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

Good morning, and it's great to see so many familiar faces in the room. I think this is my eighth AGM that I'm chairing for PIC. So time flies. You've all watched me get old. Welcome to the 2025 Annual General Meeting for Perpetual Equity Investment Company Limited, which going forward, I will refer to as PIC or the company. I am Nancy Fox, and it's a privilege to be the Chairman of the PIC Board and to chair today's meeting. It is 10 a.m. in Sydney. And as I have been advised that a quorum is present, I declare the 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 respects 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. I welcome our shareholders, proxyholders and guests. It's great to see you in person, and we are pleased this hybrid format continues to provide an opportunity for shareholders to participate regardless of their geographic location. I'd like to take this opportunity to introduce to you those who are present with me today. Seated at the main table, I am joined by our Company Secretary, Sylvie Dimarco; Amanda Gillespie, our Executive Director; Virginia Malley, an Independent Non-Executive Director and Chair of our Audit and Risk Committee; and Tim Bednall, an Independent Non-Executive Director and Chairman of the Nomination and Corporate Governance Committee. Michael Clarke, an Independent Non-Executive Director, could not be with us today in person, but he is online from the United States. In the room, we also have Karen Hopkins from KPMG, who is the company's auditor. Karen is available to answer any questions that shareholders may have in relation to the financial year 2025 financial statements and the auditor's independence. Before we move on to the formal part of the AGM, on behalf of the Board, I wish to share some of my observations on PIC's activities and performance this year, which have already been released to the market. Following that, I will ask PIC's portfolio managers, Vince Pezzullo and Sean Roger and equities analyst, Nick Buisman, to deliver the investment manager update. I'd like to begin by acknowledging our fellow long-standing shareholders and welcoming our new shareholders that joined us this year. Thank you all for your support of PIC. Starting with our results. In August, we reported a net profit after tax of $21.7 million, a decrease compared to the previous year, primarily due to softer overall investment performance for the year. PIC's performance for the 12 months to June 30, 2025, was 6.5%. While this was below its benchmark for the year, the PIC portfolio has continued to perform well over the longer term, returning 12.1% per annum over 5 years, outperforming the benchmark by 0.3% per annum. The Board declared a fully franked final dividend of $0.04 per share, bringing the FY '25 full year dividend to $0.08 per share. This is consistent with last year's dividend payment as the highest since the company's inception and equates to an annual dividend yield of 6.6% and grossed-up dividend yield of 9.4%. This compares favorably to the trailing 12-month dividend yield of the S&P ASX 300 Accumulation Index, which was 3.2% as at June 30, 2025. Shareholders that have been with us since we listed or when we paid our first dividend in August 2015 would have benefited from a total of $0.618 per share in dividends, which equates to a total of $214.2 million in dividend payments. The Board has remained focused on the management of shareholder capital to ensure that the company remains strong. The approach has enabled the Board to declare consistent fully franked dividend payments since the company's inception as well as building a healthy profit reserve and franking account. After the payment of the final dividend, the profit reserve for the company sits at $67.8 million, which provides for 2.2 years dividend coverage, assuming a total dividend of $0.08 per share per annum. The company's franking account balance is $9.2 million and provides for a 0.7 of a year of fully franked dividend coverage. Notably, this does not include any additional franking credits that may be generated during the year, and we're doing well in that respect. PIC is designed to deliver a reliable income stream as demonstrated by our proven track record over the past decade. This makes it an excellent choice for retirees and investors seeking consistent income. Moving to some Board changes. I wish to highlight the changes to our PIC Board. Firstly, I would like to acknowledge PIC's long-standing director, John Edstein. John retired from his position as Director in May this year after more than 10 years of valuable service to the Company. John is present online today, and on behalf of the Board and shareholders, I extend our sincere thanks for his contribution. John’s extensive expertise in Investment management and as a legal practitioner has greatly benefitted the Company. Secondly, the Board appointed Tim Bednall as an Independent Non Executive-Director effective May 7, 2025. Tim has replaced John as the Chairman of the company's Nomination and Corporate Governance Committee. We welcome Tim to his first PIC AGM. Tim will be seeking election under Resolution 2 of this meeting, and you will hear from him directly. Lastly, Virginia Malley, who was first appointed on August 25, 2014, will retire from the Board effective November 6, 2025. Virginia reached the end of her third 3-year term, but shareholders extended her tenure for an additional year at the 2024 AGM, given her role in the negotiation of the new management agreement with Perpetual Investment Management Limited. In anticipation of her retirement, we bid farewell and thank Virginia for bringing over 30 years of experience in financial services and environmental markets and for her leadership in governance, risk management and regulatory compliance, all of which she has brought to the company. Upon her retirement, Virginia will not be directly replaced by the Board. Instead, Michael Clarke will step into her role as Chair of the Audit and Risk Committee. The Board will be reduced from 5 to 4 directors, which will result in a decrease in costs, particularly directors' remuneration. Importantly, this change will not materially impact our Board's breadth of skills or experience. These transitions reflect our commitment to strong governance and the continued stewardship of the company's future. Looking ahead, the Board is focused on growing the company and shareholder numbers. The Board consistently monitors where the share price is trading, relative to the net tangible assets or NTA of the company. We are pleased to see the share price discount to NTA narrow over the past year and more recently. As at October 15, 2025, PIC's share price is trading at a 3.14% discount to NTA pretax. We remain focused on trading at NTA or above. This will be achieved through strong performance and delivering an attractive and sustainable income stream for shareholders. We will continue to keep shareholders and the market well informed of our progress. On behalf of the Board, I would like to thank you for your continued support of PIC. We believe the company is well positioned for growth and to continue to provide a steady stream of fully franked dividends. Please stay informed by visiting the company's website for a range of resources and other insights. Now before I hand over to the investment team, which I know many of you come here only to hear my investment team, I note that we will be taking questions after the investment manager update. On screen now are instructions on how to submit questions online and over the phone. You can submit a question at any time during the update. It will be addressed at the end of the questions. We have also had several preregistered questions submitted. If you are present in the room and wish to ask a question, please raise your hand, and we will have several roving microphones around the room. A microphone attendant will be with you as soon as possible. We'll take your name so that they can introduce you. Only shareholders and proxyholders may ask questions relating to the AGM resolutions. These will be addressed later in the meeting. I will now hand over to our investment team. Thanks, Vince.

