2019 Annual Reports and Annual General Meeting Materials
28 August 2019
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
2019 Annual Reports and Annual General Meeting Materials
Dear Sir / Madam
Please find attached the 2019 Statutory Annual Report, Annual Shareholder
Review, Chairman’s Letter, Notice of Meeting and Proxy Form and Question
Form being sent to shareholders.
Yours faithfully
Matthew Rowe
Company Secretary
Annual
Report
2 019
Content
Australian Foundation Investment Company Limited ABN 56 004 147 120
2 Directors’ Report
2 5 Year Summary
3 About the Company
4 Review of Operations and Activities
10 Top 25 Investments
11 Board and Management
13 Remuneration Report
30 Non-audit Services
31 Auditor’s Independence Declaration
32 Financial Statements
33 Consolidated Income Statement
34 Consolidated Statement
of Comprehensive Income
35 Consolidated Balance Sheet
36 Consolidated Statement
of Changes in Equity
38 Consolidated Cash Flow Statement
39 Notes to the Financial Statements
39 A. Understanding AFIC’s Financial
Performance
43 B. Costs, Tax and Risk
46 C. Unrecognised Items
47 D. Balance Sheet Reconciliations
49 E. Income Statement Reconciliations
50 F. Further Information
56 Directors’ Declaration
57 Independent Audit Report
62 Other Information
62 Information About Shareholders
62 Major Shareholders
63 Major Transactions in the
Investment Portfolio
64 Sub-underwriting
64 Substantial Shareholders
64 Transactions in Securities
65 Holdings of Securities
67 Issues of Securities
68 Company Particulars
69 Shareholder Meetings
Australian Foundation
Investment Company
is a listed investment
company investing
in Australian and
New Zealand equities.
1
Australian Foundation Investment Company Limited Annual Report 2019
Profit for the Year
$406.4m
Up 45.6% from 2018
Fully Franked Dividend
14¢
Final
24 cents total in 2018
32¢
Total
11.4 %
S&P/ASX 200 Accumulation
Index including franking* 13.4%
Total Portfolio Return
Total Shareholder Return
9.2%
Share price plus dividend
0 .13 %
0.14% in 2018
Management Expense Ratio
Total Portfolio
$7. 8b
Including cash at 30 June
$7.4 billion in 2018
* Assumes a shareholder can take full advantage
of the franking credits.
Including
franking*
Year in Summary
Including
franking*
5 Year Summary
DIRECTORS’ REPORT
2019
Net Profit After Tax ($ Million)
201520162017
406.4
2018
2019
Net Profit Per Share (Cents)
201520162017
34.0
2018
2019
Dividends Per Share (Cents)
(b)
201520162017
32
(c)
2018
2019
Investments at Market Value
($ Million)
(a)
201520162017
7,566
2018
2019
Net Asset Backing Per Share
(Cents)
(d)
201520162017
649.0
2018
2019
Number of Shareholders
(30 June)
201520162017
138,671
279.0
293.6
265.8
245.3
23.6
27.2
23.8
21.3
24
23
24
24
7,274
6,414
6,250
6,790
627.0
585.1
550.4
589.5
129,948
107,622
113,482
119,463
2018
Notes
(a) Excludes cash.
(b) All dividends were fully franked. The LIC attributable gain attached to the dividend was: 2019: 7.14 cents, 2018: 2.86 cents, 2017: nil, 2016: 2.1 cents,
2015: 7.1 cents.
(c) Includes 8 cents fully franked special dividend paid with the interim dividend.
(d) Net asset backing per share based on year-end data before the provision for the final dividend. The figures do not include a provision for capital gains tax
that would apply if all securities held as non-current investments had been sold at balance date as Directors do not intend to dispose of the portfolio.
2
Australian Foundation Investment Company Limited Annual Report 2019
About the Company
Australian Foundation Investment
Company (AFIC) is a listed investment
company investing in Australian and
New Zealand equities.
Investment Objectives
The Company aims to provide shareholders
with attractive investment returns through
access to a growing stream of fully franked
dividends and growth in capital invested.
The Company’s primary investment
goals are:
• to pay dividends which, over time, grow
faster than the rate of inflation; and
• to provide attractive total returns over
the medium to long term.
Approach to Investing
The investment philosophy is built on taking
a medium to long-term view on companies
in a diversified portfolio with an emphasis
on identifying quality companies that are
likely to sustainably grow their earnings
and dividends over this time frame.
Quality in this context is an outcome of our
assessment of the board and management
as well as some key financial metrics.
These include, the level of gearing in the
balance sheet, product margins and free
cash flow. The structure of the industry and
a company’s competitive position in this
industry is also an important indicator of
quality. Linked to this assessment of quality
is the ability of companies to grow earnings
over time, which ultimately should produce
good dividend growth.
Recognising value is also an important
aspect of sound long-term investing. Short-
term measures such as the price earnings
ratio, price to book or price to sales may
be of some value, but aren’t necessarily
strong predictors of future performance.
Our assessment of value tries to capture
the opportunity a business has to prosper
and thrive over the medium to long term.
In building the investment portfolio in this
way, we believe we can offer investors a
well-diversified portfolio of high-quality
companies that is intended to deliver total
returns ahead of the Australian equity
market and with less volatility over
the long term.
The Company also uses options written
against a small proportion of its investments
and a small trading portfolio to generate
additional income.
From time to time, some borrowings may
be used where potential investment returns
justify the use of debt. This is managed
within very conservative limits, as
determined by the Board.
AFIC is managed for the benefit of its
shareholders with fees based on the
recovery of costs rather than as a fixed
percentage of the portfolio. There are no
performance fees. As a result, the benefit
of scale over time results in a very low
expense ratio for investors. For the
12 months to 30 June 2019 this was
0.13 per cent, or 13 cents for each
$100 invested.
How AFIC Invests – What We Look
F
or in Companies
Quality First
Growth
Including dividends
Value
A portfolio that is actively
managed to achieve long-term
capital and dividend growth
3
Australian Foundation Investment Company Limited Annual Report 2019
Profit and Dividend
Full year profit was $406.4 million, up
45.6 per cent from $279.0 million in the
corresponding period last year. A number
of one-off factors increased investment
income by 43.2 per cent to $433.0 million.
This included participation in the Rio Tinto
and BHP off-market share buy-backs,
receipt of special dividends and the
recognition of a dividend resulting from
the Coles demerger from Wesfarmers.
The trading portfolio recorded a loss
of $4.7 million compared with a gain of
$0.3 million in the corresponding period last
year. This was primarily due to call option
positions. A significant number of in-the-
money call option positions were bought
back and moved into the current financial
year at higher exercise prices to capture
more of the potential capital upside of the
underlying holdings. This will move some
income from option activity into the current
financial year.
Earnings per share were 34.0 cents, up
from 23.6 cents. The final dividend was
maintained at 14 cents per share fully
franked. A special dividend of 8 cents per
share fully franked was paid along with
the interim dividend of 10 cents per share
fully franked in February 2019. Total fully
franked dividends applicable for the year,
including the special, are 32 cents per share
compared with 24 cents per share last year.
Five cents of the final dividend are
sourced from taxable capital gains, on
which the Company has paid or will pay
tax. The amount of the pre-tax attributable
gain on this portion of the dividend, known
as an ‘LIC capital gain’, is therefore 7.14
cents. This enables some shareholders
to claim a tax deduction in their tax return.
Market and 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, The
a2 Milk Company, 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.
This produced a market which had a very
mixed profile for returns, with the Mid-Cap
50 Accumulation Index up 3.7 per cent
and the Small Ordinaries Accumulation
Index up 1.9 per cent over the year
to 30 June 2019. The Fifty Leaders
Accumulation Index was up 14.2 per cent
over the corresponding period.
Over the year to 30 June 2019, the S&P/
ASX 200 Accumulation Index, including the
benefit of franking, increased 13.4 per cent.
AFIC’s portfolio return over this period,
including the benefit of franking, was
up 11.4 per cent.
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
Review of Operations and Activities
Mar 19
Apr 19
May 19
Jun 18
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
125
120
115
110
105
1
00
95
90
85
S&P/ASX 200 Industrials
total return index
S&P/ASX 200 Banks
total return index
S&P/ASX 200 Resources
total return index
S&P/ASX 200 A-REIT
total return index
Figure 2: Performance of Key Sectors of the Market
S&P/ASX Small Ordinaries
total return index
S&P/ASX 50
total return index
S&P/ASX Mid Cap 50
total return index
Source: FactSet
Jun 18
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
Mar 19
Apr 19
May 19
Jun 19
115
110
105
100
95
90
85
Index
Figure 1: Performance of Different Sectors of the Market by Company Size
4
Australian Foundation Investment Company Limited Annual Report 2019
significant franking credits for the
Company, also provided some headwind
to performance as holdings were sold
at a 14 per cent 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 cent
per annum for the 10 years to 30 June
2019. This is broadly in line with the Index
return over the same period of 11.7 per
cent. Both figures include the benefit of
franking. AFIC’s performance numbers
are after costs.
Investment Income
Increased
43.2%
Figure 3: Portfolio Performance – Per Annum Returns to 30 June 2019
10 year return
Net asset per share growth
plus dividends, including franking
S&P/ASX 200 Accumulation
Index, including franking
11.5%
11.7%
1 year return
8.6%
11.4%
10.5%
13.4%
5 year return
* Assumes an investor can take full advantage of the franking credits. AFIC’s portfolio return is also calculated after
management fees, income tax and capital gains tax on realised sales of investments. It should be noted that Index
returns for the market do not include management expenses or tax.
The return of the market over the year was characterised
by a pronounced divergence of performance across sectors
and companies.
“
“
5
Australian Foundation Investment Company Limited Annual Report 2019
Figure 4 illustrates the cumulative long-term
performance of the AFIC portfolio versus
the S&P/ASX 200 Accumulation Index
over the 10 years to 30 June 2019. It also
includes the benefits of franking credits
for both.
Positioning the Portfolio
With the market reaching close to all-time
highs and against the backdrop of an
economy vulnerable to slowing trade and
subdued consumer sentiment, the focus of
adjustments to the portfolio was to ensure
quality companies, with strong industry
positions, formed the core of the portfolio
moving forward. As a result, the number
of holdings in the investment portfolio was
reduced from 91 to 76 over the year.
The more significant purchases for the
year included additions 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.
The new holding in Coles Group arose
because of its demerger from Wesfarmers.
The only new company actively added
to the portfolio during the year was a
New Zealand listed company, Freightways.
Freightways, which has operations in
New Zealand and Australia, engages
in the provision of express package and
business mail services; and information
management services. The company was
founded in 1964 and is headquartered
in Auckland, New Zealand.
Major sales arose because of 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.
Figure 5 highlights the profile of AFIC’s
portfolio by the various sectors of the
market at the end of the financial year
and how it differs from the Index.
AFIC traditionally has not been a large
investor in property trusts given the
observation that over the long term
industrial companies have tended to
outperform property trusts and the
distribution from these trusts do not
carry franking credits.
Share Price Return
The share price return, including
reinvestment of dividends and franking
credits, over the 12 months to 30 June
2019 was 9.2 per cent, which is below the
portfolio return for the year. This was
because the share price was trading at a
discount of 3.7 per cent to the net asset
backing (before tax on unrealised gains)
at the end of June 2019, whereas one year
ago, at 30 June 2018 the discount was
1.7 per cent (Figure 6). The current discount
is the reason the Dividend Reinvestment
Plan does not have a discount in place
for the final dividend.
Whilst the share price can often fluctuate
between a premium and discount, over
the long term the share price return is often
very close to the portfolio return.
Review of Operations and Activities continued
Jun 18
Jun 19
Jun 09Jun 10Jun 11Jun 12Jun 13Jun 14Jun 15Jun 16Jun 17
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
AFIC Portfolio
S&P/ASX 200 Accumulation Index
Figure 4: Growth in Investment of $1,000 (Including Benefit of Franking)
− 10 Years to 30 June 2019
Note assumes an investor can take full advantage of the franking credits. This chart calculates the benefit of franking credits
at the time dividends are paid for both AFIC and the Index. In practice there is a timing difference between receipt of the
dividend and the realisation of the franking benefit in the following tax year.
AFIC portfolio weightS&P/ASX 200 Index weight
Banks
Materials
Industrial
Healthcare
Consumer
Staples
Energy
Other
Financials
21.8%17.5%15.2%10.9%9.7%5.0%
Cash
0.7%4.4%
Communication
Services
3.0%
Information
Technology
4.3%
Property
Trusts
1.2%
Utilities
2.7%
Consumer
Discretionary
3.6%
25%
20%
15%
10%
5%
0%
Figure 5: AFIC Investment by Sector Versus the S&P/ASX 200 Index
as at 30 June 2019
6
Australian Foundation Investment Company Limited Annual Report 2019
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.
Figure 7 shows market valuations, as
represented by the price earnings ratio of
the S&P/ASX 200 Index, is currently trading
well above its average in the present low
interest rate environment.
Dividend Imputation
The Company notes that the refundability
of franking credits under the dividend
imputation system, which was subject
to debate over the course of the year,
continues without change to the benefit
of shareholders.
Directorship Matters
As previously announced in October 2018
and detailed in the Company’s Half-Yearly
Review, Mr Terry Campbell did not seek re-
election as Chairman of the Company at the
2018 Annual General Meeting and therefore
retired at the conclusion of that meeting.
Mr John Paterson was elected as Chairman
by the Board with effect from the conclusion
of the Annual General Meeting. Mr Paterson
has been a Director of the Company
since 2005 and prior to that served as an
Alternate Director for Mr Campbell from
April 1987 to June 2005. He is Chairman
of Djerriwarrh Investments Limited.
He was formerly a Director of Goldman
Sachs JBWere and is a former member
of the Board of Guardians of Australia’s
Future Fund.
The Board wishes to record its sincere
appreciation to Mr Campbell for his
invaluable contribution to the Board
deliberations over the last 34 years.
Mr Campbell has been a Director since
1984, Deputy Chairman since October 2008
and Chairman since October 2013. His very
broad industry experience at the highest
levels of the Australian corporate world has
been of outstanding value to the Board,
executives and shareholders of Australian
Foundation Investment Company Limited.
Ms Jacqueline Hey retired as a Director
on 18 January 2019. Ms Hey has been a
Director of the Company since July 2013.
She has been a member of the Company’s
Investment Committee and Nomination
Committee.
Ms Hey has been a valuable contributor
to Board and executive discussions
reflecting her deep knowledge and
experience gained in her long career
in the telecommunications technology
sector and the subsequent exposure she
has had to a wide range of industries.
Figure 6: Share Price Premium/Discount to Net Asset Backing
Source: FactSet
-10%
15%
0%
5%
10%
-5%
Jun 09Jun 08
Jun 1
0
Jun 1
1
Jun 1
2
Jun 1
4
Jun 1
3
Jun 1
5
Jun 1
6
Jun 1
7
Jun 1
8
Jun 1
9
Figure 7: Valuation of the Market – Price Earnings Ratio of the
S&P ASX 200 Index
2014
Times
20152016201720182019
17
16
15
14
13
Source: FactSet
Average 15.5
7
Australian Foundation Investment Company Limited Annual Report 2019
Her contributions to Board deliberations
will be missed and the Board wishes to
record its thanks to Ms Hey for her valued
service to shareholders and wishes her
well for the future.
Ms Rebecca Dee-Bradbury was appointed
as an Independent Non-Executive Director
of the Company on 6 May 2019.
Ms Dee-Bradbury was previously Chief
Executive Officer/President of Developed
Markets (Asia Pacific and ANZ) for
Mondelez from 2010 to 2014. Before joining
Mondelez Ms Dee-Bradbury was Group
CEO of the global Barbeques Galore group,
and has held other Senior Executive roles
in organisations including Maxxium, Burger
King Corporation and Lion Nathan/Pepsi
Cola Bottlers.
Ms Dee-Bradbury is a Non-Executive
Director of BlueScope Steel Limited
(appointed April 2014) and Grain Corp
Limited (appointed September 2014), and
was previously a Non-Executive Director
of Tower Limited until her resignation in
2016. Ms Dee-Bradbury is also a Director
of EnergyAustralia Holdings following her
appointment in April 2017.
We are delighted to welcome Rebecca to
the Board. Her depth of knowledge across
all aspects of business and the Fast-moving
Consumer Goods (FMCG) sector both in
Australia and internationally will be of great
assistance to the Board.
Company Position
Capital Changes
The following changes occurred to the
Company’ share capital during the year:
• Under the Company’s Dividend
Substitution Share Plan, 526,689 new
shares were issued at nil cost in August
2018 and 791,073 new shares were
issued at nil cost in February 2019.
• Under the Company’s Dividend
Reinvestment Plan, 5,355,892 new
shares were issued at a price of $6.18
in August 2018 and 7,328,161 new
shares were issued at a price of
$5.93 in February 2019.
The Company’s buy-back facility remains
open although no shares were bought back
during the year.
The Company’s contributed equity, net
of share issue costs, rose $76.4 million
to $2.9 billion. At the close of the year the
Company had 1,200 million shares on issue.
Dividends
Directors have declared a fully franked final
dividend of 14 cents per share, the same
as last year.
The dividends paid during the year ended
30 June 2019 were as follows:
$’000
Final dividend for the year
ended 30 June 2018 of
14 cents fully franked
at 30 per cent paid
31 August 2018162,800
Interim dividend for the
year ended 30 June 2019
of 10 cents per share fully
franked at 30 per cent,
paid 25 February 2019116,594
Special dividend for the
year ended 30 June 2019
of 8 cents per share fully
franked at 30 per cent,
paid 25 February 201993,276
Total372,670
Dividend Substitution Share
Plan (DSSP)
The Company has in place a Dividend
Substitution Share Plan.
This enables shareholders to elect to
receive shares in the Company instead
of dividends, forgoing any franking credit
and LIC gains that would otherwise be
attached to the dividend but deferring
any tax due on the receipt of such shares
(for Australian tax payers) until such time as
the shareholding is sold. Shareholders will
need to seek their own taxation advice in
determining if this plan is suitable for them.
Further details are available on the
Company’s website or by request from
the Company’s Share Registrar.
Financial Condition
The Company’s primary source of funds
consists of its shareholders’ funds. The
Company also had agreements with
Commonwealth Bank of Australia for loan
facilities totalling $140 million (see Note D2).
At various points during the year, some of
these facilities were drawn down. The Board
takes a prudent and conservative approach
to the use of borrowed funds. Currently,
when used, they are maintained within a
limit of 10 per cent of total assets. As at
30 June 2019, the facilities are undrawn.
Listed Investment Company
Capital Gains
Listed Investment Companies (LICs)
which make capital gains on the sale of
investments held for more than one year
are able to attach to their dividends an
LIC capital gains amount which some
shareholders are able to use to claim a tax
deduction. This is called an ‘LIC capital gain
attributable part’. The purpose of this is to
put shareholders in LICs on a similar footing
with holders of managed investment trusts
with respect to capital gains tax (CGT) on
the sale of underlying investments.
Review of Operations and Activities continued
8
Australian Foundation Investment Company Limited Annual Report 2019
Tax legislation sets out the definition of a
‘listed investment company’ which AFIC
satisfies. Furthermore, from time to time
the Company sells securities out of the
investment portfolio held for more than one
year which may result in capital gains being
made and tax being paid. The Company
is therefore on occasion in a position to
be able to make available to shareholders
a LIC capital gain attributable part with
our dividends.
In respect of this year’s final dividend of
14.0 cents per share for the year ended
30 June 2019, it carries with it a 7.14 cents
per share LIC capital gain attributable part
(2018: 2.86 cents). The amount which
shareholders may be able to claim as a
tax deduction depends on their individual
situation. Further details are provided
in the dividend statements.
Likely Developments
The Company intends to continue its
investment activities going forward as it has
done since its inception in 1928. The results
of these investment activities depend
upon the performance of the companies
and securities in which we invest. Their
performance in turn depends on many
economic factors. These include economic
growth rates, inflation, interest rates,
exchange rates and taxation levels. There
are also industry and company-specific
issues such as management competence,
capital strength, industry economics and
competitive behaviour.
We do not believe it is possible or
appropriate to make a prediction on the
future course of markets or the performance
of our investments. Accordingly, we do
not provide a forecast of the likely results
of our activities. However, the Company’s
focus is on results over the medium to long
term and its twin objectives are to grow
dividends at a rate faster than inflation
and to provide shareholders with attractive
capital growth.
