Mirrabooka Investments Limited (MIR) Earnings Call Transcript & Summary

Well, good afternoon, everyone. We'll make a start, and let's hope we get -- we'll be finished in time before the -- we can get away before the 4:00 deluge. The -- well, welcome to the 24th Annual General Meeting of Mirrabooka Investments. My name is Terry Campbell. I'm the -- so far, I'm the only Chairman of the company, but that will change at the end of the meeting. The company Secretary has confirmed that a quorum is present, and I will now open the meeting. I should think about the 24, 25, just about know this stuff by heart. I would like to begin by acknowledging the Traditional Owners and Custodians from all the lands we are gathered on today and to pay my respects to their elders, past, present and emerging. We are very pleased to be able to meet physically again, although it wasn't a great day to have a physical meeting with our shareholders after a 3-year gap due to COVID, et cetera, and welcome to those of you that have made the very real effort to attend and also those attending virtually. May I introduce the people on stage with me. We have our Managing Director, Mark Freeman; and my fellow nonexecutive directors, Ian Campbell; Jackie Fairley; Annette Kimmitt; and Greg Richards. We also have our company Secretary, Matthew Rowe; and our Chief Financial Officer, Andrew Porter; and our General Manager of Business Development and Investor Relations, Geoff Driver.

Good afternoon.

In due course, we'll be hearing from portfolio manager, Kieran Kennedy; and Investment Analyst, Stuart Low. We are also joined by other members of the investment team in the front row of the audience. I'll also take this opportunity to introduce Nadia Carlin, partner of the company's auditors, PricewaterhouseCoopers, who is available to answer questions today on the audit and the preparation and content of the auditor's report at the end of the presentation. Nadia has been our audit engagement partner for 5 years. And as per the legal requirements, this is her last annual meeting as our engagement partner. Thank you very much indeed for all your assistance over the years, Nadia. And welcome Kate, who is also present today. 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. [Operator Instructions] I bet it's not as simple as it sounds. Please note that your questions may be moderated, or if we receive multiple questions on the one topic, they will be amalgamated. To cast your vote, simply select one of the options. There is no need to hit or submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. I now declare voting open on all items of business. I will give you a warning before I move to close the voting. It sounds very serious. Moving to the business of the meeting. I will take the notice of meeting as read. With regards to the minutes of the 23rd meeting, they have been signed as correct and are available to shareholders for inspection today. As with previous years, we will commence with the formal resolutions and then present on the activities of the company. The first agenda item is consideration of the financial statements and reports for the year ended June 30, 2022. As is our normal practice, this item will be covered after the statutory part of the meeting as the matter does not require a shareholder resolution and is part of the presentation. Our executives will touch on the matters that relate to our results, portfolio and performance. We will do this via a presentation. After which, I will ask shareholders to comment or raise any questions either about the presentation or of the auditors if they have any questions about the audit. We now move to the formal resolutions. Your directors' recommendations are set out in the notice of meeting. I can confirm that where undirected proxies have been given to me as Chairman, I will vote them in line with the Board's recommendation. Voting today will be conducted by way of a poll on all items of business. Representatives of Computershare will oversee the conduct of the poll. Firstly, if there is any person present in the room who believes they are entitled to vote but is not registered to vote, would you please seek assistance from our share registry, Computershare? For those in the room on the reverse of your blue admission card is your voting paper and instructions. I will now go through the procedures for filling in the voting papers. In respect -- based on the other 3 meetings, there's really no need to go through all of this. A proxy holder may be entitled to cast -- would people be happy to take or let us read, they can understand the blue card?

We can certainly answer any questions.

Right. Okay. Okay. So let's assume you've filled in your voting paper and you got to lodge it in the ballot box. The second agenda item is the resolution to adopt the remuneration report. This is required by the Corporations Act to be considered by shareholders annually and is an advisory resolution only. The remuneration report can be found in the company's 2022 annual report. The company is only -- the report is only concerned with nonexecutive directors' fees as the company has no employees and utilizes Australian Investment Company Services Limited to provide day-to-day operations. I would now 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 questions through the Chair. If you have any questions on these items, please submit them now, if you have not already done so. No questions, Geoff?

No questions on remuneration...

I will now show the proxies received in respect of the resolution which are now shown on the screen. I remind shareholders and proxies who have yet to vote -- lodge their votes via the do so now as the voting is open. If you have questions on this item, please submit them now via the online portal or raise your hand if you're in the room. Do we have any questions, Geoffrey?

None.

Now we move on to Slide 7. The third agenda item is the resolution to reelect Ian Campbell. Ian was elected by shareholders at the 2020 Annual Meeting and is standing for reelection today. In accordance with Rule 46 of the company's constitution, he retires from the Board of Directors. And being eligible retire, offers himself for reelection. Ian, would you care to say a few words before I put the motion?

