Perpetual Equity Investment Company Limited (PIC.AX) Earnings Call Transcript & Summary

Good afternoon. Welcome to Perpetual Equity Investment Company Limited's Annual General Meeting for 2023. My name is Nancy Fox, and it is a privilege to chair the Board of your company and to chair today's meeting. I have been told that it's now 3 O'clock, and a quorum is present. I declare this is 2023 Annual General Meeting open. We acknowledge the traditional owners of the land we are present on today, the Gadigal people of the Eora Nation, as the custodians of this land, recognizing their connection to land, waters and community. We pay our respect to elders -- sorry, to Australia's first peoples and to their elders past, present and emerging. We would like to extend our respect to and welcome any Aboriginal or Torres Strait Islander people, who are joining us today. We also acknowledge the traditional owners of the many lands, where our attendees are situated today, both here in Australia and overseas. For ease of reference, I will be referring to Perpetual Equity Investment Company Limited as PIC or the company for today's meeting. I'd like to start by welcoming our shareholders, proxy holders and guests. It's great to see you in person, and I recognize many shareholders I've met before in the room. We also have many online, and we are pleased this hybrid format continues to provide an opportunity for more shareholders to participate, regardless of their geographic location. In the room, I am joined by our Company Secretary, Sylvie Dimarco; John Edstein, a Non-Executive Director and Chairman of the Nomination and Corporate Governance Committee. Amanda Gillespie, our Executive Director; and Michael Clarke, a Non-Executive Director, who joined the PIC Board on September 1, 2023. Online, there you go. We have Virginia Malley, she is the Non-Executive Director and Chairman of our Audit and Risk Committee. Welcome, Virginia. Karen Trou in charge of PIC's Investor Relations matters will be the facilitator for the Q&A for the investment manager presentation, and Karen is present with us here in Sydney. I'd also like to welcome Karen Hopkins from KPMG, who is the company's auditor. Karen Hopkins is available to answer any questions that shareholders may have in relation to the financial year 2020 financial statements and the auditor's independence. Before we move on to the formal part of our AGM, on behalf of the Board, I would like to share with you some of my observations on PIC's activities and performance this year. Following that, I will ask PIC Portfolio Manager, Vince Pezzullo, to deliver the investment manager presentation. Vince will be joined by senior equities analyst, Louise Sandberg. I note that the prepared AGM address and presentation has been released to the market. So let us now move to a discussion of PIC's performance in FY '23. In August, we announced a strong result for the company. With net profit after tax of $55 million and net investment portfolio performance of 16.2% for FY '23. Outperforming the benchmark by 1.8%. In line with the company's investment objective, the investment portfolio has returned 9.7% per annum over 5 years, outperforming the benchmark by 2.6%. This is a testament to the active management style and skill, a portfolio manager, Vince Pezzullo and the team at Perpetual Investment Management Limited. For our shareholders, this results, combined with the Board's effective capital management, allowed the Board to declare an FY '23 dividend of $0.073 per share fully franked. This represents an increase of 19.7% to FY '22. And is the highest dividend paid to shareholders, since inception. It also translates to a dividend yield of 6.3% and gross debt dividend yield of 9%. Which we believe is attractive in the current environment. At the same time, we are conscious of macro factors, including higher interest rates and inflation weighing on markets. Accordingly, the Board has sought to maintain a robust profit reserve of $112.9 million and dividend coverage of 3.7 years, to deliver a sustainable long-term income stream for shareholders. In total, the company has paid over $150 million, in dividends since it was first listed on the ASX more than 8 years ago. We are proud of this track record and maintain our commitment to paying dividends to shareholders twice a year, that are fully franked to the maximum or to the maximum extent possible. I would also like to provide an update on the Board. We are committed to high standards of corporate governance and undertake rigorous processes over the year to provide oversight of the company's activity and performance. Recently, we took strength -- we took steps to strengthen the Board. On September 1, we were delighted to welcome Michael Clark, as an independent Non-Executive Director of the company. Michael has extensive industry knowledge and expertise. Having recently held roles in asset management, including most recently at Challenger Funds Management. His appointment builds on the skills, knowledge and diversity of the Board and forms part of our succession planning. It also means that the Board is now majority independent. Michael's appointment will be put forward for election later in this meeting. I also want to comment on the proposed increase to the Non-Executive Director remuneration pool, which is called the net-fee cap. We are seeking shareholder approval to increase the net-fee cap from $250,000 to $400,000. Michael's appointment in September and a modest increase in the existing nonexecutive director fees, means that the total FY '24 directors fees inclusive of superannuation is expected to be $247,000. This is just under the current fee cap. Amanda Gillespie as Executive Director does not receive any directors' fees. The maximum net fee cap has not been increased or changed, since the company was first established in 2014. This resolution will provide additional capacity as we enter a process to renew the Board. Certain nonexecutive directors are approaching their maximum term on the Board, and we may have an overlap between their retirement and the new nonexecutive directors appointed. It also enables the company to reflect additional services from nonexecutive directors, that may arise in the future and maintain remuneration arrangements that are market competitive. The increase in the remuneration pool is being sought to accommodate this. The remuneration pool is a maximum annual limit does not indicate that fees will necessarily be increased up to that amount. As a Board, we will continue to challenge the manager, to ensure the portfolio is appropriately positioned for our shareholders. The manager reports to the Board at least quarterly, providing detailed updates on the investment portfolio and Investor Relations activity. The nonexecutive directors of the Board and the portfolio manager, are all current shareholders in PIC. On behalf of the Board, I would like to thank our shareholders for their support in PIC. I would also like to thank Vince and the team at Perpetual Investment Management Limited, for their management of the portfolio to deliver these returns for our shareholders. As a board, we remain focused on the management of shareholder capital, including the dividend policy and how the profit reserve is applied in the future. Together, we believe the company is well positioned for growth and the delivery of a sustainable stream of fully franked dividends. Please stay informed by visiting the company's website, www.perpetualequity.com.au, for a range of resources and insights. I also encourage you to continue offering valuable feedback through Karen in Investor Relations or our registry, Link Market Services. Thank you. Before I hand over to Vince, I would like to advise that we will be taking questions after the investment management presentation. On screen now are instructions on how to submit questions online and over the phone. We have also had a number of preregistered questions submitted. Any questions relating to the AGM resolutions will be addressed later in the meeting. If you are present in person there will be an opportunity to ask questions following the update. For those of you attending online, if you're a PIC shareholder, you can ask a question or post a comment by clicking on the Ask A Question box on your screen. A box will pop up with 2 sections for completion. And the regarding section, please select irrelevant category. Click in the questions section, and type 2 question and click on submit. Shareholders can also ask a question over the phone. You can submit a question at any time during the update, and it will be addressed at the end. I would now like to invite Vince to come to stage.

