Preliminary Final Report

A
Australian Foundation Investment Company Limited Annual Report 2019
Appendix 4E Statement
for the Full-Year ending
30 June 2019
Contents
• Results for Announcement to the Market
•Media Release
•Appendix 4E Accounts
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
1

RESULTS FOR ANNOUNCEMENT TO THE MARKET
The reporting period is the year ended 30 June 2019 with the prior corresponding period being
the year ended 30 June 2018.
This report is based on financial statements that are in the process of being audited.
Results for announcement to the market
Net profit was $406.4 million, 45.6% up from the pr
ior year.

Net profit attributable to members (excluding minority interests) was $405.9 million, 45.6%
up from the prior ye
ar.

Revenue from operating activities was $441.4 million, 43.1% 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 0.13% for the year (
2018: 0.14%).

Net tangible assets per share as at 30 June 2019, before allowing for the final dividend, were
$6.49 per share before allowing for the provision for deferred tax on unrealised gains in th
e
inv
estment portfolio (2018: $6.27)
.

A fully-franked final dividend of 14 cents per share, the same as last year’s final divide
nd,
wi
ll be paid on 29 August 2019 to shareholders on the register on 7 August 2019. The share
s
a
re expected to trade ex-dividend on 6 August 2019. There is no conduit foreign income
component of the dividend.
NZ 3 cents of the final dividend will carry a New Zealand imputation credi
t.

5 cents of the final dividend are sourced from capital gains, on which the Group has paid o
r
wi
ll pay tax. The amount of the pre-tax attributable gain, known as an “LIC capital gain”, i
s
the
refore 7.14 cents. This enables some shareholders to claim a tax deduction in their tax
return. Further details will be on the dividend statement
s.

The interim dividend of 10 cents per share plus a special dividend of 8 cents per share wa
s
paid t
o shareholders on 25 February 20
19.

The total dividend for the financial year is therefore 32 cents per share, fully-franked, up from
24 cents 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 8
August 2019. All shares issued under the DRP and DSSP will rank equally with existing
shares
.

The 2019 AGM will be held at Zinc, Federation Square, Melbourne, at 10.00 AM on Tuesday
8 October.
2

Buy-Backs and Special Dividends Lift Profit 46%
Full Year Report to 30 June 2019
AFIC invests in a diversified portfolio of Australian equities, seeking to provide
attractive incom
e and capital growth over the medium to long te
rm to shareholders at a
lo
w cost. AFIC’s management expense ratio is 0.13%.
The Full Year Profit was $406.4 million, up 45.6% from $279.0 m
illion in the
corr
esponding period last year. A number of one-off factors inc
reased investment
income by
43.2% to $433.0 million. This included participation
in the Rio Tinto and BHP
off-mar
ket share buy-backs, receipt of special dividends and th
e recognition of a
dividend resulting fr
om the Coles demerger from Wesfarme
rs.
The final dividend
was maintained at 14 cents per share fully franked
. A special dividend
of 8 cents per share full
y franked was paid along with the interim di
vidend of 10 cents
per share full
y franked in February 2019. Total fully franked d
ividends applicable for the
y
ear, including the special, are 32 cents per share compared with 2
4 cents per share last
year.
With the
market reaching close to all-time highs and against th
e backdrop of an
economy
vulnerable to slowing trade and subdued consumer sentiment, th
e focus of
adjustm
ents to the portfolio was to ensure quality companies, with strong industry
positions, formed the core of the portfolio moving forward. As a result, the num
ber of
holdings in the Investment Portf
olio was reduced from 91 to 76 over the year.
Portfolio return for the year, including franking, was 11.4%. Includi
ng franking, the
S&P/A
SX 200 Accumulation Index was up 13.4%. Over 10 years, the corresponding
figures are 11.5% for AFIC and 11.7% for the Index. AFIC’s performance number
s are
after costs.

