Regal Partners Global Investments Limited (6L20.F) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm David Jones, Chairman of VGI Partners Global Investments Limited or VG1. Thank you for joining us today for our 2020 Virtual Annual General Meeting. The company Secretary has advised me that we have a quorum, so I declare the meeting open. I hope you have all taken the opportunity to attend the manager's presentation webinar which was held earlier today at 10:00 a.m. The notice of meeting, which was sent to shareholders on the 14th of October, will be taken as read. I'm chairing the meeting from the VGI Partners office in Sydney. The company's directors are all in attendance. Lawrence Myers and Robert Luciano are in the room with me, and Noel Whittaker and Adelaide McDonald have dialed in from Queensland. Also in attendance is our company Secretary, Ian Cameron; and representatives of our share registry, Boardroom. Our auditors, Pitcher Partners, are represented by Scott Whiddett and Shane Phelan. We recognize that holding the meeting online and over the phone is not the same as a physical meeting. However, given the constantly evolving situation with COVID-19, we took the view that it would be best to hold this meeting online. We will do our best to use technology to replicate the key features of a physical meeting while also keeping the meeting as succinct as possible. Most importantly, those of you who have logged in to the webcast with your username and password will have the opportunity to submit questions online as well as vote on the resolutions. If you have already prepared a question, please feel free to submit it at any time, and we will aim to answer it at the appropriate stage. We have a section, after my address, for any general questions. If your question relates to a specific resolution, please state the resolution number at the start of the question. With regards to voting, to give you ample time to vote, I'm going to open the polls now. This means you can submit your votes at any time between now and when I close the polls at the end of the meeting. If you change your mind about any vote, you can also override your original vote between now and when the polls close. For those of you who have logged in to the webcast as a guest, you will be able to view our webcast but not submit questions or vote. If you're joined over the phone, please note that this is a listen-only facility. I should also point out that, if you are listening on the phone that -- viewing the webcast as well, the webcast may lag the phone by 10 seconds or more. It may be simpler to just use the webcast for the sound as well. So with all that, I will now turn to the agenda for today's meeting, which is on Slide 3. As shown here, I will give a short introductory address, after which there will be an opportunity to ask general questions. We will then move to the resolutions. I will take questions on each resolution before we collect the votes. I will now deliver my formal address. On behalf of VG1, I would like to welcome all shareholders to today's meeting. We thank you for your support of VG1. As you know, we have a new format for the Annual General Meeting this year. In previous years, my Chairman's address was followed by the portfolio managers' presentation before finishing with the formal business of the meeting. As VGI Partners now manages 2 listed investment companies, we have taken a different approach today. Robert Luciano and the team started today's program with a comprehensive portfolio update covering both VG1 and VG8 by video conference this morning. This means that, with portfolio performance already addressed, the format -- the formal Annual General Meeting that you are now attending will be shorter and focused on the resolutions set out in the notice of meeting. In order to ensure ample time for shareholder questions on resolutions, I will keep these opening remarks relatively short. However, I think it is helpful to provide an overview of the subjects in addition to governance and compliance that have occupied the Board's attention over the last 12 months. The primary area of focus of the VG1 Board this year has been working with the manager to consider how best to narrow and in time close the discount at which VG1 shares are trading to their net tangible asset backing. I know this was covered this morning by Rob and the investment team. However, it is the key priority for the VG1 Board, so I will reiterate now. As you may recall, VG1 traded at a premium to net tangible assets, NTA, for more than 1.5 years post its IPO in September 2017. The shift to a discount occurred around the time of the VG1 equity raising last year and widened around the middle of the year. This coincided with a period where the performance of the VG1 portfolio fell short of our long-term objective; and where premiums across the listed investment company, LIC, sector generally shrank and discounts increased. The Board and the manager have a clear objective of eliminating this discount, and we are confident that it can and will be done. The manager's interests are aligned with VG1 shareholders in wanting to see this situation addressed. VGI Partners, its Board, staff and their families have almost $40 million invested in VG1 alongside you, $40 million. As we have watched closely -- sorry. We have watched closely as 2 other relatively large ASX-listed investment vehicles have gone from trading at a substantial discount to a premium over the last 6 months. In both of these examples, a combination of