WHSP Holdings Limited (SOL) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to the 121st Washington H. Soul Pattinson's Annual General Meeting. I am Rob Millner, Chairman of the Board, and I'm advised that there is a quorum present. Therefore, I'm delighted to officially declare the meeting open. It is a pleasure to see many of you in person here today, and welcome to those who are viewing on the webcast. Today, I'm joined by my fellow Non-Executive Directors: Michael Hawker AM; Josephine Sukkar AM; Joe Pollard; David Baxby; Tiffany Fuller. And I extend a very warm welcome to Bruce MacDiarmid, who joined the Board in August this year. Please stand on the end there. We are also joined on stage by our Managing Director, Todd Barlow; our Chief Financial Officer, David Grbin; and our Company Secretary, Pamela Longstaff. Members of the senior management team are also in attendance. They include: the Chief Investment Officer, Mr. Brendan O'Dea; Chief Operating Officer, Jaki Virtue; Managing Director of Private Equity and Advisory, David Scammell; Managing Director of Credit and Emerging Companies, Dean Price. And also in the room, we have Mark Ellenor, Grant Douglas from Brickworks. Ryan Fisk from EY, our company's auditor, is also present and available to answer questions shareholders might have concerning the conduct of the audit, preparation and content of the auditor's report, the company's accounting policies and the auditor's independence. In response to valuable feedback from our shareholders, last year, we have made significant improvements to our reporting suite. The annual report has been streamlined, reducing its length by some 40 pages. Additionally, we include a comprehensive overview of our performance within the first 20 pages of the annual report while dedicating the remaining sections to the detailed statutory reporting. Turning to the agenda for today. I will begin with a few procedural guidelines and then provide an update before handing over to Todd. Both presentations have been lodged this morning with the ASX. We will then move to consider the formal items of business. To allow those who have attended in person to vote at any time during this meeting, I now formally open the poll on all items of business set out in the notice of meeting, lodged with the ASX on the 21st of October this year. Voting will be conducted by a poll on all items. If you are eligible to vote, you will have received a yellow voting card at the registration. If you believe you are entitled to vote and have not received the correct voting card, please see Computershare. Does anyone in that position here that hasn't got a voting card? Someone from Computershare can come and help you while we're waiting. All right. Computershare is a returning officer for this meeting. To cast your vote, simply complete and sign the back of the card. You may submit your voting paper at any time into the ballot box alongside the registration table or by handing your voting card to a Computershare representative at the end of the meeting. The final results will be released to the ASX and posted on the Soul Patts' website later today. Today's AGM allows shareholders or their representatives to ask questions, both in person and in online. These include pre-submitted questions unless already addressed. Shareholders in the room with a yellow card or blue non-voting card may also ask questions. To ask your question online, [Operator Instructions] Now I'll turn to the Board changes. As announced on the ASX on the 8th of December last year. Michael Hawker, our Lead Independent Director, is retiring from the Board at the end of this meeting after 12 years and in line with our tenure. Joining in 2012, Michael has served as Chair of the Nomination Committee, Chair of Risk Continuous Disclosure Committee, and member of the Audit and People, Culture and Rem committees. On behalf of my fellow directors, I would sincerely like to thank you, Michael, for your significant contribution to the Board. Your 40 years plus experience in financial services and investing have greatly benefited the Board, providing invaluable insights and guidance. So thank you very much, Michael. Although the majority of the Board is independent, to uphold our strong governance following Michael's retirement, the Board has appointed Mr. David Baxby as a Lead Independent Director. David brings extensive experience across a number of sectors, having already held senior executive roles and served on a public company Board, which will be invaluable in maintaining our commitment to robust governance and independence. On the 1st of August this year, Bruce MacDiarmid joined the Board, who is standing for election today. Bruce has had a 30-year international career in the financial services working for 7 major investment banks. Most recently as Chairman of Investment Banking at Goldman Sachs, Australia and New Zealand from 2018 to 2023. Bruce is a Non-Executive Director of the Treasury Corporation of Victoria, Deputy Chair of the Sydney Children's Hospital Network; a Non-Executive Director at Sydney Children's Hospital Foundation; and a member of the University of New South Wales Law Advisory Council. He holds degrees in Commerce and Law from the University of New South Wales; and is a senior fellow of the Financial Services Institute of Australia and a graduate of the Australian Institute of Public Company Directors. Bruce's strong commercial experience in finance and investment complements our existing skills and capabilities to the Board. The Board continues to reflect a strong mix of skills and experience, ensuring effective governance for Soul Patts. Bruce has confirmed he has time available to fulfill this role. And obviously, the Board supports his reelection today. While Todd will cover the '24 results and performance, I wanted to share with you this graph, which tells you a story of an unbroken run of increasing dividends that no other ASX-listed company has matched. The Board has declared a final dividend of $0.55 per share, bringing the total of dividends for the year to $0.95 fully franked. That is a 9.2% increase over the previous year. Since 2000, ordinary dividends have increased every year, resulting in a compound annual return of 9.6%. Over this 24-year period, we have also paid 9 special dividends, totaling $1.05. You may recall back in the early 2000s, we split our shares. So I think in 2000 or 2001, we paid a $0.40 special dividend. So we've related that back to the 1 for 10, so $1.05 per share. For 121 years, we've never missed paying a dividend even through the major world events of the Great Depression, the great wars and economic downturns. This shows our financial stability and unwavering commitment to delivering shareholder value regardless of the challenges. In recent years, some of our shareholders have encouraged the Board to consider a dividend reinvestment plan and walking around here before the meeting I have already had 4 or 5 people thanking us for what we've done. The Soul Patts' dividend reinvestment plan was established in September this year, and we are pleased for the 2024 final dividend, 11% of shareholders elected to participate representing around 2.5% of total shares on issue. Over the past 20 years, Soul Patts has delivered a total shareholder return of 11.7% per annum. This is 3% higher than the market every year. When that is compounded over the last 20 years, a $1,000 investment in Soul Patts in 2004 is worth today $9,200, reflecting an 820% increase. In comparison, the same investment in the All Ordinaries Accumulated Index would be worth only $5,340, representing a 434% increase. This demonstrates a significant outperformance of Soul Patts over the past 2 decades. These results reflect the dedication of all our staff at Soul Patts, and we extend our heartfelt thanks to them. Under the exceptional leadership of Todd and the management team, our business has undergone significant transformation while preserving and even building on the strong culture established by our founders. We are well positioned for the future. As we continue to thrive, we remain mindful of the importance of succession planning and ensure sustained success. We are committed to nurturing our ranks and to maintain our momentum to drive future growth. Finally, I would like to thank all management and staff of our investee companies. Their success has been integral to how Soul Patts have evolved today. And lastly, but not least, to you as shareholders, I thank you for your continued support. So on that note, I'll hand over to Todd and come back up when he's completed his presentation.

