WAM Capital Limited (WAM) Earnings Call Transcript & Summary

Good afternoon, and welcome to the 24th WAM Capital Limited Annual General Meeting. This is a hybrid meeting, held both online and in person here at the Museum of Sydney. I'd like to acknowledge the Gadigal people of the Eora Nation and pay my respects to Elders past and present. I also acknowledge the custodians of the land and waters on which our shareholders and fellow directors currently stand to view and listen to today's AGM. Wunya Ngulum. That's welcome to all our shareholders. Thank you for joining us and for your continued support of WAM Capital. I am Geoff Wilson, Chairman of the Board of Directors. And joining me today in person are my fellow directors, Kate Thorley and James Chirnside. Ernest Hemingway, I thought. Sorry, James Chirnside. And joining us online is Lindsay Mann, Dr. Philippa Ryan and Matthew Pancino. Acting in capacity as a moderator today is Wilson Asset Management Finance Manager, Ophelia Lam, on the far right. And she'll be assisting any questions submitted either in person at the meeting or online. And a couple of people have sent some questions in. So we thought it would be an opportunity to ask them at the AGM. Scott Whiddett, who is in the far side there, is representative from our auditor, Pitcher Partners, and is available to address any questions relating to the company's financial statement. As it's just after 1:00 and clearly a quorum is present, I declare the meeting open. The Notice of Meeting has been circulated to shareholders, and in the absence of any objections, I'll proceed on the basis of the notice be taken as read. I encourage you to read the Chairman's address, which is announced to the ASX and because I will be giving you a summary of that, together with the formal part of the meeting today. Shareholders who have logged into the webcast with your username and password will have the opportunity to submit questions online and ask audio questions as well as vote on the resolutions. If you're joining us online, questions can be submitted at any time. [Operator Instructions] If you have any issues using the system, please return to the Lumi platform. Voting today will be conducted by way of a poll on all items of business. In order to provide you with ample time to vote, I will shortly open the voting for all resolutions. If you've already submitted a proxy form or voted online prior to this meeting, you are not required to vote again. When I open the poll, the voting icon will appear on the navigation bar. Once you click on this, a list of resolutions will appear on the screen with voting options. Simply select one of the options to cast your vote. If you change your mind, select another option. If you -- you can change your vote as many times you want until the close of the poll. Your vote will have been submitted when the voting icon changes color. There is no submit button. I now declare voting open on all items of business. You can vote any time during the proceedings. I will give you a clear prompt later in the meeting to inform you that voting has been -- is closing. The votes cast during the meeting will be combined with votes submitted before the meeting. People note that only shareholders, proxyholders and shareholders' representatives may vote. If you logged into the webcast as a guest, you will be able to view our webcast but not submit a vote. In terms of the formal Chairman's address, which I said has been lodged in the exchange, looking back at last year, like it was a tough year. It was a challenging year. WAM Capital. The performance of the portfolio -- the portfolio was down. You'll see the loss for the year was sizable, and that was a function of the drop in the portfolio. Now obviously, there was a corresponding drop in the share price, which, well, for all shareholders, has been painful. One of the positive sides is 2000 -- so far this year, that's the period from the end of June until the end of October. The investment portfolio has increased about 9%. And that's outperformed the Small Ords index of about 2.5%. Because as you'll be aware, the investment team is buying undervalued growth companies when they can see a catalyst for a change in the valuation. The company's ability to pay dividends really is a -- results from positive after-tax performance of the investment portfolio, which ends up growing the profit reserve. After the dividend we've just paid at the end of October, the company had about $0.103 in the profit reserve. So that's -- obviously fully covers the next interim dividend. But we need to make more money or increase the profit reserve to pay the final dividend. The -- in terms of talking about the -- any -- the performance of the portfolio and the performance of the share price of WAM Capital, I know there's some questions that have already been sent in. So we'll cover any further comments or questions of that in general questions a little later. I'll now conduct the formal part of the meeting. There are 4 items of business, and they're set out in the Notice of Meeting. Three are to be voted on. The Notice of Meeting and explanatory memorandum was circulated to shareholders. And in the absence of any objection, I'll proceed on the basis that these are taken as read. I note that Boardroom are the returning officers for today's meeting, and they will conduct our poll. I further note, resolution 1 is subject to a voting exclusion as outlined in the Notice of Meeting. The Board recommends approval of each recommend -- each resolution. And as Chairman, I'll be voting all open votes provided for each resolution. We will also advise the ASX as soon as the results are determined, which will be a little later today. You may submit any questions or comments you have on the financial statement and report now. That's for the online people. Thus, the first item of business is to receive and consider the financial statements, the director's report and the auditor's report for the company for the year ended 30th of June 2022. Scott Whiddett, who I introduced you earlier, is here if we need any help with specific questions. There's no resolution on this matter. Are there any questions in the room on the financial statements and auditor's report? Ophelia, any questions online? Thank you. There being no questions, now we'll go to the items of business for which a vote is required. Resolution 1 relates to the adoption of the remuneration report. And please, if you have any questions online, submit them now. The company has received proxies amounting to 32,593,886 shares in favor of this resolution; 6,370,934 against; and 14,058,721 open, of which 8,554,458 have been granted to the chair. For these, I'll be voting in favor of the resolution. Now are there any questions in the room on that resolution? Any questions online, Ophelia?

