WHSP Holdings Limited (SOL) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen. It's a tick after 12:30. Robert Millner is my name. I would like to welcome you all. We do have some people in the room. And to those people online, I have with me Todd Barlow and David Grbin from Soul Pattinson, and Lindsay Partridge and Robert Bakewell from Brickworks. As I stand here today, when we look back 8 or 9 months ago, it's very difficult to explain exactly what's happened. And I'll give you a couple of examples. The coal price is USD 50. It's now over USD 90. Copper was about $2.30 a pound. It's now well over $4 a pound. And if anyone would have told me that detached housing was going to take off like it has, I wouldn't have believed him. So it's been an interesting 8 to 9 months, and we've all been through it. So I think the most pleasing thing from today's aspect is the profits from both companies and being able to increase our -- both dividends again. And looking to the next period ahead, which you'll hear from Lindsay and Todd about, it looks very positive as well. So on that note, I'll hand over to Lindsay and then Todd, and then we'll do some questions when we're finished.

Thank you, Chairman, and I'd like to agree with his comments. It is great to see you all in person, like somebody in person. It's been a year that, I guess, none of us anticipated how it would turn out. So anyhow, we'll look at today. Good afternoon, and welcome. I'll go through the overview of the results, a little bit of look at the divisions. Rob Bakewell will cover the financials, do the outlook, and then we'll take questions at the end of Todd's presentation. So just looking at the -- let's make sure it's right, yes. Just looking at the headline results. The statutory profit, up 22% to $71 million. Contribution from the property was the standout, a stellar performance. And demand for our industrial property continues very strongly. The Building Products was mixed, Australia on flat sales, and I'll talk a little bit about that later on why they're flat. But we've had a lot of operational improvements. I guess we made a lot of hard decisions, and we managed to lift our earnings there about 60%. And in North America, we were severely impacted by everything that was going on over there. And of course, I won't talk about Soul's, but Todd will, but I will mention that in the 6-month period, the stake that Brickworks has in Soul increased by $720 million, almost as much as what we've got in the Property Trust, what an incredible effort. Looking at the other headline figures. Revenue was down a little bit, 4% at $432 million. The underlying EBITDA, down the same amount at $163 million. The underlying profit was $90 million; underlying earnings, $0.59. And the dividend, as the Chairman mentioned, was up $0.01 to $0.21. And if we just look at that graphically, we haven't quite caught up to Soul's. They have incredible performance on dividends, but that gives us -- we're on our -- well on our way to get 8 years of increasing dividends but over 40 years of never going down. So hopefully, that's what investors see in us. It's a dependable stock that they can rely on receiving the dividend. Just looking at the asset backing. We're a very, very solid company. The current value of -- until this morning anyhow, of Soul's is $2.9 billion. The Property Trust client bounced again to $777 million. Building Products, we've invested $692 million. I don't know if you'd say that's the worth of it. I think we're worth somewhat more, but that's the asset that -- assets invested there. And Building Products North America, $208 million, giving us a total asset backing of $4.1 billion, less -- net of debt of $479 million. And so if we're not taking into account capital gains tax, that gives you an asset backing of $27 per share. Just looking at the health and well-being of our employees. First off, particularly safety, we had a really very difficult result to improve on in Australia with no lost time injuries, and I hope we can continue that until the end of the year, but that's taken a lot of years' work to get there. I can remember 20 years ago, we're running at a lost time injury per week. And so that's an incredible effort of everybody involved there. We're still putting our systems in the U.S., and we did go back a little bit. But I've got no doubt, as we apply the systems we've used here and some of the disciplines, that we're able to get the United States injuries down as well. Now looking at the divisional review. I think most of you are aware, who are familiar with the stock, there's 4 main parts to Brickworks, being Investments, Property, Building Products Australia and Building Products North America. Looking -- I won't say much about the investments because Todd is going to cover that, but I'll just put this to see, from our point of view, the EBIT we received from Soul's was down a little bit, and it's more because of the restructuring that went on there. And I'll -- once again, I'll leave that to Todd to explain. The dividends received went up $33 million from $32 million. And of course, we had that massive increase in value during that period of time. Looking at the Property. EBIT of $92 million was up 3% on the prior period. It was particularly resilient, I've got to say. When we were sitting back thinking about how things were going to turn out, I mean I guess people hadn't anticipated how much it was going to drive the growth in online sales. And also, I think at the same time, automation in warehouses has got to this sort of like critical mass and critical ability. And a lot of companies are looking for efficiencies, and automating their warehouse operations is one of them. And so we've been obviously getting the benefit of that as well. We had -- during the period, we had that negligible rental arrears, which was also positive. When you look at the caliber of the tenants we've got, that's sort of almost a given that they'll be able to pay their rent. The income increased in the trust by 7% to $16 million. We did -- every time I say -- or I said I don't think there'd be any more cap rate compressions, but there was another 25 points, which -- of course, now that scale of the trust is such that yielded $40 million in valuation. And because the Coles and Amazon buildings went unconditional, we were able to declare a previously unrealized profit that was held on our balance sheet of $38 million on those 2 lots, and that comes about because when we first put the land into the trust, we only can report half of it. Looking at the asset values. The trust has quite a solid graph there, and we said we're making steady progress at every period. And to increase it by $50 million in 6 months, I think, is a pretty good effort at $777 million. Total value of the Trust is 202 -- sorry, $2.2 billion. In that, there was $410 million worth of land to be developed. And the gearing in the trust is at 35%. So since we set the trust up, it has grown at a compound rate of 17% per annum, which I believe is also an excellent result. This next slide, we put a little bit more data in here than we had because I know a lot of investors and analysts have a bit of trouble, struggling with where is it up to and where is it going. So just looking at where is it up to, $1.749 million -- sorry, $1.749 billion in asset value, $88 million a year in gross rent. The average WALE is 5.1 years at a cap rate of 4.8%. Now that's for 708,500 square meters. We have currently agreements to lease to build another 171,300 square meters. And we've said that, that will raise the trust income by about $38 million or 40%. So that's really quite staggering. And then we're saying here also there's another 336,000 meters to develop. So in other words, about twice that amount again, still that same to develop, then we have other land yet to go in. But that 171,000 meters also includes the Amazon and Coles buildings. And because of the scale of those buildings, as in the volume of them, that -- the construction cost is somewhat higher. But to give you some figures, that 171,000 square meters has a construction cost of $370 million. But I don't think -- well, I guess what I'm really saying is I don't think you can project that forward on the balance of 336,000 meters. I think you've got to look at the entire trust, that the value -- those who are trying to get some numbers out of that, look at the entire trust that, that pull in and then project it forward if you want to get a feel for where it's going. But that's definitely going to keep us busy in the next 2 years, and there's lots of discussions going on about future agreement to lease. And I'm sure that we're going to have quite a strong period and be able to bring some more in, in the next 6 months. Just to look at some of those properties so you get a bit of a feel for them. This is the Oakdale South. There's 25,000 square meters about to be built in there, along with an additional area for spec, another 40,000 square meters. And that's just about -- then we'll finish off Oakdale South. Looking at the Rochedale Estate. Approval has been secured for developing remaining 2 sections, those 2 buildings there. One is for Woolworths at 10,600 square meters. The other one is for a party that will remain nameless, which will take up the balance of that. So I think in total, there is 30,200 square meters to go in there. Looking at the monster, the Amazon building. And if you don't think that building is big, just look at the size of the cars. There's parking there -- there will be parking there for 2,000 cars. It's got twice the steel as the Eiffel Tower in it or more steel than