Djerriwarrh Investments Limited (DJW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the 39th Annual General Meeting of Djerriwarrh Investments Limited. My name is Graham Goldsmith, Chairman of your company. The company Secretary has confirmed that a quorum is present, and I will now open the meeting. I would like to begin by acknowledging the traditional owners and custodians from all the lands we are gathered on today and pay my respects to their elders, past and present. May I introduce the people on stage with me. We have our Managing Director, Alison Gibson; and my fellow nonexecutive directors, Catherine Brenner, Kathryn Fagg and Geoff Roberts. We have our fellow Director, Bruce Brook, online as he's unable to be in Melbourne today. And also Rebecca McGrath is online. She has been in the U.S. and her plane back was canceled yesterday. So she such as travel these days. She sincerely apologizes and is also online for the meeting. Our Chief Financial Officer, Andrew Porter, is in the front row, and we'll hear from him a little later. And at the table, we also have our Company Secretary, Matthew Rowe and head of Business Development and Investor Relations, Claire Aitchison. Mark Freeman retired as Chief Executive Officer and Managing Director at the end of the 2026 financial year. The Board would like to acknowledge Mark for his leadership, and we wish Mark all the best for his future endeavors. Alison Gibson was appointed Chief Executive Officer and Managing Director of the company with effect from July 2026. Prior to taking on the role of CEO, Alison was an experienced investment professional, establishing and managing the Australian equities team at HESTA. Alison is well known to the company, having previously worked with the group for 10 years until 2021. She has been using her first few months to connect with shareholders, their advisers and the team, and we will hear from her shortly. From our investment team, we have Portfolio Manager, Brett McNeill; and Assistant Portfolio Manager, Olga Kosciuczyk, from whom we will be hearing soon. And we're also joined by other members of the broader team in the front row of the audience. Finally, I will also take this opportunity to introduce Kate Logan, partner of the company's auditors, PricewaterhouseCoopers, who is available to answer questions today on the conduct of the audit and preparation and content of the auditor's report and accounts at the end of the presentation. Today's meeting is a hybrid meeting, and today's presentation has been released to the ASX and made available on the company's website. I remind shareholders using the online platform that whilst questions can be submitted at any time, I will not address them until the relevant time in the meeting. To ask a question, click on the Ask a Question button on your screen. And if you have not entered your shareholder number or proxy number, you will be required to provide these details before you can proceed. Once your shareholder or proxy number has been verified, you can choose to ask your question in writing or orally. If you require further guidance, please click on the virtual meeting online guide link on your screen. Please also note that your questions may be moderated if we receive multiple questions on one topic, amalgamated together. I now declare voting open on all items of business, and I will give a warning before I move to close voting at the end of the meeting. To cast your vote, click on a Get a Voting Card button on your screen and where prompted, please provide your shareholder or proxy number and follow the prompts. Once verified, a voting card will be issued and you will be able to lodge your votes. Click Submit Vote at the bottom of the card to lodge your votes. If you have multiple holdings, you will need to obtain a voting card for each holding. Shareholders, authorized representatives and appointed proxies in attendance here in Melbourne would have been issued a yellow card to vote on each resolution. If you are eligible to vote and have not received a yellow card, please see a representative of the share registry, MUFG Corporate Markets in the foyer. And if you have questions about how to complete your card, please see a representative from the share registry here today. Before we move to the business of the meeting, I'd like to provide some additional comments. Djerriwarrh's objective is to provide an enhanced level of franked -- fully franked income higher than is available from the S&P/ASX 200 Index, together with long-term capital growth delivered at low cost. I'm pleased to report that the company has delivered on the enhanced income objective. Total fully franked dividends for the year rose to $0.1575 per share, up from $0.155 the previous year. Based on the net asset backing and including franking, the portfolio's yield at 31st of August was 6.7% and 7.4% based on the share price. This compares with the yield available from the S&P/ASX 200 of 3.9%, including franking. Since resetting the dividend policy in 2021, the company has delivered an increased dividend year-on-year while meeting the enhanced yield objective. More importantly, the company has achieved this on a sustainable basis with the dividend continuing to be fully covered by the operating profit of the company. While the company met the enhanced yield objective, the portfolio return was below expectations, with the portfolio returning 2.8%, including franking, compared with 7.2% for the S&P/ASX 200 Accumulation Index. The drivers of our relative underperformance were a combination of what we owned and what we didn't own, which the investment team will cover in their presentation. We also note that the option overlay used to generate the enhanced income stream will come at the expense of capital growth in a rising market. Options on a number of our holdings were exercised due to the strong performance of the underlying shares, which impacted the relative performance of the portfolio. Pleasingly, performance has subsequently improved with the portfolio performance over the 12 months to 31st of August now being only slightly below the ASX 200. At last year's Annual General Meeting, the Board announced the move to quarterly dividends. The payment of quarterly dividends commenced in the second half of the financial year, with the first quarterly dividend of $0.0425 paid in May 2026 and the final quarterly dividend paid in August. We intend to declare the next quarterly dividend in mid-October. We have received positive feedback from shareholders who value a more regular income stream, and we believe the change makes Djerriwarrh more attractive to income-focused investors. The share price has continued to trade at a discount to net asset backing. This is not something that the Board can control, but we are very conscious of it, and we'll continue to work to highlight the value proposition of Djerriwarrh. During the year, the company bought back 3 million shares at a cost of $8.9 million. In addition to neutralizing the shares issued under the DRP, the company will buy back shares in the event the company is trading at a material discount and the investment is accretive for shareholders. Moving on to the business of the meeting. I will take the Notice of Meeting as read. With regard to the minutes of the 38th Annual General Meeting last year, they have been signed as a correct record and are available to shareholders for inspection today. The first agenda item is the consideration of the financial statements and report for the year ended 30 June 2026. We will do this via a presentation, after which I will ask shareholders to comment and to raise any questions either about the presentation or of the auditors if they have any questions about the audit. So it gives me great pleasure to hand to Alison to lead off on the investment presentation.

