23 November 2009
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
NZ Shareholder Information Meetings
Dear Sir or Madam
Please find attached a presentation being given by the Company at Shareholder
Information Meetings being held in New Zealand this week.
Yours faithfully,
Simon Pordage
Company Secretary
Australian Foundation Investment Company
Presentation to New Zealand Investors
November 2009
Disclaimer
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 implied) is made as to the accuracy, completeness or
reliability of any statements, estimates or opinions or other information contained in
these materials (any of which may change without notice) and to the maximum
extent permitted by law, the Disclosers disclaim all liability and responsibility
(including, without limitation, any liability arising from fault or negligence on the part
of any or all of the Disclosers) for any direct or indirect loss or damage which may
be suffered by any recipient through relying on anything contained in or omitted
from these materials. Any reader is strongly advised to make their own enquiries
and seek independent professional advice regarding information contained in these
materials.
These materials have been prepared solely for the purpose of information and do
not constitute, nor are they intended to constitute advice nor an offer or invitation to
any person to subscribe for, buy or sell any shares or any other securities.
Australian Foundation Investment Company
We invest shareholders' capital in a diversified portfolio of
quality Australian Listed Companies to achieve:
Dividends which, over time, grow faster than the
rate of inflation; and
Attractive total returns over the medium to long
term
Our Approach to Investing
We
BUY
to hold for the medium to long term not resale
Holdings are kept under constant review but
SALES
are not common, often driven by takeovers
Not pressured from fund flows or the index
Long Term Investment portfolio:
A$4.6 billion
Approximately 75 securities, focus on S&P/ASX 200
Trading portfolio:
Up to 10% of total portfolio - A$50 million or 1.1%
Short term positions, options writing strategies
Fixed rate borrowings of A$50 million (rate of 6.095%
maturing Aug. 2011)
Cash of A$96 million
MER of 0.19%
91,000 shareholders, approximately 8,000 in New Zealand
AFIC's Investment Structure 31 October 2009
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
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-0
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-06
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-09
Date
Va
l
u
e
What Happened in the Australian Market - All
Ordinaries Price Index
19%
pa
54
%
fal
l fr
om
hi
gh
48
%
ri
se
fr
om
lo
w
Australian All Ordinaries Price Index Long Term
Key Investment Themes for AFIC Over the Year
Took a cautious approach in very difficult market
conditions - exited some holdings
Maintained a relatively high cash balance
Participated in deeply discounted placements where
attractive long term value was on offer
Tried to look through the cycle for businesses that would
emerge with strengthened positions
Maintained the Trading Portfolio at very low levels
0
40
80
120
160
200
240
2009
Operating
Profit
2008
Operating
Profit
$ million
Operating Profit Analysis
2009 Full Year vs. 2008 Full Year
$199.6m
Dividends and
distributions were
$214.9m versus
$217.4m last year
Major Differences
Income tax fell $2.1m
$205.1m
Trading income was
negative $12.5m
whereas last year this
was negative $7.6m
0
50
100
150
200
250
300
2009 AIFRS Profit
2008 AIFRS Profit
$ million
Profit for the Year (AIFRS) Profit Analysis
2009 Full Year vs. 2008 Full Year
Major Items after
tax
$416.1m
400
450
$211.0m
$199.6m
$205.1m
$103.5m
-$96.1m
Net Operating Profit
Net Gains/(Losses)
on investments
including unrealised
"impairment" losses
Realised gains on sales
of $11.7m
Unrealised impairment
charge of $107.8m
AIFRS Impairment Charge
Auditors required an impairment charge where a holding:
was below its accounting cost base for a minimum of
15 months, or
its market value was more than 35% below its
accounting cost base
These were unrealised losses
This was required even if we considered long term
investment value was not impaired
As a result, the Accounting Result was impacted
