Good afternoon. Welcome to the 2026 annual general meeting of the Perpetual Equity Investment Company. From now on, I will refer to it as PIC or the company. I am Nancy Fox, and it is a privilege to be the Chairman of the PIC board and to chair today's meeting. As I have been advised that a quorum is present, I declare this meeting open. We acknowledge the traditional owners of the land we are present on today, the Gadigal land, water, and community. We pay our respects to Australia's First Peoples and to the elders past, present, and emerging. We would like to extend our respect to all owners of the many lands where our attendees are situated today. I welcome our shareholders, proxy holders, and guests. It is a great pleasure to see you in person. Many of you I have seen over the years, several times before.
Good to see you. We are pleased this hybrid format continues to provide an opportunity for shareholders to participate regardless of their geographic location. I would like to take this opportunity to introduce to you those who are present with me today. Seated at the main table from right to left, I am joined by Sylvie Dimarco, who is our Company Secretary, Amanda Gillespie, our Executive Director, Michael Clarke, an Independent Non-executive Director and Chair of the Audit and Risk Committee, and Tim Bednall, an Independent Non-executive Director and Chair of the Nomination and Corporate Governance Committee. In the room, we also have Karen Hopkins from KPMG, who is the company's auditor. Karen is available to answer any questions that shareholders may have in relation to the conduct of the audit, the audit report, and the auditor's independence.
Note that this is Karen's last year as the lead partner for PIC, as she has completed five years in this role and will rotate in accordance with the rotation rules under the independence requirements. Chris Wooden from KPMG will take on the role, and Chris is also present here today. Before we move on to the formal part of our AGM, on behalf of the board, I wish to share some observations on PIC's activities and performance this past year, which have already been released to the market. Following that, I will ask PIC's Portfolio Manager, Sean Roger, to deliver the investment manager's update. For those of you who also expected Vince Pezzullo to be here, he is okay, but he had a little accident, and so he was unable to present today. Sean will cover it admirably, I am sure. Now, moving on to my Chairman's address.
I would like to begin by acknowledging our fellow longstanding shareholders and welcoming our new shareholders that joined this year. Thank you all for your continued support in PIC. As I said earlier, many of you I have seen over the years, so really thank you from me. Turning first to the company's results. In August, we reported a net profit after tax of AUD 12.1 million, which was lower than the previous year.
This was primarily due to softer markets and softer investment performance, which was impacted by ongoing market uncertainty throughout the year and is the main contributor to PIC's financial results. For the 12 months to June 30, 2026, PIC delivered a return of 2.8%. While this was below its benchmark for the year, the manager remains focused on investing in high-quality, attractively valued securities that it believes are well placed to deliver returns over the longer term.
The board declared a fully franked final dividend of AUD 0.04 per share, bringing the FY 2026 full-year dividend to AUD 0.08 per share. This was consistent with last year's dividend payment as the highest since the company's inception. Based on the share price as at June 30, 2026, this equates to an annual dividend yield of 6.8% and grossed-up dividend yield of 9.7%. This compares favorably to the trailing 12-month dividend yield of the S&P/ASX 300 Accumulation Index, which was 3.1% as at June 30, 2026. PIC is designed to deliver a reliable income stream, as demonstrated by our proven track record over the past decade. This makes it an excellent choice for retirees and investors seeking consistent income.
Shareholders who have been with us since PIC listed or since the company first declared a dividend in August 2015, have benefited from a total of AUD 0.698 per share in dividends. This represents AUD 245 million in total dividend payments to shareholders. The board has remained focused on the management of shareholder capital to ensure that the company's position remains strong. This approach has enabled the board to declare consistent, fully franked dividends since the company's inception.
After the payment of the final dividend, the profit reserve for the company sits at AUD 63 million, which will provide for two years' dividend coverage, assuming a total dividend of AUD 0.08 per share. The company's franking account balance is AUD 13.8 million, and that provides for one year of fully franked dividends. Dividend coverage, actually. Notably, this does not include any additional franking credits that may be generated during the year.
We recognize that many of our shareholders, particularly retirees and income-focused investors, value regular income, particularly in light of the government's recent changes to capital gains tax concessions. As announced on August 10 this year, the company will transition from semiannual to monthly dividends, with the first monthly dividend expected to be paid in December 2026. Moving to monthly dividends is a natural evolution for PIC and is intended to provide a more consistent and predictable income stream while preserving our disciplined investment approach. The board believes this change will allow profits to be distributed to shareholders in a timelier manner while providing greater visibility through quarterly dividend announcements. As I approach the completion of my third elected three-year term as a non-executive director and Chairman of the company, the board has invited me to stand for re-election at today's meeting.
I have agreed to do so to support an orderly succession process and ensure a smooth transition to my successor. If re-elected, I look forward to continuing to work with the board to support the company's long-term success through to the conclusion of the 2027 annual general meeting. So you get to see me once more, if you elect me. It has been a privilege to serve shareholders over many years, and I remain committed to supporting the company through this transition while maintaining continuity of leadership and governance. Looking ahead, the board remains focused on growing the company and shareholder numbers. The board consistently monitors where the share price is trading relative to the net tangible assets or NTA, as it's called, of the company. We are pleased to see PIC's share price trade at a slight premium to NTA over the past month.
Our focus is on delivering strong and consistent performance, together with an attractive and sustainable income stream for shareholders. We believe this combination will support our goal of having the shares trade at or above NTA over time. We will continue to keep shareholders and the market well-informed about our performance and progress. On behalf of the board, I'd like to thank you for your continued support of PIC. We believe the company is well-positioned for growth and to continue providing shareholders with a steady stream of fully franked dividends. I encourage shareholders to stay informed by visiting the company's website for a range of resources and insights. Thank you. Now on to the investment manager. Before I hand over to Sean, note that we will be taking questions after the investment manager's update.
On screen now are instructions on how to submit questions online and over the phone, whether in relation to the investment manager's update or for the AGM resolutions. You can submit a question at any time, and it will be addressed at the appropriate time. We have also had several pre-registered questions submitted. If you are present in the room and wish to ask a question, please raise your hand. We have facilitators with a microphone, and they will be with you as soon as possible to take your name so that they can introduce you prior to your questions being asked. Only shareholders and proxy holders may ask questions relating to the AGM resolutions. These will be addressed later in the meeting. I will now hand over to Sean. Thanks.
Thank you, Nancy, and good afternoon, everyone. Today, I thought I'd just touch on three key areas. Firstly, our view on the global macroeconomic environment and what's driving markets globally and in Australia. Secondly, the investment performance. And then thirdly, how we're positioned for the next 12 months, running through some key positions, and obviously more than happy to take questions at the end of the presentation. In terms of global markets at the moment, the number one driver from our perspective is inflation and interest rate expectations. If we look globally, I think there's very similar trends happening in most Western markets, and that is that we've got upward pressure on inflation and interest rate expectations driven by a number of factors. And I think those drivers, again, are very similar across both Australia and many countries. The first driver is loose Fiscal spending.
We're seeing government deficits, particularly in the U.S. and Australia, continue to run at an elevated rate. The second driver of inflation I'd call out is the conflicts that are happening in the Middle East and in Ukraine and Russia. It's having a significant effect on energy markets globally. There's obviously the impact on oil and gas supply, as we've had both infrastructure hit and challenges around moving oil and gas around. But that's compounded by what's happened with refining capacity globally. And we've seen anywhere between 5% and 10% of global refining capacity out of the market, and some of that's due to temporary factors, others are due to where there's been structural damage to the infrastructure. And the reason that's important is for an end user, be it a consumer consuming diesel or petrol or even jet fuel going to airplanes, that refining capacity is really important.
That's how you get from oil to an end user product. With that capacity out, the margins and the cost of refining have increased, which means that not only is there an upward pressure on oil markets and energy markets, but that's being added to by what's happened with refining capacity. The impact of that on inflation is obviously the direct impact in terms of higher energy prices flowing through, but there's also an indirect impact. You see across multiple industries, companies trying to recover that through things like fuel surcharges, and ultimately that starts to feed its way into price increases, and that's where we see the ongoing effect of inflation from those drivers. The second area, or third area I'd call out that's driving inflation globally is the build-out relating to artificial intelligence and data centers.
