Computershare Limited (CMSQY) Earnings Call Transcript & Summary

Well, good morning, everyone. Glad to see the sun has come out today for Computershare's Annual General Meeting. I am Paul Reynolds, I'm the Chair of Computershare, and I welcome you to our 2025 meeting. We're delighted to offer our shareholders and proxy holders the choice of participating in today's meeting in person here at our offices in Yara Falls or via the hybrid meeting platform. The AGM is an opportunity for shareholders, whether attending here in person or through the online platform to hear from us and to put questions to the Board and to the external auditor. There is a quorum present, and I therefore now declare the meeting open. Let me commence our business with some introductions. Next to me here. First in the line there is Computershare's President and CEO, Stuart Irving. Then we have the nonexecutive Directors present today, Tiffany Fuller; John Nendick; Abi Cleland; and last but not least, Joe Velli at the end there. Unfortunately, not able to be with us today is Gerrard Schmid, our Canadian base Director who is undergoing a medical procedure. I also want to welcome to the meeting, our Group CFO, Nick Oldfield, he's up front here. Group General Counsel and Company Secretary, Dominic Horsley, the side here. and upfront Marcus Laithwaite from PricewaterhouseCoopers, our external auditor. And Marcus is available to answer any questions you have about the conduct of the audit of Computershare's financial statements, the preparation of the content of the auditor's report, the accounting policies adopted by Computershare in the preparation of the financial statements and the independence of the auditor in relation to the conduct of the audit. Information on how to access the Notice of Meeting was distributed to all shareholders, and I'll take that notice of meeting as read. For today's meeting, I will address the questions together after all the items of business and proxy positions have been presented. So online attendees can submit questions at any time and to ask a question, select the Q&A icon, type your question into the text box. And once you finish typing, please hit the send button. Online participants can also ask a question via the audio questions line and instructions on how to do so are set out on the platform. Voting today will be conducted by way of a poll on all items of business, and I will shortly open voting for all resolutions. If you're eligible to vote, once voting opens, press the vote icon and all resolutions will be activated with voting options. And to cast your vote, simply select one of the options. There's no need to hit a submit or enter button as the vote is automatically recorded at that point. You'll receive a vote confirmation notification on your screen. You can't change your vote up until the time I declare the voting closed. For those attending the meeting here in person and who are eligible to vote you can scan your QR code on your attendance card with your mobile device at any time after I open the voting. And this will take you to an online voting page on your phone or your device. To cast your vote, simply select one of the options on the screen. There's -- again, there's no need to hit or submit or enter button as the vote is automatically recorded, and you will receive a vote confirmation notification on your screen. And finally, if you don't have a mobile device, you may complete the voting items, the old-fashioned way on the reverse side of the attendance card. So I now declare voting open on all items of business. I'll give you a warning before I move to close voting, which will be towards the end of the meeting. May I also say I also appoint Michael Hutchison of Computershare Investor Services on the left here as the returning officer. So the business. Computershare delivered a strong performance in financial year 2025. We've made good progress executing our strategies to deliver a higher quality, more straightforward Computershare, which is able to deliver stronger levels of earnings and return on invested capital through the ups and downs of the business cycle. Now as you may remember, we report our results in and is seen here in U.S. dollars and in constant currency. Highlighting the results. Earnings this year were slightly ahead of guidance. Management earnings per share increased by 15% to around $1.35 per share. Across our business, we saw an increase in client fees which are recurring. We also some -- we also saw some emerging recovery in our more market-sensitive events and transaction revenues which we have anticipated from the somewhat lower interest rate environment that we've seen. Margin income was also resilient, down 3% in the moderating interest rate environment. But I think that demonstrates our limited exposure to short-term interest rate movements. So these things, combined with disciplined cost controls, we're able to drive operating leverage and expand EBIT margins across the group when we converted those earnings into over $700 million -- $780 million of free cash flow. And this cash flow enables us to invest in products and technology, enables us to balance -- strengthen our balance sheet and increase rewards to shareholders. On that point, the total dividend per share for financial year 2025 was a new high of AUD 0.93 per share, an increase of 13% over the prior year. Look, I'm very pleased to say that this performance, the strong performance by Computershare is a direct result of our strategy that we've talked about over the past few years to simplify and focus our efforts on the core businesses of Issuer Services of Corporate Trust and of employee share plans. We've progressively disposed of noncore businesses. We've invested in technologies and deployed our capital very carefully, and we've kept our continued focus on managing our costs. And all of that gives us the returns and the balance sheet capacity to supplement organic growth with selective acquisitions that can bolster those returns. The strategy is consistent, and that's the Computershare way. But of course, although having a clear strategy is very important, the really tough thing is delivering against the strategy, delivering consistently. And the Board has been really pleased to witness Computershare's consistent ability to deliver its goals, whether there be new product introductions, efficiency plans, new acquisitions or integrations, we tend to hit the plan, and that's the key thing. Our strong results really are founded on the determination, the hard work and the professionalism of Computershare's people right across the globe. Now in our annual report, we lay out because we see here what ESG means for Computershare. Put simply, we understand and we really respect our social obligations. We aim as a company to do the right thing and support our employees, our clients and the communities in which we operate, and we're committed to using less carbon, to having greater diversity across our organization and contributing to communities. And we regularly assess our work against externally measured metrics. And I'd like today to highlight one partnership where we think we are making a difference. The World Youth International School in Nepal, we supported this project for several years and with the aim of delivering improved education standards for 750 children each year. We've built a boarding houses to facilitate attendance. We've provided new school buses to transport students to school and supply computer and network infrastructure for the school. And next year, we're opening an IT college that will enable 50 students to enroll in a bachelor of IT program, which will fund the school's operating costs going forward. We also support several local charities across the communities in which Computershare is active in. So we're proud of that progress. We're proud of the commitments we make and the participation of our people. But as always, there is more we can do here. So finally, let me close by reiterating how proud we are of this special company. And I'd like to thank Stuart Irving for his leadership, my Board and the fellow directors. the management team and colleagues right across the group for your hard work and commitment. Thank you for your contribution to Computershare's culture and performance. And thank you, our customers, our shareholders for your trust and your support. And on that, I'll hand over to Stuart.

