PSG Financial Services Limited (KST) Earnings Call Transcript & Summary

Ladies and gentlemen, it gives me great pleasure to welcome you to this Annual General Meeting of Shareholders of PSG Financial Services Limited. The purpose of this meeting is to, firstly, present the audited annual financial statements of the company for the year ended 28th February, 2026 as well as the remuneration report, the reports of the directors, the Audit Committee and the Social and Ethics Committee for the year ended 28th February, 2026. The integrated report and the notice of the Annual General Meeting, which contain the above-mentioned reports are available on PSG's website at www.psg.co.za. The second, to obtain approval of the ordinary and special resolutions as stated in the notice of the Annual General Meeting and then addressing matters raised by the shareholders. Notice of the meeting -- the notice convening this meeting was distributed to shareholders on 24 June, 2026 and within the prescribed notice period. I therefore propose that the notice be taken as read. The attendance register is being recorded electronically by Computershare. Constitution, I have been advised that the requisite quorum is present. As proper notice has been given and a quorum is present, I declare this meeting duly constituted. The procedure, questions relevant to the resolutions will be addressed during the meeting as the resolutions are being considered. Questions relevant to the business of the meeting will be addressed once all formal proceedings have been concluded. Shareholders who have not already voted by means of submitting a proxy form before the meeting will be able to vote by means of the electronic platform. The order of the meeting will be as follows: the proposed resolutions will be dealt with in the same order as set out in the notice of this meeting. The electronic voting portal will be open for voting once the reading out of the resolutions has commenced. Shareholders would have received instructions on how to vote using the electronic voting platform. The considering of the resolutions now. We require your approval for the following ordinary resolutions: please proceed to record your vote per resolution read out using the electronic voting portal. Ordinary resolution #1. Appointment of Ms. S Totaram as Director. Ordinary resolution #2, reelection of Mrs. L Lambrechts as a Director. Ordinary resolution #3, reelection of Ms. B Matthews as a director. As previously communicated to shareholders, I personally will retire as Chairman and Director of the company at the conclusion of today's Annual General Meeting and have therefore not offered myself for reelection. It has been an honor and a privilege to serve the company and its shareholders. I would like to express my sincere gratitude for the support you have shown to me over many years. Lize Lambrechts has been appointed by the Board as the new Chairperson. I would like to thank her for accepting and wish her all the best. I will now pause to take any questions regarding these 3 resolutions. There being no questions at this stage, I will proceed. Ordinary resolution #4, reappointment of Mr. PE Burton as a member of the Audit Committee. Ordinary resolution #5, appointment of Ms. ZRP Matsau as a member of the Audit Committee. Ordinary Resolution #6, reappointment of Mr. AH Sangqu as member of the Audit Committee. Ordinary Resolution #7, reappointment of Ms. B Matthews as a member of the Audit Committee. Ordinary resolution #8. Shareholders are advised that the ordinary resolution #8 relating to the reappointment of Ms. L Lambrechts as a member of the Audit Committee has been withdrawn due to she becoming the Chairperson of the company and is therefore not presented at this meeting for consideration. Ordinary Resolution #9, appointment of Ms. S Totaram as a member of the Audit Committee. And I will now pause to take any questions up to here. As there have been no questions, we can carry on. Ordinary Resolution #10, reappointment of Ms. ZRP Matsau as a member of the Social and Ethics Committee, reappointment of Ms. B Matthews as a member of the Social and Ethics Committee. Ordinary Resolution #12, reappointment of Ms. S Totaram as a member of the Social and Ethics Committee. Ordinary Resolution #13, reappointment of Mrs. JL Johannes as a member of the Social and Ethics Committee. Is there any questions at this stage? Nothing. Then we can carry on with ordinary resolution #14, reappointment of Deloitte & Touche as auditor. #15, general authority to issue ordinary shares for cash. #16, share repurchases by PSG and its subsidiaries. Ordinary resolution #17, approve PSG remuneration policy. Please refer to Pages 16 to 42 of the notice of this meeting for this report. Ordinary resolution #18, approve PSG's remuneration report. Please also refer to Pages 16 to 42 of the notice of this meeting for this report. Ordinary resolution #19, proposed withdrawal of PSG's listing from the SEM. I will now also pause for any questions. As there is no questions, we can carry on with the special resolutions. Special resolution #1, remuneration of non-executive directors. You can refer to the detailed schedule on Page 12 of the notice of this meeting to see that. Special resolution #2, intercompany financial assistance in terms of Section 45 of the companies act. Special resolution #3, financial assistance for the acquisition of shares in the company or in a related or interrelated company in terms of Section 44 of the companies act. Then number four, amendments to PSG's memorandum of incorporation. Any questions on this? As there been no questions, we can