Spheria Emerging Companies Limited (SEC) Earnings Call Transcript & Summary

Ready to go. Thank you very much. A very warm welcome to everybody here. We have one esteemed shareholder sitting in the front. Thank you very much for coming, sir. And I presume there a number of people online. So this is the Spheria Emerging Companies Limited 2022 Annual General Meeting, and thanks very much for joining us. My name is Jonathan Trollip. I'm Chair of the company. I'm chairing today's meeting. And I'd like to introduce my fellow Board members who are sitting up here on my left: Matt Booker, who's also the Co-Founder; together with Marcus Burns, who's sitting in the audience of -- our manager, which is Spheria Asset Management. Next to Matt, we have Lorraine Berends, who's an independent nonexecutive director. Next to Lorraine is Chris Meyer, who's the Alternate Director for Matt. And Chris joined us earlier this year as the Alternate Director, so welcome, Chris. As I mentioned, we have Marcus Burns here. And we also have at the back, Calvin Kwok, who's our Company Secretary. Also in the front row is Scott Whiddett, our auditor, and he's able to answer any questions you might have on the 2022 financial statements. We don't expect to see Scott next year because I think he's rotating off and been with us for 5 years now since inception. So if I can just run through the agenda for today's meeting. It's pretty simple. There's going to be a brief Chairman's address from me. That has been lodged with the ASX this morning, so no need to take copious notes. I'll then deal with the formal business of the meeting, which is the -- laying the financial statements, the remuneration report and 1 director up for reelection. That's me. We'll then hand over to Marcus and Matt for an investment update. And after that, shareholders are very welcome to ask any questions they have, particularly on the investment side. You're welcome to ask questions on the formal matters of the business, the resolutions as and when we get there. I'll now move to the Chairman's address. And I think as it's the 5-year anniversary of when we listed, we listed in December 2017 so we're approaching that date, I thought it was relevant to look back and consider what objectives the company, together with the manager, set out when we listed towards the end of 2017. And the basic investment objectives were, firstly, to outperform the benchmark, which is the S&P/ASX Small Ordinaries Accumulation Index over the full investment cycle, which typically the manager considers is 3 to 5 years, so looking at it after 5 years is very appropriate, and then to provide shareholders with some capital growth over the investment cycle and income. And we'll come to the dividends in a minute. But obviously, one of the advantages of a LIC and what we seek to do is to provide a regular stream of fully franked dividends. If we can move to the next slide and have a look how the company has performed over time. And you'll see on that table that since inception, that the company has returned 6.2% per annum. And it's important to note that, that is after fees and expenses. There's a debate in the LIC industry as to whether you provide your results before fees, after fees, et cetera, but we do believe that showing it after fees is appropriate because that does measure what the shareholders receive. The benchmark during that time returned 3.4%. So the difference, the outperformance over the 5 years has been 2.8%. And that is an impressive achievement, and congratulations to the -- to our fund manager. Now the markets recently have been pretty difficult. We'll hear more of that from Matt and Marcus. But as a Board, I think we're very happy with the performance of the manager over this period. If we move to the next objective, and that's looking at the TSR performance. And the TSR is the total shareholder return, so that measures the change in share price and the dividends which have been received by shareholders, the return. And over that -- over the period of 5 years, the TSR return for shareholders has been 2.8%. And that's based on a share price of $1.90 as at 31 October 2022. And the share price closed, by the way, on Friday was $1.98. So the return would be slightly in excess of that. And then looking at the dividends paid, and shareholders have received just over $0.35 worth of dividends since the company listed. So if you look at that graph, if you look on the right-hand side, you'll see that the TSR performance is 2.8%. The capital return is 0.7%. That's because we listed it at $2, and the share price, as and when we did this calculation was $1.90, and then income return of 3.5%. That gives us the 2.8%. And one of the issues we are always concerned about as a Board, if we can move to the next slide, please, is the NTA and its discount in particular to the share price. Look at that graph. You'll see that there are 3 colors on it: the yellow line is the premium or discount, the blue line is the share price and the gray line is the NTA pretax of the company. And we do trade at a discount. We're very pleased that, that has narrowed considerably when we