We've got a lot of money being spent, and with that and the data center build-out, we're seeing a direct draw through of materials and wages to construct those facilities. But also, and I'd say increasingly recently, we're seeing an exponential increase in the need for funding for both the data center infrastructure, but also the infrastructure that sits inside the data centers, the chips in particular, which are extremely expensive. As those funding requirements have increased, that's having an impact on debt markets and expected yields across the spectrum, and I think that's playing a role in the upward pressure we're seeing on inflation globally. The other big driver of global markets from our perspective at the moment outside of inflation is artificial intelligence.
I've obviously mentioned the inflationary aspects, but it's also having a big impact on sectors and also the direction that companies and corporates are taking. A lot of this comes down to, obviously, there's the direct build-out, and companies that are exposed to that from a positive perspective are seeing very strong earnings growth. But on the other side, there's big ranges of sectors that have been on the other side of that and are perceived to be companies that may be disrupted by the application of AI in the future. Look, that's something that is a driver of sector performance, and I think it will continue to be for some time to come, given the pace that technology around artificial intelligence is moving.
If we bring this back to Australia and how we're seeing the economy and the outlook there, look, we think there's a real challenge around inflation in Australia. We've obviously got the challenges I mentioned overseas in terms of the supply shocks with oil and also artificial intelligence. But we've also got the impact of policy decisions in Australia over the last few years. If we look at the RBA, I think from in 2022, when we had the first inflation shock, Australia was quite slow to increase rates relative to what we saw in other countries globally. Similarly, 2024, 2025, we were quite quick to signal and then cut rates coming back the other side. What that's meant is that the Australian economy, with those rate settings, but also strong migration, has been in a relatively tight position over that timeframe.
We've also seen quite strong asset price inflation, particularly on the house side, up until more recently. What that means is that at the moment, we do have a lot of upward pressure on inflation, and that on top of the policy decisions from an RBA perspective. I think from a fiscal perspective, as I mentioned before, the government spend as a percentage of GDP continues to increase, and that in the environment where unemployment is still quite low continues to support those sort of inflationary pressures. The third thing I'd call out from a structural perspective in Australia is just the lack of productivity growth. It's something we hear a lot about, and it's been a persistent problem.
In combination with those other dynamics that I've mentioned before, they're all contributing to what is the current environment where, I guess the RBA's having some difficulties constraining inflation despite the health of the consumer. If I think about how that flows into our outlook for rates and house prices and the economy in Australia, I think for the short term at least, in the absence of some relief from energy markets globally or from the funding requirements from artificial intelligence, we are going to have to see the rates are going to have to either increase again or remain elevated to try and stem the inflationary pressures in Australia. We have seen the consumer impacted by the rate rises and the cost of living pressures we're seeing today. We hear that a lot from the retail sector in our research there.
All the data shows that the consumer is under pressure, and they're starting to constrain spending. We're also seeing asset price deflation. I guess the normal mechanism of that weaker consumer and weaker spending easing inflation is impacted at the moment because we've got these offshore supply-side drivers of inflation, which means that the normal mechanism of lowering consumer spending, taking the pressure off inflation, is not there at the moment. In terms of house prices, look, I think at the moment it's hard to have a view that they're not going to continue to trend lower. Obviously, there's been the policy change in terms of taxation, which has had a big impact on the investor market. Not only are returns impacted from an investor perspective after tax, but clearly there's been a sentiment hit as well to the market.
I think that's quite challenging from a house price perspective to see much improvement there in the short term outside policy settings or relief in rates. I just thought I'd also touch on then from, I guess, a consumer perspective, the chart up on the screen here. What this is trying to show is the orange line there is the variable mortgage rate, and the blue line is a proxy for household disposable income for the median household that is in the mortgage belt. What you can see with the blue line there is we're not at, but we are at the lowest level for household disposable income going back to the early 90s, which shows that it is really challenging for consumers out there, and there's a lot of pressure on the household, which is flowing through in terms of consumer spend and overall consumer health.
In terms of then how we're thinking about the economy, I guess, in the context of this, I think the next 12 months in Australia, the outlook is that it is going to be tough both for the consumer and for the economy. The consumer is stretched, and I think that's going to continue to flow through to corporate profits for the companies that we're invested in, but also overall sentiment for the stock market in Australia. From a share price perspective, look, there's obviously been a lot of volatility around what's happened with interest rates over the last six months in particular. I think some sectors are pricing in the outlook I've described there, where it is very challenging and rates are likely to remain elevated for some time.
But there also is other parts of the market that have got leverage on the balance sheet, where if we do see continued deterioration, there is still some downside to come. So without sounding too gloomy, clearly there's some pressures over the next six to 12 months from a consumer and an economy perspective. There are pockets of opportunity, though, from an investment perspective, which I'll touch on later in terms of where we see some opportunity to make money over the next 12 months. Just go to the next slide, please, Catherine. Just to talk about investment performance. The numbers are on the page there for those concerned. Clearly, the numbers over the short to medium-term are not where we would like them to be. And that's really been driven by the last 24 months, where the performance has been weaker than market.
Just to run through, I guess, a couple of the key drivers of that from our perspective. The first of those is from a stock-specific perspective, there's been a couple of stocks that have not played out the way that we hoped and thought they would when we made the initial investment. The first one of those was Flutter Entertainment, which has been a long-term holding in the fund, and we've spoken about before. I think we first invested in Flutter in 2018, and it had been a very strong performer for the fund up until late last calendar year. What changed late last calendar year was their key asset, FanDuel in the U.S. There was a change in the competitive environment where prediction markets, the key operators, which you may have heard the name Kalshi and Polymarket, entered the sports betting market.
And the reason they hadn't done that to date is because from a regulatory perspective, there was restrictions on who could and couldn't offer sports betting, and you needed to be regulated under the state-based sports betting legislation, which is in the U.S. The prediction market operators made the decision that they thought they could operate under a federal CFTC license, which has since that date been under a lot of conjecture from the States, and there's lots of court cases going on around whether or not this is legal, and I suspect that will be a decision made on that by the Supreme Court in the next 12 months.
But the reason it had a negative impact on FanDuel and Flutter is it was a new perceived competitive threat that they were going to be facing a competitor that was not regulated under the same, I guess, restrictions and codes that FanDuel was. At the time that this happened, we did a lot of work around understanding what the potential impact would be on FanDuel and Flutter and came up with a view that it was unlikely that there would be any material impact to the outlook for the business at that time. In a world where the prediction markets were allowed to continue to operate, which there still is a lot of uncertainty around, our view was that their presence would only serve to accelerate the broader state-based legalization and open up the entire market.
Unfortunately, the few months after they popped up and FanDuel themselves had some operational missteps in terms of their execution and that financial or the reduced financial performance really served just to feed the narrative that the prediction markets were having a big competitive impact on the business. There was quite a sharp derate in the valuation of the company off the back of that, and also the multiples. Looking back on the analysis at that time, we obviously did all our fundamental work. I guess with the benefit of hindsight, when the risk first popped up, we should have reduced the position size earlier at that stage. That is Flutter, and it has obviously been a big drag over the last 12 months to performance. It had been a good contributor up until that point, but that is a driver of performance over the last 12 months.
The second stock, which has been a headwind again over the last year, has been Premier Investments, which is another company that we have had a long-term holding in. They own a few retail assets in Australia, as well as a big stake in Breville, the coffee and kitchen manufacturing business. Really good brands in that business, well run by a very experienced retail and also management team. What happened over the last 12 months was two things. Firstly, one of their retail businesses, Smiggle, faced a few headwinds, both from a competition perspective but also from a product perspective in terms of the product they were landing to market. So the financial pressures there dragged on the overall share price, but also the weaker consumer environment, which really started to kick in mid to late last year. As a retail business, they were not immune to that.
