Future Generation Australia Limited (FGX) Earnings Call Transcript & Summary

Good morning, and welcome, ladies and gentlemen, to the 10th Annual General Meeting of Future Generation Australia. This is a hybrid meeting as it has been in the past, held online and in person, and thanks for those that have come along in person today here at the Museum of Sydney. Before we begin, I would like to acknowledge the Gadigal people of the Eora Nation and pay my respects to Elders past, present and emerging, and who have been custodians of this land on which I stand and we all are for tens of thousands of years. So before we begin, there is a disclaimer, which is displayed for you on the screen to read in a little bit of time. All right. Thank you. So my name is Mike Baird, and I am the Chair of the Board of Directors, and it's been a privilege to do so. And as you may be aware, I expect to hand over the Chair role to Dr. Philip Lowe, the former Governor of the Reserve Bank of Australia, at the conclusion of this meeting, and I will be staying on, however, as an Independent Director. I'm just delighted to also be joined today, and I'll say more about Dr. Lowe at the end of the meeting. But I'm delighted to be joined by our fellow Board members: David Paradice, David Leeton, Gabriel Radzyminski, Future Generation Founder, Geoff Wilson, and Kate Thorley. David Leeton is joining virtually. You will see him online. And Stephanie Lai is an apology for the meeting today. Also joining is Caroline Gurney, the CEO of Future Generation Australia. And acting the capacity moderator is Ophelia Lam, the Finance Manager of Wilson Asset Management, who will assist addressing any questions received during the meeting. Sandra McIntosh is here from Acclime Australia and Sylvia Wallace, a representative from our auditor, Pitcher Partners, also with us, and Sylvia is also available to address any questions related to the company's financial statements. As it is 11:00 and a quorum is present, I declare the meeting open. The notice of meeting has been circulated to shareholders in the absence of any objection, I'll be proceeding on the basis that the notice be taken as read. I also encourage you to read the Chairman's Address announced to the ASX that is there in detail. And shareholders who have logged into the webcast with your username and password, you'll have the opportunity to submit questions online and ask audio questions as well as vote on the resolutions. If you are joining us online, questions can be submitted at any time. And I know there's already a question there. For those shareholders joining online, who wish to ask available question and audio questions, certainly is available during this meeting. For those shareholders joining us in person, please raise your hand and wait for the microphone to board to you so that everyone, including those online can hear your question. And our voting today will be conducted by way of a poll on all items of business. When I open the poll, the voting icon, as you can see, will appear on the navigation bar, simply select one of the options to cast your vote. If you change your mind, select another option. I now declare voting open on all items of business, and you can vote at any time during the proceedings until I declare the voting closed. I'll give you a clear prompt later in the meeting to warn of the close in voting. In terms of the year 2023 was a strong year for Future Generation Australia. The investment portfolio increased 13.1% in financial '23, outperforming both the S&P/ASX All Ordinaries Accumulation Index and the S&P/ASX Small Ordinaries Accumulation Index. The Future Generation Australia board declared an increased fully franked dividend of $0.0335 per share, bringing the fully franked full year dividend of $0.067 per share. This delivers shareholders a fully franked dividend yield of 5.7% (sic) [ 6.1% ] and a grossed-up dividend yield of 8.1% (sic) [ 8.7% ]. We're pleased to have outperformed the market and delivered a strong investment portfolio performance for shareholders in what was undoubtedly a volatile time for equity markets. Now the team remains very focused on actively narrowing the share price discount to net tangible assets for shareholders and returning the share price to trade at a premium and to net tangible assets. In 2023, we made our ninth annual social investment of $5.2 million. And again, we are very grateful for our pro bono fund managers and service providers. The total savings of approximately $8.6 million in 2023 or around 1.6% of the net assets of the company, and they do exceed the annual investment to our social impact partners. The March 31, 2024 numbers are presented on the screen. And as you can see, the company's pretax NTA was $1.42. Our dividends paid since inception, the profit reserve now sits at $0.36 per share and dividend coverage of 5.4 years. So that's the up-to-date position. So we shall now conduct the formal part of the meeting. There are 5 items of business for the AGM today as set out in the notice of meeting. 4 items are to be voted on. The notice of meeting and explanatory memorandum has been circulated to shareholders and in the absence of any objection of proceeding on the basis that these items are taken as read. Boardroom are the returning officers for today's meeting, and they will conduct our poll. And I further note that Resolution 1 is subject to voting exclusions as outlined in the Notice of Meeting. The Board recommends approval of each resolution. And as Chair, I'll be voting all open votes provided to me for each of those resolutions. We will advise the ASX as soon as the results to determine which will be a little later today. And you may submit any questions. This is the financial statements and reports. So you can submit any questions or comments you have on these. And the first item of business is to receive and consider the financial report, the directors' report, the auditor's report for the year ended 31st December 2023. And Sylvia Wallace, a representative from our Auditor, Pitcher Partners, is present to answer any questions. Sylvia, thank you. No resolution on this matter is required. So pause to ask if there's any questions. If you're joining us online, please send them through the question function or request to speak. Are there any questions in the room? And online, Ophelia? No. Great. There being no further questions, we come to the item of business for which the votes are required. We start with Resolution 1, which relates to the adoption of the remuneration report. You may submit any questions or comments you have on Resolution 1 now online. The proxies received are on the screen. You can see those. For the open proxies which have been granted to me as Chair, I will be voting in favor of the resolution. And I pause to say if there's any questions either in the room or online. As there's no questions or comments, I now put the motion that the resolution be approved as set out in the notice of meeting. If you are a shareholder or proxy holder and eligible to vote, could you now please complete your vote for Resolution 1. [Voting]

