L1 Long Short Fund Limited (LSF) Earnings Call Transcript

Good morning, ladies and gentlemen. My name is Andrew Larke, and I have the privilege of being the Chair of your company and also of today's meeting. It's my pleasure to welcome you to the 2026 AGM of L1 Long Short Fund Limited. It's now 10:00 a.m., and as we have a quorum, I declare the meeting open. I would like to introduce my fellow directors, John Macfarlane, Harry Kingsley, Julian Russell and Jane Stewart. Also present are Nathan Jong, our Company Secretary; and representatives from Ernst & Young, our company's auditors. Notice of this meeting and the explanatory notes were sent to all shareholders, and I propose that this be taken as read. I'll now turn to my Chairman's address. In the 2025-'26 financial year, the investment manager, L1 Capital, delivered an exceptional result while navigating heightened geopolitical tensions, including conflict in the Middle East, shifting interest rate expectations and increasingly concentrated equity markets. With global equity market returns dominated by a relatively small number of AI-related companies, the team retained its focus on finding high-quality undervalued companies in sectors such as resources, construction materials, infrastructure, travel and financials, where price and intrinsic value were disconnected. They use periods of volatility to their advantage, buying companies at attractive prices and reaping the benefits of earnings upgrades, corporate actions and company-specific catalysts. Notwithstanding this challenging backdrop, over the 12 months to 30 June, L1 Capital produced an outstanding net return for LSF portfolio of 45.4% compared with 6.1% for the ASX 200, an our performance of 39.3%. As of 30 June 2026, on a 5-year basis, the portfolio had returned 16.9% per annum net, outperforming the ASX 200 by 9.1% per annum. And since IPO in 2018, we had returned 14.7% per annum net, outperforming the ASX 200 by 5.7% per annum. These results reflect the strength of L1 Capital's fundamental research, disciplined portfolio management and stock selection across a broad range of sectors. More recently, for the 4 months from 30 June 2026 to 31 October 2026, the portfolio has returned 1% net compared with 2.7% for the ASX 200 during the period. During the year, the company moved to quarterly dividends, recognizing that many shareholders prefer to receive more regular income. Fully franked dividends attributable to 2026 increased each quarter and $0.035 per share to $0.036, $0.037 and a final dividend of $0.038 per share paid in September 2026. This brought total dividends for the year to $0.146 per share fully franked, an uplift of 14.5% on the prior year. We are committed to continuing to increase fully franked dividends payable to our shareholders. This morning, the Board announced a fully franked quarterly dividend for Q1 of FY 2027, $0.039 per share, payable on 8th December. In September, Raphael Lamm and Mark Landau stepped down from the LSF Board to focus exclusively on their investment responsibilities. On behalf of the Board, I'd like to thank them for their contribution since the company's inception and listing in 2018. We are pleased to welcome Julian Russell, L1 Group's Chief Executive Officer and Managing Director; and also Jane Stewart, L1 Group's General Counsel to the Board. Their experience in financial services, legal, governance and risk management will further strengthen the Board's capabilities. Lastly, on behalf of the Board and the investment manager, I would also like to thank all of our shareholders for their continuing support of the company. It is very much appreciated. So I'll now turn to the business of today's meeting. I wish to advise that voting on all resolutions will be conducted by way of poll. Shareholders will be able to cast their vote using the electronic voting card. [Audio Gap] only shareholders, validly appointed proxies and corporate representatives are entitled to ask questions at today's meeting. We will answer any questions at the conclusion of the formal business of the meeting, including questions for the investment manager. The first item of business is to receive and consider the company's financial report, director's report, sustainability report and auditor's reports for the year ended 30 June 2026. I will now turn to the items of business for which a vote is required. The second item of business today relates to the adoption of the remuneration report. I will now table the outcome of proxy voting received prior to the meeting. The next item of business today relates to the reelection of directors. Resolution 2 relates to the reelection of John Macfarlane. I invite John to say a few words.

