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

Good afternoon. Welcome to the 2026 Annual General Meeting of the Perpetual Equity Investment Company. From now on, I'll refer to it as PIC, or the company. I am Nancy Fox, and it is a privilege to be the Chairman of the PIC Board and to chair today's meeting. It is 2:00 p.m. or maybe a little thereafter in Sydney. And as I have been advised that a quorum is present, I declare this 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, water and community. We pay our respects to Australia's first peoples and to the 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, proxy holders and guests. It's a great pleasure to see you in person. Many of you I've seen over the years several times before. Good to see you. We're pleased this hybrid format continues to provide an opportunity for shareholders to participate regardless of their geographic location. I would like to take this opportunity to introduce to you those who are present with me today. Seated at the main table from right to left, I'm joined by Sylvie Dimarco, who is our Company Secretary; Amanda Gillespie, our Executive Director; Michael Clarke, an Independent Non-Executive Director and Chair of the Audit and Risk Committee; and Tim Bednall, an Independent Non-Executive Director and Chair of the Nomination and Corporate Governance Committee. 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 conduct of the audit, the audit report and the auditor's independence. Note that this is Karen's last year as the lead partner for PIC, and she has completed 5 years in this role and will rotate in accordance with the rotation rules under the independence requirements. Chris Wood from KPMG will take on the role, and Chris is also present here today. Before we move on to the formal part of our AGM, on behalf of the Board, I wish to share some observations on PIC's activities and performance this past year, which have already been released to the market. Following that, I will ask PIC's Portfolio Manager, Sean Roger, to deliver the investment manager update. For those of you who also expected Vince Pezzullo to be here, he's okay, but he had a little accident and so he was unable to present today. But Sean will cover it admirably, I am sure. Now moving on to my Chairman's address. I'd like to begin by acknowledging our fellow long-standing shareholders and welcoming our new shareholders that joined this year. Thank you all for your continued support in PIC. And as I said earlier, many of you I have seen over the years. So really thank you from me. Turning first to the company's results. In August, we reported a net profit after tax of $12.1 million, which was lower than the previous year. This was primarily due to softer markets and softer investment performance, which was impacted by ongoing market uncertainty throughout the year and is the main contributor to PIC's financial results. For the 12 months to June 30, 2026, PIC delivered a return of 2.8%. While this was below its benchmark for the year, the manager remains focused on investing in high-quality, attractively valued securities that it believes are well delivered -- well placed to deliver returns over the longer term. The Board declared a fully franked final dividend of $0.04 per share, bringing the FY '26 full year dividend to $0.08 per share. This was consistent with last year's dividend payment as the highest since the company's inception. Based on the share price as at June 30, 2026, this equates to an annual dividend yield of 6.8% and grossed-up dividend yield of 9.7%. This compares favorably to the trailing 12-month dividend yield of the S&P/ASX 300 Accumulation Index, which was 3.1% as at June 30, 2026. 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. Shareholders who have been with us since PIC listed or since the company first declared a dividend in August 2015 have benefited from a total of $0.698 per share in dividends. This represents $245 million in total dividend payments to shareholders. The Board has remained focused on the management of shareholder capital to ensure that the company's position remains strong. This approach has enabled the Board to declare consistent fully franked dividends since the company's inception. After the payment of the final dividend, the profit reserve for the company sits at $63 million, which will provide for 2 years dividend coverage, assuming a total dividend of $0.08 per share. The company's franking account balance is $13.8 million, and that provides for 1 year of fully franked dividends -- dividend coverage actually. Notably, this does not include any additional franking credits that may be generated during the year. We recognize that many of our shareholders, particularly retirees and income-focused investors, value regular income, particularly in light of the government's recent changes to capital gains tax concessions. As announced on August 10 this year, the company will transition from semiannual to monthly dividends, with the first monthly dividend expected to be paid in December 2026. Moving to monthly dividends is a natural evolution for PIC and is intended to provide a more consistent and predictable income stream while preserving our disciplined investment approach. The Board believes this change will allow profits to be distributed to shareholders in a timelier manner while providing greater visibility for quarterly dividend announcements. As I approach the completion of my third elected 3-year term as a Non-Executive Director and Chairman of the company, the Board has invited me to stand for reelection at today's meeting. I have agreed to do so to support an orderly succession process and ensure a smooth transition to my successor. If reelected, I look forward to continuing to work with the Board to support the company's long-term success through to the conclusion of the 2027 Annual General Meeting. So you get to see me once more, if you elect me. It has been a privilege to serve shareholders over many years, and I remain committed to supporting the company through this transition while maintaining continuity of leadership and governance. Looking ahead, the Board remains 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, as it's called, of the company. We are pleased to see PIC's share price trade at a slight premium to NTA over the past month. Our focus is on delivering strong and consistent performance together with an attractive and sustainable income stream for shareholders. We believe this combination will support our goal of having the shares trade at or above NTA over time. We will continue to keep shareholders and the market well informed about our performance and progress. On behalf of the Board, I'd like to thank you for your continued support of PIC. We believe the company is well positioned for growth and to continue providing shareholders with a steady stream of fully franked dividends. I encourage shareholders to stay informed by visiting the company's website for a range of resources and insights. Thank you. Now on to the Investment Manager. Before I hand over to Sean, note that we will be taking questions after the investment manager's update. On screen now are instructions on how to submit questions online and over the phone, whether in relation to the investment manager's update or for the AGM resolutions. You can submit a question at any time, and it will be addressed at the appropriate time. 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. We have facilitators with a microphone, and they will be with you as soon as possible to take your name so that they can introduce you prior to your questions being asked. Only shareholders and proxy holders may ask questions relating to the AGM resolutions. These will be addressed later in the meeting. I will now hand over to Sean. Thanks.

