Pacific Current Group Limited (PAC) Earnings Call Transcript & Summary

These are automatically on, I think. Yes. Good morning. I'm Tony Robinson, the Chair of Pacific Current Group and the Chair of this meeting. It being 10:00, I'm delighted to welcome you all to the Annual General Meeting of Shareholders of Pacific Current Group Limited. Thank you for your attendance today. I'd appreciate if all mobile phones can be turned off or put on silent. The time is now 10:00 a.m. And as we have a quorum of members present, I declare the Annual General Meeting open. Joining me today are Michael Clarke, our Executive Director and Acting CEO; and Non-Executive Directors, Joanne Dawson, who's Chair of the Audit and Risk Committee and Chair of the Remuneration, Nomination and Governance Committee; and Gilles Guérin, who is our Lead Independent Director. I would like to thank each director for their support and contribution during the year. Others here today that make a tremendous contribution to our business are David Griswold, our General Counsel and Chief Compliance Officer; Ashley Killick, our Chief Financial Officer; and Clare Craven, our Company Secretary. Thank you all as well. Finally, I note that Rita Da Silva of Ernst & Young, our external auditor, is also here. Rita will provide a reasonable opportunity to answer questions you may have about the conduct of the audit. The agenda for today's meeting is set out on your screen or our screen. Before commencing with the formal matters before the meeting today, I'll outline the formalities of the meeting and make some general comments and then hand over to Michael and Ashley, who will present an overview of activity during the FY 2024 year, commenting on strategy and provide an outlook for the business. A question-and-answer session about the financial statements, the audit and general questions of management will be held before the resolutions are put to the vote of shareholders. Shareholders and proxy holders participating in person will be able to ask questions. Any shareholder or visitor who is listening to the audio webcast will not be able to ask questions or vote online. The notice of today's meeting was made available to all shareholders on our website, where you will also find our constitution and the 2024 annual report. The minutes of the 2023 AGM are available to view at the registration table. I'll take the notice as read and deal with the business of the meeting in the order it appears in the notice. But before I do that, I'll explain how voting and questions will work for the meeting. When you registered your attendance this morning, you will have been issued with an attendance card. Those with a blue card can ask a question and vote at the meeting. Those with a yellow card can ask a question but not vote. Visitors with a white card are not entitled to vote or ask a question. Your Board has determined that voting at the meeting will occur by way of a poll for all resolutions, which will require a vote. So that you have enough time to vote, I will shortly open voting and it will stay open until the meeting closes. I'll put each resolution to the meeting for questions or comments and then put that -- put the resolution to a poll. Only shareholders attending in person and by proxy may vote on the resolutions. As we formally put a resolution to the meeting, the proxies received in relation to that resolution will be shown on the screen. That number will include votes on undirected proxies cast by me as Chair. As set out in the Notice of Meeting as Chair, I will vote all directed proxies in accordance with the directions provided by the shareholder and all undirected proxies I'll vote in favor of the resolution other than resolution 4, which I will vote against. Today, we've appointed Tim [ Huen ] of Computershare, the company's share register as the returning officer. As the votes have been counted and reviewed by the -- after the returning officer, the results of the meeting will be released to the ASX and available on our website. I declare voting on all items of business -- I declare voting open on all items of business, and you can now submit your votes to the returning officer at any time. Tim is at the back there with the beautiful Computershare colored box. In relation to questions and comments, general business questions will be taken for item 1 and questions relevant to each other item of the business will be taken following introduction of that item. If you wish to ask a question, please hold up your registration card and when invited to speak, please identify yourself and then ask your question. I'll either answer the question or pass it to the most appropriate person to respond. As Chair, I reserve the right to rule out questions that do not relate to the business of the meeting. We will also not answer questions that are the same or substantially similar to questions that have already been answered. Otherwise, we'll endeavor to answer as many of the questions asked as we can. The last 12 months has been a period of significant change for Pacific Current. That's significant change in the management, the Board and the balance sheet. And I'd like to thank everyone for their efforts and support through this period. This period of change is anticipated to culminate with a share buyback with the company planning to conduct an off-market equal access share buyback of up to $300 million of surplus capital, subject to shareholder approval at an extraordinary general meeting. The planning process is ongoing and shareholders will be provided with further information in due course, but we're now expecting to release the Notice of Meeting for the relevant EGM over the next month. Major shareholders, which own approximately 45% of ordinary shares on issue have all confirmed that they're supportive of the proposed off-market buyback offer being conducted. None of these shareholders have, however, provided any indication about their intentions regarding participation in the buyback if it's approved by shareholders. I'll now hand over to Michael and Ashley to present the business overview.

