asx announcement - 6 december 2013 for personal use only · 2020. 5. 28. · apex healthcare berhad...
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ASX Announcement - 6 December 2013 Annual General Meeting - 6 December 2013 Attached is the Chairman’s Address to be presented at the 2013 Annual General Meeting of the Company later today.
I.D. Bloodworth Company Secretary
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Good afternoon Ladies and Gentlemen, my name is Robert Millner, I am the Chairman
of Washington H. Soul Pattinson and I would like to welcome you to the 111th Annual
General Meeting of the Company.
I hope you found the video and the displays by Group companies interesting and
informative.
I would like to clarify the statement in the video regarding BKI Investment Company and
brokerage charges.
Brokerage is payable by investors on the purchase and sale of BKI shares.
Brokerage is not payable by existing BKI shareholders under its dividend reinvestment
plan, share purchase plans or entitlement offers.
I am advised that a quorum is present and therefore declare the Meeting open.
Before we proceed I would like to introduce to you the other members of the board:-
Mr. Peter Robinson, is our executive director
Mr. David Fairfull,
Mr. Michael Hawker,
Mr. Tom Millner,
Mr. Robert Westphal, and
Mr. David Wills are all non executive directors.
Ms. Melinda Roderick is our Chief Financial Officer, and
Mr. Ian Bloodworth is the Company Secretary
Mr. Joe Shannon of Moore Stephens Sydney, the Company’s Auditors, is also present.
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I propose that the Notice of Meeting dated 25th October 2013, which was mailed to all
registered shareholders of the Company be taken as read.
I will now present my address, after which shareholders will have the opportunity to ask
questions.
We will then conduct the formal business of the meeting.
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Washington H. Soul Pattinson and Company Limited was listed on the ASX in 1903
making it the second oldest listed company on the ASX.
Since listing WHSP has never missed paying a dividend and has never raised capital.
Today WHSP has a market capitalisation of approximately $3.5 billion and 10,500
shareholders.
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WHSP is a diversified investment company with a range of investments – both listed
and unlisted.
On this slide are a number of the major investments of the group.
In the left hand column are the companies where we have a controlling shareholding
and are therefore consolidated in our accounts. New Hope is the only listed company
which is controlled.
The middle column are companies deemed to be associates because of large
shareholdings which are not controlling stakes.
The column on the right shows some of the Group’s other significant investments.
Many of the listed companies you see on this slide were once private companies backed
by WHSP and have since been floated or merged with other companies on the ASX.
WHSP has a strong track record of nurturing companies through all phases of growth.
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Group Performance
Consolidated Results
Year Ended 31 July 2013
The regular profit after tax attributable to shareholders for the year ended 31 July 2013
was $160.7 million, marginally lower than the $161.6 million for 2012.
The result was driven by;
Higher contributions from Brickworks and TPG Telecom;
An improved result for CopperChem;
A lower contribution from New Hope; and
Last year’s result included a $13 million special dividend from Exco.
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Group Performance
Consolidated Results
Year Ended 31 July 2013
The total profit of the Group was $105.4 million, a decrease of $37.6 million compared
with 2012.
The net loss on non-regular items was $55.2 million for the year, an increase of $36.6
million.
Impairments by New Hope of its investments accounted for $30.7 million of the non-
regular loss.
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Group Performance
Profit After Tax attributable to Members
This chart shows the groups performance over the last 10 years.
It has been split into Regular Profit (which is before non-regular items) and Total Profit
(which includes non-regular items).
The light blue bars represent Regular Profits and it is these results that the Directors
consider when declaring ordinary dividends.
The variability of the Group’s profits including non-regular items is evident.
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Dividends
The Final Dividend declared for 2013 was 28 cents per share, which is up 3.7% on last
years final dividend.
The dividend will be fully franked and is payable on 9 December 2013.
This brings Total Dividends for the year to 46 cents per share an increase of 4.5%.
The Company receives dividends from its investments and interest from funds on
deposit.
This year total dividends paid represent 76.6% of the ordinary dividends and interest
received.
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WHSP (Parent Company)
Listed Equity Investments (excluding controlled entities & associates)
Excluding controlled entities and associates, the market value of the Company’s listed
equities was $521.2 million at 31 July 2013.
After adjusting for Exco Resources, which is now a controlled entity, this represents an
increase of 20% for the year.
