Fiducian Group Ltd (FID) Earnings Call Transcript & Summary

Good morning, everyone. Ladies and gentlemen, welcome to the 24th Annual General Meeting of Members of the Fiducian Group. My name is Indy Singh. I'm the Executive Chairman of the company. Today's meeting is being held online via the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. And in addition, shareholders and proxies have the ability to ask questions and submit votes. I'd like to introduce you to individuals that are also in attendance. They are your directors: Robert Bucknell, Frank Khouri and Sam Hallab. In addition, we also have in attendance, our General Counsel and Company Secretary, Mr. Paul Gubecka; our Group Chief Financial Officer, Mr. Rahul Guha; and our company's auditor, Mr. Darren Ross from PricewaterhouseCoopers. They will be able to answer any questions relevant to them. So quorum and open meeting. It is past the appointed time of 10 a.m., and Mr. Gubecka has advised me that a quorum is present on the Lumi platform. And so I declare the meeting, which is to be held at a reasonable time and place convenient to shareholders, open. Questions can be submitted at any time. [Operator Instructions] Please note that while you can submit questions from now on, I will not address them until after we have put forward the financial report and resolutions for consideration at this meeting, after which, we will address all questions together, one after another. Please also note that your questions will be received by Mr. Paul Gubecka, General Counsel and Company Secretary, and may be moderated or if we receive multiple questions of the same kind, they may be amalgamated. If due to time constraints, we run out of time to answer all your questions, and if this happens, we will answer them in due course and will post our responses on our website. There were 1,395 members registered as holding 31,442,623 shares at 10:00 a.m. on the 22nd of October 2020. Those in attendance, who have signed the register, total 10 shareholders. The procedures for voting will be carried out in the following manner: one, as disclosed in the notice of meeting, voting today will be conducted by way of a poll on all items of business; two, as a poll is being conducted, the minutes of this meeting will record the total number of proxy votes exercisable by all proxies validly appointed, the direction in the proxy forms and the total votes in favor, total votes against and total of abstentions in accordance with section 251AA of the Corporations Act. If you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. 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. You do, however, have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all items of business. The polling icon will appear soon, please submit your votes at any time. Voting will end within 2 minutes of the closure of the meeting. I will give you a warning before the closure of the meeting to remind you to cast your vote if you haven't yet. [Voting]

