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

Good morning. Good morning, and welcome to the Future Generation Australia Half Year Results Webinar. My name is Caroline Gurney. I'm the CEO of Future Generation, and I want to thank you so much for joining us this morning. Before we begin, I'd like to acknowledge the Gadigal people of the Eora Nation, the traditional custodians of this land and acknowledge the elders past and present of the lands on which we are sitting. Joining me today is one of our pro bono fund managers, Sean Fenton, Founder and Portfolio Manager from Sage Capital, who's going to be sharing his market insights and giving his stock tips. Thanks very much, Sean, for being here. We also have [ Mary-Jean ] Howard from DEBRA, one of our incredible not-for-profits that we support, and obviously, Geoff Wilson, Future Generation's Founder, and he's going to be wrapping up and answering any questions you may have. So Future Generation, as you all know, gives you the opportunity to become both an investor and an everyday for philanthropist, harnessing the generosity and expertise of the finance community to raise millions to help support young Australians. It's a very unique model, one which Geoff can talk to you later, and I want to thank you so much for your support. As you know, Philip Lowe was appointed Chair of FGX at the AGM MA. And as 1 shareholder asked him on his last webinar, I'm very grateful to that shareholder. They asked would he buy shares. And I'm delighted to say that he has, and he basically said that it's an opportunity to invest in high-quality investment portfolio managed by Australia's leading fund managers. So Future Generation is not only an investment, it is also social impact. And this year, Future Generation Australia has donated $43-point million to Australasian Youth at Risk not-for-profit since inception, and the 10th annual [ social ] investment this year is $5.4 million. So without further ado, let's go to our half year results for Future Generation Australia. I'd also like you to submit questions as we go along, and then we can actually add those into the Q&A segment at the end of the webinar. We'll also be taking questions earlier for one of our not-for-profits or for Sean, so please do start typing. Use the Q&A segment. I think you can press on that and add them in. So this is the first time that we're actually hosting a separate Future Generation Australia results webinar. And we really want your feedback on whether this works for you. And a survey will pop up at the end. And so please do fill in any feedback you have at the conclusion of the webinar. So if we go to the next slide, this is our Future Generation Half Year 2024 results. As you can see there, there are highlights. 6% investment portfolio performance over the 6 months, 5.7% annualized fully franked dividend yield, $8.1 million gross up dividend yield, $0.351 per share profits reserve. And we have 5 years of dividend coverage, and $0.035 per share, fully franked interim dividend. So I think for the 6-month period, the total shareholder return was 9.8% or 11.1% when including the value of franking credits. And this was driven by the share price increase together with the payment of the fully franked final dividend of $0.335 per share and the narrowing of the share price discount to net tangible assets. At the end of the period, the share price discount to NTA has narrowed to 12.8% from 17.1% at 31st December 2023. The Future Generation Australia management team is actively committed to returning the share price to NTA or a premium. And now if we look at our dividends. The Board of Directors for Future Generation Australia declared an increased fully franked interim dividend of $0.035 per share. The full year 2024 fully franked interim dividend provides an annualized fully franked dividend yield of 5.7% and a grossed up dividend yield of 8.1% when including the value of franking credits. The Board's decision to increase the fully franked interim dividend was formed by the annualized gross up dividend yield of 7.4% on pretax NTA and the objective to provide shareholders with both capital growth which is the movement in the company's share price and income through franked dividends paid to shareholders on a semiannual basis. The long-term investment portfolio performance, the listed investment company structure and the profits reserves available has allowed Future Generation Australia to pay shareholders a stream of fully franked dividend since inception. The company has paid $0.664 per share in fully franked dividends to shareholders, including the value of franking credits since inception. At the 31st July 2024, the company had 5 years of dividends coverage based on $0.351 per share in the profits reserve through the payment of fully franked interim of $0.035 per share on the 29th of October 2024. I think -- let's go to the performance now because this is something that Investment Committee has really been very focused on. The Future Generation and portfolio has outperformed again, increasing 6.6% during the 6-month period. And this outperformance has been achieved by the company's leading Australian fund managers while taking less risk than the market. Since inception, the investment portfolio has increased 9.1% per annum, outperforming both the S&P/ASX, All Ords index by 1.1% per annum and the Small Ords by 3.2% per annum. Future Generation Australia gives you, shareholders, access to a diversified investment portfolio. And we have exposure to 18 of Australia's leading fund managers, one of them we're about to hear from a few minutes. And that has really shown they have a proven ability to outperform the market and their peers over the long term. We do have a large weighting towards small, mid-and microcap companies and the underweight exposure to large caps, as you well know. The Investment Committee and our leading pro bono fund managers to continue to believe that active management in the small, mid- and microcap sectors are going to drive long-term outperformance for shareholders. And now let's talk about our social investment. This year, we delivered our 10th annual social investment of $5.4 million to our social impact partners and other not-for-profit organizations, bringing the total social investment to $43.3 million since inception. And the company's combined, our social investment of Future Generation Australia and Future Generation Global is now $87.2 million. We can do this because our fund managers, our IC members, Investment Committee members, I should say, Board members, accountants, lawyers and everybody that does our sort of shareholder communication videos, they all waive their usual fees. And we estimate the value of the management and performance fees generously foregone to be approximately $8.6 million per annum or around 1.6% of the net assets of the company. These savings to shareholders far exceed the annual investment to our social impact partners of 1% of the company's average assets per annum. I would really like to acknowledge you, our shareholders, for your commitment to doing good while doing well. And in speaking to you over the last 6 months, we've really come to realize how much you value the social impact as long as you're getting the financial returns that Future Generation Australia provides. So one of our pro bono fund managers is Sean Fenton from Sage Capital. Thanks so much for joining us, Sean.

