WHSP Holdings Limited (SOL) Earnings Call Transcript & Summary

Good afternoon, and welcome to the results presentation for Washington H. Soul Pattinson's company performance during the 2023 financial year, the 12-month period to 31 July 2023. My name is Courtney Howe, Head of Corporate Affairs at Soul Patts. I'm pleased to introduce our presenters for today. Todd Barlow, CEO and Managing Director, will first discuss the group performance highlights; David Grbin, Chief Financial Officer, will then present the group financial results; and Brendan O'Dea, Chief Investment Officer, will go into more detail on the performance by investment portfolio. Todd will close out the presentation with a summary before we turn to Q&A. [Operator Instructions] We will respond to questions at the end. With that, I will hand over to Todd Barlow.

Thank you, Courtney, and good afternoon, everyone. It's great to have you with us. The team had delivered another strong performance for shareholders in FY '23. At Soul Patts, our purpose is to generate enduring success for investors. We are proud of our track record so far with this year being the 23rd year of increased dividend payments to shareholders. There is no other company in the index with this track record of continuing growth in dividends. Soul Patts continues to generate solid total shareholder returns when compared to the market. We've returned 12.5% annually over the last 2 decades, which is 3.5% better per annum than the market. The 200-plus investments across our portfolio provides our near 60,000 shareholders with exposure to many industries as well as private, public and real assets. At year-end, the total value of the portfolio was $10.8 billion. We measure our performance against 3 key investment objectives: one, grow the portfolio and outperform the market; two, increase cash generation to continue our dividend track record; and three, manage investment risk to protect shareholder capital. This is complemented by our investment philosophy, which is summarized by our long-term commitment to building value and not being distracted by short-term events, our strength in conviction when decision-making and our unconstrained opportunity to invest where we can extract the highest quality returns. FY '23 was a year of strong overall performance while we continue to reposition the portfolio to be more resilient and higher performing. Looking at our performance against our 3 investment objectives. We increased cash generation with net cash flows from investments increasing to $424 million, an increase of 22% on the prior period. This facilitated a final fully franked dividend of $0.51 per share, taking total ordinary dividends to $0.87 per share for the year, a growth of more than 20% on the prior period. The portfolio again outperformed the market with net asset value per share after adding back dividends delivering a total return of 12.3%. This outperformed the All Ordinaries Accumulation Index by 1.2%, or in dollar terms, the value of the total portfolio increased by $900 million to $10.8 billion at year-end. And importantly, we achieved all of this whilst maintaining a focus on managing investment risk. And we did this in 3 ways. Firstly, we continue to diversify the portfolio consistent with our strategy since acquiring Milton 2 years ago. In order to achieve this repositioning of the portfolio, we conducted over $3.1 billion in combined acquisitions and disposals. Secondly, we invested in our team, and I'll talk a little bit more about that on the next slide. And thirdly, we increased our cash available for new investments, which we think is a prudent decision in the current environment. Cash at the year-end was $900 million, an increase of 87% throughout the year. We believe that the portfolio is better positioned to withstand any volatility in markets as it is now more diversified across multiple asset classes and we have the liquidity to take advantage of new opportunities that may arise. I touched briefly on some of the operational strategies that were implemented throughout the year to reduce risk and increase our capability. Operationally, FY '23 was a very dynamic year. We invested in our people and processes to build capability and competitiveness to ensure that we are capable of finding and executing the very best investments. Our people are our greatest asset, and we've attracted 23 more professionals to Soul Patts since July last year. This included an executive appointment with Jaki Virtue joining us in the role of Chief Operating Officer. Jaki's leading operational risk, governance, people and culture. We have 51 employees at Soul Patt's head office and more than 8,000 indirect employees spread across our major investments within the private equity and strategic portfolios. As I mentioned, FY '23 was also a very active year for deal flow and rebalancing portfolio weightings towards private equity structured yield and cash. $1.4 billion of equities were sold, helping us to accumulate a cash balance of over $900 million, while at the same time, investing over $900 million in our private equity and structured yield portfolios. A total of 7 bolt-on acquisitions were completed in each of our -- across our major businesses in the private equity portfolio and a further 23 investments were made in structured yield. Brendan will cover off the portfolio activity in a lot more detail later. As always, our focus is on providing better than market returns over the medium to long term, and this has certainly continued recently. The table shows a significant outperformance over the 12 months to 31 July, but the longer-term outperformance over 10, 15 or 20 years is the more impressive measure. The benefits of this market-beating performance are more pronounced when you consider the compounding growth over time. Over 20 years, our shareholders have seen their investment grow by around 9.5x, which is more than double in the investment that has performed in line with the index over that same period. As I mentioned, we have an unbroken track record of increasing dividends every year of this century. The Board declared an increased final dividend for FY '23 of $0.51 per share, taking total ordinary dividends to $0.87 for the year. Since 2000, ordinary dividends have increased at a compound annual growth rate of 9.6% for 23 years. However, you can see from this graph that there has been a step-up in dividends in the past 2 years, which have grown at an average of 18.5% per year. Another benefit of the portfolio repositioning over the last 2 years has been the growth in cash flows as well as a more resilient portfolio of high-quality, cash-generating investments, and this has enabled the Board to increase dividends at this increased rate over the past 2 years. I'll now hand over to David Grbin to present the financial results.

