Magellan Financial Group Limited (MFG) Earnings Call Transcript & Summary

Okay. Good afternoon, ladies and gentlemen. My name is Marcia Venegas, and I'm the Company Secretary at Magellan and will be your moderator for today's extraordinary general meeting. Before we formally open today's meeting, I would like to go through some housekeeping matters. This meeting is being held as a hybrid meeting, meaning that shareholders have a choice to attend either in person or online via the Lumi platform. If you are attending online and have issues today during the live stream, please contact Lumi on (02) 8075 0100, or contact Magellan on (02) 9235 4888. I will now provide an overview of how to ask questions and how to vote. I will begin with instructions for our online attendees and then turn to our attendees here in person. For our online attendees, to submit a written question, select the messaging tab at the top of the Lumi platform. Type your question in the box towards the top of the page and press the arrow symbol to send. A copy of your submitted questions can be viewed by selecting "my messages". This function is active, and you can submit your questions from now. However, questions will not be addressed until the relevant time in the meeting. We ask that you only submit one question at a time to allow other shareholders the opportunity to ask questions. Questions submitted will be sent immediately for review. Your questions may be moderated or, if we receive multiple questions on the one topic, amalgamated together. Please note that I will read out your name and where appropriate, state who you are representing, before reading out your question or comment. There is also the ability for shareholders to ask questions verbally through the Lumi platform. To do so, please follow the instructions within the portal. If you're attending this meeting in person at the relevant time, please raise your blue voting card, wait for the microphone and state your name and, where appropriate, who you are representing, before asking your question or stating your comment. Please ensure that your question relates to the formal item of business being discussed at today's meeting. To the extent that questions received do not relate to today's item of business, our Investor Relations team will endeavor to come back to you in due course. Finally, due to time constraints, we may run out of time to answer all questions. Moving to instructions on how to vote. If you are attending online and are eligible to vote at this meeting, a voting tab will become visible on your screen once the poll is declared open. Selecting this tab will bring up the resolution being considered today and present you with the voting options. Shareholders who wish to vote in favor of the resolution, please mark the for box. Shareholders who wish to vote against the resolution, please mark the against box. Shareholders who wish to abstain from voting on the resolution should mark the abstain box. Abstentions will not be counted in computing the required majority for the poll. Your vote is automatically recorded. There is no need to press submit or enter button. You can change your vote up until the time voting is declared closed. I will now provide instructions for our shareholders attending in person. Shareholders and proxy holders would have received, on registration, a blue voting card that provides for the holding of a poll on the resolution put to shareholders. You will need to complete this card in order for your vote to be counted. Shareholders who wish to vote in favor of the resolution, please mark the for box on the voting card. Shareholders who wish to vote against the resolution, please mark the against box on the voting card. Shareholders who wish to abstain from voting on the resolution should mark the abstain box. Abstentions will not be counted in computing the required majority for the poll. I would now like to hand over to Magellan's Chairman, Hamish McLennan, to formally open today's meeting.

