AGM 2017

Jun 27, 2017

Slides

Good morning, everyone, and welcome to Mastercard's 2017 Annual Meeting of Stockholders and now call to order. My apologies for the slightly late start, but we did want to ensure that all shareholders who wanted to attend were able to get their seats. I'm Rick Haythornthwaite, Chairman of the Board of Mastercard. Seated at the table is Ajay Banga, our President, CEO and a fellow Director. I'd like to thank you for taking the time today to join us either here in person or by audio. And a special thanks for all your hard work to any of our valued employees who may be listening in. We have several items of business to cover this morning, so let's turn right to the formal business of the meeting. The agenda and rules of conduct were provided at the registration table and I would like to ask for everyone's cooperation in respecting the rules for today's meeting. In particular, please hold any questions or comments until the designated question and answer session. Now I'd like to introduce the rest of director nominees who are seated at the front of the auditorium. And if I could ask each director nominee to stand when I introduce you. Your director nominees are Silvio Bozzi, former Senior Advisor and Executive Officer for the UniCredit Group Dave Carlucci, the former Chairman and CEO of IMS Health Incorporated Steve Fryberg, Senior Advisor to the Boston Consulting Group Julius Zelikovsky, Managing Director and Partner of The Carlyle Group Merit Janow, Dean of the School of International and Public Affairs at Columbia University. Lindsay Karch, Director Emeritus of McKinsey and Company. Oki Matsumoto, Managing Director, Chairman and CEO of Monnex Group Rima Qureshi, Former President of Ericsson North America Jose Reyes, Former Vice Chairman, Coca Cola Export Corporation at The Coca Cola Company and Jack Tai, former Vice Chairman and CEO of DBS Group and DBS Bank. In addition, I'd like to introduce our Corporate Secretary, Janet McGinnis, who is standing in the front of the auditorium. Several members of our senior management are also seated in the auditorium, including our Chief Financial Officer, General Counsel and Chief Human Resources Officer. Bob Clem and Lee Aslin, representatives of PricewaterhouseCoopers LLP, our independent registered public accounting firm are also present. We are all available to respond to your questions in due course. We have designated Ann Meyer of Georgeson as Inspector of Elections for this meeting and Ms. Meyer has taken the oath of office. Now let's turn to the business of the meeting. I have a copy of the notice of the meeting together with an affidavit of mailing and the proxy materials made available to our stockholders of record as of April 27, 2017. A certified list of stockholders as of the record date is available for inspection. Our Inspector of Elections also has certified that there is a proper quorum for this meeting. All of these documents will be made a part of the minutes of this meeting. With that, this meeting is lawfully convened and we're now ready to transact business. There are 6 proposals to be voted on today, each of which is described in our proxy statement, including the votes required to approve each proposal. The 5 matters presented by management are: 1st, the election of 12 nominees for Director 2nd, the advisory approval of our executive compensation 3rd, the advisory vote on the frequency of future advisory votes on executive compensation. 4th, the re approval of the LTIP performance goals for 162M purposes, which we'll call our LTIP proposal. And 5th, the ratification of the appointment of PwC as our independent registered public accounting firm for 2017. The Board recommends that stockholders vote for each director nominee. 4 annual sale pay votes and 4 each of the 3 other management proposals. In addition, a stockholder is presenting a proposal on gender pay equity. We welcome Natasha Lam, a representative from Arjuna Capital, the lead proponent of this proposal, who is here to present it. Ms. Lam, we appreciate your interest in our company. The floor is yours. Good morning. Mr. Chairman, members of the Board and fellow shareholders. My name is Natasha Lam, and I'm here to move Proposal Number 6 filed on behalf of Arjuna Capital's client, Elaine Alexander. Specifically, we are asking the Board to publish a report on the company's policies and goals to reduce the gender pay gap. The median income for a woman working full time in the United States is reported to be 79% of that of her male counterparts. And forecasts indicate that at the current rate of change, women will not reach pay parity until 2,059. Of note, African American and Latina women is wider at 60% 55%, respectively. Gender pay disparity is not only one of the biggest social justice issues of our time, it poses a risk to company's performance brand and investor returns. This issue is particularly salient to the financial industry, which struggles to attract and retain female talent, as well as the technology industry. In fact, women executives are 20% to 30% more likely to leave a career in finance than any other career. And while Mastercard has not reported its company wide pay gap, Payscale reports the company has a mean salary pay gap of 15% over $13,000 and a 20% GAAP over $23,000 for top earners. Research indicates gender diverse teams are more productive, innovative and drive better results. Clearly, a failure to attract and retain qualified female employees is detrimental to Mastercard's ability to innovate and compete. Mastercard has disclosed that 40% of our company's global workforce is female, yet 25% of our leadership