And thank you, Todd, and good afternoon, everyone. Firstly, I'm going to make a few introductory remarks about changes you'll see in our FY '23 financial report. Last financial year, we deconsolidated New Hope as a subsidiary. This means WHSP now equity account its investment in New Hope. We no longer book the revenues, expenses, assets and liabilities of New Hope. Instead, we take up our share of New Hope NPAT and show our investment as an equity accounted associate. So in this year's financial statements, you will not see any revenue from New Hope, just our share of its NPAT. In our cash flow, we account for dividends from New Hope, not their receipts from their customers and payments to their suppliers. This change in accounting method does not alter the NPAT contribution from New Hope nor its value in our NAV statement or its contribution to our net cash flow from investments. So turning to Slide 9. It's a real pleasure as CFO to present a strong set of financials, starting with statutory net profit after tax. This year saw a substantial increase of $703 million to $690 million, largely due to the FY '22 NPAT, including a one-off noncash impairment of goodwill arising from the Milton merger. Regular net profit after tax, our underlying -- or our underlying net profit, decreased by 9% in the previous financial year to $759 million. I'll explain this movement in more detail on the next slide. To put this result into a broader context and using an EPS basis, which adjusts for the expanded capital base that arose from the Milton merger. Our regular earnings per share, as you can see in the chart, have grown by over 16% per annum over the last 5 years. Turning now to Slide 10. The waterfall chart here illustrates the change in regular net profit after tax year-on-year. I'll now move through the chart from left to right. The first 2 bars are FY '22 items not repeated in FY '23. We sold Round Oak in July '22. It contributed $44 million of regular profit in FY '22. And we had $36 million in investment property revaluations in FY '22, not repeated in FY '23. This financial year, our strategic portfolio was down $100 million as our share of regular profit from Brickworks and Aeris declined, but was partly offset by higher contributions from New Hope and TPG. Next, we had $67 million in profit growth from our structured yield and emerging company portfolios. Structured yield was up $36 million as the value of that portfolio grew strongly over the year, and emerging companies was up $37 million. And finally, in net working capital, while corporate costs increased by $9 million as we made further investment in organizational capabilities, this was offset by mark-to-market gains on other investments and higher interest income from our increased cash balances, giving an overall increase of $39 million. Turning now to our key performance indicators on Slide 11. As we've said many times, accounting earnings are not our primary focus. We're all about growing the value of our portfolio as measured by net asset value and the cash income the portfolio generates as measured by net cash flow from investments. These 2 key metrics are shown on this slide. Net cash flow from investments was up 22% on the year to $424 million with improved dividends from the strategic and large cap portfolios and increased interest income from the structured yield book. These increases were partly offset by lower distributions received in the private equity portfolio, mainly due to the sale of Round Oak in FY '22, increased tax cash paid on the overall portfolio and higher corporate costs. Importantly, the growth in cash flow from investments has been consistent. On a per share basis, net cash flow from investments has grown 14% per annum on a compounded basis over the last 5 years. And this growth in net cash flows has enabled a 19% increase in the final dividend to $0.51 per share. This brings total FY '23 ordinary dividends to $0.87 a share, an increase of 21% over the year. The net asset value of our portfolio at the end of July 2023 stood at $10.8 billion as compared to $9.9 billion at the end of July '22, up nearly 9%. And if you include dividends paid to shareholders, the total return on the portfolio is 12.3%. And at the end of FY '23, we held over $900 million in cash and term deposits, and this is after repaying close to $200 million in debt during the year with substantial liquidity to take advantage of investment opportunities. So overall, a strong result for shareholders in FY '23. And I'll now hand over to Brendan O'Dea to discuss the portfolio results.