Nothing specific to resolution 1.

Okay. So there's a question, but we'll cover that in general?

General.

Okay. Thank you. Yes, question? Perfect. Question? No? Thank you. So I'll now put the motion that the resolution be approved as set out in the Notice of Meeting. If you are a shareholder or proxyholder and those who are going to vote online, could you please complete your vote for resolution 1? Resolution 2 relates to the reelection of Katherine Anne Thorley. Kate, would you like to make a few words -- sorry, make -- say a few words?

I don't answer to Katherine because it meant I'm in trouble.

And same with Geoffrey.

Exactly, exactly. So good afternoon, everyone. And as Geoff said, I'm up for reelection and would love to continue serving as a director of WAM Capital and would like your support. For those of you who I haven't met over the years, I've worked with Geoff and our wonderful team at WAM for 18 years, almost 18 years. And the last -- pretty much the last decade as CEO. I'm a chartered accountant by background and, prior to joining Wilson Asset Management, worked in London and Ireland for most of my 20s. And I guess what I wanted to say was that I work alongside a wonderful team of 55 here in Sydney, who are very, very passionate as I am about making a difference for our shareholders. And I know for WAM Capital, it has been a tough period, and we are really focused on ensuring that we -- when we talk about making a difference as a team for shareholders, we talk about the long-term performance, our focus on fully franked dividends, which we know are very important to you, but also focus on how we engage and communicate with you. And I know that's a really big part of our DNA at WAM across the whole business. There's really no one in the team that doesn't love meeting with shareholders and just making sure that you understand how we're investing and why in a period like this that we have underperformed. And we also love being involved in the community because I think we're all very proud of what we do for the 2 Future Generation-listed investment companies, the support that we give those to vehicles but also being a part of the global movement, the Pledge 1%, where as an investment manager, we donate to various charities but also give our time. So I guess I'll leave it there. I hope I can have your support today to continue on as a director so that we can, over the long term, continue to perform for you. Thank you.

Thanks. Thank you, Kate. You have my support. And now for those people online, if they would like to please vote on resolution 2, please do so now. In terms of the proxies, we got 38,609,191 in favor of the resolution; 2,046,593 against; and 14,215,528 open, of which 8,631,306 have been granted to myself as the Chair. And for those, I mentioned earlier, I'll be voting in favor of the resolution. Now are there any questions in the room we'll start with? Any questions online? Sorry. No. So I now put the motion that Ms. Kate Thorley be reelected as set out in the Notice of Meeting. If you are a shareholder or a proxyholder and are voting online and eligible to vote online, can you please complete your vote for resolution 2? Resolution 3 relates to reelection of James -- actually, what's your middle name, James? Is it Barrington? No?

Miller.

Miller, okay. Of James Miller Chirnside. Now James, would you like to make -- say a couple of words?

Good afternoon, everybody. I'm certainly -- I've put myself forward for reelection to the Board. I've been on the Board for a long time as many of you will know. Known Geoff for a long time, and I've been able to watch the organization grow. I think particularly worthy of mention is that not only the philanthropic efforts that Geoff and Kate and the rest of the team have made but also governance. Governance has been a big thing. It is a big thing in today's markets. The strides, which Wilson have made over the years, along governance lines has been really quite extraordinary and a real learning curve for me, too. I'm an independent director, and I have experience historically in financial markets and fund management. And I offer myself for reelection. Thank you very much.

Thank you, James. In terms of the proxies, amount to 38,254,812 in favor of this resolution; 1,782,466 against; and 14,725,738 open, of which 9,131,516 have been granted to the Chair. And for those, I mentioned earlier, I'll be voting in favor of this resolution. Now do we have any questions in the room for James? Do we have any questions online? Yes, and I would just like to echo shareholders that have voted their support for James because one of the great things is he's got incredible experience in the financial markets. I remember when, I think, when I first [ ran into him ] he's a fund manager and I was a broker, and I think he told me to F off. But since then, things have moved forward.

