Welcome to the Djerriwarrh Investments shareholder briefing. At this time, all participants are on listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star zero. I would like to hand the conference over to your speaker today, John Paterson. Please go ahead. Thank you. Good morning. I'm John Paterson, the Chair of Djerriwarrh Investments. I'd like to welcome you to this shareholder briefing. As you'd be aware, until the onset of COVID, we had shareholder meetings around some of the state capital cities every March. We'd planned to try and restart these this time. Given COVID still remains a strong presence in the community, we've opted once again to hold a webinar, which we have done over the last two years. We are, however, very keen to resume our direct contact with you as soon as possible. At this point, we anticipate this to be next October in association with the annual meeting. In turning to the details of today's webinar, I have joining me Mark Freeman, Chief Executive and Managing Director, Brett McNeill, a portfolio manager from the investment team, Olga Kosciuczyk from the investment team, Matthew Rowe, our company secretary, and Geoffrey Driver, a general manager of business development. Before we start the presentation, a bit of housekeeping on the webinar. This briefing is based on the material available on the company's website. If you're using your computer to access the presentation via the webcast, the slides will change automatically. If you're accessing by phone only, the PDF of the slides with page numbers is available on the website. Finally, please note, following the presentation, there'll be time for questions and answers. You can ask your question either via the webcast or through the operator. I'll now make a few brief comments prior to the presentation. In investment markets, we're faced with issues that we haven't seen for some time. This includes rising inflation, particularly in mining and food commodities, now flowing into wages due to full employment. We see a regional war in a developed part of the world, and we face the prospect of quick interest rate rises. Your chairman, having nearly five decades experience in equity markets, feels that many of these things have a familiar ring to him. In the 1970s, mining and agricultural prices boomed in a highly inflationary environment alongside sharp wages growth. I also saw a gold price boom as Russia massed forces to potentially invade Poland to quell the solidarity movement in 1981, and I saw the 1994 bond market crash as the Fed quickly raised interest rates. What lessons seem relevant from that? In a quickly rising inflationary environment, business costs and prices do not move in tandem. Costs move first. The August 2022 and February 2023 results periods may see some disappointing results. However, when inflation stabilizes at higher levels, managing cost increases becomes easier. Industries that are regulated or rely significantly on government funding will be particularly vulnerable as price increase relief is delayed significantly. These industries include aged care, private hospitals, private health insurance, and some regulated utilities. The 1970s were characterized by buoyant markets for oil, metals, gold, and food commodities. As we are seeing again, Australia is well-placed in most commodities. The runway for metals used in decarbonization is strong and most likely will be long. These cycles often have peaks that are not seen again. In 1981, at the end of such a run, Mount Isa Mines was Australia's biggest stock by market capitalization, bigger than the banks or BHP, and that peak was never seen again. In 1981, there was a high risk that Russia was about to invade Poland to crush the solidarity movement in the Gdańsk shipyards. Fortunately, that didn't occur. The current war in Ukraine will have prolonged effects on energy and food prices. It'll also put greater urgency on Europe to replace fossil fuels with consequent benefits for metals such as lithium, copper, aluminum, et cetera. 1994 saw a sharp and unexpected series of rate rises. This impacted fixed interest markets particularly hard, but equities also experienced a short, sharp adjustment. However, equities responded strongly after that phase, and that is dependent on world economic growth remaining sound. Companies with strong business franchises, good pricing power, and low gearing will be best placed in such an environment. I'll now pass to Mark Freeman and his team, who will outline the fact that our portfolios are focused on those attributes. Thanks, John, and good morning, everyone. We'll start with the slide presentation and move to slide 2, which is our usual disclaimer. Just to say we're here to talk about the company, not to give any advice. On to slide 3, the agenda. I'll just give an overview of the company, then I'll pass to Brett and Olga to talk through the portfolio, give a market update, summary and outlook, and then we'll move to questions. On to slide 5, just an overview just to remind everyone, Djerriwarrh is one of the largest income-focused listed investment companies. It was started in 1989, and shareholders get the benefit of full transparency, which is associated from being an LIC, as well as the high governance standard delivered by an independent board of directors. Importantly, Djerriwarrh shareholders own the management rights to the company, so there's no fee leakage to a third party, and there are no performance fees. Djerriwarrh is part of the broader group of LICs, which include AFIC, the Australian Foundation Investment Company, AMCIL, and Mirrabooka. This supports a broader research approach and scale of operations. On that point, if we move to slide 6, we've shown just an image of the members of the investment team, just to give a sense of who's involved with running all four of the LICs, just the experience they have in investing in markets. Moving to slide 7, the objectives of Djerriwarrh. The first one, Djerriwarrh primarily seeks to provide an enhanced level of fully franked income that's higher than what's available from the market, and we deliver that at a low cost to shareholders. We also aim to provide shareholders with attractive investment returns, both through access to fully franked dividends as well as growth in capital. On to slide 8. How do we achieve that? Well, we focus on investing in quality companies that can grow their dividends over the long term. Just as importantly, we aim to buy them when we see reasonable valuations in the market. What