carry on with the presentation of the annual financial statements and report. The annual financial statements as well as the remuneration report and the reports of the Board of Directors, Audit Committee, and Social and Ethics Committee as circulated are hereby presented to the shareholders. For ease of reference, the integrated report can be found on our website at www.psg.co.za, which includes the annual financial statements, the report of the Audit Committee and the report of the Board of Directors. The remuneration report can be found on Pages 16 to 42 of the notice of AGM as well as the integrated report. And the Social and Ethics Committee report can be found on PSG's website at www.psg.co.za. You go to Investor Relations and then Corporate Governance. Shareholders are now asked to kindly finalize their voting on the resolutions. The CEO report, please note that the mandate of the Social and Ethics Committee has been dealt with in the integrated report and the stand-alone Social and Ethics Committee report. The integrated report and stand-alone Social and Ethics Committee report may be downloaded from the company's website. Francois Gouws, as Chief Executive Officer of PSC Financial Services, will now present the CEO report, which includes an overview of the corporate and social initiatives. If any shareholder has not yet submitted their vote electronically, please do so now. I shall now I shall allow a few moments for any outstanding votes to be submitted. The electronic voting portal will now be closed. Results of the voting will be announced after the CEO report. Francois, will you join us?

Thank you, Chairman. I just want to get to the section on -- of my report. So as investors know, PSG Financial Services has 3 core divisions: PSG Wealth, PSG Asset Management, and the PSG Insurer Division. This has been in place for a number of years and particularly in changing and challenging conditions, it's reassuring to see that our structure has stood the test of time. This is just to give shareholders a reminder of the overall footprint of the firm. In total, we have just under 1,000 advisers in 265 offices, which is spread across all the main geographic areas in South Africa. Again, we always talk about the business characteristics that have an effect on PSG. We're equity market dependent. We have a number of platforms which are administratively-intensive. We're not particularly balance sheet-intensive. We're strongly capitalized. We've got strong free cash flows and with 19 regulatory licenses, we are always vulnerable to changes in the regulatory environment. Just turning to the financial results. I think it's important to just set the background on the third column from the right, it just gives you an indication of the movement of the rand during the financial period, which strengthened to [ 13.92 ]. And then you get the various indices, the JSE indices, the bond indices, the property index, the S&P, which was relatively flat, and the cash index. But I guess the point to make here is the backdrop from a market point of view. And as I've already mentioned, we are influenced by market conditions was strong, and that contributed, as I will show you in our results, very strongly to our performance. The third column on the right just gives you an overview of headline earnings, 32% recurring headline earnings matching that, at 32%. We bought back some shares, which we reported in our financial results, leading to a slight enhancement in headline earnings per share and recurring headline earnings per share. And then you can see the movements in terms of assets under management, assets under administration, and premiums. Of course, as these markets have rallied, that's translated into strong growth in all of those categories. Just turning to the financial results. Again, if you look at the third column on the right, this is the 32% that I was talking about in terms of the growth in headline earnings. And what's particularly pleasing is that all 3 divisions contributed to the overall result. The wealth business was up by 25%, the asset management by 59%, and the insurance business by 22%. I think if the investors also look in the far right-hand column, you can see that the growth rate over that particular period has compounded at a rate of roughly 16-odd percent. Yes, at PSG, we always look at the 10-year track record. I mean it's a complicated table, but the gray areas is really the lines that I just want to focus on. So the first line is really recurring headline earnings per share. And what you can see there is sequential growth over the entire 10-year period. And just to remind investors, this included the COVID period, which was quite unusual in the sense that PSG Financial Services was one of the very few companies that managed to also grow its earnings during that particular period. And the next line to focus on is really the return on equity. This is what shareholders care about. They want to understand what the return is on their capital. And for the very first time, PSG Financial Services generated a return on equity above 30%, which is, of course, a pleasing result for us. And then finally, the line that I want to comment on is just the credit rating. So again, another credit upgrade for PSG Financial Services. And during that 10-year period, we've received 5 credit rating upgrades, which again is unusual given the difficult environment that we faced over that extended period. Just turning to the divisional performance. I'm not going to go through this in detail, but perhaps just to focus on the line that says total managed assets. Managed assets is, of