Thank you, Terry. Good afternoon, ladies and gentlemen. Today, I'm seeking your support in my reelection as a Nonexecutive of your company -- Nonexecutive Director of your company, who wrote this? In my time on the Board, I've seen the portfolio value grow and the franked ordinary and special dividends add to the wealth of all shareholders. My executive career was in manufacturing and distribution of industrial and consumer products. I believe that, that gained experience adds to the Board discussion, particularly in the small and mid-cap space. The challenges we have all faced since our AGM 1 year ago have reinforced to me the importance of wise, capable professional management of our shareholders' investments. I have been proud and pleased to be part of this Board, and thank Mark for his leadership of an excellent investment team always with the best interest of shareholders in mind. Thank you.

Thank you, Ian. I will now show the proxies received in respect to this resolution, which are now shown on the screen. So far, so good, Ian. There were no questions asked prior to the meeting regarding you, Ian, on this resolution. If you have any questions, please submit them now via the online portal, or you put up your hand if you're in the room. Geoff, any questions online?

No questions online.

Okay. Right. Slide 9. The fourth agenda item is the special of resolution concerning amendments to the constitution. It is proposed that the company's constitution be amended to reflect the changes in law regulation and market practices since the constitution was last updated. A marked-up copy of the constitution showing the proposed changes has been made available on the company's website, and companies have been made available for inspection at the company's registered office. I move that for purposes of Section 136(2) of the Corporations Act 2001 and for all other purposes, the constitution of the company be amended as set out in the document made available on the company website and signed by me as Chairman for the purposes of identification with effect from the close of this meeting. I will now show the proxies received in respect of this resolution which are now shown on the screen. There were no questions asked prior to the meeting. If you have any questions, please submit them now online or raise your hand. No questions?

No questions, Terry.

Ladies and gentlemen, that concludes our discussion on the items of business. Now we -- I'll return to the first agenda item, consideration of the financial statements and reports for the year ended June 30. I will now pass you to our Managing Director, Mark Freeman, to start the interesting part of the meeting.

Okay. Thanks, Terry, and good afternoon, everyone. I know it's a tough day to come into this presentation, but we're pleased we've got some shareholders here. And as I discussed it at AGM this morning, making ourselves available is an important part of our culture across our investment companies. It's a great opportunity to interact with directors, all the staff, investment team and for us to sort of understand who our shareholders are, and I guess, I understand why they're invested in our investment companies. So just moving to the disclaimer first. Just to say that we're here to talk about our company, we're not giving any advice as such. We just move to the slide on our investment approach. So I just want to quickly touch on what we're looking for when we invest in a company. So I sort of highlighted 3 areas there: Business quality; Financial Strength; Management. On to business quality, we're looking for companies that have strong market positions, and we see -- what we're looking for is just to come through in sustainable return on capital prospects. So we want to invest in companies that can invest money in that business and generate an appropriate return for shareholders. We also want our companies to be able to grow in the long term. And so having a model that's sustainable, that can grow into the future, grow profits and grow dividends, ultimately, is an important element of what we look for. Financial strength is critical. We want companies to have strong balance sheets. So with strong balance sheets brings resilience, reinvestment potential and, what we call, value latency. We want the returns companies make to be supported by strong cash flows. And then ultimately, in management, it was the first thing I was told when I first started investing. Investing is all about the people. You have to understand the people running a business because that's ultimately who we're trusting to run our shareholders' money. So we want management teams that act like a substantial shareholder. And in many of the companies we invest in, they are. We want people and teams who are experienced, effective and passionate about their roles. And just more broadly on to our approach to managing the portfolio. We are a medium- to longer-term investment companies. We're investing companies to be a part of the business, to be a part owner in a company and to enjoy the growth that they can develop over the long term. Investing is also about paying a fair price for companies. If you overpay, you can have really poor investment experiences even in good companies. Well, we often increase our holdings with level of conviction in the story or when we see price dips that provide opportunities to buy value. We will sell or reduce holdings when an investment case adversely changes. Good part of portfolio management is monitoring our holdings for excessive valuations to manage our risk, particularly in the small and mid-cap part of the market. The variations in price movements can be significant and often, stocks can either be underpriced, and they can have long periods where they're way overpriced. And we want to maintain a spread of holdings to enhance the consistency of returns and earnings. So with that, I'll pass to Andrew Porter, our CFO, to talk about the results.