$6.4 million was invested during the year, proceeds from disposals totalled $9.3 million
and capital returns of $4.3 million were received.
Ordinary dividend and distribution income was $20.8 million an increase of 2.3% over
2012.
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WHSP (Parent Company)
Listed Equity Investments (including controlled entities & associates)
Including controlled entities and associates, the market value of the Company’s listed
equities portfolio was $4.2 billion as at 31 July 2013.
After adjusting for the investment in Exco, which was delisted during the period, this
represents an increase of 13.1% since July 2012.
I will discuss the takeover of Exco shortly.
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Controlled Entities
New Hope Corporation Limited – 59.7%
Year Ended 31 July 2013
New Hope’s net profit after tax before non-recurring items was $125 million, down 27%
on last year.
Due to the weak market conditions prevailing at year end, New Hope impaired its
investments in Dart Energy, Westside Corporation and the Quantex Group. The total
impairment was $51.4 million after tax.
The net profit after tax including non-recurring items was $74.1 million, 55.6% lower
than last year.
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Controlled Entities
New Hope Corporation Limited – 59.7%
Year Ended 31 July 2013
The result from operations was impacted by:
Lower export coal prices;
A higher USD exchange rate for the majority of the year;
Slightly lower production due to lost sales from a 3 week rail outage in early 2013; and
Tapering production from Oakleigh and Jeebropilly due to market conditions.
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Controlled Entities
New Hope Corporation Limited – 59.7%
Year Ended 31 July 2013
New Hope has declared a final dividend of 5 cents per share and a special dividend of
5 cents per share.
Both of these dividends are fully franked.
Including this years special dividend New Hope has returned a total of $1.3 billion to
shareholders in the form of fully franked special dividends since listing in 2003.
NHC contributed $44.2 million to Group Profit.
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Controlled Entities
CopperChem Limited / Exco Resources Limited – 100%
Year Ended 31 July 2013
CopperChem is a producer of copper sulphide and copper concentrate. Its operations are
based in Cloncurry, North West Queensland.
In May this year the remaining shares in CopperChem were acquired making it a wholly
owned Group Company.
2013 was a turn-around year for CopperChem.
It implemented a new operating strategy and built new management and operating
teams.
As part of this strategy, CopperChem transitioned its workforce from Fly-In-Fly-Out to
residential.
These initiatives have reduced total costs by 12.5% despite a doubling of the production
rate.
This equates to a 59.7% reduction in processing costs per tonne.
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Controlled Entities
CopperChem Limited / Exco Resources Limited – 100%
Operationally, CopperChem initiated mining from two additional open cut mines whilst
the copper concentrator throughput was increased from its 60 tonnes per hour design
capacity to 100 tonnes per hour without significant capital expenditure.
Production of copper sulphide from the heap leach operation was affected by a severe
shortage of water due to drought conditions.
Despite this and a challenging ore structure CopperChem reduced its second half loss to
$4.9 million compared to a loss of $17.1 million for the first half.
CopperChem contributed a net loss of $20.9 million to the Group.
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Controlled Entities
CopperChem Limited / Exco Resources Limited – 100%
Exco
In November 2012 Exco became a subsidiary of WHSP and is now 100% owned.
WHSP invested $83.2 million in Exco during the year bringing the total amount invested
to $101.9 million.
Exco was debt free and held cash reserves in excess of $45 million when the takeover
was completed.
In addition, WHSP received a $13.0 million special dividend from Exco during the 2012
financial year.
Exco contributed $0.9 million to Group Profit for the year.
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Controlled Entities
Pitt Capital Partners Limited – 100%
Year Ended 31 July 2013
PCP is a corporate advisory firm specialising in mergers, strategic advice, equity capital
markets, private equity, restructuring and debt advisory work.
During the year PCP increased its holding in Pitt Street Real Estate Partners to 75%
making it a subsidiary.
Pitt Street Real Estate specialises in identifying and managing investments in the real
estate sector which provide above average risk adjusted returns.
Pitt Street Real Estate is the manager of the Australian Logistics Property Fund which is
100% owned by WHSP.
For the year ended 31 July 2013 PCP contributed $1.5 million to Group Profit.
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Controlled Entities
Australian Logistics Property Fund – 100%
Year Ended 31 July 2013
The ALPF was established in February 2013 to develop and lease distribution centres to
major tenants across Australia.