Thank you, Paul. It's always a great day to be here at our AGM. And I'd like to add my welcome to all our shareholders and guests. And as I said, it's always a very special day in the calendar for me. Now we do have some shareholders who are unable to attend today, but they've sent a couple of nice notes in. So please indulge me and I'll read one out. Now this one is from Mr. Chris Morris from Templestowe, now Gold Coast. It reads, "Keep going Irv, p.s. work harder, bigger dividends, please." Nice. And then we have another one here from Mr. Simon Jones from Elwood. "Miss you guys. Do you think the proxy advisers would classify me as independent now?" I'm not sure about that one. Anyway, lovely notes and appreciate it. Thank you. Now as Paul touched on, FY '25 was another impressive year of growth and profitability for Computershare. After a sustained period of performance and the execution of our key strategies, let me talk a little bit about Computershare as it is today. Now Computershare today is really focused, high-quality capital-light business anchored around 3 core divisions: Issuer Services, Corporate Trust and Employee Share Plans. Now these businesses enjoy long-term customer engagements. They generate high-quality recurring fee revenues and are underpinned by positive industry growth trends. Now these are the majority of Computershare's revenues. Now some of our businesses also have event and transaction-based revenues such as corporate actions and whilst less predictable, they occur on a regular basis and enhance our earnings. Now margin income, which is really the bank interest we receive as we distribute or hold client cash, also increases our revenues and is a consistent feature of our business model. And margin income also gives us that important flexibility in how we can price a service that better suits the client and delivers our required returns, and almost all of our businesses have some form of margin income element. Now importantly, these businesses can deliver strong returns through multiple economic cycles. They are built to endure. They are built on the same foundations, which is our world-class capabilities as a trusted, market-leading, technology-driven servicer of financial assets, and they are built to scale across major global markets. Now this page -- moving on to really outlines what I would say is our key long-term value creation strategies at Computershare. Now our goal is really to deliver earnings growth through the cycles. Now many have commented on whether we can grow earnings in a declining interest rate environment. FY '25 was proof that we can do that and FY '26 will be more of the same. The growth in recurring fees as well as our transactional revenues and balanced hedging strategy really underpin that growth despite the reductions in interest rates. Now another key strategy is really to improve the quality of our business, therefore, the consistency of earnings. Now one of the things that I really love is that there is a portfolio effect in Computershare, having many clients in many sectors and many markets provides an element of protection in a fast-moving and at times, uncertain business climate. Now we are also deepening our moats at Computershare. We're investing in new technologies and innovations to drive both growth and efficiencies across all parts of our businesses. Now as you would know, we are and will remain a technology-focused company at heart. Another key value driver is our world-class capability in executing large and complex integrations and technology projects. Now that skill will continue to be critical going forward. Now these teams are really the unsung heroes of the group, and I really want to thank them for their long hours and commitment to completing these projects as planned. Now we have a very enviable track record in that area. and that execution strength has really become a key competency across Computershare. And I think that it gives the Board great confidence as we consider new acquisitions and growth opportunities. Now our capital strength is also an advantage. We have a capital-light model. We have strong cash generation and we will maintain a robust balance sheet to support our business strength, but also to reward shareholders. So in conclusion, we have a clear plan to drive long-term value creation at Computershare. Now moving on, let's just turn to the performance of the 3 core businesses: Issuer Services, Corporate Trust and Employee Share Plans. Now as Paul said earlier, pleasingly, each delivered revenue growth and higher earnings in FY '25. Now Issuer Services and -- Fiona Chalmers, who runs our issuer services globally is in the room here today. Now registered maintenance, which is one of our largest business within Issuer Services grew revenue by over 3%. EBIT increased over $450 million, and EBIT margins were broadly stable at 36%. We also saw increased activity across both issuer and shareholder paid fees. Corporate action revenues also increased nicely with higher average fees per deal, and that really helped drive the growth. And at Computershare, we are starting to see the green shoots of increased IPO activity, particularly in Hong Kong, which has always been an important and attractive market for us as far as IPOs are concerned. Now moving to corporate trust. I think that business really continues to strengthen. Last year, revenues increased by over 4%. EBIT was up over 7% and margins expanded by 140 basis points to almost 53%. Now we see a 10-year plus growth runway here. And whilst we remain patient for acquisition opportunities, we continue to make great progress building out our credentials and expanding our regulatory footprint to be ready for when the time arises. And then Employee Share Plans, that delivered another impressive result. And Francis Catterall, who runs our Employee Share Plans business globally is also sitting. Nice to see you sitting next to Issuer Services and having the love in there. Fantastic. Now our employee share plans business, as I said, impressive results, 9% growth in revenues, 15% growth in EBIT and 25% growth in EBIT ex MI, it's a real success story when I reflect on that business. The success of the business is much more to do with our ability to execute the plan that Francis and I put in place 5, 6 years ago. And that's nothing to do with current equity market levels. We set out to enhance our technology, improve our customer offering and build scale and our initial plans were actually to deliver over $100 million of EBIT. I'm delighted to say that we've outperformed on every measure. So where from here? Now we see long-term growth in equity being used in remuneration. We have some of the best tech in the market. Our assets under management are increasing, and we're winning market share. And I think they are great lead indicators of future growth. Now moving on to the [indiscernible] slide. Let's see how our FY '25 and our performance really translates into shareholders' returns. Now over the past 3 years, Computershare has generated over $2 billion of cash flow, and that's U.S. dollars, not Aussie dollars. Now the capital expenditure costs to maintain our IT, hardware and office fits out are exceptionally low, particularly for a group of our size. Now it is important to differentiate our CapEx spend from our technology investments and our innovation. Now these technology investments are serious