Regal Asian Investments Limited (6L20.F) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the VGI and VG8 Global and Asian Limited Investment Company's updates. [Operator Instructions] I would now like to hand the conference over to Mr. Robert Luciano, Executive Chairman and Portfolio Manager of VGI Partners Limited. Please go ahead.

Good morning, and thank you for joining us for today's investor briefing. Joining me in the room is Marco Anselmi, Shannon McConaghy, and from our New York office, [ Chris Wolford ]. The main purpose of today is to provide an update on the portfolios for VGI Partners Global Investments, VG1, and VGI Partners Asian Investments, VG8. At the end of the presentation, we'll open up to your questions and do our best to answer as many as possible in the time provided. However, before we do that, let me provide a brief recap of some of the recent shareholder developments for VG1 and VG8. Now turning to Slide 2. As most of you would know, VGI announced a few weeks ago that it has signed a binding merger agreement with Regal Funds Management. In terms of a timetable update, I'm pleased to say that earlier this week, we released our explanatory memorandum for the transaction. This means the VGI shareholder vote will be taking place at VGI's AGM on the 27th of May. And if approved, we will be on target to complete the deal at some stage in June. Now I intend to vote my various entity shares in favor of the deal as I believe the transaction will provide a number of benefits to VG1 and VG8 shareholders. In particular, the structure should be highly beneficial to VGI's portfolio management activities. Firstly, this includes the fact that I'll be able to spend much more time focused on the portfolios and research as my business management duties will be passed over to Brendan O'Connor, who is CEO of the combined group, and his team. Secondly, it gives our investment team access to Regal's expertise in a number of areas and specialist sectors such as health care and resources as well as their team in Asia and their office in Singapore. Furthermore, Regal has been very successful in managing its listed investment company, RF1. Now this is partly attributed to their strong distribution and marketing team as well as the application of RF1's buyback. We are keen to draw on their experience in these areas. In addition, the Boards of both VG1 and VG8 have announced on-market buyback initiatives, with the VG1 buyback recommencing and a VG8 buyback commencing for the first time. Now we absolutely recognize that buybacks themselves do not close gaps to NTA. However, they are certainly valuable when combined with other initiatives. Buybacks provide the dual benefit of providing increased on-market liquidity as well as being accretive to shareholders. We are anticipating both buybacks will commence in early May now that the explanatory memorandum for the merger has been released. Finally, the Boards also recognized that consistent dividend income is an important outcome for our investors. Both VG1 and VG8 maintain a target 4% fully franked dividend yield, with VG1 recently paying a $0.045 fully franked dividend per share and VGA paying $0.05 fully franked per share. We're also very pleased with the level of participation in the dividend reinvestment plan for both listed investment companies, and we thank investors for their continued support. So to summarize, we are very hopeful that the benefits of the Regal merger combined with the buyback initiatives just outlined will be beneficial for VG1 and VG8 shareholders. Now turning to Slide 4. Now just to reiterate our investment philosophy, we are absolute return investors. And since inception in 2008, our target return has always been 10% to 15% through the cycle. We take a long-term investment horizon. And we believe this provides us with a substantial competitive advantage in a world that's extremely short-term focused. We avoid permanent loss of capital through doing deep research on investments. However, we hold highly concentrated portfolios in order to maximize our return, but this can lead to volatility in return. We limit our size of funds under management. And this allows us to execute on opportunities that managers with larger capital bases cannot execute on. And finally, we have very strong alignment between the investment team and our investors through our collective team's substantial investments in our list investment companies and unlisted funds. Turning to Slide 5. And just briefly, VG1 is our global concentrated share portfolio and VG8 is our concentrated Asia-focused portfolio. Now moving on to our portfolio rundown for VG1. Turning to Slide 7. Now this gives a snapshot of the portfolio returns over these respective time periods. Now we're obviously disappointed by the short-term return profile. Our targeted return through the cycle is 10% to 15%. We have delivered double-digit returns since inception on our unlisted fund, but that has not taken place so far in the listed investment company, and we're obviously disappointed by that. Having said that, the portfolio we have today, the way that we're positioned, we feel extremely confident that the portfolio can generate substantial returns over the medium to longer term. We're very bullish on the portfolio of longs that we have. We think we own some extremely high-quality businesses that are mispriced. A number of which have held up extremely well in their sell-off. In fact, some are close to their highs, such as CME. And by the -- in terms of the exposure here, you can see we've got substantial short exposure, and therefore, a quite low net equity exposure compared to what we would traditionally have. On average, since 2008, we've had about a net equity exposure in the 70% range. Being in the 50% range is extremely low for us. And it's obviously due to the environment we're in, the opportunities we see on the short side. But yet at the same token, yes, it's a volatile market. Share prices as a whole are coming back. But that -- this is a kind of environment, as a long-term investor, you need to be excited by and you need to take advantage of. And yes, you might buy a share in a great business today. It might continue to fall over the next number of weeks or even months. But the reality is, we'll continue to slowly add to positions where we see extreme value. And like I said, long-term investors should be excited by weakness and pullbacks in share prices because it gives