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

Good afternoon and welcome to the eighth Future Generation Investment Company Limited Annual General Meeting. This is a hybrid meeting, will be held both online and in-person here at The Fullerton Hotel, Sydney. I'd like to initially acknowledge the Gadigal people of the Eora Nation and pay my respects to elders past and present. I also acknowledge the custodians of the land and waters on which our shareholders and fellow directors currently stand to view and listen to today's AGM. [Foreign Language]. That's welcome to all our shareholders. Thank you for joining us and for your continued support of Future Generation Global. My name is Geoff Wilson. I'll be acting -- I'm acting Chair of the Board of Directors. And joining me here today is my fellow directors: Kiera Grant, Kate Thorley, Frank Casarotti, Geoffrey R. Wilson and -- that's right. And also Jonathan Nicholas will be joining us. The -- and Sarah Morgan, another one of our directors, is joining us virtually. You'll see Sarah a little later. I'm also delighted to be joined by our CEO of Future Generation, Carolyn Gurney. We also -- and also on the stage is Jesse Hamilton, who is our joint Company's Secretary -- acting joint Company Secretary. Also we're joined by Sandra McIntosh from Acclime Australia. Thank you, Sandra [indiscernible]. And also Sylvia Wallace, a representative from our auditor, Pitcher Partners, is in the front here and she'll be available to address any questions related to the company's financial statement. As it is just after 1:30 and a quorum is present, I declare the meeting open. The notice of meeting has been circulated to shareholders. And in the absence of any objections, I will be proceeding on the basis that the notice has been taken as read. I encourage you to read the Chairman's address, which has been announced to the ASX. Shareholders who have logged into the webinar with their user name and password will have the opportunity to submit questions online and ask audio questions as well as vote on resolutions. If you are joining us online, questions can be submitted at any time. [Operator Instructions] If you have any issues using this system, please return to the Lumi platform. Voting today will be conducted by way of a poll on all items of business. In order to provide you with ample time to vote, I'll shortly open all voting on all resolutions. If you have already submitted a proxy form or voted online prior to this meeting, you are not required to vote again [Audio Gap] online. Once you click on this, a list of resolutions will appear on the screen with voting options. Simply select one of the options to cast your vote. If you change your mind, select another option. You can change your vote as many times you wish until the close of the poll. Your vote will have been submitted when the voting option icon changes color. There is no Submit button. For those joining us in person, everyone who's here this -- today, you can complete your vote on the poll card you received when registering with Boardroom. The poll card must be signed and will be collected at the end of the AGM by the returning officer from Boardroom. I now declare -- this is for the online people. I'm now declare voting open on all items of business. The votes cast during the meeting will be combined with the votes submitted before the meeting. And please note that only shareholders, proxy holders or shareholder representatives may vote. If you have logged into the webcast as a guest, you'll be able to view our webcast but not submit questions or votes. Just looking at the Chairman's address that we've lodged, 2022 proved to be a challenging year for global equity markets due to the impact of higher interest rates or rising interest rates, inflation and significant geopolitical uncertainty. Over that period, the U.S. S&P 500 declined 19.4% in U.S. dollar terms. And even with that, we're in a very fortunate position due to Future Generation having quite a -- Global -- quite a good profit reserve to be able to increase the dividend paid nearly -- well, 16.7% over that period. Looking at the 2022 highlights. Obviously, the dividend being -- it was paid, and that amounted to a fully franked dividend of about 6%, it was very pleasing. We're also incredibly grateful over that period the pro bono fund managers. Remember that your money is invested with who the investment committee believe are the smartest global fund managers. The pro bono fund managers didn't take their normal fees, and that amounted to about $8.3 million or around 1.6% of the net assets being left in the company. That obviously is 60-odd percent higher than the 1% that's given out -- that's invested in the -- with -- in the not-for-profits or the charities. And over the period -- well, you'd be aware that in November 2022, Future Generation Global delivered its seventh annual investment in the social impact partners and not-for-profit organizations of $6.4 million. In terms of the -- just looking at where we are now, the 31st of March numbers, the NTA is trading at $1.42. The share price is trading at a discount to NTA. We believe that is -- well, as an investor, that creates an opportunity. And the dividend is still -- well, the dividend cover is strong and the expectations for a continuation of the dividend of this nature, it's fair to assume that will occur. In terms of the formal part of the meeting -- or actually, before I go to the formal part of the meeting, over the 12-month period, it was a tough 12-month period for the investment portfolio. The investment committee who have some really high-quality people on it and chaired by Kiera really did spend a lot of time in the changed environment, working out how and to what extent various managers should be added or subtracted. A number of managers were added and very pleased to say that from an investor's perspective, over the last -- the 6 months to December, those changes are bearing fruit and the portfolio managers -- even though there was a level of cash held over that period, the portfolio outperformed the market over that period. The -- now I'll move to the formal part of the meeting. There are 5 items of business for the AGM today as set out on the notice of meeting, and 4 of those items are to be voted on. The notice of meeting, an extraordinary -- sorry, an explanatory memorandum was circulated to shareholders. And in the absence of any objections, I'll proceed on the basis that these items are taken as read. Do we have any objections? No. Thank you. As mentioned earlier, we'll conduct a poll. Since the poll has already opened, if you would like to vote now online, please do. The -- I've also mentioned about if you change your mind, you still can until the poll is closed. If we -- 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 resolution. We'll advise the ASX as soon as the results are determined, which should be later today. You may submit any questions or comments you have on the financial report now. The first item of business is to receive and consider the financial statements, the Directors' report and the Auditors' reports for the company for the year ended 31st of December 2022. I've also -- I've already mentioned that Syliva is with us, if there are any questions. And as I mentioned earlier, there's no resolution on this matter. Are there any questions on the Directors' report and the Auditors' report for the company? Now I know, Jesse, you're our online-mediator. Do we have any questions online? No. Thank you. Resolution 1 relates to the adoption of the remuneration report. Obviously, you may submit any questions or comments you have on resolution 1 now online. The company has received proxies amounting to 32,561,246 in favor of this resolution. 300 -- well, actually, are the numbers up there? That is the resolution, yes. So there are the numbers: 356,390, against; 3,396,022, open, of which 2,770,486 have been granted to the Chair. And for those, I'll be voting in favor of this resolution. One thing I find interesting about this resolution is the Directors doing all this pro bono, and the investment committee is doing on this pro bono as well. So maybe those people voting against wanted us to get paid. We won't assume that. Now the -- Jesse, first of all, is online. Are there any questions? No. In the room, are there any questions? No. So 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 online or in-person, could you please complete your voting for resolution 1. Resolution 2 relates to the reelection of Sarah Morgan. And Sarah is online. And Sarah would like to make some short comment -- a short speech on her reelection as a Director. So Sarah, technology. Good to see you.