Resolution 2, and this relates to the election of Dr. Philip Lowe as a Director. And Philip, would you like to make a short speech on your election as a Director for Future Generation Australia.

Thank you, Mike, and good morning, everybody. My name is Philip Lowe. And up until September last year, I was the Governor of the Reserve Bank of Australia, which was a role that I had for 7 years, and I worked for the Reserve Bank for more than 40 years. I've headed the economics area, the financial markets area, payment systems, financial stability and domestic market operations. Well, I was the Governor of the Bank, I Chaired the Reserve Bank Board, Payment System Board, and the Council of Financial Regulators. And internationally, I chaired the committee on the global financial system, which was where the Central Bank governors would come together and discuss issues in the financial system and financial risk. So I've had very wide exposure to both domestic and international financial markets. And while I was the governor, I also chaired the Financial Markets Foundation for Children, which over the years has given $20 million helping kids some health in Australia. I was also a Director of the Anika Foundation, which help the kids with mental health issues. So I had significant exposure to both the financial side and the philanthropy side, helping children. Well, as the Governor, I had visibility of Future Generation, and I've spoken to a number of times at the dinners. And I was really impressed by the fact that you've got people in financial markets who would want to kind of help kids and prepared to give up their time and their money and their expertise for free to help kids. And I saw it from afar. And when I was asked to join the Board a few months ago, it was something that I was really wanted to do. It's the first board appointment that I've taken after leaving the RBA. And I was both honored and feel privileged to have been asked to join. So if I'm voted in today, I look forward to bringing my expertise on both the philanthropy side and the financial market side to you and to your shareholdings. Before I have the microphone, perhaps, Mike, I can thank you for your outstanding service for the Board. You're stepping down as Chair today, and you've done an outstanding job, and I know you're speaking to the other directors just how much they valued your wisdom and your counsel and your expertise in your good common sense. I think it speaks volumes that while Mike is no longer going to be the Chair of the Board is prepared to stay on the Board. That reflects your deep passion for the project we're involved in here of giving good returns to investors and helping kids, what a wonderful thing. So thank you very much for continuing to stay on the Board. Thank you.

Thank you, Philip. And you're right. You can be sort of caught up in process in an AGM. And sometimes if you get the incredible impact that future generation has and the impact it has on young kids' lives. It's something we don't take the grand and I'm very proud of. So really glad to have you here. Any questions or comments that you might have on Resolution 2, either in the room or online?

This is from J.C. Bell, a shareholder. Can Dr. Lowe expound on any successes personally held rather than justice positions and what other succeeded.

And do you want to take it...

Would like you to expound on any successes you...

The successes that I've had, well, people will view these things differently, but I view that the support that the Reserve Bank gave the Australian economy during COVID is critical. We faced very, very difficult times. And at the Reserve Bank, we were committed to doing whatever we could -- we'll be sure an economy get through what was agreed. It turned out that we did too much in the end, but we prefer to err on the side of doing too much than not enough in seeing the economy collapse and people lose their jobs and their life. So I'm proud of what we did during that period. Go on, but I will take the time of the meeting to do that.

The proxies are up, as you can see. And if there are no further questions or comments -- there are none online. I now put the motion Dr. Philip Lowe be elected as set out in the notice of meeting. For those who are online or in person and eligible to vote, could you now please vote on the resolution. [Voting]

Thank you. We now move on to Resolution 3, and that relates to the reelection of David Paradice AO, as a Director. David, would you like to make a short speech on your reelection as Director of Future Generation Australia.