Significant Changes in the State
of Affairs
Directors are not aware of any other
significant changes in the operations of
the Company, or the environment in which
it operates, that will adversely affect the
results in subsequent years.
Events Since Balance Date
The Directors are not aware of any matter
or circumstance not otherwise disclosed
in the financial statements or the Directors’
Report which has arisen since the end of
the financial year that has affected or may
affect the operations, or the results of those
operations, or the state of affairs of the
Company in subsequent financial years.
Environmental Regulations
The Company’s operations are such that
they are not directly materially affected by
environmental regulations.
Rounding of Amounts
The Company is 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.
Corporate Governance Statement
The Company’s Corporate Governance
Statement for the financial year ended
30 June 2019 will be found on the
Company’s website at:
afi.com.au/corporate-governance
As an overseas listed issuer on the
New Zealand Stock Exchange (NZX), the
Company is generally deemed to comply
with the NZX Listing Rules provided that
the Company remains listed on the ASX,
complies with the ASX Listing Rules and
provides the NZX with all the information
and notices that it provides to the ASX.
9
Australian Foundation Investment Company Limited Annual Report 2019
Australian Resources
Index Up
16%
Includes investments held in both the investment and trading portfolios.
Valued at Closing Prices at 28 June 2019
Total Value
$ Million
% of the
Portfolio
1Commonwealth Bank of Australia654.08.6
2BHP*554.87.3
3Westpac Banking Corporation440.95.8
4CSL 440.35.8
5National Australia Bank*341.04.5
6Transurban Group 333.14.4
7Australia and New Zealand Banking Group*258.73.4
8Macquarie Group 246.13.3
9Wesfarmers 243.13.2
10Amcor 202.82.7
11Rio Tinto 201.92.7
12Woolworths Group188.32.5
13Woodside Petroleum* 157.82.1
14Brambles 156.32.1
15Telstra Corporation 154.72.0
16Sydney Airport144.11.9
17Oil Search*127.31.7
18Mainfreight 125.01.7
19Ramsay Health Care 114.51.5
20James Hardie Industries113.41.5
21Qube Holdings 106.31.4
22Sonic Healthcare 100.41.3
23Coles Group*97.21.3
24Seek 90.31.2
25Treasury Wine Estates 81.31.1
Total5,673.7
As a percentage of total portfolio value (excludes cash)75.0%
* Indicates that options were outstanding against part of the holding.
Top 25 Investments
As at 30 June 2019
10
Australian Foundation Investment Company Limited Annual Report 2019
Directors
John Paterson BCom (Hons)(Melb), CPA, F Fin. Chairman and Independent Non-Executive Director. Chairman of the Investment and
Nomination Committees. Member of the Remuneration and Audit Committees. Director of the Company’s subsidiary, Australian Investment
Company Services Limited.
Mr Paterson is a company Director who was appointed to the Board in June 2005 and Chairman in October 2018. He was a former Alternate
Director of the Company for Mr Campbell from April 1987 to June 2005. He is Chairman of Djerriwarrh Investments Limited. He was formerly
a Director of Goldman Sachs JBWere and is a former member of the Board of Guardians of Australia’s Future Fund.
Mark Freeman BE, MBA, Grad Dip App Fin (Sec Inst), AMP (INSEAD). Managing Director. Managing Director of the Company’s subsidiary,
Australian Investment Company Services Limited (AICS). Member of the Investment Committee.
Mr Freeman became Chief Executive Officer and Managing Director in January 2018 having been Chief Investment Officer since joining the
Company in February 2007. Prior to this he was a Partner with Goldman Sachs JBWere where he spent 12 years advising the investment
companies on their investment and dealing activities. He has a deep knowledge and experience of investments markets and the Company’s
approaches, policies and processes. He is also Managing Director of Djerriwarrh Investments Limited, AMCIL Limited and Mirrabooka
Investments Limited.
Ross E Barker BSc (Hons) (Melb), MBA (Melb), F Fin. Non-Executive Director. Member of the Investment Committee.
Mr Barker transitioned to a Non-Executive Director in January 2018 having been appointed Chief Executive Officer of the Company in
February 2001 and Managing Director in October 2001 and prior to that he was an Alternate Director of the Company since April 1987.
He is a Non-Executive Director of AMCIL Limited and Mirrabooka Investments Limited, Chairman of Melbourne Business School Ltd
and an Advisory Board member of the Faculty of Business and Economics at the University of Melbourne.
Rebecca Dee-Bradbury BBus, GAICD. Independent Non-Executive Director.
Ms Dee-Bradbury was previously Chief Executive Officer/President of Developed Markets (Asia Pacific and ANZ) for Mondelez from 2010 to
2014. Before joining Mondelez Ms Dee-Bradbury was Group CEO of the global Barbeques Galore group, and has held other Senior Executive
roles in organisations including Maxxium, Burger King Corporation and Lion Nathan/Pepsi Cola Bottlers. Ms Dee-Bradbury is a Non-Executive
Director of BlueScope Steel Limited (appointed April 2014) and Grain Corp Limited (appointed September 2014), and was previously a
Non-Executive Director of Tower Limited (NZ) until her resignation in 2016. Ms Dee-Bradbury is also a Director of Energy Australia Holdings Ltd
following her appointment in April 2017. Ms Dee-Bradbury is an inaugural member of the Business Advisory Board at Monash Business
School and a member of Chief Executive Women and of the Women Corporate Directors Foundation, and a former member of the Federal
Government’s Asian Century Strategic Advisory Board.
Graeme R Liebelt B Ec (Hons), FAICD FTSE. Independent Non-Executive Director. Chairman of the Remuneration Committee.
Mr Liebelt was appointed to the Board in June 2012. He is Chairman of Amcor Limited and DuluxGroup Limited, a Director of Australia
and New Zealand Banking Group Limited, and a Director of Carey Baptist Grammar School. He is a Fellow of the Australian Academy of
Technological Sciences and Engineering and a Fellow of the Australian Institute of Company Directors. He was formerly Managing Director
and CEO of Orica Limited, Chairman and Director of the Global Foundation and Deputy Chairman of Melbourne Business School.
David A Peever BEc MSC (Mineral Economics). Independent Non-Executive Director. Member of the Audit Committee.
Mr Peever was appointed to the Board in November 2013. He was Managing Director of Rio Tinto Australia from 2009 to 2014.
He is Chairman of Brisbane Airport Group Pty Ltd. Mr Peever is a member of the Foreign Investment Review Board. He chaired the Minister
of Defence’s First Principles Review of Defence and following the acceptance of the review by government was Chair of the Oversight Board
which helped guide implementation (with Defence) of the Review’s recommendations. David is also a Non-Executive Director of Naval Group
Australia and a former Director of the Stars Foundation, a not-for-profit body which promotes education of Indigenous girls.
Catherine M Walter AM LLB (Hons), LLM, MBA (Melb), FAICD. Independent Non-Executive Director. Member of the Investment,
Remuneration, Nomination and Audit Committees.
Mrs Walter is an Australian lawyer and company Director. She was appointed to the Board in August 2002. Mrs Walter is Chair of Melbourne
Genomics Health Alliance and the Financial Adviser Standards & Ethics Authority (FASEA). Mrs Walter is a Director of the RBA’s Payments
System Board and a Trustee of the Helen Macpherson Smith Trust. She was formerly Chair of Federation Square Pty Ltd and Australian
Synchrotron Company Ltd, Deputy Chair of Victorian Funds Management Corporation and a Director of ASX, National Australia Bank Ltd,
Orica Limited and Melbourne Business School.
Board and Management
11
Australian Foundation Investment Company Limited Annual Report 2019
Board and Management continued
Peter J Williams Dip.All, MAICD, FAIM. Independent Non-Executive Director. Chairman of the Audit Committee. Member of the Investment
and Nomination Committees. Chairman of the Company’s subsidiary, Australian Investment Company Services Limited.
Mr Williams was appointed to the Board in February 2010. He is Chairman of NAB Trustees Services Limited (NAB Subsidiary), Director of
Cricket Victoria Ltd and ARUMA (formerly House with No Steps), an Advisory Board Member of TLC Aged Care Limited and Chairman MIPS
Advisory Committee for Fiig Securities Limited. Mr Williams was formerly Managing Director of Equity Trustees Limited, Director and Treasurer
of Foundation for Young Australians, Chairman of Olympic Park Sports Medical Centre Pty Ltd, a Director of the Trustee Corporations
Association of Australia, a Director of the Australian Baseball Federation Inc and a General Manager with AXA/National Mutual in Australia
and Hong Kong.
Senior Executives
Geoffrey N Driver B Ec, Grad Dip Finance, MAICD. General Manager, Business Development and Investor Relations.
Mr Driver joined the Company in January 2003. Previously, he was with National Australia Bank Ltd for 18 years in various roles covering
business strategy, marketing, distribution, investor relations and business operations. Mr Driver is Chairman of Trust for Nature (Victoria).
Andrew JB Porter MA (Hons) (St And), FCA, MAICD. Chief Financial Officer.
Mr Porter joined the Company in January 2005. He is a Chartered Accountant and has had over 23 years experience in accounting and
financial management both in the United Kingdom with Andersen Consulting and Credit Suisse First Boston, and in Australia where he was
Regional Chief Operating Officer for the Corporate and Investment Banking Division of CSFB. He is Chair of The Group of 100 (G100), the
peak body for CFOs and a Director of the Anglican Foundation.
Matthew Rowe BA (Hons), MSc Corp Gov, FGIA, FCIS. Company Secretary.
Mr Rowe joined the Company in July 2016. He is a Chartered Secretary with over 12 years of experience in corporate governance with
a particular focus in listed investment companies. He was previously a corporate governance advisor at a professional services firm which
included acting as Company Secretary for three ASX listed companies. Prior to that Matthew was the Company Secretarial Manager for
a funds management company based in the United Kingdom.
Meetings of Directors
The number of meetings of the Company’s Board of Directors and of each Board Committee held during the year ended 30 June 2019
and the numbers of meetings attended by each Director were:
BoardInvestmentAuditRemunerationNomination
Eligible to
AttendAttended
Eligible to
AttendAttended
Eligible to
AttendAttended
Eligible to
AttendAttended
Eligible to
AttendAttended
J Paterson12122120442222
TA Campbell
^
3355--11--
M Freeman12122120-4
#
-2
#
--
RE Barker12122119-3
#
----
RP Dee-Bradbury
^^
22-2
#
------
JC Hey
**
65117------
GR Liebelt 1212-15
#
--22--
DA Peever 1212-19
#
44----
CM Walter
***
12122121442222
PJ Williams1212212144-2
#
22
# Attended meetings by invitation.
^ TA Campbell retired with effect from 9 October 2018.
** JC Hey retired with effect from 18 January 2019.
*** CM Walter was appointed to the Nomination Committee on 21 January 2019.
^^ RP Dee-Bradbury was appointed to the Board on 6 May 2019.
Insurance of Directors and Officers
During the financial year, the Company paid insurance premiums to insure the Directors and Officers named in this report to the extent
allowable by law. The terms of the insurance contract preclude disclosure of further details.
12
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report
Contents
The Directors present AFIC’s 2019 Remuneration Report which outlines key aspects of our remuneration policy and remuneration awarded
this year.
This is the first year that Mark Freeman has been remunerated for the whole period as CEO, and on the same basis as other Executives.
Last year, his remuneration covered two periods – as Chief Investment Officer before 1 January 2018, and as CEO and Managing
Director afterwards.
This report therefore has details as to the remuneration policies, targets and outcomes (with the exception of the Investment Team Long-Term
Plan which continues to be eligible for vesting and was awarded when Mr Freeman was Chief Investment Officer) for the Executive Plan.
Details of the Investment Team Incentive Plans for which Mr Freeman was partially remunerated for last year can be found in the 2018 Annual
Report, available on the Company’s website afi.com.au.
Shareholders should be aware that AFIC does not bear the total cost of remuneration alone. Due to agreements that the Group’s subsidiary,
Australian Investment Company Services Limited (AICS) also has with Djerriwarrh Investments Limited, Mirrabooka Investments Limited
and AMCIL Limited, a substantial proportion of the total remuneration cost (usually 30 per cent to 40 per cent, depending on the individual),
is borne by these other companies. AICS expenses the total amount and recovers the proportion borne by the investment companies
through the fees that it charges. This report, therefore, shows the total expense that is borne by AICS and that an individual receives.
The Remuneration Committee regularly reviews the structure and composition of Executive Incentive Plans seeking to ensure that they
continue to meet their objectives. It is likely that the current review will result in some minor changes to the incentive plan, particularly with
regard to the allocation between the LICs, during the financial year ended 30 June 2020.
The report is structured as follows:
1. Remuneration Policy and Link to Performance
2. Structure of Remuneration
3. Executive Remuneration Expense
4. Contract Terms
5. Non-Executive Director Remuneration
Appendix
A. Remuneration Governance
B. Annual Incentives: Details of Outcomes and Conditions
C. Long Term Incentives: Details of Outcomes and Conditions
D. Directors and Executives: Equity Holdings and Other Transactions
E. Detailed Performance Measures by Investment Company
1. Remuneration Policy and Link to Performance
1.1 What is Our Remuneration Policy?
AFIC is an investor in securities listed primarily in Australia and New Zealand. Our primary objectives are to grow dividends at a faster rate
than inflation and provide shareholders with capital growth over the medium to long term. To achieve this, we need to attract and retain
professional, competent and highly motivated Executives and staff through offering attractive remuneration arrangements which:
• reflect market conditions;
• recognise the skills, experience, roles, and responsibilities of the individuals;
• align with shareholder interests; and
• align with the risk management strategies.
Generally, we seek to set total remuneration at the upper or second quartile of the sectors in which we operate.
Periodically, we review our remuneration policies and plans seeking to ensure that they continue to meet these objectives.
13
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
Remuneration for the Group’s Executives has two main elements:
• fixed annual remuneration (FAR); and
• performance-related pay, being annual incentives and long term incentives (LTI).
FAR is determined with reference to levels necessary to recruit and retain staff with the relevant skills and experience in the industry in which
the Group operates. We seek external input to ensure that the FAR meets these conditions. This includes industry data provided by the
Financial Institutions Remuneration Group Inc. (FIRG) and McLagan for the financial services industry.
Through performance-related pay, the remuneration is adjusted to reflect the risks that the Company and its shareholders face and how
the Company has responded to those risks. In particular:
• the key performance indicators chosen to determine performance-related pay are those that the Company considers most relevant
to its objectives of improving shareholder wealth over the medium to long term, whilst also considering the relative levels of risk;
• the focus is on performance over the medium to long term with only a small proportion of both annual incentives and LTI being dependent
on a single year’s performance; and
• Executives agree to invest 50 per cent of the annual cash incentive (after tax) in AFIC shares and shares of the other investment companies
(including AMCIL Limited, Djerriwarrh Investments Limited and Mirrabooka Investments Limited) and to hold these shares for a minimum
of two years.
The Board may, at its discretion, direct that any performance rights that are yet to vest or to be tested be cancelled in the event of negative
issues that may arise, including material misstatement of the Company’s financial statements.
1.2 What is Our Target Remuneration Mix?
The target remuneration mix for Executives is as follows:
Managing Director’s Target
Remuneration Mix
Annual incentive 29%
Long term incentive 14%
Fixed annual remuneration 57%
Other Executives’ Target
Remuneration Mix
Annual incentive 21%
Long term incentive 10%
Fixed annual remuneration 69%
1.3 How is the Remuneration Paid in 2019 Linked to Performance?
Table 1 discloses the actual remuneration outcomes received by the Company’s Executives during the year and the LTI that may vest in future
years. These amounts are different to the statutory remuneration expense disclosed in Table 7. The Board considers the information about
remuneration outcomes in Table 1 relevant for users because the statutory remuneration expense includes accounting charges for long term
incentives that may or may not be received in future years. See the following page for details of the differences.
14
Australian Foundation Investment Company Limited Annual Report 2019
Table 1: Actual Executive Remuneration Outcomes
Total
FAR
$
Annual
Incentive
$
Prior Years’
LTI
Received*
$
Total
Remuneration
$
Annual
Incentive
Forfeited
$
LTI
Forfeited
$
Possible
Future LTI
(to Vest Over
Next 4 Years)
#
$
Mark Freeman – Chief Investment Officer until 31 December 2017, Managing Director from 1 January 2018
2019850,000230,987-1,080,987(194,013)(160,000)533,500
2018841,000225,76512,3201,079,085(194,735)(147,680)507,456
Andrew Porter – Chief Financial Officer
2019666,507106,814-773,321(93,138)(110,554)457,421
2018653,438114,188-767,626(81,843)(114,839)439,362
Geoff Driver – General Manager – Business Development and Investor Relations
2019549,20188,015-637,216(76,745)(91,027)376,914
2018538,43293,122-631,554(68,408)(91,746)361,964
Matthew Rowe – Company Secretary
2019252,00040,310-292,310(35,290)-120,558
2018235,00040,220-275,220(30,280)-75,053
For Mark Freeman, the amount forfeited is the difference between the target amount that would have been paid if all targets were met and the amount paid,
under the investment team LTI. The amount shown for the other Executives (excluding Mark Freeman and Matthew Rowe who was not eligible for an award
under the 2013 and 2014 LTIP) is the amount that would have been paid to them with respect to the 2014 LTIP in the event that all targets had been achieved
(2018: 2013 LTIP). See Table 4.
The value of Annual Incentive forfeited is the difference between the target amount and the amount awarded. See Table 10.
The differences between the amounts disclosed in Table 1 and the amounts in Table 7 are as follows:
* Prior year’s LTI received in Table 1 shows the value of performance shares that vested during the year, measured at the closing price on the day that they
were received. In respect of the investment team, it shows the cash payment received during the year for the previous financial year. In contrast, Table 7
shows the accounting expense recognised in relation to the LTI plans during the year.
# The future LTI in Table 1 reflects potential future remuneration that may be received by the Executives over the next four years if the performance conditions
are satisfied. This includes the estimated amounts payable under the two LTIP plans assuming the performance conditions will be satisfied at the time of
vesting. For accounting purposes, these amounts are recognised as an expense over the vesting period.
Ross Barker, who retired on 31 December 2017 as Managing Director, is not included in the above table or in Table 7 as he ceased to be
an Executive in the prior year. However, he is still entitled to ELTIP for the years in which he was employed (see Table 12). As with the other
Executives, all ELTIP for the 2014–15 year was forfeited during the year, and Mr Barker thus forfeited $214,799 worth of ELTIP. At the end
of 30 June 2019, the total value of the ELTIP yet to vest for Mr Barker was $564,397.
Information about Non-Executive Director remuneration is provided in Section 5 Non-Executive Director Remuneration.
15
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
1.3.1 Fixed Remuneration
Most Executives received modest inflationary increases in their fixed annual remuneration this year. AFIC continues to operate in a highly
competitive market, and salary levels are reviewed at least annually with the aim of remunerating its Executives to the extent required to attract
and retain Executives who are leaders in their field.
1.3.2 Performance-related Pay
This section shows:
• How annual incentive measurements are split between AFIC and the other investment companies:
%Result
AFIC investment performance24.5Table 3
AFIC other metrics 28.5Table 2
AFIC qualitative assessment -n/a
Percentage of annual incentive determined by AFIC performance53
Other LIC investment performance12.5Table 15
Other LIC other metrics14.5Table 15
Other LIC qualitative assessment-n/a
Percentage of annual incentive determined by other LICs performance27
Total percentage of annual incentive determined by AFIC/Other LIC performance80
Personal metrics20n/a
100
See Table 5 for more details on what the measures are.
• The outcomes for the two long term incentive awards (LTI) that were tested for vesting during the year (Table 4).
Refer to Sections 2.2 and 2.3 for explanations of the measures used.
Both share price and portfolio performance underperformed the Index across all the periods considered by the Remuneration Committee,
with the performance closer to the benchmark over the longer term, which is AFIC’s preferred timeline. The share price performance was
further impacted by an increase in the discount to the NTA at June, a turnaround from earlier in the year when the premium was over 5 per cent.
This continued underperformance has negatively impacted the incentive awarded to the Executives, with over 45 per cent of the short term
incentive and all of the long term incentive being forfeited.
It should be noted that AFIC’s returns are after taxes and expenses and represent the ‘net’ return to the shareholders, whereas Index returns
do not include either. Furthermore, many returns quoted by managed funds exclude either tax or expenses, or both. The use of ‘gross returns’
mitigates the tax disparity to some extent, as it adds back franking credits to the nominal dividend that the Index pays, and also that AFIC pays.
