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

Good morning, everyone, and welcome to Magellan Financial Group Limited 2023 Full Year Results Briefing. I am Primal De Silva and I work in the Strategy and Investor Relations team here at Magellan. Now before I commence, I'd like to first acknowledge the traditional owners of the land on which we meet today, The Gadigal people of the Eora Nation, and pay my respects to their elders past, present and emerging. Now turning to today's agenda. Presenting first will be our newly appointed Chairman, Andrew Formica, who will provide a governance update to shareholders. Andrew will be followed by presentations from our CEO and Managing Director, David George; and our CFO and Chief Operating Officer, Kirsten Morton. Following the formal presentations, we will move to the Q&A session. Also, please note that today's presentation is being recorded, and a replay will be available on Magellan's website a little later today. We also may have some media in attendance. I'll now hand over to Andrew for the Chair's address.

Thank you, Primal, and thank you all for attending Magellan's Full Year 2023 Results Briefing today. It's my great pleasure to be addressing shareholders today, my first address as Chairman of Magellan. My appointment as Chair comes as we announced yesterday a number of changes to the Board and Magellan Financial Group, which all form part of the ongoing board renewal process that the Board previously flagged to shareholders and has been executing since the latter half of 2022. The renewal process started with the retirement of Karen Phin in 2022 and the appointment of David Dixon and myself to the Board of Nonexec Directors in December '22 and July '23, respectively. With my appointment as Non-Executive Chairman, Hamish McLennan has transitioned back to the role of Deputy Chairman. I would like to thank Hamish for his leadership of the company through unprecedented circumstances, and I look forward to continuing to work with him in his capacity as Deputy Chair. We also announced that Robert Fraser has retired from the Magellan Financial Group Board. Robert has made a tremendous contribution to Magellan over a long period of time. We are sincerely thankful to Robert Fraser's service, but also that he has agreed to remain as Chairman of our main operating subsidiary, Magellan Asset Management Limited. I know Robert's awareness and outstanding insights will be invaluable to Magellan Asset Management. Finally, we are pleased to announce the appointment of Deborah Page as a Nonexec Director to the Board effective from the 3 October 2023. Deborah is a deeply experienced company director with broad experience spanning various ASX-listed private, public sector and regulated entities. She brings significant funds management expertise, having held Chair roles at Pendal Group and Investa Listed Funds Management. We expect she will make a substantial contribution to the Board. Deborah will become the Chair of the Audit and Risk Committee when she commences on the Board in October and current Nonexecutive Director, David Dixon, will serve in this capacity in the interim. These changes over the course of the last 18 months reflect the Board's commitment to the renewal process and have sought to ensure the Board has the right skill mix, expertise, independence and diversity to support Magellan's growth. Significant progress has now been made on the board renewal process. And whilst it's ongoing, I expect this process to be finalized by our AGM in November. On a personal level, I am honored to take up the position of Chairman, and I'm very much motivated to return Magellan to a growth footing. Since joining last month as a Nonexec Director, I've been busy meeting with many of the Magellan team and over the coming weeks, I hope to meet the rest of the people as I get up to speed on the business. With that, I'll pass over to David and Kirsten to take you through Magellan's full year '23 results. I very much look forward to addressing shareholders again at our AGM in November. Thank you.