Pleasure to be here. Thanks for having me.

Thanks so much. So I've got lots of questions to ask you. And hopefully, our shareholders are busy typing in as well. So reporting season's just ended. What are the key themes that have emerged? And who are the winners and losers?

Yes. As always, it's a very hectic time of the year. Companies are going through their annual reports. So I think we saw a reasonably positive reporting season. There's always some winners and losers. Results coming through are probably a little bit skewed more towards the downside in terms of downgrades, but that's a pretty common pattern, but we did see a little bit more caution looking out in FY '25 in terms of outlook statements, which seem to be a little bit more conservative. So probably the best-performing sectors were, like, growth stocks. So some good results there, early on, ResMed with stronger margins; Life360, getting some great subscriber growth; and towards the end, WiseTech with sort of a new product launch coming through and stronger margin outlook. So that's often a strong area. We saw that again. Some of the cyclicals actually did pretty well. So Brambles really stood out in terms of also improving margins. But possibly getting towards the end of that sort of inventory cycle that we're seeing in fast-moving consumer goods. Some strength there, some reasonable strength in the consumer as well. So we've all been expecting a recession for a couple of years. It just hasn't happened. And margins for retailers, there's less promotional activity there. So they continue to hold up well so -- and JB Hi-Fi, pretty in line sort of results, small albeit, but performed quite well afterwards as well. So that's pretty good. But we did see some broad weakness where...

I'm not sure if the last couple of things you said came through. Would you just mind repeating in terms of from the retail sector, please?

No problem. Yes. So retailing has held in there in terms of the consumer largely because there hasn't been as much promotional activity coming through. So JB Hi-Fi is probably the standout there. It's been performing. It was still quite -- delivered pretty in line result, but with a stronger outlook in the markets coming more comfortable there. AGL, electricity retailing, it's cost-of-living pressures, but that's performed quite strongly and provided a little bit of value. But we have seen some broad weakness across a range of sectors as well, so some slowdown in volume. We're certainly seeing the consumer trade down. The housing cycle has been weak. So Bunnings had pretty flat growth and a poor outlook. So Wesfarmers had weighed on that a little bit. And across the ditch in New Zealand, looks like the economy is turning down a bit more heavily and had some very weak like-for-like comps coming out of Harvey Norman, which weighed on that as well. Generally, costs for companies that have less pricing power have been an issue. So Ramsay Health Care had a pretty weak outlook as government funding isn't really being listed in line with inflation. There's a lot of cost pressures coming through. Companies like ASX with technology replacement cycles also had a lot of costs. A lot of winners and losers, but generally, those themes of 25 companies are a bit conservative. Margins have been very strong in the last 2 years suddenly come under pressure and not really cracks, but just some signs that the consumer might be running out of path a little bit.

Excellent. Thank you. So I really want to ask you for 2 stock tips because, obviously, our shareholders love those. But I'm really hoping you're going to give one around AI because I'm really interested also in your outlook for AI.

Yes. AI is fascinating and it has obviously capture the world's imagination. Pretty much everyone has jumped on ChatGPT by now and been blown away by some of the responses that you get from that generative AI. So an interesting future ahead, whether it's an evolution or revolution, it's always hard to tell. But it will be an incremental driver of productivity and companies will use that as they've used technology consistently to improve outcomes for consumers, improve productivity, efficiency, hopefully hang on to some margin. But it's still pretty early days. So where we stand at the moment, really, is more the hardware rollout side and NVIDIA is very much ground zero there, because it's very much all about training those big language models, rolling them out. We haven't seen, so much, the applications to come. That hardware rollout cycle has obviously driven huge earnings growth for NVIDIA. But you're starting to see that flow through in terms of data centers which has been a strong thematic with the shift to cloud computing, but that's being accelerated by AI as well. There are a few companies that benefit from that in Australia and [ ex DC ] and as well, data centers. But an interesting one, one of our stock tips for today's Goodman Group, which, traditionally, has been more of a property manager in terms of particularly industrial property and developing out there. But it just happens that they've also got that industrial property bank has great access to power, and have outlined a very strong program to roll out data centers and in a model that's quite capital-light and efficient as well. So bringing in the third-party capital partners to give the cost of capital advantage, whereas they get to receive the development profits and benefit from the management of those assets longer term. So that's going to be a very key profit driver for the Goodman Group going on. It's a very sound business model and very consistent stable earnings. It's one that we have very high confidence just going to deliver consistent 10% plus earnings growth for the foreseeable future. And AI is a real driver of a little bit of an acceleration in that going forward. So that's the stuff that we quite like with AIs. Other beneficiaries, companies who will use it for productivity is starting to be a little bit higher around the consumer and AI-enabled laptops and phones which might help JB Hi-Fi and Harvey Norman, but that's a little bit down the track, and will take a little bit of time to get momentum as well.