Thank you, Mark, and good afternoon, ladies and gentlemen. And I will also reiterate what a pleasure it is to see shareholders face-to-face albeit somewhat soggy this afternoon. So I will interrupt the interesting part of the meeting to go through the financials briefly. I haven't got my glasses so people can tell me if I get anything wrong in terms of what's up on the screen, which hopefully is soon. Does anybody have -- there we go. Thank you very much. So with regard to the figure at the top left-hand corner, dividends for the year were, in fact, up 47% during the year, brought about by a change in holdings and, of course, the general increase in dividends in what was a post-COVID bounce. Against that, in 2021, we had a very strong contribution from the trading portfolio with stocks such as 4D Medical and MLG Oz, doing very well for us, which was not repeated in 2022. So in total, the profit up from $6.4 million to $6.7 million. As shareholders in Mirrabooka are doubtless aware, the dividend that we can pay is topped up from reserves, including from realized gains, which is why we were able to maintain the ordinary dividend at $0.10 for the last 3 years. Whilst many companies, LICs and other investment entities had to cut theirs. We were also able to top it up by a $0.02 special dividend in 2021 and 2022. It is this ability to use reserves in this way that makes an LIC, we believe, an attractive investment. Of course, this is contingent on having those reserves and realized gains available, which is why the Board do not pay everything out at once. But I can assure shareholders that the Board and management are fully cognizant of the importance of dividends to shareholders, being shareholders themselves. We have some updated portfolio return figures later, and I should note that this is just a 1-year figure that's here. So I'll move to the shareholder return figure, which is also just for 1 year, which is the share price movement plus the dividend. And you'll note that this is better or less worse than the portfolio return for the year. Hence, Mirrabooka's share price moved from a discount to a premium, and more on that in a minute or reduced -- or increased premium, I should say. The MER, or management expense ratio, is the total cost of running the company as a proportion of the average portfolio value every year. This is currently equivalent to $0.46 for every $100 invested. We think that Mirrabooka's MER continues to be very attractive. And just a reminder that AICS, which is the company that employs all of the staff that work for Mirrabooka, is owned by the other LICs in the group. And Mirrabooka receives back from AICS its share of any profit that AICS makes. So those expenses really are simply the cost of running the company. Expenses were actually higher in the year. But interestingly, the market moves have been so sudden that the average value over the whole year was higher in 2022 than it was in 2021, despite, as you can see here, the position at the end of June of $510.4 million being substantially lower than the previous year of just under $618 million. What this means is that if expenses were to stay the same, but the average portfolio value remained below last year's figure, the MER would increase, but we will, of course, just have to see how the market fares over the rest of the year. So if you move to the next slide, where you can see the history of the MER, this can go up even if expenses stay the same as has happened in the past. However, the trend has historically been downwards. And if over time, the portfolio grows faster than any increase in expenses, that will continue to be the case. So on the next slide, you can see that the share price has been trading at a premium to the net asset backing for some time. As shareholders and other LICs will appreciate, this premium discount trading affects all LICs, and it's not really something that current and new shareholders to be aware of it so they know whether they're paying a premium for assets where they're paying $1.10 for assets worth $1 or vice versa. So with that, we can go back to the interesting part of the meeting, and I'll hand over to Kieran.

Sorry, just before we jump to Kieran, I forgot to mention one thing. I just wanted to say, because, obviously, our Chairman is retiring at this meeting, and I just wanted to say on behalf of the staff, it's been a real privilege to serve the shareholders under the leadership of Terry over a long time. I've certainly been involved with Mirrabooka from the start. And I can say from that perspective, Terry has been an outstanding Chair of the company's passion he has for this area of the market and the experience he brings to the team and his leadership, and most importantly, the support for all the staff has been incredible. So I just wanted to acknowledge Terry's role on behalf of all the staff. So thank you.