Okay. Good afternoon, everyone. I thought today we'd start with the structure of the team because we've had a few additions in the last 12 months. [ Jakob Males ], who's fifth on the right there. He joined the team about 4 or 5 months ago, he joined as a Senior Equities Analyst. Covering the energy sector, building materials and other industrial companies. And Louise, who you'll hear from today, covers for us, the agricultural sector, consumer names, some travel, et cetera. So the team, we continue to add more resourcing to the team. Also what you don't see there is, we do have a steady flow of young people that we try to draw from the business because we do try and draw resources from within the Perpetual group that we will train. We prefer to bring people through the process. It's better for culture, and we tend to get better results. And as you can tell from the average tenure of Perpetual at least 8 years, I've been here for 17 years. Most of the portfolio managers have been at least 12 to 16 years up to 20 years. So we all come through the process. It tends to come up with better outcomes for all investors. Okay. So I thought we'd talk about just give a market wrap as to what we think could occur in the next 12 months. But more importantly, I always think we should revise what our philosophy is in our process. So it's a very simple process. We always talk about every year. It's 4 quality factors at every company, that we're allowed to invest in, doesn't mean we will invest in them, must pass before it's considered to be investable. So, as you can see, their quality of business, this is where we test the business itself, the industry, trying to understand the threats to that industry, the direction of returns overall. And to see if the quality industry that we can find value in. Secondly, and then more importantly, like times like today and at the moment with higher cost of debt, we look for companies with conservative debt levels. So we do have an absolute screen of 50% net debt to equity or a minimum of 3x EBIT interest cover, so basically interest coverage. Any company that does not -- sorry, breaches these is not considered to be investable and will not go on the Universe. Also any company that's in the Universe and is approaching these levels we'll typically engage the company see what plans they have to alleviate the debt issue. And if they have no sensible plans that we can see, we usually will kick them out of the Universe, so we'll become uninvestable. And if we own them, hopefully, we haven't, we will exit the position almost immediately. So we find that having too many companies with too much debt tends to not increase the risk materially across the portfolios. Thirdly, sound management, a white of the eye's test for us. This is where we try and understand if the management is suited to the company is the RIM structure in particular, so the LTI, Long-term Incentive plan, the short-term Incentives, do they match what the company could achieve and do they correctly incentivize the CEO to work in our best interest. We have a full ESG screen we do for this. Every analyst is responsible for screening their companies for is the management and all other ESG issues. Which we can produce for all companies within our Universe. And lastly, recurring earnings. So we don't invest in companies, which don't make money. We prefer companies that are profitable. It can be cyclical. That's fine. Earnings can go up and down. So you think about the mining companies or building materials, because that you can make money out of those companies at the bottom of the cycle, but they must be profitable. So we don't buy concept stocks. We don't buy companies that are just listed that have never made a dollar in their life. They tend to not do well when the recession hits. Next slide, please. Okay. So -- where we are at the moment is we're probably approaching the end of the cycle, that started with COVID with a very significant pull forward of demand. Okay? Companies are trying to readjust. But what's happened, what's the difference pre- and post-COVID is, inflation is materially higher and probably sustainably so. So a lot of business models, which are predicated on the prior 10 to 12 years from the GFC, we had a very low inflationary environment. We had negative real rates. So your inflation rate -- sorry, your interest rates minus your inflation rate. It's negative real rates. That's quite expansionary, quite accommodative to the economy. Now we have positive real rates, right, which can actually -- it hurts asset markets, when you have positive real rates. So you're going to be very, very sensitive to valuations, what you pay for something because you pay too high price or valuation and the company misses all the economics of the business changes, you get very significant outweighed adjustments in the value of the company. So right now, we have a high inflation environment. We have still expansion in fiscal policy from most governments right, which sort of adds a bit of fuel to the fire, not as big as it was a few years ago, but still not allowing the economy to readjust. And in Australia, in particular, we've seen a change in government, and therefore, there's changes in legislation coming. And we'll touch on some of those which are important in a moment. The big one at the moment is you have a significant increase in immigration, 400,000 people a year. Now when you go from 0, where we were in COVID to 400,000 people, and you've actually been underbuilding in that period as well to accommodate for that, and you got a normal housing formation, et cetera. There's only one thing that changes then that is inflation. It's going to go up. You have to make adjustments for it. So that's sort of like a subtle pressure on the economy at the moment. Now the government's got there, I believe it's called Government Housing Fund, $3 billion. I think it's $1.6 trillion of mortgages out there. I don't think it's going to touch asides really. So what you do need is actually real supply side reform. That means land release, all that. That's gets into the sticky situation of dealing with local governments et cetera. So these problems are probably here to stay. And the only way you get rid of these problems is by having a pretty material recession. Plus things that readjust pretty quickly after that. Now I don't think the RBA wants that nor does the government. So at the moment, while they can afford to service the government bonds, pay the interest on them, so for now, they'll keep things going. So, we've sort of looked at one of the more rigid changes in legislation in the last 3 years, and that is the new IR laws, Industrial Relations laws that passed early this year. And it's quite significant. It does change the flexibility of the workforce. And what it does, because of that, we'll add more fuel to the inflation fire. One of them is actually the fact that most EBAs, Environmental Barging Agreements right? Whatever they agreed to last, that is the low point of negotiations for the next agreement. So they can't go backwards. One other factor is the -- I think it's Fair Work Commission or the [indiscernible] will determine what a sector looks like. What does the building sector include and include all the companies in that. Now if a union goes and negotiates with one company and I strike in a cord with that company, that wage agreement goes across every company. Just have to hit one of them. So that's pretty aggressive. And you're seeing, given we're at our cost of living sort of crisis, we're expecting that if wages will grow well north of 3% or 4%, 5% or 6%. And that's pretty material because if you think about the services economy, which is a fair 75% of the economy, that if that's growing at 5% or 6%, it's going to be hard for inflation to roll down. You need the goods part they come in and so now a lot more, and we don't see that. So we're going to have persistent system inflation for a while. And because of that, we're going to have higher real rates for a lot longer. So what that means is if you look at history, we're sort of equating this to more like to 70s, where there were quite a few similarities. All of a sudden, if we're having a bit of an oil crisis. You've got higher labor rates, more -- more chances of strikes now because of the new legislation, you might get more industrial action, which again adds to the pressure of inflation and with a higher energy price, as we try to transition. And we've talked about this in the past. The -- one of our investments, two of them, sorry [ Aboriginal origin ] we're going to be more traditional as to why we think how the energy market may develop over time, and I'll talk about that later. But all the cost push elements of the economy are going higher. So what that typically means is you get very short economic cycles. Because inflation can never get out of its way. So the economy slows a bit, wages don't catch up. They don't start falling. The central banks try and think, okay, things are slowing down a bit, we're going to cut, right? Again, that's just putting more fuel onto the fire and it bounces again. And what that typically means for rest of markets is you typically get a steady derating. So the multiples you pay for the market actually starts to decline because of persistently high inflation rate. At the moment, we talked about energy, OPEC, the Saudi Arabia needs about $90 a barrel of oil to balance their budget, right now. And it's fine enough, we are heading towards that number. And they're not adding any more supply. So OPEC has been very, very strict with supply. Any time they fill at the price of oil is heading towards $65, $70, they tend to take more supply out of the system to try and tighten it up again. So this is a global phenomenon. We're sort of caught up in that. Now one of the final aspects is, there's 8 counties in West Texas. Which is applying most of the growth in the oil market globally at the moment. So 8 counties in West Texas, where the Permian shale oil sector system is. So if -- and they're actually starting to get exhausted, their reserves are starting to get exhausted. So we are sort of setting up for -- it sounds quite dire, but a bit of an oil blow off potentially, which again, it feels a bit like the '70s. And because of that, we're -- for us, we're trying to position our portfolio to things which have a better pricing power, right? Definitely have significantly lower debt, than the average. But these things are hard to manage around. And because of that, you're going to have periods of quite high volatility. And the last 3 months is a perfect example. The markets rallied very strongly. Now they're rolling off 8%, almost what they earn in the last 6 to 3 months. So that can be quite persistent, right? Now what typically happens in this cycle is there will be a couple of accidents. So some comp -- this might be out of cope. Now the full quality filters should keep us out of those, because it's usually companies with a high level of indebtedness or extremely volatile earnings streams. And it does take this sort of environment to change the scenes of the last -- from the GFC basically, we had very easy money flying about. So a lot of business models are going to be tested, right? And fortunately, the 4 quality filters we have basically only preferred companies, which generate profit, have a good balance sheet, have decent management and have a decent industry and should typically keep us out of trouble. On the U.S., we talked about energy inflation. But on the U.S., it's going to be very hard to generate significant recession in the U.S. because the amount of money they've thrown at their economy at the moment. Even with 500 basis points of rate hikes, which is quite restrictive. You got to remember, Australia is a variable interest rate market. All mortgages are pretty much on a variable. So when they increase rates, you get pretty short lags, when it start to affect consumption. This cycle has been a bit different because people save so much made during COVID, they have way more buffer this time around. But we are now exhausting it. You can see it. We're starting to see some of the retailers talk about things starting to drop off very quickly in the last couple of weeks. In the U.S., though, mortgages are locked in for 30 years. So you lock your rate in, it doesn't actually change. So -- and also if -- I think it's below a cent dollar for value of the house, your own home is tax deductible. So it's set up for the homeowner. So it takes -- increasing rates doesn't really work that quickly in the U.S. Inflation does tend to work reasonably quickly in the USA because the economy moves around pretty quickly. And the Inflation Reduction Act, which we talked about before. Typically, when a politician gives a name to a program of spending, it means the complete opposite. So the Inflation Reduction Act has done the reverse. What it's done is it's effectively a war for global capital because Europe has been spending money on renewables. China dominates supply chain of lithium and rare earths, et cetera. They've been doing that for the last 20 years, building that capacity out. And the United States has found itself quite short in these industries. They're not actually self-sufficient at all. So the Inflation Reduction Act was basically throwing money at the problem. So it started out at about $350 billion. Its now probably close to a trillion at the moment, and it's probably going to grow even more. So a lot of money is now flowing because whenever there's a tax incentive, you find a company trying to find it, right? So Global Capital is now charging towards the United States, and that is again quite inflationary, because they have the lowest cost of capital, right for them. U.S. can do way more with their capital than we can because our cost capital is a bit higher. So again, this sort of global war for capital, when there's high inflation rates, makes the chances of an accident, significantly higher. So we're sort of preparing ourselves by building a bit of defense in the portfolio. So that when it happens, and we're starting to see today, today is probably the first time I've seen a lot of favored stocks, getting seriously marked down. So we've got a list of companies at the moment, we're keeping it on some of them -- most of them global actually, and a few domestic. We're quite underrepresented in global at the moment because we just couldn't find the value. And we'll go through the allocation later. But that's where the peak is sort of focusing at the moment, because there'll be some high-quality businesses in the United States, but some in the U.K., which is probably one of the cheapest global equity markets at the moment. Where we'll wait, and when we get a chance, we'll put quite a bit of money to work in those markets. Next slide, please. Okay. So the consequences of all this, Australia will feel like a recession. But because of our -- it's very hard to have large recessions, when you got that much immigration growth, very difficult. Because you're adding quite a few people to the system, who had to consume and have been provided for in house, et cetera, and you are just spending just to keep them in the economy. So it will feel like a recession because it will be like a per capita recession, right? Everyone's ability to spend more will be lowered, because there are just natural barriers to the economy right now. The U.S., there could be a chance of a recession because the Fed Reserve, because they've got a particularly sticky inflation and because of short rates -- sorry, because mortgages are not -- are locked in for 30 years at a fixed rate, it's harder to break the economy. So to be a lot more aggressive with their rates, right? And I'll see the I said 500 basis points of rate increase is pretty significant within 12 months. And bond markets right now are -- the risk for the Fed Reserve now and most central banks is that long interest rates, out in the 10-year part of the curve start to gravitate higher, because that's basically the market saying inflation longer term is going to be way higher. Now that's significant because if that starts to the anchor from its last 15, 20 years, where everyone thought the Central Banks had control on inflation and it starts to rise. It does have quite a material impact on asset markets, because based on the only way to get rid of long-term inflation is to really hurt the economy here today. And no Central Bank wants to do that. So we think there's going to be gentle pressure, whether through traditional means in monetary policy or more unconventional means in monetary policy by shrinking the balance sheet, the Federal Reserve or the Central Bank balance sheets, taking liquidity out of the system, so it's less money rolling around the economy. With higher real rates, it typically will favor having a bit more balance in the portfolio, rather than having what's worked the last 7, 10 years, 12 years, you're just a very significant exposure to tech, tech companies or long-duration companies such as the Transurban, those sort of very long-dated businesses. Which typically run with a lot of debt. [ Traditional ] because they could secure their cash flows because it's a toll road that could secure it, borrow a lot of money forward and pay you a dividend today because of it. That model doesn't work with higher real rates and higher interest rates. You want companies to generate cash flow today because they can pay dividends out of cash today, they don't have to borrow forward because the cost of -- that cost of debt is so high, it makes it very difficult to do that. So -- but what we've seen is actually, the long-duration companies, that I just talked about, have all under-performed significantly, 20% to 30%. So fair enough, even though I just said that, we are looking at long duration stocks because there are some opportunities starting to rise in those stocks. Where the market is overly penalizing them, and the yields are reasonable, the dividend yields are reasonable, that you're still getting paid to sit in those stocks because there will be a point, where I don't know when that is, where rates will start to go the other way because the work that the Central Banks have done will start to bite and it'll start to hit the economy. And that's when you won't be out of PIC that day, that's why it's better to preposition for that time and start buying some of these longer-duration names and just start nibbling at them, quite soon I think. So we're starting to do that with the portfolio with some of the REITs. One of the stocks that Louise is going to talk about is one of those. So we're in a position now, where you can see there, I mentioned earlier, energy transition, balance returning. So for the last 3 or 4 years, you've seen significant reliance or focus on renewable energy. That's fine. Unfortunately, there are some structural issues with the renewable energy. It sort of works in a very low interest rate world, because the cost of debt is very low, extremely low. And what you do is initially the first renewable wind farms, et cetera, that get up -- are usually quite decent because they're built in the right area with very high wind pressure, they'll probably stand on their own 2 feet. They're not far from where the customers live us, and they'll probably stack up. But as you grow the network, every one of those renewables is becoming extremely marginal, and now you're doing it with very twice the cost of debt, and way more competition. So they're all struggling. So that's why you're not seeing many approvals for new wind farms because the capital, the people that take the risk are just don't willing to take the risk anymore because the numbers have changed that so much. So that's why we're -- we bought AGL 6 to 9 months ago and Origin because the traditional owners of the vertically integrated utilities actually do way better in this world. Firstly, they have all the customers. Origins obviously undertake at the moment. It's got 4.7 million customers. AGL is significantly large as well. And when you've got the customers, you own the load, you know how much your customers demand energy every day. So if you own the load, you can start building your own renewables and you take the benefit of building that out. And also, AGL and Origin own these power stations around the country, which are built on the edge of town. And the biggest problem for renewables at the moment is, they are built so far out from where the customers live. They have to build transmission out of that, and it's inhediously expensive. Managed to trying to build power lines now in Australia, not 100 years ago, right? It's triple to quadruple the cost of what you think it would be. So the economics are sort of starting to fail. So that's why AGL and Origin will be the type of companies that will end up building out these renewable assets, but they'll be actually to able make money out of it. Whereas others at the moment are not making any money. We talked about global as well. So we're looking at Florida. We still maintain a significantly large position in Florida. We did sell some down a couple of months ago. FTJ, the French lottery asset, and we do have Goodman's, which is the company that Louise will talk about very soon. I think that's it next slide. We're done. Okay. So historically, with the last years, we've brought up, you've heard from Alex Patten, Clarke Wilkins, who's our resource analyst and [ Roseman ] who's our health care analyst. So we'd like to bring up the team. So you can see the depth of the people, who work on the fund. [ Louise Sandberg joined us last year, as I mentioned to you all, she's worked domestically on the sell side and she's worked offshore and other fund managers in global top-tier fund managers. And as I've mentioned to you all just covering the agricultural sector, consumer stocks and some of the travel lines, et cetera, and the rates. Now she's going to get up and talk to you about 2 of our biggest positions in the fund, Goodman Group and A2 Milk, Louise.

