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Edited Transcript of BKW.AX earnings conference call or presentation 19-Sep-19 2:30am GMT

Full Year 2019 Brickworks Ltd and Washington H Soul Pattinson and Company Ltd Joint Earnings Presentation

HORSLEY PARK , NSW Sep 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Brickworks Ltd earnings conference call or presentation Thursday, September 19, 2019 at 2:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lindsay R. Partridge

Brickworks Limited - MD & Executive Director

* Robert Canvin Bakewell

Brickworks Limited - CFO

* Robert Dobson Millner

Brickworks Limited - Non Executive Chairman

* Todd James Barlow

Washington H. Soul Pattinson and Company Limited - MD, CEO & Director

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Conference Call Participants

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* Raju Ahmed

CCZ Equities Pty Limited, Research Division - Equities Analyst

* Robyn Luu

Macquarie Research - Analyst

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Presentation

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Robert Dobson Millner, Brickworks Limited - Non Executive Chairman [1]

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All right. Welcome, everybody. I'm Rob Millner, Chairman of both Brickworks and Soul Pattinson. And sitting in front of me, the guy with the coat on is Todd Barlow, MD of Soul Pats; and next to him is Lindsay Partridge who's the MD of Brickworks; and also, we have our financial guys here in David and Rob. So -- plus there's other senior staff here. And I look around, there's a couple of directors as well. So welcome, everybody, and thanks for coming out.

I think 2 pretty good sound results, some good highlights. I think from the Soul's perspective, the increased generation of cash is very pleasing, and obviously, the standout for the Brickworks result was the property result. And as we'll no doubt tell you going through the presentation is the [year-round] new investments in America, which are doing very well.

Unfortunately, we do have some headwinds, not caused by us but caused by people in bureaucracy and government. We're taking one step at a time at New Hope, it's only taken us 12 years. So there's a lot of small steps in there, but we're getting there, and hopefully, we're just not far from jumping the finishing line. And again, we've been told how to do something in the telecommunications industry, so we're now in the federal court. So those haven't been helping us.

And on the Brickworks side, we obviously have the Royal Commission and how big builders would tell us -- telling us that a lot of their clients having 50% to 60% of their applications being knocked back by the bank. So that's one of the reasons why our Building Products result wasn't as good as we would have liked.

And also we've got energy, $3.30 a kilojoule in America and we're paying $12 to $14 here, and Lindsay and I were over there 3 or 4 weeks ago and government officials came to us from the Pennsylvania government asking, "How can we help? What can we do for you?" I've never had anybody ever in Australia come and ask us could they help us. It's all about trying to hinder us.

I'd ask that you don't ask any questions in relation to the New Hope's Acland Stage 3 because it's still before the appeal judge, and also TPG and Vodafone and the ACCC again because it's in court at the moment.

So on that note, I'll hand over to Lindsay and then Todd will follow, and we will have some questions after.

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [2]

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Thank you, Chairman, and it's great to see such a large crowd here today showing interest in our results, and we appreciate your support.

So we'll get into it today. So -- got controls here, I think. There we go. Okay. So I'll go over our safety performance, overview of our financial '19 year results, divisional review, the financials, Rob Bakewell will handle, and then the outlook, and then we'll kick the questions off to the end until after Todd has spoken.

So just looking at our safety performance. As you have heard me say many times, it's our #1 priority that we don't hurt anyone in the conducting of our business. However, we did have 5 lost time injuries in Australia, which was the same as last year, which gave us a rate of 1.7 injuries per million hours worked, and we had 6 lost time injuries in the United States. And that was a significant outcome where Glen-Gery had been, and I think there's no doubt the disturbance of the acquisition has no doubt resulted in us taking the eye off the ball. We're very much focused on pulling that back down and getting that back under control.

So just going straight to the overview. Well, it's been a very successful year for Brickworks. Not only did we deliver a record underlying earnings, there's been significant progress made in a range of strategic initiatives, positioning the company for long term. We had the acquisition of Glen-Gery in November, our first international acquisition. We followed that up with the acquisition of Sioux City Brick just a little bit over a month ago. We -- for the first time since 1969, we sold some Soul shares, 7.9 million shares, generating $208 million in cash. The contribution from the property was the highlight of 2019, and we're seeing a continuation of the transition and valuation across the property sector resulting in significant increase in value for prime industrial real estate such as ours.

And I think the highlight in that sector for the year, and I don't know if it's fully understood just what this means but -- to everyone, but we did a pre-lease with the Coles Group for 20 years for a building, which is the size of a city block. Not a little city block like this one, more like a city block down where our offices are 10 stories high. So if any of you get some idea how massive this building is, now, of course, it's going to be doing their click and collect and their other online activities, that single building will be worth more than $300 million. And there's discussions around potential for future buildings like that going forward.

