Magellan Financial Group Limited (MFG) Earnings Call Transcript

Good morning, all, my name is Emma Pringle. I'm the Head of CHEP Stakeholder Engagement and sustainability and will be moderating today's Annual General Meeting. Before we commence today's proceedings, I'd like to start by acknowledging the Gadigal people of the Eora Nation, the traditional custodians that we land and pay our respects to elders both past and present. I will start with our housekeeping matters. This AGM is an in-person event being live stream for those who could not make it today. If there are any questions from shareholders or proxy holders, we will be happy to address them. Shareholders viewing today's AGM on the live stream were given the opportunity to submit questions ahead of the AGM. We will address questions received prior to the meeting following the first item of business and there will be an opportunity to ask further questions from the floor during the meeting until you reach the relevant resolution. [Operator Instructions]. Moving on to how to vote. Upon registration, shareholders and proxy holders eligible to vote would have received an orange voting card that provides for the holding of a poll on the resolutions put to shareholders. You need to complete this card in order for your vote to be counted. Shareholders who wish to vote for resolution to mark a box. Shareholders who wish to vote against resolution mark the games Fox. Shareholders who wish to abstain from voting on a resolution should mark the abstain box. Abstentions will not be counted in considering the required majority for the poll. Your voting cards will be collected after the final resolution has been put at this meeting, but you may deposit them in the collection box at any time prior to that, if you wish. If you are a proxy holder, you must comply with the direction of the shareholder in which to lodge a valid vote. If you have already submitted a proxy vote, your existing vote will be canceled if you vote again today. I will now hand over to the Chair, David Gonski to formally open today's meeting.

