Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Shareholder Meeting (October 2004)
44 slides from Australian Foundation Investment's shareholder meeting presentation, Oct 19, 2004
Slide 1: Australian Foundation Investment Company - Chairman's Presentation
m4 Australian Foundation INVESTMENT COMPANY G;\Admin\AGM Shareholder meetings\Afic\2004\AFIC Chairman's Presentn_Brisbane 19 October 2004 Australian Stock Exchange Limited Company Announcements Office Exchange Centre 20 Bridge Street Sydney NSW 2000 Australian Foundation Investment Company Limited 2
Slide 2: Welcome
Welcome a Australian Foundation INVESTMENT COMPARE A sound track record
Slide 3: 10 Year Performance
ies 10 Year Performance inar All Ord June 03 to June 04 - increase of 17.7% 3800 5 3600 3400 3200 7 3000 - 2800 2600 7 2400 - 2200 2000 vo-des ro-4ey £o-das £0-4ey z0-des zo-4en 4o-deg bo-seNy 00-das 00-72 66-des 66-4eN g6-dag 86-4eW L6-dag 26-42 96-dag 96-4eN $6-dag
Slide 4: Market movements between June 2003 and June 2004
Market movements between 30 June 2003 and 30 June 2004 *" ASX200 Accumulation + 21.6% » ASX 50 Leaders Accumulation + 20.8% " ASX200 Banks Accumulation + 6.7% =» ASX MidCap 50 Accumulation + 25.6% " ASX Small Ordinaries Accumulation + 26.8% " AFIC NTA Accumulation + 18.6%
Slide 5: Profit Analysis - 2004 Financial Year
Profit Analysis - 2004 Financial Year vs. 2003 Financial Year 1455 $18.2m _$3.0m 125 + i -$1.6m $102.8m 105 4 ; ! foal 2 = 35 +4 \ FR 65 “| | Demerger dividends in 2003 $5.6m 45 4 25 4 —— ; : + = ee = a & 5 55 8602 5 3 3 3 c 36 28 g E : S 3 eo F 5 E F s s R BE § < & _
Slide 6: Earnings Per Share vs Dividends Per Share
Earnings Per Share vs Dividends Per Share 16 => 14 = 12°45 2 £ 10 4 C7 g 8 wn g 64 oO 44 254 On \) “ sv ~) te S $ $ SS $ s “s s s s Financial year ms Earnings per share B@ Dividends per share Special dividends per share
Slide 7: Dividend Payout Ratios For the Market
Dividend Payout Ratios For the Market Payout Ratio Franking Rate Percentage Percentage 10 Years Ago 61.0 85.3 5 Years Ago 70.7 76.4 3 Years Ago 75.2 83.5 2003/04 62.4 (71.0%) 87.1 “after special dividends ee
Slide 8: Management Expense Ratio
Management Expense Ratio MER for the year ended 30 June 2004 = 0.16% For shareholder holding 5,000 shares ($15,600) at 30/06/2003 > Total net asset backing return - (assuming reinvestment of dividends at net asset backing) = 18.63% or $2,906 of value added. > Total expenses based on MER = 0.16% or $
Slide 9: Comparison of Operating Expense Ratios
Comparison of Operating Expense Ratios Cost* 7 AFIC 0.16% $25 7 Superannuation Funds 0.81% $126 " Managed Investments 1.81% $282 (In Retail Active Domestic Equity Funds) * For shareholder holding 5,000 shares($15,600) at 30/06/2003
Slide 10: Share Price Premium/Discount Relative to Net Asset Backing - Established LICs
Share Price Premium/Discount Relative to Net Asset Backing Per Share — Established LIC’s Price/NTA % 20% 15% 10% 5% 0% -5% -10% -15% -20% ~~~ - cone ene a nee ce Jan 88 Apr&9 Jul90 Oct91 Jan93 Apr94 Jul95 Oct96 Jan98 Apr99 Jui00 OctOt Jan03 Apr 04 GSJBW Quantitative Research == Market Cap Weighted P
Slide 11: AFIC Share Price relative to Net Asset Backing
AFIC Share Price relative to Net Asset Backing per share - Premium/Discount 20% 15% | Premium 10% - 5% ~ 0% 5% + -10% -=|Discount “15% | -20% Jun- Jun- Jun- Jun» Jun- Jun- Jun- Jun- Jun- Jun- — Jun- 94 95 96 97 98 99 00 om 02 03 04 AFIC Net Asset Backing per share at 30 September 2004 was $3.56 Shar
Slide 12: AFIC Share Price vs. All Ordinaries Index
AFIC Share Price vs. All Ordinaries Index 2.2 | | —- 2600 1999 2000 2001 +$.2002 £2003 2004 ou AFIC Share Price ———All Ordinaries Index
Slide 13: Small caps continue to outperform large caps
Small caps continue to outperform large caps Price Earnings Ratio Premium/Discount % PROSPECTIVE PER PREMIUM/DISCOUNT LARGE Vs SMALL INDUSTRIAL GSIBW Quautitative Rese: 15 T Small Companies trading at a Premium vs Major Industrials 10 Average 10 T “15 T -20 T | -25 T 30 ~ Small Companies trading at
Slide 14: Major Acquisitions (above $15m)
