Preliminary Final Report

Appendix 4E Statement
for the Full-Year ending
30 June 2018
90
YEARS OF INVESTMENT
EXPERIENCE
Contents
• Results for Announcement to the Market
• Media Release
• Appendix 4E Accounts
• Independent Auditors’ Review Report
These documents comprise the preliminary final report
given to ASX under listing rule 4.3A
Australian Foundation Investment Company Limited
ABN 56 004 147 120

RESULTS FOR ANNOUNCEMENT TO THE MARKET
The reporting period is the year ended 30 June 2018 with the prior corresponding period being
the year ended 30 June 2017.
This report is based on audited financial statements. A copy of the audit report can be found on
page 37.
Results for announcement to the market
Net profit was $279.0 million, 13.7% up from the pr
ior year.

Net profit attributable to members (excluding minority interests) was $278.7 million, 13.7%
up from the prior ye
ar.

Revenue from operating activities was $308.5 million, 11.1% up from the prior year.
The Management Expense Ratio (“MER”) calculated as the net expenses of managing the
Company as a percentage of the average value of its investments including cash over t
he
year, wa
s 0.14% for the year (
2017: 0.14%).

Net tangible assets per share as at 30 June 2018, before allowing for the final dividend, were
$6.27 per share before allowing for the provision for deferred tax on unrealised gains in th
e
inv
estment portfolio (2017: $5.89)
.

A fully-franked final dividend of 14 cents per share, the same as last year’s final divide
nd,
wi
ll be paid on 31 August 2018 to shareholders on the register on 9 August 2018. The share
s
a
re expected to trade ex-dividend on 8 August 2018. There is no conduit foreign income
component of the dividend.
There is no New Zealand imputation credit attached to this year’s final dividend
.

2 cents of the final dividend are sourced from capital gains, on which the Group has paid or
will pay tax. The amount of the pre-tax attributable gain, known as an “LIC capital gain”, i
s
the
refore 2.86 cents. This enables some shareholders to claim a tax deduction in their tax
return. Further details will be on the dividend statements
.

The interim dividend of 10 cents per share was paid to shareholders on 23 Februa
ry 2018.

The total dividend for the financial year is therefore 24 cents per share, fully-franked, t
he
sa
me as last year.
A Dividend Reinvestment Plan (DRP) and Dividend Substitution Share Plan (DSSP) are
available, the price for both of which will be set at a nil discount to the Volume Weighted
Average Price of the Company’s shares traded on the ASX and Chi-X automated trading
systems over the five trading days after the shares trade ex-dividend. Notices of participation
in the DRP & the DSSP need to be received by the share registry by 5 pm (AEST) on 10
August 2018. All shares issued under the DRP and DSSP will rank equally with existing
shares
.

The 2018 AGM will be held at Zinc, Federation Square, Melbourne, at 10.00 AM on Tuesday
9 October.

Increase in Dividends Lifts Profit 13.7%
Full Year Report to 30 June 2018
AFIC invests in a diversified portfolio of Australian equities, seeking to provide attractive
income and capital grow
th over the medium to long term at a low co
st.
Full Year Profit of $279.0 million, u
p 13.7% from $245.3 million in the
corresponding
period last year:
-Investment income increased $31.5 million (up 11.6
%), due primarily
to a lift in
dividends across a range of companies, particularl
y resource co
mpanies,
including participation in the Rio Tinto off-market bu
y-b
ack.
-Finance costs
were down $8.1 million following the conversion o
r redemption of
convertible notes in February 2017.
Earnings per share of 23.6 cents, up from 21.3 cents.
Final divide
nd maintained at 14 cents per share fully franked,
bringing total dividends
for the
year to 24 cents per share fully franked, the same as last y
ear.
Manageme
nt expense ratio of 0.14%.
Twelve-month portfolio return was 10.8%, including franking it was 12.7%. Fo
r the
S&P/ASX 2
00 Accumulation Index the respective figures were 13.0% and 14.6%. AFI
C’s
performance numbers are after costs.

Grow
th in Investment of $1,000 (including benefit of franking) − 10 Years to 30 June 2018
3

Portfolio Performance


The return of the market over the year was characterised by a pronounced divergence of performance
across sectors and companies. Ongoing growth across global economies, in particular the United
States and China, led to rising commodity prices, with the Australian resources index up 41% over the
twelve month period. Within this growth, the small and mid cap resource sectors were up 49 % and
42% respectively. However, during the same period the industrial sector was up only 8%, whilst the
banking sector fell just over 1%. Furthermore, in an environment where many large companies are
facing subdued growth, there has been an increased flow of funds into the small and mid cap section of
the market. This has seen very strong share price performance in those companies with the strongest
growth expectations, primarily through a re-rating of valuations.
AFIC’s portfolio was up 10.8% for the twelve months to 30 June 2018 compared with the S&P/ASX 200
Accumulation Index which increased 13.0%. In the resources sector AFIC’s primary exposure is to
companies with long-life assets and low-cost production such as BHP and Rio Tinto, rather than the
more cyclical small and mid-sized companies.
The best performing companies in the AFIC portfolio outside the large resource companies were CSL,
Wesfarmers, Macquarie Group, Oil Search and Woolworths.
The long term performance of the portfolio, which is more in line with the Company’s investment
timeframes, was 6.5% per annum for the ten years to 30 June 2018 versus the Index return of 6.4%
per annum. Including the full benefit of franking, these returns are 8.5% per annum for AFIC and 8.0%
per annum for the Index. AFIC’s performance numbers are after costs and tax paid.
Portfolio Adjustments

A key restraint on the current Australian market is the prolonged, subdued growth outlook facing many
large companies. This arises from their market positions with no further consolidation possible,
increased competition and disruption, and greater regulatory intervention. AFIC has continued to adjust
the portfolio to respond to this situation. Whilst larger companies continue to make up a significant
proportion of the portfolio, AFIC has been increasing its holdings in a number of mid-sized and small
companies with good growth prospects. This has been done having regard to balancing the need to
grow dividends as well as provide meaningful capital growth within the portfolio over the long term.

Major purchases included adding to holdings in Macquarie Group, CSL, Sonic Healthcare, James
Hardie Industries and Alumina, all of which have unique industry exposures in global markets, and
Sydney Airport and Boral. Additions were also made to smaller companies, Reliance Worldwide and
Reece, including participation in their respective capital raisings to fund offshore acquisitions, and
Carsales.com. Unibail-Rodamco-Westfield (which acquired Westfield Corporation through a scrip bid),
NEXTDC and Qantas were the more significant new additions to the portfolio.

Major sales included the complete disposal of Incitec Pivot, Coca-Cola Amatil and Japara Healthcare.
Westfield Corporation and Tox Free Solutions were sold because of takeovers. Other major sales
included a small reduction in the positions of QBE Insurance, AMP, Telstra and Treasury Wine Estates,
all of which have been long term holdings in the portfolio, and Vicinity Centres.
Going Forward

The ongoing strength of the Australian market continues to create a challenging investment
environment. In particular, the drive by investors towards companies displaying good growth prospects
is pushing share prices for these businesses very high. For AFIC it is a matter of being patient and
making adjustments that make sense as a long-term investor in quality and growing companies. In this
context, high valuation levels at a time when interest rates are starting to move from very low levels
may create some uncertainty for markets and therefore could then provide investment opportunities.
Please direct any enquiries to:
Mark Freeman Geoff Driver
Managing Director General Manager
(03) 9225 2122(03) 9225 2102

23 July 2018

4

MAJOR TRANSACTIONS IN THE INVESTMENT PORTFOLIO

Acquisitions
Cost
($’000)

Macquarie Group 105,902
CSL 48,838
Sydney Airport 47,044
Boral 41,944
Unibail-Rodamco-Westfield*
(as a result of the takeover of Westfield Corporation) 36,078
Sonic Healthcare 35,347
James Hardie Industries 29,605
NEXTDC* 28,558
Reliance Worldwide
(includes $10.91 million in 1 for 1.98 issue at $4.15 per share) 27,188
Alumina 24,308
Carsales.com 22,962
Reece (includes $10.56 million in 1 for 11 issue and placement at $9.30 per share) 20,903
Qantas Airways* 20,637




*New holding in the portfolio.