Am I here, Geoff?

Yes, you're here. Perfect.

Thank you. Hello, everyone. I'm very sorry. I can't be with you in person today. I'm honored to stand before you as a candidate for reelection to the Board of Future Generation Global. I have been on the Board since FGG was listed, and I'm very proud of what has been achieved over that time. As outlined in the notice of meeting, my background is in corporate finance. But for the last almost 10 years, I've been a professional Non-Executive Director. I now have a portfolio of ASX private, not-for-profit Board roles. A number of those I chair, the Audit and Risk Committee, which I hope enables me to assist Geoff R. Wilson, who chairs the FGG act so well for us. In terms of FGG's purpose, as I have said before, I've had many close family and friends touched by the impacts of poor mental health. In addition, I'm a mother to 3 teenage children, so youth mental health is never far from my thoughts. In conclusion, I want to thank you for all your support over the last year. It's been an honor to serve you as a Non-Executive Director, and I remain committed to fulfilling Future Gen Global's objectives in the future. Thanks, Geoff.

Look, thank you very much, Sarah. And as Sarah said, she's got a wealth of experience in the corporate finance area and adds significant value to the Board. Do we have any questions submitted online? Any questions in the room? In terms of the proxies -- yes there, we've got -- right now as company's secretary -- do I need to read out the proxies?

No.

There are the proxies. You can clearly see them just as -- I know everyone likes me reading them out. But if you have any questions about the proxies, the -- I'll be voting any one -- any shares that have been granted to the Chair, I'll be voting in favor of this resolution. So as there are no questions, I'll now -- where am I. I put -- I now put the motion that Ms. Sarah Morgan be reelected as set out in the notice of meeting. If shareholders could please now online vote or in the room, please vote on your card. The -- so we look forward to you being successfully returned to the Board. Thank you very much, Sarah. Resolution 3 relates to the reelection of myself as a Director. And as such, I shall call on Katherine Ann Thorley to handle this resolution. Thank you.

