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I would like to provide some additional enhanced level of fully franked income higher than is available from the S&P/ASX 200 Index, together with long-term capital growth delivered at low cost. I am pleased to report total fully franked dividends for the year rose to AUD 0.1575 per share, up from AUD 0.1550 the previous year. Based on the net asset backing and including franking, the portfolio's yield at August 31st was 6.7% and 7.4% based on the share price. This compares with the yield available from the S&P. Since resetting the dividend policy in 2021, the company has delivered an increased dividend year- on- year while meeting the enhanced yield objective. More importantly, the company has achieved this on a sustainable basis with the dividend continuing to be fully covered by the operating profit of the company.
The portfolio return was below expectations, with the portfolio returning 2.8%, including franking, compared with 7.2% for the S&P/ASX 200 Accumulation Index. The drivers of our relative underperformance were a combination of what we owned and what we did not own, which the investment team will cover in their presentation. We also note that the option will come at the expense of capital growth in a rising market. Options on a number of our holdings were exercised due to the strong performance of the underlying shares, which impacted the relative performance. Performance has subsequently improved with the portfolio performance over the 12 months to August 31st now being. At last year's annual general meeting, the board announced the move to quarterly dividends. The payment of quarterly dividends commenced in the second half of AUD 0.05 paid in May 2026, and the final quarterly dividend paid in August.
We intend to declare the next quarterly dividend in mid-October. We have received positive feedback from, and we believe the change makes Djerriwarrh more attractive to income-focused investors. The share price has continued to trade at a [audio distortion] we are very conscious of it, and will continue to work to highlight the value proposition of Djerriwarrh. During the year, the company bought back 3 million shares at a cost of AUD 8.9 million. In addition to neutralizing the shares issued under the DRP, the company will buy back shares in the event the company is trading at a material discount, and the investment is accretive for shareholders. Moving on to the business of the meeting, I will take the notice of meeting as read with regard to the minutes of the 38th Annual General Meeting last year.
They have been signed as a correct record and are available to shareholders for inspection today. The first agenda item is the consideration of the financial statements and reports for the year ended June 30, 2026. We will do this via a presentation, after which I will ask shareholders to comment and to raise any questions either about the presentation or of the auditors if they have any questions about the audit. It gives me great pleasure to hand to Alison to lead off on the investment presentation.
Thank you, Graham, and good morning, everyone. Thank you for being here this morning, making the effort to come and be here, and thank you to those joining us online. As CEO and Managing Director of Djerriwarrh Investments, I'll now turn to our presentation and the usual disclaimer, financial advice. Today's agenda, I'll say a few words, through the financial results. Then Brett McNeill, our Portfolio Manager, and Deputy Portfolio Manager, Olga Kosciuczyk will [audio distortion]. As Graham noted, I'm returning to the group having previously worked with the group for 10 years, until 2021. In the last five years, I've worked at HESTA, establishing and running the internal Australian equities team, working for you, our shareholders, alongside the board and the team.
I've been asked a number of questions since returning, but a couple of key ones I wanted to talk to today, those being: Why did I return to the group, and what am I looking to improve? Firstly, why did I rejoin the business? First and foremost, it's about purpose. I believe in why these groups of listed investment companies that we run exist in the first place. Most fund managers exist, and the other LICs were established to shareholders, working directly for shareholders at a low cost with no external fees. Quality companies built to deliver an enhanced level of dividend income, and that purpose is something that means a lot to me personally. Secondly, it's about the people.
I remember being a young analyst at JBWere covering the infrastructure sector, and I was asked to come up to the board of the LICs to present on the infrastructure sector and to talk about Transurban and a number of the other listed companies at the time. I went through my investment thesis talking about the prospect for earnings and dividend growth, and at the end, the Chairman, Alison, for that information, but tell me about the people. Who's on the board, and who are the management? That has really stayed with me my entire investing journey. It's something that the team and I consider in terms of the management and the board and are they good allocators of capital? That's something we consider. I think it's equally important when you're looking, integrity.
Do they have a shared sense of purpose that brings them to work each day? That's one of the reasons I'm returning to the group, because we have a highly dedicated and experienced board of directors and a very capable and dedicated team who work very hard each day to serve you, our shareholders, because we take very seriously our role as stewards of shareholders' capital. I'm also excited at the chance to build on Djerriwarrh's strong foundations of delivering income to shareholders. The scale and portfolio at a competitive cost. Our listed investment company structure lets us look through the short-term volatility and take a long-term approach. We also have the transparency and governance of a committed board acting in your interests. Finally, I believe our structure gives us a real opportunity to make a difference for shareholders or building towards it.
We do that by giving them ownership stakes in quality businesses that pay reliable and growing dividends and offering an enhanced yield through the generation of income from options. Turning to what I'm looking to improve, Djerriwarrh's main objective, as Graham mentioned, is to provide shareholders with an enhanced dividend yield. Pleasingly, Djerriwarrh also has delivered steady growth in dividends over the last five years. We want to [audio distortion] and where our focus sits is balancing that primary objective with our secondary objective, attractive total returns over the long term. Delivering [audio distortion] from. The market has become more challenging. The rise of passive and systematic investing has increased the single stock volatility with extreme share price moves on shorter between sectors. That's been a really difficult environment for active managers more broadly across the industry.
