Coal still has a future, says Washington H. Soul Pattinson CEO
Investment house Washington H. Soul Pattinson remains bullish on coal, despite a rise in activist shareholders demanding greener credentials.
Washington H. Soul Pattinson says thermal coal still has a future given it is the main source of power generation across the globe, as the fossil fuel helped propel the listed investment house to a 93 per cent lift in underlying profit.
Chief executive Todd Barlow also says the company is not tied to making “emotional” investment decisions, highlighting its agreement to sell its 19.3 per cent stake in Australian Pharmaceutical Industries to Wesfarmers, ending its 150-year history with pharmacies.
Not even China’s decision to stop funding the construction of overseas coal-fired power stations could dull the bullish outlook for the fuel, with the price of thermal coal leaping from $US50 to $US170 a tonne in the past 12 months.
“We see coal as having a future. It’s an industry that happens to be a pretty large industry in Australia and responsible for one of our largest exports,” Mr Barlow said.
“Coal is the largest source of electricity generation in the world, and in Asia it’s actually a bigger and more important part of our energy mix.”
Mr Barlow acknowledged there would be a shift to alternative fuel sources, but said coal will remain an important source of power generation for “decades”.
“There’ll be a transition, we acknowledge that. Over time, we will see a drop off in demand. But what we’ll also see, is a pretty significant drop off in the supply of coal as well.
“So if you’re at the lower end of the cost curve and you have a long approved mine life, we see coal having a sustainable future for the next couple of decades.”
Soul Patts’ share price surged 5.3 per cent to $37.51 in midday trade on Thursday after its full year regular profit soared 93 per cent to $328.1m in the year.
The result excluded a $54m reduction in the contribution from TPG, following its merger with Vodafone, which reduced Soul Patts’ holding in the telco from 25.3 to 12.6 per cent.
This prompted a change in accounting treatment, which excluded TPG’s earnings in the group’s regular profit, with only dividends received being included in the current year. On a statutory basis, profit fell 71 per cent to $273.2m.
But it was a sea of black ink across the rest of its portfolio. New Hope contributed $61m to net profit - a 45 per cent increase on the previous year - following a “strong recovery” in thermal coal markets.
Meanwhile, Brickworks contributed $82m - a 95 per cent jump on the previous year - and Round Oak Minerals hoisted its contribution $103m following improved production levels and a strengthening of commodity prices and lower ore treatment charges.
Following its merger with rival listed investment house, Milton Corp - which takes Soul Patts’ market capitalisation to $10.8bn - coal will comprise around 8 per cent of its investment portfolio.
Mr Barlow was not fazed about a trade stoush with China, which has included thermal coal, saying that New Hope doesn’t supply much of the Chinese market now.
“Thermal coal is a global market, as are most commodities. And when you see China putting in place these bands and it really just creates a switching from other supplies.
“So it has been a fairly seamless switching of markets and we don’t supply very much to China anymore.
“That‘s true of Australian producers since the bans taking place. I think when you look at these things you need to look at the global face and you wouldn’t want to have a business that is entirely reliant on China at the moment. It’s important to look at the new global supply and demand characteristics.”
Mr Barlow said Soul Patts had a very “pragmatic” strategy, which was reflected in the company agreeing to sell its 19.3 per cent stake in Priceline owner, Australian Pharmaceutical Industries, to Wesfarmers.
This ends Soul Patts’ association with pharmacies, which began in 1872 when Caleb Soul and his son Washington opened their first pharmacy in 177 Pitt Street, Sydney.
“The catalyst for that decision was Wesfarmers approaching us and asking ‘is this an asset that you have a sentimental attachment to and therefore we even start wasting our time putting forward a proposal’,” Mr Barlow said.
“Our response to that, which is across all of our assets, is we‘re very pragmatic and everything’s for sale at a price and we don’t have a sentimental attachment to any asset.
“Probably the biggest indicator of that was a couple of years ago when we sold the original pharmacy building that had been the head office for 140 odd years - we retained the original chemist and operated above the chemist for all of that time. So it‘s a good sign to investors that we are willing to make sensible investment decisions rather than emotional ones that drive our behaviour.”
Soul Patts will pay a final dividend of 36c a share, fully franked, on December 14 - a 3 per cent increase on the previous year which takes the full year payout to 62c a share.
Sould Patts shares closed up 6 per cent at $37.74.