The combination of those things led to the share price performing the way it did. So those two stocks were part of the investment performance lag in the index over the last 12 months. The other driver of the underperformance was the positioning of the fund away from the top 20 companies, the top end of the market, towards the small to mid-cap part of the market. The reason we were positioned that way is it is always an area we look for. I think there is always some interesting companies that trade on really attractive valuations. If we rewind 12 months to the middle of last year, the top 20 was, from a valuation perspective, fundamentally extremely expensive. Whereas we were seeing attractive value in a handful of very well-run and high-quality companies that were lower on the market cap scale.
At that time, I think from a macro perspective, our view was that the rate environment into calendar year 2027 was going to be under control and that the interest rate rises at that time would keep things balanced. What then transpired towards the back end of calendar year 2026 was that we did see some upward pressure on inflation in terms of the data, both in the U.S. and Australia, and that was really supercharged by the conflicts kicking off early this calendar year and the impacts on energy markets. As you get that move up in rate expectations, which came with that inflation, what happens is, in the Australian market in particular, you tend to see the small cap part of the market underperform, relative to the top end. Investors look for safety and liquidity drives up the top.
These two charts on this slide, I guess, provide a bit of a visual representation of that. If you look at the chart on the left there, the blue line's the S&P/ASX 20. The red line is the ASX small industrial. So not the small index overall. It removes resources, which dance to the beat of a different drum. But as you can see there, the performance really started to diverge from February this year. From a performance basis, over the last 12 months, it's 15%-20% underperformance of the small industrials relative to the Top 20. The other chart, which I wanted to highlight there on the right, is they're the same two indices, but over a longer timeframe.
The point of showing that chart is that this divergence in performance between the small cap industrials and the Top 20 is cyclical, and it does go in cycles, tends to be related to where we are from an interest rate perspective. From a fund positioning perspective, we still do, and I'll discuss it as we move on to positioning, but we still do have a skew towards that part of the market, because I think, as that chart shows there, the valuation of the small relative to the top has only become greater over the last 12 months. So from a performance perspective, just to wrap that up, I think the combination of a couple of those stocks I mentioned before and also the positioning over the last 12 months has been a driver of that underperformance.
Just to touch on the positioning of the fund now today and how we're positioned for moving forward. I thought it'd be good just to put on the screen our top 10 active positions in the fund to hopefully give some insight into how we're thinking about positioning the fund for the year ahead. The first observation I'd make with regards to the positioning is, if you look at these names, there's not a lot of exposure to the Australian economy. It is tilted to offshore exposures. If I look at companies like News Corporation, obviously there's a couple of resource companies there which tend to not be exposed to the Australian economy, Mainfreight, Howden Joinery, they're all exposed to offshore economies.
We've tried to really balance the exposure to that Australian economy, given what I was talking about before in terms of our outlook for the Australian consumer over the next 6 -1 2 months. The second thing I'd call out is the mix and balance between what we consider to be defensive-orientated companies versus cyclical companies or companies that are exposed to the health of the economy. From a defensive perspective, I'd call out Soul Patts, Ramsay Health Care, and even News Corp as companies which are relatively stable and defensive, both in terms of how they trade in the stock market, but also their earnings drivers. From a more cyclical perspective, again, something like an Aspen Group, which is an affordable living developer and owner of assets, Mainfreight, which is a New Zealand-listed company, a less-than-truckload logistics and ocean freight forwarding business.
The third one there being Howden Joinery, are more businesses that are exposed to the economy. But where we are taking those exposures, we are very selective to ensure that they are companies that, number one, have very strong balance sheets, so that if the downturn lasts for longer than we expect, they are able to withstand that. Very high-quality management teams that have been through down cycles before and make the right decisions under pressure. Third, and I think perhaps most importantly, they're companies that take market share when times are tough. The reason that's important is that when conditions are tough, you often see stress in the industry and you see smaller weaker competitors shut down, or you see companies being put up for sale.
If you're ever getting exposed to a company that's in a strong position and can take advantage of that through buying a competitor, investing hard and taking market share organically, when things do turn, it means that the companies are really well set up from a financial perspective. It is difficult at the moment to know exactly when interest rate relief is going to come. There's factors there at play that are linked to things outside of the control of the Australian economy, as I mentioned with oil. Having a bit of a balance there at the moment we think is important. But we feel that in both the defensive and the cyclical category, that we're exposed to companies that we think have got good growth prospects, and they're very well managed. Hopefully that gives you some exposure.
Finally, I'd say just from a resources perspective, overall we are modestly underweight the sector. It's had a good run over the last 12 - 18 months, and the reason for being slightly underweight is twofold. Firstly, from a valuation perspective, the stocks are getting up there from a fundamental valuation perspective. BHP is obviously the bellwether and from a dividend yield perspective and a free cash flow perspective, down at that sort of 3%-4% range, which is quite expensive by historical standards. We're underweight there. Obviously, got a preference for Rio and Glencore. I just thought I'd touch on Glencore because it listed, U.K. based listing, but they had an Australian listing that came on yesterday.
The reason we've got that in the portfolio is it does have a big copper exposure, but its other commodity exposures we think quite favorably of, and they've got a strong marketing business there and trading business. From a valuation perspective, it trades on about a 10%-11% free cash flow yield. So a lot cheaper than BHP in terms of the cash flow it's spitting out the bottom. So that's why we're tilted to Glencore there. The final slide I'll just touch on, just from an overall returns perspective is the chart is just to highlight that the way we think about over a longer period of time, and the bottom line is the price chart of the PIC. The date there, I believe, is at the end of August.
The lighter blue line there is adding the dividends received on top, and then the orange line on top of that is grossing that up for franking credits. When the PIC was initially set up, a big focus was on that, ensuring that there's a tax-efficient income stream as a big part of the total return. Obviously, over time, we'd like there to be the capital growth there as well. But we just wanted to highlight this from a return makeup perspective, that there's obviously multiple components to that outside of just where the price is going. So I'll leave my remarks there. As I mentioned earlier, very happy to take questions on anything related to performance or fund positioning.
Excuse me. Could someone turn up the air conditioning?
Sure. Somebody turn up the air conditioning? Easy for me to agree. No, it is warm in here. It's got nothing to do with what Sean said, right? So anyway. Okay. Thanks, Sean. I can already feel it getting cooler. I hope it Thanks. We'll now answer any questions received from shareholders or interested parties on the investment manager update. A reminder that any questions relating to the AGM resolutions will be addressed later in the meeting. The order in which we will answer questions will be pre-registered questions first, followed by questions in the room, then questions online, and then finally questions over the phone. Whilst pre-registered questions are being answered, those present in the room wishing to ask a question, please raise your hand and provide your name to the facilitator. Sylvie, what are the pre-registered questions?
Chairman, the first question is from Trevor Coles. Why has there been such a divergence between the PIC share price and, say, S&P/ASX 200 since about October 2023?
Sean, do you want to address that question, please?
Yeah, absolutely. I think there's a couple of drivers to that. The first one I'd say is the performance over the last sort of 2 to 3 years has been below the performance of the benchmark, whereas the few years before that, it was strong relative to the benchmark. That is one aspect of in terms of the total return. Obviously, the price of the PIC is an outcome of that return, but also of the dividends, which I'll touch on a second. That gap relative to the index from a performance perspective since that time is one driver. The second driver is the overall size of the dividends paid over the last few years have been larger than the preceding few years. Obviously, that capital that's coming out of the PIC share company and NTA, the size of that will impact then the share price.
As that's getting bigger, it's obviously a much higher dividend yield or distribution yield than the overall index that we're comparing it to there. When you've got a situation where you've got a higher dividend yield for the PIC, and also the performance has been under as it has been over the last 2 to 3 years, that's why that divergence has opened up.
Thanks, Sean. Sylvie?
Chairman, the next question is from Margaret White. PIC has delivered very good franked dividends year in, year out. However, the share price has declined over a five-year period. Is it a deliberate strategy of the board to pay good dividends at the expense of price growth?