them the opportunity to buy more of extremely good businesses at discounted values. And now if we move to the next slide, please. Slide 8 just gives a snapshot of the portfolio longs by listing and by sector. And the key is really, I think, the next slide, Slide #9, which gives you a snapshot on where the vast majority of the portfolio is invested. Now there's obviously a tail outside of this where we have other companies, businesses that we think are high quality and -- but we've kept at smaller weights for a variety of reasons or perhaps we're adding. But this is where the vast majority of capital is. And you can see there's a skew to the top 10, but particularly the top 5. Now the next slide, Slide 10, gives you a snapshot on some of the changes that we've made or the key changes we've made over the last number of months and even recently. And as you can see from there, in terms of increased position sizes, we've added to our CME position. We've got very high conviction in CME, and growing conviction in CME that the business is now extremely well positioned for secular growth in its various products, particularly in its interest rate derivatives. We've also added in the substantial weakness we've seen through our Pinterest holding and also to Qualtrics. The final position we've also added to in substantial weakness and particularly a weakness around the French election, but also just general weakness in European equities has been FDJ. Now one position we have exited that was in our top 10 is Yakult, and that's been completely exited. The share price has strengthened, and we deemed it prudent to reallocate that capital to better opportunities. Now one of those opportunities that we use that Yakult capital for was building a position in Twitter, which we did over the course of earlier this year, including in March as the stock continued to sell off with the general tech sell-off, and in particular, sell-off in social media or social media-related stocks, which has seen Snapchat, Pinterest, obviously, Facebook when it had its large downgrade earlier in the year. Everything got caught up in the sell-off, and it was indiscriminate. And we've seen a complete derating of the sector. That saw Twitter gets sold off quite sharply. It hit a low of around $32 in March. And in hindsight, it would have been obviously a lot lower if Elon Musk wasn't building up a very substantial 9% stake in the company. He has obviously made a takeover offer, which has been accepted for the company, which is 70% above the low price in March. And as I said, that low price was probably held up by Elon Musk's very substantial buying in the month of March when markets were extremely weak. But that 70% difference from where we were buying Twitter stock to Elon Musk take over, it gives you a sense of the disparity between price and value in some of these technology or digital business situations. And Elon Musk is clearly one of the smartest people and most successful business people in the world. He is not paying $54.20 because he believes that is a price that he will not make money on. In fact, $54.20 is well below the valuation we have on Twitter. We think Elon Musk is going to make a very substantial amount of money on his Twitter investment. Twitter is at the very early stages of focusing on monetization profitability. Has just installed a new CEO who will be fully focused on the business. Previously, Jack Dorsey, the founder, had a part-time CEO role at Twitter with his key focus on Square. And so the reality of the situation is Twitter, I think, exemplifies the environment we're in, in terms of disparity between price and value in this market, the opportunities you can find, the catalyst here being though a takeover offer. And should just reiterate to our investors or prospective investors. And I think investors in general, that this is a market environment where there are substantial opportunities. But those rewards may not be realized unless there is some type of immediate catalyst, and in the case of a takeover, otherwise, investors need to be patient and take advantage of what has been indiscriminate selling in extremely high-quality companies. And I think Twitter, like I said, just reiterates that point. Next slide, please. So this is a snapshot just of the portfolio's exposure to pricing power and ad valorem pricing models. And investors who have listened to a number of our calls over the last couple of years would know that, traditionally, we have very much favored our high-quality business models, high-quality industry structure. And as a consequence, those businesses tend to have pricing power. But we've also had a positive view of ad valorem pricing model business models. And why? Just because they're excellent and previously had free inflation protection. That really wasn't a concern previously, but it's obviously accelerated over the last 6 to 12 months. And I think this gives you a very good snapshot on the top 10 investments that we have in the portfolio and the fact that they have either pricing power and ad valorem pricing points, in some cases, actually both, in the case of Amazon and obviously, in the case of say, in FDJ and Mastercard. In terms of these features, we obviously look for prospective investments that have these features. And so we have a number of other investment positions that meet these criteria. And I should say, in terms of CME and exchanges, we'll talk on the next slide, but we also have built a position in Deutsche Börse, about a 3% weight we've built up over the last couple of months. And Deutsche Börse, very similar to CME, has pricing power, but also in a key part of its business, which is one of the largest central securities depositories in the planet, it has an ad valorem pricing model. So Deutsche Börse has both pricing power in many of its underlying businesses and also has an ad valorem pricing model component to its business. Now we'll just move to the next slide, please, which is Slide 12. Now these are more specific examples. And this is where I'd like to hand over to Marco Anselmi and to [ Chris Wolford ]. Marco will give you a rundown on Richemont. And hopefully, we'll get some questions on Richemont. And I can give that to Marco to answer, plus a number of other companies that he focuses on for us. And then Chris, Amazon. And Chris also hopefully will get some questions because he looks at a number of the larger investments that we have in the global portfolio. Marco?