is made up of women. Our company is best served by a proactive approach to address the structural biases, including pay inequities that prevent women from entering and staying in the field and from moving into positions of leadership. Given the material business risk gender inequity presents, investors expect transparent, honest disclosures and quantitative goals, and employees expect a new level of structural support that addresses root causes and empowers fair negotiation, promotion and ultimately equal pay. Implementing the proposal would represent a proactive step toward closing the gender pay gap. We believe the company would benefit from taking a leadership position on this issue along with Financial Services peers, Schroders and Virgin Money and S and P Technology peers including Apple, Microsoft and Expedia, as well as others. As research indicates, attracting and retaining diverse teams yield strong financial performance benefits. Thank you. Thank you, Ms. Lam. And for the reasons set forth in our proxy statement, which have nothing to do with your ambition, but everything to do with your recommended reporting remedy. The board recommends stockholders vote against this proposal. Because we receive no timely notice of any other nominations or business to be considered at this meeting, these 6 agenda items are the only matters to be voted on today. If you've already submitted your proxy, your shares will be voted accordingly. If you brought your proxy with you and obtained a ballot at the registration desk that you'd like to submit, please provide it to the Inspector of Elections, Ann Meyers. If there is any stockholder present who has not yet voted and needs a ballot, please raise your hand so we may distribute a ballot to you. If you have previously voted by proxy, please do not fill out a ballot unless you wish to change your vote. After we close the voting polls, we will announce preliminary results of the voting on each of the proposals. Time is now nine forty 8:48 on June 27, 2017 and the polls of voting are now open. Janet will vote 1 or more ballots representing all votes cast by proxy before the meeting. While the polls are open and we wait for any ballots to be completed, Ajay will share some thoughts on the company. Before he begins, let me remind you that his presentation and Q and A that will follow may include some forward looking statements about Mastercard's future performance. Actual performance could differ materially from what is suggested by our comments today and information about the factors that could affect future performance is summarized in our recent SEC filings. That's what Rick was just saying. So thank you, Rick, and good morning, everybody. And it's great to see you all here in purchase and welcome to those of you who are joining our webcast. I'm going to spend the next few minutes walking you through the highlights of our business. So back in January, we reported our performance for the year 2016. And by the numbers, Mastercard had a very strong year. Our net revenue increased 11% or 13% on a currency neutral basis. And for the year, EPS increased by 10% or 11% on a currency neutral basis, excluding special items or 19% when normalized for taxes. Over the last 5 years, net revenue has grown at a cumulative average growth rate of 10%, adjusted diluted EPS has grown at 15% and total shareholder return has grown at a compounded annual growth rate of 23%. Our 10 year annualized total shareholder return has been 27%, which according to the Fortune list of the Fortune 500 latest issue is the number 4 in the List of Ranking. This strong operating performance and the solid fundamentals that underlie our business continued into the Q1 of this year. And in the coming weeks, we'll be reporting on our financial performance from the Q2, which comes to a close on Friday. To us, this sustained performance means many different things. It's about having products and solutions that our customers and their consumers want. It's about having the right relationships in markets across the globe. And it's about delivering on our commitment to drive value back to you all, our shareholders, while also delivering value to society. And that last part is why you see us focusing so much on inclusive growth and financial inclusion. In the last 4 years alone, we have returned more than $15,000,000,000 to shareholders through dividends and through share repurchases. And of course, during that time, we have regularly increased our dividend. These actions are balanced with the investments we make in our people and products to expand our business. For those of you who attended investor meetings or shareholder meetings in the past, you've kind of heard me consistently talk about the overarching objectives of our business and those are to grow, diversify and build our franchise enabled by those foundations of our brand, data, technology and our people. We focus the largest amount of our time on what we talk about as growing the core of the business. People in businesses rely on their credit, debit and prepaid today cards, but it could be any form factor to make purchases simply and safely everywhere they see our brand. And at the same time, technology is changing how the pillars of credit, debit and prepaid come to market. Every device you have, a phone, a tablet, a refrigerator, a car, even your fingerprint has the potential to become a way to make or potentially receive a payment. And we are determined to lead in that space and that area. We are and will continue to be partner centric. For a number of years, we've invested in our merchant relationships, accelerating the growth of