Disposals
Proceeds
($’000)

Incitec Pivot
#
79,970
Westfield Corporation
#
(taken over by Unibail-Rodamco) 70,902
Healthscope 57,338
Coca-Cola Amatil
#
43,656
QBE Insurance 34,096
Tox Free Solutions
#
(taken over by Cleanaway Waste Management, includes special dividend) 30,592
Vicinity Centres 29,826
AMP 28,171
Japara Healthcare
#
26,928
Telstra 24,288
Treasury Wine Estates 23,782
#
Complete disposal from the portfolio
New Companies Added to the Investment Portfolio

Unibail-Rodamco-Westfield Adelaide Brighton
NEXTDC AUB Group
Qantas Airways Goodman Group
Cleanaway Waste Management


5

TOP 25 INVESTMENTS AS AT 30 JUNE 2018

Includes investments held in both the Investment and Trading Portfolios



Total Value% of
$ millionPortfolio
1 Commonwealth Bank of Australia575.77.9%
2 * BHP477.76.6%
3 Westpac Banking Corporation455.56.3%
4 * CSL372.65.1%
5 Wesfarmers331.84.6%
6 Rio Tinto288.44.0%
7 National Australia Bank256.13.5%
8 Australia and New Zealand Banking Group239.73.3%
9 Transurban Group237.33.3%
10 * Macquarie Group206.42.8%
11 Amcor180.52.5%
12 * Woolworths Group174.62.4%
13 Oil Search146.72.0%
14 Woodside Petroleum129.31.8%
15 Telstra Corporation115.31.6%
16 Brambles107.81.5%
17 * Sydney Airport107.31.5%
18 AGL Energy96.81.3%
19 Treasury Wine Estates94.91.3%
20 James Hardie Industries91.91.3%
21 Computershare85.91.2%
22 Qube Holdings84.31.2%
23 Sonic Healthcare82.01.1%
24 * Seek77.91.1%
25 Ramsay Health Care76.41.1%
5,092.6
As % of Total Portfolio Value 70.0%
(excludes Cash)
* Indicates that options were outstanding against part of the holding
Valued at closing prices at 29 June 2018



6

P
ORTFOLIO
P
ERFORMANCE TO
30

J
UNE
2018






P
ERFORMANCE
M
EASURES TO
30

J
UNE
2018
1
YEAR

5
YEARS
%PA
10
YEARS
%PA
P
ORTFOLIO
R
ETURN
–

N
ET
A
SSET
B
ACKING
R
ETURN INCLUDING
DIVIDENDS REINVESTED

10.8% 8.2% 6.5%
S&P/ASX

200

A
CCUMULATION
I
NDEX

13.0%
10.0%
6.4%


P
ORTFOLIO
R
ETURN
–

N
ET
A
SSET
B
ACKING
G
ROSS
R
ETURN
INCLUDING DIVIDENDS REINVESTED
*

12.7% 10.1% 8.5%
S&P/ASX

200
GROSS
A
CCUMULATION
I
NDEX
*
14.6%
11.6%
8.0%

*Incorporates the benefit of franking credits for those who can fully utilise them. Note: AFIC net asset per share growth plus dividend series is
calculated after management expenses, income tax and
capital gains tax on realised sales of investments. It should also be noted that Index returns for the market do not include the impact of management expenses and tax on their
performance.


7

Australian
Foundation
Investment
Company Limited
(AFIC)
Consolidated Annual Financial
Statements


30 June 2018


8

FINANCIAL STATEMENTS
Consolidated Income Statement for the Year Ended 30 June 2018




2018

2017

Note $’000 $’000
Dividends and distributions
A3 302,389 270,887
Revenue from deposits and bank bills A3 1,409 1,659
Other revenue A3
4,703

5,105
Total revenue
308,501

277,651





Net gains on trading portfolio and non-equity investments A3
264

3,065





Income from operating activities 308,765 280,716
Finance costs

(848) (8,969)
Administration expenses B1 (14,533) (14,483)



Profit before income tax expense 293,384 257,264
Income tax expense B2, E2 (14,377) (11,964)
Profit for the year 279,007 245,300
Profit is attributable to :

Equity holders of Australian Foundation Investment Company
278,709 245,029
Minority interest
298 271

279,007 245,300



Cents Cents
Basic earnings per share A5 23.57 21.32

This Income Statement should be read in conjunction with the accompanying notes.

9

Consolidated Statement of Comprehensive Income for the Year Ended 30 June 2018


Year to 30 June 2018
Year to 30 June 2017
Revenue
1
Capital
1
Total
Revenue Capital Total

$’000 $’000 $’000
$’000 $’000 $’000
Profit for the year 279,007 - 279,007

245,300 - 245,300


Other Comprehensive
Income

Items that will not be recycled through
the Income Statement

Gains for the period - 454,180
454,180
- 500,389
500,389
Tax on above - (136,841)
(136,841)
- (154,791)
(154,791)





Total Other
Comprehensive
Income

-
317,339 317,339
-
345,598 345,598





Total Comprehensive
Income

279,007 317,339 596,346

245,300 345,598 590,898

1
‘Capital’ includes realised or unrealised gains or losses (and the tax on those) on securities in the investment
portfolio, including non-equity investments held in the investment portfolio. Income in the form of distributions
and dividends is recorded as ‘Revenue’. All other items, including expenses, are included in Profit for the year,
which is categorised under ‘Revenue’.


Total Comprehensive Income is attributable to :

Year to 30 June 2018
Year to 30 June 2017

Revenue Capital Total
Revenue Capital Total

$’000 $’000 $’000
$’000 $’000 $’000
Equity holders of Australian
Foundation Investment
Company Ltd
278,709 317,339 596,048 245,029 345,598 590,627
Minority Interests 298 - 298 271 - 271

279,007 317,339 596,346 245,300 345,598 590,898



This Statement of Comprehensive Income should be read in conjunction with the accompanying notes.




10

Consolidated Balance Sheet as at 30 June 2018

2018 2017


Note $’000 $’000

Current assets


Cash D1 99,183 105,125

Receivables

77,234 52,011

Total current assets 176,417 157,136

Non-current assets


Investment portfolio A2 7,280,706 6,790,368

Deferred tax assets

1,257 349

Total non-current assets 7,281,963 6,790,717

Total assets 7,458,380 6,947,853




Current liabilities


Payables

712 6,953

Tax payable

8,245 1,980

Borrowings – bank debt D2 100 -

Trading portfolio

6,757 546

Provisions

4,385 4,448

Total current liabilities 20,199 13,927

Non-current liabilities


Provisions

1,394 1,332

Deferred tax liabilities – investment portfolio B2 1,097,527 967,091

Total non-current liabilities 1,098,921 968,423

Total liabilities 1,119,120 982,350




Net Assets 6,339,260 5,965,503


Shareholders' equity



Share capital A1, D6 2,811,721 2,756,256

Revaluation reserve A1, D3 2,422,568 2,123,209

Realised capital gains reserve A1, D4 448,892 430,912

General reserve A1 23,637 23,637

Retained profits A1, D5 631,725 631,070

Parent entity interest 6,338,543 5,965,084

Minority interest
717 419

Total equity 6,339,260 5,965,503


This Balance Sheet should be read in conjunction with the accompanying notes.

