Future Generation Global Limited (FGG) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the Future Generation Global Investment Company Limited AGM. And it's great to see somebody in the room this year as opposed to last year when we were all virtual. We still are going to hold this meeting in a hybrid format because of the ongoing corona situation and people being unable to join us. So we will have a number of our shareholders and others and our directors online today. So I'm Belinda Hutchinson. I'm the Chairman of the Board of Future Generation Global, and I'm delighted to be here chairing this meeting today. Sadly, this is going to be my last meeting as Chairman, as I'm going to be retiring, very sadly, after just an amazingly rewarding 6 years with this company. And I'll talk more about that later. So before I begin, I would like to acknowledge the Gadigal people of the Eora nation, on whose lands we meet today. They have been here for tens of thousands of years, and we pay our respects to their elders past, present and emerging. I'd like to introduce my fellow directors who -- we have some on stage, and we have some online. Geoff Wilson and Sarah Morgan are online today and will be with us and will be available for questions if necessary. But we do have with us in the room Kiera Grant and -- who's the Chair of our Investment Committee; Geoff Wilson, who is the Chair of our Audit and Risk Committee; and Frank Casarotti. And we're still waiting for Jono Nicholas, who is our other non-executive director. I've just sent him an SMS to see if he's going to be joining us. Hopefully, he will. And then last but not the least at all, Kate Thorley, who is our newest director, who has been our acting CEO, and we've been very grateful for Kate's work with us over the past few months. So I think that's it in terms of introductions, except one very important new one, and that's Caroline Gurney, who we announced yesterday as our new CEO, and she'll be joining us in September as our new CEO. Kate has very kindly agreed to stay with us. And Caroline, maybe I can get you to stand up and everyone can see who you are. As I said, we're all very excited about Caroline joining us. Caroline is already part of the Future Generation family. She's been a director of Future Generation Investments for a number of years, and so she understands and really is committed and passionate about the things that we do at Future Generation. And I think she will be wonderful. She's had an extraordinary career in financial services over 25 years. And as I said, she'll be joining us in September. So that's great news. So we're going to do the very best we can with the technology today, and so bear with us as we deal with that. But I would just like to let you know that with the webcast, you need to import your user name and your password, and then you'll have the opportunity to submit questions, and we'll deal with those as we go through the meeting. So we've already had some questions that have been submitted and, as I said, we'll deal with those as well. And I'm just -- I'm not going to go through the full details of the script because I know everybody is wanting to move through this as quickly as possible. And I've got to try and catch up with Jonathan Trollip, who is the Chair of Future Generation Investments, who did the most remarkable job at his AGM just previously. So I'm going to try and keep up with him and not keep you too long, so then we can have a cup of tea and have a chat afterwards. And the directors and I will be very happy, as will the Wilson Asset Management team, to take any questions that you might have as shareholders. So I might move now directly to my Chairman's address. And just in terms of this last 12 months, it has been a really challenging time, we know, for everybody given the pandemic. But it's been fantastic since our last AGM to see the turnaround economically with the stimulus packages, with the employment opportunities that have come out of that. With the governments being able to manage through the health problems, particularly in Australia, so well and now with the vaccinations available, we can really see some green shoots starting to come through. And I think we're all very grateful that the vaccine development has taken off so quickly. I mean it's quite remarkable that we have been able to develop vaccines in such a short period of time. That just never was done before. So we're very, very grateful for that. But as you would also well understand, the impact of the lockdowns and the impact on -- of people being in quarantine, the impact of people having to socially distance has been really, really hard on the community and particularly young people. And as you know, Future Generation Global is all about helping young people with mental health problems. And our charities, we have 10 charities that we support. We do an amazing job, and they have really, really done an -- even more amazing job in the past 12 months. So we are really working very hard with them as they increase their efforts to help those young people who were struggling with mental health issues as a result of the pandemic. And we'll be working -- continuing to work with them as we go through the next 12 months because the demand on their services have increased exponentially in terms of young people showing suicidal tendencies, young people being stressed, showing anxiety and just really not coping very well. But as I said, our charities have been amazing in terms of their online services, in terms of being able to develop new apps, and I'll talk a bit more about that because I think it really demonstrates that this company not only is focused on the investment returns, which are obviously very important to our shareholders, and that's our #1 priority, but our other key priority is helping young people at risk. So just in terms of the financial performance, I'd like to move to that now. And actually, we had a really good year. So this year, we had -- our portfolio, as you know, is a diversified portfolio of global equities. We have 14 fund managers who do a wonderful job in providing pro bono services for us. And as a result of us not being charged fees, we were able to give our 1% of net tangible assets to our charities. But those fund managers did extremely well in the last 12 months. So our investment portfolio increased by 14.3%, outperforming the MSCI AC World index in Australian dollars by 8.2%, while we maintained a cash level -- an average cash level of 10.7%, given the concerns we had going into the pandemic. And since inception we have had to December 2020 -- so we started in 2015. And so through to 2020, December 2020, the investment portfolio increased 11% per annum with less volatility as measured by standard deviation versus a 9.1% return from the MSCI AC World Index in Australian dollars. So we're very happy with that performance, and it's been -- and I think it demonstrates the value of what we