[indiscernible]

No. And James adds significant value to the Board. I suppose it's probably not politically correct, is it? Okay. Anyway, we're allowed to get if you pass the keeper. So are there any other -- we decided no more questions for James? No? So can -- I now put the motion that Mr. James Chirnside be reelected as set out in the Notice of Meeting. If you're a shareholder and voting online, please vote now. I now -- actually -- so that's -- we've done the formal part in terms of the resolution. So I'll be closing the poll within a couple of seconds. So anyone online, if they haven't voted yet, please vote. So I hope you can vote all 3 at once, if you haven't been paying attention. If you have been paying attention, then I now declare the poll closed and formally charge Boardroom to count the votes. The votes of today's AGM will be released to the market as soon as they're determined, which will be a little bit later today. Now we'd like to go to the general questions. But before we go to the general questions, I'd just like to point out, this is a little bit in the Chairman's address. I know you can read it online, and it talks about advocacy. And we've been pushing for quite a time for the leveling of the playing field, allowing professional investors -- sorry, retail investors to get the benefit of professional investors. We'll continue to lobby on that. We lobbied the previous government and will continue to lobby the current government. But there has been a few questions asked earlier and people asking today about what's happening with the franking system. And let me just sort of emphasize some comments that are in the official Chairman's address that was lodged with the ASX and let me also put this into context. And look, thank you to all shareholders for your support and for your feedback. We're trying to walk a -- and be bipartisan with our view. And in terms of -- for some people, their comments, the -- this is done with Wilson Asset Management on effectively for anyone who benefits on a -- yes, it's at our cost, not shareholders' costs. And it's our communications team and the other senior people that are passionate about this and myself. But some people think it's the investment team that are spending time worrying about franking credits. The answer is they're not. And what I say in the Chairman's address is our dividend imputation system is in jeopardy once again. And really, it's the two-pronged policy attack by the current government that will weaken, we believe, the franking system. And it's not only what was announced in the budget, and we'll be sending you an e-mail soon because you can put a submission in about -- that's the buybacks. But to me, the bigger thing is that what they're trying to do and they announced a month or so ago putting up for consultation by treasury was stopping companies that are paying -- that raise any money that is associated to a dividend either before or after the dividend is paid, that if any money that's raised is associated with the dividend being paid, then that dividend is unfranked. And to me, it is just so illogical. And what worries me is the -- all the comments, all the promises before the election about we won't touch the franking system, and they argue that they are not touching it, to me, that's -- and the unintended consequences. And if you play them all through, at the start of COVID, when things were pretty dire, the head of APRA came out and said, you can only pay -- said to the banks, look, you can't pay dividends because we're a bit nervous about things. And then they came out and said, "Look, you can pay dividends. But when you pay dividends, raise as much money as you can." Now that is totally -- if they -- if we go in a similar situation to that and may raise money and it's associated with the dividend being paid, then the way the legislation has been proposed and -- yes, is that, that would be unfranked. And on my calculations, last year, the franking that wasn't paid out by companies was the equivalent to $85 billion fully franked. And what happens -- and that is on an annual basis, and that effectively gets landlocked. And the only way that can get paid out is if the companies borrow money. And companies aren't going to gear up just to pay fully franked dividends. So what it ends up doing and really there's all these unintended consequences and companies change their behavior. So they don't invest in Australia. They invest offshore because they don't need to invest and pay the tax in Australia anymore, et cetera. So I just wanted to touch on that because a few people are asking me earlier.

What I'd like to do now is to go to general questions. Now I know we've got a few online and written in before. Do we have any questions in the audience first? Yes?

Okay. I'm just wondering if it's wise to be sponsoring something like the Wollongong cycle event and given when the strategy when the share price is stood in somewhat.

The question was just is it wise to sponsor the Wollongong cycling event with the share price where it is. And that was back in September. And that was a -- that wasn't a cost to any of the companies. That was the manager. Wilson Asset Management put the money in there. And it was really -- I was asked to go on the Board of that -- the organizing committee about 3.5 years ago. And taking the hat off to the New South Wales government, they stepped up big time. They were enormous supporters. Even the federal government, which initially weren't, put some money in. And to me, the disappointing thing was that virtually no one else put any money in. So that's why we ended up -- we were sort of -- the amount of money we put in were more junior because no one else put any money and we end up doing more senior. So that's how that -- yes, that's...

Whether that's given -- I don't know how much you give to charity, but I've got the profit and giving money to charity, but if the share price isn't doing so well.