So that is a fundamental change of the traditional industrial shed being single level to buildings that are now 10 stories high. It's a massive change and no doubt that affords all sorts of opportunities.

Just looking at the highlight figures. The underlying EBITDA, which is really a very important measure, $346 million, up 12%. Now last year it was $311 million, but it's a great number. The underlying net profit, $234 million, up 4%. That's $1.56 per share. There was quite a few significant items, both positive and negative, both within the Brickworks and coming through from Soul's and its subsidiaries and associates, bringing the NPAT down to $155 million. But even though that was all going on, total shareholders' equity was increased by $96 million to almost $2.2 billion or $13.28 a share.

Now we're very proud of our dividend performance. I know Todd is just a touch a little bit more proud than I am, but we've only in -- the dividend was $0.38 for the final, bringing it to $0.57. And it's -- finals is paid on the 27th and record date is on the 7th of November. That said, the dividend has stayed the same or increased every year for 43 years. And we are one of 6 companies that have -- either kept the dividend steady or increased it for 18 years in a row. And if I had known that Todd was going to increase it for just that amount of time. We've -- maybe we've got our heart set out somewhere along the line of being up there, too. There's very few companies, as I said earlier, only 6 companies on ASX. There's a quiz later on as who's the other companies.

Just looking at our earnings and the dividend, how it's been really boosted by the diversity of the group. Just to give you some idea how that is split up, Australia and North America Building Products is $765 million. Hot on their heels is Property at $633 million. And there's an additional $35 million of land that's held for resale. And the Washington H. Soul Pattinson shareholding is $2.1 billion.

So over the past decade, the inferred net tangible assets of the group has more than doubled, increasing at a compound rate of 9% per annum during that period.

On that orange line on the graph on the right, it also shows the EBITDA growth. Now of course, the first few years of that we were in a downturn, a cyclical downturn in Building Products and, if you go back that full 10 years, with only 6% compound since then. But if you look since 2012, the compound growth at Brickworks is 14.7%.

Looking at the divisional overview, and that's a lovely Glen-Gery drop there. Well, I'm not going to say a lot about the Soul's investment because Todd's here, but that's the largest part of the assets we have and it's been a great investment over the long term and delivered outstanding returns.

Our Property business primarily consists of the 50-50 joint venture with Goodman, one of the largest property groups in the world. That joint venture has now been running 10 or a dozen years, and they've been an excellent party to deal with, excellent relationship.

The Building Products group of course holds Austral Bricks, the main heritage brand, we make half the bricks in Australia, the largest brick maker. We also have our Bristile Roofing and Austral Masonry, both the second largest in their groups, and Austral Precast, one of the few national precast operations.

In America, we're mainly focused there in the Northeast region, and it's a differentiated brick producer compared to the other companies you may hear a bit about. I'll explain a little bit more about that in a minute.

So just look at the investments, I won't say more because Todd's here, but it contributed $104 million to Brickworks, down 16% on the prior year. Our shareholding decreased by $89 million due to the sale, and we now own 39.4% of Soul Pats. We received $56 million in dividend, which was fairly steady because the dividend increased even though -- and our shareholder went down, so they sort of balanced each other out. And they have returned to us -- a return of 11.6% for the last 15 years.

Looking at the property, delivered a record EBIT of $158 million, was up significant on the prior year. The trust income, that's rental income after interest, $26 million, an increase of 17%. The revaluation profit was $70 million driven by not only reduction in cap rates but also, I think, just a reassessment of where industrial property stands as far as a category group, and we're seeing strong sale price increases and strong rental increases to support that. And that was a 50-point reduction in the cap rates there. Our average cap rate now is at 5.4%.

There was $19 million development profit on the properties that are being developed, new assets in Oakdale South, and that was a total of $127 million. And we'd sold the property at Punchbowl, which we'd owned since the '60s for a little bit over $40 million, delivered $35 million. That had a pit on it, which had been filled. I actually thought we would never actually sell that, but it just shows you how strong the market was that we got it away. So that was a great sale to be made.

Okay. Looking at the asset values. We had $1.4 billion in sheds and $345 million in land yet to be developed, giving us a total of $1.8 billion. This $490 million debt gives us the $633 million I mentioned earlier. And it was up 18% for the year or $95 million, growth almost $100 million growth in the year. So it took a decade to put together, but the compound growth over that period has been 18% per annum growth, so a very, very impressive performance.

And the return in this last year was 21%, and that came from 15% in revaluations and 6% in income. The gearing in that trust is now down to 35%, which is very conservative.

Looking at future growth. We're still seeing strong demand for our industrial land. And this is -- I was talking about this change where, historically, the industrial sheds were single-story, cross-docking was the big fad for last 20, 30 years, and now because of online shopping, they want to automate all that supply chain. And so we made these multistory buildings, and just not quite sure where this goes but I could potentially see that in the longer term, we're going to have single-story warehouses knocked over to build high-rise warehouses. But yes, so that's a great -- and I think it's great that we've got a window into that new economy and we are partaking in it.

