Computershare Limited (CPU) Earnings Call Transcript & Summary

[Presentation] Welcome to Computershare's 2022 Annual General Meeting. For those of you who've joined us in person, I'd like to welcome you to Naarm room in our newly designed global headquarters named after the indigenous name for Melbourne. Computershare acknowledges the traditional custodians of the land on which we meet and the custodians of the lands from which you're all joining us today, and we pay our respects to elders past, present and emerging. My name is Simon Jones, and this will be my last meeting as your chair today. As you all know, I'll be retiring after this meeting and handing over to the significantly taller and slimmer but very capable and experienced Paul Reynolds, but more of that later. I must say, it's a pleasure to see some familiar faces and friendly faces in the room. Nice to be back person to person, but particularly nice to have Chris and Penny here today. So welcome and welcome to all the other shareholders here. We are also delighted to welcome our shareholders and guests who are attending online using Computershare's own meeting platform. All attendees can watch a live webcast of the meeting, and shareholders and proxies also have the ability to ask questions and submit votes online. As we have a quorum, I'm pleased to declare this meeting open. Now let me introduce you to my fellow directors. To my right, we have our outstanding CEO, Stuart Irving, the incredibly tall and slim Paul Reynolds next, the ubiquitous Abby Cleland after that are outstanding Chair of the Rec Committee, Tiffany Fuller; and the similarly outstanding Chair of our People Committee, Lisa Gay; and our West Coast and East Coast Americans on the Board, John Nendick with his financial expertise and Joe, who's an industry science. So great Board, lots of diverse thinking on it. Also turning online today are representatives of our auditors, PricewaterhouseCoopers. The minutes of the 2021 Annual General Meeting are available for inspection by any shareholder by contacting Dominic Horsley, the Company Secretary, who is the gentleman sitting in the north corner just down here. Notice on how to access the Notice of Meeting was distributed to all shareholders, and I'll take the notice of meeting as read. For today's meeting, I will address questions together after all the items of business and proxy positions have been presented. [Operator Instructions] Voting today will be conducted by a poll on all items of business, and I'll shortly open voting for all resolutions. If you are eligible to vote, once voting opens, please press the vote icon and all resolutions will be activated with voting options and to cast your vote, simply select one of these. There's no need to hit a submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen, and you can change your vote up until the time I declare voting closed. For those attending the meeting here in person who are eligible to vote, you can scan the QR code on your attendance card with your mobile device at any time after I open the voting. This will take you to an online voting page and to cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. And again, you'll receive a vote confirmation notification on your screen. If you don't have a mobile device, you can complete the voting items on the reverse side of the attendance card. 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. And I appoint Michael Hutchison of Computershare Investor Services as the returning officer. FY '22 continued to be a challenging year in a volatile and uncertain environment. Nonetheless, we continue to support our people to deliver for our customers and grow our business. Whilst in '22, we're yet to return to pre-pandemic numbers, our financial results for that year were very pleasing. Full year management earnings were ahead of guidance. Growth in client fee income offset weaker transactional revenues. And with strong cost controls, we are able to manage the impact of inflation as we benefited from rising interest rates towards the end of the year. As you may remember, we report our results in U.S. dollars and in constant currency. Management EPS increased by over 10%, slightly ahead of guidance. Management revenue increased by 12.2%, which included 8-month contribution from our new Corporate Trust business in the U.S., which is performing strongly. Management EBIT was up 19% and margin income is an increasing part of that total. Margin income began to improve from low levels as interest rates began to move up, particularly in the last quarter of the year. I'm pleased to say that with our increased exposure to higher interest rates, there is more margin income to come, and Stuart will talk about that later. While our results were strong, it was a challenging environment, especially in the last quarter. As interest rates increase rapidly, our transaction and event-based revenues were impacted by lower volumes and activity levels. Mortgage rates also shot up, reducing origination and corporate action volumes began to tail off. So as we know, the impact on these businesses was tied to the raising rate environment. But margin income to natural hedge at Computershare and the benefit from higher-than-anticipated rate rises in some of our key markets in the last quarter more than offset the impact. More, Computershare has strong financial foundations, free cash flow and the balance sheet as standouts in this result. We generated over $320 million of free cash flow and debt leverage at the end of the year was 1.6x, which is below the bottom of our target range. This deleveraging has come through far sooner than we expected following the CCT acquisition. It's not a bad place to be in a volatile world with rising interest rates. This strong balance sheet and the flexibility it gives us, will allow us to continue to strengthen and scale our global growth businesses, fund the important integration plan for CCT and most importantly, reward shareholders. Stuart will talk more about that later. We continue to use our strong liquidity to support our shareholders, increasing our final dividend to $0.30 per share, a rise of 30% on the prior year. This dividend is unfortunately unfranked given our bias to offshore earnings. Let me talk to our long-term track record. Our strategy at Computershare is to build a high-quality, sustainable company with predictable recurring revenues, coupled with the optionality to rising interest rates, markets and events to enhance earnings and our returns for shareholders. The left-hand side of this page shows the positive trajectory in EBIT, excluding margin income over the last 10 years. It's a positive 5.7% average annual growth rate, including some virus-related interruptions that I won't dwell on. That consistency in our core businesses enables us to support similar consistent growth in dividends. On the right-hand side of the page, you can see our dividend track record. We have distributed around $2 billion to shareholders by way of dividends over the last 10 years, with dividends growing by about 5% on average each year. It's the disciplined execution of our long-term strategies, profitability and capital management that contribute to our earnings performance and enable us to deliver these consistent dividends for shareholders. Now let me take some time to focus on environmental, social and government as ESG as it's increasingly called. Computershare, led by our founder, has a long history of doing the right thing and supporting our employees, clients and the communities in which we operate. This year, to recognize the ongoing importance of ESG to our business, we released our first stand-alone ESG report, giving you an overview of our journey, increasing our disclosure and detailing how we align to current recognized disclosure standards and frameworks. Whilst we've made good progress in a number of areas, I'd like to just touch on 3 today, our climate action strategy, our diversity and inclusion process and information security. We told you last year that would be carbon neutral from 2020 onwards. And this year, we announced in our report that we're aiming to attain net zero status across Scopes 1, 2 and 3 by 2042. Our team is working hard on detailed action plans, and we'll be sharing more information about this in coming months. There's no denying this is a tough ask, but as we've always done, we'll do our very best to meet that target. Diversity is a key enabler in our business in all forms. Over the years, we've created an inclusive workforce and workplace where our employee survey results show that our people truly believe there are unique differences in thinking, ideas and experiences. They're all valued. It's a big part of Computershare and our being purple way of working. We want everybody to feel like they belong. And as part of our next year multiyear diversity and inclusion strategy, we signed up to 40-40-20 targets for our senior management team, which we are getting closer to from a gender perspective. Our Board is 38% female where our company executives at 2 levels down from Stuart are at 31%. Across the company, 56% of our staff are female. This year, we also formed a D&I forum chaired by Stuart and continue to run a global D&I calendar of events for employees, which regularly promote diversity, inclusion and mental health and wellness initiatives. -- very appropriate, but information security has always been important to us. Protecting our information assets and our customer data is vital to the success of our business. Our information security supported by a detailed information, security strategy and effective and forward-looking information security operating model and strong internal capability. All employees have their information security responsibilities clearly defined within a comprehensive global information and cybersecurity framework aligned to global standards. We continue to build a strong security culture within the business through training and simulations for staff to increase awareness. And we'll continue our proud focus on these areas as we look to finalize our comprehensive and combined ESG strategy over the next few months. Before I hand over to Stuart, I'd like to thank my fellow directors and colleagues across Computershare for their support and contribution not only this year but through my 17 years here. I will be retiring from the Board and the company today. And I'd like briefly to say it's been a rare and special privilege to be a member of the team here at Computershare. It's without a doubt a very special organization. We have many talented and dedicated people, and we've kept and nurtured the spirit of the innovative start-up. And also, many things have changed, and we've grown across many markets. Our culture always aims to put people and our customers first. And I'm deeply grateful for the opportunity to be your servant as the Chairman, and I thank you all once again for your support and encouragement. And I'd also like to thank our long-held motors and shareholders for their support and loyalty. Finally, I'd like to formally recognize Stuart Irving, our CEO and President. He is a tireless and inspirational leader. Absolutely. I thank him for his commitment and his outstanding continued contribution to his business. And I know under his leadership and that of Paul Reynolds on the Chair, Computershare is in a great place and will be stronger than ever and very well placed for future success. I'd now ask Stuart to address the meeting.

