Fiducian Group Ltd (FID) Earnings Call Transcript & Summary

I think 2 very important shareholders are here, David Smith who helped start Fiducian. And Peter Murray who's always here, except for last time, and our biggest supporter, I think, and the Board. So it's now past the appointed hour. So ladies and gentlemen, welcome to the 27th 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 in our offices at 1 York Street, Sydney and online via the Computershare platform. This allows shareholders, proxies and guests to attend the meeting in person and virtually. In addition, shareholders and proxies have the ability to ask questions and submit votes. Now as the introduction, I would like to introduce you to certain individuals that are here in attendance. Your directors, Robert Bucknell; Frank Khouri, please raise your hand, Sam Hallab and Kerry Skellern at the end. 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 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 there is a quorum through attendees at 1 York Street and on the Computershare platform. And so I declare the meeting, which is to be held at a reasonable time and place convenient to shareholders open. I'll advise you about questions. Questions can be submitted at any time. To ask a question, you may select the messaging tab within the Computershare platform or alternatively, directly ask a question to the Chairman. The Computershare platform provides guidance on how to lodge any questions. Please note that while you can submit questions from now on, I will not address them until after we have put forward the final 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. There were 1,453 shareholders registered as holding 31,477,623 shares at 10 a.m. on the 19th of October 2023. The number of shareholders in attendance immediately prior to the commencement of this Annual General Meeting was 26 shareholders. Now I'll explain 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 a 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 of the proxy forms and the total votes in favor, total votes against and total abstentions in accordance with section 251AA of the Corporations Act. The persons entitled to vote on this call are all shareholders, representatives and attorneys -- sorry, attorneys of shareholders and proxy holders who hold color admission cards or have logged in to the Computershare platform. If you are eligible to vote at this meeting and attending in person, on the reverse of your color admission card is your voting paper and instructions. If you are eligible to vote at this meeting and attending virtually, a polling icon will appear within the Computershare platform. 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 I declare voting closed. I now declare voting open on all items of business. The voting tab will soon appear. 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. Now proxies. Computershare, the company's share registry, received 73 proxies, comprising 56.2% of the securities issued by the company and totaling 17,691,385 shares, including those received electronically by 10 a.m. on the 17th of October 2023. Of these proxies, Resolution 1, that the remuneration report be adopted, 6,689,260 or 99.49% plus 0.32% of open vote appointed proxies, which I will vote for, totaling 99.81% of eligible proxies cast are in favor of Resolution 1 and the remuneration report be adopted. Resolution 2, which is to reelect Ms. Kerry Skellern as a director 16,770,764 or 99.81%, plus 0.13% of open board appointed proxies, which I will vote for, totaling 99.94% of eligible proxies cast are in favor of the motion. All proxy votes have been cast at the discretion of the Executive Chairman and as said will be voted for. No proxies have been declared invalid. Now notice of the meeting. The notice of the meeting has been circulated through shareholders and sets out the purpose of the meeting being to discuss the financial report, adopt the remuneration report, reelect Kerry Skellern as a director and deal with 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 minutes of the previous shareholder meetings, copies of the minutes of the AGM for 2022 of Fiducian Group Limited was reviewed and signed at the next meeting of the directors. Shareholders may request a copy of the minutes from the Company Secretary if you wish to see them. The first item of notified business is a consideration of the financial report for the year ended 30th of June 2023. 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. As Executive 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 operating entities for the year ended 30th of June 2023. Fiducian is now in its 27th year of operation and remains a profit-generating company. The Board's mandate to management to operate a stable business to deliver steady growth based on the principles of people, profit and planet is being delivered. Our fintech capability continues to churn out new features and functionality for FORCe, our financial planning software and FasTrack, our platform administration system, which is also used to administer Auxilium, our new product for the external IFA market. The interest from independent financial advisers or IFAs, as they're called, has been encouraging. In a short period, we now have around $210 million under administration in Auxilium and batch products, which we expect would become a valuable revenue generator and add to our core business. The core Fiducian label business of Platform Administration, Funds Management and Financial Planning have operated efficiently and delivered revenue as expected. We began this eventful year and now become more eventful at $10.9 billion of funds under management advice and administration, which I might refer to as FUMAA. So we started at $10.9 billion. Share markets, which are the key driver of our assets turned upwards between October '22 and January '23, then drifted sideways. This resilience of the market supported by inflows to our funds and platforms helped us end the financial year with FUMAA just $12.3 billion -- just over $12.3 billion, about 17% to 20% higher than we started last year. This is a higher starting point and subject to market movements over the next 12 months, could deliver positive revenue growth. Platform administration fee adjustment in June '22, which reduced revenue by almost $1 million is now absorbed. So too is the revenue lost at integration and the additional salary cost of 40 new employees from the acquisition of the financial planning businesses of People's Choice Credit Union, PCCU in Australia. This was a large acquisition that we made previously. The rate of improvement in South Australia is reassuring, and the performance exhibited over recent months could well propel it to the position of our largest