WHSP Holdings Limited (SOL) Earnings Call Transcript & Summary

Soul Patt's Financial Results Presentation for the year ending 31st of July 2024. My name is Tanny Mangos, and I'm responsible for Investor Relations at Soul Patts. I'm pleased to introduce our presenters for today. Todd Barlow, Managing Director and CEO, will go through the group performance highlights. Todd will also cover the group financial results as our CFO, David Grbin, could not be here because he's had surgery. Thankfully, he is recovering well. Joining us in the room is Steve Jones responsible for finance and [ Phil Neal ] responsible for treasury who can respond to any financial questions. Brendan O'Dea, Chief Investment Officer, will provide an update on the performance of each investment portfolio and an overview on capital management. Todd will then close the presentation with the outlook before turning to Q&A. [Operator Instructions]. With that, I now hand over to Todd Barlow.

Thank you, Tanny, and welcome to everybody on the call. As most of you already 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. As at 31 July, our portfolio value was $11.8 billion. This year, we delivered a strong performance and continued our track record of generating enduring returns for our shareholders. In this presentation will cover in more detail the financial performance for our shareholders. But I'd also like to emphasize some of the work that we do with all of our stakeholders. Our people are critical to the success of the business. This year, we completed our second culture and engagement survey which showed engagement scores 11% higher than the top quartile of finance organizations in Australia. Thank you to all of the Soul Patts' team and the staff of our many investee companies for their dedicated service throughout the year. Equally, our commitment to communities is important to us. We have had a long-term relationship with the Royal Flying Doctor Service. And this year, with the help of our shareholders, we raised and donated $735,000. Thank you to all the shareholders who donated to this worthy cause. Turning now to the performance against our strategy. We have 3 key objectives and performed well against each in FY '24. Firstly, we increased cash generation. Net cash flows generated by our investments increased 10.3%. That strong cash generation has enabled the Board to declare a fully franked final dividend of $0.55 which brings total dividends for the year to $0.95 fully franked. That is up 9.2% on the prior year. Secondly, we grew the portfolio. The net asset value per share increased 12% after adding back dividends. That was 1.4% below market in a year where the market performed above average in terms of historical returns. But 12% is a very pleasing overall return. The net asset value as at 31 July was $11.8 billion, which is about $900 million higher than the previous year. And lastly, we also 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 $2.8 billion into public and private equities throughout the year. Brendan will talk a bit more about this activity later in the presentation. The $4.7 billion of total transaction activity across the portfolio includes both acquisitions and sales. That activity is indicative of our continuing rebalancing of the portfolio and a constantly shifting environment that required us to be a bit more active than usual. On a net basis, we deployed over $800 million of cash, which left our cash balances low at the end of the year. In August this year, we topped up our cash with an equity and bond raising that Brendan will provide a little bit more detail on later. It has now been nearly 3 years since we completed the Milton acquisition in October 2021. I thought it would be worthwhile to look at how we have performed in a 3-year period against each of our objectives. From a cash flow perspective, we've grown the cash flow per share we received from our investments at an impressive 20% per annum. This has enabled us to pay increasing dividends, which have grown at 15.3% per annum over this period. To put that achievement into some perspective, the total dividends across the whole of the market have grown at an average rate of only 0.9% per year. And then in terms of growing the portfolio, the net assets have compounded at an average of 13.5% annually. That is 6.4% higher than the benchmark for each of those 3 years. And to put that into dollar terms, the size of the portfolio is $2 billion higher than if the portfolio had simply grown in line with the market over the last 3 years. While achieving these outcomes, we've also derisked the portfolio by moving into uncorrelated and more diverse asset classes. In 3 years, we have seen total transaction activity, which includes both acquisitions and disposals totaled $10.7 billion. This has seen us increase our exposure to credit by 4.4x and our Private Equity Portfolio by 2.4x. This graph tells the story of an incredible unbroken run of increasing dividends that no other ASX-listed company can match. As I outlined in the highlights, the final dividend of $0.55 per share brings total dividends for the year to $0.95. That is 9.2% above the previous year. Ordinary dividends have increased every year since 2000. And over that 24-year period, the compound annual growth rate has been 9.6%. That growth has actually increased in recent years. And as I said in the last 3 years, dividends have been increasing by an average of 15.3% per annum. If Soul Patts is again able to increase dividends this financial year, we will be Australia's first dividend aristocrat a name given to a small number of companies globally who are able to increase dividends every year for 25 years straight. Over the last 20 years, Soul Patts has delivered a total shareholder return, which includes growth in share price and dividends of 11.7% per annum. That is 3% higher than the market every year. When that performance is compounded over 20 years and investment in Soul Patts has increased by 820% against a total 434% increase in the All Ordinaries Accumulation Index. While the 1-year TSR underperformed the benchmark, every other period is showing solid outperformance. Looking more closely at our financial results. It's important to remember that statutory accounting earnings and balance sheets are not our primary focus when we assess our performance and financial position. We measure ourselves on what drives value for our shareholders. Firstly, the growing value of the portfolio measured by net asset value. And secondly, the cash income, the portfolio generates measured by net cash flow from investments, which allows us to consistently deliver a growing dividend. I'll come back to these in a moment. With respect to our statutory results, net profit after tax was $499 million, 28% lower than the previous year. The major drivers were lower results from Brickworks and New Hope. Brickworks was due to property devaluations and noncash impairment charges in this Building Products division. New Hope had a strong year, its third highest result on record, but was lower than the previous year as record coal prices were treated. As I mentioned earlier, we achieved very strong growth in net cash flow from investments, which increased 10.3% for the year to $468 million. This chart breaks down the $44 million increase underpinned by strong growth in interest income and fees from our growing credit book, accompanied with realized gains from our trading portfolio. These were partially offset by lower large cap dividends following our rebalancing and lower dividends from New Hope. The pretax net asset value of our portfolio closed at $11.8 billion. After adding back dividends paid to shareholders, the total return for the year was 12%. Pleasingly, results were strong across the board. The Strategic Portfolio had a total return of 11%, large caps added 14.1%, private equity generated an IRR of 15.9%. Emerging companies had a very strong year with 16% growth. Credit delivered 14.9% and property was up 20.1% on the year. Brendan will now cover off on each of these portfolio performances in a bit more detail.