Thank you, Simon. I just like to add my welcome to shareholders and guests. Nice to see the Morris family. No tricky questions, Chris, please. Now today, it's an important day in Computershare's year and also with the changing of the chair, our history too. And today, I'd really like to talk about 3 key topics: number one, a recap of our financial year '22 business performance and results. Number 2, an update on our trading performance so far this year. And finally, to talk about the upgrade that we did this morning to this year's guidance. So I'll begin with a brief overview of the Computershare Group as a little bit of a reminder. Now this slide shows you what we do and where we operate. Now Computershare is a leading technology-enabled administrator of legal titles and financial assets. We are the digital trail in millions and millions of financial transactions. And since we started here in Melbourne, all these years ago, we put technology at the center of everything that we do. We have built and refined the proprietary technologies and platforms to administer these services to clients and our stakeholders at speed with great accuracy, efficiency and of course, trust. Digital expertise, data privacy and cybersecurity are critical at Computershare. We've got deep expertise in data, automation, major project delivery, regulation compliance and of course, security. And we combine these strengths to deliver world-class outcome for around 25,000 clients across the world. And Computershare's strategy is really to leverage our core capabilities to build stronger businesses with scale and more exposure to positive structural growth trends. And we have a business model that allows us to grow in large global markets. We identify new complementary revenue pools to drive additional growth, and our business is characterized by over 80% of recurring revenues, whilst the management of cash balances is a feature across almost all of our businesses. These client balances are an intertwined part of our operating businesses and revenue model and help create optionality across the Computershare platform. And when that optionality converts, such as when interest rate rises, we can deliver very strong earnings growth and, of course, share the returns with our shareholders. So summarizing our performance last year, I'd say our key growth businesses delivered solid results. In Issuer Services, the traditional registry business, we increased revenues and register maintenance and continue to win market share. Our Government Services delivered another good result too, with revenues up over 30%, and rising compliance standards, regulation and business complexity are creating ongoing momentum in that business line. Now corporate actions had a little bit of a weak second half. As we know, there's volatile equity markets out there, and that led to lower M&A and capital-raising volumes. Over in an employee share plans business, we continue to win market share and increase paid fee revenues. The rollout of our EquatePlus platform is driving this growth. Now look, we have seen some increased costs and delays in the implementation due to border closures. We couldn't get staff into Australia for a period of time. So we've given ourselves a little bit of a critical score there, and you can see that's why we've got an X. And also employee share plan transaction revenues, that's really where employees of trade to stop. They fell in the second half of the year as equity markets moved lower and have remained subdued certainly as the first few months of FY '23. Importantly, though, for us, the units under management in our employee share plan business continue to rise, and that supports future revenue growth. Over in mortgage services delivered a disappointing result. And it's one of the red crosses on the slide, although the business is fundamentally stronger than it was previously. Lower loan origination volumes are impacting operating results and the higher amortization charge depresses EBIT. But you can see with rising mortgage rates, that's why you have less origination. But our servicing portfolio has started to grow again. And with our cost out program and train, rising margin income, we do expect that business to return to profitability in the second half of this financial year. Business Services also had a red cross against it, fundamentally due to the ongoing subdued case volumes in bankruptcy and class actions in the U.S. In our Canadian corporate trust, we delivered a consistent underlying result. It's a very reliable and robust business. And CCT, our new acquisition in U.S. was a highlight overall. The business is performing well, exceeding expectations. We're beginning to grow the client-paid fees just like we did up in Canada, generating increasing levels of recurring revenues. The acquisition added over $18 billion of client balances to Computershare and a further $47 billion held in money market funds. It clearly increases our leverage to rising rates, and we'll talk a lot more about that later on. So for the FY '22 year, we delivered 12% growth in management revenue, of which 80% is recurring. 19% growth in management EBIT 74% increase in our margin income with rates beginning to rise, and 11% growth in management earnings per share and a return on invested capital of over 12%, an improvement of 130 basis points. Computershare's free cash flow and balance sheet were also standouts in the FY '22 results. As Simon said, we generated over $320 million of free cash flow with 60% cash conversion and also the company's debt leverage improved from 1.64x, which is below our target rate, but it actually went down 10 months sooner than we expected following the large CCT acquisition. And what does that mean? Well, it means this flexibility enables us to continue to strengthen and scale our global businesses, fund the integration plan for CCT, and of course, reward shareholders. Let me take a few moments just to recap on the CCT acquisition. It was our largest-ever acquisition, and we've owned the business for a year now. So it's a fair question to ask how has the acquisition gone? My clear response would be it's proving to be an exceptional and well-timed purchase and CCT is exceeding all our expectations. Now let me remind you of what we did and what we expected from the business last March when we first announced the deal. Computershare committed around USD 1 billion to buy the asset, provide regulatory capital and also the standup CapEx of the business. We funded the purchase with a $634 million underwritten entitlement offer, which I'm glad to say a great many of you participated in, and we drew down a further $372 million of debt. And that pushed our debt leverage ratio up to 2.4x on completion. Now we had CCT's financial for the 12 months to December 2020. And in that year, CCT had $85 million of margin income and $84 million of EBITDA, and it was making a return on invested capital of 6%. Through our due diligence as part of the acquisition, we had line of sight to around about $80 million of synergies, and the plan was to deliver these over the 5 years. Now it's a large and complex project that we're executing and -- but we have a plan, a very clear step. And last March, we expected the deal to be earnings neutral at about 15%, that's 15% EPS accretion, including the full run rate of these synergies. And we also had enough confidence to guide to a 15% post-tax return on invested capital by 2025. So overall, on a pre-synergies basis, we bought the business on a multiple of 8.9x and we had 5 years to generate the returns. As we stand here today, 1 year on from completion, the picture is actually very different. Rates have risen faster and further than we expected. The integration plan is slightly ahead of schedule, and the underlying business has grown more than we had anticipated. So it's all good news. In FY '23, we expect the business to make around $450 million of EBITDA. Looking back, we tied this transaction at the very bottom of the interest rate cycle. And we now expect margin income this year in that business alone to be around $400 million. In effect, we bought the business not on 8.9x, but at 2.25x. And we expect to generate a return on invested capital of 32% based on the FY '23 outlook, which is more than double our 5-year target. And with this improvement and contribution, Computershare's balance sheet leverage strengthened below the target range, 10 months ahead of plan, and that's giving us opportunities to further strengthen the wider group. Importantly, the strategy behind