Construction has commenced on two distribution centres for the Super Retail Group.
One at Erskine Park in NSW and the other at Brendale in Queensland.
As at 31 July 2013 the Erskine Park project was 45% complete and
earth works were underway at Brendale.
WHSP had invested $47 million in the ALPF at 31 July 2013.
I will provide an update on these projects later in the presentation.
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Associated Entities
Ampcontrol – 43.3%
Year Ended 30 June 2013
Ampcontrol is a leading international supplier of electrical and electronic products
providing products and services to the mining sector, in particular for underground coal
mining.
(Amcontrol has operations across Australia and overseas including; Hong Kong, China,
New Zealand, South Africa, Botswana, Russia, the USA and the UK.)
Revenues for the year ended 30 June 2013 were $293.3 million whilst EBITDA was
$33.1 million.
Ampcontrol contributed a Net Profit of $6.9 million to the Group.
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Associated Entities
Apex Healthcare Berhad – 30.3%
Half Year Ended 30 June 2013
Apex Healthcare Berhad is a manufacturer, distributor and retailer of pharmaceutical and
healthcare products.
(It has operations in Malaysia, Singapore, Indonesia and Vietnam).
The following results for the 6 months ended 30 June 2013 have been restated in
Australian dollars.
Apex generated revenue of $68.3 million, an increase of 7.8% over the previous
corresponding period.
Net profit after tax was $5.1 million, an increase of 14.1%.
For the 12 months to 30 June 2013, Apex contributed $2.9 million to Group Profit.
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Associated Entities
BKI Investment Company Limited - 13.0%
Year Ended 30 June 2013
For the year ended 30 June 2013 BKI’s Net Operating Result (before special dividend
income) increased by 8% to $29.9 million.
BKI’s Share Price Performance (including the reinvestment of dividends) for the year
ended 30 June 2013 was 29.4%, outperforming the S&P/ASX 300 Accumulation Index
over the same period by 7.5%.
Total dividends for the year were up 11.7% to 7.15 cents per share, including a special
dividend of 0.5 cents per share which was paid in the first half.
BKI contributed a net profit of $4.4 million to the Group.
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Associated Entities
Brickworks Limited – 44.4%
Year Ended 31 July 2013
Brickworks Normalised Profit After Tax for the year ended 31 July 2013 was $100
million, an increase of 26.9% over last year. Total Profit After Tax was $85.2 million, an
increase of 96.7%. (these results include the equity accounted contribution from WHSP).
Brickworks’ has declared a Final Dividend of 27 cents per share fully franked,
unchanged from last year.
Brickworks contributed $17.9 million to regular profit and non regular expenses of $4.3
million to the Group.
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Associated Entities
Clover Corporation Limited – 28.6%
Year Ended 31 July 2013
Clover reported sales revenue of $44.1 million for the year ended 31 July 2013, an
increase of 14.9% over 2012.
Net profit after tax was $6.1 million an increase of 38.6%.
Clover has paid a fully franked final dividend of 1.5 cents per share bringing total
dividends for the year to 2 cents fully franked.
Clover contributed a net profit of $1.7 million to the Group.
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Associated Entities
TPG Telecom Limited – 26.9%
Year Ended 31 July 2013
TPG reported an EBITDA of $293.1 million for the year ended 31 July 2013, an increase of
12% over last year.
Net profit after tax for the year was $149.2 million, up 64%.
The 2012 result included a one-off tax expense of $23.2 million .
After excluding this from the results, 2013 represents a 31% increase in net profit.
Earnings per share increased to 18.8 cents per share.
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Associated Entities
TPG Telecom Limited – 26.9%
These graphs show TPG’s recent growth in
EBITDA,
normalised NPAT,
normalised EPS and
Dividends.
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Associated Entities
TPG Telecom Limited – 26.9%
The quality of TPG’s earnings result was again reflected in its cash flow performance.
$317.8 million cash was generated from operations before tax.
After tax, interest and capital expenditure, TPG had free cash flow of $174.5 million.
This free cash flow enabled TPG to repay $107 million of debt during the year, fund
investment and pay an increased dividend.
At year end net debt had been reduced to $16 million.