our network in a way that delivers value to all partners. We continue to focus on expanding the acceptance of our products both in store and online. We're also working with digital players with merchants, telecom companies, transit authorities. It's a new range of players who help us reach consumers through different use cases. And of course, we're building new businesses. Our advisors business is delivering value beyond the transaction. We're helping merchants become more efficient, make better decisions, increase conversion rates. We're spending a significant effort to deliver a competitive difference for Mastercard. The activity on our network powers insights and services to help businesses get things done. It can be by delivering safety and security or loyalty and rewards on every device. It's about building off the core relationship. That's how Grow, Diversify, Build hangs together as what we are trying to do. Now this past year, we announced the acquisition of VocaLink and the closure of that transaction happened in the course of the first half of this year. We believe VocaLink is another example of where we will add to the foundation of a strong card based retail payments business. We are pleased to have recently closed on that acquisition. They add key platforms to the foundation including real time account to account faster payments or what the industry refers to as fast ACH. The combination of card payments and bank account based payments will enable us to take a more holistic approach to retail, to P2P, that's the peer to peer and B2B business to business payments. Our customers will basically be able to turn to one partner to address their payment needs across the whole spectrum from cards to ACH. So with that as a foundation, we're kind of looking forward and looking ahead. That starts with our people and having world class talent across our business in every market and at every level of the organization. Our employees are our greatest strength and they are committed to the business like they own the place that actually they do because they're all stockholders like you are. It's their passion and dedication that make things like Masterpass, Mobile Payments, World Elite, Priceless, all these things you see us doing in the market, it's that passion and dedication that makes those a reality. Our industry, FinTech more broadly, is different than it was just a few years ago. We are working with new types of partners, including startups and non traditional players. And that's why we are using our open API platforms to help new and emerging players connect to our products. We've got programs like StartPath, which are focused on identifying early stage companies around the world and connecting them with internal expertise in our company to help develop pilots so they can in turn become part of the innovation engine of our society. If technology is going to make the Internet of Things a reality, we need to continue to make payment security even more safer, that's a peculiar way to say it, but we need to make payment security more safer than it is today. The point is this security will come down to 3 things preventing an attack, detecting it if they do get through, and when it does get through, shut that down once you've detected it. That's what we're working very hard on. Confirming the authentic identity of the buyer will be the imperative. This is where biometric cards and selfie pay and artificial intelligence come into play. Our decision intelligence service, which by the way uses artificial intelligence and machine learning, stands in the layers of security or acquisitions, like our recent deal for new data will also play a role here. We also continue to work across the industry to drive the creation of EMV, token and QR standards to ensure a consistent experience and a way of working. But we are going to stop there because all of this actually is invisible to the consumer, but it delivers the trust that they require and they justly demand. We know there is much more opportunity in front of us and we'll continue to execute on the strategy to address these opportunities and deliver long term success to you all and to our employees. Look forward to updating you on our progress periodically, and I appreciate your continued support. Thank you for that very much. And Rick, I'll turn it back to you. Thank you, Ajay. So at this time, if you would please raise your hand if you've completed a proxy or ballot and Ms. Meyer will collect it. So now while the vote is being tabulated, we will open the floor for questions and comments about the 6 proposals as well as the business update. And please direct all your questions to me. If you would like to ask a question, please stand, wait until you're recognized, then use the standing microphone in the middle of the aisle. Certainly if you have a question at the back, we must be very happy to bring a microphone to you. So please, are there any questions? Yes, sir. You please have the gentleman out to the microphone. Thank you. Okay, good. Yes, we have prayed for the audio. We got one coming through here. So, now people listening into the voice cast. I have a comment which I'd like you to which results in a question. Let us assume that cryptocurrencies gain the upper hand in the years to come and let us further assume that Bitcoin is the winner among them. How will this company and our service, our product handle the situation? It's very good question, a very contemporary question. Ajay, do you want to pick that up? And let me just say further, let us hypothesize that the bulk of all currencies in the world become Bitcoin. I do hope that's not