do in terms of managing that portfolio. So the portfolio, I think, demonstrates the strength of the diversification focus we have and of the performance of the underlying fund managers and the defensive qualities of that portfolio. So during a volatile period of equity markets, obviously, last year was very volatile for a while during the pandemic, we were able to ride through that better than the MSCI World Index was. The company's operating profit before tax for the year ended December 2020 was $27.5 million as compared to $13.1 million in 2019, was 109.7% increase. And then in terms of the operating profit after tax, it was $19.8 million as compared to $8.5 million in 2019, which was 131% increase. And that increase in operating profit on the corresponding period is primarily due to the increased distribution from our fund managers, which really resulted from, actually, the increased volatility in their portfolios and then looking to make changes. So in calendar 2020, as I mentioned, the increased volatility led to a higher turnover in those investment portfolios and that resulted in increased realized gains, which was subsequently distributed to our -- to the company. And the total comprehensive income for the year was $53.8 million as compared to 2019, which was $66 million and reflects a solid portfolio performance that I mentioned before and the capital growth achieved on our investments. And the total comprehensive income will be -- will obviously be reported this year. And -- but the value of the portfolio increased by $82.6 million, which relates to that 14.3% return on the portfolio I mentioned earlier. So last year, we actually announced an increased, fully franked dividend. We paid a dividend of $0.02, which was a 33% increase on the prior year. And we have an estimated profit reserve of $0.067 per share that was at the end of December 2020, representing 3.4 years of dividend coverage. And we take the view that it's important to have that dividend coverage going forward. So the Board will consider the next dividend after June this year once we receive the distributions and -- from our fund managers, and we'll be able to make a decision on that in August and let you know about that. Future Generation -- I should point out, Future Generation Global is really much more focused on capital growth than, say, Future Generation Investments, which is Australian equities fund because of the fully franked dividends that they receive from their fund managers. We receive much lower dividends from global equity fund managers than you would receive from a domestic equities fund manager. But it's still good to see that we were able to increase our dividend last year. So the portfolio, as I mentioned, is diversified, and I thought I'd just go through that. We have an allocation to long equities of 72%. And we provide -- which provided a weighted average return of 23%, outperforming the MSCI index by 17%. And this outperformance offset the investment portfolio's exposures to absolute bias strategies, which had -- and the cash and cash equivalents of 19%. So the absolute return focus had a 19% return and the cash and equivalents had a 9% -- 8.8% return. So I think we're in good shape. We produced a very good result last year, and we are very, very grateful to our fund managers for the work that they do for us, and we liaise with them regularly. I'm very pleased that Kiera last year -- Kiera Grant took over as the Chair of the Investment Committee. And we've got a wonderful group of people who are fund managers and those involved in the fund management business who act on a pro bono basis with us and review the portfolio's performance regularly. And we'll look to redeem underperforming fund managers and look to increase allocations to those fund managers who are doing well. And also, we're constantly looking for new fund managers who will be able to help us increase the portfolio's performance. So I'm really pleased, and I think the shareholders should be very pleased with the way that the investment committee works and supports the company in terms of its performance. Although I will say in the first few months of 2021, we did have a small underperformance for the 5 months to the end of May. We had a 5.6% return. This actually was an underperformance against the MSCI AC World Index, which was at 10.2%. But that was due to short-term volatility in one of our fund managers who does tend to have volatility but in the end has had a very, very strong long-term performance and has really helped our performance overall since inception. So we expect that going forward, that volatility will, hopefully, go the other way. The other thing I wanted to talk about briefly was the social impact update and what we've been doing over the last year. So last year, we gave away $5.7 million to our charities. And those charities, as I mentioned, are focused on mental health for young people. And it's been really important work that they've been doing. And I'd just like to talk a bit about that because some of the stuff, I think, is really, really impressive. So one of our charities has been focusing, as I mentioned earlier, on suicide, and they've developed an app for young people to be able to use who have had suicidal tendencies, who have been admitted to emergency. So when they leave emergency, they have this app, which enables them to engage with their health care workers to be able to make sure that they're okay, and they're able to recover and recover fully. Because the biggest issue for young people who do attend emergency for suicidal tendencies is that they go out into the community, and they don't get the ongoing support, and then they do something, which is very, very sad for them and their families. So we think that's a wonderful new tool that's available to the community. The other thing that we really like and we're talking about a lot is the new social networking group counseling platform that one of our charities has developed for young people. And again, a fantastic platform for young people to be able to share their experiences. So we had a mental health funders roundtable and a conference, which was earlier in the year, and that was one of the key things that one of our young people, who had been helped by Future Generation Global, talked about how important it was to have peer support when you're going through mental health problems. And we think this social networking online platform is a great way to do that. But so many of our charities are doing really innovative work and really making a difference. And we -- the one thing that's been great this year is we've had Emily Fuller join us as our Social Impact Manager, and Emily is going to be doing ongoing work on our strategy around mental health. And she did a detailed review of our charities' performance, and I must say it came up really well. So having someone like that on board, I think, will be very helpful to Kate, and then