Thank you, Graham, and good morning, everyone. Thank you for being here this morning, making the effort to come and be here, and thank you to those joining us online. It's an absolute pleasure and a real privilege to be here serving you, our shareholders, as CEO and Managing Director of Djerriwarrh Investments. I'll now turn to our presentation and the usual disclaimer, which just says we're here to talk about the company and not to give individual financial advice. Today's agenda, I'll say a few words and then pass to our CFO, Andrew Porter, to run through the financial results. Then Brett McNeill, our Portfolio Manager and Deputy Portfolio Manager, Olga Kosciuczyk, will give an update on the portfolio and the outlook. So as Graham noted, I'm returning to the group having previously worked with the group for 10 years until 2021. In the last 5 years, I've worked at HESTA, establishing and running the internal Australian equities group there and the portfolio. I'm incredibly excited to be back with the team, working for you, our shareholders, alongside the Board and the team. I've been in the role now for nearly 3 months, and I've been asked a number of questions since returning, but a couple of key ones I wanted to talk to today, those being why did I return to the group? And what am I looking to improve? Firstly, why did I rejoin the business? First and foremost, it's about purpose. I believe in why these groups of listed investment companies that we run exist in the first place. Most fund managers exist to make money for themselves via fees. Djerriwarrh and the other LICs were established to provide an actively managed portfolio for shareholders, working directly for shareholders at a low cost with no external fees. This means giving you that actively managed portfolio of quality companies built to deliver an enhanced level of dividend income. And that purpose is something that means a lot to me personally. Secondly, it's about the people. I remember being a young analyst at JBWere covering the infrastructure sector, and I was asked to come up to the Board of the LICs to present on the infrastructure sector and to talk about Transurban and a number of the other listed companies at the time. And I went through my investment thesis talking about the prospect for earnings and dividend growth. And at the end, the Chairman at the time, Bruce Teele, said that's very nice. Thank you, Alison, for that information. But tell me about the people, who's on the Board and who are the management? And what's their track record in looking after shareholders? And that insight has really stayed with me my entire investing journey. It's something that the team and I consider deeply when we're looking at the investments we're making on your behalf in terms of the management and the Board and are they good allocators of capital? That's something we consider. But I think it's equally important when you're looking at the people that you work with every day. Are they people of high integrity? Do they have a shared sense of purpose that brings them to work each day? And that's one of the reasons I'm returning to the group because we have a highly dedicated and experienced Board of Directors and a very capable and dedicated team who work very hard each day to serve you, our shareholders, because we take very seriously our role as stewards of shareholders' capital. I'm also excited the chance to build on Djerriwarrh's strong foundations of delivering income to shareholders. The scale and resources of our wider LIC group enable us to provide an actively managed portfolio at a competitive cost. Our listed investment company structure lets us look through the short-term volatility and take a long-term approach and pay sustainable dividends through the cycle. We also have the transparency and governance of a committed Board acting in your interests. And finally, I believe our structure gives us a real opportunity to make a difference for shareholders who rely on the investment income, whether they're in retirement or building towards it. We do that by giving them ownership stakes in quality businesses that pay reliable and growing dividends and offering an enhanced yield through the generation of income from options. Turning to what I'm looking to improve. Djerriwarrh's main objective, as Graham mentioned, is to provide shareholders with an enhanced dividend yield. And pleasingly, the team under Brett's leadership have delivered well against this objective. Djerriwarrh also has delivered steady growth in dividends over the last 5 years, and we want to continue this improved performance. The challenge and where our focus sits is balancing that primary objective with our secondary objective, attractive total returns over the long term. Delivering higher income needs to be balanced with the need to grow the capital base that future dividends are generated from. The market has become more challenging. The rise of passive and systematic investing has increased the single stock volatility with extreme share price moves on shorter-term factors, and we've seen significant rotation between sectors. And that's been a really difficult environment for active managers more broadly across the industry. I do believe this short-term focus where stocks are moving quite significantly on short-term news does provide an opportunity for investors like Djerriwarrh to take a long-term view. It's important to note at this juncture that our investment philosophy won't change. The focus on investing in quality companies, which are run by good management with sound balance sheets and generate strong returns on capital, that served our shareholders well over the long term. But we do see an opportunity to enhance the investment process and risk management. That means being more deliberate about how we balance income and growth in the portfolio and more intentional about where we position away from the index. Our portfolio manager, Brett McNeill; and Deputy Portfolio Manager, Olga Kosciuczyk, have managed Djerriwarrh for the last 7 years, and they know this portfolio and its objectives deeply. My priority as CEO is to ensure that the team have an environment that supports them and lets them focus entirely on investing for you, our shareholders. The key area where I see a need for improvement is in the communication of Djerriwarrh's value. Djerriwarrh is trading at a 10% discount to net tangible assets or NTA. And that means investors can currently buy a portfolio of quality companies at about $0.90 in the dollar. And the dividend yield on that discounted share price is really quite attractive. Just as important is the message around the sustainability of this enhanced yield. It is underpinned by the dividends that we receive from companies we own and the option income we generate and is backed by considerable franking credit reserves. Those reserves give us the capacity to keep paying fully franked dividends through the cycle. We have a clear and valuable offering, sustainable, enhanced fully franked income from a portfolio of quality companies managed at a low cost by an experienced team. We need to explain that more clearly to current and future shareholders. Doing so is an important part of closing the gap between share price and NTA. Looking ahead, my focus is to make Djerriwarrh -- make sure Djerriwarrh keeps meeting the needs of shareholders who value reliable income and to reach a new generation of Australian investors looking for exactly that. I'm mindful that active management faces real challenges today, but I believe our structural advantages leave us very well placed. We're internally managed, working purely in shareholders' interests and have a permanent capital structure. We provide an income-focused portfolio backed by real dividends and strong franking reserves and the ability to take a long-term view when many others in the market cannot. So as I look ahead, I do so with a great deal of confidence and optimism about what comes next. And with that, I want to say thank you for trusting us to manage your portfolio, and I look forward to your questions and a cup of tea a bit later on. I'll hand over to our CFO, Andrew Porter, to talk through the financial results.