the acquisition is playing out well. Our expansion in U.S. Corporate Trust is a logical and low-risk opportunity for us with scope for both organic and inorganic growth. And we know the business well. We've been in Corporate Trust in Canada for over 20 years, have had a small presence in the U.S. for many years, call that a ringside seat to watch and also to learn. Then there is structural growth. Bond issuance has increased by around 5% per annum over the last 10 years. And as I always say, it's easier to swim with the tide than against one. Now there is scope to improve the customer value and service through innovation and the use of technologies, and that will just further increase the moat. Client relationships are along with high levels of retention. And then finally, I'd like to say that this business fits with exactly what we're trying to build at Computershare, high-quality, high-return, cash-generative businesses with scope for sustained growth. So we've made a good start in our first year of ownership, and I look forward to sharing further updates of our progress in the future. Now this page provides a little bit more detail on the integration roadmap and key project deliveries of CCT. As I said earlier on, it is a little bit ahead of plan. Over 2,000 employees transferred over to Computershare from Wells Fargo. And when we talk about buying a business, sometimes it felt like we're buying an octopus in reality, it was intertwined into over 100 wells IT systems. It was located in over 70 of Wells offices around the U.S. and in India. It wasn't a neat stand-alone business in a separate office block. And that work to extract the business involves multiple steps, as you can see on the slide. And we expect to complete the separation in about 12 months' time and for the business to stand up independently. Then we can move to integration and the delivery of the synergy benefits. As I said, it's a large and complex job and we're relating the challenge. In fact, the chap who's actually running this is sitting at the back of the room there, Mr. Frank Madonna. So he's well up for the job. He used to run all of Computershare's operations, and he's heading our CCT business. So as you can imagine, I'm pleased with the progress so far. Now I want to sort of move of CCT and provide an update on our trading performance to date in FY '23. Now I'm pleased to say that the first 4 months of FY '23 group performance is ahead of expectations, primarily being driven by margin income. Results are better than we expected when we provided initial guidance in August, although the operating environment out there does remain challenging. Put simply, some of the trends we saw in the last quarter of '22 have continued into FY '23. Our high-quality recurring client paid fees are performing in line with expectations. CCT is performing very well. But our costs are up year-on-year, but they are being carefully controlled. Our transaction-based revenues have been impacted by lower activity levels as we saw in Q4 '22. And as I mentioned, U.S. mortgage services is weaker with lower origination-related revenues as mortgage rates in the U.S. continue to rise. However, margin income is offsetting all these factors. Global interest rate rises, as I said before, have been faster and larger than we anticipated, offsetting some fluctuations in client balances. And we've also been able to renegotiate some of our banking arrangements, capturing more of the available yield. Therefore, overall earnings are better than we expected, and you can see the natural hedge of margin income really driving today's upgrade. But let's spend a few minutes unpacking the margin income performance in more detail. It's fair to say that the rate environment has been extremely volatile recently, and our forecasts have needed to be updated constantly to reflect the most recent changes in interest rates. As a result, we now expect margin income to be around $800 million for FY '23. Now that's a significant increase on the $520 million we expected back in August. So let me step through some of these differences. Firstly, we expect a much higher yield relative to overnight cash rates. We've been able to secure stronger rates from our key banking partners earlier than anticipated, including at CCT. Our expected recapture rate, which is a proportion of overnight cash rates that we are securing as yield on our exposed balances is 89% for the legacy business and 79% for CCT. Now these rates reflect the times at which the new arrangements were agreed. And on an annualized basis, we are in line with our 90% target. And in FY '24, you'll see the full benefit of that coming through. For now, however, improved recapture across a range of banking partnerships is responsible for around about $96 million, an improvement in margin income. And then as the rate outlook itself has changed significantly since August. Now as we always say, we are not economists. We simply base our forecast on the market curves and taking the latest curves relative to the curve back in August to now, that adds another $200 million in margin income. Now finally, there has been some softening of balances as a result of the overall general trading conditions out there in the current environment. And indeed, we now expect balances overall to be perhaps approximately $2 billion lower than back in August. Fortunately, it's largely nonexposed balances, but this does reduce our outlook by around about $15 million. So this gets us to approximately $800 million in margin income for FY '23. But you can see from the table of catch rates on this slide that this is based on the average weighted cash rate of 4.81% in Q4. And that's a nice platform for further growth for Computershare into financial year '24. Now assuming these rates remain fairly flat through '24 and assuming we don't enter into any more of our hedging term deposit strategy, then we do expect margin income to be around $1 billion in FY '24. So what does that mean for the outlook? Well, back in August, we anticipated that management EPS would increase by 55%. That was primarily driven by margin income and the full year benefit of the CCT businesses. And as I said earlier, despite anticipated softness in some of our transactional parts of the business and some higher costs with inflation out there, our ability to obtain margin income more than offset these challenges. The guidance in August was predicated on yield curves at the time. And as I've just outlined, they have been moving around a bit. But we've also been able to secure improved recapture rates from our key banking partners ahead of schedule. And as a result, we're upgrading our FY '23 guidance for management earnings share management earnings per share to be up around 90%. Now it's all very pleasing to see our overall earnings growing so rapidly, particularly at a time with such macro challenges and volatility in there, but that's always been Computershare's model. We've always had that natural inflation edge, and you can see that it's working. But we cannot get carried away by the benefit of more margin income as rates rise. It's only by delivering great service to our clients that they actually entrust us with their business. And it's that which delivers the balances, and it's that, that drives the margin income. So you can be assured that we'll keep our heads down. We'll keep true to the strategy to build strong operating businesses to drive long-term growth and profitability and balances with a conservative capital structure and returns for shareholders. Now finally, I'd like to say a few words on our departing chair. Now Simon Jones was appointed to the Computershare Board in November 2005 as a Non-Executive Director and as Chairman in 2015. His guidance and counsel have been invaluable to me and the wider management team. My job would have been much more difficult if it was not for a salient support and advice. Now he has provided this council without judgment, without Eagle, and I've very much appreciated his capacity to understand quickly the key issues and importantly, the bigger picture. And I'm sure that my fellow directors would agree that it has been a model of fairness and dedication that has enriched the Computershare group over his tenure. Now of course, I'm excited to be working with Paul Reynolds going forward. And with his full years of experience on our Board as well as his broad executive career, he understands the group, the challenges and also the opportunities that lie ahead. Thank you very much. I'll now pass back to Simon.

