Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Shareholder Meeting (October 2004)
56 slides from Australian Foundation Investment's shareholder meeting presentation, Oct 4, 2004
Slide 1: Australian Foundation Investment Company 2004 AGM Chairman's Address
m4 Australian Foundation INVESTMENT COMPANY 4 October 2004 Australian Stock Exchange Limited Company Announcements Office Exchange Centre 20 Bridge Street Sydney NSW 2000 Australian Foundation Investment Company Limited 2004 Annual General Meeting Chairman’s Address Australian Foundation Investment
Slide 2: Welcome
4 October 2004, Welcome mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 3: 10 Year Performance
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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: Financial Highlights — Year to June 2004
Financial Highlights — Year to June 2004 Profit After Tax $124.2m Net Asset Backing $3.48 Total Return (net asset backing + dividends) 18.6% S&P/ASX 200 Acc. Index return 21.6% Total dividends per share (inc special) — 14.25c Special dividends per share 1.0c Management Expense Ratio 0.16%
Slide 6: Profit Analysis - 2004 Financial Year
Profit Analysis - 2004 Financial Year vs. 2003 Financial Year 45 4 $18.2m _$3.0m $124.2m — | : 125 4 -$1.6m $6.3 -$6.3m $102.8m 105 ¢ 2 = 85 | \ A 65 + Demerger dividends in 2003 $5.6m 45 + 25 + T T T t r A= 2 D 2 2 a x 3 Ss &£ 5 3 5 8 -_ ba 3 g s £ 5 + be = 6 F Ny E E s Ss “ > a sci S a = £ s < a
Slide 7: Earnings Per Share vs Dividends Per Share
Earnings Per Share vs Dividends Per Share Cents per share 16 > $ N Sv ~) S SS) $ NS) S S s s s s s Financial year i Earnings per share B@ Dividends per share Special dividends per share
Slide 8: Dividend Growth - % Per Year
Dividend Growth - % Per Year 3 year return 5 year return 10 year return @ Dividend Growth - inc. specials a Dividend Growth - ex. specials O
Slide 9: 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 $25
Slide 10: Comparison of Operating Expense Ratios
Comparison of Operating Expense Ratios Cost* 7 AFIC 0.16% $25 . 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 11: Portfolio Management Performance — % Per Year
Portfolio Management Performance — % Per Year 25% 4 20% 15% 10% 5% 0% 1 year return 3 year return 5 year return 10 year return @ AFIC net asset per share growth plus dividends @ CPI — S&P/ASX 200 Accumulation Index
Slide 12: Share Price Premium/Discount Relative to Net Asset Backing
Share Price Premium/Discount Relative to Net Asset Backing Per Share — Established LIC’s Price/NTA % 20% ~~~ 18% ~~~ 10% --~ 5% 0% f 5% --~ -10% 15% §- Jan 88 Apr89 Jul90 Oct91 Jan93 Apr94 Jul95 Oct96 Jan98 Apr99 Jul00 Oct01 Jan03 Apro4 GSJBW Quantitative Research == Market Cap Weighted P/NTA
Slide 13: AFIC Share Price relative to Net Asset Backing
AFIC Share Price relative to Net Asset Backing per share - Premium/Discount 20% 15% + 10% + Premium 5% + 0% 5% + Discount -10% + -15% + -20% Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- 94 95 96 97 98 99 00 01 02 03 04 AFIC Net Asset Backing per share at 30 September 2004 was $3.56 Share p
Slide 14: AFIC Share Price vs All Ordinaries Index
AFIC Share Price vs All Ordinaries Index 3.6 3.4 3.2 3 2.8 2.6 2.4 2.2 1999 2000 2001 2002 2003 2004 ooo AFIC Share Price ——Alil Ordinaries Index
Slide 15: 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 16: Movements in 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 17: 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 18: 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 19: 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 20: 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 21: 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 22: Profit - Key Components (adjusted for IFRS)
[ay Galas eee | eee 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) > Administra
Slide 23: Balance Sheet - Key Components (adjusted for IFRS)
Balance Sheet - Key Components (adjusted for IFRS) 30/6/04 30/6/04 under IFRS $m Current Assets 322 Non Current Assets 2,831 Current Liabilities 18 Non Current Liabilities 1 Deferred Tax 334 Net Assets 2,800 Share Capital 1,380 Reserves 1,052 Retained Profits 368 Equit
Slide 24: Off Market Buybacks
Meee 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 large
Slide 25: 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-0
Slide 26: Current TLS Buy-back
Current TLS Buy-back > After tax proceeds for AFI 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 27: 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 28: 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 s
Slide 29: 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 What are
Slide 30: 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 portf
Slide 31: AFIC website
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Slide 32: A sound track record
Laue a, -— 7 D 7 . — _ . . — Bie A sound track record Me Le) Ly ey Ll oo 4 Australian Foundation NVESTMENT COMPARY