course, what underpins the majority of earnings in our Wealth Management business. You can see that we grew from 409 billion to 480 billion. And the 2 factors that most impacted on that is the 46 billion, which is the market movement. This is where the gains which we've seen in the markets translates into increases in assets. And then the other factor that contributed to the increase in assets is net flows of almost ZAR 25 billion. If you look at the contribution of those flows over a slightly longer period, you can see the 11.7 billion in the first half of 2026 and then the 13-odd billion in the second half of 2026, making up the total, which I've just referred to. So very strong flows and that flows, of course, has not just been strong during the last year, but it's pretty consistent over a very long periods of time. We always show the adviser numbers, slightly lower growth than in previous financial years. But nevertheless, if you look at it over the longer term, in this particular period, you can see that we've added almost 80 advisers over the last 5-odd years. Again, just looking at the asset management business. I'm not going to go through all the various line items, just to look at total assets under management, 60.7 billion, growing to 83.6 billion. And again, you see the very strong movement in terms of market movement, 18 billion as a consequence of the increases in markets that I've already mentioned and then the net flows increasing by almost 5 billion. And in a similar way to what I was talking about in relation to the Wealth business, record inflows in the second half of 2026. But again, a constant progression in terms of net flows. And it tells you both in the Wealth business, but also in the Asset Management business that despite outflows generally that we've seen in many financial services companies, to the contrary, we've actually grown our flows, and that speaks to the quality of the franchise that we have in those 2 businesses. This just shows you the actual performance of our Asset Management business. Of course, we don't judge this business over the short term. We try to look at it over the slightly longer term. But nevertheless, for the benefit of our shareholders, we show all periods, and you can see a pretty consistent performance over all of those periods and across all the various funds. Just turning to the Insurance business. Of course, the Insurance business wasn't as much impacted by overall market conditions. This is a business that's mostly driven by economic growth. As investors know, shareholders know, we've had a very low growth environment, and that's translated into lower growth in our insurance business. Nevertheless, in the last period, we've had record inflows and that inflows have been persistent over the 5-year measurement period. And we haven't grown our advisers as much on the short-term sizes on the wealth side, and that was due to a repositioning away from personal lines, more into the commercial area of our business. And then finally, just in relation to Western National. Western National benefited from a fairly benign underwriting environment during the most recent period. And then, of course, also benefited from the sharp upward movement that we've seen in markets leading to record returns in Western National. And if you look at the underwriting margin in the most recent period, it's pretty consistent with what we achieved over the last 18 months or so. Just when you look at the overall business, I mean, I think the key thing here is really to say that we're a growth business. And we're a growth business because we're able to consistently grow our top line. If you just look at the rate of growth over the last number of years, you'll see that '23 over '22, 8% growth, then 13% growth. It's the line right at the top, 14% growth and 20% in the most recent period. And if you're able to grow your top line, then it means that you can invest in your business. It means that you can cover your expenses. And it also means, of course, that you are building your franchise and gaining competitive advantage. Investors always ask us how we manage risk. We look at 3 things. We try and focus on recurring revenues. The objective there is to maximize those revenues and try and avoid once-off earnings boost. We care, of course, about our margins, and then we always look at overall returns on capital, and we look at that in relation to risk. Just looking at the individual tables at the bottom, starting on the left, you can see that performance fees amounted to 9.2% in the current period. That's slightly higher than what we've experienced over the last 3 years, but consistent with what we achieved in 2022. When you look at the operating margin and the return on equity, the middle and the right-hand table, we look at both those numbers before and after performance fees. But again, when you look at the actual numbers that was achieved over the most recent period, 19% operating margin, above a 17% operating margin, excluding performance fees, satisfactory cost-to-income ratios, all of those are indicating that our margins are moving in the right direction. And then, of course, if you go to the far right-hand table, you'll see the 31.7% return on equity, which I referred to earlier. And if you exclude the performance fees, 28.8%. I think the interesting thing to reiterate is just to say that, at PSG, we have no debt. So these very high returns we were able -- we achieved on an unlevered basis, which also speaks to the overall risk management and risk profile and positioning of PSG Financial Services. Shareholders, of course, care about the underlying