So one of the things our shareholders are always saying is how can we be exposed to AI in the Australian market, so you've done that for us. That's fabulous. So you always talk also about the global nature of the Australian market. Perhaps you could expand on that a little bit more and give us a really good sort of company to watch in that area?

Yes. I think one of the truly fascinating amazing things about the Australian market despite being down -- at the bottom of the world here, we do have a range of really high-quality companies that had some niches in global markets. They really dominate and have some real innovation and pricing power. And one of our favorites for the last couple of years, and I mentioned it before in terms of having very strong result is WiseTech who have a really dominant global position in software for logistics. So think about freight forwarding. When you buy something from overseas, it gets moved around the world. It's got regulations there. There's a lot of information, data management, and they're expanding from freight forwarding into customs and warehousing and sea freight and land logistics as well there. So we've got a very strong dominant software position with CargoWise, their core product and a continuing volume growth story. And that's accelerating a little bit over the next year or so. They've got a new product for Neo, which does some more granular data and tracking for companies and consumers of packages moving around. And they're packaging that up into a bit of a newer release of CargoWise, which will have a bit of a price uplift and help drive margins. So it's a strong, strong company with great organic growth. They've grown a lot through acquisition of smaller companies, but they've really used that to integrate in, grow their customer base and really get a dominant position in that market. So a lot of pricing power and a genuine leader in the global industry.

Thank you. So let's turn to China because, obviously, their growth outlook has softened, especially as the property model is unwinding. So what is the knock-on effect for Australia? And also perhaps, how exposed are you currently to China as well?

Yes. So China is our #1 trading partner and has big implications for Australia, so -- particularly through steel demand and iron ore, which, as you mentioned, that properly -- there's been a slow sort of contraction but a very deep contraction. It's been offset a little bit by manufacturing infrastructure spend, but that's starting to run out of the path as well. And we've seen the iron ore price come down in response, and that flows through the Australian economy in a few ways. Number one is probably really tax revenues. So royalties for state governments, but also income corporate tax for the federal government. That's very important for government budgets, what they can spend and redistribute. It's important for income in terms of trade and national income and how that flows back through the economy, but also its impact on mining investment. That's got a lot of acceleration in terms of how that flows through job creation and consumption. So that iron ore price is very important for Australian growth, and coming down will place some pressure there on Australia, and it flows through the broader economy. But within the equity market, it's most clearly felt within the Resources segment and the leverage to iron ore prices there. And we're seeing a similar dynamic in lithium, which slower uptake of EVs is also weighing under excess supply. So it's an area we've actually been avoiding in the portfolio. So within resources, we've got a stronger preference for base metals and even a little bit of energy, which benefit from, longer term, electrification trends as well decarbonizes. But it does look like China's steel production actually peaked a couple of years ago and is going to decline, which means it's very hard to get that pricing tension back in iron ore. And that's flowing through a broader consumer malaise in China. So we're also avoiding areas that have China consumption themes like [indiscernible] or treasury ones. So avoiding iron ore-related stocks, Rio, Fortescue Mineral Resources and BHP to an extent and some of those consumer stocks that, yes, it looks like there are some sort of secular trends pushing against them for a while.

So let's turn to interest rates. As they've risen, we're very much seeing that sort of flight to safety and into large caps. So where are the opportunities and the risks in this? And when are you expecting a rotation back into small to mid-cap companies in Australia?

Yes. It's definitely interesting. Australia is a bit out of sync with the rest of the world. So whilst [ Jerome Powell ] checks the whole recently, outline the case for cutting rates in the U.S., you've already seen New Zealand cut rates, U.K. parts of Europe, so we're definitely probably through peak rates into that rate-cutting cycle. But the real question's how fast they come down, how far they come down and when Australia joins the party. So Australia really under tightened deliberately through this inflationary cycle, which means we're going to be later to cut and probably have less room to cut as well. And that means the market has probably got even a little bit excited about the prospects of rate cuts and what it means. But as you pointed out, so far, it's actually just been fitting into broader market indices. And we've seen it actually probably reflected in larger cap stocks and multiple expansion to actually get real interest down to the smaller end of the market, which tend to have a little bit more domestic exposure, a little bit more cyclical exposure. We do need to see the consumer pick up. And that could be quite a delayed process. So we don't see rate cuts in Australia till sometime next year. And unless something goes wrong, it'll probably be quite a shallow rate cutting cycle as well. So it's probably a little bit of time before we actually see cyclical strength come back to the smaller end of the market.

So I've heard you speak before in terms of that massive shift from active to passive management. What is driving that? And what are we seeing as a result of this? And I'm really interested in the risks as well.

Yes. Well, there are 2 things, I think, that are really driving it. One's a bit of a free rider problem if you think about economics. It's great to have an efficient market where companies are priced effectively and information is disseminated quickly and capital is allocated efficiently. That's what markets are there for. And if you avoid paying active management fees. You can just buy an index and you get all that for free. That's a free rider problem and that's a bit of a trend that he'll go why bother paying for active management? I can get all the benefits without paying for it. But you do get to the point where if passive becomes so large, the market starts to lose its efficiency. Capital is not allocated well. And actually, everyone loses out. So there's a bit of a failure of the market there and a failure of policy to address that. And the other issue is the way the government approaches superannuation in our country, which the supported consolidation of larger and larger managers to the point now where we've got the huge super funds that are actually too big to invest actively, so they themselves are investing passively. So there's both a shift to passive and then, even within active managers, there's more passive allocations occurring. And that's starting to distort the market. We've seen it very clearly over the last year where the larger end of the market with bigger index weights in our market, even overseas markets, because liquidity conditions are still pretty easy, the economy has done better than expected, markets have been strong. The passive money has been...