Thank you, Mark. This microphone's working? Yes. Thank you, Mark, and good afternoon, everyone. My name is Kieran Kennedy, and I'm the Mirrabooka Portfolio Manager. Given the volatile and uncertain economic and market conditions that we're all experiencing, what I'm really trying to achieve with the presentation, along with my colleagues, Stuart Low today, is to provide some reassurance and share some of the confidence that we have in the long-term outlook for the Mirrabooka investment portfolio. To do so, we will first set the scene on the key drivers of that uncertainty and volatility that's emerged as we see them. Secondly, we'll provide some historical perspectives on the track record of Mirrabooka's portfolio through volatile times in the past. We'll then move on to outline recent portfolio activity and touch on how volatility can actually be helpful for a long-term investor to provide better opportunities. Stuart will then provide some insights on the portfolio to share a lens on the quality of the companies that we see within the portfolio and their ability to forge their own way through tough times. And finally, I'll share some outlook comments, which is not without its challenges in this current environment, certainly on a short-term basis anyway. So firstly, to set the scene. As the slide says in the heading, the cost of living is surging. Expenses that are very significant components of any households' nondiscretionary budget have risen very sharply in recent times. This has been a reemergence of inflation that we have not seen the likes of which for decades. The reason this matters both for the economy and for markets and the area of markets that we're investing in is really twofold, the 2 main reasons. Firstly, when you see rises such as this, and you think about the rate at which wages and pensions are increasing on the other side of a household equation, you can see that the purchasing and spending power of households and people is going backwards. Now to date, we've seen the Australian economy hold up reasonably well in the face of that as people have been prepared to dip into their savings. But you can see with confidence measures that, that can only run for so long, and people do worry about the future when they're seeing this coming through and seeing their -- effectively, their household balance sheet shrink as they try and maintain their spending. The second impact as it relates to investing is really to do with the, I guess, the expected return you need from your investments and the discount rate that people apply when they're valuing investments. And what that's meant and means when inflation reemerges as it has, you see a valuation impact on companies in the portfolio. And for companies that you own for the long term, where you're really looking for growth and the sorts of companies we want in the portfolio, that's quite magnified in terms of the way that expected return and that discount rate is applied as interest rate expectations go up. The other factor really adding to this uncertain volatile environment is the headlines and the macroeconomic risks that we're all observing around the world. You'll see on this slide, we're all dealing with the uncertainty of the war in Ukraine. The threat of recession, will we have one? The COVID pandemic, it's still lingering. And Australia seems like it's getting on top of it. But in places like China, they're still dealing with lockdowns on a daily basis. Gas crisis and power crisis that's come from the Ukraine war. I guess another box that I add to this, which is really emerging now is some of the financial risks as we've seen in the U.K. with, I guess, central bank moves over there and some of the pension liabilities and how that may play out. So essentially, there's a lot to worry about. And what this serves to do is really to put a weight on the value of equity markets as people worry and expect more return going forward. So therefore, they're more prime to sell than they were. But it also creates quite a volatile environment because the share market is always forward-looking, and people are trying to anticipate resolutions of these items, which is very difficult to do. So on headlines, you see movements, quite sharp movements in both directions, which can be hard to explain to people not following it on a daily basis. So then moving on to some of the reassurance. So what we try to do with this slide is to really take you back and what we're really trying to put ourselves in the shoes of is a long-term investor in Mirrabooka who may not want to or look at their portfolio on a daily basis. They've got other things going on in their lives, and they've had the money in Mirrabooka. So, I guess, what we've said here in the first instance, going back to when Lehman Brothers failed in March 2009, had that investor looked at their portfolio and said, "I've seen on the news, there's been a big correction in equity markets. I wonder how my Mirrabooka Investment is going in the face of that? So I've just seen a reduction in the share price. How has my return been? And has it been a good place to have my money?" So in doing that back in 2009 and looking back to an investment starting in 1999, that shareholder would have observed that the portfolio had returned 10.4% per annum on the basis of reinvesting dividends and accounting for the franking credits, a really healthy return and well in excess of the benchmark. Similar analysis when COVID pandemic broke in March 2020 and all the uncertainty and questions that caused for everybody right across society, again, all the worries you had, you look back at your portfolio and think about how Mirrabooka had navigated that period leading up to and suffering from that correction, a really healthy return at 9.8% per annum versus the benchmark of 4.4%. And then more recently, in June, just coming to the end of this financial year, we've seen Mirrabooka's share price is well off its highs. And obviously, there's been a correction in markets and again, magnified at these emerging companies into the market. But again, healthy returns at 12.7% per annum versus the benchmark at 9.7%. I guess one of the key messages here, which I will return to, is just the importance where people can afford to of taking a long-term view because equity markets can be volatile, but it's in that long run that you really see the true value added, and that's where you can smooth out some of that volatility if you're taking that perspective. So just moving on to the portfolio performance figures, which we produce at each of these meetings. There's a little bit on this chart to cover. For those at the meeting last year, they may recall that we actually flip the order of this chart to really try and emphasize the fact that we are much more interested in the 5- and 10-year numbers on this chart. That's how we're managing your money, but we understand there will always be interested in the 1-year number along with that. So last year, we presented at 10 years and 5 with the 1-year number at the right. Now the reason we were doing that was because we had a remarkable run, and we were sort of scratching our heads at just quite how remarkable it was and the portfolio for the 2001 financial year returning over 50%, which really for a portfolio of over 50 holdings, if you are aiming to maximize the return on a 1-year view, you couldn't really achieve that. So just a lot of stars aligned at once. That was outperformance of more than 15% of the benchmark for that period. Now that's reversed in this period. We obviously wouldn't try and present 1-year number at the right and deemphasize it when it's underperforming because we understand that, that creates questions. So I will cover that in a subsequent slide. But before moving on, I'd note that even with that underperformance, looking at the numbers over 3, 5 and 10 years, we're still comfortable with the outperformance and the absolute returns that the portfolio has generated. So moving on to address this underperformance. Now there's a little bit on this slide. So I firstly, just want to explain what we presented here just so that it's well understood. So what the chart is representing is the relative performance of Mirrabooka versus our benchmark, the mid- and small-cap indices. The blue line, which is the noisy line moving up and down, is that measurement on a 1-year basis. So when that number is above the line and positive, that means we're outperforming our benchmark on a 1-year basis for that month end using the NTA. And then the orange line reflects the same thing, but that looks at it over 10 years. So taking a longer-term view of how the portfolio is tracking in terms of adding value against the benchmark in which we measure ourselves. So just touching on the blue line. And obviously, it is quite volatile measured relative to our benchmark, there's a few key reasons for this. Firstly, we don't, I guess, sweat over the benchmark constituents to a great extent. We're not here to try and manage on a short-term view and manage risks of not owning things or not owning enough of things. We really construct our portfolio on the basis of the best investments we can find for your money on a risk-adjusted basis in the long term. In the mid and small cap indices, the companies that are in that benchmark move around a lot over time as companies come and go, but also as cycles move up and down. So if you were actually trying to run this portfolio more closely aligned to the benchmark, you would actually have quite a bit of turnover to achieve that and quite a bit of tax to pay. The other more fundamental logic to that is that we see the benchmark really as a measure that just tests how we're going after we've constructed the portfolio rather than something that we're a slave to. So then moving to the ups and downs of the blue line. So, I guess, being a long-term investor and not trying to manage for short-term outcomes, there's a trend in that line. So what happens is when you have too good a run of it, and the blue line is quite high as it did in 2021, on a short-term basis for a long-term investor, you often find that's followed by a period of more challenging performance on a 1-year view because you have to cycle those conditions. If you really step back to why we're investing in companies, we're looking to compound the earnings growth that they achieve. Valuations go up and they go down, but we want to stick with the best businesses that we think are going to do the best over the long term. So you'll have periods where the valuation of those companies, like they did in 2021, run up together quite high. And then the following period, there's going to be a normalization in that as we've seen. So I guess that sort of covers some of the dot points in the box. The first 3 dot points that specifically address what has happened in this 12-month period. We had strong performance in 2021. So we had high starting share prices for the assessment of the 1-year returns at the moment. And because of -- as I mentioned earlier, when interest rates rise, companies that you own for their long-term prospects, get a disproportionate impact in terms of the way they're valued. The other factor that has