Looking at the Building Products. Revenue from continuing operations was down 4% to $755 million. EBITDA -- since this is Australia, by the way, EBITDA was $88 million, down 18%. The performance within the divisions, it wasn't bad. Considering we had a fair bit of headwinds of lower sales, but the impact of the energy cost was just a major chunk of the downturn. That can't be understated. The downturn was in all states. Little graph there shows the downturn. You see it was a little bit softer in New South Wales and Victoria. The downturn was quite strong. Amazingly, I think WA, 5 years down, still going down, no bottom, still falling. That is really just surprising. And of course that's been a big drag on the results because we'd have to slow our production to stop our stock blowing out, and we continue to adjust our production to meet the sales.

And the gas prices, as I mentioned, it's cost us about -- this year, about $1 million a month more than last, but there is some relief from 1st of January. We'll see that come back by about the same amount.

Looking at the business units, the performance. I mentioned about the energy cost. And of course, we have invested heavily in our kilns to try and alleviate that, and we've got 3 or 4 kilns identified, maybe over the next 5 to 10 years, we'll work our way through, but we have invested a lot in Victoria, some in Western Australia, some in Queensland. But we're now going to focus on New South Wales, where we haven't really invested any money significantly if -- depending on where you are between 20 and 40 years, and we're now going to look at building new works at Plant 2 at Horsley Park and a new dry press works at New Berrima.

On Bristile earnings were softer. It now includes the batten mill operations at Fyshwick. Austral Masonry was -- they supply a lot of blocks for high-rise [residential towers] , which has been one of the early parts of the building economy to turn down, and it's been affected by that. We bought in that division, a company called Aussie Concrete Products. They make concrete sleepers. There's been a change in regulation where timber sleepers no longer last, required 20 years. That company supplies Bunnings and right across the East Coast, we're now one of the major concrete sleeper producers. If you go down to any Bunnings store, you'll see our products there.

And the precast, it was slightly improved business, we have a very large job in Queensland. We did the Grafton Correctional Centre. It kept our Queensland operation basically running all year, and we did -- with the New South Wales business, we did both the M5 and M4 tunnels. We've managed to get a fair bit of civil work in there besides that government work as well. So it's not all just residential work. We've actually doubled the line of our plant there at Wetherill Park, it's one of the largest precast plants now in Australia.

Just looking forward to the innovation. As you know, we've got a joint venture with Fastbrick, FBR Ltd., and we've got an agreement with Archistruct Builders to build the first house on a commercial basis to see whether we can commercialize this technology. We're also just about finished our cement terminal in the Brisbane port. Our first ship is at sea, as we speak. And hopefully, it will dock successfully before the end of the month and our first shipload of first cement powder will be on the ground.

I've mentioned in a presentation, I've had a number of discussions this morning with the press about some issues around the -- some of the materials that are being used in the field and the way that they have been applied and that there's serious concerns that there could be some systemic problems out there. The main areas that we're concerned about is the lightweight permanent formwork, and it has perpetually not to be filled property with concrete because you can't vibrate it. And if you end up with an air pocket, you get it up with the structure, the building could be like Swiss cheese. This could be compounded if the lightweight formwork is made out of material that doesn't withstand fire, which would mean where residents who may expect that there would be -- have an arrow sign to get out of the building, they could be subject to minutes to get out of a building before fire spread from one room to the next. And there's been enough builders who brought these filings forward to us to make us concerned that we needed to speak up and that these issues weren't otherwise going to be raised.

But also, we have some products that are considered [deemed] to comply, but when they -- the test, they won't pass the test but they're deemed to comply, and particularly if they're used in high-rise. This would mean that people on the ground would be subject to debris falling from the building. These products need to be used in the -- to be used in that occasion, they need to pass the test. There's -- there's nothing that should be deemed to comply.

And the final point we made was that a lot of people might realize that they buy a house and they think that it's actually a rendered house and that by render or masonry. In actual fact, what they bought is a polystyrene house with a couple of millimeters of coating on it. And clearly, the potential -- particularly the polystyrene doesn't have any fire retardants in it and potentially that if there was a fire, they would be affected by the fumes. And of course the polystyrene houses doesn't quite give you the security of a house built out of a more substantive material.

Looking at North America. First of all, really, just -- I keep pointing out to people that we're not like the other major brick producers in America. We're #4 and numbers 1, 2 and 3, are all in the southern states, feeding into the housing market. We hold the leading position in the Northeast, the Mid-Atlantic, in the Midwest. There's minimum presence of other players, the major players up there. Our major markets are New York, Washington, D.C., Boston, Philadelphia, Baltimore, Pittsburgh, Chicago and Detroit. And they all have long heritage of brick construction both in commercial, residential and institutional buildings. So our sales reflect that, 2/3 of our sales go to those sorts of buildings.