Major Acquisitions (above $15m) Investment Portfolio Acquisitions $million Commonwealth Bank 68.8 News Corporation (ord and pref) 21.0 Rio Tinto 20.4 Alumina 18.2 Woolworths 17.5 Telstra Corporation 17.5 AGL 15.6
Slide 15: Major Disposals (above $10m)
Major Disposals (above $10m) Investment Portfolio Disposals $million United Energy 18.6 (takeover) G.U.D. Holdings 12.0 (disposal) ( NAB 11.8 (disposal) ( Bank of Western Aust. 11.2 (takeover)
Slide 16: Dividends - LIC Capital Gain Attributable Part
Dividends- LIC Capital Gain “Attributable Part” « AFIC’s final dividend of 8.75 cents per share had attached to it a LIC capital gain of 1.5 cents per share = Arose because of the sale of United Energy, Bank West and GUD Holdings = The effect is as though an individual owned the shares sold by AFIC
Slide 17: Dividends - LIC Capital Gain Attributable Part: An Example
Dividends - LIC Capital Gain “Attributable Part” An Example Australian Resident individual Tax Rate of 48.5% LIC Tax Deduction No Deduction Final Dividend for 1000 shares @ 8.75 cents per share $87.50 $87.50 Imputation Credit $37.50 $37.50 Assessable Income $125.00 $125.00 Less tax deduction equival
Slide 18: Profit - Key Components
Profit - Key Components Income $m > Recurrent dividends - investment 117.8 > Special dividends 0.5 »>Bank bills, deposits & other income 7.6 > Trading 14.1 Expenses > Borrowing (1.0) >» Administration (5.3) >Tax (9.5)
Slide 19: Profit - Key Components (adjusted for IFRS)
ee S™—”—SSC Es Profit - Key Components (adjusted for IFRS) Income $m » Recurrent dividends - investment 117.8 >» Special dividends 0.5 »Bank bills, deposits & other income 7.6 >» Trading 14.1 » Trading - mark to market 14.7 » Realised investment gains 30.4 Expenses > Borrowing (1.0) > Administration
Slide 20: Balance Sheet - Key Components (adjusted for IFRS)
Balance Sheet - Key Components (adjusted for IFRS) 30/6/04 30/6/04 under IFRS $m $m Current Assets 307 322 Non Current Assets 2,831 2,001 Current Liabilities 13 18 Non Current Liabilities 1 1 Deferred Tax - 334 Net Assets 3,124 2,800 Share Capital 1,380 1,380 Reserves 1,592 1,052 Retained Profits 15
Slide 21: Off Market Buybacks
Oe ——— ieee Off Market Buybacks " Given strong capital and cash position, many companies have conducted off market buy backs: » Achieve attractive marginal buy back price > Efficient way to distribute franking credits > Improve EPS growth = Key Considerations for AFIC: » Likely buy back price — how
Slide 22: Off Market Buybacks - Recent Examples
Off Market Buybacks - Recent Examples Stock] Date |Current} Buy Back | Capital} Dividend Buy Back Market} Price (FF) Discount To Price Market Price at Time WOW] Apr-03] $13.62 | $11.40 | $2.88 $8.52 8.6% TLS | Nov-03] $4.65 $4.20 $1.50 $2.70 13.8% FGL |Dec-03] $4.73 $4.00 $1.81 $2.19 7.8% CBA | Mar-
Slide 23: Current TLS Buy-back
Current TLS Buy-back > After tax proceeds for AFl shareholder on top marginal rate (48.5%) from AFI selling TLS shares *Selling on market @ $4.65. After tax proceeds - $4.35 per share. *Selling into buy-back @ $4.05. After tax proceeds - $3.38 per share”. > Equality for a taxpayer on 16% marginal ra
Slide 24: Outtakes of the Recent Reporting Season
Outtakes of the Recent Reporting Season " One of the strongest on record: >» EBITA margins were robust at 11.6%, up from 10.5% > Net Profit After tax increased 25% >» Whilst the payout ratio for the general market was stable at 62.4%, after special dividends are included the ratio increased to 71.0%
Slide 25: Outtakes of the Recent Reporting Season
Outtakes of the Recent Reporting Season =» What does this mean for AFIC? >» Improved flow of dividends received — based on top 20 holdings this equates to an increase of approximately 13% in the final dividends received in the first half of this financial year » Markets can be volatile, but at this
Slide 26: Outlook
Outlook » Encouraging outlook for the global economy with Australia expected to experience solid growth " Strong corporate balance sheets and high cash generation provides good support for equities = Equity valuations appear reasonable but are dependent on future growth and interest rate outcomes =»
Slide 27: Outlook
