Information Meetings Presentation – Tasmania

23 April 2018


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
Information Meetings – Presentation


Dear Sir / Madam


Please find attached the presentation to be given at the Information Meetings being
held in Tasmania in April 2018.


Yours faithfully


Matthew Rowe
Company Secretary

Shareholder Meetings
Tasmania - April 2018

Shareholder Meetings - Tasmania April 2018
Disclaimer
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 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.
This information has been prepared and provided by AICS. To the extent that it includes any financial product
advice, the advice is of a general nature only and does not take into account any individual’s objectives,
financial situation or particular needs. Before making an investment decision an individual should assess
whether it meets their own needs and consult a financial advisor.

Shareholder Meetings - Tasmania April 2018
Introduction

Shareholder Meetings - Tasmania April 2018
Labor Party have announced the ending of refundability of franking
credits
• The Labor Party has announced that if elected it will stop excess franking
credits being refunded to shareholders.
• This particularly impacts individuals and self-managed super funds –
charities, not-for-profits and most other super funds will not be impacted
• No matter what an individual’s or SMSF’s tax rate is, in effect these
investors will pay 30% tax on their income from fully franked dividends.
• Assume an SMSF in pension-phase (nil tax payable) received a gross
income of $25,000 from franked dividends (including a refund of franking
credits), this will be cut to $17,500 – a reduction of $7,500.

Shareholder Meetings - Tasmania April 2018
Labor Party have announced the ending of refundability of franking
credits
• We feel that this is an unfair attack on a specific sections of the investing
public i.e. SMSF’s and low-income earners who hold investments outside
of retail and industry super-funds.
• Many shareholders will be considerably worse off under this proposal,
particularly those who have been planning for their retirement over many
years.
• Concerned shareholders should take the issue up with their local MPs.

Shareholder Meetings March 2018
Company Objectives and
Recent Financial Performance

Shareholder Meetings - Tasmania April 2018
AFIC is a Long Term Investor in a Diversified Portfolio of
Quality Companies

Shareholder Meetings - Tasmania April 2018
With the Objective of Delivering for Shareholders
• Growing fully franked dividends over time.
• Attractive total returns over the medium to long term.

Shareholder Meetings - Tasmania April 2018
Portfolio Performance Combined with Very Low Costs Have Provided
Long Term Outperformance of the Australian Market
AFIC
S&P/ASX 200
Accumulation Index

Shareholder Meetings - Tasmania April 2018
Half Year Financial Summary – 31 December 2017

Shareholder Meetings - Tasmania April 2018
Major Components of Income for the Half Year to 31 December 2017
Half-Year
2017
$’000
Half-Year
2016
$’000
Dividends and Distributions150,792132,043
Net Losses on Trading Portfolio-6,553-363
Dividends from many investee companies have increased.
Unrealised losses from call options recognised through the income statement.
However, losses reflect an increase in the value of the stock ($6.8 million) over
which the options are written, which are recognisedin the balance sheet.

Shareholder Meetings - Tasmania April 2018
Share Price is Trading at a 4% Premium to Net Asset Backing at end
March Versus 3% Discount This Time Last Year

Shareholder Meetings - Tasmania April 2018
Long Term Share Price Return is in Line with the Portfolio
Performance – Per Annum Returns to 31 March 2018

Shareholder Meetings - Tasmania April 2018
The Market and the Portfolio

Shareholder Meetings - Tasmania April 2018
Key themes in the market
• Synchronisedglobal growth.
• Rising long term interest rates.
• Buoyant commodity prices.
• Recent company reporting season in Australia –growth
remains challenging for many large companies.
• Value still difficult to find.