obviously, Caroline in the future. But all in all, I think, as shareholders, you should be incredibly proud of what you've been able to do because we've donated over $26 million since inception to mental health charities. So a really, really great performance. And the one other thing that I wanted to talk about very briefly was that there's been a lot of talk about mental health, and the Productivity Commission came up with a very significant range of recommendations as did the Victoria government's Royal Commission into mental health. And I think that does actually provide a significant road map for us as a supporter of charities to look where we can really help. And one area that Emily is looking at is at the prevention and early intervention stage because, as you know, the federal government and the state governments look to provide the support for people who have extreme issues and need to be hospitalized. But we think we can really play an important role and, I think, the examples I gave you demonstrate the important role that we can play in prevention and early intervention. So it's great to see that the federal government has actually just allocated another $2.3 billion to invest in mental health. And what I'd really recommend you do is have a look at our website, futuregeninvest.com.au, because we've got a lot of stories from our charities and what we're doing, what they're doing, how they're making an impact. And also, it will give you a really good opportunity to get an update on our fund managers because we're focusing very much on what are our fund managers doing, what you can learn from that and where they're going in direction. And you might have seen that in our new weekly updates to shareholders, we're focusing very much on fund manager performance. And we hope that you're enjoying that and finding that of use. So in closing, I'd just like to say on behalf of the Board, we are very grateful to you as our shareholders, we are very grateful to our fund managers, and I need to say, we are extraordinarily grateful to Wilson Asset Management and our other external supporters for what they do to make Future Gen happen. So Future Generation without Wilson Asset Management would not be here. Geoff, as our founder, has done a terrific job, but it's all of the team at Wilson Asset Management that does an amazing job in terms of the finance, the communications, in terms of the regular reporting, everything that goes on at this company goes on because of Wilson Asset Management. And we've just announced a new management services agreement with the company, which will provide for ongoing support and, as I said, I am very grateful, and they do a terrific job. And Kate stepped in and stepped up and helped us with succession planning and the appointment of Caroline. So I think that's just wonderful. And I do want to say thank you to the Board because the Board puts in an incredible amount of time on a pro bono basis. They go above and beyond, too, in helping the company to deal with what it has to do, and we have to go through all of the things that a normal company does but a very, very focused with you on the investment performance of this company, looking for new fund managers, talking and working with our existing fund managers and having people on the Board that we do have with the skills and experience is incredibly valuable for this company. I must say, I'm very sad to be leaving Future Gen, but I think 6 years is a good run, and we've established a wonderful company that, I think, will live on for a very long time. I will remain a shareholder. I am still very, very passionate and committed to the model, and I will still be giving whatever advice I can to Caroline and the team, and I look forward to sort of coming to an AGM next year and seeing how well we've done. I know we'll continue to do extremely well. It's been a real privilege and a real pleasure to be here as the chair for the last 6 years and get this thing up and running. And now, as I said, it's in a really good position. So I think that's it for me in terms of my address. I'm going to now go back to the formal part of the meeting. And we are going to move now to the financial statements and reports, and I wanted to welcome Sylvia Wallace, who is our audit partner from Pitcher Partners, who is here today to answer any questions you may have on the financial statements, and we are very grateful for Pitcher Partners' support of -- and advice on our accounts and on the accounting standards and other financial matters. So in terms -- we will allow shareholders to vote online, and we'll also take the votes at the end of the meeting, but we do have proxies in. And so I'll move straight through to the financial statements. So I've already -- we've gone through the results. Do we need to go to the financial statements first? We've done them? Okay. So we need to receive and consider the financial statements. And I wanted to ask if anyone have any questions on the financial statements. If not, we might move on. And we might move on to Resolution 1, which relates to the remuneration report. As you know, the only person who is actually remunerated is the CEO and their assistant. And of course, we've just employed Emily. So the rest of us do work on a pro bono basis. So the remuneration is kept very, very low in the interest of our shareholders. So I'd like to put forward the resolution that the company adopt the remuneration report as set out in the directors' report for the year ended 31 December 2020. Are there any questions on the remuneration report? No. I think we have the proxies, don't we? We have the proxies? Yes. I think we've got a pretty resounding vote in favor of the remuneration report. I never understand at FGG why we would have anyone vote against because we pay so little. But there's always -- I think there's always one shareholder who seems to vote. So -- and I will be voting my nominated chair votes in favor of the remuneration report as I've been allowed to do. Okay. Looks like that's been passed. Thank you very much. Let's move on to the next resolution, which is the re-election of Kiera Grant. So Kiera has been on the Board for -- how many years now, Kiera? 4 years, isn't it? I think it's almost 4 years. And because Kiera has a fantastic background in financial services, she worked in investment banking for UBS as an equity analyst, so has wonderful set of skills and experience and very applicable to her role as Chair of the Investment Committee, and she's a very actively engaged director of our Board, and we're very grateful for her support. She and her family of foundation also have a strong interest in mental health. So she has very good experience and is able, therefore, to apply that on our social impact side. So we would like to recommend that Kiera, who retires by rotation and is eligible for re-election, is re-elected as a director. And I might just pass to you, Kiera, just to say a couple of words.