And I was explaining this morning to one of the gentleman that we have 1/3 of our sales are in New York and 1/2 of our sales -- and we have 55% market share in New York, 1/2 of our sales in New York go into renovation work.

Now over there, if you've ever been to New York, you'll see there's thousands of high-rise brick buildings. They've got to be inspected every 5 years and by the state. And if there's any rectification work, it's got to be rectified in the same bricks that they were produced on. And we produced those bricks. So that is a continuing business. It's not going to be affected by any housing cycle. That's like an annuity stream because it's just going on forever. And as I say, we've got 2 factories that feed into that market. And they're a bit like our barrow bricks here, there are very consistent sales from those operations. So that allows us to achieve higher prices, and as I said, more consistent work.

Looking at the performance. It was only 8 months and the first 4 months of that was winter. $121 million in sales, $12 million in EBITDA, $6 million in EBIT. It was -- so we held it during the period, obviously we were completely closed down when we took the business over. But it was a great result to come out of that going forward. And we're very pleased with the performance to date. I'm very encouraged as I go around with the motivation of the staff and the workforce and the level of skill that they bring to their jobs.

We've made some significant progress on some other initiatives. We now distribute in the United States all the products that we import and distribute here, being the Italian San Selmo, the La Paloma product, the La Poesia glass bricks you see here. We distribute them all over there. And in addition, we've now signed a lease for new design studio in Philadelphia. We hope that will happen before the end of the year.

We acquired, just about 6 weeks ago, the Sioux City Brick company from a family concern, it was -- that's a leading market position in the Midwest, but it's a product that is distributed all over the Northeast. It's got 3 modern production lines, 2 of which are operating in 2 plants, 160 million-brick capacity, running at about 90 million bricks, 5 retail outlets. It's also a premium architectural producer. And it's fitted in very well straight away in our business, it's been very, very seamless.

So I guess the thing, we went -- we sat down, we did a strategic review of where the company was going to grow and we identified that the North America was a highly attractive long-term growth opportunity. We believe that our company has a competitive advantage with our technical expertise, our relationship with our key suppliers, a number of which would come from the United States. And our focus over here that we've achieved with the focus on style and premium, would be -- also add to our earnings over there. And to date, we see no reason that this original strategy that we set out on won't be fulfilled. We think there's great opportunities over there for further industry rationalization and higher operating levels and efficiencies of the factories, and we'll continue to look at opportunities over there that fit into that strategy.

Okay, I'll just now hand to Robert to go through the financials.

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Robert Canvin Bakewell, Brickworks Limited - CFO [3]

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Thanks, Lindsay. Good afternoon, everyone. I'll just spend a few minutes on going through some of the key financials as Lindsay said.

So as he indicated earlier, the group EBITDA for the year was, yes, $346 million. After depreciation of $36 million, the underlying group EBIT for the year was up 10% to $310 million. Total borrowing cost for the year was $24 million, and that included a $7 million mark-to-market adjustment on some interest rate swaps at the end of the year, so the actual interest paid was $17 million. And that resulted in an underlying net profit after tax from continuing operations of $234 million, which is up 4%.

You'll see there are significant items, reduced the NPAT by $37 million, and I'll come back to those in a moment. And that led to a net profit after tax from continuing operations of $197 million for the year, which was up 10%.

As we indicated at the half, we've now classified the hardwood operations of Auswest Timbers as a discontinued operation. So there's a $42 million reduction there to profit, $35 million of that is a noncash impairment, and the other $7 million is the operating losses for the year. And that gives you the statutory number of $155 million NPAT for the year.

I'll come now to the significant items of $37 million, net of tax. First up, you have the gain on the sale of the Soul Pattinson shares, which after tax was $71 million. There was an impairment related to Austral Masonry and Bristile, which is recorded in the first half of $52 million. The acquisition costs in the year for the Glen-Gery and also a little bit of the Sioux City cost was $14 million. Other various restructuring activities across the year, mostly in -- or the larger part of that was related to the mothballing of Plant 2 at Horsley Park. That was $7 million. And then the significant items that we picked up through the equity accounting of our investment in WH Soul Pats is $28 million with a further $8 million related to the tax effect of that equity accounting.

We move on to the cash flow. Total operating cash flow for the year was $123 million, which is a decrease in the prior year. That was primarily related to the lower Building Product EBITDA, so that was down to $88 million from $107 million in the prior year. There were also lower Property Trust distributions. In the prior year we had, in particular, a distribution following the sale of a property at Oakdale South, which was $36 million. And we had higher income tax payments this year.

