WHSP Holdings Limited (SOL) Earnings Call Transcript & Summary

Good afternoon, and welcome to the results presentation for Soul Patts company performance during the half year ending 31 January 2024. 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 before we turn to Q&A. On your screens, there is a question box on the right-hand side, where you can submit a question at any time during the webcast. We will respond to questions at the end. With that, I'll now hand to Todd Barlow.

Thank you Courtney and welcome to everybody on the call. It's an absolute pleasure to be in a position to deliver another outstanding result for shareholders. As most of you know, Soul Patts is a diversified investment house that is unique in the Australian market. Our aim is to grow shareholder wealth through a diversified range of investments that can perform throughout market cycles. Our team actively manages our portfolio of over 200 investments, and we can adjust the investment mix to extract the highest quality risk-adjusted returns. Our portfolio fair value as at 31 January was $11.5 billion. Pleasingly, we've been able to continue an excellent track record of paying dividends to shareholders, which have now increased for 24 continuous years. We are equally focused on delivering long-term capital growth for shareholders with total shareholder returns generating, over the last 20-year period, at 12.4% per annum. This is 3.5% above the All Ords Accumulation Index. Our purpose has remained the same since listing in 1903. We aim to generate enduring success for our shareholders. We do this by making a sound investment decisions. and we approach investing through our long-term commitment to building value and not being distracted by short-term events. Our strength in conviction when making investment decisions, and our unconstrained opportunity to invest where we can extract the highest quality returns. And we measure our success against 3 key objectives. Firstly, we aim to increase cash generation from our portfolio to continue our dividend track record. Secondly, we want to grow the portfolio and exceed market returns. And thirdly and importantly, we are guardians of our shareholders' capital, and we actively manage investment risk. During the first half, we performed very well against each of these objectives. We increased cash generation, and shareholders will be happy to hear that this has enabled the Board to declare a fully franked interim dividend of $0.40 per share, up over 11% on the prior interim dividend. Net cash flows generated by our investments increased by 6.9% to $263.4 million. We grew the portfolio, the net asset value per share increased 10% against the prior corresponding period. On a total return basis, which includes dividends paid for that trailing 12-month period, the portfolio outperformed the market by a solid 6%. And if we just focus on the last half, the total return performance was 8.3%. This was 2.4% better than index over the same period. And we also actively managed investment risk. We do this in a variety of ways, but primarily by investing in a diversified portfolio of high-quality, resilient and growing businesses. To demonstrate the quality deal flow and execution capability of the team, we invested $1.6 billion into public and private equities throughout the half. Brendan will talk a bit more about this activity later in the presentation. The $2.4 billion of total transaction activity across the portfolio was indicative of a market environment that was shifting, and you can see by the performance metrics above that we fared very well. You may recall that last year, we were quite defensively positioned with higher levels of cash. However, we saw conditions improve triggering a market rally through most of the last period, and we were able to deploy around $700 million of cash during the half year, leaving available cash of $394.2 million at the end of the period. This graph tells the story of an incredible, unbroken run of increasing dividends that no other ASX listed company can match. As I mentioned on the previous slide, the Board has declared an interim dividend of $0.40 per share fully franked. This is 11.1% higher than the previous year. Ordinary dividends have increased every year since the year 2000. And over that 24-year period, the compound annual growth rate has been 9.6%. In the last 3 years, the interim dividend has increased by an average of 15.4% per annum. Over the last 20 years, Soul Patts has delivered a total shareholder return, which reflects growth in share price and dividends of 12.4% per annum. That is 3.5% higher than the market every year. When that is compounded and reinvested over the last 20 years, you can see that shareholders have seen their investment in our diversified portfolio of assets grow by more than double the market index. David Grbin, our Chief Financial Officer, can discuss the financial performance of the company.