The MER continues to be of importance to the Board, and this continues to be below the benchmark set. The increase in payouts by companies
that AFIC invests in has also led to an increase in earnings per share. These figures include the buy-backs from BHP and Rio Tinto and the
demerger dividend recorded as part of the Coles/Wesfarmers demerger. The proceeds of the buy-back were paid out to shareholders as
a special dividend accompanying the interim dividend in February.
With regard to the other investment companies, Djerriwarrh also did not meet any of its benchmarks with regards to investment or share
performance. Mirrabooka’s investment performance outperformed its relevant benchmark for the short-term (one year) and longer term
(eight and 10 year) periods. AMCIL’s investment performance outperformed its benchmark for the longer term only (eight and 10 years).
The 2015 award under Executive Long Term Incentive Plan was available for vesting as of 30 June 2019. However, the calculations needed
to determine how much actually vests are not performed until after the date of the Annual Report. Therefore, the full amount that may vest is
shown, and the actual settlement of the 2015 award will take place in the year ended 30 June 2020. The actual amount settled will be reported
in the relevant year. The 2014 award was available for vesting but was forfeited in its entirety due to the hurdles not having been met. It is this
forfeiture which is reflected in Table 1 above.
For the investment team whose LTIP encompasses all of the investment companies (unlike Executives, for which only the AFIC performance
is counted) the recent short-term underperformance was reflected in the figures which are measured over four years for all of the investment
companies. Consequently, all LTIP available under this metric was forfeited. Detailed information about the performance of each investment
company is provided in Section E of the Appendix (Table 15).
16
Australian Foundation Investment Company Limited Annual Report 2019
Table 2: Non-investment Return Performance Measures
Performance Measure
Benchmark
Result
AFIC
Result
Comparison to
Benchmark
Total shareholder return (14.6 per cent)
Share price return – one year11.6%6.9%Unfavourable
Share price return – three years12.9%8.4%Unfavourable
Share price return – five years8.9%4.6%Unfavourable
Share price return – eight years9.4%9.0%Unfavourable
Share price return – ten years10.0%8.2%Unfavourable
Growth in net operating result per share (8.3 per cent)1.7%44.1%Favourable
Management expense ratio compared to base of 0.19 per cent (5.6 per cent)0.19%0.13%Favourable
Outcome
Achieved
Partially achieved
Not achieved
Table 3: Investment Return Performance Measures
Measure
Benchmark
Result
AFIC
Result
Comparison to
Benchmark
Investment return – one year11.6%9.8%Unfavourable
Investment return – three years12.9%11.1%Unfavourable
Investment return – five years8.9%7.3%Unfavourable
Investment return – eight years9.4%8.8%Unfavourable
Investment return – ten years10.0%9.8%Unfavourable
Gross return – one year13.4%11.4%Unfavourable
Gross return – three years14.6%12.6%Unfavourable
Gross return – five years10.5%8.6%Unfavourable
Gross return – eight years11.1%10.4%Unfavourable
Gross return – ten years11.7%11.5%Unfavourable
Reward to risk – one year1
st
qtr33
rd
/133 1
st
qtrFavourable
Reward to risk – three years1
st
qtr76
th
/132 3
rd
qtrUnfavourable
Reward to risk – five years 1
st
qtr100
th
/129 4
th
qtrUnfavourable
Reward to risk – eight years1
st
qtr69
th
/114 3
rd
qtrUnfavourable
Reward to risk – ten years1
st
qtr50
th
/98 2
nd
qtrUnfavourable
Outcome
Achieved
Partially achieved
Not achieved
17
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
Table 4: Vesting and Forfeiture of Long Term Incentives During the Year*
Award
Date
Assessment
Dates
Measure
Tested 2018
Benchmark
Result
AFIC
Result
%
Vested
%
Forfeited
ELTIP – Performance rights*
1 July 201430 June 2018Total gross shareholder return
Total portfolio return
8.9%
8.2%
6.1%
6.0%
0%
0%
50%
50%
Investment team LTI
1 July 201530 June 2019Gross return11.3%9.4%0%100%
* Of the rights awarded on 1 July 2014, 100 per cent were forfeited as the targets were not achieved.
2. Structure of Remuneration
2.1 Fixed Annual Remuneration (FAR)
The FAR component of an Executive’s remuneration comprises base salary, superannuation guarantee contributions and fringe benefits.
Executives can elect to receive a portion of their FAR in form of additional superannuation contributions or fringe benefits. This will not affect
the gross amount payable by the Group.
2.2 Annual Incentive
Table 5 below outlines the key terms and conditions of the annual incentive plan.
Table 5: Annual Incentives – Key Terms and Conditions
Targeted % of FAR
Managing Director
50%
Other Executives
30%
ObjectivesAlign remuneration with the creation of shareholder wealth over the past year and over a longer period.
Measures reflect the management of the Group and the other investment companies, as well as the
key investment returns that reflect the creation of shareholder wealth.
Performance measures• Company performance (43 per cent)
• Investment performance (37 per cent)
• Personal objectives (20 per cent)
• See Table 11 for details
Relative weightings of investment
companies for investment related
performance
AFIC: 53 per cent
Djerriwarrh Investments Limited: 16 per cent
AMCIL Limited: 4 per cent
Mirrabooka Investments Limited: 7 per cent
Personal objectives: 20 per cent
Delivery of awardIncentive is paid in cash, but 50 per cent of the after-tax amount received is used by recipients
to acquire shares in AFIC and the other investment companies which they agree to hold for minimum
of two years.
Performance measured in 2019Some longer-term measures achieved but shorter-term measures with the exception of the MER
and profit per share were not (see Tables 2 and 3 above).
Outcomes for 2019
(see Table 10 for details)
54 per centAverage 53 per cent
The performance measures of each annual incentive plan are reviewed by the Remuneration Committee. The Committee may, from time
to time, revise the performance conditions and weightings in order to better meet the objectives of the annual incentive policies. They may
also change or suspend any part of the incentive payment arrangements. If relevant targets are not achieved but performance is close to the
target, some of the incentive may be paid. This is noted as ‘partially achieved’ in Table 3. Where stretch levels of performance are achieved
above target, then higher amounts may be paid. To date, total annual incentives paid to each Executive have never exceeded target.
For more detailed information about the annual incentive performance conditions and outcomes for 2019, please refer to Section B Annual
Incentives: details of outcomes and conditions in the Appendix.
18
Australian Foundation Investment Company Limited Annual Report 2019
2.3 Long Term Incentive Plans (LTIP)
As for the annual incentives, there are also two LTI plans, one for the Executives (excluding the CIO) which is called the ELTIP, and one for the
investment team, including the CIO. Mr Freeman continues to be eligible for awards made to him whilst he was CIO until 2021, the last grant
having been made for the year ended 30 June 2018. Table 6 outlines the purpose and the key terms and conditions of each plan.
Table 6: Long Term Incentives – Key Terms and Conditions
Executive ELTIP
(Performance Rights)Investment Team LTI Plan
Target 50 per cent of targeted STI 20 per cent of FAR
ObjectivesAlign remuneration with growth in shareholder wealth over a forward looking period of four years.
Reward outperformance.
Performance measuresSee Table 15 in the Appendix for details. See Table 15 in the Appendix for details.
Performance for awards tested
in 2019 (Table 4)
July 2014: 0 per cent vested (see Table 4).July 2015: 0 per cent vested (see Table 4).
For more detailed information about the LTI plans and their performance conditions, including vesting schedules and outcomes for 2019,
please refer to Section C Long Term Incentives: details of outcomes and conditions in the Appendix.
3. Executive Remuneration Expense
This section discloses the remuneration expense recognised under accounting standards for each Executive (Table 7). These amounts are
different to the remuneration outcomes disclosed in Table 1 as noted in that table.
Table 7: Remuneration Expense
Short Term
Post-
employment
Total Fixed
Remuneration
$
Short Term
Long-term
Share-based
Payments
Other
Long-term
Payments*
$
Total
Remuneration
$
%
Fixed/
Performance
Related
Base Salary
$
Super-
annuation
$
Annual
Incentives
$
LTI Cash-
settled*
$
Mark Freeman – Chief Investment Officer until 31 December 2017, Managing Director from 1 January 2018
2019825,00025,000850,000230,98775,114(57,025)1,099,07677%/23%
2018816,00025,000841,000225,76521,025(16,625)1,071,16579%/21%
Andrew Porter – Chief Financial Officer
2019641,50725,000666,507106,81414,168-787,48985%/15%
2018628,43825,000653,438114,18810,899-778,52584%/16%
Geoff Driver – General Manager – Business Development and Investor Relations
2019524,20125,000549,20188,01511,744-648,96085%/15%
2018513,43225,000538,43293,12211,839-643,39384%/16%
Matthew Rowe – Company Secretary
2019230,10121,899252,00040,31031,898-324,20878%/22%
2018214,61220,388235,00040,22019,643-294,86380%/20%
* Includes amounts credited for non-vesting.
19
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
4. Contract Terms
Each Executive is employed under an open-ended contract, the terms of which can be varied by mutual agreement. There are no contractual
provisions for cessation of employment other than statutory requirements. Either the Company or the Executive can give notice in accordance
with statutory requirements. There are no specific payments to be made as a consequence of termination beyond those required by statute.
Should there be any payments, these will be at the Board’s discretion.
Material breaches of the terms of employment will normally result in the termination of an Executive’s employment.
5. Non-Executive Director Remuneration
Shareholders approve the maximum aggregate amount of remuneration per year available to be allocated between Non-Executive Directors
(NEDs) as they see fit. In proposing the amount for consideration by shareholders, the Remuneration Committee takes into account the time
demands made on Directors together with such factors as the general level of fees paid to Australian corporate directors.
For NEDs charged with the responsibility of oversight of the Company’s activities, a fixed annual fee is paid with no element of performance-
related pay.
The amount approved at the AGM in October 2007 was $1,000,000 per annum, which is the maximum amount that may be paid in total
to all NEDs. Retirement allowances for Directors were frozen at 30 June 2004.
NEDs do not receive any performance-based remuneration. On appointment, the Company enters into a deed of access and indemnity
with each NED. There are no termination payments due at the cessation of office, and any Director may retire or resign from the Board,
or be removed by a resolution of shareholders.
The amounts paid to each NED, and the figures for the corresponding period, are set out in Table 8.
20
Australian Foundation Investment Company Limited Annual Report 2019
Table 8: Non-Executive Director Remuneration
Primary
(Fee/Base Salary)
$
Post Employment
(Superannuation)
$
Total
Remuneration
$
J Paterson – Chairman from 9 October 2018
2019149,94014,244164,184
201884,4758,02592,500
TA Campbell AO – Chairman (retired 9 October 2018)
201947,6794,53052,209
2018168,95016,050185,000
RE Barker – Non-Executive Director (Non-Executive from 1 January 2018)
201986,7588,24295,000
201843,3794,12147,500
RP Dee-Bradbury – Non-Executive Director (appointed 6 May 2019)
201913,3471,26814,615
JC Hey – Non-Executive Director (retired 18 January 2019)
201947,6234,52452,147
201884,4758,02592,500
GR Liebelt – Non-Executive Director
201986,7588,24295,000
201884,4758,02592,500
DA Peever – Non-Executive Director
201986,7588,24295,000
201884,4758,02592,500
CM Walter AM – Non-Executive Director
201986,7588,24295,000
201884,4758,02592,500
PJ Williams – Non-Executive Director
201986,7588,24295,000
201884,4758,02592,500
Total Remuneration of Non-Executive Directors
2019692,37965,776758,155
2018719,17968,321787,500
Amounts Payable on Retirement
The amounts payable to the current NEDs who were in office at 30 June 2004, which will be paid when they retire, are set out in Table 9.
These amounts were expensed in prior years as the retirement allowances accrued.
$114,500 was paid to TA Campbell on his retirement during the year ended 30 June 2019, which was the amount accrued.
Table 9: Non-Executive Director Retirement Allowance
Amount Payable on Retirement
$
CM Walter AM 42,385
Total42,385
21
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
Appendix
A. Remuneration Governance
Responsibilities of the Board and the Remuneration Committee
It is the Board’s responsibility to review and approve the recommendations of the Remuneration Committee.
For more information, the Charter of the Board is available on the Company’s website.
The Remuneration Committee’s primary responsibilities include:
• reviewing the level of fees for NEDs and the Chairman;
• reviewing the Managing Director’s remuneration arrangements;
• evaluating the Managing Director’s performance;
• reviewing the remuneration arrangements for other Senior Executives;
• monitoring legislative developments with regards to Executive remuneration; and
• monitoring the Group’s compliance with requirements in this area.
For more information, the Charter of the Remuneration Committee is available on the Company’s website.
The Remuneration Committee is composed of three NEDs (GR Liebelt (Chairman), J Paterson and CM Walter AM) and meets at least
twice per year.
Policy on Hedging
The Company provides no lending or leveraging arrangements to its Executives, who are prohibited by Company policy from entering
into hedging arrangements that mitigate the possibility that ‘at risk’ incentive payments may not vest.
Use of Remuneration Consultants
The Remuneration Committee has appointed Ernst & Young to provide it with advice about Executive remuneration. The Remuneration
Committee uses Ernst & Young from time to time, as it sees fit, to independently test management’s recommendations.
Specifically, Ernst & Young would provide advice on:
(a) proposed remuneration levels and remuneration structure for the Managing Director;
(b) proposed remuneration levels and remuneration structure for the Managing Director’s direct reports; and
(c) proposed remuneration levels of NEDs.
No reports or recommendations were requested by the Committee or the Board for the year ended 30 June 2019. The Board is satisfied
that these arrangements seek to ensure that any remuneration recommendations made by remuneration consultants are free from influence
by management.
The use of the remuneration advisers by management is limited to specific areas to seek to ensure that the independent advice that
the Remuneration Committee receives is not perceived as having been compromised by management.
22
Australian Foundation Investment Company Limited Annual Report 2019
Ernst & Young are separately engaged by management to report on the following:
(a) trends in remuneration for the sectors in which the Group operates (provision of market practice data);
(b) the relative positioning of the remuneration of the Group’s employees (including Executives) within those sectors;
(c) proposed remuneration levels for employees other than designated Senior Executives; and
(d) advice on the operation of the incentive plans (e.g., tax and accounting advice).
The Managing Director then makes recommendations to the Remuneration Committee with regards to the remuneration levels and structure
of the KMP.
Ernst & Young also reviews the calculations used in determining the vesting of awards and certifies them as being correct and in accordance
with the terms and conditions of the ELTIP.
Ernst & Young were paid $0 during the year ended 30 June 2019 for other general remuneration advice including confirmation of vesting
calculations (2018: $0) and during the year the Group also paid $183,464 for other professional advice received which included acting
as the internal auditor for AICS and general taxation and accountancy advice (2018: $245,723)(all including GST).
Ernst & Young were remunerated on an invoiced basis, based on work performed.
The Company also participates in the annual McLagan and FIRG surveys of fund managers to understand current remuneration levels
and practices.
B. Annual Incentives: Details of Outcomes and Conditions
Table 10 below shows the annual incentives paid to individual Executives as a result of AFIC’s and the other investment companies’
performance on financial metrics and the individual’s achievement of their own personal objectives. Table 11 sets out the detailed terms
and conditions of the annual incentives. For a high-level summary see Section 2.2 and Table 5 of the main part of the Remuneration Report.
Table 10: Annual Incentive Outcomes
Executive% of Target Paid$ Paid% of Target Forfeited$ Forfeited
Mark Freeman54.4%$230,98745.6%$194,013
Andrew Porter53.4%$106,81446.6%$93,138
Geoff Driver53.4%$88,01546.6%$76,745
Matthew Rowe53.3%$40,31046.7%$35,290
23
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
Table 11: Executive Annual Incentive Performance Conditions
Performance Areas and Relative WeightingPerformance MeasuresObjectives These Measures Aim to Achieve
Company performance (43 per cent)
The relevant weightings of the investment
companies are:
• AFIC: 66.25 per cent
• Djerriwarrh Investments Limited: 20 per cent
• AMCIL Limited: 5 per cent
• Mirrabooka Investments Limited: 8.75 per cent
• Relative total shareholder return (TSR):
TSR is the movement in share price plus
the dividends paid by the Company
assumed to be reinvested. TSR
performance is measured against the
S&P/ASX 200 Accumulation Index over
1, 3, 5, 8 and 10 year periods (Combined
Mid Cap 50 and Small Ordinaries for
Mirrabooka).
• TSR: This is a direct measure of the
increase in shareholder’s wealth against
the performance of the Index.
• Growth in net profit per share: measured
against CPI.
• Growth in net profit per share reflects the
ability of the Company to meet its stated
aim of ‘paying out dividends which,
over time, grow faster than the rate
of inflation.’
• Management expense ratio (MER):
measured against prior years’ results or,
in the case of AFIC, measured against
a base of 0.19 per cent.
• MER reflects the costs of running
the Company.
Investment performance (37 per cent)The NEDs consider that the metrics used equate, over the medium to long term, with
the stated objectives of the Company, namely ‘to provide attractive total returns and pay
dividends, which, over time, grow faster than the rate of inflation’.
The relevant weightings of the investment
companies are:
• AFIC: 66.25 per cent
• Djerriwarrh Investments Limited: 20 per cent
• AMCIL Limited: 5 per cent
• Mirrabooka Investments Limited: 8.75 per cent
• Relative investment return: measure
of the return on the portfolio invested
(including cash) over the previous 1, 3,
5, 8 and 10 years, relative to the S&P/
ASX 200 Accumulation Index (Combined
Mid Cap 50 and Small Ordinaries for
Mirrabooka).
• Investment return: reflects the returns
generated by the mix of the investments
that the Company has invested in. These
reflect the value added to shareholders
wealth by the investment decisions
of the Company.
• Gross return (GR): measure of the
movement in the net asset backing of the
Company (per share) plus the dividends
assumed to be reinvested grossed up for
franking credits over the previous 1, 3, 5,
8 and 10 years. This return is compared
to the S&P/ASX 200 Accumulation
Index grossed up for franking credits
(Combined Mid Cap 50 and Small
Ordinaries for Mirrabooka).
• Gross return (GR): reflects the movement
in the value of the underlying portfolio
over the period with the additional
recognition of the importance of
franking credits.
• Risk/reward return: This is a measure
over 1, 3, 5, 8 and 10 years of the past
performance of the Company, compared
to the performance of the Company’s
peers (i.e. investment funds) as reported
by Mercer. (Note: this measure is used
for AFIC’s performance only, reflecting
that Company’s focus on producing
stable returns over the medium to
long term).
• Risk/reward return: best reflects the
return of the portfolio against the risks
to shareholders of investing in the
companies selected.
Note: The Remuneration Committee has
discretion to determine, at the time of
the review, what it considers to be the
appropriate level of return to be used.
24
Australian Foundation Investment Company Limited Annual Report 2019
Performance Areas and Relative WeightingPerformance MeasuresObjectives These Measures Aim to Achieve
Personal objectives (20 per cent)Includes:
• advice to the Board;
• succession planning;
• management of staff;
• risk management;
• promotion of the corporate culture; and
• satisfaction of key internal stakeholders.
These measures all contribute to the
efficient running of the Group, and the
other investment companies, enhancing
investment outcomes.
Personal objectives are included in
incentive calculations to encourage
out-performance on non-financial
metrics. These metrics can be important
determinants of business success in the
medium term. The Managing Director
reviews the performance of each Executive
with the Remuneration Committee, and the
Remuneration Committee alone determines
how the Managing Director is performing
against these objectives
C. Long Term Incentives: Details of Outcomes and Conditions
This section shows the outstanding cash bonuses under the ELTIP and the investment team LTI schemes (Table 12). It also explains the
detailed terms and conditions of the two LTIs that are currently in operation (Table 13). For a high-level overview see Section 2.3 of the main
body of the Remuneration Report.