Thanks, Mike, very much. I'm about 28 years old. I've been in the [ voluntary ] markets for a few years and it sort of [ doesn't yet ]. No. So I'm a [indiscernible] and I was stockpile for a while, and then a money manager with the State Super Board and Mercantile Mutual, and I set my business up under Jeff's stewardship. 24 years ago, we run about $15 billion in Australian equities and global equities. And I was initially involved with Future Generation when it started and Geoff and I having a discussion and tell me about the concept and it me about 30 seconds to agree to doing it. So we've been involved right from the very start. I think it's a fantastic idea. I think it's a great thing that the fund managers have done. It's obviously the charities are doing a great job with the funds that they've received. And the management of Future Generation are very thorough and very diligent and keep everybody on the straight and narrow and make sure we're doing the right thing [ that I announced ], but also the charity. So thank you to the Future Generation management for all that, and that's me.

Thanks, David. So you may submit any questions or comments you have. The proxies are now up on the screen. Are there any questions in the room or in the line? There are no questions. I now put the motion that Mr. David Paradice be reelected as set out on the notice of meeting. For those online or in person, could you now please vote on Resolution 3. [Voting]

Thank you, David. Resolution 4 is our last -- relates to the reelection of Kate Thorley as a Director. Kate, would you like to make a short speech on your reelection as a director.

Thank you, Mike, and good morning, everyone. So look, I think most of you I have met, I'm the CEO of Wilson Asset Management. I've worked with the very talented team at Wilson Asset Management and Future Generation now for almost 20 years. And I always say and I will continue to say that one of my career highlights is sort of hearing Geoff come back from the U.K. with the idea of this model of Future Generation and the fact that we can bring together sort of the best Australian equity fund managers, bring together all the amazing service providers, and also deliver fantastic returns for our shareholders. And just to say thank you to all of our shareholders because your support of Future Generation Australia is greatly appreciated. And I just think about sort of the year after we did the IPO and the original capital raise, I had my twins, and I still remember a lot of the stories from our social impact partners and the work that they do with so many young Australians. And I just absolutely love the model and hope that I can continue to serve as a director of this company. Thank you.

Thank you, Kate. All the speeches have been short. That's not often the case. So that's great as well. So everyone may submit questions or comments you have on Resolution 4. And you can see the proxies are now up on the screen. And for the open proxies, which have been granted to me as the Chair, I will be voting in favor of the resolution. So posing any questions, any questions in the room, or online. Thank you. As there are no further questions, I now put the motion that Ms. Kate Thorley be reelected as set out in the notice of meeting. For those online or in person eligible to vote, could you now please vote on Resolution 4. [Voting]

Terrific. Okay. Thank you. We've now addressed all 4 resolutions, and I now declare the poll closed and formally to Boardroom to count the votes. The results of today's AGM will be released to the market as soon as they determine, and that will be later today. Now were there any other general questions we have? I know there's one online, which we might deal with first and then go to the former Chair, Jonathan. You might be able to answer your question Jonathan. But why don't we go to Jonathan first and then we'll come back online.

Before my question, just as a shareholder, a huge thank you to all members of the Board, to Dr. Lowe for stepping up and for you for doing what you've done, Mike. It's just wonderful to see. I saw in the announcement this morning, you're going to be doing a review of the social impact charities without reaching any confidentialities or preempting it. Any insights you can provide shareholders on how you think that's going to go. Maybe you can answer that.

I'll do a couple of comments and then maybe Caroline might want to say something. In essence, the similar process was one for Global. And that showed both in terms of the impact, but the opportunities that are out there to support. So I think the sense is that at the 10-year mark, this is a good opportunity to consider. Do all of those that we're currently supporting. They're in the same position. They need the same support, how can we continue to make and have the most impact with the funds that we have provided. So $5.2 million, we see how do we have every single one of those dollars having the best possible impact for those kids in need. So that's the sense. Caroline, did you want to add anything to that?

So we basically want to have a look at the focus and to actually refine it slightly to really target sort of young children that have been matter of factors, whether or not that's domestic violence, home where it's unsafe. So we're actually working on that at the moment. It's a work in progress. We've presented to the Board in terms of the fact that we would like to review, they've accepted that. And now we're just working out all of the details and how we go about and that's something we'll probably announce in September. And hopefully, we can keep that time line, but we may keep some of the non-profits that we have, and we'll be looking for some others as well.

And the power significant John, as you know, giant steps I had the opportunity to visit just a couple of weeks ago. And it's one thing to look at reports and see stories in order to watch what happens in the power and impact it has. So for all of those, we're supporting, that's where we want to see that the funds are having a big impact and making a difference to many.

And if I can put a plug in for John steps given that [ Steven ], actually the fund is right next to me. Yes, please.

I did see Steven there. Yes, very thank for the work that's done there, Steven, thank you. So online, fairly there is a question. If there's none other in the room, grab the online question. I wanted to read that.

The shareholder is -- question is from the [ DM Hunt Super Fund ]. And his question was, does the Board recognize the deep and persistent share price discount as a significant business risk, that is, impacts upon capital growth and the total shareholder return measure. If so, what risk appetite has been set for this risk? If not, why not?