TPG declared a fully franked final dividend of 4 cents per share bringing total dividends for
the year to 7.5 cents, an increase of 36% over last year.
TPG contributed $40.2 million to Group profit.
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Associated Entities
Australian Pharmaceutical Industries – 24.6%
Ruralco Holdings Limited – 23.5%
API contributed $6.1 million to Group Profit and
Ruralco contributed $800,000 to Group Profit.
Both of these companies have released year end results since July which I will discuss
shortly.
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Updates
I will now provide an update of the 2014 financial year.
Please note that other than API and Ruralco the following results are unaudited.
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Parent Company Share Portfolio
As at the end of last month, the market value of WHSP’s listed investment portfolio was
$4.35 billion including controlled & associated entities up from $4.2 billion at the end of
July.
The market value, excluding controlled & associated entities, was $555 million up from
$521 million at July.
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Parent Company Share Portfolio (continued)
The Company’s ten largest listed investments based on market value as at 30
November 2013, excluding controlled and associated entities were:- (see slide).
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New Hope Corporation Limited
Outlook
New Hope’s coal assets remain well positioned to weather the current soft market
conditions.
Production and sales for 2014 are likely to be slightly lower due to the cessation of
mining at Oakleigh and the scaling back of operations at Jeebropilly.
Port operations are expected to achieve marginally increased exports in 2014.
Coal prices are forecast to remain weak in US Dollar terms over the coming twelve
months, however, the recent devaluation of the Australian Dollar has lifted the average
price in Australian Dollar terms.
New Hope’s strong balance sheet provides flexibility to take advantage of acquisition
opportunities.
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Controlled Entities
CopperChem Limited / Exco Resources Limited
Update
CopperChem has commenced mining at Exco’s Mount Colin mine three months ahead
of schedule.
Mount Colin is an open-cut mine located 60 kilometres east of Cloncurry.
Ore will be transported to CopperChem’s plant at Cloncurry for processing.
Mount Colin has a resource of 2.15 million tonnes at 2.38% copper and 0.4 parts per
million of gold.
The copper grade is looking very promising at lower levels.
The White Dam gold project in South Australia is being re-mined with production now at
20 ounces per day.
On a consolidated basis CopperChem/Exco expect to be EBITDA positive in the second
half of the 2014 financial year, leading to an overall positive EBITDA result for the full
year.
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Australian Logistics Property Fund
Update
The Erskine Park Project in Western Sydney is scheduled to reach Practical Completion
on Wednesday next week and the long term lease to Super Retail Group Limited will
commence at that time.
The Brendale project in Queensland will also to be leased to Super Retail Group.
Ground works are continuing and construction commenced on 13 November.
The Practical Completion target for the project is mid next year.
The market conditions for these long term, pre leased, developments are positive, with
the margin between cost of funding and the yields available remaining at historic highs.
These assets will provide simple and consistent cash flows to the Group.
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Australian Logistics Property Fund
Super Retail Group Limited facility at Erskine Park NSW 30 November 2013.
To give you a sense of the scale of these structures, this particular building is equivalent
to approximately 8 football fields.
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Australian Pharmaceutical Industries Limited
Year Ended 31 August 2013
API released its results for the year ended 31 August 2013 on October 24.
Revenue for the year was $3.19 billion, down marginally on 2012, due to ongoing PBS
reforms.
API reported a net profit after tax of $24.3 million for the year, an increase of 9.6% after
allowing for insurance proceeds received in 2012.
API has declared a final dividend of 1.75 cents per share fully franked, bringing the total
dividend for the year to 3.25 cents fully franked, up 8.3% on last year.
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BKI Investment Company Limited
Update
BKI’s Net Operating Result (excluding Special Dividend Income) for the quarter ended
September 2013 was up 10% on the first quarter last year.
During September and October, BKI successfully raised $107 million, at $1.48 per share,
through a Placement and a 1 for 15 Entitlement Offer.
The BKI Portfolio Valuation including cash and receivables was $864 million as at 31
October.
Barring any unforeseen circumstances, BKI is confident of at least maintaining the Interim
and Final Ordinary Dividends during the 2014 financial year.
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Brickworks Limited
Update – Building Products
The profitability of Brickworks’ Building Products division has improved in the first
quarter of 2014 compared to the previous corresponding period, driven primarily by
increased contributions from Austral Bricks and Austral Masonry.
