done so badly.

Rhys, are you prepared to make a comment on that?

Thank you for your comments. Just a quick couple of comments. The industry structure of the 2 businesses is very different. And the way in which Vulcan operate, we're far more diversified a much broader coverage in Australia than this business. In fact, we're over 2/3 in Australia, and we've had a segmentation strategy very deliberately designed over many years. We got pockets of the most profitable elements of the market. So we're operating in a much, much bigger field, and we can selectively pick out areas where there is more profit. The situation here and part of the challenge of being involved in Metro and why I'm proud to be involved. It is a tough business, and it is a turnaround. The reality is that this was a business that had very, very high market share at a relatively indiscriminate program. We're effectively serving all things to all people. Now the industry structure has changed. There's a new entrant growing strongly that's integrated. As Peter alluded to, is directing it's franchise holders to buy glass because they buy aluminum. So there's a big chunk of the market cutoff from Metro. So what Metro's do is it's set to resize and it had to reposition for a new market environment with the lessor of changes that have occurred regarding the thermal properties of glass. And on top of that, it's had to struggle with a much higher fixed cost structure than Vulcan. So in this business, your operating costs are effectively fixed. So when you have a downturn, say, for example, COVID, we were out for 3 or 4 weeks. Virtually all your costs are fixed, whereas in Vulcan, a much lower fixed cost base, much more diversified. So we've had 29, 30 sites. At any 1 time, we may be only had 1 or 2 sites down completely, whereas in this business, you've got a whole site down and you'll just a huge cost structure eating away. So it is quite a different environment. From a Board perspective, I've certainly asked and encouraged and I try to lend my insights and experience, particularly into Australia, I spent a lot of time in Australia. Reference to Bruce back there, I've spent well over half my working career in Australia. For 25, 30 years, I've been working in Australia. I believe that the turnaround of AGGs have been very well executed. But there is a tough challenge in New Zealand, we're facing increased competition, and we've got to reposition ourselves. So look, I'm hopeful and cautiously optimistic about the future, but it has been a challenge. So it's not a like-for-like. And why I'm here is to support the team to get the results to get this right, and it is not an easy task. Does that answer the question? Any other follow-ups?

We'll take another online question. I understand there's a couple.

Okay. Question from Tim. Metro Glass performed very poorly under Simon Mander's leadership. I understand there have been COVID-related challenges. However, many businesses in the building industry have thrived due to high demand for products and services. CEO, like Don Braid, of Mainfreight, were running Metro Glass. I'm confident the results would have been far superior. Why hasn't Mr. Mander been moved aside?

Okay. No, look, I think that's somewhat unfair, and that's not really a fair question. I mentioned -- I will answer it, Bruce, and I'll get -- okay, I mean, the point, I think, is do we have the -- yes, well, maybe it's couched unfairly. I mean, question, do we have the right management team and CEO for the day in our business, I think it'd be -- is kind of I guess what they're asking for. Sorry, so right desperate.

A short lesson if we could. It will be a short. Okay. Rhys, you're a CEO of Vulcan Steel. By the way, Peter and Mary are my neighbors. So I know of them and Vulcan obliquely. They're insightful in actually allowing their CEO to join another Board to be given exposure to different environments and different leadership skills. Simon, does your Board allow you to actually seek external directorships? It might be good for you.

Yes, they have.

You got one yet.

No.