Good morning, everyone. Today, I thought we'd start with just a brief macroeconomic viewpoint from our view at least and then provide a bit of a summary as to post reporting season and what we're starting to see and also what we're starting to see is quite prevalent in the market and the market dynamics. Then I'll hand over to Sean and Nick, who will run through a couple of the positions that are in your portfolio, and I'll provide a brief summary of performance afterwards. So as it stands today, we're in an age of fiscal dominance. What does that mean? It means if you look at post-GFC, I think everyone may remember the words austerity being mentioned every day, tightening of belts, et cetera. All governments were forced to do it post the GFC, which led to very low economic growth, but also we had negative real rates, very accommodative monetary policy at that time. So we had 0 cash rates, et cetera, or very low. But today, post-COVID, we're in a world where it's the reverse. We're in an age of fiscal dominance, which means most governments are running significant fiscal deficits to try and answer for a post-COVID world. That's important because if you're running with significant fiscal deficits, and we're exiting a period during COVID with very high average inflation. So inflation went to very high levels, and it seems to be, particularly when governments are spending so aggressively, you're going to run with a hotter economy. And with a hotter economy, and I think from yesterday's announcement with the Australian CPI at 1% versus the expectation of 0.8%, we are running with a hotter economy and higher costs. And that means that monetary policy is going to be less accommodative while governments are still spending on planning, maintaining high fiscal deficits. What does that mean? So if you're running with significantly higher deficits, you're going to have a hotter economy and you may have a few more accidents in the economy because of it because those that rely on a very low borrowing rates will find it more difficult, unfortunately. But what you have is you'll have a change in the economy where housing will be a bit weaker because of it. And industrialization will probably be a bit stronger because that's -- if you compare Australia's version of fiscal deficit spending versus the U.S., it's slightly different. With the U.S., it's very trade protected that focusing on protecting certain industries within the country. Tax cuts, obviously pretty significant tax cuts in the U.S. as well. So they're running their economy hot because of when you're running at 120% of debt to GDP, you need to pay off the debt one way. And the way you do it, the easiest way to do it is to inflate your way out of the problem. And that's where we are. So the U.S. is very focused on growing the industrial base of the U.S. and passing tax cuts on to the man on the street. Australia is slightly different. We're using transfer payments via the welfare system as a significant one and also some assistance to certain industries. So when you have that sort of set up, we're going to be running with a higher average inflation rate for a period. So that sort of informs the way we think about our portfolio as well. Traditionally, when things start to slow, when you have governments driving economic growth rather than the private sector, at some point, the private sector is going to be the buffer. So the private sector will slow a bit on the back of it because if you have governments, which are very price insensitive, okay? If they want a project done, they'll finish it at any cost. And usually, any cost is what usually happens. You'll have this period of very high inflation. That's why we're talking about the private sector, which tends to a little bit a bit more efficient. If projects returns aren't up, they can't -- they don't stack up, they won't progress or they'll slow things down or not progressive projects. And so you'll have a bit of a capital strike in the private sector. And that's started -- you're starting to see that happen now. So for us as portfolio managers, the things we focus on are trying to tilt the portfolio to protect the downside, more importantly, and position ourselves where we think there are opportunities, where there is a bit of growth or where the equity is significantly mispriced. Those opportunities still exist. But where we are today in the market, though, is the market is full of hope at the moment because there's an expectation of rate cuts while the government is spending at the same time. That is very much Goldilocks. And I don't think we can. It's very difficult for that to happen. So if you look at the slides here, the last several months or the last 12 months, the ASX 300 has had a very strong period of at least 11% and small caps have done at least 21%. That's pretty good. Unfortunately, underlying though, when you look at what's happened with earnings, in the last 3 months in particular, you've had downgrades across most of the industrial sector. And what we've had is the market's multiple purely expanded. So the PE of the market has been going up. So it's all -- which is what that is, is the market is saying, I'm willing to pay more today because we think tomorrow is going to be better. And that's what the market is doing today. That's very dangerous because you need a few things to go right when you start paying very high prices or high multiples, sorry, because if one of those expectations misses, you can get things like what happened yesterday where the market sold off a bit, and you had quite a bit of rotation in the market where banks got hit, a lot some of the retailers got hit and the resources actually outperformed. Now that's one sector where we can talk about in the last 2 months, and we have been positioned for this in the PIC. We've got very high resource exposure at the moment is that not just gold, is that resources are now starting to get earnings upgrades more recently because the market was so negative on resource prices, they pushed it to such a level, they ignored what was actually being -- what was happening in the economy. So resource prices staying a lot higher than they expected. So we've been tilting towards resources for the last several months. So we're in a market environment where there's a lot of hope in the street. We tend to be a little bit more defensive about it and positioning away from that. So when you look at the comparison, so NVIDIA, which everyone knows about, I think it hit $5 trillion today, market cap. It's on about 27, 28x earnings, but it's growing its earnings at least 25% to 30% a year. So you're sort of getting paid for that a bit. If you add CBA and Wesfarmers together, which is about 15% of our market, CBA trades on 29x and Wesfarmers 37x, they're going to grow maybe mid-single digit if they're lucky. right? And two of them are very sensitive to the cycle. So NVIDIA is vilified for being a very expensive company, et cetera. They are sort of delivering on it. Now I don't believe it should be worth that much, but that's another thing. I'm not a tech investor, not a very good one anyway. So we're looking at an environment where things are a bit tough. Now one aspect that we always keep an eye out for are milestones or signposts in the market. And one of those is since 2000, if you bought profitless companies, and as you know, our style is the 4 quality filters, we don't invest in companies that don't generate a profit. That's one of them. Good balance sheets, good management and good industries is the other 3. Now since then, you've lost 24% investing in profitless companies for 25, 26 years. The last 6 months, you've had the profitless sector companies up 30%. Now we won't invest in those. And that's why we've been -- we've lagged a bit. We won't touch those names because the reason we have those quality filters is it keeps us out of trouble because history has always suggested that profitless companies never tend to turn a profit. You need a bit of a miracle sometimes. So for that, also when you look at the sell side, like in the last several decades, the number of companies that can grow their earnings 10% a year for 3 years is small, very small. The markets are basically saying 44 companies are going to do it. So the market is pretty much dealing with hopium again as well as a strategy. We feel it's a bit dangerous to do that. So we're sort of bumping down parts of the portfolio and sort of ignoring these elements, which completely go against the quality and value style of portfolio we try to build. I'll hand over to Sean next. He's going to go through some elements of the market that we haven't have to discuss as well.