Thank you, Andrew. And before I get started, I too would like to express my personal thanks to Hamish McLennan, for the support and guidance during his tenure as Chairman, and Robert Fraser for his significant contribution to Magellan. I'm also excited to benefit from the experience and new perspectives of our recently appointed directors. On to today's presentation. I will start by providing an overview of Magellan's business and financial performance for the 2023 financial year. Kirsten will then take you through our financial results in more detail before handing back to me to provide you with an update on the progress we're making in implementing our 5-year strategy and our priorities for the 2024 financial year. We will then open up to Q&A. As you know, I joined Magellan a year ago to lead the company following a period of accelerated change. Since joining, the company has gone through a reset as we set up the business for the next stage of its evolution. This started with an outline of our 5-year strategy at our 2022 AGM, which builds upon Magellan's strong foundations and facilitates its transformation into a more diversified business with a broader range of capabilities, and offerings that deliver sustainable growth. A year on, I'm pleased to say we've made solid progress on delivering on our initial priorities and execution of our 5-year strategy. We are making the necessary changes in areas within our control to set Magellan up for future success. The foundational step was to focus on stabilizing and simplifying our current platform and enhancing performance. We are already seeing the benefits of simplification. Performance is showing signs of improvement, particularly across our global equity strategy, which generated performance fees of $11 million for the year compared to $2.6 million in FY '22. We now need to sustain this improved performance. Expenses are being tightly managed with operating expenses in our Funds Management business of $121.3 million in FY '23, being below our FY '23 guidance range of $125 million to $130 million. We anticipate further cost benefits from changes made and new investment in operational efficiencies flowing through in FY '24. FY '24 Funds Management business operating expenses guidance is $95 million to $100 million. We are investing in our business in a prudent and productive way to support our capability to perform for and service clients. We've relaunched our Magellan Core Series to positive client reception and launched 2 new products in Energy Transition and Australian small caps that address areas of client need and demand and leverage our existing skills. These new products illustrate the depth of talent in our investment team with 3 new portfolio managers promoted from within: Will Grainger, Melissa DeMarco and David Costello. We are confident that careful and considered diversification of our product mix and consistently delivering our investment objectives will see positive inflows return. Importantly, Magellan remains a fund manager of scale, with strong net cash flows of $186.6 million from operating activities, no debt and a profitable business that is well positioned to deliver sustainable growth over time. The company remains in a strong financial position, which has allowed us to pay dividends and return capital to shareholders. We are pleased to be delivering total ordinary and special dividends to shareholders for the year of $1.167 per share, comprising and an interim dividend of $0.469 per share in March 2023, a final dividend of $0.356 per share, a performance fee dividend of $0.042 per share, and a special dividend of $0.30 per share. All dividends will be franked at 85%. We also extended our on-market buyback by 12 months to April 2024, of which 43% was utilized as at 30 June 2023. Finally, as a result of structural improvements in the investment team, including early signs of improvement in investment performance of our global equity strategy, we have reverted to our business as usual organizational structure in our investment team with Gerald Stack as Head of Investments; and myself as CEO and Managing Director, which I'll address in more detail a little later. Now, markets in the past 12 months have been more volatile with Central bank monetary tightening cycles being extended to address ongoing inflation trends. Now effects of higher interest rates have been uneven. There have been predictable impacts on companies and sectors most sensitive to higher interest rates, while unforeseen stresses in the financial system also emerged and contributed to equity market volatility. Consumer spending, however, has remained resilient in most regions. We expect inflationary pressures to continue. And as the impacts of recent interest rate rises flow through economies, it will result in more volatility in markets. Market returns at a headline level have been positive with the MSCI World total return index up 22.4% in the 12 months ended 30 June, the S&P/ASX 200 accumulated index up 14.8%, and the S&P Global Infrastructure Index up 1.8%. Within this, however, is a wide dispersion of outcomes. Larger technology companies have led equity markets through trends in AI and cost management, whereas companies and sectors sensitive to slower economic demand and higher interest rates have been -- had more muted share price performance. Because we expect the journey to sustainably lower inflation to take time, and thus warrant at best a gradual easing of interest rates by central banks as this occurs, economic activity, profits, asset prices and broad equity market performance will remain impacted by higher cost and interest rate headwinds. This is, however, also the environment where high-quality businesses with durable competitive positions and strong management can differentiate. And these are exactly the type of companies our research can identify and that our portfolios are built from. This is also, therefore, an environment expected to reward a well thought out and long-term approach to active management. Turning now to our funds under management. You can see on this slide our 3 primary strategies: global equities, infrastructure equities and Australian equities via early funds management. Each are scaled and profitable. As at 30 June 2023, Magellan had $39.7 billion of FUM. Whilst this is significantly different than 12 months ago, we remain a highly profitable business. Global equities outflows were heavily weighted to the first half of fiscal -- of financial year '23 and largely from institutional clients. These reduced significantly in the second half. Our infrastructure strategies have seen modest outflows, spread between institutional clients and retail funds. Airlie was impacted in the second half by the loss of a small number of long-standing clients. And while this is always disappointing, Airlie has a strong base from which to grow with a great team and track record. We know that the key to reversing outflows is stability and improved investment performance, and this is our primary focus. When investment performance is strong, positive inflows follow. Pie charts at the bottom of the slide show that despite outflows, our FUM remains well balanced between retail and institutional clients. Whilst the larger proportion of outflows in the recent past has come from institutional clients, resulting in an increase in our average base management fee, we still generate a significant performance or a proportion of our management and services fees from our institutional client base globally. This brings me to the investment performance of our existing primary strategies. Our investment philosophies across our strategies remain unchanged. For Magellan, we still believe in the world's best companies is a path to creating and protecting long-term wealth. All our existing strategies are designed to deliver attractive risk-adjusted returns over the long term, and our 3 primary strategies have outperformed the applicable benchmarks since inception. Over shorter measurement periods, this may not always be the case. Our immediate strategic priority has been improving performance, and we've taken deliberate and well considered steps to create the conditions for that improvement. Understanding the underperformance of our global equity strategy from late 2020 to early 2022 has been the area of greatest focus. We've always had a strong and consistent philosophy in global and the changes we implemented over the past year were about optimizing focus and outcomes by simplifying what we were working on. We rationalized the product mix back to our core strengths in the global strategy. That resulted in a PM structure on portfolios to mitigate key person and succession risks, and the new Portfolio Manager structure also supports more efficient