contributor to new funds inflow in 2023-'24. Over the year, our advisers have spent a great deal of time adjusting portfolios of retiree clients by executing recontribution strategies on a client best interest basis. On a client's passing, this strategy will enable their beneficiaries to pay less tax when inheriting their benefits. New inflows to Fiducian platforms for the financial year have come in at $265 million. This excludes net inflows of around $100 million in the platform badges from external IFS stated earlier. Over the next financial year, our expanded network of financial advisers is expected to deliver funds flows that exceed those of the current financial year. Investment markets appear impacted by a global increase in interest rates, bring down inflation and also uncertainty from Russia's war to invade Ukraine. Inflation is coming down, but we feel it is still too high. And the risk is that higher interest rates could cause a recession in North America, Europe and Australia, we feel within the next 6 to 12 months. However, as has historically been the case, post-recession periods have delivered strong share market growth for years to come, and we intend to capitalize on this transformation for the benefit of our shareholders, stakeholders and people. To expand sources of revenue generation, effort is being directed to distribution of platform administration services through Auxilium and badged products, which would disrupt the established platform market. We also remain on the lookout for further earnings per share, accretive acquisitions of client bases and growing our Fiducian franchise network. Greater emphasis on promoting our successes through marketing is planned. Management remains committed to achieving the goals and objectives set out in next year's business plan, which focuses on our competitive advantages to lift profits. Fiducian staff and management have done an exemplary job under difficult circumstances and need to be congratulated. Management and the Board remain positive for further growth of Fiducian in the future. Financial information and results for the year. The underlying net profit after tax decreased by 4% to $15.1 million. In 2022, it was $15.7 million. Statutory net profit after tax decreased by 7% to $12.3 million. In 2022, it was $13.3 million, and this is as a consequence of the decline in the average FUMAA from early in the financial year. As you understand, our revenue comes based on the assets we hold and when the assets and the markets decline; obviously, the revenue also declines, and that's partly made up by new inflows. The underlying earnings per share decreased 4% from 49.9 cents in 2022 to 48 cents in the current year. Capital management. A key feature of the company is that it continues to maintain a clean balance sheet and remains debt-free with a positive working capital and cash flow position. However, a capital raising or debt funding may be considered by suitable acquisitions or business growth opportunities present themselves. Final dividend. The Board remains prudent, but is confident that the future of the business is positive and likely to continue to strengthen through organic growth and acquisitions of client bases that can benefit from the Fiducian process. As a result, a fully franked dividend of $0.18 per share has been declared, which will bring the total fully franked dividend declared for the 2023 financial year to 30.3 cents. In 2022, it was 29.7 cents. The full year dividend represents 63% of the underlying NPAT, which is the cash profit for the year. The final dividend was paid on the 11th of September 2023 on issued shares held on the 28th of August 2023. The on-market buyback. During the year, no shares were bought back on market leaving 31.44 million shares on issue at the end of the year. Cash flow and financial highlights. Dividends of $8.6 million were paid during the period. Cash at year-end was $19.6 million compared to $17.5 million at the end of 2022. Staff and Chairman options. In accordance with the terms and conditions of the approved employee and director share option plan, no options will be issued. Now on financial planning. During the year, funds under advice grew from $4.4 billion in June 2022 to $4.6 billion in June 2022. The group provided loan funding of $1.1 million to assist 2 franchisees to acquire financial planning practices. Net inflows of $265 million were received during the year from aligned advisers. Fiducian expects the highest level of compliance and client service from its financial planning network. It is possible that we may have one of the highest supervisory management, the financial adviser ratios in Australia, but we feel this is necessary. Company-owned offices with salaried financial advisers are now based in New South Wales, Victoria, Western Australia, South Australia, Queensland, Northern Territory and Tasmania and continue to contribute to overall results. Salaried advisers now comprise over 53.4% of Funds under Advice. We now have 41 salaried advisers, franchised offices now comprise around 46.6% of our Funds under Advice, and we have 39 franchised financial planners nationally, and more in the pipeline. Platform Administration. Fiducian label platforms for Fiducian financial advisers are now complemented by batch platforms and Auxilium, which deal only with the external market. Funds under administration on our Fiducian label platform stood at $3.27 billion on 30th of June 2023. Overall growth in net funds under administration is driven by new inflow and market growth. With the independent financial advisers, IFAs hold around 14% of total Funds under Administration. Efforts are underway to build new relationships and increase net inflows from them. With respect to superannuation, the Superannuation Trustee Board established for Fiducian Superannuation Service, our public offer superannuation wrap fund in March 2015 with the majority of independent directors, operates professionally and with independence. The Trustee Board, including new directors that joined last year is functioning well and carrying out his duties diligently. 