11

Consolidated Statement of Changes in Equity for the Year Ended
30 June 2018



Note
Share
Capital
Revaluation
Reserve
Realised
Capital
Gains
General
Reserve
Retaine
d
Profit
s
Total
Parent
Entity
Minority
Interest
Total
Y
ear Ended 30 June 2018

$’000
$’000
$’000 $’000
$’000
$’000 $’000
$’000
Total equity at the beginning of the year

2,756,256
2,123,209
430,912 23,637 631,070 5,965,084
419 5,965,503
Dividends paid to shareholders
A4
-
-
-
- (278,054)
(278,054)
- (278,054)
- Dividend Reinvestment Plan
D6

55,601
-
-
-
-
55,601
-
55,601
Other share capital adjustments

(136)
-
-
-
-
(136)
-
(136)
Total transactions with shareholders

55,465
-
-
- (278,054) (2
22,589)
- (222,589)




Profit for the year

-
-
-
- 278,709
278,709
298
279,007
Other Comprehensive Income (net of tax)



Net gains for the period

-
317,339
-
-
-
317,339
-
317,339
Other Comprehensive Income for the year

-
317,339
-
-
-
317,339
-
317,339
Transfer to Realised Capital Gains of cumulative gains on investments sold

-
(17,980) 17,980
-
-
-
-

Total equity at the end of the year

2,811,721 2,422,568 448,892
23,637 631,725 6,338,543
717 6,339,260
This statement of changes in equity should be read in conjunction with the accompanying notes



12

Consolidated Statement of Change
s in Equity for the Year Ended
30 June 2018 (continued)




Note
Share
Capital
Revaluation
Reserve
Realised
Capital
Gains
General
Reserve
Retaine
d
Profit
s
Total
Parent
Entity
Minority
Interest
Total
Y
ear Ended 30 June 2017

$’000
$’000
$’000 $’000
$’000
$’000 $’000
$’000
Total equity at the beginning of the year

2,521,441
1,767,628
457,593 23,637 637,094 5,407,393 1,148 5,408,541
Dividends paid to shareholders
A4
-
- (16,698)
- (251,053)
(267,751)
- (267,751)
- Dividend Reinvestment Plan
D6
55,242
-
-
-
-
55,242
-
55,242
- Conversion of Notes
D6

179,755
-
-
-
-
179,755
-
179,755
Other share capital adjustments

(182)
-
-
-
-
(182)
-
(182)
Total transactions with shareholders

234,815

-

(16,698)

-

(251,053)

(32,936)
-
(32,936)









Profit for the year


-
-
-
- 245,029
245,029
271 245,300
Other Comprehensive Income (net of tax)



Net gains for the period

-
345,598
-
-
-
345,598
- 345,598
Other Comprehensive Income for the year

-
345,598
-
-
-
345,598
- 345,598
Transfer to Realised Capital Gains of cumulative losses on investments sold

-
9,983 (9,983)
-
-
-
-
-
Dividend paid to minority interests by AICS

-
-
-
-
-
- (1,000)
(1,000)







Total equity at the end of the year

2,756,256 2,123,209 430,912
23,637 631,070 5,965,084
419 5,965,503
This Statement of Changes in Equity should be read in conjunction with the accompanying notes


13

Consolidated Cash Flow Statement for the Year Ended 30 June 2018


2018 2017

$’000 $’000

Inflows/ Inflows/

Note (Outflows) (Outflow)
Cash flows from operating activities

Sales from trading portfolio

66,478 29,002
Purchases for trading portfolio

(4,770) (18,305)
Interest received

1,347 1,668
Dividends and distributions received

243,605 259,553


306,660 271,918



Other receipts

4,957 5,111
Administration expenses

(14,803) (14,173)
Finance costs paid

(848) (12,550)
Taxes paid

(14,808) (23,645)
Net cash inflow/(outflow) from operating activities
E1
281,158 226,661



Cash flows from investing activities

Sales from investment portfolio

689,030 216,497
Purchases for investment portfolio

(753,667) (269,443)
Net cash inflow/(outflow) from investing activities (64,637) (52,946)



Cash flows from financing activities

Redeeming of convertible notes

- (10,722)
Net bank borrowings 100 -
Share issue transaction costs

(136) (59)
Dividends paid

(222,427) (213,712)
Net cash inflow/(outflow) from financing activities (222,463) (224,493)



Net increase/(decrease) in cash held

(5,942) (50,778)
Cash at the beginning of the year

105,125 155,903
Cash at the end of the year
D1
99,183 105,125

For the purpose of the cash flow statement, ‘cash’ includes cash and deposits held at call.

This Cash Flow Statement should be read in conjunction with the accompanying notes.


14

Notes to the financial statements
A. Understanding AFIC’s financial performance
A1. How AFIC manages its capital
AFIC’s objective is to provide shareholders with attractive investment returns through access to a growing
stream of fully-franked dividends and enhancement of capital invested.
AFIC recognises that its capital will fluctuate with market conditions. In order to manage those fluctuations, the
Board may adjust the amount of dividends paid, issue new shares, buy back the Company’s shares or sell
assets.
AFIC’s capital consists of its shareholders’ equity plus any net borrowings. A summary of the balances in
equity is provided below:

2018
$’000
2017
$’000

Share capital 2,811,721 2,756,256

Revaluation reserve 2,422,568 2,123,209

Realised capital gains reserve 448,892 430,912

General reserve 23,637 23,637

Retained profits 631,725 631,070


6,338,543 5,965,084


Refer to notes D3-D6 for a reconciliation of movement from period to period for each equity account (except the
General Reserve, which is historical, relates to past profits which can be distributed and has had no
movement).
A2. Investments held and how they are measured
AFIC has two portfolios of securities: the investment portfolio and the trading portfolio.
The investment portfolio holds securities which the company intends to retain on a long-term basis, and
includes a small sub-component over which options may be written. The trading portfolio consist of securities
that are held for short-term trading only, including call option contracts written over securities that are held in
the specific sub-component of the investment portfolio and on occasion put options and is relatively small in
size. The Board has therefore focused the information in this section on the investment portfolio. Details of all
holdings (except for the specific option holdings) as at the end of the reporting period can be found at the end
of the Annual Report.
The balance and composition of the investment portfolio was:

2018
$’000
2017
$’000




Equity instruments (excluding below) at market value 6,940,638 6,495,320

Equity instruments (over which options may be written) 327,764 282,754

Hybrids 12,304 12,294


7,280,706 6,790,368






15

How investments are shown in the financial statements
The accounting standards set out the following hierarchy for fair value measurement:
Level 1: Quoted prices in active markets for identical assets or liabilities
Level 2: Inputs other than quoted prices, which can be observed either directly (as prices) or indirectly (derived
from prices)
Level 3: Inputs for the asset or liabilities that are not based on observable market data
All financial instruments held by AFIC are classified as Level 1 (other than the options sold by the Company
which are Level 2). Their fair values are initially measured at the costs of acquisition and then remeasured
based on quoted market prices at the end of the reporting period.
Net tangible asset backing per share
The Board regularly reviews the net asset backing per share both before and after provision for deferred tax on
the unrealised gains in AFIC’s long-term investment portfolio. Deferred tax is calculated as set out in note B2.
The relevant amounts as at 30 June 2018 and 30 June 2017 were as follows:

30 June
2018
30 June
2017
Net tangible asset backing per share $ $
Before tax 6.27 5.89
After tax 5.34 5.07
Equity investments
The shares in the investment portfolio are designated under the accounting standards as financial assets
measured at fair value through ‘other comprehensive income’ (“OCI”), because they are equity instruments held
for long-term capital growth and dividend income, rather than to make a profit from their sale. This means that
changes in the value of these shares during the reporting period are included in OCI in the Consolidated
statement of comprehensive income. The cumulative change in value of the shares over time is then recorded
in the Revaluation Reserve. On disposal, the amounts recorded in the revaluation reserve are transferred to the
realisation reserve.
Puttable instruments & convertible notes
Puttable instruments and convertible notes are classified as financial assets at fair value through profit and loss
under the accounting standards and therefore need to be treated differently in the financial statements, even
though they are managed in the same way as the rest of the investment portfolio. Changes in the value of
these investments are reflected in the consolidated income statement and not in the consolidated statement of
comprehensive income with the other investments. Any gains or losses on these securities are transferred from
retained profits to the revaluation reserve. On disposal, the amounts recorded in the revaluation reserve are
transferred to the realisation reserve.
Securities sold and how they are measured
Where securities are sold, any difference between the sale price and the cost is transferred from the
revaluation reserve to the realisation reserve and the amounts noted in the consolidated statement of changes
in equity. This means the Company is able to identify the realised gains out of which it can pay a ‘Listed
Investment Company’ (LIC) gain as part of the dividend, which conveys certain taxation benefits to many of
AFIC’s shareholders.
During the period $712.6 million (2017: $217.2 million) of equity securities were sold. The cumulative gain on
the sale of securities was $18.0 million for the period after tax (2017: $10.0 million loss). This has been
transferred from the revaluation reserve to the realisation reserve ( see Consolidated statement of changes in
equity ). These sales were accounted for at the date of trade.


16

A3. Operating income
The total income received from AFIC’s investments in 2018 is set out below.
Dividends and Distributions
2018
$’000
2017
$’000
Income from securities held in investment portfolio at 30 June
272,362 264,658
Income from investment securities sold during the year
29,918 6,120
Income from securities held in trading portfolio at 30 June
- 109
Income from trading securities sold during the year
109 -
302,389 270,887

Interest income

Income from cash investments 1,409 1,659
Other income

Administration fees 4,681 5,022
Other income 22 83
4,703 5,105
Dividend income
Distributions from listed securities are recognised as income when those securities are quoted in the market on
an ex-distribution basis. Capital returns on ordinary shares are treated as an adjustment to the carrying value of
the shares.
Trading income
Net gains on the trading and options portfolio are set out below.

2018

2017
Net gains
$’000

$’000
Net realised
gains from trading portfolio – shares
672 470
- options 3,559 1,912
Unrealised
gains/(losses) from trading portfolio - shares
- 496
- options (3,967) 187
264 3,065
$115.7 million of shares are lodged with the ASX Clear Pty Ltd as collateral for sold option positions written by
the Group (2017: $112.9 million). These shares are lodged with ASX Clear under the terms of ASX Clear Pty
Ltd which require participants in the Exchange Traded Option market to lodge collateral, and are recorded as
part of the Group’s Investment Portfolio
. If all call options were exercised, this would lead to the sale of $61.7
million worth of securities at an agreed price – the ‘exposure’ (2017: $82.4 million). If all put options were
exercised, this would lead to the purchase of $19.7 million of securities at an agreed price (2017 : $18.4 million)


17

A4. Dividends paid
The dividends paid and payable for the year ended 30 June 2018 are shown below:

2018
$’000
2017
$’000
(a) Dividends paid during the year

Final dividend for the year ended 30 June 2017 of 14 cents fully franked at
30% paid 30 August 2017 (2017: 14 cents fully franked at 30% paid on 30
August 2016).
161,955 155,852
Interim dividend for the year ended 30 June 2018 of 10 cents per share
fully franked at 30%, paid 23 February 2018 (2017: 10 cents fully franked
at 30% paid 24 February 2017)
116,099 111,899

278,054 267,751
Dividends paid in cash
222,453 212,509
Dividends reinvested in shares
55,601 55,242

278,054 267,751
Dividends forgone via DSSP
4,788 4,241
(b) Franking credits

Opening balance of franking account at 1 July
158,730 159,869
Franking credits on dividends received
104,609 92,267
Tax paid during the year
14,069 23,164
Franking credits paid on ordinary dividends paid
(119,166) (114,750)
Franking credits deducted on DSSP shares issued
(2,055) (1,820)
Closing Balance of Franking Account
156,187 158,730
Adjustments for tax payable in respect of the current year’s profits and the
receipt of dividends recognised as receivables
22,534 16,008
Adjusted Closing Balance
178,721 174,738
Impact on the franking account of dividends declared but not recognised
as a liability at the end of the financial year:
(71,169) (70,565)
Net available 107,552

104,173
These franking account balances would allow AFIC to frank additional
dividend payments up to an amount of:
250,955 243,070
AFIC’s ability to continue to pay franked dividends is dependent upon the receipt of franked dividends from
the trading and investment portfolios and on AFIC paying tax.








18

(c) New Zealand imputation account
2018
$’000
2017
$’000
(Figures in A$ at year-end exchange rate : 2018 : $NZ1.093:$A1; 2017 : $NZ1.047:$A1)
Opening balance
13,357 7,660
Imputation credits on dividends received
5,987 6,284
Imputation credits on dividends paid
(12,348) -
Closing balance
6,996 13,944

(d) Dividends declared after balance date
Since the end of the year Directors have declared a final dividend of 14 cents per share fully franked at 30%.
The aggregate amount of the final dividend for the year to 30 June 2018 to be paid on 31 August 2018, but not
recognised as a liability at the end of the financial year is:
166,061

(e) Listed Investment Company capital gain account
2018
$’000
2017
$’000
Balance of the Listed Investment Company (LIC) capital gain account: 32,686 9,883
This equates to an attributable amount of: 46,694 14,118

Distributed LIC capital gains may entitle certain shareholders to a deduction in their tax return, as set out in
the dividend statement. LIC capital gains available for distribution are dependent on the disposal of
investment portfolio holdings that qualify for LIC capital gains, or the receipt of LIC distributions from LIC
securities held in the portfolios. $33.9 million attributable gain is attached to the final dividend to be paid on
31 August 2018.

A5. Earnings per share
The table below shows the earnings per share based on the
profit for the year:
2018 2017

Basic Earnings per share
Number Number

Weighted average number of ordinary shares used as the
denominator

1,182,444,510 1,149,255,591



$’000 $’000
Profit for the year 278,709 245,029
Cents Cents
Basic earnings per share


23.57 21.32




19

B. Costs, Tax and Risk
B1. Management Costs
The total management expenses for the period are as follows:

2018
$’000
2017
$’000


Rental expense relating to non-cancellable leases (621) (636)
Employee benefit expenses (8,911) (9,138)
Depreciation charge - -
Other administration expenses
(5,001) (4,709)

(14,533) (14,483)
Employee benefit expenses
A major component of employee benefit expenses is Directors’ and Executives’ remuneration. This has been
summarised below:

Short-term Other Long Term Post-employment Share-based Total

$ $ $ $ $
2018

Non-executive
Directors 719,179 - 68,321 - 787,500
Executives 3,118,300 (16,625) 107,888 53,514 3,263,077
Total
3,837,479 (16,625) 176,209 53,514 4,050,577
2017
Non-executive
Directors 657,536 - 62,464 - 720,000
Executives 3,404,083 64,161 127,136 83,187 3,678,567
Total 4,061,619 64,161 189,600 83,187 4,398,567

Detailed remuneration disclosures are provided in the Remuneration Report.