Yes. Thanks, Vince. Just I guess, running on the back of what Vince mentioned, there just one other, I guess, sort of important market dynamic that I think is driving markets, both in Australia and in the U.S. and is pertinent to how we're sort of setting up the portfolio. I want to touch on was just the momentum factor that's sort of driving markets and creating extreme dispersion under the overall sort of index returns. As Vince mentioned, index broadly in Australia and the U.S. have been very strong over the last 12 months. But if you look below that, you've had this really weird dispersion between companies that have done extremely well and companies that have, I guess, been at the other end of the spectrum. And what I mean by momentum when we talk about momentum is if you look at companies that are either large cap companies that have got really stable earnings or companies that have recently upgraded their earnings or have got a positive earnings outlook, they're attracting a lot of money and shareholder flow. And I guess the shift from active to passive is playing a role in this as well. But it's almost irrespective of the price, those companies are continuing to be bought. And I guess the other examples in Australia, Vince mentioned before, but CBA and Wesfarmers, their multiples have just continued to increase where they're both now trading at a less than 3% dividend yield, which we think is quite extreme for the level of earnings growth that they're delivering. In the growth sector, you've got companies like Hub, which has obviously been a fantastic success story over the last sort of 5, 6 years. But if you look at the earnings multiples that you're being forced to pay to get access to that growth, it's on 75x 1-year forward PE multiple, which is a very, very high multiple to pay on current earnings and you're pricing in a lot of future certainty down the track. So that's at one end of the spectrum where momentum is buying those companies up to, I guess, prices that are almost irrespective of valuation. But in the same market, you've got any company that's had a recent earnings downgrade or has got a lot of uncertainty about its earnings over the next 12 months is being sold at almost any price. So a few of the, I guess, market darlings that have fallen into this camp have been CSL has obviously been one more recently where there's been some earnings downgrades and that's had a very significant share price for companies like Domino's, Treasury Wine, Endeavour. These are all names that a lot of people know and they have been great success stories in the past. But because there's been some near-term earnings uncertainty, their trading multiples and valuations have more than halved in some cases. So it's that, I guess, momentum factor that's creating this real gap between the winners and the losers. And as fundamental, I guess, quality and value investors, that does create a bit of a tricky environment where valuation has taken a back seat as being replaced by what's happening in the short-term earnings. But it does also create some really interesting opportunities where if you -- if we can run our analysis and find that some of these companies have been left behind that are trading on very cheap valuations, if we can take a view that some of the impacts of their earnings are actually quite short term in nature and will resolve and improve, there's a lot of money to be made there if we can pick the right one. So that's where we're spending a lot of the time in the portfolio. In terms of, I guess, how we are setting up the portfolio in the current environment, as Vince mentioned before, the top end of the Australian market does look very expensive to us and valuation is a key part of our process. So we have been rotating, I guess, the portfolio away from the top end of the, particularly in that -- the financials and large-cap industrials. So we've increased the weighting towards small caps in the portfolio because we see better value opportunities there. Small caps did lag the large cap indices in Australia for a number of years. We've seen that reverse a little bit over the last 12 months, but there's still a very wide valuation gap. So we've been increasing the exposure there. We're also seeing better value internationally in certain pockets. And obviously, the fund flexibility, the PIC has the flexibility to go offshore, and we've been increasingly using that to gain some -- a few sort of high-quality cyclical names offshore. We'll touch on one -- I'll run through one of them later. But again, seeing some increasing exposure there. And Vince mentioned before as well, that we have been positioning the portfolio towards the resource sector over the last 6 months, but particularly so over the last couple. I think the demand backdrop for resources has continued to improve over the last 6 months. You've had a bit of stabilization in China, but you've also had, I guess, some trends in the Western world with electrification and some of the new data center construction projects that have strengthened the demand side. And in some of the commodities like copper, you've had a few supply issues, which have really tightened up that sort of environment. So if you put all that together, I think the portfolio, we've got the breakdown there, but it is very underweight, the top 50 of the ASX because we just don't see the value there. And as a result of that, it does look quite different to the index, but we've got it set up in a way that we've got complete focus on that downside protection and always be disciplined on value and quality. I'll just sort of move on then. As mentioned before, we're going to touch on a couple of stocks in the portfolio. So I'll touch on one, and then we've got Nick, who'll come up and touch on another. The first company I'm going to talk about is a company called Howden Joinery, which is part of our international sleeve. And it's a company that's listed in the United Kingdom. It's a distributor and manufacturer of prefabricated kitchens and joinery products solely to the trades that don't sell to consumers. We've owned Howden in the portfolio for a bit over 2 years now. It's been a decent performer for the fund. But I think, I guess, our thesis, which I'll run through in a second, is still yet to play out, and it's about 3.9% of the portfolio today. So in terms of, I guess, what we like about Howden Joinery, firstly, its business model is something that we're really attracted to. It's the combination of being vertically integrated, so they manufacture about 40% of the products that they sell. And that means that because they're a big scale business, they can offer the products to their consumers at a cheaper rate than their competitors, a lot of which source through third parties. You combine that with what I'll call it a decentralized depot model. That's the way they sell the product to their customers. And the way that they incentivize their staff is they've got depot managers who all get a share of the profits of each of those depots. And what that creates is a real entrepreneurial culture within the business where each of those depot managers treats that depot as their own business. And as a result of that, you get really high service quality and overall sort of business product quality that it's offered to the consumer. The business is very, very service focused. So they only sell product to the trade to the people that are installing the kitchens, and they've got a model where they aim to be always in stock. They make the product very easy to install for the builders and offer builders attractive terms so the builders themselves can make money out of selling the product. And what this creates is you've essentially got a trade force that acts as the marketing arm for your business, where they enjoy installing the product, it can make really good money out of it. The final thing I'd say is they've got a really, really strong focus on new product development. So if you look through any of their sort of results, you'll see that they continuously refresh their product, both in terms of colors and different sorts of kitchens, which is really important from a competitive perspective. Now if you wrap all that together, what, I guess it means that for the consumer, Howden is able to offer a really high-quality kitchen product at a really cheap and value price relative to their competitors, but do that at a time where they can still deliver very attractive margins and financial outcomes for shareholders. And if you look at the track record of the business, it proves that from a standing start about 25 years ago, the company has taken an enormous amount of market share and is now the very dominant player in that U.K. kitchen market, particularly in the trade part, but it's done it in a way that's been very rewarding for shareholders. The financial returns have been outstanding over a very long period of time. In terms of what we look for in -- I guess, across our broad quality fields, it ticks all the boxes. It's got a high-quality management team. It's got a net cash balance sheet, which we think is extremely important in a cyclical company. And it's also got a management team that's proven to invest for the long term and make good long-term decisions. In terms of how we first came to invest in Howden, obviously, being a kitchen manufacturer and distributor, it is exposed to overall kitchen volumes and what's happening in the residential sector. And in 2022, 2023 in the U.K., not dissimilar to Australia, you did have some weakness in the market as interest rates started to increase and Howden's earnings as a result of that came under a bit of pressure as did their share price. For us, that created a really interesting opportunity to buy into what we consider to be a high-quality company that can grow over time at an attractive valuation. Since then, what you can see in the chart on the right is the kitchen market has continued to weaken further in the U.K., which has challenged the investment thesis a little bit. But pleasingly, the company has been able to continue to hold their sort of earnings and profits at a stable level during that period through taking a lot of market share. If we look at where we are today, we think we're about 20% below what we consider to be sort of an average year for kitchen volumes. So for us, that's quite interesting because we feel like we're sort of capitalizing a very low point in the cycle in terms of Howden's earnings. In terms of, I guess, why our conviction in the investment has strengthened over the past couple of years, one of the things we look for in cyclical companies that are going through a downturn is that the companies invest through that downturn. And what that ultimately leads to is that the company comes out the other side of that cycle in a stronger position. And what we've seen with Howden is they've put the foot down during this sort of depressed couple of years through increasing their manufacturing capacity. They've continued to roll out depots, as you can see in that bottom chart and continue to invest in new product development. At the same time as a couple of the big competitors have actually been shutting depots and pulling back out of the market. And the result of that is despite some of those investments putting pressure on short-term earnings, the company has taken a very significant amount of market share over the last couple of years. And it's not apparent when you look at the short-term financials that they have been taking that market share, but we ultimately believe that when the cycle does start to improve, the market is going to be surprised at just how much upside there is from an earnings perspective as that the leverage comes through. I won't go through the numbers in too much detail, but the table on the bottom there just highlights our estimates and our assumptions of what the earnings power of the business is if we return to a sort of average cycle. And as the numbers show that, we see quite material sort of upside from an earnings and a valuation perspective from where we are today. So in terms of summarizing, I guess, the investment thesis, we think the business is very high quality and has sustainable competitive advantages through its culture and its business model. And we think the current sort of price and where we are in the cycle is quite interesting and is masking what's really going on in the market, which is Howden taking a lot of share over its competitors. So that's out, and I'll pass over to Nick to run through our second store.

Thanks, Sean, and good morning, everyone. So yes, today, I'm going to be stepping you through Aspen Group, who are a leading provider of affordable accommodation solutions into the Australian market. They do this through a combination of straight residential leases, so I think townhouses and units through developing and operating land lease communities and through a mix of tourism style assets. So Aspen has been the best-performing stock in the portfolio over the last 12 months or so, and it's one where we continue to be happy holders today. So I thought I'd just set the scene with a couple of points on, I guess, why we're attracted to the business. So firstly, it's really uniquely positioned in what is an underserved market. So most people in the room will be well aware of the housing shortage issues across Australia today, but something that's probably not as well understood is just the acute undersupply of housing at the affordable end of the market. So less than 10% of the rental stock in Australia today is available at rents that the bottom 40% of households by income can actually afford to pay. And this is the corner of the market that Aspen have positioned themselves to play in, and that's helping lower-income households. Solve for accessible housing. So they do this through offering rental accommodation at below $400 a week and by developing and selling houses for less than $500,000. And those are metrics that competitors struggle to match them on. Secondly, the portfolio of assets skews to attractive markets with really favorable dynamics. So take WA, for example, which is about 40% of the portfolio or book value. That's a market where the rental vacancy rate in Perth currently is sitting at about 0.5%, making it the second hardest city anywhere in Australia to find a rental accommodation. Just for context, Melbourne's vacancy rate sits at about 1.8% and a 3% rate is considered healthy or reflective of a balanced demand-supply environment. Thirdly, we rate the management team really highly. So David and John are very seasoned campaigners with a demonstrated track record of value creation for shareholders. And there's a clear alignment of interest through their combined 4% equity ownership and through the internal management structure. And lastly, they've got a land bank of roughly 2,200 sites, which gives them about 10 years of runway in the development business and a conservatively geared balance sheet that gives them optionality around future M&A. So just turning over this morning, we thought we'd showcase an asset that they acquired earlier this year as it really clearly demonstrates, I guess, their model and how it allows them to approach opportunities differently to competitors. And then also, I guess, the mix of built form residential offerings that they can provide on a single site, but more importantly, how Aspen creates value through picking up assets cheaply and then deploying capital in a measured way. So Australand was acquired in May this year for $32.5 million. It's located in Bunbury, which is WA's second largest city. It's about 2 hours drive south of Perth CBD. The vendor was U.S.-based lithium giant Albemarle, who spent in the order of $95 million developing a high-quality worker accommodation camp for their Kemerton lithium expansion project. That lithium project ultimately didn't progress due to the sustained downturn in the lithium market through '23 and '24. So Aspen was able to acquire Australand at a pretty significant discount. They paid about $0.30 on the dollar, and that was really down to the site's unique assets and the characteristics of the site, which meant it wasn't a neat fit for a traditional resi developer or a land lease operator. And Aspen, with its flexible model was able to come in and capitalize on a motivated seller. So I thought I'd just step through some general numbers just to show how, I guess, they create value or think about creating value on a site like this. So there's a 10-hectare plot of land, which is undeveloped with partial earthworks and civils that were invested by the previous owner. Aspen is in the planning phases with the city of Bunbury to develop 250 land lots houses on that site. So they'll invest additional capital in civils and then they'll build a house on each site. They'll then sell the house and charge the new owner a weekly land rent under a land lease model. And we estimate that Aspen can generate development profits of about $33 million on sale of those houses. So they can effectively realize their initial capital investment for the entire asset from that one portion of land alone. And on top of that, they will have created a rental income stream through the $200 per week land rent that they charge. That will generate in the order of $1.7 million a year in rental income. On top of this, there's 97 brand-new modular or transportable units where Aspen's recently received development approval to convert these units into 2-bedroom dwellings. And we estimate that once these have been reconfigured by Aspen, they'll be able to charge somewhere around $400 a week, generating a further $1.3 million per annum in rental income. So from these 2 initiatives, we see a clear pathway for them to create $33 million in development profits, which is releasing their initial capital outlay, which can be recycled into future opportunities. And they'll be left with a rental income stream of around $3 million per annum. So they've created significant value for shareholders. So just wrapping this up on the next slide. The chart on the left demonstrates or illustrates pretty clearly how projects such as Australand have led the company to deliver outstanding financial outcomes and returns for shareholders, and that's something that we expect to continue. And Aspen remains a core holding in the portfolio today, where we see continued organic growth, which is underpinned by that land bank of 2,200 lots that have been acquired at very attractive prices. So thank you, and I'll hand back to Vince.