Outlook « In this environment AFIC will continue to look selectively at companies which represent specific long term value: > More difficult to find given the market is trading at record highs >» Cash position of $74.5 million at 30 September 2004 >» Trading portfolio currently at 5.5% of total port
Slide 28: About AFIC
a ree ee eaticn, A iG Ree een nt HAO i ON ass | eg Australian Foundation Coe Net asset Backing Per shaw $3.46 at Shere Price a5 portiol ABOUT THE COMPANY | SHAREHOLOER INFORMATION | About AFIC AFICis a company which seeks to invest in a variety of comasnies listed! onthe Austrelian Stock Exchenge wi
Slide 29: A sound track record
a Australian Foundation INVESTMENT COMPARE A sound track record
Slide 30: Movements in the Top 20
Movements in the Top 20 Viovements In $m Rank News Corp 66.4 11 Alumina 56.7 12 AGL 46.2 16 Rio Tinto 43.8 17 AMP 39.9 18
Slide 31: Movements out of the Top 20
Movements in the Top 20 Previous Movements Out Rank James Hardie 12 Woodside Petroleum* 16 St George Bank 17 Foster’s Group 19 Suncorp-Metway 20 *$5.1m reduction in Trading Portfolio
Slide 32: Top Ordinary Securities — June 2004
Top 20 Ordinary Securities — 30 June 2004 Shares 2004 2003 Rank $m Rank $m CBA 1 227.3 4 124.0 Westpac 2 206.8 2 178.1 NAB 3 204.1 1 229.1 Wesfarmers 4 144.2 3 124.1 BHP Billiton 5 131.4 7 78.7
Slide 33: Top Ordinary Securities — June 2004
Top 20 Ordinary Securities — 30 June 2004 Shares 2004 2003 Rank $m Rank $m Telstra 117.5 74.9 6 8 ANZ Bank 7 99.9 5 87.0 Toll Holdings 8 85.8 10 56.6 Amcor 9 71.5 6 79.7 9 57.9 Coles Myer 10 71.3
Slide 34: Top Ordinary Securities — June 2004
Top 20 Ordinary Securities — 30 June 2004 Shares 2004 2003 Rank $m Rank $m News Corp. 11 66.4 56 8.8 Alumina 12 56.7 22 25.4 Woolworths 13 56.6 14 37.6 Rinker 14 50.3 15 34.4 WA News 15 49.4 11 42.9
Slide 35: Top Ordinary Securities — June 2004
Top 20 Ordinary Securities — 30 June 2004 Shares 2004 2003 Rank $m Rank $m AGL 16 46.2 21 = 27.1 Rio Tinto 17 43.8 43 13.1 AMP 18 39.9 34 17.9 Milton 19 38.7 13 38.4 Brambles 20 36.5 18 27.9
Slide 36: Directors' Aggregate Remuneration
Directors’ Aggregate Remuneration a Australian Foundation INVESTMENT COMPARE A sound track record
Slide 37: AFIC Non-executive Directors Remuneration
AFIC Non-executive Directors Remuneration 2005 2004 = 2003 (Proposed) Directors Fees 400 320 320 SGC 36 29 29 Retiring Allowance Accrual - 128 145
Slide 38: Managing Director's Remuneration
: Managing Director's Remuneration a Australian Foundation INVESTMENT COMPARE A sound track record
Slide 39: Managing Director - Fixed Annual Remuneration
Managing Director - Fixed Annual Remuneration $’000 Base Salary 337 Provision of car + FBT 37 AFI super 11 DJW, AMH, MIR super 9 ELTIP share dividends _6 400
Slide 40: Total Potential Remuneration
Year 0 Total Potential Remuneration Year 1 Years 2to4 Year 5 Base 53% Base Salary =Scope of role «Experience «Market data ey) Ly Oy 7 i / - 7 a Le 7 a WOE sonal 7 ie Ye 7 y Le Ly | yy . Uy y ] yy fk Lag fs _ Wy a Ly yy | DO Lo Li VO — | ee _ DD _ _ y y 7 y y y 7 7 y Perf. Shares awarded matching amo
Slide 41: Remuneration — Managing Director
Remuneration — Managing Director BASE Actual 57% Full Year 03/04 AT RISK o_O SF Proposed BASE st LT P 53% |} Full Year 04/05
Slide 42: Executive Long Term Incentive Plan - Performance Criteria (TSR)
Executive Long Term Incentive Plan - Performance Criteria Total Shareholder Return (TSR) with reference to defined performance targets set against the ASX 200 accumulation index performance (ASX200Al): AFIC TSR performance Percent of award vesting _ Below ASX200AI Return Above ASX200AlI Return by <1
Slide 43: Executive Long Term Incentive Plan - Performance Criteria (TPR)
Executive Long Term Incentive Plan - Performance Criteria Total Portfolio Return (TPR) with reference to relative performance against other retail fund managers as indicated by the Mercer Investment Consulting Survey of Australian Retail Fund Managers. AFIC TPR performance Percent of award vesting L
Slide 44: A sound track record
a Australian Foundation INVESTMENT COMPARE A sound track record
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