Sean, I'm really sorry. I think it's gone off again. Perhaps you can go back to where the passive money is flowing into the market. I think maybe in terms of shareholders, you could make -- I'm not sure whether or not you're [ online ] at the moment.

No.

Okay. I think we're just swapping Sean because, obviously, he is right in the middle of -- very entrenched there. So Sean, you come in with me here.

Slightly more intimate.

Yes. That's all good. That's all good.

That's why you have separate computers, but obviously, we've got the file on 1 Wilson Asset Management or future gen computer.

I swear I didn't touch it. It wasn't me.

I think we're back on track, so I might ask Sean to go to, basically, you got to the part where there's sort of the passive -- the money coming into passive was actually a lot...

I've seen some great stuff...

You were. It was so good. It was very good.

You were. I thought, geez -- I was quickly writing down. This is bloody good.

I'm going to ask Geoff for a wrap up after this, so let's go back, Sean. If you wouldn't mind just continuing in terms of the passive inflows.

Yes. So we're just talking about passive and the fact that free riders in the market means people can get something for nothing. They can invest passively and that's fine. But once passive becomes a significant part of the market, you actually start to lose efficiency. So you lose that pricing efficiency, what markets are there for allocating capital. Actually, everyone loses out because the economy and growth falls off. The other thing that's probably wrong with the market structure is just the super fund industry is consolidating, getting bigger and bigger. From a back-office administration point of view, it makes sense. But from an investing point of view, they've become too big to actually make a difference with active investing. So they're also investing more passively. So you get this situation where the biggest stocks in the market receive more of the flows coming in when things are going well. And their multiples have been stretched out. And it's a pretty clear example of that in CBA, Commonwealth Bank. It's our largest company now. It's about 10% of the index. That's trading on 25x earnings, which is bizarre and unheard of for a bank. Like, it doesn't have any real earnings growth. We've got a very mature mortgage market. You've got some stability now in net interest margins, and there's not a lot of capital risk, but, there's not a lot of growth to justify that. It's premium to its own history, even to an extent, to other banks. The whole bank sector is very expensive. It doesn't offer a great dividend yield now. Its dividend yields below the cash rate. The valuation is so stretched, it makes sense even for people that have owned it for maybe 20 years or however long it's been listed to sell it and take the capital gains tax. So getting those sort of inefficiencies in the market building up, and that can cause instability so that if we do have a downturn and suddenly, people aren't interested in Australia globally, they might want to allocate back to emerging markets or developed markets globally or into bonds or something else or we hit a recession, some downside, suddenly, the valuations of the market look very exposed and the cost to you of investing passively becomes quite great, because you've got 10% of your portfolio in a bank trading on crazy multiples.

So I'm actually going to interrupt you there because we've got a question from Sean, for you -- sorry, from Harry. Sorry, Harry, and literally continuing. So if you can read it there, what is your view on the Australian regional banks, e.g., Auswide Bank, MyState Bank, please?

I'd get down to Bendigo Bank and Bank of Queensland, but don't really go down beyond there too much, basically, because it's a mature industry if we're talking about mortgage, the mortgage market. It's also a scale industry in terms of processing and capital efficiency and everything else. So as you get down to the smaller end of the market, there are some structural disadvantages there in terms of having cost base being able to compete. So I actually don't know specifically about those banks. But you generally see the market be less interested as you go down the smaller end of the market. And certainly, Bendigo Bank and Bank of Queensland trade on lower multiples that don't have the capital efficiency of the larger banks, and they can be a bit more exposed to economic downturns when they do hit. And I imagine, as you get down smaller, it gets a little worse as well. But I don't know those companies specifically, so they might have some particular hedges I'm not aware of.

So one question we've got here is the cost of living is obviously a huge focus for government and consumers or -- this is very topical. The select committee on cost of living is underway. Do you think anything will come out of it that can impact markets?

I think it's probably a little bit of pre-election positioning in a political sense. We've had quite a big focus on cost of living politically. It is still obviously a major issue for households, but we've sort of been there a little bit with the airline inquiry. We've had some market inquiries. And we've had quite a lot of clinical bet out there. Other areas that are driving cost of living, like, electricity is regulated, so hard to get too much there. Insurance is going up because inflation is going up and loss rates are going up as well. So I think it's hard for them other than political grandstanding to do too much more than they've already done.

Thank you. So you actually also -- you mentioned earlier, in terms of power putting a September rate cut on the table. What are you expecting from the fed in the next 12 months? And what does this mean also for Australia?