Thanks, Todd, and good afternoon, everyone. Before I speak to our results, it's helpful to remember the statutory accounting earnings and balance sheets are not our primary focus when we assess the performance and financial position of Souls. 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. So once again, it's a real pleasure as CFO to present strong performances on both these metrics for the first half of the '24 financial year. The net asset value of the portfolio at the end of January 2024 stood at $11.5 billion as compared to $10.5 billion at the end of January 2023, up 10%, largely due to the growth in the value of our strategic and private equity portfolios as shown on the waterfall chart on the slide. Over the last 12 months to the end of January 2024, our portfolio grew by just over $1 billion. If you include dividends paid to our shareholders, the total return for the portfolio for the 12 months is 13.3%, outperforming the Accumulation Index by 6%. At the end of January 2024, our cash balances stood nearly -- total nearly $400 million, and we continue to retain substantial liquidity to take advantage of investment opportunities. Turning to Slide 9. Net cash flow from investments was up nearly 7% on the previous corresponding period to $263 million. The waterfall chart breaks down that $17 million increase with most of it coming from higher interest income and fees from our Credit Portfolio and an improved contribution from our Strategic Portfolio. Importantly, the growth in cash flow from investments has been consistent. On a per share basis, the first half net cash flow from investments has grown by 13.5% per annum on a compound basis over the last 5 years. This growth in cash flows has enabled an 11% increase in the interim dividend to $0.40 a share. This brings the last 12 months total dividends total ordinary dividends to $0.91 per share, an increase of 15%. Turning to Slide 10 on group profit. For the first half of 2024, our underlying or regular net profit after tax was $241 million, down $234 million or 49% on the previous corresponding period. The waterfall chart on the slide breaks down this movement. As you can see, lower profit contributions from Brickworks and New Hope were the major drivers to the reduced regular profit. This arose from lower property earnings in Brickworks and lower coal prices at New Hope. Statutory net profit after tax was $303 million, down $150 million on the prior corresponding period due in part to that reduction in regular profit and partly offset by higher nonregular gains in this half compared to the previous corresponding period. I'll now hand over to Brendan, who will take us through each of our portfolios.

Thanks, DG. And turning now to look at the composition of our portfolio. Firstly, we believe our investments are well positioned to not only perform strongly, but withstand volatility in markets. With a value of $11.5 billion at the end of the half, we actively deployed cash during the period. $1.1 billion was invested in our listed equity portfolios, strategic, large and emerging companies. With net additions after adjusting for sales of certain investments of $500 million in the half. Close to $0.5 billion was also invested across our private equity and credit portfolios. With that investment after adjusting for repayments of $280 million. I'll provide more detail on these investments shortly. Given the level of buying activity, our working capital position has declined over the half. But we are confident we have invested in great long-term opportunities. We retain approximately $400 million of cash at bank and have plenty of levers to pull should we need liquidity for further investments. Turning now to the Strategic Portfolio. These are our most significant investments in terms of ownership levels, most held for a long time and largely uncorrelated listed companies. The portfolio has generated reliable cash flows for Soul Patts over a long period of time. Growth in the portfolio over the period was driven by increased market valuations for our most major investments with Brickworks, TUAS, New Hope and TPG driving strong performance, as illustrated on the right-hand graph. Net cash flows were up over 8%, supported by a strong contribution from New Hope. Of note is the strength in TUAS during the period, returning 62% with TUAS now a $377 million investment. And the portfolio outperformed the index by 5.4% during the 6 months, delivering a total return of 11.3%. Turning now to Large Caps. The Large Caps portfolio is actively managed and consists of Aussie-listed equities that are expected to generate strong total returns over the long term. The size of this portfolio at $2.4 billion has been reduced during the period. This reflects a deliberate decision we've taken to sell down some of our investments, whilst valuations are strong. It has been a very strong period for listed equities in general. This has provided capital for deployed into other investment opportunities, many of which are listed, but happen to be in a different portfolio. As we have touched on in the past, our ability to be agnostic in terms of portfolio and seeking only the best investment returns is a competitive advantage for Souls. Net cash flows generated by the portfolio were $47.8 million, down 23.8% on the prior comparable period. Again, the size of the portfolio has an impact here on the amount of dividend income produced. We currently have 35 positions in the portfolio. On a total return basis, the portfolio outperformed the index by 1.9%, a very strong result in a challenging market. Turning now to Private Equity. Our Private Equity portfolio comprises investments in unlisted companies that have long-term growth potential and strategic M&A opportunities. At 12% of the total portfolio, it continues to grow and is now valued at $1.4 billion. Activity was slower in the first half, with only 1 material acquisition but followed a very active second half of 2023. The growth of the portfolio has been supported by a range of strategic acquisitions, most recently in agriculture, which I will come to shortly. As we are presently focused on investing growth, net cash flows produced by these assets have remained flat on the prior year at $13.3 million with cash flow expected to grow over time. The charts on the right-hand side shows Soul Patts approaches private investments in a unique way. We have a flexible mandate and a willingness to partner alongside management teams as either a majority, minority or co-investor. We are attracted to growth stage companies where we can build scale and sustainable growth over the long term. Turning now to the next slide. One of the strategic acquisitions I mentioned earlier is pictured here. It is a highly complementary acquisition for the Soul Patts agriculture portfolio. Valued at over $500 million, our ag assets have become increasingly material and presently comprised 12 farms spread across Australia. But are mostly situated along the Eastern seaboard with a focus on citrus aggregations. The recent acquisition is a large automated fruit processing and storage facility in Shepparton. This facility will allow us to vertically integrate operations, giving us better control of processing and channel sales, both domestically and offshore. Turning now to Emerging. The Emerging Companies Portfolio comprises investments in listed and unlisted formats in fast-growing companies that are often positively exposed to structural shifts or themes. The recent portfolio growth is a mix of new investments as well as gains in the portfolio. Portfolio value grew by 82% against the prior comparable period to $991 million. Whilst net cash flow from investments declined, that is reflective of the timing of realizations. For example, when assets are sold. There are currently substantial gains on assets we continue to hold. The most noteworthy was the investment in the period was a new investment in NexGen Energy, a Canadian Uranium opportunity where we have invested greater than $200 million in equity and convertible bonds. This builds on other existing investments in Uranium totaling $345 million. The portfolio remains well diversified by size, entity and sector and is predominantly senior secured. Net cash flow was up by 176% in the half to $52 million. It was a slower half for net growth in the portfolio with $241 million of new investments offset by $195 million of repayments. We have a strong pipeline of opportunities and expect to see continued growth in the portfolio. And finally, our property investments and working capital position. Our Direct Property Portfolio remains small, whilst noting that we have a material look-through exposure, high-quality industrial property through our investment in Brickworks. In terms of working capital, it has declined by $658 million in the period as we invested across the portfolio in the specific opportunities covered earlier. We retained $394 million of cash and liquids on hand. We also have access to various financing facilities to support any new investing activities if needed. Overall, the first half of 2024 was a strong period for the company in terms of absolute and relative performance. And I thank our talented and energetic portfolio teams for their contribution. And I will now hand it back to Todd.