commitments at Computershare. Now we have close to 1,700 IT colleagues in the team. Now just quietly, we're one of the larger technology companies in Australia. And at Computershare, we've always respected the importance of dividends as well for our shareholders. Now 2 years ago, in FY '23, we distributed some $244 million to shareholders. In FY '24, that number increased to $312 million. Now including the buyback, we returned $523 million to shareholders in FY '24. And in FY '25, the dividend increased to $334 million, and total returns, including the buyback were $613 million, a rise of 17% on the PCP. Now our AUD 750 million buyback program to enhance returns is also now complete. And I would just say that under current Australian tax legislation, any future share buyback programs would not be a tax-efficient way to reward shareholders and therefore, unlikely in the short term. So as a result, the Board will review our dividend payout as we prepare for the February half year results. But let's move now to this new financial year FY '26. It'd be fair to say that we've had a pleasing start to the new financial year. We're affirming full year earnings guidance. Back in August we said that management earnings per share is expected to be around $1.40 per share for the year, a lift of around 4% versus the PCP despite the lower interest rate environment. With 4 months trading under our belts, we have increased confidence in this guidance. We expect around 47% of earnings in the first half and the remainder in the second half. Now to date, what we are seeing is revenue ex MI is slightly up against our initial expectations. Corporate action activity is beginning to strengthen. Debt issuance volumes and corporate trust are improving and employee share plan trading is holding up. Now importantly, the increase in activity levels is generating higher cash balances. Our average cash balances have increased to $30.6 billion, with most of that increase taking place in corporate trust. And although interest rates and therefore, yields are lower than we anticipated due to the timing of interest rate cuts, our guidance on margin income is still intact at around about $720 million. So there's a lot of detail on yields and balances in the slide pack that we put out today. We'll not go through it here in the room. But I will also remind you that it's very early in the financial year, and Nick and I will be providing further updates in February at our half year results. But let's move beyond short-term earnings guidance and really focus on some of the topics that will shape Computershare's next chapter of growth. Now these are topics that we are evaluating and considering as we put in place foundations for enduring performance through cycles. I'm pleased to share this longer-term perspective. Now recently, we have been working with the crypto task force within the SEC securities regulator in the U.S. Now this regulator has been charged with the mandate to provide practical policies and clear rules of the road for the issuance of custody and trading of crypto assets and also continuing to discourage some of the bad actors from violating the laws in this space. Now as a market leader in the security space in the U.S., Computershare does have a seat at that table when discussing important issues such as the tokenization of equity. Computershare supports these promising advancements. But we prioritize the need to protect the corporate issuer stability, preserve investor choice and most importantly, maintain the integrity, confidence, trust and predictability in U.S. financial markets. And working on behalf of our issuer clients, we do support issuer sponsored tokens as a secure form of ownership for shareholders. Now these tokens would have complete rights and benefits of registered ownerships. And we would like to see tokenized derivative securities issued by third parties over a custody holding and the listed issuers of securities really be distinguished from the listed issuer of themselves and their securities with clearly different ISEs and stock codes and include very specific disclosures for investors against the nature of their ownership rights and also security terms. But as you can see, we are deeply involved in policy shaping and we believe that there will be long-term positive opportunities here for Computershare. But there is a super long way to go on this. and these issues are complex because financial markets are complex. But as of our Computershare intend to stay at the forefront of this innovation. Another area of focus for the group is around quality of earnings. As we near the end of our acquisition integrations and large-scale cost-out programs, you will see that group management adjustments to earnings will decline sharply. These adjustments should drop in FY '26 versus the PCP and reduce again the year after. And they will be largely eliminated by the end of FY '27. So just as we focus on growth and the consistency of our earnings, shareholders will begin to see the quality will continue to improve, too. Now a question I get asked quite a lot, let's discuss your acquisition pipeline. Now at Computershare, we have a clear list of the assets that we would like to acquire, and we're proactively in dialogue with vendors, but I will promise you that as a company, we will remain disciplined to make sure we buy the right assets at the right price. Any other course of action is likely to destroy shareholder value. Now at Computershare, we have a very strong track record of acquisitions, and we take that commitment very, very seriously. So I say to all shareholders, please be patient and good things will come. Now last year, on the 30th anniversary of our listings on the ASX, I talked about the next 30 years of growth and the opportunity for our group. Now that's not just idle talk. Within the group, we are reviewing our technologies, we're looking at our regulatory approvals and structures as well as our organizational capabilities from the top down to really deliver the next chapter of growth at Computershare. But what does that actually include? Well, it's going to be the safe deployment of AI across the organization and a refresh of back office platforms to drive scale and efficiencies. We're establishing new regulated entities across multiple jurisdictions to improve our positioning as an acquirer of assets in these locations. And we're also assessing our capabilities and our capacity across the group to deliver that next chapter of growth. Now they truly, truly are exciting times here at Computershare. So in conclusion, we will continue to build a high-quality computer share that endures. As I said, a business that can perform and deliver superior returns across multiple cycles, a business built on trust, technology, long-standing client relationships and execution capability. But how do we measure this? Well, through the cycle, this capital-light Computershare should be able to deliver 30% EBIT margins and 25% return on invested capital, excluding M&A. We generate positive cash flow and we'll maintain a strong balance sheet, and we'll continue to invest in our businesses and reward shareholders. Now it just remains for me to say a huge thank you to all the Computershare team for all their contributions and also to our customers and our shareholders for your trust and your support. And with that, I'll hand back to Paul. Thank you very much.