the Sydney Football Stadium, Olympic Stadium, to give you some idea. The ground -- and interesting about this building, it's 53,500 meters on the ground, which is not that big, only 11 football fields. But because it's actually got 3 stories above ground, there's, in total, 190,000 or about 37, 38 football -- sorry, yes, football fields. So it's enormous, enormous building. And when you get in there, you can walk around for an hour and not really make much progress. It's -- you just get very tired very quickly. You don't go anywhere. And that's a few weeks to go before the rain, but the building, as you see, is pretty well closed up. So hopefully, we'll be able to continue there during this poor weather. Now if you look in the background of that photo, you'll see there's a 4-lane bridge that goes out of the Sydney water pipeline and a full-lane road that runs in major interlink that comes in. Once that was completed and handed over to Coles -- so handed over to the local council, that's allowed us to commence the Coles construction but unfortunately because we wouldn't have done much in the last few weeks. But together, they will be 119,500 of gross level area, leaving it another 257,000 square meters to be constructed on Oakdale West. Looking now at Oakdale East. If you look just to the left of that photo, you'll see our Plant 3, which is our -- one of our big baseload brick plants in New South Wales. It's most probably currently the largest brick plant in New South Wales. We've been running there since the mid-'70s, and it was spliced off. It's a little 10 hectares of land, 10 hectares. There's 88 hectares on the site. And we've built those 5 buildings. So we're in the process of building them. The large one there is the new masonry facility. And the one to the front will be a new warehouse for ourselves and a new office for our bricks, roof tiles and masonry staff and a new sales office there. So total on that site, we're taking ourselves 16,100 meters, and there's a further 19,700 square meters on that site. So I think that might give you a bit of an idea just how much we've got underway currently in the Property area. Just looking at Building Products Australia. The market activity, it's been a bit mixed over 6 to 12 months. We were really at the bottom end of a cyclical downturn when the pandemic came along. And as the Chairman mentioned, we were surprised at how much this affected people that they wanted to move into detached housing, and we're also seeing they want to move from cities into country areas. I think it's -- if you go through 4 hours from Sydney, you'll be very lucky to find any houses for sale. And people wanted to move out of apartments. And so this is obviously favorable houses. And regional areas use bricks and roof tiles, and that's positive for that going forward. That, most probably, effect won't be felt until we really start to feel the uptick from the government stimulus. And that's, of course, taken really -- it's most probably taken. Because we're going through the cyclical low, we really didn't start to fill that in any great force until we got into late January, early February. And we're seeing strong order intake over that period of time, but of course, I don't have to tell you what the last few weeks has been like. We've got very strong orders, but there hasn't been much dispatch. But having said that, our sales, most probably March, will still exceed significantly what they were last year. Looking at the results. As I said, the earnings were up 60% to $16 million EBIT. EBITDA was $43 million on flat sales. So internally, it was a good performance from the team to keep their costs under control. And there were some savings in there that came through earlier on, and their gas being slightly cheaper as well, which assisted things. I guess we sat down and worked out what we're going to do during the pandemic, what was going to be the main changes and how would we make sure we came out of it stronger. We focused on 4 things that we could see there's going to be a shift in those types of products that people wanted. We've been in monochromatics maybe for 20 years, and we can see that model colors were coming back strongly. So we realized that we needed to do a lot of product development. We knew that we would need our capital projects complete so that, that would assist us, give us a better base to produce strong and keep our costs under control. We realized that we needed best -- better communications with our customers. And our most important asset, being our staff, we knew that we would have to train them strongly during that period. And I think the training also assisted in keeping them sane particularly through those lockup periods and particularly in those states where they had excessive amount of time at home. So in September, we launched the B20 product launch. It was the biggest-ever product launch we've ever had. We launched over 100 products. And many of those already are already contributing strongly to our earnings. And of course, the models and particularly new models and structures, which I think are around somewhere -- against one of the columns. The major investment program includes that $75 million masonry factory you just saw. And also, we're underway with our new Brickworks on the old Plant 2 site right next to the Prospect Reservoir, the $130 million for 130 million face bricks. And on completion, there's no doubt that will be the most advanced plant in the world. So I won't say too much about the divisions, but we're very happy with how our Queensland bricks operation went. It's improved very well. In Western Australia, we've seen the consolidation of BGC and Midland, and that's sort of taken one of the issues over there, with sort of the issue of BGC being for sale themselves. We refitted the Cardup plant and brought it back online, and we're about to refit the Armadale plant. We mentioned about the -- what we're doing in Sydney, replacing our masonry plant. Much better performance within our Bristile Roofing division that went back to basics and just focused on selling our core concrete and terracotta products and got their costs under control, have very good performance. And in precast, we had a significantly improved performance, and we've launched a new Double Wall product, which is making significant headway against lightweight permit formwork solutions. And our Southern Cross Cement Terminal has now put 200,000 tonnes of cement through it. So it's going very well. Looking at North America. The pandemic obviously had significantly greater impact in the U.S. than it did in Australia. We're still seeing the trends over there, like we saw here, which is interesting as these sort of trends become worldwide and people moving to single-family homes and moving out of the cities. Unfortunately, that only makes up about 1/3 of our business in the U.S. The nonresidential area, that was pretty heavily impacted by the pandemic with the Northeast, Mid-Atlantic and Midwest regions all down between 25% and 35%. And a lot of that was some of the jobs that had a lot of people, they also couldn't run them because of the amount of people on site. In some cases, it was because the city had run out of funds and could no longer fund it because they had put their money into looking after people who were sick. And so this sort of just pushed it all back and of course, the same as here. You have a presidential election. A lot of things just stopped. And that's before we get to winter. And as you would have seen, it was a very, very severe winter. We had some plants that -- we had ice storms, and they were closed or we couldn't staff them. We had a lot of our staff away at different periods, and that obviously affected our ability to run those factories. So our earnings were below what we expected but in some ways better than we thought we'd do. Revenue was pretty steady at $75 million, USD 3 million EBIT and EBITDA of $9 million. So still early days over there. I've got to say, and I think some people might find these next numbers a bit surprising, we have about 800 -- 750 to 800 employees. 90 of them got COVID. We had days when we had about that number away, 90 to 100 people away. And very sadly, 20 family members of our staff passed away, and our sympathies go out to them. We have achieved a lot in that period though. There, you see the new Philadelphia design studio, which is open and running under COVID restrictions. We have another one under construction in New York City, which hopefully will be opened in August. We really accelerated the plant rationalization, and maybe we weren't so clear about exactly what we did maybe for obvious reasons at the time, but we actually reduced our plants to 10 from 16. We actually closed 6 plants in total over the whole period and had to move something like 200 products. And that's sort of coming to an end. It takes about a year. Once a plant stops, you're going to sell all the products from it and then you gradually wind down your staff, and then you've got to clean the site up and then eventually get rid -- sell the site. And then you're not paying the rights and the taxes and the standing charges, electricity and gas, et cetera. And so all of that, that means that the remaining factories could come up to a better operating level. We're more like where we run them in Australia at hopefully 100% all year. There was a fair bit of capital continued at our Hanley plant, which is one of our main architectural plants. And we've got work underway at our Sergeant Bluff and Lawrenceville plant. So I'll just hand over now to Robert, who will go through the financials.