come along and not helped as part of that has been part of the market that's actually been doing really well, and that's the resources area of the market. And I guess there's a few contributing factors to that. Firstly, some of the COVID disruptions we've seen has meant supply is being constrained. The Ukraine war has meant in the energy space, there's a lot of questions about energy security, and that's been really good for the oil price and energy-related companies. And then there's been a really emerging part of the market in electric vehicle commodities and lithium specifically. Those companies make a very large portion of our benchmark at the moment, and we don't have exposure there. I'll come back and touch on that at the end of the meeting because I believe there's a question that's come through on our approach to those investments. Just before I move off the slide, I'll just address the orange line, and I guess, that's the line that we are much more focused on because it's more aligned with what we're trying to do with your money in this portfolio. So again, that's looking at the long-term return, measured at the month end on a 10-year basis. And you can see a consistent track record of something in the order of 2% to 5% per annum of outperformance that Mirrabooka achieved on that long-term view. And that's what -- the past is never a guarantee of future performance, but that's what we're focusing on trying to achieve going forward. So this slide presents similar information, and it's really just looking at those 10-year returns. So just reminding everybody that Mirrabooka started in 1999. So the series starts in 2009, the first time we could measure a 10-year return. The blue line is showing what the benchmark has achieved on a 10-year -- rolling 10-year basis over that period, with the orange line showing the extra return you've achieved by being an investor in Mirrabooka. I guess the key message and the reason for including this slide again is just to reiterate that reassurance that there is a lot of volatility in equity markets. It is magnified in the small, emerging end of the market. But if you're in a position to take a long-term view, the return outlook looks much more consistent and much more reassuring and hopefully allows people to not be too nervous about their investments and to get on with doing other things in their lives while being an investor in this portfolio. Just moving on to how we manage the portfolio through a very volatile time. So firstly, I'll touch on the first 2 columns, stocks that we've exited and trimmed. And I'll just put these into a few different buckets, the logic of why we do that in a portfolio as a long-term investor. The first reason we do look to sell or sell a position in this case is when we realize that our initial investment thesis was flawed and there's something about the company that's not what we thought it was. In terms of those 2 columns, there's not an instance of those in those columns, and we haven't had many of those, touch wood of late. So again, that just goes back to the point that some of these performance challenges we're facing more about valuation than the fundamental status of the businesses that we've chosen for the portfolio. The second and third reasons we sell stocks or trim stocks are kind of aligned in emerging company investing. And it's really to do with a thesis that you had. It tends to mature first and then tends to start showing signs of deterioration because the company don't have, I guess, the same outlook for the good quality part of their business that we first were attracted to. So they look to try and find other things to do -- supplement that and continue the growth and continue to satisfy their shareholders. In terms of the companies listed here, we've seen elements of that with a few of them. So Atlas Arteria is one we exited because they've got quite a short life for their good quality European roads, and we just felt that there was a need there for them to do something else and to buy something else to lengthen that life. And that's challenging when you're in a position where you need to buy something. So we sold that quite a few months ago, and we've seen just in recent times, I have acted on that and made a transaction that has reduced the share price and led to a fair few puzzle looks around the market. Similarly, NIB, that was a really good investment for us for a sort of a 3-year period. We found a good time to buy it. We felt it was sort of running its course and looking a bit mature again. And just yesterday, they've announced an acquisition. It's quite small, but we see that as acknowledgment. It's a little bit away from the core that they need something else to do now. So we're pleased to have moved on with our money. Just in the trimming side, a similar one is InvoCare, where that's been in the portfolio for a very long time. It's a good solid company, but we're just finding that's getting a bit harder for them to really maximize their market leadership in the funeral industry. We're just seeing a few signs of that maturity and then potential deterioration coming in. So we've reduced that position quite a lot. The fourth reason why we sell the stock is valuation related. And I guess going back to what I was saying earlier, it's not instances where we see full valuation. We look for instances where it gets extreme in its valuation. And we think that starts to pose undue risk to the portfolio, so we need to have the discipline to act upon that. In this case, NEXTDC was an instance of that in our mind. We sort of effectively are assessing a company that was trading at 3x the value of the dollars they put in the ground in their data centers in a very low interest rate environment. And we just sort of led us to ask, well, where to from here in terms of return generation in that business. So we've exited or reduced that position, sorry, significantly. Unfortunately, we didn't quite get it all out. But subsequently, it has fallen quite a lot in the market. I'll just touch on one that's actually not caught up in those 4 reasons, but it is a little bit different, which is Mainfreight. That's a position that is still our largest holding in the portfolio. I guess that's a case where we did act on something. It was probably more in the full valuation camp. And that was just reflecting at the time, a very high weighting in the portfolio. So just a different risk management lens. Now that, that share price has retraced quite a lot, we're back to being very comfortable in a very good quality business with a very good long-term outlook. So certainly not twitching at all on that one and any selling there is done. So just moving on to where we've moved that money to, firstly, the column of what we've added. So these are the stocks we already had that -- we've added to. And I guess for people who follow Mirrabooka closely, the nature of these companies is quite different to what we were presenting last year and quite back to, I guess, what more traditionally, what we're trying to do, which is to find businesses that we think have the most compelling long-term growth prospects because as I said earlier, that's how our share prices do grow in the long term. Last year, we had to sort of not depart from that, but put that on hold for a period of time because we just felt growth companies were really overvalued in a low interest rate environment. So you'll note last year, we were buying things like Computershare, WorleyParsons, Peet, still good quality companies, but things where we felt there was better relative value. Coming into this year, we've now had opportunities to add to those businesses. Now I won't lie to you that's had its challenges. In a falling market, it's always hard to pick the bottom. Some of these companies have fallen a long way. So there are some instances where we've acted a little bit early on some of these. But I guess over our journey as a long-term investor, we find that if the only mistakes you're making is paying a bit too much, but you're still buying the right businesses. Those mistakes tend to work themselves out a lot better than buying the wrong businesses and working that out later on. I'll take any questions on any of those companies or any others on this slide later on. I just quickly introduce the new companies to the portfolio because I know it's of interest to shareholders and people like to follow those new things coming in. I do it with a very big health warning. These are always -- the way we invest is we give things to go, a small position -- and then we build them as conviction grows. So I'd hate to think that people think these are our very best ideas. They're just more our newest ideas. I'll just touch on what they do quickly and again, happy to take questions. So Chrysos is a recent IPO. It's technology out of the CSIRO and what they're really doing, they've got some units that have a new novel and better way of processing gold samples. So it does away with some of the chemical treatment, has the benefit of being more accurate, more timely, more energy efficient, more environmentally friendly and safer for the staff handling it. When you're seeing new ideas, new technologies, we've learned over the years, you need to wait and beyond just the idea. There's a lot of good ideas out there. But you need to sort of find that inflection point where you think the industry is adopting it, and you can see it in sales rate for the company. And we've seen that in Chrysos and that's what encourages us to take a small position. But when they sell things, it does take a period of time before revenue comes through, it's just a long lead item to actually deliver the units, which does add some risk to the investment at the moment. Ardent Leisure may be known to some. They've had quite a checkered history. They're the owner of the Dreamworld Theme Park on the Gold Coast, which obviously, many of you are very aware of the tragedy 5 years ago there. They also had an asset in America called Main Event which they've now sold. So what we're looking at here is a bit more opportunistic. They've got a lot of cash on the balance sheet. There's lots of surplus land around Dreamworld. We think they've gone through the right strides to actually improve operating conditions at Dreamworld, put some money back into the park, improve safety. And we think people, over time, do forgive if those measures being put in place. And we think with tourism returning at a point in time is the ability to grow those earnings back to where they were, which we don't think is reflected in the current valuation. And then finally, Gentrack is a small New Zealand-based software company operating in the utilities market. Again, we've observed this company for a long period of time. It was successful for a period of time. Management changed, they ran into some trouble times. But we really think they've got the mojo back under new management, and there's a good underlying product with good recurring revenue. So we think that's an interesting little opportunity for the portfolio as well. So with that, I'll hand to Stuart to cover some of the reassurance from the quality within the portfolio, as I mentioned earlier.

