Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Investor Presentation (November 2008)
43 slides from Australian Foundation Investment's investor presentation, Nov 27, 2008
Slide 1: ASX cover letter: Presentations to Investors
For personal use only 27 November 2008 The Manager Company Announcements Office Australian Securities Exchange Limited Exchange Centre Level 4 20 Bridge Street Sydney NSW 2000 Electronic Lodgement Australian Foundation Investment Company Limited Presentations to Investors Dear Sir or Madam Please fi
Slide 2: Presentation by Geoff Driver, General Manager
For personal use only Presentation by Geoff Driver General Manager Australian Foundation Investment Company 27 November 2008
Slide 3: Disclaimer
Disclaimer For personal use only Australian Foundation Investment Company Limited, their related entities and each of their respective directors, officers and agents (together the Disclosers) have prepared the information contained in these materials in good faith. However, no warranty (express or i
Slide 4: Setting the Scene
Australian Foundation Investment Company For personal use only Setting the Scene We invest shareholders’ capital in a diversified portfolio of quality Australian Companies to achieve: Dividends which, over time, grow faster than the rate of inflation; and Attractive total returns over the medium to
Slide 5: Our Approach to Investing
For personal use only Our Approach to Investing Value Investors We BUY and HOLD for the medium to long term not resale SALES driven by takeovers or adverse changes in the medium to long term outlook.
Slide 6: AFIC's Investment Structure – September 2008
AFIC’s Investment Structure – 30 For personal use only September 2008 Long Term Investment portfolio: A$4.3 billion Approximately 100 securities Focus on S&P/ASX 200 Trading portfolio: Up to 10% of total portfolio – currently A$78 million or 1.8% Short term positions Options writing strategies Fixed
Slide 7: The Benefits of Listed Investment Companies
The Benefits of Listed Investment Companies For personal use only Company structure regulated by ASIC as per Corporations Law A diversified portfolio through a single investment Investment decisions not pressured by flow of funds Lower MER than retail managed funds Transparency
Slide 8: The Benefits of Listed Investment Companies
The Benefits of Listed Investment Companies For personal use only Taxation advantages: fully frank dividends – typically higher yield than index buy and hold strategy allows LICs to access the concessional capital gains tax rate Simplified distribution structure
Slide 9: Management Expense Ratio
Management Expense Ratio For personal use only AFIC MER for the year ended 30 June 2008 = 0.14% Internal Management External Management Tend to have a deep Tend to have a growth bias value/dividend income bias Long holding periods Holdings periods tend to vary MERs tend to be lower than MERs tend to
Slide 10: AFIC Investment Process – Philosophy
AFIC Investment Process – Philosophy For personal use only Buy and Hold over the long term Sound returns with low variability Growing stream of fully franked dividends Investment in quality stocks – value of the business footprint, quality of the people Focus on tax efficiency Portfolio diversificat
Slide 11: Top Ordinary Securities – September 2008
Top 25 Ordinary Securities – 30 September 2008 For personal use only $million % of portfolio excl. cash * 1 BHP Billiton 444.1 10.2% 2 Commonwealth Bank of Australia 339.9 7.8% 3 Westpac Banking Corporation 269.7 6.2% 4 Wesfarmers (a) 226.5 5.2% * 5 Telstra Corporation 207.4 4.8% * 6 Rio Tinto 207.3
Slide 12: Top Ordinary Securities – Sept. 2008 con't.
Top 25 Ordinary Securities – 30 Sept. 2008 con’t. For personal use only $million % of portfolio excl. cash * 11 Santos 89.6 2.1% 12 QBE Insurance Group 82.7 1.9% * 13 Origin Energy 77.3 1.8% 14 Computershare 75.9 1.7% 15 St George Bank 72.7 1.7% 16 West Australian Newspapers Holdings 71.3 1.6% * 17
Slide 13: Top Ordinary Securities – Sept. 2008 con't.