Slide 33: Resolution: Financial Statements and Reports
Resolution 1 Financial Statements and Reports Number of shares % FOR 88,955,169 66.8 AGAINST 561,746 0.4 DISCRETIONARY* 43,612,016 32.8 100% * The number of the Chairman’s discretionary proxy votes are 39,796,102 (29.9%). Note: These figures relate to the proxies lodged 48 hours prior to the meeting
Slide 34: Election of Directors
~ Election of Directors mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 35: Resolution (a) Election of Donald R. Argus AO
Resolution 2 (a) Election of Donald R. Argus AO Number of shares % FOR 80,760,275 61.1 AGAINST 7,601,657 5:8 DISCRETIONARY* 43,767,460 33.1 100% * The number of the Chairman’s discretionary proxy votes are 40,059,810 (30.3%). Note: These figures relate to the proxies lodged 48 hours prior to the mee
Slide 36: Resolution (b) Election of Mr Bruce B. Teele
—— £ ace Resolution 2 (b) Election of Mr Bruce B. Teele Number of shares Yo FOR 85,378,307 64.7 AGAINST 2,916,123 2.2 DISCRETIONARY* 43,773,984 33.1 100% * The number of the Chairman’s discretionary proxy votes are 40,077,718 (30.3%). Note: These figures relate to the proxies lodged 48 hours prior t
Slide 37: Resolution (c) Election of Mr Stanley D.M. Wallis AC
Resolution 2 (c) Election of Mr Stanley D.M. Wallis AC Number of shares % FOR 79,738,561 60.5 AGAINST 8,352,440 6.3 DISCRETIONARY* = 43,771,528 33.2 100% * The number of the Chairman’s discretionary proxy votes are 39,993,763 (30.3%). Note: These figures relate to the proxies lodged 48 hours prior t
Slide 38: Increasing Maximum Number of Directors
- Increasing Maximum Number of Directors mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 39: Resolution: Increasing Maximum Number of Directors
Resolution 3 Increasing Maximum Number of Directors Number of shares %o FOR 59,432,751 45:5 AGAINST 25,987,888 19.9 DISCRETIONARY* 45,165,465 34:6 * The number of the Chairman’s discretionary proxy votes are 40,125,735 (30.7%). Note : These figures relate to the proxies lodged 48 hours prior to the
Slide 40: Retirement of Directors
Retirement of Directors mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 41: Resolution: Retirement of Directors
Resolution 4 Retirement of Directors Number of shares %o FOR 72,898,752 56.9 AGAINST 8,095,261 6:3 DISCRETIONARY* 47,098,558 36.8 100% * The number of the Chairman’s discretionary proxy votes are 41,848,940 (32.7%). Note : These figures relate to the proxies lodged 48 hours prior to the meeting.
Slide 42: Directors' Aggregate Remuneration
Resolution5 “» | 4 Directors’ Aggregate Remuneration mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 43: 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 44: Resolution: Directors' Aggregate Remuneration
Resolution 5 Directors’ Aggregate Remuneration Number of shares % FOR 54,106,674 46.6 AGAINST 31,457,570 27.1 DISCRETIONARY* 30,617,996 26.3 100% * The number of the Chairman’s discretionary proxy votes are 25,606,500 (22.0%). Note: These figures relate to the proxies lodged 48 hours prior to the me
Slide 45: Managing Director's Remuneration
: Managing Director’s — Remuneration mide A * ¢ ustralian Foundation A sound track record od INVESTMENT COMPARY
Slide 46: 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 47: Total Potential Remuneration
Total Potential Remuneration Year 1 Years 2to4 5 Base 53% Base Salary Performance LLL LEE MLL MME LLL doanancel == ~~ |: Pert. Shares Shares awarded - =Scope of role) 7) 7» =Experience «Market data 50% of actual bonus shares
Slide 48: Remuneration — Managing Director
Remuneration — Managing Director Actual BASE ST LT ctua ae a 57% | Wa Full Year 03/04 ° — AT RISK 7 BASE ST LT 53% 16% Proposed Full Year 04/05
Slide 49: Executive Long Term Incentive Plan - Performance Criteria
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 0% _ Above ASX200Al Return
Slide 50: Executive Long Term Incentive Plan - Performance Criteria
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
Slide 51: Resolution: Managing Director's Remuneration
Resolution 6 Managing Director’s Remuneration Number of shares % FOR 51,608,809 46.9 AGAINST 27,724,143 25.2 DISCRETIONARY* 30,783,172 27.9 100% * The number of the Chairman’s discretionary proxy votes are 25,650,729 (23.3%). Note: These figures relate to the proxies lodged 48 hours prior to the mee
Slide 52: A sound track record
Laue a, -— 7 D 7 . — _ . . — Bie A sound track record Me Le) Ly ey Ll oo 4 Australian Foundation NVESTMENT COMPARY
Slide 53: 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 54: Top Ordinary Securities — June 2004
Top 20 Ordinary Securities — 30 June 2004 Shares 2004 2003 Rank $m Rank $m Telstra 6 117.5 8 74.9 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 55: 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 56: 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
Australian Foundation Investment Company — Shareholder Meeting (October 2004) on 6ix