Thanks, Brendan. As I mentioned earlier, this first half has been a particularly busy period. Acquisitions and disposals throughout the period totaled $2.4 billion, which is equivalent to 77% of the volumes conducted in all of FY '23. We have a further $500 million in committed investments, which were undrawn at the end of the period. Brendan has covered off on the various portfolio movements and some of the investing activities for the half, and I hope that, that gives you a good flavor of how we're positioning the portfolio. We're continuing this strong activity to ensure that the portfolio continues to be well positioned to generate sustainable returns. We were nimble enough to deploy significant capital into a rising market through the half, but we remain well positioned to fund future growth opportunities with $400 million in cash on the balance sheet as at 31 January as well as plenty of liquid assets and gearing capacity. The macroeconomic environment remains challenging to read. However, we will continue to seek investments in a diverse range of asset classes in order to build a resilient portfolio capable of performing well in any part of the cycle. Thank you very much for your interest in our company. We'll now answer some of the questions that I can see are starting to come through the portal.

Thanks, Todd. First question, with such a high turnover throughout the year in investments in which we are making, do we believe in the investments which are being made? Such a high turnover personally worries me.

Perhaps I should take that one. So firstly, we have, I guess, highlighted in the past that the ability for us to be active and frictionless effectively across all of our portfolios is a competitive advantage for us. And we are always looking for an opportunity to move our portfolios to the place where we feel that we're going to get the best risk-adjusted returns. Certain parts of the portfolio are more liquid than others. And obviously, we've made decisions in the period around the large cap portfolio and the valuations of those assets, which has allowed us amongst -- in addition to using our cash on hand, to invest in other parts of the portfolio, some of which may be listed. I touched on the major investments we've made in the period earlier, but I'll touch on them again. Because really, we've only made 3 large material investments in the period, and they were the NexGen investment that I talked about earlier in the Emerging Companies Portfolio. The investment in the Private Equity Portfolio around the packing facility in Shepparton, and our investment in Perpetual in the period. So what you've seen is a large amount of activity certainly but very, very focused and concentrated new investments, all of which we feel very strongly about. And in the future periods, you'll continue to see us investing in those sort of structured yield and private equity assets going forward. So whilst we were active, it certainly was deliberate and it certainly was focused.

And I should add that we don't churn the portfolio just for the sake of churning. As Brendan rightly pointed out, we're investing in a lot of our Private Equity businesses through growth capital and that explains a lot of the activity. And in order to fund that, we need to find that from somewhere. And so we've become increasingly active in, and we are seeing some churns in the public equities portfolios in both the Large Caps and Small Caps portfolios. And I would say that, that activity and the increased level of activity hasn't hurt the performance of those portfolios at all. In fact, if you look at the Large Cap portfolio, it did 2% better than market throughout the half. So that increased level of activity is actually being beneficial for it. But we also see a little bit of churn in the Credit Portfolio, and that's a function of the asset class. These are not long-term positions. Eventually, you get repaid. And so we have to continually add to the portfolio by making new investments because you're going to get repaid particularly as the portfolio matures.