You'll note that the proceeds received from the Soul Pats' sale of the shares more than outweighs the acquisition of Glen-Gery. So we were quickly able to fund that from that sale. Capital expenditure for the year was $49 million, and the dividends paid were $82 million.

So finally, I'll just touch on some of the key financial indicators. Net tangible assets per share, up 7% to $13.28. The shareholders' equity, as Lindsay had indicated earlier, is also up. It's up 5% to $2.16 billion. Shareholders equity per share at $14.48 is also up. And we continue to maintain a very conservative balance sheet. Net debt for the year -- at the end of the year was $253 million. And gearing is 12%, and the interest cover is 18x. That's a very strong balance sheet to end the period.

With that, I'll hand back to Lindsay for the outlook.

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [4]

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Okay. So we anticipate that the earnings and dividends and the value of Washington H. Soul Pattinson will continue strong in the long term as it has in the past. There's a strong outlook for the Property Trust with significant demand and development pipeline in place to provide growth. And also during the next period, we'll be putting 10 hectares of Oakdale -- of land of Oakdale East, which is a new section out there at Horsley Park into the Trust. It will be late this year.

And as far as Building Products, a lot of interest. We're seeing a fairly steady orders and sales at the moment, which would indicate that the market has stabilized or put it another way, they're actually running on the bottom. And anecdotally, we hear from the builders that since the interest rate reductions and the lowering of the lending criteria, that they're seeing quite significant lifts in the number of people coming through, looking at homes and signing up. And we anticipate that we'll start seeing that from the New Year.

In addition, we have the reduction in energy prices, as I mentioned earlier on, with $1 million a month from the 1st of January. And as I mentioned, the growth prospects in North America are strong. And of course, we've got the Sioux City Brick acquisition to this results as well.

So with that, I'll thank you, and hand over to Todd.

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Todd James Barlow, Washington H. Soul Pattinson and Company Limited - MD, CEO & Director [5]

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Thank you, Lindsay. And thanks, ladies and gentlemen, for your attendance today.

I wanted to start off with a quick overview of what we do. There's still a few people out in the market, I know everybody here has probably got a good understanding of ourselves, but there's still a few people who don't quite understand what we do. We have a diversified portfolio of uncorrelated investments across listed equities, private equity and venture capital, property, corporate loans and cash. Our flexible mandate allows us to back companies at an early stage and grow with them over time.

We undertake a countercyclical and value-focused approach. We aim to be a trusted partner that actively assists our portfolio companies in accessing growth capital as well as undertaking strategic M&A. And we have a track record of value creation over multiple decades, and we have a strong track record of dividend growth.

So as I mentioned, we have an excellent track record of paying dividends over the long term, and we actively manage our portfolio to be able to achieve this goal.

Today, we announced the final dividend of $0.34 per share fully franked, and that brings the total dividends for the year to $0.58. We've increased our interim dividend and final dividend every year since 2000, and we're only 1 of 2 companies in the All Ordinaries Index to do that.

So as Lindsay mentioned, of the 500 or so companies in the All Ordinaries Index, there's only 6 that have maintained a dividend every year, and only 2 have increased it.

Total ordinary dividends have increased from $0.10 in 2000 to $0.58 last year.

In addition to dividends, we aim to outperform the market. Over the last 15 years, the annual TSR of 11.6% per annum is 2.6% above the index. With the benefit of compounding, an investment in WHSP is worth 57% more over that period than an investment that performed in line with the market.

Looking at the key highlights for FY '19. The statutory NPAT and regular NPAT were both down about 7% compared to the previous year. It should be noted that the FY '18 profit was up 17%, and FY '17 was up 59%. So obviously, that kind of growth couldn't be maintained. But as you know, property is not really an important measure in gauging the health of our portfolio. We aim to achieve capital growth and increase cash yield. The value of the portfolio was marginally up in the previous year, finishing just shy of $5.5 billion.

On the other hand, cash generation from the portfolio was extremely strong, up 18%. This is an important measure because the cash that we receive in dividends and interest from our operations is what we used to pay dividends to our shareholders. So this growth will facilitate continued higher dividends.

As I mentioned, the TSR over the long term continues to be very strong. And during the year, we continue to attract more shareholders with another few thousand shareholders joining the register, which is very pleasing. We were also admitted to the ASX 100, which reflects the growing liquidity and interest in the stock.

This overview of the portfolio shows the diversity of our holdings. During the year, TPG increased in value by over 20%. However, that was offset by New Hope falling in value by a similar amount. As I previously mentioned, the overall portfolio finished just under $5.5 billion or 0.6% higher than the previous year.

The property portfolio decreased in value as a result of a number of sales, not a reduction in any values. In fact, we'd expect the value of our residual properties to have market values well in excess of book.

The proceeds of sale were largely deployed into private equity in Round Oak Minerals.