does it mean by quality? Well, our assessment of that is based on a range of factors, which looks at industry structure, competitive advantage, the quality of the people running the company, the management, balance sheet strength, cash flow, and ESG matters. We then construct a portfolio to deliver the right mix of income and growth. We also generate additional income from the use of option writing activities. We manage risk by maintaining a diversified portfolio of companies and managing our option positions on a daily basis. To the right of that, we have our long-term returns. You can see, the team have done a fantastic job over the last 12 months in managing the portfolio. Just remembering we do write options against around 30% of our portfolio. When markets are very strong, sometimes we don't keep quite up to market, on a total return basis. As I said, we have a focus on producing attractive income as well. There's still sound long-term returns. If we move to slide 9, it's been achieved with higher income than the market. You can see at the moment, the grossed up yield on Djerriwarrh's NTA is around 6%, which compares to the index at around 4.5%. On the right-hand side, you can see the NTA across this financial year, just to highlight that there's been a lot of volatility in the market and the team have been able to keep a fairly stable NTA in light of that. Just back to the yield, just wanna highlight that that yield has been achieved this year. We've had good growth in our dividends, but we've also had good income from our option writing activities. Just on to slide 10. We always try to highlight where the share price is in relation to what we would say is fair value for the NTA. We obviously publish our NTA every month. As you can see there, the share price on the right-hand side, just trading at a small discount to NTA. Probably for the first time in a long time, we're seeing the actual share price, trading pretty close to what we would call fair value or NTA, which we're very encouraged by. With that, I'll pass over to Brett and Olga to talk through the portfolio and markets. Thanks, Mark. It's Brett McNeill speaking here. Good morning, everyone. As Mark highlighted, the increase in Djerriwarrh's H1 dividend was driven by strong growth in both the dividend income that we receive from the companies we hold in the investment portfolio, as well as the option income that we receive from writing call and put options against our portfolio holdings. Therefore, in this section, we aim to give our shareholders an update on our portfolio and the share market, but with a focus on giving further detail and insight on both the dividend income and the option income. As such, I'll start with a portfolio overview on slide 12 before getting into some extra detail on dividends. Olga will then discuss our option strategy and give an update on recent activity in the investment portfolio. Starting on slide 12. Diversification is a key consideration in how we manage the Djerriwarrh investment portfolio. We aim to build a portfolio that is diversified across stocks and sectors, that has an appropriate balance between income and growth, and that concentrates our portfolio into what we regard as high-quality companies. This is what we believe enables us to meet Djerriwarrh's objectives, being an enhanced yield over the index and growth in dividends and capital over the long term. The chart on slide 12 shows how the current Djerriwarrh investment portfolio looks when split into six categories that we've chosen, being banks, cyclicals, growth, real assets, resources, and Stalwarts. For each category, we've listed how much of the current portfolio we have invested, as well as the average dividend yield across the companies we own in each of those categories. The dividend yield shown here is based on the market's estimates for the next 12 months, and it's grossed up for expected franking credits. Starting with the dark blue section of the chart on slide 12, being the banks. Banks currently represent 16% of our investment portfolio across our holdings in Westpac, Commonwealth, NAB, and ANZ. The headline grossed up dividend yield of 7.1% from the banks is very healthy, and we expect that most of the long-term returns from owning these four banks will come in the form of this dividend income yield, given our expectations for modest capital growth from the banks over the long term. Moving clockwise around the chart, we can see that 17% of the portfolio is invested in what we consider to be cyclical companies. This group of companies includes building materials companies such as Reece and James Hardie, as well as financials such as Macquarie Group, ASX, Pinnacle Investment Management, and Iress. This group of stocks has a solid expected grossed up dividend yield of 4.4%, which we think is attractive given the long-term growth we also expect from these companies. 21% of the portfolio is in what we have termed growth companies, such as leading global healthcare companies CSL, Cochlear, and ResMed, as well as industrial companies like Mainfreight and ARB, and online businesses such as carsales and REA Group. These stocks offer a lower average dividend yield of 2.3%, but we expect strong growth in income and capital over the long term. Real assets, which we define as real estate and infrastructure companies such as Transurban, Auckland Airport, and Mirvac, make up 14% of the portfolio. The current dividend yield of 3.8% from these stocks is lower than it has been in the past, but we expect a solid rebound in dividends from this group of stocks. Resources are currently 11% of the portfolio, with our holdings in BHP, Rio Tinto, Santos, and Woodside. The dividend yield from this category of 8.6% is very attractive, but we don't see dividend growth from these levels. Finally, Stalwarts, with 21% of our portfolio in companies such as the dominant supermarket owners Woolworths and Coles, Bunnings owner Wesfarmers, as well as Telstra and Ramsay Health Care. The average dividend yield of these companies is a solid 4.9%, and we expect good dividend growth over the long term here, reflecting the high quality dominant companies in this category. Overall, this portfolio composition produces an expected dividend yield grossed up for franking credits of around 5% for the next 12 months, with what we believe is a good balance between income and growth. Hopefully, this has provided an overview of the diversification across the portfolio, and so I'll now get into some more details