Table 12: Vesting of ELTIP and Investment Team LTI
ELTIP
Award Date
Vesting Date
Subject to
Performance
Hurdles
Value at
Award Date
$
Number of
Rights
Awarded
Value
Per Right
$
Award Vested
for the Year
Number of
Rights/%
Value Yet to Vest
30 June 2019
$
Ross Barker – Managing Director (until 31 December 2017)
1 July 201430 June 2018$178,75029,707$6.0170/0%-
1 July 201530 June 2019$182,32529,459$6.189-$218,279
1 July 201630 June 2020$185,97533,205$5.601-$236,002
1 July 201730 June 2021$92,88816,153$5.757-$110,116
$564,397
Mark Freeman – Managing Director (from 1 January 2018)
1 Jan 201830 June 2021$85,00014,765$5.757-$100,657
1 July 201830 June 2022$170,00027,974$6.077-$183,243
$283,900
Andrew Porter – Chief Financial Officer
1 July 201430 June 2018$92,00015,290$6.0170/0%-
1 July 201530 June 2019$93,75015,148$6.189-$112,238
1 July 201630 June 2020$95,62517,074$5.601-$121,348
1 July 201730 June 2021$98,01617,026$5.757-$116,071
1 July 201830 June 2022$99,87616,451$6.077-$107,764
$457,421
Geoff Driver – General Manager – Business Development and Investor Relations
1 July 201430 June 2018$75,75012,589$6.0170/0%-
1 July 201530 June 2019$77,25012,482$6.189-$92,484
1 July 201630 June 2020$78,79514,069$5.601-$99,991
1 July 201730 June 2021$80,76514,030$5.757-$95,642
1 July 201830 June 2022$82,38013,556$6.077-$88,797
$376,914
25
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
ELTIP
Award Date
Vesting Date
Subject to
Performance
Hurdles
Value at
Award Date
$
Number of
Rights
Awarded
Value
Per Right
$
Award Vested
for the Year
Number of
Rights/%
Value Yet to Vest
30 June 2019
$
Matthew Rowe – Company Secretary (joined 11 July 2016)
11 July 201630 June 2020$30,0005,356$5.601-$38,070
1 July 201730 June 2021$35,2506,123$5.757-$41,743
1 July 201830 June 2022$37,8006,220$6.077-$40,745
$120,558
Investment Team LTI
Award Date
Vesting Date
Subject to
Performance
Hurdles
Target
Amount
$
Award Vested for the Year
Value Yet to Vest
30 June 2019
$$%
Mark Freeman – Chief Investment Officer (investment team LTI) – until 31 December 2017
1 July 201530 June 2019$163,200$0
1 July 201630 June 2020$166,400--$166,400
1 July 201730 June 2021$83,200--$83,200
$249,600
The total value of the two LTIP plans for Mr Freeman that are yet to vest is $533,500.
See Table 1 for actual amounts vested and Table 4 for details of vesting calculations.
The value of the outstanding ELTIP performance rights as in the table above was estimated at 30 June 2019 using the Total Share Return
(TSR – which includes dividends reinvested) based on a closing price on 28 June 2019 of AFI shares of $6.25 (the TSR for AFI at 30 June
2019 was 5.0 per cent p.a. for four years, 8.4 per cent p.a. for three years, 8.6 per cent for two years and 10.3 per cent for one year).
The value of the investment team LTI that is yet to vest is the target amount. Actual amounts awarded may exceed this amount, depending
on performance over the four-year vesting period.
No vesting of the 2018 Investment Team Long Term Incentive Plan was made during the year due to underperformance. 100 per cent was
forfeited. No vesting of LTIP will be made in the year ended 30 June 2020.
Table 13: Long Term Incentive Plans
ELTIP (Performance Rights)
Nature of grantRights to receive cash that must then be used by the Executives to acquire AFIC shares on market.
Performance conditions1. Total gross shareholder return (50 per cent): the movement in the AFIC share price and the Index
price, grossed up to reflect the value of franking credits. This is compared to that of the market
such that only outperformance is rewarded. Outperformance of this Index over time should be an
indicator of the value added by the Company to shareholders’ wealth. Both the Company’s return
and the Index return are smoothed over 30 days to remove excess volatility.
2. Total portfolio return (50 per cent): the movement in the net asset backing of the Company
(per share) plus the dividends paid by the Company reinvested. This compares AFIC’s investment
performance against that of other fund managers (based on the Mercer Investment Consulting
Survey of Australian Retail Fund Managers which provides the industry benchmark of funds
management performance over the relevant period), so that only outperformance relative
to its peers is rewarded.
Vesting schedule:
total gross shareholder return
Company performance relative to gross
accumulation index
Percentage of rights vesting
Underperformance 0 per cent
< or = 20 per cent outperformanceStraight line between 25 per cent and 50 per cent
> 20 per cent outperformance50 per cent
26
Australian Foundation Investment Company Limited Annual Report 2019
Vesting schedule:
total portfolio return
Company performance Percentage of rights vesting
Less than median performance0 per cent
Median to < or = 75th percentileStraight line between 25 per cent and 50 per cent
> 75 per cent percentile50 per cent
Valuation of performance rightsAt 1 July each year, the 30-day volume weighted average price of AFIC shares up to, but not including
1 July will be calculated. The amount of ELTIP available will then be divided by this average price to
determine the number of performance rights that may vest in four years’ time.
The value of the performance rights will be adjusted each year by the total shareholder return for the
year, calculated based on the 30-day volume weighted average price of AFIC shares up to 1 July.
At vesting time, the value of the performance rights that will vest is converted to cash, based on the
value of the rights at that time.
Accounting treatmentUnder current accounting standards, the ELTIP scheme is classified as a cash-settled scheme. The
expected amount payable upon vesting must therefore be estimated each year and adjusted not only
for the likelihood of vesting but also for changes in the value of the performance rights. In the first year,
25 per cent of the expected amount payable will be booked as an expense. At the end of the second
year, 50 per cent of the new expected final value less the amount booked in the previous year will
be booked. At the end of the third year, 75 per cent of the total, estimated final value less amounts
previously expensed will be booked. At the end of the fourth year, the actual liability will be calculated
and a balancing adjustment made.
Investment Team LTI Plan
Nature of grantCash or shares, at discretion of the Company.
Performance conditionGross return which measures the movement in the net asset backing of the Company (per share) plus
the dividends assumed to be reinvested grossed up for franking credits. This return is compared to the
relevant accumulating index as set out below.
Indices which investment
portfolios are assessed against
Investment portfolioRelevant accumulation index
AFIC (60 per cent)S&P/ASX 200 Accumulation Index, grossed
up for franking credits
Djerriwarrh Investments Limited (25 per cent)S&P/ASX 200 Accumulation Index, grossed
up for franking credits
Mirrabooka Investments Limited
(10 per cent)
S&P/ASX Mid Cap 50 Accumulation Index and the
S&P/ASX Small Ordinaries Accumulation Index,
grossed up for franking credits
AMCIL Limited (5 per cent)S&P/ASX 200 Accumulation Index, grossed
up for franking credits
Vesting schedule:
Company gross return
Company performance relative to the relevant
accumulation index
Percentage of rights vesting
< 90 per cent performance0 per cent
90 – 99 per cent performanceBoard discretion
> 100 per cent up to 110 per cent performanceStraight line between 50 per cent and 100 per cent
> 110 per cent up to 120 per cent performanceStraight line between 100 per cent and 150 per cent
120 per cent + performance150 per cent
27
Australian Foundation Investment Company Limited Annual Report 2019
Remuneration Report continued
D. Directors and Executives: Equity Holdings and Other Transactions
Tables 14 sets out reconciliations of shares and convertible notes issued by the Group and held directly, indirectly or beneficially by
Non-Executive Directors and executives of the Group, or by entities to which they were related.
Table 14: Shareholdings of Directors and Executives
Opening BalanceChanges During YearClosing Balance
J Paterson570,43736,506606,943
TA Campbell421,731n/an/a
RM Freeman142,1835,567147,750
RE Barker898,5416,321904,862
RP Dee-Bradburyn/a-0
JC Hey19,964n/an/a
GR Liebelt318,463145,000463,463
DA Peever26,8093,50030,309
CM Walter323,74117,383341,124
PJ Williams67,4311,99169,422
GN Driver133,0283,019136,047
MJ Rowe1,0171,2232,240
AJB Porter178,4454,475182,920
Other Arrangements with Non-Executive Directors
Non-Executive Directors Ross Barker, John Paterson and Catherine Walter have rented office space and, for Ross Barker and John Paterson,
a parking space from the Group at commercial rates during the year. Sub-lease rental income (included in revenue) received or receivable,
excluding GST, by the Group during the year was:
Rental Income
Received/Receivable
$
RE Barker20,418
J Paterson26,430
CM Walter14,303
E. Detailed Performance Measures by Investment Company
Table 15 shows the performance of AFIC and the other investment companies over the past five years, including details of total shareholder
return (TSR), total portfolio return (TPR) and gross return (GR). These measures, which represent growth in shareholder wealth, determine
the vesting of AFIC’s LTI plans to Executives and the investment team.
Table 15: Detailed Performance Measures for AFIC and the Other Investment Companies
Year Ending 30 June
10-year
Return
8-year
Return
5-year
Return
4-year
Return
3-year
Return 20192018201720162015
Comparative returns
S&P/ASX 200
Accumulation Return10.0%9.4%8.9%9.7%12.9%11.6%13.0%14.1%0.6%5.7%
Gross S&P/ASX 200
Accumulation Return11.7%11.1%10.5%11.3%14.6%13.4%14.6%15.7%2.2%6.8%
Combined Midcap 50
and Small Ordinaries
Accumulation Return
(used for Mirrabooka
Investments Limited)8.7%7.6%11.1%12.6%11.4%2.8%19.3%12.7%16.1%5.6%
Gross Combined Midcap
50 and Small Ordinaries
Accumulation Return
(used for Mirrabooka
Investments Limited)9.7%8.6%12.2%13.6%12.5%3.8%20.4%13.8%17.2%6.3%
28
Australian Foundation Investment Company Limited Annual Report 2019
Year Ending 30 June
10-year
Return
8-year
Return
5-year
Return
4-year
Return
3-year
Return 20192018201720162015
AFIC
Total shareholder return8.2%9.0%4.6%5.0%8.4%6.9%10.3%8.0%-4.4%2.8%
Total portfolio return9.5%8.5%6.6%7.3%10.5%9.0%10.8%11.7%-1.6%3.9%
Growth in net operating
result per share5.2%5.3%6.9%5.7%11.2%44.1%9.6%-9.6%-12.4%11.8%
Management
expense ration/an/an/an/an/a0.13%0.14%0.14%0.16%0.16%
Risk/reward return
1
50
th
/9869
th
/114100
th
/12994
th
/13276
th
/13233
rd
/133105
th
/156119
th
/169n/a
2
139
th
/176
Gross return11.5%10.4%8.6%9.4%12.6%11.4%12.7%13.7%0.2%5.6%
Investment return9.8%8.8%7.3%7.9%11.1%9.8%11.3%12.3%-1.0%4.6%
Djerriwarrh Investments Limited
Total shareholder return5.3%5.0%-0.3%-1.7%0.4%8.4%-2.8%-3.8%-7.7%5.2%
Total portfolio return7.4%6.4%4.6%5.7%9.3%6.3%8.8%13.0%-4.5%0.2%
Growth in net operating
profit per share-4.5%-5.1%-2.6%-5.7%-4.4%3.7%5.7%-19.9%-10.0%10.8%
Management
expense ration/an/an/an/an/a0.43%0.44%0.46%0.46%0.41%
Gross return10.7%9.7%7.7%8.9%12.4%9.1%11.7%16.6%-1.1%3.2%
Investment return8.7%7.7%5.6%6.4%9.5%6.8%9.7%13.0%-2.7%2.8%
Operating earnings as a
percentage of available
investable assetsn/an/an/an/an/a7.0%7.1%7.1%8.7%7.9%
Mirrabooka Investments Limited
Total shareholder return11.7%9.9%4.6%4.7%2.0%-1.9%4.9%3.0%13.1%4.3%
Total portfolio return12.0%10.2%7.6%8.8%7.8%1.8%14.7%7.1%12.0%3.1%
Growth in net operating
result per share-1.9%-2.4%-0.1%2.6%-1.8%-14.9%35.7%-17.8%16.6%-10.0%
Management
expense ration/an/an/an/an/a0.61%0.60%0.62%0.65%0.67%
Gross return15.1%13.4%11.0%12.1%11.0%5.9%17.3%9.9%15.4%6.8%
Investment return14.4%12.9%10.1%11.1%9.9%4.8%16.0%9.3%14.8%6.5%
AMCIL Limited
Total shareholder return10.4%9.4%3.5%4.6%2.3%-0.7%9.1%-1.2%11.8%-0.9%
Total portfolio return10.2%8.7%6.1%7.2%7.0%3.5%12.3%5.3%7.6%2.2%
Growth in net operating
result per share1.9%-3.7%-1.5%-2.9%-6.0%8.8%14.4%-32.6%4.8%4.3%
Management
expense ration/an/an/an/an/a0.72%0.69%0.68%0.65%0.67%
Gross return12.5%11.1%8.5%9.4%9.3%7.0%13.9%7.0%9.7%5.1%
Investment return12.4%10.8%7.9%9.0%8.9%5.8%14.0%7.1%9.3%3.9%
1. This represents the Company’s ranking in the Mercer IDPS Australian Share Universe – i.e. 10th out of 71 funds. The period used is year to May.
2. n/a as cannot be calculated when return is negative.
29
Australian Foundation Investment Company Limited Annual Report 2019
Non-audit Services
Details of non-audit services performed by the auditors may be found in Note F2 of the Financial Report.
The Board of Directors has considered the position and, in accordance with the advice received from the Audit Committee, is satisfied that
the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations
Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services have been reviewed by the Audit Committee to ensure they do not impact the impartiality and objectivity of the
auditor; and
• none of the services undermine the general principles relating to auditor independence as set out in the Corporations Act 2001 including
reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate
for the Company, or jointly sharing economic risk and rewards.
A copy of the Auditor’s Independence Declaration is set out on page 31.
This report is made in accordance with a resolution of the Directors.
John Paterson
Chairman
Melbourne
22 July 2019
30
Australian Foundation Investment Company Limited Annual Report 2019
Auditor’s Independence Declaration
31
Australian Foundation Investment Company Limited Annual Report 2019
32 Financial Statements
33 Consolidated Income Statement
34 Consolidated Statement of
Comprehensive Income
35 Consolidated Balance Sheet
36 Consolidated Statement of
Changes in Equity
38 Consolidated Cash Flow Statement
39 Notes to the Financial Statements
39 A. Understanding AFIC’s Financial
Performance
39 A1. How AFIC Manages its Capital
39 A2. Investments Held and How
They Are Measured
40 A3. Operating Income
41 A4. Dividends Paid
42 A5. Earnings Per Share
43 B. Costs, Tax and Risk
43 B1. Management Costs
43 B2. Tax
44 B3. Risk
46 C. Unrecognised Items
46 C1. Contingencies
47 D. Balance Sheet Reconciliations
47 D1. Current Assets – Cash
47 D2. Credit Facilities
47 D3. Revaluation Reserve
48 D4. Realised Capital Gains Reserve
48 D5. Retained Profits
48 D6. Shared Capital
49 E. Income Statement Reconciliations
49 E1. Reconciliation of Net Cash Flows From
Operating Activities to Profit
49 E2. Tax Reconciliations
50 F. Further Information
50 F1. Related Parties
50 F2. Remuneration of Auditors
50 F3. Segment Reporting
51 F4. Summary of Other Accounting Policies
53 F5. Performance Bond
53 F6. Share-based Payments
54 F7. Lease Commitments
54 F8. Principles of Consolidation
55 F9. Subsidiaries
55 F10. Parent Entity Financial Information
FINANCIAL STATEMENTS
32
Australian Foundation Investment Company Limited Annual Report 2019
32
Australian Foundation Investment Company Limited Annual Report 2019
Consolidated Income Statement
For the Year Ended 30 June 2019
Note
2019
$’000
2018
$’000
Dividends and distributionsA3433,009302,389
Revenue from deposits and bank billsA33,6151,409
Other revenueA34,7294,703
Total revenue441,353308,501
Net gains/(losses) on trading portfolioA3(4,686)264
Income from operating activities436,667308,765
Finance costs(826)(848)
Administration expensesB1(14,312)(14,533)
Profit before income tax expense421,529293,384
Income tax expenseB2, E2(15,156)(14,377)
Profit for the year406,373279,007
Profit is attributable to:
Equity holders of Australian Foundation Investment Company Ltd405,932278,709
Minority interest441298
406,373279,007
CentsCents
Basic earnings per shareA534.0023.57
This Income Statement should be read in conjunction with the accompanying notes.
33
Australian Foundation Investment Company Limited Annual Report 2019
Consolidated Statement of Comprehensive Income
For the Year Ended 30 June 2019
Year to 30 June 2019Year to 30 June 2018
Revenue
1
$’000
Capital
1
$’000
Total
$’000
Revenue
$’000
Capital
$’000
Total
$’000
Profit for the year406,373-406,373279,007-279,007
Other comprehensive income
Items that will not be recycled through
the Income Statement
Gains for the period -261,984261,984-454,180454,180
Tax on above-(86,616)(86,616)-(136,841)(136,841)
Total other comprehensive income-175,368175,368-317,339317,339
Total comprehensive income 406,373175,368581,741279,007317,339596,346
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’.
Year to 30 June 2019Year to 30 June 2018
Revenue
$’000
Capital
$’000
Total
$’000
Revenue
$’000
Capital
$’000
Total
$’000
Total comprehensive income is attributable to:
Equity holders of Australian Foundation Investment
Company Ltd405,932175,368581,300278,709317,339596,048
Minority interests441-441298-298
406,373175,368581,741279,007317,339596,346
This Statement of Comprehensive Income should be read in conjunction with the accompanying notes.
34
Australian Foundation Investment Company Limited Annual Report 2019
Note
2019
$’000
2018
$’000
Current assets
Cash D1206,42999,183
Receivables40,12877,234
Total current assets246,557176,417
Non-current assets
Investment portfolioA27,572,6407,280,706
Deferred tax assets-1,257
Total non-current assets7,572,6407,281,963
Total assets7,819,1977,458,380
Current liabilities
Payables932712
Tax payable17,0528,245
Borrowings – bank debtD2-100
Trading portfolio7,0336,757
Provisions4,1144,385
Total current liabilities29,13120,199
Non-current liabilities
Provisions1,4711,394
Deferred tax liabilities100-
Deferred tax liabilities – investment portfolioB21,163,7491,097,527
Total non-current liabilities1,165,3201,098,921
Total liabilities1,194,4511,119,120
Net assets6,624,7466,339,260
Shareholders’ equity
Share capitalA1, D62,888,1362,811,721
Revaluation reserveA1, D32,561,3142,422,568
Realised capital gains reserveA1, D4462,257448,892
General reserveA123,63723,637
Retained profitsA1, D5688,244631,725
Parent entity interest6,623,5886,338,543
Minority interest1,158717
Total equity6,624,7466,339,260
This Balance Sheet should be read in conjunction with the accompanying notes.
Consolidated Balance Sheet
As at 30 June 2019
35
Australian Foundation Investment Company Limited Annual Report 2019
Consolidated Statement of Changes in Equity
For the Year Ended 30 June 2019
Year Ended 30 June 2019Note
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital Gains
$’000
General
Reserve
$’000
Retained
Profits
$’000
Total
Parent Entity
$’000
Minority
Interest
$’000
Total
$’000
Total equity at the beginning of the year2,811,7212,422,568448,89223,637631,7256,338,5437176,339,260
Dividends paid to shareholdersA4--(23,257)-(349,413)(372,670)-(372,670)
– Dividend Reinvestment PlanD676,556----76,556-76,556
Other share capital adjustments(141)----(141)-(141)
Total transactions with shareholders76,415-(23,257)-(349,413)(296,255)-(296,255)
Profit for the year----405,932405,932441406,373
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 year2,888,1362,561,314462,25723,637688,2446,623,5881,1586,624,746
Year Ended 30 June 2018Note
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital Gains
$’000
General
Reserve
$’000
Retained
Profits
$’000
Total
Parent Entity
$’000
Minority
Interest
$’000
Total
$’000
Total equity at the beginning of the year2,756,2562,123,209430,91223,637631,0705,965,0844195,965,503
Dividends paid to shareholdersA4----(278,054)(278,054)-(278,054)
– Dividend Reinvestment PlanD655,601----55,601-55,601
Other share capital adjustments(136)----(136)-(136)
Total transactions with shareholders55,465---(278,054)(222,589)-(222,589)
Profit for the year----278,709278,709298279,007
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 year2,811,7212,422,568448,89223,637631,7256,338,5437176,339,260
This Statement of Changes in Equity should be read in conjunction with the accompanying notes.