Thank you, Nancy, and good afternoon, everyone. Look, today, I thought I'd just touch on 3 key areas. Firstly, our view on the global macroeconomic environment and what's driving markets globally and in Australia. Secondly, the performance -- investment performance; and then thirdly, how we're positioned for the next sort of 12 months running through some key positions and obviously, more than happy to take questions at the end of the presentation. In terms of global markets at the moment, the #1 driver from our perspective is inflation and interest rate expectations. If we look globally, I think there's very similar trends happening in most Western markets, and that is that we've got upward pressure on inflation and interest rate expectations driven by a number of factors. And I think those drivers, again, are very similar across both Australia and many countries. The first driver is loose fiscal spending. We're seeing government deficits, particularly in the U.S. and Australia, continue to run at an elevated rate. The second driver of inflation I'd call out is the conflicts that are happening in the Middle East and in Ukraine and Russia. It's having a significant effect on energy markets globally. There's obviously the impact on oil and gas supplies. We've had both infrastructure hit and challenges around moving oil and gas around. But that's compounded by what's happened with refining capacity globally. And we've seen about between anywhere between 5% and 10% of global refining capacity out of the market. And some of that's due to temporary factors, others are due to where there's been structural damage to the infrastructure. And the reason that's important is for an end user, be it a consumer consuming diesel or petrol or even jet fuel going into airplanes, that refining capacity is really important. And that's how you get, I guess, from oil to an end-user product. And with that capacity out, the margins and the cost of refining have increased, which means that not only is there an upward pressure on oil markets and energy markets, but that's been added to by what's happened with refining capacity. Now, the impact of that on inflation is obviously the direct impact in terms of higher energy prices flowing through. But there's also an indirect impact. You see across multiple industries, companies trying to recover that through things like fuel surcharges. And ultimately, that starts to feed its way into price increases. And that's where we see the ongoing effect of inflation from those drivers. The second area -- or third area I'd call out that's driving inflation globally is the build-out relating to artificial intelligence and data centers. We've got a lot of money being spent. And with that and the data center buildout, we're seeing the direct draw-through of materials and wages to construct those facilities. But also, and I'd say, increasingly recently, we're seeing an exponential increase in the need for funding for both the data center infrastructure, but also the infrastructure that sits inside the data centers, the chips in particular, which are extremely expensive. And as those funding requirements have increased, that's having an impact on debt markets and expected yields across the spectrum. And I think that's playing a role in the upward pressure we're seeing on inflation globally. The other big driver of global markets from our perspective at the moment outside of inflation is artificial intelligence. So I obviously mentioned the inflationary aspects, but it's also having a big impact on sectors and also the direction that companies and corporates are taking. And a lot of this comes down to, obviously, there's the direct build-out and companies that are exposed to that from a positive perspective are seeing very strong earnings growth. But on the other side, there's big, I guess, ranges of sectors that have been on the other side of that and are perceived to be companies that may be disrupted by the application of AI in the future. And look, that's something that is a driver of sector performance, and I think it will continue to be for some time to come given the pace that technology around artificial intelligence is moving. If we bring this back to Australia and how we're seeing the economy and the outlook there, look, we think there's a real challenge around inflation in Australia. We've obviously got the challenges I mentioned overseas in terms of the supply shocks with oil and also artificial intelligence. We've also got the impact of policy decisions in Australia over the last few years. If you look at the RBA, I think from in 2022 when we had the first sort of inflation shock, Australia was quite slow to increase rates relative to what we saw in other countries globally. And similarly, 2024, 2025, we were quite quick to signal and then cut rates coming back the other side. And what that's meant is that the Australian economy, with those rate settings, but also strong migration, has been in a relatively tight position over that time frame. We've also seen quite strong asset price inflation, particularly on the house side up until more recently. And what that means is that at the moment, we do have a lot of upward pressure on inflation. And that on top of the policy decisions from an RBA perspective, I think from a fiscal perspective, as I mentioned before, the government spend, as a percentage of GDP, continues to increase. And that in an environment where unemployment is still quite low, continues to support those sort of inflationary pressures. The third thing I'd call out from a structural perspective in Australia is just the lack of productivity growth. It's something we hear a lot about, and it has been a persistent problem. But in combination with those other dynamics that I've mentioned before, they're all contributing to what is the current environment where, I guess, the RBA is having some difficulties constraining inflation despite the health of the consumer. If I think about, I guess, how that flows into our outlook for rates and house prices and the economy in Australia, I think for the short term, at least in the absence of some relief from energy markets globally or from the funding requirements from artificial intelligence, we are going to have to see that rates are going to have to either increase again or remain elevated to try and stem the inflationary pressures in Australia. We have seen the consumer impacted by the rate rises and the cost of living pressures we're seeing today. We hear that a lot from the retail sector and our sort of research there, and all the data shows that the consumer is under pressure and they're starting to constrain spending. We're also seeing asset price deflation. But I guess the normal mechanism of that weaker consumer and weaker spending easing inflation is impacted at the moment because we've got these offshore supply side drivers of inflation, which means that it's -- the normal sort of mechanism of lowering consumer spending, taking the pressure off inflation is not there at the moment. In terms of house prices, look, I think at the moment, it's hard to have a view that they're not going to continue to trend lower. Obviously, there's been the policy change in terms of taxation, which has had a big impact on the investor market. Not only are returns impacted from an investor perspective after tax, but