Stocks are moving quite significantly on short-term news does provide an opportunity for investors like Djerriwarrh to this juncture that our investment philosophy won't change. The focus on investing in quality companies which are run by good management, with sound balance sheets, and generate strong returns on capital. That to enhance the investment process and risk management. That means being more deliberate about how we balance income and growth in the portfolio, and more intentional about where we position away from the index. Our Portfolio Manager, Brett McNeill, and seven years, and they know this portfolio and its objectives deeply. My priority as CEO is to ensure that the team have an environment that supports them and lets them focus entirely on investing for you, our shareholders. Djerriwarrh's value to net tangible assets or NTA.
And that means investors can currently buy a portfolio of quality companies at about is really quite attractive. Just as important is the message. It is underpinned by the dividends that we receive from companies we own, and the option income we [audio distortion]. Those reserves give us the capacity to keep paying fully franked dividends through the cycle. We have a clear and valuable offering, sustainable, enhanced, fully franked income from a portfolio of quality companies managed at a low cost by an experienced team. We need to explore. Doing so is an important part of closing the gap between share price and NTA. Make sure Djerriwarrh keeps meeting the needs of shareholders who value reliable income. And to reach a new generation of Australian investors looking for exactly that. Today, but I believe our structural advantages leave us very well-placed.
We are internally managed, working purely in shareholders' interests, and have a permanent capital structure. We provide an income-focused portfolio backed by real dividends and strong franking reserves. Cannot. As I look ahead, I do so with a great deal of confidence and optimism about what comes next. I look forward to your questions in a [audio distortion] Andrew Porter to talk through the financial results.
Thank you, Alison, and good morning, ladies and gentlemen. The financial results for the year are here on the slide, and I will run quickly through them. As ever, I am very happy to take questions about this or any other aspect of Djerriwarrh after the presentation. The movement in the unrealized portion of the options portfolio and upon which dividend decisions are made was AUD 41.4 million. So up marginally on last year. The dividends we received were marginally up with increased holdings in the likes of Region, JB Hi-Fi, and CAR Group, plus a special dividend from ARB, more than making up for the loss of dividends from reduced holdings at that point last year in NAB, Westpac.
In the year being the highest we have had since just after the end of the GFC in 2008 and 2009. On the other side, interest costs were up as we used more gearing to take advantage of opportunities, and the tax cost was higher due to the increased. Here as one of the contributing factors in the increased profit was the lower costs, driven largely by the increased profit from AICS, which is the company that employs all of us working for the four LICs, under which Djerriwarrh owns 25%. This profit offsets the costs that are incur. This meant that the MER, which is the net cost of running the company over the average portfolio for the year, was down to 0.41% for the year, or AUD 0.41 for every AUD 100 invested.
Although the cost benefited from that one-off profit contribution from AICS, the portfolio itself does have a material impact on the MER. The board and management under Alison are very conscious of maintaining Djerriwarrh as a low-cost investment vehicle, recognizing though that the work needed to produce the enhanced income does lead to a higher. This enhanced income, which Graham has touched on, is in the two boxes in the top row after the operating profit. Most shareholders will be aware, I hope, that we have moved to quarterly dividends, recognizing that for many shareholders, the income is such an important part of the investment proposition for Djerriwarrh. Looking at dividends for the year, as has been noted, on its portfolio or 7.4% on the share price at the end of June, considerably above that of the S&P/ASX 200 Index.
Note, as Graham and Alison have said, this dividend is pretty much covered by the net operating profit per share. As we explained when the dividend policy was reset, this will be the main guiding principle for the payment of dividends going forward. After the payment of that final quarterly dividend, Djerriwarrh still had franking credits sufficient to cover an additional AUD 0.23 or so of dividend. We would consider ourselves adequately reserved for the future. I should also note, for the first time in many years, the final dividend included part paid from capital gains. For that dividend, it is very important when you have those to recognize them and ensure that your accountant or whoever is filling in your tax return puts those deductions in the right box. The portfolio value we have touched on and is shown here as AUD 855 million.
It does not include sales from option exercises, which for trusts happens right at the end of the year. Including that, the portfolio value would be closer to AUD 900 million against AUD 920 million in the previous year. Still down, and this was reflected in the return figures that we have shown you at the. About the share buyback. We have been active in the share buyback, as Graham has noted and as you can see here. When the shares are trading at a discount, we have been neutralizing the shares issued under the Dividend Reinvestment Plan and the Dividend Substitution Share Plan. I am very happy to go through the differences with anybody, which is why we have not turned it off, but we have been buying back those shares.
In addition, when the discount widens, and if Brett and the team think this is a good time to be investing, we have been buying back more shares than we had issued. End of June 2024. As I said, very happy to take questions at the end, but in the meantime, I will hand over to Brett.
Okay. Thank you very much, Andrew, and good morning, everyone. Before we go into more detail on recent portfolio [audio distortion] has delivered over the last few years. The strategy reset that Graham mentioned back in 2021 was really about giving Djerriwarrh a strong base that we could sustainably deliver an enhanced yield, a growing dividend, and also within a product that continues to be low cost and have a shareholder-friendly structure. That basis is the background really for the next few slides that I'll run through.
Starting with our enhanced yield simply compares Djerriwarrh's dividend yield, which is really the dividends that we've paid out over the tangible asset value per share, and we compare that against the share market's dividend yield being, the dividends paid out. As we can see on the slide, for financial year 2026, Djerriwarrh's enhanced yield was 2.9%, being a dividend yield of 7% versus the market at 4.1%. It's a level that we believe is very strong and it's [audio distortion]. In terms of where to from here, as we can see over the last five years, the enhanced yield has been between [1.2%]. While future levels of enhanced yield will depend not only on our results, but also the market's yield, we think the current settings and strategy for Djerriwarrh will continue as they have for the last [audio distortion] .