Looking at the long-term shareholder returns. The company's TSR over the last 12 months underperformed but was still positive, returning 6.5%. And we expect this volatility from time to time. However, we -- our aim is to outperform over the long term.

So over 15 years, as I mentioned, the TSR is 11.6%, 2.6% above the index. And looking even longer term, over 40 years, the average TSR has been over 16%, which means an investment of $1,000 in 1979 would today be worth just under $400,000.

We've included this slide before showing the M&A activity across the group over the past decade or so. The only point I want to make about this is that we are not passive. And while many of the investments in the portfolio have been there a long time, we are constantly changing the shape of those companies with active M&A. And there are a number of new investments at the smaller end of the portfolio, which we hope to develop into larger companies over time by adopting the same approach.

We have a very experienced Board of Directors and there is a good combination of alignment and independence. The Board acts as an investment committee. So we have a Board that is actively engaged in both portfolio construction as well as investment decisions.

What's also important is that there is a quality team of people reporting to the Board, and approximately 30 people sitting in our offices with expertise across a range of functional areas, including company administration, M&A, private equity, property, credit assessment and investment management.

In terms of the strategic imperatives for FY '20, we remain cautious about the high asset prices in the high point of the economic cycle. We want to remain agile and focus on the robust businesses that will perform well in any part of the cycle and despite any potential downturn. As the Chairman mentioned, we're waiting on approval for the New Acland extension for New Hope, and TPG is currently before the federal courts seeking approval of its merger with Vodafone. If these things happen, that should provide material upside to the portfolio. We continue to see interest in private equity deals, private credit opportunities, and we're actively looking at a couple of sectors including financial services where we are keen to continue investing.

We're taking a look at the time and living opportunities and also agricultural assets where we see some interesting opportunities.

As I mentioned earlier, our goal is to continue lifting our dividend, and we are generating some nice cash out of the portfolio and we should be able to continue to do this.

These photos on the right are our new head office across the road here on Clarence Street. So as you know, we sold the head office building last year at 160 Pitt Street. That means we have to find somewhere else to go. And after 140 years, we felt it was time for a change. So you can see that we've extensively used Brickworks products. We're very happy with the end result. And strategically, it's been very beneficial to the organization because we're more integrated, and the opportunities for collaboration are greater.

Turning now to the performance of our underlying portfolio assets. At 31 July, our investment in TPG was worth $1.64 billion. So this has clearly been an excellent investment for us. We continue to believe that TPG is a good investment. The growth in consumption in telecommunications is obviously a continuing thing. There's no doubt that the construction of the NBN where the government force end users to switch to the NBN has hurt margins. But once that migration is complete, TPG can start growing again.

As I mentioned, TPG is before the federal court, seeking the approval with Vodafone. We continue to believe that the merger is very beneficial for shareholders because there's lots of synergies and the 2 companies are very complementary.

We also believe that the merger is good for competition because the merged entity will be well placed to compete with the 2 dominant players in the market.

TPG performed slightly above the guidance it gave to the market at the start of the year on a business-as-usual basis. And what they mean by business-as-usual is stripping out the cost of trying to establish a mobile network, which obviously, did not proceed.

Despite margin reduction and loss of home phone customers as a result of the NBN migration, TPG was able to generate other income growth of $72 million, which offset these declines. The end result was that the FY '19 business-as-usual EBITDA was in line with the previous year.

But you can see on this graph that there continues to be the growth of NBN migration in red and the overall customer numbers are very stable, and that migration will continue until there's very little on-net customers left. So the -- for that reason, TPG has indicated that EBITDA for FY '20 will be down 9% to 11%.

The graph on the right, however, shows that TPG's growing EBITDA from higher margin products sold through its corporate division. And the reason for this is that you can sell those products utilizing its extensive corporate -- fiber-optic network.

TPG continues to offer quality services at competitive pricing. And this data on the left shows that TPG and its other own brand iiNet has far less daily outages of service than any of its competitors. But ultimately, the proof of how well you're doing is how happy your customers are, and the both TPG and iiNet have excellent Net Promoter Scores and they've both improved over the last 12 months.

Obviously, I don't need to talk about Brickworks' results, but I will take this opportunity to talk about the benefits of the cross-shareholding and our relationship with Brickworks.

The stability that each company provides to the other, particularly in relation to dividends, over time, cannot be overstated. And any criticism of the cross-shareholding is proved to be misguided. Clearly, both companies have extremely strong corporate governance. The companies are well managed and very shareholder-focused. And there's no difficulty in being able to value the companies. All the data is here today.

And during the year, Brickworks is able to sell it shares or some of its shares in WHSP and achieved full value for those shares. So there's nothing illusory or complicated about our holdings in each other.

I'll flick across to New Hope who had a reasonably good year. Regular NPAT was up 3%, which was mainly an increase in volumes of Bengalla, and that was offset by falling volumes at Acland as we near the end of Stage 2.