had the market dislocation thanks to COVID in March 2020. That blew out to about 20%. And you can see that yellow line sort of halfway down the graph, which shows that it's narrowed and we're typically in between 5% and 10%. We are not complacent on that, and we really want to continue doing what we can to try to get that discount to be 5% or less. That's -- and we do benchmark ourselves against other LICs of comparable size. We think we're in a reasonable position, but we do hope that we can continue to narrow that discount further over time. We can now move to the dividends that the company has paid, and you will see a graph there which shows the dividends that we've paid since inception. We announced for FY 2022 a target dividend yield of 4% of NTA, and that's pre the benefit of franking. If you gross it up for franking, that is 5.7%. The dividend is slightly higher as a yield calculation. Obviously, if you're trading at a discount because that 4% is worked out on the NTA, not on the share price. So we paid a total of $0.098 quarterly dividends in FY 2022, and that was all fully franked. And that's an increase of 15% on the FY '21 dividend of $0.085. And the final quarterly -- the first quarterly dividend we paid for FY '22 was $0.021. And I -- as a Board, I think it's very obvious that we are very committed to continue to pay a stream of fully franked dividends. That's one of the advantages of an LIC. We have an extremely healthy profit reserve and we have a very healthy franking credit reserve. So we anticipate that irrespective of what the markets might do over the next few years, we'll be in a position to continue to pay these dividends. If I can move now to the formal business of the meeting. I think if we can have the next slide, please, that's there. Yes. And there are 3 matters. As I mentioned, one is the financial statements, then the remuneration report and then the reelection of myself as director. Shareholders who have arrived should have received a yellow voting card entitling you to vote. There are also blue cards which entitle people to ask questions and red cards which apparently allow you to observe, but not ask questions. But I don't see anybody here with a red card. If shareholders are voting online, you must be logged into the Automic investor portal, and detailed instructions on how to vote were contained in the Notice of Meeting. Shareholders joining online may ask questions, and you can type that in the question -- Q&A box displayed at the bottom of the Zoom screen. You can also ask questions verbally if you're online, and obviously, verbally if you're present. And if you do, then please look at your comments section in the Q&A box and provide your shareholder reference number or holder identification number. And then you'll receive a prompt on screen to unmute yourself, and then when the time comes, unmute yourself and ask your questions verbally. As I mentioned, there will be an opportunity after the formal business to ask questions of Matt and Marcus particularly on the investment side of the operations of SEC. The Notice of Meeting was circulated to shareholders within the requisite time, and so I take it as read. Resolutions will be decided by a poll, and I now declare the poll open. The 2 resolutions we put to you shortly, it's very easy, either vote for, against or abstain. And all the proxies received will be recorded and reported to the ASX after the meeting and they'll also be displayed on the screen. And obviously, we'll announce the results to the ASX as soon as reasonably possible after the end of the meeting. The first matter for consideration is the financial statements and reports for the company ending 30 June 2022, and that's the directors' report and the auditor's report, and they're set out in the 2022 Annual Report. Obviously, I'm taking those as read. Does anybody either online or present have any questions on the financial statements, the content of the Pitcher Partners' audit report, the accounting policies adopted by the company or the independence of the auditors? If so, please submit them now. Any questions from the floor on the financials? Great. Very good. Any questions online, Calvin? Okay. I'll then move to the next matter, which is resolution 1, adoption of the remuneration report. As everybody knows, every year shareholders get a chance to vote on the remuneration report. The company, if you get 25% votes against you, you get a first strike. And so this is the resolution that the remuneration report of the company for the financial year ended 30 June 2022 be adopted. Are there any questions on the remuneration report of the company? Questions from the floor? Any questions online? I might get you to show the proxies up there, please. Excuse me. There's a lot of coughing going along, but I'm -- not COVID. I did have it, but I've been negative for over a week. And as you'll see, that looks pretty favorably disposed towards the remuneration resolution being passed. So I will now move to the next item, which is my reelection. And I will hand over the Chair to Lorraine. That said, I think the people might want to see you.