Yes. So the fed very likely will start cutting its next meeting in September. They've signaled that quite clearly. And, I mean, every 6 weeks, I imagine, they'll cut by 25 basis points. At, maybe, every meeting, they might skip 1 or 2. Those are the RBA, they're big data dependent. So we've had a good run of inflation coming in lower than expectations. But most of that's been driven, actually, by global goods prices and goods deflation. So China has built a whole heap of excess manufacturing capacity, and it's back to its old trick of exporting disinflation as well, just good helping anchor things. But if that ebbs away, don't forget you have a political cycle there. Tariffs are coming in all around the world. The tariffs are great, but actually inflationary, that push up retail prices. That core services bit, things like housing and rents, even wages and labor costs are actually quite sticky and hanging in there. So absent the recession, we're not expecting big falls in interest rates and probably not enough to really get some of the cyclical sectors firing. Like, house prices have stayed elevated, so even with interest rates coming down and moderating, affordability is still actually quite stretched. There's not that quick relief coming there. All the incentives for people to go out and spec build houses and be able to own and sell them. So we don't see a rate cutting side from a big cyclical upturn coming. It's more of a removal of some of the restrictions, and we'll see how we go.

So the question that we always get is we've got November 5. We have an election in the U.S. I won't ask you who you think is going to win, but are you factoring in different scenarios into your portfolio?

Yes. We're largely seeing on the fence of the bookies, it looks very much 50-50 at this stage so I wouldn't even hazard to guess. I think whatever happens, you got to bear in mind that there's a lot of emotion that goes around political cycles. But as we saw, the last time Trump got in with the presidency, there's a fair bit of volatility to start with, but the world didn't end and things moved along. They've got some, obviously, different political policies that impact markets in different ways, more the U.S. market than the Australian market. I think the biggest one is probably Trump put in some corporate tax rate cuts, which Biden actually extended out, and Kamala Harris is talking about taking them away, so moving that rate from 21%, 22% back up to 28%. That would be a negative for the markets. They're both talking about -- they took hard on China and trade and tariffs. They actually both got tariff policies. But Trump's a little bit more aggressive in terms of tariffs against EVs and other bits and pieces. Once again, inflationary, probably doesn't change the outlook for those things. There's not a lot of Chinese EVs being sold into the U.S. So the actual impact of that is probably a little bit more limited. The responses to geopolitics can be different, but that's another whole mess in itself in terms of what's going on there. That's probably even independent of the U.S. election cycle.

Excellent. Thank you. Sean, thank you so much. Thank you for everything you do for Future Generation as well in terms of waiving your performance fees, annual management fees, which has been substantial over the years, so thank you very much. And now we're going to turn to Mary-Jean. So I'm going to ask DEBRA's general...

I think we've just had a little slight technical glitch on Caroline's computer now. I'm not sure. Can everyone hear me?

Geoff, I can hear you, but I couldn't hear Caroline.

I think we lost Caroline. Anyway, I think she gave you the start of the introduction. Obviously, you're one of the senior team members at DEBRA. And that's one of the Children at Risk charities that FGX supports. Do you just want to -- I think, Caroline's sort of briefed to about giving the shareholders a little bit of an idea of what your work does and how it significantly changes young people's lives.

Yes, absolutely. So some of the shareholders may already know about DEBRA Australia, but for those who don't, we are the national charity in Australia that support those living with epidermolysis bullosa, which is a group of rare genetic disorders that predominantly affect the skin, but can also affect the internal linings, airways, eyes. In more severe cases, it can be fatal as well. So this is -- our focus is to support people living with this and their families and look to -- towards our vision, which is to reduce suffering of people living with this affliction. So we do that through a range of different programs and services across Australia. There is roughly just over 1,000 people living in Australia, statistically speaking, with this disease, EB, we call it for short. It's a bit easier to say. And in the last financial year, for example, we had 5 new babies born with this disease. And life expectancy can be very low for those that have the severe presentation of it. There are 4 main subtypes but -- of the -- of EB, but even within those, it presents differently for different people, which makes management a very specialized service. So part of what we do besides actually offering these hands-on services where we're there for them, in a sense, in the medical world, we also are advocating for awareness and understanding, for the understanding of this disease, because even though -- many, within the medical community, aren't very familiar with it. And there really is specialized treatment for this. So we do support nurses as part of our program. We have in-hospital nurses, and we have in-home nursing program as well. And since having FGX' support, we've also been able to implement a psychology program, because that's another gap we identified within the system. So there's fantastic support now available there. And since its inception in 2019, we've been able to respond to our communities' needs, and the utilization of this program has increased by 40%.

Mary-Jean...

You're back.

I am back. I'm so sorry, everyone, for that. So -- I mean, I think the work that you do is really amazing. But do you want to talk some of the key changes that you've advocated for to improve the lives of young peoples living with EB?

So look, as an organization, there's been many areas in which advocacy has grown and been a focus. But in the last 10 years, more specifically with FGX' support, the implementation of the psychology program was huge. And it started off really small. And as I just mentioned, it has increased significantly since inception. And even over the last year, it's doubled. The need for this has doubled. And we, as an organization, really want to pivot our existing services and develop new ones and programs that meet the needs of our community. So it's been great that, with this support, we've been able to do that. We've been able to advocate for a focus on mental health as well as the physical side. Because everyone understands the physical side often, in the more severe cases, as you'll see, if you visit our website, et cetera, with the imagery we have there, full-body bandaging or part-body bandaging is required, so it's a very -- it can be a very physical disorder where you can see it. It can create scarring; in cases, blindness. So there's the physical side, and we deal with that and have been, and there's -- in the past, there was advocacy towards the government to further support so they did set up a bandaging scheme, so bandaging is more freely available now. But there's the mental health side as well, which, until this program is -- hasn't been addressed as fully. So we're really glad that we've been able to advocate for that support as well as obviously, continuing looking at research into treatments. And then we also advocate connection within our community and against that sense of isolation that can often happen with the social side of living with something that's so physically impairing that really stands out to people that can be difficult for both the individual living with it and those around in their family to see that suffering.