Thank you, Tony. I think it's -- just turning to that slide, thank you. I think it's fair to say that the 2024 financial year was a transformational year for Pacific Current Group, as Tony has mentioned. After multiple parties sought to purchase Pacific Current Group, a viable transaction ultimately emerged that Pacific Current Group believed would be feasible and beneficial to shareholders. The intent of this strategy was to unlock value by reducing corporate expenses while retaining access to key investment capabilities. It involves simultaneously selling 3 of Pacific Current Group's assets to investment manager, GQG Partners, while externalizing the investment management of the portfolio, both by appointing an affiliate of GQG to provide investment management services. The transaction results in an expected reduction in ongoing operating expenses of more than 40%, while ensuring the continuity of portfolio management of our asset portfolio. The agreement is in place for a minimum of 2 years. Turning now to transactional activity during the 2024 financial year. Again, to say that it was an eventful year is really an understatement. There was considerable activity in the portfolio, most of which involves selling assets, though one new investment was made. The highlights of the year included the following: in September of 2023, Pacific Current Group purchased a 24.9% stake in private credit manager, Avante Capital for USD 28 million. In March of 2024, Pacific Current Group sold its entire stake in GQG. This sale was a combination of a highly successful investment and yielded proceeds of AUD 257.3 million. Combined with distributions received throughout the investment, Pacific Current Group made more than 99x its initial investment, so an extraordinary result. In May of 2024, Pacific Current Group announced the partial sale of its investment in Pennybacker Capital. The proceeds will be paid out over 2 years and are roughly 1.75x Pacific Current Group's initial investment in Pennybacker, yet Pacific Current Group retains 45% of its original stake. So again, another very, very successful activity. Also in May of 2024, Pacific Current Group announced the sale of 3 assets, Proterra, Avante and Cordillera to GQG for USD 71.25 million, plus the assumption of certain deferred payments and earn-out obligations. In early July 2024, PAC agreed to sell its entire stake in Carlisle Management Company to Abacus Life. The transaction, which is contingent upon regulatory approval, which we expect to get by the end of this calendar year, will result in PAC holding a combination of stock and bonds in Abacus worth roughly 50% more than the pre-transaction estimate of Carlisle's fair value. So again, I'll say it again, 50% more than the pre-transaction estimate of Carlisle's fair value. Owning bonds in Abacus will also actually result in increased contributions to PAC versus owning Carlisle stock only. In early August, continuing 2024, PAC announced the sale of 55% of its stake in Victory Park Capital to Janus Henderson Group. Initial proceeds will provide Pacific Current Group with approximately USD 34 million. This amount will be supplemented by an earn-out that could provide an additional close to USD 30 million. And the important part about -- another important part about that transaction is Pacific Current Group will also retain most of its entitlements to future fund performance fees. So under any measure, a very, very busy 12-month period. With so many recent asset sales, it may appear that there's been a strategic decision taken to sell assets. However, this is not the case. All these sales have been driven by outside buyers expressing interest in Pacific Current Group's assets. The prices received for these investments have been quite attractive with all transactions occurring at valuations at or above PCG's estimate of fair value. So turning to financial highlights. Again, 2024 was solid -- saw a solid year of growth in revenue and underlying profits. This occurred despite the loss of earnings from selling all or part of PAC investments in the mentioned transactions. Statutory results were heavily skewed by the gains from the sale of our stake in GQG. Underlying results, though were also strong, with underlying EBITDA growing 18% and underlying net profit after tax growing 20% franked. Looking ahead, PAC's financial results will be notably different in the 2025 financial year to previous years. This stems from the sale of the assets with still some notable dispositions in progress and the timing of when these transactions will be completed remaining uncertain. Additionally, some of the proceeds we'll be receiving will produce earnings so long as the assets continue to be held. Lastly, our cost structure will be notably lower going forward due to -- in no small part to the GQG transaction, the outsourcing of the investment team and the future cost-reduction initiatives still in place. Helping shareholders understand how these different considerations impact financial results will be an important initiative in this next financial year. To that end, I'd now like to introduce Ashley Killick, who was introduced earlier by the Chairman, CFO, to speak to the next slide.