Good morning, everybody, and welcome from me as well. So we now need to consider Jonathan, our wonderful Chair's reelection, in accordance with the ASX listing rules and constitution. The company's constitution requires that at every AGM, 1/3 or the nearest number to 1/3 of the company's longest-serving director since last being elected or reelected must retire from office. Each retiring director is eligible for reelection in accordance with the constitution. As we currently have 3 directors eligible of rotation, 1 is required to stand down. And as Jonathan said, that's him this time. And the explanatory statement attached to the Notice of Meeting provides information in relation to Jonathan. So Jonathan, do you want to make a few comments about your reelection?

Sorry, if I survive the meeting. Yes, it really has been an absolute pleasure working with Matt and Marcus. Now these LICs are challenging in some ways, but if you've got a good manager who achieves what they set out to do even despite of challenging markets, and you've got a good backup team, which we certainly have with Pinnacle, it's been an honor to shareholders. And if you choose to reelect me, I'll work to continue to serve you. So that's probably enough for me. Thank you. I'm happy to answer any questions.

Thank you, Jonathan. So does anyone have any questions in relation to the resolution? If so, raise your hand or submit them now. Anything online? No? Great. Thank you. And I'll now put the resolution shown on the screen to the meeting, and the number of proxies received as of 48 hours prior to the meeting is shown on the screen. And you're looking pretty good, Jonathan. Please cast your vote on this resolution. [Voting]

Thank you very much. That concludes the resolutions for the meeting. And I'll just give everybody a few minutes -- a few seconds to complete your votes and then I'll declare the poll closed. There is one item I did want to mention, which is in my Chairman's address and I omitted, but it's been pointed out that I omitted it. And that's to do with cybersecurity. And obviously, with the Medibank and Optus issues, it's very much at the forefront of, I suspect, every Board in Australia. We're very cognizant that shareholders have entrusted us and share registry, Automic, with your private information. We've been in touch with Automic, and we, together with them, sought to ensure that we're doing everything we reasonably can to protect your information. And they have a number of measures which they undertake, and that's independent certifications, data encryption, external expert penetration testing, information security, privacy, incident response plans and so on. So we believe they're doing everything they reasonably can. We very much hope we don't have an incident. But anybody who says that they're 100% safe is wrong. In my view, there is no guarantee here. So we just hope that we are not attacked or, if we are attacked, that we're successful in defending that. I think I'll now declare the meeting -- the poll closed, and the results of the poll will be announced to ASX as soon as are available. That concludes the formal business of the meeting. I will now hand over to Matt and Marcus for an update from the investment manager. Thank you.

Thanks, Jonathan and Lorraine. It has been a pleasure working on SEC with both of you. And just joined by Marcus Burns, a co-portfolio manager, and we'll just give you an investment update in terms of what we're seeing out there and obviously, I guess, reiterate how we think and how we invest philosophically. I'll start with the first slide. In terms of the product, it's always -- the product is designed to emulate our Australian Smaller Companies Fund, which is a unitrust. What we do focus on in terms of investing is cash-generative companies. And when we talk about cash generation, we're talking about free cash flow after all CapEx, et cetera. We do prefer lowly geared companies. That, I guess, diminishes risk in terms of buying companies that are lowly geared. Sometimes we do, I guess, go up the risk curve and buy companies that are geared, but we know the cash flow can amortize that debt. We are very focused on valuations. There's a lot of valuation discipline in what we do. And I guess we didn't get caught up in the last few years of just complete mania on the tech stocks. So I think that's helped us in good stead on a relative basis. So yes, valuations are important to us. And I think everyone knows, we invest in around 40 -- probably around 40 stocks generally in the portfolio. The maximum sort of weight is around 5% in the fund in terms of an active weight against -- relative to the index. And I think the good thing about this LIC is we get capital growth. And we have paid out $0.35 -- over $0.35 in dividends in the last 5 years. So you get capital growth, lower risk with a dividend yield, which we think is quite attractive. I guess I'll pass on to you.