Thank you, David, and good afternoon. The 2023 financial year was characterized by an ongoing and significant repositioning of the portfolio. What is unique about our company is that we invest for the long term with patient and permanent capital and do not invest to replicate any index. Our investment team is becoming increasingly active with an unconstrained mandate to target the best opportunities and the most attractive risk-adjusted returns. What did this look like in 2023? Significantly more growth in our private equity and structured yield investments, which together now make up 17% of the group, an increase from 9% in the prior year. We have continued to reduce our large cap equities investments into market strength, and we have been actively accumulating cash, which now generates a reasonable return for the group. As interest rates rose sharply in 2023, we were defensively positioned where possible, and we entered 2024 with record cash levels, patiently awaiting investment opportunities. Turning now to our strategic investments portfolio in more detail. The strategic portfolio comprises large long-term investments in listed companies. These investments have demonstrated strong cash generation over time and are uncorrelated, reducing overall risk and producing results through the cycle. Our strategic investments represent 48% of the overall portfolio. At financial year-end, they were valued at $5.2 billion. These investments are the core of our group's cash generation with net cash flow up 75% versus the prior period to $296 million. This increase was primarily driven by New Hope dividends. Overall, our strategic investments delivered a total return of 15.3% in 2023. This is a strong outcome given the inflationary operating environment for all the companies. We aim to grow opportunities in other parts of our portfolio and find new investments that could be considered strategic in the future. Turning now to large caps. This portfolio comprises actively managed Aussie-listed equities and aims to generate consistent income and capital growth over the long term. The large caps portfolio now represents 21% of the total portfolio, down from 31% at the end of the prior financial year. It generated increased cash flows of $118.5 million in the period, which is up slightly from the prior year and delivered a total return of 8%. The portfolio has been positioned defensively and has been concentrated as interest rates rise, emphasizing the importance of stock selection. We were a net seller in 2023 with $860 million of equity sold to generate cash for the broader group. We have used periods of market strength over the year to reduce or exit certain investments, focusing on those which we believe were resilient to rising rates and slower economic growth. The portfolio now comprises less than 40 high conviction investments. The chart illustrates this with an increasing weighting towards diversified financials this year and a clear reduction in exposure to retail banks. The portfolio was also overweight consumer goods and industrials. We remain comfortable with our positioning in light of the economic backdrop and note that the portfolio has had a strong start to the 2024 financial year. Turning now to private equity. The value of our private equity investments has doubled year-on-year to $1.2 billion. We have a strong investment pipeline with over $250 million in undrawn but committed investments. Net cash flow was $15 million with a decrease of 62% due to a loss of dividend income from the sale of Round Oak in July 2022. The internal rate of return in financial year 2023 was 27.7%, which reflects the uplift from revaluations across the portfolio. Soul Patts has a unique approach to private investments due to our flexible mandate and our willingness to partner with businesses over the long term to succeed together. We are also flexible on deal structure and happy to have a minority or majority stake alongside existing management or founders. We have targeted industry sectors where we see long-term opportunity with the portfolio currently made up of companies in agriculture, energy, financial services and education, amongst others. And we favor companies with strong growth profiles and strategic acquisition opportunities. Turning over to touch on this point in more detail. We invested $288 million into acquisitions during the year to accelerate the growth across our largest investments, which you can see here. For our agriculture portfolio, we acquired 3 more farms, expanding our citrus and table grape footprint. We also took a stake in a company called G2 Netting, which provides crop protection. Aquatic Achievers, an Australian swim school operator that we acquired in 2018, has continued to expand nationally through 2 acquisitions: Perth-based operator, Kirby Swim; and the New South Wales market leader, Carlyle Swimming. At the end of financial year 2023, Aquatic Achievers had 26 sites in operation. That number has increased to 27 sites as of this month, with more opening soon. The business is well positioned for continued growth. AMP Control, which is Australia's largest private electrical engineering company, acquired Andro Engineering, a supply and manufacturer operations servicing the underground mining sector. AMP Control is targeting accretive M&A strategies to accelerate its growth and to cater for growing demand from its customers for decarbonization and electrification solutions. And finally, at Ironbark, an asset management business with $59 billion in funds under management at the end of financial year 2023. Soul Patts provided capital of $43 million to support the acquisitions of 3 wealth management businesses. Ironbark continues to bring a range of professional services under a single umbrella to better serve its customers. As you can see, a very active year for the team and pleasing to create much more value across these exciting and growing investments. Turning now to the credit portfolio. Structured yield, our portfolio of actively managed credit investments, has continued to grow into opportunities provided by the current market environment. At 6% of the portfolio, it is now valued at $652 million. Net cash flows were $41 million, up 110% on the prior year, which reflects the pace of growth in portfolio size. We have clear visibility to continue this growth trajectory with $270 million in undrawn but committed investments. The portfolio delivered an internal rate of return of 14.7% in financial year 2023. As the charts illustrate, the portfolio is made up of 23 investments of various loan sizes that are mostly senior secured. They are in listed and unlisted companies and diverse by industry sector. These financial instruments typically carry a high cash yield to maturity, are downside protected, and can often provide some equity-linked upside. Turning now to emerging companies. Our emerging companies portfolio is designed to provide exposure to faster-growing companies. This group of investments can often benefit from fast-moving structural changes and exposure to global trends. The portfolio is valued at $628 million. Net cash flow was $15.9 million, declining 42.4% on prior year due to lower realized trading gains in a more volatile small-cap market. The total return for the portfolio was 12.1% this financial year. We have deliberately reduced our exposure to early-stage companies and pivoted to more profitable businesses. The portfolio presently has a larger exposure to cash-generative resource companies. The portfolio is proactively managed with high levels of turnover and robust access to deal flow across the market. Emerging companies remains a source of multiple opportunities across the entire Soul Patts group. Turning now to the property portfolio. In the property portfolio are several actively managed direct property investments and joint ventures. It is a small component of the overall Soul Patts group, and in financial year 2023 was valued at $112 million. The decrease in value versus the prior year was due to the sale of our property at 46 Carrington Road Castle Hill for 4.5x its original value, an excellent result. This settled in the first half of the year. Our retirement development, a joint venture with Provectus in Cronulla, is pictured here and is near completion. It has been delivered on time and on budget with strong presales volumes. We will continue to look for opportunities in a market that has been disrupted by rapid interest rate increases, but are mindful of our look-through exposure to industrial property in Brickworks. Turning now to working capital. This portfolio reflects our liquidity position across the entire group via cash, interest-bearing debt and other assets. At the end of the 2023 financial year, our net working capital position was $744 million. It includes a cash position of $911 million, primarily comprised of term deposits, earning an average yield of 5%. Net cash grew by $613 million on the prior year, mostly through large cap portfolio sales. And at the end of 2023, the group has no short-term borrowings. In addition to our substantial cash position, we also have embedded liquidity within the portfolio via the ability to sell or borrow against our investments. As you've heard us say throughout today's presentation, we entered the 2024 financial year with a large capacity to fund the growth in any new or existing investments and the ability to target the best risk-adjusted returns across multiple asset classes. Thank you, and I will now hand back to Todd.