on our outlook for dividends by looking at some specific companies all held in our portfolio from each of the sector categories that we just looked at. Slide 13 covers the categories of real assets and resources. Overall, at a headline level, we expect dividends from companies in the real assets category to increase in coming years, with dividends in the resources category more likely to decrease. Starting with the real assets category on the left-hand side, which we illustrate through Transurban's dividend. As we can see, Transurban's dividend has declined from financial year 2019- 2021, largely as a result of the pandemic's impact on toll road traffic. We expect things to turn around after the current financial year 2022, with a strong rebound expected for financial year 2023 as economies open up and as the value of Transurban's toll road network becomes apparent. We see a different trend for resources, though, particularly in the case of BHP. On the right-hand chart, we can see the huge increase in BHP's dividend for financial year 2022, which has been driven by record prices for BHP's key commodity, iron ore. BHP's focus on returning cash to shareholders in the form of fully franked dividends has been great, but resources are inherently cyclical, and hence these conditions aren't expected to last forever. Therefore, while there's plenty of uncertainty around the timing of commodity price changes, the near-term outlook means we don't see BHP's dividend increasing from its financial year 2022 level over the next few years. Moving on to the growth and cyclicals categories on slide 14. We've recently added REA Group, which is the owner of realestate.com, to our portfolio, and so we've chosen this company to illustrate the compounding power of long-term growth in dividends. As we show in the left-hand chart on slide 14, REA Group began paying a dividend 11 years after it listed. The company's incredible performance has seen its annual dividend grow 11 times from its original amount, and the annual dividend is now greater than the share price was at IPO. In the case of cyclicals, we've chosen Pinnacle, which is a funds management business that owns stakes in 16 funds management companies that invest across a diversified set of asset classes. Based on the company's long-term growth prospects and strong balance sheet, we have seen excellent growth in the financial year 2022 dividend to well above the level of financial year 2019, despite the huge movements in the market over this time period. While REA and Pinnacle are quite different businesses, we think they both demonstrate the growth potential that comes with owning high-quality growth businesses, which in our view, makes them an important component of our diversified investment portfolio despite their lower than average initial dividend yield. On slide 15, we cover the remaining two categories: banks and Stalwarts. In the case of the major banks, dividends fell sharply as a result of the pandemic and a structural cut to dividend payout ratios. We've used Westpac to illustrate this in the left-hand chart of slide 15. Westpac's dividend has started to recover from the low point in financial year 2019, and we expect this to continue in financial year 2022 and beyond. From there, we expect modest growth in dividends, but in a more reliable manner, given the sustainable dividend payout ratio and strong capital position. Finally, the Stalwarts. We expect businesses such as the supermarket operators to overall benefit from higher inflation. This, combined with their dominant market positions and strong balance sheets, should see dividends around flat for financial year 2022, and then growing into financial year 2023, as we've shown here in the case of Coles. Hopefully, this discussion has provided some further insight on the outlook for dividends across a number of Djerriwarrh's key portfolio holdings. I'll now pass to Olga, who will look at our recent activity from our option strategy and within our investment portfolio. Thank you, Brett, and good morning, everyone. On slide 16, we show the performance of the market this financial year to date, overlaid with the top-down view of our portfolio's call option coverage. Higher market volatility we have seen in the past eight months has benefited our portfolio in multiple ways, given we actively manage our call option positions based on valuations and in response to market conditions. Firstly, we were able to close out a number of our call option positions before expiry dates when markets were weaker in September, January, and February. This allowed us to lock in a good amount of income for this financial year. Secondly, higher volatility translates to higher premiums we received from new option positions. We selectively increased coverage in companies whose share prices increased significantly in the recent months. For example, resources and energy companies. Noting, however, that we've finished February with lower than average call option coverage at 25% to preserve potential future capital growth. Finally, higher market volatility presented attractive opportunities to redeploy capital we received from our option exercises. Companies we chose to buy back, like Woolworths and CSL, we purchased at prices that were 5-12% below the exercise prices, while the rest of the capital was redeployed to our preferred higher quality companies, which we will now discuss on slide 17. The market sell-off of this calendar year has seen the share prices of a number of high-quality companies come back to more attractive valuations. We use this as an opportunity to deploy AUD 79 million we received from option exercises and Sydney Airport recovery into our most preferred companies across different sectors. We invested AUD 24 million in Stalwarts, JB Hi-Fi, Woolworths, and Wesfarmers. These are some of Australia's most recognized and trusted consumer brands with dominant market positions in rational markets. They also pay fully frank dividends that we think can grow over the long term. AUD 12 million was deployed to real assets companies. Goodman Group is an owner-driver business which benefits from the global industrial property growth required to meet the significant shift to e-commerce. Auckland Airport owns a dominant airport in New Zealand and had excellent operating and financial performance over the decade leading to COVID. We think that global aviation will recover with time, which should translate to solid earnings and dividend growth. Mirvac owns a high quality