In both operations sales volumes and margins have increased over the prior
corresponding period.
Improved plant efficiency resulted in production costs being well contained, due to the
increased volumes and a range of operational improvements.
Bristile Roofing earnings have remained steady.
Austral Precast earnings were also steady.
Direct earnings comparison with the prior period is difficult for Auswest Timbers, as last
year was impacted by a fire that disrupted operations in Western Australia.
Future prospects remain encouraging, with orders in most regions and divisions being
comfortably ahead of sales.
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Brickworks Limited
Outlook - Land and Development
The Brickworks Property Trust is currently seeing significant growth. Two developments
have already been completed during the first quarter.
One of these properties, an expansion project for Toll Holdings was sold during the first
quarter to our Joint Venture partner, the Goodman Australia Industrial Fund for cash
proceeds of $11.6 million, in line with the book value.
A further two developments are expected to be completed in the final quarter of the
current financial year.
The opening of the Erskine Park Link Road and the NSW Government’s commitment to
fund the upgrade of Old Wallgrove Road will also assist in continuing to open up the
Eastern Creek employment area and drive further growth in the medium and longer
term.
Additional potential transactions in 2014 financial year include:
• The sale of Rochedale into the Property Trust,
• The 12.2 hectare Riverview site currently on the market for lease or sale, and
• The Port Kembla site in New South Wales currently on the market for lease or sale.
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Ruralco Holdings Limited
Year Ended 30 September 2013
Ruralco recently announced its results for the year ended 30 September 2013.
Compared to the prior year:
• Sales were $1.16 billion, up 2% and
• Net Profit after tax was $5.7 million, down 59%.
Ruralco has advised that the results were impacted by:
• Dry and hot conditions,
• Lower livestock commodity prices and
• Reduced 1st half crop protection and animal health sales.
The final dividend was maintained at 10 cents per share fully franked. For
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TPG Telecom Limited
Outlook
TPG has provided EBITDA guidance for the 2014 financial year of between $290 million
and $300 million.
At its Annual General Meeting, earlier this week, TPG advised that:
• it is now in a net cash position, having repaid debt of $350 million since 2010, and
• that its FY2014 results were tracking well to budget.
IRU: Indefeasible right of use, of cable network. For
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I will now review the structure of the group and the cross shareholding and update
shareholders on the recent proposal received from M.H. Carnegie & Co and Perpetual
Investment Management.
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Currently WHSP owns 44.3% of Brickworks and Brickworks owns 42.7% of WHSP.
This cross-shareholding structure has been in place for over 40 years and in that time
has served both companies extremely well – providing strength through all points of the
cycle.
As you may be aware, M.H. Carnegie & Co and Perpetual Investment Management
have requestioned meetings of both WHSP and Brickworks to vote on a transaction
primarily designed to break up the cross-shareholding.
The investment was made in 1969 – Brickworks was seeking stability from a diversified
investment to protect it from the volatility of building cycles and WHSP was seeking an
investment to add to its portfolio.
While this is a longstanding relationship, it does not necessarily mean that it is outdated.
The structure has delivered, and continues to deliver, solid returns to shareholders.
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Recent analyst commentary supports the proposition that the cross shareholding has
delivered strong performance and a breakup of the structure could be detrimental to
value.
In April this year, Citi said: “We don’t see material upside to warrant a break up of
BKW’s marriage to SOL. Most conventional unwind options, from the perspective of
BKW, suffer from CGT leakage while other options are impractical or simply don’t offer
sufficient upside to merit a breakup.”
Adding that “SOL’s track record speaks for itself”.
And in September this year, RBS Morgans wrote: “We remain unconvinced that a
change to SOL’s structure will unlock value. Its track record suggests that its diverse
investments are core to its sustainability of earnings and investor returns. Indeed a
restructuring may lead to increased earnings volatility, risk and a subsequent decrease
in long term value.”
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As you can see from the graph on this slide, since the formation of the cross
shareholding over 40 years ago, WHSP has performed extremely well delivering total
shareholder return of 14.1% per annum.
$1,000 invested in 1969 would today be worth over $355,000 if a shareholder had
reinvested all dividends and reflecting the large number of bonus shares issued over the
years.
This growth does not reflect the significant amount of franking credits paid over the years
since the dividend imputation system was introduced in 1987.