the case because I think Bitcoin has many design flaws in terms of knowing your customer and anti money laundering and I believe that's what keeps our financial system safe and secure. But let's put all that aside because your question says put that aside. So if you start from having put it aside, then the issue is for us, we handle 200 currencies today. Currency is essentially a form of value exchange, a Bitcoin or any other cryptocurrency, irrespective of the technology that underlines it, is essentially a form of value exchange. The longest we can participate in that form of value exchange by providing for the Bitcoin to be just like a U. S. Dollar or an Indian rupee or a Japanese currency. There's no real impact to what role we could play in enabling buyers and sellers or people transferring money to people or businesses transferring money to businesses to correlate and connect. That's the role. Our role is not dependent on a dollar or a yen. It's dependent upon the value exchange flowing over the rails of our technology and our capability there. That's what we have to fight for, always staying good in the technology, good in the value added services and then go to whichever form of value exchange is being mandated by the customers using it within the rules of law that apply. Other questions or comments? Hi there. I had a couple of questions, hi Martina. One was on the core business and one was as it relates to the capital allocation policy of the company. On the core business, whether it's that to a gentleman's question about cryptocurrencies, fast ACH, there's clearly a lot of disruption happening at current moment. And so I would love to just get your perspective on the ability to continue to deliver revenue growth as we've seen it over the past many years prospectively in the face of things that might create some more headwinds. And then secondly from a capital allocation point of view, it seems as though we have emphasized share repurchases over the past 5, 6 years and I think I've been a big advocate of that. As the market has gone up significantly and Mastercard's valuation has been more appropriately reflected in the market, I'm curious whether that still remains the best use of the firm's capital from your point of view and how you think about framing all of that? So the good news is that this particular shareholder is consistent in his questions. I've seen him for a few years now. The first one is the first question on how the market is developing and how we could sustain our value in that marketplace. I think first of all headwinds and tailwinds are a reality of this kind of market. They've only become quicker and faster and more volatile over the last 5, 7 years because of the speed of technological change. I do believe that will continue to be the trend. And if anything, that speed may actually accelerate, although I'm not sure. But I do believe that we should prepare for that. My perspective on remaining in that game is that as you've seen over the last few years, we've kind of been able to work even with players who earlier were seen as completely disruptive. So I think the story around being disruptive to the payments industry applies to certain players in the ecosystem, but not necessarily everybody each time disruption is discussed. So let's take e commerce wallets for example. When they were being discussed a little while ago, there was a great deal of speculation that the digital players would find a way to disrupt the industry in a form that did not enable the current players to extract value from the payments value chain. I think over the years that's been proven to not be quite correct. Now again, I wouldn't declare any change because it may change in the next 5 years. You got to be ready for that. And so what we do is try and make sure we are bringing the right rails and right infrastructure for those players to need us to reach billions of consumers and millions of merchants through 20,000, 30000 banks in 200 countries with all the legal local regulations built into our system. That's not a small task for someone to try and replicate. Now, if all you do is rely on that one aspect, you will be caught at some point of time. So as you know, the idea is to be agile and mobile in terms of developing new technology and helping in turn to enable the right choice for those customers and consumers. The acquisition of VocaLink is exactly aimed at that point, because I believe that fast ACH, old fashioned ACH had challenges still grew. Fast ACH is a whole new space. And I believe that between regulatory permission to go forward with that, in fact, encouragement in some markets, combined with some of its feature functionality that's quite attractive, even though may not be as attractive as some of the card rails, but it's got a great deal of traction, Combined with economics that look different when you take a first look at them, I think this is going to grow and drive. We want to be part of that. That's why we put a bet down on buying VocaLink. It actually is the only fast ACH and ACH provider that operates in multiple countries. So my point in all this is we're cognizant of the fact that the market is moving. We don't plan to stay where our moat is. We plan to move along with that marketplace, sometimes ahead, sometimes following, depending on what makes business sense. On your capital allocation point, first of all, I'm a firm believer that the Mastercard stock price has more to go. And therefore, I disagree with the premise that this would be a time to look at that differently. Having said that, our regular allocation of capital starts from the first premise of