Thank you, Marcia. Good afternoon, ladies and gentlemen. My name is Hamish McLennan, and I'm the Chairman of Magellan Financial Group. On behalf of the Board of Magellan, I would welcome you to the 2022 Extraordinary General Meeting of Magellan Financial Group Limited. As there is a quorum of shareholders present, I now declare the meeting open. I would like to first acknowledge the traditional owners of the land from where I address you today, the Gadigal people of the Eora Nation. I pay my respects to their elders past, present and emerging. Joining me at the front of the room today are Magellan's nonexecutive directors, Robert Fraser, John Eales, Colette Garnsey, and CEO and Managing Director, David George. We also welcome representatives of our share registry, BoardRoom Proprietary Limited. The notice of the extraordinary general meeting has been made available to all shareholders. I will take the Notice of Meeting as read. We will consider one formal item of business today being a vote on the proposed increase to the maximum aggregate remuneration that we paid to all nonexecutive directors in any financial year. There will be an opportunity for shareholders to ask questions relating to today's item of business before the motion is put to a vote. On the screen is the formal disclaimer regarding any forward-looking statements that any of the directors make today. All comments are subject to the formal disclaimer shown on the screen. Voting on the resolution at this meeting will occur by way of poll. I now declare that poll open. I'm advised by the company secretary that the holders of approximately 75.6 million of the company's ordinary shares have sent in proxies. In my capacity as Chairman of the meeting, I've been appointed as proxy by the holders of 75.2 million of the company's ordinary shares. Any undirected proxies held by me as Chairman will be voted in favor of the resolution subject to the voting exclusions set out in the Notice of Meeting. I will announce the results of the proxy votes that were received by the company before 3:00 p.m. on Monday, the 12th of December 2022, after the vote is taken for the resolution. These figures may change if a shareholder had submitted a proxy who attended the meeting today and then revoked their proxy. For all shareholders and proxy holders who have logged into the Lumi platform using their unique log-in details, you should now be able to access the resolution and the voting choices. I remind proxy holders that you must comply with the direction of the shareholder that appointed you if you wish to lodge a valid vote. If you have already submitted a proxy vote, your existing vote will be canceled if you vote again today. I appoint Sarah Jenkins from BoardRoom Proprietary Limited as a returning officer. The returning officer will arrange for the collection of all voting cards from our in-person attendees, and for the counting of votes in accordance with the voting exclusions are set out in the Notice of Meeting. Following the poll, the meeting will be closed and the votes will be tallied. Results of that poll will then be released to the ASX later today. That will also be made available on Magellan's website. I now propose to proceed with today's item of business as set out in the Notice of Meeting. Item 1, which is the remuneration of nonexecutive directors. This item conserves the remuneration of nonexecutive directors. The resolution you are being asked to vote on today now appears on the screen. Unless I hear to the contrary, I will take the resolution as read. I now move to consider the item of business at today's meeting, remuneration of nonexecutive directors as contained in the Notice of Meeting and as it appears on the screen. We will now move to shareholder questions if you're attending this meeting online. Please submit your questions via the Lumi platform now. In the meantime, we received several questions in advance of the meeting from shareholders, which I will endeavor to answer now. Where there were multiple questions on the same topic, we've amalgamated these for you all. Can we start with the first question, please?

Number of questions from shareholders asking why they should support an increase to director pay in that face of the meaningful decline in Magellan's share price over the last 12 months.

Thank you, Marcia. This is an important question and a matter for the Board considered in depth before putting this resolution to shareholders. First and foremost, the Board understands the concerns of shareholders. This has been an unprecedented year for Magellan, which has created challenges that are felt by all of our stakeholders, from our clients, to our staff and our shareholders. And I want to assure you that the Board is very focused on returning Magellan to growth under the strategy outlined by David George at our Annual General Meeting in October. The Board Renewal Program is aimed at ensuring that Magellan has directors with the right skills mix, independence, experience and diversity to oversee and support the company's future strategic direction. We currently have 4 independent nonexecutive directors on the Board, and we're targeting a Board of 6 independent nonexecutive directors and one Executive Board Director being CEO, David George. The Board's search for these additional nonexecutive directors is well underway, and we anticipate that there will be a further board renewal over the next 6 to 12 months. The Board is of the view that the proposed increase to the nonexecutive director fee cap is an important step in progressing the board renewal program as it would allow Magellan to attract the right quality, high candidates, also facilitating our target Board size.

Thanks, Hamish. We've also received some questions relating to the quantum of the fee cap increase and why it is in excess of 100%.

The proposed increase to the maximum fee cap was set having regard to a number of factors, including our target Board size, benchmarking data and feedback from nonexecutive director search process. The Board recently engaged an independent adviser to advise benchmarking data on nonexecutive director remuneration. Having regard to the data in their report, the Board formed a view that the current fees paid to Magellan Directors are significantly below those of our market peers. This has also been the feedback from potential candidates, and we believe that our current fee cap is impeding our ability to attract high-quality candidates and facilitate efficient and effective board renewal program. I would note that the institutional proxy advisers expressed recommendations in favor of fee cap increase and many of them acknowledged that the existing fee arrangement for Magellan's Directors are significantly below market peers.

Next question. We have also been asked the question, wouldn't it be more appropriate to only offer this higher remuneration to new directors?

My observation is that it would be highly unusual for the remuneration of nonexecutive directors of a listed entity to be structured in this manner. Magellan's constitution provides, as a foundational premise, that the remuneration of nonexecutive directors will be equal with additional phase provided to those who perform extra services, for example, when they serve on committees. This is the principle that we're adhering to. Next question, please.

The next presubmitted question we received is whether the Board acknowledges that it has greater challenges than its own makeup and remuneration, such as ensuring investment performance and inflows are restored.