Noting that, of course, there will be variability in that enhanced yield from year- to- year. Growth is very important, too. Pleasingly, Djerriwarrh has delivered dividend growth alongside the high level of enhanced yield. We show on the chart here Djerriwarrh's dividend in cents per share over the last five financial years. The growth from 2022 to 2023 was basically that rebound from the COVID-impacted dividend cuts that occurred during the market during that time. If we look more importantly at the last three years, Djerriwarrh has delivered solid growth in absolute level of dividends. That continued into FY 2026, where the dividend is that Djerriwarrh's dividend growth has been above the market growth in dividends over that time. A key point that I want to make, and Graham touched on it, is really around the sustainability of our dividend yield and our dividend growth.
Our dividend per share against the net operating profit per share of Djerriwarrh. As we can see here, over the last five years, Djerriwarrh's dividend per share has been consistently covered by the net operating profit per share in every year. This means that we haven't had to rely on using reserves or realize capital. Andrew mentioned, though, we do have a very good level of reserves, and these have continued to build in recent years. At the end of the most recent financial year, our franking credit reserves were around AUD 0.23 per share. Of course, that value is not captured in the reported net tangible asset backing per share. It's on top of that. They could be used to support the dividend if there were times when dividends are cut across the broader market, or they could be paid out as special dividends in future years.
Yield of the dividend income that we receive from the companies owned in the investment portfolio, along with the option income that we receive from our option writing activities. The slide here focuses on our option income. Generate the option income. As a reminder, we write single stock options, predominantly call options, but also selectively put options. That is against stocks held in the investment portfolio. Speculative activity. The effect of this is to generate income today at the possible expense of future capital growth, because writing call options effectively caps a level of upside if the underlying share price performs strongly. Have what we think are very sensible and sound settings for the option coverage in place. We typically run call option value, and any put options tend to amount to only about 1%-2%.
Over the last five years, as we show here, have seen option income grow to over AUD 18 million in financial year 2026. Turning now to the investment portfolio, and this is, of course, how we generate the dividend income and the capital growth that we deliver. I will cover some of our recent buying in [audio distortion]. Gold has [audio distortion] such as government debt levels, along with geopolitical tensions, have pushed up the gold price significantly, and that has made gold equities some of the best performers on the local share market. Having purchased Newmont Corporation for our increase our exposure to gold equities, and we did that in July this year when the market sold off a lot of these stocks. During that, we increased our holding in Newmont, and we added a new stock to the portfolio, being Evolution Mining. They are both very well managed.
They own high-quality assets, which are namely low cost, large mines. Canada and the U.S. Both companies have very strong balance sheets. They are actually in a net cash position at the moment. At current gold [audio distortion] slide here. Newmont are set to make around $13 billion in operating cash flow for their December end financial year 2026, and Evolution reported AUD 2.6 billion of operating cash flow. Both companies are using this operating cash flow, we think, in a very sensible manner. Buybacks for Newmont, and fully franked dividends in the case of Evolution Mining. Alongside that, both companies continue to invest in their current portfolio through expansion projects, which sets them up for long-term growth and returns. So far, our investments in gold have been well timed in terms of diversification of the Djerriwarrh portfolio.
Looking now at two stocks that were new to the portfolio during financial year 2026, and they have both been Pro Medicus, which is a leading medical imaging company, whose product is used in the healthcare sector, and TechnologyOne, a leading software company whose products are primarily used in the government and education sectors. We show on the slide here the track record of earnings per share [audio distortion] five years, as well as the market's expectations for the next financial year. We bought Pro Medicus and TechnologyOne primarily because we consider them to be very high quality. Quality aligned management teams. They have both got very strong balance sheets. They earn high return on equity even after already delivering significant growth over their history. An important part of our investment process, though, is not just buying quality at any price.
The valuations have to make sense, and that was a big factor in timing the buying that we did in these stocks. We added both of them to the portfolio in February and March this year as the broader market sold off growth stocks. Pleasingly, both Pro Medicus and TechnologyOne have done for the calendar year -to- date [audio distortion] is also an objective of Djerriwarrh that sits behind the primary objective of enhanced yield, and therefore striking that right balance between income. Deciding how to reinvest the proceeds from option exercises is one of the key considerations for the portfolio management of Djerriwarrh. The box on the top right-hand side, we were sellers of significant amounts of stock as a result of the strong share price performance of those companies, which led to our call option positions being exercised during the year.
[audio distortion] which has been a very disappointing performer for us, and it was during the last year that we sold our small remaining stake. In terms of taking the sale proceeds, we chose to reinvest them back into BHP and Telstra during the period, and that was effectively replacing a lot of the call option exercises that occurred. We also built back up our weighting in the banks, so we purchased more shares in each of the four major banks and re-added Commonwealth to the portfolio. Really, we saw much better and in a similar vein as both of those share prices had been particularly weak in recent months, whilst our long-term view on the companies haven't changed. They were key additions to the portfolio.
Overall, the net result is that over the last three years, Djerriwarrh's total return has been below the benchmark, like we spoke about. It's in a strong market, but it's recently improved with both the one-year number and the calendar year to date returns for Djerriwarrh being broadly around the level of the benchmark index, which has been pleasing. With that, [audio distortion] themes in the recent profit-reporting season, as well as giving a more detailed portfolio update and outlook.