Great. Thanks, Rob. So here, we just really wanted to give a couple of examples of 2 of our portfolio companies that really are flexing their pricing. So as Rob mentioned, we are always looking for -- to own businesses that have pricing power. And in fact, a lot of the businesses that we own have consistently over time raised prices. However, in the current environment, we're seeing that these businesses really are flexing and increasing the pace of price increases. And we think Richemont is a great example of a company with significant pricing power. In fact, the more expensive their luxury products are, the more consumers are attracted to the product. And we're seeing across all of the Tier 1 -- most of the Tier 1 luxury companies, whether that be LVMH with its Louis Vuitton brand or Prada or even carrying with Gucci, they're all increasing prices more which more than offset the inflationary cost pressures, and therefore, preserve and protect their margins. So what we're seeing with Richemont just over the last few months, they've made announcements on how they will be increasing prices of Cartier jewelry, on Van Cleef jewelry, and also on the broader watch portfolio, so on brand -- watch brands like Panerai, Piaget and IWC. And we think like in the past, these price increases won't have a detrimental impact on demand, which we think is key. We think it was actually very interesting that last week, the Cartier CEO gave an interview in which he was talking about how they may even increase prices for a second time this year, not just on jewelry, but also on watches. And they now even have a 2-year waiting list for some of their watch brands like Cartier, which is unthinkable relative to 12 to 18 months ago to have waiting lists for some of these brands. And that just speaks to how they've very successfully managed inventory, but also manage the perception of product through price. So I think that's a good example of one of the companies in the portfolio that's really flexing the pricing, and it's going to continue to in order to protect their margins. So with that, I might hand over to Chris to speak on Amazon.

Thanks, Marco. On the right-hand side of the slide are several tangible examples of Amazon flexing its pricing power in the last 6 months. In February, Amazon increased its U.S. Prime membership fees for the first time since 2018. Just this month, fulfillment by Amazon introduced its first ever fuel surcharge. And late last year, Whole Foods implemented a grocery delivery fee. The chart at the bottom right shows the historical annual price of Amazon's U.S. Prime subscription. We estimate that the February price increase will result in approximately $3 billion of incremental profit or over 10% increase to last year's total profit. I will now hand the call back over to Rob to discuss the exchanges in further detail on the next slide.

All right. Thanks, Chris. Thanks, Marco. Look, this is just a quick snapshot on 2 key positions. CME, obviously, a long-term investment holding we've had and we've added to. And I've explained that we've recently built a weighting in Deutsche Börse, circa a 3-ish percent weight. And these 2 businesses -- just as a refresher, CME is the world's leading derivatives exchange. It is the only place in the world that you can trade the entire U.S. yield curve. It trades the vast majority of equity index derivatives, commodity derivatives, metal derivatives and energy derivatives. It's also the only venue for Bitcoin futures, which has obviously had substantial growth. Deutsche Börse is the leading European exchange. It has a cash equity business. But a key part of the business that we like very much and has a lot of latent earning power is its Eurex business, which is the dominant derivatives platform in Europe. And it also owns Clearstream, which I mentioned previously, is one of the world's largest central securities depositories, which is effectively a banker to the banks in the world. Now the reason for having this investment position, which now totals just under 14%, 15% of total long capital, is a substantial exposure it gives us to the derivatives complex, but in particular, to interest rates and interest rate complex. As you can see, since the GFC and a period of a very substantial quantitative easing by global central banks, interest rate derivatives have seen growth, but relatively patchy growth certainly compared to the period prior to the global financial crisis. This has been due to, like I said, quantitative easing and the fact that yield curves have been substantially repressed until now. And what we have in this environment is clearly quantitative easing ceasing. Quantitative timing is -- now looks to be on the table. We have interest rate increases coming through from central banks as they look to attempt to moderate the impacts of inflation. And as a result, this is an extraordinarily positive environment for derivative exchanges, of which, the 2 key leading ones in the planet are the CME, and like I said, Deutsche Börse. So we are extremely bullish on these 2 companies. We think they have very substantial earnings upside, untapped earnings power. And like I said, we are extremely excited by the investment outlook for these companies and the earnings power of these 2 companies. Next slide. Look, just a quick update on our short portfolio, which has obviously grown substantially over the last number of months. Shorts at the backstage of '21 had given us a bit of a drag. But that's obviously turned around pretty substantially in the New Year. Year-to-date, it's been a substantial contributor. As we've mentioned in previous correspondence and on calls, we've scaled back up single stock shorting last year, and in particular, basket shorting. Some people ask what's basket shorting. Well, we'll talk about a U.S. housing thematic that we've got soon. Chris will take you through that. But that basket has -- it's 5 stocks that we've selected. And we've just put it together into a combined basket, so to speak. So instead of talking about 5 stocks, we're talking about the general reason why we've shorted those 5 stocks. It also gives us a little bit of spread and I guess some diversification. And it's something that we've looked to undertake and -- with quite high efficacy and effect for the portfolio. We've said in previous correspondence in our letter to you in January that we think that shorting is going to become an increasingly important part of the strategy going forward. And that's obviously been amplified by the uncertainty in the macroeconomic backdrop. Obviously, conflicts around the world add to that, and central banks tightening rates, uncertainty over inflation, all these things feed through into our ability to short, is a substantial competitive advantage. And it's something that, like we've said before, will become an increasingly important part of driving returns and protecting returns. We're still long biased. And so we'll always be net long, but we are able to reduce that net long exposure through shorts, which we anticipate will deliver returns and have delivered returns for us through the cycle. Now 2 examples we're going to talk about now is U.S. housing, which I think Chris is going to take you through, and just expensive loss-making tech short that we've had on which Marco will take you through. So this is Slide 15. Chris, I'll hand it over to you.