All right. Thanks, Lindsay. So as Lindsay mentioned, the total underlying group EBITDA for the half was $163 million. That was down 4%. And after depreciation and amortization, the underlying group EBIT for the half was down 6% to $127 million. Total borrowing costs were down slightly to $10 million, and tax was $27 million. And this resulted in an underlying net profit after tax from continuing operations of $90 million, down 10% on the prior period. Significant items were again lower than the previous corresponding period, and as a result, net profit after tax from continuing operations increased by 11% to $72 million. And after allowing for a small loss in our discontinued operations, statutory net profit after tax was $71 million, which was up 22% for the half. Looking at some of the key -- sorry, the significant items. So I mentioned these were down on the prior corresponding period. There was $9 million in after-tax costs related to the Washington H. Soul Pattinson significant items as well as the deferred taxes on our holding in Soul Patts. There were also $5 million of after-tax restructuring costs relating primarily to the relocation of the Austral Masonry plant in Sydney, commissioning of the upgraded brick plant in Cardup and the closure of some of the retail outlets in North America. And there are also $2 million worth of COVID-19-related costs, which were primarily unabsorbed fixed costs in the U.S. Just looking at the cash flow. Total operating cash inflow for the half was $76 million, and that was up from an outflow of $18 million in the prior corresponding period. Now that period was adversely impacted by $71 million in higher tax payments, which included the $54 million tax paid on the sale of the 7.9 million WHSP shares back in December 2018. Capital expenditure was $61 million in the period. We're obviously midway through a major program of significant projects, including the new masonry and brick plants in Sydney, upgrades in Hanley in Pennsylvania, and the deployment of a new ERP system across the group. The actual cash paid out on dividends was down, but that was a result of the uptake of the DRP that we had in place at the time, and the actual dividend itself increased in terms of cents per share. Now moving on to some of the other key financial indicators. Net tangible assets per share was down 2% over the period. Although over the 12 months from the prior corresponding period, it was actually up 2%. Shareholders' equity also decreased. Both of these declines were primarily due to the decrease in the market value of some of the WH Soul Patts' listed investments that come through our equity accounting. And so if you exclude that impact, the net assets across the group increased by $61 million. Underlying return on shareholders' equity was 8% on an annualized basis, which is up from 6% in the financial year 2020. Operating cash flow, as I said, was $76 million inflow. Net debt increased to $479 million. That was up to $25 million over the period. Gearing was up marginally to 20%, and the interest cover remained at a conservative 12x. And I'll just finish this section on our debt maturity and metrics. We've currently got around $863 million of committed debt facilities. Only one of those is current at the moment. That's the construction facility on the masonry plant. And once that's completed during this calendar year, that will convert into a lease. I mentioned that net debt was $479 million. So that means we've got around $384 million in funding headroom based on the committed debt facilities and cash on hand. We have significant headroom still within our banking covenants. And with that, I'll hand back to Lindsay to talk about the outlook.