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This graph shows WHSP’s performance against the All Ordinaries Accumulation Index
over the past 15 years to 22 October 2013 (the day prior to receipt of the proposal from
Carnegie and Perpetual).
Total shareholder return assumes that dividends received are reinvested into the stock
at the time of receipt.
Over this period, WHSP has generated total shareholder return of 14.7% per annum.
This compares with growth of 8.6% per annum of the All Ordinaries Accumulation Index
over the same period.
WHSP’s long term investment strategy has created outperformance of 6.1% per annum.
Over 15 years, the index has only increased by a multiple of 2.7 times compared to an
investment in WHSP increasing over 7.3 times.
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This slide shows how dividends have grown significantly over the last 25 Years. The
dividends paid prior to June 2002 have been adjusted for the 10:1 Share Split.
It is clear from this chart that WHSP has an exceptional history of paying dividends to
shareholders and furthermore the Company has not missed paying a dividend since
listing in 1903.
The Company receives dividends from its investments and interest from funds on
deposit. This year total dividends paid totalled $110 million representing 76.6% of
ordinary dividends and interest received during the financial year.
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This graph demonstrates the benefits of WHSP’s diverse portfolio which protects it
against short term volatility of individual investments.
Over 15 years WHSP’s market capitalisation has grown from $575m to $3.5 billion which
is represented by the blue area and referenced to the right hand axis.
The performance of a number of investments has contributed to this growth. A selection
of these companies has been indexed to 100 in 1998 and their growth measured on the
left hand axis. For example New Hope (represented by the black line) had outstanding
performance between 2007 and 2011 and TPG (shown by the red line) had very strong
performance through 2012 and 2013.
This graph represents share prices and market capitalisation only and therefore does
not capture the significant dividends, special dividends and franking credits paid over the
years.
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On 23 October this year, Carnegie and Perpetual requestioned a general meeting of
WHSP to consider a number of resolutions. The requisition was given to the board
without notice and without any discussion in relation to the proposal. This proposal has
not been developed between the boards of WHSP and Brickworks, rather it has been
exclusively formulated by Carnegie and Perpetual.
The purpose of the meeting is to consider two transactions. Broadly these transactions
are:
1. The demerger of TPG which involves WHSP making an in-specie distribution of all
of its TPG shares to shareholders. The proposal will require WHSP to obtain
demerger relief from the ATO to avoid significant tax consequences to WHSP or its
shareholders as a result of the distribution.
2. A selective cancellation of all of the shares which Brickworks owns in WHSP.
WHSP will be required to effectively buy its own shares from Brickworks and cancel
those shares. Based on a complex formula created by Carnegie and Perpetual, the
indicative consideration payable by WHSP would be $250 million in cash and a
promissory note for $1.6 billion. That promissory note will be repayable by WHSP in
12 months and attract interest. The interest rate formulated by Carnegie and
Perpetual would potentially amount to $170 million for the year. The consideration
would be paid to Brickworks as a dividend and be franked to the full extent of
WHSP’s franking balance. This would transfer to Brickworks all of WHSP’s franking
credits.
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WHSP is yet to receive its Independent Expert Report and as such has not yet fully considered the proposals nor
made any formal recommendation to WHSP shareholders. There are some features of the proposal as set out in the
materials provided by Perpetual and Carnegie which will require careful consideration.
If the proposal is implemented, WHSP will lose its strategic investment in TPG. TPG is one of WHSP’s recent
success stories and continues to be a very strong growth investment in the portfolio. TPG was acquired through a
merger with SP Telemedia in 2008 when the combined market capitalisation of the businesses was $277 million.
Today the market capitalisation of TPG is $3.4 billion.
WHSP’s portfolio would shrink by the value of WHSP’s shareholding in TPG which is currently worth approximately
$910 million and WHSP would lose the future earnings from TPG which contributed $40.2 million to the Group’s profit
in FY13.
Utilising the numbers from Carnegie and Perpetual’s expert report, WHSP will owe Brickworks more than $1.6 billion
which will be required to be repaid in 12 months as consideration for the share cancellation. This is a very large debt
against the reduced size of the portfolio following the TPG distribution. WHSP has always taken a prudent approach
to investing and has not traditionally had debt at the parent level. The cost of the debt, utilising the interest rates
indicated by Carnegie and Perpetual, could be as much as $170 million per annum.