Thanks, Sean and Nick. As you can see in the portfolio, there's a wide variety of type of positions we own. Because we're not tethered to the index, we scale the world basically as well as domestically for businesses where we think you're getting paid to own the company because they're under-owned, underresearched. And when you meet management, that usually is a good indicator that you're on to something quite special. And Australia -- I mean, sorry, -- Aspen is one of those cases. When we met John Carter and Dave Dickson, you sit within the room, they're not your traditional property brokers, they're very conservative. They've got a lot of their own wealth tied up in the business, and that's -- they're the sort of odd we like to look for when we're considering an investment. So moving on to performance. It has been a difficult last 12 months. I think we highlighted that the market conditions for us is not one to chase when we're seeing behavior, which is quite risk-seeking and the market is looking for opportunities to put money into businesses, which we feel may see the light of day and some that may not. And we're not willing to risk our investors' capital on those sort of ideas. We prefer to own Howdens and Aspen and those sort of businesses, which are a little bit more -- it's underresearch, as I said, but they're a little bit more in our wheelhouse as to forecastable. We can assess the risk, and we're happy to own that risk going forward. So we don't expect that these conditions last particularly long, but we're not going to assume that. We're going to assume to build the portfolio up with what we see as high-quality businesses right now. And we will never -- we won't change our methodology or process due to a short-term performance problem. That's not our style. I think it's very dangerous for an investment manager to change their philosophy midstream just because of short-term performance. Our history says that, that never works. And we're stuck to our knitting on this going way back several decades. So that's not going to change in this portfolio. So we can see opportunities though. We quite like markets when they get this frothy is that we know that -- not too sure when, but there's usually an opportunity around the corner. And given the style of the PIC in particular, we've got so much flexibility, we can go either deploy further offshore or domestically. Right now, if conditions stay where they are, I suspect we'll be continuing to deploy offshore because I think we'll see more opportunities offshore anyway. There is more breadth versus what we consider to be, as you can tell by our exposures, very underweight in the top 50. At the moment, we see is you're paying a lot for certainty, whereas right now, you're not paying a lot for a bit of risk in some of these more cyclical businesses or businesses that have stubbed their toe a little bit. They're a high-quality business that stub their toe. So we're quite excited by the fact that we're -- like yesterday was a perfect example, market starting to get a little bit nervous about certain models, and that plays right into our wheelhouse. So we'll be patient. We're not going to rush into trying to chase the market. We're happy to use our cash to exit positions we feel are too expensive and wait for better opportunities. So thank you for listening to the investment management update. I'll hand back to Nancy for -- I think we're going straight to Q&A. I'll invite Sean back up to stage. Thank you.

So thanks Vince, Sean and Nick, it's great to see succession planning and what we're doing here with the -- used to only see Vince's presentations. So we'll now answer any questions received from shareholders or interested parties on the investment manager update. A reminder that any questions related to the AGM resolutions will be addressed later in the meeting. The order in which we will answer questions will be preregistered questions first, followed by questions in the room, then questions online and then finally, questions over the phone. Whilst preregistered questions are being answered, I request that those present in the room wishing to ask a question, raise your hand, provide your name and the microphone attendant will come to you. First, Sylvie, are there any preregistered questions?

The first question is from Peter S. I would like Vince's or Sean's thoughts on the future of Australian gas supply and if time allowing, also their thoughts on the update of electric cars and renewables within Australia.

I recently read an article that every $100 worth of gas that goes out of Australia, Australia gets $10 and Australian manufacturers are really struggling to be competitive because of their energy costs. And I'd just like to get your thoughts on that sort of industry. And secondly, the uptake of electric cars, what are your views on Australians buying electric cars and the associated industries that will service and not necessarily manufacture, but sort of related to electric cars on the road.

Thanks for your question. On the gas question, Australia pretty much exports 5x as much as we consume in gas by LNG. The gas shortages we have is we've got a lot of international contracts that are secured against these LNG schemes, mostly on the East Coast, obviously, a fair amount on the East Coast. So breaking those contracts is quite dangerous in the sense of just country risk and ability for us to attract further capital going forward because we do import capital. So it's a bit hard to break those contracts. The coupled with that is a regulatory environment, which is not pro drilling of gas or opening up new reserves, which we do have. So we're caught in a bit of a catch '22 that we want to hit these targets. The problem we've got is, I think renewables now make up 30% of the power gen of the country, intermittent power, more importantly, to note, which means we still need firming capacity. And it's either going to be hydro, gas and batteries, a combination of that. But even with that, I suspect the coal burner is going to be run for a lot longer than we expect. Because if you take those out, the economics on the wind farms, et cetera, is not great, even with some government underwriting of capacity. So money follows returns in the end of the day, if you rely on the private sector. So we're in a tough position. I think the -- if you look offshore and you look at other countries that have tried doing the transition pretty quick, it's worked to the detriment of the local industry. If you look at Europe, especially in Germany particular. I think we have to be a little bit more nuanced about it and not charging to it because there are real costs if you go too hard because it affects, as you said, domestic industry. Mark, the CEO of BlueScope is very outward in his criticism of the fact that we are exporting so much gas and the domestic industry is paying significantly higher prices. So as I said, you need quite a nuanced response. That's a King Salmon question, I suspect. But the way we think about it is you mentioned about electric vehicles and how you can maybe monetize that in the portfolio. No real direct industries in Australia. The only other one, which we've invested in a couple of other funds is AP Eagers, which has a relationship with BYD is one of the growing Chinese vehicle brand in Australia. And they've been able to monetize that particularly well. It's a bit harder, I suspect outside of the mining assets, you could think of. We're more into rare earths at the moment rather than lithium, but we also have quite a big exposure to copper. And maybe, Sean, you might want to comment about the resource exposure.

Yes. I think just electric vehicle uptake in Australia is starting to accelerate with some of the government subsidies and I guess, fuel emission schemes. I think some of the things we're thinking about is the limitations around the ability to service and having service set up for electric vehicles, but also charging infrastructure is a big question mark in terms of how fast that can go. So there are sectors like some of the service station companies like Ampol and Viva that have traditional service stations, but they'll probably play a big role moving forward in terms of having fast chargers there and understanding the economics of how that change impacts their business model, something we're spending a lot of time. I think it's -- international examples will show that you can still have quite a profitable shop on a service station with electric vehicles, but that's something we're spending a lot of focus on. And then as Vince said, yes, lithium for us, we don't have an exposure to at the moment. I think as I mentioned before, copper on the demand side with electrification and some of the other sort of big investment programs going on like data centers, the demand side is quite strong, but the supply side is really challenging where it's very, very difficult to bring on new copper mines, and there are very few of them coming online. At the same time, the existing mines grade supply -- grade and supply continues to have challenges. So you've got a really tight market there, whereas when we look at lithium, I think demand side is pretty strong, but there's just not as much of a supply side constraint in something like lithium versus copper, which is why we've got the copper exposure in the portfolio.

Sylvie, are there any other preregistered questions, then I'll come to you, okay?

Yes, Chairman. The second question is from Philip Short. I'm interested about the prospect of further capital raisings to grow the investment pool.

Thanks, Philip. The Board looks at capital raisings at every Board meeting. You might remember in 2018, we raised $101 million in the capital raising. And then later in 2021, we did an additional $30 million with a share purchase plan. The conditions have to be right. So we're looking at the market. We're looking at where the investor appetite is, and we're also looking at where our NTA is. Fortunately, our NTA -- the share price has narrowed. So it's something that we look at every meeting. So watch this space. We're alive to it. Other question?

Yes, Chairman. The next question is from Gary FllowSmith. What are the key goals for the next 5 years?

Thank you, Gary. Probably the #1 objective really is to continue to provide shareholders with sustainable, fully franked dividends. That's what our shareholders tell us that they want. We've managed to do this since the inception of the company, and that is key. The other is focusing on the share price and trying to keep the share price at the NTA or above. And that will assist us if we want to look at capital raisings in the future. Lastly, stability. Stability is very, very important to us. We don't want big spikes. We want to be able to give you a consistent income, 100% fully franked. So those are our 3 main objectives. Sylvie, do you have any other questions?

Yes. The last question is from Vivian [indiscernible]. Can you please clarify the impending reported change of ownership of Perpetual in regard to its impact on the PIC team? What is the grand plan here that the Board needs to share with shareholders?