Thanks very much, Kieran, and good afternoon, all. My name is Stuart Low. I'm one of the Investment Analysts at Mirrabooka. I'm going to talk you through some of the features of the Mirrabooka portfolio on Slide 29. Let me -- I'm not the tech analyst, so give me a sec here. Here we go. Success. Long-term approach. We often talk about the fact that they are long-term investors and potentially more so than many others in the small cap market. This slide, I would like to think it proves evidence that we sort of do what we say. And as you can see here with our top 20 investments that we've been invested for -- some of them have been in the portfolio for over 15 years, and the majority in the portfolio for more than 5 years. I guess there's a question, why is that important to be a long-term investor? And we think holding stocks for the long term gives them the largest and broadest chance to compound their earnings growth. It reduces unnecessary turnover and trading costs and reduces the amount of tax paid to Canberra. Turning to Slide 30. Quality companies find a way to grow. History has shown that over the long term, the metric that most highly correlates to share price growth is growth in earnings per share. A recurring theme in our presentations is referencing quality companies. And by that, we mean quality companies exhibit certain characteristics that enable them to grow for many years. They may operate in industries with tailwinds. They may have dominant market positions, management that takes a very long-term view in investment horizons or they may have a lot of opportunity to capture further market share. On this slide, we've outlined a number of businesses that have continued to grow for many years since their first purchase in the Mirrabooka portfolio. What's particularly impressive is that the revenue growth has largely been organic. They haven't made any large acquisitions across the period. ResMed and Fisher & Paykel have developed market-leading products in the respiratory health care space relevant to patients globally, both now -- most of their revenues outside of Australia and New Zealand and continue to have significant industry tailwinds. ARB and Breville began life in Australia over 30 years ago and have now established positions in overseas markets where their products and brands are being recognized for their innovation. Mainfreight has taken its unique customer-focused culture from New Zealand to Australia and in more recent years, Europe and the U.S.A. It's often been said that Australian companies struggle to grow overseas. And that's right, in many instances. But these examples show how effective it can be when it's done in a careful, deliberate manner by management to take a long-term horizon. The other 2 businesses on this slide, Macquarie Telecom and Netwealth, are both domestic-focused. But both of them when they were added to the portfolio had very small starting market shares. They've been able to capitalize on industry tailwinds in financial services and cloud. They both have robust net cash balance sheets. And the management of both of these companies still own over 50% of the shares on issue so that we know that they're making long-term investment decisions that are best for the company. Turning to Slide 31. I think this is a really good slide because quite often in small company investing, I think there's a misconception that small companies may be startups or concept investment where companies have improved and they can have a sustainable business model that produces profit. I guess with this slide, we're trying to illustrate the robustness of some of the portfolio holdings. These businesses are market leaders in their space, and you probably use their products or services on a daily or a weekly basis. They are very tangible businesses. Often household names that probably most of you in this audience would recognize. I tend to find as a Mirrabooka shareholder myself that it does ease the pain a little bit when you go to JB Hi-Fi and see the price of an iPad or when you get stuck behind the Cleanaway garbage truck when you're trying to get to work in the morning. So very much tangible businesses in the portfolio. Slide 32 continues the same theme, but with a tilt towards the property sector. I guess, one of the best sectors that have been exposed to over the last 20 years. In this slide, you can see that when you're searching for a property, you might start on the realestate.com platform, has a dominant market position in that space accounting for probably over 70% of the [ lead ]. And then your most certainly sort of trade throughout the PEXA settlement portal, which handles 85% of the property transactions in Australia. There's no doubt that a high-quality Reece bathroom fixture would probably find its way into bathroom. It's been an outstanding business and once again, probably has over 60% market share in Australia, another long-term holding. And then as the house might start to age, you might find yourself probably down to James Hardie to renovate in a few years' time based upon their range of innovative fiber cement siding products. So I guess that just shows that probably nearly 10% of the Mirrabooka portfolio really leveraged to a great theme and with some really [indiscernible] household names in that portfolio. I'll now turn back to Kieran for some more outlook comments. Thank you.