This question's really related in a way to Sean's last answer, but our objective is not to maximize dividends at the expense of our capital growth. There are a number of factors here, and Sean just touched on some of them, but our share price is influenced by a number of factors Investment performance, as Sean referred to, broader market conditions, investor sentiment, and the premium or discount to NTA. So you really need to look at all of those when you look at where we're going. At the end of the day, when we actually set our dividend payments, we look at the company's financial position, our available profits, our franking credits, and that's how we make that determination. As you're aware, we have a profit reserve, and we have a franking credit reserve as well. So we're able to smooth those dividends over time.
There is a question from David Greenwood. "I was very disappointed you abandoned the DRP. Is there any chance it may be reintroduced?
We had a dividend reinvestment plan, but to be perfectly honest, not many people actually participated in it. I think the number is less than 10%, off the top of my head. For operational reasons, it really helps in moving from semi-annual dividends to monthly, to suspend the dividend reinvestment plan. It is just too difficult, and I do appreciate many shareholders would like to make it easy to reinvest in PIC, and we love that. But it is very difficult to do when you have a monthly dividend payment. On the other side of that, a number of investments told us that they wanted more of an income component, that is why we moved to the monthly payments from the semi-annual.
Robert Brook has asked, he would like more details on the proposed distributions monthly dividends.
This is related, actually, and I will go through the dates here by looking at my notes. We announced that PIC was transitioning back in August, right, from semi-annual to monthly. Under our new approach, the board will announce on a quarterly basis the payment of the dividend for each of the following three months. It is proposed that the first quarterly announcement will be made in November, in respect of dividends to be paid in December, January and February. The specific record dates and payment dates for each monthly dividend will be set out in the quarterly dividend announcement when you receive it, so then you can plan. But starting at that date in November, the announcement, December will be your first monthly payment. Thereafter, you will receive your dividend payments monthly. But you do not have to change anything or do anything.
Paul Bryant has asked, "What is the profit reserve for dividends?
Thank you. I believe I just gave that number, but the profit reserve is currently AUD 63 million after payment of the last dividend, and that is enough for us to pay a dividend at AUD 0.08 as we currently have been paying it for the next two years. This is in accordance with what we are doing on the smoothing so that you have a sustainable income stream.
The last question is from Matthew Donnellan. "How is the payment of monthly dividends consistent with long-term capital allocation, which the PIC is famous for?
Sean, do you want to take that?
Yeah, absolutely. The move to monthly dividends from an investment process perspective and the way we are investing, absolutely no change. Still long-term focus, still making investment decisions in exactly the same way. The move to monthly is really just a change in the, I guess, the frequency of distribution of that capital. If you take the scenario where there is no change to the absolute size of the AUD 0.08, it has just been distributed over 12 installments as opposed to two. From an investment perspective and how we are running and making investment decisions, absolutely no change that comes with that distribution frequency change.
Thanks, Sean. I was just going to move to questions in the room, so give me a moment. We will now address questions from shareholders and other attendees in the room. For those online, the instructions to submit a question are on the screen. Please, I think we have a question here.
Thank you, Nancy. I am sorry to see you going and use time. That is a shame. It has been a long time.
It has been many years.
I have already submitted this question under my wife's name, so I will repeat it. Just so I am very clear, the way the company has been run, it is a long-term diminution of capital value. I mean, the last five years, it has gone down from AUD 1.30 - AUD 1.15, so it is about 2% per year on a five-year basis. But we all love the 6.5% fully franked dividends. Is that going to be the way you are going to run the company in the future? To focus on dividends, fully franked dividends, way above market limits, but at a long-term diminution of the capital value. Look, I am not saying that is wrong, but I would just like to know for my future investment ideas whether that is what you plan to do.
Yeah.
And look, we all love the dividends. That is fantastic. We love the frankings. It is good also that the price is close to NTA. There are many other LICs that are way below it, so that is good. The monthly dividends, well, I am not so sure about that. It is a pain in the neck, to be truthful, but anyhow. But the growth issue is the thing. When I first invested in this company a long time ago, A, it was a chance to diversify my own portfolio. But I did expect I would be getting long-term growth.
Ups and downs, but long-term growth. You are underperforming the index with the S&P/ASX 300 Accumulation Index. Can we just have a statement? Is this what we can look forward to in the future? Or is this not going to be the way it is going to go in the future?
Just so we can make our own decisions on future investments.
I will start, then I will let Sean chime in. Our intent is not for the capital value to decrease, but there are a lot of drivers that are involved there. Investor sentiment, how people feel about LICs today. I have to say, we have been working for years to try to get that NTA, sort of at par, if you will, so we are not trading at a discount, because that was working against us, right? People were buying on the dip and what have you. Our intent is actually to grow the company. Now that we are trading at NTA, we would love to do a capital raising if we can. We are working on our performance because you need two different things to do a capital raise, right?
We need to return to improve our performance, and we would prefer to trade above NTAs, actually, if we are going to raise more capital. We would like to do that to grow the company because it provides us a bigger piece of the market, if you will, greater market share, and also, it provides liquidity in the stock, so when people would like to sell. But it is not our intent. Sean, you might want to add to that.
Yeah, that's just what I meant. I'd say that the last three, four, five years, the capital decline there has largely been an outcome of the absolute performance of the fund, which is a combination of the market overall index performance, but the underperformance relative to that. I guess we would hope that in terms of when the performance does improve, the returns then get to a level where they're on top of the dividend that's being paid out, that the returns there that support capital growth as well as distribution growth. That's the aim. We've just got to get the performance to the level where those returns are above that dividend distribution, which we're working very hard to do.
Can I just follow up on that?
Sure.
If I've got some time. Let me know and I'll keep asking questions.
I've got one more in the back, but go ahead.
To obtain 6.5% fully franked returns given the investments you are making, I assume that you get that by realizing capital gains. Is that the case in paying the tax?
From a, yeah, total, the 6.5% in terms of the distribution, there is two elements to that. Obviously, we need the total return of the investments to be above that level, and that is a combination of both the income we receive off the investments we are making, but also the capital growth of those. And then secondly, there is, in terms of profit recognition and profit reserve, there is, and funding the dividend, that is made up of, again, the dividends we receive in terms of income. But also then the profits we recognize from a realized profit perspective that feed through into the franking credits. So overall, we need the investment performance to be above the 6.5% sustainably, but also then from an annual perspective, to be able to pay those dividends and frank them.
That is made up of a combination of the dividends we receive from the companies and also, any capital gains that we make through trading the positions in an aggregate profitable way.
So they are sort of self-eliminating, are not they? If you did not realize the capital gains and pay them out as dividends, that would stay in the NTA and henceforth there would be capital growth. Is that a fair comment?
Yeah. If you have investment returns above and profit above and pay out a lower number than that, then the capital growth will be there.
Mm-hmm. Okay.
Dividend of AUD 30 million, where from?
Yeah.
If we've only got, in the It's there somewhere. Whereabouts is it hidden? Because I can't see from the accounts prepared here, excuse me, I'm no expert, but I can't see from here in the accounts where do you draw the AUD 30 billion? If you're only making AUD 12 or AUD 17 billion and you're paying something like about AUD 30 billion, where does it come from?
We, as I said earlier, we have a profit reserve. We maintain a profit reserve in the company, and then we determine what the dividend is, and we pay out from there. The profit reserve before the dividend was in excess of AUD 90 million. I can't tell what page it's on from here. Somebody might be able to help me with that.
Which item do we take the dividends from?
So-
The capital profits?
We move our profits to a profit reserve.
Is it? It is in the accounts?
It is. It should be AUD 90 something million. My point is, when we pay this dividend, we will still have AUD 63 million in the profit reserve. Right?
Okay.
That is why we are able to maintain the dividend for now while we are in a bit of a pro-
I'm sorry
performance slump. No, while we're in a performance slump.
Yeah. I just felt that,
It's there in the profit reserve.
Looking at the buying and selling of investments, the return is terribly low. But it's none of my concern other than to say that other companies or you can make a lot more. Maybe you take the risk, you don't buy Westpac shares
No
or you don't buy BHPs at the right time.
No, let me back up.
We don't make enough money.
No, let me back up.
There's not enough money being made.