Thanks, Brendan. You've heard us say a few times that we're increasingly active in how we use the portfolio. This chart shows that over $8 billion in acquisitions and disposals have been undertaken across the portfolio in the past 5 years. And this does not include the Milton transaction in FY '22, which was over $3.5 billion. Since the Milton transaction, our team has used our improved financial flexibility to reduce our listed equities investments, reinvest the proceeds into private equity and structured yield investments as well as build up our cash. This last year, we invested over $900 million into the private equity and structured yield portfolios. And at year-end, we had a further $500 million of committed but undrawn investments across those portfolios. So we would expect another reasonably high level of activity in FY '24. This activity is designed to optimize the risk-adjusted returns across the entire portfolio and to increase our exposure to particular asset classes where we see superior opportunities at this stage in the cycle. To summarize, we delivered another solid year of performance for our shareholders, which is particularly impressive when building upon the success of FY '22. The net asset value of the portfolio per share, adjusted for dividends, grew 12.3%, and this was on top of the 13.8% growth in FY '22. Net cash flow from investments grew 22%, building on the 28% growth last year. And this performance permitted a higher total dividend to increase dividends over -- the dividends over last year have increased 20.8%. And FY '22 dividends were 16.1% higher than the previous year. In addition, we believe that we have made significant progress to creating a business and a portfolio that is more resilient and better positioned to capture opportunities. We are genuinely excited about the future. In FY '24, we're already off to a very strong start. In the month of August alone, growth of the total portfolio outperformed the index by 3.9%. Soul Patts enters FY '24 with significant cash reserves and a strong pipeline of investments in our private market portfolios. We've been saying it for the past 12 months, and we've certainly been positioned defensively, but we do believe that the market is now coming to us. The price for risk and liquidity is increasing, whether it's debt or equity. And having cash to invest, combined with our ability to be flexible, creative and long term, will help us to find some very good deals over the coming years. We don't necessarily know what those opportunities look like, but we know that we'll be continued -- we'll continue to be disciplined in our approach to portfolio construction, targeting high-quality businesses that bring diversity and strong cash generation. So that concludes the presentation for today, and we'll now open it up to Q&A. Courtney, are there any questions?