Thank you. We, of course, acknowledge that Magellan has faced significant challenges over the last 12 months. That is why, throughout this period, the Board has been extremely focused on restoring stability, confidence and value to Magellan's clients and shareholders. This has included ensuring that we have the right leadership team in place to do the business through the next chapter of its growth, reaffirming our focus on our core funds management business, implementing employee retention initiatives aligned to shareholders' interests, and delivering capital management initiatives to create shareholder value. It goes without saying that the Magellan team are highly focused on improving investment performance in our core global equity strategy, which we believe will, in time, improve flows. More generally, the Board is optimistic that the team, led by David George, can execute on our strategy and return Magellan to growth.

The next presubmitted question we received was why today's resolution was not proposed at the AGM in October.

At the AGM, David George put forward to shareholders his vision for Magellan's future strategic direction and have followed that we will seek our directors under the Board renewal program who are aligned to this strategy moving forward. This process is well underway. And in this regard, I note the appointment of Mr. David Dickson to the Board of our main operating subsidiary, Magellan Asset Management, on the 20th of October 2022. With Magellan's strategy release to the market at our AGM, and given the support and positive feedback we have received from shareholders to execute on the Board renewal program, we consider this was the appropriate time to bring this EGM resolution to shareholders. Are there any more questions?

This is the end of the pre-submitted Q&A.

Okay. As that concludes the questions received in advance of today's meeting, I will now invite Marcia to the lectern as she will be acting as the moderator for the Q&A session.

Thanks, Hamish. We will now move to the questions from our attendees here in person. Please raise your blue voting card to ask your question. Once called upon, a Magellan representative will bring you a microphone. We request that you ask only one question at a time. Please also state your name and, where appropriate, state who you are representing, before asking your question.

Okay. Thank you, Marcia. And thank you, Chairman McLennan. My question is in regards to funds under management. On Page 4 of the annual report, you recognize that our global equity strategy has underperformed relative to the market over the past 18 months. Isn't Magellan going to be judged by long-term performance, not in the past 18 months. And with investments, mistakes are inherent, based on the information we have on hand, and also Magellan approaches investments as discounted value approaches in regards to buying businesses. With regards to that, how come Hamish Douglass wasn't able to prevent St. James' Place from taking $21 billion? And what would you do differently to convince investors that this is the time now to get in aggressively because we can see opportunities? And how come Mr. Douglass wasn't able to do that?

That's a lot in that question. Do you want to... Several questions.

So I guess, just perhaps for noting, that question is just a little outside of the business of the meeting, but I'm happy to answer that as best as I can. So I think I agree with some of the premise certainly that we want to be judged by performance, and we want to be judged through long-term returns, which we think are very good. I think we're acknowledging both that for a period of time which we highlighted in the report, we had not performed relative to index in the global equity strategy, and that, that was a factor among others, and some of those might be things like personnel changes and other factors that an institutional investor such as that investor might take into account without being able to say what their exact reasons are. But as I've said before, if we focus, and we are focusing and narrowing our focus towards investment management as the core business in the focus of Magellan, I think we will give ourselves the best conditions to deliver performance going forward. And I think that is ultimately the largest factor that drives investors to trust Magellan with money.

So in regards to -- just a follow-up, just in regards to the time period, how long will it take for Magellan to increase the funds under management from, say, to stop the investors from taking out the money, first of all, and to increase that funds under management from $50 billion to $100 billion. How long is it going to take Magellan to do that? Yes, and what are you going to do differently in regards to that?

So I mean, that's a forward-looking statement. So there isn't a clean answer other than, the more quickly performance improves and we deliver that track record and put runs on the board, if you will. In that regard, I think the faster that happens. At the AGM, when I discussed the strategy and the vision for Magellan growing and the number of $100 billion, which is a number I think our platform can support and could get towards, I gave a 5-year time frame around that. And again, that's not an exact science, but it's certainly one that I continue to believe is possible.

Thanks for all the hard work you're doing. I think you want me to state who I represent. I represent probably my wife, but I'm out there. Look, the question I wanted to ask you is, you mentioned the word Board renewal. What does that look like? What is that composition like? And let's say, we're here 12 months from now, what are you hoping at the diversity of skills that sit on that Board for the vision of this company or vision of our company, I should say.