Thank you, Vince. As Vince said, I'll present a short summary on A2 and Goodman Group. So starting with Goodman Group. Goodman Group is a developer, owner and manager of logistics real estate around the world so really centrally located to key growth cities globally. It's the largest listed property fund manager in Australia with $76 billion of external assets under management. So early last year, concerns arose that interest rates are putting pressure on property companies, valuations, balance sheets and also has distributions. We saw this as an attractive opportunity to build a position in Goodman and believe that the market was underestimating the strength inherent to Goodman's model. Given both the strength, macroeconomic strengths of the logistics warehousing space, particularly if you compare it to office or retail. And also Goodman's development-driven growth model, strong balance sheet and excellent management team. So if you step back and look at industrial assets. Essentially, the asset class is benefiting from a number of supportive long-term trends, including the growth of e-commerce, the emergence of near and on-shoring, post-COVID and also continued urbanization globally. In e-commerce specifically, our desire for next-day or same-day delivery pushes warehouses into the cities. So it's no longer okay for the warehouse to be 2, 3 hours outside of the city, because essentially, for a logistics company, you deliver -- your cost of delivering a product is much bigger than your rent. So you can pay more rent to be closer to your end customers. So as this happens simultaneously, warehouse automation has resulted in a lot of older warehouses being not fit for purpose. You need higher ceilings, you need bigger base for the trucks and so on. So these factors all coincided to push industrial occupancy to record highs, Sydney, for instance, I think vacancy is less than 1%. And also supporting this fueled rental growth, which was explosive globally, and thus supporting asset valuations. So we view Goodman's portfolio as especially leveraged to these trends, because management has consciously sort of pruned and recycle its portfolio to placing its assets near big cities. Today, Goodman's property portfolio is 99% occupied and saw like-for-like net property income growth of 4.7% in 2023. Find me an office manager that's done that. Property income will continue to grow given contracted rent step-ups and also the fact that the existing portfolio is, as existing leases roll off, the reset to market rents is very steep. 66% in North America, 37% in Australia and New Zealand, 17% in Europe and the U.K., and around 1% in Asia. In addition, Goodman has a development-led model. So property fund managers can either buy their growth, buying buildings with fund investors money or they can develop it. Goodman has historically very much tilted to developing this growth. And rising rents have more than offset rising construction costs, so they've maintained very healthy development margins. More recently also, Management's highlighted the opportunities related to the fact that a lot of these logistics buildings can be repurposed as data centers and returns, development of reinsurance and data centers are even more attractive than traditional logistics. Prologis, the biggest logistics owner in the world said this week that there are multiples of the returns that you get from building a warehouse. From a sustainability perspective, we have had in-depth conversations with Goodman Sustainability team, and we're very impressed with our commitment to sustainability and also the thoughtfulness that they put into tennant's future demands because a lot of the Goodman's tenants are the biggest -- some of the biggest companies in the world, including Amazon, who are under a lot of pressure to reduce their emissions. Gearing is conservative at only 8% which is one of the lowest of the listed property companies. And this low gearing also affords the company patients to buy sites and buy their time, for when to negotiate with councils, find contract electricity to turn their sites into data centers, where competing sort of highly geared bidders need returns tomorrow to pay their interest costs. From a quality of management perspective, Goodman is founder-led, and the business has a very deep bench of talent and very low employee turnover in the senior ranks. The following slide shows the growth of assets under management over time and also their global split of assets under management. I'd also really emphasize that I think the results this year showed the strength of Goodman's model. They grew operating earnings per share by 16%, where the property asset group as a whole saw earnings flat to down. If we move on to A2 Milk. So A2 Milk markets and selves, premium branded dairy nutritional products across Australia, New Zealand, China and the U.S. The A2 Milk protein is marketed as easier to digest than other types of milk, and that's really struck a cord with Chinese consumers. And over time, infant formula sales by A2 to Chinese consumers has grown to make up a significant share of sales and the majority of profits. A2's Chinese infant formula is available in close to 26,000 mother and baby stores in China. And the Australian made, what they call English label product is available online through A2's flagship stores on key Internet platforms, including Alibaba and TikTok. Now I think we all remember the formula outages of years past. So historically, Chinese entrepreneurs called Daigou purchased A2 infant formula in Australia and resell the product to their extended network of friends and family in China. This channel was disrupted through COVID. And coming out of COVID, A2's management team has increased its investment in their on-the-ground process in China. And also in their own online platform, so pivoting customers to buying directly from the company. We see the growth of the Chinese label and the pivot to A2 control sales for their own websites, as the creation of a much higher quality business model. Where A2 has control over its inventories, its marketing and also it's price in China. This has been demonstrated throughout this year, as A2 gained market share in China, while maintaining solid pricing and avoiding inventory buildups in a very challenging overall market environment. Where a lot of the competitors cut price and also saw inventories increase. The weak Chinese birth rate and sort of lack of recovery in the birth rate to date, coming out of COVID remains a headwind for growth. But A2 has gained a successful foothold in China with a very limited range of products. They have one Chinese formula brand. And one English label. So we believe that sort of leveraging the investment in the brand and the brand recognition to potentially more products, is a huge opportunity for the company. And if you compare to other domestic and international companies, they all have multiple products that they -- to sort of leverage that marketing spend. A2 has over $800 million in net cash at the end of fiscal year 2023. And an operating cash conversion of 114%, meaning that every year, they're building that cash power further. So they have plenty of time to invest in growth and to potentially invest in another brand or another canning line, whether it's in New Zealand or China. We're also very satisfied that A2's management under David Bortolussi has shown consistent execution throughout this sort of challenging period in China. If you turn to the next page, you'll see a breakdown of A2 sales by segment and also some infant formula sales. And I think the key point here is if you look at the first Australia, New Zealand English label EL. That's the sales through the Diagou channel and how that's declined in favor of the much better controlled sales channels. So thank you for that. I'll hand back to Vince.