Thank you, Alison, and good morning, ladies and gentlemen. So the financial results for the year are here on the slide, and I'll run quickly through them. And as ever, I am very happy to take questions about this or any other aspect of Djerriwarrh after the presentation. So the net operating result, which as many of you will recall, strips out the movement in the unrealized portion of the options portfolio and upon which dividend decisions are made was $41.4 million, so up marginally on last year. The dividends we received were marginally up with increased holdings in the likes of Region, JB Hi-Fi and CAR Group plus a special dividend from ARB, more than making up for the loss of dividends from reduced holdings at that point last year in NAB, Westpac, CBA and Telstra. Option income was particularly strong during the year being the highest that we have had since just after the end of the GFC in 2008, 2009. On the other side, interest costs were up as we used more gearing to take advantage of opportunities and the tax cost was higher due to the increase in profit, particularly from the option income. I'll touch on the management expense ratio or MER here as one of the contributing factors in the increased profit was the lower costs, driven largely by the increased profit from AICS, which is the company that employs all of us working for the 4 LICs and of which Djerriwarrh owns 25%. This profit offsets the costs that are incurred and was driven mainly by changes in staffing that happened during the year. This meant that the MER, which is the net cost of running the company over the average portfolio for the year was down to 0.41% for the year or $0.41 for every $100 invested. So although the cost benefited from that one-off profit contribution from AICS, the portfolio itself does have a material impact on the MER. The Board and management under Alison are very conscious of maintaining Djerriwarrh as a low-cost investment vehicle, recognizing though that the work needed to produce the enhanced income does lead to a higher MER than the larger LICs have. So this enhanced income, which Graham has touched on, is in the 2 boxes in the top row after the operating profit. Most shareholders will be aware, I hope, that we've moved to quarterly dividends, recognizing that for many shareholders, the income is such an important part of the investment proposition for Djerri. So looking at dividends for the year, as has been noted, Djerri is currently paying a yield of 6.7%, including franking on its portfolio or 7.4% on the share price at the end of June, considerably above that of the ASX 200. And note, as Graham and Alison have said, this dividend is pretty much covered by the net operating profit per share. As we explained when the dividend policy was reset, this will be the main guiding principle for the payment of dividends going forward. After the payment of that final quarterly dividend, Djerri still had franking credits sufficient to cover an additional $0.23 or so of dividend. So we would consider ourselves adequately reserved for the future. I should also note for the first time in many years, the final dividend included part paid from capital gains. This means that there were additional tax advantages paid as what are known as LIC gains as part of that dividend. It's very important when you have those to recognize them and ensure that your accountant or whoever is filling in your tax return puts those deductions in the right box. The portfolio value we've touched on and is shown here as $855 million. It doesn't include sales from option exercises, which for trust happens right at the end of the year. So including that, the portfolio value would be closer to $900 million against $920 million in the previous year. So still down, and this was reflected in the return figures that we've shown you at the end of June, which included both dividends and franking. So we have received questions about the share buyback. We have been active in the share buyback, as Graham has noted, and as you can see here. When the shares are trading at a discount, we have been neutralizing the shares issued under the dividend reinvestment plan and the dividend substitution share plan. And I'm very happy to go through the differences with anybody who wants to know over a cup of tea. There are many shareholders who still want to participate in those, which is why we have not turned it off, but we have been buying back those shares. In addition, when the discount widens and if Brett and the team thinks is a good time to be investing, we have been buying back more shares than we had issued. So as a result, at the end of the year, the number of shares on issue was slightly lower than at the end of June 2024. So as I said, very happy to take questions at the end. But in the meantime, I'll hand over to Brett.

