Chairman, CEO, and Executive Director s Address Trilogy International Annual Meeting September 23rd 2015

Transcription

1 Chairman, CEO, and Executive Director s Address Trilogy International Annual Meeting September 23rd 2015 {Slide 1} Trilogy International Annual Meeting Introduction Good afternoon Ladies and Gentlemen. Welcome to the Trilogy International Annual Shareholders meeting. My name is Geoff Ross and I am Chairman of Trilogy International. It is a pleasure to be able to present to you this afternoon. The results of the FY15 Financial year and to talk to you about the FY16 year which is almost at the end of the first half. Along with Trilogy International Group CEO Angela Buglass and Executive Director Stephen Sinclair, we will provide an overview of the TIL Group. Some key formalities first to get the meeting underway. Quorum. I am pleased to say we have a quorum of at least three shareholders present. Proxies - 29 proxies have been appointed for the purpose of this meeting representing approximately million shares.

2 {Slide 2} Trilogy Group, Board Members Today we have the full Trilogy Board and I would like to start with introducing them. Independent Director, Jack Matthews who joined Trilogy last year, has been CEO of several large organisations here and off shore and is an experienced company director. Independent Director, Mandy Sigaloff, based in Australia, has run successful digital companies and has extensive experience in communications and fashion brands. Executive Director Grant Baker, who brings experience across a multitude of New Zealand companies such as Empower, 42 Below and Turners Group, and Executive Director Stephen Sinclair, Former CEO of our company, and with experience from 42 below, Empower and PWC. Also today we have the Executive team, led by the new, Trilogy Brands CEO Angela Buglass. Angela who is a Kiwi, has 15 years experience off shore with some of the beauty super brands. After being Managing director of the Trilogy Natural Skincare range of products, she became CEO of Trilogy Brands in July. {Slide 3} Trilogy Group, Structure and Strategy After a very exciting year of growth with all our brands and also the recent acquisition of CS Company, we have a lot to report on. First of all I would like to present the company structure, post the acquisition, so we can see the intended approach to managing a much larger business. Then I will give a summary of the FY15 result and an update on the Trilogy group of brands for the half year. Trilogy Brands CEO Angela Buglass will go over the performance of each of our Brands. Executive Director Stephen Sinclair will go over the CS Company Acquisition and I will then wrap this up with a summary of our view of group financial performance for the year ended 31 March We will have questions then conclude with necessary formalities. Trilogy International has two very distinct businesses within it. Trilogy brands, which includes Trilogy Natural Skincare, Ecoya Fragrances and the recently launched Goodness Natural Beauty Lab. All are in growth and Angela will report on these soon. Trilogy International now includes New Zealand Cosmetic and Beauty care company CS Company. CS Company distributes beauty and Cosmetic mega brands such as Gucci, Marc Jacobs, Calvin Klein, Dolce & Gabana, Max Factor and OPI.

3 There is a saying in the Consumer brands business that success comes from winning on two key Battles Fields - Brand and Distribution. We hope to demonstrate today that we now have great credentials in both, to continue to deliver growth in Beauty and Fragrance brands here in Australasia and those markets further afield. {Slide 4} Trilogy Group, FY15 & FY16 With two distinct businesses, we have set up two experienced management structures. Running the Brand side of the Business - Trilogy Brands CEO is Angela Buglass. Angela has taken over from Stephen Sinclair, who has been a huge part of the growth of our business over the last three years. Creating consumer brands from New Zealand and taking them to the world is no easy task. In Skincare and Fragrance, this is something this country has never done before. Yet, here today we have brands in these categories in very strong growth in our home market and many off shore markets. I think we as New Zealanders should be very proud of that. To see Ecoya on Shelves around the world, to hear Princess Kate Middleton s favourite beauty product is Trilogy, and to see the growth and financial performance that has been achieved makes Trilogy, I believe is a fantastic story to date. And much of this is because of Steve Sinclair. Huge hours have been given to this business by Steve and today the results are attributed to his massive input. I would like to acknowledge that now. As Steve hands over the brand business to Angela, his efforts now go to a new part of the business - CS Company. Steve will oversee this Company over the next three years, during the earn out period. He will deliver synergies and ensure post earn out we have the skill set to keep the growth that CS Company has experienced. This is a big acquisition for us, and we will be looking to maximise it effectively. We are not currently looking at further acquisitions.