Excellent summaries. We're going to get 2 more different companies, I think. So next slide, please. Right performance. The last few months, the portfolio struggled, we've been going a little bit more defensive in the last 3 months. Positioning the portfolio. And the market has been very strong. So in that environment, we're going to probably lag the market. But days like today, where the market is down 1.5% to 2%, we're getting those -- that relative performance back. So I think the portfolio is sort of ready for any sort of bumps we get in the next 3 to 6 months. And as I said, a bit like when COVID occurred, if there are opportunities available in the market domestically in offshore, we've got the liquidity and we can -- we will actively manage our existing positions. Particularly ones that have performed quite well, we'll sell those positions, hopefully, we'll be in profit through generating more franking credits and gains and moving to these new names. So we've got a team of 15 investing professionals of the Perpetual, investing and looking at global and domestic stocks. So we -- when I see when we start to struggle a bit with performance, I know that there's opportunities coming typically, because we are quite patient about things. We tend to just wait while the noise that you see in the market today is pervasive, and it's quite confusing and that we get drawn into doing things they shouldn't typically do. So there's enough rigor within our process that sort of gives us producers long-term numbers. And again, we are very focused on paying the dividend and maintaining the dividend and growing the franking as well so that it is always a fully franked dividend. So what hasn't worked in the last 3 months is Jervois, which is a cobalt company. We exited it earlier. That sort of lagged the performance. And Helius, which we still have in the portfolio, we've had to go a bit more active on managing, engaging with the company. It's one of the things that hasn't recovered from COVID. Most sectors have recovered quite strongly volumes, but the Health Care sector is still lagging in Australia. Volumes are still below. We're talking about pathology testing and diagnostic imaging, et cetera. It's still quite far below 2019 numbers. So either people are just not going to see the doctor as much, which could be the case. And there's less testing because of that. But we're also now starting to see a shortage of doctors, GPs. And far enough, we did have quite a significant flow of GPs coming from offshore. They usually came to Australia, under an immigration program and we shut down the borders. So we're struggling. So it's going to take a bit of time for that to recover. So we're sort of actively engaging the Board of Helios to make sure that they don't go and do anything silly regarding making an acquisition or just preserve the balance sheet, wait for things to recover and get back to normal. And then these -- that will probably perform quite well and we'll get our investment back. As I said to you earlier, you can see cash is quite low at the moment at 3.7%. Global Security is at 11.6%. That's probably the last we've ever been. But as I said, we've now identified 1 or 2 new names offshore, 1 in the U.K. and 1 in North America. We started an initial position in the U.K. and this particular company I probably the will be disclosed in the next report that we do. It's involved in the building sector over there. The U.K. is going to be probably the worst housing cycles in probably 30 years. Because the problem they've got is they went through Brexit, which then they had COVID. And they've got record levels of inflation, which they can't do anything about, because they got no basically no workforce moving into the country. So labor rate is extremely high. And so the housing market is now -- I sort of sat last week in the U.K. The amount of house is being built is so low, you can't actually -- the existing population, you've got nobody to leave or there's not enough housing formation going on. That's critical. So we've got an election coming up in the U.K. I'm assuming there's going to be quite a few policies angled towards the housing sector in the U.K. So we're sort of positioning for that a bit, not for the election, but the company are buying extremely high quality. We will disclose at the next report. And there's 1 or 2 names in the U.S., which are starting to look quite interesting. And on the domestic front, we've still got some of our Insurance Australia Group, IAG, in an NRMA brand, still one of our biggest positions. That's doing quite well. Again, the insurers do very well in inflationary times. And I hate to bring up the weather, but I will. As we go into [ Amino ] that means dryer, Dry is usually good for insurers, because we're not smashing to each other during the ride, typically. And you also get less events. Flooding is the worst thing ever because it usually hits built-up areas. Whereas with a warm weather you get wireless frequency, and what they've done, the insurers have over, I believe, provision now for the bad times. Like they're just using the last couple of years of extreme catastrophes and they're setting policy pricing rates. We all know that. Today, I think, Michael went up 25%. I'm not that much better a driver in 12 months, but that's what it did. So they're pricing for the worst, and we think that's going to be a more benign environment. So insurers will I think, will be paying out significant amounts of capital in the next 2 to 3 years. So we're going to have a lot of dividends back from the insurance as part of our portfolio. Next slide -- we're done. Okay. I'll now hand over to Nancy to go through Q&A.

I should have shared with Vince that my homeowners insurance went up 56%.

Sorry, but thank you.

I think you're on to something there. Okay. Thank you, Vince and Louise. We'll now answer any questions received from shareholders or interested parties on the Investor Manager presentation. A reminder that any questions related to the AGM resolutions, will be addressed later in the meeting. First, I'll deal with the preregistered questions. The first question is actually for me, Vince, you'll get the next one, is from Dan Majeski. And the question is, will the company issue rights to shareholders anytime soon? The company needs to scale up and grow to at least $1 billion to be sufficiently competitive and to improve liquidity. I also got a question from Ian Miller, which is very similar. Does the Board have any plans for raising further capital. Clearly, the recent options issued wasn't successful. Largely due to market movements, what are the Board's thoughts on Opteron capital size for PIC. I'm going to address Dan and Ian's questions together. You're spot on. We believe the same thing. The Board discusses opportunities for growth quite a bit. And we look at the different mechanisms available in the market that would provide value to shareholders. You might recall, we successfully raised capital in the past by $101 million entitlement and general offer in 2018. In 2021, we did the $30 million share purchase plan. And as you acknowledge, the majority of the share options expired lapse due to market volatility. So we agree. The larger the leg the more volatility in the marketplace. So we are looking at it, but we believe we need certain conditions to actually make it work. So we need a pricing structure, that is appropriate for all market conditions. And the volatility in PIC's NTA in share price in the manager's view is giving us opportunities, but it's still moving around quite a bit. So we need to see that narrow and stay narrow for a longer period of time. And then the Board will consider what our options might be. So I will move to the next question. Ian had an additional question, and he asked me. Please advise cents per share of 100% fully franked dividend reserves. So right now, in the franking credit balance, we have $22 million, after payment of your FY '23 dividend. And that's sufficient to pay a fully franked dividend of $0.136 per share. So that's for Ian. So we've got quite a reserve there. As I mentioned earlier, we also have the profit reserve with over $112 million in it. The next question is from Colin Green, and I will ask Vince to respond to this. Could you discuss -- and I also have 1 from Dennis White. I think they're related -- sorry, Colin Green's question is, what does PIC do when markets are threatening a downturn?