After 12 years, we still await approvals for the New Acland extension. There are no impediments to the Queensland Government giving the final approvals. However, their delay, unfortunately, has meant that New Hope will ramp down production and cut up to half of the people in its workforce and already there's about 150 redundancies underway. But we remain confident of getting the approvals in the end.

During the year, New Hope acquired a further 40% stake in Bengalla, bringing their ownership to 80% and gaining operational management. Bengalla is a long-life, low-cost and high-quality coal asset. It has the longest permitted mine life in New South Wales out to 2039.

Cash generation from operations were strong, up 17% to $510 million. That led to higher dividends, and the dividend contribution to WHSP was up 22% on the previous year.

WH coal prices in FY '19 were largely unchanged when compared to FY '18. So the change in EBITDA was mainly as a result of the extra volume as a result of the Bengalla acquisition noting that, that acquisition only occurred in December 2018. So next year, we should get some more contribution.

Offsetting some of those volume gains, as I mentioned, were lower contributions from Queensland as New Hope nears the end of Stage 2 at New Acland and the West Moreton mines.

New Hope has been diversifying its customers in countries that it sells to. While demand out of Taiwan, Japan and Korea remains very strong, we're seeing increasing demand from other Asian nations, which is opening up new opportunities.

This table on the right shows that the change in demand from a select number of Southeast Asian nations in over a 5-year period from 2018. We're seeing meaningful volumes of new demand coming from a range of new Southeast Asian nations as they continue to grow and demand more electricity. And as I said before, there's very little in the way of new coal supply.

New Hope's 2 major mines at Bengalla and New Acland are globally competitive mines. They generate strong operating margins at almost any part of the cycle. And you can see how many coal mines would be out of business before any of our mines start to lose money. The combination of low cost and high quality adds to the sustainability of these mines. Especially as the market increasingly demands better quality coal.

FY '19 was a mixed year for the financial services portfolio. The value of the portfolio was down 15% primarily as a result of the reduction in the share price of Pengana.

By contribution, the profit was up by 28%, and the dividends we received from the portfolio were up 24%. So you can see there's nothing fundamental driving the decrease in share prices. We continue to receive solid cash flows out of our investments in this portfolio. We continue to -- we continue to like financial services as a theme, and we're working with Ironbark, in particular, on further acquisitions to expand their presence in financial planning, product distribution and trust [ARA] services.

The story with the pharmaceutical portfolio is a little bit similar. The portfolio value is in line with last year. However, profit contribution was up 13%, and dividends received by us were up 12%.

Palla Pharma, which was formerly TPI Enterprises, is showing good progress as a high-growth company with global potential. Our revenue continues to increase, and it is now making operating profits.

We spent a lot of money at Round Oak during the year. It contributed a loss of $54 million as a result of start-up development expenses at new projects. Delays at North Queensland assets caused by some extreme weather in the wet season last year and the reduction in volumes at Jaguar in Western Australia as we realigned the mining sequence and opened up new mining fronts. All of these things while contributing losses in FY '19 are expected to add profits in future years.

And when I showed this map of the Round Oak projects last year, there are many more development projects. Now we have just one development project at Stockman in Victoria. All other projects are now in production and producing ore. We believe that the outlook for commodities and in particular copper looks extremely strong as global demand continues and supply comes off.

The property portfolio halved in size during the year. As I mentioned that was not a reduction in any values, it was a consequence of selling a number of our assets, Kingsgrove, which is the -- further down the bottom here was the acquisition of a -- an old factory that was subdivided and sold off. We completed that through the year with some excellent IRRs. Prestons, which is the top right there, was a construction of a logistics and distribution facility for main freight. Again, that was sold, and we had excellent returns. And we previously announced the sale of Pitt Street, which completed during the year, all of which gave us very good profits and strong cash.

We continue to have 3 properties at Pennant Hills, Castle Hill and Penrith, and we see good upside in each of those.

We're looking to grow our unlisted private equity portfolio. It increased 46% during the year on the back of further investment in new opportunities. There are some very exciting companies in the portfolio, which could form the foundation for meaningful new investment over time.

And during the year, Verdant Minerals, the large phosphate project in Northern Territory was privatized, along with CD Capital, who is a U.K.-based private equity fund.

The last portfolio that I'm going to talk about is the listed investments. At the end of the year, we had $564 million in our listed equities portfolios. These equities are split into 2 portfolios, a large-cap and small-cap portfolio. And the performance on both were very good over the year. The large-cap portfolio provides strong dividend income and access to liquidity. And the small-cap portfolio seeks capital growth and access to opportunities. The dividend generation was very strong, and the portfolio contributed $23 million of cash to WHSP.

Thanks very much for your time, and I'll give it back to the Chairman for any questions. Welcome any questions.

