Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Shareholder Meeting (October 2012)
31 slides from Australian Foundation Investment's shareholder meeting presentation, Oct 10, 2012
Slide 1: 2012 Annual General Meeting Presentation
For personal use only 10 October 2012 The Manager ASX Market Announcements Australian Securities Exchange Exchange Centre Level 4 20 Bridge Street Sydney NSW 2000 Electronic Lodgement Australian Foundation Investment Company Limited 2012 Annual General Meeting Presentation Dear Sir / Madam Please fi
Slide 2: Annual General Meeting October 2012
For personal use only Annual General Meeting October 2012
Slide 3: Disclaimer
Disclaimer For personal use only Australian Foundation Investment Company Limited and its subsidiary AICS (AFSL 303209), 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 fai
Slide 4: Year in Summary
Year in Summary For personal use only June 2012 Reported Profit ($m) 219.9 -5.8% Net Operating Result ($m) 204.8 -10.3% Dividend Per Share (cents) 21.0 unchanged Total Portfolio ($bn) 4.7 last year 4.9 MER (%) 0.19 + 0.02 Number of Holdings 73 down 5 Annual General Meeting October 2012
Slide 5: Earnings and dividends per share
Earnings and dividends per share For personal use only Dividend maintained. Objective remains to grow dividends over time Annual General Meeting October 2012
Slide 6: On average discount has narrowed over the year
On average discount has narrowed over the year For personal use only Annual General Meeting October 2012
Slide 7: Portfolio has outperformed over the short and long term
Portfolio has outperformed over the short and long term For personal use only After tax and expenses. Ignores benefits of franking and LIC tax credits Annual General Meeting October 2012
Slide 8: Franking provides an important addition to returns
Franking provides an important addition to returns For personal use only After tax and expenses. Ignores benefits of LIC tax credits Annual General Meeting October 2012
Slide 9: Our Investment Process
Our Investment Process For personal use only Long term investor in businesses Active management of the portfolio: • Investment team of 6 • Investment Committee – Directors and Investment Team • Meet regularly with company management, industry experts, brokers, attend relevant conferences, site visit
Slide 10: What we look for in Companies
What we look for in Companies For personal use only • Quality management and board • Strong balance sheet/return on capital • Attractive industry structure • Long term competitive advantage • Cash flow generation likely to support growing dividends • Attractive valuation for a long term investor • C
Slide 11: Note: Semi Log Scale has been used
For personal use only Note: Semi Log Scale has been used Annual General Meeting October 2012
Slide 12: Valuation levels look attractive
Valuation levels look attractive For personal use only Source: Goldman Sachs Shareholder Meetings October 2012
Slide 13: Attractive Investment opportunities have been on offer for long term investors
Attractive Investment opportunities have been on offer for long term investors For personal use only Annual General Meeting October 2012
Slide 14: Key Investment Activity has been to deploy funds from the Convertible Note Issue
Key Investment Activity has been to deploy funds from the $223m Convertible Note Issue in December 2011 For personal use only • Building exposure in selected sectors - Financials/market related: AMP, ASX, IRESS - Healthcare: CSL, Ramsay Healthcare, Ansell, Sonic Healthcare - Infrastructure: Hastings
Slide 15: Major Sales
Major Sales • Takeovers For personal use only - Fosters - Eastern Star Gas • Fairfax Media and APN in response to adverse long term structural change Annual General Meeting October 2012
Slide 16: Adverse structural change has affected other companies
Adverse structural change has affected other companies For personal use only • Once held in the AFIC portfolio: - Arrium (OneSteel) – sold 2011 - Hill Industries – sold 2010 - PaperLinX – sold 2009 • Not held in the AFIC portfolio: - BlueScope Steel - David Jones - Myer Holdings Annual General Meeti
Slide 17: Top at August 2012 – Banks
Top 25 at 31 August 2012 – Banks For personal use only Major banks are an important source of fully franked dividends. Whilst growth is likely to be subdued we expect continuance of dividend flow. Rank Company $ million % of portfolio 1 *Commonwealth Bank 468.1 9.6 3 *Westpac 457.0 9.4 5 *National A