Thank you, Brett, and good morning. Couple of slides, we will discuss some of the key themes from the recent profit-reporting season. We saw a lot of volatility during the reporting season, characterized as relief rallies. Within our portfolio, CSL and Cochlear were two notable examples. Their results, whilst weak in absolute terms, were not as bad as the market. Major drag on our performance. Giving up on them when sentiment was at its worst. We took a long-term approach in line with our investment philosophy. Companies facing short-term headwinds, and we believe that the market had oversold them. This has proved to be the right call. We also saw some signs of consumer softness. Updates as households battle the impact of higher petrol prices and higher interest rates. As a result, spending has shifted away.
We see the consumer companies in our portfolio, including JB Hi-Fi and Wesfarmers, as well-positioned to navigate this challenging environment. This is because they offer customers the best value. The supermarkets are also well-positioned as consumers are eating out less and eating at invested heavily in price to capture this shift. Market, while still defending their gross margins. Both supermarkets. Corporate activity was another feature of the reporting season, with a number of bids for companies in the last couple of months. This included two takeover bids for Equity Trustees. The Equity Trustees board said that neither offer fully reflects the value of the company, but they remain open to engaging with both bidders. Given our overweight position in the company, we are watching this carefully. Finally, we saw good dividend growth across the market.
On this slide, we show year-on-year dividend growth for some of our largest portfolio holdings. You can see dividend growth was strong across the board, with income from resources companies significantly above our expectations, being percent higher than the same period last year. We also saw solid growth from blue-chip companies like JB Hi-Fi, Telstra, and Wesfarmers. Lower earnings. However, with a stronger Australian dollar, the dividend we received was down 8% year- on- year. Overall, dividends declared by our companies came in marginally higher than we expected. On this slide, we show a snapshot of the portfolio at the end of August, starting with the key statistics on the left side. The portfolio, valued at AUD 980 million, was spread across 47 companies. This equated to net tangible asset backing of AUD 3.36 per share. This figure, as Brett mentioned, does not include our franking credit reserves.
40% of our portfolio was covered by call options at the top of our usual range of 30%-40%, and our put option exposure was just 1%. Our strategy is to own a portfolio of high of income and growth, and this should be evident on the right-hand side of the slide, where we discussed most of these companies during today's presentation, and we are happy to take that show how we balance income and growth in our portfolio. We hold Region that owns neighborhood shopping centers with Coles and Woolworths as anchor tenants. That makes it a defensive rent collector with an attractive the new retail space being built. Landlords like Region are in a stronger position when negotiating rates. This should support steady growth in both earnings and dividends. We hold ResMed primarily for growth.
ResMed is the world's leading maker of devices and masks used to treat earnings by an average of 14% a year. One billion people live with sleep apnea, and most of them are still undiagnosed. With more people now focused on their sleep to continue its strong track that our portfolio, overlaid with our option book, positions us well to deliver on our investment objectives, which are paying an enhanced dividend yield and delivering attractive total returns over the long term. On that front, financial year 2027 had option income and portfolio performance. Looking ahead, we continue to see markets as moderate, especially in the context of sharply rising bond yields. As such, we remain focused on adding quality companies at attractive valuations. Buying back shares also remains a strong consideration, given our shares trade at a significant discount to our net tangible asset value.
I will now pass back to Chairman.
Well, thank you very much, Olga, and thank you to the team. We move to this part of the meeting where I would like to invite questions from shareholders. For those in the room, we have microphones addressing the meeting, and ask all questions through the chair, and I will either answer them or pass them off to the appropriate colleague. However, first we are going to deal with some questions that we do have online, and Claire will moderate those. Claire, would you like to lead us through those?
Yes, sure, Chairman. First question: is [audio distortion] moving towards?
Well, as I mentioned during my address, we did announce last year that we were doing that, and quarterly dividends have already commenced with [audio distortion].
Question two: We would like bigger dividends, not more frequent dividends. There must be substantial cost in paying out two extra dividends. How much will it add to the MER?
Well, thank you to the person who sent in that question. In line with our objectives, we are [audio distortion] discussed in the presentation, we have been achieving this outcome for a number of years. We moved to quarterly dividends on the back of shareholder feedback. There is a cost, but it is not material. The cost is, when you add the two extra dividends, it is less than half of 1 basis point, so 0.004% of MER. So it is not material to have done that.
Current liabilities so high in comparison to the total current assets?
That is a very good observation from an accounting perspective. I will throw to Andrew.
I'm over here.
Oh.
No, actually, sorry. I've moved-
Ducked.
just to keep you on your toes, Chairman. Yes, thank you very much for reading the annual report. So, there you go, Tim, your work's not wasted. Thank you. Yes, it's a question that the young auditors, as they come in, always ask because it's the current ratio, your current assets over your current liabilities. This is due to a quirk of the accounting standards. Those [audio distortion] because we don't intend to sell it at all within 12 months. However, the liquidity facilities which we use to buy some of that stock and the options which we write over some of that stock have to be treated as current liabilities. There is a mismatch, but I think, as I mentioned to the board, as the board states and as the auditors state, this does not affect the solvency of Djerriwarrh in any way.
We're comfortable with the position as it is, but I hope that answers the question.
Thank you, Andrew. Claire?