Shareholder Meetings - Tasmania April 2018
The market has been generally strong despite the recent pullbacks,
although we are starting to see increased volatility
Recent market
reaction to rising US
long term bond rates
I
n
d
e
x

Shareholder Meetings - Tasmania April 2018
Mid and Small Sized Companies Have Been Very Strong Led by Resources
ASX Small Cap
ASX Mid Cap
ASX 200

Shareholder Meetings - Tasmania April 2018
Resources Have Dominated Returns Over the Year to 31 March 2018.
AFIC is Underweight Small and Mid Sized Resource Companies.

Shareholder Meetings - Tasmania April 2018
The 10 Year Performance of the Portfolio to 31 March 2018 Presents a
Very Different Picture
Resources

Shareholder Meetings - Tasmania April 2018
Market moves as well as purchases/sales have changed the profile of
the Portfolio – top 10 holdings 31 March 2018
RankCompany% ofPortfolio
Major changes –
%Mar 2017
1
Commonwealth Bank of Australia8.4%
9.8%
2
Westpac Banking Corporation6.5%
7.8%
3
BHP*5.9%
4.8%
4
CSL*4.3%
3.1%
5
Wesfarmers4.1%
6
National Australia Bank4.0%
4.8%
7
Rio Tinto3.7%
3.2%
8
Australia and New Zealand Banking Group3.3%
4.0%
9
Transurban Group3.3%
10
Amcor2.6%
* Options were outstanding against part of the holding.

Shareholder Meetings - Tasmania April 2018
RankCompany% of Portfolio
Major changes –
%Mar 2017
11
Telstra Corporation
2.4%3.5%
12
Woolworths Group*
2.0%
13
Brambles
2.0%
14
Macquarie Group*
1.8%Outside of top 20
15
Oil Search
1.7%
16
Treasury Wine Estates*
1.6%1.2%
17
Woodside Petroleum
1.6%
18
AMP
1.5%
19
AGL Energy
1.4%1.8%
20
Ramsay Health Care
1.3%
Market moves as well as purchases/sales have changed the profile of
the Portfolio – next 10 holdings 31 March 2018
* Options were outstanding against part of holding.

Shareholder Meetings - Tasmania April 2018
Whilst large companies represent a major percentage of the portfolio,
there are a number of companies in the portfolio in the mid and small
sectors which typically have a stronger outlook for growth
Per cent of Portfolio by ValueNumber of Companies

Shareholder Meetings - Tasmania April 2018
Mid Cap 50Small Ordinaries
Over time we have been adding smaller companies that have
produced dividend and/or capital growth

Shareholder Meetings - Tasmania April 2018
Companies we have made larger investments in this financial year
CompanyWhat we like
Business model has pivoted toward recurring revenue
streams.Thematic exposure to global infrastructure demand – utilities,
renewables.
Leading global blood plasma business with strong track record from
converting R&D into new product success.
Well positioned to supply strong east coast Infrastructure demand.
Strategic Asian and North American assets.
Boughtprior to takeover offer. Quality retail destination shopping centres
globally. Value on offer at the time.
Continues its solid track record of leveraging its toll road networks to
deliver value accretive development projects. Participated in their recent
rights issue.

Shareholder Meetings - Tasmania April 2018
New companies added to the portfolio

Shareholder Meetings - Tasmania April 2018
Longer term trends are important considerations for the Portfolio
• Changing nature of business models including use of technology.
• Digital disruption, management of data.
• Ongoing exposure of the Australian economy to global businesses.
• Changing demographics – transition of ‘baby boomers’ to retirement
and the rise of the millennials.

Shareholder Meetings - Tasmania April 2018
Looking Ahead

Shareholder Meetings - Tasmania April 2018
The trajectory of US Long Term Bond Rates have a history of
influencing the Australian Market
US 10 year bond rates
S&P ASX 200 Index – price
Source: FactSet

Shareholder Meetings - Tasmania April 2018
Other factors at play...

Shareholder Meetings - Tasmania April 2018
In Summary
• Profit growth should offset higher interest rates in the US and Australia.
• Politics creating a mood of unease.
• We are not bullish. We are not bearish.
• Our focus is the “market for stocks” not the “stock market”.