SSM AGM

I did mention a while back that I'd post my notes about the SSM AGM, so as promised, I have copied these from emails sent to a few people. Hopefully they help.

Before you read, I'll add that this is the first AGM I have attended, but have listened to many over BRR and other related websites. Also, that my notes may not be in chronological order, but reflect what I thought were key points.

Upon commencement of the meeting, nothing significant was said about the company other than the strong financial position the company is in (and mention of the capital raising), the mistakes made in the past and the 'strong' outlook for the company.

During the re-election of Dempsey as chairman, a shareholder requested he say a few words as to why he should be re-elected. Nothing major was said, but there was an overall tone of learning from past mistakes and a high level of conservatism; the same impression was made when Wilks spoke before his re-election.
I did note that Dempsey mentioned his recent purchase of shares at 23.5c, stating that although he bought "at the top", he believed there was "significant value" at that price.

Finally, Dempsey mentioned that their hiring mistakes had ended (I believe he was referring to the hiring/firing of Terry Sinclair), but the board is now very happy with their internal appointment.

Following the voting, Dempsey spoke about the company, but gave little away in terms of outlook. Again, his speech highlighted the mistakes of the past, but nothing in terms of guidance - this he left for Mackender.

For me, the real content came when Mackender spoke. He began speaking about the company's poor performance during FY14, however he did put emphasis on the operating cash flow and ability to repay debt much faster than had been anticipated. He did not, however, attribute this to any sort of reduction in working capital as a result of fewer contracts.

Once he hit the 'Key financial trends' page, there wasn't much worthy of noting, other than the statement that 'operating cash flows were stronger than expected'. Again, to me the liquidation of sorts that I can see on the balance sheet was not reflected in what he said, which leads me to believe he didn't want to mention additional 'losses' to shareholders (i.e. selling current assets as a loss). However, my analysis may be incorrect.

Next, he briefly mentioned the Fixed Comms segment, stating that it would no longer make a loss. He made clear the company was focusing on 'operating efficiencies' and 'fundamentals', aiming for 'organic growth'. He did mention that the NBN related work had been volatile and that they were seeing a 'ramp-up' in this area, specifically with Fibre to the node activities.

When talking about the Mobile Comms segment, he did mention additional work relating to lighting on road infrastructure pieces, which apparently ties in well with the expertise of this division. I found it a little odd, but I'm no expert in this field.
He also mentioned the Vodafone contract and that this was tracking very well, but nothing specific about the contract.

Finally, on the Energy and Water segment, he mentioned a renewal of contracts and an additional contract with a new player in the market ("SunPower" I believe was the name, or something similar). He also discussed the completion of smart meter roll-outs in Victoria, but opportunities with other states for the same work.

Now the most important part for me - the strategy. I'll note a few things in point form:

• Emphasis was put on containing operating costs and 'focussing on fundamentals'
• A restructure was mentioned within the business, centralising shared services (HR, accounts, legal, etc). He also mentioned a group focussing on operational efficiencies, reporting directly to him
• Whenever growth was mentioned, it was always 'organic growth'. It was made clear there was no intention to make any acquisitions, but rather to spend minimal amounts to pilot new areas of work before investing heavily.
• Specific to new areas of work, Mackender did make note of looking for areas that contained 'synergies' with their current skill-sets.
• He also pointed out the company was looking to sub-contract a lot more of its work, so the cost base was more variable and related to the volume of work they received.
• He also described the work SSM performed is a 'ticket of work' style. No big, centralised pieces of work, but rather a high number of the same transactions (e.g. many installations of smart meters)
• Finally, he very confidently said that the outlook was positive for all business units and that revenues would grow.

On the topic of EPS guidance, he said that management were not willing to provide a figure at this point, but as time goes on they will make an announcement to shareholders. Again, he made note of an increase in revenue in coming years and also said EBITDA would improve.

At question time, one shareholder asked about the Long Term Incentive plan, in particular the 2.8cps hurdle for FY15 and whether this was realistic. Mackender did not answer this question directly, but said the company had 'turned a corner', that EBITDA would increase and guidance would be given when management were a little more sure of the figures. He then re-iterated the mistakes of the past, learning from these mistakes and the positive outlook for all business units.

Lastly, another shareholder questioned the work SSM does. Mackender clarified that SSM does not actually do any work relating to infrastructure (e.g. building roads) - the only link being the installation of lighting.

Overall, I thought the AGM showed a very conservative management team, keen to focus on operational efficiencies rather than growth via acquisition because of the mistakes of the past. I get the impression this is the influence of their new major shareholder, but no real evidence of this at this point.