Inv
estment of $1,000 (including benefit of franking) − 10 Years to 30 June 2019
3

Portfolio Performance


The Australian share market produced another strong year of returns as interest rates
continued to decline. Many large companies enjoyed strong support as investors searched for
yield from the large resource companies as well as businesses such as the ASX,
Commonwealth Bank and Telstra. Real estate trusts and infrastructure companies were also
very strong in response to the fall in bond yields. Selected perceived high growth stocks:
Afterpay Touch, A2 Milk, Appen and Xero (the only one of these stocks in the AFIC portfolio)
continued to rally. These companies have seen a remarkable appreciation in their respective
share prices following a strong lift in their already high valuations.
Over the year to 30 June 2019, the S&P/ASX 200 Accumulation Index, including the benefit of
franking, increased 13.4%. AFIC’s portfolio return over this period, including the benefit of
franking, was up 11.4%.
Companies in the portfolio that contributed strongly to relative returns through the 12 month
period were BHP, Commonwealth Bank, Transurban, Telstra, Brambles and CSL. In contrast,
companies such as CYBG (Clydesdale Bank) and Challenger, both of which were sold during
the second half of the financial year, significantly underperformed. In addition, AFIC does not
own gold stocks in the portfolio, which have been very strong recently in response to global
uncertainties. Participation in the BHP and Rio Tinto off-market buy-backs, which had the
advantage of generating significant franking credits for the Company, also provided some
headwind to performance as holdings were sold at a 14% discount to the market. The share
prices of these companies have continued to appreciate since the buy-backs because of high
iron ore prices following supply disruptions out of Brazil.
The long-term performance of the portfolio, which is more aligned with the Company’s
investment timeframes, was 11.5% per annum for the 10 years to 30 June 2019. This is in line
with the Index return over the same period of 11.7%. Both of these figures include the benefit
of franking. AFIC’s performance numbers are after costs.

Portfolio Adjustments

The more significant purchases for the year included addition to holdings in National Australia
Bank, because of the attractive dividend yield on offer at the time of purchase, Reliance
Worldwide, James Hardie Industries, Transurban Group (via participation in its rights issue to
fund the WestConnex purchase), Adelaide Brighton and ARB Corporation. There were also
additions during periods of share price weakness to our holdings in Macquarie Group and CSL,
as both these companies have strong industry positions and quality international franchises.

Major sales arose through the participation in the Rio Tinto off-market share buy-back and the
decision to remove some holdings from the portfolio. There was also a reduction in the holding
in AGL Energy as the energy industry continues to face further structural adjustment in the
future.


Outlook


The Australian equity market is facing an interesting dilemma. Very low interest rates are
reinforcing the move by many investors to buy equities at a time when the Reserve Bank of
Australia is concerned about the outlook for the economy. If the economy does weaken, then
this is likely to have implications for the earnings outlook for a number of companies. We
believe, against this backdrop, a focus on owning quality companies, with strong industry
positions, is essential. AFIC is typically close to fully invested, however we have some cash
available to add to selected holdings should there be any short-term disappointments during
the upcoming reporting season that produces resulting share price weakness.
Please direct any enquiries to:
Mark Freeman Geoff Driver
Managing Director General Manager
(03) 9225 2122 (03) 9225 2102


22 July 2019

4

MAJOR TRANSACTIONS IN THE INVESTMENT PORTFOLIO


Acquisitions
Cost
($’000)



National Australia Bank* 88,952
Coles Group
(Including demerger from Wesfarmers) 81,215
Reliance Worldwide 38,706
James Hardie Industries 37,665
Transurban Group
(10 for 57 share issue at $10.80 per share) 37,557
Adelaide Brighton 35,208
Qantas Airways*
(subsequently sold) 34,841
Macquarie Group 34,522
ARB Corporation 33,204
CSL 31,077


*Subject to call options during the period.


Disposals
Proceeds
($’000)

Rio Tinto
(participation in off-market share buy-back) 105,737
AGL Energy 62,442
Challenger
#
49,856
Qantas Airways
#
47,197
Washington H. Soul Pattinson
#
47,092
CYBG (
Clydesdale Bank)
#
43,676
QBE Insurance Group
#
42,603
#
Complete disposal from the portfolio.

5

TOP 25 INVESTMENTS AS AT 30 JUNE 2019

Includes investments held in both the Investment and Trading Portfolios.