No, let me back up. You cannot look at one year's accounts. The company's been running for 11 years, and for 11 years, we've been reserving profits in really good years. One year, we did a special dividend because we had too much, right? So we have a profit reserve, and we have our franking credit reserve, right? The reason people invest in a LIC is because we can smooth the dividends, right? So you don't have that up and down that you have in years that are bad and years that are good. So right now, you think it's very attractive, as we just discussed, and that's because we had excess profits in earlier years, and we've smoothed it to provide you with a sustainable income. That's why it's attractive to retirees, and that's the structure of a listed investment company.
It's not like a corporate. That's what drives people, right? It's not year on year. We smooth it over the term. At the break, somebody can help you find the profit reserve in there. There's still AUD 63 million sitting in that after we make this dividend payment, hence why most people.
If we've got a capital reserve and the funds are there, we should be investing all those funds, correct?
We do. We do.
The returns we've got, I've got the figures in front of me. I've only seen the balance sheet today. About AUD 600 million in trading on one side, of profits, and then losses of about AUD 590 million. Is that right?
It depends on what you're comparing it to. That's one year. Generally, people invest in this product, look at three years, five years. In effect, in our actual, when you buy the shares, it says we look at five-year returns. That's what we're shooting for, not annual, because we have very good years, and then we have years that have not been as attractive.
What's our average over five years?
It's actually, I have it here somewhere. It's actually greater than the S&P/ASX 300. But we can provide that information to you. It's why people invest in a LIC, is because they want that smoothing, not an annual return.
I just want you to work a little harder.
Talk to Sean. I don't invest the money.
You could make it well, so push the button a bit harder.
Thank you. We had another question in the back there, sorry.
Yeah, no, you go for it.
Chairman, I would like to introduce Ryan Purkiss.
Hi, how are you going?
Ryan Purkiss, shareholder.
Right.
Thank you, Sean. I thought that was a very impressive presentation you gave. I have got a couple of questions about stocks in the portfolio. The first is Myer. I appreciate you might have got it as spun out of Premier. It has got a sort of rockstar CEO. Solomon Lew has joined the board, and its share price is almost like a record low. Forget about the people not having a lot of money at the moment, but what do you see 5 years down the track, say, where is Myer going to be?
Yeah. Myer has been held in the portfolio. It is no longer held in the portfolio, so we made the decision throughout the last 12 months to exit the position. You are right that the position did come into the portfolio through the spin-off of Premier, and I think for a business that has got a lot of sales, AUD 4 billion of sales, it has been a very challenging industry, department stores more generally. But we felt that at that time there was a lot of opportunity to improve the financial performance of the company with regards to how they procure their supply chain overseas, the way they run their loyalty program.
We felt that the management team, as you mentioned, were brought in, were well-placed to improve those things, and Solomon Lew is obviously an excellent retailer and has proven over many decades of being able to run retail businesses very well. It had a tough 12 months. It is a business that is certainly exposed to consumer discretionary decisions. At the same time as you had that, I guess, softness, you also had very strong inflation for retail businesses. The Fair Work minimum wage increases this year, FY 2026, it is 4.75%, which is a huge number. You have got high lease costs, and for a low-margin business, if your top line is not growing and you have got that wage pressure, it is a really challenging condition. The decision was made to exit in terms of us looking at the outlook over the next 12 months.
We felt that it was going to continue to remain very challenging from a consumer perspective, so we felt the capital was best used elsewhere.
The second question is about the LGI Group. First, I thought it was a misprint and thought it was the L1G, and so I checked it out, and then I found out the company existed.
Yeah.
But it is slightly different to what you are normally investing in. I am just wondering, what was the reason that you sort of went out a bit sort of left field for what PIC normally invests in?
Yeah. So we have owned LGI. It is a company, Landfill Gas Industries, since it IPO'd a few years ago, and we think it is a really interesting little business. What they do, and the origins of the company is they, so landfill, councils have landfills, and historically the gas that would build up there would be released into the atmosphere. They install equipment to capture that gas and then flare it and turn it into electricity. And the reason that is got value is one, they can sell that into the grid, but also they generate carbon credits because there is abatement of carbon going into the atmosphere.
So, that is the model, and they have transitioned that also to installing batteries on sites where they can not only use the electricity generation they are doing to charge up the batteries and release it into the grid at the right time, but also they can use the batteries to take advantage of the curve in the wholesale electricity price that happens in Australia, which is really an outcome of the flood of renewables into the system, where you have got a lot of solar in the middle of the day and lower demand, so you get lower prices. And then in the evenings where there is not as much solar going into the system and demand is higher, you get curves in price. So being able to have the batteries that are charging up in the middle of the day and then discharging, you get quite good returns.
The reason we like the story is, I think fundamentally, our view is that the way that energy policy in Australia has been set up, but also the influx of renewables into the system and the retirement of traditional baseload generation such as coal. So the coal units generate flat, which is a renewable variable expectation that there is going to be continued volatility, in the Australian energy markets. And a business like LGI for us is a nice way of playing that volatility.
But they have also got a really strong growth pipeline. The offer they have to local councils to go and install more sites and get the economics out of them, there is a big pipeline there. They are very good at what they do, run by a very good management team. And when we initially bought it, we felt that it was very attractive from a valuation perspective.
I think that's an example of where we do go down the market cap scale a bit into a small to mid-cap company. We are looking for these sorts of businesses that are often not the ones that have got amazing growth profiles that everyone's on top of. They are sometimes a little bit quirky, but they can be the ones where if you do the work and understand the drivers of the business, if other investors aren't looking at it, you can often get opportunities to buy them at reasonable prices. Over the time we've made good money out of that. It doesn't come without volatility, as with all small caps. But yeah, it's on the board for a few years, and we still like it.
Okay. Another question here.
One more question.
I'd like to introduce that to Philip Short. Okay.
Yeah.
Yeah.
Hi. Philip Short, representing personal holdings plus
Thank you.
Self-managed super fund holdings. I have got a question for Sean on one of your slides, but just a couple of comments on the dividend first. Personally, I think the dividend is too high. I think we should think about cutting it. One of your competitors has had a big fall from grace. We all know who it is.
Yeah.
Who have been paying out similarly to this for a long time and been paying a lot more money out than they are actually earning. I think you are actually in the same situation. This is like an allocated pension that is heading to zero. So I think it might be a good idea to try and do something about that and try and get the money in for the future. On quarterly dividend, or sorry, monthly dividends, I am, in particular, not happy about that, but especially on do-it-yourself super fund.
Yeah.
I'm now going to face higher accounting costs, compliance costs.
Yeah.
For yourself, you've also got issues with you're going to have more fees you're paying to the people who are hosting us today, also your bank fees. You're actually increasing your cost base, and all that does is reduce shareholder returns. I don't think it's been totally thought out properly, and I think maybe the shareholders should've been spoken to or had a vote or something rather than just make a rush decision. Also, on this, there's also an issue in relation to the 45-day tax rule. Because the dividend period is 30 days, if anyone buys and sells shares within a monthly pay period, you're actually going to lose the franking credit on the dividend on the shares that they sell. That's, again, not totally well thought out.
Yeah. Can I just back up? This was not a decision that we rushed to, which is what you said. We had lots of feedback from other shareholders. Only 8.5% of our shareholders are in the DRP, for instance, right? Most of them were asking us to move, like the competitor you mentioned, to a monthly pay situation rather than semi-annual. Right? Second of all, we're not going to zero. As I said, we have AUD 63 million in the profit reserve, right? I agree that if in the future we don't change the performance and turn it around, the board will reconsider. We take all those factors into consideration. But there were quite a few shareholders who expressed to us an interest in moving to monthly.
I do appreciate, as a fellow shareholder, I do appreciate the issues with the operational problems for a particular person. But on the side of the tax and whatever, it is different for everybody depending on how they hold it. We did work out what the operational cost would be. There is some, but some of it we managed to contain within the fees that we were paying, and some of it you are right. You will see MUFG will pay a slightly higher fee. But when we weighed it all out, we had many shareholders who wanted the income component. So the decision was not taken lightly. It was not rushed. We have been talking about it for the last year.
I actually represent three shareholdings.
