NZ Information Meetings – Presentation

4 December 2017



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
NZ Information Meetings – Presentation



Dear Sir / Madam

Please find attached a presentation that will be delivered to shareholders at
information meetings being held in New Zealand.

Yours faithfully

Matthew Rowe
Company Secretary

NZ Shareholder Meetings December 2017

NZ Shareholder Meetings November 2017
DisclaimerAustralian Foundation Investment Company Limited and its subsid
iary AICS (AFSL 303209), their
related entities and each of thei
r respective directors, office
rs and agents (together the Disclosers) have
prepared the information contained
in these materials in good f
aith. However, no warranty (express or
implied) is made as to the accuracy, completeness or reliabilit
y of any statements, estimates or opinions or
other information contained in these materials (any of which ma
y change without notice) and to the maximum
extent permitted by law, the Di
sclosers disclaim all liability
and responsibility (including, without limitation, any
liability arising from fault or negligence on the part of any o
r all of the Disclosers) for
any direct or indirect loss
or damage which may be suffered by any recipient through relyin
g on anything contained in or omitted from
these materials.This information has been prepared and provided by AICS. To the
extent that it includes any financial product
advice, the advice is of a gener
al nature only and does not tak
e into account any individual’s objectives,
financial situation or particula
r needs. Before making an inves
tment decision an individual should assess
whether it meets their own needs and consult a financial adviso
r.

NZ Shareholder Meetings November 2017
Introduction

NZ Shareholder Meetings November 2017
Quality First
Growth
Value
Quality in this context is an outcome of our assessment of the board and management, outlook for the industry as well as some key financial metrics.Ability of companies to grow
earnings over time, which
ultimately should produce good dividend growth.Value tries to capture the opportunity a business has to prosper and thrive over the medium to long term. Look further than short term measures of P/E’s and other valuation metrics.
How AFIC Invests – What we look for in Companies

NZ Shareholder Meetings November 2017
Investment Objectives
To grow dividends over the medium to long term.To give investors attractive total returns over the medium to long term.
A long term investor seeking:

NZ Shareholder Meetings November 2017
Dividends – Compound Growth Per Annum in $A to 30 June 2017

NZ Shareholder Meetings November 2017
Long Term Portfolio (NTA) Growth in $A Against the Index –10 Years to 31 October 2017

NZ Shareholder Meetings November 2017
Results and Shareholder Returns

NZ Shareholder Meetings November 2017
Full Year Financial Summary – 30 June 2017

NZ Shareholder Meetings November 2017
Recent Share Price Return has reflected the move to small disco
unt
from premium last year – Performance Per Annum to 31 October 201
7
in $NZ

NZ Shareholder Meetings November 2017
Share Price at a small discount to Net Asset Backing end Octobe
r 2017

NZ Shareholder Meetings November 2017
The Market and the Portfolio

NZ Shareholder Meetings November 2017
Resources have Outperformed Banks and Industrials

NZ Shareholder Meetings November 2017
Mid Cap Resources Have Been Very Strong – Other Sectors Have Been Weak
Source: FactSet

NZ Shareholder Meetings November 2017
Portfolio Performance in $NZ – Per Annum Return to 31 October 20
17
After tax and expenses.

NZ Shareholder Meetings November 2017
Banks Face a More Challenging Earnings Environment
•
Revenue growth more challenging given household gearing and political pressures.
•
Cost reduction efforts based on technology increasingly in focus.
•
Normalisation of bad debt charges will be a headwind.
•
Forecast yield for the sector remains attractive at 6% before franking (8.6% after franking).
•
Option activities can boost income returns.

NZ Shareholder Meetings November 2017
As do the Telecommunications Sector and Supermarkets
Telecommunications Sector•
Margin pressure from NBN implementation
•
Increasing competition with 4
th
mobile operator
•
Introduction of 5G mobile technology
Supermarkets•
Improving performance from Woolworths
•
Aldi continues to grow
•
Potential new entrants

NZ Shareholder Meetings November 2017
Although the Outlook for Resources Sector is Improving
Resources Sector•
Global growth is improving
•
Earnings and dividends are recovering
•
Balance sheets are now strong
•
Management now focused on delivering value to shareholders

NZ Shareholder Meetings November 2017
Portfolio at 31 October 2017 – Top 10 Holdings Represent 47.5% of the Portfolio

NZ Shareholder Meetings November 2017
Portfolio at 31 October 2017 – Next 10 Represent 16.9% of the Portfolio

NZ Shareholder Meetings November 2017
Some Recent Adjustments to the Portfolio
Added
Reduced
complete sale

NZ Shareholder Meetings November 2017
AFIC’s Portfolio vs the ASX 200 Index – Major Variations

NZ Shareholder Meetings November 2017
Long Term Themes Being Considered

NZ Shareholder Meetings November 2017
Disruption Very Likely for Some Industries

NZ Shareholder Meetings November 2017
Implications for Portfolio Management
• Change in business is occurring more rapidly.• We need to research our companies to consider whether they hav
e a
sustainable competitive advantage, how will they be disrupted a
nd to
what extent.
• We are looking to keep abreast of these short and long term ch
anges.
• Positioning of the portfolio likely to change more often than
in the past.

NZ Shareholder Meetings November 2017
Looking Ahead

NZ Shareholder Meetings November 2017
Global Growth has become less volatile and improving – G20 Real
GDP
over 20 Years
GDP growth (%)
Source: FactSet

NZ Shareholder Meetings November 2017
Although with High Debt Levels (P
rivate Non-Financial Debt) –
20 Year Picture
% of GDP
% of GDP
Source: BIS

NZ Shareholder Meetings November 2017
In an Environment of Low Global Interest Rates – is this likely
to continue?
10 year US
Benchmark Bond %
60 year picture

NZ Shareholder Meetings November 2017
In Summary
• The Australian equity market is likely to face somewhat diffic
ult conditions as many large
companies continue to f
ace growth headwinds.
• However, we believe the portfolio is well placed following rec
ent adjustments.
• We will continue to use buy and
write strategies to supplement
income.
• Look to add to targeted positions
in market weakness which wil
l occur from time to time.
• Cash position and facilities
are adequate to take advantage of
opportunities.