Thanks, Todd. We have quite a few questions in the queue. So starting from the top. And Brendan, this one's for you. This is, why did WHSP divest more than 50% of TOT shares, which I think is the [ 3 60 ] capital rate.

That is correct. And thank you, Malcolm, for your question. You have heard us say throughout the course of this presentation, certainly, in the context of our listed portfolios that we are looking to concentrate those portfolios down and have a smaller number of high conviction positions. And as we go through that process, some of our smaller positions in TOT would be one of those, will be reduced over time. TOT, in particular, we were approached by [ Bayer ]. So it was a reverse inquiry, for want of a better expression. So there wasn't anything fundamental going on there, but you can expect to see the portfolio, certainly the listed portfolios, become more concentrated over time. Thank you for the question.

Thank you. Todd, will the company install a DRP, which is a dividend reinvestment plan facility? And while we're talking about dividends, we've had a question about the dividend payment date.

On the DRP, the Board looks at it from time to time, but we keep coming back to the same conclusion, which is shareholders can just take their dividend check and buy on market. You have plenty companies do that, and we'd very much love for people to reinvest the dividends, but we haven't seen the need to set up a formal DRP program. And the dividend date, the record date is 20 November, and the payment date will be 12 December.

Thank you. Next question is why do we think the market has reacted negatively today to the great results down by around 6%?

Yes, I can't answer that one. I guess it keeps coming back to why I prefer to be a long-term investor than a short-term investor. I can't understand why the market does what it does day-to-day. But all we can do is build the value of the business and make it a better quality business. And I think we've certainly achieved that last 12 months with a growth in the value of the portfolio outstripping the market by 1.2%, the cash generation up 22%. They are the 2 fundamental metrics that we look at. And of course, that cash flow generation drive dividends. And with the dividend result that we're seeing today, it is a surprise to me. And I think one answer might be that people are looking at the net asset value per share at 31 July. I think as I said, we've had a good start to the year in terms of our portfolio performance. The share price today probably reflects a discount to the net asset value. And I think for the kind of portfolio that we have and the access that we provide to various asset classes, the long-term performance and the dividend story, it more than justifies a premium. And so right now, we're trading at a discount.

Thank you. The next question also for you, Todd. In hindsight, was the merger with Milton the right decision?

Unquestionably. I would have hoped that, that would have been self-evident from the presentation that we gave today. And as I said in my summary, the result of the last 12 months have been on top of the results of the previous year. And so if I look at net asset value per share, it's grown 26% since the time of the merger. Net cash flow per share is up over 50%. So just on those measures alone, the acquisition has been very favorable to shareholders. But more than that, the way that the portfolio is now being repositioned across multiple asset classes is giving us the liquidity and capability to expand beyond just equities and dependence on a few major stocks. It's a much more robust and resilient portfolio now than it ever was. So it's been transformational for us, and we're really pleased with the way that we've executed on the integration and the strategic plan that we've implemented over the last 2 years.

Thank you. Next question. Can you provide any information about the very large share transactions on Friday, the 15th of September?

We understand that, that related to index rebalancing. So Soul is now of a scale that participates in some of the various global indices. And so [ Soul ] on that date was a rebalancing date and a lot of funds having to buy shares and pushed up the volume and the price on that date.

Thank you. Now we've got a question about the structured yield portfolio. Are unlisted businesses within that portfolio required to report to Soul Patts monthly? And do we have a first preference of security on these loans?

It depends. I mean some of them -- a lot of the loans that we provide are bilateral in nature, which means that we are negotiating directly with the borrower, and we enter into an agreement with obligations on the borrower to report to us periodically. That might be monthly, it might be quarterly. Some of our loans, and this is a very small proportion of the book, are loans that we've acquired in the secondary market and as part of a syndicate, but they would number less than 10% of the overall portfolio. So in general, we have a direct relationship, and we are engaging with the borrower. And then on the second question around do we have first banking security. Again, overwhelmingly, we do. I would say over 90% of the portfolio is senior secured.

Thank you. We have a question about whether this live stream will be made available for later review. And I can confirm we will have a recording on our website at the end of today, if not first thing tomorrow morning. Next question relating to private equity. Does -- does the $200 million of undrawn capital include the Pengana Private Credit C Fund? Further to this point, is the private equity/yield done solely in-house? Or are funds given to external managers?

So the amount that we have committed to investing in international credit managers alongside Pengana is -- will be in the structured yield portfolio, not the private equity portfolio. And so those particular assets will be externally managed by a very high-quality international managers. But in terms of our private equity capability, that is managed in-house. So we have a team that looks after the activities that we do there. Private equity has always been a core capability of Soul Patts. And if you look at businesses like New Hope and TPG today, they actually started out as private equity investments that were built up and developed over many years and eventually put it into the public markets and we maintain the position that we have today. So really, we're just continuing with that story, and we've got 4 major investments in the private equity portfolio that we're building on. We've added to each of them in the last 4 months, and all of that work has been done in-house.