Total Value
$ Million
1 Commonwealth Bank of Australia654.08.6%
2 * BHP554.87.3%
3 Westpac Banking Corporation440.95.8%
4 CSL 440.35.8%
5 * National Australia Bank 341.04.5%
6 Transurban Group 333.14.4%
7 * Australia and New Zealand Banking Group 258.73.4%
8 Macquarie Group 246.13.3%
9 Wesfarmers 243.13.2%
10 Amcor 202.82.7%
11 Rio Tinto 201.92.7%
12 Woolworths Group 188.32.5%
13 * Woodside Petroleum 157.82.1%
14 Brambles 156.32.1%
15 Telstra Corporation 154.72.0%
16 Sydney Airport144.11.9%
17 * Oil Search 127.31.7%
18 Mainfreight 125.01.7%
19 Ramsay Health Care 114.51.5%
20 James Hardie Industries113.41.5%
21 Qube Holdings 106.31.4%
22 Sonic Healthcare 100.41.3%
23 * Coles Group 97.21.3%
24 Seek 90.31.2%
25 Treasury Wine Estates 81.31.1%
Total5,673.7
As % of Total Portfolio Value 75.0%
(excludes Cash)
*
% of
Portfolio
Valued at closing prices at 28 June 2019
Indicates that options were outstanding against part of the holding
6

P
ORTFOLIO
P
ERFORMANCE TO
30

J
UNE
2019






P
ERFORMANCE
M
EASURES TO
30

J
UNE
2019
1
YEAR

5
YEARS

%

PA
10
YEARS

%

PA
P
ORTFOLIO
R
ETURN
–
N
ET
A
SSET
B
ACKING
R
ETURN INCLUDING
DIVIDENDS REINVESTED

9.0% 6.6% 9.5%
S&P/ASX

200

A
CCUMULATION
I
NDEX

11.6%
8.9%
10.0%


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

11.4% 8.6% 11.5%
S&P/ASX

200
GROSS
A
CCUMULATION
I
NDEX
*
13.4% 10.5%
11.7%

* Incorporates the benefit of franking credits for those who ca
n 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 2019

8

FINANCIAL STATEMENTS
Consolidated Income Statement for the Year Ended 30 June 2019




2019

2018

Note $’000 $’000
Dividends and distributions
A3 433,009 302,389
Revenue from deposits and bank bills A3 3,615 1,409
Other revenue A3
4,729

4,703
Total revenue
441,353

308,501





Net gains/(losses) on trading portfolio A3
(4,686)

264





Income from operating activities 436,667 308,765
Finance costs

(826) (848)
Administration expenses B1 (14,312) (14,533)



Profit before income tax expense 421,529 293,384
Income tax expense B2, E2 (15,156) (14,377)
Profit for the year 406,373 279,007
Profit is attributable to :

Equity holders of Australian Foundation Investment Company
405,932 278,709
Minority interest
441 298

406,373 279,007



Cents Cents
Basic earnings per share A5 34.00 23.57

This Income Statement should be read in conjunction with the accompanying notes.
9

Consolidated Statement of Comprehensive Income for the Year Ended 30 June 2019


Year to 30 June 2019
Year to 30 June 2018
Revenue
1
Capital
1
Total
Revenue Capital Total

$’000 $’000 $’000
$’000 $’000 $’000
Profit for the year 406,373 - 406,373

279,007 - 279,007


Other Comprehensive
Income

Items that will not be recycled through
the Income Statement

Gains for the period - 261,984
261,984
- 454,180
454,180
Tax on above - (86,616)
(86,616)
- (136,841)
(136,841)





Total Other
Comprehensive
Income

-
175,368 175,368
-
317,339 317,339





Total Comprehensive
Income

406,373 175,368 581,741

279,007 317,339 596,346

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 2019
Year to 30 June 2018

Revenue Capital Total
Revenue Capital Total

$’000 $’000 $’000
$’000 $’000 $’000
Equity holders of Australian
Foundation Investment
Company Ltd
405,932 175,368 581,300 278,709 317,339 596,048
Minority Interests 441 - 441 298 - 298