Sure. Thanks, Belinda. Look, from my perspective, from a career perspective, I am a full-time nonexecutive director. I sit on a range of for-profit and not-for-profit boards, both in the public and private space. My executive career, as Belinda mentioned, was principally for 20-odd years in equity capital markets and about the last 13, 14 years of those were spent at UBS. I actually worked quite closely with Caroline Gurney, our new Managing Director. So we are a formidable force. And we continue -- we'll continue to be. I am on a number of investment committees, about 3 or 4 in total, and I, obviously, am chairing this one for you. And it's been a great privilege to step up and do this. It's given me more ability to, hopefully, add some more value. And I am very fortunate with the Investment Committee selection of individuals we have. They're absolutely first class. And they continue to add value in many different ways, both in terms of -- from a professional perspective and also personal. So I would just like to put myself up and so it's been an absolute privilege to serve on this Board, and I hope to continue to do so. Thank you.

Do we have any questions for Kiera or for me? If not, let's show the proxies. And of course, I should have mentioned earlier with the rem report -- I did mention at the very beginning our online shareholders, please vote, and we will take those, obviously, into consideration. But the proxies are very clearly in favor, Kiera, and we're delighted that you will be re-elected as a director, and I'm sure you'll continue to do the great work that you do. So let's move to the next resolution, which is Frank Casarotti. Frank Casarotti has been on the Board since inception and has been a wonderful supporter. Frank is a Director of Magellan and heads up the distribution side. He provides extraordinarily great advice to us around the distribution regarding how do we build our shareholder base, what are the key issues that shareholders are interested in because he gets that all the time from Magellan. And the support that we get from Magellan as a fund manager is unsurpassed. It's been really, really extraordinary that the -- work that they've done for us and supporting us over the years. So Frank, even though he's -- he had to have a bit of time off this year because he broke his ankle. He was still always online and still always on Zoom. It never stopped him doing our meetings. And for that, we're very grateful. And I would ask Frank just to say a couple of words. Thanks.