Thank you. I've got a question for you, Brendan. Does management have an approximate ideal weighting to the large cap portfolio over time? Can we expect the trend of selling this down to continue in the next 12 months?

It's a great question because actually, we don't have necessarily allocation targets across any portfolio within the broader group. And I think one of the advantages that we have as an organization is the fact that we have a fungibility or an ability to move our capital between strategies more or less seamlessly. So we don't operate on the basis of allocations. We operate on the basis of pursuing the best opportunity that we can find at the time in terms of getting the best risk-adjusted return on that investment. And that is relatively unique. A lot of organizations don't operate that way, and it really is something that contributes positively to our returns. So yes, it's absolutely true that the large capital volume has been reduced in size. It was reduced in size last year as well. But it could well be the case when we see opportunities in that space that the size of that portfolio could be increased. So we have an enormous amount of flexibility to move our capital around. It really is a powerful thing. So it certainly -- I certainly wouldn't want to leave people with the impression that the traffic in large caps is one way. Having said that, our macro view at the moment is that we expect economies to slow. We expect earnings to decline across the listed universe in Australia and globally for that matter. So we expect conditions for listed equities are going to be a little more challenging, and that's the reason why, frankly, we have reduced that portfolio by $860 million in the period and part of the reason why we're carrying a lot of cash right now. So it's an excellent question and one that I'm answering in a way to demonstrate the fluidity of capital and capabilities we have internally. But no, I think that we wouldn't be rushing back into large cap equities at this juncture, but markets are very volatile, and we have a lot of cash stored up, and we have the opportunity to move when we believe the time is right.

Thank you. Next question to you, Todd. How do we intend to deploy the cash pile when opportunities arise as per the current portfolio mix or otherwise?

I mean it won't strictly be in accordance with the current portfolio mix. It's going to be opportunistic. And we don't -- we don't sit down and say we wanted to have x percent allocated to different asset classes. We just pick the asset classes that we like the best and allocate to them and where we see good opportunities arising is where we allocate to. Now that could be frankly, in any asset class that might be a listed -- a listed stock that we see a really good value in, but it also might be a private equity opportunity. But right now, there's no doubt that we see the best risk-adjusted returns coming from structured yield and credit. So we keep deploying there, and that's kind of really setting the benchmark for anything else that we look at. Everything else that we look at, we say, well, are we getting superior returns to what we could get if we were putting more into our structured yield portfolio, particularly in the context that the structured yield portfolio is protecting our downside and is more defensive. So I think it depends on where we are in the cycle. It depends on what the market opportunities look like and also what particular opportunities are presenting themselves to us.

Thank you. And on those similar topics of private equity and credit, there's a question about with the increased money tied up in PE and credit, is there a risk of liquidity issues in future years with the reduction of the large-cap stake? And can of large cap holdings be published? This has historically been the case.

I mean we're approaching 20% in private markets. I don't think it provides a liquidity issue for us because, firstly, we don't have any liquidity constraints. It's not like -- this is one of the great competitive advantages that Soul has because it's a listed company with permanent capital, we don't have to be concerned about redemption risk and having to give that capital back. So that enables us to take very long-term approach to portfolio construction. And in fact, our view is the longer the better because if you're getting solid returns and a compounding over a long period of time, then you want to stay invested. So we don't worry about the liquidity risk that's coming from there. We've got mountains of liquidity, whether it's cash or undrawn debt facilities or from our listed portfolio. And one of the things that has been a significant benefit that arose from the Milton acquisition was the tax advantages that we received through that transaction mean that we can trade any of our shares and a substantial portion of them, including the long-held ones in things like TPG, New Haven Brickworks, without having the tax cost that we would have had before building. So we've got huge amounts of liquidity in the portfolio. Sorry, there's another part of the question. The last...

Why aren't we disclosing the large cap portfolio?

Yes.

Yes. Well, I mean, only because it's when you get down to individual positions, in the context of the broader portfolio, it's -- they're not so relevant. And also, we want people to focus on the portfolio as a whole rather than asking us why we invest in certain stocks. We just found that in the past, we were getting bogged down talking about individual positions that were insignificant in the broader context of the portfolio. So nothing to hide, but Brendan can talk to the nature of the portfolio and how it's been getting more concentrated or higher conviction in its approach, and I think that's important. And the other important thing about the large-cap portfolio on the way it's managed is that it is indexed unaware and it's managed in the context of the broader portfolio, which is to say that if we had a position, say, as we do in New Hope in energy, the large-cap portfolio was underweight energy last year. And that's not because we're trying to balance it out, just that we know that we're set somewhere else in the portfolio on particular themes and we don't need to have it in a large-cap portfolio.