Top 25 Ordinary Securities – 30 Sept. 2008 con’t. For personal use only $million % of portfolio excl. cash 21 AGL Energy 58.7 1.3% * 22 Brambles 56.7 1.3% 23 Toll Holdings 55.5 1.3% 24 Amcor 54.4 1.2% 25 Transurban Group 53.3 1.2% Total 3,280.9 As % of Total Portfolio Value 75.4% (excludes Cash & Ba
Slide 14: What Happened in the Market - All Ordinaries
For personal use only Value Ju n- 0 2500 3000 3500 4000 4500 5000 5500 6000 6500 7000 S 2 ep - D 02 ec -0 M 2 ar - Ju 03 n- 0 S 3 ep - D 03 ec -0 M 3 ar - Ju 04 n- 0 S 4 ep - D 04 ec -0 M 4 ar - Ju 05 n- 0 S 5 ep 19 - D 05 Date ec % -0 M 5 ar - pa Ju 06 n- 0 Price Index S 6 ep - D 06 ec - M 06 ar -0
Slide 15: Comparative Price Index Returns
Comparative Price Index Returns For personal use only 1 July 2007 to 21 November 2008 35% 25% 15% 5% -5% 7 8 8 7 8 08 -0 -0 r -0 l-0 l-0 n- t ct Ju Ju Oc Ap -15% Ja O -25% -35% Resources S&P/ASX 200 -45% Industrials -55% Financials
Slide 16: A key feature of our approach has been knowing what to avoid
A key feature of our approach has been knowing For personal use only what to avoid Highly leveraged balance sheets Complex business models – including fee leakage Reliance on funding arbitrage as a competitive advantage/aggressive acquisition growth AFIC has sold over the last 2 years: Centro ABC Le
Slide 17: AFIC Annualised Returns - Year Ended October 2008
AFIC Annualised Returns - Year Ended For personal use only 20% 31 October 2008 9.4% 10.6% 10.4% 9.8% 8.8% 10% 8.7% 0% -10% 1 year return 5 year return 10 year return -20% -24.2% -30% -30.0% -40% -37.8% -50% Net Asset per share growth plus dividends Share Price growth plus dividends S&P/ASX 200 Accum
Slide 18: Relative Portfolio Performance to October 2008
Relative Portfolio Performance to 31 October 2008 For personal use only
Slide 19: Portfolio Performance in Different Market Cycles
Portfolio Performance in Different Market Cycles* For personal use only 40.0% underperformance in strongly rising markets 30.0% 20.0% 10.0% 0.0% 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 -10.0% Strong outperformance in wea
Slide 20: How did we get to where we are?
How did we get to where we are? – a For personal use only combination of things! Over accommodative Monetary Policy in the US Inadequate regulation of financial institutions Poor credit practices Short term incentive structures that rewarded speculation, growth but forgot about risk Business models
Slide 21: Longer Term Implications of Recent Turmoil
Longer Term Implications of Recent Turmoil For personal use only Business models that relied on high leverage and heavily on wholesale funding are dead Households in developed economies enter a period of downturn with highly leveraged balance sheets How quickly will the banking crisis be resolved Th
Slide 22: Longer Term Implications of Recent Turmoil
Longer Term Implications of Recent Turmoil For personal use only Western finance will be re-regulated - rules on capital will be overhauled to reduce leverage and enhance the systems reliance The balance between the needs of the state vs. the desire for free markets will be tested further The contin
Slide 23: What will we be dealing with over the coming period?
What will we be dealing with over the coming period? For personal use only Unwinding of the credit boom Developed economies likely to be in a cyclical recession over the next year or so Deflation rather than inflation Unwinding of leverage in consumer balance sheets
Slide 24: On a more positive note - What will we be dealing with?
On a more positive note - What will we be For personal use only dealing with over the coming period? Co ordinated government and central bank actions to stimulate growth Commodity demand still expected to rise over the long term in China and emerging economies Valuations in the market well below con
Slide 25: Current Investment Focus
Current Investment Focus For personal use only Portfolio we want to own when current cycle improves – What do you want you portfolio to look like in 2/3 years time? Focus on: people quality long term business franchises balance sheet strength margin formation/cash flow generation
Slide 26: Current Investment Focus con't.