communication and collaboration within the team. Whilst we haven't changed the level of work, the deep research that we're known for on companies that we own or are focused on, in our broader coverage, we've adapted our research to [ tier and triage ] and to better deploy resources and turn over more investment ideas. The format and cadence of investment team meetings was changed to increase interaction, discussion and reflection, some more ideas are both floated earlier and debated amongst the analysts and portfolio managers. This has also had a pleasing impact on team engagement. These refinements plus a few changes to roles are creating a more vibrant and engaged environment. A strength of ours is that we have a well-resourced and talented research team. More debate, discussion, interaction with PMs, all supports people's engagement and development. Even more importantly, it supports ideas moving through our process and being available to portfolios. So this is showing up in the early signs of improvement in investment performance with the Magellan Global Fund returning over 20% net of fees over the 12 months to 30 June, and outperforming the MSCI World Index benchmark over the 6 months to 30 June. Magellan's infrastructure strategy remains a highly rated offering globally with a strong long-term performance track record. As many of you know, our strict definition of infrastructure means that we only invest in assets to provide essential services and generate reliable cash flows and exclude businesses with high sensitivity to commodity price movements, competitive pressure or sovereign risk. The success of this disciplined approach is demonstrated in its performance over the long term. Although in recent times, the strategy's relative to performance against the benchmark has been impacted by being structurally underweight to companies that benefited from energy price spikes. As these have abated, we are seeing signs of performance more aligned with historical returns. Our Airlie Australian Share Fund maintains an exceptional track record, outperforming the S&P/ASX 200 Index since inception and over the past 1, 3 and 5 years. In March, we announced Airlie Founder, John Sevior's retirement. John left Airlie in a strong position, having developed a solid succession plan and a highly capable team under his leadership. His portfolio management responsibilities were transitioned to Matt Williams, who is John's long planned successor as Airlie's Head of Australian Equities; and Emma Fisher, who was appointed Deputy Head of Australian Equities. In parallel with improving performance across our existing funds, we also have well-defined growth opportunities to leverage our existing investment capabilities to create strategies that solve for where our client needs are growing. Magellan has invested over the years across product, distribution, marketing and operational capabilities, and we are well positioned to expand our offerings in a way that is additive and does not dilute Magellan's existing strengths. In March, we relaunched Magellan Core Series with a simplified portfolio construction process and revitalized marketing and distribution. While still early days, we are pleased with the positive initial feedback and solid investor interest to date. The investment universe defined by Magellan's forward-looking and fundamental research differentiates the Core Series, making it scalable and offering a strong value proposition catered towards low-cost client requirements. Each version of the Core Series represents the broadest exposure to the Magellan research engine, namely companies with sustainable earnings moats and strong management teams that meet our stringent quality criteria. In February, we launched our new Energy Transition investment strategy. This strategy leverages our extensive infrastructure and sustainability research experience to identify and invest in companies that, one, are economically leveraged to benefit from the energy transition as the global economy shifts to dramatically lower carbon intensity over a multi-decade cycle, have the capacity to deliver tangible positive environmental impact by advancing the transition to a net zero economy, and exhibit exceptional quality. Since its launch, we focused on introducing the strategy to global institutional consultants and clients that are seeking solutions in this area and which support fulfillment of their various commitments to deliver more sustainable investment portfolios. These discussions have been favorably received, providing recognition of the proven methodology and relevance to portfolio needs. We are also planning to make it available to Australian retail clients in time. Our new Airlie Small Companies Fund was launched in April, and we are pleased with the initial positive response to the new fund from the market. It's a retail fund that capitalizes on the Airlie team's strong track record in the Australian market, making expansion into this segment, a logical near-term opportunity. Small cap equities in Australia are an area where high-quality managers can generate consistent outperformance, and it is an offering that clients are seeking. So this brings us to our FY '23 financial performance. On a group basis, adjusted revenue and other income of $379.4 million was down 41% on FY '22, driven mainly by the reduction in average funds under management in our Funds Management business of 48% over the same period. The middle chart shows that we have and continue to manage expenses tightly with our Funds Management business operating expenses reducing to $121.3 million. Importantly, our FY '24 guidance reflects our ongoing disciplined approach to cost management, which we expect will be between $95 million and $100 million, which I will address later on. Finally, after adjusting our statutory net profit for noncash items, unrealized items and items related to strategic initiatives, the group reported adjusted net profit after tax of $174.3 million, which compares with $401 million from the prior corresponding period. While this demonstrates that the change in our financial metrics has been significant, it also shows that despite outflows, Magellan remains a profitable and robust business. Importantly, we are a business with significant financial strength. As at 30 June 2023, we had $853.7 million of net tangible assets, equating to $4.71 per share. $945.3 million in cash, financial assets and investments in associates. No debt and generated $186.6 million of net cash flows from operating activities during the year. We delivered adjusted diluted earnings per share of $0.955 and the directors have declared a final dividend of $0.356 per share franked at 85%. A performance fee dividend of $0.042 per share, franked at 85%, which is in line with our dividend policy of paying out 90% to 95% of Funds Management profit after tax and performance fees, and 90% to 95% of net crystallized performance fees after tax. The directors have also declared a special dividend of $0.30 per share, also franked at 85%. With a strong balance sheet and profitability, we remain well positioned to continue to pay dividends consistent with our current policy, implement capital management initiatives designed to enhance shareholder value and prudently invest in our business to deliver growth. Solid ESG credentials are integral to our strategy and an area where we have been building up over several years and integrating into our processes. This aligns with the growing expectations of our clients and constituents. There have been several ESG milestones that we've achieved over the past year. In addition to launching the new Energy Transition strategy and adding a dedicated ESG resource to the team, we've adopted a new risk management framework for climate-related risks and opportunities, prepared initial commitments under the Net Zero Asset Management initiative and established a working group to enhance alignment with the principles of the TCFD framework and track progress against these targets. Earlier this month we announced our refreshed company values to our team, a key step in reaffirming our client and people-focused culture. I'll touch on these values later, which we believe will help drive our future success as well, ensuring our team is diverse and inclusive. I could report that as at 30 June, female representation on our senior management team was 44% and at a group level was 48%. Andrew spoke earlier about the progress made as part of Board renewal with 3 new directors appointed, all of whom have direct and relevant experience in Funds Management. I'll talk shortly in more detail about our 5-year strategy and the progress we're making. But first, I'll hand over to Kirsten, who will take you through our FY '23 financials in more detail.