Right.
I heard nothing. I was not asked. So I-
Yeah
Do people contact you and say, "We want this, or we want that?
We go to many
Or do you actually speak to shareholders?
We go to many shareholder conferences. Right? Where we go is PIC and PIML, who is our manager, actually goes, and we have heard that from shareholders, where we meet with shareholders individually. That is why I just wanted to explain to you, we did not just sit around a table and say, "Hmm, it sounds like a good idea." We actually had thought it through.
Part of the issue here is you are listening to some of the shareholders, but other shareholders are not given the opportunity. When they do, like this
Right.
we're kind of shut down.
We'll figure it out for you.
And there's other people in the room
Right.
who have expressed today that monthly is not a great idea.
Thank you. We have 7,800 shareholders. I was just saying, we have heard, but we will take this on board because we will start in December, and then it will be something that we will put on the agenda to consider as we go through, and we will take feedback from our shareholders. I do hear you.
Yes.
I understand where you are coming from.
The other one I have got, I have got an issue with one of the slides. The slide that says, "How do we intend to make money?" I read your pack this morning.
Yeah
Off the ASX announcement.
Yeah.
One thing that stands out is that slide only talks about positive tilts. Okay? So where you have an overweight position in a particular stock. I think, to be fair and fully transparent, that type of slide should either also contain tilts where you've got a negative tilt or have a second slide showing some of those negative tilts. The best example of this is BHP.
Sure.
Basically, the negative tilt you've got on BHP is pretty much very close to the 7.9% positive tilt that you've got on Rio. Okay? I've seen previous commentary. If I'm not mistaken, you don't hold CBA at all. Okay? CBA is 10% of the index. That's a 10% negative tilt.
Yep.
I think for better communication for shareholders, that those negative tilts, the larger tilts should be on that slide rather than just having a whole list of positive tilts.
Completely understand your point. We'll take that on board. The comment around BHP, I hope I did address when I was talking about that slide earlier in terms of the reason for the preference of Rio over BHP was that, I think I quoted 3.5%, 4% dividend yield for BHP, which is the reason why we've got that preference for Rio. And the other comment that overall, we're slightly underweight resources. Hopefully encapsulate that there's obviously a skew towards Rio and Glencore there with BHP on the other side. And the banks, it's a very fair comment. We've been very underweight the banks for two-plus years now. Hopefully, that's been apparent in the broader communication. It's been a valuation call. I think we've had a real struggle with the fundamental valuation the Australian banks have been trading at.
They've been dislocated from reality in terms of what those companies earn and then how much leverage they've got on the balance sheet and the cyclicality of earnings. The share prices have come back a little bit more recently off the back of the tax changes and the economic outlook. But if you look at the earnings drivers of the banks, I think there was a period there for three years up until six, nine months ago, where the three key drivers of banks' earnings, they are cyclical, credit growth, net interest margins, and bad debts, and all of those were about as good as they can get in Australia. You had very strong credit growth, you had almost no bad debts, and you had reasonably rational competition. I think as we stand here today, the outlook for all three of those has deteriorated.
The bank share prices, in our view, are not back at a level that you're getting appropriate compensation for that, so.
My comment's not there on any particular stocks or sector. It's just about being a bit transparent and providing a nice picture.
We'll take that on board for next time. Yep.
Thank you. Other questions in the room?
Yes. We have Vivienne Holliday.
I originally invested in your shares when they first floated, so I have a bit of a history with you guys.
Good.
You do not form a big part of my portfolio, but I have some kind of probably illogical loyalty to you guys.
Thank you.
Plus, I was around when Perpetual pivoted from looking after the dead to looking after the living, when you guys were in estate management. So I have a particular like for your company.
Thank you.
My question is, and I manage quite a sizable portfolio myself in different companies and trusts, and I just wanted to know, in your portfolio, what percentage do you have in cash at the moment, and has that varied in the last six months? Do you want to answer that one first?
Yeah, go.
Well, I know in the reporting, I last said 6.8%, I believe, what we are in cash, but I do not know what we have done over the six months. Sean?
Look, it fluctuates month to month based on the trading in and out of positions in the portfolio. It can fluctuate based on a view of where we see in terms of overall valuations, but also opportunity sets within that. But over the last six months, it has been between a range of 3%-8%, in that sort of range.
So you do not expect blood in the streets and have money to make allowances for it?
Yeah. There's two elements of that. I think absolutely that is an option, and I think the 6.8% out, I think our last reported-
Five
6.5. The last reported number might've been a touch higher than that. There is cash there available for that. But there's also big liquid positions in the portfolio that are quite defensive in nature that would allow, if the market was to have a real wobble, they then potentially provide a funding source, and you'd expect some of the defensive names in the portfolio to hold up better if there is a big correction. And then there's the opportunity to rotate that capital within the portfolio into things that might be then appearing more attractively valued. So I think it's a combination of both the cash value but also the makeup of the portfolio in terms of some of the positions that it can be used for funding if markets move around.
Okay. And the second one, just a quick one. Is there any room in your portfolio for private equity and the opaque word called alternatives?
In terms of investments, not from an unlisted perspective, no. But there are different companies that are listed on the markets that might have exposure to private equity or to alternatives. And the answer to that is absolutely, we consider that like we consider any other opportunity. We don't have any aversion to it. If I think about Soul Pattinson, which has been one of the largest positions for a long bit of time, it's not a big part of their portfolio, but they've got a private equity arm within that business. It's bigger now after they merged with Brickworks. So we've got nothing against it. It just needs to be through the right listed vehicle for us to come up with a view that that company itself is undervalued.
What percentage of the portfolio, just roughly that you can show me?
Not from a direct perspective, no. The portfolio is all listed equities, apart from the cash. So there's no direct exposure like that, and there's no direct private equity name that only does private equity in there. It's just small indirect exposure, as I mentioned, through Soul Patts. But it'd be quite low, very low single digit. Yeah.
Thank you. Sean, we have a question from Mr. Dennis White. Hi, Dennis.
I'm sorry, but anyone who wants a question, please let me know.
That's okay.
Just a few comments. I'm not sure about where we got to on this issue of dividends versus capital growth. I've heard the discussions, but it is a big issue. I happened to look through Wilson Asset Management's latest fiscal this morning. I had to get to page 4 before I got to dividend. All about dividends. I'm just looking at my print here, I'm just not sure about that. All I do is ask the board to have a think about it. I'm not against fully franked dividends. They're fantastic. We just need to be sure that's where we're going.
Yeah.
The path to get there. I'm also not sure there's a division to Perpetual. I think the super laws with these dividends, I'm doing my calculations now, but I think that might not be great for retirees that have a Division 296 problem.
The other, the main issue that you mentioned, capital raising.
Yeah.
Is that on the cards?
We've been looking at it every year, right? Until we get our performance in a position where it makes sense, then we're not going to do it. We look at it every year because our intent, remember, we did two capital raisings. You would remember because you're here from the beginning. We've done two capital raisings in the past, but we haven't been close enough to the NTA.
This month, we've been up and over it. We've been trading quite well. It fluctuates every day with the way the markets are right now. When we first did these numbers at the end of September, we were actually positive 0.33% to NTA, right? We have to remain in that position for a couple of months, and we have to get our performance back. It's something we've always considered, but we haven't been in a position to do so in the last couple of years.
I'm just trying to think of the last capital raising that I took part in that was beneficial to me as a shareholder. It's been a while. Can you think of one?
I know it. I only did two.
Oh, okay.
The one I remember is because I wasn't an original.
Shareholder
Shareholder, but I bought on market, and there was some options.
We have options that expire.
That option, I think they exercised at AUD 135, from memory. We paid you AUD 135 and AUD 1.12.
Yeah, I don't think I-
More of a person, but given what's going on. It's given us, if you will, that wrong way to get it right. I take on board your comments, and I appreciate your advice on that matter.
Very wise.
Do we have another question?
Chairman, we have a question from Annie Rosenaurs.
Oh.
Thank you.
Thank you.
Thanks, Nancy.
Sure.