Thank you, Andrew, and good morning to my fellow Board members and all shareholders. My name is John Macfarlane, and I'm standing for reelection as an Independent Non-Executive Director of LSF, and I appreciate your ongoing support. I have had a career as an economist, trader, banking executive, company director and investor. I have been involved in global financial markets for more than 35 years, and I have lived and worked in Australia, New Zealand, North America and Asia. Banking taught me the importance of risk management, and I also learned to keep a keen focus on the current and prospective regulatory and governance landscape as well as technology advancements and new emerging trends in both public and private markets. As an investor, I've come to appreciate the importance of deep research and disciplined investment strategies brought together to protect and enhance shareholder value and returns. I've come to realize the value of managers being clear about the mandate and being true to label. LSF is my only public company directorship, although I maintain directorships of several operating businesses as well as portfolio responsibilities within family offices and private companies. I enjoy representing shareholders and working with my fellow directors and the L1 our management and investment team in the endeavor of delivering favorable outcomes for LSF investors. I've been an investor in L1's LSF fund since it was launched, and I have a strong sense of alignment with you, my fellow shareholders. I would appreciate your consideration and support as I put myself forward for reelection.

Thank you, John. I will now table the outcome of proxy voting received prior to the meeting. Resolution 3 relates to the reelection of Jane Stewart. I'll invite Jane to say a few words.

Thank you, Chair, and good morning, everyone. I joined the Board of L1 Long Short Fund in September this year, and I'm pleased to stand for reelection today. I've worked in funds management law, regulation and compliance since 2008 and is General Counsel of L1 Group, responsible for legal, compliance, governance and risk management. I'm committed to bringing my experience to the Board with a focus on strong governance and the interest of all shareholders. Thank you.

Thank you, Jane. I'll now table the outcome of proxy voting received prior to the meeting. Resolution 4 relates to the reelection Julian Russell. I invite Julian to say a few words, please.

Thank you, Chair. Good morning, fellow directors and ladies and gentlemen. My name is Julian Russell, and I'm standing for reelection as Director of LSF. I'm the Group Chief Executive Officer and Managing Director of L1 Group, which is the manager of LSF. I bring more than 25 years of experience in financial services. Most recently, I served as Chief Executive Officer of ASX-listed Eclipx Group, now known as FleetPartners, where I led the restructuring and successful turnaround of that particular business. Before that, I was at UBS Investment Bank, where I led the financial institutions M&A practice, advising asset managers, banks, general insurers, life insurance and nonbank financial institutions. I believe this combined experience positions me to make a meaningful contribution to the Board and in the long-term interest of shareholders. Thank you for your consideration.

Thank you, Julian. I'll now table the outcome of proxy voting received prior to the meeting. Resolution 5 relates to the renewal of the proportional takeover provisions. I now table the special resolution that with effect from the date that this resolution is passed in accordance with Section 648G of the Corporations Act, the proportional takeover provisions set out in Clause 14 of the constitution, be renewed for a period of 3 years. I'll now table the outcome of the proxy voting received prior to the meeting. Well, that concludes the items of business to be voted on at today's meeting. Shareholders are reminded that they can submit their vote online until 5 minutes after the meeting closes. I appoint a representative, Ms. Mamata Telang of MUFG Corporate Markets as returning officer for this poll, and the final results will be announced to the ASX later today. So that concludes the formal business to be considered at the meeting. I now have the opportunity to address any questions from shareholders. Shareholders also have the opportunity to ask questions of the investment manager as we have Mark Landau, joining the meeting. Moderator, are there any questions on the phone lines?

Chair, I confirm there are no questions on the phone.

Thank you, moderator. Nathan, do we have any questions from the online platform?

Yes, we do. We have a total of 9 questions on the online platform, 2 of which relate to the same theme. So we'll work the 2 together, And will address each one. I'll start off with the first question. The first question relates to why the company that has many retail shareholders online only meet virtually and that it is considered best practice to hold a hybrid meeting. I'll hand that over to Andrew to comment.