To inform you about proxies, Computershare, the company's share registry, received 87 proxies, comprising 43.21% of the securities issued by the company and totaling 13 million -- I beg your pardon, I beg your pardon. I've just got an updated number. Computershare, the company's share registry received 89 proxies, comprising 49.52% of the securities issued by the company and totaling 15,567,902 shares, including those received electronically by 10:00 a.m. on 20th of October 2020. Of those proxies, Resolution 1, that the remuneration report be adopted, there were 5,933,192 or 97.87%, plus 0.88%, which totals 98.75% of eligible proxies cast, are in favor of the motion. Resolution 2, to reelect Mr. Robert Bucknell as Director, 15,261,030 votes or 98.03%, plus 0.34%, which totaled 98.37% of eligible proxies, are cast in favor of the motion. All proxy votes that have been cast at the discretion of the Executive Chairman will be voted for the resolutions. No proxies have been declared in ballot. Notice of meeting has been circulated to shareholders and sets out the purpose of the meeting being to discuss the financial report, adopt the remuneration report, reelect Robert Bucknell as a Director, deal with other business in accordance with the company's constitution, the Corporations Act 2001. And no notices have been received in respect of other business. Having set out the business, within the notice of meeting, the notice of meeting is taken as read. Now minutes of previous shareholder meetings, the copies of the minutes of the AGM for 2019 of Fiducian Group Limited were reviewed and signed at the next meeting of directors. Shareholders may request a copy of the minutes from the company's Secretary if you wish to see them. The financial report. The first item of notified business is the consideration of the financial report for the year ended June 30, 2020. The consolidated financial report and the reports of the directors and auditor were made available on both the Fiducian and ASX websites and issued to shareholders on request. Before dealing with the report, though, I would like to give a short review of the progress and outlook for the Group. And this is the Chairman's address for the 24th Annual General Meeting of Fiducian Group on 22nd of October 2020. As Chairman and on behalf of the Directors, I'm pleased to present this report on the consolidated operating performance of Fiducian Group Limited and its controlled entities for the year ended 30th of June 2020. At the outset, I must thank the Board, senior management and all our staff, who have stood together and supported the company through the COVID-19 crisis, something none of us has experienced before in our lives. The highlights, I can start by saying the 2018/'19 year brought significant disruption to financial services businesses. Globally, from the Brexit and the U.S.-China trade war, and then as well from home with the Federal election and the Royal Commission. The 2019/'20 year just gone by, has brought its own issues with COVID-19. There was strong growth in the first half of this financial year, leading into the first 2 months of calendar 2020, and we were projecting a strong result. Then came the coronavirus, which forced large-scale business closures and a sharp 35% stock market decline in March 2020. A new term, resiliency, was coined for business. This is the ability of a business to absorb external shocks and come out better than the competition. It is the key to survival and long-term prosperity of businesses in uncertain times as such companies have business models that make them better prepared and able to take effective action. The last 2 years have proven that Fiducian model is on the right track and can still deliver positive results for shareholders, while at the same time, taking care of its people and supporting the community. Governments across the world were taken by surprise at the ferocity with which businesses were shutting down and announced massive stimulus packages in a matter of months, which, in some cases, is 10x the amount spent over 3 to 5 years during the global financial crisis. How this money will be repaid by citizens is a question for another time. However, for now, it has helped people to survive. The crisis management team of the company meets twice a week to oversee the situation and plan for any issues which may impact the business. Its foremost priority is the safety, health, well being and security of all our staff and associates that comprise the Fiducian family. Within a few days of the government announcing lockdown measures, a pandemic response plan was put into action to ensure continuation of a seamless service to our clients and stakeholders. I'm pleased to advise that all our people, the heart and soul of our business, are safe. All staff are able to work from home. A remarkable achievement was by our IT team, which worked late into the night to ensure connectivity and even delivered Surface Pro tablets to homes where needed. The dedication and contribution by senior management, staff and financial planners has been nothing short of exemplary. They have worked long hours and modified their work processes to deliver on business deliverables. Financial planners have stepped up the client contact and communication by phone and video conferencing to ensure that clients continue to receive quality advice. The client administration team for our platforms has delivered seamless service without any disruption to our clients. All service level standard requirements have been met and in cases exceeded. No one has been retrenched, laid off or had the remuneration reduced. This should assist with staff retention of skilled staff, and I think the Board is proud of this. For their hard work, all staff are rewarded with a salary increase for the coming year and bonuses equal to what they received last year or as for per employment