Fiducian Group Ltd (FID) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 25th Annual General Meeting of Shareholders of the Fiducian Group. My name is Indy Singh, 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 the attendees can watch a live webcast of the meeting. In addition, shareholders and proxies have the ability to ask questions and submit votes. I would like to introduce you to individuals that are also in attendance, your directors, on my right, 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. Andrew Reeves from KPMG, who will be able to answer any questions relevant to them. 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. [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 similar questions may be amalgamated. Due to time constraints, we may run out of time to answer all your questions. If this happens, we will answer them in due course and will post our responses on our website. With respect to attendees, there were 1,455 shareholders registered as holding 31,477,623 shares at 10:00 a.m. on the 21st of October 2021. The number of shareholders in attendance immediately prior to the commencement of this virtual Annual General Meeting, was 7 shareholders, representing 140,308 shares. Now the voting method. The procedures for voting will be carried out in the following manner. As disclosed in the Notice of Meeting, voting today will be conducted by way of a poll on all items of business. 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 directions 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 submit or the enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time are declare voting closed. I now declare voting open on all items of business. The voting time will appear soon. Please submit your votes at any time. We'll then -- we'll 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. Computershare, the company's share registry, received 94 proxies comprising 55.41% of the securities issued by the company and totaling 17,441,610 shares, including those received electronically by 10:00 a.m. on 19th of October 2021. Of those proxies for resolution 1, that the remuneration report be adopted, 6,020,416 or 97.41% of the votes, plus we have proxies, 1.56%, which total 98.97% of eligible proxies cast are in favor of the motion. Resolution 2 was to elect Mr. Frank Khouri -- or reelect Mr. Frank Khouri as a Director, 16,069,577 or 92.21%, including proxies of 0.66%, total 92.87% of eligible proxies cast are in favor of the motion. Resolution 3, to appoint KPMG as the auditors of the company, 17,279,329 or 99.1%, plus the proxies of 0.55, total 99.65% of eligible proxies cast are in favor of the motion. Resolution 4, to approve the issue of options to the Executive Chairman, that's me, Indy Singh, 3,899,801 or 58.88%, plus [ 2.05 ] proxies, totaled 60.93% of eligible proxies cast are in favor of the motion. All proxy votes that have been cast for the discretion of the Executive Chairman will be voted for the resolutions. No proxies have been declared [ indirect ]. The 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 Frank Khouri as a Director, appoint KPMG as the auditor of the company, issue 90,000 share options to the Executive Chairman and deal with any other business in accordance with the company's constitution and the Corporations Act 2001. 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. The previous shareholder meetings. Copies of the minutes of the AGM for 2020 of Fiducian Group Limited were reviewed and signed at the next meeting of the 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 30th of June 2021. 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 of the Fiducian Group. I will present my report now. As Executive Chairman, and on behalf of the directors, I'm pleased to present this report on the consolidated operating performance for Fiducian Group Limited and its controlled entities for the year ended 30th of June 2021. At the outset, I must thank the Board, senior management and all our staff who have stood together and continue to support the company through the impacts of COVID-19. The highlights of the company at the end of the last financial year, the world was in deep recession, and stock markets, which had declined by 35% around March 2020, had only started to stabilize. Massive fiscal and monetary stimulus was provided by developed and developing nations to keep their economies afloat and help their populace to feed themselves another day. A race to develop a vaccine for COVID-19 had begun in the hope that humans could develop antibodies to the virus. Consequently, vaccines have been developed, economies are recovering, and stock markets have been running strongly. Unfortunately, all have not taken the COVID-19 virus or its ability to mutate seriously. Hopefully, as seen in recent days, we are taking our first steps in returning to life in the new normal, whatever it may be. Nevertheless, it has been pretty much business as usual at Fiducian. Operating under the principles of our business continuity plan, we have managed to look after our staff, grow the business and support our charity, Vision Beyond AUS. Fiducian has shown that it is resilient against unexpected and adverse shocks and has adapted well to the changing environment and delivered a strong performance in its 25th year of existence. This was achieved through a combination of consistent and assured inflows from our financial planning network, a strong recovery in stock markets worldwide and strict controls by management on cost and operational efficiencies. The Crisis Management Team continues to meet twice a week to oversee the situation, and plan for any issues that 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. We hope with the easing of restrictions in the coming months, that we will be able to engage with all parts of the Fiducian Family in person soon. I am pleased to advise that all our people, the heart and soul of our business, are safe. All staff continue to work seamlessly from home with the support of their respective managers and the IT team. The dedication and contribution by senior management staff and financial planners to deliver on business requirements has not wavered despite working from home for the last 16 months or more. Financial planners have maintained their client relationships and provided advice through video conferencing when face-to-face meetings were not possible. Client administration team for our platforms continue to deliver a seamless service without any disruption to our clients and exceeded the service level standards set for them. Through difficult times, no one was retrenched, laid off or had the remuneration reduced. For their hard work and loyalty, generally, all staff were rewarded