Current Investment Focus con’t. For personal use only Market opportunities Deeply discounted rights issues at bottom of market cycle Banks - although will face short term difficulties Small Industrial Companies
Slide 27: Previous market declines – closing in on the record
Previous market declines – closing in on the record For personal use only
Slide 28: All Ordinaries Price Index – A Long Term View
All Ordinaries Price Index – A Long Term View For personal use only
Slide 29: Australian Foundation Investment Company / Mirrabooka Investments
om Australian Foundation A / / C IL INVESTMENT COMPANY * D/JJE/R|R| T/W)A]R|RIH ¢. 1/N|V|E|s|T|MIE|N|T|s MIRRABOOKA * Investments Limited
Slide 30: Presentation by Bruce Teele, Chairman
For personal use only Presentation by Bruce Teele Chairman Australian Foundation Investment Company 27 November 2008
Slide 31: Disclaimer
Disclaimer For personal use only Australian Foundation Investment Company Limited, their related entities and each of their respective directors, officers and agents (together the Disclosers) have prepared the information contained in these materials in good faith. However, no warranty (express or i
Slide 32: All Ordinaries Price Index – A Long Term View
All Ordinaries Price Index – A Long Term View For personal use only
Slide 33: The S&P500 Price Index – A Long Term View
The S&P500 Price Index – A Long Term View For personal use only
Slide 34: Comparison of the market fall in Australia - 1974 with 2008
Comparison of the market fall in Australia - For personal use only 1974 with 2008 April '74 -2.0% June '08 -7.8% May '74 -8.0% July '08 -4.6% June '74 -14.0% Aug. '08 +3.2% July '74 -8.6% Sept. '08 -10.4% Aug. '74 -13.2% Oct. '08 -12.7% Sept. '74 -9.8% Nov. '08 -13.0% 6 month fall -45% 6 month fall
Slide 35: Previous market declines – closing in on the record
Previous market declines – closing in on the record For personal use only
Slide 36: AFIC Investment Performance to October 2008
AFIC Investment Performance to 31 October 2008 For personal use only 20% 9.4% 10.4% 11.6% 8.7% 8.8% 10% 8.9% 0% 1 year return 5 year return 10 year return 20 year retu rn -10% -20% -30% -30.0% -40% -37.8% -50% Net Asset per share grow th plus dividends S &P/ASX 200 Accum ulation Index
Slide 37: AFIC Investment Performance to October 2008
AFIC Investment Performance to 31 October 2008 For personal use only #) * + ,-./ ! ( ( ( ( &'# # $ $% ! "# $ $% &'# &'# # $ $% !" # $ $%
Slide 38: The Benefits of Listed Investment Companies
The Benefits of Listed Investment Companies For personal use only A diversified portfolio through a single investment Investment decisions not pressured by flow of funds Lower MER than retail managed funds (AFIC MER around 0.2%) Transparency
Slide 39: The Benefits of Listed Investment Companies
The Benefits of Listed Investment Companies For personal use only Taxation advantages: fully frank dividends – typically higher yield than index buy and hold strategy allows LICs to access the concessional capital gains tax rate Simplified distribution structure
Slide 40: A key feature of our approach has been knowing what to avoid
A key feature of our approach has been knowing For personal use only what to avoid Highly leveraged balance sheets Complex business models – including fee leakage Reliance on funding arbitrage as a competitive advantage/aggressive acquisition growth AFIC has sold over the last 2 years: Centro ABC Le
Slide 41: Current Investment Focus
Current Investment Focus For personal use only Portfolio we want to own when current cycle improves Focus on: people quality long term business franchises balance sheet strength margin formation/cash flow generation
Slide 42: Current Investment Focus con't.
Current Investment Focus con’t. For personal use only Market opportunities Deeply discounted rights issues at bottom of market cycle Banks - although will face short term difficulties Small Industrial Companies
Slide 43: Australian Foundation Investment Company / Mirrabooka Investments
om Australian Foundation A / / C IL INVESTMENT COMPANY * D/JJE/R|R| T/W)A]R|RIH ¢. 1/N|V|E|s|T|MIE|N|T|s MIRRABOOKA * Investments Limited
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