Thank you, Rob, and good afternoon. Welcome to everyone in the room and to those joining us online. I'd like to start by thanking the Chairman and the Board for their guidance and stewardship throughout the year. Shareholders are very fortunate to have a Board focused on delivering great outcomes for shareholders. I also want to thank the entire team at Soul Patts for their hard work and tireless efforts to deliver wealth to shareholders. We come to work every day, singularly focused on maximizing wealth for our shareholders, and working with great people makes the job so much easier. And to our shareholders, thank you for the trust that you put in us to protect and grow your investment. It's an honor to serve each and every one of you. Moving now to a brief overview of the FY '24 highlights. In the 2024 financial year, we delivered another strong performance and continued our track record of generating enduring returns for shareholders. Our people are important to the success of the company. This year, we completed our second culture and engagement survey, where we outperformed the top quartile of finance organizations in Australia by 11%. Recently, Soul Patts was recognized by the Diversity Council of Australia as an inclusive employer for our achievements in creating a workplace where everybody feels valued and respected. Equally, our commitment to communities is important to us. We have had a long-term partnership with the Royal Flying Doctor Service. And this year, with the help of our shareholders, we raised and donated $735,000. Thank you to those shareholders who donated to this very worthy cause. We have 3 financial objectives and performed well against each in the last financial year. Firstly, we increased cash generation. The cash generated by our investments increased by 10.3% over the previous year, which is an outstanding result. As Rob mentioned, this strong cash generation has enabled the Board to declare a fully franked final dividend of $0.55 per share, which brings total dividends for the year to $0.95 fully franked and that's a 9.2% increase over the previous year. Secondly, we grew the portfolio. The net asset value per share increased 12% after adding back dividends. While this was 1.4% below the performance of the market, it's a very strong overall return and above historical average market returns. Lastly, we also managed investment risk across the portfolio. We do this primarily by investing in a diversified portfolio of high-quality, resilient and growing businesses. Representative of the quality dealflow and execution capability of the team, we invested $2.8 billion into public equities and private investments throughout the year. The $4.7 billion of total transaction activity across the portfolio includes both acquisitions and disposals. That activity reflects our ongoing portfolio rebalancing and the dynamic environment, which required us to be more active than usual. On a net basis, we deployed over $800 million of cash, which left our cash balances lower at the year-end. In August this year, we topped up our cash position with an equity and bond raising. This leaves Soul Patts with an ample financial flexibility to respond to new opportunities. The pre-tax net asset value of our portfolio closed the year at $11.8 billion compared to $10.8 billion at the end of FY '23. After adding back dividends paid to shareholders, as I mentioned earlier, 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%. And it's been just over 3 years since we completed the Milton acquisition in October 2021. So I thought it would be worthwhile to take a look at the performance since then against our key objectives. From a cash flow perspective, we have grown cash flow per share from our investments by an extraordinary 20% per annum, enabling us to increase dividends at a 15.3% growth rate annually. To put that in perspective, average dividends across the market have only grown at less than 1% per year. In terms of growing the portfolio, net assets have compounded at an average of 13.5% annually outpacing the index by 6.4% every year. In dollar terms and over the last 3 years, we have added $2 billion above market growth to shareholder wealth. While achieving these outcomes, we've also derisked the portfolio by moving into uncorrelated and more diverse asset classes. We believe this is an important part of our strategy to deliver better returns to shareholders while also mitigating risk of being in any one asset class. This has become particularly important as equity markets continue to grow, often at faster rates than the underlying earnings of those listed companies. Over the 3 years, total transaction activity, which includes both acquisitions and disposals, totaled over $10.7 billion. This has resulted in material increases to our allocations to private markets, particularly credit and private equity. Before I hand back to the Chair, we've prepared a short video outlining our approach to private equity, which showcases 4 of our largest investments in the portfolio. Thank you very much. [Presentation]

Thanks, Todd. As usual, a very good presentation. Thank you. All right. This takes us to the formal part of the meeting. We will take questions shortly. The formal items of business are set out in the Notice of Meeting and are displayed on the screen. No resolution is required for the financial report. For the election of a director, Bruce MacDiarmid, I now call on Bruce to speak and explain his skills and experience that he brings to the Board.