Great. Thanks, Rob. The U.S. housing market has been remarkably strong over the last 2 years, with home prices rising to record levels, driven by low interest rates. And as a result, until recently, homebuilders were seeing unprecedented demand, turbocharged profits and also trading at peak valuations. But now with mortgage rates rising rapidly from 3% to over 5%, affordability is declining. And as you can see from the chart on the bottom right, affordability leads housing activity. We are already starting to observe softer demand for housing. As a result, we have been and remain short, a basket of homebuilders and related construction suppliers, and continue to investigate ways to express the scene globally for VGI. I'll now turn it back to Marco to discuss our expensive loss-making technology short thematic.

Thanks, Chris. So moving on to Slide 16 now where I'll touch on our short basket targeting expensive loss-making tech. So this was a basket that we initiated last year, so late 2021, targeting a number of egregiously priced heavily loss-making tech businesses on the view that the -- a lot of these businesses were getting caught up in a speculative rally and where -- the valuations were diverging from the fundamentals. And so we handpicked around 40 of these securities that fit the criteria. And so far, the short basket has worked very well for us. It's been the largest contributor to the short portfolio, with, on average, the securities declining between 40% and 50%. And to give you some perspective, when we initiated the short, the average security in the basket was trading on a revenue multiple of over 20x, which traditionally has been a revenue multiple that's reserved only for the highest quality of businesses. So that -- we have been tactically covering the short basket. So we covered it after the sharp selloff in February. And then following the rally in March, we took advantage and reinitiated the short basket. And so like I said, it's been a strong contributor and a very large -- a very good performer for the short portfolio. By the same token, the sell-off in these digital tech businesses has been indiscriminate. And so good businesses and bad businesses, particularly in the tech space, have been equally sold down. And we have taken advantage of some of the opportunities in that space to reinitiate prior holdings or build up existing positions. One of which was Twitter, which Rob mentioned earlier. I don't know, Rob, if you want to make any additional comments on that.