The Group (i.e. AFIC and its subsidiary, Australian Investment Company Services (”AICS”) – see Note F8)
does not make loans to Directors or Executives.









20

B2. Tax
AFIC’s tax position, and how it accounts for tax, is explained here. Detailed reconciliations of tax accounting to
the financial statements can be found in note E2.
The income tax expense for the period is the tax payable on this financial year’s taxable income, adjusted for
any changes in deferred tax assets and liabilities attributable to temporary differences and for any unused tax
losses. Deferred tax assets and liabilities (except for those related to the unrealised gains or losses in the
investment portfolio) are offset, as all current and deferred taxes relate to the Australian Taxation Office and
can legally be settled on a net basis.
A provision has been made for taxes on any unrealised gains or losses on securities valued at fair value
through the Income Statement – i.e. the trading portfolio, puttable instruments and convertible notes that are
classified as debt.
A provision also has to be made for any taxes that could arise on sale of securities in the investment portfolio,
even though there is no intention to dispose of them. Where AFIC disposes of such securities, tax is calculated
according to the particular parcels allocated to the sale for tax purposes, offset against any capital losses
carried forward.
Tax expense
The income tax expense for the period is shown below:
(a) Reconciliation of income tax expense to prima facie tax payable


2018
$’000
2017
$’000
Profit before income tax expense 293,384 257,264
Tax at the Australian tax rate of 30% (2017: 30%) 88,015 77,179
Tax offset for franked dividends received (70,989) (63,495)
Tax effect of sundry items taxable in current year but not included in income (15) 322

17,011 14,006
Over provision in prior years (2,634) (2,042)
Total tax expense 14,377 11,964

Deferred tax liabilities – investment portfolio
The accounting standards require us to recognise a deferred tax liability for the potential capital gains tax on
the unrealised gain in the investment portfolio. This amount is shown in the Balance Sheet. However, the
Board does not intend to sell the investment portfolio, so this tax liability is unlikely to arise at this amount. Any
sale of securities would also be affected by any changes in capital gains tax legislation or tax rate applicable to
such gains when they are sold.

2018
$’000
2017
$’000
Deferred tax liabilities on unrealised gains in the investment portfolio 1,097,527 967,091
Opening balance at 1 July 967,091 812,947
Tax on realised gains (6,405) (647)
Charged to OCI for ordinary securities on gains or losses for the period 136,841 154,791
1,097,527 967,091



21

B3. Risk
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices.
As a Listed Investment Company that invests in tradeable securities, AFIC can never be free of market risk as it
invests its capital in securities which are not risk free – the market price of these securities will fluctuate.
A general fall in market prices of 5% and 10%, if spread equally over all assets in the investment portfolio,
would have led to a reduction in AFIC’s comprehensive income of $254.8 million and $509.6 million
respectively, at a tax rate of 30% (2017: $237.7 million & $475.3 million).
AFIC seeks to reduce market risk at the investment portfolio level by ensuring that it is not, in the opinion of the
Investment Committee, overly exposed to one company or one particular sector of the market. The relative
weightings of the individual securities and the relevant market sectors are reviewed by the Investment
Committee and risk can be managed by reducing exposure where necessary. AFIC does not have a minimum
or maximum amount of the portfolio that can be invested in a single company or sector.

AFIC’s total investment exposure by sector is as below:

2018 2017

% %
Energy 5.44 4.37
Materials 18.61 16.73
Industrials 12.08 10.96
Consumer Discretionary 2.01 1.80
Consumer Staples 8.99 8.64
Banks 21.31 24.52
Other Financials 10.86 10.69
Property Trusts 1.72 2.18
Telecommunications 2.02 3.79
Health Care 9.90 9.80
Info Technology 3.86 2.67
Utilities 1.85 2.33
Cash 1.35 1.52

Securities representing over 5% of the investment portfolio at 30 June
were

Commonwealth Bank 7.9 9.6
BHP 6.6 4.8
Westpac 6.3 7.0
CSL 5.1 3.5

AFIC is also not directly exposed to material currency risk as most of its investments are quoted in Australian
dollars.

The writing of call options provides some protection against a fall in market prices as it generates income to
partially compensate for a fall in capital values. Options are only written against securities that are held in the
trading or the specific sub-section of the investment portfolio.



22

Interest Rate Risk

The Group is not currently materially exposed to interest rate risk as all its cash investments and borrowings
are short term for a fixed interest rate.

Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by
failing to discharge an obligation. AFIC is exposed to credit risk from cash, receivables, securities in the trading
portfolio and securities in the investment portfolio respectively. None of these assets are overdue. The risk in
relation to each of these items is set out below.
Cash
All cash investments not held in a transactional account are invested in short-term deposits with Australia’s “Big
4” commercial banks or in cash management trusts which invest predominantly in securities with an A1+ rating.
In the unlikely event of a bank default or default on the underlying securities in the cash trust, there is a risk of
losing the cash deposits and any accrued unpaid interest.
Receivables
Outstanding settlements are on the terms operating in the securities industry, which usually require settlement
within two days of the date of a transaction. Receivables are non-interest bearing and unsecured. In the event
of a payment default, there is a risk of losing any difference between the price of the securities sold and the
price of the recovered securities from the discontinued sale.
Trading and investment portfolios
Converting and convertible notes or other interest-bearing securities that are not equity securities carry credit
risk to the extent of their carrying value. This risk will be realised in the event of a shortfall on winding-up of the
issuing companies.
Liquidity risk
Liquidity risk is the risk that an entity will not be able to meet its financial liabilities.
AFIC monitors its cash-flow requirements daily. The Investment Committee also monitors the level of
contingent payments on a regular basis by reference to known sales and purchases of securities, dividends
and distributions to be paid or received, put options that may require AFIC to purchase securities, and facilities
that need to be repaid. AFIC ensures that it has either cash or access to short-term borrowing facilities
sufficient to meet these contingent payments.
AFIC’s inward cash flows depend upon the dividends received. Should these drop by a material amount, AFIC
would amend its outward cash-flows accordingly. AFIC’s major cash outflows are the purchase of securities
and dividends paid to shareholders, and both of these can be adjusted by the Board and management.
Furthermore, the assets of AFIC are largely in the form of readily tradeable securities which can be sold on-
market if necessary.
The table below analyses AFIC’s financial liabilities into relevant maturity groupings. The amounts disclosed in
the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying
amounts as the impact of discounting is not significant.






23

30 June 2018
Less than
6 months
6-12
months
Greater
than 1
year
Total
contractual
cash flows
Carrying
Amount

$’000 $’000 $’000 $’000 $’000
Non-derivatives

Payables
712
- - 712 712
Borrowings – bank debt
100
- - 100 100
812 - - 812 812
Derivatives

Options in trading portfolio* 19,726 - - 19,726 6,757
19,726 - - 19,726 6,757


30 June 2017 Less than 6
months
6-12
months
Greater
than 1
year
Total
contractual
cash flows
Carrying
Amount
$’000 $’000 $’000 $’000 $’000
Non-derivatives

Payables 6,953 - - 6,953 6,953
6,953 - - 6,953 6,953
Derivatives

Options in trading portfolio* 18,352 - - 18,352 3,839
18,352 - - 18,352 3,839
* In the case of call options, there are no contractual cash flows as if the option is exercised the contract will be
settled in the securities over which the option is written. The contractual cash flows for put options written are
the cash sums the Company will pay to acquire securities over which the options have been written, and it is
assumed for purpose of the above disclosure that all options will be exercised (i.e. maximum cash outflow).