Thank you, Robert. While we're in a strong position, we've got conservative debt levels and we've got a diversified portfolio of attractive assets. We're confident that sales will continue to deliver a stable and growing stream of earnings and dividends over the long term. I've mentioned to you what we anticipate coming forward with the Property Trust, which is really at an unprecedented scale to anything we've previously experienced, and that we expect to have a significant uplift in rental income over the next 2 years. The short-term outlook in Australia, I think, is going to be very strong. And all builders really across the country have full order books, and that's going to take the balance of this year and most probably longer to work its way through. There may be some trade shortages there. In West Australia, had a long downturn. A lot of trades wandered off to do other things. And of course, in Brisbane in -- just prior to Christmas and since Christmas, we've had 2 hailstorms. There's been a lot of roofing damage out there, and that's obviously meant a lot of roofing trades are tied up. But as far as we're concerned, in about another 6 or 8 weeks, we'll be through that and we'll be able to redeploy those people across to new construction. And of course, we have no feeling as of yet as to what's going to be demand for trades for the flooding in Western Sydney, but I assume that plumbers and electricians are going to be in big demand. I can report that during these last few weeks that we only had one factory down for 1 day and that we might have to stop a couple of others up. But basically, all factories maintained operation during that period even if LCL dispatches were severely curtailed. Interesting in the U.S., as we've come out of that last winter storm and it started to warm up, we've got over the presidential elections and Americans started to get COVID really right behind it, that our sales have really picked up on a daily basis to be really the strongest we've seen in a year. So that's very, very encouraging. And to give you some example, as of today, we had only 5 people away and only 1 with COVID, and that's the lowest numbers we've had since the beginning of the pandemic. So we believe that once we get over that, we'll have many years of solid earnings from the U.S. operations. With that, I'll end and I know there might be questions yet -- and I'll pass on for Todd.