Thank you [ to ] Geoffrey James Wilson. Would you like to say a short speech about your reelection as a Director and our wonderful founder?

Thank you. Look thank you -- thank you, Kate, for giving me the opportunity. Yes, I think like the whole Board, and as Sarah mentioned, very excited about the work that Future Generation, a, is doing and, b, can do. I would look forward to continue to work as a Director with my fellow directors in terms of achieving the dual goal of having a portfolio of first-class global managers, managing the money on our behalf and instead of charging us those fees, using that money to support youth mental health in Australia. So that's -- I'm very happy to take any questions.

Thank you. So you may now submit any questions or comments that you have on resolution 3. The proxies are now showing on screen, so I don't have to read those out. And those that are showing there is open, of which 3,794,153 have been granted to the Chair. And for these, I will be voting in favor of the resolution. We'll now just pause to allow questions that have either been submitted online. Anything, Jesse? Nothing? All right. Thank you. And any questions from the floor? No, nothing. And as there are no further questions or comments, I put the motion that Geoffrey James Wilson be reelected as set out in the notice of meeting. If you're a shareholder or a proxy voter -- a proxy holder and are eligible to vote online or in-person, could you now please complete your vote for resolution 3? And I will now pass back to Geoff. Thank you.

Thanks, Kate. I wonder if this is presumptuous. So you -- yes, probably not. That's right. Let's take the risk. So resolution 4 relates to the change of company name from Future Generation Global Investment Company Limited to Future Generation Global Limited. This is a special resolution, and it's included in today's AGM so that the company's legal name aligns with the name that the company is commonly referred to. Is there any questions on that in the room? No. Any questions online? No. It's -- yes, it's pretty logical why we're doing it. In terms of the proxies, we've got a list of the proxies -- the proxy numbers there. And as Chair, I'll be voting in favor of the resolution. As -- so, I'll now put the motion -- the resolution being considered as set out in the notice of meeting. If you are a shareholder or proxy holder, please -- online, please vote and also in-person, please vote. Now I will be -- in the next 10 seconds or so, I'll be declaring that the poll is closed. I'll just give you, particularly the people online, just a couple more seconds to -- if they want to change their vote or if they haven't voted to finish -- to put their vote in. [Voting]

So it's probably time. I'll now declare the poll closed and formally charge Boardroom to count the votes on the company's behalf. Thank you, Boardroom. The results of today's AGM will be released to the market as soon as they are determined, which I mentioned earlier will be a little later today. Now -- we are now taking any general questions from shareholders. Due to time constraints, we may run out of time to answer all your questions. If this happens, we will definitely be in contact with you, call or e-mail. And you can ask any of the people with a little badge on. Please give their -- give your questions to them, and we'll come back to you. What...

Two questions from shareholders that wrote in ahead of the AGM

Yes.

So first one from Elizabeth. There's a couple of questions here, but given the global economy, the environmental and war issues we're currently facing, what is the direction of the company over the next 5 years? How much do we think will come in capital growth versus dividend income? And how would the answers to those questions impact your selection of fund managers?

So okay, let's do one at a time. The first one is what is the -- what is our expectation of -- is it -- what is our expectation of the direction of the company?

Over the next 5 years.

Yes. And I assume direction means growth of the company because in terms of direction, it's not as if when I first think of direction, I think of are we going to change direction. And that is not the case. We've got a company that gives us money to the best global managers that we can find that manage it on a pro bono basis. So it's exposed to the equity market. So it's really a question around what will the equity market do over the next 5 years. Now historically, equity markets have with -- this is capital growth and dividends, have probably delivered about 10% per annum. And then the question is where are we in the cycle. Like are we at a top of the cycle? Or are we -- or where will we be in 5 years' time? So my thoughts are we'll stick to our knitting of what we've been doing for the last 8 years. It will be -- and that will deliver the outcome in terms of -- so I would hope that we'd be able to deliver the market plus 1% or 2% above that. What was the other part -- and then the other part was how will we get that return in terms of capital growth or dividends, was it? Yes. And the -- well, there's 2 parts to that question is how will the company will get its return mainly in capital growth because we've invested with these various funds and they're global funds. So there's not much dividend paid. But in terms of the investor, the investor -- when Future Generation was floated, the -- and for the first, probably, is it 5 or 6 years, mainly it was capital growth and the dividend was very small. Now because of some changes a couple of years ago and some of the accounting changes, now we've got a good sizable profit reserve. And as I mentioned earlier, that -- you're getting a 6% fully franked yield. Now obviously, whether that can continue to be franked depends on how the taxes paid because we're investing with global managers. So you'd have to assume, if you're going to get a 10% return and if it's broken up at 10% plus and it's broken up between capital and income, Future Generation historically was more capital growth, less income. Going forward over the next 5 years, I would assume it will be a lot more income. You're already getting 6% fully franked, which is sort of 8-and-a-bit percent gross up and less capital growth. Because -- yes, if you got -- if you're getting a 10% return, it's -- say, 11% or 12% return if we can outperform, then it's the -- both the dividend yield and the growth have to add up to that number. So that's probably -- does that answer that one, Jesse, do you think?