Yes. Look, I will, in that just to reiterate Marco's comment, that the sell-off has been indiscriminate. A number of -- outside of megacap tech, a number of extremely high-quality digital businesses have continued to sell off due to a general derate. In some cases, a number of these businesses are now trading on metrics that you previously would only be allocated to standard or high-quality industrial businesses with modest growth profiles. A number of these digital platforms are extremely high-quality businesses with abnormally high growth profiles, and they're continuing, and the efficacy has been well established. So we see opportunities there. A number of which, we own. We've also seen companies that are high quality that have delivered high-quality results, but perhaps have not exceeded expectations or have slightly missed. And the selloff in the securities has been substantial. Now that has taken place in some of the holdings that we have, but also in other holdings. And we've taken advantage of this market weakness to either add, as we've discussed, in some of the positions or purchase new positions in which we have done in about 4 to 5 digital businesses that we have been watching now for some time. We were scratching our head at the valuations. But now they've come into a range where we're finding them highly attractive. One business is in the medical technology space and a number in the enterprise software space. And one is in the consumer-facing software space, and we'll talk more about those in due course. But I think just to finish off on the global fund, and it also leads into the Asian fund, but this is a environment where the indiscriminate sell off is creating very substantial opportunities for stock pickers, for long-term investors, and for those who have done their work, have been patiently waiting and can take advantage of this sell-off and the prices that are on offer. Maybe the prices will continue to weaken. But the reality is, as the Elon Musk takeover of Twitter has shown, you want to buy high-quality businesses when you think they're attractively priced. You cannot pick the bottom. You cannot pick the catalyst that will make it precisely turn in that precise point in time. But this is the environment where very substantial returns can be generated by patiently allocating capital in high-quality assets that are selling at distressed prices. And that is certainly the case with digital assets. Now having said that, we'll move on to the Asian fund, VG8. And Shannon McConaghy, who is a senior analyst with us, will help me with that presentation. Now turning to Slide 18. Now this gives you a return snapshot for the portfolio of the respective dates. Obviously, it's been a very difficult investment environment in Asia. We're disappointed by these results. Having said that, the same stands for global. And the portfolio we have, we think, is extremely high quality. We think it's mispriced. We think there are very substantial return profiles in a number of the holdings we have in that some of the prices have been sold to distressed levels with indiscriminate selling. Our portfolio exposures are listed there. We have less short in Asia because we just see -- we actually see greater growth opportunities, less egregious valuations. Having said that, our short portfolio has grown over the last number of months. And really, over the last couple of weeks has also grown as we see selective opportunities. But as a whole, the growth profile in Asia remains quite attractive. The valuations remain attractive. And therefore, our net exposure is obviously higher. In terms of our long exposure, we would expect that to increase, particularly given some of the opportunities we are seeing at the moment. Now if we just go to a quick snapshot on the long portfolio proxied by revenue, and this just gives you a better sense of the true underlying spread that our long portfolio holdings have. And then this is a snapshot on the long portfolio by sector. Now in terms of the top 10 holdings, which is on Page 20, they are listed as follows. The key holdings should be relatively consistent. There have been some changes and a couple of new additions, some sales. And we'll take you through that now on Slide 21. So in terms of the key increases in position size. Japan Exchange has been one that we have been actively adding to as the stock has been coming under pressure. And particularly even recently, we've been active in the stock. Rakuten, for the same thing, that we see substantial disparity between price and valuation. The business has been sold off due to its mobile business, with the core very profit-generating e-commerce components and other components not being looked at and ignored by the market who views it as a telco business for now. But we believe that, that will change. Another increase has been Panasonic, which is a business that we have been adding to over the last number of months. We believe is substantially mispriced, is undertaking a restructuring akin to what we've seen at Sony, what we've seen at Hitachi and also what has been pushed upon Toshiba. And we see some very substantial changes taking place and hidden gems within the business that we do not believe are being valued correctly. We've had a substantial new addition in Daifuku, Daifuku is a global leader in warehouse automation. We'll talk about that soon along with Panasonic. We have owned Daifuku previously. The stock went up considerably. We sold it. The prices come back. And we have taken advantage of that weakness, in particular, what we think is an extremely attractive opportunity. In terms of exited positions, we have exited Crown. We did so really only recently as the price converged. The share price converged with the final offer price from Blackstone. And we put that capital to work in some of the above, particularly in Daifuku. We've also reduced our Nintendo position size. Look, it's extremely high-quality business. We think it's got great growth prospects. We just feel like the prices got ahead of itself. And therefore, we've taken some profits. That doesn't mean we won't potentially add back to it, but that was the reason for the reduction. And then we've also added to some Mercari. It is a, in our view, dominant consumer marketplace in both Japan, but has a very exciting and growing business in the United States. It has been substantially sold off over the last number of months. We think that the price is a very substantial discount to value that we ascribe to the Japanese business, let alone to the U.S. business. And we believe it has been caught up in indiscriminate tech sell-off in Japan. And we believe it's an extremely mispriced high-quality business. Now just turning over to the next slide here. And this is just a snapshot on Daifuku. Like I said, it's a new addition. This is a business that we've owned before but have reinitiated a substantial position on. We're extremely excited by the opportunity with the business. And I'll hand it over to Shannon, who has done a substantial amount of work on the business for us and has had substantial dialogue with the company. Shannon, over to you.