strong performance, some supportive capital initiatives and a real focus on investor relations have been key to success in addressing the discount. While portfolio performance is a matter squarely for the manager, the VG1 Board has played an active role in reviewing and approving 2 shareholder-friendly capital initiatives and in working with the manager on increasing our investor relations activity. I foreshadowed the first of these at this meeting last year. In January 2020, we declared VG1's maiden dividend at a time when the company had developed a sufficient franking credit balance. This interim dividend was $0.01 per share and was fully franked. It was followed by a final dividend declared in August of $0.015 per share. The Board has taken the approach of setting the fully franked dividend at a level that we expect to maintain and, hopefully, grow over the medium to long term. Responding to feedback from shareholders, the Board introduced a dividend reinvestment plan or DRP in advance of the first dividend payment. I note that, when our shares are trading at a discount to NTA, the DRP is satisfied through the acquisition of VG1 shares on market. This has the twin benefits of providing participating shareholders with the opportunity to increase their shareholding at a discount to NTA whilst also providing incremental secondary market demand for VG1 shares. Given the extent of the discount, the independent directors thought it appropriate to announce a second capital management initiative with the full year results in August. This is an on-market share buyback for up to 10% of VG1's issued share capital to be implemented over a period of up to 12 months. We've been buying shares steadily under the buyback since it became operational in September. Investor relations is the third critical area of focus in closing the discount. While formal responsibility for IR sits with the manager, it is an area of great interest to each of your Board members and has received considerable discussion at our Board meetings. We concluded that, in spite of VGI Partners' heritage as a largely private firm, we needed to substantially increase our investor relations investment and activity. The manager received feedback earlier this year that increased ongoing disclosure of portfolio composition and sharing more of the thinking behind individual investments would be well received by investors. VGI Partners responded with a series of initiatives, including: firstly, revising the format of the monthly NTA statements to now show VG1's top 10 long positions and increased discussion of the drivers of monthly returns; secondly, providing more frequent video conference updates with the investment team, which are available to all investors and advisers; and thirdly, a recent partnership with Livewire through which key members of the investment team are sharing insights into the VGI Partners investment philosophy, process and individual investments. These videos are distributed to a broad audience of investors and advisers. Positive feedback, we are pleased, has been received in relation to each of these initiatives, particularly in our most recent October road show. We are confident that the new approach of increased disclosure is the right one. We are also seeing the first tangible evidence of the discount to NTA narrowing. After peaking in August at 23%, the discount has narrowed to 15% at the end of last week. Clearly, there is a great deal more work to do. One area that remains a work in progress is further investment in the VGI Partners investor relations team. A number of additions have been made to the team in the last 12 months, including recruiting a business development specialist in Brisbane with ongoing responsibility for managing relationships with financial advisers in Queensland. VGI Partners will be making further additions to its investor relations team and capability in the coming months. The Board is pleased with the response and commitment of the manager to this substantial program and investment. I do look forward very much to reporting on our progress in closing the discount in the future. I think it's important at this time that I should also acknowledge the hard work of the VGI Partners investment and operations teams across Sydney, Brisbane, New York and Tokyo. In an extremely challenging year, they've applied themselves with unstinting commitment to the task at hand. Our Board has once again worked well over the last 12 months, and I would particularly like to thank our 3 independent directors for their ongoing contribution. We have made one change to the composition of the Board with Douglas Tynan stepping down from his seat on the VG1 Board in conjunction with his transition to a nonexecutive role at VGI Partners. We thank Doug for his contribution to our Board. We have elected not to replace Doug on the VG1 Board, with the result that the Board now has a majority of independent directors. Finally, I would like to thank you all again for your support. We look forward to having a long-term partnership with you, especially as we on the Board are also investors alongside you. So that concludes my Chairman's address. Thank you. And I now want to check if there are any general questions from shareholders before we get to the specific resolutions of formal business. So to shareholders: Have any general questions been logged yet, please? Adam Philippe, VGI Partners COO, Chief Operating Officer, will be assisting with questions today. Adam, could you please read out any questions?