Thanks, Stuart. So on to the outlook. As is often the case, it's much easier to come up with the questions than the answers on a slide like this, but particularly at the moment. So I guess looking at the questions at the top of the slide, it would be really helpful to know whether we are heading into a recession, great to know where interest rates are going to level out, if there's a resolution to the war. It would be really helpful for how we run the portfolio. Lots of people in the press. I will give you reasons why they have some insight into how this is going to evolve. Really, I don't think you add value in the portfolio in the long run, managing the portfolio by trying to have a position and investing in your portfolio in accordance with that. You've just got to accept the unknowns and then go back to a basis on which you think you can add value consistently over time. And for us, that's really stepping back from that noise and just making sure that the portfolio makes sense from a long-term perspective. So I guess they are the questions we choose to answer, which is, if indeed times are getting harder, and it does feel like they will, there's going to be some economic pain ahead, then once you've been through that initial valuation reset with interest rates going up, which we're currently experiencing, what are the sort of companies that you're going to want to own on the other side of that and the best place to navigate tougher times? And for us, that goes back to the slide that Mark presented earlier, companies with alignment, strong balance sheets, a reason to win. And it strikes us that, over time, through those times, it's often when the market leader captures more of their share in some of their less strong competitors face troubled waters and don't get through to the other side. And then again, just back to the same reminder that in the end, valuation moves up and down, and it does buffer portfolios, no doubt about it. But in the end, it's the companies that are successful over the long run, are the companies that have grown their business, grown their sales and grown their earnings. So that's -- I guess that's the thing we really keep our eye on through volatile times. So I just wanted to close my section of the presentation with just a couple of slides that takes right back to the start, really, just to mark Terry's retirement today as Founding Chairman of Mirrabooka. I guess he was one of the reasons -- the main reasons why Mirrabooka exists. It was his foresight, thinking there was a place in the market for a company such as this, investing in this way. So I won't go through the numbers on this slide, but it's really just to say, did Terry have a good idea back in the late 1990s by putting Mirrabooka together and has easily import added value in terms of running that idea and executing on it. And I think you'd all agree that track record over that period of time is a testament to both those things, both Terry's foresight and his input over that period of time. And then finally, just, I guess, observing, Terry, over the years, one of the things he's often says is, I guess, there can be a lot of things going on in the world, but there's always some value to be added by sifting through the market and finding that mixed gem, that makes little company that's going to grow and emerge. So I sort of thought about how we could shine a bit of a light on that to mark Terry's retirement. We come up with this diagram, which was interesting to me when I put it together. It sort of reminded me of a few holdings that we've had back in the earlier days, but this is looking at companies that were once mid-and small-cap companies in the Mirrabooka portfolio, have contributed to the returns we've enjoyed over the years, and made it all the way, they graduated up to the top 50 companies on the ASX and outside of the Mirrabooka universe. And I guess that -- finally, the next one of these is what motivates all the people in the team. And I guess it's what has kept Terry -- or one of the things I've observed has kept Terry so actively engaged and so passionate about Mirrabooka all these years. So just in closing, I'd like to add my thanks on behalf of the investment team. Terry has been always very generous in sharing his decades of wisdom and experience in equity markets. And he's also personally been very supportive of us in our careers and developing our investing skills and also interested in our lives outside of work, which we've all appreciated the investment team. So I'll hand back and say thanks to the Chair for the final time.