Thanks, Lindsay, and good afternoon, ladies and gentlemen. I'll start off with a discussion of the half year results. Here we go. The statutory profit was $69 million, which was up 35% on the first half of FY '20. However, the group regular profit for the half was $90 million, which was down 28% on the prior corresponding period. The result was impacted by a change in the accounting recognition of TPG following the merger with Vodafone. Had it not been for that change in accounting, the regular result would have actually been higher than the first half of FY '20. The complex and changing accounting treatment of our various investments means that profit figures are not a good indicator of our success. What we focus on is the same thing that any investor focuses on in an investment portfolio. Firstly, we aim to grow the value of the capital. And the net asset value was up 1.3% for the half, which didn't match the rise in the All Ordinaries Index through that period because the market was recovering from the significant sell-off that occurred earlier in the year as a result of COVID. Secondly, we aim to improve the yield that we receive from our portfolio, and we measure this by looking at the cash that we receive from each of our investments in dividends and interest income. Cash was down 8% on the previous corresponding period, which was actually a pretty good result given that New Hope didn't pay a final dividend last year, which affected that half. Despite this slight drop in cash, the interim dividend represented a 73% payout ratio of the cash that we generated through the half. As I mentioned, the group regular profit for the half was $90 million, down from $125 million in the first half of FY '20, and this difference can be explained by 3 major movements. Firstly, as I mentioned, when TPG merged with Vodafone, we reduced our shareholding down to 12.6%, and we therefore derecognized TPG as an equity-accounted associate and held the investment at fair value. Consequently, the $40 million in equity-accounted profit we recognized in the first half of FY '20 was 0 in the first half of FY '21. So -- but for that accounting change, profit on a regular basis would have been higher. Secondly, New Hope's profit contribution was down as a result of lower coal prices through 2020 and also softer volumes caused by COVID-19. I'll go into more detail about the recovery that we're seeing in coal markets as the presentation goes on. And thirdly, we had a significant turnaround in profitability from Round Oak Minerals as our assets came into production at the same time as stronger oil prices. The directors have declared an interim dividend of $0.26 per share fully franked. That's a 4% increase on the previous interim dividend, and it's the 23rd consecutive increase. Over the last 20 years, the interim dividends have grown at a compound annual growth rate of 8%. As I mentioned, the interim dividend represents a 76% payout ratio of the cash that we generated from the portfolio during the half. The cash generation was 8% down as a result of us receiving no final FY '20 dividend from New Hope. The net asset value of the portfolio before tax was $5.2 billion, which increased by 1.3% during the half. We saw strong growth in Brickworks, our equity portfolio and our financial services portfolio as equity markets recovered in the second half of calendar 2020. Offsetting these gains were reductions in the value of our telecommunications portfolio and New Hope, but it should be noted that the $53 million reduction in the value of New Hope was attributable to us reducing our shareholding in New Hope. And when we did that, we realized $70 million in proceeds. That cash was mostly deployed into direct credit opportunities, which is generating a high yield. We also raised the $225 million convertible bond during the half. But given that refinanced existing debt, the overall debt balance didn't change. This slide shows the TSRs for WHSP shareholders over various periods in comparison to the ASX All Ordinaries Index. The TSR performance has been very strong over any period of investment. As a long-term investor, our focus is on delivering outperformance over the long term. WHSP has outperformed the index by 5.2% per annum over the last 20 years. This outperformance has had a material impact on shareholder returns. Over that 20-year period, an investment in WHSP appreciated nearly 12x, which is over 3x an investment in the market. The recent share price performance has been very strong, and in addition to the 30% outperformance for the 12 months to 31 January, WHSP's shares have increased a further 15% since the end of the period. The last 20-year performance is broadly in line with the performance for the last 40 years. Over 40 years, WHSP has generated a compound annual growth of 14.2% per annum. If a shareholder had invested $1,000 in 1981 and reinvested all dividends, the shareholding would have appreciated to over $200,000 as at 31 January of this year. And it's important to note that this growth does not include any of the value of the franking credits, which have been passed on to shareholders along the way. One of the important ways that we've generated this outperformance is through a focus on capital preservation. If we look at the last 20 years, the All Ordinaries Index has been negative in 85 months and positive in 155 months. And interestingly, WHSP's performance over 20 years has been a slight underperformance in the months where the market has been positive. But what has led to a significant overall outperformance has been the way that WHSP performs much better when the market is negative. The average negative market on the ASX over the last 20 years has been minus 3.4%. However, in each of those months, the outperformance of WHSP has been 2.3%. So you can see that capital preservation has been a really important aspect of generating this outperformance. We achieved this through diversification of uncorrelated assets and a particular focus on defensive assets, which are assets that generate cash even in tougher economic conditions. And this phenomenon has been accentuated in the last 12 months. When the market was negative in the last 12 months, the average monthly decline was minus 10.8%. In those months, WHSP outperformed by 7.4%. And in the positive months over the last year, we were actually slightly better than the market. What we're seeing is a rotation to value and noncyclical businesses, which very much favors our style of investing in our portfolio of assets. I mentioned earlier that we raised $225 million in convertible bonds. Those bonds have a 5-year term. However, they can be put back to us after 3 years. The coupon is 0.625% fixed, and investors have a right to convert the bonds into ordinary equity at $34.99 per share. The primary purpose of the bond was to pay down existing debt and lower the overall cost of our debt. We now have an average cost of debt well under 1% per annum. Unlike most debt facilities, the coupon is fixed. So we see -- as we see the bond yield ticking up to reflect the possibility of higher interest rates in the future, our coupon remains fixed. The other benefit the convertible bonds provide is that they are unsecured and give us a lot of flexibility around other capital management initiatives. The 5-year term also better aligns with our longer-term investment horizons. The way we look at convertible bonds is if they're repaid, then they're a very cheap and flexible form of debt. If they're converted into equity, then they're doing so at a significant premium to the price at which we could have raised equity at the time of issue. Looking through some of our portfolio themes, starting with telecommunications. Following the merger of TPG and Vodafone, they've changed their year-end to 31 December. And due to the merger, the accounts last year were quite complicated, but TPG did provide this helpful pro forma comparison of EBITDA. And you can see that through 2020, TPG suffered from NBN headwinds as subscribers who were previously on TPG's networks were forced to migrate to the NBN. 356,000 subscribers migrated through 2020, but that left only 115,000 subscribers remaining. This means that the NBN headwind is diminishing and will actually stop after this year. In total, the NBN migration in 2020 reduced EBITDA by $83 million. The other unexpected headwind was from COVID-19. The lack of international tourism reduced roaming charges and also prepaid cards that inbound tourists often buy. In conjunction with the relief that TPG and Vodafone gave to COVID-affected customers, the closure of Vodafone's retail shops, the total COVID impact on EBITDA was $90 million. TPG also suffered some reduction in revenue from mobile plans and lost customers. However, there was other growth of $53 million in EBITDA, which comprised growth in the corporate and government segments. TPG has indicated that the merger integration is on track and expecting $70 million in operating cost savings in 2021. Those synergies are expected to increase to between $125 million and $150 million annually over the next few years. And those numbers do not reflect any revenue synergies that might be generated from the combined group. We believe that combined, TPG and Vodafone networks and products will be extremely powerful at attracting new customers through the bundling of products, increased