Yes, I think so. Another question that we've got from Gregory and Jennifer. So FGG's 7-year performance figure has underperformed the benchmark by 1.9%. So has the Board considered, and there's a couple of things here, liquidating the company and returning the NTA to shareholders, increasing the benefits flowing to shareholders through fully franked dividends and the dividend profit reserve or the philanthropic status changing that?

Great. Look, thanks, Gregory and Jennifer. The -- in terms of the numbers you quoted, Jesse, the minus 9%, but -- minus -- sorry, 1.9%, that's the relative performance between the index and the portfolio. And the actual portfolio has delivered 7.9% return per annum over that period. So the question in terms of liquidating, well, that's always an option. It's a decision in terms of capital management the Board has to make. The Board has decided that's not -- that doesn't make sense at the -- up until this point in time. Should the company do a buyback, our -- or my experience, putting my Wilson Asset Management hat on and being an observer of the listed investment company sector in Australia for the last sort of 30-or-so years, the buybacks tend not to work. People tend to like companies growing, not shrinking. And then a lot of people say, well, if you're doing a buyback, then can't you find a good place to invest the money? And shouldn't you be able to find someone to do a better -- to deliver solid returns? So to me, the buyback, my experience is they haven't worked historically. Increase the benefits flowing to shareholders? Well -- and you also talked about utilizing the profit reserve. You got to remember with the profit reserve, the profit reserve turns up necessarily before the tax is paid. So there's a lag between the ability to pay dividends or not -- or fully franked dividends or not. So the -- yes, in terms of increasing the dividend, -- to me, the dividend that we've got, FGG at that 6% is a very -- like to me, that's a very full dividend. Now on a global basis, the U.S. market is yielding 1.6% or 1.7%. I think the MSCI Global Index is yielding 2%. So I think we've sort of -- we've nearly erred -- because of the franking system in Australia, we've nearly erred on the side of being very generous to shareholders rather than in terms of giving the yield. So yes, look, they're all fair points. The -- yes, but at this point in time, the Board hasn't decided to utilize using any of those strategies. Well, one strategy they have done is significantly increase the dividend, but I don't think it'll be in shareholders' interest to increase the dividend too much more because then what happens is you don't get much capital gain in the share price. And then there's a psychological impact. If you haven't got the capital gain in the share price, everyone thinks you're not really performing, but when you're giving -- when they're getting on their return is a fully franked dividend. And we've experienced that in other listed investment companies. The -- any other questions online, Jesse?? Any other questions in the room, guys? Okay. As there is no formal business for the meeting, I declare the AGM closed. Thank you very much for your support, and great to see you here. And actually, in finishing my address, last page, I nearly missed that, there are a number of people whom I would like to give special thanks. Obviously, our fund managers and the service providers, myself on behalf of all you, shareholders, we can't thank you enough. I'd also like to thank my fellow directors. As I mentioned earlier, you've got a high-quality Board there. And they are all doing this work on a pro bono basis. So on behalf of all shareholders, thank you. The -- also, the Investment Committee, all the people on the Investment Committee, I'd like to thank them because their work is pro bono as well. Our CEO, Caroline Gurney, thank you very much. And her right-hand lady, Emily Fuller, thank you. The -- I'd also like to thank, and I know there's a number of them here, the team at Wilson Asset Management and also the team at Future Gen for all your hard work -- well, the team at Future Gen first, the rest of the team at Future Gen and the team of Wilson Asset Management, thank you. We know they're the guys who doing the hard work. Yes, that's right. And I'd probably like to finish by thanking all you, shareholders, for your continued support of future generation. Obviously, this wouldn't be possible -- the last period has been a challenging period, yes, and this couldn't be possible if it wasn't for all your support. So I'm closing the meeting. Thank you all very much.