holding a certain amount of capital and cash available to manage the risks of our business. That's the first allocation. The second allocation is to everything we need to do to grow, diversify and build our businesses. And if you look at the number of acquisitions that our company has done over the last 7, 8 years compared to our leading competitor who is somewhat bigger than us, you would find a very different focus on using our capital for acquiring assets and capabilities and skills and geographic coverage that we may not possess today. And hence VocaLink and has new data and hence Travelers Prepaid and TravelX Prepaid Travelers goes back a long time. And hence, other such entities, right? So that's the idea of using that capital. Once we've got ourselves ready for that and given the nature of our industry, the number of acquisitions available of any larger size tend to be somewhat limited. It's just the nature of the place. And that gives us the chance then to put money either into joint ventures or investments for start ups and the like or dividends and share repurchases. It actually flows exactly like that because we believe we're in a growth industry and providing 1st for our risk, 2nd for our growth and 3rd, to return the capital to you so you can reinvest it in a form that you think appropriate. That's our capital allocation. Thank you. Natasha Lam, MasterCard Services sits between the technology and finance worlds. And what we've seen over the last couple of years is that many technology companies have started to disclose their gender pay gap and commit to close it. We've also seen global financial services firms start to do the same. So I'm curious why there's hesitancy on the part of the company, why the company isn't disclosing this number when investors are viewing it as a competitive issue in terms of attracting and retaining top talent? Thank you very much for the question. I have a follow-up. Let's make one thing clear that every man and woman in Mastercard gets equal pay for equal performance in an equal job in the U. S. And globally. So if you deconstruct sort of metric you're talking about this is really a question about our ambitions and pace of driving diversity through the company. And we believe fundamentally in diversity. You just have to look around the board and look around this room we believe in diversity. We believe it drives better ideas, better dialogue, better decisions. And do we think that just over 30% I think diversity is sufficient. Do we think 40% gender diversity in the company is sufficient or 28% in senior management, 25% in the board? No. But we're not resting in that. I mean we have numerous initiatives around the company from the top through to the through the organization and we recognize for them, whether Top 10 in Diversity Inc, we're recognized by Bloomberg as best in class in terms of the practice we bring to making opportunities available to women. In other words, we have processes. And our question is, what is the best way of doing this? And in our proxy response to your recommendation, your proposal, we simply say, we don't think a further report with this particular metric will accelerate the already substantial efforts that we have in the company. That's simply the reason behind the response. And therefore, we voted we recommended that you vote against recommendations of shareholders. We just don't think it is in the best interest of all of our shareholders, a simple statement there. I come back to what I said in my text there. This is nothing about the ambitions. We truly share the ambitions. It's just our interpretation of how do you get this done, recognizing it's not a simple journey, but how do you best get it done. And that's what we as a board, as your board are most concerned about. I think that investors expect transparency and accountability on the issue and that has everything to do with the disclosure? Our belief is that everyone should expect transparency. We believe transparency on metrics that actually make a difference in form. And our view here is that we clearly we beg to differ on what makes a difference in terms of transparency and informing shareholders as a whole and what best drives initiatives in this area. One of the statements you made at the beginning of your comments is that you pay men and women the same equal pay for equal work. Obviously, that's the metric that we're looking for. If that number is 100%, can you say that it's 100%? I'm getting to the point where I'm going to refer to my previous answer. I just I think we've made our position clear and we will press ahead with any initiatives. And if at some stage we think that it's worth adding another set of metrics to inform shareholders and demonstrate how we are moving in the direction and indeed whether or not we think there are metrics that will drive our change program faster, we will let everyone know. But until such time on this particular recommendation, we've recommended that people vote against. Thank you. Well, we look forward to a continued conversation if you're open to that. Yes. And thank you for raising. It's an important issue. And I think the debate is the right debate to be had. But as long as we can all respect our different views in these areas and let's keep the conversation going. So thank you. Yes, sir. And please get a microphone to the gentleman in the back. You got one, sorry. There you go. I have two things to say. 1, I'm handicapped and I was appalled that I had to walk a half a mile to get to the entrance. I think you could do better than that. I apologize on behalf of the company. My second question is, of all the new