clearly, there's been a sentiment hit as well to the market. So I think that's quite challenging from a house price perspective to see much improvement there in the short term outside policy settings or relief in rates. I just thought I'd also touch on then from a, I guess, a consumer perspective, the chart up on the screen here. And what this is trying to show is the orange line there is the variable mortgage rate. And the blue line is a proxy for household disposable income for the median household that is in the mortgage belt. And what you can see with the blue line there is we're not at, but we are at the lowest level for household disposable income going back to the early '90s, which shows that it is really challenging for consumers out there, and there's a lot of pressure on the household, which is flowing through in terms of consumer spend and overall consumer health. In terms of then how we're thinking about the economy, I guess, in the context of this, I think the next 12 months in Australia, the outlook is that it is going to be tough, both for the consumer and for the economy. The consumer is stretched, and I think that's going to continue to flow through to corporate profits for the companies that we're invested in, but also overall sentiment for the stock market in Australia. From a share price perspective, look, there's obviously been a lot of volatility around what's happened with interest rates over the last 6 months in particular. I think some sectors are pricing in the outlook I've described there where it is very challenging and rates are likely to remain elevated for some time. But there also is other parts of the market that have got leverage on the balance sheet where if we do see continued deterioration that there is still some downside to come. So without sounding too gloomy, clearly, there's some pressures over the next 6 to 12 months from a consumer and an economy perspective. There are pockets of opportunity, though, from an investment perspective, which I'll touch on later in terms of where we see some opportunity to make money over the next 12 months. Just go to the next slide, please, Catherine. Just to talk about investment performance. The numbers are on the page there for those who can see. Clearly, the numbers over the sort of short to medium term are not where we would like them to be. And that's really been driven by the last sort of 24 months where the performance has been weaker than market. Just to run through, I guess, a couple of the key drivers of that from our perspective. The first of those is there's -- from a stock-specific perspective, there's been a couple of stocks that have not played out the way that we hoped and thought they would when we made the initial investment. First one of those was Flutter Entertainment, which has been a long-term holding in the fund, and we've spoken about before. I think we first invested in Flutter in 2018, and it has been a very strong performer for the fund up until late last calendar year. What changed late last calendar year was their key asset, FanDuel in the U.S. There was a change in the competitive environment where prediction markets, the key operators, which you may have heard the name, Kalshi and Polymarket, entered the sports betting market. And the reason they hadn't done that to date is because from a regulatory perspective, there was restrictions on who could and couldn't offer sports betting and you needed to be regulated under the state-based sports betting legislation, which is in the U.S. the prediction market operators made the decision that they thought they could operate under a federal CFTC license, which is -- has since that date been under a lot of conjecture from the states, and there's lots of court cases going on around whether or not this is legal, and I suspect there will be a decision made on that by the Supreme Court in the next 12 months. But the reason it was -- had a negative impact on FanDuel and Flutter is it was a new perceived competitive threat that they were going to be facing a competitor that was not regulated under the same, I guess, restrictions and codes that FanDuel was. At the time that this happened, we did a lot of work around understanding what the potential impact would be on FanDuel and Flutter and came up with a view that it was unlikely that there would be any material impact to the outlook for the business at that time. In a world where the prediction markets were allowed to continue to operate, which there still is a lot of uncertainty around, our view is that their presence would only serve to accelerate the broader state-based legalization and open up the entire market. Unfortunately, the few months after they popped up, FanDuel themselves had some operational missteps in terms of their execution and that financial -- or the reduced financial performance really served just to feed the narrative that the prediction markets were having a big competitive impact on the business. And there was quite a sharp derate in the valuation of the company off the back of that and also the multiples. So looking back on the analysis at that time, we obviously did all our fundamental work, I guess, with the benefit of hindsight, when the risk first popped up, we should have reduced the position size earlier at that stage. But that's Flutter, and it's obviously been a big drag over the last 12 months to performance. It had been a good contributor up until that point, but that's a driver of performance over the last 12 months. The second stock, which has been a headwind again over the last year, has been Premier Investments, which is another company that we've had a long-term holding in. They own a few retail assets in Australia as well as a big stake in Breville, the coffee and kitchen manufacturing business. Really good brands in that business, well run by a very experienced retailer and also management team. And what happened over the last 12 months was 2 things. Firstly, one of their retail businesses, Smiggle, faced a few headwinds, both from a competition perspective, but also from a product perspective in terms of the product they are landing to market. So the financial pressures there dragged on the overall share price, but also the weaker consumer environment, which really started to kick in mid-to-late last year. It's a retail business. They were not immune to that. And the combination of those things led to the share price performing the way it did. So those 2 stocks were part of the investment performance lagging the index over the last 12 months. The other driver of the underperformance was the positioning of the fund away from the top 20 companies, the top end of the market, towards the sort of small to mid-cap part of the market. And the reason we were positioned that way is it's always an area we look for. I think there's always some interesting companies that trade on really attractive valuations. And if we rewind 12 months in the middle of last year, the top 20 was, from a valuation perspective, fundamentally extremely expensive, whereas we were seeing attractive value in a handful of very well-run and high-quality companies that were lower on the sort of market cap scale. At that time, I think from a macro perspective, there was -- our view was that the rate environment into calendar year '27 was going to be under control and that the sort of the interest