Thank you, Stuart. It's a great run through. Look, I said at the start of the meeting, we'll answer all questions at some time -- at the same time, once all of the items of business and proxy positions have been presented. And we'll be starting those questions shortly. So let's now run through the formal items of business. The first item of business relates to the tabling of the company's financial reports for the year ended 30th of June 2025. If you have any questions concerning the financial statements of the company or have a question for the company's auditor, we will address them during the Q&A session, which will commence shortly. So I'll now proceed with the resolutions to be considered. Any undirected proxy votes given to the Chairman on Resolutions 3 and 4 will be voted in favor of the relevant resolutions. Voting will remain open, as I said, during the resolutions and I'll provide you with a notice when the polls are about to close. We'll move to consider the second item of business, now being the reelection of our Director, Tiffany Fuller. Tiffany is due to retire from office and being eligible presents herself for reelection. The Board, in the absence of Tiffany Fuller unanimously supports her reelection. And before we move this resolution, Tiffany will say a few words in support of her election. Tiffany.

Thank you, Chairman, and good morning, everyone. It's been a privilege to serve as the Director of Computershare and I seek your reelection today. I bring over a decade of top 50 public and private board experience across financial services, technology and transformation, funds management, property and consumer underpinned by deep financial stewardship, strategy, governance and risk management expertise. I've chaired the audit and audit risk committees on all boards. This background has enabled me to contribute a disciplined analytical and independent perspective to board discussion. I've had a multidisciplinary executive career across -- with developed skills across accounting and corporate finance banking and treasury, M&A, consulting and investment disciplines. I'm a qualified chartered accountant and a fellow of the Institute of Company Directors. As many of you will know, I recently chaired the Group Risk and Audit Committee for a number of years, which has given me broad and deep insight into the global business through a period of material change and growth. This role is now in the very capable hands of John Nendick as part of orderly Board succession planning. As Irv said, Computershare is emerging from a high-change agenda, driven by a number of material acquisitions in plans and corporate finance and major transformation programs across technology, finance and treasury, which I have been close to through my committee role. With a strong balance sheet and strategic optionality together with opportunities for advancement in product and operational efficiency, the company has a positive outlook for ongoing growth, which I believe my deep corporate knowledge and skills can continue to contribute to. I remain deeply passionate about Computershare as an outstanding Australian success story and one that has delivered over the long term for shareholders by staying disciplined about strategy and expertly leveraging its core competencies and technology capabilities globally. I will continue to bring my experience, integrity and energy in supporting what is an extremely high-quality management team and a company with an enviable corporate culture, one I'm proud to be associated with. Thank you for your time today.