Well, first up, I might add that jet skiing can be dangerous. I know that firsthand. But it was actually the founder, Geoff Wilson, who invited me on to the Board. And he also spoke with Hamish Douglass, Magellan's Co-founder, and asked whether Magellan would like to participate in this capital-raising initiative. And I think Hamish took about 3 seconds to say yes. And we're just delighted to be part of it. And the personal experience for me to be associated with such an amazing business that has this dual purpose around creating shareholder wealth but, at the same time, the philanthropic initiatives and the engagement with the charities that are benefiting makes me feel good, to be honest. And I love it, and I love dealing with my fellow directors because I can't imagine being on a Board where you're just surrounded by infighting or people just not pulling in the same direction. To be blunt, I don't want to be part of that, whereas this company genuinely cares about its activities, and I hope to be part of it for a little bit longer. So I hope you'll re-engage me as a director. Thank you.

Thank you, Frank. And we might now put up the proxies we've received, the votes. Here we are, the proxy voting. And as expected, Frank has done very well, and we're very excited that he agreed to stay on. And please, online shareholders, please do cast your votes as well. And we'll, obviously, be collecting the votes from shareholders in the room at the end of the meeting. So Frank, we're looking forward to having you with us. And now I'd like to move to Resolution 4 and the election of Kate Thorley as a director. As I mentioned, Kate very generously stepped in as CEO and has done a terrific job over the last few months and has done the most extraordinary thorough job in the search for a new CEO and has come up trumps with Caroline. So she's been working really, really hard, and I think she's going to be very grateful when Caroline comes on board. But Kate has an amazing experience and so relevant for us because she is the Chief Executive Officer of Wilson Asset Management. She is on all of their listed investment company boards, and I'm not going to list them all off because there's so many of them, but that experience is fantastic for this company. And she's very much a passionate supporter of what we're trying to do in terms of mental health. So it's been a real pleasure working with her over the last few months, and I know she'll be a tremendous director. And she was our company secretary before, so it's just really a very smooth transition. So Kate, I might just hand over you to say a few words.

Thank you, Belinda. Yes, most of you heard me speak before, but I might say I am incredibly passionate about this model. As I mentioned before, I was involved with Geoff when we set up Future Gen Australia or FGX and, obviously, then continued to work really closely with Louise as CEO of Future Gen and all the Wilson Asset Management team that work so tirelessly for Future Gen. We all love it, and they're all very, very passionate about the dual purpose. As Frank very -- put it very well that we love delivering investment returns for our shareholders and engaging with our shareholders. It's a huge part of what we do at Wilson Asset Management. And equally, the impact that we can make to young Australian lives is -- yes, I feel very proud and very privileged to now serve as -- if you'll have me, serve as a director. I've loved being on the search for a new CEO and very, very excited to be handing over the reins to Caroline in September and ensuring that her transition into this new role is a huge success, which I'm sure it will be. So thank you very much.