Without a doubt. But one thing you did mention there, which I was actually really interested in is how you'd leverage the funding. Because obviously, we provide you with multiyear untied funding. Untied funding being you spend it on what you really need to do. And obviously, you've leveraged it to get the government in terms of the bandaging program. Are there any other ways that you've actually leveraged it at anything going forward?

Well, yes. I think that it's been very helpful. Obviously -- I mean, it's been vital, really. This is -- untied funding is getting harder and harder, I think, for charities to get that sort of support where there's that trust and gives that flexibility to be able to use the funding where needed. So it's been greatly appreciated and certainly has helped us when talking to other people, other organizations looking for support, to be able to say that a credible -- a fantastic organization like FGX supports us already, and has been for the 10 years now. So that's been fantastic. And it's also freed us up to be able to go for those grants and et cetera, which are more tied and focused and knowing that we have that flexibility with the untied funding to work around that and still to grow our programs and shift as needed to meet our community [ needs ].

And I think it's really important -- I mean, I think, with -- Mary-Jean, I think it's been really important that you've actually got global funding as well. But actually, I got a shareholder question and he -- the question is what is EB? And how would a child get it? As in, is it genetic or is it...

It is generally considered a genetic disorder. But in some cases, it does start spontaneously. So that is another area that we obviously continue to look at the whole genetic side of it. Often, people don't even know that they have it. It can skip a generation, that I know, that it's in their family line. But I guess, there's also a move towards any people that do know them. They have it all -- there's a chance of having it [ within ] reaches to manage that. So that is something else. It's a growing area, I think, and we look to support that. And this often is limited funding for that, but we actually recently...

I think we're having a few technical issues in terms of going in and out, so what I might do is say thank you so much. I think the work that you do is incredibly valuable. And now I might actually go to Geoff, but I really want to thank you so much coming in and it's quite heart rendering when I look at your website and when I've met some of your ambassadors as well. But thank you very much.

Thank you.

So we're getting some questions -- thank you. We're getting some questions now in for Geoff. But one question, Geoff are you there? I just want to make sure you're there when I talk to you.

Yes. I mean, I think my connection has been the highest quality so far, but who knows? Things happen in -- things happen in threes and maybe we've had...

Yes, maybe we've had the 3 through. Yes, we're good. So, I mean, Geoff in terms of Future Generation Australia as an investment vehicle, I mean, please do a wrap in terms of the importance of it as an investment vehicle to our shareholders.

Well, that would actually have to be for the shareholders to decide. I can't tell them if it's important to them or not. From my perspective, Future Generation Australia, which gives you exposure to the best Australian fund managers that we can find, and anyone who listened earlier, listened to Sean Fenton, a lot of experience, highly intelligent. One of Australia's top fund managers. We've selected the best and we've got 18 of them. And like, to me, the interesting because I know in your introduction, you talked about discounted NTA. You look at the performance of these managers and also how the portfolio has been put together by the Investment Committee and a high-quality Investment Committee. You actually get -- you take less risk than the market. And these guys, normally, when you take less risks in the market, you expect to get a proportional less return. And these managers have given you a better return than the market. But also when we've been looking at the best managers in Australia, you tend to find the ones that look for the smaller growth or the medium-sized growth company. And Sean talked about CommBank, how crazily expensive it is at the moment. And we've selected those managers, and they manage -- so they're focused on the more medium-sized growing Australian companies, and all the passive money hasn't been going there. And so, to me, that's an area that really hasn't performed that well, the mid- and smalls. You put that to one side, how the universe would pick in terms of the 18 managers, put them all together, they've outperformed. So they're giving you -- you're taking less risk, you're getting out performance. You're taking exposure to a sector that hasn't performed that well and you're getting outperformance of the All Ordinaries. So to me, go back 5 months, FGX was trading at about an 18% discount. Now it's -- well, at the end of last month, it was at 12%. I just looked it up, assuming the markets -- the portfolio has performed about in line with the market. As of now, it's about 11 and-a-bit percent discount. FGX, it's on its way back to a premium. I mean, it should be at a premium. To me, you're getting exposure to these managers. And the incredible thing is you're actually not paying for it. Some of the money that the managers would get go to support the charities, but also, a reasonable amount of it stays with you, the investors. So -- and then you've got a fully franked yield. And so to me, I'm pretty confident that FGX is heading back to trade at NTA, which a few years ago, it had. It was trading there. And to me, there should be an embedded -- like, to me, some of these managers, you actually can't get exposure to. Their funds are sharp. So that's -- does that sort of answer your question slightly?

It was kind open-ended question. I think the other question we've got is in terms of the discount to NTA is narrowing now. Why do you think that is? Because there's also been a lot of work and with the investment performance, that, as you said, has come down. But why do you think it's now?