and diversified property portfolio that is mainly invested in offices. Their residential business has record pre-sales and also has a growth option in the form of build-to-rent apartments. The outlook for earnings growth is healthy, which should translate to growing dividend yield. We also deployed AUD 20 million across five high-quality growth companies. World-leading healthcare companies, CSL and Cochlear, dominant online classified businesses in Australia with opportunities in larger offshore markets, carsales and our portfolio's new addition, REA Group, which owns realestate.com.au marketplace in Australia, and holds stakes in classified businesses across India, Southeast Asia, and the U.S. An owner-driver business, ARB, Australia's largest manufacturer and distributor of 4x accessories with a growing international presence. ARB's recent partnership with Ford in the U.S. to accessorize a range of their vehicles provides the company with a very cost-efficient distribution model to significantly step up their growth aspirations in the U.S. Finally, we added AUD 22 million to cyclical companies, Macquarie Group, James Hardie, and Pinnacle, as their valuations came back to more attractive levels. All three businesses have long-term growth opportunities and supportive tailwinds. Moving to slide 18. Constructing a diversified portfolio of high-quality companies with an appropriate balance of income and growth is the key for us to deliver on our investment objectives, being an enhanced yield over the index and growth in dividends and capital over the long term. On the left side of the slide, we show some of our portfolio's key statistics as at 28th of February. On the right side of the slide, we show our top 20 holdings, which represent almost 70% of our portfolio. These high-quality companies with strong market positions are diversified across different sectors, enabling us to deliver on our objectives in a variety of market conditions. With that, I will now hand back to Brett McNeill. Thanks, Olga. On slide 20, we have listed some key summary and outlook items. Starting with markets and economies. It's certainly been a turbulent start to the year, with inflation taking hold across domestic and global economies, as well as the awful events in Ukraine. Both of these have sent share markets lower and have seen an increase in volatility levels. The resulting cost pressures, given supply shortages and the like, look set to continue for some time. Given that we don't invest according to macroeconomic events, our approach is to focus on company fundamentals. In this case, we want to own companies that have pricing power and/or are low-cost operators in their industry. A number of the companies we've spoken about this morning fit this requirement, including Coles, REA Group, Transurban, and JB Hi-Fi. Bond yields have increased in response to the market's concerns about inflation, and this looks set to continue as well. We do know that this has already been somewhat factored into share prices, especially in the case of yield-sensitive sectors such as real estate and infrastructure. In terms of our outlook for dividend and option income, as we discussed earlier on during the portfolio and market update section of this presentation, our outlook for company dividends over the next six-12 months is largely positive, especially in the companies we profiled, such as Transurban and REA Group, amongst others. Beyond this, the iron ore price will be a major determinant of dividend levels for the overall market and our portfolio, given the size of both BHP as well as Rio Tinto. The other key factor impacting the outlook for our dividend income is the amount of buying we recently did in the portfolio, as was just discussed by Olga. We think this sets up the portfolio really well in terms of its ability to earn increased dividend income over the long term. In terms of our option income, the recent option activity that Olga detailed has seen us lock in a good amount of option income for this financial year earlier than what we were expecting. We've also written further option coverage across selected companies, mainly in resources, while aiming to preserve our exposure to potential future capital growth in other sectors. Again, we think this activity sets the portfolio up well in terms of future income and growth. In summary, there's plenty of volatility and uncertainty in financial markets, but our investment philosophy and approach means we think the best thing that we can do is continue to focus on earning a diversified portfolio of high-quality companies that we believe can produce an attractive level of both income and capital growth over the long term. It's this approach, combined with the current portfolio settings, that give us confidence that Djerriwarrh can achieve its long-term objectives. With that, I'll now pass to Geoffrey Driver to conduct the question and answer session. Okay. Thank you, Brett. Just a reminder in terms of questions, you can ask questions through the top right-hand side of the webcast in terms of asking a question, or you just press star one for a phone question. The first question I have, Brett or Olga, is, in terms of energy, within the portfolio, how do you see the portfolio currently placed there? And what do you see as long-term outlook for those holdings within the portfolio? Yeah. Thanks, Geoffrey Driver. I'll take the question. It's Olga Kosciuczyk here. We currently hold two oil and gas companies in the portfolio. Santos, which came to our portfolio via their merger with Oil Search, which was our holding, and Woodside Petroleum. We have a very small position in this space, combined between the two holdings is around 2%. Historically, shareholder returns in the oil and gas sectors have been quite challenging if we look over the cycle. However, recently, and the short-term outlook for those companies is quite positive as there are supply pressures on the back of the war in Ukraine, which really caused high energy prices and high volatility. This is beneficial to both of our holdings, Santos and Woodside, as they have exposed this market, and that generates really strong cash flow. However, we do recognize that commodities prices are mean reverting, and in the long term, we've seen that the spike in the oil price and the volatility, as well as countries focus on managing their energy security, will accelerate energy transition, and that ultimately might negatively impact energy companies in the long term. We do manage this position