Certainly. Thank you, David. There is one that was pre submitted. The question is as follows. While it is pleasing to see some compression of the discounting last month, do you feel you are doing enough?

Okay. Well, look. In short, yes, we feel that we do, but if I may elaborate briefly: It's the Board's view that this task will take time, and there's no single silver bullet. Rather it is bringing as many sensible actions as possible to the task. We believe we are doing that, as I outlined, via the combination of dividends, capital management and a greatly enhanced investor relations program. The VG1 Board is confident that this is the right set of priorities for this challenge, and we expect the results to continue to follow. We are continually reviewing what more we could be doing and we expect to report progress going forward. So look. Thank you for that question. And I want to just check if there are any other general questions, Adam, please.

No further general questions received at this time.

Okay, well, thank you for that again. We'll now turn to the formal business of the meeting. I will take each item and resolution in the order as set out in the notice of meeting. Our meeting today involves 4 resolutions to be decided. While you're welcome to submit questions as we move through the resolutions, if you do already have questions prepared, please submit them now. When writing your question, please state at the start of your question whether it relates to our financial reports or type the number of the resolution. As I mentioned earlier, we will conduct a poll on all resolutions today combining votes submitted before the meeting with votes that are cast online during the meeting. Since the polls are already open, if you would like to vote now, please do so. Alternatively, it is also fine if you prefer to only vote once you have -- once we have discussed each resolution. I will also allow some time at the end of the meeting for you to finalize your votes. If you make a mistake or change your mind, please just select your preferred voting option, and that will override your original vote. I note that Boardroom are the returning officers for today's meeting and will conduct our poll. Certain votes will be excluded in accordance with the Corporations Act and the ASX listing rules. The proxy votes will be shown after discussion of each individual resolution. I advise the meeting that I will vote all undirected proxies in favor of the resolutions as indicated in the notice of meeting. We will advise the ASX as soon as the results are determined, which should be later today. So turning to the first item of formal business, which is the tabling of the financial statements, the directors' report and the auditor's report for the year ended 30 June 2020. The company is required to lay before the meeting the last audited financial statements and reports, which were released to the ASX on 18 August 2020 as part of the company's annual report. No resolution on this matter is required. However, I now invite shareholders and their proxies to ask questions on the reports. Questions may also be asked to the auditors in relation to the conduct of the audit, content of the audit report, accounting policies adopted by the company and the independence of the auditor in carrying out the orders. So are there any questions or comments on the financial statements and reports of the directors and auditors for the year ended 30 June 2020? I'll give you a few moments to enter any questions. And Adam, you'll tell me if any appear.

I shall.

Thank you. Okay, well, thank you. There does not seem to be any questions, so we will now move to resolution one, the adoption of the FY '20 remuneration report. Under the Corporations Act, listed companies are required to include as part of their directors' report a remuneration report. The remuneration report is included in the company's annual report. The Corporations Act requires companies to put to shareholders a nonbinding vote to enable shareholders to vote their opinion on matters including in the -- included in the remuneration report. Given the vote is advisory only, it does not bind the Board or the company. However, the Board will take the outcome of the vote into account when considering future remuneration decisions. Shareholders should note that, if 25% or more of the votes cast on the resolution are against adoption of the remuneration report, the first element of the Board's spill provisions, known generally as the two strikes rule, will be triggered. This would require a resolution on whether to hold a further meeting to spill the Board to be put to shareholders -- sorry, would require a resolution [ to hold a further meeting ] to spill the Board to be put to shareholders at the 2021 AGM if a second strike was to occur at the 2021 AGM. At this point, it is worth noting that VGI Partners, the manager, pays the bulk of VG1's operating costs, including the costs of this AGM. This is a central plank of VGI Partners' philosophy of alignment. As a result, VG1 only bears the costs of the 3 independent directors and directors and officers insurance. As for independence reasons, the manager is not legally allowed to pay for these expenses. The Board recommends that shareholders vote in favor of adopting the FY '20 remuneration report. I will now move this resolution. Could shareholders or proxies with questions regarding resolution one please submit questions, if you have not done so already? Once again, I will allow a few moments for you to enter any final questions. Okay, Adam tells me we do not, so before I put the resolution to the meeting, I will share the proxy votes on the screen. If you are a shareholder or proxy holder and eligible to vote online, could you now please complete your vote? I'll just allow a little time for the votes -- anyone who's still voting to cast their vote. [Voting]

So thank you. We will now move to resolution 2, the reelection of Mr. Noel Whittaker as a director of the company. Mr. Whittaker is retiring by rotation and is standing for reelection in accordance with rule 6.7 of the company's constitution and ASX listing rule 14.4. Mr. Whittaker's details are set out in the explanatory memorandum of the notice of meeting, and they are repeated here on this slide. In summary: Mr. Whittaker has been a director of the company since the 7th of July 2017. He is a pioneer in the field of consumer financial education. He writes weekly columns in many major newspapers, including the Brisbane Sunday Mail, the Sydney Morning Herald and The Age. In 2011, he was made a member of the Order of Australia for service to the community in raising awareness of personal finance. The Board, with Mr. Whittaker abstaining, supports the reelection of Mr. Whittaker as a director. I now move that Noel Whittaker be reelected as a director of the company. Could shareholders or proxies with questions regarding resolution 2 please submit those now? I'll give you a few months to enter your questions. Okay, we don't seem to have any questions. Thanks, Adam. So before I put the resolution to the meeting, I will show the proxy votes on the screen. If you are a shareholder or proxy holder and eligible to vote online, could you now please complete your vote? And I'll give that 10 seconds. Thank you. [Voting]