Okay. Thanks, Matt. Okay. The next graph just gives you that summary again, and I think Jonathan went through it earlier, just showing performance of the actual company or the company's assets over time. Obviously, we are very competitive. We want to beat the index. And over time, we've managed to do that. Relative performance has been -- lagged a little bit early on, going to that COVID sell-off when we had a little bit of stuff in media and tourism leisure that was particularly impacted by COVID. Fortunately, that rebounded aggressively, and we actually added some of those names during that sell-off because we thought that we're fundamentally sound and we're going to come out on other side. And that did lead to a strong rebound in performance in 2020, '21. And then as Matt just touched on earlier, I think one thing we do, I think, fairly well versus maybe some of the peers in small caps is that focus on fundamentals, both as classically trained investors, and have a lot of focus on the fundamentals of cash and balance sheet, which sounds kind of boring in a really aggressively rising marketplace. But when things get tough, those things come back to the fore. So the next page you've got here is actually an example of a stock we own, which is Flight Centre. So we talked about stocks we own and give you one example of a stock we own and while we own it and give you some insight as to how we think as managers. Flight Centre, as you can see on that chart there, the left-hand chart maybe a bit confusing but we just try to compare reported earnings, which is the EBITA number you might see, and then the free cash flow before interest and tax. And that's -- it's our way of looking through the accounting to say, "Okay, what's actually backed up by cash flow?" Sorry about the coughing there. And I guess, like the math in my view is, over time, earnings should approximately match cash flow or cash flow should match earnings. In small companies where they're in a start-up phase, that isn't always the case, or in some cases where there's lots of working capital going to a company, that cash flow won't match. And they are typically companies we're more cautious on. But as you can see with Flight Centre, their history, that green line at the top there shows the average cash flow conversion, which is about 100% over a long, long period of time. So this business does generate very good cash from its earnings. You can see that the last 2 or 3 years have been tough for Flight Centre as, obviously, the COVID crisis hit and people have been unable to travel. And that's seen the company go into fairly big losses. Fortunately, they've responded and cut a lot of their store base down, trimmed a lot of costs and aggressively growing the corporate travel business, which people don't realize is actually significantly more profitable for the company than the retail business. So they've got a lot of retail stores. Everyone thinks the retail operations is where they make their money. It's actually the corporate side. Retail is a bit more cyclical. And they've taken the opportunity from COVID to go through and rightsize that store base. They've dramatically shrunk the stores, put a lot more online and put a lot more systems and operating leverage in place. So we think that the cost base has been fundamentally restructured. And thus, when we see a recovery in the top line, we should see tremendous recovery in earnings, which we expect to come through. On the right-hand side there, you can just see some of those travel numbers. And you can see that obviously those blue lines are what happened during 2021 when COVID came in and we were banned from travel, particularly internationally. And you can see the black line is how we're tracking in 2022. And it's, in some cases, tracking well above -- well in line with 2019. They have a good significant operations overseas in Europe and the U.S. as well, so some of those countries have opened up significantly faster than we have in Australia. So their business is seeing a -- it's back in profitability. And we think it should trade pretty well once Australia is completely open as well. Matt, do you want to add to that?

