Hi Guys,
As promised, here are my notes from the AGM held today. The notes came from discussions I held with the directors before and after the agm, and what was said during the agm.
Advance apologises for any typos and grammatical errors, as I have not spent much time to proof read my notes below.
Attendance at the AGM
Excluding individuals associated with the company (e.g. employees and auditors), there were seven attendees in total. Further, there were two well-dressed individuals who stood apart (e.g. quietly taking notes and etc). I suspect they are from Taylor Collison as one of them looks vaguely familar, but I can’t back that up.
The company noted that there were only three attendees in the Melbourne AGM last year. Also, more questions were asked at this AGM. From the top of my head, six questions were asked of which I asked three.
From my perspective, the atmosphere was very open and the directors took time and effort to mingle around before and after the AGM to answer questions. Kudos to Ray, Malcolm, Geoff and Rebecca for answering my questions. Nick from Blue Sky answered my question regarding its intention before dashing off pretty quickly after the AGM, presumably to catch his plane perhaps???
My personal feedback to directors and management
- Recognise the work that they have put in laying the foundations for the company. Express my appreciation for the work that Nathan had previously put into communicating with shareholders in the past. Ray commented that the company is committed to maintaining the openness in communication with shareholders.
- The skills set that Geoff and Rebecca brings will benefit the company in the next phase – commercialisation and marketing
- Company needs to focus more on marketing itself to potential investors and building institutional support. Rebecca, in particular, acknowledges this and recognises that more could be done. She already have a strategy on building the branding and visibility among institutions (both domestic and international). Both Malcolm and Rebecca are in strong agreement that this is an area that all of them need to improve on. Rebecca mentioned to me the various companies that she is involved with assisting their investor relations side of business. One company that stood out is Nanasonics, which she has been involved with since its early days.
Blue Sky’s intention
I specifically asked Nick this question during the AGM regarding their investment horizon in ALC and if the company’s performance has met their expectations.
His response is as follows:
- Blue Sky first invested in ALC in 2012, knowing that it is a long-term play and risks associated with venture investments – the volatile ride.
- Reiterated Blue Sky’s commitment to its ALC investment, particularly when the company is at an important junction – commencing the next phase of its journey being commercialisation of products.
My interpretation of his response and body language is that no decision has been made in respect of their investment. In other words, Blue Sky will be adopting a wait and see approach to how the company executes its investor relations, marketing, commercialisation and sales strategies. Unless things go really pear shape, Blue Sky will continue to hold until the share prices meet their pre-determined exit price. This is consistent with the investment framework outlined by Blue Sky’s CEO previously on Livewire. I did share the weblink previously.
Appointment of Geoff and Rebecca
Both spoke about their appointments to the board and how they both see the need for ALC’s products – enhanced productivity and better patient outcomes.
I also specifically ask the question during the AGM about their perceived lack of skin in the game. Also, about wanting to make sure the directors’ interests are aligned with shareholders.
Ray mentioned that both of them have been spending lots of time to assess M&As. Accordingly, both are prevented from purchasing shares in ALC until the blackout period has been lifted.
I further queried this matter with both after the AGM. Their responses are summarised below:
- Geoff mentioned that this is the first public board position that he has been appointed to and therefore wants to do the right thing. The legal advice that he received is that he cannot purchase any shares when he is still assessing M&As on behalf of the company. Rebecca also reiterated this point.
- Geoff mentioned that his position will be to purchase shares on the market as soon as the blackout is lifted. His throw away line was that the share price is ridiculously cheap, particularly given the company’s plans, proven products and etc.
- Rebecca mentioned that her history shows that she has been invested in every company that she is involved with. ALC is no different.
My interpretation of their responses and body language is that both of them really want to but are prevented from purchasing shares in the company. Both can’t believe how cheap the share price is and purchasing shares at the current prices is a no-brainer.
Ray, Malcolm, Geoff and Rebecca come across as yin and yang pairs. The former two bring calm and rational thinking while the latter two brings so much energy. My personal observation is that both Geoff and Rebecca will bring much needed skills in execution of strategy and investor relations. Both of them obviously know what areas need to be improved and are committed to doing so.