Chairman, could the Djerriwarrh annual review be printed in environmentally safe inks, maybe just black and white?
Well, thank you for that suggestion. We've kept the annual review in color because it makes the charts and performance information much easier to read. We'll certainly raise environmentally friendly inks with our printers. In addition, shareholders can also choose to receive the review electronically. Thank you.
It is poor that we don't disclose our voting, and disappointing that the ASX is thinning out with record numbers of takeovers and very few new floats. Past 20 years where we voted against a deal that was approved? In terms of the current takeovers, such as Cleanaway, Northern Star, Perpetual, and Meteoric Resources, my apologies, are most relevant to us.
Alison, I address to you.
Yes, thank you for the question. I have only been back for knowing all the details of each vote that has been made, but I do know one that we voted against. We particularly like infrastructure, and Sydney Airport was one that we did vote against. In terms [audio distortion], yes we do disclose the high level details on the website, so they can be found there. We do assess each of the takeovers on their merits, looking at risk-return, and the valuations of each of those. So the team do a lot of thorough research on that, and we make an assessment on an individual basis to the Djerriwarrh portfolio.
Thanks, Alison.
Chairman, at last year's AGM, then CEO Mark Freeman said the AFIC stable subscribes to Ownership Matters and Glass Lewis for voting advice. What is the new CEO's history with proxy advisors? Does Alison intend to continue subscribing to these two services ahead of larger competitor ISS? Also, do any of our directors get to see these proxy advisor reports on individual companies, or is the internal protocol that access to this material is strictly a matter for the investment team?
Okay. I think Alison again.
Thank you, Chairman. I have used both of those proxy advisors in the past. I see no reason to change those. I think importantly to note that the team and I review all the information and provide recommendations to the board that are our views on the voting. But the board do receive and have access to all of those recommendations from the proxy advisors also.
Thank you.
Our financial information detailing the following: gross dividend and interest, gross option income, capital gains, capital losses, performance costs, NTA, and share price. This will help us understand the long-term performance. Thank you.
Thank you very much for that question. Most of that information is in our annual report and 10-year summary, but I would encourage you to please send an email to Matthew Rowe, our Company Secretary, and he will respond on behalf of the company. Thank you.
Thank you. Chairman, our two sponsoring bodies from history are Goldman Sachs. Could Alison please estimate what proportion of employees have some form of history with either organization? Was it a requirement that our new CEO have some history with the group, or did the search extend further afield? Also, which recruitment firm assisted with the search for Alison, and how involved were directors in the process?
Well, thank you. I think I'll take that question. There was no requirement that the new CEO had to have some history with either JBWere or Goldman. In fact, if I look at the team and look around the floor, the proportion of employees who did have a history working with either firm, search firm as our chair group of the four LICs are very well acquainted with the investment professionals market in both Melbourne and Sydney. Fit, we actually approached her, and the process included meetings with at least three directors from each of the LICs with Alison before a decision was reached. Thank you.
Chairman, seeing as AUI and DUI finally merged, AMCIL is the most nimble member of the stable, and Mirrabooka focuses on small caps, but there doesn't appear to be any Djerriwarrh, and can our board point to anything different that it does as opposed to how AFIC is run? We're both even top 20 shareholders in Mirrabooka. Does the Chair agree there is an element of takeover defense in that Mirrabooka investment?
Thank you for that question, which sounds very much like from shareholder Stephen Mayne . Each LIC is an independent company with its own board of directors, and each historically has served a different shareholder need. AFIC's a very broad-based portfolio. Djerriwarrh is very focused on the enhanced yield objective, which is particularly suited to superannuation [audio distortion], and AMCIL more high conviction. We have obviously noted the ongoing consolidation in the broader LIC sector, and the boards regularly review the strategy. However, there are also considerations such as costs and tax events that could eventuate if one brought companies together. Both the Djerriwarrh and other relevant boards would need to consider whether such a merger was in the best interests of their shareholders.
And finally, to your question on, Djerriwarrh hold shares in Mirrabooka primarily to give us exposure to that small and mid-cap end of the market.
Thank you. Chairman, please comment why the VHY returns are higher than Djerriwarrh.
VHY-
It's hard to say without knowing off the top of my head what the returns are from that Vanguard product. A couple of things I'd say is when comparing dividend yields across different products, as hopefully we tried to stress in the presentation today, not all yields are equal. Obviously, it depends a lot on where the yield is being sourced from, and all we can do is try and give as much transparency and I guess extra detail on how we've delivered the yield over the last few years, which is a big not just about delivering a high yield, it has to be sustainable as well, and one that can be maintained in times of market stress and also that can grow over time.
One thing that would be probably holding us back is on the total shareholder return, the share price being at a discount to net tangible asset backing, and that's rightly why Alison talked about a key focus for us is communicating the value more. We want the value of the shares to reflect what we see as true fundamental value of Djerriwarrh, which is the net tangible asset backing per share.
Thank you, and thank you for the questions. Any further?
Portfolio growth, and how do you measure yourself how you have optimized portfolio return?
Brett, I think the floor is yours again.
Sure. Yep. I will keep going. Thank you. A couple of key points. On the op settings in place and to have that disciplined way of managing it. We talk about call option coverage of 30%-40% of the portfolio, and that is because that to us strikes the right balance of generating enough income from options to enhance the yield of Djerriwarrh without taking away too much from the capital growth. Recognizing that there will always be periods in markets, depending on what stocks and sectors are performing and overall market returns, where there can be a drag on the capital growth. The other one is at the portfolio level, so with the investment portfolio, not just investing in stocks that offer the highest dividend yield for the next 12 months. A part of that is obviously, again, that theme of sustainability to dividends.