We've got a couple of questions that have come through on Perpetual. The first is what percentage of Perpetual does Soul own? And the second is, can you talk through your plans for the investment in Perpetual? And is there intention to move higher?

In terms of our ownership, we are just under 15% in terms of combined relevant interest and economic exposure. Our relevant interest is around sort of 11.6%. And we maintain all along as a long-term investor in Perpetual that we saw latent value in their portfolio of businesses over there, which we believe to be of high quality, and we are pleased to see management pursuing a strategic review of those assets, and we're very interested in the outcome. So that's where we are on the Perpetual right now. It hasn't really changed since we made the public announcements.

Thanks, Brendan. Todd, one for you. What is Soul doing to transition away from coal and gas?

Well, we believe that the demand for LNG globally will increase significantly. That's just with population growth, increased urbanization, growing middle class, and the electrification of so many different things. And if you just look at electric vehicles and artificial intelligence and the kind of drain that will have or the demand that will put on energy. We think that there's a very complex mix of energies that are going to be needed to meet the growing demand. So we don't think it's mutually exclusive to think that Uranium will play a role in that. That renewables will play a role in that, and we certainly are looking to get exposure to the energy transition through our investment in Ampcontrol. But that also doesn't mean that we think that coal will cease being a part of the energy mix in the short term. We think that coal still has robust demand. We're certainly seeing that from our customers in Asia right now. So we are looking to play all aspects of the energy mix. And we think that as the transition occurs, there's going to be plenty of opportunities to profit.

Thanks, Todd. The next question is on the Agricultural acquisition that was done in Shepparton. What type of agricultural acquisition was there? So Brendan, do you mind just expanding on that a little further?

I mean just quickly, and I think I did touch on it. It was, it's a processing, packing and storage facility, which we believe will service a bunch of our agricultural interest in the area. It allows us to better control those activities around our portfolio, and it allows us to optimize the outcome in terms of the way we go to market. So it's classic vertical integration really on our part. But we're very excited about the asset and it fits very neatly in the portfolio.

David, one for you. Is there a stated profit reserve? Could you give us a feel for reserves held to assist funding future dividends?

Thanks, Courtney. So in the balance sheet, we have, there's two reserves. So there's an asset revaluation reserve and a capital profits reserve. The asset revaluation reserve is really used for our long-term investments where any difference in value goes through -- doesn't go through the P&L, it goes through reserves and comprehensive income. And if those investments are realized, it gets then transferred into the capital profits reserve. Now at the moment, at the end of January, that's a negative. It's a debit reserve of about $200 million, and that's largely because the value of particularly the TPG investment has declined since we put it to fair value back in 2020. Now importantly, for shareholders, we've got $4.5 billion worth of retained earnings. So there is ample retained earnings to fund dividends. So I'd be guiding people to be more focused on the retained earnings number rather than the reserves number.

Thank you. I've got a question on the Credit Portfolio. Is it exclusively Australian businesses? And what is the average duration and yield on the Credit Portfolio?

So no, it's not exclusively Australian business, but is predominantly Australian businesses. I would say less than $100 million of that portfolio would be global in nature. A certain amount of the undrawn part of that portfolio is global as well. So I would say it's roughly $100 million of the undrawn and at less than the $100 million existing portfolio. So that's probably the right way to think about that. In terms of the second part of the question, Courtney, that was around the duration in the yield? So we think the duration of the portfolio, and obviously, it varies depending on what we have in the portfolio at any given point in time is roughly 2.5 years. As you saw earlier, we have a reasonable amount of activity in that portfolio, and that's reflective of the fact that these are not, as I pointed out earlier, long-dated assets necessarily to come back at us reasonably quickly. The weighted yield on the portfolio is about 15%. The running yield is about 11% or 12%, and we expect the IRR on the portfolio is in around the 17% range. So it's, it's a great portfolio for us. You can see the growth in cash flow that, that portfolio has generated in the first half, and we will continue to look for ways to expand the portfolio as we go forward.

With private equity now at $1.5 billion, how do you get comfort on the valuations as it becomes more risky to get the right mark-to-market valuation, David?