Thanks, Stuart, for those kind words, but probably more importantly, thank you for what you've done for the shareholders. It's really good news that we're here today. So thank you. As I mentioned at the start of the meeting, we'll answer all the questions at the same time once all items of business and proxy positions have been presented. We will be starting questions shortly. We'll now run through the formal items of the business. And item 1 is the financial statements and reports, where we table the company's financial reports for the year ending the 30th of June 2022. If you have any questions concerning the financial statements of the company, we'll have a question for the company's auditor, we'll address them during the Q&A session, which will commence shortly. I don't think I've seen one in my whole 17 years on the Board for the auditors. So I'm encouraging you to get a little activity there today. Yes. 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. And voting will remain open during those resolutions. I'll also provide you with notice that the polls are about to close. So let's move to consider the first resolution. The first resolution really relates to the reelection of Ms. Tiffany Fuller. Tiffany is due to retire from office and being eligible presents herself for reelection. The Board, in the absence of Tiffany, unanimously supports her reelection. And before we move this resolution in a second, I'll ask Tiffany to say a few words in support of that. I would comment that Tiffany has now been the risk and audit share for the 7 years I've been Chairman and I cannot speak highly enough of her diligence and capability and what she does on that committee. So I would be strongly in favor as shareholders of reappointing Tiffany. Tiffany, you may wish to speak a couple of words on it.