very actively. We monitor how we balance our short-term view with our long-term view, and then how we also apply our option coverage, which currently is quite high. Thank you, Olga. I have a question about why would you expect dividends of Pinnacle to increase when it is a part owner of many fund managers? This year, the fund managers are unlikely to earn performance fees as they did last year. Consequently, I expect their earnings to be less than in 2021. Okay. I'll take the question, and thank you very much for the question on Pinnacle. The key point is the diversification and the quality of the funds management businesses that they own. They're not overly exposed to one particular sector, and we think it's a very high quality group of fund managers. A couple of points from the H1 result, which was really good. Overall, Pinnacle's dividend for the H1 result that they reported for six months to December, the dividend was up 50%, but performance fees weren't a big driver. Performance fees were actually lower than in the PCP. The outlook for the next six months and beyond is not overly reliant on a large number of performance fees being repeated, which gives us a lot of confidence. The other things would be that they've got a sustainable dividend payout ratio, which really helps, and the balance sheet of the business is very strong as well, which gives them some extra growth options. Thank you, Brett. There's a question here about the ten-year total shareholder return, which is around about 4% as compared to the ASX 200 around 10%. Any comments there, please? Yeah. It's Mark Freeman here. Look, just a couple of things on that. The TSR, that's looking at share price, not NTA. If we go back 10 years ago, the share price was actually trading at a premium to NTA. Obviously, as we're highlighting earlier, I mean, we don't control the share price. We try to make it clear where the share price is in relation to the NTA, but this is one of those impacts where your starting point 10 years ago was a share price that was trading at a price that was well above fair value. So that has resulted, I guess, in a lower performance. The other factor I'd point out too is that a big part of Djerriwarrh's returns though are the dividends and the associated franking credits. So we tend to look at performance in... We talk about the grossed up performance. We gross up for franking credits to Djerriwarrh. We also gross up for the index, so we do a like-for-like comparison. If shareholders can go back to slide 8, where we show the 10-year number on the NTA, and we include the franking credits, the index was 12.4%, Djerriwarrh was 10.6%, so just a little bit behind there. But as I said, shareholders would have achieved a much higher yield along the way. Obviously, that's one of the key features of this product is the yield. Obviously, we continue to work hard, and we did a slight adjustment to the strategy a couple of years ago, where we slightly reduced the coverage of our options on the portfolio to try and provide some better capital growth while still providing good income. You can see the result of that from the one-year performance. Thanks, Mark. I have a question here about fertilizer producers not being mentioned. Russia is a big supplier, and there is to be a shortage in the near term. Any comments from Olga or Brett on that particular observation? I'll make a quick one. I mean, there's a lot of supply shortages leading to big swings in commodity prices. That doesn't drive our portfolio construction. When we're picking stocks for the portfolio, as we try to illustrate, long-term holdings based on our quality assessments, they're the best stocks that we wanna own for the long term. We can take a shorter-term view in our options portfolio, where we can adjust option coverage, but that, of course, is only on stocks held in the portfolio. Through this, there'll be some stuff that probably goes up a lot that we miss, but there'll also be some things that go down a lot that hopefully we miss as well, and I just think the most important thing for us is to focus more on what we consider to be the longest term quality holdings for the portfolio. Okay. Thanks, Brett. Just operator, have we got any questions via the phone at this point in time? Yes. As a reminder to ask a question, you need to press star one on your telephone, and to withdraw your question, just press the pound key. Once again, that's star one for questions on the phones. One more for questions. Okay, thanks. Well, I'll wait to see if there's any questions on the phone. We have a question here about the use of put options within the portfolio. You talked a lot about the call options and how the strategy works there. Can you just comment on how you use put options within the portfolio? Perhaps also describe what put options actually are. Yeah, sure. Thanks for the question. It's Brett here. Put options when we use them, but not as much as we use call options. The reason is the risk profile of the two different types of derivatives. When someone writes a call option, they have the, they might have the obligation to sell the stock at a certain price. When they write a put option, they can have the obligation to buy the stock at a certain price. There's asymmetric risk profiles. When you're writing call options, as we mostly do, the market goes up and they need to get exercised, like Olga spoke about in the presentation, have happened in some cases. What happens is we basically have to sell the stock, and then as portfolio managers, we take the proceeds, and we look at what and when we'll reinvest the proceeds. On the other side, if it's a put option that we get exercised on, we are obligated to buy the stock at a certain price. Say, this happens in falling markets, you need to have a limited exposure to that because you're on the hook to buy stock when you might not want to or might not have the funding. We're always very careful about not having too much exposure when we're writing put options because of those different risk profiles. To give an example of current metrics in the portfolio, we tried to sum it up on slide 18, where we talk about the call option exposure of the portfolio being about 25%. That means by value, we have about 25% of call option exposure as a percentage of the total portfolio value. Whereas for put options, the exposure is about 2%. That's roughly the proportions that we've typically been in. Often, we'll write on a ratio of sort of 10 call options to one put option. At the