Okay. Thank you. We've obviously had hybrid meetings for some time. And frankly, it's a cost -- in a number of issues, it's a cost issue. When we brought this in, I think it was in 2020, there was an overwhelming majority of shareholders that supported this. I think we've had -- I personally, as Chairman, have had a lot of people come to me and thanked me for this ability for just hybrid because actually our shareholders who have attended the meetings have gone up since we've had this in place. And look, if you look at -- if you do look at LSF, we're a little bit unique in the sense that really, it's the investment manager that invests in all the stocks that generate the share price and -- share price growth in the NTA growth. And I think this company would have to be, if not the most, close to the most communicative company in the market in terms of dealing with its shareholders. So I'll give you an example. In June this year, we had an investor update, and we had 2,632 plays of that investor video consuming around 1,000 hours of content. That's just one example. We have all sorts of updates that are given to shareholders along the way outside of what is essentially a largely a governance-focused AGM. So we provide separate forums for our shareholders to engage directly with us.

Thank you, Andrew. Now moving on to the next question received from Stephen Van Henricks. So the question reads, you have something like $2.15 per share of franking credits and pay out only a fraction of these out each year, and a large profits reserve that enables these franking credits to be paid out if the Board believes this is a good idea. These franking credits have varying value depending on the tax situations of your various shareholders. What do you know about the makeup of your shareholder base? And how does this tie into any longer-term plans for distributing these fracking credits?

Well, I guess I'll start by saying that Stephen would know through, if he's representing a number of shareholders that the shareholders that invest in LSF are not really there for the dividend, first point. We made it clear in the prospectus, and we've made it clear since that capital growth is the major objective of this company. That said, we are mindful that we have built up quite a good store of franking credits and retained earnings through the dividend reserve. And therefore, we started some years back a progressive dividend policy to bring these out to shareholders. But what we -- with a progressive dividend policy, you want it to stay progressive. So you don't want to get yourself into a situation where you're paying out big swings in dividends each year. That's when you can run into trouble. And certainly, the feedback from our shareholders has been that they -- enjoy the regular pattern that we have of dividends, which is quarterly now. And they also value the certainty of that regular stream of dividends rather than us paying out a large amount 1 year and maybe nothing for the next 2 or 3 years.

Thank you, Andrew. Now moving on to the next question now asked by Stephen Mayne. If Jeff Wilson appears at all WAM AGMs, Charlie Goode fronts AUI AGMs, Robert Millner fronts from Soul Patts AGM at a variety of fund managers present-- present the various stable AGMs. Why aren't either of our 2 founders and key fund managers, Rafael and Mark Landau presenting at today's AGM. Are they even in attendance, could you please ask them to make themselves available for the 2 subsequent L1 Group listed fund AGMs being held later today?

Hello, Steven. Thank you for your question. As you know, being a long-term shareholder of our company, we have had the 2 gentlemen you referred to, Rafi and Mark, they've been on our Board since IPO and have been in attendance at every Annual General Meeting until now. They have now left the Board to focus exclusively on what they do best, which is big stocks. That said, we do have the guys on the line today. So if you want to -- if you want to ask any questions that relate specifically to them or to any stocks that you might have questions about in our portfolio, then feel free to. So certainly, there will not be an AGM go by where they are not present either one or both of them.

Thank you, Andrew. Now moving on to the next question and another question from Stephen Mayne. This relates to the AGM business relating to the reelection of John. So the question goes on to read, having first joined the Board in January 2018, could reelection candidate, John Macfarlane comment on whether this is likely to be his final 3-year term on the Board? Or is he likely to recontest his seat in November 2029? Also what does he regard as the best 2 decisions made by the Board during his period of service? Finally, could John, please clarify how old he is and what proportion of his work time is dedicated to LSF?