Yes. Look, if you go back historically, Flight Centre has had issues in the past, World Trade Center, the GFC. And each time, the company has rebuilt out of those downturns and have made a lot of money. So we think we're at the sort of start in terms of that recovery. I think you're going to see a multiyear recovery in the business with strong cash flow generation. The good thing about this business is they get paid upfront and they pay the suppliers at the back end. The balance sheet is already replenished very quickly after a few years of negative cash flow. So we think the company is in good stead. I think the cost-out story that Marcus mentioned is significant for the leisure business. And I guess, COVID was an opportunity to take their cost out of the business and make cost structurally lower in the business. But yes, we're quite bullish on the prospects for Flight Centre. We know that there could be a downturn in consumer discretionary behavior, but I think travel will probably over-index within that. People haven't been able to travel throughout the years. So we're quite positive on the outlook for Flight Centre. Moving on to the next slide, please. Yes, sure. I'm not sure how it works.

As the airlines were reducing their payments to the agents, does that kind of have an effect? Does it also apply to the corporate travel?

It's more the leisure side, but yes, that has impacted Flight Centre and other travel agents. The point we make is that capacity hasn't come fully back online in the airline industry. It's only -- I think if you look capacity, we're probably around 70% on the international routes. And I think capacity will come back online because returns are excessive at the moment, and that will help that equation. I think if there's more leverage in terms of capacity, then I think that you'll see a bounce back in terms of commissions. The other asset of it is Flight Centre is such a big player in the market. They've got the ability to pass on some of that reduced commission through fees. And also, the leverage they have with the airlines as well, they're able to negotiate override-type commissions, so performance-based type commissions. So yes, look, at the moment it's a bit of a complex scenario, but we think things will improve over the next year or 2.

And on corporate travel side, how do they compare to Corporate Travel Management?

It's a good question. Look, Flight Centre is a bigger player. They haven't, I guess, made the acquisitions that Corporate Travel has to build the footprint out. It's been organic growth. Flight Centre has made -- I mean, they've won a few significant contracts in the last 12 months as well. And the corporate travel business, actually the revenue is higher than it was pre-COVID already. So that business has already recovered. Corporate Travel, which we used to own actually, we bought it in a downturn, still hasn't fully recovered in terms of revenue. And it's made some acquisitions trying to achieve that goal. So look, we think Flight Centre is probably -- I think people don't understand the strength of the corporate travel business in Flight Centre. It is -- it used to be the majority of earnings pre-COVID is from corporate travel. So that's nearly $300 million of earnings came from corporate travel. All right. Next slide. In terms of sector weights, and we get pulled up on this quite often. We do have -- when you look at the right chart, we do have an overweight exposure to consumer. If you actually break up the categorization there, InvoCare is actually a consumer discretionary company within that sector weight, which we can't really rationalize. In our view, it's for a consumer staple business. So if you back out that 5%, you can understand that you can whittle down our weighting there. Also, obviously, we have significant exposure to Flight Centre as well. So -- and we think there's different mechanics around, I guess, that travel spend versus consumer and retail spend. Do you want to add something to that, Marcus?