36
Australian Foundation Investment Company Limited Annual Report 2019
Year Ended 30 June 2019Note
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital Gains
$’000
General
Reserve
$’000
Retained
Profits
$’000
Total
Parent Entity
$’000
Minority
Interest
$’000
Total
$’000
Total equity at the beginning of the year2,811,7212,422,568448,89223,637631,7256,338,5437176,339,260
Dividends paid to shareholdersA4--(23,257)-(349,413)(372,670)-(372,670)
– Dividend Reinvestment PlanD676,556----76,556-76,556
Other share capital adjustments(141)----(141)-(141)
Total transactions with shareholders76,415-(23,257)-(349,413)(296,255)-(296,255)
Profit for the year----405,932405,932441406,373
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 year2,888,1362,561,314462,25723,637688,2446,623,5881,1586,624,746
Year Ended 30 June 2018Note
Share
Capital
$’000
Revaluation
Reserve
$’000
Realised
Capital Gains
$’000
General
Reserve
$’000
Retained
Profits
$’000
Total
Parent Entity
$’000
Minority
Interest
$’000
Total
$’000
Total equity at the beginning of the year2,756,2562,123,209430,91223,637631,0705,965,0844195,965,503
Dividends paid to shareholdersA4----(278,054)(278,054)-(278,054)
– Dividend Reinvestment PlanD655,601----55,601-55,601
Other share capital adjustments(136)----(136)-(136)
Total transactions with shareholders55,465---(278,054)(222,589)-(222,589)
Profit for the year----278,709278,709298279,007
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 year2,811,7212,422,568448,89223,637631,7256,338,5437176,339,260
This Statement of Changes in Equity should be read in conjunction with the accompanying notes.
37
Australian Foundation Investment Company Limited Annual Report 2019
Consolidated Cash Flow Statement
For the Year Ended 30 June 2019
2019
$’000
2018
$’000
Note
Inflows/
(Outflows)
Inflows/
(Outflow)
Cash flows from operating activities
Sales from trading portfolio 39,59966,478
Purchases for trading portfolio (28,964)(4,770)
Interest received3,6631,347
Dividends and distributions received366,436243,605
380,734306,660
Other receipts5,1174,957
Administration expenses(14,875)(14,803)
Finance costs paid(826)(848)
Taxes paid(24,794)(14,808)
Net cash inflow/(outflow) from operating activitiesE1345,356281,158
Cash flows from investing activities
Sales from investment portfolio810,462689,030
Purchases for investment portfolio (752,440)(753,667)
Net cash inflow/(outflow) from investing activities58,022(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 held107,246(5,942)
Cash at the beginning of the year99,183105,125
Cash at the end of the yearD1206,42999,183
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.
38
Australian Foundation Investment Company Limited Annual Report 2019
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 capital2,888,1362,811,721
Revaluation reserve2,561,3142,422,568
Realised capital gains reserve462,257448,892
General reserve23,63723,637
Retained profits688,244631,725
6,623,5886,338,543
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 value7,072,5866,940,638
Equity instruments (over which options may be written)500,054327,764
Hybrids-12,304
7,572,6407,280,706
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.
39
Australian Foundation Investment Company Limited Annual Report 2019
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 tax6.496.27
After tax5.525.34
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 and 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.
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 June368,629272,362
Income from investment securities sold during the year64,26929,918
Income from securities held in trading portfolio at 30 June--
Income from trading securities sold during the year111109
433,009302,389
Interest income
Income from cash investments3,6151,409
Other income
Administration fees4,7294,681
Other income -22
4,7294,703
Notes to the Financial Statements continued
40
Australian Foundation Investment Company Limited Annual Report 2019
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
$’000
2018
$’000
Net gains
Net realised gains/(losses) from trading portfolio – shares140672
– 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)
A4. Dividends Paid
The dividends paid and payable for the year ended 30 June 2019 are shown below:
(a) Dividends Paid During the Year
2019
$’000
2018
$’000
Final dividend for the year ended 30 June 2018 of 14 cents fully franked at 30 per cent paid
31 August 2018 (2018: 14 cents fully franked at 30 per cent paid on 30 August 2017).162,800161,955
Interim dividend for the year ended 30 June 2019 of 10 cents per share fully franked at
30 per cent paid 25 February 2019 (2018: 10 cents fully franked at 30 per cent paid 23 February 2018)116,594116,099
Special dividend of 8 cents per share fully franked at 30 per cent paid 25 February 2019 (2018: nil)93,276-
372,670278,054
Dividends paid in cash296,114222,453
Dividends reinvested in shares76,55655,601
372,670278,054
Dividends forgone via DSSP7,9464,788
(b) Franking Credits
Opening balance of franking account at 1 July156,187158,730
Franking credits on dividends received165,325104,609
Tax paid during the year24,22114,069
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 account182,607156,187
Adjustments for tax payable in respect of the current year’s profits and the receipt of dividends
recognised as receivables25,70222,534
Adjusted closing balance208,309178,721
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 available136,300107,552
These franking account balances would allow AFIC to frank additional dividend payments
up to an amount of:318,033250,955
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.
41
Australian Foundation Investment Company Limited Annual Report 2019
(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 balance7,35613,357
Imputation credits on dividends received7,3845,987
Imputation credits on dividends paid-(12,348)
Closing balance14,7406,996
Three 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 per cent. 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
Balance of the listed investment company (LIC) capital gain account:63,33532,686
This equates to an attributable gain of:90,47846,694
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:
Basic Earnings Per Share
2019
Number
2018
Number
Weighted average number of ordinary shares used as the denominator1,193,810,5021,182,444,510
$’000$’000
Profit for the year 405,932278,709
Cents Cents
Basic earnings per share34.0023.57
Notes to the Financial Statements continued
42
Australian Foundation Investment Company Limited Annual Report 2019
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
Benefits
$
Other Long-
term Benefits
$
Post-
employment
Benefits
$
Share
Based
Payments
$
Total
$
2019
Non-Executive Directors 692,379-65,776-758,155
Executives2,686,935(57,025)96,89977,6622,804,471
Total3,379,314(57,025)162,67577,6623,562,626
2018
Non-Executive Directors719,179-68,321-787,500
Executives3,118,300(16,625)107,88853,5143,263,077
Total3,837,479(16,625)176,20953,5144,050,577
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.
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.
43
Australian Foundation Investment Company Limited Annual Report 2019
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 421,529293,384
Tax at the Australian tax rate of 30 per cent (2018: 30 per cent)126,45988,015
Tax offset for franked dividends received(115,510)(70,989)
Off-market buy-back income not included in profit15,097-
Demerger dividend non-taxable(13,089)-
Sundry items whose tax treatment differs from accounting treatment4,331(15)
17,28817,011
Over provision in prior years(2,132)(2,634)
Total tax expense15,15614,377
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 portfolio1,163,7491,097,527
Opening balance at 1 July1,097,527967,091
Tax on realised gains(20,394)(6,405)
Charged to OCI for ordinary securities on gains or losses for the period86,616136,841
1,163,7491,097,527
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 LIC 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 per cent and 10 per cent, 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 per cent (2018: $254.8 million
and $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.
Notes to the Financial Statements continued
44
Australian Foundation Investment Company Limited Annual Report 2019
AFIC’s total investment exposure by sector is as below:
2019
%
2018
%
Energy4.285.44
Materials17.5018.61
Industrials15.1712.08
Consumer discretionary4.372.01
Consumer staples 5.068.99
Banks 21.8021.31
Other financials9.7310.86
Property trusts0.711.72
Telecommunications3.612.02
Health care10.869.90
Info technology3.013.86
Utilities1.251.85
Cash2.651.35
Securities representing over 5 per cent of the investment portfolio at 30 June were:
Commonwealth Bank8.67.9
BHP7.36.6
Westpac5.86.3
CSL5.85.1
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.
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 four’ 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.
45
Australian Foundation Investment Company Limited Annual Report 2019
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.
30 June 2019
Less than
6 Months
$’000
6–12
Months
$’000
Greater
than 1 Year
$’000
Total
Contractual
Cash Flows
$’000
Carrying
Amount
$’000
Non-derivatives
Payables932--932932
932--932932
Derivatives
Options in trading portfolio*3,963--3,9637,033
3,963--3,9637,033
30 June 2018
Less than
6 Months
$’000
6–12
Months
$’000
Greater
than 1 Year
$’000
Total
Contractual
Cash Flows
$’000
Carrying
Amount
$’000
Non-derivatives
Payables712--712712
Borrowings – bank debt100--100100
812--812812
Derivatives
Options in trading portfolio*19,726--19,7266,757
19,726--19,7266,757
* 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.
Notes to the Financial Statements continued
46
Australian Foundation Investment Company Limited Annual Report 2019
Further information that shareholders 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)201,42995,183
Fixed term deposits 5,0004,000
206,42999,183
Cash holdings yielded an average floating interest rate of 2.07 per cent (2018: 1.80 per cent). 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 facilities140,000140,000
Amount drawn down -100
Undrawn facilities140,000139,900
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.
D3. Revaluation Reserve
2019
$’000
2018
$’000
Opening balance at 1 July2,422,5682,123,209
Gains on investment portfolio
– Equity instruments261,984454,180
Provision for tax on above(86,616)(136,841)
Cumulative taxable realised (gains)/losses (net of tax)(36,622)(17,980)
2,561,3142,422,568
This reserve is used to record increments and decrements on the revaluation of the investment portfolio as described in accounting policy
Note A2.
47
Australian Foundation Investment Company Limited Annual Report 2019
Notes to the Financial Statements continued
D4. Realised Capital Gains Reserve
2019
$’000
2018
$’000
Opening balance at 1 July448,892430,912
Dividends paid(23,257)-
Cumulative taxable realised gains/(losses) for period through OCI (net of tax)36,62217,980
462,257448,892
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
2019
$’000
2018
$’000
Opening balance at 1 July631,725631,070
Dividends paid(349,413)(278,054)
Profit for the year405,932278,709
688,244631,725
This reserve relates to past profits.
D6. Share Capital
Movements in Share Capital
DateDetailsNotes
Number
of Shares
’000
Issue
Price
$
Paid-up
Capital
$’000
1/07/2017Balance1,176,0792,756,256
30/08/2017Dividend Reinvestment Plan(i)5,4485.9232,249
30/08/2017Dividend Substitution Share Plan(ii)4555.92n/a
23/02/2018Dividend Reinvestment Plan(i)3,8226.1123,352
23/02/2018Dividend Substitution Share Plan(ii)3436.11n/a
VariousCosts of issue--(136)
30/06/2018Balance1,186,1472,811,721
31/08/2018Dividend Reinvestment Plan(i)5,3566.1833,100
31/08/2018Dividend Substitution Share Plan(ii)5266.18n/a
25/02/2019Dividend Reinvestment Plan(i)7,3285.9343,456
25/02/2019Dividend Substitution Share Plan(ii)7915.93n/a
VariousCosts of issue--(141)
30/06/2019Balance1,200,1482,888,136
(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 and 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 program. 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.
48
Australian Foundation Investment Company Limited Annual Report 2019
E. Income Statement Reconciliations
E1. Reconciliation of Net Cash Flows From Operating Activities to Profit
2019
$’000
2018
$’000
Profit for the year406,373279,007
Net decrease/(increase) in trading portfolio2766,211
Dividends received as securities under DRP investments(16,848)-
Coles demerger dividend – non-cash item(43,629)-
Decrease/(increase) in current receivables37,106(25,223)
– Less increase/(decrease) in receivables for investment portfolio(27,495)22,366
Increase in deferred tax liabilities67,579129,528
– Less (increase)/decrease in deferred tax liability on investment portfolio(66,222)(130,436)
Increase/(decrease) in current payables220(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 payable8,8076,265
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 activities345,356281,158
E2. Tax Reconciliations
Tax Expense Composition
2019
$’000
2018
$’000
Charge for tax payable relating to the current year15,93117,919
Over provision in prior years(2,132)(2,634)
Movement in deferred tax balances1,357(908)
15,15614,377
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 portfolio86,616136,841
86,616136,841
Deferred Tax Assets and Liabilities
The deferred tax balances are attributable to:
2019
$’000
2018
$’000
(a) Tax on unrealised gains or losses in the trading portfolio2311,190
(b) Provisions and expenses charged to the accounting profit which are not yet tax deductible1,6801,738
(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 July1,257349
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.
49
Australian Foundation Investment Company Limited Annual Report 2019
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 year2,5152,450
(c) AICS Transactions with Other Listed Investment Companies
AICS had the following transactions with other listed investment companies to which it provides services:
2019
$’000
2018
$’000
Administration expenses charged for the year to Mirrabooka Investments Ltd1,3821,400
Administration expenses charged for the year to AMCIL Ltd906899
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 195,987190,820
Audit related services
AFSL compliance audit and review7,9987,796
Non-audit services
Taxation compliance services30,67038,819
Total remuneration234,655237,435
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.
Notes to the Financial Statements continued
50
Australian Foundation Investment Company Limited Annual Report 2019
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 three investments comprising more than 10 per cent 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 per cent), Rio Tinto (13.1 per cent) and BHP (11.9 per cent)(2018: one investment: Commonwealth Bank (11.0 per cent)).
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:
PhraseAASB Terminology
Market ValueFair value for actively traded securities
CashCash and cash equivalents
Share CapitalContributed equity
OptionsDerivatives written over equity instruments that are valued at fair value through profit or loss
HybridsEquity 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 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.
51
Australian Foundation Investment Company Limited Annual Report 2019
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 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 four 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 per cent of the total estimated cost in Year 1,
50 per cent of the total estimated cost in Year 2 less the expense charged in Year 1, 75 per cent of the total estimated cost in Year 3 less the
expense charged in Years 1 and 2 and 100 per cent 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.
Notes to the Financial Statements continued
52
Australian Foundation Investment Company Limited Annual Report 2019
F5. Performance Bond
The Group’s subsidiary, AICS, has under the terms of its Australian Financial Services Licence 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 per cent 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 per cent 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 per cent).
(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).
53
Australian Foundation Investment Company Limited Annual Report 2019
(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 per cent 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 per cent of the possible maximum was
awarded, and 50 per cent 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 expense542534
(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 seven years. Current commitment relating
to leases at balance date, for the current lease (incl. GST), is:
2019
$’000
2018
$’000
Due within one year698667
Later than one year but less than five1,3962,001
Greater than five years--
2,0942,668
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 per cent 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.
Notes to the Financial Statements continued
54
Australian Foundation Investment Company Limited Annual Report 2019
F9. Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries:
Name of EntityCountry of IncorporationClass of Shares
Equity Holding
20192018
Australian Investment Company Services LtdAustralia Ordinary75%75%
The investment in AICS is accounted for at cost in the individual financial statements of AFIC.
F10. Parent Entity Financial Information
Summary Financial Information
The individual financial statements for the parent entity show the following aggregate amounts:
2019
$’000
2018
$’000
Balance Sheet
Current assets230,698162,696
Total assets7,803,3377,450,206
Current liabilities17,48715,607
Total liabilities1,183,0651,113,655
Shareholders’ equity
Issued capital2,888,1362,811,721
Reserves
Revaluation reserve2,561,3142,422,568
Realised capital gains reserve462,257448,892
General reserve23,63723,637
Retained earnings684,928629,733
3,732,1363,524,830
Total shareholders’ equity6,620,2726,336,551
Profit or loss for the year404,609277,815
Total comprehensive income 579,977595,154
55
Australian Foundation Investment Company Limited Annual Report 2019
DIRECTORS’ DECLARATION
In the Directors’ opinion:
(1) the financial statements and notes set out on pages 33 to 55 are in accordance with the Corporations Act 2001 including:
(a) complying with the Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting
requirements; and
(b) giving a true and fair view of the entity’s financial position as at 30 June 2019 and of its performance for the financial year ended
on that date; and
(2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.
Note F4 to the financial statements confirms that the financial statements also comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
This declaration is made in accordance with a resolution of the Directors.
This declaration has been made after receiving the declarations required to be made to the Directors by the Managing Director and the Chief
Financial Officer regarding the financial statements in accordance with Section 295A of the Corporations Act 2001 for the financial year ended
30 June 2019. The declarations received were that, in the opinion of the Managing Director and the Chief Financial Officer to the best of
their knowledge, the financial records of the Company have been properly maintained, that the financial statements comply with accounting
standards and that they give a true and fair view.
John Paterson
Chairman
Melbourne
22 July 2019
56
Australian Foundation Investment Company Limited Annual Report 2019
INDEPENDENT AUDIT REPORT
57
Australian Foundation Investment Company Limited Annual Report 2019
Independent Audit Report continued
58
Australian Foundation Investment Company Limited Annual Report 2019
59
Australian Foundation Investment Company Limited Annual Report 2019
Independent Audit Report continued
60
Australian Foundation Investment Company Limited Annual Report 2019
61
Australian Foundation Investment Company Limited Annual Report 2019
At 22 July 2019 there were 138,949 holdings of ordinary shares. These holdings were distributed in the following categories:
Size of HoldingShareholdings
1 to 1,00046,266
1,001 to 5,00045,852
5,001 to 10,00020,290
10,001 to 100,00025,506
100,000 and over1,035
Total138,949
Percentage held by the 20 largest holders6.71%
Average shareholding8,637
There were 2,743 shareholdings of less than a marketable parcel of $500 (79 shares).
Voting Rights of Ordinary Shares
The Constitution provides for votes to be cast:
(i) on a show of hands, one vote for each shareholder; and
(ii) on a poll, one vote for each fully paid ordinary share.
Major Shareholders
The 20 largest registered holdings of ordinary shares as at 22 July 2019 are listed below:
Ordinary Shares
NameUnits% of Units
HSBC Custody Nominees (Australia) Limited21,224,2581.77
Citicorp Nominees Pty Limited7,542,7330.63
Australian Executor Trustees Limited <IPS Super A/C>5,815,6980.48
Nulis Nominees (Australia) Limited <Navigator Mast Plan Sett A/C> 5,708,2780.48
Peter & Lyndy White Foundation Pty Ltd <P & L White Foundation A/C>4,943,1070.41
Bougainville Copper Limited4,865,6000.41
Navigator Australia Ltd <MLC Investment Sett A/C>4,282,9060.36
Netwealth Investments Limited <Wrap Services A/C>3,402,8980.28
Custodial Services Limited <Beneficiaries Holding A/C>3,014,4820.25
Bushways Pty Ltd2,570,5920.21
Investment Custodial Services Limited <C A/C>2,510,7870.21
J P Morgan Nominees Australia Pty Limited2,287,2450.19
Investment Custodial Services Limited <C A/C>2,260,1720.19
Kalymna Pty Ltd1,835,8860.15
Australian Executor Trustees Limited <IPS IDPS A/C>1,786,3690.15
Twibill Pty Ltd1,443,2160.12
Netwealth Investments Limited <Super Services A/C>1,415,8860.12
Mr Bruce Teele <The Teele Family A/C>1,248,2900.10
Australian Executor Trustees Limited <No 1 Account>1,218,8190.10
Australian Investors Pty Ltd1,179,4000.10
OTHER INFORMATION
Information About Shareholders
62
Australian Foundation Investment Company Limited Annual Report 2019
Acquisitions
Cost
($’000)
National Australia Bank*88,952
Coles Group (Including demerger from Wesfarmers)81,215
Reliance Worldwide38,706
James Hardie Industries37,665
Transurban Group (10 for 57 share issue at $10.80 per share)37,557
Adelaide Brighton35,208
Qantas Airways*(subsequently sold)34,841
Macquarie Group34,522
ARB Corporation33,204
CSL31,077
* Subject to call options during the period.
Disposals
Proceeds
($’000)
Rio Tinto (participation in off-market share buy-back)105,737
AGL Energy62,442
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.
Major Transactions in the Investment Portfolio
63
Australian Foundation Investment Company Limited Annual Report 2019
Sub-underwriting
The Company did not participate as a sub-underwriter in any transactions during the year.
The Company has not been notified of any substantial shareholders.
During the year ended 30 June 2019, the Company recorded 1,435 transactions in securities. $4,285,019 in brokerage (including GST)
was paid or accrued for the year.
Substantial Shareholders
Transactions in Securities
64
Australian Foundation Investment Company Limited Annual Report 2019
Holdings of Securities
At 30 June 2019
Individual investments for the combined investment and trading portfolios as at 30 June 2019 are listed below. The list should not, however,
be used to evaluate portfolio performance or to determine the net asset backing per share at other dates. Net asset backing is advised to
the Australian Securities Exchange each month and is recorded on the toll free telephone service at 1800 780 784 and posted to AFIC’s
website afi.com.au.