marketing, cross-selling and providing complete telecommunication solutions. There are also other opportunities that the company has mentioned it will target to increase profit. For example, launching a 5G fixed wireless service could bring customers that migrated to NBN back on net. For every 100,000 customers, that would represent an additional $50 million of margin. And to put that in context, I mentioned on the previous slide that over 300,000 customers migrated to the NBN in 2020 alone. Many of those people on NBN are unhappy with the speeds they're achieving and the value for money they're getting. As the company rolls out its 5G network, it will present an opportunity to win new customers and increase average revenue per customer. You'll recall that the -- that Tuas was spun out of TPG prior to the merger with Vodafone last year, and Tuas is the owner of TPG Mobile in Singapore. WHSP owns 25% of Tuas, which is listed on the ASX with a current market capitalization of around $300 million. This undervalues the assets inside Tuas, which is primarily cash and newly constructed or acquired network infrastructure to run its mobile network. There are currently about 8.8 million mobile subscribers in Singapore. A sizable proportion of the market is prepaid 4G and 3G services, which tend to be low-cost contracts, which will be targeted by TPG in the first instance. The network has largely been built around -- has largely been built, and the remaining coverage will be completed in 2021. In the first 6 months to September 2020, Tuas had acquired 133,000 active subscribers, and we'll hear shortly how that number has been progressed when Tuas reports later this month. Tuas has built a new network from a standing start that is modern and capable of upgrading to 5G in the future. I'll touch briefly on Brickworks. As Lindsay outlined, there's positive signs for housing construction across Australia. And while the U.S. market recovery is a little slower, we believe there's good prospects there. And WHSP's property focus for many years has been on industrial property. And independent of Brickworks, we've actually owned and developed a number of industrial properties over the years. We've held the view that for a long time that industrial properties in good locations for logistics are essential infrastructure as the world moves to increasing online consumption. Unfortunately, we've sold most of those properties as we realized development profits and took advantage of increasing valuations in recent years. But we're very fortunate that Brickworks has held on to their industrial property portfolio and continues to develop further properties. The value and income from these properties has continued to grow and will be well supported by future completions and rising rents. For New Hope, the first half was a tale of two quarters. This chart breaks down the average price received in the first quarter of around AUD 70 per tonne. And in the second quarter, that had risen to an average of AUD 87 per tonne. In addition to poor prices in the first quarter, Bengalla had a planned maintenance of its dragline, which lowered volumes. However, this investment in capital will assist greatly with the efficiency in future years, and New Hope is exploring avenue to lift production at Bengalla. Bengalla is a very profitable, low-cost mine. Unfortunately, New Hope's more than a decade long quest to extend the Acland mine past Stage 2 has not been approved, and the latest judgment by the High Court ruled that the apprehended bias against New Hope by the original LandCorp member meant that the process needs to start all over again in the Queensland LandCorp. This judgment has nothing to do with the merits of the mine and sets New Hope back several years to the original LandCorp application. It's expected that the new LandCorp decision will be heard sometime in late 2021. The consequence of this delay is that New Hope has had to lay off a number of staff at Acland, and the mining of Stage 2 will come to an end later this year. The Stage 2 mining has become higher cost on reduced volumes, meaning that Acland is not running profitably. Thermal coal prices are now higher than they were pre-COVID-19. The current Australian dollar spot price of thermal coal is over 75% higher today than it was in September last year. And prices are now much higher than that, than the $87 a tonne that was achieved in the second quarter, which I mentioned on a previous slide. Today, we're seeing thermal coal prices over AUD 120 per tonne. Despite Chinese restrictions on Australian coal, the markets across Asia remain strong. And you can see from this pie graph that New Hope sells to a diverse range of countries and an even greater number of customers. In the first half, revenue to China was just 5% of the total. After the COVID-19-related drop in energy consumption, which caused a significant drop in demand for coal, the markets are stabilizing and prices remain strong. New Hope has implemented a range of cost-cutting exercises, which, together with recent investment in capital, will result in more efficient operations going forward. At current prices, the cash generation of New Hope is extremely strong. Round Oak Minerals is a wholly owned, unlisted subsidiary of WHSP. Over the last few years, we've been building out our operations across Australia and currently have 3 assets in production. In Queensland, we have Barbara, which has just finished its current mine plan, and we're in the process of processing the material and realizing the cash. And we're also looking at possible extensions to that mine. Also, in Queensland, we're continuing to mine the Mt. Colin underground mine. There are also possible extensions to that mine, which could see it operate past the next 18 months. Jaguar in Western Australia has a few more years. However, the nature of the deposit there is that we only plan a few years out and tend to -- tends to have opportunities for ongoing mine life. Sorry, I've lost the slides over -- just back to Slide 21. I think we have to -- yes. We've also been progressing the Stockman asset in Victoria. Stockman is a long-life development asset, which -- with approximately 10 years of production initially. It has all of its key approvals, and we're currently fine-tuning the mine plan ahead of its development. The development of Round Oak's asset has -- assets have been very well timed. Copper and zinc prices have been steadily increasing over the last 12 months. Copper has increased by around 50% from its prepandemic USD prices, and many people are predicting higher prices to come given the supply shortages in the market. Zinc has also experienced solid increases and is up over 25% from the prepandemic levels. There was a COVID-19-related dip in prices in March and April, but since then, the recovery has been very strong. At the same time the commodity prices were increasing, the market price for treatment charges was falling. And zinc TCs fell from over $300 per tonne in early 2020 to currently under $100 per tonne. The combination of lower costs, higher production and higher commodity prices means that Round Oak is generating a lot of cash for New Hope -- for WHSP. The financial services portfolio is a diverse collection of investments in listed investment companies, funds management and financial advice companies. The portfolio represents around 7% of WHSP's total assets. We're attracted to exposure to financial services due to the large and growing superannuation pool in Australia, which recently went through the $3 trillion mark and continues to increase. The portfolio is tied to the performance of the market either directly through the LICs or indirectly through funds management and advice. As you can see, the COVID-19 impact on equity markets was quite severe in March last year where the Australian market fell by 30%. However, since then, the market has recovered and is now above where it was at the start of the 2020 calendar year. The pharmaceutical portfolio is made up of Australian Pharmaceutical Industries, Palla Pharma and Apex Healthcare. API and Palla are listed on the ASX, and Apex is listed on the Malaysian Stock Exchange. This half, we derecognized API as an associate. So it no longer contributes profit to the group. We received dividends of $2.6 million during the half, which was down from $4.7 million in the first half of FY '20. The main reason that API reduced its final dividend -- the main reason for the drop was the reduction in API's dividend due to the uncertainty around COVID-19 last year. API and Apex are performing well, and the impacts on API's retail business as a result of COVID and, in particular, the Clearskincare Clinics business have now dissipated. Apex' profit for the 12 months to 31 December 2020 was up over 6%. And lastly, we've been adding to our agricultural portfolio, and as at 31 January, we had $139 million invested. Since half year-end, we've committed a further $10 million to kiwifruit operations in Western Australia. We're building out a food-based portfolio, which is diversified by geography and product, including citrus, stone fruit, table grapes, macadamias and kiwifruit. We believe Australia is globally competitive in food production, and Australia is viewed as a favorable source of fresh produce to the growing Australian middle class. Thank you for your time, and we'll now take questions.