Thank you. We've got a couple of questions on investing in international equities. One question is that with the strong network and capital position, we've mentioned certain portfolios that we're looking to increase weighting to, e.g. structured yield, but are there other asset classes that we're seeing value in. In previous results, we have flagged international equities.

Well, we've talked about international equities before. We haven't -- we haven't seen the need and we've decided not to have a separate portfolio for international equities as a stand-alone asset class. And instead, what we're looking at is international exposure in all of the other asset classes that we're in. And so if you look through, there's actually quite a bit of international exposure. And just in the strategic portfolio, we've got 2 companies that operate wholly outside Australia. One is Apex Healthcare, which is listed in Malaysia. The other is 2S, which is ASX listed by a Singapore telco business. So we've already got quite a lot of international flavor in the strategic portfolio. In structured yield, I mentioned before, the transaction that we're doing with Pengana to source international credit managers to get exposure to high-quality credit managers offshore so that there will be a good flavor there. And even in the large-cap portfolio, I mean we don't necessarily believe that we're going to have the competitive advantage to pick stocks globally from our Sydney office. But when we do the analysis on the ASX listed stocks that we have in our large cap portfolio, over 50% -- 60% of the revenues from those companies come from offshore. So there's already a significant international flavor in the stocks that we choose. But if we look at the direct international exposure that we have today, it's approaching -- we got to 10% when we added up all of the commitments across the portfolio in the international businesses.

Thank you. I've got a question about cash or funding. Will the $744 million of net cash in the working cap portfolio be the source of funding for $271 million of the undrawn capital for the structured yield portfolio, hence, $500 million of available cash?

Yes. I mean that assumes that we don't sell anything else. But yes, I mean, we fund new commitments out of the cash that we have. So I mean, it will depend on how we see things over the coming months as to whether we keep increasing and selling down our equities portfolio to replenish the cash. But in the absence of anything else, yes, the cash balance will reduce to fund those opportunities.

Broader macro question. Are you seeing any distress in the market? And if so, where?

We're seeing increasing amounts of distress, but not to a significant degree yet. We -- still lots of talk around commercial property. That's not anything that we've had a close look at or done anything with. But I think the interest rates are starting to [ buy ]. That's what they're designed to do. I think the -- there's pockets of consumer activity that are coming off, and that will impact some people. So I think that yes, we'll see more of it. But right now, we're not seeing a huge amount of activity that is relevant to us.

I've got a couple of questions relating to the private equity portfolio. Are we considering increasing exposure to PE and EPS? What other portfolio would we reduce exposure to? And related to that question is one about many other private equity funds only hold investments for 10 years. Does Soul have any time constraints on investments before exit?

No. I'll take the second part first. It's -- that's what -- again, one of our competitive advantages is that we don't need to return the capital. So we can look at different kinds of businesses, ones that we can get into early and build a high-quality business over time, adding bits to it through M&A and then properly integrating the business so that you're building a high-quality business that we don't need to exit. And so we certainly don't have that time horizon. And that enables us to look at other sorts of deal flow, too, because there are -- there are some deals and that we are very well suited to, which is to provide growth capital to a business that might be, for example, family owned, and they don't want to introduce a party who needs to get an exit in 5, 6, 7 years because it effectively forces them to exit their business as well. We can come along and partner with those people and be there for the long term. And our time horizon will be as long, if not longer, than theirs. So that's a huge advantage for us. In terms of our desire to increase our weighting to private equity, yes, I think we would continue to invest there if we can get the right opportunities. But we have built out a number of our thematics that we wanted to get set in. And there's 4 major ones there that we are building around. If we can find good opportunities to grow those businesses, we'll take them. But I would say also that it's been a very active year in the last 12 months, and there'll be a bit of time to digest and settle and integrate those transactions that we've done. So it might not be as active next year as it was this year. But we'll be opportunistic and have our eyes open for anything that comes our way that can add a lot of value.

Thank you. I've got a question about bonds. You referred to the large cash balance sitting in term deposits. Is there potential for additional yield on the cash balances from investing in Australian or U.S. government bonds?