Thank you, Todd, and good afternoon. I'm very pleased to update you on our portfolio after a year where we saw strong returns across the board. Your investment team has been focused over the last 3 years on improving the quality of the portfolio, using the flexibility provided by permanent capital, available cash, what we like to describe as our unconstrained mandate. This allows us to continue to build investments that we believe will deliver for shareholders. Over the long term, through strong cash and capital growth, leading to increased fully franked dividends. These efforts delivered in 2024 with a total portfolio return of 12% and a growth in the cash received from our investments of 10.3%. We believe that our portfolio, which will remain actively managed is well positioned to withstand volatility and disruption, which is a feature of the markets we now operate in. It is also capable of delivering strong returns in a rising market like we saw this year. At the end of the year, the portfolio was valued at $11.8 billion, an increase of $900 million on the previous year. We actively deployed cash during the period, investing $800 million with a continued focus on adding to our Private Equity and Private Credit portfolios. We are adding to these portfolios due to the potential for above-market returns with an acceptable level of risk with Soul Patts having a long history of success in these asset classes. Over the year, we added $196 million to our private equity investments and a net $460 million to our Private Credit Portfolio, which I will go into in more detail on shortly. Our direct property holdings performed well, however, are currently not material. It is worth noting that we have exposure to high-quality industrial assets through our holdings in Brickworks. As we have continued to invest this year, our cash reserves have decreased from $911 million at the end of 2023 to $214 million at year-end leaving us in a net debt position of $160 million. This has been bolstered by a series of capital initiatives after year-end to give us further flexibility, which I will cover in more detail later, but leaves us in a very strong position to continue to invest in our exciting pipeline of opportunities and respond to market volatility. Turning first to the Strategic Portfolio. The Strategic Portfolio remains the core of our cash generation with Brickworks, New Hope and TPG, representing 52% of our net cash from investments. Our strategic investments are generally material in terms of ownership levels, usually defensive and cash generative and have performed well for Soul Patts over the long term. In many cases, we have Board representation to protect our interests. As other parts of our portfolio grow, we expect the dominance of the Strategic Portfolio to continue to decline over time. Cash generation was down 9.1% year-on-year as dividends from New Hope declined due to lower coal prices. The portfolio returned 11% in 2024 with the growth in the portfolio led by Tuas and Brickworks. Whilst this represents an underperformance against the All Ordinaries Accumulation Index, which returned 13.4% in the period, given the defensive nature of the portfolio and the above-trend returns of the market, we are very pleased with the performance. In terms of specific companies, Tuas continues to perform strongly, with a total return of 127% over the 12 months as they continue their rollout in Singapore. Brickworks performed well with a total return of 14% against a challenging cyclical backdrop in construction markets, supported by their investment portfolio. Aeris and TPG were the largest detractors to performance with Aeris challenged by operational issues and TPG volatile over the year due to the various initiatives underway to expand network coverage and realize value from infrastructure assets. In terms of Perpetual, we are watching the process to create value for all shareholders with interest. Further tax clarification is still outstanding before we can finally assess the net proceeds to shareholders from the sale of the Wealth Management and Corporate Trust businesses. Moving on to large caps. Our $2.3 billion Large Caps Portfolio performed strongly in 2024, a year where outperformance against the index was very hard for large cap fund managers. The portfolio returned 14.1%, generating $313 million of returns and outperforming the index by 60 basis points. Whilst the portfolio size is roughly flat year-on-year, this is due to us harvesting the growth in the portfolio to provide cash for us to invest in new opportunities in private markets. It is particularly pleasing to deliver a strong performance whilst also selling investments into market strength. The selling reflects our continued view that equity valuations are elevated now, considering the threats on the horizon to earnings and economies. It also reflects the quality of the opportunities that we are seeing at present in other parts of our portfolio. Cash generated was 25% lower at $88.8 million due to net selling in 2023. Those sales were biased towards the latter part of the year, creating a challenging baseline. The portfolio is comprised of 35 investments. And over the year, we have broadly reduced our exposure to the consumer whilst increasing our investments in resources. Our retail bank investments, whilst still very underweight against the index have grown. We remain constructive on the growth in new energy, which we are expressing through an investment in Macquarie, and in the data center and artificial intelligence team through our investment in Goodman. The Large Caps Portfolio is actively managed. So our investments will change constantly, but we will always remain focused on the generation of strong returns over the long term. Turning now to Private Equity. 