4 {Slide 5} Trilogy Group, FY15 Result Whilst a little way behind us now, this being an Annual Meeting, we should of course present the results from the recent full financial year, which finished March 31 this year. Shown in context of the last 5 years, we can see growth through to $36.6 m in Revenue, and $4.6 million in Net profit before tax. This represents revenue growth of 23% YOY and profit growth of 265%. {Slide 6} Trilogy Group, Half Year Update Today we gave an update to the market on performance of the company as we approach the half year. Back on August 3rd, we updated the market, with guidance that we would have significant growth on the same period of last year. We advised that revenue was expected to be more than $23 m and Profit before tax of more than $3.5 million. Today we upgraded this to $24 million of Revenue and $4.8 million of profit before tax for this first half of the year. This will be a 57% growth in Revenue on the same period of last year and a 436% growth in profit before tax on the same period. This excludes the impact of CS Company, which the group acquired on 19 August. I trust this gives an overview of the performance of the business for FY15, the performance today for Trilogy brands. And the structure of our new larger business. Angela will now cover the Brand group in detail. Steve will cover the distribution company, and I will come back to talk about financial performance of the group for the full FY16 year. {Slide 7} - ECOYA FY15, Brand Introduction & Summary Good afternoon everyone, I am delighted to be here to share some of the brand highlights from FY15 and the first half of FY16 for each of our three brands. As we begin with ECOYA, we saw overall revenue growth of 20% for the brand globally, wi8th NZ & Australia (our home markets) delivering the most significant growth.

5 We continued to drive our key markets with fashion forward and design lead NPD, over 50 pieces contributing to sales in FY15. We also shot new brand imagery, launched a brand new e-commerce website and negotiated a new listing John Lewis UK into 44 stores. {Slide 8} ECOYA FY15, Christmas Video To give you a flavour of how the ECOYA brand presented itself in FY15, the Xmas video. {Slide 9} ECOYA FY15 by Market As per our strategy, all channels have delivered growth with the exception of our direct retail business due to closures of stand alone stores in Australia. We have however retained our shared presence with Trilogy in Auckland airport retail space. {Slide 10} ECOYA FY15, Australia and New Zealand With Australia and NZ up 28 and 26% respectively, we are driving category growth and same store sales enhanced by an extended partnership with David Jones in Australia. In recent research conducted by TNS June 2015, ECOYA leads the market in New Zealand with a 19% market share. In Australia, we hold second place with 6% share. {Slide 11} ECOYA FY16 Brand Moving into FY16, we have again enhanced our brand imagery, offered bespoke point of sale to key retailers, attended two very successful trade shows this year and just this month landed a full window on Elizabeth St with David Jones.

6 {Slide 12} ECOYA FY16 Public Relations Media relations continue to be managed in house with Mother s Day, the Grand Celebration launch and Christmas generating great buzz via social media and great coverage both in print and online. {Slide 13} ECOYA FY16 Product Various new product launches have contributed to brand growth with Madison Metro & Mini in launching last month, our winter limited editions, the Grand Celebration and Christmas launching in Oct. New Fragrances, innovative packaging and new vessels throughout. {Slide 14} ECOYA FY16, Brand Performance So looking at the Revenue, the forecast for the first half is 32% up on last year. This has been driven by core NPD, organic sales growth. {Slide 15} Trilogy FY15, Introduction & Summary Moving to Trilogy, topline revenue growth for FY15 was 25% and we have continued with our strategy to hero Rosehip Oil via a successful sampling and advertising campaign. During the year, the team also developed the fantastic Goodness brand (more on that later). The Wholefoods test market in the Mid West, USA resulted in a rollout to 405 stores at last count.

7 {Slide 16} Trilogy FY15, Brand Video But let s start with a little journey about discovery. {Slide 17} Trilogy FY15 by Market In absolute terms the largest growth came from the move to MCP in Australia and we see the strength of that relationship continuing forward into FY16. We have seen particular success with Priceline and Chemist Warehouse. TNS research in market shows Trilogy with 9% share behind Australian brands Sukin and Jurlique. In NZ we maintain our No1 natural skincare brand position in Pharmacy, with TNS research conducted in 2015 reporting a market share of 24% of total natural skincare. Asia (+16%) and USA also delivered confident growth with focused, in market investment. {Slide 18} Trilogy FY16 Brand In FY16, Rosehip Oil, our founding discovery continues to be loved by supermodels and princesses alike, we have continued to win beauty awards around the world and more recently, we entered into a partnership with an oil supplier in Lesotho, we helped them to invest in a larger state of the art oil press and in return we have primary access to the oil from this supplier. An example of Impact Investing. {Slide 19} Trilogy FY16 Public Relations Age Proof has been re-launched this first half year with new formulations, packaging and a wonderful real women advertising campaign launched online and in press. Launches have taken place in locations around the world and we are communicating for the first time with this fast growing segment of the skincare market.

