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SoulPatts shares drop 6% as investors weigh full-year figures

Shares in Washington H. Soul Pattinson (ASX:SOL, SoulPatts or WSHP) fell nearly 6% yesterday as investors hesitated over its full-year figures and those from its partially owned associate, Brickworks.

Despite a fall in net profit for the year, the company increased final and full-year dividends (as did Brickworks despite weaker results from it as well).

SoulPatts stated that the final payout to shareholders of 51 cents a share brought the full-year payment to 87 cents a share, remaining unchanged from the previous year when excluding a 15 cents a share special payment from 2021-22.

Soul Pattinson excluded that special dividend from its comparison and claimed the latest full-year dividend was up 20.8% from 2021-22.

Comparisons between the latest year and previous years have been challenging due to Soul Pattinson’s decision to de-consolidate New Hope, the company’s coal mining subsidiary, even though it owns 40%.

Directors explained in the accounts: “WHSP determined that from 29 July 2022 it maintains significant influence over, but no longer controls, New Hope. From that date, New Hope has been recognized as an equity-accounted associate.

“In the Consolidated Statement of Comprehensive Income, the underlying revenue and expenses of New Hope are presented within the relevant revenue and expense category for the previous corresponding period. In the current period, such amounts are combined into a single line, ‘Share of results of equity accounted associates.’

“Although this results in a significant change in classification, there was no change in WHSP’s ownership of New Hope at the deconsolidation date. Had the previous corresponding period presented New Hope as an equity-accounted associate, there would be no change in the profits attributable to members of WHSP.”

This change resulted in a 77% fall in revenue to $629.5 million for the 2022-23 year (described as revenue from continuing operations). “However, revenue for the previous corresponding period included $2.5 billion from New Hope, which was deconsolidated from 29 July 2022.”

New Hope reported revenue for the 2022-23 year rose from $2.5 billion to more than $2.7 billion, which was not reflected in the latest Soul Pattinson accounts.

Soul Pattinson stated that “excluding the impact of deconsolidating New Hope, the increase in Revenue from continuing operations over the previous corresponding period was $325.7 million, which was “due to increased Revenue from contracts with customers arising from a full-year contribution from Ampcontrol and revenue growth in Aquatic Achievers and WHSP Agriculture; Lower Dividend and distribution income and Higher Interest income from term deposits and growth in the Structure Yield Portfolio as well as Sundry income.

The Statutory Consolidated Net Profit After Tax for the year to July 31 was $690.7 million compared to a net loss of ($12.9) million in the previous corresponding period, an increase of $703.6 million. That loss was due to the accounting impairment of goodwill from the merger with Milton Corp of a loss of more than $984 million.

The company said that ignoring these one-offs, ‘regular net profit’ fell 98% to $759.3 million.

“The investment team transacted $3.1 billion in value over the period. WHSP was a seller of $1.4 billion in equities, mostly Large Caps (from the Milton acquisition), with the majority of proceeds allocated to the Private Equity and Structured Yield Portfolio investments to generate attractive risk-adjusted returns.

“To accelerate growth across our largest private investments, a total of seven acquisitions were executed during the year. Following $547.1 million in additional investment and revaluations during FY23, the Private Equity Portfolio is now valued at $1.2 billion.

“Higher yielding instruments (e.g. private credit) continue to offer attractive returns in a higher inflationary environment. During the period WHSP invested an additional $542.2 million into the Structured Yield Portfolio, increasing its value to $652.4 million and contributing $41.5 million in net cash flow, 110.7% higher vs. pcp.

“WHSP enters FY24 with more than $500 million in commitments across private market investments along with a solid pipeline of opportunities. WHSP’s total cash balance is $911.0 million, 87.3% higher than pcp, with an average current yield of 5.0% per annum,” Soul Pattinson directors explained.

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