Well, we run, we've got a process that we run constantly. And it is every, particularly every 6 months that we report to the market. We go through a process of reviewing each of our investments in our Private Equity, and this is broader than just the, it's all unlisted investments in across all of the different portfolios, where we make an assessment if there's any conditions for impairment. If there are, we will write those investments down. And then every 12 months for our material private equity investments. So I'm talking in the Agricultural Portfolio, Ampcontrol, Aquatic Achievers. We go through a process of getting our evaluations reviewed by independent professional valuers. They report directly to the Board. So we can get comfort that there's an external reference point to those unlisted value chains.

Thanks, David. Todd, one for you. Could you please share any insights on potential for acquisitions from unlisted funds? And/or Private Equity firms needing to exit investments at favorable prices?

Yes, I certainly think that that's a theme that is developing the obvious requirements on a lot of Private Equity held assets to exit them and an environment where IPOs are a lot slower than they have been in the past. That does create some opportunities for long-term capital like ours. But yes, generally, I would say that our preference is to buy into businesses alongside a founder or management team who's looking to grow and looking for that supportive partnership capital that we provide rather than providing a secondary exit for private equity funds.

Thank you I've got a question on TPG. TPG has been a disappointing investment for several years. It seems to have lost its competitive advantage since [indiscernible]. Do you mind sharing how you think about TPG now?

Yes. I think that it has been a challenging market environment. I mean if you think about the 2 biggest areas of telco, you've got the broadband market, which was significantly disrupted by the introduction of the nbn, which has been very frustrating in a sense that you had a market that was already providing those services to, across the population and then you had the government come in and compete alongside them. We only have a relatively small population across a large expanse of land here and having multiple people competing for the same assets is obviously going to drive down profits and you're competing with government that has effectively 0 cost of capital. So that really impacted the broadband returns. But I would say that now that that's settled down. TPG is doing a very good job of capturing market share even on the nbn itself. And then the other aspect of telco is the mobile market. And again, we have 3 service providers across relatively small population and a large expense of land. And it's been very competitive and quite capital-intensive in recent years. And, one of the things that we're seeing in terms of the CapEx cycle for TPG is an accelerated rollout of 5G and replacement of the Huawei equipment, which has been banned. So that's inflating the CapEx that they are spending at the moment, but that will unwind in time. So I think we take a longer-term view than the market here, and we think that there's some positives coming because most of the negatives are coming to an end. It's been a cyclical downturn for the telco industry of late, but we think there's better times ahead. And we're starting to already see that in terms of improvement in the average pricing and margins across the board.

I've got a question on Brickworks. Todd? Could you comment on today's financial review article regarding the higher Brickworks share price, the other recent takeover activity in the construction sector and whether that makes a merger or unwinding of the cross shareholding with revisiting?

Yes. As was quoted in that article, I was asked this question at the AGM. And, if I go back to several years ago when we had shareholders asking us to look at this very issue, we undertook at that time to assess regularly and we have done that. We're constantly assessing whether there is a way to generate better outcome for shareholders if we were to unwind it. That is not an easy process. And obviously, the fact that we haven't been able to do it, indicates that we've taken the view that the businesses are performing quite well, as they are. It's a 55-year symbiotic relationship that's helped both of those companies perform. And all we can say is that it's something that we keep monitoring and if we can come up with something, we do so, but it's been under constant supervision for many years now.

Thank you. A few more questions have come through on the Agriculture Portfolio generally. Can you please walk us through what the investment premise is for Ag going forward?

The investment premise at a high level for Ag is that we think that Australia, I think one of Australia's greatest competitive advantage industries is Agriculture. We do it better than the rest of the world for a variety of reasons, but partly, it's the land availability, the quality of our weather and weather systems, but also our know-how. And, but we also saw opportunity to further take advantage of those facts by, through institutionalization of farms. So a lot of these funds that are family owned are lacking in investment from a capital perspective or lacking in scale and geographic diversity. And so what we did was allocate an appropriate amount of money to get high-quality management teams to oversee scalable operations where we can invest in improving and derisking the business. So that might take the form of wind brakes to stop fruit rubbing, Netting to stop hail damage, But more importantly, we acquire long-term water rights to make sure that we adopt -- drought resistant. Invest in the best quality plant breeds. And over time, we'll see an efficiency pickup from that higher-quality fruit. So what we're really focused on is Australia being the food basket of the world and the high-quality projects that we can grow here is in high demand in a lot of our sort of Asian neighbors. And so this is high-quality horticultural produce for the export market, which we think is a theme that will continue on for some time. And in the meantime, we will institutionalize the quality of the fruit and produce that we grow as well as the, reducing the risk profile that often comes with agriculture.

Todd. And just staying in the private equity portfolio, there's been a question on, or asking if you can walk us through each of the investments in the portfolio? And specifically on the swim schools, how much bigger can you go in the acquisition of other swimming schools?