Thank you, Vivian. So PIC is a separate company from Perpetual Limited. Perpetual Limited is talking about selling its wealth management business in the press. That's what Vivian is referring to. But we deal with Perpetual Investment Management Limited, and that's what Vince and the guys here work for, and they are not selling that part of the business. So they will have no impact whatsoever on us. Nothing will change. Sylvie, are there any further preregistered questions?

There are no further preregistered questions.

Thank you. We'll now address questions in the room, please.

Chair, I'd like to introduce Mr. Brian Perkus.

Good morning. At the 30th of June, you had $27 million in cash. Presumably that's in the bank earning about 4% then so you'd be paying 30% tax. So that means you get 2.8% return, then there's a 1% management fee. So it's effectively earning 1.8%. So other people have spoken about whether you should have cash or not. And some people say there's an opportunity cost in having cash. So I know there's reasons why people want to have cash. But in your instance, you've actually put up on the screen investments that have returned like 20%. So my question is, we put the money into PIC, so you'd invest in shares, right? I along with, I suppose, most people have got their own cash. So by you having cash, it's not returning me anything. But if you've seen things that you're worth investing in, why not invest in them? Why have that amount of cash?

So we try to build -- we think about risk-adjusted returns. And that means there will be points in a market cycle where we want to protect the capital occasionally. And building a portfolio -- a well-balanced portfolio of companies where we think there's more upside than downside, we have the flexibility of cash as an outlet. It's not because we want to park cash because we want to time the market. That's got nothing to do with it. It's more with the PIC, in particular, if we feel things have met the -- what we think is expensive and there's a chance to exit, we'll take that. More importantly, though, it's -- when you exit a position that you may hold for several years, it's what you put into next. And so sometimes during a market cycle, like I said now, the markets, I feel is a bit frothy. And we've been running a pretty tight cash rate for a while, actually, it was below that number, particularly. So things are starting to get to a point where we're a little bit nervous. And so we're exiting positions. And as you know, I don't like paying tax at the best of times. But when you exit a position, we do pay tax, generate franking credits, of course, which benefits the company and benefits the profit reserve. So cash for us is -- you'll see that's a balance date cash -- during the year, it does change. It moves up and down a bit as things are happening. It's a dynamic portfolio. But I take your point that you don't pay in cash.

So there was a lot of turnover in the portfolio in the last 12 months. I noticed stocks have gone out, new ones have come in. Now if you're actually selling profitable positions and you're paying tax, right? So if you had like a portfolio of stocks that you really believed in and you held them, you wouldn't be paying tax. And I know that's not going to generate the beloved franking credits. So there's a trade-off here.

Yes, there's a cost.

So I noticed Cobram Estate has done really well. But then if you sell it, you're going to be paying tax. So what's the philosophy about selling winners.

I'll answer a bit of it. Just -- there will be a core couple of -- the investment thesis we have for each company is very different to start with. Like Cobram, we see years of what they're doing today, you're not being paid for yet. So we're happy to sit on a Cobram for years. And we're happy to wear a bit of short -- a bit of underperformance from Cobram because we think in the longer term, it's a materially larger company. There's a whole bunch of companies like that in our portfolio that we haven't touched, that we don't touch. But they're also -- we want to maintain flexibility in the sense that we're happy to put money into -- some investors are a little bit more cyclical potentially. And where we may see upside 15%, 20%, 30% upside, and it might -- maybe it takes 2, 3 years, but it might happen in 6 months, right? And once our investment thesis has been breached as in what we think is full value. As long as we've got another idea coming, we're happy to rotate the portfolio. And I agree, I don't want to pay tax because you are giving part of the NTA away. Sean, do you want to say something to that?

Yes. No, I think that's spot on. It's that mix of different types of investments in terms of some we're happy to hold for 3, 5, 10 years if we think that it's a long-term investment, others we've got a very hard view on near-term valuation, and we're always going to be disciplined that if it hits that valuation that we will..

A couple of quick questions on one company that's in the portfolio and one that's no longer is. 2 years ago, I asked about Select Harvest. You still got some. I don't know if it's the same amount, but it still hasn't paid a dividend. I keep reading about what's happening in California and what's happening in down in South Australia, but nothing seems to really change for that company.

The benefit here is Sean is the ex analyst of Select Harvest, I'm going to blame him.

That's probably fair. Yes, look, it is in the portfolio, as you would have seen. It is a small position size, but it has been there for some time. The initial investment thesis in Select Harvest was -- and sorry, for people who don't know, Select Harvest is an almond grower predominantly and marketer of almonds are based in Australia, but they basically just sell their almonds under the commodity market. So the 2 key variables are what's happening with the almond price globally and how much almonds the company is producing off their farms. Our original thesis has been that the almond price globally is going to be well supported over the next 5, 10 years because of what's happening in California, as you mentioned, where there's strict water regulations that are coming in, which will ultimately mean that supply out of California is going to fall. And California dominates global supply. So that was the thesis originally that we would see a high almond price. That is playing out at the moment where you've seen the almond price have a very material rise. Unfortunately, and this is one of the, I guess, complexities and risks of investing in an agricultural company, the company has had a few hiccups themselves in terms of the production of their own farms with some of the wet weather that happened over the last couple of years. So that's meant that the share price has not yet reflected the improved conditions out of California. When we look at it today, as frustrating as that may be, the earnings power of the business in more normal conditions of their farms with the almond price where it is, suggests that it's very undervalued at the current levels, which is why we've still hold the position because we feel that at some stage, that's going to get reflected in the share price, and we just don't think it's the right price to be exiting that investment at the moment.

The second one is Ramsay Healthcare, which I asked about last year. I did sort of criticize the makeup of the Board. And since then, they've appointed the ex-President [indiscernible] to the Board.

He also ran Medibank price.

I know. He doesn't have any medical knowledge that I'm aware of. So you got out of that position. And I did ask last year, how low could it go and people laughed, right? Well, I think it's 25% lower. But the interesting thing is the first time I've seen the word contrarian came up on the screen. I haven't seen that one before in the last 10 years. So Allan Gray has taken a position in Ramsay. They -- I think they've said they paid too much, but they've taken a position. So you obviously thought it was worthwhile when it was like $60. Now that it's $31. Does that mean you will now be interested in it?

All companies are interesting at all times to us. So you should assume we're always doing work on those. A company like that where there is definitely a valuation buffer there now at $31, particularly the Australian business, where they own the majority of the land and the sites and the hospitals in Australia, so where they operate. And also, if you look at -- if you look at that industrial logic, Healthscope's base in solvent. So you've got one of the largest competitors exiting the market. Not completely exiting, that's probably too strong it's going to be broken up into pieces to have different owners. So Ramsay is quite dominant in its field. The thing is Ramsay, though still needs to be run more efficiently. A post-COVID world, we've got higher average inflation. I mentioned that earlier. Nothing -- no other sector has been impacted more than the health care sector. because health care inflation runs at 2x the standard -- the basic economy inflation rate. So that's a new facet for the health care sector to deal with. So I think they've appointed the right CEO. Natalie is doing a good job. It's a large job to do in a sense that there's a lot of things to fix, and it's all self-help. So there are aspects that we like on the setup for Ramsay in that there's a new CEO, there's going to be a new CFO soon. Natalie brought in 2 new senior executives into the business who are from external. I think Craig Drum is actually an exceptionally -- is an exceptional director, the new director on the Board. And he's -- we used to own Medibank when he was CEO of Medibank and he fundamentally changed that business for the better. I think he brings -- he doesn't need to be a doctor, but I think he understands capital allocation in the sector pretty well. I think that's something that they needed. I think the Chairman, David has done a great job in bringing Craig Drum on to the Board as well. So if you think about some of the things you're looking for as that will pique our interest, there are some of the things. So we're definitely doing work on it. It's a matter of timing, I suspect, I'm trying to understand does it fit in the pick, in particular, what other opportunities we have because it's going to fight for a position in the fund with other ideas we may have as well. So -- but it sort of looks quite interesting.

Thank you. Do we have any other questions around, please?

Chair, I'd like to introduce Mr. Ray Pedley.

Can I apologize. My son just rang me up [indiscernible] meeting later. I approach this as a retiree who is very interested in dividends and franking credits. I have two questions, which is one is probably to the Board and the other one is probably to the accountant/auditor. Payout ratios. We hold several listed investment companies, and they tend to have a payout ratio of 90% to 100% of profit. Now I've been flicking through the accounts here, and I can't see what percentage. But I'm sure earlier on, when I flick through the accounts, I see brokerage now it's been 60-odd years since I did accounting. But in my mind, brokerage should be capitalized, not expensed.