2024 was a year of consolidation for our Private Equity Portfolio, as we integrated a series of strategic acquisitions made in 2023 and early 2024. We are attracted to opportunities that have not only strong growth organically, but also the potential to add growth through acquisitions. The good news is that each of our major portfolio investments are performing strongly and contributed to a 15.9% return for the Private Equity Portfolio in 2024. The portfolio is now $1.6 billion in size, representing 13% of our overall investment portfolio and growing by 32.2% this year due to a combination of new investments and valuation uplift. We believe that our approach to private equity is different to many other players in this space. We take a flexible approach and look to partner with companies over the long term. We are happy to be a full or part owner and like to let owners and managers do what they are best at, growing their company. These investments have the potential to compound steadily over time, and we are happy to remain invested in them over the long term, sometimes decades. Ironbark, Ampcontrol, Aquatic Achievers and our Agriculture portfolio are well positioned to succeed in industries with clear tailwinds and future opportunities. Net cash flow grew by 97.9% in the period as investments matured and we remain confident of continued growth in cash generation in future. Turning now to Emerging. The Emerging Companies Portfolio includes listed and unlisted investments generally in fast-growing companies that are exposed to structural shifts or strong growth themes. In 2024, the portfolio performed very strongly, returning 16% and outperforming the Small All Ordinaries Accumulation Index by 6.7%. The strong performance is particularly pleasing against the backdrop of a challenging market for small-cap equities due to higher interest rates, which impact longer dated valuations. The portfolio grew by 68.2% during the year due in part to new investments in the energy sector, specifically a large investment in uranium through Canadian-based NexGen energy. Our investment in NexGen takes the form of listed shares and convertible notes, reflecting the flexible approach that we can take to get the most value out of our investment ideas. We remain very confident in the energy sector due to the need to deliver more electricity globally to support amongst other things, electric vehicles and artificial intelligence. Net cash from investments grew by 192.3%, as we realized increased trading gains over the period. The timing of the realization of gains can be variable year-to-year. It was another strong year for our Emerging Companies Portfolio, which has a track record of long-term outperformance. Turning to credit. Over the course of 2024, our fast-growing Credit Portfolio has moved from straight growth to 2-way flow, as loans begin to be repaid. The average life of a loan in our portfolio is between 2 and 3 years. This means a significant portion of the portfolio is repaid each year as loans mature. In 2024, we deployed $644 million of new capital and $184 million of loans were repaid. So we are still adding material amounts of capital to the portfolio overall, and the portfolio size grew by 65.1% in the year. We have $269.1 million of facilities that have been committed to, but remain undrawn at 31 July 2024. The credit market still offers excellent risk-adjusted returns. And like in many other areas, Soul's approaches the market with our own differentiated approach. We have a strong set of capabilities and it can access high-quality deal flow due to our reputation as a trusted partner. The portfolio is well diversified by size and is in a range of sectors. It is also predominantly senior secured. There are 28 loans in the portfolio, ranging from $1 million to $123 million. Returns in 2024 have been excellent with a portfolio delivering a 14.9% total return. Cash received from the portfolio was up by 161.3% to $108.4 million as the portfolio has grown rapidly over the year. And finally, our capital position. In 2024, we have actively grown investments in private assets and use a substantial amount of our available cash reserves to do so. These investments have delivered as expected, and we believe we'll continue to deliver strong cash returns and capital growth for shareholders. At the start of 2024, we had $911 million of cash at bank and have used $697 million of that cash over the course of the year. We have access to equity finance facilities and have embedded liquidity within our listed portfolios should we need to access it. Management and the Board remain committed to the maintenance of a conservative balance sheet, including access to enough cash, should we want to respond quickly to an investment opportunity. With that in mind and after financial year-end, we completed a series of capital management initiatives that included $225 million equity raise at 0 discount sold to select Aussie institutional investors and repayment of our existing convertible bond and the issue of a new larger replacement convertible bond with a higher conversion price. The effect of these transactions is that cash at bank was improved by $450 million and the potential for conversion of the original bond reset higher. This leaves us with ample financial flexibility to respond to new opportunities. Overall, 2024 was a very successful year for Soul Patts in terms of financial returns, but also in terms of our capabilities and future resilience. I would like to thank the investment team and all who supported them for their efforts, and I will now hand it back to Todd.