So I might -- I'll -- a couple of comments and I might hand to Geoff, who can sort of elaborate further. But yes, it is on the formal risk register of the Board. It is something considered. And clearly, given the asset class and equities, there is a tolerance level that aligns with that asset class. But certainly, it's demand generation is what we're looking at, how do we engage, how do we raise awareness, how do we look at other channels, how do we engage with existing shareholders. And all of those have been considered as we go forward, certainly aware, and there is a comprehensive action underway to address. Geoff, do you want to sort of add anything? Grab that microphone.

Look, thanks, Mike, and thanks for the question. And I mean, you were doing a lot of the serious stuff that we're doing, so I can crack a little joke. And then I'll get to the serious because it is serious. The -- I mean on the weekend, I don't know if anyone's been watching it, but we had the Berkshire Hathaway AGM. And talking to one of our shareholders in between meetings -- when we're talking about the discount and he said, "Hey, I'm happy for it to be a discount because I want to buy more. And what does Warren Buffett say, if you're a hamburger, if you're selling hamburgers, then do you want the hamburger need to go up in price or go down in price. He actually wanted to go down in price. So if you're a buyer, you actually like the discount. In terms of FGX, from a Board's perspective, and I know -- we would like it to trade where it should be. And where do we -- well, this is my view, where -- because we haven't probably gone through it in detail from a Board perspective. But my view is you've got the best fund managers in Australia, managing the money, Australian equities and you're managing it pro by now. It's outperformed. It's less volatility than the market, probably 20% less volatility in the market. So taking 20% less risk than the market, but it's outperformed the market. So normally, you'd assume I mean, if you're getting -- if it's 20% less risk, then you get 20% less return. So it's actually -- it's done a lot better than that. That's the portfolio you've invested in. And then you're getting exposure to these fund managers. And as you said, by the numbers you talked about, Mike, in terms of what the 1% that went to the charities versus the cost that would have gone to the fund managers and the operating of the business. You actually -- you're getting it cheaply. So you could argue, if there's a normal listed investment company that's charged you, you'd be paying more. So you could argue that there should be an embedded premium. So your NTA, we talk about getting to NTA. Actually, you talked about getting to a premium, which in the Chairman's address, which I think is where we'll get back to. FGX has been at a premium before. And there's -- Caroline has been in for a couple of years as CEO, you've really done an exceptional job in terms of building the brand, restructuring various things. But to me, the next year, 1.5 years, we've really got to -- well, we've always been focused on the discount but got to put significantly more resources into -- well, into reducing that discount, which I know a fellow shareholder that I was talking to is not very happy about that, but everyone's got their own way of looking at. So I mean, that is the plan. And yes, I'm very confident that it will get there.

Always good to have a hamburger example in any answer. That's good. It's new. So are there any others online?

Not a question, but a thank you. It's a shareholder, J.C. Bill, again, and he just wanted to acknowledge Caroline and extend his thanks. He had a problem with his shareholding and just want to publicly acknowledge her and personally dealing with and resolving the issue that he had and such a wonderful thing for such a busy person would personally assist with.

That's great. You might want to buy more shares. That's terrific. Thank you. Well, there's no other questions in the room. I will -- and no other formal business, I'll formally declare the AGM close. Just a couple of closing comments. I did announced on March 12th that I plan to hand over the chair obviously, with support of the Board to Dr. Lowe at the conclusion of this AGM. When I was asked to be Chair of Cricket Australia back at the end of '22, I knew that it would be a challenge but I was determined to stay involved here and to stay in place until potentially an exceptional chair become available. And I don't think any of us could do vast but anyone better than Dr. Philip Lowe. Certainly, he's exceptional person. He is one of the finest financial leaders I think we've had in Australian markets and certainly impeccable integrity. He's done that throughout his 43 years, and he could have done many things as his first appointment, he has chosen Future Generation, which says a lot about what we do, but it says just as much about him. And for me, I'm incredibly grateful as is all my fellow directors. And I think the last couple of years has deepened my commitment into Future Generation and the work there on and what we are doing is really making a difference, and that's a rare thing. I do want to close by thanking our fund managers. It's not taken for granted. Our fund managers, again, could decide not to participate. They do and they invested their time and expertise in everything we do and give us the capacity to have this social impact as well. Our service providers, all the directors, again, and committee members generously give their time, skill and experience to this call. So I want to thank Caroline Gurney, who's leading exceptionally well and going through the exciting new phase of selecting new and revised social impact partners. That is an exciting time, and Caroline will lead that well. And I do want to reiterate my final thanks to all our shareholders. We're incredibly grateful for you, and we really thank for your continued support of Future Generation. So with that, I will formally close the AGM and all to see you in refreshments. Thank you very much.