Well, if I just take the swim schools first, I don't have the data at hand. I'm not sure we have reliable data on it. But we are usually the biggest swim school operator in the Australian market. Now through some acquisitions, but we are still a very small percent. I mean we would be less than 10% of the overall market. So it's a very fragmented industry. And again, this comes back to my point about institutionalizing the quality of providing swimming education to the nation. We think that it's a recession-proof business in the sense that people are always going to teach their kids to swim no matter what the economic conditions look like. And we think a high-quality product with good systems, technology, swimming programs are something that we can take advantage of through increased scale. So how much bigger we can get? I don't know. I mean, I actually think that there's an international opportunity here. I think Australia is renowned as a nation of good swimmers. And so I think that this is something that we could potentially take to the world, but that's not on the current horizon. Right now, although we have looked at investments offshore. So it's hard to say how big this thing could be. But right now, we're certainly growing and we are the natural aggregator in the market. The other assets that we have. I just spoke about agriculture at length, so I won't talk about that again. There's Ampcontrol, which is the business which will take advantage of the energy transition store and particularly the electrification and the changes that we'll see to the grid. And in particular, if you think about sort of mine site electrification, which is one way that miners can reduce their carbon consumption, the big challenge there is electrifying remote locations and Ampcontrol has competitive advantage in that regard. And so we're trying to build it's know-how and capacity to take advantage of what is a very large and growing investment that's happening in the energy transition space. We've looked at we would be very active in M&A to grow that business. Although anyone who is exposed to the energy transition space is looking for eye-watering high multiples. So we're really focused on organic growth and how we can build out a workforce capable of tackling that market. The last thematic in our Private Equity portfolio of scale is wealth management. We have an investment in a business called Ironbark, which is growing and recently merged with our wealth management business called [ Invest Blue ]. And we're looking to grow an integrated wealth management business as we see Australia superannuation funds increasing rapidly. Our view is that people are going to need more and more advice as time goes on.

Thanks, Todd Brendan, I've got a question on the Large Caps Portfolio and just our general house view on interest rates. So the first one is the Large Caps portfolio is rotating into consumer discretionary. Is this due to a house view that we're moving into a rate cut environment? And a similar question to that is what's your outlook on interest rates? And will we be looking to pivot back towards equities ahead of any reduction in the cash rate?

So I guess the first point I would make is, whilst we have a view on the macroeconomic outlook, we need to, we're not macroeconomic investors. And I think that making investment decisions on that basis is a little fraud and we don't do that. And as we look at our portfolios, we take each of those individual investments bottom-up. So we have a point of view around each of them and that cuts across all of our portfolios, the Large-cap portfolio included. But withstanding that, it is our view, and I think it's a view of the market that with the rate cycle in most developed economies has probably peaked. I think the general expectation is that we'll be moving into a rate cutting cycle towards the end of this calendar year, probably led by the U.S., where rates are a little higher than here in Australia, maybe we lag that a little bit. There's no doubt we're in a more constructive investing environment macroeconomically this time last year where we were looking at rate rises, earnings contraction, concerns around inflation and the like. A lot of those risks seems to have moderated. So we feel a little more constructive. And so it wouldn't really come as a surprise that we've been comfortable investing as ambitiously as we have in the 6-month period. So do we feel better about the economy? Yes we do? Do we think rates will be coming lower? Yes, absolutely. I think that would be logical at this stage of the cycle. In terms of the portfolio mix within the Large Cap Portfolio, it's far more single-stock fundamental than that. But having said that, I think it's probably logical that we are a little more confident about the discretionary parts of the economy. And some of the more defensive parts of the portfolio. We're trading very, very expensively against the backdrop of expected recession. So you'll see that portfolio probably take on a little more risk in that sense, but it's very much case by case, but I'll leave it at that.

Thanks, Brendan. Todd, what is the company's position on AI or Artificial Intelligence. Is Soul positioning itself to benefit from this thematic trend now and in the future? And a similar question to that is, I guess, why are we underweight on tech?