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. Information technology. Fiducian information technology development team has been busily working from both home and head office to provide system enhancements that deliver efficiency and wide-ranging functionality. The improvements give us an edge when competing for administration-related business for Auxilium and as well as scope to distribute FORCe, our financial planning software on a stand-alone basis. Human resources, management and staff. At Fiducian, we have always acknowledged staff as our most important and valuable asset. And we continue to nurture and help them grow personally and into positions of responsibility. Our strategy to view staff as a large Fiducian family, standing alongside each other in difficult times has held us in good stead. And as staff have reciprocated with a show of superior performance and loyalty in these volatile times. Management has taken a hybrid approach to working with team splitting their working days between the office and home while continuing to discharge their duties, meet regulatory obligations and remain connected with their colleagues and clients. The transformation of the work environment has been made possible by our IT enhancements. Fiducian has and will always be an equal opportunity employer. Our diversity policy encourages persons of different race, gender, sexual preferences, religion, national or ethnic origin, age, or visibility and skills to participate and receive recognition, reward and management responsibility commensurate with their performance. Employees are from 26 different countries of origin, 49% are female with 15% of female employees in senior roles, 22% of our employees are over 55 years or age. The Advisers council. The advisers council is drawn from our supporting financial advisers and has again made a significant contribution to the company during the past year. It continues to fulfill its role as a sounding board for the company's management and Boards and is a valuable resource and forum to alert us on financial planning issues, FORCe our financial planning software enhancements and FasTrack, our administration systems changes. The Board of Directors. The Board of Directors and management has worked together cohesively as a team with respect and candor for each other, but with a clear mutual understanding of each other's roles and responsibilities in achieving optimal performance. Now this is hard for me to say, but Mr. Robert Bucknell, our Founding Chairman, and visionary for the company's future has decided that he will retire from the Board at this AGM. Mr. Bucknell has guided the company and mentored others, including me for the last 27 years, for which we will remain forever grateful to him and Robin, his wife who has given us fantastic support. I tell everyone that those of you who have seen that TV program called Touch by an Angel, Bob was my angel. And I am eternally grateful. So Mr. Bucknell has guided the company and mentored others for the last 27 years. As I said, for which we remain forever be grateful. He will be dearly missed. Mrs. Kerry Skellern, who has operational experience and is also a consultant to other company directors has joined the Board. We welcome her appointment, as you've seen will be ratified at this AGM. Community support. Fiducian has continued providing support to community organizations and sporting teams linked to our financial planning network. We currently sponsor 18 amateur and junior teams across Australia, right through with Taekwondo and Rugby. The Women's Rugby League team got into the finals last year and cricket, soccer all of them, all around Australia, and I hope we'll have more. For the last 2 years, we have supported the junior development program for coaching at Avondale Golf Club in Sydney. While our contribution is quite modest, we are proud that a young lady golfer from the club has qualified last year for the USLPGA and won a tournament in just her third event, and another lady is also now being selected to the USLPGA, which is amazing. Vision Beyond AUS, VBA, a charity supported by the Fiducian Group has continued its services in hospitals in India, Myanmar, Nepal, Cambodia and Ethiopia. More than 50,345 men, women and children who live in abject poverty have had their eyesight restored. In addition, surgical equipment has been donated to overseas hospitals. Some 18,000 children have been screened for eye disabilities in rural areas of Nepal. Fiducian staff voluntarily provide accounting, administration and marketing support to VBA to ensure that every single dollar contributed by generous donors goes towards eliminating visual impairment in the world. The Current Economic and Market Environment. The global economy has continued to slow this year in response to severe measures taken by monetary authorities around the world and especially across the advanced economies to counter rising inflationary pressures. Inflation reached its highest level in more than 40 years in a number of jurisdictions before starting to trend gradually lower at the end of last year. This year, the IMF or International Monetary Fund, is forecasting global growth to be 2.8%, the U.S. to grow by 1.6% and economists predict Australian growth to remain quite lacklustre. Growth in the developing world is expected to be led by China at 5.2% and India, 6%. The IMF notes, however, the risks to the outlook are skewed to the downside. This year, earnings from share markets are forecast to contract or stay flat in major economies, but to expand in China and India. This is probably Yardeni Research. It now appears that restrictive monetary policy could stay in place until inflation is much lower and global earnings will not rebound until 2024 when their forecast to rise by 11%. Nonetheless, our diversified funds -- for our diversified funds, we continue to take a cautious approach and remain close to benchmark in our allocation to growth assets and fixed interest. As always, we recommend that investors should consult a Fiducian financial adviser to develop financial plans with the aim of achieving diversified investment strategies that over time would help investors realize their financial goals. On the outlook, consistent with our strategy over the last 27 years, our focus remains on growth strategies to enable upscaling on existing capacity and leveraging our controlled relatively low fixed cost base. The Board's aim remains to build scale and deliver consistent double-digit earnings growth in coming years and over the long term. And management is determined to stay committed and focus in this difficult climate to attempt to achieve this goal. On behalf of the Board, I would like to thank all participants for their individual contributions to the growth and success of Fiducian. Thank you. We've done the financial report. Now please provide your questions via the Computershare platform, and we will address them shortly. So we will now move to the next item of business, which is adoption of the remuneration report, which is Resolution 1. The remuneration report is set out in the 2023 Annual Report on Pages 16 to 22, 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 directors, other than the Executive Chairman, must stand for reelection. The following ordinary resolution is proposed in the notice of meetings that the remuneration report is adopted. Please ensure that you have voted on the Computershare platform. [Voting]