Thank you, Rob. As mentioned, Daifuku is a Japanese company. It's been around a long time, since 1930, and has been a key reason for Japan leading other nations in warehousing automation. This is not just around kaizen or process improvement focus in Japan. It's also got to do with the lack of land and labor shortages. We're clearly seeing these issues now prevail in other parts of the world. And we're seeing rental for inner metro distribution centers spiral higher and wages for warehouse workers spiral higher, which we'll discuss later. Warehouse automation solves some of those problems, obviously, by reducing the number of employees in the warehouse by up to 90% in some recent examples for Daifuku. It also greatly increases the amount of storage per square foot in a warehouse. In fact, it reduces wasted space by 80% to 85%. And you can stack the shelving twice as high. Now one of Daifuku's key strengths is its breadth of products across all range of solutions. And there is no one particular solution for every customer. Daifuku can also provide consulting for customers that have no experience in warehousing automation to implement solutions. One recent expert in warehousing that we recently spoke with suggested that he was absolutely amazed by an example in Sydney, where Japanese engineers that focused on specialized areas of the automation process engaged with technicians on the ground here via augmented reality glasses to commission the system without floors as it has already been tested and optimized in a virtual environment. Beyond just the warehousing automation solutions, we see management of Daifuku unlocking value in its other businesses. The CEO has a track record of improving margins. And the CFO, who we've been engaging with, has been very interested in our views as to how it can improve return on invested capital. We've been in constant dialogue with the company and look forward to engaging further down the track and seeing it really take advantage of what we'll discuss later is a real spike higher in demand for its offerings internationally now that we're seeing labor and wage costs spiral. If we move on to the next slide. Panasonic is leveraged to a slightly different aspects of logistics automation. Last year, Panasonic bought Blue Yonder, which is a world leader in end-to-end supply chain management software. Panasonic itself was already a leader in many aspects of supply chain hardware and software, including artificial intelligence. One example the company recently gave us of how these synergies between software and hardware can be implemented is for AI forecasting of demand conditions, say for barbecue-related perishables, meats and bread buns, over the coming weekend with a deteriorating weather forecast. That can be fed in from the Panasonic analysis into the Blue Yonder software, which can analyze the stock, reduce orders from suppliers, and adjust logistics and trucking orders. Beyond that, Panasonic is a leader in electronic tags within stores. What can actually occur is to clear existing stock, the tags can start displaying 2 for 1 offers, for example. And Panasonic, a leader in visual recognition, can analyze via the videos in-store the facial responses of customers to those tags. It can then adjust tags to suit for different locations to clear that stock with the best possible economics. These kind of solutions lock in customers, and we can see Blue Yonder already has a 70% recurring revenue ratio. Another area of growth for Panasonic is in EV battery cells. Panasonic is a technological leader here and offers the highest density cells in the industry. This is very important in extending range for EVs and is highly sought after by its partners, including Tesla and Toyota. Another really critical aspect is that Panasonic is the only major EV battery supplier to have not had a major recall. This is extremely important for its customers in reducing the risk of its own recall costs, and also, more importantly, reducing the risk of brand damage. Again, Panasonic is another example of a company in Japan that we see is unlocking value by raising margins in other businesses. When we analyze Panasonic, it's clear to us that the market is not pricing any growth into the stock. We can clearly see growth coming from supply chain management and EV batteries. Beyond that, management is attempting to raise margins and focus on other growth businesses. We can see Sony, Hitachi and Toshiba, its peers, have recently been multibaggers over the last 5 years in implementing their own reform solutions. Panasonic has taken real steps over the last year, including a transition to a holding company structure. That's led by the CEO. And in our understanding from engaging with the company is that, that will better facilitate actions such as spinning off poor-performing assets or selling off assets that we think are undervalued to realize that value, that may include the EV battery business. Just skipping to the next slide. I thought I'd just provide a few charts here to give you an example of the scale of the inflection or tipping point that's occurring in logistics automation that benefits both Daifuku and Panasonic. On the left-hand side, we can see U.S. warehousing wages are up 10% year-on-year. In the middle, we can see U.S. warehouse rents are up 18% year-on-year. Both of these factors have been key drivers in Japan being more advanced in its own warehouse automation process. And we can see globally these processes or these factors are driving orders for Daifuku's products. On the right-hand side, we can see U.S. supply delivery times have exploded higher. Our industry conversations indicate that budgets within companies for logistics improvement have risen dramatically. And that's exactly what we want to see for both Daifuku and Panasonic going forward. And now turning to Slide 25. I'll just go through an area we're finding increasingly appealing short opportunities in Asia, and that is Japanese restaurant chains. The Japanese restaurant chains have been facing structural pressures for a number of decades now as the population not only ages, but declines. This adds a lot of pressure to their top line. In addition, restaurants face a disproportionate rise in wage costs as the government mandates minimum wage increases of 3%. Now on the right-hand side, you can see consumer prices for eating out in Japan are rising around 1%. So they're already struggling to pass on the labor cost rise. But one interesting catalyst of late is the explosion higher in corporate goods prices for food, so inputs for restaurants. That's rising at nearly 4%. That's being driven obviously by global price rises in food as well as the devaluation of the yen, which increases the import costs. We see that margin squeeze coming through for structurally challenged businesses as presenting an appealing opportunity to create a basket of shorts that are particularly exposed to this. I'll now hand back to Rob to discuss other aspects of our Asia short strategy.

Look, thanks, Shannon. Look, in terms of other shorts we have on in the Asian fund, we have a short on the Australian consumer, which we believe has high efficacy, particularly in light of the most recent inflation data that we've seen this week, and obviously, a very substantial pending increase in the RBA cash rate, the extreme level of leverage that the Australian consumer has. And that is something that we've been focused on. We've got a number of other single stock shorts that have been successful. One most recently in the Australian technology space where there was egregious valuation, substantial insider selling. And that has proven to be a lucrative short. We have other single stock shorts and other basket shorts on which we're happy to talk about with investors in due course. So please feel free to contact Ingrid, and we're happy to take you through the outline. But as always, we won't go into specifics. Just to wrap up the VG8 update. But we're extremely excited by the opportunities we're seeing, the prices that we're able to add to positions in or either build positions in. The quality of the long portfolio, we believe, is the best it's ever been. We think that it's trading at a substantial discount to its fair value, and as a consequence, see substantial upside in the long portfolio. On the short side, we're seeing consistent opportunities. We're being active in terms of those opportunities. And we're on the lookout for ongoing signs of structural weakness and how we can execute on shorts in the region. Now I'll wrap up there, and we'll hand it over to do some Q&A. And I believe we've got a series of questions that have been sent through to Ingrid in advance and a number that are online. So Marco, if you can take us through the questions, please.

Thanks, Rob. So we'll just move to Q&A now. [Operator Instructions] So we've gone a little bit over time and we're unlikely to have time to cover all of the questions that are coming through today, but we'll do our best. If you still have a question after this session, please contact our Investor Relations team with your query. So the first question here is -- and I'll put a couple of these together, is on Pinterest and Qualtrics. So Pinterest and Qualtrics have been a drag on performance, but you still seem to have high conviction in the stocks. What is needed to help change investor sentiment? Rob, I'll hand that to you.