I'd also add that, I mean, it's very easy to say we're going to a tough consumer environment, sell every consumer stock. But it's a very binary, a very narrow view of the world. I mean, if you think about what's actually in the share price as opposed to what could happen in the future, that's what we get paid to do. So obviously, we -- Matt and I are aware that next year we've got rising rates coming through knocking people's spending, you got rising utility bills, et cetera. So it's not a great scenario for consumer spending. We get that. Also, unemployment is very low right now, probably tick up a little bit next year. Having said that, many of the retail stocks in Australia have been aggressively sold off in anticipation of that. And it's our job to look through that and say, well, okay, the sell-off is giving us opportunity. Do we think the sell-off is actually being overdone with the softening environment? And if that is the case, then it's still not smart for us to be buying. So just avoiding the space because there's going to be some top line pressure doesn't factor in what could be in the share price already. And so we do have a bit of exposure beneath that to retail names. For example, we've got Universal Store in there, which we think is a bit more immune to discretionary spending. It's marketed between 15 and 25-year-olds. So they don't have a mortgage, they're not paying their utility bills yet, it's their parents. I've got a 13-year-old so I know a bit about this. And in 2023, I'm sure I should be doing the same thing. But I think the main thing is Matt and I don't have a problem buying to these areas where we see top line pressure if we think it's more than reflected in the share price. I'll also flag that if you look through the top 10 holdings there, we spoke about good balance sheets and good cash flow. And all those names have strong cash flow except for Nitro, which is basically under takeover, but it was going to cash flow next year. And probably about half of those companies are net cash on the balance sheet. So our balance sheet are actually net ungeared with a big chunk of cash. So it is something we look for and I think it does differentiate us in more challenging market environments. And it's also what makes some of the names attractive to take over. So we haven't got [indiscernible] here, but a lot of our names over the last 5 or 6 years have been bought out by private equity firms or corporations because that free cash flow and generative nature of the businesses we're buying, strong balance sheets and the good valuations are also what is appealing to these corporates and these private equity firms. So yes, that's the core of what we do, and we do get probably a disproportionate amount of takeover activity impacting our funds in a positive way.

Next slide, please. Yes. So the outlook, look, we don't have a crystal ball, but we do believe that the share price declines that we've seen present a significant opportunity for long-term investors. As Marcus said, a lot of our companies have cash in their balance sheet. So in terms of the solvency, there's not much solvency risk. The question is, I guess, what sort of recovery are you going to go and see in earnings and also what multiple are you paying for these businesses? And as Marcus said, some of these retail companies are trading at very low multiples. We own Michael Hill, for example, which is on 4 or 5x free cash flow. It's got $100 million of cash in the balance sheet. We think that a lot is priced into that company. I mean, even if earnings halved, it's going to be on 8 to 10x free cash flow, which, on an absolute basis, is still cheap. So we think a lot is priced in. The good thing in the last, I guess, 12 months has been that growth sort of momentum narrative has collapsed, and that's presenting opportunities as well. So we're not dogmatic on things. We'll go through and reassess companies that have fallen, and some of those companies are showing up in our radar now. So there's good opportunities out there. I think there is still some risk in the market. There's over-exuberance in the -- in some sectors, particularly the lithium sector. Conceptually, it's very appealing. But we've seen in the past, it is cyclical. And I think 2019, you saw demand for lithium drop and you saw the lithium price fall pretty significantly. And a lot of the operators in the Australian market are explorers or they have mines which are very high-cost that they're currently, I suppose, getting up to speed. So we think the lithium space is pretty risky. Now I think everyone is kind of seeing the downturn coming before it's coming. And that's an opportunity, I guess, markets for the most 6 months before the economy. So that's an opportunity in our view. I guess where the risks are is just operating leverage. I mean, some of these companies have high fixed cost bases. If revenue does fall, it does have a pronounced impact on earnings. So we're just going to be conscious of operating leverage. There is -- there was a lot of inflation in the system. It feels like that has peaked. I think the interest rates increases have had their impact. We talked to a lot of companies. It feels like the wage side of the equation is improving. Immigration is back on. I think there is -- there's companies -- tech companies now shedding staff, start-ups, global company shedding staff, so that sort of tech wage inflation has really come off pretty quickly. It's almost like a hand brake has been called on that sector. So that's -- I think that's going to be a good thing for a lot of our companies in terms of that inflation peaking coming off. And then we've seen merger and acquisition activity in the technology space. It has been in some companies which, I guess, are a bit racy and we haven't owned, like Tyro Payments which, to us, it's hard for us to see that company making a profit. But obviously, it's got a lot of revenue. It's a bit like Afterpay was a few years ago. So there is a little concern, I guess, around some of that M&A activity. But we think it will probably spread and permeate through the space and there'll be quite a bit of M&A in the next 12 to 24 months. A lot of the corporates, I see on good balance sheets, the bigger corporates, and they will look to make acquisitions. And they are struggling for growth. So I think there'll be an M&A theme over the next 12 to 24 months, particularly given the returns that are available in the sector.