Sean, for the presentation. Question for you, Sean. You mentioned in your Australian stocks, you're focused on ones that have exposure to global markets more so. How is the portfolio positioned where you're seeing value in sort of stocks and markets offshore?
Yeah, thanks, Annie. The comments around, I guess, exposures to businesses that, sorry, exposures to companies that have got exposures offshore, really comes back to the comments I was making around the outlook for the Australian consumer. In the portfolio, we've obviously got the flexibility to invest directly in companies that are listed offshore. There's also a large range of companies in the Australian market that have all of their economic drivers offshore. An example of that being James Hardie, the fibre cement company. It's got an Australian business, but it's very, very small, whereas the key drivers of that are what's happening in the U.S. market. It's a combination of some direct investments in companies that are listed offshore. I mentioned Mainfreight, which is a New Zealand company that has exposures globally. Howden Joinery, I mentioned, which is based in the U.K.
Those sorts of names, and then in terms of the Australian exposures, as I touched on there's companies like a News Corp, which again is very heavily exposed to the U.S. and those sort of things. It's really that combination of the both of those, which means that the portfolio is skewed away from what the index would represent from an Australian perspective, and I put the banks in that bucket as well. At the end of the day, exposed to the health of the consumer and the Australian economy, and we've got a very, very low holding in the Australian banks. So that's the skew. In terms of the international holdings offshore, to the exact number at the moment, it's between 10% and 15%.
It's a little bit lower than what it has been, but I'd say there's more names in the Australian that have exposures offshore, if that makes sense. So in an aggregate basis, it's a reasonable portion of the portfolio.
Thanks, Sean. Do we have any other questions in the room?
We have a question here from Mr. Brian Alliston.
Hi, Mr. Alliston.
Hi, Sean. You'd miss it if I didn't give you a question. I'm very much in awe of the job that you have to do because I'd hate to be justifying my investments for the last 12 months to a group of people. You talk about Flutter and the misfortune that you had there after many good years. Did you reduce that or exit it completely? How did you handle that?
Yeah. Thank you for the question. We reduced it a couple of times on the way down, but not in a material way. It is still held in the fund, but it's quite a small sort of position. The reason for that is twofold. I think there is the regulatory situation with the big court case that will happen at one stage next year. There's a big binary outcome there in the sense of if prediction markets are ruled that they have to operate under the state-based system, there is very, very material upside in the Flutter share price because that competitive threat goes away overnight. But in the instance that that doesn't happen, we're faced with an environment where they are going to be here to stay, and then it comes down to what the competitive environment looks like.
Given the missteps, I guess the complication in investment from our perspective is the missteps that the company had operationally. They made a few bad decisions in terms of day-to-day execution in the business, how they manage interaction with their customers, and they lost some market share for that. We want to see them regain that share and regain the way that they've always operated, which is as a global leader, and we just haven't seen that yet. From our perspective, there's still good value there, but for us to have the conviction, especially after, I guess, over the last 12 months, the performance impact of the fund, we just want to make sure we've got complete clarity on that operational performance turnaround before we look to change the load in the portfolio.
Considering that you had many good years with it before that, when you sold down, did you still make a profit for the fund or?
I think at the prices we sold down along the way, we would have. But as it stands today, in aggregate, we haven't made a profit on the position. It's been a loss.
Yeah. That's right.
Which has been very disappointing.
Yeah. But that's only if you sell it.
That's right.
A couple of years I've asked the same question about a2 Milk. You've been very keen on it in the past. I see it's not part of your star investments at the moment. Would you like to tell us what your position is with a2 Milk now?
Yeah, we're still there. It's still a position in the fund. It's not early stage. Obviously not in the top 10, but still a meaningful position in the portfolio, and the story is very much the same, to be honest. I think it's a great brand. They've proven how strong the brand is. To go from zero to very strong market share in the Chinese market as a foreign company is very impressive. Also, you look at what they've done in the Australian market in terms of the premium you pay for a bottle of a2 milk relative to your home brand milk, it's a very large premium, and they've got a healthy share of the Australian market despite that. The same thing, they're starting to get some real traction in the U.S.
They've just launched infant formula into Vietnam and getting traction, which you look at those things over a long period of time, the brand is a very strong brand. I think that's been our traction the whole time. The new CEO came in, David Palmer, was picked for the turnaround about five years ago, done a fantastic job. We had a decent position at that time. The stock got up to AUD 8, AUD 9, and from a valuation perspective there, it was out of our view of fair value, so we trimmed the position right back. It had a bit of a wobble about six months ago. Two things that happened. One, there was some contamination issues in the industry, which changed the regulation and caused a bit of supply chain volatility.
They also had some supply challenges themselves where they had really high demand, and then there were some issues with their third-party supplier, which meant there was a period where they were out of the market. So we actually used that opportunity to increase the position again. We still think the outlook for the company over the medium term is attractive, so still there.
Well, thanks very much, and I certainly wish you a better year next year.
Thank you.
Because it will probably be a better year for us as well.
Thank you. Do we have any other questions?
One general question about the seeing we are so.
Have a microphone.
We're very focused on paying dividends and high yield to shareholders. A lot of the names that are in your portfolio, for example, Goodman Group, pays a dividend of 1% a year yield, and we're paying 6.5%, 7% to shareholders. There's always going to be a gap. News Corp's another one. If you go through, should the portfolio be more orientated to investing in companies that generate yield, provide franking credits in their own right, rather than some of these low yielding? Aspen, I think, is pretty low yielding as well.
Thank you for the question. I think to answer that from our perspective, it's really a balance, and it's an outcome of the opportunity set in front of us. I think there's obviously two components that go into return. There's the dividends you receive, and then there's also the capital performance of the investment. If I take Goodman, for example, low dividend payer, they reinvest a lot of their cash flow back in to try and grow the business. So our expectation would be that that will translate into a higher share price over time, which then will leave profits there that can be realized at the right profit. If you've got a broad or diversified portfolio, there's always going to be things that are closer to that point.
If the portfolio is working, you're going to have positions that are realizing capital profits that help pay out the dividend, as you mentioned. From an income perspective, if there's a company that's paying an attractive yield and we think it's the right price, we're very happy to own that in the performance. But we won't put something in there just for the dividend yield if we don't think it's sustainable, if we don't think there's capital growth there as well. If you look at over the past couple of years, the traditional dividend payers in the Australian market being the banks, Wesfarmers, Telstra, they've all been trading at really expensive multiples, which means their dividend yields are in that 2%, 3%, maybe 4% yield perspective.
Which for us, if you are accepting that yield for a company that has got limited growth that they do, our view is that you are taking quite a bit of capital risk there, that the share price will come down and the yield will go up over time. So the yield would be offset therefore by capital losses in that scenario. For us, there is no pre-plan, I guess, mix in the portfolio. It is really an outcome of that opportunity set. But to your point, I think having a balance of companies that pay healthy dividends and companies that have got a bit of capital growth there is important, I think. Some of the other names in the portfolio are paying healthy dividends. So, yeah, it is a mix, and it will fluctuate over time depending on the opportunity set.
Thank you. Do I have any other questions in the room? Oh, come on now. All right. Sorry. Sylvie, do you have any questions online?
No, there are no online questions, Chairman.
Okay. Moderator? I think there is a moderator somewhere. Did you receive any questions?
Chair, there are no questions on the phone.
There was somebody there. Thank you very much. I would like to thank Sean for his presentation, and now I am going to continue with the AGM. This is the formal business of the AGM. The online meeting guide was lodged with the ASX and published on the PIC's website. It outlines the steps to enable remote shareholders to participate in this meeting. In terms of business, we have the following items to consider: The financial and statutory reports for the financial year ending June 30, 2026. Note that these reports are not for voting but for tabling and discussion. The re-election of myself as a non-executive director. An advisory vote on the remuneration report for FY 2026. The proposed amendments to Clause 15.6 of PIC's constitution.