406,373 175,368 581,741 279,007 317,339 596,346



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



10

Consolidated Balance Sheet as at 30 June 2019

2019 2018


Note $’000 $’000

Current assets


Cash D1 206,429 99,183

Receivables

40,128 77,234

Total current assets 246,557 176,417

Non-current assets


Investment portfolio A2 7,572,640 7,280,706

Deferred tax assets

- 1,257

Total non-current assets 7,572,640 7,281,963

Total assets 7,819,197 7,458,380




Current liabilities


Payables

932 712

Tax payable

17,052 8,245

Borrowings – bank debt D2 - 100

Trading portfolio

7,033 6,757

Provisions

4,114 4,385

Total current liabilities 29,131 20,199

Non-current liabilities


Provisions

1,471 1,394

Deferred tax liabilities

100 -

Deferred tax liabilities – investment portfolio B2 1,163,749 1,097,527

Total non-current liabilities 1,165,320 1,098,921

Total liabilities 1,194,451 1,119,120




Net Assets 6,624,746 6,339,260


Shareholders' equity



Share capital A1, D6 2,888,136 2,811,721

Revaluation reserve A1, D3 2,561,314 2,422,568

Realised capital gains reserve A1, D4 462,257 448,892

General reserve A1 23,637 23,637

Retained profits A1, D5 688,244 631,725

Parent entity interest 6,623,588 6,338,543

Minority interest
1,158 717

Total equity 6,624,746 6,339,260


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 2019



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 2019

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

2,811,721
2,422,568
448,892 23,637 631,725 6,338,543
717 6,339,260
Dividends paid to shareholders
A4
-
- (23,257)
- (349,413)
(372,670)
- (372,670)
- Dividend Reinvestment Plan
D6

76,556
-
-
-
-
76,556
-
76,556
Other share capital adjustments

(141)
-
-
-
-
(141)
-
(141)
Total transactions with shareholders

76,415
- (23,257)
- (349,
413) (296,255)
- (296,255)




Profit for the year

-
-
-
- 405,932
405,932
441
406,373
Other Comprehensive Income (net of tax)



Net gains for the period

-
175,368
-
-
-
175,368
-
175,368
Other Comprehensive Income for the year

-
175,368
-
-
-
175,368
-
175,368
Transfer to Realised Capital Gains of cumulative gains on investments sold

-
(36,622) 36,622
-
-
-
-
-
Total equity at the end of the year

2,888,136 2,561,314 462,257
23,637 688,244 6,623,588 1,158 6,624,746
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 2019 (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 2018

$’000
$’000
$’000 $’000
$’000
$’000 $’000
$’000
Total equity at the beginning o
f 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
5
5,465

-

-

-

(278,054)

(222,589)
- (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

13

Consolidated Cash Flow Statement for the Year Ended 30 June 2019


2019 2018

$’000 $’000

Inflows/ Inflows/

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

Sales from trading portfolio

39,599 66,478
Purchases for trading portfolio

(28,964) (4,770)
Interest received

3,663 1,347
Dividends and distributions received

366,436 243,605


380,734 306,660



Other receipts

5,117 4,957
Administration expenses

(14,875) (14,803)
Finance costs paid

(826) (848)
Taxes paid

(24,794) (14,808)
Net cash inflow/(outflow) from operating activities
E1
345,356 281,158



Cash flows from investing activities

Sales from investment portfolio

810,462 689,030
Purchases for investment portfolio

(752,440) (753,667)
Net cash inflow/(outflow) from investing activities 58,022 (64,637)



Cash flows from financing activities

Net bank borrowings

(100) 100
Share issue transaction costs (141) (136)
Dividends paid

(295,891) (222,427)
Net cash inflow/(outflow) from financing activities (296,132) (222,463)



Net increase/(decrease) in cash held

107,246 (5,942)
Cash at the beginning of the year

99,183 105,125
Cash at the end of the year
D1
206,429 99,183

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:

2019
$’000
2018
$’000

Share capital 2,888,136 2,811,721

Revaluation reserve 2,561,314 2,422,568

Realised capital gains reserve 462,257 448,892

General reserve 23,637 23,637

Retained profits 688,244 631,725


6,623,588 6,338,543


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:

2019
$’000
2018
$’000




Equity instruments (excluding below) at market value 7,072,586 6,940,638

Equity instruments (over which options may be written) 500,054 327,764

Hybrids - 12,304


7,572,640 7,280,706





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 2019 and 30 June 2018 were as follows:

30 June
2019
30 June
2018
Net tangible asset backing per share $ $
Before tax 6.49 6.27
After tax 5.52 5.34
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 $782.0 million (2018: $712.6 million) of equity securities were sold. The cumulative gain on
the sale of securities was $36.6 million for the period after tax (2018: $18.0 million). 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 2019 is set out below.
Dividends and Distributions
2019
$’000
2018
$’000
Income from securities held in investment portfolio at 30 June
368,629 272,362
Income from investment securities sold during the year
64,269 29,918
Income from securities held in trading portfolio at 30 June
- -
Income from trading securities sold during the year
111 109
433,009 302,389

Interest income

Income from cash investments 3,615 31,409
Other income

Administration fees 4,729 4,681
Other income - 22
4,729 4,703
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.