8 {Slide 20} Trilogy FY16 Product New Product development has been driven by the Age Proof relaunch, with a lead oil Certified Organic CoQ10 Booster Oil, then a new format Makeup Be Gone Cleansing Balm and another Ltd EDT fragrance with our partners at So They Can, with funds again going back to the ladies who grow the Sunflower Oil up in Tanzania. {Slide 21) Trilogy FY16 Brand Performance First half brand performance has been strong with revenue growth at +67%. We are now moving into a period of increased brand investment in all international markets, whilst continuing to drive awareness and trial in Australia & NZ. {Slide 22} Goodness FY16 Brand & Public Relations So, to conclude with the latest brand launch from Trilogy International Goodness Natural Skincare Lab which hit the shelves in March 2015 with a hero product made of certified organic chia seed oil, 5 efficacious product lines with our promise to provide Goodness for your skin, your pocket and the planet. With the natural skincare market growing at +14% in New Zealand, Goodness was created to target these consumers that are slightly younger than Trilogy users. A similar trend in Australia has led to distribution in over 1200 doors, over 11,000 likes on facebook and we have created a new instabrand. Goodness Natural Beauty Lab is one for the Millenials.

9 {Slide 23} CS Company, Introduction & Overview Thanks Angela. The following slides provide an overview of the CS business, rationale for the acquisition and information relating to the financial impact to the group for the FY16 year. CS is the largest importer and distributor of fragrance, cosmetics and toiletries in New Zealand. The company was first established in 1976 and has operated in this sector of the NZ market for coming up 40 years. CS represents over 21 international brand principals. These include Brand owners such as Coty Inc, Proctor & Gamble, Jurlique, PZ Cussons, Natio and LVMH. The brands are managed in three categories within the CS Business, Prestige Fragrance, Beauty and Salon. The largest brands represented are Marc Jacobs, Calvin Klein, Dolce & Gabbana and Gucci together with cosmetics / beauty brands including Max Factor, Natio and OPI, as well as many others. The channels to market for CS in New Zealand range between Pharmacy, Department Store, Grocery and Discount Department Stores. The channels to market are very similar to that of our Trilogy and Goodness brands. Across all channels and products CS delivers to around 1,900 doors in NZ. {Slide 24) CS Company, Acquisition Benefits The acquisition provides a number of benefits to the Trilogy International Group. Firstly the acquisition will provide synergy benefits. These synergy benefits come in a number of forms. CS distribution reaches the same channel distribution points as the existing distribution for the Trilogy and Goodness brands. Over time the group will look to transition the distribution of these brands into CS. Secondly, the CS warehouse operation provides opportunity to provide logistics services to the entire group from manufacture to international export, these opportunities will be investigated and implemented over the next two to three years.

10 With the associations and relationships that CS has with International brand principals it provides opportunity for introductions and discussions around international distribution opportunities. We will look to explore distribution potential through these international relationships. The acquisition also provides scale to the listed entity and is earnings accretive. Total Earnings for the full FY16 financial year in CS are budgeted at $6.4m. Not all these earnings will fall within the FY16 year for the group as some fall pre acquisition. CS revenue and earnings will however provide a significant boost to the group. Operating earnings in the half year from acquisition date to 30 September will be approximately $800k on revenue of $5.0m. In the second six months of FY16 we estimate earnings to be $3.5m on revenue of $22m. The CS CEO, Ken Millar and COO Ray Guilford are contracted to the business for a further 3 years as part of the acquisition and earn out arrangement which provides great continuity for the day to day operation of the business. {Slide 25} CS Company, Acquisition Summary The total fixed part of the purchase price for the acquisition is $37m with $34m paid on the acquisition date of 19 August. Two deferred payments of $1.5m each are payable on the first and second anniversary of the acquisition. In addition to the upfront amount and the deferred consideration an earn out amount is payable on the third anniversary of the acquisition. The earn out amounts are calculated based on the business over achieving certain profitability thresholds for the years ended 31 March 2016 and 31 March The strength of the existing TIL balance sheet and cash flows enabled the CS transaction to be funded through bank debt.

11 [Slide 26) Trilogy Group, FY16 Full Year Forecast, excluding CS Company Thanks Steve As Angela and Steve have set out the first half of 2016 has been very busy, with great results and investment in future growth opportunities. You would appreciate that as a growth company it is very difficult to predict financial performance as the results of investment in brand and markets deliver at different stages. In the half year we have advised that we expect the Trilogy, Goodness and Ecoya brands to deliver revenue of $24m and profit before tax of $4.8m. This estimate excludes the impact of CS Company. In the first half revenue has grown 57% on the same period in 2014 driven by growth in Australia and NZ for both brands. The first half has also benefited by the weakening NZ dollar with $700k in foreign exchange gains. Our on-going strategy is to continue to invest in future growth and we have investment initiatives in place. We expect the impact of these initiatives to be seen in the second half of the year with additional investment in staff in our international markets as well as boosting the NZ head office team in sales and marketing. We are also investing further in brand, promotional and marketing tools to assist in the growth of all brands. For the full FY16 year we expect Trilogy, Ecoya and Goodness Brand revenue to be at least double our half year. At profit before tax we expect the full year FY16 profit to be less than double as a result of the additional investment in people, markets and brand. Based on this analysis we expect the full year revenue to finish excluding CS in a range of between $48 to $52m. At profit before tax we estimate a range of between $8.0m and $10m taking into account the additional investment in the 2 nd Half. In respect to the CS business we expect the first half year revenue to be approximately $5m. At operating profit CS will contribute around $800k however this will be reduced by funding costs and acquisition adjustments so will not have a material impact on the half year result.