Thank you, Simon, and thank you for your supportive words. I will assume that you've read the details on my background in the notice of meeting. So I won't go through those other than just to highlight the -- principally the core skills that I would bring to the table would be accounting and financial literacy, risk management and governance and corporate finance and M&A. As shareholders will be aware, and Simon pointed out, I've been on the board now for 8 years, 7 years as Audit and Risk Committee Chair. And I think what that's done is afford me the great privilege of developing a very deep understanding of the business and a business that is now a very complex global one. So as you've heard, Computershare is in the process of transitioning from a very long-standing director and chair. And we've gone through considerable Board evolution also in recent years. You'll also be aware as you've heard, the business is in the midst of a very large-scale business integration with the acquisition of CCT and is also in the midst of a number of multiyear transformational projects. So I think my reelection supports the required continuity on the board of both tenure and skill sets. And I think that's the most important point to bring out for our shareholders today. So thank you for your ongoing support.

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 screen. We'll now move to consider the next resolution, which is the adoption of the company's remuneration report. The Corporations Act requires that at the AGM, a resolution that the remuneration report is adopted be put to the vote. The vote is advisory only and will not bind the company or the directors. The resolution and a summary of the votes received before the meeting now appears on the screen. The remuneration report itself sets out the policy for the remuneration of the directors, CEO and other designated senior executives and details how their remuneration is structured. It contains remuneration details for the directors and senior executives for the period ended the 30th of June 22. And noting that each director has a personal interest in their own remuneration from the company, as set out in the report, the directors recommend that the shareholders vote in favor of adopting the remuneration report. I, therefore, move the adoption of that report. The next resolution for consideration is to approve a grant of performance rights to the CEO, Stuart Irving, under the terms of the company's long-term incentive plan. Approvals requested from shareholders under the asset Listing Rules to authorize the company to grant equity securities to the CEO under an employee incentive scheme. Last details of the terms of issue of the equity securities are set out in the notice of meeting. And the Board, in the absence of Stuart, unanimously supports that grant of performance rights to him. I therefore move the grant of performance rights to the CEO. And again, the resolution and a summary of the votes received before the meeting now appear on screen. The last resolution for consideration, which is proposed as a special resolution is to approve the adoption of a new constitution for the company. An overview of the main differences between the new constitution and the current one was included in the explanatory notes to the notice of meeting. The Board unanimously supports the adoption of this new constitution, and I move the adoption of this for the company as a special resolution. The resolution and a summary of the votes received before the meeting now appears on screen. Now that we've tabled all items of business to be considered at the meeting I will open up the meeting to questions. We have received some questions from shareholders in advance of this meeting, and I will address these first. And these questions will be read out by our company secretary Dominic Horsley, who normally wouldn't need a microphone.

