NZ Information Meeting – Presentation

3 December 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
NZ Information Meetings – Presentation



Dear Sir / Madam

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

Yours faithfully

Matthew Rowe
Company Secretary

NZ Shareholder Meeting
December 2018

NZ Shareholder Meeting December 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.

NZ Shareholder Meeting December 2018
Our Investment Approach

NZ Shareholder Meeting December 2018
AFIC is a Long Term Investor in a Diversified Portfolio of
Quality Companies

NZ Shareholder Meeting December 2018
Investment Objectives
A long term investor seeking:
To grow dividends over the medium to long term.
To give investors attractive total returns over the
medium to long term.

NZ Shareholder Meeting December 2018
Financial Results

NZ Shareholder Meeting December 2018
Financial Results $A
Management expense ratio of 0.14%

NZ Shareholder Meeting December 2018
Share Price was trading at a 4% premium to Net Asset Backing at
31 October 2018

NZ Shareholder Meeting December 2018
Market Settings and the
Portfolio

NZ Shareholder Meeting December 2018
In a difficult market large companies have underperformed over the
year to 31 October 2018
Source: FactSet

NZ Shareholder Meeting December 2018
Relative Portfolio and Share Price Performance, Per Annum $A
Returns to 31 October 2018
Note: performance figures for AFIC are after tax paid and costs.

NZ Shareholder Meeting December 2018
Relative Portfolio and Share Price Performance, Per Annum $NZ
Returns to 31 October 2018
Note: performance figures for AFIC are after tax paid and costs.

NZ Shareholder Meeting December 2018
Despite the recent fall some sectors have delivered strong returns with
banks at the other extreme – one year returns to 31 October 2018
Returns include dividends

NZ Shareholder Meeting December 2018
However growth’ stocks still trade at an average P/E of 29 times, a 28%
premium to their 25-year history...
Source: FactSet, Goldman Sachs Global Investment Research.

NZ Shareholder Meeting December 2018
Market moves as well as purchases/sales have changed the profile
of the Portfolio – top 10 holdings 31 October 2018
RankCompany% ofPortfolio
Major changes –
%as at Oct 2017
1
Commonwealth Bank of Australia7.9%8.9%
2
BHP*6.6%5.4%
3
Westpac Banking Corporation6.0%7.4%
4
CSL5.2%3.7%
5
Wesfarmers4.5%
6
TransurbanGroup*3.8%
7
Rio Tinto3.7%
8
National Australia Bank3.4%4.7%
9
Australia and New Zealand Banking Group3.2%3.7%
10
Macquarie Group3.0%1.3%
* Options were outstanding against part of the holding.

NZ Shareholder Meeting December 2018
RankCompany% of Portfolio
Major changes –
%as at Oct 2017
11
Woolworths*2.7%1.9%
12
Amcor2.4%
13
Woodside Petroleum*1.9%1.5%
14
Brambles1.9%
15
Oil Search1.9%
16
Telstra Corporation1.8%2.7%
17
Sydney Airport*1.6%Not in top 20
18
James Hardie Industries1.4%1.0%
19
Computershare1.3%1.0%
20
QubeHoldings1.2%
Market moves as well as purchases/sales have changed the profile
of the Portfolio – next 10 holdings 31 October 2018
* Options were outstanding against part of holding.

NZ Shareholder Meeting December 2018
The pull back in valuations and the increase in effective dividend
yields has provided AFIC with selective opportunities
Source: FactSet.

NZ Shareholder Meeting December 2018
Some additions to the Portfolio during very recent market volatility
Share price
$
Share price
$

NZ Shareholder Meeting December 2018
Some additions to the Portfolio during very recent market volatility con’t.
Share price
$
Share price
$

NZ Shareholder Meeting December 2018
Profile of the portfolio by size of company October 2018 – looking for
growth opportunities some of which is outside of large companies

NZ Shareholder Meeting December 2018
The other interesting feature of the portfolio is the exposure to
businesses with revenue generated from overseas – 43% of the portfolio
•BHP Billiton
•CSL
•Rio Tinto
•Amcor
•Oil Search
•Macquarie Group
•Woodside Petroleum
•Brambles
•James HardieIndustries
•Computershare
Source: FactSet, AFIC.
Key examples:
•Seek
•ResMed
•Fisher & Paykel
Healthcare
•Mainfreight

NZ Shareholder Meeting December 2018
Australian Banks – growth in household debt has been a major tailwind
Upward trend in housing prices driven by
increased household debt:
•Growing population, with immigration a
key component.
•Supportive commodity cycle.
•Unbroken record of economic growth.
•Low interest rates post GFC.
•Easier credit standards.
Sources: ABS; APM; APRA; Core Logic; RBA.
Housing prices
Household debt
Housing Prices and Household Debt
Ratio to annual household disposable income

NZ Shareholder Meeting December 2018
Australian Banks – Net Income growth has been strong on the back of
these trends however going forward.....
Credit growth likely to be more subdued:
•Lower income growth.
•Tighter lending standards:
APRA
Hayne Royal Commission
Slowing foreign investment in housing
Impact on Bank Sector
•Lower balance sheet growth.
•Higher regulatory costs.
•Slowing housing market can be healthy.
•Banks will look to drive further costs out.
•Benign profit growth but dividends stable.
Source: FactSet
$ billion
Net Income of 4 major banks

NZ Shareholder Meeting December 2018
Banks currently trade at a 40% discount to Industrial stocks, 20% below
the 25-year average...
Source: FactSet, Goldman Sachs Global Investment Research.

NZ Shareholder Meeting December 2018
Featured Holdings – Macquarie Group
What we like:
•Owner driver culture.
•Infrastructure exposure.
Energy (renewable)
Emerging markets
GDP/ population growth
•Technology exposure.
Source: FactSet.
Share
price

NZ Shareholder Meeting December 2018
Featured Holdings – Woolworths
What we like:
•‘New’ management with clear strategy.
•Progress on turnaround:
Australian supermarkets regained
market leadership
IT Investment
Exit Masters
Simplify BigW
•Next phase: Ongoing investment
opportunities.
•From here, maintain focus.
•Stable profit and dividend growth.
Source: FactSet.
Share
price

NZ Shareholder Meeting December 2018
Featured Holdings – Reliance Worldwide
Source: FactSet.
What we like:
•Category leader in Push to Connect
plumbing fittings market.
•Innovative company with R&D focus.
•Multiple growth drivers in North American
and European markets.
•Self funding, cash generative business
model.
•Strong balance sheet.
•Participated in rights issue.
Share
price

NZ Shareholder Meeting December 2018
Closing Remarks

NZ Shareholder Meeting December 2018
Current Issues We Are Focusing On
• Met with 100+ companies in recent reporting season.
• Investment team visited UK/Europe/US in September and in November will be
visiting China/HK.
•Themes:
Australian credit growth/ housing market – slowing.
Continued impact of technology on businesses, including emergence of new
opportunities.
Finding value –expected long term growth versus what you have to currently
pay.
Fallout from trade disputes.
Impact of rising interest rates in the US on equity markets.

NZ Shareholder Meeting December 2018
Last 10 years and next 10 years?

NZ Shareholder Meeting December 2018
Other factors are still at play...