In terms of outlook, we'll continue to focus on our 3 core objectives. The cash generation from the portfolio continues to benefit from our higher allocation to credit, along with the maturing Private Equity Portfolio. At present, we are reinvesting a lot of the cash back into the private equity companies to grow the businesses. However, they will start to deliver solid dividends. Our cash balance provides us with the liquidity to be opportunistic and recycle the portfolio. We need to ensure that we continue to exploit our competitive advantages, which includes our ability to be flexible and our long-term capital. While there is a level of uncertainty with respect to the macroeconomic environment, we believe that continuing to invest thoughtfully in resilient businesses with downside protection should enable us to withstand any economic shocks. We are lightly geared and have decent cash balances. We also have excellent deal flows. So we should be able to continue to rebalance the portfolio and take advantage of new and better opportunities as they arise. 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. Please feel free to continue to submit questions, and we'll endeavor to respond to them in the time available.

So Todd, our first question is I still can't understand how you are averaging 15-plus percent from private equity lending, I want a piece of this action.

Well, I mean, it is a very high-performing portfolio. We found another $500 million of opportunities throughout the year. And the team there has been able to maintain a near 15% yield across that portfolio. We do that in a way that is very different from anybody else in the market. We -- these are highly structured and engineered solutions for our counterparts who are just looking for capital in some way and they slip through the gaps, whether it's from the bank or for whatever reason don't want to raise equity. We provide those solutions for them. And so I think it's a very exciting part of our portfolio. We've been building it up over a number of years, and it's pleasing to see that it's continuing to grow.

Our next question is around the DRP. We've got several around the DRP. The first one relates to what motivated Soul to establish a DRP after not having one for so long. The second is around, is this going to be a permanent feature in the future? The third also asks whether we would consider a dividend substitution share plan similar to those offered by listed investment companies? And the fourth is related to an earlier question around Soul has not historically offered DRPs, what's caused the change?

Well, it's really simple. It's just been a number of inbound requests from shareholders. I mean our previous attitude was that people could take their dividends and go and buy shares on market. But given there has been a number of people requesting DRP, the Board agreed to implement one, and let's see how it goes. And there's no reason why we shouldn't maintain it. But based on the level of demand that we're seeing so far, I would expect a reason to take up.

Thank you, Todd. Our next question relates to emerging companies. The emerging companies portfolio has grown significantly by 68.2% and outperformed its index by 6.7%. What specific market trends or sectors are you focusing on within this portfolio? And what is the long-term outlook for its expansion?

So maybe I'll take that one, Tanny. Thank you for the question. So our Emerging Companies Portfolio has been very successful for us over the long term with performance that has been above its benchmark more or less every year, but certainly over the long term for many, many years now. And we approach emerging -- the Emerging Companies Portfolio with an active mindset in much the same way as we do our other listed portfolios. But the team have done a wonderful job there of generating returns. In terms of what we've done in that portfolio this year, as I touched on in my presentation, the big change there is an investment in NexGen Energy, which is a uranium opportunity based in Canada. It's not the only uranium investment we have within that portfolio. And thematically, which is a reasonable question, the portfolio is very heavily exposed to energy courtesy of that new investment and existing investments. I would point out that it is an actively managed portfolio. So our positioning around these portfolios do change. But we found opportunity to expand that portfolio this year into a thematic and an opportunity that we feel very strongly about and one that we think will perform well over the long term. So we're excited by energy across all of our portfolios broadly. But specifically, you've seen us express that this year in emerging companies.

And Todd, this next question relates to listed investments, one of our investors is asking, given its size, is it likely that Soul portfolio of listed investments will outgrow the Australian market and that a significant international listed portfolio may be inevitable?