C. Unrecognised items
Unrecognised items, such as contingencies, do not appear in the financial statements, usually because they
don’t meet the requirements for recognition. However, they have the potential to have a significant impact on
the group’s financial position and performance.
C1. Contingencies
Directors are not aware of any material contingent liabilities or contingent assets other than those already
disclosed elsewhere in the financial report.


24

Additional information

Additional information that shareholder may find useful is included here. It is grouped into three sections:

D Balance sheet reconciliations
E Income statement reconciliations
F Other information

D. Balance sheet reconciliations
This section provides further information about the basis of calculation of line items in the financial statements.
D1. Current assets – cash

2018
$’000
2017
$’000

Cash at bank and in hand (including on-call) 95,183 103,125

Fixed term deposits 4,000 2,000


99,183 105,125

Cash holdings yielded an average floating interest rate of 1.80% (2017: 1.93%). All cash investments are held
in a transactional account or an over-night ‘at call’ account invested in cash management trusts which invest
predominantly in securities with an A1+ rating.

D2. Credit Facilities

2018
$’000
2017
$’000

Commonwealth Bank of Australia – cash advance facilities 140,000 140,000
Amount drawn down 100 0
Undrawn facilities 139,900 140,000

Westpac Bank – cash advance facilities - 10,000
Amount drawn down - 0
Undrawn facilities - 10,000

Total short-term loan facilities 140,000 150,000
Amount drawn down 100 0
Undrawn facilities 139,900 150,000
The above borrowings are unsecured. Repayment of facilities is done either through the use of cash received
from distributions or the sale of securities, or by rolling existing facilities into new ones. Facilities are usually
drawn down for no more than three months.


25

D3. Revaluation reserve

2018
$’000
2017
$’000

Opening balance at 1 July 2,123,209 1,767,628

Gains on investment portfolio

- Equity Instruments 454,180 500,389

Provision for tax on above (136,841) (154,791)

Cumulative taxable realised (gains)/losses (net of tax) (17,980) 9,983

2,422,568 2,123,209


This reserve is used to record increments and decrements on the revaluation of the investment portfolio
as described in accounting policy note A2.


D4. Realised capital gains reserve




Opening balance at 1 July 430,912 457,593

Dividends paid - (16,698)
Cumulative taxable realised gains/(losses) for period through OCI (net
of tax) 17,980

(9,983)
448,892 430,912

This reserve records gains or losses after applicable taxation arising from disposal of securities in the
investment portfolio as described in A2.

D5. Retained profits




Opening balance at 1 July 631,070

637,094

Dividends paid (278,054) (251,053)

Profit for the year 278,709 245,029

631,725 631,070

This reserve relates to past profits.











26

D6. Share capital

Movements in Share Capital

Date Details Notes Number
of shares
Issue
price
Paid-up
Capital

’000 $ $’000
1/07/2016 Balance

1,130,305 2,521,441
30/08/2016 Dividend Reinvestment Plan
i
5,823 5.58 32,493
30/08/2016 Dividend Substitution Share
Plan
ii
428 5.58 n/a
31/08/2016 Convertible Note conversion
iv
1,009 5.09 5,133
24/02/2017 Dividend Reinvestment Plan
i
3,895 5.84 22,749
24/02/2017 Dividend Substitution Share
Plan
ii
317 5.84 n/a
28/02/2017 Convertible Note conversion
iv
34,331 5.09 174,622
Various Cancellation of ELTIP shares
not vested

(29) n/a (123)
Various Costs of issue

- - (59)
30/06/2017 Balance

1,176,079 2,756,256
30/08/2017 Dividend Reinvestment Plan
i
5,448 5.92 32,249
30/08/2017 Dividend Substitution Share
Plan
ii
455 5.92 n/a
23/02/2018 Dividend Reinvestment Plan
i
3,822 6.11 23,352
23/02/2018 Dividend Substitution Share
Plan
ii
343 6.11 n/a
Various Costs of issue

- - (136)
30/06/2018 Balance

1,186,147 2,811,721
i. Shareholders elect to have all or part of their dividend payment reinvested in new ordinary shares under
the Dividend Reinvestment Plan (DRP). The price of the new DRP shares is based on the average selling
price of shares traded on the Australian Securities Exchange & Chi-X in the five days after the shares
begin trading on an ex-dividend basis.
ii. The Group has a Dividend Substitution Share Plan (DSSP) whereby shareholders may elect to forgo a
dividend and receive shares instead. Pricing for the DSSP shares is done as per the DRP shares.
iii. The Group has an on-market share buy-back programme. During the financial year, no shares were
bought back (2017: Nil).
iv. 1,797,547 Feb 2017 convertible notes were converted into shares during the year ending 30 June 2017.
All remaining convertible notes were redeemed at their face value.
All shares have been fully paid, rank pari passu and have no par value.








27

E. Income statement reconciliations
E1. Reconciliation of net cash flows from operating activities to profit

2018
$’000
2017
$’000
Profit for the year 279,007 245,300
Net decrease/(increase) in trading portfolio 6,211 320
Dividends received as securities under DRP investments - (1,870 )
Decrease/(increase) in current receivables (25,223) (6,653)
- Less increase/(decrease) in receivables for investment portfolio 22,366 5,129
Increase in deferred tax liabilities 129,528 154,829
- Less (increase)/decrease in deferred tax liability on investment portfolio (130,436) (154,144)
Increase/(decrease) in current payables (6,241) (13,979)
- Less decrease/(increase) in payables for investment portfolio 6,113 9,943
- Less increase/(decrease) in dividends payable (27) 80
Increase/(decrease) in provision for tax payable 6,265 (12,413)
Capital gains tax charge taken through equity (6,405) (647)
Increase/(decrease) in other provisions/non-cash items (incl. convertible
note expenses)
- 766
Net cash flows from operating activities 281,158 226,661

E2. Tax reconciliations

Tax expense composition

Charge for tax payable relating to the current year 17,919 13, 321
Over provision in prior years (2,634) (2,042)
(Increase)/Decrease in deferred tax assets (908) 685

14,377 11,964

Amounts recognised directly through Other Comprehensive Income

Net increase in deferred tax liabilities relating to capital gains tax
on the movement in gains in the investment portfolio 136,841 154,791

136,841 154,791








28

Deferred tax assets & liabilities
The deferred tax balances are attributable to:

2018
$’000
2017
$’000

(a) Tax on unrealised gains or losses in the trading portfolio 1,190 (100)

(b) Provisions and expenses charged to the accounting profit
which are not yet tax deductible
1,738 1,740

(c) Interest and dividend income receivable which is not
assessable for tax until receipt
(1,671) (1,291)


1,257 349


Movements:

Opening asset balance at 1 July 349 1,034

Credited/(charged) to Income statement 908 (685)


1,257 349

Deferred tax assets arise when provisions and expenses have been charged but are not yet tax deductible.
These assets are realised when the relevant items become tax deductible, as long as enough taxable income
has been generated to claim the assets against, and as long as there are no changes to the tax legislation that
affect AFIC’s ability to claim the deduction.