moment, the put option exposure is even lower than it was at the end of February because we closed out one position for a good profit and another position lapsed, which meant we booked all the profit. We tend to write the strategy with put options is we tend to write them in, again, what we think are the highest quality companies that we prefer to own at lower prices, so it's quite selective. Okay, thank you, Brett. A question here about, does the constant sale and repurchase stock positions due to option strategy mean the company is disadvantaged from a tax perspective? No. No, it doesn't. It's something we absolutely have to keep in mind because as Mark mentioned, we rate ourselves and measure ourselves on the after-tax performance. We're at the mercy of the market in some cases, of course, of the buying and the selling. If we can get the portfolio settings right, like we talk about, then it shouldn't have too much of an impact over the long term. At the moment, it's working well for us. Yeah. I suppose the other point about that, Brett, is those realized gains also generate franking credits for us as well. That's an important part of the return profile as well. Yeah. Question here about can you please explain how the four company investment teams work together? Is there a possibility that teams will compete on price of the same stock as some holdings in the other portfolios, such as AFIC, Mirrabooka, Ansell and Djerriwarrh? Well, I mean, it is correct. It is a team effort, and the team covers the four investment companies. We don't really see that competition for stock being an issue at all because most of our transactions, we tend to make more what I call incremental moves in positions. We primarily see ourselves as longer-term investors. For example, if we're adding to stocks, we tend to do in smaller amounts, so there's plenty of liquidity in the market. If we see an opportunity, and we want it to be in all four funds, it's usually not a problem. However, you know, occasionally, you might get an illiquid stock, and it is harder to get set. In that case, we would spread any stock we bought across all four companies, and we manage that like we have done for the last 20 or so years. I think I might add another bit to this. If you have a look at our top 20 holdings, which represents 70% of the portfolio, most of those are pretty big companies with very significant market liquidity every day of the week. Even if you aggregate our four investment companies, we're actually a very small part of those markets. Really, there isn't any competition, except as Mark says, potentially in some of the smaller stocks, and we manage that very well. Thanks, John. A question on the level of debt in Transurban. Does that give you a concern, particularly with expected increase in interest rates? Yeah. Thanks for the question. It's Brett here. I'll answer that. The couple of key things about that with Transurban offsetting factors is that there's a bit of a natural hedge within that business. If interest rates are going up because of higher inflation. Their expenses go up on the interest expense line, but their revenue goes up as well because of most of the structure of the toll concessions. At the moment, about 70% of their portfolio has explicit price increases linked to inflation for Transurban. It gives them a really nice natural hedge. The other thing is the debt levels will reduce over, we think, the next five-seven years, mainly because they've spent the last, let's say, three years investing in growth projects for the future, which they've largely fully funded through debt and equity. They're carrying the debt and the interest expense, but they're not getting the revenue yet. The main one of those is WestConnex in Sydney, which is a massive project. Over the next five-seven years, as that series of toll roads progressively opens up, they'll start to generate significant revenue from that and the debt levels will come down. It's clearly something we watch, but we don't have any major concerns over it at this point in time. We think they're really well-placed. Okay. Thank you, Brett. Question here about the 10-year performance of Djerriwarrh versus AFIC, and do you actually consider the option strategy can add validity to the expected increase in shareholder returns? I guess that they are different funds with different objectives. Again, just to highlight that the yield on Djerriwarrh is substantially higher than AFIC and the market. Hence, most investors in Djerriwarrh are there. There's less capital growth. They appreciate the stream of fully franked dividends. In that light, most of the investors in Djerriwarrh are ones that really appreciate the franking credits that come with that higher dividend level. Like everything, in markets, there's trade-offs. In the case of Djerriwarrh, we're generating a higher yield than the market when you include franking credits. The trade-off is we have some option coverage. When markets tend to be strong, we tend to give up a little bit of capital gain versus the market AFIC's more likely to get a, you know, looks at their return in terms of the market overall, whereas Djerriwarrh's got an eye for, I guess, getting close to the index over the long term, but having a higher yield. They have different objectives in that regard. Thanks, Mark. This probably brings us to one of the other questions over here about the reason why we see DJW trades a discount to NTA. AFIC is obviously one of the other companies we manage. It actually trades at a very large premium at this point in time. Similar holding and the similar yield focus is a quote here. Well, I guess the first point is very different yield focus. Djerriwarrh has a high yield focus, as we've spoken about, and less capital growth than potentially AFIC over that longer-term period. I also suspect that the AFIC's dividend's been stable through very turbulent times more recently. Djerriwarrh had to make a reduction in its dividend over the last couple of years, which has now, as we've pointed out, started to increase back up. I suspect those dynamics have led to the position where AFIC's trading at quite a large premium and Djerriwarrh's trading close to NTA. I don't know if anyone else has any further comments on that particular observation. Just the other thing, Jeff. Yeah, I mean, obviously, we sort of view Djerriwarrh as getting back to a more appropriate level, getting close to NTA, and we think that if we can show investors that we've got that consistency, the dividend, that