Thank you, Emma. Good morning, ladies and gentlemen. I'm David Gonski, and I'm the Chair of Magellan Financial Group Limited. On behalf of our Board, I welcome each of you here to our 2026 Annual General Meeting, which I now declare formally open as there is a quorum present. I also extend a warm welcome to those shareholders watching today's live stream. And I, too, acknowledge the Gadigal people of the oration the traditional custodians of the land on which this building is standing. Ladies and gentlemen, I'm now going to Jane move to introducing our directors. Andrew Formica, our Deputy Chairman is here; Paul Compton, who's come all the way from overseas to be here is with us. 'john Eales this year, who needs no introduction; Peeyush Gupta is here; Fiona Hick is here as well; Cathy Kovacs is here; as is Dr. Philip Lowe; Kelly O'Dwyer is here and Deborah Page as well. Our Chief Executive Officer, as you'll see, is sitting over there, Brian Benari; and our Company Secretary; Annette Spencer, who's also our General Counsel is here as is Sam Mosse. I also acknowledge the attendance today of many of the members of our executive team. We also welcome Karen Hopkins and Tom Elliott, who are partners from the company's external auditors, KPMG. There are representatives of our share registry, Boardroom Proprietary Limited here as well. Ladies and gentlemen, I'll now move to the minutes of the previous Annual General Meeting which was held on the 22nd of October 2025. And I also refer to the minutes of the Extraordinary General Meeting held on the tenth of April 2026. These have been approved by the Board and signed by the Chair of those meetings. These meetings I have tabled and are available for inspection by any shareholder wishing to see them by contacting company. Ladies and gentlemen, the Notice of Annual General Meeting has been made available to all shareholders. And if I may, I will take the notice of meeting as read. I'll now take a moment to outline this morning's agenda. I will shortly make some opening remarks. This will be followed by handing over to Brian Benari, our Chief Executive, to make his address. Following this, we'll consider the formal items of business, which relate to the receipt of the company's financial statements and reports to 30th June 2026. The adoption of the remuneration report, the election and reelection of a number of directors and the change of MFG's name to Barrenjoey Group Limited. If I may, I'll now turn to the Chair's address. Ladies and gentlemen, it's a great privilege to stand before you as your Chair for the first time at what is undoubtedly a very significant point in the company's history. 2026 has been a transformational year. On the first of July, we completed the merger of Magellan Financial Group and Barrenjoey Capital Partners, bringing together 2 highly complementary Australian financial services businesses. The merger restates your company into a diversified financial services group, spanning financial markets, corporate finance and investment management. Before I go further, I want to acknowledge with gratitude the people who made this possible. I refer to my predecessor as Chairman, Andrew Formica and the Board, he led. They have focused on diversifying MSG's business and has undoubtedly laid the foundations for this merger. I also want to recognize Sophia Rahmani, who until recently was MFG's Chief Executive Officer; and the MFG executive team through this period of change. They've all worked together with Andrew and the Board and undoubtedly have been instrumental in bringing this merger to completion, we thank them. It's worth remembering that MFG's relationship with Barrenjoey goes back many years. MFG was a cornerstone investor when Barrenjoey was established in September 2020. Over 5 years, Barrenjoey has grown from a startup into a diversified business with market-leading positions. Today, following the merger, the Barrenjoey growth story becomes the MSG Group's growth story. One of the items you'll be voting on today is a resolution to change the company's name to Barrenjoey Group Limited, and our AFS ticker will be changed to BJY. This isn't a cosmetic change. It reflects the scale and ambition of what has been built and the transition of your company from a single line investment manager to a diversified financial group operating across multiple market segments. I'd encourage you to support this resolution, full details of which are set out in the notice of meeting. Brian Benari, our Chief Executive Officer, will in a few minutes provide more depth on the financial performance of the combined group, but let me provide you with some headlines. On a pro forma basis, as if the merger had completed a year earlier for the 2026 financial year, the combined group would have generated $778 million of revenue and $215 million of operating profit after tax in that financial year 2026. With pro forma statutory net profit after tax of $146 million. This result demonstrates the scale of what we're building with broadly equal revenue contributions from each of the 3 operating divisions of financial markets, corporate finance and investment management. As the business continues to grow in scale, the diversified nature of the earning streams will provide shareholders with more resilient revenue streams. The group declared a franked second half dividend of $0.255 per share, a payout ratio of 80% consistent with MFG's existing policy and bringing full year dividends to $0.65 per share. Looking ahead, the Board has determined a dividend policy for the combined group targeting a payout ratio of between 60% and 90% of operating profit after tax, and we expect to initially sit towards the top end of that range. It's worth reflecting on the caliber of the platform this merger has created because it brings together 2 different but equally hard on growth stories. In just 6 years, Barrenjoey has scaled from a startup to rank #1 in M&A, in equity sales and in research with one of Australia's leading fixed income franchises a research team covering around 250 listed companies and with more #1 rated analysts than the rest of the market combined. Alongside that now sits MFG's investment management business, approaching 20 years in market with public market debt across multiple strategies and client relationships built with advisers and institutions over those 2 decades, Neither of those things, 5 years of compounding growth or 20 years of client trust can be manufactured overnight. And this merger now gives shareholders the benefit of both sitting side-by-side in 1 group. Ladies and gentlemen, you'll also be asked today to consider and vote on 7 director elections and reelections. This is resolutions 2 to 8, reflecting a reconstituted Board formed from both businesses. 5 directors who served on the Barrenjoey Board, Paul Compton, Fiona Hick, Philip Lowe, Kelly O'Dwyer and myself, joined on the first of July of this year and are standing for election for the first time. Deborah Page, who continues as Chair of our Audit Committee is standing for reelection. And Peeyush Gupta, who joined last November is standing for election this year. Ladies and gentlemen, I'd also like to sincerely thank John Eales, who retires at the conclusion of this AGM. He has been a wonderful director and a great participant, and we thank him sincerely. And I also note David Dixon, who retired from the Board in July and thank him as well. Ahead of today, each candidate, whether it be for election or reelection, recorded a short video available on our website along with their biographies, which were set out in the notice of meeting. thus giving shareholders the chance to hear from them directly. The Board recommends a vote in favor of each director standing for either election or reelection. Along with those directors who are not up for election today, Andrew Formica and Cathy Kovacs, we have a Board of committed and deeply experienced directors with a deep mix of skills perspective and independence to oversee our group going forward. You'll also be asked today to vote on the remuneration report, which covers the year to 30th June 2026 a period prior to the merger. John Eales, is Chair of the Remuneration Committee, will take any questions shareholders might have on both MFG's remuneration approach and the report itself. Bringing 2 businesses of this scale together is not a simple undertaking. And I want to thank everyone across both organizations for their efforts that they have taken this year. Integration is progressing to plan and management's focus now turns to capturing the benefits of the merger while continuing to invest for growth including extending our client reach internationally, building out investment management and establishing Barrenjoey New Zealand. I'm confident we have the right people the right financial resources and the right oversight in place to deliver on the opportunity in front of us. On behalf of the Board, thank you to everyone across the expanded group for their dedication this year, and thank you to our shareholders for your continued support and confidence. I now hand over to Brian, who will take you through the business in more detail.