We now ask if we have any questions on the -- right, on the presentation and the financial accounts? Any online?

Yes, we've got some online, Terry. So I'll start with a couple that really talking about engagement with the company. So the first one is about -- you say you're actively engaged with companies and seek to stay engaged with companies. Why would you take -- if this is a case, why would you take input from the proxy advisers? Is not your expertise sufficient enough for a decision to be made on company resolutions? And why spend money on such advisers? So I'll throw that to you, Mark, as the first point.

So we subscribe to a proxy adviser. And I think the way we view it is it's an information source. And at the end of the day, we make our own decisions on proxies, and they go to the investment community members to go through. So they do provide good information. They do some interesting analysis. They do highlight areas that they think, in their view, need to be addressed. So as I said, it's just the information we use, but then we use our own judgment to make our own calls on what we think is right for shareholders of companies.

And I'd add on that, actually, Mark, it's actually a cost saving because notwithstanding the enormous work that certain members, I assume, has to do in putting those proxies together. If we didn't do that, we'd have to employ people to look through all of that information and provide that. So that's actually a cost saving.

That's excellent point. Absolutely.

So question again, I guess, on engagement. Question comes from Australian Shareholders' Association. We noticed that of your top 20 shareholdings, 6 have been given ESG ratings of 2 out of 5 by the Australian Council of Superannuation Investors, which means they only produce a very basic report. Given your stated concern with ESG, how do you appraise these companies if the experts rate them so poorly? And I'll pass it to Kieran to start with.

Thanks for the question. So I guess just the whole ESG space is obviously attracting a lot more focus in recent times, which we think is healthy and aligns to our view of sustainability of businesses in the long run, being really important. But what we'd say around the reporting is it's still in a development mode really in terms of the information that are provided, particularly on the environmental front. So I guess -- and then I guess the other element of this is in terms of the governance, the G in ESG, we are very actively engaged, but some of the companies that we really seek out for our portfolio, as we've mentioned earlier in the presentation, are those companies that have really heavy alignment. We look for businesses where directors have been on the board for a long period of time. There's lots of ownership of the company. And often, those sorts of companies do run a bit -- fail the traditional measures that people put in place around ESG. They might have -- there's a view that if you've been on a Board too long, you're no longer independent, which we find a little bit curious. So we sort of take a more holistic view and sort of think, are these companies taking a long-term approach to maximizing the value of this business in the interest of a wide group of stakeholders and are they the right sort of people to manage that going forward. And that we're comfortable with our portfolio on that basis. I'll also mention on the environmental front, the sort of businesses we own in, we're sort of well under benchmarks in terms of any emissions that those businesses are responsible for. But we'd also point out that it is an evolving space, as I mentioned, and we're really engaged in seeing how those reports develop, getting more information. We're pulling that together for our investment committee periodically just to understand the way these companies are meeting their requirements on an ongoing basis.