Yes, but we're not giving your money. Effectively, yes -- effectively, we're giving our money. It just means we -- there's less money for us as in the work at Wilson Asset Management. It's the management fees we've got and that are paid to us for managing money. It's we can either get -- take them salary and bonuses in that, or we can give to charity or support other events. And then we just thought it was -- it's good for Australia. It was a global event. We're disappointed that corporate Australia didn't really stand up. And so we're happy to put some money. That was the logic.

[indiscernible] myself, but I was just wondering that that's...

No, no, no, that was the logic of that. Yes. Yes?

You mentioned the profit reserve. Given the current situation, what do you think are the realistic odds of being able to keep the dividend at the rate it is? And what sort of performance would be required by the fund to meet that benchmark?

Yes. I mean, effectively, we're pretty much -- in terms of where we are now, Kate, we're pretty much on the high watermark, aren't we, for the profit reserve, or Ophelia?

[indiscernible]

Yes. But where the portfolio is now. Remember what I said? We will top up in November. Will we? Do you know how much by? Because effectively, how it works -- effectively, it's the profit reserve. And when you make profit over a year, then obviously, you can put it in the profit reserve. At the moment, where if we make money -- and we do it on a monthly basis. So -- and we announce to you monthly. So you'll see the November 1 if -- depending on where the portfolio actually finishes at the end of November, whether there's money into the profit reserve. I know we're right on topping up again. So if the portfolio is up in December, then the profit reserve increases. So effectively, it's going to increase by $0.04, which is effectively, $0.06 -- nearly $0.06 pretax. So it's $0.06 on -- so it's got to go up about 4%. So if it goes up 4% between now and June, then the next 2 dividends are there. And then if it -- from the 1st of July next year -- it resets on the 1st of July. So if it goes up 4% from the 1st of July -- if it doesn't go up -- effectively, say it doesn't go up again between now and June, then we've got enough for the next dividend. And then we've got like 1/3 of the following dividend. So then it has to go up another -- broadly the 4% between the 1st of July and the payment of that dividend, which is May the following year. So if it goes up 4% over that period, then there's enough in for that. Yes, so if you just keep an eye, like we -- that's why -- someone was saying that they weren't that keen on us, why do we announce the profit reserve every month. We announce the profit reserve every month so that people can clearly see what's happening. Yes. So the -- so Ophelia, I know we had a few online questions. Okay. Great. Any more in the room questions? We might answer the rest. Yes. While you're going around, can you just ask me the question. Is there another question?

One of them that you actually addressed at the start is why the share price has dropped. And will the share price go above $2 again?

Okay. Yes. Well, the good thing is -- so I'm 64. And I don't -- well, before we set up the Future Generation entities, I was going to retire when I was 80. But then when you talk to all the mental health people, they say never retire. So I say, I don't know. Well, my view is it will. In theory, last year was a tough year. I mean WAM Capital's focus is on mid- and small-cap industrials, and it was quite brutal there. In terms of the value in the market, like there's -- the market is -- for those people who look at those small cap industrials and you talk to our investment team and some of them are here in person, in companies. Some of them are here. You can talk to Sam, who's in the back there. Yes, I'd say there's more value in the market than we've seen for years. Yes, it is -- there's some exciting companies trading at -- on low multiples or discount to assets. And so you're now buying them now. Over the medium term, you'll do well. So I'm incredibly confident it will go above $2 again. Yes, and like it'll -- it should go higher than that. I mean the challenge obviously is balancing -- continuing to keep that dividend at that amount. And I suppose it was when things got tough 4 years ago, we didn't cut it. And if you look back a year ago, I think we're right on the line with profit reserve. Then we had a -- there was a good period. The profit reserve increased, and we continue to pay the dividend. I'm on the Board basically, but the view is -- and this is -- what you'll find is if labor gets -- brings these various strategies in, in terms of trying to stop companies from paying dividends -- fully franked dividends is that they'll be more focused on getting to franking out to shareholders. So it doesn't worry us the fact that we're paying a very high dividend because it means we're not -- there's no franking being hoarded, where effectively you're getting 100% of franking. Sorry, now we had any other questions? No more questions? Okay. Thank you. I'll declare the AGM closed. I'd like to finish off by thanking all yourselves, WAM Capital shareholders. Yes, it has been a tough 12 months. I mean one of the things we do know is the market is cyclical. Our process, buy undervalued growth companies when we can see a catalyst is going to change the valuation. That hasn't changed. It's just been a tough period for the sector that we focus on. We appreciate, obviously, your support. We love doing what we're doing. Now the 55 people back in the office working hard, thank you. I'd also like to thank the Wilson Asset Management team who've worked tirelessly to support shareholders. And I'd also like to thank my fellow Board members, online and also present, whose guidance and expertise make an invaluable contribution to the organization. So thank you very much.