I don't think so. I mean I think the Australian market cap for the ASX is about $2 trillion, and we have about $2.2 billion invested in the Australian market. So we are a very, very small part of the market. But I think the point that's been raised is, are we going to be increasingly looking at global markets, and we are. We're thinking about how we do that in a thoughtful way. At the moment, we're focused more on getting offshore exposure to private markets, private equity and credit, in particular. I think there's a natural move for us to get exposure to other exchanges and listed equities across the globe, but it's something that we haven't done a lot yet. But I would say that the exposure that we have in the existing portfolio is already -- has a fair amount of global complexion to it. If you look at our strategic investments, as an example, I mean New Hope is an export-only business. Brickworks has operating businesses in the U.S. We have Tuas, which is a Singapore and mobile business, Apex, which is a Malaysian listed health care business. And I think we did some analysis of our listed large cap equities portfolio and about 60% of revenues came from offshore. So there's already quite a significant global complexion into the portfolio.

Our next question, the portfolio underperformed the All Ords accumulation Index by 1.4% in FY '24, what specific strategies or asset rebalancing initiatives are in place to improve performance and close this gap in the upcoming fiscal year?

Yes. Thank you for the question. I guess, firstly, I would highlight that we are focused on long-term performance. We're not concerning ourselves necessarily with individual years or individual quarters or halves and we do have a very long history of our performance at Soul Patts, which we are quite proud of, which Todd touched on in terms of the 3-year view. The move that you've seen us make into private assets is very much relevant here. You can see the strong performance that we've generated out of private equity and private credit over the course of the year. Both of those portfolios performed well above the broader market. And it's our expectation that those asset classes do return better over time. So what we're doing really is making sure that we have a portfolio that is constructed in such a way to be high performing and moving into private assets, be it private credit or private equity, is part of that. I would also highlight that our other parts of our portfolio, except -- with the exception of Strategic, which is obviously our largest portfolio, performed very strongly. Our Listed portfolio outperformed this year. Our Emerging portfolio outperformed. And obviously, we had a strong performance in Property, which is a smaller part of our portfolio. So we're very happy with our performance this year. The Strategic Portfolio, which did underperform in what was a very strong year for the market. We're still very pleased with that performance. It generates a lot of cash for the portfolio, and they've been long-held investments for us that have performed very, very well over the very long term. But look, the portfolio rebalancing that we're engaging in right now and the move to private assets is expressly designed to generate performance for the portfolio going forward.

And I'd add to that. I mean when the market does 13.4%, we are not unhappy about returning 12%. We have a reasonably defensive portfolio, which is set up to perform throughout the cycle. We know that from history, we do better when the market is poor. And for us to get close to a very strong performance in the market, we're extremely happy with that. 12% is an excellent return. And if you look at what I mentioned earlier around the individual portfolios, every one of them outperformed their benchmark by some margin. The only one that was a drag was the Strategic Portfolio, which with some poor share price performances out of, in particular, TPG and New Hope dragged down, but it still returned 11%. And if we look at that Strategic Portfolio performance over the long run, it's been outstanding.

Our next question is from an international institutional investor. Are you comfortable being net debt? Or do you prefer to be net cash? Where do you expect to be in FY '25?

Well, right now, we are slightly net cash post the capital raise that we did. We were slightly net debt before that. It's not so much about whether we're net debt or net cash, it's more around assessing our access to liquidity. And after spending near $800 million last year and leading into our cash balance, we felt that we needed more cash. We did that through a combination of convertible bond, which was $450 million and a placement to replace the existing convertible bond of a bit over $200 million. So we feel that we're lightly geared at the moment, or in fact, we're net cash, but even if we started spending some of that cash, it would be very, very light gearing. We're happy to be -- to go into slight net debt. We're never going to be heavily geared because we tend to be a little bit more conservative. But I would say there's no reason why we wouldn't think of up to 10% gearing in the portfolio as a source of liquidity for us for new opportunities.

Our next question, I suppose when you're looking under the hood, whether to lend or not, you must see if the company is worthwhile in getting some equity.

Yes. I think that that's a fair statement to make about the Credit Portfolio that really what we're doing here is engineering downside protection. And so these are businesses that we think are fundamentally sound, and we would happily buy the equity, but we -- for whatever reason, because it works better for our counterparty or for us, we engineer a solution, which is credit like. But we are not in the business of lending to people whose businesses are something that we don't like and wouldn't be happy to own the equity or own the business if that's what we had to do.

We've got some questions relating to our Private Equity Portfolio. Could you talk a little bit about the private equity businesses. You increased your investment in this year. Can you provide greater detail on the swim schools market in Australia does that -- Aquatic Achievers have? How big is your Agricultural Portfolio and what investments does it consist off? And also, is it possible that you could potentially list and control, which you've held for a number of years.