We do have quite a strong valuation discipline, and that means when -- because we're actively managing the portfolio, when things get expensive and we see opportunities in other companies or more importantly, we're not very comfortable with the market itself and the value in the market, we can put some money to cash, because we can go up to 25% in cash. We don't try and use that too frequently. We do like to stay fully invested. But in the last couple of weeks, we've been moving the portfolio a little bit more defensively by taking in -- buying new positions in more defensive companies. And at the moment, I still think that's probably prudent to stay that way, until we see a bit more of a draw-down in the market at least 10% to 15%. But as I mentioned earlier during the presentation, I think we are going to get this whipsawing market for a while. Until you see either a significant break in inflation expectations so that people start to think inflation is going down. That could drive the market higher. So we've got to be prepared for that, because you will want to be exposed to more of the broader market then. But usually, our style being a quality and value manager, is low volatility anyway. We tend to have a lower [ beta], than the actual market itself. Because of the 4 quality filters we use, typically screens out very high volatility stocks, because their balance sheet is so bad, they have significant movements. So that in itself actually protects the portfolio, and then it's the skill of us to basically manage that volatility as well.

Thank you, Vince. Next question I have is from[ Dennis White ]. Could you discuss the issue of premium and the discount to NTA? PIC seems to do quite well in this regard, but many looks to not. This is near and dear to my heart. I think I've been talking about this for the 5 years, I've been here, but we're getting better, and we have narrowed the gap. We're very committed to that as a Board. We discuss it all the time. I think as I've said to you before, there are 3 factors that we think will make the difference, investment performance, sustainable dividends and shareholder engagement, right? Where you saw the investment today on Vince's slides. We've had the highest dividends we've ever paid out before. And hopefully, we're engaging enough with you, but please let us know if we can do more. So we're hoping that we've kind of broken the back of it. We narrowed quite a bit in the last month, but there has been some volatility in the market. So this board is very focused on trying to keep that as narrow as possible. Now I'm going to open for other questions, Sylvie. So other questions are for shareholders and guests who are present. If you wish to ask a question, please raise your hand as we have several roving microphones around the room. A microphone attendant will be with you as soon as possible. Take your name so that you can introduce yourself prior to asking your question. For those online, I remind of the instructions to submit a question are now on your screen. I will also invite [ Karen Chow ] to the front of the room now. We have any questions in the room? Who's got the microphone? Sorry. Thank you.

Chairman, I would like to introduce Mr. [ Dario Patrick ].

Just have a question to Vince. I'm glad you mentioned the U.S. market with the interest rates, particularly that the housing market there, people who have lots of 30-year mortgages. Which kind of giving that cushion to the interest rate shock. But it's quite a large portion of the total market, right? The 30-year fixed mortgages?

Yes, very large. Adjustable rate mortgage they call them ARMS. They're smaller lots more.

Yes. I wish we had this type of loans in Australia I don't know, why we don't have it actually. My next question is about the particular company in the portfolio, the Bapcor Group here. How is that going? And are you going to be adding to the position in Bapcor or...

So yes, they had a tough day 2 days ago. The company advised that at the AGM update that Bapcor is auto parts distributor on both the trade and on the retail side through Autobarn, that brand, Autobarn, et cetera. They also have wholesale auto parts as well. Which they do distribute, both in motor vehicles and trucks, et cetera. So they advise that in September, the retail part of their business softened a bit. So, as I said to you earlier, we look at all these things. So it looks like that the slowdown is starting to occur in the domestic economy, people are pulling their horns in a bit. So Bapcor sort of warn that, that's the case. The stock was -- I feel overly discounted. It felt like 15% for what was about a 5% to 7% -- sorry, 10% downgrade, if they do nothing, but they are removing -- they're taking costs out of the business. That's what the wise market, they're market ignored it. And yes, we've been buying stock, because it was -- it's now 15% to 20% cheaper, than it was 2 days ago. So we're adding to it. It's a high-quality business. They're going through a transition. Bapcor was a business that was grown by acquisition, buying small corner store auto parts distributing businesses and putting them all together. So at the moment, they're just sort of like they're putting it this -- it wasn't really integrated correctly so that they're now going through that process. There's quite a bit of spend going on in the business. But there are 2 dominant trade autoparts companies in Australia, one's Repco, which we all know, owned by GPC, the General Parts Corporation. Genuine Parts Corporation and Bapcor. So they're the other large one. And the trade business is the part that attracts us the most because I don't know what a disc break switch cost. So when the mechanic tells me, I've got no information. So if that goes -- if that price goes up 5% to 7% sure. And mechanics take care of all of that because as we all know, when you go to the mechanic, 70% of it's labor, the cost. So they just need to get the thing off the hoist. It's a high service model, trade auto parts because -- they do deliveries 4 to 5 times a day, right? So because mechanics got to get the car off the hoist to get paid. Amazon's had a crack it doing in the U.S., auto parts, trade auto parts that they can't match. The companies like AutoZone or O'Reilly's in the U.S., there are 2 models we look at. They are incredibly high service business that are incredibly successful. AutoZone's one of the company I still suggest you would look at. It's probably one of the best companies over the last 30 to 40 years. So yes, I've added to it. recently.

Thank you, Vince. Next question, please?

Chairman, I'd like to introduce Brian Allison.

Just a question about A2 Milk, the last presentation, as I saw here, you are very keen on it. And I was very surprised to see that you're still keen on it. Considering the lack of performance at the meantime the fact that they're in dispute with Synlait milk, which is their main milk supplier, and they've really done nothing but go backwards since the directors sold their shares some years ago, without informing the ASX. And so I'm just wondering, what is the catalyst that you see that I'm not seeing?

So I'll just talk about the directors. We weren't on the register that occurred because it's pretty poor governance. We wouldn't particularly enjoy that. We're a recent owner like last year, we started buying some last year. As it started to -- because it's fallen from $18 down to $4. So when it started going to the $7 and $6, we started buying some and we bought a lot more when there's a change in management. So David Bortolussi joined the Board -- joined the business as CEO. We know David from where he's been in the past at Pac brands, these are very successful business people. We really like his style, highly detailed knows the business. Any how, I'll leave it up to Louise because she's got way more knowledge about this than I do.

So I think the key -- should be working.

It's working. Yes.

So there's a few key challenges that are -- so have been out of A2's control, which is that the Chinese birth rate through COVID with lockdowns and then the lack of economic stimulus that we saw to led to essentially a consumer recession in China and no weddings, so no babies. In that environment, so the overall infant formula market in China is down double digits, and A2 milk is still growing sales. And they're guiding the market to low single-digit sales growth this year and flat margins. So we think that really demonstrates the strength of the brand and the commitment of management as being on the ground in China and fighting for sales. We follow very closely everything from the age of the inventory that's on the shelf in China. So we have people in China, who check the cans. We follow the online sales market share. We follow Nielsen data on overall market share in China. And A2 is consistently growing market share. We also follow pricing data that shows that A2 is holding price. Where competitors are discounting. And then if we look at the execution of management, since David Bortolussi took over, shifting this model from selling through resellers, who are buying in the supermarkets in Australia and then selling themselves. So you actually don't know how much inventory is in the system, right? Someone could have bought the pallets of formula and keeping it in their house and then dumping it into China. Now A2 has full control over that supply chain. And they've transitioned, for instance, the -- they've transitioned -- or they're in process of transitioning to their new China label, which is under the new license. Now the issues with Synlait, while they're concerning, there are also another aspect of A2 in-housing and gaining control over their entire supply chain. Synlait underperformed in their delivery of -- so they have performance metrics that they have to meet in terms of how much a formula they produce for A2 to sell, and they missed those targets consistently for several months. Which sort of triggered an out clause in their exclusivity contract. That gives A2, the opportunity to move production in-house to their own facility in Mataura Valley. And by doing that, they can actually control the entire production process and also sort of improved profitability in that factory. So it's -- it will be a longer process with Synlait, but over time, we actually see it as a positive where A2 improves the control of their supply chain.