Thanks, Michael. Maybe everybody can hear me? So as Michael and Tony said, it was quite an eventful year, FY '24. We -- the acquisition of Avante and so -- GQG in Avante -- so therefore, our statutory net profit after tax was $110 million. But obviously, it was significantly impacted by all of those activities. We traditionally come through and prepare underlying normalized results to try and strip out from that statutory result all of those abnormal -- so here on the left column, we've provided an underlying profit and loss, which shows an underlying net profit after tax of $32.2 million. We were quite pleased with that result because that was a 24% increase over the comparative calculation for FY '23. So the increase in our debt facility caused an increase in our interest expense between the periods. But other than that, it was quite a good significant contribution. What we've tried to do in that right-hand column is restate that underlying profit and loss as if the transactions that occurred during FY '24 had happened on the 1st of July 2023. So you get an indication of what a normalized result would look like. But effectively, the loss of earnings from GQG, Avante, Cordillera , Proterra, Pennybacker partially during the FY '24 year, obviously -- it's on. So therefore our statutory mid -- we've talked about it, tax, was $110 million. But obviously, it was significantly impacted by all of those activities. We traditionally come through and prepare underlying normalized results to try and strip out from that statutory result, all of those abnormal activities. And so here on the left column, we've provided an underlying profit and loss, which shows an underlying net profit after tax of $32.2 million. We were quite pleased with that result because that was a 24% increase over the comparative calculation for FY '23. So the increase in our debt facility caused an increase in our interest expense between the periods. But other than that, it was quite a good significant contribution. What we've tried to do in that right-hand column is restate that underlying profit and loss as if the transactions that occurred during FY '24 had happened on the 1st of July 2023. So you can get an indication of what a normalized result would look like. But effectively, the loss of earnings from GQG, Avante, Cordillera, Proterra and partially, Pennybacker see the boutique contributions line decrease. And being -- we're assuming we'll invest that spare capital, $350-odd million in money market accounts drawing 5%. So the interest income line rises significantly. Okay. But in essence, the corporate overhead line reduces because of the outsourcing of the investment management function to GQG as well as effectively the close down of our distribution function as well. But all in all, there's a slight reduction in the underlying net profit after tax, which is primarily attributable to the difference in the earnings from the boutiques compared to a 5% interest income. Okay. But a good result all around for FY '24, which saw our fair value, net asset value increase to $13.47. So -- with that, I'll hand back to...