it will get closer again. Just on AFIC, if you take a snapshot at this point, the premium on AFIC is over 10%, which is very unusual. If you look back through the history, on average, you're probably looking at about 2-3% premium over time from AFIC. To see something over 10% is very unusual. Again, from an AFIC perspective, we've tried to make it very clear to the market that it is trading at a very, very large premium from what we would call fair value. Once again, we can't control the share price. It's more about a snapshot of where we are now. The real question to me more now is why is AFIC trading at such a premium? You know, sometimes the movements around the NTA are a little bit mystifying to us, and perhaps that one is at the moment. Yeah. Also, I guess the markets move so quickly, Mark, that the end of month period's probably not a great indication at this point in time. That'll probably change over a period of time, as you said. Yeah. Back to more normalized levels. Yeah, I think that's right. I think when you do get volatile markets, the share prices don't tend to move as much in the short term. Yeah, I think that's a good point. I have a question here back on Pinnacle. Given the poor performance of listed fund managers such as Pendal, Platinum Asset Management and Magellan, could you please quote the names of the high-quality companies you believe Pinnacle has part ownership of? Yep. No, definitely. Brett here. I mean, those points, the poor performance of the listed fund managers explains, I think, a large part of why Pinnacle's come back to a really, you know, what we think is a cheap share price on the long term. Some of the fund managers that they own, pick one out of some of the main asset classes. In Australian equities, they own Hyperion Asset Management. That's their biggest ownership stake. It's about 14% of the portfolio. In global equities, Antipodes Partners. In REIT, so real estate, you've got Resolution Capital. And in fixed income, private credit type sectors, you've got Metrics Credit Partners, and then they recently expanded into private equity with Five V Capital. The reason we have a positive outlook for the company and why we've invested in it is you've got really good economics and attractive metrics such as high ROE, particularly when it's combined with a strong balance sheet. It's got the diversification across managers, across sectors, across that type of key person risk is largely removed at the fund manager level. Having said all that, we classify it as a cyclical because clearly it'll be exposed to market cycles. It's not immune from that. They've got really good growth potential over the long term, but it is a cyclical and the stock trades like that. Thanks, Brett. Just checking back with the operator. Have we got any phone questions at this point in time? Yes, we do have one question from the line. Okay of Dharma Jens. Thank you. From Private Investor. Your line is open. Thank you. Thank you. Good morning. I'm wondering if you could talk a bit about Sydney Airport and the future of its dividends, and perhaps compare that with Auckland Airport. Yeah, I'll take that. It's Brett again here. I think the future of Sydney Airport's excellent. The problem is that it got taken over by a consortium of super funds late last year. We really like the stock, and we held it through the pandemic, again, taking that long-term view. The stock was taken over. The shareholders voted at the required majority in approval of the takeover, and so it's no longer listed on the Australian share market. I think the share market's the worst for that because it was a great company and a terrific investment. It's for that reason that we've really looked to increase our holding in Auckland Airport because we have similar views on it. It's an excellent asset, as Olga mentioned. It's the dominant airport asset in New Zealand. It's got a unique feature in the infrastructure space, which is that it's a freehold asset, so it's not a concession that has a fixed life. When Sydney Airport was privatized, it had a 99-year concession life. Toll road owners like Transurban and Atlas Arteria, their toll road assets have fixed concession life. Sure, they can be extended, but you have to pay for them. Auckland Airport's a freehold asset. It's got a lot of land as well. There's no dividend coming from Auckland Airport at the moment for obvious reasons with the pandemic. We're looking through that, and we think it's been really good value lately, and that's one of the reasons why it's been one of the key purchases that we mentioned in the portfolio section. Are you able to predict when you think that dividends, such as Auckland Airport's, will return? Yeah, we can predict it, not with much accuracy lately, given the recovery of travel keeps getting pushed back. There'll be no dividend for the remainder of this calendar year, and that's largely as a result of negotiated agreements with their lenders. They can pay a dividend starting in calendar year 2023. What we'd look for, we think domestic travel will come back reasonably quickly. Not to 100%, but it'll start to get, you know, towards that progressively. Business travel will, but over a longer time period than our current expectations, and that's based on obviously the research we do, but also some data coming from leading industry bodies like IATA, which is an international air traffic body. We're looking towards a full recovery probably by 2025. Originally, that was more like 2024, but as I said, it keeps getting pushed back given lockdowns and the like. I think a small dividend maybe in the H1 of 2023 and then growing to the H2 of 2023, and then we'll start to get back to more towards trend profitability and dividends in 2024 and 2025, which will be really strong growth given that the base it's coming from, it's not contributing any dividend income at the moment. That's one of the reasons why when we take that long-term view, we've got a really positive outlook on the asset. Thank you. Thank you. I have a question here regarding franking credits and profit reserve. Just to note that, in fact, General Oil currently has a franking credit reserve, which probably covers about a year and a half worth of dividends at the current rate. We're actually quite comfortable at this point in time, given that reserve. We're basically now in a position, given what we are looking to do, paying out effectively what we earn at this point in time. We expect that reserve to be in place for a little period