Yes. Okay. Well, look, I'll get into the 2 of those and then maybe if you want to offer a view on Pinterest afterwards. Both stocks have come off considerably. Part of it is just general tech sell-offs. So anything that's been outside of the mega cap space has really come under pressure. That has been general multiple compression sentiment changing very negatively. And in the case of Pinterest, that's been accentuated by a substantial sell-off in the social media space, which is very substantially impacted the Pinterest share price. Look, it's just recently reported. It's an important set of results for the fact that it's shown stabilization in users, which has been, rightly or wrongly, the key driver of share price and certainly sentiment. So the users have stabilized at roughly 430 million monthly users, impressively and something that we've been very focused on. The revenue per user continues to accelerate. Profitability continues to grow despite very substantial investment in the business. And we believe that it remains an extremely well-placed digital business. It's not a social media company. It's a visual search company. It's a destination for people to search for ideas, for inspiration. And ultimately, that gives advertisers users through a very high purchase intent. And in turn, Pinterest are looking to engage with that audience and allow them to shop on the platform, which is an area that they're making substantial investments in. And to put it in rough math, look, the company is currently at an enterprise value of $11 billion, $12 billion. That is a very modest market cap given the 430 million or so monthly average users. The revenue base, core earnings look like they could be making close to $1 billion over the next 12, 24 months. That's an attractive -- extremely attractive valuation level given the growth. So I'd put Pinterest in the bucket of where Twitter was before Elon Musk got involved. I think it's extremely mispriced. I would have said that at a 30 -- I did say that at $30 or $35 share price. This is an environment where digital -- high-quality digital businesses have been substantially impacted. And what will make that change? Look, perhaps some renewed corporate activity. Microsoft made an approach to the company about 12 months ago. Late last year, PayPal made approach to the company. The controlling shareholder knocked them back. So we'll see. Who knows what the catalyst could be? But it's -- these things are hard to pick. But we have high conviction in the situation. We think it's extremely mispriced. And look, I hate to dwell on it, but the Twitter example shows you that there can be substantial disparity between where a share can trade at and where the ultimate value is. And the bid price that Elon Musk has offered is not what we think Twitter is worth. So it shows you the disparity that can take place. In terms of Qualtrics, they reported recently. Revenue is growing over 50%. We continue to think that the revenue growth rate for that business is extremely high. It's in an extremely high-growth new vertical of software, being experience management software where they are the market leader. Their revenues are tracking well above $1 billion. Existing customers spent 128% retention rates. So they spent 28% more this period on the product -- on the software product than they did in the previous period. There are very attractive metrics. We think it's an extremely mispriced asset. Again, it's a situation where the market price is substantially different to what we think their value is. The catalyst, again, fundamentals ultimately take their natural course, but it can take longer than anyone thinks. It's been disappointing, to say the least. But again, we're taking a long-term view. So I hope that touches on it. It has been impactful to the global fund. But the reality is we continue to have high conviction. We've added to these positions. We won't be adding any more because we feel like we've been in both positions, put at cost around 6% to 7% -- 6% to about 7% of capital to work in both positions. We won't be putting any more to work. And we'll wait for the share price to react to fundamentals over time.

Next, we have a question on Amazon. Do you have any comments on the Amazon results that came out this morning?

Okay. Thanks, Marco. I'll take that first, and then I'll -- Chris, I'll hand it over to you for some follow-on. Look, the results come out. It's a headline of a negative surprise, and stocks sold off. When we saw substantial growth lapping already, very high rates of growth. And that was surprised to the upside. And Amazon Web Services is a very substantial value driver of the business. The advertising business continues to grow, largely in line with what we were looking for. That's another huge value driver of the business. Where the surprise was is in e-commerce. It looks like they've got some more cost headwind and some more growing pains. This is something that they are flagged already over the last number of results. They're building out their business, not just in North America, but globally, expanding their footprint dramatically, their logistics capability dramatically. And that sets the scene for a very powerful earnings pipeline over the medium to longer term. So we continue to have high conviction in the investment. Again, it's more than just an e-commerce business. It's a -- the global leader in cloud computing. And it's the global leader in -- one of the global leaders in advertising, third biggest advertising business in the planet. Chris, do you have a comment?

Yes. Thanks, Rob. I'd just say that the consumer business at Amazon is still growing in the low 20% range on an annual basis over the last 2 years, which is higher than it was growing pre-pandemic. And they've invested an extraordinary amount of money into the fulfillment network, et cetera, over the last 2 years, which will take some time to improve productivity and efficiencies. They've done this before. And they're very focused on it, and they should work their way out of this over the next 2 quarters.

Okay. Thanks. Marco?

Thanks, Rob. We've had actually a lot of questions come through on the LIC discounts. So I might hand over to you, Rob, to make some comments.