Thank you very much, David, and good morning, everyone. It's a privilege to address you today as the CEO of the combined MFG and Barrenjoey businesses. This has been a landmark year. And I want to use my time today to give you a sense of where the business stands, how it performed and where we're taking it. On 1 July, we completed the merger, bringing together MFG's institutional grade investment management platform and capabilities with Barrenjoey's leading financial markets and corporate finance franchises. The rationale for the merger was straightforward, an enhanced client proposition, a more diversified and resilient business and a stronger balance sheet to fund growth. Now less than 4 months on, I can tell you that, that rationale is playing out. We now operate across 3 balanced business lines: Financial Markets, Corporate Finance and Investment Management. With diversified revenue streams, resulting in a group that isn't reliant on any single market cycle or client segment, smoothing earnings through the cycle. Now as you heard from David, on a pro forma basis, as if we've been 1 company for the full year to 30 June 2026. The combined group generated $778 million worth of revenue and $215 million of operating profit after tax. Stand-alone MSG revenue was $246 million, roughly 1/3, down 11%, largely reflecting lower investment management fees, partially offset by stronger partnership income from MFG's investment in Barrenjoey Investment management fees were and continue to be impacted by outflows from the heritage global equity strategies. MFG management acted during the year appointing Barrenjoey as investment manager for these funds and materially reducing fees, a decision that carries a short-term cost, but positions the strategy as a competitive cost-effective core offering for the long term. Barrenjoey stand-alone performance was strong. Revenue of $573 million, up 34%, with growth across all of 3 of its business lines and operating profit after tax up 68% to $112 million. Importantly, return on equity approached 33% and operating leverage is emerging. And we've also taken steps to reduce earnings volatility in our results going forward. As part of bringing the businesses together, we review how cash and capital is invested across the group, including group investments in MFG funds. As part of this review, $251 million was redeemed from the various MFG funds and is now managed by the group's combined treasury team, investing in cash and high-quality liquid fixed income. Now this means a modest reduction in investment earnings, but importantly, a meaningful reduction in risk and earnings volatility. Underlying all of this is a business mix that I think is genuinely attractive. Financial markets and corporate finance, bring diversified transaction-based revenue. Investment management, on the other hand, provides more durable annuity style earnings. Having exposure across that whole spectrum rather than being concentrated at any one end of it is central to the investment case for the group. We have started FY '27 with a focus on integrating the 2 businesses and realizing the merger benefits. Integration is running well ahead of schedule. Our teams are now all co-located, and we expect to be on common core systems by the end of November and to be complete -- full into complete full integration by 30 June 2027. We also expect to realize more synergies than initially forecast. Synergies to be realized through bringing the 2 businesses together is now forecast to reach $15 million per year, up from the initial $6 million announced at the time of the merger. We're also seeing tangible benefits with Barney's origination capability combining with MFG's distribution reach to bring alternative asset funds to the market and we have new products, and we'll be bringing these to the market through the year. Now looking ahead, our priorities are clear: first, completing the integration and capturing the benefits of the merger. This is our top priority for the year. Second, extending our offering and client reach internationally, to this end, we've secured a U.S. swap dealer license for our fixed income business and executed our first U.S. trades just weeks ago, and we're growing our presence in Abu Dhabi and New York. Thirdly, continuing to build out our investment management, adding new capabilities in both private capital and listed equities to meet a clear client need. And finally, Building Barrenjoey New Zealand where we've hired an excellent local team. We see this as a multiyear investment with build and establishment through 2027, commencement in 2028 and the benefits emerging from 2029. Let me turn briefly to trading conditions. In the opening months of this financial year, global bond markets experienced significant rate movements, which impacted earnings in our Financial Markets business. However, these conditions have largely abated. For the first quarter, financial markets revenue was materially lower than the run rate achieved in the first half last year. With respect to the investment management, AUM for the quarter was down 8% to $38 billion, primarily caused by the higher bond yields also impacting listed infrastructure valuations and outflows. Our corporate finance franchise and activity levels remain strong. Regarding the integration of MFG and Barrenjoey, all central support functions, including human resources, finance, legal and risk and compliance to just to name a few, will be substantially integrated by the end of November, ahead of schedule. Synergies as noted, are expected to be upgraded from the initial $6 million to $15 million per annum due to headcount savings with the benefits to fully flow through in FY '28. Importantly, we continue to invest in talent in the areas where we see substantial longer-term growth opportunities across our businesses and particularly in this our merger year. So to bring it together, this has been a landmark year in which we completed a complex merger, repositioned the Heritage Global Equities investment strategies and materially de-risk the balance sheet. Our group today is genuinely diversified with the right foundations for our next phase of growth, and we intend to keep building with the same structured and disciplined approach that has defined Barrenjoey since it began. I want to thank our exceptional team across both businesses, and thank you, our shareholders, for your continued support and confidence as we build this business together. Really appreciate it. Thank you, and I'll now hand back to David.