I'm not sure whether this microphone -- Yes, it's working. Great. Thank you, Rob, and good afternoon, everyone. I'm delighted to be standing for election to the Board of Soul Patts. I'm deeply conscious of the long and successful history of the firm. And I'm looking forward to contributing to the firm's continued success upholding its high standards of corporate governance. At the risk of repeating some of what Rob has said, as to my qualifications, I have degrees in law and accounting and financial management. I'm a graduate of the Australian Institute of Company Directors and a senior fellow of the Securities Institute of Australia. In my executive career, after starting life as a corporate lawyer, I was an investment banker for over 30 years, most recently as Chairman of Investment Banking for Goldman Sachs in Australia and New Zealand. All this time, I've been in boardrooms making investment decisions with major corporations as an adviser and more recently as a director. I confirm I have the capacity and the time to fulfill my duties as a director, and I look forward to serving all shareholders. I greatly appreciate your endorsement for my election. And I thank you for your time today, and I really hope I meet many of you after the formalities have concluded. Thank you.

Thank you, Bruce. The other 2 resolutions are the Rem Report and the granting of performance rights to the Managing Director. And if we have a look now, we can see all those actual votes on the proxy side. The final results will be lodged with the ASX as soon as they are available following the meeting. Now moving to the Q&A part of the meeting.

Questions sent in advance of today's meeting will be addressed first. Before opening questions to the floor and to those shareholders online, due to the volume of pre-submitted questions and to ensure everyone has a chance to participate, we will be limiting the number of questions each person can ask. If we don't get through all the questions, we will respond to you separately. Tanny will take the floor and read out the pre-submitted questions.

Thank you, Chair. The first question is from shareholder, Gavin Mac, and it's directed to you Chair. Soul Patts is sometimes described as the Australian and smaller version of Berkshire Hathaway. Has Robert Millner given any thought on succession planning to retain the Soul Patts corporate culture, given the departure of Thomas Millner from the Soul Patts Board?

Succession planning is in place as per the Board's policy. Todd's success and what he is creating at Soul Patts is clearly evident, and he is strongly committed to his role in the company. Soul Patts is unique in a number of loyal long-serving staff members who retain significant corporate knowledge and having the capability to execute the strategy. Now the gentleman and Jaki, who I introduced to you before, some have been with us for 20 years. So I think that's a classic example of working in a good place, attracts good people and they're happy to stay.

Thank you, Chair. The next question is for the Chair of our People, Culture and Remuneration Committee from Cross Keys Cabin Proprietary Limited. Why is the commercial salary for an executive not enough for them to do the job they were employed to do?

Yes. Thank you, Tanny. The Board feels that it's very important that we remunerate our executives fairly. So we undertook an independent review and benchmark the remuneration of our CEO and CFO compared to the market and found that they were significantly below the market median for similar roles for the comparables that we use. In fact, they're in the bottom of the quartile when compared to our market peers. This is not compatible to our approach with retaining and motivating high performance. And as a result, we've implemented a number of changes that you'll see in the annual report, in particular with respect to the executive remuneration. But don't forget, we still have this very strong alignment from the long-term holding of shareholder outcomes and we're continuing -- we will continue to ensure that they're remunerated fair.

Our next question is for the CEO from Grant Leslie [ Chekier ]. Where is the organic growth going to come from?

Well, I'd like to think that the organic growth is going to come from all parts of the portfolio. As you could see from my presentation last year, each of the portfolio has performed very, very strongly. And from the video, you could see that there's real organic growth coming across our private equity portfolio. One of the strategies that we're employing there is to build businesses, grow them over the long run and build very robust sustainable businesses that will be valuable in time and are growing each year. But even in our listed portfolio, we are obviously attracted to companies that are exhibiting fundamental growth rather than just looking for valuation growth, which is again, I mentioned that the market is seeing higher multiples, higher growth without necessarily seeing the fundamentals growing. We are looking for growing fundamentals across our portfolio.

CEO, the next question is from L. Roger. What actions is Soul Patts taken to reduce its carbon footprint? Has Soul Patts put solar power on most of its buildings and moved to electric vehicles?

Well, if I look at our direct operations, we don't own our office building. We are just a tenant in a building owned by somebody else, but it is a 6-star neighbors building, very energy efficient. We don't own vehicles. People travel to work by public transport or ride bikes. So our carbon footprint is actually very, very small. But to the extent that we have one, we've offset it by buying offsets. So our head office is carbon neutral. So I think the question probably relates more to our underlying investments and investee companies. And I think if you wanted to get a flavor for how those companies are embarking on their decarbonization journey, I'd urge you to look at their respective sustainability reports because there's some really great stories in there. And if you look at Brickworks, there's been a rollout of significant solar panels across some of their factory sites. But really, the story is throughout the entire portfolio, too many examples to mention. And the work that Ampcontrol is doing to help people decarbonize their production is very significant.

There's another question for the CEO from Palm Bridge Proprietary Limited. There has been a large increase in the share price in recent years, but the dividend paid to shareholders is only 2.8% based on the current share prices. What is the payout ratio to shareholders? And can that be increased?

So -- I mean I guess it's one of those things that if you have a rising share price, it can keep the yield lower. But one of the things that we're doing is increasing the dividends every year. And I think our presentations from both the Chairman and myself today have demonstrated an extraordinary track record of growing dividends at a very fast rate, in fact, much more quickly than the market at large. So we are trying to lift the dividend as fast as we can, whilst also maintaining that growth because I think our shareholders value the consistency of our dividend and the consistency of the growth. But I really think that people should look at total return when they're investing. You can get caught out by looking at just dividend yield because you might be giving up some significant capital growth as a result of doing that. And if you look at the total return that we've been generating for the long term is well above market. And so I think the mix of capital growth and dividend growth is important.