methods of payments, I have owned several small businesses. Of all the new smaller methods of payment, I find the guys who run these businesses for me are very uninformed about the new methods of payments for whatever the reason. And I'd just like to say, I think you've got to do more education. And my other question or statement is, what percentage of the old style run of the mill cards now being replaced by these newer methods in your Apple phone, using your with Bitcoin or whatever. How fast is that changing? Thank you. Well certainly we're doing an awful lot for small and medium sized businesses. Ajay, do you want to pick up what programs are doing that and talk about the percentage shifted to new methods? Thank you. So in context, the total you take retail payments that is person to merchant, let's forget about business to business for a minute. Person to merchant, if you took the total market in the world, 85% of it is still cash, first of all. Only 15% is non cash in the form of either a card or a digital payment. Of that 15% that is non cash, the non credit card or debit card or prepaid card or purchasing card kind of card payment based systems that is everything digital as well as all of e commerce is minuscule, completely minuscule. I mean to give you an example, in the United States right now, e commerce is 7% of retail transactions. Digital payments in the form of Apple Pay and the like are less than 1%. Of the 7th club, having said that, the growth rate of e commerce payments is sometimes 2 to 3 times that of physical in store payments. So I don't believe you should think that 7 will stay 7 for another 20 years. It will not. It's growing with some degree of rapidity. Nobody knows where it will settle down. I can give you an anecdotal example of the gentleman who runs Alibaba, Jack Ma. He once said to me that when China reaches 30% of payments in the form of digital, digital including card as compared to cash, he would think they have really reached Nirvana. So I think there's some natural balance right now in some of these markets and even in the United States cash is 50% of retail payments. In the developed world, countries like Japan and Germany with a high-tech, high quality infrastructure cash is still 70% to 75% of retail payments. So I actually view our competition as being not just my traditional competitors who are networks or what could come with a Bitcoin or a digital payment as being disruptive even if we are the enabler of that, disruptive in maybe revenue streams. But I view cash as the real competitor for the company and for its opportunities into the future. And may I add my Chairman's regrets about your difficulty in getting here. That's something we need to fix and I'm sure it'll be done better for you the next time you're here. We know the gentleman's comments about needing to inform small businesses better. Hamdan, perhaps you might just pick up a quick note where we are on that. The idea of educating small businesses and alternative payments is important. And I think the real challenge is how do we go about getting their education done. And the education is only worth it if you have all the right tools to enable them to change the way they're currently interacting. In different countries, we use different channels to get to those small businesses. In the United States, we're actually building a whole network of capabilities with a company called Avid Exchange. We just announced the fact that we're going forward with them to enable a trade directory to be built for businesses like the ones you're referring to to get listed and enable them to accept payments and receive payments through many different channels. And that's the kind of product repertoire we're trying to build and grow with that. Over the last 5, 7 years, our so called commercial business, which includes these kinds of examples, has grown at a revenue rate that is sometimes 1.5 to 2 times the revenue rate of our total company, but it's off a smaller base. And I believe the refocusing of our company from only focused on retail payments to also adding a great deal of emphasis on business payments is part of our future growth story. Thank you. Is there any more questions or comments? Very good. Well, thank you for your questions. Let's now turn to the voting results. All ballots are now in the custody of the Inspector of Elections. It is now 9:15 a. M. On June 27, 2017, and I now declare the polls closed. Janet, do we have the results for the vote? Yes, Mr. Chairman. Based on the Inspector of Elections preliminary vote report, They were present at the meeting either in person or by proxy, 949,000,187, 63,000 shares, that's 90% of our shares, by the way, of our Class A common stock, which represents a quorum for all matters to be voted upon. Thank you. Based on these preliminary results, each director nominee has been elected. Our executive compensation has been approved on an advisory basis, 1 year has been selected as the frequency of future advisory say on pay votes, The LTIP proposal has been approved. The ratification of the appointment of PwC for 2017 has been approved and the proposal on gender pay equity was not approved. The Inspector of Elections The Inspector of Elections preliminary vote report that I have used will be certified following the meeting, and we will publicly report the final voting results on a Form 8 ks. The inspector's final report will also be filed with the meeting minutes. Thank you, Janet. And as there are no other matters, this meeting is adjourned. Thank you again for your support of Mastercard. We look forward to another great year. Thank you very much indeed.