Thank you, Brian. Ladies and gentlemen, I'm advised by the Company Secretary that the holders of approximately 209 million of the company's ordinary shares have submitted proxies. In my capacity as Chair of the meeting, I've been appointed as proxy holder by the holders of between 206.3 million and 206.5 million of the company's ordinary shares, depending on the relevant resolution being decided today where any of the proxies for Resolutions 1 to 9 are open, subject to voting exclusions, I will cast those votes in favor of those resolutions. I will now -- I will announce the proxy voting results before the vote is taken on each resolution. And I note that the closing time for receipt of proxies was at 9 a.m. Sydney time, Tuesday, the 20th of October 2026. The proxy figures shown may change, as all of you will be probably aware, if a shareholder submitted a proxy but has also attended the meeting today and thereby revoke their proxy. I appoint Alicia David from Boardroom Proprietary Limited as the returning officer. The returning officer will arrange for the counting of the votes in accordance with the voting exclusions as set out in our notice of meeting. Following the polls, the meeting will be closed and the votes tallied. The results of the polls will be released to the ASX later today when available. They'll also be made available on our company's website. Ladies and gentlemen, I now propose to proceed to the items of business. These are set out in the notice of meeting. The first item of business on the agenda deals with the financial statements and reports for the year ended 30th of June 2026. These include the directors' report and the auditor's report, which have been tabled. No resolution is required in relation to this agenda item, and we'll now move to answering shareholder questions on this item. We'll start with questions that we've received in advance of the meeting from shareholders before we open to questions from all of you on the floor. Emma, I wonder if you could come and please read the first pre-submitted meeting a question.

Number as in advance of the AGM by 1 shareholder. They are focused on share price performance and what is required to re-rate the MSG share price, making to be combined into the following question, which is -- going the Board outlined a road map or the catalysts and mild times required to improve the share price and to increase shareholder value.

Thank you very much, and I believe we've properly combined those questions. I believe, ladies and gentlemen, as you will have heard from our that the Board and management are focused upon growing and delivering shareholder value. One of the great benefits we believe of the merger is that there are now really 3 engines that can drive this growth. There are basically the investment management business as we hope to supplement over time the corporate advisory business and financial markets business. We are all very motivated to make sure that growth occurs over time. Those of you who've looked at the structure of our company will see that our management own a great number of shares in the company and indeed depend on that to do very well to reward them for their excellence and hopefully, very meritorious work. We're all motivated towards that -- we believe that there is growth in each of the 3, if I may call them engines. And I think Brian has mentioned the way we're looking at going forward, and I believe we will look to growth in the longer term. Do we have any other questions?