I got your first question, okay. And then maybe I'll ask Karen to talk about the brokerage question. When we look at the dividend, right, when you compare us to other LICs, right? Somebody -- well, I'm talking about -- you're talking about dividend, what we are paying out.

My dividends.

Your dividends. That's right. So when we pay out, we're trying to get a consistent dividend that's 100% fully franked, and we've managed to that, okay? If you look at those other LICs, and I'm not going to criticize anybody in particular, the bulk of them are not 100% fully franked anymore, and it's not consistent, right? They move like this. Well, right, we'll talk afterwards. I'm not going to point a figure at anybody, but that's not our thesis. Our thesis is consistent. So we've paid out the highest dividend for the last 2 years that we've paid in '10. We've always paid 100% fully franked dividends. And when we did have excess dividend -- excess capital, we had a special dividend. You might remember in 2021, I believe, or '22.

I wasn't a shareholder then.

Like I missed. No, kidding. So that's what we're trying to do, okay? We're trying to make it consistent because that's what we told our shareholders when they bought their shares. Our investment thesis is consistent, 100% fully franked. So we look at what we have in our profit reserve and what we have in the franking credit reserve, and we manage that. So you really can't look at like what the percentage of profit is, is because we're trying to smooth that to give retirees consistent 100% fully franked dividends. So that's where we're different perhaps from some of the other LICs that you invest in, but I don't know. Karen, did you want to talk about the brokerage question? please.

The question was around the accounting for brokerage fees. When we do our audit of the PI's financial statements, we look at the accounting policies adopted. And as part of that process, we check that they're in accordance with the accounting standards. And brokerage costs would be expensed under -- consistent with the accounting standards. So we're comfortable with the presentation.

In my mind, that's -- I don't -- I disagree there in the sense that if you've got something that you hold for less than 12 months, spot on. We've been talking about buying shares 5, 10 and longer.

[indiscernible] So they're buying a share of certain products. And that products includes the brokerage.

That's how I see it.

[indiscernible].

Which they are doing as they're buying shares. But as I see it, if you put in the cost of the brokerage in addition to what you've paid for the share, that's what it's cost you. That's your cost base. Now if you flog them off in 6 months, that brokerage is realized, that is expensed then. But if you hold them for 10 years, you really -- it in my mind, is not -- it's got to be taken into account when you sell. Instead of -- I know it's only a small amount, $1 million -- but there's a principle here.

Yes. But as a listed investment company, you're going to get a job if you're not careful explaining this at KPMG. But anyway, do you want to explain that?

Yes, that's helpful. Just to also highlight that all the assets you acquire are held at fair value on the balance sheet. So if they go up in value, then that is recognized on the balance sheet. So it's not -- they're not held at cost on the balance sheet that's considered.

So there's going to be two profits here. One, an unrealized profit...

That's exactly right.

Which is the difference between...

The original cost and...

The original cost, which, in my mind, should include brokerage, but anyway, okay, BHP 6 months ago was $35. Now it's $45.00.

That's right. And that's what's included in the profit reserve as well.

But you can't pay dividends out of this unrealized profit, can you?

You are able to pay dividends out of your profit reserve.

Yes. So we transfer to our profit reserve and then we can pay dividends.

But you haven't realized it, so how can you...

[indiscernible] Made those profits in the past...

No, no. When you sell them is when you realize the gain. But if you are just sort of saying, oh, okay, the value today is -- if I sold them today, I'd...

That's right.

Well, with due respect, what I -- can I suggest that we talk about this of coffee because not everybody's got your expertise either, sir. And I'm sure Karen and Danny can guess what the standard.

So things have changed in the last 60 years.

I'm sorry to say so. perhaps. Sorry, sir. Thank you.

Chair, I'd like to introduce Mr. Brian Allison.

I think people are getting the impression from the discussion here that you have to be a little bit narcissistic to try and run an LIC, especially these days with arbitrages circling and being constantly bashed by the ETFs. And yes, it's really a very difficult gig these days. And in your presentation, you expressed an ambition to reach NTA or exceed it. I think those days are well behind us now because so much is made of the NTA that nobody is going to buy at the NTA or higher. So everyone wants a discount. I mean you don't go into Woolies hoping that what you want to buy is full price, you wait for it to be on special. Now, I guess recently, Canada has put out an ad expressing Ronald Reagan's attitude towards tariffs. And so I guess most economists are predicting that they're going to cause a recession in America. So I just wonder if you are able to comment on that or whether that's something is outside of your ambit.

There's an easy answer there. You left that open for me. No. I don't know if it would cause a recession. Inflation is usually a tax though. It's a tax in the system on everybody because it's very regressive. Everyone pays it effectively. But as I said to you earlier, governments are running pretty big fiscal deficits. So they're supercharging the economy by putting money into the economy. So there's a lot of liquidity. And that's one of the reasons for all part of the inflation. The tariff impact, it's like I hate to say at the introduction of GST, it was a one-off step-up and then we normalize from that point. So it will be -- the biggest cost is that you're rewiring trade, right? So it was a very efficient system before. I'm not going to discuss why the trade war started. That's for everyone else to make up their own minds. But companies are going to have to work out how to not manufacture part of their -- whatever it gets sold in the U.S. can't be manufactured in China. So they have to reestablish new manufacturing hubs. That's already happening. You'd be surprised, I think in about 18 months' time surprised how quickly companies can actually move to the companies are very adaptable and very efficient most of the time. So I think it will be less of an issue then. And then they'll start getting -- companies will be getting a lot more efficient. They'll start to get a lot -- their costs will get normalized a bit more, lower as they get that efficiency. Whether it creates a recession, I think actually markets usually -- economies are usually running in balance anyway. Recession is a pretty difficult word to say when you got so much liquidity in the economy. It's usually more an accident that happens. So we get really -- like inflation really gets out of control. That's the problem.

Yes. Well, the other problem is that the tariffs are 10% today, they're 150% tomorrow. Next week, they'll be 25%.

Imagine running a company with that.

Exactly.

In an economy. Now in terms of investments, you were very keen a couple of years ago on a2 Milk, and that seems to have worked out well. So I'd just like to know how you see it now and if you exited, how you manage that.

Fortunately, I put Sean in the last time. He was actually the analyst responsible the physician in the first part.

I know.

Remembering. Sean can answer on my behalf.

Yes, Yes, you touched on it. It has been a good investment over the past, I guess, few years. When we initially bought in, we thought the brand, the a2 brand itself was very, very powerful. There was just been some mismanagement and some industry change going on in its key end market, China, where it was shifting from the old way of selling product in, which was a lot of it was through the suitcase and through supermarkets in Australia to a more, I guess, regulatory visible channel that was higher tax and higher cost to serve. So there was a big shift for the company to go through that. What we've seen since is the new management team has done a fantastic job of making that change and really investing behind the brand, so it's more sustainable for the long term. And throughout all that, the brands continue to go from strength to strength. So it's now a top 5 infant formula brand within China with just the 1 SKU, which is very, very impressive. More recently, what the company has done, which is given the share price, the more recent surge over the last 6 months is announced an acquisition of a manufacturing plant in New Zealand, which does a couple of things for the company. It means that it's a lot more resilient, having that vertical integration and being able to do it all themselves, but it also gives them access to a couple of more licenses in China so they can sell a wider range of products. So we think the business has been through its difficult turnaround phase, is very well run and the underlying conditions for the market still look pretty healthy. So you would have seen in the annual report that's still hold in the fund. We think the outlook for the next few years still looks good.

And it's still got a net cash balance sheet.

And it's paying a dividend.

I think there's a $300 million special dividend that announced will come sometime in the next 12 months.

Do I have any other questions in the room? One more. And the gentleman is going to work at KPMG.

Chair, I'd like to introduce Mr. John Bennett.

Just a couple of observations. I'm not a professor or anything like that, highly intelligent person. But just on the cash point, look, cash goes up and down. I agree with the gentleman. But come at the end of the day, you got to have some cash in the bank account to pay dividends and wages and things like that. So I don't know -- I've been an accountant for a long time and cash goes up and down. So to me, I'd always keep a bit back case things go bad or an opportunity comes up. I don't know. Also from an investment point of view, like -- again, I'm not an adviser or anything like that. I've got probably 15 shares in my portfolio. Now the 15 shares, always 1 or 2 will go bad. And this almond business, I think, is just -- is one of these. I don't know how many shares they've got in different companies, but you're going to get a few that are going to go shaped. I mean it's not -- that's just the way it works, unfortunately. What else was I going to say? Your thoughts on -- a couple of names came up, CSL Domino's. I mean these are supposedly well-run companies like CSL, I think, are up near $300 at one stage. So you must be looking at something like that. I mean these are companies make profits, they've got good management. What are your thoughts on that sort of things.