rate rises at that time would keep things balanced. What then transpired towards the back end of calendar year '26 was that we did see some upward pressure on inflation in terms of the data, both in the U.S. and Australia. And that was really supercharged by the conflicts kicking off early this calendar and the impact on energy markets. And as you get that move up in rate expectations, which came with that inflation, what happens is in the Australian market, in particular, you tend to see the small cap part of the market underperform relative to the top end. Investors look for safety and liquidity drags up the top. These 2 charts on this slide, I guess, provide a bit of a visual representation of that. If you look at the chart on the left there, the blue line is the ASX top 20. The red line is the ASX Small Industrials. So not the small index overall. It removes resources, which sort of dance the beat of a different drum. But as you can see there, the performance really started to diverge from February this year. And from a performance basis over the last 12 months, it's 15% to 20% underperformance of the small industrials relative to the top 20. The other chart, which I wanted to sort of highlight there on the right, is that they're the same 2 indices, but over a longer time frame. And the point of showing that chart is that this divergence in performance between the small-cap industrials and the top 20 is cyclical, and it does go in cycles, tends to be related to where we are with -- from an interest rate perspective. And from a fund positioning perspective, we still do -- and I'll discuss it as we move on to positioning, but we still do have a skew towards that part of the market because I think as that chart shows, the valuation of the small relative to the top has only become greater over the last 12 months. So from a performance perspective, just to wrap that up, I think the combination of a couple of those stocks I mentioned before and also the positioning over the last 12 months has been a driver of that underperformance. Just to touch on the positioning of the fund now today, sort of and how we're positioned for moving forward. I thought or we thought it would be good just to put on the screen our top 10 active positions in the fund to hopefully give some insight into how we're thinking about positioning the fund for the year ahead. The first observation I'd make with regards to the positioning is if you look at these names, there's not a lot of exposure to the Australian economy, and it is tilted to offshore exposures. So if I look at companies like News Corporation, obviously, there's a couple of resource companies there, which tend to not be exposed to the Australian economy, Mainfreight, Howden Joinery, they're all exposed to offshore economies. So there's not -- we've tried to really balance the exposure to that Australian economy given what I was talking about before in terms of our outlook for the Australian consumer over the next 6 to 12 months. The second thing I'd call out is the mix and balance between what we consider to be defensive-orientated companies versus cyclical companies or companies that are exposed to the health of the economy. From a defensive perspective, I call out Soul Patts, Ramsay Health Care and even News Corp's companies, which are relatively stable and defensive both in terms of how they trade in the stock market, but also their earnings drivers. And then from a more cyclical perspective, again, something like an Aspen Group, which is affordable living developer and owner of assets; Mainfreight, which is a New Zealand-listed company, less-than-truckload logistics and air and ocean freight forwarding business. And the third one there being Howden Joinery are more businesses that are exposed to the economy. But where we are taking those exposures, we are very selective to ensure that they are companies that, number one, have very strong balance sheet so that if the downturn lasts for longer than we expect, they are able to withstand that, very high-quality management teams that have been through down cycles before and make the right decisions under pressure. And thirdly, and I think perhaps most importantly, there are companies that take market share when times are tough. And the reason that's important is that when conditions are tough, you often see stress in industries and you see smaller weaker competitors shut down or you see companies being put up for sale. And if you're able to get exposed to a company that's in a strong position and can take advantage of that through buying a competitor, investing hard and taking market share organically, when things do turn, it means that the companies are really well set up from a financial perspective. So it is difficult at the moment to know exactly when the interest rate relief is going to come. There's factors there at play that are linked to things outside of the control of the Australian economy, as I mentioned, with oil. So having a bit of a balance there at the moment, we think, is important. But we feel that in both the defensive and the cyclical category that we're exposed to companies that we think have got good growth prospects and are very well managed. So hopefully, that gives you some exposure. Then finally, I'd say, is just from a resources perspective, overall, we are modestly underweight, the sector. It's had a good run over the last 12 to 18 months. The reason for being slightly underweight is twofold. Firstly, from a valuation perspective, the stocks are getting up there from a fundamental valuation perspective. BHP is obviously the bellwether and from a dividend yield perspective and a free cash flow yield perspective, down at that sort of 3% to 4% range, which is quite expensive by historical standards. So we're underweight there. Obviously got a preference for Rio and Glencore. I just sort of touch on Glencore because it listed U.K.-based listing, but they had an Australian listing that came on yesterday. And the reason we've got that in the portfolio is it does have a big copper exposure, but it's other commodity exposures we think quite favorably of, and they've got a strong marketing business there and trading business from a valuation perspective, it trades on about a 10% to 11% free cash flow yield. So a lot cheaper than BHP in terms of the cash flow that's sitting at the bottom. So that's why we're tilted to Glencore there. The final slide I'd just touch on just from an overall returns perspective is -- the chart is just to highlight that the way we think about it over a longer period of time and the bottom line is the price chart of the PIC. The date there, I believe, is at the end of August. But the lighter blue line there is adding the dividends received on top. And then the orange line on top of that is grossing that up for franking credits. When the PIC was initially set up, the big focus was on that ensuring that there's a tax-efficient income stream as a big part of the total return. Obviously, over time, we'd like there to be the capital growth there as well. But we just wanted to highlight this from a return makeup perspective that there's obviously multiple components to that outside of just where the price is going. So I'll leave my remarks there. As I mentioned earlier, very happy to take questions on anything related to performance or fund positioning.