I have been given one of those apparently. So the first question we received was from shareholder Natasha Lee, which is, there seems to be a lack of diversity within the Board. 40% female representation is considered to be world's best practice and will the Board adopt this target? In addition, a commitment is needed on other forms of diversity since the Board composition should reflect the community.

Thanks, Dom. We've covered some of these points already in the presentation, but we originally adopted a gender target of 30% for the Board a number of years ago, in line with the 30% club recommendation, and we're currently at 38%. And when I retire at the end of this meeting, it will go up to 43%. Clearly, for an organization as large as Computershare, diversity in many ways is critical to the operation of this business. And the Board's adopted, as I said before, a 40-40-20 gender target across the organization. We consider diversity in all forms, a key enabler of our business. And we've worked hard over many years to create that inclusive workplace where we want everybody, as I said, to feel like they belong. We get excellent scores from our employees and our employee surveys in that regard. We appreciate your comments regarding other forms of diversity on the CPU board, and we share a collective objective in wanting to improve diversity in all parts of our organization. Amongst our other initiatives, we recently launched a new D&I strategy from FY '23 to '25 and an objective to accelerate diversity in our leadership objectives, including reviewing our talent acquisition strategies to help attract more diverse people into the business.

Thanks, Simon. And one final question from Natasha Lee. I note that there has been a large increase in current and noncurrent borrowings. Whilst I understand that there have been a number of acquisitions, such as the former Wells Fargo Corporate Trust business, could you advise to what extent were these acquisitions financed from borrowings or cash? And I note free cash flow has increased and ask what is the longer-term view on the debt given a likely increase in interest rates in the near future?

Thanks, Natasha. Natasha was correct. And as Irv said, our borrowings did increase in FY '22, and that was because we did the acquisition of the CCT business from Wells Fargo in the U.S. The total capital that we deployed in that transaction was about USD 1 billion, and that was broadly funded about 2/3 equity, 1/3 debt. And you may recall that Computershare raised AUD 835 million of capital in early 2021 via a very successful renounceable rights issue. As Stuart said, we have delevered significantly quicker than we thought we were going to do. And we have been generating significant free cash flow, not only in FY '22, but FY '23. And we expect our overall debt levels to continue to reduce in FY '23 and into FY '24. These cash flows have had a positive effect on our margin, and we will have by the end of this fiscal year, an extremely strong balance sheet.