We do not just want a high dividend yield for the next 12 months. It has to be mainly in there for income. We have got to get the mix right at the portfolio level. Hopefully that came through a bit today, that are not necessarily the highest yielding stocks in the market, particularly Pro Medicus and TechnologyOne that are in there for growth.
Okay. Thank you.
That's all the online questions.
Right. Let's move to shareholders in the room. As I said, there are microphones there.
Thanks, Mr. Chairman. My name's Stephen van Emmerik. I'm the ASA, Australian Shareholders' Association representative. Thanks to all the shareholders that have passed on their proxies. I think there's 58 proxies, a couple of billion shares to the group. Really, I guess a question, it would probably go to Brett. The short-term volatility of individual stocks has increased a fair bit over the last couple of years and doesn't show any signs of changing. Has the out on the capital growth? Are you getting more from the options writing?
Yeah. No, thanks, Steve. Good observation. So we are, but only at the margins. So that volatility in single stocks should be a key flow-through to option pricing, the premiums we receive. And it has a bit, but not to the extent that we probably would have anticipated had you told us that volatility across the market would be as high as it has been, particularly during results season. So a benefit, but really only a small one to our option income.
Yeah. I guess follow-up question. You talked about stocks you've sold, the options have been exercised. Would you have been better off not writing those options over the year, or would you have been better off writing them?
Well, for the net result, definitely better off writing them. You can always look back and say a stock that went up more than the strike price, you shouldn't have written options against it because you get your upside cap, but then you make no income. It's sort of, no such thing as a free lunch with anything in investment markets, and particularly with option writing. We employ the strategies knowing that, of course, in some cases, we will be exercised on stocks. In particular, it happened in ones like, not having too much of the positions, having call options written against them, but also being very nimble and active in reinvesting the proceeds when we need to. Some of it will go back into the same stocks if we view valuations and quality to be attractive, and sometimes it'll go into other stocks.
Usually, we have good flexibility around how to do that, and you've seen we've been out of banks in a big way for most of the last three years. But during that last six to nine months, we've been able to take the option proceeds and put them back into banks, so overall, the portfolio's dividend yield doesn't change that much. It's just the stocks that generate the income.
Just forward to this gentleman there.
Okay. I've got one more question.
Oh.
Yeah. It's more of a, I guess, marketing-based question really. I guess you've been at a discount of 5%-12% over the past six years to NTA. The government's capital gains tax changes, not so great probably for growth companies. A bit of a gift to us in terms of, it's a very tax effective investment. You've got the franking credits, you've got your franking reserve. I guess, how are you using that to get out there to more shareholders and investment advisors and hopefully get the share price up?
Perhaps you'd like a job in No. Look, that's exactly right, and I think I touched on in the presentation that we do need to communicate the value of Djerriwarrh to new shareholders more clearly because the opportunity is absolutely there, especially in light of the tax changes. That is very much my focus, along with supporting the team, and improving things like communicating on digital channels as well for the likes of LinkedIn and we've even got, I believe we're looking at things, other sort of online options like Instagram and just trying to meet the newer shareholders. My children spend a lot of time doing this. I think we do need to do to close that gap between the share price and NTA. But I see there's great value on offer, and we'll be doing our best to communicate that going forward.
Yep. Thanks very much and great to see so many shareholders here.
Yeah.
Brett has already answered my question.
Oh, is that right? Well, lucky you. Are there other questions in the room? Yes, sir.
Thank you. Firstly, I've been forbidden from speaking here this morning, by MUFG because I don't apparently now have the appointment of corporate representation. So I'm asking you as a Chair, am I able to speak or not?
I'm happy to take a question, sir.
Okay. Thank you. Firstly, I would like to thank Brett and Olga for the excellent presentation today covering the companies. It has been fantastic. I am a very happy shareholder. I wish I could say the same with AMCIL, but I am not. Djerriwarrh shares, as I look through, I am getting a double dose of a company that I am not totally happy with, and yes, I am trying to sell them. If anyone asks the question, if you are not happy, why aren't you selling? I do not want to just drop them all on the market at the one time.
Sure.
I am asking the question because I notice that Soul Patts and Brickworks no longer have the joint operation. They cut that back. I look at not having AMCIL shares in the future, because of this cross-shareholding.
You are talking about the fact that Djerriwarrh owns some. Similarly to the Mirrabooka thing before, we originally bought the AMCIL shares because of a view that that was quite a distinct approach to the market in terms of being really a to the investment. Obviously, the stock has had a couple of difficult years. We do support the process that Rupert Myer and his team are working through to try and improve performance. We will continue to analyze that.
Just also commenting on the comments made before about amalgamating this Djerriwarrh with AFIC. I would be definitely opposed to that. However, I would not be opposed if it was AMCIL.
Okay.
But that's a separate issue. But thank you-
Sure.
again, Mr. Chair, for the opportunity to speak.
Thanks for your comments. Hi, how are you?
Hello. I'm back again. My name's Heather.
Hello.
I have three questions. If you are still wanting to hold the shares and you think it is a good company. I was reading in the paper the other day that they have got a big class action against them. Are you taking that into account as to, or discount, not worried about it?
Yep. Maybe Brett?