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Questions and Answers

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [1]

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Raju Ahmed at CCZ. Couple of questions. Lindsay, you talked about high-rise warehousing as a concept. Does that mean we should expect -- and I'm trying to join the dots here, but should we expect further cap rate compression into the long term as those sorts of technologies come in and the earnings stream improves on that personal brand?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [2]

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Well, I think we just have to see what happens to interest too. Parts of that, of course, is the demand, and what the interest rates are. If your view is that those interest rates are going to fall another quarter of a percent, well, there's a good chance there will be further cap rate compression. As I said, our average portfolio cap rate is 5.4%. So when you look at what the interest rates are, there's a fair chance that we could see further compression. But we'll only have to wait and see what the sale prices are, but we're seeing strong sale prices come through, we're seeing strong rental increases particularly for spec product. So we'll see.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [3]

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Sure. The second question is around the -- your competitor, Midland Bricks, in Western Australia, that recently got sold or there was an announcement of sale. Do you anticipate that changing the market dynamics there? Or it's pretty much as is?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [4]

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They were bought by the property developer Linc Holdings. We're not sure what their intentions are at this point in time. We just have to wait and see what they decide to do. But clearly, they bought to develop the site. So you think over the longer term that there will be some sort of restructuring there.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [5]

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But as it stands, Western Australian market, it seems to be like a bottomless pit and it keeps going down.

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [6]

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Yes.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [7]

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Is the market size commensurate with 3 brick manufacturing players in that market right now?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [8]

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Well, I feel like more, I guess for the number of plants that are among the production lines, there's too many -- I mean it's gone back to a level output mostly not seen since the early 1990s. So it has come back a long way. And as I said, we've closed a lot of plants. I'm not sure of the exact situation of our competitors, but they must be looking at their stock holdings as well. So yes, the markets are ripe for rationalization, definitely.

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Raju Ahmed, CCZ Equities Pty Limited, Research Division - Equities Analyst [9]

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Sure. The last one for me. Volume declines in the first half FY '20, can you give us a sense of when you talk about softness, are you talking about low single digits, high single digits in terms of all-in revenue?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [10]

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[A little bit state from --] between sort of 10% and 20% those sort of orders and I think we showed that on the graph, we showed on the approvals, we are sort of 3 to 6 months behind the approvals. So the approvals are still showing between 9% and 20% downturns. So we'd anticipate that, that will come through.

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Robyn Luu, Macquarie Research - Analyst [11]

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Robyn Luu from Macquarie Research. I just wanted to ask you about the gas contracts in FY '20. Just so I can understand what your comment was early today. So if 12 -- energy -- gas contract, sorry, as your cost been over $12 million this year and are we expecting it to be reduced next year? Are you expecting it to go back to FY '18 levels?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [12]

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Yes. That's -- well, not financial year, calendar year because [we're buying] -- our contract trial's over on the 1st of January so that's what makes it a bit confusing. If you like last financial year, we had 6 months each of 2 different gas prices and this time we got it in reverse order. So -- but basically, it went up $1 million a month and now it's going to go down $1 million a month from the 1st of January.

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Robyn Luu, Macquarie Research - Analyst [13]

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Yes. And on, I guess, in the U.S., are you planning to make more bolt-on acquisitions of the size of the Glen-Gery?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [14]

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Well, we continue to look at opportunities as they come up. It's a matter of us also absorbing them and digesting it. But yes, I think there is potential there for some further acquisitions. We'll just have to see.

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Robyn Luu, Macquarie Research - Analyst [15]

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And the last one for me is on the Victoria market, you're seeing it improving in the second half, can you talk a little bit more about what happened here, particularly in the bricks business, whether it was maybe broader market improvement or the operational strategy and that market improved?

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [16]

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Sorry, I just missed the beginning of that question?

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Robyn Luu, Macquarie Research - Analyst [17]

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Just Victoria.

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [18]

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Yes, Victoria?

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Robyn Luu, Macquarie Research - Analyst [19]

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So volume sort of improved for Victoria bricks business. So can you talk a bit is that relating to broader detached market doing better or....

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Lindsay R. Partridge, Brickworks Limited - MD & Executive Director [20]

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Yes, look it was a market that was running very hot and there was enormous pipeline of work. Whether or not the resources become available to supply, and I think really a point that we're making also is that we're able to supply more of our locally produced product. We had been supplying, believe it or not, from every state in Australia and overseas to supply that market. We significantly oversold. And of course, the margin that we bring in from outside the state doesn't have quite the margin of the product that you make locally. So as we get a high percentage of the local-made product, that helps the results.

No more questions? Is there any questions online at all, [Lisa]? Listening. Any questions online? No questions. Okay. Yes, good. All right.

Thank you, everyone. We will be here for a while if you do want to come and ask us something, otherwise.