2019

2018
Net gains
$’000

$’000
Net realised
gains/(losses) from trading portfolio – shares
140 672
- options (4,055) 3,559
Unrealised
gains/(losses) from trading portfolio - shares
- -
- options (771) (3,967)
(4,686) 264
$131.0 million of shares are lodged with the ASX Clear Pty Ltd as collateral for sold option positions written by
the Group (2018: $115.7 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 $218.4
million worth of securities at an agreed price – the ‘exposure’ (2018: $61.7 million). If all put options were
exercised, this would lead to the purchase of $4.0 million of securities at an agreed price (2018 : $19.7 million)

17

A4. Dividends paid
The dividends paid and payable for the year ended 30 June 2019 are shown below:

2019
$’000
2018
$’000
(a) Dividends paid during the year

Final dividend for the year ended 30 June 2018 of 14 cents fully franked at
30% paid 31 August 2018 (2018: 14 cents fully franked at 30% paid on 30
August 2017).
162,800 161,955
Interim dividend for the year ended 30 June 2019 of 10 cents per share
fully franked at 30% paid 25 February 2019 (2018: 10 cents fully franked at
30% paid 23 February 2018)
116,594 116,099
Special dividend of 8 cents per share fully franked at 30% paid 25
February 2019 (2018: Nil)
93,276 -

372,670 278,054
Dividends paid in cash
296,114 222,453
Dividends reinvested in shares
76,556 55,601

372,670 278,054
Dividends forgone via DSSP
7,946 4,788
(b) Franking credits

Opening balance of franking account at 1 July
156,187 158,730
Franking credits on dividends received
165,325 104,609
Tax paid during the year
24,221 14,069
Franking credits paid on ordinary dividends paid
(159,716) (119,166)
Franking credits deducted on DSSP shares issued
(3,410) (2,055)
Closing Balance of Franking Account
182,607 156,187
Adjustments for tax payable in respect of the current year’s profits and the
receipt of dividends recognised as receivables
25,702 22,534
Adjusted Closing Balance
208,309 178,721
Impact on the franking account of dividends declared but not recognised
as a liability at the end of the financial year:
(72,009) (71,169)
Net available 136,300

107,552
These franking account balances would allow AFIC to frank additional
dividend payments up to an amount of:
318,033 250,955
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
2019
$’000
2018
$’000
(Figures in A$ at year-end exchange rate : 2019 : $NZ1.045:$A1; 2018 : $NZ1.093:$A1)
Opening balance
7,356 13,357
Imputation credits on dividends received
7,384 5,987
Imputation credits on dividends paid
- (12,348)
Closing balance
14,740 6,996
3 NZ cents per share of the dividend to be paid on 29 August 2019 will have a New Zealand imputation credit
attached. This will utilise, at the above exchange rates, $13.4 million of the above balance.
(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 2019 to be paid on 29 August 2019, but not
recognised as a liability at the end of the financial year is:
168,021

(e) Listed Investment Company capital gain account
2019
$’000
2018
$’000
Balance of the Listed Investment Company (LIC) capital gain account: 63,335 32,686
This equates to an attributable gain of: 90,478 46,694

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. $85.7 million attributable gain is attached to the final dividend to be paid on
29 August 2019.

A5. Earnings per share
The table below shows the earnings per share based on the
profit for the year:
2019 2018

Basic Earnings per share
Number Number

Weighted average number of ordinary shares used as the
denominator

1,193,810,502 1,182,444,510



$’000 $’000
Profit for the year 405,932 278,709
Cents Cents
Basic earnings per share


34.00 23.57
19

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

2019
$’000
2018
$’000


Rental expense relating to non-cancellable leases (698) (621)
Employee benefit expenses (8,039) (8,911)
Depreciation charge - -
Other administration expenses
(5,575) (5,001)

(14,312) (14,533)
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

$ $ $ $ $
2019

Non-executive
Directors 692,379 - 65,776 - 758,155
Executives 2,686,935 (57,025) 96,899 77,662 2,804,471
Total
3,379,314 (57,025) 162,675 77,662 3,562,626
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

Detailed remuneration disclosures are provided in the Remuneration Report.