terms. Despite the severe share market decline in March, flagship diversified Fiducian funds have maintained the superior rankings on the Morningstar's survey compared with up to 197 recognized fund managers in their peer groups. This includes the last 12 months and even going back over the last 10 years and more. Funds have also shown a good recovery after the March decline. Cost controls, efficient working methods and our resilience to external shocks have shown that we can still deliver earnings per share growth for shareholders, maintain dividend payments and also keep our staff happy, clearly against the trend for the financial services industry. This is in spite of the fact that FUMAA, which is funds under management advice and administration, at June 30, 2020, is a little lower than February 2020 due to the reported share market volatility. Net inflows in the difficult second half of this financial year were actually 36% higher than the first 6 months of the year. We believe that eventually, share markets will recover, employment will return. The world will come to a new normal and we will continue to operate through simpler, cost control and more efficient technology-driven methods. The Board, management and staff, therefore, remain optimistic for superior growth and a continuation of steady, well-managed expansion over the next 3 to 5 years. The 2020 financial performance of the Group. There are bullet points which I'll read out. The net inflows for the financial year grew by 107% or up to $217 million, while 2019 was $105 million of net inflows. Net revenue from ordinary activities increased by 10% from $36.7 million to $40.2 million, while gross margin was steady at 73%. Underlying net profit after tax, which is a better reflection of the group's cash generating ability, rose by around 6% from $12 million to $12.725 million. Management's mandate is to keep growing revenue, but to grow profits for shareholders at a faster rate. Basic earnings per share or statutory net profit after tax rose by 1% from $0.33 to $0.333 after making adjustments for the new accounting standard for leases and a higher tax rate of 30%, while 2019 was 27.5%. Statutory cash operating expenses were controlled but increased by 7%, mainly due to new staff absorbed following the acquisition of the MyState Bank, retail financial planning client base in Tasmania. The dividend payment remains consistent with the Board's strategy of paying between 60% and 70% of net profit after tax. Unless, there are other compelling reasons not to, such as retaining free cash to grow the business or make acquisitions. The payout was $0.23 per share, an increase by 3.1% over the previous year, which is against the trend followed by most financial services businesses in the current environment. Combined funds under management, administration and advice, FUMAA, rose from $7.4 billion last year to $8 billion at 30th of June 2020, an increase of 8% after absorbing the big share market decline experienced in March this year. And a key feature of the company is that it has a strong balance sheet and currently remains debt-free with a positive working capital and cash flow position. About financial planning, during the year, funds under advice grew to $3 billion, in 2019 they were $2.7 billion, mainly due to acquisitions of financial planning businesses and increases in net inflows. Fiducian expects the highest level of compliance and client service from its financial planning network, and regulatory oversight and supervision has, therefore, been increased. Our financial planners continue to deliver superior quality advice through webinars and video conferencing. As a result, client retention remains high and many grandparents, we note, are happily learning new Internet skills. Salaried offices comprise over 50.5%, and franchised offices comprised the balance 49.5% of funds under advice. Further acquisitions are being planned and negotiated as I speak. For platform administration, it offers portfolio wrap administration for superannuation and investment services to financial planners as well as separately managed accounts. We believe that our capability and systems enhancements give us the ability to readily compete for such business and negotiations are underway with prospects, who could use our services for administration of their SMAs. From September 2020, we modified the administration fees, which were reduced, so that they fell within the bottom half of the fees of like-for-like competing platforms. As is the trend in the industry now, transaction and asset holding fees were introduced. To give complete transparencies, investors will be able to drill down through Fiducian Online, our online reporting module and view every single listed security that they hold anywhere in the world through the Fiducian funds. Funds under administration were adversely impacted by the fall in share markets across the world in March 2020, but funds under administration still stands at $2.2 billion, up 6.3% over the 2019 balance of $2.1 billion. Superannuation -- all superannuation, the trust -- superannuation trustee board established for a public offer superannuation wrap fund in March 2015 with equal independent directors, operates professionally and with independence. The Board is supported by the office of Superannuation trustee and outsources each operational processes, and lists service providers. The federal government had legislated an early release from superannuation scheme to assist Australians, who have had a reduction in their income due to the COVID-19 crisis. The withdrawals from Fiducian superannuation have been approximately $2 million in total, which is negligible in the scheme of things. On funds under management, our in-house manage the managers system of investment continues to attract the majority of retail funds placed with us. Fiducian funds have performed well over the