I think it's unfair to say that we're under weight tech because 1 of our biggest and best investments has been TPG, which has really been a view on technology for the last couple of decades and the growth in consumption of data. That is our view around the consumption of data has driven the value of that business. But in terms of how we think about tech broadly, there was a time when we were more invested in technology, and that was when Small Caps were we're benefiting from a lot of those names. We saw that they were overvalued and we exited a lot of those investments towards the back end of 2022, I think. We have been surprised, I guess, by the, there was a big sell-off in early '23 in technology and then a significant rebound at the back end of last year, which caught us a little bit by surprise, and I would say that we didn't capture much of that. But if I think about the question around AI more broadly and technology more broadly, we tend to think about, it's very difficult for businesses like ours to accurately, analyze and value businesses at a high growth, high multiple, low earnings. But what we can do is think about technology and the impact that it can have on more traditional businesses. And if you can get involved in the business that is on normal intra multiples, but is a beneficiary of AI or other technology that hasn't been yet factored into the price. That's the kind of thing that gets us really interested. So we tend to look for businesses where we can apply our analytics and valuation methodologies to come to a view on the downside being protected through a business that has a stable existing footprint. But if it can be enhanced through technology, then that's blue sky and upside that we'd love to capture.

Thanks, Todd. Brendan, maybe one for you on the Emerging Companies Portfolio. What sort of sub-$50 million market cap companies does the Emerging Companies Portfolio invest in? And what is the general investment criteria?

So I'll probably make a couple of points around that. Firstly, that portfolio invest up and down the capitalization stack. Many of the investments in that portfolio would ordinarily be considered large caps if they're in a different setting. So the portfolio is not necessarily limited by market capitalization. So I'd make that point first. And obviously, hopefully, we invest in things when they're smaller, we hope for them to be large. So I'd make that point too. The other point I'd make is some of the smaller investments in this portfolio have led to other opportunities for the firm over time, and I'd probably draw attention to EOS, which has been an investment that started its life in the small-cap portfolio has provided a credit opportunity for us. And given us multiple ways to be involved in a very interesting thematic. So, it's not really just a question of the size of the investment and its ability to add profitability to the organization. There are many other ways for smaller investments to add value to the organization. So that portfolio. And indeed, any of our portfolios, even though they do tend to specialize a little bit, are happy investing up and down the capitalization stack. So I wouldn't say it's restricted at all.

Thank you a question now on Milton. Have you now completed the full integration of Milton? Are there any outstanding issues or concerns?

Yes. The answer is yes. We have completed the integration. It happened much more quickly than anybody might have expected, although we didn't expect it to be very complicated because, it wasn't a large workforce that came across from Milton and also the investment philosophy was very consistent with ours. So it didn't, it wasn't a very complicated integration process at all. But the I guess the thing that remained outstanding once we integrated the teams and all processes was the reorganization of the portfolio that we talked about. And that has taken some time because, obviously, overnight, you can't just switch into a lot of credit investments, and you can't just overnight switch into a lot of private equity investments. And we always said that, that was where we were seeing opportunity, and we lack the capital to take advantage of it. But I would say that now we're nearly, I think, 3 years on -- 2 and a bit years on. I'd say that we are very happy with the status of the portfolio construction now, taking advantage of the liquidity that Milton provided. And so it's been looking back strategically has been a fantastic move for us to be able to diversify the portfolio in the way that we have and set ourselves up with the increased activity that you're seeing to be able to take advantage of the deal flow that we see.

Thanks, Todd. Brendan, the large caps portfolio, are you happy to share your top 10 to 20 holdings and waiting within that portfolio? Because there was a second question on that asking why we don't publish the listed investment portfolio?

So it's not been our practice as regular viewers would know to relet over the last I guess, few earnings announcements that we've had. And I'd make, the first point I'd make is the portfolio now has 35 investments. So it's quite concentrated. Firstly. Secondarily, as we've discussed extensively now, the portfolio turns over quite rapidly. So I wouldn't want to give people the impression that we've got static investments in this portfolio. It's very active. And does move around a lot. So I think the portfolio is no longer in a LIC setting. So we don't tend to share that information, but I'm happy to give flavor and color around that. And the portfolio does present a lot like a large-cap portfolio would with large investments in Macquarie and BHP and WesFarmers and CSL. We have some decent size investments in the mid-cap parts of the market as well. It is generally underweight retail banks is generally overweight, diversified financials, probably largely because of Macquarie. As we touched on earlier, we've moved a little of our exposures around between consumer staples and discretionary. It's overweight health care. So it's a more active portfolio. We've recently been building our position a little larger in the real estate space, largely through Goodman as well. So it's an active portfolio. We don't share the positions deliberately, but the good news as Todd touched on earlier is that it has performed very well over the 6 months, and we hope to keep it that way. So yes, I wouldn't expect that we share that going forward. not necessarily just due to commercial sensitivity, but more around the fact that it's quite flexible.

Yes. We sort of made this decision a number of years ago because we, today, we're announcing the results as at 31 January. And a few years ago, I can't remember the stop, but we are one of our positions that was a large position was reported. But and everyone was getting excited about the fact that we owned it in size. But in fact, yes, by the time the results came around, we were selling it, and it was a much smaller position. So because of the dynamic nature of it, we just didn't want to be misleading by reporting the portfolio positions that were months out of date by the time we report them.