So this has all been in trend, but it doesn't seem to be turning up in the -- in the market attitude towards the company. Which is probably suffering from some past things?

I think you're right. And I think what we really need to see is the company taking -- making use of their cash piles in either -- so they bought back shares earlier this year and either continuing that or through a dividend or what we would really like to see as the company sort of expanding their product range. So using that strong brand across more products.

I think that's another way that they've disappointed shareholders in that they suggested a few years ago that they might start paying dividends, but they never have.

Thank you very much. And thanks for your -- very interesting. Any other questions in the room?

Chairman, I'd like to introduce Brian Perks.

I don't know if you remember, Vince, but last year, at the meeting, I asked you about the investment in Westpac and raise the issue, whether that would be the best banking investment in the world. I think it was February or March, the monthly report, you then had a big stake in Commonwealth Bank. And then in the annual report there at the 30th of June, you've got investments in Westpac, Commonwealth and National. You haven't got one international bank. Now a few weeks ago, I read something written by one of your analysts, who Perpetual. And the gist of it was that, we didn't see Australian banks as being a good long-term investment proposition. I also read something that -- well not by him another commentator or analysts saying that Australian banks, I think, with -- their price was twice [ CRM ] book value, and we're basically the most expensive banks in the world. So my question is, if that is the case, why do we have invested -- why we got over $50 million invested in the Australian banks? As opposed to banks somewhere else in the world.

Okay. That's a good question. I do remember your question, by the way. I've -- we're progressing bought more of the Australian banks. Firstly, Australia probably has one of the best regulated banking systems in the world, probably the safest. It's a dangerous way with banks, but it is one of the safest. And when you look at it relative to offshore banks, they all trade cheap, they call it. So CBA trades on 200 bit times book value. 2.2x book value, atleast that, whereas Bank of America trades at a probably 15%, 20% discount to book value. Now I've been a former bank analyst for [indiscernible]. And the one rule I know is, when there's a bank that's really cheap, you run the other direction. I'm not saying Bank of America is in trouble. But what it is, is I think that there's only -- it is an oligopolistic system. We've got 4 Australian banks that dominate right. The payout ratios in Australia are a lot higher than offshore. You don't get a bigger dividend because they're more heavily regulated, but also the ROE in those overseas banking markets are materially lower than in Australia, right? A lot of them are doing 8% ROEs, which is barely your cost of capital. So you're not actually generating enough capital to pay out a bit extra to the shareholders. So whereas, there'll be a time. We've owned Back of America in the past and Lloyds, et cetera. We've owned those in the past. I'm a bit nervous about commercial prop, what you've seen already from March to June the commercial property issue when Silicon Valley Bank and all those things happening, that had made no difference to Australian banks. Whereas over there, you would have lost 50% to 60% of your investment. And even that the money center banks like Bank of America or Wells Fargo and Citi Group, they derated as well through that period. So whereas the Australian Banks didn't do much. So they're actually -- I hate to say defensive, because if we have a recession, they're not defensive. But I think the dividend that we're getting out of them now is pretty robust. As I said, it's going to be hard for Australia to have a -- have a significant recession because the level of immigration growth we've got. So it keeps the economy going. As long as we don't have significant bad debt cycle, the banks can still keep paying what they've got right now. And they are incentivized to do it. They've got significant amounts of capital. They probably got excess capital. So you'll start to see that coming back to us. There'll be a time to switch. It's just not right now.

Now another question. Do you still have Ramsay Healthcare in the portfolio?

Yes, we do. Yes.

Are you aware that Mr. [indiscernible] I think, have an article on Livewire about shorting.

Where's Ramsay should have told me about that -- and I don't think so, but -- I think, he owns them, that's right...

That stock he was recommending should be shorted.

How long ago was that?

A few weeks.

Okay. I'm going to have to chat to him.

Maybe a couple of weeks.

Up on it. That's what Michael, we actually do own -- as a group, we own quite a bit of Ramsay across...

Because I know the price is low, but -- and I have read that it's sort of seen as a takeover target. So you still think it's a good investment.

I think -- not for the fact that it's to take over target, I think they've got a check in history in capital allocation overseas. And as I said to you earlier, before I remember, I mentioned that the Australian health care system is taking a lot longer to recover. Also is the same. There's less people going to have acute care. It's just taking a little bit longer. And then on top of that, you've got a health care worker shortage. So they're paying their wages are going significantly trying to attract people. So they've got a bit of a margin squeeze now. I think that the value of those assets. I think, the property assets are effectively on at cost, right? They own a lot of the sites, the hospitals are on the private hospitals, Ramsay does. They're in the process of selling a joint venture they have in Malaysia, Sam Darby, Hospital Group. Which if they get the price that's been rumored, they will deleverage their balance sheet quite significantly. So whenever they delever, the market will probably be quite positively disposed to that. We've also got other overseas assets. Our preference is if they exit 1 or 2 of those assets, and like go for a fortress balance sheet in that environment. And then if you've got a very clean balance sheet, we've -- they're not in overgeared, but if you delever those assets, we are starting to see an improvement in volumes in hospitals. And they're positive dispose of that. So I quite like Ramsay around these levels at the $50 level. I think there's significant upside. And you never know if -- it's one of the rare houseful groups that own their own land.

And a final question, I'm not sure if it should be addressed to you or the Board -- but -- so we're paying $5 million a year in management fees. Again, like as I pointed out last year, None of your analysts have after them global equities, right? Now your 2 major holdings, offshore holdings you had for 5 years, I think it is, later in the toll road. Since then, the manager has purchased Barrow Hanley, Trillium and Pendal, all of which specialize in obviously, international equities. So my question is, if we're paying $5 million a year in management fees. Why don't we have some dedicated people on that list? Or alternatively, do you -- are you in contact with these Barrow Hanley, Trillium, Pendal regarding ideas of how you invest the money.

Having dedicated analysts. Firstly, our process and philosophy is different to a lot of those offshore groups. Barrow Hanley is quite similar. They're a value manager from Texas. I've met quite a few of them. The perpetual method has been going for a long time, 40-plus years. I'll back any by analysts against the offshore analyst any day. And they -- our analysts, remember, in the process of doing their work on Australian stocks, they're always looking at overseas peers. As a part of their day job. And we give them free rein to basically, they see something overseas, which is quite interesting. To go cover because they will get paid for it if it works out, right? And I can tell you, most of the team are always doing that. So as I said, I'll back any of my team against any of those offshore guys. I'm sure they're going to say exactly the same about us.

I'm not criticizing your team -- what I'm saying is, so if you have say, if you've got a banking analyst on your team, and is an Australian banking analyst. You're going to be spending most of his time researching Australian banks. Not going to be researching Japanese banks or French banks or banks in Ireland, is he?

I do. I do look at them because I look at the -- because if you think about banks and let's say State Banks for example, it's quite a homogeneous product. So all you need to do is understand the regulation in those markets. And I do that look at it for comparisons.

But we're sort of like only we can have 35% in international equities. We've only got like, I think it was 11% I think from last -- I think the Australian dollars dropped about maybe 10% or 5% in the last 12 months. So you're now talking about investing overseas. But I mean, you're assuming the dollar is going to drop further or?

I don't try to make currency assumptions. That's a [indiscernible] feel. I'd rather think about the equity and what we're buying the company and the quality of it and the opportunity of that company. That will far outweigh, I think the selection of that company in the portfolio than -- I don't want to make a currency call. We think, we will always hedge the currency. Typically, I don't like trying to take a directional call on the currency, it's not my skill or our skill. We're equity investors and company -- we analyze companies. So I'll take your point, I still think that plenty of Australians have been able to manage money internationally from here. You talk about dedicated analysts, I agree. I'll go to the company and ask them for more resourcing.

And the only reason I'm asking these questions is because I was an original investor and one of the reasons I invested was because there was the ability to...

Go off-shore.

That part of the portfolio will be invested offshore.

Yes. And when COVID hit, we went to -- we actually asked to increase the offshore exposure with 25% to 35%, and we went to 33% pretty quickly. So there is -- we tend to -- as I said, we're patient, we wait for opportunities. So this is so much margin of safety in investing offshore, because you are taking a little bit more risk, because you're not -- I'm not saying you're not in the loop, but it is a slightly different market. They can have different idiosyncrasies about it. So I prefer to see a little bit more buffer, in the valuation arbitrage we have before we have a go and I remember, we put in like 6 or 7 stocks during 2020 in offshore because they all traded at 30% to 40% discounts. So that's what I prefer to look for rather than -- and as I said, our team are always looking for new ideas. It's they meant to bring companies. I mentioned the investment universe. They're looking to bring more companies in all the time. Our investment universe is not static. It's quite dynamic. There's things going in and out quite frequently.