Yeah, no, we definitely in time. Things like shareholder class actions that come out about, whether it be disclosure and stuff like that, often tend to be backward looking. Other ones at companies, there is no way we would dismiss them, but that in itself is not giving us a reason to sell over the last two years. We got enough confidence from the last result and our meeting with management that they are better addressing irreplaceable product that it makes and what it does for people's lives. Combined with the economics of that company, so things like return on equity and a net cash balance sheet, and very high gross margins means that we will continue to hold in the portfolio. We will certainly monitor those things for sure.
Thank you. Last year, I asked about AUD 3, and yeah, it got over AUD 3. Last year, you said you felt that the share price had dropped because the market then was not really interested in LICs. So I thought, oh, great. I think it went up to about AUD 3.60.
Three early, yes.
Yeah, AUD 3.60 something.
A few cents after.
I thought yes, oh, maybe the market's changed their share price drop.
Yeah. No, it's a very difficult market, and has been for LICs, I think, for the last few months. All we can do is continue to improve our performance in the portfolio. As I talked about before, when it does get to a large discount is actually buy back shares, because that's a very good investment for all our shareholders, for us to buy our own shares. I think you would expect us to and that tightens up the underlying shareholder base.
Yep. The dividend payments are still quite good, so I'm-
Yes.
very happy from that point of view. My third question is, I was just with the annual report. I was just browsing through that, and I thought, oh the I. Well, what was the IOOF, because IOOF changed their name to Insignia, and now they've gone. They've been taken over by somebody else. Is that something different or is it incorrect?
I suspect that is as a nominee. This is the correct name of the holding, so maybe that holding's been passed over to someone, or it's a nominee holding for a separate underlying interest.
Right.
But yes, IOOF itself as an organization.
Got it.
Has moved on. Yeah.
Yeah. So you think that that would still be okay, legal, right?
Sure. Yeah.
There's no issue there?
No, exactly. It will be controlled by whoever's taken that over the investment management side of it.
They can still keep the name IOOF.
Yes. It is a surprise to me as well.
Yeah. Oh, okay. As long as it is legit, that is all right.
Yeah.
Thank you.
Okay. Thank you.
In relation to the federal government's capital gains tax raft of changes early this year, and their continuing grab for citizens' tax, companies' tax to support their profligate spending, were there any consequences or implications for group companies like Djerriwarrh, Mirrabooka, AFIC, AMCIL, et cetera, et cetera, specifically from those capital gains tax changes, also in relation to the LIC capital gains distributions that are made to shareholders? Thank you.
Thank you very much. It's an important question. I am actually going to ask Andrew Porter to address that because he is involved in the group working with Treasury and lobbying government on behalf of these sort of companies.
Thank you.
Thank you, Chairman. Yes, I am involved in a group that is working with Treasury and lobbying government, as the Chairman said. We thought it would be better to help them with their look. ALICA as an industry body is working with Treasury. The basic principle we have, as many of you will remember when the LIC legislation was first introduced, was to ensure that shareholders who hold their shares through [audio distortion] t hat is what we have gone in to bat with Treasury to maintain. All I can say at the moment is the discussions have been very constructive and are ongoing. It is something we are aware of. There will be an impact to shareholders, shall we say. That is how we are looking at it at the moment.
Thank you for that. In relation to the way that that information is communicated to shareholders, are you saying that there will appear to be an implication for shareholders in terms of what they actually receive or the value of what [audio distortion]
How I would expect it to look is that the indexation gains, for instance, or gains where you have a reduction due to indexation on gains post the on July 1st, 2027. We hope to be able to pass that on to shareholders. It will be that discussion of what the dividend deductions are that you get through an LIC gain. That just might have to be a bit more fulsome. There shouldn't be any difference, as I said, on an after-tax basis between what a shareholder in Djerriwarrh gets and what a shareholder would get through holding it directly. That is the intent. As I said, I can't put my hand on my heart and say that is definitely hoping and we have been talking Treasury through.
Thank you. Lastly, in relation to that, is there a timeframe on that?
We're dealing with Treasury and government. So obviously these come into effect from July 1st, 2027, but all of the gains we will have made up till then will be under the old system. But I would hope that Treasury will be releasing documentation sometime early in the new year.
Thank you.
Thank you. Thanks, Nick.
We will, of course, communicate with shareholders as soon as we know something as well.
Absolutely. Okay. Let us now move to the formal resolutions of the meeting. Oh, one more online. Sorry, Claire.
We got one that came through, in relation to the quarterly dividend. Would Djerriwarrh come out with a schedule of proposed distribution over the year similar to that of AFIC?
I did see that announcement from AFIC on Thursday, and we haven't yet considered that as a board. But certainly, now that it's out there, we'll have a look.
And just one more, Chairman. In view of share price at a big [audio distortion] trust structure?
No. The answer is no, we have not made that consideration. Our response in terms of the discount to NTA is we think that the discount is too wide.
I'd also note, Chairman, that there may be considerable tax implications in changing from-
Yeah.
a company structure to a trust structure. That is something else we'd have to look at.
Thank you. Thank you very much. Now we now move to the formal resolutions of the meeting, and your Directors' recommendations are set out in the notice of meeting. The authorities that have been given to me as Chairman, I will vote them in line with the board's recommendations on each of the two agenda items. Voting today will be conducted by way of a poll on all items [audio distortion] wi ll oversee the conduct of the poll. For those in the room, your voting paper and instructions are on the reverse of your yellow admission card. I will now go through the procedures for filling in the voting papers. Shareholders need to mark a box beside each resolution to indicate how you wish to cast your votes.