No further questions before the meeting, Simon.

Thank you, Dom. Do we have any questions from the floor? What a surprise, John. Welcome. Nice to have you here.

Mr. Chairman. My name is John Whittington, and I'm a volunteer for the Australian Shareholders' Association. Today, I hold proxies from 164 ASA members and nonmembers for over 0.75 million Computershare shares. Our thanks to you, Mr. Chairman, the Board and all Computershare employees for producing a good result during a challenging year. And special thanks to you, Mr. Chairman, for your commitment to Computershare in your many years on the Board.

Thank you.

Mr. Chairman, I've got 2 questions. Do you want me to do them one at a time at this...

Please, one at a time, if we could. My brain can't cope with 2 or 2 of them at the same time.

Okay. I have a question for Mr. Reynolds. Would he be able to advise shareholders which particular skills he brings to the Board as new Chairman and any changes in direction that he plans with Computershare as its Chairman?

Thanks, John, and nice to see you again. There's been a scurrilous rumor put around that, in fact, the key attribute was my accent ability to understand what Stuart Irving is saying. But I've asked the Board have confirmed that, that's not the case. Look, I had 30 years' experience as an executive as CEO and running large-scale technology businesses of up to $20 billion turnover, 30,000 people deploying technology around the world. And that breadth of experience, I think, is the key point. And I hope it enables me to give some consults because it's similar sorts of challenges that we face around the world. I also have a lot of international governance experience. I've chaired they've been on the Board of 3 ASX-listed companies in New Zealand, Ireland, the U.K. and Japan, all in technology businesses. And I have multi-sectoral experience in telecommunications, financial services and in media. And I think it's good to know the business as I've learned over the last 4 years, but I think experience from other business is helpful, I hope. Asia's new, well, I'm not able to iterate a new strategy today. I just -- I'm so pleased that I'm here today when the company, your company, is in good shape. There's a lot of momentum. There's been some amazing hard work and amazing deliveries. Now I aim to work with the great Board and the executive team. and build on that. I think particular focus in our Issuer Services business, the CCT and the recent acquisition, the scale that we have in corporate trust, employee share plans and so on. There's a lot to go for. I think the -- we, as a Board, can see potential for growth across all of these areas, and I'm really, really looking forward and I'm thrilled to have been chosen for this role and to help the company to continue to go forward and building the good work of Simon and Stuart. Thank you.

Mr. Chairman, my next question is, can you please advise on the Wells Fargo acquisition and how you see its growth being complementary to Computershare's current directions?

Thanks, John. I think Stuart has covered off a lot of this pretty well in this presentation. But I would say to you that the acquisition of the Corporate Trust business has been a highly strategic deal for the company. It is one that's absolutely consistent with what our skills and experience are and it's been executed by the management team extremely well. We think it will be value-enhancing for shareholders, and we've been delighted with the progress to date, and we have a I said, Frank Madonna there who is on top of everything. I'd probably put him in a difficult position there. But is on top of everything. We just had a great board presentation on that. We've obviously benefited from the rising interest rate market, and it was a well-timed acquisition for us. But management drove that timing and they manage that process. So good on them. As Stuart said, there's a lot of work to do to complete that project, and the team is working really hard on that. And we think that there will be more opportunities in that corporate trust market over time, which allows us to build that business up and make it a third pillar with the plans business and the issue of services business on things that we do super well.

Just to add to that, Simon, if I may. It was Chris that tumbled into Corporate Trust in Canada, long story, funny story back in 2001. So we've been in the Corporate Trust business for well over 20 years. It's a business that we understood. And as I mentioned in my speech, we've been tracking an opportunity to access the U.S. market. And the target, which was Wells Fargo, which was one of the ones that we tracked. We've looked at that asset. It was never up for sale, and we tracked it for years and years. And a couple of things happened. Wells had some challenges from a regulatory perspective, they wanted to get the cash that they hold on their balance sheet out. And of course, we were able to pick it at a time when interest rates were at all-time lows. And therefore, the multiple, which we're able to execute on was against a low level of profits. We've come out of that. We've been fortuitous with the rates. I think there will be other opportunities. We are the first large nontraditional bank in this business space. We will invest technology into it, we did with our registry businesses around the world. And I think that it can be a very strong both organic and inorganic growth opportunity for the company for a number of years to come.

Thanks, Mr. Chairman. I've got a couple of other questions, but I'll let other people get in first.

Any other questions?