Okay. Thank you very much, Andrew, and good morning, everyone. So before we go into more detail on recent portfolio activity and how the portfolio is positioned, we thought it would be useful to start by taking a look at what Djerriwarrh has delivered over the last few years. So the strategy reset that Graham mentioned back in 2021 was really about giving Djerriwarrh a strong base that we could sustainably deliver an enhanced yield, a growing dividend and an attractive total return. And we wanted to do so in what's a sustainable and durable manner and also within a product that continues to be low cost and have a shareholder-friendly structure. So that basis is the background really for the next few slides that I'll run through. So starting with our enhanced yield, which, as Graham mentioned, is Djerriwarrh's primary objective. And we show that here for the last 5 financial years. So our enhanced yield simply compares Djerriwarrh's dividend yield, which is really the dividends that we've paid out over the last 12 months, divided by our portfolio backing or the net tangible asset value per share, and we compare that against the share market's dividend yield being the dividends paid out over the 12 months divided by market value, and we gross both of those values up for franking credits paid out. So as we can see on the slide, for financial year 2026, Djerriwarrh's enhanced yield was 2.9%, being a dividend yield of 7% versus the market at 4.1%. And it's a level that we believe is very strong, and it's really continued the pattern of what we've been delivering over these last 5 financial years. In terms of where to from here, as we can see, over the last 5 years, the enhanced yield has been between 1.2 and 2.9 percentage points above the index. And while future levels of enhanced yield will depend not only on our results, but also the market's yield, we think the current settings and strategy for Djerriwarrh will continue as they have for the last 5 years. And so the enhanced yield should continue to be somewhere in the range of what we've delivered during this time, noting that, of course, there will be variability in that enhanced yield from year-to-year. So dividend yield is very important, but dividend growth is very important, too. And pleasingly, Djerriwarrh has delivered dividend growth alongside the high level of enhanced yield. We show on the chart here Djerriwarrh's dividend in cents per share over the last 5 financial years. The growth from 2022 to '23 was that basically that rebound from the COVID-impacted dividend cuts that occurred during the market during that time. But if we look more importantly at the last 3 years, Djerriwarrh has delivered solid growth in absolute level of dividends. And that continued into FY '26 where the dividend grew 2% to $0.1575 per share. Also pleasing is that Djerri's dividend growth has been above the market growth in dividends over that time. A key point that I want to make, and Graham touched on it, is really around the sustainability of our dividend yield and our dividend growth. We think the key indicator of this is to measure our dividend per share against the net operating profit per share of Djerriwarrh. As we can see here, over the last 5 years, Djerriwarrh's dividend per share has been consistently covered by the net operating profit per share in every year. This means that we haven't had to rely on using reserves or realized capital gains to deliver the strong level of enhanced yield. As Andrew mentioned, though, we do have a very good level of reserves, and these have continued to build in recent years. At the end of the most recent financial year, our franking credit reserves were around $0.23 per share. And of course, that value is not captured in the reported net tangible asset backing per share. It's on top of that. And we really want to point out that those reserves have real value to shareholders. They could be used to support the dividend if there were times when dividends are cut across the broader market or they could be paid out as special dividends in future years. So as shareholders know, the 2 key drivers of our operating profit, so how we generate the enhanced yield are the dividend income that we received from the companies owned in the investment portfolio, along with the option income that we received from our option writing activities. The slide here focuses on our option income, again, over the last 5 financial years. So to generate the option income, as a reminder, we write single stock options, predominantly call options, but also selectively put options, and that's against stocks held in the investment portfolio. We write options purely to generate income. We don't use options at all for any hedging or speculative activity. And the effect of this is to generate income today at the possible expense of future capital growth because writing call options effectively caps a level of upside if the underlying share price performs strongly. Given that, we have and have and continue to have what we think are very sensible and sound settings for the option coverage in place. So we typically run call option coverage of between 30% to 40% of the total portfolio value and any put options tend to amount to only about 1% to 2% of the portfolio value. And the results over the last 5 years, as we show here, have seen option income grow to over $18 million in financial year 2026, and it's a key part of our enhanced yield that we've been able to deliver. So turning now to the investment portfolio, and this is, of course, how we generate the dividend income and the capital growth that we deliver. So I'll cover some of our recent buying in detail, and I'll start on this slide with some buying in gold. So gold has been one of the biggest stories in investment markets in the last few years. A number of factors such as government debt levels, along with geopolitical tensions have pushed up the gold price significantly, and that's made gold equity some of the best performers on the local share market. Having purchased Newmont Corporation for our portfolio back in 2023, we saw the opportunity recently to increase our exposure to gold equities, and we did that in July this year when the market sold off a lot of these stocks. And during that, we increased our holding in Newmont, and we added a new stock to the portfolio being Evolution Mining. We view both Newmont and Evolution as being high-quality companies. They're both very well managed. They own high-quality assets, which are namely low-cost, large mines and largely in stable countries as well, particularly in Australia, Canada and the U.S. And both companies have very strong balance sheets. They're actually in a net cash position at the moment. At current gold prices, both of these companies are extremely profitable, and that's what we show on the slide here. So Newmont are set to make around USD 13 billion in operating cash flow for their December end financial year 2026. And Evolution reported AUD 2.6 billion of operating cash flow for their June end financial year 2026. Importantly, both companies are using this operating cash flow, we think, in a very sensible manner. They're returning some to shareholders in the form of dividends and share buybacks for Newmont and fully franked dividends in the case of Evolution Mining. And alongside that, both companies continue to invest in their current portfolio through expansion projects, which sets them up for long-term growth and returns. So, so far, our investments in gold have been well timed in terms of adding value to the portfolio. And we think overall, they increase the quality and diversification of the Djerriwarrh portfolio. Looking now at 2 stocks that were new to the portfolio during financial year 2026, and they're both being bought primarily for the growth that they give the portfolio. And they're Pro Medicus, which is a leading medical imaging company whose product is used in the health care sector and TechnologyOne, a leading software company whose products are primarily used in the government and education sectors. We show on the slide here the track record of earnings per share growth for both Pro Medicus and TechnologyOne over the last 5 years as well as the market's expectations for the next financial year. We bought Pro Medicus and TechnologyOne primarily because we consider them to be very high quality. They offer a number of attractive characteristics based on our investment frameworks, namely, we see very high-quality aligned management teams -- they've both got very strong balance sheets. They earn high return on equity, and they continue to have terrific long-term growth prospects even after already delivering significant growth over their history. An important part of our investment process, though, is not just buying quality at any price. The valuations have to make sense. And that was a big factor in timing the buying that we did in these stocks. So after following both of these companies for a number of years, we decided to add both of them to the portfolio in February and March this year as the broader market sold off growth stocks. And pleasingly, both Pro Medicus and TechnologyOne have already added a good amount of value to the portfolio. The slide here covers the other major transactions that we've done for the calendar year to date. And as we mentioned earlier, delivering attractive total returns is also an objective of Djerriwarrh that sits behind the primary objective of enhanced yield. And therefore, striking that right balance between income and growth is always a focus for us. Deciding how to reinvest the proceeds from option exercises is one of the key considerations for the portfolio management of Djerriwarrh. And it was another active year on that front. So as we can see in the box on the top right-hand side, we were sellers of significant amounts of stock in BHP, Woolworths, Telstra and Macquarie as a result of the strong share price performance of those companies, which led to our call option positions being exercised during the year. And in terms of other sales, we completely disposed of our holding in IDP Education, which has been a very disappointing performance for us, and it was during the last year that we sold our small remaining stake. So in terms of taking the sale proceeds, we chose to reinvest them in -- mostly in the stocks on the left-hand side of the chart. So we bought back into BHP and Telstra during the period, and that was effectively replacing a lot of the call option exercises that occurred. We also built back up our weighting in the banks. So we purchased more shares in each of the 4 major banks and re-added Commonwealth to the portfolio. Really, we saw much better valuations on offer in the banking sector during those times than what we've seen for most of the last few years. And in a similar vein, we built back up our positions in JB Hi-Fi and Wesfarmers. Both of those share prices have been particularly weak in recent months, whilst our long-term view on the companies haven't changed. So they were key additions to the portfolio. So overall, the net result is that over the last 3 years, Djerriwarrh's total return has been below the benchmark like we spoke about, particularly during financial year 2025 and heading into 2026 in a strong market. But it's recently improved with both the 1-year number and the calendar year-to-date returns for Djerriwarrh being broadly around the level of the benchmark index, which has been pleasing. So with that portfolio activity update, I'll now pass over to Olga, and she's going to talk about some of the key themes from the recent profit reporting season as well as giving a more detailed portfolio update and outlook.