Another question for the CEO from [ Mr. Samuel Jaja ]. How do you filter within your circle of competence to pick great businesses at an attractive price? How does the company keep its high standards for quality within a long period of time. Do you both use value investing? This is both to the Chair and the CEO to influence how the company invests.

Yes. I think the culture and philosophy of Soul Patts has always been around value investing, trying to buy things cheap, and that sort of goes without saying, I suppose, but it's sometimes people lose track of that idea. So value investing is important, but it's also about growing businesses. As I mentioned before, it's not just about buying things cheaply. It's about buying things that are going to continue to grow over the long term. In terms of how we select, I mean, it is -- it really comes down to that investment culture that comes from the top, from the Chairman and the Board. And then the investment culture that persists throughout the firm that has been built up over several decades, and is being rolled out consistently and continuously. We have 55 people in the head office who are executing on our transactions daily. There's lots of transaction activity, which indicates that we're getting lots of deals showing to us. I think our track record, our reputation, our networks help us to get those ideas. And it really just comes down to maintaining the discipline to not get caught up with what's happening in short-term trends and focus on what's been delivering great outcomes for shareholders for the very long term and continuing to stick to that strategy.

Our next pre-submitted question comes from Mr. Emmanuel Jarden. Thank you for the reinvestment facility. Does Soul Patts make any political donations? And also please put a visit for information in Brisbane ASAP.

We don't make political donations. Our job is to make sure that we maximize wealth for shareholders. And it's been a real pleasure the last few years to get around and see different shareholders across the country. Brisbane, I think, missed out this year, they'll be next on the list for next year, and we need to go over and see Perth as well.

Another question from Mr. Michael Broomfield. When can we have an AGM in Perth?

There you go. Well, I don't know about an AGM because the head office is in Sydney and most of our shareholders reside here. But from a shareholder briefing perspective, we'd love to get over to Perth.

The next question is from Dr. Randall Flynn. View that a large part of properties from coal, the company should get out of coal because of climate change or the future of the planet will force you to get out of coal.

Yes. I mean, obviously, we have a large exposure to coals. So we've been very focused on this issue for a number of years. We've had lots of questions at previous AGMs around the future of coal. There was a time there where coal was a much lower price than it is today. I think it got down into the USD 50 a tonne. And then shortly after that, went above $400 a tonne. So the people who were telling us that $50 was an indicator that coal was coming to an end, and had we listened to them, we would have given up a lot of profits and a lot of shareholder wealth. But our view has always been that it's going to take some time. I mean, coal is such a significant part of the energy supply mix. It can't be turned off quickly and the world's demand for energy is increasing every year. So as we build more renewables and other sources of electricity, we are still going to need the old sources of electricity. And in fact, the regions that we are exporting to are continuing to build coal-fired capacity. So I think it's going to take a little bit longer than people think. We certainly looked at the long-term modeling around the supply and demand, and we're confident that there is going to be a need for coal for the time that we have rights to mine it. And right now, it's generating good cash flow and has a very positive outlook.

The next question is from David Hinks, and he was curious to understand whether Soul Patts would succumb to pressure and transition away from investing in coal?

Yes. I guess that's the opposite of the previous question. But again, we probably had peak level of requests for us to get out of coal a number of years ago. That seems to have abated now. I think the ESG narrative has turned in the sense that people were talking about divestment. And the issue with divestment is the need for coal is going to persist, and the coal itself is going to continue to exist. And if we sold our coal interests, someone else would own them. And so it doesn't do anything for the coal story. In fact, what it does is it pushes those investments into the hands of private individuals who are not going to own and operate them as responsibly as we do, looking after our communities, people and the environment as we do. So we felt that it was in our interest and in our shareholders' interest to continue to own coal. And so the short answer is no, we haven't given into that pressure that we saw over the previous few years.

And this is the final pre-submitted question once again to the CEO from David Bryce. Considering USA Technology stocks is driving a lot of equities upwards, how is Soul Patts attempting to take advantage of technology stocks advancement in the U.S.A.?

Well, it is a challenge for those of us that are value investors investing in a market where the growth is so strong and driven up by some of those major tech stocks in the U.S. and I would say that we are going to continue to doing what we do best, which is find cash flow generative businesses that have already proved themselves that we can value and put a normal valuation on and understand. And that's not to say that these other companies are not good companies. They clearly are and they've grown extremely well. And if you look at NVIDIA, it's responsible for about 25% of the market return in the U.S. Its market cap is now bigger than all of Germany and U.K. So a company that came out of nowhere a few years ago is now bigger than the entire established industrial markets in Europe. So it's very difficult for us to capture that, but we also don't want to get left behind. So we are carefully assessing that. We do have some tech exposure in our portfolio. We've got a very high-performing emerging companies portfolio. And as I said, that did 16% return last year. But we're also increasing our exposure offshore. And so we're looking to get exposure to some of those fast-growing companies through managers that have boots on the ground in the U.S. and can properly analyze those businesses and know where to go.

That wraps up the pre-submitted questions. Chair, we can now go to the floor.

I now open the floor. As you can see, there are 3 microphones. So could you come up to the microphone if you wish to ask a question, please give me your name and we'll go from there.