The proposal requires WHSP to transfer all of its franking credits to Brickworks. This has not been valued by the
expert commissioned by Carnegie and Perpetual but is an asset of value to WHSP shareholders and is being given to
one shareholder at the expense of all other shareholders.
Finally, the proposal requires the payment of all of WHSP’s available cash to Brickworks such that WHSP will not
have cash to make further investments, pay dividends or to support its existing investments. This could impact the
value and growth options for a range of WHSP’s investments which may need cash to grow.
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The proposal is highly complex and there are a number of uncertainties for WHSP and its shareholders.
The proposals have assumed that a number of favourable tax rulings will be provided by the Australian Tax Office in relation to
demerger relief for the TPG distribution and the franking of the consideration payable to Brickworks as part of the proposal. There
is no certainty that these rulings will be provided in the manner expected by Carnegie and Perpetual and the effect the transaction
will have on shareholders of both WHSP and Brickworks is unknown at this stage. There is a risk that implementation of the
proposal could result in unfavourable tax consequences.
Carnegie and Perpetual have also requisitioned a general meeting of Brickworks which will be held on 28 February 2014 to
consider the proposals. Brickworks is seeking guidance from the ASX as to whether WHSP can vote at that meeting. The
determination made by the ASX will likely have a bearing on the voting eligibility at the WHSP meeting. To date, the ASX has not
provided its decision in relation to this matter.
If the proposal was implemented in its current form, Perpetual and Carnegie’s joint holding in WHSP would increase to
approximately 22%. They will have moved to this position of influence without disclosing their intentions in relation to the future of
WHSP.
Another risk inherent in the formula created by Perpetual and Carnegie is that WHSP shareholders are taking significant market
risk. The complex formula to calculate the consideration paid to Brickworks has a floor price of $15.75 which means that WHSP is
still required to pay $15.75 even if the formula calculates a lower amount.
While WHSP has the large $1.6 billion debt, it would need to pay over $170 million of interest and be in a position to repay the debt.
It would therefore be unlikely that WHSP would pay a dividend while it has this debt obligation. The lack of franking credits could
also curtail future dividends.
The requirement for WHSP to take on $1.6 billion of debt as part of this proposal creates uncertainty as it is not clear how this debt
would be repaid. Some of the suggestions made by Carnegie/Perpetual involve Brickworks agreeing to do something to assist
WHSP with the repayment of the debt. Given the debt is owed to Brickworks, Brickworks will have significant bargaining power
which creates risk to WHSP. It was also suggested that the debt could be refinanced by a bank. We believe this is an
irresponsible level of debt, particularly given the reduced size of the portfolio after the TPG demerger and it is unlikely that the
assets could support that level of debt. The only option to repay the debt which is within the control of WHSP is to liquidate its
assets. This means New Hope would need to be sold which would be unlikely to realise full market value and would trigger a
significant capital gains tax expense.
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The proposal is a major transaction involving WHSP and consequently the Board is
carefully assessing all aspects of the transaction.
The Board has appointed an Independent Expert to provide an opinion to WHSP
shareholders on the merits of the transactions and whether the proposal is fair and
reasonable. This report will be included with the Notice of Meeting and accompanying
Explanatory Statement to be sent to shareholders.
The materials for the requisitioned meeting will be sent to shareholders prior to 24
January 2014 so that shareholders can consider the resolutions to be put at the meeting
which will be held on or before 28 February 2014.
The company is engaging with the ATO to provide some guidance on the rulings
required to be given in relation to the proposals. The Board considers it is fundamental
for shareholders to understand the potential tax implications in relation to the proposal
before voting on the resolutions. The board will endeavour to have further information
on the taxation consequences prior to the meeting.
As discussed on the previous slide, WHSP is waiting for a decision from the ASX on
who can vote at the Brickworks meeting. WHSP does not believe it should be excluded
from voting on a transaction that it has not been involved in formulating and which has
such an important bearing on the future of the company and its shareholders.
At this stage, shareholders are not required to take any action and the Board has not yet
provided a formal recommendation to the shareholders of WHSP. The Board urges
shareholders to read the notice of meeting and accompanying materials when it is
received. If there are any questions, please contact the shareholder information line
which will be set up once the materials have been sent out. 51
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