Marketing and sales strategy
Ray noted that while R&D will continue to be a big focus for the company, marketing and sales will really kick in as the company embarks on its next phase.
Key points:
- Sales and marketing team has been boosted the appointment of a new GM and staff.
- Focus will be on the private hospitals as opposed to public hospitals due to their shorter procurement process and commercial focus. Ray mentioned that private hospitals focus on return on investments whereas the public hospitals has other considerations such as politics, vested interests and adverse to risk-taking. This very point was reiterated by Malcolm and Rebecca in my discussion with them after the AGM.
- Focus on UK in the short term and North America in the medium term. I reiterated to Ray that my preference is for ALC to get its foundation right at home first before pursuing overseas expansion which could be capital consuming and loaded with execution risks.
- ALC is continuing to establish partnership with third-parties (e.g. Oncallhealth in New Zealand). Rationale for this is to offer clients a whole suite of products rather than a single product offering. This kind of makes sense as it will effectively lock clients across multiple products.
- ALC is continuing to examine ways to lower the upfront costs and ongoing maintenance costs to clients via internal efficiencies to make its products a more attractive investment proposition.
- ALC is also focused on the out of hospital market segment. Ray mentioned that this could be an attractive market given the lack of competition. I don’t believe the company has ever mentioned this before but Ray mentioned that ALC is already providing such out of hospital services in regional South Australia.
- Ongoing maintenance revenues currently only makes up around 30 percent of the company’s revenues. The company wants to increase this further as this is where the biggest margins are earnt.
Research and development
Ray and Rebecca both mentioned that R&D will continue to be very important area despite the growing focus on sales and marketing.
Key points include:
- There are lucrative opportunities in AI and big data.
- Referring to slide 5 of the AGM presentation, the company is not looking actively to compete with the big boys on data layer. Digital transformation suggests that ALC can capitalise on its competitive advantages in the more lucrative areas of “process and presentation” and the holy grail, “analytics and outcome layer”.
Mergers and acquisitions
As previously mentioned, both Geoff and Rebecca are part of a committee looking at M&As. Ray responded to my question of their perceived lack of skin in the game by saying that both directors have been spending a lot of time (more than what they committed to when they agreed to join the board) at examining the different options.
Key points:
- Ray reiterated that any M&A activity must enable the company to scale up quickly either via opening new channels or customer base.
- This M&A strategy has already been in play for some time. Rebecca specifically noted during her presentation that an announcement may be made “in the very near term” (read it how you may but it means pretty soon to me). Ray reiterated this point to me that a lot of work has been done in this area and while it may not happen as things fall over at the very last minute, any M&A may provide a boost to the share price and publicity for the company. His very words were “watch this space very carefully”.
My interpretation of their responses and body language is that, if everything goes well, we can expect to hear something very soon. Both Ray and Rebecca were somewhat evasive when I tried to dig further on this subject. Given both Geoff and Rebecca backgrounds and expertise, I would be very surprised if they present a dud to shareholders. This M&A also ties in very well with the placement resolution that was passed at the AGM.
My final thoughts
Discussions held both before, during and after the AGM supports my thesis that ALC is at an important junction. The next phase being executing its commercialisation and investor relation strategies.
Some concerns that I previously held regarding slow roll-out were put to rest when Ray assured me that the delays were caused by external factors beyond the control of the company. For example, the delays with Mid-Central group in New Zealand was as a result of them wanting to install a new IT system before the ALC system. Same thing happened with NT Health.
I wasn’t aware of this but the Calvary Group not only operates their private hospitals but also some public hospitals on behalf of the governments such as the ACT. Accordingly, investors may be underestimating the potential of their partnership with ALC.
ALC is a play on FY18 where revenues “may” accelerate and becomes more sustainable. When this happens, institutional and new investors will start to take notice. Until then, I personally feel that current risk-reward proposition for alc is very attractive, knowing what I know.
Whilst I already hold a decent parcel of ALC shares (just outside of top 20), I left the AGM feeling more confident than ever about the company’s future. I am prepared to add to my shareholdings if and when funds are available. As mentioned previously, time will prove to me if I am either a genius or a complete idiot!