The above figures include share-based expenses incurred in respect of Ross Barker, former Managing
Director, who is still eligible for vesting under these plans.

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


2019
$’000
2018
$’000
Profit before income tax expense 421,529 293,384
Tax at the Australian tax rate of 30% (2018: 30%) 126,459 88,015
Tax offset for franked dividends received (115,510) (70,989)
Off-market buy-back income not included in profit 15,097 -
Demerger dividend non-taxable (13,089) -
Sundry items whose tax treatment differs from accounting treatment 4,331 (15)

17,288 17,011
Over provision in prior years (2,132) (2,634)
Total tax expense 15,156 14,377

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.

2019
$’000
2018
$’000
Deferred tax liabilities on unrealised gains in the investment portfolio 1,163,749 1,097,527
Opening balance at 1 July 1,097,527 967,091
Tax on realised gains (20,394) (6,405)
Charged to OCI for ordinary securities on gains or losses for the period 86,616 136,841
1,163,749 1,097,527
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 $265.0 million and $530.1 million
respectively, at a tax rate of 30% (2018: $254.8 million & $509.6 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:

2019 2018

% %
Energy 4.28 5.44
Materials 17.50 18.61
Industrials 15.17 12.08
Consumer Discretionary 4.37 2.01
Consumer Staples 5.06 8.99
Banks 21.80 21.31
Other Financials 9.73 10.86
Property Trusts 0.71 1.72
Telecommunications 3.61 2.02
Health Care 10.86 9.90
Info Technology 3.01 3.86
Utilities 1.25 1.85
Cash 2.65 1.35

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

Commonwealth Bank 8.6 7.9
BHP 7.3 6.6
Westpac 5.8 6.3
CSL 5.8 5.1

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 2019
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
932
- - 932 932
932 - - 932 932
Derivatives

Options in trading portfolio* 3,963 - - 3,963 7,033
3,963 - - 3,963 7,033


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
* 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

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

D Balance sheet reconciliations
E Income statement reconciliations
F Further 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

2019
$’000
2018
$’000

Cash at bank and in hand (including on-call) 201,429 95,183

Fixed term deposits 5,000 4,000


206,429 99,183

Cash holdings yielded an average floating interest rate of 2.07% (2018: 1.80%). 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

2019
$’000
2018
$’000

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

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

2019
$’000
2018
$’000

Opening balance at 1 July 2,422,568 2,123,209

Gains on investment portfolio

- Equity Instruments 261,984 454,180

Provision for tax on above (86,616) (136,841)

Cumulative taxable realised (gains)/losses (net of tax) (36,622) (17,980)

2,561,314 2,422,568


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 448,892 430,912

Dividends paid (23,257) -
Cumulative taxable realised gains/(losses) for period through OCI (net
of tax) 36,622

17,980
462,257 448,892

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 631,725

631,070

Dividends paid (349,413) (278,054)

Profit for the year 405,932 278,709

688,244 631,725

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
1/07/2017 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
31/08/2018 Dividend Reinvestment Plan
i
5,356 6.18 33,100
31/08/2018 Dividend Substitution Share
Plan
ii 526 6.18 n/a
25/02/2019 Dividend Reinvestment Plan
i
7,328 5.93 43,456
25/02/2019 Dividend Substitution Share
Plan
ii
791 5.93 n/a
Various Costs of issue

- - (141)
30/06/2019 Balance

1,200,148 2,888,136
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 (2018: Nil).
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

2019
$’000
2018
$’000
Profit for the year 406,373 279,007
Net decrease/(increase) in trading portfolio 276 6,211
Dividends received as securities under DRP investments (16,848) -
Coles demerger dividend – non-cash item (43,629) -
Decrease/(increase) in current receivables 37,106 (25,223)
- Less increase/(decrease) in receivables for investment portfolio (27,495) 22,366
Increase in deferred tax liabilities 67,579 129,528
- Less (increase)/decrease in deferred tax liability on investment portfolio (66,222) (130,436)
Increase/(decrease) in current payables 220 (6,241)
- Less decrease/(increase) in payables for investment portfolio - 6,113
- Less increase/(decrease) in dividends payable (223) (27)
Increase/(decrease) in provision for tax payable 8,807 6,265
Capital gains tax charge taken through equity (20,394) (6,405)
Increase/(decrease) in other provisions/non-cash items (194) -
Net cash flows from operating activities 345,356 281,158