That point I said earlier that we like these sort of markets because these opportunities are being thrown up. So we are like in the background, there's a lot going on in the background internally about looking at these opportunities like a Domino's or a Treasury Wine or an Endeavour Group. Rees is the same and James Hardie, which we haven't owned, but they're falling 50% odd. There are real opportunities. Sean, you might give them a perspective on Domino's and [indiscernible].

Yes. And I think been touched on, but come back to the question on Ramsay earlier. Because as I touched on the start, this momentum factor means that we do -- there is a long list of opportunities of -- at their core good businesses that are trading on very cheap multiples because there's some near-term uncertainty, our job and where we're spending a lot of that time is to try and pick the couple out of that, that are going to turn around and you'll make -- have the potential to make a lot of money if they go right. So all of those names you mentioned, Vincent, are on that list. If I start with Domino's, look, it's had a very significant fall over the last 3, 4 years from it to $160 during COVID. I think that was an unsustainable level due to some of the restraints and people working from home that were happening at the time. But the real crux of it from our perspective of the issues that have played out there is you've had a shift in the profit pool from the franchisees to the franchisor being the company. And the core to a good franchisor is having a healthy franchisee network because they can invest in their business and continue to open stores. That shifted too much to the franchisor and the franchisees came under stress and put on top of that some inflation that put store economics unattained and the franchisee network is under a lot of pressure. And what we've now seen play out over the last sort of period is because prices went up too high, the consumer demand softened and they're in this turnaround phase where they're now trying to restore the economics in the system back towards the franchisees. And I think that's always a hard thing to do. I think in the current world where you've got so much competition where you can go on your phone on Uber Eats and order 20 different pizza from 20 different places whereas 10 years ago, it was just Domino's. I think it's an even harder thing to do for them. So that's the key challenge, I think that Domino's got to turn it around. And look, CSL -- there's been a few different things going on at CSL. I think it probably all started when they made the acquisition of Vifor 4 or 5 years ago that proved to be a challenging acquisition in terms of how that business performed post that deal. The issue more recently has been what's come out around some challenges in their core bearing business, which has been the bedrock of their success over the last sort of 10 years. There is some uncertainty at the moment in terms of how balanced that market is and whether we've gone into oversupply. And I think until the market gets the answer to that question, it's going to continue to remain under pressure. Unfortunately, for the company, they've also had some short-term issues around the Seqirus, the flu business given what's going on with vaccine rates in the U.S. So when you've got a core piece of uncertainty around the core of the business and then a few issues on the edges, it goes into that uncertain bucket that what we were talking about before that the market is not willing to buy at the moment given the dynamics. So we're having a very good look at it and spending all the time analyzing it.

Thanks, Sean. Do I have any other questions in the room? No. Sylvie, do I have any questions online?

There are no online questions.

Okay. MUFG, do we receive any questions over the phone? I'm going to take that as no. I'd like to thank the investment team for their presentation today. Thanks so much. I'm now going to move to the formal business of the AGM. The virtual meeting online guide was lodged with the ASX and published on PIC's website. It outlines the steps to enable remote shareholders to participate in this meeting. In terms of business, we have the following items to consider: one, the financial and statutory reports for the financial year ended June 30, 2025; two, the reelection of Michael Clarke as an Independent Non-Executive Director; three, the election of Tim Bednall as an Independent Nonexecutive Director; and four, an advisory vote on the adoption of the remuneration report for FY '25. The item of business relating to the FY '25 financial and statutory reports is not for voting, but for tabling and discussion. Yesterday, we announced on the ASX that the following resolutions were withdrawn. Resolution 4, proposed amendments to Clause 15.5 and 15.6 and related clauses of the constitution; and Resolution 5, proposed amendments to Clause 13.3 of the constitution. Tim Bednall, as Chairman of the Nomination and Corporate Governance Committee, will address the withdrawal of those resolutions. Thanks, Tim.

Thank you, Chair, and good morning, everyone. The proxy votes that we received in relation to these 2 resolutions indicated that these resolutions to amend the company's constitution may have been defeated and therefore, they were withdrawn. By way of clarification, Resolution 4 proposed amendments to clauses 15.5 and 15.6 of the constitution to facilitate the election of directors in accordance with the ASX listing rules. At present, the constitution imposes additional and unnecessary requirements. And so for example, Michael Clarke is required to stand for election at this AGM under the constitution, even though he was elected for a 3-year term only 2 years ago. He would not be required to stand this year under the ASX listing rules. So this was a sensible proposal to remove unnecessary red tape in this process and align the constitution with the applicable regulations. Resolution #5 proposed amendments to Clause 13.3 of the constitution to permit fully virtual shareholders' meetings but only in extraordinary circumstances. There is -- or there has been, as you know, quite a degree of controversy about proposals to amend company constitutions to permit fully virtual meetings. And most of those proposals have been defeated. We took note of that sentiment in the investment community and limited our proposal to extraordinary circumstances in which physical attendance at a shareholders' meeting was not possible or had been made difficult by circumstances beyond our control, such as a pandemic or a natural disaster. This was also a sensible proposal in our view that would have enabled shareholders' meetings to be held fully virtually but only when physical attendance was impossible or difficult. We will now further consider these things at the Board. Thank you.

Thank you, Tim. I'll invite any shareholders in the room who'd like to ask a question in relation to the withdrawal of these 2 resolutions. I don't think I have any questions in the room. Do we have any questions online?

No, there are no online questions.

Okay. And MUFG, if you're out there, do we have any questions on the phone wishing to ask questions? I'm going...

We have no questions from the phones at this time.

Thank you very much. It appears there are no further questions. So we'll proceed. Thank you, Tim. Further information about each of the items for consideration today is set out in the notice of meeting. I will take that Notice of Meeting as read. As described in the Notice of Meeting, proxy appointments were able to be lodged up to 48 hours before this 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 directed proxies as directed in the proxy appointment, and I will vote any available undirected proxies in favor of each resolution. If you are a proxyholder, 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. If you have not yet registered to vote, please do so now. I will now outline the procedures for voting for the shareholders in the room. We will be voting by a poll and not a show of hands. Reggie Harbin of MUFG Corporate Markets is the returning officer for the purpose of this poll. You will all have received a voting card when you registered today. They will be used to cast your vote. The poll is now open. 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 will remain open until 5 minutes after the end of today's meeting. To vote online, follow the steps in MUFG's portal, noting that you cannot cast a vote over the phone. If you experience any difficulties in the online platform or you're unsure how to vote or ask questions, there's a help line available, 1 (800) 990-363 and which is on the last page of the virtual meeting guide. Subject to any applicable voting restrictions, the Board recommends that shareholders vote in favor of each item. Any voting restrictions for the resolutions are included in your Notice of Meeting. The results of the voting will be known shortly after the AGM and advised to the ASX and posted on our website. Now how to ask a question. Just hang with me, this is very detailed. I will introduce each resolution and there will be an opportunity to ask a question in the room or post online written comments or questions. If you're in person and you wish to ask a question, 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 they can introduce you. For those of you attending online, if you're a shareholder, you can also ask a question or post a comment online regarding the update. To do so, on screen now are the instructions on how to submit questions online and over the phone. The company Secretary, Sylvie Dimarco will read comments and questions to the meeting. The questions will be read out verbatim. I will then respond or designate someone to respond to questions. 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. All resolutions before the meeting today, except for resolutions 4 and 5 are ordinary resolutions and will be passed by a simple majority. We will first take questions from shareholders in the room and then shareholders using the online platform and then take questions received over the phone. We will save asking each question until the relevant item of business. The first item of business is to receive and consider the financial report, the report of the directors and of the auditor for the financial year ending June 30, 2025. The accounts were circulated as part of the annual report published on PIC's website on the day we announced our full year results on August 25. I now formally table the financial report, the directors' report and the auditor's report for the financial year ended June 30, 2025. As I said, there is no voting on this item, but shareholders will now have an opportunity to ask questions and make comments about the financial and statutory reports or about the management of the company in person or by phone or by using the online platform. As you're aware, Karen Hopkins from KPMG is also available to answer any 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 should, 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 raise their hand.

I'd like to introduce Mr. Darius [indiscernible].

I have a question on brokerage fees. So luckily, they went down from 1.4 million to 1.2 million last financial year. But what -- who are actually the brokers that we are using that we are actually paying those brokerage fees? And is the company doing anything to reduce that? Because I know that I have a bit of an advantage, but I'm using [indiscernible] shares direct. And I pay 0 brokerage fees.