by these unrealised losses
The unrealised impairment charge of $107.8 million
helped reduce the $199.6 million Operating Profit to
an accounting profit of $103.5 million
It had no effect on net asset backing per share
These accounting rules are changing again this year
20.5
21.2
23.7
19.4
17.3
21
21
21
17
16
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
2005
2006
2007
2008
2009
Financial year
C
e
n
t
s p
e
r
sh
ar
e
Earnings per share
Dividends per share
Earnings Per Share and Dividends Per Share
Note: Earnings per share is based on net operating profit per share
10.8%
2.5%
20.3%
9.6%
13.3%
10.9%
6.3%
22.5%
-0.5%
21.4%
8.8%
9.5%
-5%
0%
5%
10%
15%
20%
25%
1 year return
3 year return
5 year return
10 year return
Net Asset per share growth plus dividends
Share Price growth plus dividends
S&P/ASX 200 Accumulation Index
Annualised Returns to 31 October 2009 in A$
Note: AFIC's NTA performance is after fees and tax paid
10.7%
12.4%
31.8%
10.8%
16.3%
34.2%
9.4%
11.9%
33.0%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
1 year return
5 year return
10 year return
Net asset per share growth plus dividends (NZD)
Share price growth plus dividends (NZD)
S&P/ASX 200 Accumulation Index (NZD)
Annualised Returns to 31 October 2009 in $NZ
Note: AFIC's NTA performance is after fees and tax paid
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Oct-99
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
AFIC Share Price Relative to Net Asset Backing
Premium
Discount
Top 25 Ordinary Securities (A$) 31 October 2009
$m
% of
portfolio
* Indicates that options were outstanding against part or all of the holding in the
Trading Portfolio
(a) Includes $39.6 million of WESN partially protected securities
* 1 BHP Billiton
533.8 11.5%
2 Westpac Banking Corporation
480.9 10.3%
3 Commonwealth Bank of Australia
442.7 9.5%
* 4 National Australia Bank
271.1 5.8%
5 Rio Tinto
227.9 4.9%
6 Wesfarmers (a)
212.8 4.6%
7 Woolworths
177.6 3.8%
8 Telstra Corporation
166.2 3.6%
* 9 Australia & New Zealand Banking Group
144.5 3.1%
10 Woodside Petroleum
114.9 2.5%
$m
% of
portfolio
* Indicates that options were outstanding against part or all of the holding in the
Trading Portfolio
Top 25 Ordinary Securities (A$) 31 October 2009
* 11 Santos
101.4 2.2%
12 QBE Insurance Group
91.9 2.0%
13 Computershare
89.2 1.9%
14 Amcor
86.2 1.9%
* 16 Oil Search
81.8 1.8%
15 Origin Energy
78.0 1.7%
17 Toll Holdings
68.6 1.5%
* 18 AMP
61.4 1.3%
21 Orica
60.2 1.3%
20 West Australian Newspapers Holdings
60.2 1.3%
$m
% of
portfolio
* Indicates that options were outstanding against part or all of the holding in the
Trading Portfolio
Top 25 Ordinary Securities (A$) 31 October 2009
22 AGL Energy
59.5 1.3%
19 Brambles
55.7 1.2%
23 Westfield Group
50.8 1.1%
24 Milton Corporation
50.6 1.1%
25 Australian Infrastructure Fund
50.3 1.1%
Total 3,818.4
As % of Total Portfolio Value
82.1%
(excludes Cash)
Major Trends in Investment Portfolio Relative to
Industry Sector
Telecommunications
Industrials
Consumer Staples
Consumer Discretionary
Holding
Materials
Banks
Energy
Actively Increasing
Note AFIC is not typically a seller of shares
Major Purchases in the Investment Portfolio (above
A$2m) since 1 July 2009 to 31 October 2009
$million
Comment
Hastings Diversified Utilities
15.6
Placement/Underwriting
Oil Search
11.8
DRP + Placement
Amcor
11.0
Placement
Westpac Banking Corp
9.9
DRP
Eastern Star Gas
9.2
Purchase
National Australia Bank
6.2
DRP
ANZ Banking Group
2.5
DRP
QBE Insurance Group
2.4
DRP
Campbell Brothers
2.2
DRP + Placement
Major Sales in the Investment Portfolio (above
A$2m) since 1 July 2009 to 31 October 2009
$million
Santos FUELS
13.2
Redemption by Company
Comment
New Stocks in the Investment Portfolio 2007 to 2009
Tox Free Solutions
Iluka Resources
OneSteel
(as a result of takeover of Smorgon Steel)
Fleetwood Corporation
IRESS Market Technology
Crane Group
Comparative Price Index Returns since 1 July 2008
Resources
Industrials
S&P/ASX 200
Financials
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
Ju
l-0
8
Se
p-
08
No
v-
08
Ja
n-
09
M
ar
-0
9
M
ay
-0
9
Ju
l-0
9
Se
p-
09
Market Recovery From Previous Downturns
100
110
120
130
140
150
160
170
180
0
50
100
150
200
250
300
350
400
450
500
550
600
650
1931
1974
1982
1987
1991
2009
Source: IRESS, GSJBW Research estimates.