Thank you, Brett, and good morning, everyone. On the next couple of slides, we will discuss some of the key themes from the recent profit reporting season. We saw a lot of volatility during the reporting season and some of the strongest share price gains could be characterized as relief rallies. Within our portfolio, CSL and Cochlear were 2 notable examples. Both performed strongly as their results, whilst weak in absolute terms, were not as bad as the market had feared. Both companies were a major drag on our performance over the past year. However, rather than giving up on them when sentiment was at its worst, we took a long-term approach in line with our investment philosophy. We saw them as high-quality companies facing short-term headwinds, and we believe that the market had oversold them. We kept our overweight positions. And so far, this has proved to be the right call. We also saw some signs of consumer softness. Several retailers reported weak trading updates as households battled the impact of higher petrol prices and higher interest rates. As a result, spending has shifted away from nonessential purchases and towards everyday needs. We see the consumer companies in our portfolio, including JB Hi-Fi and Wesfarmers are well positioned to navigate this challenging environment. This is because they offer customers the best value and are excellent at managing their costs. The supermarkets are also well positioned as consumers are eating out less and eating at home more. Both Coles and Woolworths have invested heavily in price to capture this shift. Unusually, both are growing ahead of the market while still defending their gross margins. This is pleasing for our portfolio as we are overweight both supermarkets. Corporate activity was another feature of the reporting season with a number of bids for companies in the last couple of months. This included 2 takeover bids for Equity Trustees. The Equity Trustees Board said that neither offer fully reflects the value of the company, but they remain open to engaging with both bidders. And given our overweight position in the company, we are watching this carefully. And finally, we saw good dividend growth across the market, which we will cover on the next slide. On this slide, we show year-on-year dividend growth for some of our largest portfolio holdings that reported in August. As you can see, dividend growth was strong across the board with income from resources companies significantly above our expectations. BHP was the highlight, declaring a dividend 50% higher than the same period last year. We also saw solid growth from blue-chip companies like JB Hi-Fi, Telstra and Wesfarmers. CSL's dividend was flat in the U.S. dollars despite lower earnings. However, with a stronger Australian dollar, the dividend we received was down 8% year-on-year. Overall, dividends declared by our companies came in marginally higher than we expected. On this slide, we show a snapshot of the portfolio at the end of August, starting with the key statistics on the left side. The portfolio valued at $980 million was spread across 47 companies. This equated to net tangible asset backing of $3.36 per share. This figure, as Brett mentioned, does not include our franking credit reserves. 40% of our portfolio was covered by call options at the top of our usual range of 30% to 40% and our put option exposure was just 1%. Our strategy is to own a portfolio of high-quality companies across different sectors with the appropriate balance of income and growth. And this should be evident on the right-hand side of the slide, where we show our top 20 holdings. We have discussed most of these companies during today's presentation, and we are happy to take questions on any of them later. But I would like to highlight 2 holdings that show how we balance income and growth in our portfolio. We hold Region Group primary for income. Region Group is a property trust that owns neighborhood shopping centers with Coles and Woolworths as anchor tenants. That makes it a defensive rent collector with an attractive dividend yield of around 6.7%. And with very little new retail space being built, landlords like Region are in a stronger position when negotiating rates. This should support steady growth in both earnings and dividends. And we hold ResMed primary for growth. ResMed is the world's leading maker of devices and masks used to treat sleep apnea with an excellent track record of growing its earnings by an average of 14% a year over the past decade. Around 1 billion people live with sleep apnea, and most of them are still undiagnosed. With more people now focused on their sleep health, we believe ResMed is well placed to continue its strong track record for years to come. We believe that our portfolio overlaid with our option book positions us well to deliver on our investment objectives, which are paying an enhanced dividend yield and delivering attractive total returns over the long term. And on that front, financial year 2027 has started well with good dividend income, option income and portfolio performance. And looking ahead, we continue to see markets as moderately expensive on long-term valuation metrics, especially in the context of sharply rising bond yields. As such, we remain focused on adding quality companies at attractive valuations. Buying back shares also remains a strong consideration, given our shares trade at a significant discount to our net tangible asset backing. So with that, thank you very much for your attention, and I will now pass back to Chairman.