Mr. Chair, we have Peter Gregory, to ask a question for you.

Peter Gregory is my name. I'm here as a shareholder myself, but also as a representative of the Australian Shareholders' Association. The ASA is a not-for-profit independent organization that represents the interest of individual shareholders. Today, I have proxies for 244 shareholders totaling over $1 million shares as proxies. First question is Soul Patts has changed and is changing. It is a significantly bigger company, both in terms of portfolio size and number of people managing it. As the size and complexity increases, so does risk especially when you're considering new areas of investments such as corporate credit. I know, Todd, you referred to diversity as being part of managing risk, but can I ask you to share a bit more information about how you're building a risk-protected organization for the future? I guess I'm looking at things like processes, investment decision-making methods, and also our controls that are in place.

Thank you. I appreciate the question because it's something that has been a huge focus of ours over the last 3 years that, that growth that you talk about really has come post the Milton acquisition, which transformed the portfolio as well as the nature of the business. We thought that it was appropriate to move into new asset classes because when we looked at the portfolio and our shareholders were exposed to primarily Australian-listed equities. And of course, we had the diversification in that TPG, New Hope, from Brickworks, even just those investments are quite uncorrelated. And so when one might not have been performing so well, the others were doing okay. And so that was a high-performing portfolio in and of itself for a long period of time. But it was still exposed to Australian equity markets. And we had a view that there were some other areas of opportunity to derisk the business, but it was also an opportunity for us to move into some higher growth businesses, particularly private equity, which was the history of the business. So TPG and New Hope in particular were private equity investments that we eventually put into the listed domain and retained. And so we wanted to reinvigorate that pipeline of opportunities that we could grow over the long term. So to do that, we needed more capital, which was really the genesis of the Milton merger, and we needed more people. And so in 3 years, we've moved from about 25 people in the head office to about 55 people. I'm sure that adds complexity, but -- and the business is certainly more complex than it was, but it also adds a lot more capability. And the people -- a lot of those people are in operations, risk management, finance, legal, compliance, all of those things that are the growing expectations of a larger business. And some of it is to do with the regulatory burden that is put on businesses in Australia. But -- so we have a very high-quality team that's grown. The other focus has been to integrate those people into the culture to ensure that all of the things that have made the business successful over the long term will be preserved and maintained and will continue. And that's why you heard me talk about the culture and engagement survey. We really wanted to check in to ensure that people were buying into the culture. And they absolutely have. And so a lot of those people who have joined more recently, come from different backgrounds and different skills and experience, but we wanted to make sure that they are adopting the culture that we have, which is so strong and has been so successful, and I'm really pleased to report that, that has been a success.

Todd, can I just expand as I understand that you have a separate investment advisory committee for corporate credit. Can you expand a bit on how that fits into the overall operation?

Yes. I mean corporate credit, I don't think we run any differently to anything else. But with the exception that there is specialist skills needed, and so we have set up a specialist advisory committee that helps us to think about different ways of looking at things and with some external independent people to provide us with some feedback as to how we might look at different investments. But generally speaking, most of our investments are conducted in-house with an investment committee that is made up of various individuals across different asset classes so that we can cross check whether a new investment looks good comparatively to something else that we could be doing. And so we try not to set up individual investment committees per asset class. The investment committee sits across all asset classes and reports up to the Board. But credit, as you mentioned, does have an external participants who provide us with a little bit more information and feedback.

Okay. This year, we have seen a situation where the strategic portfolio had its net asset value determined at 31 July. And then subsequently, New Hope and Brickworks both appointed -- both reported disappointing profit results that impacted on our NPAT. Can you please explain how these 2 situations of, I guess, different timing in terms of information impacts on results? And how that impacts on shareholders' outcomes?

Yes. I mean I think that there has been some share price sort of declines in some of those investments in the first quarter of this year. But if I look at that strategic portfolio over 3, 4, 5 years, it's been very, very high performing. And I think what we're seeing -- I wouldn't necessarily say that it's down to for profit results. I think what we're seeing is some people shifting out of some of the more stable companies into the higher growth companies and they're seeing strong growth. I mean, a good example is CBA is up 50% in the last 12 months. It's hard to understand -- for us, it's hard to understand what's driving that kind of growth. But we are seeing people piling into the things that are performing extremely well and out of the more stable things. But then if the market has a hiccup, they will come back to the robust businesses like Brickworks. It has a very significant land bank and a very significant investment in us. So I think it's just one of those short-term things that the market chooses to go in certain places. But if you look at it over the long run, we're very happy with our investments in those major companies.

I have some further questions.

We're not -- let's see if anyone else wants to ask a question and then we can come back to you.

We've got Kerry Bible here. Next question.

Shareholder or Proxy holder?

Shareholder. Individual shareholder. Two quick questions. I noticed you made a good profit on your retirement development in Cronulla. Is that fully sold? And do you have any other projects started in the retirement development area?

Yes. Thank you. We are very close to selling all of the units in that development. I think we might only have one left. So we've already made money and solidified our development profit on that project, which is fantastic to see. And we are going to do it again this time, a larger scale one in Narrabeen. So we've secured a site there, and we're just going to go through the DA process, and that will take a couple of years to construct.

I would imagine the building costs would be a lot more if you can believe what you read.

Yes, absolutely. But we put that into the feasibility and it's still showing solid returns.