Thank you, David, and good morning. I'd first like to take you through the financial results of the group, followed by our Funds Management business and our expenses outlook. I'll also briefly touch on our associate investments as well. So the group's adjusted revenue for the full year ended 30 June 2023 was $379.4 million, and the group's adjusted net profit after tax for the same period was $174.3 million. Adjusted net profit after tax is down 57% year-on-year, and that primarily reflects the reduction in the funds under management this year. Management and services fees for the year were $330.2 million, down 44% on the prior year, and that's broadly in line with the decrease in average funds under management of 48%. Now in 2023, the business generated $11.5 million in performance fees. It is coincidental. This is the same result as last year, but it's important to note that the composition of the performance fees was different. Performance fees this year were generated primarily in the global equity strategy, which reflects the benefit of the recent changes we've made to improve the performance of that strategy, which David talked about earlier. Performance fees also included a modest contribution from our infrastructure strategy. Other revenue and income for the year was $37.6 million. This revenue typically comprises dividends and distributions we earn on investments in our funds, realized gains or losses on those investments, foreign exchange movements, interest income and advisory income of our U.S. business Frontier Group. In 2023, other revenue and income comprised distribution income of $34.7 million, interest income of $12 million, and that was offset by realized capital losses of our fund investments portfolio of $11.2 million. Now the realized capital loss is primarily related to the sale of a seed investment in our offshore fund that we rationalized during the year. And whilst we recognized a realized loss on sale in '23, we have received significant distributions from that fund over the years. And taking that into consideration, we actually achieved a gain on that investment. Our share of the financial results from our associate investments in Barrenjoey and FinClear was an $11.5 million loss for the 12 months to 30 June 2023. And I'm going to touch on that in a little bit more detail shortly. Our view remains that the adjusted net profit provides more meaningful performance information of our business and comparability of results period to period. And by way of a reminder, it is the group's statutory net profit excluding certain items. As these items are shown on the slide and comprise the following adjustments: so firstly, an $18.6 million relating to the strategic transaction costs, and this is a noncash item. It relates to the revaluation for accounting purposes of the Magellan Global Fund Closed Class option liability. The liability moves in line with the net asset value unit price of Magellan Global Fund Closed Class. The NAV unit price was higher at 30 June 2023, compared to 2022, and this has resulted in a higher liability for MFG, so therefore, an expense in the P&L, where it was a benefit last year as the NAV unit price was lower. The net adjustment -- the next adjustment, I should say, is a noncash item of $3.6 million, which relates to amortization expense on the intangibles from the Airlie and Frontier businesses that we acquired back in 2018. The next is a $0.8 million adjustment that relates to noncash accounting remeasurement on our SPP loans. As a reminder, whilst the accounting for the SPP loans remains unchanged, there is P&L volatility due to changes in repayment assumptions and changes in loan terms for departing staff. These changes will differ for each employee and can actually make the period-to-period net P&L impact are less predictable. So considering the increased volatility on the loans, which reduces the comparability of the results period-to-period, we've excluded the noncash interest income and expense. There's also a noncash item of $3.8 million relating to noncash employee share options expense. As we highlighted at our interim results briefing in February, this is a new adjustment in 2023, and it relates to the one-off issue of share options to employees in April 2022 as part of that staff retention program. We are making this adjustment as it's a noncash item. There is a $0.2 million loss on dilutions and disposals of associates after tax. And this relates to the minor dilutionary impact of the issuance of shares by our associates, typically to their staff. And finally, there is a $35.3 million net unrealized capital gain on shares and units held by our Fund Investments portfolio. Now we record the mark-to-market movements of those equities directly in the P&L, and we feel it's meaningful to remove the unrealized market volatility from our revenue, whether it's a gain or a loss. Please note that all those adjustments I just ran through are after-tax amounts. Now if those adjustments were not made, the group's statutory net profit after tax for the year ended 30 June 2023 was $182.7 million. Diluted earnings per share was $1 per share, in line with the movement in statutory net profit. Adjusted diluted earnings per share was $0.955 per share, and that's in line with the decrease in adjusted net profit. The group's effective tax rate for the year was 28.5%. Now this rate is actually higher than past years, which is a direct consequence of having lower funds under management offshore. It's worth noting, though, that the gap between our effective tax rate and the prevailing corporate tax rate of 30% is now quite small. And what that means is that following the loss of the offshore banking unit license regime, which actually occurred on the 1 July 2023 -- this year, 2023, the one-off P&L impact on Magellan is now not so significant. As David mentioned, the directors have declared a final dividend for the 6 months to 30 June 2023 of $0.356 per share, franked at 85%, together with a performance fee dividend of $0.042 per share, a special dividend of $0.30 per share franked at 85% is also been declared. Therefore, the total dividend declared and payable on the 7 September to shareholders is $0.698 per share. Now let's turn to the financial results of our core business, our Funds Management business and driver of our group's profitability and dividends. So Funds Management revenue for the 12 months ended 30 June 2023 was $327.6 million, down due to lower funds under management. The average base management fee at 30 June 2023 was 67 basis points, up 5 basis points on 2022, and that just reflects the change in the mix of FUM towards higher-margin retail. Consistent with prior years, our main operating expense, aside from tax, of course, is employee expenses, and that reflects the fact that our people are fundamental to delivering value for our clients. Employee expenses were $86.1 million, up 1% year-on-year. These employee expenses included $15.4 million relating to the staff cash retention payments, which we announced in March '22 as well as the broader staff retention program, as well as costs associated with organizational realignment announced in October 2022. Funds Management -- employee expenses exclude the $3.8 million noncash expense for the employee share options planned that I just discussed earlier. Other expenses were down 13% compared with the prior year, and that reflected lower fund-related costs and also our disciplined cost management. Now after adjusting for performance fees, the profit before tax of our Funds Management business decreased 54% to $223.8 million. Despite the reduction in profit and generally challenging business conditions, Magellan remains a highly profitable business. Now moving on to expenses. There's just a couple of comments worth highlighting here. As David mentioned, our Funds Management expenses for the year ended 30 June 2023 were $121.3 million, which is below our guidance range of $125 million to $130 million. We are pleased with this result, and it reflects the ongoing work we have been doing to drive operational efficiencies throughout the business, some of which just takes time. The $15.4 million costs associated with the acceleration of the staff cash retention payments and the costs associated with the organizational realignment is included within the $121.3 million. As noted by David, these costs do not form part of the underlying cost base of the business. Our cost-to-income ratio, excluding performance fees, is 36.4%. We acknowledge this is higher than prior comparable periods, but is reflective of the current business conditions. Keeping costs in check remain a top focus for us in the coming year. For the year ended 30 June 2024, we view the recurring expenses to operate our core business Funds Management would be in the range of $95 million to $100 million. It's important to note that the 2024 expense relating to the retention program is significantly smaller than 2023, which saw a one-off expense from the acceleration of the payment date and these expenses will cease from September 2024 when the final payments are made under the program to employees. On a final note, we will continue to manage the business and our cost prudently and with discipline, as we always have, whilst ensuring we invest, we're sensible to support client-focused outcomes with a view to growth and ultimately returns to shareholders. Now turning to Page 17. The Fund Investment portfolio is a subset of the group's balance sheet and a really important part of the group's liquidity. A summary of the Fund Investment portfolio after tax totaled $392 million at 30 June 2023, as shown on the slide. The portfolio has appreciated this year, up from $358.4 million in 2022. And by way of context, the portfolio includes co-investments with both Magellan's listed and unlisted funds and that creates strong client alignment and provides us with strategic flexibility to execute on our strategy. Consistent with prior years, our aim is to earn satisfactory returns for our shareholders, and Magellan has set a pretax return hurdle of 10% per annum over the business cycle for the Fund Investment portfolio. Investment returns in the current year was strong. And since inception from the 1 July 2007, but excluding the group's investment in MFF Capital Investments, the portfolio has reported a pretax return of 10.4% per annum. Now before handing back to David, I will touch on our associate investments. At 30 June 2023, the group held 2 investments on balance sheet, a 36% economic interest in Barrenjoey Capital Partners and a 16% interest in FinClear. Our share of the associates results after tax was a loss of $11.5 million for the year. Over the course of 2023, Barrenjoey has continued its focus on growing market share and diversifying revenues. It's largely completed the build-out of its key business lines with fixed interest -- sorry, fixed income derivatives, equity financing and private capital going live. As a result, establishment costs of the business are expected to decline materially in the 2024 financial year. In terms of FinClear, its public equities business has been impacted by weaker trading conditions. However, they continue to invest in attractive growth opportunities, including their recently launched FCX platform where they applied for a Tier 2 market license that allows them to offer wholesale peer-to-peer trading of private capital in a secondary market. Magellan continues to be a supportive shareholder and manage these investments with a view to maximizing MFG's shareholder value. And with that, I will now hand back to David.