Thank you. Do we have any other questions in the room? Yes, sir.

Chairman, I would like to introduce Paul Cohen.

It's just a quick question. You obviously pretty clear on Bapcor. I just want to, you gone for Bapcor. I want to say, [indiscernible] you do this vehicle accessory type businesses?

I quite like ILB, but it trades quite expensive for us. We've got a price on it. We're just waiting for it to get there one day. So I just got to be a bit patient because there's most -- eventually most companies will have an accident right? And something will go wrong and the stock will -- the market will just want to throw them out. And then we'll be waiting. We'd prefer to be more patient about those sort of names, paying up with a very high company with a very high multiple leaves you not a lot of wriggle room if something goes wrong because they will derate very quickly. Look, CSL up until 18 months ago was trading on 38x, 40x. As of today, it's trading on 23x--. And the earnings have grown, but the actual -- the value of the equity has declined on a multiple basis. So that's what can happen to you. The stock is pretty much done nothing for 4 years. So we just -- we like ARB, ARB, sorry and GUD sorry. We've looked at the [indiscernible] that we've owned it in the past. I just prefer the auto parts distribution business a bit better. They're more manufacturers, as you said, they're accessory companies. You've got to be careful because they're supply chain, they're into China or Vietnam and the less control over the supply chain, whereas with a distributor, you're just paying for the park, you can hold it in an inventory and you can put prices up because the market structure is cheapest the Repco and Bapcor, that dominate that part of the trade market. They're both pretty sensible. They push prices through pretty regularly. So they can always maintain their margins. So we prefer that part of the value chain.

Thanks, Vince. Do I have any other questions in the room? Okay. Karen, do we have any other questions online?

There are no questions online channel.

And Lin, do we have any other questions by phone?

There are no phone questions at this time.

Okay. Thank you very much. I'd like to thank Vince and Louise for the presentation and Karen is the facilitator.

Thank you. I will now move to the formal business of the AGM. The virtual meeting online guide was large for the ASX and published on PIC's website. It outlines the steps to enable shareholders to participate in the meeting. In terms of business, we have the following items to consider. Financial and statutory reports, for the financial year ended June 30, 2023, my reelection. The election of Michael Clarke as an independent Non-Executive Director. An advisory vote on the adoption of their remuneration report and for FY '23. And an increase in the Nonexecutive Director [ Rampoll ]. The item of business relating to the FY '23 financial statutory reports is not for voting, but for tabling and discussion. Further information about each of the items for consideration today is set out in the notice of meeting. I will take the notice of meeting as read. As described in the notice of meeting, proxy appointments were able to be lodged up to 48 hours before the meeting. Where I, as Chairman of the meeting, have been appointed as a shareholder's proxy or become their proxy by default, then I will vote director proxies as directed on the proxy appointment. And I will vote any available undirected proxies in favor of each resolution. If you are a proxy holder, then you would have received an e-mail, setting out instructions for you on how to vote these proxies using the voting mechanism on the online platform. Now bear with me, I have to tell you all the formalities for how to vote. If you're attending in person, I will now outline those procedures. We will be voting by a poll and not a show of hands. Simon Divendord of Link Market Services as the returning officer for the purpose of the poll. You will all have received a yellow voting card when you registered yesterday. They will be used to cash to vote. Once counted, the outcome will be announced to the ASX later this afternoon. If you are online, you may cast your vote at any time during the meeting, now that the poll is open. You may also change your vote at any point until I declare the poll closed. The poll is now open. [Voting]

The poll will remain open until 5 minutes after the end of today's meeting. At the conclusion of the AGM, you will see a red bar appear along the top of the online platform with a countdown timer of how long you have remaining to cast a vote. You must be logged into the online platform to cast a live vote. You cannot cast a vote over the phone. Shareholders online will be able to cast their vote using the electronic voting card received. To register to vote, click on the get a voting card button on the web page. The adjacent slide shows the page you need to access on the online platform to exercise your vote. Your voting card will appear with all the resolutions to be voted on by shareholders of the meeting. You may need to use your scroll down bar on the right-hand side of the voting card to view all resolutions. You will need to enter your SRN or HIN and your post code. If you appointed -- if you are appointed as a proxy, please enter the proxy number issued by Link Market Services in the proxy detail section, then click the submit details and vote button. Subject to any applicable voting restrictions, the Board recommends that shareholders vote in favor of each item. The voting restrictions for the resolutions are included in the notice of meeting. If you experience any difficulties in the online platform or you are unsure how to vote or ask questions, there is a help line number available, which is 1-800-990-363 within Australia. And which is displayed at the top of the web page. If you have not registered to vote, please do so now. The results of the voting will be known shortly after the AGM and advice to the ASX and posted on our website. I will introduce each resolution and there will be an opportunity to ask a question in the room or post written comments or questions. For shareholders in the room, if you wish to ask a question, when invited, please raise your hand, we'll have several roving microphones. A microphone attendant will be with you as soon as possible. We'll take your name, so they can introduce you. Please ensure you show them your yellow or blue attendance card. I said, bear with me. If you're online, for shareholders participating online, you do not need to wait until we get to that item of business to ask a question. In fact, we encourage you to start submitting your questions now. The adjacent slide shows the box on the platform that you need to click, to post a comment or question. Once you hit the ask a question option, the Ask a question box will pop up, and you can then submit your question. If your question concerns the FY '23 financial and statutory reports, please begin your question with this. Shareholders are only able to ask a question after you have registered to vote. The company secretary will read comments and questions to the meeting. The questions will be read out for verbatum, if you're on the phone. You can also participate by phone and ask a question by calling 1-800 416 518 to do so, you will need a unique pin obtained from late link. If you do not have a pin yet, please call a link on 1-800-990-363. The pin will allow the link in moderator to verify you as a security holder, and you will be able to ask a question. To ask a question, after the Chairman has invited questions on the particular resolution, please press star 1 on your keyboard. At the appropriate time, a moderator will introduce you to the meeting. Your line will be unmuted and you can start speaking. Following comments and questions, I will confirm the proxy votes received before the meeting. These will appear on the screen in the room and your computer screen beside the video feed. Each resolution before the meeting today is an ordinary resolution and will be passed by simple majority. We will first take questions from shareholders in the room, then shareholders who's in the online platform. and then take questions received over the phone. We will save asking each question until the relevant item of business. Okay. This is the presentation of the FY '23 financial and statutory reports. The first item of business is to receive and consider the financial report, the reports of the directors and of the auditor for the financial year-end June 30, 2023. The accounts were circulated as part of the Annual Report in August. They were also published on PIC's website on the day we announced our full year results. I now formally table the financial report, the directors' report and the auditor's report for the financial year ending June 30, 2023. There is no voting on this item, but shareholders will have an opportunity to ask questions and make comments on this item using the online platform. As I have previously mentioned, Karen Hopkins from KPMG is also available to answer shareholder questions on the conduct of the audit, the auditor's report, the company's accounting policy or the independence of the auditor. All questions to the auditor shall in the first instance, be addressed to me as Chairman. And if appropriate, I will ask Karen to address the question. Please note that we will focus specifically on the remuneration report later in the meeting, and we will be taking questions on that and other specific items of business, when we come to them. I note that no written questions for the auditor were received in advance of the AGM. I will now invite shareholders in the room, who would like to ask a question on this item of business, to make their way to 1 of the 3 microphones or the roving microphones, so please raise your hand. All those instructions, and you don't have a question. Sorry, we give everybody every opportunity. Thanks. Sylvie, do I have any written questions received during the meeting?

No Chairman, there are no questions.

Do we have any participants on the phone wishing to ask questions.

There are no phone questions at this time.

Thank you. It appears that there are no further questions on this item of business. We now move to the 4 resolutions, which do require voting. For each resolution, we will show you the proxies received prior to the meeting. The final number of votes, including the votes cast in person and through the online platform voting from today. Will be correlated after the meeting and released to the ASX. I wish to confirm that I am holding open proxies in my capacity as Chairman, and it's my intention to vote all available undirected proxies in favor of all resolutions. The first resolution of today's agenda is to consider my reelection as a director. I will, therefore, hand the meeting to the Chairman of our Nomination and Corporate Governance Committee, John Edstein, to chair this part of the meeting.

Thank you, Nancy, and good afternoon, shareholders and guests. Nancy Fox is currently the Chairman of the PIC Board. Nancy was first appointed as a Nonexecutive Director of PIC on the first of July 2017. And stood for election at the 2020 AGM. Nancy is currently a member of PIC's Nomination and Corporate Governance Committee and the Audit and Risk Committee. Nancy now stands for reelection. Details of Nancy's career are set out in the explanatory notes accompanying the notice of meeting. The Board, with Nancy abstaining, strongly supports Nancy's reelection. I would like to invite Nancy to provide a few comments with respect to her background and current commitments outside PIC. Nancy?