29

F. Other information
This section covers other information that is not directly related to specific line items in the financial statements,
including information about related party transactions, share-based payments, assets pledged as security and
other statutory information.
F1. Related parties
All transactions with deemed related parties were made on normal commercial terms and conditions and
approved by independent Directors.
(a) Arrangements with non-executive directors
Non-Executive Directors R Barker, J Paterson and C Walter have rented office space and, for R Barker and J
Paterson, a parking space from the Group at commercial rates during the year. Sub-lease rental income
(included in revenue) received or receivable by the Group, excluding GST, during the year was $50,314 (2017:
$39,945).
(b) AICS transactions with minority interests
The below transactions were with Djerriwarrh Investments Ltd as a minority interest holder in the Company’s subsidiary.

2018
$’000
2017
$’000
Administration expenses charged for the year 2,450 2,437
(c) AICS transactions with other Listed Investment Companies
AICS had the following transactions with other Listed Investment Companies to which it provides services :

Administration expenses charged for the year to Mirrabooka Investments Ltd 1,400 1,481
Administration expenses charged for the year to AMCIL Ltd 899 918
F2. Remuneration of auditors
For the year the auditor earned or will earn the following remuneration:

2018
$
2017
$
PricewaterhouseCoopers

Audit or review of financial reports 190,820 248,256
AFSL compliance audit and review 7,796 9,925
Non-Audit Services

Taxation compliance services 38,819 81,444

Total remuneration 237,435 339,625






30

F3. Segment reporting
Operating segments are reported in a manner consistent with the internal reporting used by the chief operating
decision-maker. The Board, through its sub-committees, has been identified as the chief operating decision-
maker, as it is responsible for allocating resources and assessing performance of the operating segments.
Description of segments
The Board makes the strategic resource allocations for AFIC. AFIC has therefore determined the operating
segments based on the reports reviewed by the Board, which are used to make strategic decisions.
The Board is responsible for AFIC’s entire portfolio of investments and considers the business to have a single
operating segment. The Board’s asset allocation decisions are based on a single, integrated investment
strategy, and AFIC’s performance is evaluated on an overall basis.
Segment information provided to the Board
The internal reporting provided to the Board for AFIC’s assets, liabilities and performance is prepared on a
consistent basis with the measurement and recognition principles of Australian Accounting Standards, except
that net assets are reviewed both before and after the effects of capital gains tax on investments (as reported in
AFIC’s Net Tangible Asset announcements to the ASX).
Other segment information
Revenues from external parties are derived from the receipt of dividend, distribution and interest income, and
income arising on the trading portfolio and realised income from the options portfolio.
AFIC is domiciled in Australia and most of AFIC’s income is derived from Australian entities or entities that
maintain a listing in Australia. AFIC has a diversified portfolio of investments, with only 1 investment comprising
more than 10% of AFIC’s income, including realised income from the trading and options written portfolios –
Commonwealth Bank (11.0%) ( (2017 2 investments : Commonwealth Bank (11.8%) and Westpac Bank
(10.4%)).
F4. Summary of other accounting policies
This general purpose financial report has been prepared in accordance with Australian Accounting Standards,
Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. This
financial report has been authorised for issue and is presented in the Australian currency. AFIC has the power
to amend and reissue the financial report.
AFIC has attempted to improve the transparency of its reporting by adopting ‘plain English’ where possible. Key
‘plain English’ phrases and their equivalent AASB terminology are as follows:
Phrase AASB Terminology
Market Value Fair Value for Actively Traded Securities
Cash Cash & Cash Equivalents
Share Capital Contributed Equity
Options

Hybrids
Derivatives written over equity instruments that are
valued at fair value through Profit or Loss
Equity instruments that have some of the
characteristics of debt


AFIC complies with International Financial Reporting Standards (IFRS). AFIC is a ‘for profit’ entity.
AFIC has not applied any Australian Accounting Standards or AASB Interpretations that have been issued as at
balance date but are not yet operative for the year ended 30 June 2018 (“the inoperative standards”) except for
AASB 9 (2009) which was adopted on 7 December 2009. The impact of the inoperative standards has been
assessed and the impact has been identified as not being material. AFIC only intends to adopt other
inoperative standards at the date at which their adoption becomes mandatory.

31

Basis of accounting
The financial statements are prepared using the valuation methods described in A2. All other items have been
treated in accordance with the historical cost convention.
Fair value of financial assets and liabilities
The fair value of cash and cash equivalents, and non-interest bearing monetary financial assets and liabilities of
AFIC approximates their carrying value.
Convertible Notes
On the issue of convertible notes, the Group estimates the fair value of the liability component of the convertible
notes, being the obligation to make future payments of principal and interest to holders, using a market interest
rate for a non-convertible note of similar terms and conditions. The residual amount is included in equity as
other equity securities with no recognition of any change in the value of the option in subsequent periods. The
liability component is then included in borrowings. Expenses incurred in connection with the issue of the notes
are deducted from the total face value and the expense is then incurred over the life of the notes.
The total liability is subsequently carried on an amortised cost basis with interest on the notes recognised as
finance costs on an effective yield basis until the liability is extinguished on conversion or maturity of the notes.
Employee benefits
(i) Wages, salaries and annual leave
Liabilities for wages and salaries, including annual leave, expected to be settled within 12 months of balance
date are recognised as current provisions in respect of employees’ services up to balance date and are
measured at the amounts expected to be paid when the liabilities are settled.
(ii) Long service leave
In calculating the value of long service leave, consideration is given to expected future wage and salary levels,
experience of employee departures and periods of service. Expected future payments are discounted using
market yields at balance date on national government bonds with terms to maturity and currency that match, as
closely as possible, the estimated future cash outflows.
(iii) Cash incentives
Cash incentives are provided under the Senior Executive Annual Incentive Plan and are dependent upon the
performance of the Group. A provision is made for the cost of unsettled cash incentives at balance date. The
Investment Team Annual Incentive plans are also settled on a cash basis.
(iv) Share incentives
Share incentives are provided under the Senior Executive Annual Incentive Plan, Senior Executive Long Term
Incentive Plan, Investment Team Long Term Incentive Plan and the Employee Share Acquisition Scheme.
For the Employee Share Acquisition Scheme and the Senior Executive Annual Incentive Plan, the incentives
are based on the performance of the individual, the Group and investment companies to which the group
provides administration services, for the financial year. For the Employee Share Acquisition Scheme and a
portion of the Senior Executive Annual Incentive, the recipient agrees to purchase (or have purchased for them)
shares on-market, but receives a cash amount. A provision for the amount payable under the Annual Incentive
Plans is recognised on the Balance Sheet.
For the Investment Team Long Term Incentive Plan, the incentives are based on the performance of the Group
and investment companies to which the group provides administration services over a four year period. The
incentives may be settled in shares (but based on a cash amount) or cash. Historically, all awards have been
cash. Expenses are recognised over the four year assessment period based on the amount expected to be
payable under this plan, resulting in a provision for incentive payable being built up on the balance sheet over
the assessment period.
Under the Senior Executive Long Term Incentive Plan which was introduced for the year ended 30 June 2013,
the amount awarded is represented by Performance Shares. The 30 day Volume Weighted Average Price

32

(VWAP) of AFIC shares up to but not including 1 July is calculated. The amount of ELTIP available is then
divided by this 30-day VWAP price to determine the number of Performance Shares that may vest at the
vesting point in 4 years’ time. The value of each Performance Shares will be adjusted by the accumulation
return on the AFI share price (being the movement in the share price assuming the reinvestment of any
dividends) up to vesting date, based on a final share price calculated on the 30-day VWAP price up to 30 June.
No shares vested during the year ended 30 June 2018.