Thank you, Kirsten. Now turning now to an update on how we are progressing on our 5-year strategy. So as you know, our objective is for Magellan in 5 years to be a fund manager of scale with a broadened product mix that is well positioned to grow in segments aligned to client demand and to fortify our revenue streams. We also want to maintain our position as a partner of choice for the Australian wealth industry and deliberately broaden our institutional capabilities and reach. These are the critical ingredients which we believe will enable us to deliver sustainable, attractive shareholder returns. To deliver our long-term strategy, we're focused on 3 key areas of growth, underpinned by disciplined capital and cost management and alignment of our employee value proposition with client and shareholder outcomes. First and foremost, our focus is on ensuring that our 3 primary investment strategies are delivering on their investment objectives. When they are, and investment performance is strong, positive inflows generally follow. We have substantial capacity available across our 3 primary strategies and are well positioned to engage with clients and take on new business. We also have well-defined opportunities that leverage the investment we've made in our current capabilities to deliver new products, which is our second growth pathway. Magellan's investment team has developed deep knowledge and capability over many years. We are well positioned with a high-quality platform and a history of innovation to create strategies that solve for where client needs are growing. Over time, we can also look beyond our current strategies to add new and complementary capabilities through inorganic growth in a disciplined and value-enhancing manner if and when appropriate opportunities arise. In deciding where to invest, we will look to identify market opportunities in segments where we see long-term supply and demand investment thematics at the asset and client level and then explore opportunities to invest in those areas, either through seeding strategies or investing in experienced quality teams. This will, over time, diversify our revenue streams and fortify them across economic cycles. Our approach in this regard will always be disciplined. Any acquisition or investment we make will be strategic, scalable and complement our existing business, delivering diversity to the platform and clients and ultimately creating long-term shareholder value and sustainable revenue growth. Our people continue to be our most valued asset. Engaging our people within a high-performance environment and with an attractive employee value proposition is central to achieving our long-term objective. These 5 critical elements play to our strengths and leverage of the qualities and financial capacity that Magellan possesses. So let's look now at the progress we've made throughout the year in delivering our FY '23 strategic priorities across our 3 pillars: platform, product and people. In regard to our platform, we have simplified Magellan to best support our current focus as a Funds Management business. As have highlighted, this has included considered adjustments to our organizational structure to align resources to support coordinated communication with clients through distribution and marketing and within our product strategy and development. Cost management has also been a priority. Over the course of the year, we balanced our disciplined approach to cost management with investing to support client outcomes and are pleased that our Funds Management business operated below our FY '23 expense guidance range of $125 million to $130 million at $121.3 million. This included, as Kirsten mentioned, $15.4 million of costs associated with staff retention payments and the organizational restructure, which did not form part of the underlying cost base of the business. The costs associated with the staff retention payments are expected to be significantly lower in FY '24 and will cease from September 2024. I spoke at the start of the presentation about the various capital management initiatives we implemented in the year. Chiefly, the Board declaring total ordinary dividends of $0.867 per share, as well as a special dividend of $0.30 per share. We also continued and remain committed to our on-market buyback, which has been extended to April 2024. In terms of product, we've had a very busy period. Our focus has been on ensuring that all 3 of our primary investment strategies are delivering on their investment objectives for our clients. In this regard, of greatest focus has been the performance of our global equity strategy, where we've made well considered and deliberate changes over the past 12 months to improve outcomes. Specifically, in October last year, we announced changes to our investment team, organizational structure that were aimed at facilitating improved collaboration and information flow and to improve investment decisions by our portfolio managers. Gerald Stack was appointed as Deputy CIO with the task of driving analyst engagement and communication with portfolio managers. As CIO (sic) [ CEO ], my role was to provide an objective in forensic lens to the recent performance outcomes of our global equity strategy, to assess and amend the areas where we were falling short and then make progress to improve upon factors that were in our control, work, which is largely completed. As I mentioned earlier, these changes have resulted in improved collaboration and information flow and resource allocation with investment ideas brought forward earlier and prioritized more quickly. Importantly, these changes have enabled our portfolio managers and portfolios to better leverage our research engine, and we're seeing early signs of improved performance. Gerald has done an excellent job in steering the day-to-day engagement and team dynamics, such that my involvement has progressively reduced. As a result, the organizational structure implemented late last year has been unwound and we've referred to our business as usual structure, with Gerald as Head of Investments; and myself as CEO and Managing Director. We've also made meaningful progress on embedding our deep knowledge within ESG, that has been developed and refined over the last 15 years across all our client solutions. I spoke earlier about the successful recent relaunch of our Magellan Core Series and the launch of our new Energy Transition investment strategy in Airlie Small Companies Fund. The third pillar of our FY '23 priorities has been our people. We are a people business, and we want a culture that supports high performance, career development and opportunity. The past 12 months have offered us the opportunity to work extensively to reaffirm our culture and values. Whilst Magellan has a good culture, we recognize that culture evolves continuously and requires an ongoing process of soliciting feedback and having discussions to define our ethos as a company. During the year, we conducted a survey followed by a consultation process to refresh and relaunch a clarified set of values, which was well embedded, we're in practice articulated by people in their own way. These are: put clients first, understand our clients and create value in their best interest; be authentic, do what we say, act with integrity and communicate transparently; take ownership, be engaged and behave as business owners and foster entrepreneurial spirit; and succeed together, act as one, respect each other and deliver performance for our clients. These values fit seamlessly with our purpose to protect and grow the wealth of our clients. These complement day-to-day improvements in the business to explore how we drive high performance and career development and align teams to the long-term success of Magellan, our shareholders and clients. This has involved improving and clarifying development opportunities for our people. As announced in February, at our interim results, we've accelerated the staff retention program by bringing forward the cash payments by 1 year from September '24 and September '25 to September '23 and September '24, respectively. This initiative, alongside others, such as extending the term of the share purchase plan loans and removing the requirement for a portion of boldness payments to be directed towards loan repayment have helped alleviate some of the pressure felt by the 61% of our employees with outstanding SPP loans. Following the final cash retention payments at September '24, the outstanding balance of employee loans will be significantly reduced. We also continue to progress development of an accountability and alignment model to ensure staff are aligned to delivering positive client and shareholder outcomes. This work will be supported to completion by a key appointment we made in May 2023 of a highly experienced Head of Human Resources, Melissa Pascoe. So looking ahead to FY '24. Our areas of focus will be on: delivering investment performance across our established strategies over a sustained period; building a track record in our newly launched products and our relaunched Core Series; and shifting the focus of dialogue with clients and consultants to areas of growth. We will also explore diversifying and broadening our fund mix and continue to enhance our ESG capabilities. In doing this, we will remain disciplined in managing both costs and capital. We are implementing initiatives designed to deliver year-on-year improvement in operational and cost efficiencies across the business and are guiding to, as I mentioned earlier, our Funds Management business operating expenses to be in the range of $95 million to $100 million in FY '24. In terms of capital, we will continue to focus on ensuring capital efficiency, including through our on-market share buyback program with a view to maximizing shareholder value. From a people perspective, our FY '24 priorities are aimed at enhancing career development and progression paths and enriching the employee experience while building depth and breadth of the teams. This will include continued evolution of our culture and embedding our refreshed values into our organizational DNA. And as I mentioned earlier, we are also continuing development and implementation of an accountability and alignment model, incorporating client and shareholder outcomes. So to wrap up the presentation today before Kirsten and I take your questions, I'd like to reiterate what I said at the start. We are executing on our strategy and accelerating Magellan's evolution. Our focus remains on our clients and delivering the performance that protects and grows their wealth. Importantly, Magellan has the foundations from which we can do this. We have an outstanding research engine within our Funds Management business, delivering extensive fundamental company analysis, industry research and macro insights. This research is delivered to clients by experienced portfolio managers working within disciplined risk and portfolio frameworks. The broader Magellan team provides a scalable operating platform and well-established legal, operational, risk and compliance expertise. Our distribution and marketing team is market-leading, and we have outstanding multichannel connectivity and relationships with offices in Australia, New Zealand and the United States, providing global reach into the major markets. As an organization, we have a team of people committed to the shared success of Magellan, its clients and its shareholders. These quality attributes, alongside the scale and financial strength of the business, provide an exceptional base from which to deliver for our clients and build and grow as a business. We are 1 year into our 5-year strategy, and we're making good progress. There is much to do, but a strong foundation has been laid, and we are laser-focused on execution. I'll now open up to questions.