Thanks, Ashley. Turning to the next slide and the next one. Yes. Thank you. So now looking forward, that's been a very -- obviously very strong period, quite a period of change. Looking now to the current financial year and beyond, the near-term focus, we've framed around these 5 key sort of activities, areas. The first, as Tony has mentioned, is returning capital. There has been very good progress. As Tony mentioned, we'd hope to be able to call a notice of meeting in the next month. So that gives a sense of the timing and an enormous amount of work. So thanks to the team who worked through that, particularly with the tax office to get to this position. The second key point is continuing to enhance capital flexibility. I mean, effectively freeing up assets in itself creates flexibility. And clearly, then you need to obviously use that. The first step is to create that flexibility. And we've continued into this financial year with the partial sales, as mentioned of -- sorry, the total sale of Carlisle to Abacus and the partial sale of Victory Park. Victory Park, of course, has settled. We are waiting still for this regulatory approval for the settlement of Carlisle. So both very important transactions. At the moment, there are no further transactions on the horizon, but that's not to say that we're not still feeling interest and ourselves looking at opportunities. So turning to growth initiatives going forward. The focus area has been, to date, working with the existing boutiques, the remaining boutiques, our partners, looking for opportunities where we can support or accelerate their future growth, be that injections of working capital, potentially balance sheet support, warehousing, other activities given our currently strong financial position. So that work progresses and continues, and there'll be more comment on that into the new year. The fourth area of focus has been basically [ bedding ] down and optimizing the new, I guess, decision-making structure of the company and particularly around investment decision-making, where an investment committee was formed. And importantly, the support we get from GQG is delivered through that committee to the company and continues and will continue for up to 2 years. So that's working well in my observation. That's a very -- I think, becoming a very effective decision-making group. We will also look to reduce debt. There's activity going on there. Nothing really to report at this moment, but considerable activity to attempt to effectively make the company debt free. Turning to the last slide. This slide I put up just to give a sense, again, a summary of our thoughts around about future capital investment transaction activity. We think about sources of capital growth, and they are mentioned on the slide. Existing cash reserves, assets in harvest mode, future realizations of boutiques and cash flow from existing activity. So a number of sources of capital. Applications of growth, as I mentioned, existing boutiques, working with all of them. Each one, I hope to -- we hope will have a plan that we will execute, potentially co-investing in GP stakes funds and also listed GP managers. In conclusion, I'd like to thank employees and the PAC Board, as Tony has done, both past and present for their work to enhance shareholder value. The great progress was made in the 2024 financial year. There's still much to do, and we remain relentlessly focused on achieving the best possible outcome for our shareholders this financial year and beyond. Thank you. I'll hand back to Tony now.

Thanks. Thank you, Michael, and thank you, Ashley. We now come to the formal business of the meeting. The first item of business is the receipt and consideration of the 2024 Annual Report of Pacific Current Group Limited. There's no resolution to be considered by shareholders. The 2024 annual report containing the financial report, directors' report and the independent auditor's report. A copy of the 2024 annual report was made available on the company's website, the ASX platform and was sent to those shareholders who requested a copy. The financial statements have been approved by the directors and audited by Ernst & Young. I'll take the 2024 Annual Report as read. Questions may be asked of the auditors in relation to the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the company and the independence of the auditor. At this time, I'd like to take any general questions or comments about the 2024 annual report or for the auditor. No questions for the auditor were received prior to the meeting. We did, however, receive a number of questions from 1 shareholder, which I'll ask Gilles Guérin, Lead Director and our acting CEO, Michael Clarke, to answer briefly. But firstly, any questions of the auditor? All right. Thank you. So Gilles, over to you.

So the first question we received was, does the Board, excluding the Chair, believe that it's still appropriate for the Chair to remain in place despite working with external parties to take over PAC? Yes? Or no? Our response is, yes, the Chair has the full continued support of the PAC Board. In particular, we note that the PAC Board established an independent Board committee to consider all takeover offers that were previously put to the Board. The IBC did not involve Mr. Robinson, noting his role at River Capital. As a general principle, I am appointed as Chair in circumstances where Tony has an actual or potential conflict. The Board also recognized and publicly disclosed that Tony is not an independent director. The PAC Board has, in accordance with governance practices, put in place structures at the appropriate time to ensure that there is no actual or perceived conflict of interest. However, it is the view of the PAC Board that even though Mr. Robinson also has a position with a major shareholder is not automatically conflicted from acting as a Director of the Chair of PAC. In fact, this affiliation with a major shareholder can bring useful perspective to Board discussions. Over the past year since Mr. Robinson was reelected by PAC shareholder last November, he has overseen a period of success for PAC, including the rationalization of the PAC portfolio, externalization of management and the intended launch of a material buyback for PAC shareholder. In the view of the PAC Board, PAC has benefited from the continuity provided by Tony and my continued involvement with the Board. The Board and PAC management have sought and continue to seek advice of external counsel on specific situations, including in relation to the takeover offers received last year to help manage any potential conflict of interest. As previously communicated to shareholders, Mr. Robinson intends to look to continue the orderly transition of the Board and step down following completion of the proposed buyback, subject to the PAC Board identifying a suitable replacement. The next question was, do all PAC shareholders have access to the same information, specifically what the Chair sees in his capacity as a director or an external company that made a takeover offer for PAC? Our response is the following: PAC is mindful of its obligation to comply with the ASX Listing Rules, which requires that all information that is reasonably likely to have a material effect on the price or value of PAC shares is provided to the market and, by extension, to all PAC shareholders immediately, subject to limited exception. Through compliance of this obligation, all PAC shareholders have access to the same material information supported by PAC periodic reporting on a range of key metrics, including NAV, NTA and fair value. In addition, there are various directors and fiduciary duties that applies to the flow of information from PAC Director to major shareholders, including where a director may serve on multiple boards. In relation to the process ran in 2023 and -- 2023 and '24, which result in completed controlled transaction proposed by various parties participant in the IBC's process, all participants in the IBC's process had access to equivalent information subject to the negotiation of appropriate confidentiality agreement, compliance with insider trading restriction and to the terms that PAC was able to negotiate in relation to providing access to information that was proprietary to some of PAC's boutique investment and commercially sensitive. That said, PAC stands behind the valuation information it has provided and continue to seek to provide additional transparency where possible.