Recovery Phases - Major Market Falls - Daily Moves
Days from market trough
Index rebased to 100 at trough
ASX 200 Industrials Propective PER - Rolling 12 Months Forward
8
10
12
14
16
18
20
22
A
u
g
-8
9
Feb
-9
0
A
u
g
-9
0
Feb
-9
1
A
u
g
-9
1
Feb
-9
2
A
u
g
-9
2
Feb
-9
3
A
u
g
-9
3
Feb
-9
4
A
u
g
-9
4
Fe
b
-9
5
A
u
g
-9
5
Fe
b
-9
6
A
u
g
-9
6
Feb
-9
7
A
u
g
-9
7
Feb
-9
8
A
u
g
-9
8
Feb
-9
9
A
u
g
-9
9
Feb
-0
0
A
u
g
-0
0
Feb
-0
1
A
u
g
-0
1
Feb
-0
2
A
u
g
-0
2
Fe
b
-0
3
A
u
g
-0
3
Fe
b
-0
4
A
u
g
-0
4
Fe
b
-0
5
A
u
g
-0
5
Feb
-0
6
A
u
g
-0
6
Feb
-0
7
A
u
g
-0
7
Feb
-0
8
A
u
g
-0
8
Feb
-0
9
A
u
g
-0
9
Average: 14.5
Average: 13.9
(excl period Oct 98 - Jul 01)
Source: GSJBW Research estimates
Prospective PE's back through the long term average
Expectations of strong recovery in earnings
EPS GROWTH FORECASTS
Core - ASX 300 Industrials (ex loss makers)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Feb
-0
6
Ma
y-
06
Au
g-
06
No
v-
06
Feb-
07
M
ay-
07
Au
g-
07
N
ov-
07
Feb-
08
Ma
y-
08
Au
g-0
8
No
v-
08
Fe
b-
09
Ma
y-
09
Au
g-
09
(%)
2007
2008
2009
2010
2011
Source: GSJBW Research estimates
`
FY10 EPS forecasts drifted
lower; FY11 higher
Comment on Dividends
Small part of the 2009 final dividend funded from
realised capital gains
We have probably seen the low point for earnings and
dividends however the recovery in dividends may lag
the upturn in earnings
Level of dividends paid will be assessed at the time of
each result announcement
Outlook
Monetary and fiscal stimulus is helping the Australian
economy
Australia facing higher interest rates which may impact the
sustainability of growth
Developed economies still face major structural issues
Australian companies appear well positioned but their
outlook comments still generally subdued
AFIC has some cash but we will be cautious given the
recent strength of the equity markets
Major Sales in the Investment Portfolio (above $5m)
2008/2009
$m
St George Bank
(a)
54.4
Queensland Gas Company
(b)
46.0
(a) Takeover by Westpac
(b) Sold on market into takeover by BG group plc.
TAKEOVER ACTIVITY
Major Sales in the Investment Portfolio (above $5m)
2008/2009 con't.
$m
Suncorp Metway
29.3
James Hardie N.V.
25.0
ConnectEast Group
21.3
PaperlinX
8.2
News Corporation Non Voting
8.1
Wesfarmers
7.2
Brickworks Preference Shares
(c)
7.0
News Corporation
6.2
OTHER
(c) Redeemed by the Company
Relative Performance - Australian and NZ Markets
0
500
1000
1500
2000
2500
Oc
t-0
4
Ap
r-0
5
Oc
t-0
5
Ap
r-0
6
Oc
t-0
6
Ap
r-0
7
Oc
t-0
7
Ap
r-0
8
Oc
t-0
8
Ap
r-0
9
Oc
t-0
9
ASX Price Index in $NZ
S&P/ASX 200 Accumulation Index
NZX50 Gross
The Investment Process - Illustrative
Investment Committee Overview
Investment
Considerations
Cashflow
Board/management
Margin formation
Value based
Growth capacity
Industry position
Contrarian buyers
Industry economics
Profit/EPS
Dividend
generation
Investment Team
Balance Sheet
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