Conglomerates have been out of fashion for years. Demergers these days are all the rage. But don't expect Washington H Soul Pattinson (SOL) to bow to convention any time soon.
Having once again seen off interlopers demanding the group unwind its interlocking shareholding structure with Brickworks – that prevents takeovers and entrenches the power of the controlling Millner family – the group this morning delivered an earnings performance that demonstrates the power of a diversified entity.
Group profits were down largely because of write-downs at its 60% owned New Hope Coal. On an after tax basis, earnings dropped 26.3% to $105.42 million.
But the weak market for thermal coal was offset by better performances in Brickworks' building materials operations and at its 27% owned junior telecom, TPG (TPM), which has seen its stock price soaring this week after a much better than anticipated earnings result.
The company, however, did capitulate to investor demands for a higher dividend although management could argue that it has a long history of lifting dividend payments.
The final dividend was lifted to 28c, up 1c from last year, taking the full year payout to 46c, compared with last year's 44c. That was justified on the grounds that underlying earnings were relatively stable at $160.66 million.
The group also owns 24% of RuralCo (RHL) which endured a tough year, battling harsh climatic conditions and a reluctant Elders, in which it holds a substantial stake, that refused to part with its rural services division.
Then there is the 29% stake in Clover Corp (CLV), a company that produces a key ingredient in infant formula, and which, while still small, saw a strong lift in revenue and earnings, up 38.6% to $6.1 million.
During the past two years, the board has been fending off attacks from Perpetual and investor Mark Carnegie to unwind its interlocking Brickworks share structure, a move critics complain is at odds with modern corporate governance, and that potentially could liberate billions of dollars in value for shareholders.
To appease them, Soul Patts proposed the sale of its New Hope Coal stake, reportedly at $7 a share. But the sale was called off last year when thermal coal prices slumped.
Modernisation is now off the agenda.