Australian Foundation Investment Co. Ltd. · ASX:AFI
Australian Foundation Investment — Shareholder Meeting (October 2019)
36 slides from Australian Foundation Investment's shareholder meeting presentation, Oct 8, 2019
Slide 1: 2019 Annual General Meeting – Chairman's Address and Presentation
8 October 2019 For personal use only 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 2019 Annual General Meeting – Chairman’s Address and Presentation De
Slide 2: Chairman's Address
Chairman’s Address For personal use only During the year there have been several changes on our board. As many of you will be aware Terry Campbell retired from the AFIC board and chairmanship at the end of the AGM last year. Terry had made a very valuable contribution to AFIC over 34 years. In Janua
Slide 3: Chairman's Address (continued)
addressed by next year we will be voting against. We also believe our voting needs to be tailored to the company e.g. what may be appropriate for a start-up business where For personal use only the CEO has a big shareholding exposure aligned with the shareholders may be inappropriate in a top 10 com
Slide 4: For personal use only
For personal use only Annual General Meeting 2019
Slide 5: Disclaimer
Disclaimer Australian Foundation Investment Company Limited and its subsidiary AICS (AFSL 303209), their related For personal use only 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 6: Thank you for response to shareholder survey on franking
We wanted to thank you again for response to the shareholder survey on franking For personal use only • A strong response with close to 17,000 replies received from AFIC shareholders • We acknowledge not all shareholders agreed with the approach – the vast majority were however supportive • Helped u
Slide 7: Financial Results
For personal use only Financial Results Annual General Meeting 2019
Slide 8: Financial results
Financial results For personal use only 8 special dividend paid with interim dividend Management expense ratio of 0.13% Annual General Meeting 2019
Slide 9: Income per share in 2018/19 was high because of one-off factors
Income per share in 2018/19 was high because of a number of ‘one-off’ factors For personal use only 2018/2019 2017/2018 Note expenses and tax equate to approximately 2 cents per share for both financial years Annual General Meeting 2019
Slide 10: Our Approach
For personal use only Our Approach Annual General Meeting 2019
Slide 11: How we operate as a Listed Investment Company
How we operate as a Listed Investment Company For personal use only Shareholders Disciplined own the investment Transparent Company approach Very low cost – Benefits of a Tax effective no performance close end fund fees Annual General Meeting 2019
Slide 12: Dividends are a key driver of shareholder returns in Australia
Dividends are a key driver of shareholder returns in Australia For personal use only Annual General Meeting 2019
Slide 13: Effective yield on AFIC's average cost base in Transurban
Effective yield (in yellow) on AFIC’s average cost base of $6.18 in Transurban highlights the benefit of being a long term investor having retained capital working for you For personal use only Annual General Meeting 2019
Slide 14: Market Settings and the Portfolio
For personal use only Market Settings and the Portfolio Annual General Meeting 2019
Slide 15: Market and key sector performance – Year to September 9
Market and key sector performance – Year to 30 September 2019 For personal use only Includes dividends Annual General Meeting 2019
Slide 16: Relative portfolio performance, including franking
Relative portfolio performance, including franking – per annum returns to 30 September 2019 For personal use only Annual General Meeting 2019
Slide 17: Recent AFIC portfolio performance relative to the index
Recent AFIC portfolio performance relative to the index • Underweight REIT’s – risk of capital loss with share prices well above asset backing For personal use only • No exposure to Gold sector – not a typical AFIC stock: short mine life, volatile price, limited dividends • Underweight Technology se
Slide 18: Heightened volatility in equity markets
We are currently facing heightened volatility in equity markets For personal use only • Trade Wars • Brexit • Middle East tensions/conflict • Weakening manufacturing data globally • Falling bond yields – unchartered territory • Equity valuations elevated against long term averages However this uncer
Slide 19: AFIC offers a diversified portfolio of quality stocks
AFIC offers a diversified portfolio of quality stocks What we look for: For personal use only • Sustainable competitive advantage – unique assets producing strong returns on capital • Strong management team and board • Recurring, predictable earnings are preferred • Financial strength – strong cash
Slide 20: AFIC portfolio