medium-to-long term in their respective categories as we diversify their assets through a range of underlying fund managers to reduce risk and volatility. Since inception, some 20 years ago, the performance of these funds to end June 2020, as reported in the Morningstar Investment Performance survey, has been commendable. The returns of our flagship diversified funds have recovered strongly as at end August, we had several #1 rankings against all Australian and international fund managers represented on recognized performance surveys over the last 10 years. On other services that we provide they are provided by finance, legal and compliance, business development and distribution, marketing and risk management managers and the team, and they are hardly or rarely noticed or considered. However, I must report that these persons have done a marvelous job under pressure from COVID-19 and supported all business activities effectively. The Planners Council, IT and platform user groups have voluntary participation by managers and financial planners. They have been a great sounding Board for the group, and their feedback is valued. The executive leadership team of senior managers comprises our General Counsel and the executive chairs of funds management, financial planning, finance and business development, who directly report to me. They, along with other senior managers, have provided great ideas for strategic development and operational support through the year. Through the years, staff of Fiducian voluntarily assisted the administration of Vision Beyond AUS, a charity that has helped restore eyesight through free eye surgery of almost 41,000 men, women and children, who live in poverty in India, Myanmar, Cambodia, Ethiopia and Nepal. As well, Vision Beyond AUS has funded the eye screening of 8,000 children living in rural areas of Nepal. While COVID-19 restrictions have forced a slowdown in activity, we continue to support hospitals in these countries as needed. The Board remains cautious, but confident that subject to an improving economic and financial market environment in Australia and internationally, along with the hard work of all staff, a strategy of delivering continued growth can be achieved. I thank all our staff, members of various committees, stakeholders, subsidiary Board directors and the Fiducian Group Board for their hard work and support to the company. In particular, I thank all our shareholders for their trust and confidence in Fiducian and assure them that we are all working hard to ensure that shareholder and community expectations are met into the future. So that was my presentation. Now please provide your questions via the Lumi platform, and we will address them shortly. We will now move to the next item of business. The adoption of the remuneration report, Resolution 1. The remuneration report is set out in the 2020 annual report on Pages 18 to 24. The vote on this resolution is advisory-only and does not bind the directors or the company. However, I note that pursuant to the Corporations Act, if 25% or more of votes that are cast are voted against the adoption of the remuneration report at 2 consecutive Annual General Meetings, shareholders will be required to vote at the second AGM on a resolution called a Spill Resolution for another meeting to be held within 90 days of the second AGM, at which all of the company's Directors, other than the Executive Chairman, must stand for reelection. The following ordinary resolution is proposed in the notice of meeting: that the remuneration report is adopted. Please ensure, again, that you have voted on the Lumi platform, and we will now move to the next item of business. The next item, Resolution 2, is elect Mr. Robert Bucknell as a director. The next resolution concerns the reelection of Mr. Robert Bucknell as a Director of the company. His personal details are included in the notice of meeting. The following motion is to be passed as an ordinary resolution: that Mr. Robert Bucknell, being a director, retiring by rotation and being eligible for reelection, is reelected as a director of the company. Again, I remind you to please ensure that you have voted on the Lumi platform. Other general business. No notices have been received to deal with other business in accordance with the company's constitution and the Corporations Act 2001. Questions. As there are no other businesses, we will turn to our questions that have been posted on the Lumi platform. Our company Secretary, Paul Gubecka, will now read out the questions posted.

Sorry, every one. Sorry, technology. So there is one question that I have received. And that question is, are we able to have an update on FUMAA, F-U-M-A-A, at the end of quarter 1, inflows holding near the improved levels of H2 '20?

Yes. What was the second part of the question, Paul?

Inflows holding near the improved levels of the second half of the financial year of 2020.

Yes, we can, and we do have the numbers. Mr. Guha will just tell me. FUMAA has already risen to $8.5 billion, and the inflow levels are $33 million net over the quarter. Are there any other questions?

No. There are no other questions at the moment.

I don't see any other questions coming, and there's just been one. So there being no further questions, that concludes the business of the meeting. I again remind you to ensure that you have voted on the Lumi platform, and voting will end at the end of around 2 minutes following the closure of this meeting. The outcome of the resolutions will be launched with the ASX as soon as practicable after the closure of voting. I can ask once again, if there are any other questions that have come through. Oh, there is one more question.

No. This is just the thank you.

No. That's it. So there's no more questions. Thank you for your attendance, and the meeting is now closed at 10:30 a.m. So you have 2 minutes more if you wish to vote.