So maybe I can start and then I'll probably handle elements of this together. It's been a great year for our Private Equity Portfolio. And we've had an uplift in valuations across the portfolio, which is roughly half the gain that you've seen in the size of the portfolio and we've had an investment of around $195 million, which occurred in the first half, it was something we talked about in the first half earnings, which was a packing facility down in Shepparton. So in terms of new money into the portfolio over the course of the year was pretty quiet in the second half, and I talked about it being a year of consolidation for that portfolio, and I think that's right. But if you look across the breadth of the portfolio. And you can see it on the slide, we had strong performance in terms of uplift across our portfolio. We're getting good performance out of Aquatic Achievers, great performance out of Ampcontrol. Ironbark is going from strength to strength as well. So we're really pleased with the growth that we're seeing out of that portfolio in general. Our Ag Portfolio is probably the one part of that portfolio that has been performing behind the other parts of the portfolio. That doesn't mean it's performing poorly. It's just the other parts of the portfolio are performing really, really well. The Ag Portfolio is between about $550 million and $600 million in size. It's comprised of a few parts, but I won't go into it in too much detail. It doesn't flow quite as much cash as other parts of our portfolio. But our Private Equity Portfolio, in general, we're happy to keep in an investment phase at the moment. We don't need the cash. We're happy to reinvest it into the growth of that portfolio, and that's what we've been focused on right now. So we have a series of very exciting investments in private equity that we very much hope to add to in the upcoming years.

And if I talk about the Private Equity Portfolio in general. I mean why are we there? And what's the overall strategy? I mean, firstly, I think we've spoken previously about the idea that we got started on a thematic basis. We picked long-term themes in the Australian market that we wanted to access, ones where we had a global competitive advantage and they had long-term tailwinds. We've executed on a lot of those. And the other element that we're trying to capitalize on is the premium for illiquidity that you're effectively getting higher returns out of the private equity market simply because they're not listed. And we don't see inherently more risky business because it's unlisted versus one that's listed. We're just trying to capture that illiquidity premium. That's something that we can do because we've got the permanent capital. And we're not putting a lot of gearing into these businesses. So they're not becoming increasingly risky because they've got more gearing than a listed company would have. But the other thing that we really like about private equity is the way that we can quickly and easily provide the capital for growth. And so without the constraints of a listed environment where there's a number of constraints, really, one is the relative difficulty of raising money quickly. The other is the regulatory and compliance environment. And the third one is the short term-ism of investors. And so in a private environment, we can incubate these businesses to continue to grow without worrying about any of those 3 things, and we can contribute more capital to their growth. And so it's really only at a point where they get to a certain scale and no longer benefit from that sort of quick and easy growth capital that we would consider an IPO. But I would say that with the growth that we're seeing ahead of all of our existing businesses, it will be some time before we consider an IPO for any of them.

And on that same theme, have -- how are you approaching the emerging macro trend of intergenerational wealth transfer in the strategic horizon, thinking required to plan to meet wealth management markets changes demanded by future investors.

Well, that's really the thematic that we're trying to tackle with Ironbark which is a very significant and growing business in the wealth management industry in Australia. We think -- we've had this belief for some time that the growing wealth of individuals and families and the growing superannuation balances of really everybody in the Australian market means that the cost of wealth in percentage terms is actually coming down because the balances that are being managed are getting larger and larger all the time. And what people are really needing in the Australian market is access to good advice, good products, and we believe very strongly in that market.

And very topical around Star. Can you please describe the valuation process for the private credit equity? Is this done independently? Also do you have any exposure to Star Group? We've also got another question relating to, can you provide greater detail on the exposure to Star Group? I assume it has increased since July year-end.

So just in the last 24 hours, it has been announced that the Star Group has been provided with further capital by the lending group. We are a member of the group of lenders to Star. And so we will contribute a little bit more capital. The first tranche of that capital is $100 million. We think that the quality of the assets that Star has supports more debt. And so there was a thorough analysis conducted by all of the lenders, and we came to the conclusion that putting more debt was in the best interest of the lending group. In terms of the way that we go about the valuation exercise, there's a very thorough valuation for the private equity assets. And on the credit book, we put in place expected credit losses against any of the portfolio position. So at the moment, we don't believe that any of the portfolio positions would be impaired, but what we're required to do for accounting purposes is take up an amount that you would ordinarily expect to see a portfolio of this nature might encounter over a lifetime of investing. And so we did actually increase the expected credit loss against the Star loan, but that's not to say that we actually think that, that will come to fruition. That's just an accounting measure an approach that we took.