Thank you, John. I have been Chairman of PIC for the past 6 years and respectfully ask you for your support. I have been a Nonexecutive Director here in Australia for over 15 years. On an array of financial services and not-the-profit boards. My executive career was in financial services, capital markets and insurance across the United States, Asia and Australia. I continue to have the capacity, energy and time to serve on your Board. Currently, I am serving on 2 other Boards and tune off for profits. Thank you for your support today.

Thank you, Nancy. There were no written questions regarding this resolution received in advance of the AGM. I will now invite shareholders in the room, who would like to ask a question on this item of business to raise their hand. Doesn't appear if there's any questions there. I'll now respond to the online questions. Sylvie do we have any written questions received?

No, there's no questions, John.

Thanks, Sylvie. Do we have any participants on the phone wishing to ask questions.

There are no phone questions at this time.

Thank you. It appears that there are no further questions on this item of business. I note that the proxies received are displayed on the screen and also on the online platform, not currently displayed on the screen, the proxies received for this resolution 1 are as follows: Well, if you missed it, 4 is 20,977,093 against the 722,116 and abstain 522,978. Thank you. Please cast to vote on the resolution then now, if you're in the room, please cast your vote now. If you haven't already done so by selecting either 4 against or abstain for resolution 1 on your voting card or through the online platform. Thank you. Nancy, you may now resume chairing the meeting. [Voting]

Thank you, John. The second resolution on today's agenda is to consider the election of Michael Clarke as a Director. Michael was appointed to the Board on September 1, 2023, and being eligible now stands for election. Michael is a member of PIC's Nomination and Corporate Governance Committee and the Audit and Risk Committee. Details of Michael's career are set out in the explanatory notes accompanying the notice of meeting. The Board with Michael abstaining, strongly supports Michael's election. I would now like to ask Michael Clarke to provide a few comments with respect to his background and current commitments outside of PIC.

Thank you, Chair, for the introduction, and good afternoon, ladies and gentlemen. I'm delighted to stand before you today to seek election to the Board of PIC and standing before you as a fellow shareholder. And particularly to be elected as an independent nonexecutive director. By way of introduction, I've been fortunate to enjoy effectively 2 very different careers over the past 45 years, that have been instrumental in shaping my views and beliefs about what are the essential elements of achieving success and sustaining success in both business and Investment Management. While I recently concluded a corporate career in Funds Management. I spent the first 10 years of my working life, actually in the Royal Australian Navy as a weapons Engineering Officer. As such, my background and experience includes both Finance and Technology. Stating the obvious, life in the military is very different to our normal life, but teaches many valuable lessons. Among the most important for me was that success and possibly survival, depends not only on you the individual, but just as importantly on the team of people around you. A ship at sea is a close knit, very small world and relies on every member of a crew knowing and carrying out their assigned duty, while trusting their teammates to do the same. The key organizational ingredients required to achieve success are professional expertise in your job and commitment to shared beliefs and values. While this is a military perspective, what I've experienced in the business world is essentially very similar. It's the quality of the people around you that you trust and that you work with. That are who are viable to delivering the required goals and sustaining strong performance in any organization. My second career in Funds Management is covered in my biography, as Nancy mentioned, which is attached, so I won't labor the details. Suffice to say, I was fortunate to start at Macquarie Bank back in 1988, and I was there until 1997. I concluded my Fund Management or, if you like, full-time working career at Challenger Limited, where I've been for the last 10 years, 2013 to this current year 2023. During the intervening years, I spent time at Equity link. Goldman Sachs, JBWere, AMP Capital and Russell Investments. The focus in the first half of my Fund Management career was on managing money, primarily domestic bonds, equity and foreign exchange. A highlight was leading the investment team at the JBWere, that was awarded the Fund Manager of the year in Australian equities, both large and small capitalization in 2002. In the second half of my fund management career I concentrated on launching and building Fund Management businesses, both domestically and overseas. I was fortunate to have specialist experience in establishing and managing listed investment companies like PIC, both in Australia, but also in the United States and Canada. A whole lot while at AMP Capital was developing and launching the China growth fund, a listed investment company like PIC, which provided Australian investors with unique access to the domestic Chinese investment equity market. Well, first glance, again, this world looks very different to military life. Fast than anything is that the same ingredients are necessary for achieving and sustaining success. You want people committed to shared values and beliefs, who respect and trust each other's ability, working collaboratively to achieve outstanding results. To this end, I'm very excited for the opportunity to work with Nancy and my fellow directors, Amanda, Virginia and John and the entire Perpetual team. Perpetual has been a leading investor in the domestic and global equity markets for decades now, earning an enviable track record of delivering strong investment returns for their clients. In summary, I believe that I bring a diverse background, including expertise, in both funds management and technology, which will provide additional diversity of thought to the Board of PIC. My intention is to pursue only 1 or 2 other similar nonexecutive director roles to ensure that I have the appropriate time to focus on this opportunity or this role. I'm privileged and proud to be offered an opportunity to serve on this Board and to serve the company and you, as shareholders. Thank you.

Thank you, Michael. There are no written questions regarding the resolution received in advance. I will now invite shareholders in the room, who would like to ask a question on this item of business to raise their hand. I was waiting for somebody to ask Michael a chip he was on or something -- fascinating. So I'll now respond to any online questions if we have any...

There aren't any.

And Link, do we have any participants on the phone wishing to ask a question?

There are no phone questions at this time.

Thank you. It appears there are no further questions on this item of business. I note that the proxies received are as displayed on the screen. To vote on the resolution, please cast your vote now if you haven't already done so, by selecting either 4 against or abstain for resolution 2 on your voting card or through the online platform. I hope I have given you all enough time. [Voting]

Moving on to resolution 3. The next item of business is the advisory resolution to adopt the remuneration report. Through remuneration report forms part of the director's report and is included in the company's annual report for the financial year ended June 30, 2023. As you will note, the remuneration report contains the remuneration paid to the directors, who are the only key management personnel of PIC. The company has no paid employees. And accordingly, the 2023 remuneration report is simple and brief. If there were no written questions regarding this resolution received in advance of the AGM. I now invite shareholders in the room, who would like to ask a question to raise their hands. Doesn't look like there are any. Sylvie, do we have any written questions received during the meeting?

There are no written questions online, Chairman.

And Link, do we have any participants on the phone wishing to ask questions?

There are no fire questions at this time.

Okay. Thank you. It appears there are no further questions on this item of business. I note that the proxies received or as displayed on the screen. To vote on the resolution, please cast your vote now. If you haven't already done so, by selecting either for, against or abstain for resolution 3 on your voting card through the online platform. [Voting]

The next item of business is the increase in the nonexecutive director remuneration pool. Your Board believes that the proposed fee increase is a prudent step to provide additional capacity to enable orderly succession of nonexecutive director Non-Executive Director retirements and appointments including transitional periods, where there may be an overlap between directors' terms. While an increase in the nonexecutive director remuneration pool is being sought, it does not necessarily imply that the full amount will be utilized. The Non-Executive Director remuneration pool represents a maximum annual limit and does not necessarily indicate the total fees payable to nonexecutive directors, will increase to that threshold each year going forward. This is the first time that the REM cap is being raised, since the company was established in 2014. There were no written questions regarding the resolution received in advance of the AGM. I will now invite shareholders in the room. I'd like to ask a question to raise their hands. Sylvie, do we have any questions online?

No Chairman. There's no questions.

Link do you have any questions on the phone?

There are no phone questions at this time.

Thank you. It appears there are no further questions on this item of business. I note that the proxies received are as displayed on the screen. I will now take questions received on any other business or before the meeting. For fairness to all present. I ask that you limit your questions to 2 questions or comments at a time. Sylvie, please let me know if we have received any further questions.

No, there's no questions, Chairman.

I think I skipped to people in the room. I'm so sorry. Does anybody in the room have any further questions? No. Thank you. I now ask Link to advise if there are any further questions from shareholders on the phone.

There are no phone questions at this time.

Thank you. I now ask you to ensure that you complete your voting for each resolution. Link staff will now come around and collect your voting cards to be placed in the ballot boxes. For the shareholders online, if you are uncertain about any of the voting procedures, please use the help line number available to the platform. Voting on all polls will close 5 minutes after I close this meeting. The results of the poll will be announced via the ASX, later this afternoon and will be made available on the AGM section of PIC's website. There being no other business, I declare this meeting closed. And thank you for your ongoing support and your attendance today. I invite those present with us in person to join us, the directors and members from management for some refreshments, which will be served just outside the entrance to this room. Thank you very much.