[indiscernible]

Yes. So I was having a chat with our founder and former CEO, former Chair and technologist earlier on, and we were chatting just about the security posture at the moment in Australia. Of course, Computershare works in international markets, and we have actually seen far larger breaches than Optus or Medibank and have had to deal with them and et cetera. But certainly, from an Australian perspective, having Optus and then Medibank coming within weeks of each other, it's very much on people's minds. So when something like that happens, the first thing that we do is we actually elevate our threat levels and increase the amount of detection and tighten some of our controls because there is always a risk that, that data may well be used to access customers' information at Computershare. Medibank is a great client of Computershare. We do a lot of work with them, not only on the registry side, but in the communications and documentation side. Information security is large, and it's complex. And at Computershare, we invest in it. We have always invested in it. We've got a multiyear level of program. The key thing is really what we call defense and depth -- there is a view that it's not a case of if it's a case of when people will get inside your networks, et cetera. So its ability to be able to prevent people moving around within your networks, its ability to be able to detect that to know exactly what may or may not have happened. Now Computershare has had the good fortune not to -- our defenses have been good. But we do invest in these tools. It's all about defense and depth, multiple layers, multiple protocols. We've got security operations center 24/7, keeping an eye on any unusual traffic coming into the organization, what it's doing. And obviously, we will continue to invest in that space and continue to make sure that the data and which Computershare holds on behalf of our clients is secure.

Any other questions from the floor?

Looks like it's back to me, Mr. Chairman. Well, for the others on the hybrid, it's John Whittington from the Australian Shareholders' Association. We thank Computershare for -- this is regarding the remuneration report. We think Computershare for its position where the CEO's remuneration is at risk based on short-term and long-term incentives. As we've asked previously, can we expect a true long-term incentive, which operates over 5 years rather than the current medium-term 1 to 2 years for the short-term incentive and 3 years for the long-term incentive?

As you said, John, you have asked that before, and I'm going to give you the same answer I've given you before. We believe the 3-year vesting period for the LTI remains appropriately aligned to our long-term strategic plans. But we also need to highlight we grant the LTI every year, which provides management with an overlapping 3-year performance rights. We have clawback and malic provisions in the plan, which allow for post-vesting recovery of awards in certain circumstances. We've got a 2-year restriction period on our DFI STI stock awards, which have gone up in the last year as a percentage. And we think that's an appropriate deferral period before an employee can access their shares. It's worked for us over time, and we're not intending to change it at present.

Okay. And final question. Whilst we're happy that you now have a total shareholder return hurdle in your long-term incentive, we're concerned that incentives can still be paid if investors lose money over the period, i.e., the shareholder returns go down. Our preference is to have an absolute total shareholder return gateway over your existing metrics. In other words, a positive absolute total shareholder return must be achieved before any incentive is vested. Will Computershare consider such an initiative?

We've been through the LTI process and reviewed and talked to rafts of shareholders over time. We did introduce a TSR hurdle, a relative one into our scheme in 2014, and we've retained that in each of our annual grants since then. We believe that's a really effective measure. And when we combine it with both the ex-margin income growth and the return on invested capital, we think we've got the right balance, and that's been supported by all of the proxies through the process. We note your comment about preferring an absolute TSR gateway, but I'd make 2 comments to that. The first one is we don't accept the premise that an executive should not receive any LTI vesting if there's not been absolute TSR growth. Management may have done an exceptional job in a falling market and on a relative basis, substantially outperforming the market, and that deserves some recognition. I think management did a wonderful job when we started the pandemic in March 2020 when we're in a board meeting in London, and they managed that extremely well. In that case, there would be also be aligned with shareholders as the value of the award that test would have fallen relative to the face value of the water grant. So we've made that point as well. But we constantly review all these remuneration policies. I'm sure the new Board and Paul will continue to do so, and we'll listen to our shareholders loud -- so I think I went around the shareholders when we changed the LTI, and I got 29 different suggestions out of 30 people I talked to. So sometimes it's difficult to please everybody. Anything else, John? Good. Any other questions from the floor? If not, I will take any audio questions received from online participants. Are there any audio question?

Seems not, Simon. And we have no written questions submitted on the online platform either.

So is our telephone system working?

It is. I'm getting a nod. It's working. And our online platform is working, but it's all quiet out there.

Okay. No questions for PwC. I'm very disappointed. As there are no further questions, that concludes the questions section of the meeting. I'd like to advise that voting on all resolutions will close shortly. I will provide you all with a few moments to allow you to finish your voting. If you're in the room and have used your attendance card, then be collected by Michael. Voting is now closed. The final results will be advised to the ASX and also made available on Computershare's website after the meeting. Thank you all for your attendance. As the business of the meeting is now completed, I declare the meeting closed. Thank you very much.