with a salary increase for the next year and a bonus, which was equal to or higher than what they had received in the previous year or received in accordance with their employment terms. The flagship diversified Fiducian funds have maintained their superior rankings on the Morningstar survey compared with up to 197 recognized fund managers in their peer groups. This superior performance includes the last 12 months and continues over the last 10 years or more. Now the 2021 financial performance for the group. Net inflows for the financial year grew by 5% to $228 million. In 220 (sic) [ 2020 ], it was $217 million. Net revenue from ordinary activities increased by 6% from $40.2 million to $42.8 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 11% from $12.725 million to $14.131 million. Management's mandate is to keep growing revenue, but to grow profits for shareholders at a faster rate. Basic earnings per share on statutory net profit after tax rose by 16.2% from $0.333 to $0.387. The dividend payment remains consistent with the Board's strategy of paying between 60% and 70% of net profit after tax, unless there are compelling reasons not such as retaining free cash flow to grow the business or make acquisitions. The payout was $0.269 per share, an increase by 17% over the previous year. Combined funds under management, administration and advice, FUMAA as it's reported, rose from $8 billion last year to $10.4 billion at 30th of June 2021, an increase of 30%. And finally, 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. On each of the areas, for example, financial planning during the year, funds under advice grew to $3.7 billion, in 2020, it was $3 billion, due to acquisitions of financial planning businesses, increases in net inflows and rising financial markets. Going forward, some adjustments may be made to the funds under advice figure due to erstwhile grandfathered clients not reviewing the engagement with the financial manner. However, inflows have increased as newer financial planners begin to appreciate the many benefits for the Fiducian-compliant process for their clients. Fiducian expects the highest level of compliance and client service from its financial planning network. And this has been supported by additional investment in our compliance functions. Our focus will remain on generating inflows through organic and inorganic growth, which is aided through new and efficient methods of telecommunication and video conferencing being used to assist financial planners and practice development, marketing, financial planning software training, investment products and strategies. Salaried offices comprise over 43.7% and franchised offices comprise of balance 56.3% of funds under advice. Further acquisitions are being negotiated as we speak. Platform administration. Platform administration offers portfolio wrap administration for superannuation and investment services to financial planners as well as Separately Managed Accounts called SMAs. 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 transparency, investors will be able to drill down through Fiducian Online and view every single listed security that they hold anywhere in the world through Fiducian funds. The hallmark of the Fiducian administration offering is quality in terms of daily processing, accuracy and customer service, which have been consistently delivered throughout the COVID-19 lockdown. Funds under administration stand at $2.9 billion, up 31.8% over the June 2020 balance of $2.2 billion. Superannuation. The 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 key operational processes to specialist service providers. Funds under management. Our in-house Manage-the-Manager 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, almost 25 years ago, the performance of these funds to the end of June 2021, as reported in the Morningstar Investment Performance Survey, have been commendable. Some of our funds are now distributed in New Zealand through their local platforms, and we have recently registered these funds on a KiwiSaver offering. Other services. Services provided by the finance, legal and compliance, business development and distribution, marketing and risk management managers and their teams are rarely noticed or considered. However, I must report that these persons have done a marvelous job under continued pressure from COVID-19 and supported all business activities effectively. The Planners Council 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, staff of Fiducian voluntarily assisted the administration of Vision Beyond AUS, the charity that has helped restore eyesight through free surgery of over 43,000 men, women and children who live in poverty in India, Myanmar, Cambodia, Ethiopia and Nepal. In addition, Vision Beyond AUS made a contribution to acquire ventilators and monitoring equipment supplied to field hospitals set up in India as it battled to control the massive spread of the third wave of COVID-19 infection. While COVID-19 restrictions have forced a shutdown in activity, we continue to support various hospitals for eye surgeries in these countries as needed. On the continuing growth of the company, our focus over the last 25 years has been to establish a business with a rock solid foundation and build growth strategies around this space which are able to scale up on existing capacity and leverage our relatively low fixed cost base. This strategy has benefited us in the difficult and uncertain times with increasing revenues and growing profits. Strong focus on cost and operational efficiency has enabled management to make the difficult decisions on expenditure and cost priorities quickly without disturbing the growth momentum. The Board's aim remains to build scale and deliver consistent double-digit earnings growth in coming years. And we are well positioned to deliver on our strategy through realizing the potential of our financial planning, platform administration, investment management and information technology businesses. On behalf of the Board, I would like to thank all participants for their individual contributions to the growth and success of Fiducian in our journey over the last 25 years. Thank you. [Operator Instructions] We will now move to the next item of business. First item is adoption of the remuneration report, which is resolution 1. The remuneration report is set out in the 2021 annual report on pages 17 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 AGMs, shareholders will be required to vote at the second AGM on a resolution, a spill resolution. And another meeting to be held that is within 90 days of the second AGM, at which all 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 that you have voted on the Lumi platform. [Voting]