And the next question is on the swim school. I'm very interested in those because I used to be a swimming school teacher myself. I noticed you've expanded to 29, and obviously, you're still making a good profit on them. But have you seen a decrease in the level of people asking for swimming lessons because you hear everyone is doing it tough? So that was one question to do with it. And the other was, I just failed to see how there are any real economies of scale with these swim schools because it really depends on the quality of the swim teachers. And a lot of those are Uni students or backpackers who are fairly transient. And so it's a bit hard to get a stable, very good teachers.

Thank you. So the first part of your question, we have not seen demand come off. In fact, we've seen the opposite. And that's despite us putting through price increases because the price of everything is going up. So we have to pass that on to our customers. So I mean, our thesis on swim schools is that even when people are doing it tough, they're still going to need to teach their children to swim. So it's an important life skill, particularly in Australia. So that -- our thesis is that that's going to be a very stable business through the cycle. In terms of your question around getting economies of scale, I mean that is one thing where we think we can bring something to the table. It is a fragmented industry where people operate in the main single pools. What we do is -- and particularly around training, that's the competitive advantage that we think we can bring. We set up training programs and we can -- so even though it is a transient workforce, we can train people very effectively because we've got very well-established programs to be able to bring them into the business. We can also utilize the proximity that we have through multiple swim sites or swim schools to be able to share staff so that you've got a pooling type arrangement. That's pretty important and pretty helpful particularly with people who may get sick or might not turn up or whatever the case may be. And we can also dynamically price. So we can manage demand by increasing or decreasing prices to shift people around to different swim schools that we own in different areas. So there are a lot of economies of scale, and there's real benefit in getting a business like this. And plus the systems and most people wouldn't be able to invest in the systems that we have. So the customer management software that we have is really important. All of these things, I think, are great for the business, great for the industry and will deliver a better outcome for customers.

Do we have any other questions from anyone? Peter, looks like you got the stand again.

Thanks, Rob. This August Soul Patts raised low-cost long-term capital through an issue of a $450 million convertible bond. At the same time, you converted an existing $225 million convertible note effectively into equity. Over time, do you see that this is going to be a continuing way of raising additional capital for Soul Patts? And has there been consideration to raising funds in a way that shareholders can participate? And I'd just say that ASA takes the view that when companies are raising capital, directors should strive to treat shareholders as equitably as possible.

Yes. So the feature of the convertible bond is that it's debt light until it's converted and that conversion is ultimately at our election. And so when we raised the first $225 million bond, it really looked to us like cheap debt, 0.625%, I think it was per annum. And we had that on foot for nearly 3 years. In that time, we had total return on our assets of 13.5%. So we took cheap debt and turned it into great outcomes for shareholders. Then when we looked at that, we obviously start having to think about paying that money back or converting it. And we felt that conversion made sense because we were buying it back early and taking away that optionality. The price at which we bought that back was a 30% premium to where our share price was when we issued the bond. So it's like an equity raise at a 30% premium to market prices. No retail shareholders are going to take that up. So we think that it's important to access this particular institutional market where they're happy to give us very low cost debt with the ability to get equity at 30% premium. So because we had such a good experience with the first convertible bond, we thought let's do that again. And this time, we doubled the size to $450 million. It doesn't necessarily mean that it's going to be an ongoing feature, but it just makes sense at the present time, given where our share price was and given where the demand for this particular instrument is at the moment. And so this time, I think we're paying -- because interest rates have gone up, I think we're paying about 2.7% for this bond, but that's still a very, very low rate for debt. Again, with a 30% premium to spot price. So we did do a small placement to pay out the existing bond, but that was done at, again, at market price. And our view was that if you wanted to participate in something at market price, that's the same as buying on market. So I think where most people get concerns is when companies are issuing placements to institutions at a discount to the market price and not extending that same invitation to retail shareholders. That's not something that we would do. We did this in this particular circumstance because we could do it at zero discount.

Yes. Todd, thanks for that. It's good to see behind the published numbers and hear that it is a good deal for shareholders. I note in looking across a number of your portfolios that you're building a worthwhile investment in water rights. Can you probably share more of the specifics of this opportunity for us?

We've been invested in water rights for some time now, actually. And Australia leads the world in water rights as a developed investment tool for allocating water appropriately, and it gives farmers access to working capital and capital, but it also ensures an efficient use of water to the highest and best use. So it's a very innovative way of managing water in this country. We also felt like it was a good investment class because you're getting the institutionalization of the investment means that -- I mean, you're getting 2 levels of institutionalization. One is the farms themselves are becoming institutional owned and institutions as opposed to individual farmers are probably going to derisk their water needs and want to own more long-term water rights. So that's pushing up demand for water. But then as an asset class, and it's performed extremely well for a long period of time now, people are recognizing it as something that's investable. And so more and more institutions are owning water rights. And so both of those things are driving the value and returns. And so we've done very well out of them for a long period of time. But we own water rights in 2 contexts. One is to derisk our own agricultural operations. So we want to make sure that we've got water through the cycle. And we own a small portion just because we think it's a good investment class. And it continues to be, and particularly in the context of the government buying back some of the water rights, which of course, is reducing the supply.

Hang on a minute. Do we have anyone else who would like to ask a question? All right, Peter, you might be winding up soon, I'm sure.

This is the second last one, Rob. And I'm asking this -- I asked this question, I understand if you can't answer it, but a number of small shareholder is interested in a situation with Perpetual where Soul Patts has a significant holding. Knowing that there's a scheme meeting coming up in February, are you able to comment on what possible scenarios that might hold for Soul Patts with Perpetual going forward?

It's hard for us to say because we haven't seen the documents yet. So we're waiting for them in the same way as every other shareholder to see what the scheme ultimately looks like and what the division of assets looks like. But -- so it's hard for me to say until we see that document to sort of indicate what options there are.