No. Thank you, Chair. That does conclude the question received in advance of today's meeting.

Well, ladies and gentlemen, may I open it up to questions from the floor. In relation, if we may, to this nonresolution situation, namely our balance sheet and so on to 2026 or 30th June 2026. Please, if you would just wait to put your hand up and when a microphone comes just identify yourself and ask the question. David?

Good morning, Chair, David Kingston -- Capital. But firstly, genuine congratulations on -- to the Barrenjoey team. I think it's outstanding over 6 years. You have built a business or the team has built a business that's -- at the date of the merger announcement was capitalized at $1.6 billion. So it would have been a difficult challenge 6 years ago, but congratulations to everyone. And it's great to hear from Brian today that $6 million synergies have been updated to [ $15 million ], which is a very promising increase. But today, just a couple of brief comments here and then a couple of questions, please. Today, it's a tale of 2 opposites.Barrenjoey, on the one hand, outstanding growth, operating profit after tax FY '24, $38 million; FY '25, $67 million, FY '26, $112 million, well done. Conversely, as we know, in the Magellan funds management business, between '22 and '26 5-year period, the average FUM has declined from $94 billion to $39 billion. And the net fees over that 5-year period have declined from $605 million to $193 million. A very evocative headline after the August '26 results, Chair. Macquarie, I appreciate their competitor that their evocative headline in their research report was clear as mud. As I said, I appreciate their competitor. But to clarify Chair, the [ mud ] or Brian, whoever chooses. I'd just be grateful if you could respond to 2 issues, please. Firstly, read Barrenjoey and noting Brian has acknowledged trading profits are down in the first period year-to-date, which is understandable given the volatility. The fantastic growth over the 6 years since inception. But it's volatile out there. There's big issues with American midterms, and even -- become President in 2 years' time. But Goldman's are down 20% from the peak. Just be grateful if perhaps Brian could clarify, what are the key risks you see to maintaining the outstanding growth? And my second question, Chair, if maybe Brian could provide some color on the rationalization of Magellan transferring the global equities funds to [ Venver ] at much lower fees. Just be interested in why that's a better strategy than embarking upon a turnaround. Certainly, a number of intelligent people were a little bit surprised with that decision. And a follow-up from that is the Chair or Brian, do you believe the profits from Magellan's FUM have finally stabilized. Clearly, there's been 2 impacts there. FUM has declined substantially and fees per farm have declined. Just I think everyone to be interested in whether that decline has finished? Or is there a stabilization? And is the growth?

David, thank you, and thank you for describing the situation in the world is mine. I think that should probably be a headline as well, so well done. Look, I will ask Brian to do the 2 out of the 3 of the questions, but I won't let him answer the third one, and you know I won't, which is have profits finally stabilized. I can say to you as Chairman, we're working very hard to make sure that in this new merger which has 3 engines, as I referred to before, and it does well in each of those engines. We'll be working as hard but I won't let him make a projection, and you know I want. So it is not to answer the third question. I will ask him to do the two, but -- and David, you're a smart guy, where I don't want us to spend our time in this merger looking backwards. We think that, yes, Barrenjoey has done well, but the Magellan base is wonderful. And the 2 together, we hope sincerely, this will demonstrate my bad math, the 2 and 2 will make 5. And that's our job, and that's exactly what we're going to focus on. Do you want to deal with David's first 2 questions?

