L1 Long Short Fund Limited (LSF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the L1 Long Short Fund Limited Annual General Meeting. I would now like to hand over to your Chairman, Mr. Andrew Larke. Please go ahead.

Good morning, ladies and gentlemen. My name is Andrew Larke, and I have the privilege of being the Chairman of your company and also of today's meeting. It is my pleasure to welcome you to the 2022 Annual General Meeting of L1 Long Short Fund Limited. This is the Annual General Meeting -- this Annual General Meeting is occurring virtually. We've been conducted through the online platform provided by our share registrar, Link Market Services Limited. It's now 10 a.m., and as we have a quorum, I declare the meeting open. I would now like to introduce my fellow directors, John Macfarlane, Harry Kingsley, Mark Landau and Raphael Lamm. Also present is Mark Licciardo from Acclime Australia, our Company Secretary; and also Robert Kanner of Ernst & Young, our company's auditors. Notice of this meeting and the explanatory memorandum was sent to all shareholders, and I propose that this be taken as read. I'll now turn to my Chairman's address. Market conditions have been difficult in 2022 with equity markets impacted by rising inflation, increasing global interest rates and geopolitical tensions. These conditions have not been seen for many years and have proven challenging for companies over the last 12 months, albeit the manager did outperform the S&P/ASX 200 Accumulation Index during the calendar year-to-date. The manager's returns for calendar year 2022 as at the end of October were minus 1.3% compared with minus 4.1% for the S&P/ASX 200 Accumulation Index. While it has been a somewhat frustrating year at times, the managers' performance over the last 3 years has been exceptional, with the company's portfolio returning 19.5% per annum, net of fees, compared with a 4.8% per annum return for the S&P/ASX 200 Accumulation Index. This is an outperformance of 14.7% per annum over that period. Since IPO in April 2018, the company's portfolio has outperformed the S&P/ASX 200 Accumulation Index by around 2.4% per annum. At the Australian Alternative Investment Awards in late September, the company won the award for Best Listed Alternative Investment Product. And in mid-October at the Zenith Awards, L1 Long Short Strategy won the award for Best Australian Equities -- Alternative Strategies. Looking forward, the manager remains cautious on the outlook for global markets and has continued to reduce its net long exposure to around 50%. At the same time last year, the net long was over 100%. In this environment, where markets are particularly uncertain, the company's fortunes will be determined by the ability of the manager to carefully select stock positions, agilely adjust net long exposures and generally navigate volatile equity markets. We feel the company is in good hands with L1 Capital as the manager. Previous periods of volatility have provided the manager with opportunities to buy good quality stocks at attractive prices. Dividends. The company paid an interim dividend of $0.04 per share fully franked in March 2022 and a final dividend of $0.045 fully franked in September 2022, bringing total dividends for the year to $0.085 per share fully franked, which was an uplift of 89% on the prior corresponding period. We expect total dividends to increase again in 2023. Capital management. Over the last 12 months, the share price discount to post-tax NTA has been around 5%. The Board believes that the following measures have been and continue to be important in minimizing this discount: Number one, strong investment performance by the manager. Number two, regular and growing fully franked dividend payments. Number three, an ongoing share buyback program where the company will acquire shares if the discount to the post-tax NTA is greater than 10%. Number four, strong alignment from the manager and the nonexecutive directors. During the year, both Mark and Rafi continue to increase their investment in the company, bringing the total shareholdings of owners of the manager to around 15% of the company. Nonexecutive directors also increased their shareholdings in the company during the year. And finally, number five, extensive market communications. The company has a comprehensive investor relations program that includes daily NTA disclosures, monthly and quarterly reports, 6 monthly investor webinars, periodic podcasts and over 500 meetings with shareholders, key advisory and wealth management groups over the past 12 months. Last week, 700 people attended the latest investor seminar hosted by Mark Landau. In conclusion, your Board would like to thank the manager for their hard work over the last 12 months in difficult market conditions. I know that the team is sticking to their processes but have provided exceptional historical returns through value investing based upon deep industry and company-specific research. I would also like to thank all of our shareholders for their continuing support of the company. It is very much appreciated. I'll now turn to the business of today's meeting. I wish to advise that voting on all resolutions will be conducted by way of poll. Shareholders will be able to cast their vote using the electronic voting card received. I also confirm that I propose to vote those proxies left to my discretion as chairman in favor of all resolutions. Proxy voting received prior to the meeting will be shown on the screen for each item of business to be voted on today. Items 2 and 4 are subject to a voting exclusion as outlined in the notice of meeting. Only shareholders, validly appointed proxies and corporate representatives are entitled to ask a question at today's meeting. [Operator Instructions]. We will answer any questions at the conclusion of the formal business of the meeting including questions for the investment manager. Please note that voting will remain open for 5 minutes after conclusion of the AGM. At your convenience, I also invite you to listen to the recorded webinar and presentation, which Mark Landau gave on 10 November, which is available on the company's website. So the first item of business is to receive and consider the annual report, together with the director's and auditor's reports for the year ended 30 June 2022. I will now turn to the items of business for which a vote is required. The second item of business today relates to the adoption of the remuneration report as displayed on the screen. I will now table the outcome of proxy voting received prior to the meeting as shown on the screen. [Voting]

The next item of business today relates to the reelection of directors. As item 3.1 relates to me, I will hand over to John Macfarlane to facilitate.