Okay. And the final thing is just a comment. From a shareholders' point of view, it's encouraging to see through the website, the full leadership team of Soul Patts. And through events such as the investor presentations you had in Sydney, Melbourne and Adelaide to give people opportunity to meet and talk with the people who are managing our investments. And I'd say it's very important for shareholders to see and understand the depth of talent there is behind the Chair and Managing Director. So thank you for that initiative.

Thank you. Thank you very much.

All right. Before I move on to the questions online and so no one else has got anything to -- any questions? Okay, Tanny, I think we have some questions online.

We certainly do, Chair. Our first question is probably directed to the CEO again. How many companies are in the emerging company portfolio? And what is the average position size?

It's hard to answer that because I think it changes quite a bit. It is a regularly traded portfolio. The value as at 31 July was about $1.2 billion, I think. There are some concentrated positions in that. So we have some very large investments, particularly in uranium. I think I've mentioned that before. NexGen is a major position in that portfolio. But it changes so rapidly, and it is a segment of the market where I think you have to be particularly focused on looking at valuations and changes. For example, a few years ago, that was a tech-heavy business. Now we've moved into a lot more diverse businesses across the industrial platform and resources as well, but it is a frequently traded portfolio is probably the best way I can answer that.

The next question is to the Chair. Can shareholders expect a super-sized special dividend on Soul Patts becoming a dividend aristocrat?

Well, as I think, as I showed you on that slide before, this company is unique. And there's been some media speculation that after 25 years, I think, isn't it, Todd? If you increase your dividend, you become an Aristocrat. So that's another feather in our cap.

The next question is from Paul Xavier. How difficult is it for the company to continue its track record of growth in NTA and DPS?

Well, I appreciate somebody recognizing that it is difficult because it is no -- it is not easy to do what we do. We aim to have a portfolio that is protects capital on the downside. So we're not taking extreme risk. In fact, every day, we're trying to decrease the risk across the portfolio. And generally speaking, when you decrease risk, you're giving up returns. But over the last 20 years, as you can see from the slides earlier, we were able to do that kind of investment approach and generate 3% above market. That is an extraordinary result, not just because of the way that we manage risk but even if we didn't do that, our peers in asset management industry, as an example, last year, 77% of them underperformed a benchmark. And over the last 10 years, 85% of them underperformed the benchmark. And so beating the benchmark is hard. But for us to set our sights on exceeding the benchmark by adding in these other asset classes and finding businesses that we can help grow, our aim is to keep growing. But obviously, we're a bigger company now, which is why we have to move into more asset classes, expand the quality and capability of our team. But it is something that it's a torment of a job coming every day and trying to beat the market, particularly when the market is racing away as you can see both in the Australian market and particularly the U.S. market at the moment.

The next question relates to the DRP to avoid dilution of shareholding for those that don't participate. Should the company process DRP by on-market purchases rather than issuing new shares?

Well, I think dilution is not the right word. I think issuing new shares is only dilutionary to your percentage shareholding, but it's such a minor amount that it wouldn't show up to the majority of shareholders. What you need to think about is the dilution to the value of your shares. And we wouldn't be doing this if we didn't think that issuing shares at these prices was going to be significantly dilutive to shareholders. And it won't be. So I would say that people's NTA per share will not decrease.

The next question relates to the NTA. Sincere congratulations and thanks for your recent performance. Are you concerned about the significant share price premium over NTA? I appreciate that SOL isn't a conventional LIC, but these kinds of premium have a bad track record in the Australian LIC space.

Yes. I welcome the question because I enjoy talking about it because, firstly, we are not an LIC. And the LIC market generally does trade at around NAV. And right now, we are a very small premium. I think as at the end of October, we were about a 4% premium to our NAV. And that 4% is justified in a number of ways. Firstly, people are willing to pay for performance. So to get access to that 3% outperformance year-on-year, that's worth a lot more than 4%. Secondly, people are getting access to a number of asset classes that if they were having to access them outside Soul's, they'll be paying very significant management fees for. And so if you were to think through the embedded management company that is not valued on our balance sheet, there has no separate valuation in our net asset value. But there is a management company that services our shareholders that if we were to pay that management company standard commercial rates would be worth well over $1 billion. And so if you added that $1 billion on to the NAV, it's worth a lot more than 4% above the NAV. So there are a number of differentiating factors as to why we are not an LIC and why we should trade differently to an LIC, and 4% premium is actually at the low end of where we generally trade.

The next question is from Andrew Walton. How is Soul Patts strategically considering the macro trend of inter-generational wealth transfer and the changing priorities of younger demographics in their investment choices?

Well, the number one way that we're applying that thematic is through Ironbark, and so you would have seen Chris Larsen, the CEO and Founder of Ironbark talk in the presentation. He is building a diversified wealth management business that will look at all ends of the spectrum from the mass affluent to the very, very wealthy. And as people's individual superannuation accounts are getting larger and larger in valuation, the effective cost of advice is coming down in percentage terms. And their wealth is growing because asset prices are inflating, and there will be inter-generational transfer, and that will need assistance to manage and help with advice along the way. So that's the primary way that we're playing that thematic.

The next question relates to the profit. Why has the pre-tax profit decreased?