E2. Tax reconciliations

Tax expense composition

Charge for tax payable relating to the current year 15,931 17, 919
Over provision in prior years (2,132) (2,634)
(Increase)/Decrease in deferred tax assets 1,357 (908)

15,156 14,377

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 86,616 136,841

86,616 136,841







28

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

2019
$’000
2018
$’000

(a) Tax on unrealised gains or losses in the trading portfolio 231 1,190

(b) Provisions and expenses charged to the accounting profit
which are not yet tax deductible
1,680 1,738

(c) Interest and dividend income receivable which is not
assessable for tax until receipt
(2,011) (1,671)


(100) 1,257


Movements:

Opening asset balance at 1 July 1,257 349

Credited/(charged) to Income statement (1,357) 908


(100) 1,257

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. Further information
This section covers 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 $61,275 (2018:
$50,314).
(b) AICS transactions with minority interests
The below transactions were with Djerriwarrh Investments Ltd as a minority interest holder in the Company’s subsidiary.

2019
$’000
2018
$’000
Administration expenses charged for the year 2,515 2,450
(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 1,382 1,400
Administration expenses charged for the year to AMCIL Ltd 906 899
F2. Remuneration of auditors
For the year the auditor earned or will earn the following remuneration:

2019
$
2018
$
PricewaterhouseCoopers

Audit Services
Audit or review of financial reports 195,987 190,820
Audit related Services

AFSL compliance audit and review 7,998 7,796
Non-Audit Services

Taxation compliance services 30,670 38,819

Total remuneration 234,655 237,435



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 3 investments
comprising more than 10% of AFIC’s income (as a consequence of buy-backs and demerger dividends),
including realised income from the trading and options written portfolios – Wesfarmers (14.9%), Rio Tinto
(13.1%) and BHP (11.9%) (2018 1 investment : Commonwealth Bank (11.0%).
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 on 22 July 2019 in accordance with a resolution of the Board and
is presented in the Australian currency. The Directors of the Company have 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.
31

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 2019 (“the inoperative standards”). 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.


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 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 Executive Annual Incentive Plan, 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 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 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
32

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 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 (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 2019.

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) 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.
33

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
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.
13,619 shares (2018: 10,706 shares) were purchased by executives in the year (in relation to the prior year)
with a fair value (being the acquisition price) of $84,147 (2018: $64,277).
(ii) Executive Long Term Incentive Plan
Under the 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.
64,201 rights were awarded under the plan during the year ended 30 June 2019 (2018: 68,098). An expense
of $494,042 (2018: $481,768) was incurred for the 2015/16, 2016/17, 2017/18 and 2018/19 plans. 57,586 rights
under the 2014/15 plan were forfeited during the year (100%).
(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.
No LTIP vested in the period (2018 $52,563).
(b) Employee Share Acquisition Scheme
Under the current Employee Share Acquisition Scheme, each employee who is not a participant in the
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, 37.8% of the possible maximum was awarded, and 50% of this was
used to buy shares in Djerriwarrh Investments 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:

2019
$’000
2018
$’000
Share-based payment expense 542 534
34

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


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:



2019
$’000
2018
$’000
Due within one year 698 667
Later than one year but less than five 1,396 2,001
Greater than five years - -
2,094 2,668

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

2019 2018

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.
35

F10. Parent Entity Financial Information

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

2019 2018
$'000 $'000
Balance sheet

Current assets 230,698 162,696
Total assets 7,803,337 7,450,206

Current liabilities 17,487 15,607
Total liabilities 1,183,065 1,113,655

Shareholders’ equity


Issued capital 2,888,136 2,811,721

Reserves

Revaluation reserve 2,561,314 2,422,568
Realised capital gains reserve 462,257 448,892
General reserve 23,637 23,637
Retained earnings 684,928 629,733
3,732,136 3,524,830

Total shareholders’ equity 6,620,272 6,336,551

Profit or loss for the yea
r 404,609 277,815

Total comprehensive income 579,977 595,154

36