Brendan did cover a little bit on Perpetual. But is it possible you could make another takeover bid for Perpetual? What is the future for your strategic stake in Perpetual? It's now trading at a 25-year low. And what is the plan with your stake?

So, look, our takeover bid for Perpetual was rebuffed and we. At this stage, we are an investor in Perpetual, admittedly a large one like any other investor. We're watching the process with interest, which is what I said in my comments. There's information still to come out of Perpetual. We're awaiting the feedback from the ATO around the structure that they are proposing to use, and that is very important in terms of determining net proceeds to shareholders, of which we are one. Our position is relatively well protected and relatively well structured. So we feel confident and comfortable, notwithstanding the fact that the share price is below what we believe to be fair value, but the market will do what the market will do. So we watch and wait as it relates to Perpetual. The likely course of events is, we think the transaction probably proceeds. And we have capital return to us like any other shareholder, and then we will determine what to do from there. But it's -- there's still more water to go under the Perpetual bridge, frankly, and we are watching and waiting like many other shareholders.

And there is another question relating to Perpetual and KKR's Asian fund transaction and whether that's going to get further approval to acquire Perpetual's private wealth and trust businesses. Isn't it each in the best interest of Perpetual clients? So please confirm all options remain on the table to protect Soul's large investment over the long term.

I mean, as I just said, I think we're quite comfortable that the scale of our investment right now is very manageable for us. We have numerous strategies and structures in place to protect ourselves. And I wouldn't want to comment on any regulatory approvals as it relates to Perpetual itself.

We might now move on to the breadth of our investments. Your breadth of investments must provide great insight into the health of the Australian economy and how different sectors are performing. Could you please provide some observations of sectors which offer opportunities for Soul and equally, some that may be a worry to you as an investor?

Well, we get asked this a little bit. And what I'd generally say is that we're not a great gauge of the Australian economy because the more cyclical part of the economy are the parts of the investment universe that we avoid. We tend not to have businesses that are highly cyclical, consumer driven, focused on trends or fads. Ours are more predominantly very long-term, robust defensive business models that generate cash throughout the cycle. So we are certainly seeing in our read is that the Australian consumer is doing it tough. Their real incomes have fallen. The cost of goods and services is rising, the cost of energy is rising. And I think that inevitably, that will have an impact on the way that they spend. But for us, we have very limited exposure to that in our portfolio. The parts of the economy that we do like, obviously, resources and energy, and Brendan spoke about our -- some of our energy investments, and it's not just uranium or thermal coal. We also have exposure to renewable energy. And we think that the growth in demand for energy for all things is going to be significant into the future, and that's something that we're very excited about. But Brendan, do you have anything to add?

No, no. I think one of the great things about having permanent capital being a long-term investor, being conservative and income-focused as we are, is that we have the ability to tune out a bit of the noise that goes on in the market inevitably. So when we build portfolios we try to look through cycles. And to Todd's point, we try to avoid anything that is flattish or flavor of the month or frankly, just a bit too expensive for us. So we're quite happy to tune out the noise. We're alert to the fact that the economies are slowing. They're definitely slowing globally. But interest rates will probably come lower as well. So this is the push-pull that we're seeing right now in asset markets. It would seem a little perplexing that economies are slowing, but markets are at all-time highs, but the economy is not the market. So for us, we just try and tune that noise out, put the best investments that we can in the portfolio and keep investing for the long term.

Our next question relates to another shareholding within the strategic portfolio. Are you comfortable with the TPG investment considering the continued loss of share to newcomers such as Aussie Broadband and Superloop? And is TPG a concern?

No. I mean we had a difficult year last year in terms of share price reduction. But the fundamentals of the business, and it has been through a period of high CapEx spend and a bit more competition. I mean you add the NBN to the competitive environment. But they've been doing some very exciting things. They announced the regional sharing with Optus' network that really puts Vodafone and TPG on a level playing field with the rest of the market and opens up new market opportunities, and that was just given the green light by the ACCC a week or so ago. And then at the half year, TPG confirmed that they were still considering a separation of the fiber network infrastructure. Again, we've always had the view that this is an incredibly valuable piece of infrastructure that wasn't really being valued by the market. I think if we've got some price discovery on that, that would be good for the business. And I think on the back of some speculation about that, you can see the share price on TPG is up to date. So I think that there is some good news ahead for TPG, and we're quite excited.

Now on to energy. The South Australian [ Tesla Megaton Battery ] is an excellent example of the cost-effective energy storage. Has Soul looked at either funding, investing in or owning large-scale battery solutions due to their infrastructure line attributes?