So do we have voting by poll by poll or? It's all done? So as you know that Resolution has been more than carried by 99.8% of the votes. Elect Mrs. Kerry Skellern as a director is Resolution 2. The next resolution concerns the reelection of Mr. Kelly Skellern, as a Director of the company. Mrs. Skellern'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 Mrs. Kerry Skellern being a director, retiring at this meeting and being eligible for election is reelected as a director of the company. Again, I remind you to please ensure that you have voted on the Computershare platform. [Voting]

And this resolution was also carried by, I think, 99.8%. So congratulations, Kerry. Now have we received any other notices, Paul?

No, questions.

No questions before the meeting. No notices have been received to deal with other business in accordance with the company's constitution and the Corporations Act 2001. With questions as there is no other business, we will turn to questions that shareholders may wish to ask. As part of our notice of meeting, we ask shareholders to send questions to Computershare for our response today. Computershare confirmed and so as Mr. Gubecka that no questions were received by them prior to this meeting. Our company Secretary, Paul Gubecka, will now identify any shareholders from the Computershare platform, who wish to ask a question, and then you will have the opportunity to ask your question.

There are no questions on the platform.

Okay. Well, there are no question. That's good. So we can now turn to any questions posted on the platform. Our company secretary will read them out, there were none. So we can now turn to any questions from shareholders at this meeting. So if there are any questions, lead us. Yes.

FY '23, you reduced your platform fees in response to I think more competition pressures?

It was more a request from the regulator. We haven't had any pressure from our clients. We haven't had any pressure from the financial planners. They trust the value proposition of Fiducian which has stood people in good stead, but we thought it would be appropriate. In fact, as you know, before the market tanked a bit at the end of '22, we were so cocky about it, that we brought the reduction 1 month earlier in June of '22 instead of waiting, but then the market fell and so it affected our results. But we haven't had any pressure as such for clients or adviser.

Well, you said this [Indiscernible].

Well, it's now stable. We're pretty competitive, and we don't see any impediment to people using the platform. Thank you.

The second question is, I think for Kerry, we'd like [Indiscernible] shares in the company that invested in [Indiscernible] in the market. Does Kerry have intentions to invest in Fiducian?

[Indiscernible] half, so I'm on the way.

And we figured out that she had to declare a conflict of interest because her father has shares too for a long time.

Thank you.

Thank you [Indiscernible] . David any -- I hope you're happy the way the business you help start is going.

[Indiscernible] this time.

Please.

It was 27 years ago that [Indiscernible] an afternoon asked about starting the business and this business. And he developed [Indiscernible] friendly person who trusted too. So our Board decided to get behind Indy and [Indiscernible], no doubt about it. And he was asked [Indiscernible] and he build it to what it is today. And I'd just like to contribute [Indiscernible] effort as it was in the [Indiscernible]. Well, probably not.