of time as well, unless we obviously have a significant downturn in dividends or option income. It doesn't appear to be the case at this point in time. I have a question here about the management of IAG. Are we concerned given the recent missteps with policy wordings and underestimation of risk? Yeah. No, thanks for the question. Brett again. Yeah, we are concerned. It's been a really poor performer. There's been missteps from management, as mentioned on policy wording, so that relates to business interruption insurance. There's also been customer remediation payments that they've had to make through mismanagement during the last couple of years post GFC. Then you've also had reserve strengthening required. All of that has disappointed the market. I think they're starting to work through that. The outlook actually on the business interruption side is positive now, and the reason is because they've taken a large provision, but there's a high likelihood that they won't need all of that provision. So some of that is likely to come back to shareholders maybe in sort of six, 12, 18 months. The other impact has, you know, obviously been weather events, have hit their profits really hard and have been above long-term estimates. They certainly haven't had a clean run of it. The management remain confident with their natural perils cover and with work they've done on the core business, that it'll stabilize and they can get back to that more trend level of profitability. They've got clear margin targets and return targets out there with the market. I'd say the markets, the stock market's, current thinking and ours as well, is that the jury is very much still out. We still hold the stock. You know, we think it's good value, and there's certainly potential for the dividend to recover to more of a trend level. It's taking a lot longer than what the market and us would expect. For now, it's a wait and see. Yeah, the jury's definitely still out on them. Okay, thanks, Brett. I have a question here about the total amount of option income received compared to the related amount of upside forgone on a per period basis. Yeah. The main way we look at that, 'cause it's impossible to quantify for the portfolio overall, so what we're looking at is the enhanced yield that we can generate, as well as the portfolio performance, which will drive NTA growth, and that's why that was the feature of the section that Mark gave with the update on the financial metrics. The background is the trade-off with the call option activity that we undertake is that we're hoping to generate a high level of income in the near term at the expense of growth over the long term. If we get the balance right, it can be a really good outcome. The ideal scenario is to generate a high yield and better growth. Over the last 12 months, as we saw on slide 8 and 9, we have been able to do that. It won't always be the case because like Mark rightly points out, we do give away a bit of the upside, especially in really strong markets, by writing call options. Pleasingly over the last year, that hasn't been the case because we've been able to deliver the higher yield and the higher portfolio returns. Yeah. I'll just add to that. If you wrote a whole lot of call options against your stock when the market was at a low point, then I don't think the premium would justify the amount of upside you're giving away. That's why I think the team are doing a great job of actually making sure that they do most of the call writing whenever the markets have had a run or an individual stock has had a run, and then you write a call option above that price again to try and control that risk that you receive. Yes, you receive a premium, but you don't want to give away too much of the upside. That slide was highlighted by Olga earlier in the presentation, where she was trying to show that, you know, we're trying to do most of our call writing after stocks have already had a strong run and avoid doing it when they're low. Thanks, Mark. Again, just check with the operator. Is there any further calls on the phone line? Any questions, I should say. I'm not showing any questions in the queue at this moment. Okay, thank you. I have a question here. We're fast approaching 11 A.M., leaning towards the end of the webcast. I have a question here about the investment case for Equity Trustees, and perhaps someone can outline our thinking around that particular company. Sure. Thanks, Jeff. Brett again. Equity Trustees is the smallest company by market capitalization on slide 18, where we list the top 20 holdings. It gives the portfolio a terrific mix of fully franked income and growth. The fundamentals of the business, where it performs really an essential service for its clients, I mean, it's a trusted business partner and hence the name Equity Trustees. It's a really solid industry. It has some good tailwinds through, you know, potential further regulation and just increasing needs for clients to use a responsible entity, a trustee, either for philanthropic trusts, for some wealth management or of course in corporate, in the corporate trustee space. The drivers of its revenue and profits are quite solid, and it has a really strong balance sheet. The result that it produced at the H1 was exactly what we were looking for. They had 18% profit growth and about 9% dividend growth. With the starting dividend yield of 4% before franking credits, if they can continue to deliver that sort of mid-single digit profit and dividend growth, I think it's a great contributor in the portfolio. We bought a lot of Equity Trustees over the last 18 months, particularly when the share price was around AUD 25. We saw terrific value there. It's, you know, it remains a really good core holding in the portfolio. Okay. Thank you, Brett. As I said earlier on, we've just approached 11 A.M., so I think I've got no more questions here, John, so I'll pass back to you to close the meeting. Thanks, Jeff. I'd like to thank everyone who's participated in this call and the questions we've received, which are all very good and very pertinent. We really enjoy having the opportunity to interact with our shareholders. We like to hear what interests them, what concerns them, and to help them understand the company. We're very happy to be doing this. As we said earlier, we hope to see you again in person in October, something we haven't done for a very long time. Again, thanks very much for participating. We'll finish up now. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.