And we have been a beneficiary then obviously with Nitro, touching that. Nitro is a holding we owned that was unfortunately aggressively investing this year. So it was due to come back into cash flow positive sort of this year or next year and spend a lot of money to expand, which is not the share price. And it did actually get a couple of bids, it's got a bid from of Potentia and now a bid from KKR. So the share price is well up from the lows now. So to Matt's point, there are people out there looking at these tech names that have been really beaten up. Nearmap [ has got a ] good bid for which we didn't own because it wasn't -- also it wasn't really in our process. But there's people that are looking, there's definitely cash on the sidelines. And I think once those rate levels sort of stabilize, you will see a lead to where rates will go to. It will definitely encourage more M&A activity, I think, come back in the space. So while prices remain low, then there'll be feeding frenzy.

Yes. I guess, small cap's a disproportionate beneficiary of that. We've had 26 takeovers across our strategies in the past probably over 6 years. That's not like we're going out there trying to identify takeover targets. It's just the way our process works, I think it's a byproduct of what we do. And the average premium across those takeovers has been 50%. So you can make a lot of money basically owning these companies. I think we'll end it there and open up to questions if there are any.

I'm not sure whether this is a question for you guys or it might be for the Chairman. The company has a relationship with Pinnacle Investment Management. I'm just wondering how that arrangement works.

There is a microphone there, yes. When we set up the company, we entered into -- the company entered into a services agreement with Pinnacle, who provide legal services, provide accounting services, Todd Curby is over there, provide the marketing services under Chris Meyer. The annual charge is started $60,000 and it goes up with inflation each year. But it is a model which, I think, from my perspective, having been on more than a few other LICs, works very well. The service they provide is really good. So from a Board member perspective, we get the accounts produced by Todd, and they're very good. Obviously, we got Scott and team auditing them. But they provide the backup services for the company and they also provide the backup services for the manager. That's a separate relationship, obviously, between Pinnacle and the manager, and they tend to hold a clear stake, but enabling Marcus and their team to focus on managing the money rather than on the administrative side.

It's just that at their Annual General Meeting, I noticed they get performance fees. And I thought that was a rather unusual arrangement considering that they're not actually part of the performance.

So I think the way that, that works, they certainly don't get any performance fees from SEC, the listed company. All they get is what they get under the administration agreement which, as I said, started off 5 years ago on $60,000, it might be $75,000 a year. Frankly, it is a fantastic value for money for us as a company. I think where they get their performance fees from is that they have an equity stake in the different fund managers. So I'm not sure what the stake is in Spheria, the manager. And I don't know whether it's on the public record, but typically, it's between 25% and 40% of the range of fund managers they have. So when those fund managers get performance fees, for example, if the manager were to get performance fee, Spheria, from the company, a portion of those would go to Pinnacle by virtue of its equity ownership of the manager.

So it's not really like a shareholding arrangement like we get with...

Pinnacle has no shareholding arrangement as such in Spheria. I mean, they are free with their own portfolio to go and buy shares if they want to, but then they'd be in the same position with any other shareholder.

So Pinnacle is a shareholder in Spheria, the asset manager. They have 40% ownership. And I guess if Spheria generates a performance fee, they share in that performance fee. And that's their model across all the affiliates they have. And I guess we wouldn't exist without Pinnacle's backing support in terms of equity and in terms of the services they provide in terms of sales, distribution, marketing. And I think what's underplayed is the legal compliance aspects they provide us and also the back-office servicing, which I think is probably best in the business.

It's a very good question. Thank you. Any other questions? Any questions online, Calvin? Anybody? Okay. If there are no further questions, I will declare the meeting closed. Thank you all very much for coming, and come have a cup of tea or coffee. Thank you very much.