Okay. So thanks, Sean. I can already feel like getting cooler. I hope -- thanks. We'll now answer any questions received from shareholders or interested parties on the investment manager update. A reminder that any questions relating 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 and questions online and then finally questions over the phone. Whilst preregistered questions are being answered, those present in the room wishing to ask a question, please raise your hand and provide your name to the facilitator. Sylvie, what are the preregistered questions?

Chairman, the first question is from Trevor Coles. Why has there been such a divergence between the PIC share price and say, ASX 200 since about October 2023?

Sean, do you want to address that question, please?

Yes, absolutely. So I think there's a couple of drivers to that. The first one I'd say is the performance over the last sort of 2 to 3 years has been below the performance of the benchmark, whereas the few years before that, it was strong relative to the benchmark. So that is one aspect of it in terms of the total return. Obviously, the price of the PIC is an outcome of that return, but also of the dividends, which I'll touch on a second. So that gap relative to the index from a performance perspective since that time is one driver. The second driver is the overall size of the dividends paid over the last few years have been larger than the preceding few years. So obviously, that capital that's coming out of the PIC share company and NTA, the size of that will impact then the share price. So as that's getting bigger, it's obviously a much higher dividend yield or distribution yield than the overall index that we're comparing it to there. So when you got a situation where you've got a higher dividend yield for the PIC and also the performance has been under as it has been over the last 2 to 3 years, that's why that divergence has opened up.

Thanks, Sean. Sylvie?

Chairman, the next question is from Margaret White. PIC has delivered very good franked dividends year in, year out. However, the share price has declined over a 5-year period. Is it a deliberate strategy of the Board to pay good dividends at the expense of price growth?

This question is really related in a way to Sean's last answer. But our objective is not to maximize dividends at the expense of our capital growth. There are a number of factors here, and Sean just touched on some of them. But our share price is influenced by a number of factors, investment performance, as Sean referred to, broader market conditions, investor sentiment and the premium or discount to NTA. So you really need to look at all of those when you look at where we're going. At the end of the day, when we actually set our dividend payments, we look at the company's financial position, our available profits, our franking credits, and that's how we make that determination. And as you're aware, we have a profit reserve and we have a franking credit reserve as well. So we're able to smooth those dividends over time.

There is a question from David Greenwood. I was very disappointed you abandoned the DRP. Is there any chance it may be reintroduced?

So we had a dividend reinvestment program, but to be perfectly honest, not many people actually participated in it. I think the number is sort of less than 10% off the top of my head. For operational reasons, it really helps in moving to -- because we're moving from semiannual dividends to monthly to suspend the dividend reinvestment program. It's just too difficult. And I do appreciate many shareholders would like to make it easy to reinvest in PIC, and we love that. But it's very difficult to do when you've got a monthly dividend payment. On the other side of that, a number of investments told us that they wanted more of an income component. So that's why we moved to the monthly payments from the semiannual. Sylvie?

Robert Brooke has asked, he would like more details on the proposed distributions monthly dividends.

This is related actually. And I'll go through the dates here by looking at my notes. We announced that PIC was transitioning back in August, right, from semiannual to monthly. Under our new approach, the Board will announce on a quarterly basis the payment of the dividend for each of the following 3 months. So it's proposed that the first quarterly announcement will be made in November in respect of dividends to be paid in December, January and February. The specific record dates and payment dates for each monthly dividend will be set out in the quarterly dividend announcement when you receive it. So then you can plan. But starting at that date in November, the announcement, December will be your first monthly payment. And so thereafter, you'll receive your dividend payments monthly. But you don't have to change anything or do anything.

Paul Bryant has asked, what is the profit reserve for dividends?

Thank you. I believe I just gave that number, but the profit reserve is currently $63 million after payment of the last dividend. And that's enough for us to pay a dividend at $0.08 as we currently have been paying it for the next 2 years. So this is in accordance with what we're doing on the smoothing so that you have a sustainable income stream.

The last question is from Matthew Donnellan. How is the payment of monthly dividends consistent with long-term capital allocation, which the PIC is famous for?

Sean, do you want to take that?

Yes, absolutely. Yes. The move to monthly dividends from an investment process perspective and the way we're investing, absolutely no change, still long-term focus, still it's making investment decisions in exactly the same way. The move to monthly is really just a change in the, I guess, the frequency of distribution of that capital. So if you take the scenario where there's no change to the absolute size of the $0.08, it's just been distributed over 12 installments as opposed to $0.02 from an investment perspective and how we're running and making investment decisions, absolutely no change that comes with that distribution frequency change.

Thanks, Sean. I was just going to move to questions in the room. So give me a moment. We'll now address questions from shareholders and other attendees in the room. For those online, the instructions to submit a question are on the screen, do please. I think we have a question here.

Thank you. Nancy, I'm sorry to see you going in a year's time. That's a shame. It's been a long time.

It's been years.