Okay, we will now move on to resolution 3, the reelection of Mr. Lawrence Myers as a director of the company. Mr. Myers is retiring by rotation and is standing for reelection in accordance with rule 6.7 of the company's constitution and ASX listing rule 14.4. Mr. Myers' details are set out in the explanatory memorandum of the notice of meeting, and they are repeated here on this next slide. In summary: Mr. Myers is the Founder and Managing Director of MBP Advisory Pty Limited, a prominent high-end Sydney firm of chartered accountants which he established in 1998. Mr. Myers has been a director of the company since 4th of July 2017 and is the independent Chairman of VGI Partners Asian Investments Limited. Mr. Myers sits on the foundation board of the Art Gallery of New South Wales. He's also been an independent director and Chairman of the Audit and Risk Committee of ASX-listed Breville Group Limited since 2013 and its Lead Independent Director since August 2014. The Board, with Mr. Myers abstaining, supports the reelection of Lawrence Myers as a director. I now move that Lawrence Myers be reelected as a director of the company. Could shareholders or proxies with questions regarding resolution 3 please submit those now? And I'll then give a few moments to enter any questions.

[indiscernible].

Nothing. Thanks, Adam. Before I put the resolution to the meeting, I will show the proxy votes on the screen. If you are a shareholder or a proxy holder and eligible to vote online, could you now please complete your vote? I'll just give another minute -- a few seconds for that. [Voting]

Okay, we'll now move to resolution 4, to reapprove the mechanism, which the ASX requested we do every 3 years, for the possible issue of VG1 shares to various shareholders of VGI Partners Limited under the reinvestment agreement in the event shares are trading at a premium to NTA. The background to this resolution is set out in the explanatory memorandum of the notice of meeting and is taken as read, but I'll touch on the key points because I think this is quite important. In summary: When VG1 was established, VGI Partners designed a precedent-setting mechanism that would further align its key staff with VG1 shareholders. As a result, the 3 original principals of VGI Partners, Robert Luciano, Douglas Tynan and Robert Poiner, are required to reinvest back into VG1 shares 100% of their share of after-tax performance fees that VGI Partners has earned from VG1. So it is very important to note, firstly, that the founding principals of VGI Partners are paying for these additional VG1 shares; and secondly, that as performance fees are earned, their ownership of VG1 shares is increasing over time, which heavily aligns them with other VG1 shareholders. This is quite a unique mechanism. And it's very different to most other listed funds where the fund managers often have very little of their own money invested in the underlying funds. As these arrangements can involve the issuance of new shares to related parties, we are required to seek shareholder approval for this element of the reinvestment mechanism every 3 years. The Board, with Mr. Luciano abstaining, recommends that shareholders vote in favor of resolution 4. Could shareholders or proxies with questions regarding resolution 4 please submit those now? I will give you a few moments to any questions. Well, a clean strike, no questions from Adam. So before I put the resolution to the meeting, I will show the proxy votes on the screen. For those who are online and eligible to vote, could you please complete your vote for resolution 4? And I'll just wait 10 seconds here. [Voting]

Okay, well, thank you for that. We have now addressed all 4 resolutions. In case you have not completed your voting during the meeting, I will now give you a few moments to finalize your voting. As I mentioned earlier, Boardroom, VG1's share registry, will conduct the poll via the online votes that you submit and combine these with votes that were submitted before the meeting. I'll just wait another 15 seconds for any final votes to be lodged. [Voting]

Okay, I now declare the poll closed and formally charge Boardroom to count the votes. The results of today's AGM will be released to the market and made available on VG1's website as soon as possible, which we expect to be later today. Ladies and gentlemen, as there are no -- there is no more -- there is no other formal business for the meeting, I declare this AGM of VGI Partners Global Investments Limited closed. Once again, I would like to thank everyone for attending today's meeting via webcast or dialing in on your phone. I hope that everyone remains safe and wish you and your families the best for the holiday season. We look forward to meeting many of you in person at future briefings at -- and AGMs. And by all means, reach out at any time if you would like further information or have questions about your company. And I remind you, for those that are shareholders of VG8, you will have to log out of this call and log back in for their AGM, which is in almost exactly half an hour at 3:00 p.m. Australian Eastern time. So thank you all. That's the end of the meeting, and good day.