Thanks, Tiffany. So I now move the reelection of Tiffany Fuller as a Director of the company. The resolution and a summary of the votes received before the meeting now appears on the screen. The next resolution relates to the adoption of the company's remuneration report. The Corporations Act requires a resolution to adopt the remuneration report is put to the vote at the AGM. The vote is advisory only and will not bind the company or the directors. The report sets out the policy for the remuneration of the directors, the CEO and other designated senior executives. It includes information on how remuneration is structured as well as the quantum for the period ended 30th of June 2025. Noting that each director has a personal interest in their own remuneration from the company, the directors recommend that shareholders vote in favor of adopting the remuneration and report. So I move the adoption of the remuneration report. The resolution and a summary of the votes received before the meeting now appears on the screen. Okay. The next resolution is to approve a grant of performance rights to the CEO, Stuart Irving, under the terms of the company's long-term incentive plan. Approval is requested from shareholders under the ASX Listing Rules to authorize the company to grant equity securities to the CEO under an employee incentive scheme and details of the terms of issue of the equity securities are set out in the notice of the meeting. The Board, in the absence of Stuart Irving, unanimously supports the grant of performance rights to the CEO. I now move the grant of performance rights to the CEO. The resolution and a summary of the votes received before the meeting now appears on the screen. Okay. That concludes. Now I have tabled all the items of business to be considered at the meeting. We'll open the meeting up to questions. I think Dominic will receive some questions from shareholders in advance of the meeting, which I'll address first.