I've already submitted this question under my wife's name, so I'll repeat it. Just so I'm very clear, the way the company has been run, it's a long-term diminution of capital value. I mean the last 5 years, it's gone down from $1.30 to $1.15. So it's about 2% per year on a 5-year basis. But we all love the 6.5% fully franked dividends. Is that going to be the way you're going to run the company in the future to focus on dividends, fully franked dividends way above market movements, but at a long-term diminution of the capital value? And look, I'm not saying that's wrong, but I'd just like to know from my future investment ideas, whether that's what you plan to do. And look, we all love the dividends. That's fantastic. We love the frankings. It's good also that the price is close to NTA. There are many other LICs that are way below it. So that's good. The monthly dividends, not so sure about that. It's a pain the neck to be truthful, but anyhow. But the growth issue is the thing. And when I first invested in this company a long time ago, I -- it was a chance to diversify my own portfolio, but I did expect I'd be getting long-term growth, ups and downs, but long-term growth. And you are underperforming the index with the ASX 300 Accumulation Index. So can we just have a sort of a statement? Is this what we can look forward to in the future? Or is this not going to be the way it's going to go in the future? So we can make our own decisions on future investments.

So I'll start, and then I'll let Sean chime in. So our intent is not for the capital value to decrease, but there are a lot of drivers that are involved there, investor sentiment, how people feel about LICs today. And I have to say, we have been working for years to try to get that NTA so that it's at par, if you will. So we're not trading at a discount because that was working against us, right? People were buying on the dip and what have you. So our intent is actually to grow the company. We -- now that we're trading at NTA, we would love to do a capital raising if we can. We're working on our performance because you need 2 different things to do a capital raise, right? We need to return to improve our performance, and we would prefer to trade above NTA to actually if we're going to raise more capital. And we'd like to do that to grow the company because it provides us a bigger piece of the market, if you will, greater market share. And also, it provides liquidity in the stock, so when people would like to sell. But it's not our intent. Sean, you might want to add to that?

Yes. So I'd say that the last 3, 4, 5 years that the capital decline there has largely been an outcome of the absolute performance of the fund, which is a combination of the market overall index performance, but the underperformance relative to that. So I guess we would hope that in terms of when the performance does improve, the returns then get to a level where there -- on top of the dividend that's been paid out, the returns there that support capital growth as well as distribution growth. That's the aim. We've just got to get the performance to a level where those returns are above that dividend distribution, which we're working very hard to do.

Let me know, but I'll keep asking questions, if that's okay. To obtain 6.5% fully franked returns given the investments you're making, I assume that you get that by realizing capital gains. Is that the case in paying the tax?

From -- yes, total -- the 6.5% in terms of the distribution, there's 2 elements to that. Obviously, we need the total return of the investments to be above that level, and that's a combination of both the income we receive off the investments we're making, but also the capital growth of those. And then secondly, there's -- in terms of profit recognition and profit reserves, there's -- and funding the dividend, that's made up of, again, the dividends we receive in terms of income, but also then the profits we recognize from a realized profit perspective that feed through into the franking credits. So overall, we need the investment performance to be above the 6.5% sustainably, but also then from an annual perspective to be able to pay those dividends and frank them, that's made up of a combination of the dividends we receive from the companies and also any capital gains that we make through trading the positions in an aggregate profitable way.

So they're sort of self-eliminating aren't they, if you didn't realize the capital gains and pay them out as dividends, that would stay in the NTA and hence, there be capital growth. Is that a fair comment?

Yes. So if you have investment returns above and profit above and pay out a lower number than that, then your -- the capital growth will be there.

Okay. I mean…

Dividend of $30 million, we've only got [indiscernible]. Because I can't see from the accounts prepared here, excuse me, I'm no expert, but I can't see from here, in the accounts, where you draw the $30 billion, if you're only making $12 million or $17 million and you're paying something like about $30 billion. Where does it come from?

So we -- as I said earlier, we have a profit reserve. So we maintain a profit reserve in the company, and then we determine what the dividend is and we pay out from there. So the profit reserve before the dividend was in excess of $90 million. I can't tell you what page is on from here, somebody might be able to help with that.

Which item do we take the dividends from the capital profits?

So we have -- we move our profits to a profit reserve.

It's in the account?

It is. And it should be $90-something million. And that -- so my point is, one, we pay this dividend, we'll still have $63 million in the profit reserve, right? And so that's why we're able to maintain the dividend for now while we're in a bit of a performance slop.

I'm sorry...

No, no, no. Well, we're in a performance slop.

Yes. I just felt that…

So it's there in the profit reserve.

Looking at the buying and selling of investments, the return is terribly low, but it's not of my concern other than to say that other companies, or you can make a lot more on -- maybe you take the risk, you don't buy Westpac shares or you don't buy BHP at the right time, and we don't make enough money. There's not enough money being made.

No, no, no. Let me back up. You cannot look at 1 year's accounts. The company has been running for 11 years. And for 11 years, we've been reserving profits in really good years. One year, we did a special dividend because we had too much, right? So we have a profit reserve and we have a franking credit reserve, right? And the reason people invest in a LIC is because we can smooth the dividends, right? So you don't have that up and down, that you have in years that are bad and years that are good. So right now, you think it's very attractive as we just discussed, and that's because we had excess profits in earlier years, and we smooth it to provide you with a sustainable income. That's why it's attractive to retirees. And that's the structure of a listed investment company. It's not like a corporate. So that's what drives people, right? It's not year-on-year. So we smooth it over the term. And somebody -- at the break, somebody can help you find the profit reserve in there. But there's still $63 million sitting in that after we make this dividend payment. Hence, why most people…

[indiscernible] capital reserve and the funds are there, we should be investing all those funds, correct?