Well, thank you very much, Olga, and thank you to the team. So we move to this part of the meeting where I'd like to invite questions from shareholders. For those in the room, we have microphones available. And if shareholders could please state their name when addressing the meeting and ask all questions through the Chair, and I will either answer them or pass them off to the appropriate colleague. However, first, we're going to deal with some questions that we do have online, and Claire will moderate those. So Claire, would you like to lead us through those?

Yes, sure, Chairman. First question, is the Board considering moving to quarterly dividends as many other LICs are moving towards?

Well, as I mentioned during my address, we did announce last year that we were doing that and quarterly dividends have already commenced with the first quarterly dividend paid in May.

Thank you. Question 2, we would like bigger dividends, not more frequent dividends. There must be substantial cost in paying out 2 extra dividends. How much will it add to the MER?

Well, thank you to the person who sent in that question. In line with our objectives, we are seeking to pay a yield, as you've heard today, that is above the S&P/ASX 200. As discussed in the presentation, we have been achieving this outcome for a number of years. We moved to quarterly dividends on the back of shareholder feedback with the bulk of shareholders in favor of more frequent dividends. There is a cost, but it is not material. The cost is -- when you add the 2 extra dividends, it's less than half of 1 basis point, so 0.004% of MER. So it's not material to have done that.

Chairman, why is the total current liability so high in comparison to the total current assets?

That's a very good observation from an accounting perspective, I'll throw to Andrew.

Sorry, I've moved just to keep you on your toes, Chairman. Yes, thank you very much for reading the annual report. So there you go, Tim. Your work is not wasted. Thank you. And yes, it's a question that the young auditors as they come in, always ask because it's the current ratio, your current assets of your current liabilities. And this is due to a quirk of the accounting standards. Those standards require the investment portfolio to be treated as a noncurrent asset because we don't intend to sell it all within 12 months. However, the liquidity facilities, which we used to buy some of that stock and the options which we write over some of that stock have to be treated as current liabilities. So there is a mismatch. But I think as I mentioned to the Board as the Board states and as the auditor state. This does not affect the solvency of Jerry in any way. So we're comfortable with the position as it is. But I hope that answers the question.

Thank you, Andrew. Claire?

Chairman, could the Djerriwarrh annual review be printed in environmentally safe inks, maybe just black and white.

Well, thank you for that suggestion. We've kept the annual review in color because it makes -- the charts and performance information much easier to read, we'll certainly raise environmentally friendly inks with our printers. And in addition, shareholders can also choose to receive the review electronically. Thank you.

Do you like to stick with online or...

Yes. No, let's go through the online ones that you've got.