That's correct. The first question we received was from shareholders, William and Robin Moxie. They said, "I am a New Zealand shareholder and note you have a New Zealand subsidiary. Why do you not pass on New Zealand imputation credits to dividends paid to New Zealand shareholders. New Zealand imputation credits are similar to franking credits in Australia."

Yes. So thanks for the question, William and Robin. We do indeed have a New Zealand subsidiary, and we do have the capacity to accumulate New Zealand imputation credits. That is, however, a really small part of our global footprint. So our credit balance is negligible at this stage when considered against our shareholder register. However, we will continue to monitor this, and if we accumulate sufficient credits, we'll take a further look.

Thank you. We've then got 2 questions from shareholder, Natasha Lee. The first of these is, first, I would like to congratulate the Board and the team for outstanding results. While the business is highly reliant on the U.S. operations, which generates 56% of revenues and 50% -- 57% of EBITDA, the outlook is dependent on U.S. interest rate cuts that first happened in October. Apart from interest rate cuts, the political situation in the U.S. is becoming increasingly concerning. How is the company managing these risks and to what extent has this been factored into the outlook?

Thanks, Natasha. I mean, firstly, thanks for the congratulations. I mean, the Board clearly agrees with you on the performance that we've set out today. But your question is about looking forward. And Stuart set out the outlook, and we've reaffirmed our guidance for our financial year '26 of management EPS of around $1.40 per share. And that guidance takes into account the interest rate cuts that we've already seen as well as further cuts that we anticipate and have been forecast over the rest of the year. So we anticipate those cuts as we make the plan and make the guidance. So already taken into account. And as for the broader outlook, the U.S. is a major market for us, obviously, and we pay an awful lot of attention. But the good news, again, Stuart talked about it, is that corporate activity is beginning to strengthen in the States. Debt issuance and corporate trust is improving, and that's all helping contribute to a positive outlook. So guidance affirmed -- question noted, guidance affirmed, we take into account, we're very, very careful about all the market signals that we can bank on and factoring those into our forecast.

Thank you. The next question from Natasha Lee is with only 2 female nonexecutive directors, this represents around 28% of the Board, which is below best practice of 40%. Will the Board commit to achieving at least 40% female representation. And in addition, the Board lacks diversity in other areas, and I ask the Board to commit to improving other forms of diversity on the Board.

Look, it's a good question, Natasha. Thank you. You may have spotted that one of our directors Lisa Gay unexpectedly resigned for personal reasons earlier this year. And when that happens, your ratios go up and down just overnight. So we moved our female representation from just under 40% to just under 30%. Our stated board commitment is to have female representation of at least 30% as we confirmed in our corporate governance statement, and we certainly expect to be back in excess of that point by the end of this financial year. And diversity more broadly, we aim to recruit the very best from all the talent pools available, the widest talent pool possible. And we utilize our recruitment process, that's structured to provide a level playing field from whatever gender, sex, race is present. So we think we have a very fair approach to doing the right thing in recruitment and getting the right balance. Dom, any more?

That's it from questions before the meeting. We have had a few online.

Well, should we do that or in the room first?

We can do the room first.

Anyone attending here in person who wishes to ask a question. Stuart?

Thank you, Mr. Chairman. With the sale of the U.K. mortgage services business, do you -- does this mean that Computershare will completely remove themselves from that area? Or are there some other business components in that sphere that need to be addressed?

Okay. Well, I think maybe we should hear from Stuart, the other Stuart. Do you want to answer that one?

Thanks for the question. Yes, we sold our U.S. mortgage services business last year, and we recently announced the sale of our U.K. mortgage business. That hasn't closed yet. I anticipate that to close sometime in the first half of 2026, subject to regulatory approval. And at that stage, as far as mortgage servicing is concerned, we're completely out of it. So not a core business, and it's gone.

Any other questions in the room? Well, you've got the microphone?

Yes, I have. [indiscernible] So I can't see without my glasses on. Can you please comment on the role of communication services and utilities operations will play into the future? Or is it seen as an overall business unit for growth? Or is it seen as a service type industry?