We do. We do.

[indiscernible] I've got figures in front of me. I've only seen the balance sheet today, about $600 million in trading on one side of profits and then losses of about $580 million. Is that right?

So it depends on what you're comparing to. That's 1 year. Generally, people invest in this product look at 3 years, 5 years. And in fact, in our actual -- when you buy the shares, it says we look at 5-year returns. That's what we're shooting for, not annual because we have very good years, and then we have years that have not been as attractive.

So average over 5 years?

So it's actually -- I have it here somewhere. It's actually greater than the ASX 300. But we can provide that information to you. It's why people invest in a LIC, is because they want that smoothing, not an annual return.

I just want you to work a little harder.

Talk to Sean. I don't invest money.

[indiscernible] push the button a bit harder.

We had another question in the back there, sorry.

Chairman, I would like to introduce [ Brian Pecker ].

Brian Pecker, shareholder. Thank you, Sean. I thought that was a very impressive presentation you gave. I've got a couple of questions about stocks in the portfolio. The first is Myer. I appreciate you might have got it as spun out of Premier. It's got a sort of rock star CEO. Solomon Lew has joined the Board. And its share price is almost like a record low. Forget about the people not having a lot of money at the moment, but what do you see 5 years down the track, say, where is Myer going to be?

Yes. So Myer has been held in the portfolio. It's no longer held in the portfolio. So we made the decision throughout the last 12 months to exit the position. You are right, the position did come into the portfolio through the spin-off of Premier. And I think for a business that's got a lot of sales, $4 billion of sales, it's been a very challenging industry, department stores more generally. But there, we felt that at that time, there was a lot of opportunity to improve the financial performance of the company with regard to how they procure their supply chain overseas, the way they run their loyalty program. We felt that the management team, as you mentioned, we brought in, we were well placed to improve those things. And Solomon Lew is obviously an excellent retailer and has proven over many decades of being able to run retail businesses very well. It had a tough 12 months. It's a business that is certainly exposed to consumer discretionary decisions. And at the same time, as you had that, I guess, softness, you also had very strong inflation for retail businesses, the Fair Work minimum wage increases this year, FY '27 it's 4.75%, which is a huge number. You've got high lease costs. And for a low-margin business, if your top line is not growing and you've got that wage pressure, it's a really challenging condition. So the decision was made to exit in terms of us looking at the outlook over the next 12 months. We felt that it was going to continue to remain very challenging from a consumer perspective. So we felt the capital is best used elsewhere.

And the second question is about the LGI group. First, I thought it was a misprint and thought it was the L1G. And so I checked that out and I found out the company existed. But it's slightly different to what you're normally investing in. I'm just wondering what was the reason that you sort of went out a bit left field for what PIC normally invests in?

Yes. So we've owned LGI. It's a company, Landfill Gas Industries, for -- since it IPO-ed a few years ago. And we think it's a really interesting little business. What they do and the origins of the company is they -- so landfill councils have landfills. And historically, the gas that would build up there would be released into the atmosphere. They install equipment to capture that gas and then flare it and turn it into electricity. And the reason that's got value is, one, they can sell that into the grid, but also they generate carbon credits because there's abatement of carbon going into the atmosphere. So that's the model, and they've transitioned that also to installing batteries on sites where they can not only use the generation -- electricity generation they're doing to charge up the batteries and release it into the grid at the right time, but also they can use the batteries to take advantage of the curve in the wholesale electricity price that happens in Australia, which is really an outcome of the flood of renewables into the system where you've got a lot of solar in the middle of the day and lower demand, so you get lower prices. And then in the evenings where there's not as much solar going into the system and demand is high, you get curves in price. So being able to have the batteries that are charging up in the middle of the day and then discharging, you get quite good returns. The reason we like the story is, I think, fundamentally, our view is that the way that energy policy in Australia has been set up, but also the influx of renewables into the system and the retirement of traditional baseload generation such as coal. So the coal units generate flat renewables variable, expectation that there's going to be continued volatility in the Australian energy markets, and a business like LGI for us is a nice way of playing that volatility. They've also got a really strong growth pipeline. The offer they have to local councils to go and install more sites and get the economics out of them. There's a big pipeline there. They're very good at what they do, run by a very good management team. And when we initially bought it, we felt that it was very attractive from a valuation perspective. So I think that's an example of where we do go down the market cap scale into a small to mid-cap companies. We're looking for these sorts of businesses that are often not the ones that have got amazing growth profiles that everyone is on top of. They're sometimes a little bit quirky, but they can be the ones where if you do the work and understand the drivers of the business, if other people -- other investors aren't looking at it, you can often get opportunities to buy them at reasonable prices. So over the time, we've made good money out of that. It doesn't come without volatility as with all small caps. But yes, it's one we've held for a few years, and we still like it.

I had another question here.