Vince, can I ask you to address that?

Sure. We have a basically call a panel of brokers where we -- for counterparty risk, et cetera, they've got to qualify. And we pay based on the services they provide us, which is research, banking, et cetera, as well. Our fees are -- we pay for research as well, as I mentioned. So our fees, we can't get 0 because you pay 0, you get 0 back. So we get pretty very good rates basically given our size. So the PIC gets the benefit of the group, Perpetual Group, but also our investment, Perpetual Investment management and the money we manage on the institutional side as well as on the wholesale side. So there's -- we've got another $12 billion to $13 billion we manage on behalf of other investors. And so the PI gets the benefit of that scale and what we pay. I'd like to pay -- we just don't trade then. That's the problem. And you need to do things like that sometimes. So yes, the panel of brokers is a lot of bulge bracket brokers and specialist brokers as well, some research-only brokers that do no banking. There's also got quite a wide variety of brokers we pay.

[indiscernible]?

Execution, yes, for pure execution. They probably stopped falling though. We're happy to pay a little bit more, not happy, but we have to pay more if we're consuming their research. They also -- yes, we will pay for research because we always look for alternate views, especially.

Do I have any other questions in the room? Sylvie, do we have any other questions?

No, there are no other questions.

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

No phone questions at this time.

Thank you. It appears there are no other further questions on this item of business. I wish to confirm that I am holding open proxies in my capacity as Chairman, and it is my intention to vote all available undirected proxies in favor of all resolutions. I move to the reelection of Michael Clarke. The first resolution today is to consider the reelection of Michael as an Independent Nonexecutive Director. Michael was first appointed to the Board on the 1st of September 2023, being eligible now stands for reelection. 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 reelection. I ask Michael to provide a few comments with respect to his background and current commitments outside of PIC.

Thank you, Nancy, for the kind introduction. I'm delighted to stand before fellow shareholders of Perpetual Equity Investment Company today to seek reelection to the Board of Directors as an Independent Non-Executive Director. By way of a short introduction, my career in funds management has spanned over 35 years and included roles as a Chief Investment Officer, leading teams investing in Australian and global shares, fixed income securities and foreign exchange and also roles as a Chief Executive Officer, leading the growth of fund management businesses, both in Australia and overseas. My biography details these various roles and experiences and is attached for your reference. The most important lesson I've learned in my career in the funds management industry is that success depends less on you, the individual and more on the team of people around you. Regardless of the size of the fund management business, the key and enduring organizational ingredient required to achieve success is a commitment to shared beliefs and values. This commitment is vital to achieving the required goals and sustaining strong performance in every organization. PIC has achieved several noteworthy outcomes over the past 2 years while I've served shareholders as an independent Non-executive Director. Highlights included the conduct of a comprehensive 12-month review of the key external service provision to PIC, which ultimately resulted in the reappointment of Perpetual to continue leading the provision of fund management, business and compliance services. Additionally, elevating the recognition of the role that PIC plays in your portfolio to include not only the delivery of active returns through investing in both the domestic and international securities market, but also importantly, the payment of secure fully franked income. Secure delivery of fully franked income is becoming increasingly important to more Australians as they transition into retirement. While circumstances and markets change over time, my view is that the ingredients necessary for PIC to succeed remain the same. Talented people committed to shared values and beliefs who respect and trust each other, working collaboratively and teams to deliver outstanding results. I'm committed to supporting these values in this approach at PIC. To this end, I'm very excited to be given the opportunity to continue working with Nancy and my fellow directors, Amanda and Tim and the entire Perpetual team. Perpetual has been a leading investor in both the domestic and global equity markets for decades, earning an enviable track record of successful active investors delivering strong results for their clients. I'd also like to take this opportunity to thank both Virginia Malley and John Edstein, who have retired from the Board of PI this year. Both Virginia and John have contributed significantly to PI's success since the inception and have provided me with strong support and valuable advice and guidance. Post Virginia's retirement from the Board, I'm looking forward to assuming the role of Chair of the Audit and Risk Committee. So in conclusion, I feel privileged and proud to stand for reelection to the PIC Board, allowing me to continue to serve the company and you, the shareholders. Thank you.

Thank you, Michael. We didn't receive any questions on this resolution in advance, but are there any questions from Michael in the room?

Why is Michael not here today?

So Michael, the question is, why are you not here today? You're in the United States, right?

Yes. I'm on business in the United States at the moment. I'm on another Board, and I'm doing a visit program to a number of investors in the United States, which is quite helpful generally because it gives me a perspective of the market here. I've been basically in the last 7 or 8 days around Tampa, Austin, Seattle, Chicago and now in New York. So it actually is very helpful to have that perspective to be able to bring that to PI as well as to my other Board commitment.

Michael told us in advance that he couldn't reconcile the 2 trips with the 2 boards, but he is live in New York. Thank you. Does anybody have any other questions for Michael? Okay. Just give me one moment. There are no other questions from Michael, then the proxies received prior to the meeting on this resolution are now displayed on the screen or will be and on the online platform. To vote on this, please cast your vote now if you haven't already done so by selecting either for, against or abstain for Resolution 1 on your voting card or through the online platform. The second resolution on today's agenda is to consider the election of Tim as an independent Nonexecutive Director. Tim was first appointed to the Board on May 7, 2025, and now stands for election. Details of Tim's career are set out in the explanatory notes accompanying the notice of meeting. The Board, with Tim abstaining, strongly supports Tim's election. I ask Tim to provide a few comments with respect to his background and current commitments outside PIC. Thanks Tim.

Thank you, Chair. I'm honored to be recommended for election to the Board of Perpetual Equity Investment Company Limited as an independent Nonexecutive Director after being appointed, as you've just heard to fill a casual vacancy on the retirement of John Edstein earlier this year. I serve on the Board of one other listed company, Amplitude Energy Limited, where I've been a director for 5 years. I'm also a partner of law firm, King Wood Mallisons, where my arrangements permit me to serve on the Boards of 2 listed companies that are not clients of the firm. If elected today, I will not take on any further Board positions while I remain a partner of King of Wood Misons. I'm a former Chair of King & Wood Mallisons Australia and current Chair of the firm's Risk Committee. I head the King & Wood Mallison's Governance practice, advising a large range of listed companies. I'm also the Founding Director of A Advisory, a Compliance and Governance risk practice, wholly owned by KWM. My voluntary roles include membership of the National Portrait Gallery Foundation Board and until very recently, membership of the ASX Corporate Governance Council, representing the Law Council of Australia and that ASX Corporate Governance Council is now de sun for reasons that are well known. I believe that if elected, I'll continue to bring valuable skills and experience to the Board as it considers options for future growth and continuing strong yield for the benefit of shareholders. And I'm happy to answer any questions. Thank you.

Thank you, Tim. Do I have any questions in the room for Tim? No. Thank you very much. Sylvie, do we have any other questions that we've received?

There are no questions.

Thank you. MUFG, do I have any other questions?

No questions from the phones.

The proxies received prior to this meeting on Resolution 2 are now displayed on the screen and on the online platform. Please cast your vote now if you haven't already done so, select either for, against or abstain for resolution 2 on your voting card or through the online platform. Final item of business is the advisory resolution to adopt the remuneration report. The remuneration report forms part of the directors' report and is included in the company's annual report for the financial year ended June 30, 2025. As you will note, the remuneration report contains the remuneration paid to PIC's directors who are the key management personnel. The company has no paid employees. And accordingly, the 2025 remuneration report is simple and brief. There were no written questions regarding this resolution received in advance of the AGM. I'll now invite shareholders in the room if you have any other questions on the remuneration report. Thank you. I'll now respond to online questions.

There are no online questions.

MUFG, do we have any other questions on the phone?

No phone questions at this time.

Thank you. It appears there are no further questions. The proxies received prior to the meeting on Resolution 3 are now displayed on the screen and on the online platform. Cast your vote now if you haven't already done so, select for, against or abstain for Resolution 3 on your voting corridor through the online platform. I'll move to other business. I'll invite shareholders in the room who would like to ask any further questions to raise their hand. It appears there are no questions in the room. Sylvie, are there any further questions online?

No questions online.

Okay. MUFG, do I have any questions on the phone? I don't think I do. I now ask you to ensure that you complete your voting for each resolution. MUFG staff who are in the room 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, use the help line and voting on all resolutions will close 5 minutes after I close this meeting. The results of the poll will be announced by the ASX after this meeting and will be made available on the AGM section of the PIC website. There being no other business, I declare this meeting closed. Thank you for your ongoing support and your attendance today. I invite those present to join the directors and members of the management committee for some refreshments just outside the door. Thank you very much.