There's a number of reasons for that. But I mean what I would say and what we say every time we release our results is shareholders shouldn't look at our profit. So we've had the previous sort of 3 or 4 years, we've had record profits year-on-year, but it's not a good indicator of the success of the business. As an investment portfolio, I mean, when you look at your own investment portfolio, you don't aggregate up the P&Ls of the underlying businesses. That's not important to you. What's important to you is the growth of your portfolio value and the yield that you're generating out of that portfolio. Well, our portfolio and our company is no different. So what we report and what we urge people to focus on is the yield and the dividends that they're getting and the growth of those dividends and the growth in the underlying asset value. And as I've indicated in the presentation, both of those had outstanding track record, particularly over the last 3 years, post Milton. So the P&L is not something that we focus on. But the short answer is we had record profits from Coal and Brickworks. In particular, Brickworks had some property sales that realized large gains. Coal had some very high coal prices, and we're generating massive profits. So the fall was not so much evidence of bad businesses, but just the conditions of the last couple of years not persisting.

The next question relates to the investment in NexGen. The shareholders says, I noticed your large investment and confidence in NexGen in Canada. I'm also a fan. Do you have a gut feel on when their final approval to mine will come through? And any other comments on the company as we don't see too much information in the media.

Well, I don't have a gut feel on it. We actually got the approval through a couple of days ago. And so if you have a look at the NexGen website or the company announcement platform, you'll see a very exciting press release announcing that all of the environmental approvals have been received. And then they can move to the next phase of developing that project, which will be -- it's a Canadian project and uranium is in very strong demand at the moment, particularly with the growth in data centers and people putting nuclear-powered stations near their data centers. There's a lot of demand for uranium. This is going to be one of the -- I think it is the lowest cost and a very large-scale mine in Canada, and we're very excited about it. I think it will come into production over the next 4 or 5 years. And it's a very exciting company.

The next question asks your views on the impact of the U.S. election outcome on Soul Patts.

I mean it's very, very difficult to say. I mean one thing, there is an increasingly growing confidence in the U.S. economy, and we are looking to get more international exposure. We've been growing that over the last couple of years. I mean some people are talking about the impact on China and what impact that might have on Australia. I think that might be overblown, but it's something that we're watching. But it's -- I don't think it's the kind of thing that is going to be significant -- these things always get overblown and the reality probably turns out a little bit differently to initial expectations.

Could you please elaborate on your thoughts for both TPG and Perpetual selling off their most valuable assets? Both have been very disappointing and is selling off the fibre assets and wealth management trust units, respectively, shortsighted. Should Soul Patts use their voting power to change this?

Well, I mean, in both cases, we were supportive of those strategies. And primarily, what we wanted to avoid was negative sentiment attached to some sectors infecting the pricing and valuation of other quality assets. And in TPG's case, they don't need to own that infrastructure. Entering into a long-term rental agreement or use agreement is all they need. That makes them more capital light. They don't have the CapEx associated with it, and they can focus on growing their customer base. And in Perpetual's case, the asset management part of the business is challenged. And I think that without the other businesses, you can have a single focus on improving its asset management business and getting a better valuation. And I think ultimately, it will be better for valuation of the company in the long term.

The next question, are you looking to invest more in international equities for added diversification?

Yes, we are, and we have been increasing our exposure to international managers. We are not in a position where we can go and select equities overseas or credit or private equity opportunities, but we can partner with good people who think like us and have a good track record, and we're increasing our exposure in that way.

With your investment in nuclear energy, this is in relation to the expected life of the mine and the material itself, coal versus uranium. In comparison to coal, is it the same? Or will it have a longer life? And in terms of cost, is it and will nuclear energy be cost efficient?

Well, I mean I think there's debate about what nuclear looks like in Australia. That's not something that's relevant to our investment thesis. I mean, we actually don't really supply much coal to the Australian market, and there is no uranium market in Australia. So what we're really talking about is global commodity prices and the global uptake of nuclear, which is growing. And I think the long-term thematics for uranium look very good. I've already talked about the long-term thematics and outlook for coal. But I think uranium as a low carbon source of electricity probably has a longer term run to it than coal because a lot more is being spent on new nuclear power stations as opposed to coal, but there's also been some investment in coal-fired power stations as well. So I think both have got a long way to run, and that's just because of the growing demand for energy globally.

As you are aware, Warren Buffett always talks about 5 duds each year. Did we have any, say, 1 or 2, but not 5?

I mean we haven't had any major duds, but you have your challenges along the way, and you have to spend more time and effort to try and help them and refocus them or, in fact, to sell them. So some of the things that we've taken a negative view on are no longer in the portfolio. Some stuff we have to sort of roll up our sleeves and help out. But we do take a long-term view and short-term performance is not necessarily an indicator that the business is underperforming. And every portfolio will have some good and bad. And if you're not getting any bad, you're not taking enough risk. But our focus, as I said, is on minimizing the number of underperforming assets, preserving capital and looking for good high-quality businesses that perform no matter what.

There are no further questions online.

Well, I'm just about to close the poll. So does anyone need any more time before I officially close the poll? Well, I declare the poll closed. And I'll adjourn the meeting for a couple of minutes while Computershare come and collect your tickets. Just while we're on that, I'd just like to thank everybody who has attended today. On your way out, you'll probably see it on your way in, we have some goodies over here on your left from our private equity businesses. Some fresh fruit from Redlands, some brochures on Carlile Swimming if you need a correction on your stroke. And also some information on Invest Blue and financial advice and we're not pushing financial advice, I might add. We're just handing out some information with the joint venture with Ironbark. And I think you've got a pretty good understanding for those of you who haven't been here before, but the extent of the talent team we have with us. So well done, Todd. Thank you very much.