Individual holdings in the portfolios may change during the course of the year. In addition, holdings which are part of the trading portfolio may
be subject to call options or sale commitments by which they may be sold at a price significantly different from the market price prevailing
at the time of the exercise or sale.
CodeOrdinary Shares, Trust Units or Stapled Securities
Number
Held
2018
’000
Number
Held
2019
’000
Market
Value
2019
$’000
ABCAdelaide Brighton1,7207,26229,338
AGLAGL Energy4,3051,37027,414
AIAAuckland International Airport1,7701,77016,496
ALQALS8,5007,54255,359
AMCAmcor12,52712,527202,816
AMPAMP12,9109,64520,447
ANNAnsell1,2841,28434,472
ANZ*Australia and New Zealand Banking Group8,4889,188258,746
APA*APA Group4,0406,54070,031
APEAP Eagers1,4041,15711,335
ARBARB Corporation1,1983,08156,069
ASXASX70970958,374
AUBAUB Group7292,02621,150
AWC*Alumina15,04820,92347,650
BHP*BHP 14,09113,482554,828
BKWBrickworks1,5031,85430,195
BLDBoral9,6604,00820,523
BXBBrambles12,13912,139156,346
CARCarsales.com3,1774,19156,704
CBACommonwealth Bank of Australia7,9007,900653,962
COH*Cochlear13714730,111
COL*Coles Group07,29397,245
CPUComputershare4,6604,66075,539
CSLCSL1,9432,048440,280
CWYCleanaway Waste Management7,73611,27626,273
DJWDjerriwarrh Investments7,5057,50525,893
DLXDuluxGroup3,0293,02928,229
DUIDiversified United Investment12,03012,03052,452
EQTEQT Holdings1,3031,32239,120
EVTEvent Hospitality and Entertainment1,0301,03012,878
F LTFlight Centre Travel Group1931938,038
FNPFreedom Foods Group6,0115,16226,223
FPHFisher & Paykel Healthcare Corporation4,4003,80056,354
FREFreightways01,0208,242
GMGGoodman Group1,0002,80042,084
IAG*Insurance Australia Group4,9765,45744,950
ILUIluka Resources2,3671,66717,954
IREIRESS4,0245,00069,650
IVCInvoCare1,3251,32521,187
JHXJames Hardie Industries.4,0506,065113,416
LICLifestyle Communities5,4705,22834,662
65
Australian Foundation Investment Company Limited Annual Report 2019
Holdings of Securities continued
At 30 June 2019
CodeOrdinary Shares, Trust Units or Stapled Securities
Number
Held
2018
’000
Number
Held
2019
’000
Market
Value
2019
$’000
LNKLink Administration Holdings3,2003,20016,000
MFTMainfreight2,9903,209124,985
MIRMirrabooka Investments8,7288,72821,209
M LTMilton Corporation10,84110,84151,063
MPLMedibank Private2,0002,0006,980
MQGMacquarie Group1,6801,963246,118
NAB*National Australia Bank9,34212,885341,023
NXTNEXTDC4,1804,32528,069
ORAOrora11,6706,16519,975
ORGOrigin Energy6,5006,50047,515
ORIOrica2,7121,97039,932
OSH*Oil Search16,48318,033127,309
PPTPerpetual1,06162126,232
QUBQube Holdings34,96234,962106,284
REAREA Group38438436,876
REHReece Australia3,6215,95058,072
RHCRamsay Health Care1,4151,585114,500
RIORio Tinto3,4571,946201,867
RMDResMed3,9353,93567,564
RWCReliance Worldwide Corporation8,60016,90259,495
S32*South3215,24116,74153,196
SCGScentre Group15,65014,45055,488
SEKSeek3,5954,27090,345
SHLSonic Healthcare3,3423,704100,384
SUN*Suncorp Group4,3904,84065,135
SYDSydney Airport15,00017,924144,111
TCLTransurban Group19,82222,599333,116
TLSTelstra Corporation44,00040,175154,674
TPMTPG Telecom6,5003,00019,320
TWETreasury Wine Estates5,4595,45081,314
WBCWestpac Banking Corporation15,54515,545440,856
WESWesfarmers6,7236,723243,086
WOWWoolworths5,7325,667188,305
WPL*Woodside Petroleum3,6484,360157,792
XROXero74174144,386
Total7,565,607
* Part of the security was subject to call options written by the Company.
66
Australian Foundation Investment Company Limited Annual Report 2019
Issues of Securities
Date of IssueTypePriceRemarks
25 February 2019DRP/DSSP$5.932.5 per cent discount
31 August 2018DRP/DSSP$6.18
23 February 2018DRP/DSSP$6.11
30 August 2017DRP/DSSP*$5.92
24 February 2017DRP/DSSP*$5.84
30 August 2016DRP/DSSP*$5.582.5 per cent discount
19 February 2016DRP/DSSP*$5.432.5 per cent discount
25 November 2015SPP$5.515.0 per cent discount
28 August 2015DRP/DSSP*$6.032.5 per cent discount
20 February 2015DRP/DSSP*$5.972.5 per cent discount
6 October 2014 SPP$5.882.5 per cent discount
29 August 2014 DRP/DSSP*$5.932.5 per cent discount
21 February 2014DRP/DSSP*$5.862.5 per cent discount
30 August 2013DRP/DSSP*$5.642.5 per cent discount
DSSP: Dividend Substitution Share Plan
22 February 2013DRP$5.37
31 August 2012DRP$4.36
24 February 2012DRP$4.26
19 December 2011Convertible notes$100 face valueMature 28 February 2017. Interest rate 6.25 per cent per annum. Conversion
price: $5.0864
31 August 2011DRP$4.18
25 February 2011DRP$4.722.5 per cent discount
1 September 2010DRP$4.652.5 per cent discount
2 June 2010SPP$4.622.5 per cent discount
SPP=Share Purchase Plan
26 February 2010DRP$4.825 per cent discount
1 September 2009DRP$4.695 per cent discount
2 March 2009 DRP$3.725 per cent discount
25 August 2008 DRP$4.98
11 April 2008SAP$5.26
27 February 2008DRP$5.265 per cent discount
22 August 2007DRP$5.78
8 March 2007DRP $5.60
22 December 2006SAP$4.90
23 August 2006DRP $4.70
7 March 2006DRP $4.55
4 November 2005SAP $3.96
23 August 2005DRP $3.90
18 March 2005DRP $3.68
19 August 2004DRP $3.29
12 March 2004DRP $3.29
22 October 20031 for 8 rights issue $3.00
15 August 2003DRP $3.47
16 April 2003SAP $3.04
7 March 2003DRP $3.11
14 August 2002DRP $3.11
5 April 2002SAP$3.16
7 March 2002DRP$3.24
15 August 2001DRP$3.08
29 June 2001DRP $2.87
7 March 2001DRP $2.56
16 August 2000DRP$2.47
7 March 2000DRP $2.64
11 August 1999DRP $2.95
12 April 1999SAP$2.54 SAP = Share Acquisition Plan
15 March 1998DRP $2.79
4 September 1998DRP $2.43 DRP = Dividend Reinvestment Plan
Note for issues of securities in earlier years please consult the Company’s website, afi.com.au or via telephone (03) 9650 9911.
* Note that for the shares issued under the DSSP, the price shown is the indicative price used to determine the number of shares issued to participants.
Shares issued under the DSSP are issued at nil cost. Shareholders who sell shares issued under the DSSP should consult their tax adviser as to the
correct treatment of such sales for taxation purposes.
67
Australian Foundation Investment Company Limited Annual Report 2019
Company Particulars
Australian Foundation Investment Company Limited (AFIC)
ABN 56 004 147 120
Directors
John Paterson, Chairman
Robert M Freeman, Managing Director
Ross E Barker
Rebecca P Dee-Bradbury
Graeme R Liebelt
David A Peever
Catherine M Walter AM
Peter J Williams
Company Secretaries
Matthew J Rowe
Andrew JB Porter
Auditor
PricewaterhouseCoopers
Chartered Accountants
Country of Incorporation
Australia
Registered Office and Mailing Address
Level 21, 101 Collins Street
Melbourne Victoria 3000
Contact Details
Telephone (03) 9650 9911
Facsimile (03) 9650 9100
Website afi.com.au
Email invest@afi.com.au
For enquiries regarding net asset backing (as advised
each month to the Australian Securities Exchange):
Telephone 1800 780 784 (toll free)
Share Registrar
New Zealand
Computershare Investor Services Pty Ltd
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
New Zealand
Computershare Investor Services Limited
159 Hurstmere Road
Takapuna Auckland 0622
Shareholder
Enquiry Line 1300 662 270
0800 333 501 (within New Zealand)
+61 3 9415 4373 (from overseas)
Facsimile (03) 9473 2500
Website investorcentre.com/au/contact
For all enquiries relating to shareholdings, dividends and related
matters, please contact the share registrar as above.
Australian and New Zealand Securities Exchange Codes
AFI Ordinary shares (ASX and NZX)
68
Australian Foundation Investment Company Limited Annual Report 2019
Annual General Meeting
Time 10.00am
Date Tuesday 8 October 2019
Venue ZINC Function Centre
Location Corner of Swanston Street and Flinders Street
Melbourne
Adelaide Shareholder Meeting
Time 10.00am
Date Monday 14 October 2019
Venue Adelaide Convention Centre
Location Panorama Rooms
North Terrace
Adelaide
Sydney Shareholder Meeting
Time 10.00am
Date Friday 18 October 2019
Venue Wesley Conference Centre
Location 220 Pitt Street
Sydney
Brisbane Shareholder Meeting
Time 10.00am
Date Monday 28 October 2019
Venue Hilton Hotel
Location 190 Elizabeth Street
Brisbane
Shareholder Meetings
69
Australian Foundation Investment Company Limited Annual Report 2019
Design: MDM Investorcom
Printed on environmentally friendly paper
Annual
Review
2 019
Contents
2 5 Year Summary
4 About the Company
6 Review of Operations
and Activities
16 Top 25 Investments
17 Income Statement
18 Balance Sheet
19 Summarised Statement
of Changes in Equity
20 Holdings of Securities
23 Major Transactions in the
Investment Portfolio
24 Company Particulars
25 Shareholder Meetings
Australian Foundation
Investment Company is a
listed investment company
investing in Australian
and New Zealand equities.
1
Australian Foundation Investment Company Limited Annual Review 2019
Australian Foundation Investment Company Limited ABN 56 004 147 120
Year in Summary
Profit for the Year
$406.4m
Up 45.6% from 2018
Fully Franked Dividend
14¢
Final
24 cents total in 2018
32¢
Total
11.4 %
S&P/ASX 200 Accumulation
Index including franking* 13.4%
Total Portfolio Return
Total Shareholder Return
9.2%
Share price plus dividend
0 .13 %
0.14% in 2018
Management Expense Ratio
Total Portfolio
$7. 8b
Including cash at 30 June
$7.4 billion in 2018
* Assumes a shareholder can take full advantage
of the franking credits.
Including
franking*
Including
franking*
1
Australian Foundation Investment Company Limited Annual Review 2019
Australian Foundation Investment Company Limited ABN 56 004 147 120
2019
Net Profit After Tax ($ Million)
201520162017
406.4
2018
2019
Net Profit Per Share (Cents)
201520162017
34.0
2018
2019
Dividends Per Share (Cents)
(b)
201520162017
32
(c)
2018
2019
Investments at Market Value
($ Million)
(a)
201520162017
7,566
2018
2019
Net Asset Backing Per Share
(Cents)
(d)
201520162017
649.0
2018
2019
Number of Shareholders
(30 June)
201520162017
138,671
279.0
293.6
265.8
245.3
23.6
27.2
23.8
21.3
24
23
24
24
7,274
6,414
6,250
6,790
627.0
585.1
550.4
589.5
129,948
107,622
113,482
119,463
2018
5 Year Summary
3
Australian Foundation Investment Company Limited Annual Review 2019
2
Australian Foundation Investment Company Limited Annual Review 2019
2019
Net Profit After Tax ($ Million)
201520162017
406.4
2018
2019
Net Profit Per Share (Cents)
201520162017
34.0
2018
2019
Dividends Per Share (Cents)
(b)
201520162017
32
(c)
2018
2019
Investments at Market Value
($ Million)
(a)
201520162017
7,566
2018
2019
Net Asset Backing Per Share
(Cents)
(d)
201520162017
649.0
2018
2019
Number of Shareholders
(30 June)
201520162017
138,671
279.0
293.6
265.8
245.3
23.6
27.2
23.8
21.3
24
23
24
24
7,274
6,414
6,250
6,790
627.0
585.1
550.4
589.5
129,948
107,622
113,482
119,463
2018
2019
Net Profit After Tax ($ Million)
201520162017
406.4
2018
2019
Net Profit Per Share (Cents)
201520162017
34.0
2018
2019
Dividends Per Share (Cents)
(b)
201520162017
32
(c)
2018
2019
Investments at Market Value
($ Million)
(a)
201520162017
7,566
2018
2019
Net Asset Backing Per Share
(Cents)
(d)
201520162017
649.0
2018
2019
Number of Shareholders
(30 June)
201520162017
138,671
279.0
293.6
265.8
245.3
23.6
27.2
23.8
21.3
24
23
24
24
7,274
6,414
6,250
6,790
627.0
585.1
550.4
589.5
129,948
107,622
113,482
119,463
2018
Notes
(a) Excludes cash.
(b) All dividends were fully franked. The LIC attributable gain attached to the dividend was:
2019: 7.14 cents, 2018: 2.86 cents, 2017: nil, 2016: 2.1 cents, 2015: 7.1 cents.
(c) Includes 8 cents fully franked special dividend paid with the interim dividend.
(d) Net asset backing per share based on year-end data before the provision for the final dividend.
The figures do not include a provision for capital gains tax that would apply if all securities held
as non-current investments had been sold at balance date as Directors do not intend to dispose
of the portfolio.
3
Australian Foundation Investment Company Limited Annual Review 2019
2
Australian Foundation Investment Company Limited Annual Review 2019
Australian Foundation Investment
Company (AFIC) is a listed investment
company investing in Australian and
New Zealand equities.
Investment Objectives
The Company aims to provide shareholders
with attractive investment returns through
access to a growing stream of fully franked
dividends and growth in capital invested.
The Company’s primary investment
goals are:
• to pay dividends which, over time, grow
faster than the rate of inflation; and
• to provide attractive total returns over
the medium to long term.
Approach to Investing
The investment philosophy is built on taking
a medium to long-term view on companies
in a diversified portfolio with an emphasis
on identifying quality companies that are
likely to sustainably grow their earnings
and dividends over this time frame.
Quality in this context is an outcome of our
assessment of the board and management
as well as some key financial metrics.
These include, the level of gearing in the
balance sheet, product margins and free
cash flow. The structure of the industry and
a company’s competitive position in this
industry is also an important indicator of
quality. Linked to this assessment of quality
is the ability of companies to grow earnings
over time, which ultimately should produce
good dividend growth.
Recognising value is also an important
aspect of sound long-term investing.
Short-term measures such as the price
earnings ratio, price to book or price to
sales may be of some value, but aren’t
necessarily strong predictors of future
performance. Our assessment of value
tries to capture the opportunity a business
has to prosper and thrive over the medium
to long term.
In building the investment portfolio in this
way, we believe we can offer investors a
well-diversified portfolio of high-quality
companies that is intended to deliver total
returns ahead of the Australian equity
market and with less volatility over
the long term.
About the Company
How AFIC Invests – What We Look
For in Companies
Quality First
Growth
Including dividends
Value
A portfolio that is actively
managed to achieve long-term
capital and dividend growth
5
Australian Foundation Investment Company Limited Annual Review 2019
4
Australian Foundation Investment Company Limited Annual Review 2019
The Company also uses options written
against a small proportion of its investments
and a small trading portfolio to generate
additional income.
From time to time, some borrowings
may be used where potential investment
returns justify the use of debt. This is
managed within very conservative limits,
as determined by the Board.
AFIC is managed for the benefit of its
shareholders with fees based on the
recovery of costs rather than as a fixed
percentage of the portfolio. There are no
performance fees. As a result, the benefit
of scale over time results in a very low
expense ratio for investors. For the
12 months to 30 June 2019 this was
0.13 per cent, or 13 cents for each
$100 invested.
5
Australian Foundation Investment Company Limited Annual Review 2019
4
Australian Foundation Investment Company Limited Annual Review 2019
Profit and Dividend
Full year profit was $406.4 million, up
45.6 per cent from $279.0 million in the
corresponding period last year. A number
of one-off factors increased investment
income by 43.2 per cent to $433.0 million.
This included participation in the Rio Tinto
and BHP off-market share buy-backs,
receipt of special dividends and the
recognition of a dividend resulting from
the Coles demerger from Wesfarmers.
The trading portfolio recorded a loss
of $4.7 million compared with a gain of
$0.3 million in the corresponding period last
year. This was primarily due to call option
positions. A significant number of in-the-
money call option positions were bought
back and moved into the current financial
year at higher exercise prices to capture
more of the potential capital upside of the
underlying holdings. This will move some
income from option activity into the current
financial year.
Earnings per share were 34.0 cents, up
from 23.6 cents. The final dividend was
maintained at 14 cents per share fully
franked. A special dividend of 8 cents per
share fully franked was paid along with
the interim dividend of 10 cents per share
fully franked in February 2019. Total fully
franked dividends applicable for the year,
including the special, are 32 cents per share
compared with 24 cents per share last year.
Five cents of the final dividend are sourced
from taxable capital gains, on which
the Company has paid or will pay tax.
The amount of the pre-tax attributable
Review of Operations and Activities
S&P/ASX Small Ordinaries
total return index
S&P/ASX 50
total return index
S&P/ASX Mid Cap 50
total return index
Source: FactSet
Jun 18
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
Mar 19
Apr 19
May 19
Jun 19
115
110
105
100
95
90
85
Index
Figure 1: Performance of Different Sectors of the Market by Company Size
7
Australian Foundation Investment Company Limited Annual Review 2019
6
Australian Foundation Investment Company Limited Annual Review 2019
gain on this portion of the dividend, known
as an ‘LIC capital gain’, is therefore 7.14
cents. This enables some shareholders to
claim a tax deduction in their tax return.
Market and 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, The a2 Milk Company, 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.
This produced a market which had a very
mixed profile for returns, with the Mid-Cap
50 Accumulation Index up 3.7 per cent
and the Small Ordinaries Accumulation
Index up 1.9 per cent over the year
to 30 June 2019. The Fifty Leaders
Accumulation Index was up 14.2 per cent
over the corresponding period.
Over the year to 30 June 2019, the S&P/
ASX 200 Accumulation Index, including the
benefit of franking, increased 13.4 per cent.
Mar 19
Apr 19
May 19
Jun 18
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
125
120
115
110
105
1
00
95
90
85
S&P/ASX 200 Industrials
total return index
S&P/ASX 200 Banks
total return index
S&P/ASX 200 Resources
total return index
S&P/ASX 200 A-REIT
total return index
Figure 2: Performance of Key Sectors of the Market
7
Australian Foundation Investment Company Limited Annual Review 2019
6
Australian Foundation Investment Company Limited Annual Review 2019
Review of Operations and Activities continued
AFIC’s portfolio return over this period,
including the benefit of franking, was
up 11.4 per cent.
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 per cent 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 time frames, was 11.5 per cent
per annum for the 10 years to 30 June 2019.
This is broadly in line with the Index return
over the same period of 11.7 per cent. Both
figures include the benefit of franking. AFIC’s
performance numbers are after costs.
Figure 4 illustrates the cumulative long-term
performance of the AFIC portfolio versus
the S&P/ASX 200 Accumulation Index
over the 10 years to 30 June 2019. It also
includes the benefits of franking credits
for both.
Positioning the Portfolio
With the market reaching close to all-time
highs and against the backdrop of an
economy vulnerable to slowing trade and
subdued consumer sentiment, the focus of
adjustments to the portfolio was to ensure
quality companies, with strong industry
positions, formed the core of the portfolio
moving forward. As a result, the number
of holdings in the investment portfolio
was reduced from 91 to 76 over the year.
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.
The new holding in Coles Group arose
because of its demerger from Wesfarmers.
The only new company actively added
to the portfolio during the year was a
New Zealand listed company, Freightways.
Freightways, which has operations in
New Zealand and Australia, engages
in the provision of express package and
business mail services; and information
management services. The company was
founded in 1964 and is headquartered
in Auckland, New Zealand.