[Operator Instructions] So we'll start by taking the questions submitted via webinar first. The first question is, what is the Board's current criteria for proceeding with the stalled share buyback, specifically, what conditions haven't been met and need to be met for that buyback to resume?

Perhaps I'll take that one, Primal. So we have a disciplined process for deciding when and how to be involved in the market. And that's, of course, cognizant of blackout periods and other market volume type effects. But the buyback is something that we're committed to, and it has been extended to April 2024. But it is just one of a number of initiatives we can have around capital management and we've announced another one this period and the Board declaring a special dividend of $0.30 per share.

Great. The next question we have is, why does Magellan have any open class global fund units on its balance sheet when the closed class units, which are invested in identical assets are available at a significant discount?

So perhaps I'll take that one as well. So we think in our -- as Kirsten outlined, so the purpose of the Fund Investments provides liquidity for Magellan, but it's also an important co-investment or investment alongside our clients. So we've got investments in a variety of funds including both closed class and open class units. And we would consider those on an ongoing basis as to what the right mix is.

Okay. Well, next question is on the FY '24 cost base. How will cost be managed from 2H '23 FM cost of $60 million or $118 million annualized to the guided $95 million to $100 million for FY '24? They've also asked for a breakdown of the $50 million in staff cash retention payments. We'll start with that, and there's a second half to this question, but we'll come back to that.

That looks like perhaps one for you to start with, Kirsten.

So let's just take a breakdown for the staff cash retention payments. Look, we have not disclosed that breakdown of the components, but perhaps to give you some color, we expensed 3 months of the retention in 2022. In 2023, we've expensed the full year and also an acceleration for bringing forward the payments by a year. And if you want to think about it, the bulk of the contingent liability, which is disclosed in note 13 of the accounts, at 30 June 2023, will be -- the bulk of that will be recognized in FY '24. So hopefully, that's helpful. In terms of how will we manage the FY '24 cost base within the guidance of $95 million to $100 million. And look, we've done a review of the entire procurement process. And I can assure you, we don't ever stop looking. The cost savings are expected to come from some annualized savings from headcount that haven't been replaced as a result of the organizational restructure in October. There's also been the accelerated retention bonus expense that I spoke of, recognized in '23 and the first tranche will be paid out in September '23. So that will result in a lower retention bonus expense in '24 as well. And we've also been looking at some corporate spending and efficiency initiatives. So to give you a bit of an idea of what that really mean, looking at, I guess, attractive tenure and with discounts with suppliers, and particularly in areas, professional service providers, air travel and some tech.

Amazing. So the second half of that question was, are the strategies to achieve this lower cost base already implemented? Or will that take some time? And if they will take some time, can you please provide potential cost benefit going into FY '25?

So [ I'll just ] add. I think there's always a set of initiatives that are ongoing. So sort of does the initiatives that Kirsten just looked at, there's things that we're doing already, so this is a good example. So -- through the last several years we've learned how to do live streams really well and deliver content to investors in a number of different ways. And that's allowed us to look at the mix of in-person events and large-scale events relative to smaller scale and livestream events and actually, that results in cost savings on an ongoing basis. So the only other thing I'd probably add is the forward, which is in that question is we will and have the capacity to invest to look for operational efficiencies and automation opportunities and that both supports reliable delivery of things that we do, but it can also mean that we can do them more efficiently.

The next question is on, again, costs, and specifically the medium-term cost-to-income ratio. Should we assume the cost-to-income ratio is reset from FY '24? Or could we see further improvements beyond FY '24?

So I might just start and then Kirsten, if you'd like to add, feel free. So I think the cost-to-income ratio, there's the element of it that we can control. So I think we've talked quite a lot about kind of a relentless approach around that to make sure that we're delivering for clients, we are investing where we need to. But in every other way, we're making sure that every dollar is spend efficiently and so investing for efficiency where we need to. So I think that's what we can control. And as you've heard, we're quite focused on that. The other side of that, of course, is in common there, we're focused on doing what we can control in the investment performance side. So again, our clients make decisions and markets move, and so that's part of that income. But if we keep doing what we think we're doing, which is the right things around delivering for clients and keeping it simple, then hopefully, perhaps it is a reset as the question says.

The next question is, is MFG still aiming for the long-term $100 billion FUM target? And how will the business reach this target based on current FUM of $40 billion, new FUM generated for new products being less than $5 billion in acquisitions?

So the $100 billion FUM target is absolutely still a goal for the business. And as we've talked about, really 3 parts to that. So the first is current business, existing and core capabilities, ensuring that they are delivering on objectives and rebuilding those track records where they need to be. The second is something we've already started on, which is organic growth where we've developed and launched 2 products and redeveloped and relaunched a third set of products in the core series. And again, that's part of our future growth, and there can be more pipeline in there. But the third piece is inorganic. So all 3 of those will combine, and it's a long-term strategy. And I guess the important part is -- the first priority has always been ensuring that the existing strategies are working as well as they can. And so that's year 1 of that 5-year approach.

The next question is, what have been recent fund flows into the core series? And what does it take before a large institutional mandate is received?

So funds flows into the Core Series are positive, but they're starting from a small base. And certainly, I guess, when we say relaunch of the Core Series, what we're talking about, is some tweaks and simplification in the portfolio model, but really a dedication of distribution and marketing resources, which has really only just happened in March. So the relaunch has been very well received, activity is high, and we are seeing some positive inflows, but it's coming from a very low base.

Next question is addressed to the Chair. You said you want to return Magellan to growth. What kind of growth would you like to see, large alpha generation and 10% inflows as a percentage of FUM per Magellan of 5 years ago or something more moderate?

When I talk about return to growth, my focus is very much on making sure that I see Magellan as the perfect home for investment talent out there and a real strong focus and relationships with our clients. That's what we're great at. That's what I think we can extend and build upon. And so my focus for growth is to make sure that isn't just a statement that is aspirational, it's something we clearly focus on. If we continue to have the best talent in the Australian marketplace sitting here in the building working together, now you can still have small autonomous teams, but the collaboration that comes from just smart people sitting around a room just leads to fantastic client outcomes. And ultimately, that's what we're here to deliver. We're here to help people find and deliver to their financial future. Now when you get those very strong results that come through from that, you obviously deliver -- I am a big believer in active management. You just can deliver significant returns above benchmark for clients. What that leads to is exceptional fund growth. So to me, what comes in terms of growth, in terms of the outcome, in terms of whether it's fund under management or rising AUM and profitability, it all comes down to making sure you have the right talent delivering for our clients, and that's the prime focus. Achieving that with a more diverse pool, as David said, we want to broaden the offerings we have for clients. And we want to continue to expand on what is already an exceptionally strong investment team and with very, very strong client relationships. That's why I focus on growth. The rest will come from that.

The next question is directed to David. Magellan was a success in a different economic market and political world. What is the current world order and what experience and skills emphasis are required to be a successful fund manager?

I think I'll maybe just make some brief observations because the world order, it would be a big topic. But I think the current order, as I sort of alluded to, is one where you have an interest rate cycle and a monetary policy cycle that you haven't seen in the long time. And it's at a scale that you haven't seen in a very long time. So that's something different. In fact, a lot of people in their investing careers probably haven't been through very many of those or even not many at all. So that creates new challenges, but that's not a different challenge than investing all the time. So you're always in an environment. And if you've got talented people and we do and if you've got people that consider very carefully what the macro environment is and the risk to that, which we do, then that puts you in the right footing to execute on sort of an investment approach and investment philosophy that we have across our strategies to look deeply into companies and see what will be successful. No matter what that investment environment or that world order looks like. I think I'll leave it there.