And we will now move to the next item of business. To elect Frank Khouri as Director. The next resolution concerns the reelection of Mr. Frank Khouri as a Director of the company. Mr. Khouri's personal details are included in the explanatory memorandum attached to the Notice of Meeting. The following motion is to be passed as an ordinary resolution that Mr. Frank Khouri, 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. [Voting]

The appointment of KPMG as auditors. The next resolution concerns the appointment of KPMG as the auditor of the company. The circumstances giving rise to the change of auditor are explained in the explanatory memorandum attached to the Notice of Meeting. The following motion is to be passed as an ordinary resolution that for the purposes of Section 327B of the Corporations Act 2001 Commonwealth, and for all other purposes, KPMG having been nominated by a shareholder of the company, and consenting and writing to act in the capacity awarded of the company, be appointed as auditor of the company, and that the directors are authorized to fix the remuneration of the auditor. Again, I remind you to please ensure that you have voted on the Lumi platform. [Voting]

The next point is the Executive Chairman's share options. The next resolution concerns the shareholder approval for the issue of the Executive Chairman of 90,000 share options. The basis for the issue of the options was our plan and the explanatory memorandum attached to the Notice of Meeting. The motion, which is to be passed as an ordinary resolution is that approval is given pursuant to ASX listing rule 10.14, and for all other purposes, to grant Mr. Indy Singh 90,000 share options to acquire ordinary shares in Fiducian in accordance with the terms of his employment agreement at an exercise price of $6.47 per share and to issue shares subscribed for pursuant to the options. Again, I remind you to please ensure that you have voted on the Lumi platform. [Voting]

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 is no other business, we will turn to questions that shareholders may wish to ask from the Lumi platform. As part of our Notice of Meeting, we ask shareholders to send questions to Computershare, our registry, for our response today. We have received a response from one shareholder [ Edmond Guru ], who posed the following questions. One, are there prospects for expansion re financial planners in states, apart from New South Wales where Fiducian may be underrepresented? That's the first question. And there is a second one, too. I'll answer the first one first. Yes, there are certainly plans to expand into other states. We are in negotiations already with people who might wish to join us as franchisers in New South -- in Queensland, in South Australia and in Western Australia. And definitely, we want to expand across the entire Australian continent. The second question, how have inflows been to the superannuation service master trust since 1 July 2021? I have Mr. Rahul Guha, our Chief Financial Officer. I think you advised me that, we have received about $82 million of net inflows since 1 July this year. And of that, about 70% is in -- or 60% is in superannuation master trust. Our company secretary, Paul Gubecka, will now identify shareholders from the Lumi platform who wish to ask a question. And then you will have the opportunity to ask your question.

We currently have no shareholders who want to ask a verbal question, but we do have a posted question online. So I can share that with you, Indy, [indiscernible]

Okay.

So the question comes from -- which has been posted by the [ Greaves Family Super Fund ]. Are there good opportunities for further acquisitions of financial planning practices. If so, what is the process for acquisitions?

Yes. Certainly, there are opportunities. But as we've always said even in our annual report that we are extremely selective. We put people through a very tough selection criteria. They must have both the cultural fit with us. They must be -- have proven to us that they are ethical, that there are no compliance constraints, that they are prepared to look after the best interest of the clients. And then they go through these tests and eventually have to go through another examination, which we run online carried out by an external party. And after that, we can begin the process of engaging with them and signage and the agreements. So yes, there are definitely opportunities. But as I said, we are quite selective, and unfortunately, we have turned some down. But we're always looking for good persons to employ it, both as salaried and as franchised financial [ plans ].

At this point, there are no more questions.

Mr. Gubecka tells me there are absolutely no more questions. So we'll give some more time. And since there are no further questions, that essentially 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 2 minutes following the closure of this meeting. The outcome of the resolutions will be lodged with the ASX as soon as practicable after the closure of voting. So I'll give another few minutes as required, and then I can close the meeting. [Voting]

On that same question, Mr. Bucknell reminded me that it might be good to inform the person who asked the question about our franchises. We do have franchised offices in Queensland, in Perth and South Australia -- in Western Australia, in South Australia and New South Wales, and we also have salaried offices in Perth, in New South Wales, of course, in Queensland and in Tasmania.

And in Melbourne.

Yes. And in Melbourne and Victoria, yes. Thank you. I think we're past the time now. So thank you for your attendance and for your support of the company, and the meeting is now closed. I think at 10:34. Thank you.