Thank you, Andrew. Item 3.1 relates to the reelection of Andrew Larke as displayed on the screen. I would like to invite Andrew to say a few words.

Thanks, John. So my name is Andrew Larke. I have been Chairman of L1 Long Short Fund Limited since the IPO of the company in 2018, and I'm standing today for reelection as a Non-Executive Director. I have extensive experience in serving as a Non-Executive Director on numerous listed and unlisted company Boards. I also have over 25 years' experience in mergers, acquisitions, capital markets and senior executive leadership roles across a variety of different industries. At LSF specifically, I'm an Independent Non-Executive Director, and I have a strong focus on governance matters and maximizing shareholder value. I believe my skill set complements the skill set of my other Board members, and should I get reelected today, I thank shareholders for your ongoing support.

Thank you, Andrew. I will now table the outcome of proxy voting received prior to the meeting as shown on the screen. [Voting]

And I will now hand back to our Chairman, Andrew Larke.

Thank you, John, and thank you very much, shareholders, for my reelection. So item 3.2 relates to the reelection of Mark Landau, as displayed on the screen. I invite Mark to say a few words.

Thanks, Andrew. Hi, everyone. My name is Mark Landau, and I'm standing for reelection as a director of LSF. I'm the Joint Managing Director and Co-Chief Investment Officer of L1 Capital, which I cofounded with Rafi Lamm back in 2007. I've been in equity markets for over 20 years, and I've been a Board member of LSF since the formation of the company. I believe that I complement the skill set of the existing Board with my perspectives on both the global and Australian investment landscapes and opportunities for this company. Thank you for your consideration and your vote.

I will now table the outcome of the proxy voting receives prior to the meeting as shown on the screen. The fourth item of business today relates to the nonexecutive director fee pool as displayed on the screen. I will now table the outcome of proxy voting received prior to the meeting as shown on the screen. [Voting]

The fifth item of business today relates to the amendment of the constitution of the company as displayed on the screen. I'll now table the outcome of the proxy voting received prior to the meeting as shown on the screen. [Voting]

That concludes the items of business to be voted on at today's meeting. Shareholders are reminded that they can submit their vote online until 5 minutes after the meeting closes. I appoint Mr. Daniel Reid from Link Market Services as returning officer for the poll as it will take some time for the poll results to be known. That will be announced to the ASX later today. That concludes the formal business to be considered at this meeting. As I mentioned earlier, we now have the opportunity to address any questions from shareholders. Shareholders also have the opportunity to ask questions of the investment manager. Moderator, are there any questions on the phone lines?

There are no questions on the phone line.

Thank you. Jane, are there any questions on the online platform?

We have a question from [ David Probert ] for Mark Landau. The September monthly report indicated that the fund was holding a cash position of 38%. What changes in the investing environment is the funds looking for to start deploying these funds? What is the anticipated time frame? Or is the fund planning to decrease its current exposure from 62%?

Thanks, David, for your question. As of the latest update we provided on the investor webinar, we're currently sitting at around at net long in the 40% to 50% range. That compares to a typical net long for the portfolio of around 70%. So your observation that we're much more cautious on the investment environment and the risks for the stock market is accurate. We typically believe 70% net long is what you should expect over the very long term. At different points in time when we're more positive on the market as we were at the period when COVID hit in the following 1.5 years, when we're sitting closer to 100%, that was reflective of much more attractive valuations. What we thought was more likely to see earnings upgrades and also a much more conducive central bank and fiscal policy globally. At the moment, each of those positive tailwinds has now reversed, and we feel the valuations are full. We believe that the impact of central bank tightening is yet to be felt, and we're likely to see a wave of much weaker earnings results over the coming 12 months. And for that reason, we're comfortable saying at that 40% to 50% level. If we were to see stocks fall significantly or we were to see investor expectations moderate and have those more cautious outlooks reflected in share prices, you would probably see us increase our net long to reflect that better opportunities at. Having said that, we still think there are fantastic opportunities on both the long and short side. So please don't take our low and net long as a reflection of us having a lack of investment opportunities. We think there's a fantastic set of investment opportunities, and I encourage you to read our monthly and quarterly reports to get more detailed insights into which stocks and sectors were positive or negative [ one ].

Jane, are there any further questions on the online platform?

No. There are no further questions.

Thank you, Jane. As there are no remaining questions, I'd like to thank you all for your attendance, and I now declare the meeting closed.