We have looked at a few things over the years. Generally speaking, we are not infrastructure investors because the cost of capital or the desired returns from infrastructure investors is lower than our hurdles. We're also not usually at the pointy end of technology and willing to take development or technology risk. We sort of tend to favor companies that have proven business models. But this is a developing industry. And as I said, we're very excited about energy generally. And I think that with the changing nature of the energy mix into the grid, there's going to be a significant need for storage solutions, and it is something that we'll closely look at.

The next question relates and it's probably more of an interest for our international investors, does Soul see any benefit in buying back shares? At what level would they consider this?

Well, generally, we haven't bought back shares. And I think if we ever got to a point where we were trading at a significant discount to our net asset value, then it would become a compelling investment opportunity to buy shares in ourselves. But the approach that we've taken in the past, whatever we've traded at a bit of a discount is to educate the market about that discount and give the market an opportunity to correct itself. But yes, if the opportunity ever presented itself, it's something that we would look at. But our view is we want to continue to focus on growing the investment portfolio rather than playing around in our own shares.

Next question, how do you balance increasing the dividend versus retaining earnings, particularly as it seems that there are opportunities to deploy additional capital?

We try to give as much of the income that we get from our portfolio to our shareholders whilst also trying to do that in a way where we take out volatility and preserve a growing dividend. I think it's important to pay dividends because the franking credits are valuable to our shareholders. And so we do pay out reasonably high ratio of the cash that we receive. I think the last 12 months, it's about 71% -- 74%. And there's other years where it's higher than that. So we don't need to preserve or deprive our shareholders of dividends in order to have liquidity to take advantage of new opportunities. We've got plenty of liquidity from elsewhere within the portfolio. And it really is important to us to keep paying those dividends to our shareholders.

I also think it's an important discipline for us to make sure that we are challenging the use of capital within our portfolio. So holding back on dividends, just to retain earnings for investments that we may not know are going to be made. It doesn't seem like a good discipline to us. So it's very important to us that we have the best investments at any given point in time in our portfolio. So the idea of moving from one investment to another when we find a better one, is a very helpful discipline for us in terms of portfolio management.

Thank you for that. Would Soul look to increase investments in thermal and met coal given the long-term decline in supply and increasing demand globally?

Well, I mean, I think we are already reasonably well invested in the coal space through New Hope, obviously. And what we're seeing with New Hope is an organically growing portfolio. So last year, in '23, they did a bit over 7 million tonnes of production. And a few days ago, they put out their full year results and indicated that in FY '28, that number will be closer to 14 million tonnes of production per year. So there's a -- and some of that new production that will come on will be in the met coal space. So already, we're seeing an increasing supply of coal or exposure to coal in our portfolio. And I agree with the question that there is reducing supply globally, and we think the demand is more resilient than people would like to think.

And what are your thoughts on opportunities in the health care sector, particularly emerging companies with regulatory approval to support IP commercialization at scale?

Well, actually, the health care space, health and aging was one of the thematics that we identified that we wanted to get exposure to and have not in our Private Equity Portfolio. But we have looked at lots of things in that industry. I mean, as I said, we tend to focus on stuff that's proven business models rather than at pre-commercialization stage or is about technology generation. But we really do look at everything. We're invested across a range of different assets and asset classes, and we're always looking at things.

Thank you for that. I also would like to call out, we've had a number of investors who have congratulated us on our dollar matching and also to an investor who's asked about closed captions, we will definitely consider it for next time. And we believe a recording is going to be available shortly after this presentation.

There's a question there around why Soul Patts is not considered an LIC. And why don't we regularly report NTA. I mean those questions are connected in the sense that it is a requirement for LICs to do that -- to report monthly or at least monthly on their NTAs. We are not an LIC sort of by definition, and there's a tax definition and ASX definition around it. There's a lot of similarities in the approach in that we are a closed-end listed vehicle that has access to a number of investments. But there's also a number of things that we do that are quite different from the LIC universe. Most of the LICs tend to be singularly focused on 1 asset class, so whether that's large cap, small caps or international equities, whereas what we're trying to provide is a one-stop solution, where somebody can buy share in Soul's and get exposure to a diverse portfolio of assets across, not just large cap, small caps, but property, private equity and credit as well and really invested in the same way that a family office would typically invest. That kind of investing doesn't fit within the classic LIC structure or definition. But there are some other similarities in the sense that we have a low MER, but our -- we don't have a separate fund management vehicle. So there's no leakage of funds management fees or performance fees. All of that's captured by our shareholders and owned by our shareholders. So we think that we've got a really interesting and unique business model and proposition for shareholders that isn't available anywhere else.

Thank you for that, Todd. With that, that ends our presentation of our full year financial results for 2024.