In respect of any open votes a proxyholder may be entitled to cast, you need to mark a box beside each resolution. When you have finished filling in your voting paper, please lodge it in the ballot boxes that will be available at the end of the meeting. To adopt the remuneration report. This is required by the Corporations Act to be considered by shareholders annually and is an advisory resolution only. The relationship with Australian Investment Company Services Limited, an associate entity of Djerriwarrh, which provides the company with [audio distortion] in the accounts. As such, the remuneration report concentrates on non-executive director fees. Non-executive directors do not receive any performance-based incentives and receive a flat fee for service as a director. If you have any questions on this item, please submit them now if you've not already. The details of this resolution are now shown on the screen.
Claire, do we have any online questions?
No questions, Chairman.
Thank you. Are there any questions from the floor? No? In that case, Kathryn Fagg as a Director. Kathryn was re-elected as a Director by shareholders at the 2023 AGM, and so is standing for re-election by shareholders today. She retires from the board of directors, and being eligible, offers herself for re-election. Kathryn, would you care to say a few ?
Real privilege to put myself forward for re-election to Djerriwarrh Investments. The purpose of Djerriwarrh is very special, as you know, offering enhanced yield with good long-term growth at low cost for those people who particularly value those attributes. I think it is reflected in the number invest in Djerriwarrh really care about what it does for their wellbeing, whether they're retirees or not-for-profit organizations. I think Alison gave the lovely reasons about what is special about this group of companies when she talked about why she returned. We have a very noble purpose, but associated with very good people who are focused on delivering it. I would particularly like to acknowledge the caliber of the people on the Board with whom I serve.
Graham is an exceptional Chair, and we have outstanding board colleagues in both Catherine and Geoff here today with us, but as well as Bruce and Rebecca, who unfortunately couldn't be in the room, but are definitely very engaged and online. It is rather obvious if you've looked at my biography, is that I bring a real breadth of experience. I'm originally an engineer working in the resources industry, then went into manufacturing, then went into services, including financial services and banking. Roles now for around 30 years, and I've accumulated a breadth of experience, whether it's understanding about cost curve to financial services. I find that breadth of experience to be really helpful in terms.
Having all that experience is the second reason that I'd like to put before you is just the judgment that you do grow over those years to know what's important and what needs to be considered. Bruce , who many of you know, it's also knowing about the people, be they on the board or the management, and again, just deep judge the people that are looking after the companies we're investing in. Finally, I would just like to say the challenge for the board is always to get appropriate experience and obviously very talented colleagues, and we are very blessed in terms of the people that we have managing Djerriwarrh, with Alison coming back as our CEO, with Brett from the AFIC Group of Companies. I'm very pleased to be on this board and hope that I can continue to serve.
I will now show the proxies received in respect of this resolution, which are now shown on the screen. We have no online questions, so can I ask if there are any questions in the room? Stephen.
Yeah, thanks, Mr. Chairman. Stephen van Emmerik from the ASA. ASA guidelines say directors are independent. If 12 years or less, more than 12 years, we don't consider directors to be independent. I think you're more than 12 years. I think you are, too, Mr. Chairman. My question is, what's your criteria for deciding if directors are independent or non-independent?
We also look at a time period, but we don't believe that simply crossing over a year as a nominations committee. We review each director for their independence, and part of that goes into understanding. We're looking for, and I'm certainly looking for directors that add value. It's often very hard to find directors with the breadth of experience that you see here from Kathryn and our other directors. At this point in time, when I'm next up for election to opine in regard to myself, but we appreciate that others have different views in the market. We're looking for the contribution that people can make around the board table. We will, over the next 12 months, be looking to bring on one new director so that we've got the ability of people.
Okay, thank you. I take it from that, I guess you've got a bit of a criteria, but it's kind of a subjective judgment based on your knowledge and the director, et cetera.
Thank you.
Obviously the proof's in the pudding, how you act for maybe if Kathryn could outline situations where she's shown herself to be independent.
Are you happy to address that, Kathryn?
I am just trying to think. I think the best thing to do is always bringing the right mindset to any of the discussions we have, which you would want a board director to do, which is what is being put forward and being willing to challenge it, and I believe I do that. Certainly, the other directors do as well.
I can confirm from a CFO perspective, Kathryn is on the audit committee, and I can say that she does bring that independent scrutiny to the financial affairs of the company whilst remaining supportive of management. But as you said, with that degree of independence and scrutiny.
Thank you.
Thank you.
Yep, thank you. I'm not suggesting-
Thanks.
anything dodgy is going on.
No, not at all.
I'm just, there's a criteria, and that's where if I-
I understand your approach. Yes. No, that's fine. Thank you. Question on the items of business. In a couple of minutes, I will close the meeting, so for those participating online, please ensure that you have cast your vote on all resolutions from the close of meeting to finalize and submit. For those in the room, I now ask you, if you haven't already, to complete your voting card, and staff from the share registry will collect your voting card at the end of the meeting. I would like to thank shareholders for your continued support and for your interest you have shown in the affairs of the company. Kathryn's comment, I think the number of questions and interest certainly goes to point that out. Shareholders are reminded that the team will be holding a webinar following the release of the half-yearly results in January.
The result of the votes today will be released to the ASX. I now declare the meeting closed.