First of all, a listed investment company has to do 4 things to trade at NTA, if not a premium. It has to perform and FGX had performed. Also, the marginal buyer tends to be a self-managed super fund or someone who's looking for yield or fully franked yield. So you have to have a clearly articulated dividend strategy, which FGX has. Also, you need to treat shares with respect. And that's, to me -- that's -- every listed company has to do that. And you see some companies that raise money at discounts and do the wrong thing by shareholders. And that's what we do. And the fourth thing is you really have to have a disciplined shareholder engagement communication strategy. And -- because in the end, it's supply/demand. And if all the shareholders understand what they've invested in and are happy, then they're not selling. And you only need a few -- first year economics. Actually, I only did first year economics at uni, but they show you the supply-demand curve. And that's where you need to get it to. And so we're in the process of timing up the share register. If you're a shareholder and you haven't been contacted by the investment team, send them an e-mail. And sorry, the Future Gen team, send them an e-mail and give them a little blast, because we're trying to engage -- well, yes, if you haven't, there are hundreds of people on this call. Please communicate, because it's your company, and you need to understand what you invested in. The -- if you understand what you've invested in, then you'll realize what a great opportunity it is that it's trading at a discount. And you'll realize why it should trade at NTA, if not a premium. And it will trade there, and I'm very confident. And historically, that's what you need to do. So why isn't it trading at a premium now? Unfortunately, these things take time. A number of years ago, we had quite a reasonable-sized capital raising. And of that, a lot of -- there was a lot of flowback in terms of sellers. So we had to work through that. We had a -- there was a CEO before Caroline. There was a period there where the company was sort of had a big break in the CEO side, Kate Thorley, who was then -- you're having some -- you're having a technical problem?

I think -- I just want to make sure that everybody can hear you.

I could hear it clearly, but it was just bouncing back a minute ago when you touched the computer. So I don't know what that's done. That's -- actually, it's good now. I can't hear it now. So to me, yes, we will be -- they will trade back at a premium to NTA. And yes -- and it's, like, it's quite clear that, that's -- we're on that path.

So hopefully, Nigel, that's answered your question. Maybe -- I mean, he said -- the question was, can you please explain why the market seems to price the shares in FGX and WAM Capital or sort of a rather steep discount to NTA? And I think you've explained the catalyst of that.

Well, let me just touch on WAM Cap. WAM Cap was trading about 3.5% premium to NTA, so it's not at a discount, yes. And, like, effectively, supply/demand. And WAM Capital is a totally different kettle of fish, because it's paying out super dividends. It's paying out the equivalent of about 14% pretax as a fully franked dividend. So it's -- when the assets might go up by 10%, it's paying you more, so the capital actually declines but that's not the situation. The FGX -- and this is, Caroline talked about the Board generally increasing the dividend. The dividend on assets is a little over 5%. That's fully franked. Now what does FGX have to earn, that obviously has to earn the pretax amount, which is probably heading above 7.5% pretax or in the 7s to then pay the tax and then pay the fully franked dividends. Obviously, we get some flow through fully franked dividends from our fund managers. But -- so to me, FGX is poised to give you a combination of a sizable fully franked dividend gently growing and capital growth. And it gives you an incredible ab diversity. To me, if you had to pay to get exposure to these fund managers. And if you just paid their normal fees, you're paying nearly -- you'd be paying nearly double the money that goes out to charity. So to me, it's a great structure for shareholders, yes.

The next questions that are coming in, in terms of Future Generation Australia and Future Generation Global, is there a maximum sort of amount that FG would like to manage? Or the size of these funds uncapped due to the LIC structure? Another question from Sam saying, "What is the maximum size we're targeting for funds being managed by FGX?" So maybe you want to explain that obviously, we need to get to a premium?

Yes. Well, the good thing is we, we have never raised capital at a discount to NTA. So the goal will be to get both entities to trade at NTA, if not a premium. My view is they should all have an embedded premium in them. And then the logic of potentially growing these entities, there's an option there. Sorry, I don't mean option as in have an option issue, but yes, that's -- then we can potentially look at that. The plan is to -- it would be to grow them. Obviously, the capacity of the global one is probably higher than the Australian entity. But yes, we -- there's still a number of managers that are very willing to manage money pro bono. The current managers we've got, they see the impact that FGX has on Children at Risk and they have very real impact, and they're sort of emotionally attached to the journey we're on. So to me, they're just phenomenal structures. And we've put Caroline and her team -- we've been lobbying the government to try to improve these structures for the investor. Like, to me, they have incredible structures, but we just think there's a lot of opportunity. Obviously, how we'll do it is it's in shareholders' interest.

Thank you, Geoff. Well, actually, one question we've just had in was whether or not we assist the not-for-profits more with their corporate governance and their process. And yes, we do try to, but realistically, what we want to do is make sure that these vehicles are really good for shareholders, just as Geoff said. I'm actually going to wrap up now. We do have a few other questions, but I will come back to you and speak to you.

Don't wrap up yet, Caroline. We have 5 minutes. I Tweeted and told that everyone will be on till 11:00, so unfortunately, in my world, I came from investment management and stock broking, my word is my bond.

I'm more worried about the link but...

We're not wrapping up.

All right. Okay, we're not wrapping up. That's all good.

So what other questions have we got?

So one other question was would we ever think about doing a buyback?