Certainly. Thanks very much, Chairman. David, thank you very much for the commentary. And the background on those. When I think about this merger, this is all about creating diversification and you're a very experienced market operator. You've been in the market, you understand there is always cycles, and you're right. We saw this incredible bond period over, as you said, through to unprecedented moves almost that you've seen over this first quarter. In saying that, it's right at the moment, it feels like it's a which is good news. But we've lived through these cycles for the last 5 years as operating a paranoia for the last 20 years. And what we recognize is that the most important thing as we build this organization as we continue to diversify. So we're already obviously -- we think about that diversification not just in the perspective of having corporate finance, having financial markets and having investment management. But within those businesses, making sure we are broadening the product set and broadening the client set. And very much that's our move about getting the U.S. swap dealer license, so we can access U.S. markets. It's about setting up Abu Dhabi to it. access European markets. All of this has been about how can we continue to grow and build out the organization and diversify. We will inevitably see peaks and trucks and surges and pullbacks. And that's just part of the business, but that's diversification model that where we're at today versus what I would say MFG looked like coming back 6 months ago is to the benefit of all the shareholders. And I underscore David's comment what has us all very, very focused is that when you think about this organization is roughly 1/3 owned by the staff. And the whole team, and we're all very focused and all very aligned to shareholders and making sure that we manage our way through these various different cycles. In respect to the funds, the original fund that was set up by -- 20 years ago was charging 135 basis points. If you were to look at benchmark rates across the market, that was really at very much top end. That is not a contemporary level. And one of the things that's important is, and we have to balance this is the investors themselves in the funds, the shareholders and the investors. But ultimately, we need to be making sure that the rate that is charged to the investor in those funds is appropriate for what they're being delivered. And we need to make sure that, that offering is a quality offering. And with that, you would hope that you could try and stem some of the outflows that have been occurring. But importantly, irrespective of the outflows, which is to the benefit of the shareholder, which, as I said, 1/3 of the shareholders being staffed. We need to make sure that this is priced appropriately and a temporary levels and hence why that change and recognizing that, that rate has changed, we also further or the Magellan team went further. And that was replacing, if you like, the internal team with outsourcing up through November who could do it at a much lower rate, so that we could actually be manufacturing the product at a cheaper rate in passing on the benefits through to the ultimate investor. So I think I congratulate the MFG exec team for taking those actions before such time as we actually merged and I think they were the right move, and we certainly fully endorsed.

Thank you, Brian. Thank you the questions. Other questions?

I didn't want to be greedy, but bearing in mind, there are none others. I will follow up. As you said, share, there's 3 main drivers for the profitability Corporate finance M&A is a big one. The revenue from memory is high 200s, a lot of revenue. It can be a fairly lumpy business. I've had personal experience in that. And it's certainly not an annuity stream. I think as you allude to, Brian, your 2 rainmakers have both got 20 million shares. So I don't think they're going anywhere. And I think they'll be appropriately motivated to drive it forward. But is that a potential -- you mentioned earlier that your trading profit understandably are a bit down year-to-date. But is the M&A side, which is traditionally lumpy. Is that an issue for you? Or are you confident that's onwards and upwards.

Thank you very much, Dave, for the question. First of all, I will say we have a very large team. We have a team of nearly 140 bankers. It's equally the biggest team that you'll find here in Australia. And we are strong across a whole array of different areas. It could be get advisory side, it can be infrastructure. So when you talk about the 2 rainmakers, let me say there is a very broad base rainmakers in this organization. That's been super important that we're not concentrated to any 1 person or any 1 sector. As I mentioned in my presentation, the business remains strong. components move around and that's the great thing within even the corporate finance business, giving you across so many segments or sectors. Plus, as I said, you've got repeat business style like you had with the debt advisory. So having that right mix means that we feel that we're very well positioned, especially given where the markets have been. ECM will be a bit more challenging. But by the same token, we're doing very well on the advisory side. And I can't resist David having known you from the days when we were in that business, it's a great business, despite being lumpy.

So I'd just make that point. If there have been no other questions, I'd like to thank David for his questions. And I think we'll now move, if we may, to the first resolution. And the first resolution concerns the adoption of the company's remuneration report. This report forms part of the director's report and is contained in the company's annual report. The precise resolution that you're being asked to vote on should now appear on the screen I now move to consider resolution 1 as contained in the Notice of Meeting and as it appears on the screen. I point out that the vote on this resolution is advisory only and is nonbinding. Before putting the resolution to a vote, I'd like to invite any questions or comments on the remuneration report. And I am going to ask if I may, our Deputy Chair, Andrew Formica, and John Eales, who's the Chair of our Remuneration Committee -- People Committee, to perhaps join Brian, so at least we look, we have a whole falling of people that can answer your questions. Thank you, Andrew and John, for coming forward. I now open for questions if you have a car, the blue or yellow card, if you could just hold it up and we'll come and bring a microphone to you.