9
Australian Foundation Investment Company Limited Annual Review 2019
8
Australian Foundation Investment Company Limited Annual Review 2019
Jun 18
Jun 19
Jun 09Jun 10Jun 11Jun 12Jun 13Jun 14Jun 15Jun 16Jun 17
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
AFIC Portfolio
S&P/ASX 200 Accumulation Index
Figure 4: Growth in Investment of $1,000 (Including Benefit of Franking)
− 10 Years to 30 June 2019
Note assumes an investor can take full advantage of the franking credits. This chart calculates the benefit of franking credits
at the time dividends are paid for both AFIC and the Index. In practice there is a timing difference between receipt of the
dividend and the realisation of the franking benefit in the following tax year.
Figure 3: Portfolio Performance – Per Annum Returns to 30 June 2019
10 year return
Net asset per share growth
plus dividends, including franking
S&P/ASX 200 Accumulation
Index, including franking
11.5%
11.7%
1 year return
8.6%
11.4%
10.5%
13.4%
5 year return
* Assumes an investor can take full advantage of the franking credits. AFIC’s portfolio return is also calculated after
management fees, income tax and capital gains tax on realised sales of investments. It should be noted that Index
returns for the market do not include management expenses or tax.
9
Australian Foundation Investment Company Limited Annual Review 2019
8
Australian Foundation Investment Company Limited Annual Review 2019
Major sales arose because of 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.
Figure 5 highlights the profile of
AFIC’s portfolio by the various sectors
of the market at the end of the financial
year and how it differs from the Index.
AFIC traditionally has not been a large
investor in Property Trusts given the
observation that over the long term
industrial companies have tended to
outperform Property Trusts and the
distribution from these trusts do not
carry franking credits.
Share Price Return
The share price return, including
reinvestment of dividends and franking
credits, over the 12 months to 30 June
2019 was 9.2 per cent, which is below
the portfolio return for the year. This was
because the share price was trading at a
discount of 3.7 per cent to the net asset
backing (before tax on unrealised gains)
at the end of June 2019, whereas one year
ago, at 30 June 2018 the discount was
1.7 per cent (Figure 6). The current discount
is the reason the Dividend Reinvestment
Plan does not have a discount in place
for the final dividend.
Review of Operations and Activities continued
AFIC portfolio weightS&P/ASX 200 Index weight
Banks
Materials
Industrial
Healthcare
Consumer
Staples
Energy
Other
Financials
21.8%17.5%15.2%10.9%9.7%5.0%
Cash
0.7%4.4%
Communication
Services
3.0%
Information
Technology
4.3%
Property
Trusts
1.2%
Utilities
2.7%
Consumer
Discretionary
3.6%
25%
20%
15%
10%
5%
0%
Figure 5: AFIC Investment by Sector Versus the S&P/ASX 200 Index
as at 30 June 2019
11
Australian Foundation Investment Company Limited Annual Review 2019
10
Australian Foundation Investment Company Limited Annual Review 2019
Whilst the share price can often fluctuate
between a premium and discount, over
the long term the share price return is
often very close to the portfolio return.
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.
Figure 7 on page 12 shows market
valuations, as represented by the price
earnings ratio of the S&P/ASX 200 Index,
is currently trading well above its average
in the present low interest rate environment.
Figure 6: Share Price Premium/Discount to Net Asset Backing
Source: FactSet
-10%
15%
0%
5%
10%
-5%
Jun 09Jun 08
Jun 1
0
Jun 1
1
Jun 1
2
Jun 1
4
Jun 1
3
Jun 1
5
Jun 1
6
Jun 1
7
Jun 1
8
Jun 1
9
11
Australian Foundation Investment Company Limited Annual Review 2019
10
Australian Foundation Investment Company Limited Annual Review 2019
Review of Operations and Activities continued
Figure 7: Valuation of the Market – Price Earnings Ratio of the
S&P ASX 200 Index
2014
Times
20152016201720182019
17
16
15
14
13
Source: FactSet
Average 15.5
Dividend Imputation
The Company notes that the refundability
of franking credits under the dividend
imputation system, which was subject
to debate over the course of the year,
continues without change to the benefit
of shareholders.
Directorship Matters
As previously advised to shareholders
in the Half-Yearly Review, Mr Terry Campbell
retired as Chairman of the Company at the
conclusion of the 2018 Annual General.
Mr John Paterson was elected as Chairman
by the Board with effect from the conclusion
of the Annual General Meeting in 2018.
Mr Paterson has been a Director of the
Company since 2005 and prior to that
served as an Alternate Director for
Mr Campbell from April 1987 to June 2005.
He is Chairman of Djerriwarrh Investments
Limited. He was formerly a Director of
Goldman Sachs JBWere and is a former
member of the Board of Guardians
of Australia’s Future Fund.
The Board wishes to record its sincere
appreciation to Mr Campbell for his
invaluable contribution to the Board
deliberations over the last 34 years.
Mr Campbell had been a Director since
1984, Deputy Chairman since October
2008 and Chairman since October 2013.
His very broad industry experience at the
highest levels of the Australian corporate
world has been of outstanding value to
the Board, Executives and shareholders
of the Company.
13
Australian Foundation Investment Company Limited Annual Review 2019
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Australian Foundation Investment Company Limited Annual Review 2019
The return of the market over the year was characterised
by a pronounced divergence of performance across sectors
and companies.
“
“
Investment Income
Increased
43.2%
13
Australian Foundation Investment Company Limited Annual Review 2019
12
Australian Foundation Investment Company Limited Annual Review 2019
Review of Operations and Activities continued
Ms Jacqueline Hey retired as a Director
on 18 January 2019. Ms Hey had been a
Director of the Company since July 2013.
She was a member of the Company’s
Investment Committee and Nomination
Committee.
Ms Hey was a valuable contributor to Board
and Executive discussions, reflecting her
deep knowledge and experience gained in
her long career in the telecommunications
technology sector and the subsequent
exposure she had to a wide range
of industries.
The Board will miss her involvement in
its deliberations and wishes to record its
gratitude to Ms Hey for her valued service
to shareholders. We wish her well for
the future.
Ms Rebecca Dee-Bradbury was
appointed as a Non-Executive Director
of the Company, on 6 May 2019. Ms Dee-
Bradbury was previously Chief Executive
Officer/President of Developed Markets
(Asia Pacific and ANZ) for Mondelez from
2010 to 2014. Before joining Mondelez
Ms Dee-Bradbury was Group CEO of
the global Barbeques Galore group, and
has held other Senior Executive roles in
organisations including Maxxium, Burger
King Corporation and Lion Nathan/Pepsi
Cola Bottlers.
Ms Dee-Bradbury is a Non-Executive
Director of BlueScope Steel Limited and
Grain Corp Limited), and was previously
a Nonexecutive Director of Tower Limited
(NZ) until her resignation in 2016.
Ms Dee-Bradbury is also a Director of
Energy Australia Holdings following
her appointment in April 2017. Ms Dee-
Bradbury is an inaugural member of
the Business Advisory Board at Monash
Business School. She brings to the Board
significant experience in strategic brand
marketing, business integration and
transformation, customer relationship
management and innovation.
We are delighted to welcome Rebecca
to the Board. Her broad knowledge
of business, including the fast-moving
consumer goods (FMCG) sector in
Australia and internationally, will be
of great assistance to the Board.
15
Australian Foundation Investment Company Limited Annual Review 2019
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Australian Foundation Investment Company Limited Annual Review 2019
Australian Resources
Index Up
16 %
15
Australian Foundation Investment Company Limited Annual Review 2019
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Australian Foundation Investment Company Limited Annual Review 2019
Top 25 Investments
As at 30 June 2019
Includes investments held in both the investment and trading portfolios.
Valued at Closing Prices at 28 June 2019
Total Value
$ Million
% of the
Portfolio
1Commonwealth Bank of Australia654.08.6
2BHP*554.87.3
3Westpac Banking Corporation440.95.8
4CSL 440.35.8
5National Australia Bank*341.04.5
6Transurban Group 333.14.4
7Australia and New Zealand Banking Group*258.73.4
8Macquarie Group 246.13.3
9Wesfarmers 243.13.2
10Amcor 202.82.7
11Rio Tinto 201.92.7
12Woolworths Group188.32.5
13Woodside Petroleum*157.82.1
14Brambles 156.32.1
15Telstra Corporation 154.72.0
16Sydney Airport144.11.9
17Oil Search*127.31.7
18Mainfreight 125.01.7
19Ramsay Health Care 114.51.5
20James Hardie Industries113.41.5
21Qube Holdings 106.31.4
22Sonic Healthcare 100.41.3
23Coles Group*97.21.3
24Seek 90.31.2
25Treasury Wine Estates 81.31.1
Total5,673.7
As a percentage of total portfolio value (excludes cash)75.0%
* Indicates that options were outstanding against part of the holding.
17
Australian Foundation Investment Company Limited Annual Review 2019
16
Australian Foundation Investment Company Limited Annual Review 2019
2019
$’000
2018
$’000
Dividends and distributions433,009302,389
Revenue from deposits and bank bills3,6151,409
Other revenue-22
Net gains/(losses) on trading portfolio (including unrealised
gains or losses)(4,686)264
Total income431,938304,084
Finance costs(826)(848)
Administration expenses (net of recoveries)(9,583)(9,852)
Profit before income tax 421,529293,384
Income tax (15,156)(14,377)
Net profit 406,373279,007
CentsCents
Net profit per share34.0023.57
Income Statement
For the Year Ended 30 June 2019
17
Australian Foundation Investment Company Limited Annual Review 2019
16
Australian Foundation Investment Company Limited Annual Review 2019
2019
$’000
2018
$’000
Current assets
Cash 206,42999,183
Receivables40,12877,234
Total current assets246,557176,417
Non-current assets
Investment portfolio 7,572,6407,280,706
Deferred tax assets-1,257
Total non-current assets7,572,6407,281,963
Total assets7,819,1977,458,380
Current liabilities
Payables932712
Tax payable17,0528,245
Borrowings – bank debt-100
Trading portfolio7,0336,757
Provisions4,1144,385
Total current liabilities29,13120,199
Non-current liabilities
Provisions1,4711,394
Deferred tax liabilities100-
Deferred tax liabilities – investment portfolio1,163,7491,097,527
Total non-current liabilities1,165,3201,098,921
Total liabilities1,194,4511,119,120
Net assets6,624,7466,339,260
Shareholders’ equity
Share capital2,888,1862,811,771
Revaluation reserve2,561,3142,422,568
Realised capital gains reserve462,257448,892
General reserve23,63723,637
Retained profits689,352632,392
Total shareholders’ equity (including minority interests)6,624,7466,339,260
Balance Sheet
As at 30 June 2019
19
Australian Foundation Investment Company Limited Annual Review 2019
18
Australian Foundation Investment Company Limited Annual Review 2019
2019
$’000
2018
$’000
Total equity at the beginning of the year6,339,2605,965,503
Dividends paid(372,670)(278,054)
Shares issued – Dividend Reinvestment Plan76,55655,601
Other Share Capital Adjustments(141)(136)
Total transactions with shareholders(296,255)(222,589)
Profit for the year 406,373279,007
Revaluation of investment portfolio261,984454,180
Provision for tax on revaluation(86,616)(136,841)
Revaluation of investment portfolio (after tax)175,368317,339
Total comprehensive income for the year581,741596,346
Realised gains/(losses) on securities sold57,01624,385
Tax expense on realised gains on securities sold(20,394)(6,405)
Net realised gains/(losses) on securities sold36,62217,980
Transfer from revaluation reserve to realised gains reserve(36,622)(17,980)
Total equity at the end of the year6,624,7466,339,260
A full set of AFIC’s final accounts are available on the Company’s website.
Summarised Statement of Changes in Equity
For the Year Ended 30 June 2019
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Australian Foundation Investment Company Limited Annual Review 2019
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Australian Foundation Investment Company Limited Annual Review 2019
Individual investments for the combined investment and trading portfolios as at
30 June 2019 are listed below. The list should not, however, be used to evaluate portfolio
performance or to determine the net asset backing per share at other dates. Net asset
backing is advised to the Australian Securities Exchange each month and is recorded on
the toll free telephone service at 1800 780 784 and posted to AFIC’s website afi.com.au.
Individual holdings in the portfolios may change during the course of the year. In addition,
holdings which are part of the trading portfolio may be subject to call options or sale
commitments by which they may be sold at a price significantly different from the
market price prevailing at the time of the exercise or sale.
Code
Ordinary Shares, Trust Units
or Stapled Securities
Number
Held
2018
’000
Number
Held
2019
’000
Market
Value
2019
$’000
ABCAdelaide Brighton1,7207,26229,338
AGLAGL Energy4,3051,37027,414
AIAAuckland International Airport1,7701,77016,496
ALQALS8,5007,54255,359
AMCAmcor12,52712,527202,816
AMPAMP12,9109,64520,447
ANNAnsell1,2841,28434,472
ANZ*Australia and New Zealand Banking Group8,4889,188258,746
APA*APA Group4,0406,54070,031
APEAP Eagers1,4041,15711,335
ARBARB Corporation1,1983,08156,069
ASXASX70970958,374
AUBAUB Group7292,02621,150
AWC*Alumina15,04820,92347,650
BHP*BHP 14,09113,482554,828
BKWBrickworks1,5031,85430,195
BLDBoral9,6604,00820,523
BXBBrambles12,13912,139156,346
CARCarsales.com3,1774,19156,704
CBACommonwealth Bank of Australia7,9007,900653,962
COH*Cochlear13714730,111
COL*Coles Group07,29397,245
CPUComputershare4,6604,66075,539
Holdings of Securities
At 30 June 2019
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Australian Foundation Investment Company Limited Annual Review 2019
20
Australian Foundation Investment Company Limited Annual Review 2019
Code
Ordinary Shares, Trust Units
or Stapled Securities
Number
Held
2018
’000
Number
Held
2019
’000
Market
Value
2019
$’000
CSLCSL1,9432,048440,280
CWYCleanaway Waste Management7,73611,27626,273
DJWDjerriwarrh Investments7,5057,50525,893
DLXDuluxGroup3,0293,02928,229
DUIDiversified United Investment12,03012,03052,452
EQTEQT Holdings1,3031,32239,120
EVTEvent Hospitality and Entertainment1,0301,03012,878
F LTFlight Centre Travel Group1931938,038
FNPFreedom Foods Group6,0115,16226,223
FPHFisher & Paykel Healthcare Corporation4,4003,80056,354
FREFreightways01,0208,242
GMGGoodman Group1,0002,80042,084
IAG*Insurance Australia Group4,9765,45744,950
ILUIluka Resources2,3671,66717,954
IREIRESS4,0245,00069,650
IVCInvoCare1,3251,32521,187
JHXJames Hardie Industries4,0506,065113,416
LICLifestyle Communities5,4705,22834,662
LNKLink Administration Holdings3,2003,20016,000
MFTMainfreight2,9903,209124,985
MIRMirrabooka Investments8,7288,72821,209
M LTMilton Corporation10,84110,84151,063
MPLMedibank Private2,0002,0006,980
MQGMacquarie Group1,6801,963246,118
NAB*National Australia Bank9,34212,885341,023
NXTNEXTDC4,1804,32528,069
ORAOrora Limited11,6706,16519,975
ORGOrigin Energy6,5006,50047,515
ORIOrica2,7121,97039,932
OSH*Oil Search16,48318,033127,309
PPTPerpetual1,06162126,232
QUBQube Holdings34,96234,962106,284
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Australian Foundation Investment Company Limited Annual Review 2019
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Australian Foundation Investment Company Limited Annual Review 2019
Holdings of Securities continued
At 30 June 2019
Code
Ordinary Shares, Trust Units
or Stapled Securities
Number
Held
2018
’000
Number
Held
2019
’000
Market
Value
2019
$’000
REAREA Group38438436,876
REHReece Australia3,6215,95058,072
RHCRamsay Health Care1,4151,585114,500
RIORio Tinto3,4571,946201,867
RMDResMed3,9353,93567,564
RWCReliance Worldwide Corporation8,60016,90259,495
S32*South3215,24116,74153,196
SCGScentre Group15,65014,45055,488
SEKSeek3,5954,27090,345
SHLSonic Healthcare3,3423,704100,384
SUN*Suncorp Group4,3904,84065,135
SYDSydney Airport15,00017,924144,111
TCLTransurban Group19,82222,599333,116
TLSTelstra Corporation44,00040,175154,674
TPMTPG Telecom6,5003,00019,320
TWETreasury Wine Estates5,4595,45081,314
WBCWestpac Banking Corporation15,54515,545440,856
WESWesfarmers6,7236,723243,086
WOWWoolworths5,7325,667188,305
WPL*Woodside Petroleum3,6484,360157,792
XROXero74174144,386
Total7,565,607
* Part of the security was subject to call options written by the Company.
23
Australian Foundation Investment Company Limited Annual Review 2019
22
Australian Foundation Investment Company Limited Annual Review 2019
Acquisitions
Cost
($’000)
National Australia Bank*88,952
Coles Group (including demerger from Wesfarmers)81,215
Reliance Worldwide38,706
James Hardie Industries37,665
Transurban Group (10 for 57 share issue at $10.80 per share)37,557
Adelaide Brighton35,208
Qantas Airways*(subsequently sold)34,841
Macquarie Group34,522
ARB Corporation33,204
CSL31,077
* Subject to call options during the period.
Disposals
Proceeds
($’000)
Rio Tinto (participation in off-market share buy-back)105,737
AGL Energy62,442
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.
Major Transactions in the Investment Portfolio
23
Australian Foundation Investment Company Limited Annual Review 2019
22
Australian Foundation Investment Company Limited Annual Review 2019
Australian Foundation Investment Company
Limited (AFIC)
ABN 56 004 147 120
Directors
John Paterson, Chairman
Robert M Freeman, Managing Director
Ross E Barker
Rebecca Dee-Bradbury
Graeme R Liebelt
David A Peever
Catherine M Walter AM
Peter J Williams
Company Secretaries
Matthew J Rowe
Andrew JB Porter
Auditor
PricewaterhouseCoopers
Chartered Accountants
Country of Incorporation
Australia
Registered Office and Mailing Address
Level 21, 101 Collins Street
Melbourne Victoria 3000
Contact Details
Telephone (03) 9650 9911
Facsimile (03) 9650 9100
Website afi.com.au
Email invest@afi.com.au
For enquiries regarding net asset backing
(as advised each month to the Australian
Securities Exchange):
Telephone 1800 780 784 (toll free)
Share Registrar
Australia
Computershare Investor Services Pty Ltd
Yarra Falls, 452 Johnston Street
Abbotsford Victoria 3067
New Zealand
Computershare Investor Services Limited
159 Hurstmere Road
Takapuna Auckland 0622
Shareholder
Enquiry Line 1300 662 270
0800 333 501
(within New Zealand)
+61 3 9415 4373
(from overseas)
Facsimile (03) 9473 2500
Website investorcentre.com/au/contact
For all enquiries relating to shareholdings,
noteholdings, dividends and related matters,
please contact the share registrar as above.
Australian and New Zealand Securities
Exchange Codes
AFI Ordinary shares (ASX and NZX)
Company Particulars
25
Australian Foundation Investment Company Limited Annual Review 2019
24
Australian Foundation Investment Company Limited Annual Review 2019
Annual General Meeting
Time 10.00am
Date Tuesday 8 October 2019
Venue ZINC Federation Square
Location Corner of Swanston Street and Flinders Street
Melbourne
Adelaide Shareholder Meeting
Time 10.00am
Date Monday 14 October 2019
Venue Adelaide Convention Centre
Location Panorama Rooms, North Terrace
Adelaide
Sydney Shareholder Meeting
Time 10.00am
Date Friday 18 October 2019
Venue Wesley Conference Centre
Location 220 Pitt Street
Sydney
Brisbane Shareholder Meeting
Time 10.00am
Date Monday 28 October 2019
Venue Hilton Hotel
Location 190 Elizabeth Street
Brisbane
Shareholder Meetings
The Annual Report for 2019 is available
on AFIC’s website afi.com.au or by contacting
the Company on (03) 9650 9911.
25
Australian Foundation Investment Company Limited Annual Review 2019
24
Australian Foundation Investment Company Limited Annual Review 2019
Design: MDM Investorcom
Printed on environmentally friendly paper
Australian Foundation
Investment Company Limited
ABN 56 004 147 120
Level 21, 101 Collins St
Melbourne VIC 3000
T 03 9650 9911
F 03 9650 9100
invest
@
afi .com.au
afi .com.au
Dear Shareholder
2019 Annual General Meeting
The Notice of AGM and Proxy Form are enclosed for your consideration.
