Continuing to deliver shareholder value after 115 years

About This Project

What does it take for a company to pay continuous dividends over a period of 113 years? How do you stay relevant when you first listed in 1903? Not only has Washington H. Soul Pattinson and Company Limited (WHSP) (ASX:SOL) fulfilled both of those requirements, it has seen some of the most aggressive growth in its history in recent times. Fourth generation chairman Robert Millner attributes WHSP’s longevity and success to long term planning on investments, an inherently conservative, risk averse nature and the ability to select excellent candidates to run their businesses.


WHSP was founded by Millner’s great grandfather Louis Pattinson as a Sydney-based pharmaceutical company with relatively modest assets. Since listing on the ASX in 1903 the outlook and magnitude of the company has changed significantly. The long term view that has been passed down through generations has seen the company’s market capitalisation reach AUS$4.2 billion, with a share price trading around $16.50.


While WHSP still holds some pharmaceutical interests, Millner says the company has progressed from a pharmaceutical business to a conglomerate to an investment house with major holdings in coal mining, telecommunications and building products. Most recently WHSP has turned its attention to property investment and development.


It is over the last 15 years that WHSP has really capitalised on the success laid in foundations in the preceding 100 years. In that time WHSP has grown at 12.6% per annum outperforming the market (8.1%) by 4.5% per annum. Shareholders have seen a 500% return on investments in the 15 years to January 2016.


Having based the company around long term value, conservative targets and building a diversified portfolio generation after generation, WHSP has been able to deliver to shareholders consistently.


“Over the years we’ve been listed we’ve never missed paying a dividend and we would be the only company in Australia to have done that,” says Millner.


“When you build a brick plant that’s going to run for 50 years you have to take a long term view. We’ve always been long-term focused and our performance has been very good over a long period of time.”


Another astounding statistic for WHSP shareholders is that an investment of $1,000 in 1976 would be worth over $450,000 today (an average increase of 16.6% per annum for 40 years).


WHSP has a significantly diversified portfolio with a variety of companies across a wide range of industries. The company’s largest investments continue to go from strength to strength. The three major investments, of which Millner sits on the board of all, comprise nearly 75% of WHSP’s portfolio.


The biggest is telecoms company TPG Limited (ASX:TPM). WHSP holds 25.2% at a value of over $2.2 billion – making up nearly 40% of WHSP’s investment portfolio. WHSP has a 44.1% interest in Brickworks and its subsidiaries, worth nearly $1 billion and contributing to 18.5% of the portfolio. The company also has a 59.7% shareholding in New Hope Group (ASX:NHC), an Australian-owned coal producer, which is worth over $800 million and represents 15% of the current portfolio.


The long term view and conservative approach have evidently proved successful in the last 15 years as the separate investments have grown significantly.


“Obviously coal has done very well, although not in the last few years.  TPG has grown its market capitalisation to over $10 billion. Brickworks has grown its business.


“We didn’t have a lot of the implications [of the global recession] that a lot of countries in the world had. Our share markets got smashed of course but our economy has seen 100 quarters of continuous growth, so we are very fortunate and that environment has helped us.”


New Hope Group has been leading the way for WHSP’s investment portfolio and that is because it has acted against the market balance. Under Millner’s guidance New Hope made the biggest global coal mine acquisition of the past year as the industry rides the biggest commodity downturn in a decade.


Having sold the New Saraji Coal Project to BHP Billiton at the height of the market in 2008 for over $2 billion cash, the coal major made the strategic decision to take a 40% interest in Rio Tinto’s Bengalla thermal coal mine, for a cost of $865 million.


This deal represented a strategy that Millner has sought to pursue throughout his career at the top of WHSP and New Hope. Citing Peabody, the American coal group which has plummeted from a $19 billion market capitalisation to a Chapter 11 bankruptcy, Millner stresses how important it is to acquire assets that are economically viable in the bad times as well as the good.


“We were always going to make a point of investing in something that made money in the downturn because the price of coal has fallen dramatically in the last few years, we wanted an asset which makes money in the bottom of the cycle.”


While this strategy is really concentrated on the resources sector, Millner emphasises two other key areas which have contributed to the longstanding success of WHSP. Firstly, it is an ability to pick the right people to run the businesses, a trait Millner says has been passed through the family. Secondly, it is to be the lowest-cost producer in whatever sector you’re in.


“When you do what we do, rely on other people, you have to have the ability to pick good people to run businesses. We have very good people who run TPG, Brickworks, New Hope and API. The key to our success is to pick good people to run the operations.


“We have made a few mistakes, like everybody does, but generally we’ve made good business decisions.”


Selecting high quality candidates to run the operations is evident at TPG. WHSP owns 26% of the telecoms giant in partnership with David Teoh who holds 38% and Millner calls him the ‘brains’ of the company. TPG grew out of WHSP’s SP Telecommunications, Teoh is an internet specialist and together they have built TPG from a $220 million market cap company to over $10 billion in just eight years. This comes down to TPG being able to buy infrastructure as an early mover and establishing a lowest-cost producer model.


“We have the lowest-cost producer advantage, it doesn’t matter what [sector] you’re in, it’s a very big advantage on any competitor. Brickworks is the lowest-cost producer too – we have good people running these businesses and we’ve always tried to be the lowest-cost producer.”


WHSP’s latest venture has seen the company delve into the property market, purchasing strategically located real estate with a predicted sell-on profit. Over the last five years WHSP has built industrial sheds for resale. Subsequently the company has targeted properties to take advantage of the construction and infrastructure boom occurring across Sydney and Melbourne.


“We’ve taken a lot of money off fixed deposits and gone into property over the last five or six years,” says Millner.


“There’s been massive urbanisation growth in Sydney and Melbourne. There hasn’t been a lot of infrastructure put in previously – there has been train lines built. We have bought some strategic properties at the right price.


“Hopefully within the next 12 months we will get some profits out of these properties and reinvest some of those profits back into property again and add another arm to our business.”


Millner is planning to continue to execute growth programmes across all the major investment companies and to continue the aggressive growth that the WHSP has experienced in the last 15 years. With the healthy state of the current investments and the possible addition of a property development arm to WHSP, there is no reason to believe it won’t continue to deliver dividends for the foreseeable future.


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Washing H. Soul Pattinson

Coal, commodities, construction, Finance, mining, Telecomms