There certainly is. We've chosen not to go that way. It's a very good question. And we've chosen not to go that way because we don't want to take capital risk with that part of the portfolio. We may have a different view on that once we feel that rates have stabilized. Rates are clearly moving around quite a lot at the moment. And so we were very keen to keep the duration on any of these cash positions short until we know where rates are going to land. But that certainly is something we could look at in the future and something we have discussed internally, but we've certainly not done it as of yet deliberately, but that may change in the future. But it's a very good question. And interest rate volatility at the moment is clearly very, very high. We will be looking to that to moderate before we made a decision like that.

Thank you. There's been a couple of questions about what our current NTA is. So David, could you answer -- let me just read this out. Well, would Soul entertain buying back its own stock when the share price is below NTA? But maybe first, you could answer the question, which is what is the -- how the share is trading to NAV or an NTA?

So there's a couple of things there. So people want the NTA, and this is a number that appears in the ASX Appendix 4E. And it's based on the balance sheet that's in the annual report. And I'll call this out, the number is $26.17. But you have to remember, that's based on the balance sheet that shows our equity accounted value in Brickworks and New Hope, not the market value. So equity carrying value is much, much less than the market value of those stocks. So we always direct people to look at the NAV statement that we've published, and you'll see that, and that's $30.01 there at the end of July. So that's the more market-based fair value, and I would think more relevant number than what we're required to report by the ASX.

And we should note that, that was the number as at 31 July. The portfolio has improved since then. So with today's trading, I would expect that our share price is now under our net asset value per share.

Thank you. And Todd, a question that Soul Patts has been likened to Berkshire Hathaway. Does this have a gearing to reality? If so, is this by accident or by design?

I don't think it's by design. I think some of the similarities that I could say is a relatively small head office with decentralized operations at the investment level. That's something that we have done for a long period of time, not to copy what Berkshire Hathaway has done, but I think we just kind of ended up in the same place. I think that they are -- probably have a higher weighting of wholly owned operating entities compared with us, whereas over the years, we've floated off some of the companies that we owned, distributed some of the shares to our shareholders, attracted new shareholders and have put them into the public domain so that we've got a higher weighting to listed companies. But I think the biggest commonality would be that the -- Rob Milder and his uncle Jim are just very sensible, pragmatic people who are patient, long term in their focus. And I think that's probably the biggest similarity we have is that approach to doing business and making sensible investment decisions.

Thank you. I've got a couple more on the structured yield portfolio. One question is what is the average maturity and loan to value of the deals? And within the structured deal portfolio, are you able to comment on the downside protections in place?

I don't have the data to hand in terms of what the average life is. But I think this is sort of around a 3-year mark would be my guess. Loan to value, again, hard to say because it's different things for different investments. We can -- we tend to just make sure that we build in lots of coverage in terms of headroom. Now whether that's ensuring that the various ratios, whether it's earnings or interest coverage covers the requirements well or all of the assets well above the loan. We feel that, that provides us with the downside protection. And in addition to that, the fact that so much of it is secured, means that you're above everybody else in terms of getting paid first. So just as against equity, straight away, it is a downside protected mechanism for investing. And we're investing in businesses that we would be happy to own the equity in, we just think that we're getting better risk-adjusted returns by investing in the debt.

Thank you. Being a long-term investor, has Soul Patts ran the numbers on the build-to-rent sector? And do we see it as commercially viable with the Australian housing shortage?

The short answer is no. We have been pulling back on our direct property investing activities, primarily because of the huge growth in the property portfolio at Brickworks. So we own 43% of Brickworks. Brickworks reported today continued growth in the industrial property assets, and that number represents a very significant investment for us. And out of all of the property assets across that asset class, we think industrial property is the highest quality, and so we're very comfortable with our existing property exposure, but not necessarily looking to add to it at this point.

Thank you. And I think there's really only time for one final question, which is what is New Hope's exposure to China? And how much does Soul factor geopolitics into decision-making? And the third part of that question was in our views on the U.S. on yields, which I think we've covered already.

Yes, we do look at geopolitical factors as an investment risk. And we identified many years ago that New Hope's exposure to China was one of the greatest risk we had. We could see some more challenging relations between the countries happening and eventually, we saw Australian coal shut off to China, and that had really negligible impact on New Hope because the global supply and demand just rebalanced and we found other markets. Now because of that decision that we were forced into -- and at the time, China had already been a decreasing percentage of our market. But at the time that we shifted all of the product to other markets, despite the fact that China has now reopened, we haven't gone back to China in any meaningful way. So a very small percentage of coal was delivered into China at present. And we absolutely look at the risk attached to our customers and the sovereign risk in which they operate.

Thank you. Well, we're at time. So that concludes our presentation for today. And a reminder that a recording of this will be made available on our website. Thank you for joining.