I've got a couple on the credit portfolio. One, the first is that every man and his dog has started to offer private credit opportunities. Are we seeing any impact in regard to the quality and pricing of opportunities that we are reviewing or executing upon? And a similar question with the credit portfolio is, does it have exposure to property development loans? And are the majority of loans at floating rates?

I think it's true to say that there's more people in the market looking to get involved in credit. And that, of course, over time, is going to compress the margins and bring down the borrowing cost to borrowers. But I would say that we're not deeply impacted by that because the nature of the deals that we do tend to be crafted with the counterparty to be bespoke to their circumstances. We're a bit more creative and nimble and able to you think of a solution that works for both parties. So we're not just meeting the market. We're not necessarily participating in broad-based credit offerings, which I think is a bit of a competitive advantage for us. So right now, as Brendan said, that portfolio continues to perform as well as has ever done. And we're continuing to see new opportunities to replace those opportunities that are being repaid, which is normal in any mature book. In terms of development property, we have never been involved in lending to developers. Our view from the outset was that, that is a specialist market, and there are people who only do property development lending and so specialist skills, but also there was quite an abundance of capital that was focused on those types of opportunities. So that was just something where we didn't see earlier in us playing a role What was the third element to the question?

I've got a broader sort of macro one or sort of relating to cash deployment really. Given the performance of markets over the last 6 months, is there any reflection that more of the cash on hand should have been deployed to capture returns?

Do you want me to take that on? I guess I'd say, first and foremost, we've net deployed $700 million of cash over the period. It's a healthy amount of investment. So I don't think it was the case that we were sitting on our hands, first and foremost. And the investments that we've deployed into, we feel very strongly about, and they've all performed as we would expect, which is well. The second point I would make is our performance in the period has clearly been very strong as well outperforming the benchmark [indiscernible] by 2.4% in the 6 months. So our cash position leading in didn't cost us any performance, but we did put a lot of to work in the period into the investments that we talked about earlier. So yes, I wouldn't say that we were slow deploying cash. And I'd also make the point that we will still retain circa $400 million worth of cash for any future investments we choose to do as well.

I think we did very well. I mean the market, our portfolio tends to do better in poorer performing markets. And we saw that in the first half of 2023 calendar year. The back half of 2023, the market were raising away, and we still do better. We did 2.5% or so better than the market for the previous 6 months. So and 6% better than the market for the last 12 months. So I think we did well. But if the question is, having known what the market did in the last 6 months, do we have regrets about not deploying more cash? If I had that kind of hindsight vision, I would have geared up the portfolio 3 times and taking advantage of the market. So looking back, we just weren't expecting the market to perform as well as it did but as I said, we did extremely well despite that surprising market rally in the last 6 months.

There's a question on the LIC market specifically. Since the Milton acquisition, the LIC market continues to trade at a meaningful discount. Does Soul think there is consolidation in the LIC market? And would we consider other acquisitions in the space? To add to the listed portfolio?

I think there's still demand for LIC product. There's a lot of investors who like investing in that, in those companies. They provide a very good product actively managed low-cost exposure to the market. So as I mentioned earlier, around the strategic benefits that we were able to obtain through the Milton acquisition, they've been achieved now. We don't need more capital. You can see that the portfolio is performing very well in the sense that we are able to generate enough liquidity out of the existing portfolio to fund our new investments. So it's not something that we need to do nor do I think that there is necessarily a need for LIC to consolidate.

Thanks, Todd. We are coming up to time. So I thought we would maybe ask one last question, and it's to do with our branding. Why the change in logo and brand for what worked for over 100 years?

Well, what's worked for over 100 years is the investment philosophy of the business, and it's critical for us to remain true to those values and ensure that we are continually checking ourselves that we're not departed from the things that's made the business successful. And the business name is Washington H. Soul Pattinson and Company Limited, which is a bit of a mouthful, and we found that nobody was really calling us that. And what people were calling us instead was a variety of WHSP, Soul Pattinsons, Soul Patts, and various other names. So we decided that we just wanted to simplify things by being known as one name. And with that came a branding exercise to be able to get some consistency in the market about how we are known. But name is merely the way that people will talk about us. But what we want them to talk about is our investment style, our investment success and the way that we deliver for shareholders.

Thank you. Look, there are a lot more questions, but we won't actually get through the rest of them. I think we've covered off a really nice broad mix. And that concludes the presentation for today. Thank you, everybody, for participating.