I think we'll take the questions from the online first, and then we'll come to people here, if that's okay, yes.

We've got a question from Raju Ahmed from CCZ for Brickworks. What do you anticipate to be the impact for Brickworks from the recent New South Wales rain events in terms of on-demand Brickworks operations and product supply chain?

Yes. It won't affect the supply chain. As I said, all plants remained online, but we lost 1 day in the precast facility. Dispatch was severely impacted, but obviously, New South Wales was the worst impacted. And I'm still of the belief that actually, our sales in March will be up on last year. They'll be up significantly but they'll more likely be up single digits. Usually, bad rain events like that take about 10 days for us to get back to the previous running average. So the sales are actually quite strong going into it. They didn't really slow up until like last week, early this week. So I don't think it will be that significant, but yes, it's going to take the edge off March.

Okay. Another question from Raju. When do you anticipate the demand void impact to appear in Building Products Australia assuming macro environment do not materially change from here on in?

I think Raju is talking about the drop that we're anticipating because of lack of immigration, and we sort of feel that, that could start impacting at the second half of next year, assuming that we don't get immigration back up and running again. Also, I've got to mention that there's a lot of -- there's -- foreign students aren't here, as you're aware. And of course, that means there's a lot of, most probably, apartments that are vacant across all of the capital cities where it would have otherwise been filled with students. So that would, you think, would naturally create an overhang in apartments and one of the reasons why we're seeing apartment construction rates continue to fall.

Okay. This one is from [ Edmund Karru ]. Great result. Does Brickworks use inter- or intrastate, intermodal bulk rail freight such as Pacific National or SCT? And what products does it send by rail? And if only using road, would it consider a switch to rail such as Brisbane to Sydney given supply bricks ex Brisbane or to Perth from the East Coast?

No to all of them. We don't transport anything by rail. We have had -- have in the past. The problem is the shunting tends to sort of smash the bricks around a little bit and roof tiles. We have sent product on the transcontinental rail line. But look, it's a sort of thing we keep under review. What we'd really love to see is cabotage lifted so that we could start loading foreign flagships as they pass by so that we can bring product coast to coast. That would be a really great advantage for this whole country, not just us. And it's one of the reasons why we're able to bring product in from Spain or Italy at a fraction of the price when comparing from Perth to Sydney.

Okay. Next question is from Kurt Gelsomino from Morgans. When was the last time or financial period when your Australian East Coast brick and roof tile plants operated at full capacity?

Yes. The -- well, the Brickworks that we just put back online, the production line was off a little bit over 2 years; and the rooftop plants, a bit similar sort of time, 2 to 3 years. The masonry plants are -- have been exacerbated by the fact that we're swapping a major plant here in Sydney. So we've had to run up all the plants in Southeast Queensland to cover for that shortfall. Otherwise, we most probably wouldn't need to be running so hard up there but -- yes. So it's been, on average, about 2 to 3 years.

Okay. And the second question from Kurt. Following first half CapEx of $61 million, what level of investment is expected in the second half?

Yes. It's going to remain raised because we've got those 2 factories that total $200 million, and we have a normal stay-in-business CapEx, which is running in the order of $50 million to $60 million. So we'll be going through a bit of a peak period the next couple of years. I must admit that some of that, you might have picked up from Robert's presentation, those 2 plants -- there's a large percentage of both those 2 plants, which will be leased. And so it won't actually go straight through to our demands on cash, if you like.

Lee Power from CLSA. Can you please talk a bit about WA market? Was it earnings positive for the half? And also, do you have any view on the timing of any capacity rationalization post the BGC Midland Brick?

No. It wasn't positive for the half. It did improve though reasonably, which was good to see. The BGC merger, the actual physical takeover was -- of Midland was due to happen in March. So I don't know whether it has gone ahead or not, but I would anticipate that once that has happened that there'll be some capacity taken out of the market. Having said that, every manufacturer in WA had 1 or 2 plants off-line because the market was so depressed. I think the main thing that's happening in WA is that the rate of construction of houses has really doubled or is about to double. And so subject to the supply of bricklayers, obviously, the demand is going to increase dramatically. I can't speak on what BGC's long-term plans are, but it's fairly public knowledge that they're for sale, and at some point, they'll put their business on the market. And we'll just have to wait and see what happens following that.

Okay. Thanks, Lindsay. That's all for Brickworks. We just got a few questions for Soul. This is from [ Brendan Harrington ]. What is the risk of Tuas assets becoming stranded if significant SG (sic) [ 5G ] spectrum is not made available by the Singapore government? And also, how is Tuas positioning itself to have sufficient fiber and data center capacity to support 5G?

That might be a level of technical information that's beyond me. I mean I've only been able to get some high-level commentary from Tuas over the last 6 months since it's been listed. But what they do say is that there is spectrum available and they're confident of being able to participate in the 5G spectrum distribution. And the network has been built to accommodate 5G upgrades. So I would be surprised if their assets were built so quickly to become stranded -- or built and then quickly become stranded. I see that as a remote possibility, but I think that's a question that's probably better asked to Tuas.

Thanks, Todd. And also from [ Brendan Harrington ]. What do you think of Telstra's recently announced restructure and particularly the potential for InfraCo to merge with the NBN? Do you think this is likely to make the competitive dynamic even more challenging for TPG than exists today?

I think it's probably an opportunity for TPG. I think to the extent that Telstra retail operations are on their own without being propped up by the benefits of significant infrastructure that's been built over a long period of time, they now have to compete with the retail market operators in broadband and mobile on their own two feet. And that's going to be challenging for them with their cost base, whereas TPG has always been lower cost, better service. So I think it's a real opportunity for TPG and Vodafone to be able to compete aggressively with Telstra.