AFIC portfolio For personal use only Portfolio attributes: • Diversified portfolio of quality holdings • Low turnover Portfolio positioning: • Reduced number of stocks with capital reinvested in quality companies • Increased exposure to preferred companies Annual General Meeting 2019
Slide 21: A number of holdings have been sold
A number of holdings have been sold – total holdings down from 85 to 71 over the past 12 months For personal use only Concern about sustainable competitive advantage. Low return profile. Concern about sustainable competitive advantage. Concern about sustainable competitive advantage. Over geared bal
Slide 22: Using proceeds to increase exposure to preferred companies
Using proceeds to increase exposure to preferred companies For personal use only Competitive advantage in growing green energy opportunities with strong ROE and balance sheet. Strong management team, high returns, lowest cost, good balance sheet, investing for future earnings growth, strong growth p
Slide 23: Using proceeds to increase exposure to preferred companies continued
Using proceeds to increase exposure to preferred companies continued For personal use only Very strong market position with broadening distribution network and sustainable competitive advantage. Strong balance sheet. Attractive monopolistic assets which generate attractive returns. Opportunities to
Slide 24: Examples of what we look for – Wesfarmers
Examples of what we look for – Wesfarmers • Market leadership position in Australian For personal use only $ and New Zealand hardware • Strong management team • Consistent earnings growth • Strong balance sheet post the demerger of Coles • Strong returns well above the cost of capital Source: FactSe
Slide 25: Buying opportunities in quality companies – James Hardie Industries
Recent volatility has provided buying opportunities in quality companies – James Hardie Industries For personal use only • Leadership position in Fibre Cement $ exterior cladding market in the US • Fibre Cement siding only represents 20% of the siding market • Strong cash flow reinvested back into t
Slide 26: Buying opportunities in quality companies – National Australia Bank
Recent volatility has provided buying opportunities in quality companies – National Australia Bank For personal use only • Maximum negative news around the $ Royal Commission • Stock was exhibiting value, yielding 6.7% fully franked • However earnings growth likely to be low in the short term • Long
Slide 27: Selected Nursery holdings
Selected “Nursery” holdings 1.5% of the portfolio 0.7% of the portfolio 0.4% of the portfolio For personal use only • Dominate position in • Leadership position in • Growing leadership position in logistics accounting software strongly growing data market • Moorebank opportunity is • Cloud based tec
Slide 28: Top holdings as at September 2019
Top 20 holdings as at 30 September 2019 For personal use only Rank Company % of Portfolio 1 Commonwealth Bank of Australia 8.3% 2 BHP* 6.4% 3 CSL 6.4% 4 Westpac Banking Corporation 6.0% 5 National Australia Bank* 4.9% 6 Transurban 4.4% 7 Macquarie Group 3.6% 8 Wesfarmers 3.5% 9 Australia and New Zea
Slide 29: Top holdings as at September 2019 continued
Top 20 holdings as at 30 September 2019 continued For personal use only Rank Company % of Portfolio 11 Rio Tinto 2.3% 12 Amcor 2.3% 13 Sydney Airport 2.0% 14 James Hardie Industries 2.0% 15 Telstra Corporation 1.8% 16 Woodside Petroleum* 1.8% 17 Brambles 1.8% 18 Oil Search* 1.7% 19 Mainfreight 1.5%
Slide 30: AFIC share price can trade at a discount to NTA
In strong markets AFIC’s share price can sometimes trade at a discount to NTA – at end September 2019 the discount was 1.6% For personal use only Annual General Meeting 2019
Slide 31: Closing Remarks
For personal use only Closing Remarks Annual General Meeting 2019
Slide 32: Asset Prices are at extremes
Asset Prices are at extremes For personal use only • Gold price is very high • Bond Prices are elevated • US and Australian equity markets close to all time highs • Equity valuations are extreme for many stocks in the Australian market Annual General Meeting 2019
Slide 33: US is still holding up the global economy as others weaken
US is still holding up the global economy as others weaken J.P. Morgan Forecast Revision Index Cumulative % point revision to rolling forecast of GDP (Q-1, Q, Q+1, Q+2) For personal use only Source: J.P. Morgan Annual General Meeting 2019
Slide 34: Heightened volatility in equity markets
Heightened volatility in equity markets For personal use only Annual General Meeting 2019
Slide 35: For personal use only
For personal use only We believe we have a very strong portfolio of high quality companies exhibiting strong returns on invested capital, that have strong balance sheets that reduce risk and that provide strategic flexibility for these businesses Annual General Meeting 2019
Slide 36: Australian Foundation
AUSTRALIAN FOUNDATION
Australian Foundation Investment Company — Shareholder Meeting (October 2019) on 6ix