Thank you, Kate. Are there any questions for Kate? No. I would just like to say that Kate mentioned Louise Walsh. Louise Walsh did a fantastic job over 6 years, and I should have mentioned her in my address, and we were very sad to see her go. But I've got to say the transition was just fabulously smooth from Louise to Kate. And I think it says an awful lot about both of those 2 individuals and how professional and how committed they are to this company that we just had such a wonderfully smooth transition. So let's put up the proxies. And I think you can see resounding support there, Kate, which is great, and we'll obviously let our shareholders vote online, and we'll collect the votes from our other shareholders in just a minute. And now we've actually romped through this really quickly. We've gone through all the 4 resolutions. And we will be -- the share registry will be conducting the poll by the online votes, and we will be then updating you online, I think, in the next little while, so you'll get the final votes tallied and sent out to you. So I just might open up the meeting for any further questions.

Are there any questions that shareholders would like to ask in general session. [ Amy ] has got one, I think, or Jesse has got one. Yes. Unfortunately, Jesse Hamilton, who's our Company Secretary and Chief Financial Officer, who does an amazing job for us, has come down with pneumonia, and we wish him a very speedy recovery. He is online listening, but we thought we'd get Amy to step in so he didn't have to talk so he can save his breath. So over to you, Amy. Thanks.

So one question online. Does Future Generation Global have an optimum number of fund managers contributing to the investments?

That's a really interesting question. We don't really look at it that way, but we do look at it in terms of the long equities, absolute strategies, mix and blend, and it's really about those shareholders -- those fund managers that, we think, can deliver to our shareholders in terms of investment performance. So we don't actually have a limit, but I think we all believe, and I think, speaking on behalf of the Investment Committee, we actually think we've got a very good mix of fund managers at the moment, and the performance is strong. We're always looking for new fund managers who we think will provide strong investment performance for our shareholders. But at the moment, I think we feel we're in a pretty good position, but there is no limit. 14 is kind of a nice number. It's easy for the Investment Committee to manage because we do, do due diligence on our fund managers every year. So the Investment Committee members will meet with those fund managers, see how their performance is going and report back to the Investment Committee and the Board. So I think it works quite well at the moment, but we're not fixed. We're quite flexible on that. Okay. So I think what else have I got to do in terms of my checklist? Finally, I wanted to say that I'm very grateful that our founder, Geoff Wilson, has agreed to become the acting Chairman following my retirement today. And we are in discussions with the chair candidate, and Geoff is going to continue that, and I'm going to help him with that. And I think that chair candidate will be really, really great for this company. So I think Geoff wanted to say just a couple of words.

Yes. No, thank you. Sorry, I'm virtual these days. Look, firstly, Belinda, I can't thank you enough for all your leadership and tireless work at Future Generation. As we all know, you've been an inspiration to everyone involved. You're instrumental to the formation of Future Gen, its success and its growth. And your tireless work has made a significant difference to thousands of people's lives. I mean, Belinda, you have made a significant difference. With your passion to support people in their mental health, you have saved people's lives. You've always gone above and beyond. You are the Founding Chair of Future Generation Global, and you will always be the Founding Chair of Future Generation Global. On behalf of all the shareholders, on behalf of the Board, on behalf of the charities, the fund managers and everyone involved, we just can't thank you enough. Thank you, Belinda, for all your wise counsel and all your hard work. Yes, we will all miss you, as I said. Thank you.

As I said, it's actually a bit emotional leaving because I really do feel very passionate about this company. And I think all of us experienced the impact of mental health, either through our families, our friends, we hear about it in the community, and it's so important that we deal with it. And that's why, I think, this company has such a great role to play. But at the same time, we are really committed to an investment return for our shareholders, and that's why I really love about the model that we've set up. And it's been such a team effort working with Wilson Asset Management with all our other service providers who also provide service to us on a pro bono basis to working with a fabulous Board. As Frank has said, we actually get on so well together. It's a really positive experience, and we're all totally committed to actually delivering to you, our shareholders, and making sure that this company continues to go well and continues to grow. And we do have huge goals. And Caroline has got a huge, huge goal ahead of her with the Board to continue to -- and Wilson Asset Management to continue to build what we do. And as I said, I'll be looking forward to keeping an eye on everything and coming back and joining you. But as I said, it's been a true privilege and a true pleasure, and I'm very, very proud of the work that we've done. So thank you all for joining us, and I look forward to having a cup of tea or a cup of coffee with you outside. Thank you very much.