The next question is while some of the ambiguity around NAV NTA fair value has been clarified by our asset sales at large premium, question is why aren't the remaining assets valued in a more transparent and fair way? I guess a number of reflections. Most importantly, that we have published all of the valuations in the investor presentation. And these are a product of the same process. So we estimate future cash flows, existing business, future cash flows. It's discounted at appropriate discount rates. And that's same process in a discounted cash flow type framework. People are familiar with that. That same process is applied to all assets, not the assets that we sold. I mean the actual sale of assets, to our mind, helps to confirm, I guess, the sort of quality of that process and the veracity of it in a way. So I look at that question the other way is that the asset sales help us to gain greater confidence that the valuation process we are applying across all assets delivers sound outcomes. And that's not to say that, that's -- as the transactions have demonstrated, some of them at 50% ahead of that valuation, it's not that it's a perfect science. But the consistent process that we apply, I think, is the relevant answer to that question. I'll hand back to you.

Thank you, Michael. Thank you, Gilles. Are there any other comments or questions on this item? No. Well, as there are no more questions, I'll now move on to the next item of business. Resolutions 1 and 2 are each to be considered as ordinary resolutions and must be approved by a simple majority of the votes cast by shareholders present and entitled to vote on the resolution. I'll now move to resolution 1, the election of Michael Clarke. Michael Clarke retires in accordance with the company's constitution and being eligible, offers himself for election as a Director of Pacific Current Group. Michael Clarke joined the Board on the 14th of February 2024 as a Non-Executive Director. Michael was then appointed an Executive Director and acting CEO and became part of the executive team on the 1st of July 2024, and we thank Michael for being prepared to do that. Michael has over 30 years of experience in asset management in both Australia and overseas. He's held various roles, including responsibility for managing equity, fixed income and currency portfolios and building asset management businesses. Further information in relation to Michael's background and experience is in the notice of meeting. The resolution is set out on your screen. The directors with Michael abstaining recommend shareholders vote in favor of the election of Michael Clarke as a Director of Pacific Current Group. Are there any questions or comments? As there are no questions, I will now put the resolution to the meeting. The proxies received in relation to this resolution are shown on the screen. Please now select either for, against or abstain on your voting card. Now moving to resolution 2, election of Joanne Dawson. Joanne Dawson joined the Board on the 1st of July 2024. It's a busy month. As a Non-Executive Director, Joanne has experience in highly regulated service businesses, coupled with a long history of corporate transaction. Joanne is Chair of the Audit and Risk Committee and Chair of the Remunerations, Nomination and Governance Committee. Further information is available to Joanne's background and experience in the Notice of Meeting. The resolution is set out on your screen. The directors, with Joanne abstaining, recommend shareholders vote in favor of the reelection of Joanne Dawson as a Director of Pacific Current Group. Are there any questions or comments? As there are no questions or comments, I now put resolution 2 to the meeting. The proxies received in relation to this resolution are shown on the screen. Please complete your voting card for resolution 2. The third resolution of the meeting is the adoption of the remuneration report. Resolution 3 is an advisory resolution and does not bind the directors or the company. The remuneration report was contained within the 2024 annual report and is available on the company's website and was posted to shareholders on request. I will take the remuneration report as read. The resolution is set out on your screen. Further details about the resolution are also contained in the explanatory memorandum to the Notice of Meeting. The company received a vote greater than 25% against the adoption of the remuneration report in the 2023 Annual General Meeting. And as such, the 2024 Notice of Meeting contains a spill resolution at resolution 4, which is subject to and conditional upon the vote against resolution 3 being 25% or more. As set out in the explanatory statement, the Board believes that actions taken since the 2023 AGM, including the outsourcing of the company's investment