Yes. Thanks very much for the question. I suppose it's looking at the set of skills that we have on the Board at the moment and looking at what needs to be replaced by those who perhaps may leave the Board in the renewal process and those that may be added to the Board. For example, David Dickson has been added to the Magellan Asset Management Board and his deep experience in the funds management industry is an example. We have an ongoing search on at the moment for more directors -- or for specifically another director, where the skill sets we're looking at, again, is specifically in the funds management space.

Good afternoon, and thank you for your time and taking my question today. I'm representing myself and my wife and also SMSF. Just to talk about -- the sense I get -- so to comment on this and then the question. You're looking for a change of $1 million. The fund pool is down from where it should be, looking to increase it, and then hold it there for a while. So my question is, the change, does this put you still behind so we need to have this discussion again next year? Or does it put it where it should be for another few years. And so just to give a sense of which of those it is and if it is broadly in line with the current expectation? When do you think we'll be having this discussion again?

Look, I'll take that one. So it's a fair question. I think what we've done for a few years, so we're not going to come back to shareholders again. I just want to reiterate, it has been a challenge just looking at scope and changes that we want to make. And I think we've seen quite clearly out front that it needs to be even for all, but we want to attract high-caliber people who, given the situation with Hamish Douglass, we've moved Magellan into a different place. So we've moved from being founder led to a more financial -- sorry, a more sort of balanced phase of our life, being a more sort of mature, traditional-led company. And what we do need is just to ensure that we get the best talent and the best people out there to help take the company to its new direction. So we haven't just sort of put this to shareholders lightly. We know that it is a lot of money, and we just want to make sure that we do it properly. So we won't be coming back certainly next year or for a couple of years.

$1.75 million is a huge amount, which most people in this room would hardly earn in their careers. Could you give us some concrete examples of how the existing nonexecutive directors have added value in the last 2 or 3 years?

Well, I think up until February, when Hamish Douglas took his medical leave of absence, the share price and the growth of the company had been tremendous. I understand and appreciate your anger. I mean, I think for the directors who are sitting here in front of you, we have stayed with the company. But the feed bracket that we've been working to is under all of the benchmarks. And actually, with a lot of the discussions that we've had with the proxy advisers, they concur the fact that we're very much below all the norms and the standards. So more pointedly, the Board has dealt with an extraordinary situation where the founder of the company had to take medical leave of absence. And I'm not sure... Let me finish. Pardon?

Those aren't examples of how nonexecutive directors have added value. It is as if you're answering about Hamish Douglass, and obviously, the rise in the share price [indiscernible] share price was to get down again. Not the nonexecutive director answer.

I think there are a deep pool of people who work here who have made the company a great company. But what you've seen are a lot of outflows that have been caused by the instability of Hamish's departure, and there are a lot of institutional relationships that were tied to Hamish that no matter what anyone could have said or done, I think was a difficult situation for the Board to get their hands around and to deal with. So I think the Board of Directors have acted very honorably over many years. You obviously disagree. We're very disappointed with the way the company is sort of positioned at the moment, but we're coming back to shareholders because we feel that it's important that we bring new talent in.

My name is Kevin Daly , Mr. Chairman. You mentioned that you came to a decision about the new fee level by comparison with market peers. I'm just wondering if you could state who those market peers were?

John?

I don't have the full list in front of me, but there were 2 sets of peer groups we looked at. One was a market cap peer group for Magellan and the other was an industry peer group that we compared. And you could imagine all the names that would be in that industry peer group, they're all in there. And we did -- the comparison, the benchmarking was done across those 2 peer groups and then compared. And there was very similar results that we got or similar analysis that we got looking at both those sets where the numbers were significantly below the level. And I think just to probably add a bit of context to some of the questions before as well, this is very much a forward-looking proposal as much as it is a backward-looking proposal. And Hamish has mentioned, it's about getting the right Board for the future and attracting the right people for it. And at the moment, we are not able to do that.

Yes, this will probably be the last question before we move to the online version, please.

My name is [ Kenneth Guevarra ]. I've got 3 questions, but I'll ask them one at a time. What is the reason for the performance decline compared to the earlier years?

Can you repeat that, what is the performance decline...

What is the reason for the performance decline or share price decline compared to the previous years. So that's my first question. I'll wait for the answer, then I'll go to my second, and then go to my third.