Slide 18: Top at August 2012 – Energy
Top 25 at 31 August 2012 – Energy For personal use only Energy exposure is an important part of the portfolio and we remain confident about ongoing demand particularly from quality resource/projects. Rank Company $ million % of portfolio 10 *Oil Search 118.1 2.4 12 Woodside Petroleum 109.2 2.2 16 *S
Slide 19: Top at August 2012 – Retail
Top 25 at 31 August 2012 – Retail For personal use only Retail exposure is through non discretionary retailers Rank Company $ million % of portfolio 4 *Wesfarmers (a) 266.2 5.5 8 Woolworths 184.1 3.8 Total 450.3 9.3 (a) Includes $50.1m WESN partially protected securities * Indicates that options wer
Slide 20: Top at August 2012 – Resources
Top 25 at 31 August 2012 – Resources For personal use only Resource exposure is primarily through the diversified low cost producers Rank Company $ million % of portfolio 2 *BHP Billiton 457.4 9.4 9 Rio Tinto 177.5 3.7 Total 634.9 13.1 * Indicates that options were outstanding against part or all of
Slide 21: Top at August 2012 – Infrastructure
Top 25 at 31 August 2012 – Infrastructure For personal use only Infrastructure holdings have been targeted at those with attractive long term assets with relatively simple structures Rank Company $ million % of portfolio 11 Australian Infrastructure Fund 109.5 2.3 13 *Transurban 100.0 2.1 19 Hasting
Slide 22: Hastings Diversified Utilities Fund
Hastings Diversified Utilities Fund For personal use only • 100% ownership of EPIC Energy • Attractive long term pipeline assets exposed to growth in gas – in particular South West Queensland Pipeline • Currently under a takeover offer from APA • Move to internalised management model has not been su
Slide 23: Top at August 2012 – Mining Services
Top 25 at 31 August 2012 – Mining Services For personal use only Exposure to companies which rely on volumes rather than commodity prices – Bradken dropped out the top 25 over the second half of the financial year Rank Company $ million % of portfolio 22 *Orica 71.0 1.5 24 Incitec Pivot 61.7 1.3 Tot
Slide 24: Top at August 2012 – Non Bank Financial Services
Top 25 at 31 August 2012 – Non Bank Financial Services For personal use only Financial services and insurance Rank Company $ million % of portfolio 15 *AMP 93.3 1.9 18 *QBE Insurance 84.9 1.7 23 Computershare 68.5 1.4 Total 246.7 5.0 * Indicates that options were outstanding against part or all of t
Slide 25: Top at August 2012 – Industrial
Top 25 at 31 August 2012 – Industrial For personal use only Telstra and industrial companies Rank Company $ million % of portfolio 7 Telstra 206.7 4.3 14 Amcor 95.1 2.0 21 *Brambles 71.7 1.5 25 Coca-Cola Amatil 57.0 1.2 Total 430.5 9.0 * Indicates that options were outstanding against part or all of
Slide 26: Recent Reporting Season Feedback From Companies
Recent Reporting Season Feedback From Companies For personal use only • Continued cost pressures evident • Difficult industrial relations climate • High Australian dollar making conditions difficult for some companies • Many sectors experiencing subdued conditions • Political environment is unsettli
Slide 27: Outlook
Outlook For personal use only • Despite recent optimism global conditions remain uncertain with the path to reducing high debt levels unresolved • Earnings growth in Australia likely to be subdued – company specific performance the key • Monetary policy in Australia provides a potential safety valve
Slide 28: Debt relative to economic growth remains very high
Debt relative to economic growth remains very high For personal use only Source: Morgan Stanley Annual General Meeting October 2012
Slide 29: Earnings Expectations
Earnings Expectations For personal use only Source: Goldman Sachs estimates Recent history shows these are usually more optimistic than the outcome Annual General Meeting October 2012
Slide 30: Australian equity returns vs risk have been historically attractive against other assets
Australian equity returns vs risk have been historically attractive against other assets For personal use only Note standard deviation of return is one measure of risk Source: Elroy Dimson, Paul Marsh and Mike Staunton, CS Global Investment Returns Source Book 2012 Annual General Meeting October 201
Slide 31: For personal use only
For personal use only Annual General Meeting October 2012
Australian Foundation Investment Company — Shareholder Meeting (October 2012) on 6ix