The next question is again for David. In the past, Magellan has had a large adviser following mainly due to its conviction performance and the Hamish factor. Recently this following has waned and Magellan is no longer seen as it once was by the adviser community despite them being generally a loyal bunch. Is adviser support crucial to your plans? And how do you plan to turn around adviser sentiment?

So adviser support is crucial to our plans. We reach clients in a few different ways, institutions and others. But importantly, investment advisers and the clients they look after and advise are a key client base for us. So there's no question of the importance and our focus on delivering, not just for the end clients but advisers in making their jobs, work as well as possible. So again, I suppose I would stand back and without making comment on Hamish or the Hamish factor, I think success in asset management has always come from a team working together. So we've got a very big team. And we are executing on what is a reliable and sort of very stable investment philosophy that has a track record for success. So we know that there has been some change in our investment organization, and we know that performance for a period of time wasn't where we would want it to be or probably our advisers would want it to be, and we're working on it.

The next question is, could you please advise what, if any, role Hamish Douglass has at Magellan? Does he remain on the payroll? Or is he a consultant?

So Hamish remains connected to the organization. So he's still a significant shareholder, but he is connected to the organization as a consultant. So he has a consulting agreement. It's like a number of consulting agreements we have where we get either macro insights or other input into the investment process and so he provides that input under that agreement, like many others, but for our investment team to absorb and use as part of their investment process as they see fit and as it fits.

The next question is again for David. How does the pricing on the newly launched or relaunched strategies compared to your existing strategies? Does Magellan need to review pricing on the back book to enhance customer loyalty?

So on the new strategy -- so when we launched the strategy, we absolutely look at the market. We look at the value we think we can provide in that strategy, and we set pricing accordingly. So for the Core Series, it's the broadest exposure to that research product and the research engine that our analysts create, whether that's an infrastructure or an ESG or across the global universe. So that's priced at 50 basis points in the retail market. And we think that's good value and appropriate and contemporary. So we're doing that where we are launching products and we think striking the appropriate balance. For the historical pricing, I mean, our strategies have been launched over time. And pricing changes over time, but we think that we provide value. So again, those strategies are designed to add value over time. And if we think if we are adding that value, and we can see that we do in the performance fees that we've earned in the last year, which says that we are outperforming those benchmarks in that period of time that we will be able to provide that, and people will look at the fees and see value.

The next question is, a number of directors and named execs have investments in Magellan Funds. When will the CEO make a personal investment in Magellan Funds?

Well, so we've just issued our annual report, and I have a short-term incentive and that the strategy all along was that the substantial proportion of that would be invested in Magellan Funds.

So the next question is, can you elaborate how the staff retention payments will be implemented? Is it through loans to staff and buying shares at the market price? If so, how long will these shares be held? And are there any restrictions on selling behavior?

So I might pass it to you, Kirsten.

So the staff retention payment or program when comprised of a couple of things, but the cash element has 2 tranches. Generally speaking, September '23, there will be an amount of cash paid to the employees. And if the employees do have an SPP loan, then the after tax of that cash will be swept and pay the loan down directly. It may not pay the loan off fully for some staff and for a number of other staff that may pay it off. Same process will apply for the second tranche. Obviously, the payment in cash applies where the staff obviously remains employed at the date of the payment.

The next question is for David. How do you keep the team motivated and ensure that the culture isn't eroding over time through these times of constant change that Magellan has been going through?

I mean, I think it's a good observation. Constant change is something that the culture needs to be resilient to and can erode culture over time. But I think the answer to that is to focus on it. So focus on talking about, which we're doing through refreshing our values and creating a conversation around that. But also just to ensure that you have a focus on your employee value proposition in a whole number of ways. So that could be remuneration, and that could be long-term alignment models. And we made a key hire, which I think is critical for a business that is people-centric, such as ours of a senior human resource professional in May this year, who has decades of experience in the financial services sector, and I think she'll be a huge contributor to our business.

The next question is, have there been any positive institutional flows over the past 2 months outside of the infrastructure strategy?

So we report our funds flows every month. So I'm sure there have been flows, but clients rebalance and there's incidental flows all the time. So there's certainly been flows in both directions over the last 2 months.

Can you expand on the inorganic growth potential? Is that from M&A? And would it be in any particular asset classes?

So there might be some input you could provide on this. So you'll have your own views, I'm sure. But I guess just to start, there's -- I think that there is a platform here that can support both equity strategies, but has the capacity to support other strategies as well. And more importantly than that, when we look at our clients and where their portfolios might have needs or be underweight, then we need to look to try to meet those needs, and that's an opportunity for us. So I have said that we would look beyond equities there. But again, ensuring that there's cultural alignment and that there is commercial alignment and that it makes sense, and it does fit that profile of something that our clients are looking for, those will all be the guidepost as to exactly where that is.

Maybe just adding on that, I think from a Board perspective. M&A is one of the tools available to us to -- as part of our growth agenda. It's not the only one. I'm not even saying it's the highest priority, but it is one available to us. M&A in our industry can be successful. And when it is successful, it tends to be where there's a strong cultural alignment between the businesses that are coming together, have a strong strategic intent, the recognition of what both businesses bring to each other. I think from a Magellan point of view, as I've spoken before, I'd say, I think we've got a fantastic environment for talented investment professionals to operate. We've got very strong client relationships and a very strong governance and operating model to support that. So businesses where they are looking to benefit from the global reach, the -- and the approach that we have to support them, and you've got a very talented investment team that wants to remain autonomous in terms of their investment process, it could be an ideal match as long as there's a cultural alignment as part of that. So in terms of particular asset classes, as David said, one of the reasons Magellan made successful was identified earlier the trend to a global investing all the way back in the foundation of Magellan. There are other areas that the market will continue and clients will continue to look to source and we'll look at those. So it's very much a collaboration between understanding our clients' needs, not really just now, but where they may be looking in the next 5 years and establishing credentials and credibility in that space. Part of the process, I'll be ongoing as the new Chairman is to look and work with our clients and our business to see and identify where they are.

We'll take a couple more questions from the webinar and then we might move to the phones. The next question on the webinar is, why is the NAV, the net asset value of funds for MGF, the Magellan Global Fund Closed Class so different from the actual share price?

So the MGF is a closed-ended front. And so the price, it trades on an exchange, much like a listed company. And so that is created -- the prices set by supply and demand. And so what you've got there is the [ price point ] trading below its net asset value, so there's not enough demand. So I guess I would say that the Magellan Asset Management Board is very focused on that. So we have been doing a few things to try to ensure that, that investor experience as well as that discount is -- the investor experience is as good as possible, and that discount is reasonable and as low as it can be. And it does include a real focus on performance, which we've talked about quite a lot. There's a very active on-market buyback from the fund that over time has purchased over $400 million worth of units, over 270 million units have been purchased through that buyback, as well as ensuring that we are communicating both those things as well as specifically the closed class unitholders so that they understand the investments and the value of the investments can process that go into running the Magellan Global Fund overall in the closed class units.