So I mean, people value businesses in a variety of levels. But this is a fairly simple business. And so I'd say, the primary version is funds under management, which drives fee earning revenue, and so funds under management has declined. And so that forward fee earning revenue is lower given the lower fund base. So I mean that's my best guess from a share price perspective.

My second question, what is going to change in regard to solutions for the future compared to what's happened in the past?

So I think this goes in part to some of the strategy commentary that was provided at the AGM. So I've laid out a vision for the future that discusses working with the strategies that we have, there are 3 core strategies, and ensuring that we focus completely on delivering excellent investment performance. That, again, is how people gain confidence and inject new money into Magellan funds and trust us with that fund. We've got capabilities that we can expand. And then as a third leg, as a platform, we have fantastic capacity. We've got all the supporting infrastructure, and it's operating in a very best-in-class way. And we have great connectivity with the client base that we can listen to and evolve alongside to expand what is on our platform, and that may be something that includes additional capabilities that we either build or bring in, whether that's teams or other businesses that want to be part of the Magellan platform. So that's the strategy to change that funds under management that I laid out at the AGM.

I've got a third question. What happens to the remuneration program if the performance are not met?

So I think there's probably a few legs to that. So I think there's the item of business today, which is the Board remuneration program. So that's up to shareholders. Internally, there's always salary. And in most cases, we offer incentive strategies, and particularly for those who are responsible for managing money and making investment decisions, in particular, they have remuneration that is variable to those outcomes. So better outcomes generally create better remuneration and vice versa.

Okay. Mr. Chairman, to give our online shareholders a reasonable opportunity to ask questions, at this point it is time to move to the questions from Lumi. So if that's okay, I will ask those questions now. How many of the current directors are stuck in the loss-making share loan scheme? Is this increase in the fee cap a way to partially compensate the existing directors for their losses sustained on their shareholdings.

Thanks, Marcia. Look, I think the idea of the -- well, I know the idea of the share purchase plan, which was in place long before I got here, was to align directors with shareholders, and it certainly has done that. All directors have been involved in the share purchase plan. I don't know, I don't have the figures as to where the status is of each individual shareholders. But this increase is absolutely not connected. As I said, it's very much forward-looking. And so it will involve actually bringing more people onto the Board, and we didn't take that as a consideration in our considerations for it.

The next question is, did any of the 5 main proxy advisers, ACSI, Ownership Matters, Glass Lewis, ISS and ASA, recommend a vote against today's resolution? And has there been a protest on the proxies?

I might take that. All 5 of those major proxy advisers recommended votes for the resolution.

The next question. Has the option of performance targets being considered for NEDs' remuneration instead of blanket increases?

I stand to be corrected, but I don't think you're allowed to have performance-based targets as directors of a public business or a public company. So no, they're not considered.

Okay. This question is from Mr. Stephen David Main. I agree the $750,000 cap is unusually low for a $2 billion company, and there should be increases despite the poor performance in recent years. What is the actual plan in terms of increasing the cash fees of the current directors if this resolution is passed.

The plan will be -- I mean initially, the plan is about getting new directors onto the Board, and there will be an increase in current directors' fees and the increased fee levels having been set at this point in time.

Okay. I believe that concludes the Q&A. Mr. Chairman, having regard to the time allotted for this meeting, I will now pass over to you.

Having given shareholders a reasonable opportunity to ask their questions, we'll now proceed to voting. As previously noted, subject to the voting exclusions set out in the notice of meeting, I will vote all undirected proxies that I hold as Chairman of the meeting in favor of this resolution. Please submit your votes now in relation to today's item of business. The results of these proxy votes received for this resolution prior to the meeting can now be seen on the screen. Given the proxy votes received prior to this meeting as shown on screen, it appears likely the resolution will pass, as more than 50% of the votes will be in favor of this resolution. We thank shareholders for their support today. I will now pause to allow you time to finalize your votes. Please ensure that you've cast your vote on the resolution. For our in-person attendees, please ensure that your blue voting card is completed and signed. I will declare the poll closed after this pause. [Voting]

Voting is now closed. The online voting facility has been disabled. For those attending this meeting in person, please ensure that your blue voting card is placed in one of the ballot boxes. The results of this vote will be released to the ASX later today and made available on Magellan's website. There being no further items of business, the meeting is now closed. Thank you for attendance today and your interest in Magellan. Thank you, everyone.