It is poor that we don't disclose our voting and disappointing that the ASX is thinning out with record numbers of takeovers and very few new floats. Can the CEO name any takeover proposal over the past 20 years where we voted against a deal that was approved. And in terms of the current takeovers such as Cleanaway, Northern Star Perpetual and Meteoric Resources, my apologies, are most relevant to us.

Alison, addressed to you.

Yes. Thank you for the question. I've only been back with the business for 3 months and have been away for the last 5. So 20 years is probably a little bit of a stretch for knowing all the details of each vote that's been made. But I do know one that we voted against. We particularly like infrastructure and Sydney Airport was one that we did vote against. In terms of disclosing our voting, we -- yes, we do disclose that on the high-level details on the website. So they can be found there. We do assess each of the takeover on their merits, looking at sort of risk return and the valuations of each of those. So the team do a lot of thorough research on that, and we make an assessment on an individual basis. Of those ones listed, I don't believe there are any that are relevant to the Djerriwarrh portfolio.

Thanks, Alison.

Chairman, at last year's AGM, then CEO, Mark Freeman, said the AFIC stable subscribers to ownership matters and Glass Lewis for voting advice. What is the new CEO's history with proxy advisers? And does Alison intend to continue subscribing to these 2 services ahead of larger competitor, ISS. Also, do any of our directors get to see these proxy adviser reports on individual companies? Or is the internal protocol that access to this material is strictly a matter for the investment team.

Okay. I think Alison again.

Thank you Chairman. So I have used both of those proxy advisers in the past. I see no reason to change those. I think importantly to note that the team and I review all the information and provide recommendations to the Board that are our views on the voting and -- but the Board do receive and have access to all of those recommendations from the proxy advisers also.

Chairman, please provide a 10-year summary of Djerriwarrh's financial information, detailing the following: gross dividend and interest, gross option income, capital gains, capital losses, director fees, listing fees and audit fees, investment management costs with staff performance costs and share price. This will help us understand the long-term performance. Thank you.

Thank you very much for that question. Most of that information is in annual report and 10-year summary, but I would encourage you to please send an e-mail to Matthew Rowe, our Company Secretary, and he will respond on behalf of the company. Thank you.

Chairman, our 2 sponsoring bodies from history are Goldman Sachs, where the Chair worked; and JBWere where the new CEO worked. Could Alison, please estimate what proportion of employees have some form of history with either organization. Was it a requirement that our new CEO has some history with the group or did the search extend further afield? Also which recruitment firm assisted with the search for Alison and how involved were directors in the process.

Well, thank you. I think I'll take that question. There was no requirement that the new CEO had to have some history with either JBWere or Goldman. And in fact, if I look at the team and look around the floor, the proportion of employees who did have a history of working with either firm is less than 10% today. We did not use a search firm as our Chair group of the 4 LICs are very well acquainted with the investment professionals market in both Melbourne and Sydney. And in Alison, we felt that we had an own entity with the appropriate cultural fit. We actually approached her and the process included meetings with at least 3 directors from each of the LICs with Alison before a decision was reached. Thank you.

Chairman, seeing as AUI and DUI finally merged this year, isn't it time that we merged with AFIC. I understand that AMCIL is the most nimble member of the stable and Mirrabooka focuses on small caps, but there doesn't appear to be any difference between AFIC and Djerriwarrh. What is the history of Djerriwarrh? And can our Board point to anything different that it does as opposed to how AFIC is run? We're both even top 20 shareholders in Mirrabooka. Does the chair agree there is an element of takeover defense in that Mirrabooka investment?

Thank you for that question, which sounds very much like from shareholder, Stephen Mayne. And I know there were a couple of other questions from him. So thank you for your interest. Each LIC is an independent company with its own Board of Directors and each historically has served a different shareholder need. So AFIC is a very broad-based portfolio. Djerriwarrh is very focused on the enhanced yield objective, which is particularly suited to superannuation investors. Mirrabooka, obviously is small and mid-cap exposure and AMCIL more high conviction. We have obviously noted the ongoing consolidation in the broader LIC sector and the Board regularly review the strategy. However, there are also considerations such as costs and tax events that could eventuate if one brought companies together. Both the Djerriwarrh and other relevant boards would need to consider whether such a merger was in the best interest of their shareholders. And finally, to your question on Mirrabooka, I think both AFIC and Djerriwarrh hold shares in Mirrabooka, primarily to give us exposure to that small and mid-cap end of the market.

Thank you, Chairman. Please comment why the VHY returns are higher than Djerriwarrh.

So VHY is a Vanguard High-Yield LIC. Brett, you may be able to address that.

Yes. Thanks, Claire and Graham. It's hard to say without knowing off the top of my head what the returns are from that Vanguard product. But a couple of things I'd say is when comparing dividend yields across different products as hopefully, we tried to stress in the presentation today, not all yields are equal. Obviously, it depends a lot on where the yield is being sourced from and all we can do is try and give as much transparency and, I guess, extra detail on how we've delivered the yield over the last few years, which is a big theme of our presentation today and why we make the point that -- we're not just about delivering a high yield, it has to be sustainable as well and one that can be maintained in times of market stress and also that can grow over time. And then on the total return, again, I don't know the numbers of the Vanguard fund off the top of my head, but I know one thing that would be probably holding us back is on the total shareholder return, the share price being at a discount to net tangible asset backing. And that's rightly why Alison talked about a key focus for us is communicating the value more. We want the value of the shares to reflect what we see as true fundamental value of Djerriwarrh, which is the net tangible asset backing per share.