We'll take one more question on the webinar. Have we reduced our exposure to Alibaba and Netflix as both are lessening financial performance?

So it's probably not for me to talk about specific positions. Over time we had investments in Alibaba and Netflix. But -- and I can say that they're smaller than they have been at their maximum, but I'm not going to comment on current positions.

Thank you, David. We'll now start by taking -- I will now move to the phones. [Operator Instructions] The first question we will take is from the caller with the phone number ending in 256. [Operator Instructions].

So it's Anthony Hoo at CLSA. I just had 2 questions. Firstly, please, can I pick up on question around cost. You've given us guidance around cost base next year, but can you give us some more detail around how much in gross cost savings that you're realizing versus how much you're actually reinvesting in order to achieve those cost savings?

Yes. So I don't think we're going to provide that level of detail. So we've got detail on the financial statements as to a breakdown of at some level of where costs are, but we're doing all of those things. So we are looking for savings where -- whether that's through suppliers or procurement or technology savings or otherwise. But sometimes that means investing to find those efficiencies and to make us more efficient and be able to do more in some other way. So I think it's going to be a combination. But as Kirsten went into detail on -- a significant portion of those savings are actually from actions and activities taken in financial year '23 related to 2 things. One, the retention payments and the accrual of those and the acceleration of those where some of those costs were in the FY '23 number, and they should be lower in FY '24 as well as savings ultimately from the organizational realignment from October last year.

So my second question is just on the fee margin. I appreciate that the mix shift in your funds has been beneficial from a margin basis point of view. But just wondering whether you can talk about the pressures within each of the retail and institutional channels. How do you think you're positioned within those channels from a competition point of view? And are you seeing pressure from advisers or consultants on that -- in that respect?

Sure. So I think, look, again, fees, we've got a range of strategies and offerings within all 3 of our sort of key capabilities in Australia and infrastructure and global equities. So again, those address different marketplaces and price points in Australia, but globally, and we're no exception. There is a conversation about fees and value for active management. And for us, as I've said, those conversations happen. But our first focus and first priority is to make sure we're driving value in our active management and adding value. And again, I think that's the best way to approach for us the fee conversation about value for money.

The next question is from the phone number ending in 549. [Operator Instructions].

It's Brendan here. Just my question, just firstly, on the equity accounted investments, so maybe one for you, Kirsten. As I look out a couple of years, is it fair to assume that the Magellan share will continue to decline, if there's been sort of options being issued to staff within those investments? And as they vest over time, then Magellan's share will potentially be diluted further from both of those equity accounting investments?

Brendan, I think the reality is that, they operate as very independent businesses to us. So whilst we have representation on the board of both of those investments, I don't think that we're actually in a position to have any view on what it might look like. But if their policy is obviously to remunerate also through both cash and equity, then it absolutely could be a possibility. It's never very significant in any event to be perfectly honest.

That's clear. And then, sorry, just to follow up on that contingent liability you pointed towards in the notes. The larger component of that is actually in FY '25, in the note. So I think you said the bulk of it would actually be expensed in FY '24. So I just wanted to clarify, is it related to how the note is written? Or was what you said correct in that actually the bulk will be expensed in FY '24?

So there's a statement that says that 30 June 2023, the contingent liability is $5.722 million, and it will be the bulk of $5.7 million that's going to be expensed in FY '24.

I understand. That's clear. And then just a very quick one. Just on the head count in the investment team, sort of down to 25 now. All things being equal from a strategy perspective and inorganic growth aside, is that where you're sort of more comfortable with where the investment team should sit based on the amount of FUM that remains within the business at this point in time?

So, I think, we've got a very comfortable level of staffing in the investment team, but that's something that evolves. So if we expand where we're researching as part of looking at new strategies, well, then that might not be the right number. But one of the things I've talked a little bit about as part of some of the changes were how we sort of deploy our resources and our analysts in order to get the focus where we need it. So if we need -- we need to keep doing our normal and in-depth level of research on companies we own and companies that might go into the portfolio, we need to know them as well as we've ever known them. But where companies aren't in that range or aren't as interesting from a value perspective or aren't benefiting from some trends that we want to be exposed to, we want to be able to vary and triage how we deploy those resources. And that's actually created a bit of efficiency. It's allowed coverage to expand a little and it's also allowed for a little bit of additional coverage on a per analyst basis. So that's a good thing for the strategy because we can turn over more rocks, but it's a great thing for our analysts in that -- they get a bit more variety. They can expand to the next spot in terms of looking at a new business, and that might add to their context and their sort of full world view and sort of grow them as investors as well. So there's been a bunch of benefits, but that's another way where we think about are we being as efficient as we can with how we are looking for our ideas.

We might limit it to 2 questions per caller. We'll move next to the phone ending in 685. [Operator Instructions].

Liz Miliatis from Jarden. Maybe my first question is just on capital management. Obviously, the balance sheet even after the initiatives taken today and to date is still in a pretty good position. From here on beyond the current buyback, is that something you would continue to consider or a special dividend? Or do you see the balance sheet as it stands for the moment, really just they're ready to be deployed for acquisition?

So I think -- so capital management is something that's got many different possibilities around it. So we've talked about the buyback. So that's we remain committed to that, and that's been extended through April 2024. We've talked about the special dividend, but there's a variety of initiatives that you can look at and that the Board does consider periodically as they meet. But I think the concept though is all about balance. So where it makes the most sense from a shareholder value perspective to look at initiatives like a special dividend, then those may be taken. But we're also balancing the medium- to long-term needs and the strategic flexibility that we want in order to be able to invest in growth for the business as it becomes appropriate. So over time, we -- the time moves on and circumstances change, but we think we're striking the right balance at the moment.

Liz, I would just add to that. Obviously, I've stepped up to Chair on it today, and there's a lot of work that I'd like to look out of the business as we look for growth. And I think, as David is pointing out, it's striking the right balance. We have an ongoing share buyback program. We've announced a special dividend. But also one of the strengths of the business is the fact that we have a strong balance sheet. And we have to look at what the opportunities are available to us as we look to position the business for growth in the medium term. And if over the next year or 2, we find that actually the capital needs for us to position ourselves for where we want to be on a growth as we fulfill David's 5-year strategic sort of plan, the management team plan for business, we may find that there's additional capital that can return to shareholders. And I think we've demonstrated over the last 12, 18 months, a very strong -- our ability to do so. So it is really about reflecting the need of the business today, but also thinking about the sustainable growth and needs of the business in the future. And it's a real strength of ours. So we want to be careful that we consider all avenues, which, of course, does include return of additional capital when we don't need it to shareholders.

I think that's all on our -- on the phones. We'll wrap up the Q&A there. For any questions that we haven't responded to that all come in late on the webinar, our Investor Relations team will endeavor to get back to you in the coming days. Thank you for joining us today. As noted earlier, a recording of the webinar will be put on Magellan's website later. Thank you.