Okay. Thanks, Marco. Look, I've touched on the buybacks and the buyback reinitiated for VG1 and the initiation of a buyback for VG8. But simply put, I guess, there's a number of key drivers of managing a LIC successfully and narrowing a discount or eliminating a discount. Now obviously, there has to be strong performance. And that is something that we're very focused on in both the global fund and the Asian fund. And so that's something that me and the team have to deliver in due course. In terms of other key factors and other key drivers outside of obviously the buyback that I mentioned, but there has to be very strong shareholder engagement and regular communication. Other capital initiatives outside of buybacks being dividends, fully franked dividends. And obviously, both VG1 and VG8 Boards have indicated that both companies will be paying at least a 4% fully franked dividend going forward. And then ultimately, to bring it all together is strong alignment of interest between the manager and the underlying investors in those listed investment companies. And in the case of VG1 and VG8, that is certainly the case with the investment team, in particular, having significant holdings in both VG1 and VG8. So we do eat our own cooking. So hopefully, that touches on the discount. But those factors going forward will work in unison, and in particular, underpinned by the abilities that Regal brings to the table in terms of its investor relations capabilities, marketing capabilities but also its general additional capabilities that can assist us with managing the Asian fund, given their Asian expertise, and in general, the additional skill sets that the Regal team will bring to both the management of VG1 and VG8. So I hope that answers the question, and thanks.

Thanks, Rob. We now have a question here on Asia tech. So after the sell-off in various Asian technology sectors, where do you see the opportunities? Is Alibaba the only one you own? And what else do you like?

Okay. So just starting off with the Asia tech, I might talk about this, and then I'll hand over to you, Shannon. Look, yes, there's been a substantial sell-off, but that started mid-last year with China technology sell-off, which was driven really by regulatory changes, which have continued. And that's dramatically punished all of the China technology companies regardless of quality or efficacy of business model. So we've continued to hold our position in Alibaba. It's been disappointing. So far, the stock has traded very poorly. It's trading at a deep discount to what we think the valuation is. Earnings are going through a hit at the moment due to government impacts. And I think the company self-regulating itself to a certain extent. But we see the sustainable earnings profile of the business as extremely attractive, and therefore, we do own it. We haven't added to the position, we've kept our position from a number of months ago. We also do own Tencent. We've slightly added to that position at depressed prices. It's a very similar situation. And so we do think that Tencent and Alibaba are 2 of the best placed Chinese technology companies, but also have global growth aspects and profiles, particularly Tencent. And in terms of where else do we see opportunity, well, in the Japan technology space and particularly enterprise software, we've been building a number of positions in enterprise software in companies that are leaders in the -- in the digital native leaders in accounting software or in other types of enterprise solutions where we see extreme disparity between value, the stock price and the underlying value of the company and distressed valuations. And an example that I think I touched on before is Mercari, which is an extremely high-quality consumer marketplace business in Japan, seeing substantial growth. Yes, there'll be fluctuations in that growth, but the growth is there. It also has a very high-quality U.S. business. And that is a holding of ours. It has been severely impacted over the last few months. Whether that's investor capitulation, whatever it is, but we've taken advantage of the weakness. But it's disappointing when you own businesses that you see long-term investment meriting and they're trading at a fraction of what you think they're worth. But Shannon, I don't know. What are your thoughts?

Yes. I'll just add on Alibaba. What's really interesting is to -- when you engage with the company to get perspective on their self-regulation, obviously, a lot of what they did last year and into this year is improved margins for its own merchants on its platform by reducing the fees that they charge them. Optically, that also reduces headline earnings and results, which Alibaba is quite keen to do in this heightened regulatory pressure environment. We can clearly see that Alibaba still has the capacity in its underlying core business to dial back up those earnings drivers. And we can clearly see that there is potential for significant earnings growth above and beyond what we see is the market forecasting and applying very, very discounted valuations against. Another aspect that I think is interesting is Alibaba is -- it's quite renowned for having aspects to its business that people don't really ascribe a valuation or price to. One that I'd point out to is the logistics business that they're building. Cainiao, which is very, very rapidly growing not just in China but globally and part of Alibaba's global expansion plan. Now we hear talk that Alibaba might look to IPO that business and recognize the value there, which would also reduce some of the near-term costs that have been capitalized in the valuation. And we think this will be a real way for the company to essentially transfer some benefit to shareholders and unlock value over coming quarters and years.

Okay. Thanks, Shannon. And look, thank you, everybody, for joining the call today. We've done our best to try and keep it short and sharp. But as usual, we've gone over. If you do have any more questions, and we know you do, please contact our Investor Relations team, particularly Ingrid, and she can help answer those questions. And obviously, the team is available to speak to our investors if there's a very specific question or something in particular. So look, thank you very much for joining us. We're bullish on our global portfolio holdings. We're bullish on our Asian fund, long portfolio holdings. And we continue to see opportunity on the short side. We appreciate your support, and thank you for joining us.

That does conclude our conference for today. Thank you for participating. You may now disconnect.