Okay. And final question for Todd. With regards to New Hope, if New Acland Stage 2 is going to be closed down, will there be further opportunities for the company to increase their revenue through mergers and acquisitions?

Well, there's always opportunities. The challenge is finding the right ones. What Reinhold said a couple of days ago when New Hope released its results, he said that his focus is on always looking at potential M&A, but the focus will be on existing assets that are low cost and will be instantly accretive to shareholders. So we're not talking about longer-term development assets. We're talking about assets that make money now and will continue to make money into the future.

Thanks, Todd. And that's all from online.

Now there's a couple of questions from the audience, it says. Use the mic here, please.

Peter Steyn from Macquarie. Just a couple of questions, trying to understand operating leverage in particular. In the Australian business, could you give us a bit of a sense of what you saw sequentially, bearing in mind that there's obviously going to be a lot of seasonal effects but what you saw sequentially both in revenue and EBIT perhaps in the first quarter versus the second quarter? Is there a substantial improvement in the trend? And I guess how is that leverage coming through from a cost line point of view?

To answer your question, the turnover was about the same. The first quarter was still going into the bottom of the cycle, which I think hit sometime around about September, October. And then we were climbing out of it. So we sort of -- I think by the time we got to about December or January, we've got to the running rate of where we were a year earlier, if you like, if you understand what I'm saying. And then we haven't really -- we've been watching the orders climb from where they were because if you go back 6 months ago, orders were below our sales and the catch-up in there. Now they're significantly over our sales. But of course, we would have thought we would start seriously dispatching in March, but then it started raining. So we haven't seen it really turn into significant increases in income in this state. Now we've seen increases in income in Queensland and seeing increases in income in Tasmania, WA, all the other states. But remember, New South Wales is 40-odd percent of our business. So that weather, I think, has just effectively delayed it 4 to 6 weeks.

And then just in North America, could you give us a bit of a sense of, on a like-for-like basis, where your unit costs would be under 10 plants in a sort of reasonable sales environment, what proportion they're down?

Yes. They're pretty -- look, overall, they're pretty similar because we had so many plants off-line and extra plants off-line or slowed down because of COVID. We mostly had 5 plants that were off-line that weren't planned to be off-line or partially off-line because we couldn't field full production crews. And so that pulled us back from where we would have wanted to be. But at the same time, the sales were most probably in the order of 20% off where we thought they'd be because we got the -- if you remember, a year ago, we did the Redland sale, right about now. That should have given us about a 20% uplift. We never got it because we went straight into COVID, and we've sort of been at 20% short the whole time. So our sales are really running at about where they were pre the Redland acquisition. So hopefully, as we come out of that, we're going to see return to the -- see what we would have expected.

Yes. I guess that's what I'm getting at. It's just on a forward-looking basis, if you're behind the disruption, what would your unit cost look like presumably?

Well, it shouldn't...

Or is it going to be down very substantially?

But we'll pick up that Redland sales in the second half in the U.S.. So we'll pick up that 20% of sales, yes. Other questions here? So another one? Okay. We got another one online. Yes. Thanks, [ Lisa ].

This one's for Todd. With Round Oak ramping up and a strong demand for base metals currently, where do you see geographical potential for future contracts, noting a strong revenue contribution from Australia in that business?

Sorry, could you repeat the question?

With Round Oak ramping up and a strong demand for base metals currently, where do you see geographical potential for future contracts, noting a strong revenue contribution from Australia in that business?

I think that -- those figures may be distorted because where we get our revenue from is through traders. So we sell to domestic traders and then they then sell to foreign markets. So when you might look at the segment analysis and see that we have a strong Australian sales focus, that's actually not the end market for those products, and they get distributed all over the world, but it's all through international traders.

Todd, [indiscernible] portfolio again in the last few years. You've got your financial services, and I guess you've got the minerals, which are kind of good. I mean opportunities -- sorry, opportunities aside, what is your preference to deploy capital? Or we do you sort of see the medium-term opportunities organically for sales in that space?

Yes. It's a hard question to answer because we don't have a defined portfolio allocation, and we also don't have a defined hurdle rate. So there's some asset classes which are going to be more defensive and lower return and lower risk. But there's other things that we're happy to take a little bit more risk on. And we look at each investment on its own merits, and we also look at the portfolio as a whole dynamically as the market changes. And I'd say that over the last couple of years, in particular, we've been a little bit nervous about the outlook and particularly concerned about some of the high asset prices. So we positioned ourselves a little bit more defensively, and that's probably why you're seeing deployment of funds to things like agriculture, which we see as a good defensive asset class that's countercyclical and uncorrelated. So the other asset class that we've been deploying capital to has been around sort of direct credit opportunities, which are sort of high-yield debt instruments with corporates. And so usually, when you're doing that, you're protecting your downside and giving away some of the upside. And I guess that's an indication of where we're seeing things, but it's also an indication that our portfolio is significantly invested in Australian equity. So we're long equities at the moment and we're, I guess, diversifying a little bit away from that into some of those more defensive asset classes but also looking at more private equity as well where we see a bit more value.

Another question from [ Barry Joseph ], who is a shareholder. Do you still have an interest in aged care?

We have an interest in retirement living. So this is people who are not quite at the level of aged care. It's a lifestyle choice for people who want to downsize from their homes and go into a retirement village. It's high quality and a bit more social. And we're targeting sort of the upper-quality part of that market segment. So our first project is a joint venture with Provectus in Cronulla, which we currently have a DA on. We bought the land. It's right across from the beach in Cronulla, and we'll be developing that over the next couple of years. So we're keen to build out that portfolio, and we do have an interest. But in aged care specifically, we don't have anything.

Thank you very much. No more questions on the floor, no? Right. Thank you, ladies and gentlemen.