Further information about each of these items for consideration today was set out in the notice of meeting, and I will take that notice of meeting as read. As described in the notice of meeting, proxy appointments were able to be lodged up to 48 hours before the meeting, where I, as Chairman of the meeting, have been appointed as a shareholder's proxy. Will become their proxy by default then. I will vote director proxies as directed in the proxy appointment, and I will vote any available undirected proxies in favor of each resolution. If you are a proxy holder, then you would have received an email setting out instructions for you on how to vote these proxies using the voting mechanism on the online platform. If you have not yet registered to vote, please do so now.
The poll is now open and will remain open until five minutes after the end of today's meeting. You can cast your vote at any time during the meeting now that the poll is open. How to vote. I will now outline the procedures for voting for the shareholders in the room. We will be voting by a poll and not a show of hands. Reggie Harburn of MUFG Corporate Markets, he is over here, is the Returning Officer for the purpose of the poll. For those attending in person, you will have received a voting card when you registered today, which should look like this. The card will be used to cast your vote. To vote online, follow the steps in MUFG's portal, noting that you cannot cast a vote over the phone.
If you experience any difficulties in the online platform or you are unsure how to vote or ask questions, there is a helpline available. I think the number is on the board there, 1-800-990-363 within Australia. It is also on the last page of the online meeting guide. Subject to any applicable voting restrictions, the board recommends that shareholders vote in favor of each item. Any voting restrictions for the resolutions are included in the notice of meeting. The results of the voting will be known shortly after the AGM and advised on the ASX and posted on our website. Now the process. Each resolution will be introduced, and there will be an opportunity to ask a question in the room or post online written comments or questions. The Company Secretary, Sylvie Dimarco , will read comments and questions to the meeting.
The questions will be read out verbatim, and each question will be dealt with under the relevant item of business. I will then respond or designate someone to answer the questions. Following comments and questions, I will confirm the proxy votes received before the meeting. These will appear on the screen in the room and your computer screen beside the video feed. All resolutions before the meeting today, except for Resolution 3, are ordinary resolutions and will be passed by simple majority. Resolution 3 is related to the proposed amendments to PIC's constitution. It is a special resolution, and to pass that, we need 75% of the votes cast. Now, onto the financial statutory reports. The first item of business is to receive and consider the financial reports, the report of the Directors, and of the auditor for the financial year ending June 30, 2026.
The accounts were circulated as part of the annual report, published on PIC's website on the day we announced our full-year results on August 20, 2026. I now formally table the financial report, the Director's report, and the auditor's report for the financial year ending June 30, 2026. There is no voting on this item, but shareholders will now have an opportunity to ask questions and make comments about the financial and statutory reports or about the management of the company in person or by phone, or by using the online platform. As I have previously mentioned, Karen Hopkins from KPMG is available to answer shareholder questions on the conduct of the audit, the audit report, and the independence of the auditor. All questions to the auditor should, in the first instance, be addressed to me as Chairman, and if appropriate, I will ask Karen to address the question.
Please note that we will focus specifically on the remuneration report later in the meeting, and we will be taking questions on that and the other specific items of business when we come to them. I note that no written questions have been received for the auditor in advance of the AGM. I will now invite shareholders in the room who would like to ask a question on this item of business to raise their hands. I do not see any questions in the room. Do we have any questions online, Sylvie?
No, there's no questions online, Chair.
Moderator, do we have any participants on the phone wishing to ask questions?
Chair, there are no phone questions.
Thank you. It appears there are no further questions on this item of business. I will now hand over the conduct of the meeting to the Chair of PIC's Nomination and Corporate Governance Committee, Tim Bednall, in relation to Resolution 1.
Thank you very much, Nancy, and good afternoon, everyone. The first resolution is to consider the re-election of Nancy Fox as a Non-executive Director. Nancy was first appointed to the board on the 1st of July 2017 and being eligible now stands for re-election. Details of Nancy's extensive career are set out in the explanatory notes accompanying the notice of meeting. The board, with Nancy abstaining, strongly supports Nancy's re-election. Note that if re-elected, as Nancy has mentioned, she intends to stand down from the board after the conclusion of the 2027 AGM. I will ask Nancy to provide a few comments in support of her re-election. Nancy.
Thanks, Tim. I am pleased to offer myself for re-election. I have greatly valued the opportunity to serve the company and its shareholders over the past nine years. I believe that continuity of leadership, sound governance, and a clear strategic direction are particularly important in navigating an increasingly complex business environment. I remain committed to working constructively with my fellow directors and management to ensure that the company is well-positioned to meet both the opportunities and challenges ahead. My principal motivation in seeking reelection is to continue serving the interest of shareholders. I believe the board's fundamental responsibility to act as a careful steward of shareholders' capital while providing sustainable, fully franked dividends. I place great importance on transparency, accountability, and maintaining the trust that shareholders have placed in the board.
It would be a great privilege to continue representing your interests and contributing my experience, judgment, and energy to the company's ongoing success.
Thank you, Nancy. There were no written questions regarding this resolution received in advance of the AGM. I will now invite shareholders in the room who would like to ask a question on this item to raise your hand. No?
Okay.
I'll now respond to online questions. Sylvie, do we have any online questions?
No, Tim, there are no online questions.
Moderator, do we have any participants on the phone wishing to ask a question?
Chair, there are no phone questions.
Thank you very much. It appears that there are no further questions on this item of business. The proxies received prior to the meeting on Resolution 1 are now displayed on the screen and on the online platform. Please cast your vote now if you haven't already done so by selecting either for, against, or abstain for Resolution 1 on your voting card or through the online platform. I'll now return the conduct of the meeting to Nancy in relation to the remainder of the resolutions. Thank you.
Thank you, Tim, and thank you very much. The second resolution is the advisory vote to adopt the remuneration report. The remuneration report forms part of the Directors' Report and is included in the company's annual report for FY 2026. As you will note, the remuneration report contains the remuneration paid to PIC's Directors who are the key management personnel. The company has no paid employees, and accordingly, the 2026 remuneration report is simple and brief. There were no written questions received before the AGM. I'll now invite shareholders in the room who would like to ask a question on this item of business to raise their hand. No? Okay. I don't see any. Sylvie, any online questions?
Chairman, there are no online questions.
Moderator, do we have any participants on the phone wishing to ask questions?
Chairman, there are no phone questions.
Thank you. It appears there are no further questions on this item of business. The proxies received prior to the meeting on Resolution 2 are now displayed on the screen and on the online platform. Please cast your vote now if you haven't already done so by selecting either for, against, or abstain for Resolution 2 on your voting card or through the online platform. The final item of business is the proposed amendments to Clause 15.6 of the company's constitution. This is a special resolution and requires at least 75% of the votes cast by shareholders to be in favor. The rationale for the proposed amendments is set out in the explanatory notes accompanying the notice of meeting. The board unanimously supports this resolution. We have not received any written questions on this item of business before the meeting. Are there any questions in the room? No.
Are there any questions online, Sylvie?
Chairman, there are no questions online.
Moderator, do we have participants on the phone wishing to ask questions?
Chair, there are no phone questions.
Thank you. The proxies received prior to the meeting on Resolution 3 are now displayed on the screen and on the online platform. Please cast your vote now if you haven't already done so by selecting either for, against, or abstain on Resolution 3 on your voting card or through the online platform. I will now invite shareholders in the room who would like to raise any further questions or comments to raise their hands. Thank you for your questions and comments. I'll now respond to any online questions.
There are no online questions, Chairman.
Moderator, are there any further questions or comments from shareholders on the phone?
Chair, no phone questions.
Okay. I now ask you to ensure that you complete your voting for each resolution. MUFG staff will come around and collect your voting cards to be placed in the ballot boxes. Or is it on the way out? One or the other. Okay. For the shareholders online, if you are uncertain about any of the voting procedures, please use the helpline number available through the platform. Voting on all resolutions will close five minutes after I close this meeting. The results of the poll will be announced by the ASX and will be available in the AGM section of PIC's website. There being no other business, I declare this meeting closed, and I thank you for your ongoing support and your attendance today. I invite those present in person today to join the Directors and members from management for some refreshments, which will be served in the Tokyo Boardroom.
You do not have to go to Tokyo. Tokyo Boardroom which is just nearby. It is just down the hall. So thank you very much.