financials of the firm, but they also are interested in our ability to have that translate into share price gains. We've shown this table for many years to our investors. On the second column from the right, we show what has happened -- what would have happened if you invested ZAR 100,000 in PSG back in 2005, that would have grown to ZAR 15-odd million. And then on the right at the bottom, it shows you what the annual compound growth rate has been over the specific period. The most recent period, 59% growth in our share price, 27.2% overall in rand terms. And then in dollar terms, 86% in the last year and 21.5% over the entire period. And that, of course, compares to the Johannesburg Stock Exchange, which would have given you 15% over the last -- sorry, over the period and 9.8% in dollar terms. It's a complicated table, but the lines that I think investors should focus on is the 3 lines at the end. It shows you the return on equity. It shows you the CPI. This is the inflation rate in South Africa. And then we look at the return on equity after deducting the inflation rate. Right at the bottom of that third column, you'll see the 31.7% that I've referred to on 2 occasions now already. you'll see the inflation rate at 3-odd percent and then you see the return on equity, which is 28.7%. So on both an absolute basis and in a real basis, this is a real basis being the ROE deducting the rate of inflation, we've achieved record returns from a shareholder capital point of view, and we're pleased with that particular number. Also, just to show shareholders the trading within our shares over the most recent period. It shows the number of shares. The top part of this table shows the number of shares and the number of shares traded, the percentage of those shares traded. And then it also shows our market capitalization, the value of those shares traded, and the percentage of the market cap that traded. So on a share basis, you can see that our share count is 1.249 million in terms of millions of shares. And the number of shares that traded is 240, and that basically means that the total trade in the firm is just below 20-odd percent. We've got a relatively open shareholder register. And I think post the unbundling of the PSG Financial Services out of PSG Group, that was only enhanced. What's also interesting, if you look at the market capitalization over this entire period, it's grown from about 8.8 billion to 35.3-odd billion. So a significant increase in the market capitalization of PSG Financial Services. And in terms of size on the 60 Stock Exchange, that number represented roughly -- the 60th largest company on the Johannesburg Stock Exchange. It shows you the value traded, which is 5.5 billion odd and the percentage number is slightly lower, reflecting the difference between that and the top table is a change in the share price over the period. So just in conclusion, I mean, I think investors know this. PSG tries to be proudly predictable. We've got a formidable adviser network. We've got strong governance structures. We have clear growth opportunities. As I've demonstrated, looking at the tables on shareholder returns, we've generated very high returns, certainly well in excess of the Johannesburg Stock Exchange. And I think the reason why we're able to do that over long periods of time is because we're very focused on optimizing risk and particularly risk as it relates to earnings on a per share basis. The Chairman mentioned the social and ethics report. And I just want to make 1 or 2 comments in relation to our social initiatives. Yes, at PSG, we're extremely proud to have adopted 7 schools. It's not just the money, of course, that we devote to these schools, it's time and effort of our people. And I think at PSG, it's a way of not just donating money, but connecting with the various communities within which we reside. We've also contributed to the ASISA Enterprise and Development Fund, roughly ZAR 50-odd million. And that, of course, is applied to small and medium-sized enterprises to help those firms grow. And then finally, something that's very close to our heart here at PSG. We employ roughly 150 graduates each year, roughly 1,000 over the last 10 years, 50% of whom are still working here at PSG and 92% of them representing ACI candidates. So we at PSG believe in growing our own talent. and we invest a considerable amount of time and effort also into these graduates to make sure that we create the next level of management here at PSG. Chairman, and with that, I've concluded my presentation, and I'm happy to take any questions if there are any.

Thank you very much, Francois. It seems that there are no questions at this stage. So I would only want to congratulate you and Mike as well as the management team and everyone in PSG for the excellent results delivered over the past year. Thank you very much, Francois. Then the voting results. Ladies and gentlemen, the voting results of ordinary and special resolutions will be now displayed. So there is the results. And as you can see on the screen, firstly, I can confirm that all ordinary resolutions have been passed by the requisite majority of shareholders, say for resolution #8, which was withdrawn. Secondly, I can confirm that all special resolutions have been passed by the requisite majority of shareholders. As there has been no questions at this stage, I declare this general meeting closed. Thank you very much on behalf of the Board to all shareholders for their attendance in virtual and their participation and continued support of PSG Financial Services. I wish everyone a pleasant afternoon. Thank you very much.