Thank you, and thank you for the questions. Any further?

There's one more, Chairman. How do you balance option income and portfolio growth? And how do you measure yourself how you have optimized portfolio return?

Brett, I think the floor is yours again.

Sure. Yes. Okay. Thank you. So a couple of key points. I mean on the option activity, you got to have the right, I think, settings in place and to have that disciplined way of managing it. So we talk about call option coverage of 30% to 40% of the portfolio. And that's because that, to us, strikes the right balance of generating enough income from options to enhance the yield of Djerriwarrh without taking away too much from the capital growth, recognizing that there will always be periods in markets depending on what stocks and sectors are performing in overall market returns where there can be a drag on the capital growth. The other one is at the portfolio level, with the investment portfolio, not just investing in stocks that offer the highest dividend yield for the next 12 months. A part of that is obviously again, that theme of sustainability to dividends. We don't just want a high dividend yield for the next 12 months. It has to be maintainable and grow over time. But as well as that, we want the growth aspect to it as well. It can't just be stocks purely in there for income. We've got to get the mix right at the portfolio level. And hopefully, that came through a bit today as well, where, in particular, we talked about some stocks new ones for Djerriwarrh that aren't necessarily the highest yielding stocks in the market, particularly Pro Medicus TechnologyOne ones that are in there for growth.

That's all the online questions.

Right. Let's move to shareholders in the room. So as I said, there are microphones there, one here.

Thanks, Mr. Chairman. My name is Stephen Van Emerick. I'm the ASA Australian Shareholders' Association representative. Thanks to all the shareholders that have passed on their proxies. I think there's 58 proxies, a couple of million shares. Yes, ASA values its constructive relationship with the eighth group. Really I guess a question will probably go to Brett, the short-term volatility of individual stocks has increased a fair bit over the last couple of years and doesn't show any signs of changing. Has the pricing of the options sort of risen in line with that? Because obviously, you're missing out on the capital growth. Are you getting more from the options writing?

Yes. No. Thanks, Steve. Good observation. So we are, but only at the margins. So that volatility in single stocks should be a key flow through to option pricing, the premiums we receive, and it has a bit, but not to the extent that we probably would have anticipated had you told us that volatility across the market would be as high as it has been, particularly during results season. So a benefit but really only a small one to our option income.

Yes, I guess a follow-up question. So you talked about stocks you've been -- you've sold the options have been exercised. So would you have been better off not writing those options over the year? Or would you have been better off writing them?

Well, for the net result, definitely better off writing them, but you can always look back and say a stock that went up more than the strike price, you shouldn't have written options against it because you get your upside cap, but then you make no income. So it's sort of -- no such thing as a free lunch with anything in investment markets, and particularly with option writing. So we employ the strategies knowing that, of course, in some cases, we will be exercised on stocks and in particular, it happened in ones like BHP and Macquarie and some others that we talked about during the year. The key is getting that balance right, so not having too much of the positions having call options written against them, but also being very nimble and active in reinvesting the proceeds when we need to. So some of it will go back into the same stocks view valuations and quality to be attractive and sometimes it will go into other stocks. Usually, we have good flexibility around how to do that. And you've seen we've been out of banks in a big way for most of the last 3 years. But during that last 6 to 9 months, we've been able to take the option proceeds and put them back into banks. So overall, the portfolio's dividend yield doesn't change that much. It's just the stocks that generate the income do.

Yes, pass the microphone just forward to this gentleman there.

I've got one more question. Yes, it's more of, I guess, marketing base question, really. I guess you've been at a discount of sort of 5% to 12% over the past 6 years to NTA. The government's capital gains tax changes not so great pull for growth companies and not good news probably for most people. But for you guys, it's potentially a bit of a gift horse in terms of it's a very tax-effective investment. You've got the franking credits. You've got the LIC attributable capital gains. You've got your franking reserve. I guess, how are you using that to get out there to more shareholders and investment advisers and hopefully get the share price up to NTA.

Alison, would you like to address that?

Yes, thank you. And perhaps you'd like a job. Look, that's exactly right. And I think I touched on in the presentation that we do need to communicate the value of Djerriwarrh to new shareholders more clearly because the opportunity is absolutely there, especially in light of the tax changes. So that is very much my focus along with supporting the team. But very much getting out there, getting the story out there to new shareholders and improving things like communicating on digital channels as well for -- the likes of LinkedIn and we've even got -- I believe, we're looking at things other -- some of online options like Instagram and just trying to meet the newer shareholders. My children spent a lot of time doing this. So I think we do need to get the word out there. But I think it's a real opportunity for us and something that we need to do to close that gap between the share price and the NTA. But I see there's great value on offer and we'll be doing our best to communicate that going forward.

Yes. Thanks very much. And great to see so many shareholders here having you say. Catherine.

Mr. Chairman has already answered my question.

Was that right? Are there other questions in the room? Yes, sir.

Firstly, I've been forbidden from speaking here this morning by MUFG because I don't apparently now have the appointment of corporate representation. So I'm asking you as a Chair, am I able to speak or not?