Well, that's always an option. And, like, from -- as a Board, capital management is always on the -- every Board meeting, capital management is one of the agenda items. Obviously, capital management's not only doing a buyback. It's dividends, it's raising capital, now it's profit reserves. So to me, it's multifactorial. But we've always looked at it. To me, the interesting thing is buybacks for operating companies tends to work. Buybacks for closed-end companies or listed investment companies tend not to work. One of the reasons -- and if I got a group and if you haven't come along -- been to one of our presentations, please we'd encourage you to come along. In Melbourne, in Sydney, so we have 1,000 people in the room. If I said, look, put your hand up, who thinks a buyback is good. And this is -- think of the logic. You're buying $1 of assets, say, for -- well, at the moment, with FGX, you're buying $1 of assets at 11.6% discount. Then you think, well, that makes sense. For every dollar of assets, then the asset but everyone else goes up. So -- but if I ask that question in a room of a listed investment company investors, probably, only about 10% to 20% would put their hand up. Now why is that the case? And so the other 80% to 90% wouldn't. They would say they would prefer not that a buyback didn't occur. And the reason I'd say that is because the first thing they think of, well, if the group, like, the investment manager thinks that he can only make 12%, then I'm investing with these guys to make 20% or 30%. So to me, that's a question mark. And then also, it actually does reduce the size of the company. And sort of, to me, there's a lot of negative connotations in the closed-end space. And we've done all the analysis on the listed investment companies that have done buybacks. And we have done -- for Wilson Asset Management, we bought back 35% of WAM Research, go back about 20-odd years ago. And that took us 7 years to get it to trade at NTA. It's the longest of all our [ leaps ]. And I think one of the reasons why is because we bought back 35% of the company cheaply, and investors don't like that. They want the manager to be growing, to be successful, to finding investment opportunities. For us, as Future Gen, finding new fund managers are going to add value. Investing with the ones that we've already got that -- well -- and we do -- like, the fund managers, they're not there forever. Now if they don't perform, then they're removed. And that's another sort of question. I know we've probably got room for one more question. I sort of...

We have. So Andy has said, which I quite like, he says, "Don't buy back. We need to get bigger to get in the ASX 200." But he's also asked whether or not you have any stock picks for us, Geoff.

I'm not stock-picking Today. To me, I would have had to do a little bit of work. I know I've given stock picks before. And I think my last one did extremely well.

But actually, the question here that we have, another one is why, as obviously, you're on the Board, why didn't the Board lift the dividend higher to help close the discount?

Yes. Well, that's a good question and a really good question. And there was a very vigorous debate at Board level as it usually is on dividends. See if we had -- I mentioned the figures before. Let's say, hypothetically, the portfolio, what has it done? It's done over -- since inception, the portfolio's returned 9.1%, outperforming the awards by about 1.1%, with the volatility, probably 30% less volatility. So you're actually taking a lot less risk and you're getting a better return from the market. Like, that's what you want. Normally, when you take less risk, you're, like, putting your money in the bank, you get less returns. So to me, that's really exceptional performance now, so 9.1%. Let's say we increased the dividend to 10%. Now fully franked, we've got the profit reserve. We haven't got the franking at the moment but let's say we did have the franking and we increased it to 10% fully franked. So then to do that, you've actually got to pay the tax. A little bit of franking will get through. So you've probably got a return about 14% and the 1% that goes charity. So probably about 14.5%, probably 13.5% gross after tax, so 14.5%. So -- but we've only made 9%. So on our -- that's been the performance, even though it's outperformed the market. So then your assets are going to fall. And then what happens is because you can only -- how do you get your returns? It's either -- it's income or capital or it's a combination of the two. So if you push the income too much, then you actually lose capital, because -- in that example I was giving you. Like, so you've got to make 14.5%, but you're only making 9%. So the capital drops by 5% pretax. And that's what's happened with WAM Capital. We've been -- we've held the dividends -- during the GFC, everyone cut their dividends. We probably should have done that. We kept it high. We had the franking. And then everyone says, "Oh, look, I put it in this price and now the assets have come down." But you've actually paid them out to shareholders. So FGX, and the Board -- looked good on the board. I think they came to a really good compromise, where you're getting a really -- like, an exceptional fully franked yield compared to the market. Like, you can't get that with the market. I haven't looked recently, but the market yield is probably around that 3.5%, 4%. It's probably 70%. Last time I looked, it was 77% franked, so you're getting, like, 20% to 25% better fully franked yield. You've got the profit reserve, the franking, so you've got a little bit stored there, so we can keep it going. And so -- and plus, you'll get a bit of capital growth. So to me, it's that combination, because you want to see your share price going up gently. But the beautiful thing is if you buy now, well, in theory, you're getting that free kick of, say, 11.6% discount. Then it goes -- then you'll make 12% or 13% because it increases to NTA on top of the market.

I think that's good. Thank you. We do have a couple more questions on not-for-profits, but I will take those, but also at which time, and I want to apologize as well for any of that technological...

Any more investment questions, Caroline or...

None. I think we've -- I mean, a lot of them are about the discount, buying back. They're all roughly the same. If we get anything else, I will call them.

And remember, like guys, this is your company. So please, any suggestions, any ideas, any questions, please contact us. Contact Future Gen team. Thank you.

Thank you, Geoff. Thank you, Sean. Thank you, Mary-Jean. And please do fill in the survey because we'd like to know if you'd like to continue with this format. And any feedback, any questions, as Geoff said, please do e-mail them in and we'll call you back. And hopefully, we will see you at our regional shareholder presentations in October or no doubt in Sydney and Melbourne or Perth. So thank you very much for listening. Thank you.