[ Philip Short ], representing Personal Holdings Plus, self-managed super fund holdings. I've got a question for Sean on the -- one of your slides, but just a couple of comments on the dividend first. Personally, I think the dividend is too high. I think you should think about cutting it. One of your competitors has had a big fall from grace, we all know who it is, who have been paying out similarly to this for a long time and been paying a lot more money out than they're actually earning. I think you were actually in the same situation. This is like an allocated pension that is heading to 0. So I think it might be a good idea to try and do something about that and try and get the money in for the future. On quarterly dividend -- sorry, monthly dividends, I'm, in particular, not happy about that, especially on do-it-yourself super fund, I'm now going to face higher accounting costs, compliance costs. And for yourself, you've also got issues with -- you're going to have more fees you're paying to the people who are hosting us today, also your bank fees. So you're actually increasing your cost base, and all that does is reduce shareholder returns. So I don't think it's been totally thought out properly. And I think maybe the shareholders should have been spoken to or had a vote or something rather than just make a rush decision. Also on this, there's also an issue in relation to the 45-day tax rule. Because the dividend period is 30 days, if anyone buys and sells shares within a monthly pay period, they're actually going to lose the franking credit on the dividend on the shares that they sell. So that's, again, not totally well thought out.

Can I just back up? This was not a decision that we rushed to, which is what you said. We had lots of feedback from other shareholders, only 8.5% of our shareholders are in the DRP, for instance, right? And most of them were asking us to move, like the competitor you mentioned, to a monthly pay situation rather than semiannual, right? Second of all, we're not going to 0. As I said, we have $63 million in the profit reserve, right? So I agree that if in the future, we don't change the performance and turn it around, the Board will reconsider. We take all those factors into consideration. But there were quite a few shareholders who expressed to us an interest in moving to monthly. And I do appreciate, as a fellow shareholder, I do appreciate the issues with the operational problems for a particular person. But on the side of the tax and whatever, it's different for everybody depending on how they hold it, right? We did work out what the operational cost would be. It was not that -- there is some, but we were -- some of it we managed to contain within the fees that we were paying. Some of it, you are right. You'll see MUFG will be paid a slightly higher fee. But when we weighed it all out, we had many shareholders who wanted the income component. So the decision was not taken lightly. It was not rushed. We've been talking about it for the last year.

You represent 3 shareholdings. I heard nothing. I wasn't asked. So do people contact you and say, we want this and we want that? Or do you actually speak to shareholders?

So we go to many shareholder conferences, right? Where we go is PIC and PIML, who's our manager, actually goes, and we've heard that from shareholders where we meet with shareholders individually. So that's why -- I just wanted to explain to you, we didn't just sit around the table and saying it sounds like a good idea. We actually had thought it through.

So part of the issue here is you're listening to some of the shareholders, but other shareholders aren't given the opportunity. And when they do like this, we're kind of shock...

We'll take it on board…

And there's other people in the room who have expressed today that monthly is not a great idea.

Thank you. We have 7,800 shareholders, right? So I'm just saying. And so we have heard, but we will take this on board because we haven't -- we'll start in December, and then it will be something that we'll put on the agenda to consider as we go through, and we'll take feedback from our shareholders. So I do hear you. I understand where you're coming from.

The other one -- I've got an issue with one of the slides. The slide that says, how do we intend to make money? And I read -- I got the -- read the -- your pack this morning of the ASX announcement. So one thing that stands out is that slide only talks about positive tilts, okay? So where you have an overweight position in a particular stock. I think to be fair and fully transparent, that type of slide should either also contain tilts where you've got a negative tilt or have a second slide showing some of those negative tilts. Now the best example of this is BHP. So basically, the tilt that you've got -- the negative tilt you've got on BHP is pretty much very close to the 7.9% positive tilt that you've got on Rio, okay? You've also -- and I've seen previous commentary, if I'm not mistaken, you don't hold CBA at all, okay? CBA is 10% of the index. That's a 10% negative tilt. I think for better communication to shareholders that those negative tilts should be -- and the larger tilts should be on that slide rather than just having a whole list of positive tilts.

Completely understand your point. We'll take that on board. The comment around BHP, I hope I did address when I was talking about that slide earlier in terms of the reason for the preference of Rio over BHP was that, I think I quoted, 3.5% to 4% dividend yield for BHP, which is the reason why we've got that preference for Rio and the comment that overall, we're underweight -- slightly underweight resources, hopefully encapsulate that there's obviously a skew towards Rio and Glencore there, with BHP on the other side. And the banks, it's a very fair comment. We've been very underweight the banks for 2-plus years now. Hopefully, that's been apparent in the communication, the broader communication. It's been a valuation call. I think we've had a real struggle with the fundamental valuation the Australian banks have been trading at. They've been dislocated from reality in terms of what those companies earn and then how much leverage they got on the balance sheet and the cyclicality of earnings. And the share prices have come back a little bit more recently off the back of the tax changes and the economic outlook. But if you look at the earnings drivers of the banks, I think there was a period there for 3 years up until 6, 9 months ago where the 3 key drivers of bank's earnings -- they are cyclical, credit growth, net interest margins and bad debts. And all of those were about as good as they can get in Australia. You had very strong credit growth. You had almost no bad debts, and you had reasonably rational competition. And I think as we stand here today, the outlook for all 3 of those has deteriorated. And the bank share prices, in our view, are not back at a level that you're getting appropriate compensation for that.

My comment is not there, on any particular stocks or sector. It's just about being a bit transparent and providing a nice picture.