services function to GQG and the resulting reduction in the company's cost structure as described in the company's ASX announcement on 15th of March 2024 and elsewhere in the 2024 annual report appropriately address the concerns that led to the company receiving a first strike. The Board also believes that the company's remuneration framework remains appropriately structured to align with shareholders' interest and to deliver on the company's strategy. Before putting resolution 3 to the meeting, I'd like to advise shareholders that the company will disregard any votes as stated in the voting exclusion statement relating to resolution 3 as set out in the Notice of Meeting. Noting that each director has a personal interest in their own remuneration from the company as set out in the remuneration report, the directors unanimously recommend shareholders vote in favor of resolution 3. Are there any questions or comments on resolution 3? As there are no questions or comments, I now -- the proxies received in relation to this resolution are shown on the screen. Sorry, as there's no further questions or comments, I'll put the resolution 3 to the meeting. The proxies received in relation to this resolution are shown on the screen. Please now complete your voting card on resolution 3. As stated in the notice of meeting, the final resolution, resolution 4 is a conditional resolution, which will only be formally put to the meeting if at least 25% of the votes validly cast on resolution 3 are cast against that resolution. Based on the proxy votes on resolution 3 received before the meeting, which I previously displayed, resolution 4 would not be required to be put to the meeting. However, because the final results of the voting on resolution 3 will not be known with certainty until after all the votes from shareholders here today have been formally counted by Computershare, we have determined to proceed with voting on resolution 4. If it's confirmed that resolution 4 is not required to be put to the meeting, then the voting on that resolution will not be recorded and will proceed on the basis that the resolution was not put to the meeting. Resolution 4, if required to be put to the meeting, will be considered as an ordinary resolution of Pacific Current, which means that to be passed, the resolution requires the approval of a simple majority of the votes validly cast by or on behalf of shareholders entitled to vote on the matter. Further information regarding the spill resolution and potential spill meeting were included in the Notice of Meeting. The resolution is set out on the screen. For reasons set out in the notice of meeting, the directors unanimously recommend that shareholders vote against resolution 4. I'll now take any questions on this item. Are there any questions? Wonderful to have you all here. No questions. That's perfect. As there are no further questions, I'll put the resolution 4 to the meeting. As I've just stated to you, the conditional nature of this resolution will only be taken to have been formally put to the meeting if the final outcome of resolution 3 requires it to be put. Otherwise, this resolution will be taken not to have been formally put to the meeting and votes cast on this resolution will not be recorded. The proxies on resolution 4 are shown on the screen. Thank you now enter your votes on resolution 4 on the voting card. Ladies and gentlemen, that concludes the discussions and voting on the resolutions for the meeting. The voting system will close at the end of the meeting. Once voting has been closed, all voting will be final and cannot be changed. Could you please check that you've cast your votes on all resolutions or all resolutions you wish to vote on. The returning officer will collect your voting forms now or as you leave the meeting. I'll give you one second to do that, especially as I haven't done it. [Voting]

So we now know we've definitely had enough time to do that. That concludes the business as set out in the Notice of Meeting. On behalf of the Board, I'd like to thank you for your support and attendance and participation today. Today is my last AGM as I will be stepping down after we finalize the buyback. I'd like to thank all shareholders for their support and interest in the company during my time on the Board. And I think we've got an outstanding set of assets in the business and a really capable group of people, both at the Board and the executive level and very confident of the future of the business. I'll take some time to count to obtain the final result. As advised earlier, after the votes have been counted, the results of the poll will be released to the ASX as soon as possible. Please join the Board and management for light refreshments after the meeting. I now declare the meeting closed. Thank you all.