The expense will be charged directly through the Income Statement in the following manner – 25% of the total
estimated cost in Year 1, 50% of the total estimated cost in Year 2 less the expense charged in Year 1, 75% of
the total estimated cost in Year 3 less the expense charged in Years 1 and 2 and 100% of the total estimated
cost in Year 4 less the expense charged in Years 1, 2 and 3.
Directors’ retirement allowances
The Group recognises as ‘amounts payable’ Directors’ retirement allowances that have been crystallised. No
further amounts will be expensed as retirement allowances.
Administration fees
The Group currently provides administrative services to other Listed Investment Companies. The associated
fees are recognised on an accruals basis as income throughout the year. Any amounts outstanding at balance
date are recognised as receivable, subject to the assessment of recoverability by the Directors.
Operating leases
The Group currently has an operating lease in respect of its premises. Payments made under operating leases
are charged to the Income Statement on a straight-line basis over the period of the lease.
Rounding of amounts
AFIC is a company of the kind referred to in the ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, relating to the ‘rounding off’ of amounts in the financial report. Amounts in the financial
report have been rounded off in accordance with that Instrument, to the nearest thousand dollars, or in certain
cases, to the nearest dollar.

F5. Performance Bond
The Group’s subsidiary, AICS, has under the terms of its Australian Financial Services License in place a
performance bond to the sum of $20,000 underwritten by the Commonwealth Bank of Australia in favour of the
Australian Securities and Investments Commission (“ASIC”), payable on demand to ASIC.

F6. Share Based Payments
Share based payments
The Group has a number of share incentive arrangements. These are accounted for in accordance with note
F4. Where shares are issued to employees of AICS, AICS compensates AFIC for the fair value of the shares.

(a) Executive Incentive Plans
The executives’ remuneration arrangements incorporate an ‘at risk’ component as set out in the remuneration
report. Part of this ‘at risk’ component is paid in shares in the Group.
(i) Senior Executive Annual Incentive Plan
Each financial year, the Remuneration Committee sets the target (cash) amount of remuneration that could be
paid should all performance targets and measures be achieved. If all are achieved, 100% of the remuneration
will be awarded. If stretch levels of performance are achieved above target, then higher amounts may be paid.
On the other hand there is no set minimum that will be paid regardless of performance.
The performance measures are a combination of the performance of the Group, the investment companies to
which the Group provides administration services, and personal objectives.
All of the incentive remuneration awarded is paid in cash, with 50% of the after-tax amount being used by the
executive to purchase shares. All remuneration under the plan, is paid in the financial year following the year of

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assessment.
The executive agrees to the shares being subject to being held for two years (holding term), during which they
cannot be sold. Dividends are paid to executives on these shares prior to the expiry of the holding term.
Should an executive leave the Group before the holding term expires, the restriction will be lifted.
10,706 shares (2017: 14,331 shares) were purchased by executives in the year (in relation to the prior year)
with a fair value (being the acquisition price) of $64,277 (2017: $80,048).
(ii) Senior Executive Long Term Incentive Plan
Under the Senior Executive Long Term Incentive Plan, the amount awarded will be represented by
Performance Rights. The 30 day Volume Weighted Average Price (VWAP) of AFIC shares up to but not
including 1 July will be calculated. The amount of ELTIP available will then be divided by this 30-day VWAP
price to determine the number of Performance Rights that may vest at the vesting point in four years’ time. The
value of each Performance Right will be adjusted by the accumulation return on the AFI share price (being the
movement in the share price assuming the reinvestment of any dividends) up to vesting date, based on a final
share price calculated on the 30-day VWAP price up to 30 June.
The estimated fair value of the award will be calculated in accordance with AASB 2 – Share Based Payments
at the end of each year until the final year of vesting. The liability shown after the final year of vesting will
represent the actual amount being paid to eligible employees as a cash-settled share-based payment.
68,098 rights were awarded under the plan during the year ended 30 June 2018 (2017: 69,704). An expense
of $481,768 (2017: $437,634) was incurred for the 2014/15, 2015/16, 2016/17 and 2017/18 plans. 64,081 rights
under the 2013/14 plan were forfeited during the year.
(iii) Investment Team Long Term Incentive Plan
Similar to the Annual Incentive Plans, a target cash amount of long term incentive is set each year in respect of
that year, which will vest in four years’ time. The percentage of this target that ultimately vests four years after
the award depends on the gross return of the group and the investment companies it provides administration
services to.
The amount that vests will be paid in cash or shares (purchased on market at that time, based on the cash
amount that vests) at the discretion of the Group.
$52,563 vested in the period (2017 $140,114) and was paid in cash.
(b) Employee Share Acquisition Scheme
Under the current Employee Share Acquisition Scheme, each employee who is not a participant in the senior
executive or investment team incentive plans is awarded $5,000 per annum. After PAYG is deducted, $2,500
is used to buy shares in the Company which need to be held for three years. After three years, or the
departure of the employee from employment with the Group, the shares come out of the holding lock.
In addition, each employee is eligible for an additional award of up to $5,000. 50% of the amount awarded is
used to buy shares in one of the other LICs that AICS provides services to. The amount that is awarded is
dependent on the metrics used for the vesting of the Investment Team’s Short Term Incentive (excluding
personal measures). During the year, 48.4% of the possible maximum was awarded, and 50% of this was
used to buy shares in AMCIL Limited.

(c) Expenses arising from share based payment transactions
Total expenses arising from share based payment transactions recognised during the period as part of the
employee benefit expense (excluding any reversals and the Investment Team Long Term Incentive Plan) were
as follows:

2018
$’000
2017
$’000
Share-based payment expense 534 498

(d) Liability
The total liability arising from share based payment transactions is included in the current and non-current
liabilities for ‘provisions’.

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F7. Lease Commitments
The Group has entered into a non-cancellable operating lease for the use of its premises for 7 years. Current
Commitment relating to leases at balance date, for the current lease (incl. GST), is:



2018
$’000
2017
$’000
Due within one year 667 667
Later than one year but less than five 2,001 2,669
Greater than five years - -
2,668 3,336

F8. Principles of consolidation
AFIC’s consolidated financial statements consist of the financial statements of AFIC, the parent, and its
subsidiary, Australian Investment Company Services Ltd (“AICS”). 25% of AICS is owned by Djerriwarrh
Investments Ltd, another investment company for which AICS performs operational and investment
administration services, and for which it is paid monthly.
No subsidiaries were acquired or disposed of during the year. Intercompany transactions and balances
between AFIC and AICS are eliminated on consolidation.
The financial information for the parent entity, disclosed in F10 below, has been prepared on the same basis as
the consolidated financial statements. All notes are for the consolidated group unless specifically noted
otherwise.

F9. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries:
Name of entity Country of
Incorporation
Class of
shares
Equity holding

2018 2017

Australian Investment Company Services
Ltd

Australia

Ordinary

75%

75%
The investment in AICS is accounted for at cost in the individual financial statements of AFIC.

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F10. Parent Entity Financial Information

Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:

2018 2017
$'000 $'000
Balance sheet

Current assets 162,696 150,696
Total assets 7,450,206 6,941,111

Current liabilities 15,607 8,612
Total liabilities 1,113,655 977,124

Shareholders’ equity


Issued capital 2,811,721 2,756,256

Reserves

Revaluation reserve 2,422,568 2,123,209
Realised capital gains reserve 448,892 430,912
General reserve 23,637 23,637
Retained earnings 629,733 629,973
3,524,830 3,207,731

Total shareholders’ equity 6,336,551 5,963,987

Profit or loss for the yea
r 277,815 247,216

Total comprehensive income 595,154 592,814


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