I definitely needed this one.

As he was on the Board, a great guy and support [Indiscernible]. And so thank you both on behalf of [Indiscernible].

Peter, we can't go ahead without a question from you or a comment.

Thank you, Mr. Chairman. I'll just explain in [Indiscernible] when you turn up in Adelaide Airport, has put out to me. It says [Indiscernible] flight will be shot on arrival. So I had some concern about South Australia. You've done a major acquisition. Can you just give some update on that? How is it going?

Yes. Thank you, Peter. Yes, it's been -- it was a big acquisition for us and took a bit of time to digest it. We had some advisers who we made, I think, very good offers, which would have been fantastic for them if they have taken them up as franchises. But some of 4, 5 of the bigger ones decided not to, and they're -- we tried our best. And then we found that PCCU who had actually advised us that 95% of the clients had received their fee disclosure statements and confirmed their intention to stay, actually only 5% have received them. So we had to immediately employ another 7 people to start phoning some 3,600 clients to retain them and keep them. In that process, we did lose about, I think Rahul, 30%, 35%.

Correct.

Because while we were phoning these clients, some of the other platforms who realize that they may lose the money started phoning these planners and assisted them in poaching the clients so that they will stay with the bigger platforms like [Indiscernible] and others. But since then, we've added more planners. We built them up to a standard where we believe one planner should have a support person and that the planner should focus on raising more money looking after clients and the support person should do on the hackwork. So we increased that. We've now got about 40 employees there. All are very supportive. The highest volume of inflows we're getting now are from Adelaide -- from South Australia. And they were at the conference in force with their partners and kids some of them. And what they said to me, and I'm sure to Robbie who's Head of [Indiscernible] Planning and others, that they have never been happier. They said to me -- we are absolutely over the moon. And they said the people who left, well, just forget about it because they will not get this benefit. So I think it's a good -- in the end, it's worked out to be a good acquisition. As I said, we lost a lot of revenue, but it's now contributing very positively.

Did you pay an extra $1 million? There's more money to be paid...

No, we actually deducted the amount we had to pay because the deal was that we would pay them, I think, $16 million -- $12 million, but only if the client stayed for a year. Otherwise, it would reduce proportionately, and so we paid them eventually only 9, I think -- the 11.

[Indiscernible] away from them.

Yes, they were pretty good. They actually gave us the floor in the main building of theirs, and I had to ask the CEO. They realize what had happened and they tried to help. And I asked her to please charge me something. Otherwise, her auditors might pick her up and say, "Why did you give this big floor for free?" So they charged us something. But we have now, I think, 3 offices or 4, Robbie, in South Australia?

Yes. We have 3 offices.

3 offices there, and 1 in Darwin. So we actually -- it's been helpful in that we've got Australia wide representation now. And one of the good things that [Indiscernible] team is trying to do is that, as we said, we spent $1 million buying small businesses for our franchisees is to now help the franchisees become more profitable by helping them to acquire small advisory practices near them, so they can build on their business.

Thank you very much.

Thank you, Peter. Any other questions from shareholders who come from [Indiscernible]? Yes, Peter.

People [Indiscernible] substantially increase in the dividend, [Indiscernible] dividend. I think we should recall [Indiscernible] thanks for encouraging them, $0.18 was quite generous. We certainly appreciate that.

Well, we certainly appreciate the support shareholders give us, and we do tell the in-stores. We do tell the in stores that if a person had invested just $1,000 in 2013, just $1,000, they would be receiving, I think, $320 fully franked dividend now.

They've earned it.

So they virtually recovered all the money and now it's going well for them.

Thank you.

I wish we could have done better, but we're trying and hopefully next year is better. You just keep the recession away from us. I think there'll be no further questions, that concludes the business of this meeting. A member of Computershare will now collect any voting cards in the room. Please ensure you print your name where indicated and sign the voting paper. [Voting]

Please ensure you print your name where indicated and sign the voting paper. And when you finish filling in your voting paper, please lodge it in the ballot box to ensure your votes are counted. I, again, remind you to ensure that you have voted on the Computershare platform, and voting will end at the end of 2 minutes following the closure of this meeting. The outcome of the resolution will be lodged with the ASX as soon as practicable after the closure of voting. Thank you for your attendance and confidence in Fiducian. The meeting is closed and voting can continue for 2 minutes.