12 In respect to the 2 nd half year we expect CS will contribute approximately $22m in revenue and $3.5m in profit contribution. To be deducted from this is the cost of group funding which we estimate at $1.5m for the second half. [Slide 27] - Trilogy Group, FY16 Full Year Forecast, including CS Company So looking at the group as a whole we expect revenue to be in a range between $75m and $79m for the full year to 31 March 2016 and profit before tax to be in a range from $10.0m to $12m, or at an EBIT level in a range of $12m to $14m assuming $500k of interest cost in the 1 st Half and $1.5m in the second half. [Slide 28] - Trilogy Group, FY16 Dividend Policy The group dividend policy announced earlier in the year is to pay between 45% and 55% of after tax earnings. For the year ended 31 March 2016 the board expects to apply the policy to earnings of the TIL group excluding CS but after total funding costs leaving the full CS earnings available and 50% of TIL brand profits after deducting interest to repay debt and further grow the business. [Slide 29] Trilogy Group, Shareholder discussion Thank you. Ladies and Gentlemen, I now invite any questions, comments or discussion from shareholders. Any shareholders wishing to speak should move to the microphone nearest to them and direct any questions through the chair.

13 [Slide 30] - Trilogy Group, Re-election of Directors, Resolution 1 We now move on to the five resolutions to be considered. We will not seek seconders to the resolutions but will invite discussions on each. Will shareholders please give their name before speaking and please use one of the microphones that are available The first Resolution is the re-election of Mandy Sigaloff as a director. I move That Mandy Sigaloff be re-elected as a Director of the Company. Is there any discussion? The poll on the re-election of Mandy Sigaloff and on the other resolutions will be conducted at the end of the meeting. [Slide 31] - Trilogy Group, Re-election of Directors, Resolution 2 Resolution 2 is the re-election of Grant Baker as a director. I move That Grant Baker be re-elected as a Director of the Company. Is there any discussion? Thank you.

14 [Slide 32] - Trilogy Group, Appointment of Auditor, Resolution 3 Resolution 3 is the re-appointment of PWC as auditors. I move That PWC be re-appointed as auditors of the Company and that the directors be authorised to fix the auditors remuneration for the coming year. Is there any discussion? Thank you. [Slide 33] Trilogy Group, Directors Remuneration, Resolution 4 Resolution 4 is to authorise an increase in directors fees in aggregate from AUD$150,000 per annum for its independent directors to NZD$385,000 per annum for all directors in their capacity as directors, to be allocated between the directors as they consider appropriate. Geoff Ross, Grant Baker and Stephen Sinclair will now be paid out of the director fee cap. The consultancy fee under the Business Bakery LP consulting agreement will be reduced by the equivalent increase in directors fee cap being paid to Geoff Ross, Grant Baker and Stephen Sinclair. I move That Resolution 4 as now on the screen and included in the Notice of Meeting is put. Is there any discussion? Thank you.

15 [Slide 34] Trilogy Group, Constitution, Resolution 5 Resolution 5 is a special resolution to approve alterations to the Constitution of Trilogy International Limited. The Company s Constitution was last amended in 2010 and the alterations as detailed in the Explanatory Notes will make the Constitution consistent with current New Zealand legislation. I move That the alterations to the Constitution of Trilogy International Limited as detailed in the Explanatory Notes on Resolution 5 accompanying the Notice of Meeting be approved. Is there any discussion? Thank you. Trilogy Group, Closing That completes the business of the meeting. Are there any further questions from shareholders on the Annual Report, the presentations or the discussion on the resolutions? <Questions> If there is no further discussion I would now ask shareholders to vote on the five resolutions that have been considered

16 [Slide 35] Trilogy Group, Poll Instructions Voting papers need to be completed by ticking FOR, AGAINST, or ABSTAIN against each Resolution. Please do not tick the PROXY DISCRETION box. The voting papers will be collected in the boxes provided and Computershare Investor Services will oversee the voting. The poll results will be released to the NZX as soon as practical following results of the voting being confirmed by Computershare Investor Services. I would like to thank you all for your attendance and declare the meeting closed. You are welcome to join us for refreshments. [Slide 36] Trilogy Group, Important Notice