Shareholders are encouraged to vote. The Company encourages all shareholders who
submit proxies to direct their proxy how to vote on each item of business by clearly marking
the relevant box in respect of each item on the proxy form. The business of the meeting will
be conducted by a poll.
An external nominee, Mr Stephen Mayne, has submitted himself for election as a Director of
the Company. Your directors met with him and unanimously consider that it is not in the best
interests of the Company and its shareholders that Mr Mayne be elected as a Director and
recommend that shareholders vote against his election.
We look forward to welcoming shareholders to the AGM on 8 October 2019. We have also
included a Question Form and we invite shareholders to send us any questions about the
Company in advance.
Yours sincerely
John Paterson
Chairman
251237_18_V3
SAMPLE ADDRESS
SAMPLE ADDRESS
TOWN/CITY
STATE, POSTCODE
The Annual General Meeting of Australian Foundation
Investment Company Limited, ABN: 56 004 147 120
(the ‘Company’) will be held at:
ZINC at Federation Square, Corner of Flinders Street
and Swanston Street, Melbourne, Victoria 3000
at 10.00am (AEDT) on Tuesday 8 October 2019.
The Company has determined that, for the purpose of
voting at the meeting, shares will be taken to be held
by those persons recorded on the Company’s register
at 7.00pm (AEDT) on Sunday 6 October 2019.
Notice of
Annual General
Meeting 2019
1. Financial Statements
and Reports
To consider the Directors’ Report, Financial
Statements and Independent Audit Report
for the financial year ended 30 June 2019.
(Please note that no resolution will be
required to be passed on this matter)
2. Adoption of Remuneration
Report
To consider and, if thought fit, to pass
the following resolution (as an ordinary
resolution):
“That the Remuneration Report for the
financial year ended 30 June 2019
be adopted.”
(Please note that the vote on this item
is advisory only)
3. Non-Executive Directors’
Fee Cap
To consider and, if thought fit, to pass
the following resolution (as an ordinary
resolution):
“That the maximum aggregate remuneration
which may be paid to the non-executive
Directors of the Company for their services
for each financial year, commencing on
1 July 2019 be increased from $1,000,000
which was approved by shareholders in
2007 to $1,250,000 per annum for the
purposes of Rule 47 of the Company’s
Constitution and ASX Listing Rule 10.17.”
4. and 5. Election and
Re-Election of Board-Endorsed
Directors
To consider and, if thought fit, to pass
the following resolutions (as ordinary
resolutions):
3 “That Rebecca Dee-Bradbury, a Director
appointed to the Board since the last
Annual General Meeting and retiring
from office in accordance with Rule 45
of the Constitution, being eligible is
elected as a Director of the Company.”
4 “That Peter Williams, a Director retiring
from office in accordance with Rule 46
of the Constitution, being eligible is
re-elected as a Director of the Company.”
6. Election of External
Non-Board Endorsed Director
Candidate
To consider and, if thought fit, to pass
the following resolution (as an ordinary
resolution):
“That Stephen Mayne, an external candidate
nominating himself as a Director in
accordance with Rule 45 of the Constitution,
being eligible is elected as a Director of
the Company.”
By Order of the Board
Matthew Rowe
Company Secretary
28 August 2019
BUSINESS OF THE MEETING
2
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
Explanatory Notes
The Explanatory Notes below provide
additional information regarding the items
of business proposed for the Annual
General Meeting.
IMPORTANT: Shareholders are urged to
direct their proxy how to vote by clearly
marking the relevant box for each item
on the proxy form.
Please ensure that your properly
completed proxy form reaches
the share registry by the deadline
of 10.00am (AEDT) on Sunday
6 October 2019.
1. Financial Statements
and Reports
During this item there will be a reasonable
opportunity for shareholders to ask
questions and comment on the Directors’
Report, Financial Statements and
Independent Audit Report for the financial
year ended 30 June 2019. No resolution
will be required to be passed on this matter.
Shareholders who have not elected to
receive a hard copy of the Company’s 2019
Annual Report can view or download it from
the Company’s website at:
afi.com.au/our-company#Companyreports
2. Adoption of Remuneration
Report
Board recommendation and undirected
proxies: The Board recommends that
shareholders vote in FAVOUR of Item 2.
The Chairman of the meeting intends
to vote undirected proxies in FAVOUR
of Item 2.
During this item there will be a reasonable
opportunity for shareholders at the meeting
to comment on and ask questions about
the Remuneration Report which can be
found in the Company’s 2019 Annual
Report. As prescribed by the Corporations
Act, the vote on the proposed resolution
is an advisory one.
Voting Exclusions on Item 2
Pursuant to sections 250BD and 250R of
the Corporations Act 2001 (Cth), votes may
not be cast, and the Company will disregard
any votes cast, on the resolution proposed
in Item 2 (‘Resolution 2’):
EXPLANATORY NOTES
• by or on behalf of any member of the
key management personnel of the
Company’s consolidated group (a ‘KMP
member’) whose remuneration details
are included in the Remuneration Report,
or any of their closely related parties,
regardless of the capacity in which
the votes are cast; or
• by any person who is a KMP member as
at the time Resolution 2 is voted on at the
Annual General Meeting, or any of their
closely related parties, as a proxy,
unless the votes are cast as a proxy for a
person who is entitled to vote on Resolution 2:
• in accordance with a direction in the
proxy appointment; or
• by the Chairman of the Annual General
Meeting in accordance with an express
authorisation in the proxy appointment
to cast the votes even if Resolution 2 is
connected directly or indirectly with the
remuneration of a KMP member.
If the Chairman of the Annual General
Meeting is appointed, or taken to be
appointed, as a proxy, the shareholder can
direct the Chairman to vote for or against,
or to abstain from voting on, Resolution 2
by marking the appropriate box opposite
Item 2 on the proxy form.
Pursuant to sections 250BD(2) and
250R(5) of the Corporations Act 2001,
if the Chairman of the meeting is a proxy
and the relevant shareholder does not
mark any of the boxes opposite Item 2,
the relevant shareholder will be
expressly authorising the Chairman to
exercise the proxy in relation to Item 2.
For the purposes of these voting exclusions:
• A ‘closely related party’ of a KMP
member means (1) a spouse or child of
the KMP member, (2) a child of the KMP
member’s spouse, (3) a dependant of the
KMP member or of the KMP member’s
spouse, (4) anyone else who is one of
the KMP member’s family and may be
expected to influence the KMP member,
or be influenced by the KMP member,
in the KMP member’s dealings with the
Company, or (5) a company the KMP
member controls.
• The Company will also apply these
voting exclusions to persons appointed
as attorney by a shareholder to attend
and vote at the Annual General Meeting
under a power of attorney, as if they were
appointed as a proxy.
3. Non-Executive Directors’
Fee Cap
Board recommendation and undirected
proxies: Given the interest in this matter of
each non-executive director, the Board as a
whole makes no recommendation on Item 3.
The Chairman of the meeting intends to vote
undirected proxies in FAVOUR of Item 3.
It is proposed that the maximum aggregate
non-executive Directors’ fees be increased
by $250,000 from the present level of
$1,000,000 to $1,250,000 per annum.
Non-executive Directors’ fees exclude
those fees paid to the Managing Director.
The maximum aggregate level of Directors’
fees were last increased in 2007.
Voting Exclusions on Item 3
Pursuant to ASX Listing Rule 14.11, the
Company will disregard any votes cast in
favour of Item 3 by all the Directors and any
of their associates. However, the Company
need not disregard a vote if:
• if it is cast by a person as proxy for a
person entitled to vote in accordance
with the directions on the proxy form; or
• it is cast by the person chairing the
meeting as proxy for a person who
is entitled to vote in accordance with
a direction on the proxy form to vote
as the proxy decides.
In addition, pursuant to section 250BD(1)
of the Corporations Act 2001, a person
appointed as a proxy must not vote, on
the basis of that appointment, on Item 3,
if the person is a member of the Company’s
key management personnel, or is a closely
related party of such a member, and the
proxy appointment does not specify the
way the proxy is to vote on Item 3. This
exclusion does not apply if the person
appointed as proxy is the Chairman of
the meeting and the appointment expressly
authorises them to exercise the proxy
on Item 3.
3
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
EXPLANATORY NOTES continued
4. and 5. Election and Re-election
of Board Endorsed Directors
Board recommendation and
undirected proxies: The Board
recommends (with the exception of each
Director in relation to their own re-election)
that shareholders vote in FAVOUR of
Items 4 and 5. The Chairman of the
meeting intends to vote undirected
proxies in FAVOUR of Items 4 and 5.
Rebecca Dee-Bradbury was appointed to
the Board on 6 May 2019 and so is required
to seek election by shareholders at this
AGM. Peter Williams was re-elected as a
Director by shareholders at the 2016 AGM.
As such he is required to seek re-election
by shareholders at this AGM. Their
biographical details are set out below:
Rebecca Dee-Bradbury
BBus, GAICD.
Independent Non-Executive Director
Ms Dee-Bradbury was previously Chief
Executive Officer/President of Developed
Markets (Asia Pacific and ANZ) for
Mondelez from 2010 to 2014. Before joining
Mondelez Ms Dee-Bradbury was Group
CEO of the global Barbeques Galore group,
and has held other senior executive roles
in organisations including Maxxium, Burger
King Corporation and Lion Nathan/Pepsi
Cola Bottlers. Ms Dee-Bradbury is a
Non-Executive Director of BlueScope Steel
Limited (appointed April 2014) and Grain
Corp Limited (appointed September 2014),
and was previously a Non-Executive
Director of Tower Limited (NZ) until her
resignation in 2016. Ms Dee-Bradbury is
also a Director of EnergyAustralia Holdings
Ltd following her appointment in April 2017.
Ms Dee-Bradbury is an inaugural member
of the Business Advisory Board at Monash
Business School and a member of
Chief Executive Women and of the
WomanCorporateDirectors Foundation,
and a former member of the Federal
Government’s Asian Century Strategic
Advisory Board.
Peter J Williams
Dip.All, MAICD, FAIM.
Independent Non-Executive Director.
Chairman of the Audit Committee.
Member of the Investment Committee
and Nomination Committee.
Chairman of the Company’s subsidiary,
Australian Investment Company
Services Limited (AICS).
Mr Williams was appointed to the Board
in February 2010. He is a Chairman of NAB
Trustees Services Limited (NAB Subsidiary),
Director of Cricket Victoria Ltd and ARUMA
(formerly House with No Steps), an Advisory
Board Member of TLC Aged Care Limited
and Chairman MIPS Advisory Committee
for Fiig Securities Limited. Mr Williams
was formerly Managing Director of Equity
Trustees Limited, Director and Treasurer
of Foundation for Young Australians Ltd,
Chairman of Olympic Park Sports Medical
Centre Pty Ltd, a Director of the Trustee
Corporations Association of Australia,
a Director of the Australian Baseball
Federation Inc and a General Manager
with AXA/National Mutual in Australia
and Hong Kong.
Further information regarding the
Company’s Corporate Governance
arrangements and the Board’s role can
be found on the Company’s website at:
afi.com.au/corporate-governance
4
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
6. Election of External
Non-Board Endorsed Director
Candidate
Board recommendation and undirected
proxies: The Board recommends that
shareholders vote AGAINST Item 6.
The Chairman of the meeting intends to
vote undirected proxies AGAINST Item 6.
The following statement has been
provided by Mr Mayne with his nomination.
These details have not been verified
or substantiated by the Company and
any comments made by Mr Mayne are
not endorsed by the Company. The Board
unanimously believes that it is not in the
best interests of the Company and its
shareholders that Mr Mayne be elected
as a Director.
Biographical details provided
by Mr Mayne:
Stephen Mayne
50, BCom (Melb), GAICD.
Stephen is a Walkley Award winning
business journalist, shareholder advocate
and former local government councillor,
who served 4 years at City of Melbourne
where he chaired the Finance and
Governance committee. He has served
two stints on the Australian Shareholders’
Association board and also held the position
of ASA Policy and Engagement coordinator
in 2012–14, which involved being a public
spokesman on behalf of retail investors.
Stephen is Australia’s best known
shareholder advocate having asked
questions at more than 500 AGMs and
commented on thousands of occasions
in media and public forums about the
financial and governance arrangements
of ASX listed companies owned by AFIC.
He has questioned, interviewed or met
with hundreds of public company chairs,
directors and senior executives over the
past 30 years. Stephen owns the world’s
biggest small share portfolio (almost 500
stocks worth less than $25,000) which
gives him unique investor insights and has
enabled him to participate in almost 300
capital raisings over the past decade,
acquiring knowledge which would add
value to the AFIC board.
Stephen worked for The Alliance for
Gambling Reform for two years until
July 2019, an experience which aligns
with AFIC’s commendable policy to avoid
investing in gambling stocks. He is currently
freelance writing for Crikey, a business he
founded in 2000, Alan Kohler’s Eureka
Report under the investSMART brand
and also publishes his own website,
MayneReport.
Shareholder Information
Proxies
1. A shareholder entitled to attend and vote
at this meeting is entitled to appoint not
more than two proxies (who need not be
members of the Company) to attend, vote
and speak in the shareholder’s place
and to join in any demand for a poll.
2. Where a shareholder appoints more than
one representative, proxy or attorney,
those appointees are entitled to vote
on a poll but not on a show of hands.
3. A shareholder who appoints two proxies
may specify a proportion or number of
the shareholder’s votes each proxy is
appointed to exercise. Where no such
specification is made, each proxy may
exercise half of the votes (any fractions of
votes resulting from this are disregarded).
4. Proxy forms may be lodged online
by visiting investorvote.com.au or
by scanning the QR Code on the
proxy form with a mobile device.
5. Relevant custodians may lodge
their proxy forms online by visiting
intermediaryonline.com
6. Proxy forms and any authorities (or
certified copies of those authorities)
under which they are signed may be
delivered in person, by mail or by fax
to the Company‘s Share Registry (see
details below) no later than 48 hours
before the meeting, being 10.00am
(AEDT) on Sunday 6 October 2019.
Further details are on the proxy form.
7. A proxy need not vote in that capacity
on a show of hands on any resolution
nor (unless the proxy is the Chairman
of the meeting) on a poll. However, if the
proxy’s appointment specifies the way
to vote on a resolution, and the proxy
decides to vote in that capacity on that
resolution, the proxy must vote the way
specified (subject to the other provisions
of this Notice, including the voting
exclusions noted above).
8. In certain circumstances the Chairman
of the meeting will be taken to have been
appointed as the proxy of the relevant
shareholder in respect of the meeting
or the poll on that resolution even if the
shareholder has not expressly appointed
the Chairman of the meeting as their
proxy. This will occur where:
• an appointment of a proxy specifies
the way the proxy is to vote on
a particular resolution; and
• the appointed proxy is not the
Chairman of the meeting; and
• at the meeting, a poll is called
on the resolution; and
• either of the following apply:
• if a record of attendance is made
for the AGM and the proxy is not
recorded as attending;
• the proxy does not vote on
the resolution.
5
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
EXPLANATORY NOTES continued
Corporate Representatives
A body corporate which is a shareholder,
or which has been appointed as a proxy,
may appoint an individual to act as its
representative at the meeting. Unless it has
previously been given to the Company, the
representative should bring evidence of
their appointment to the meeting, together
with any authority under which it is signed.
The appointment must comply with section
250D of the Corporations Act 2001.
Attorneys
A shareholder may appoint an attorney to
vote on their behalf. To be effective for the
meeting, the instrument effecting the
appointment (or a certified copy of it) must
be received by the deadline for the receipt
of proxy forms (see above), being no later
than 48 hours before the meeting.
Questions from Shareholders
Shareholders who are unable to attend the
meeting or who prefer to register questions
in advance are invited to use the question
form included with their proxy form or via
email agm@mirra.com.au. The deadline for
receipt of questions to be considered at the
AGM is 26 September 2019. During the
course of the meeting, the Chairman will
endeavour to address the themes most
frequently raised in the submitted question
forms. Please note that individual responses
will not be sent to shareholders.
Share Registry
The Company’s Share Registry details
are as follows:
Computershare Investor Services
Pty Limited
Street Address
Yarra Falls
452 Johnston Street
Abbotsford Victoria 3067
Postal Address
GPO Box 242
Melbourne Victoria 3001
Telephone
1300 662 270 (within Australia)
0800 333 501 (within New Zealand)
+61 3 9415 4373 (outside Australia)
Facsimile
1800 783 447 (within Australia)
+61 3 9473 2555 (outside Australia)
Internet
investorcentre.com/contact
6
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
Annual General Meeting Venue
The Annual General Meeting of Australian Foundation Investment Company Limited, ABN: 56 004 147 120 (the ‘Company’) will be held at:
ZINC at Federation Square, Corner of Flinders Street and Swanston Street, Melbourne, Victoria 3000 at 10.00am (AEDT) on Tuesday 8 October 2019.
Flinders St
Swanston St
Princes Bridge
Flinders St Station
Visitor
Info
Centre
ACMI
Yarra
Building
The Ian
Potter
Centre
Deakin Edge
Car Park
Lift/stairs
Atrium
Entrance
Russell St Extension
Plaza
FEDERATION SQUARE
Cross
Bar
River Terrace
Yarra River
St Pauls
Cathedral
ZINC
Transport
Bar
Flinders
Gate
Car Park
Birrarung Marr
By foot
By car
By tram
Lift
7
Australian Foundation Investment Company Limited Notice of Annual General Meeting 2019
251237_13_V7
Lodge your proxy:
Online:
www.investorvote.com.au
By Mail:
Computershare Investor Services Pty Limited
GPO Box 242 Melbourne
Victoria 3001 Australia
In Person:
Computershare Investor Services Pty Limited
Yarra Falls, 452 Johnston Street
Abbotsford, Victoria
Alternatively you can fax your form to
(within Australia) 1800 783 447
(outside Australia) +61 3 9473 2555
For Intermediary Online users only (Custodians)
www.intermediaryonline.com
For all enquiries call:
(within Australia) 1300 662 270
(within New Zealand) 0800 333 501
(outside Australia) +61 3 9415 4373
Proxy Form
How to direct your proxy to vote
Voting 100% of your holding: Direct your proxy how to vote by
marking one of the boxes opposite each item of business. If you do
not mark a box your proxy may vote or abstain as they choose (to the
extent permitted by law). If you mark more than one box on an item
your vote will be invalid on that item.
Voting a portion of your holding: Indicate a portion of your voting
rights by inserting the percentage or number of shares you wish to
vote in the For, Against or Abstain box or boxes. The sum of the votes
cast must not exceed your voting entitlement or 100%.
Appointing a second proxy: You are entitled to appoint up to two
proxies to attend the meeting and vote on a poll. If you appoint two
proxies you must specify the percentage of votes or number of
shares for each proxy, otherwise each proxy may exercise half of the
votes. When appointing a second proxy write both names and the
percentage of votes or number of shares for each in Step 1 overleaf.
A proxy need not be a shareholder of the Company.
Lodgement of proxy form
This proxy form (and any authority under which it is signed or a
certifi ed copy of it) must be received at an address given above by
10.00am (AEDT) on Sunday 6 October 2019, being not later than
48 hours before the commencement of the meeting. Any proxy form
received after that time will not be valid for the scheduled meeting.
Signing instructions for postal forms
Individual: Where the holding is in one name, the shareholder or
attorney must sign.
Joint Holding: Where the holding is in more than one name, all of
the shareholders or attorneys should sign.
Power of Attorney: If you have not already lodged the Power of
Attorney with the registry, please attach a certifi ed photocopy of the
Power of Attorney to this form when you return it.
Companies: Where the company has a Sole Director who is also the
Sole Company Secretary, this form must be signed by that person.
If the company (pursuant to section 204A of the Corporations Act
2001) does not have a Company Secretary, a Sole Director can also
sign alone. Otherwise this form must be signed by a Director jointly
with either another Director or a Company Secretary. Please sign in
the appropriate place to indicate the offi ce held.
Attending the meeting
If a representative of a corporate shareholder or proxy is to attend
the meeting you will need to provide the appropriate “Certifi cate of
Appointment of Corporate Representative” prior to admission. A form
of the certifi cate may be obtained from Computershare or online at
www.investorcentre.com under the help tab, “Printable Forms”.
Comments & Questions: If you have any comments or questions
for the Company, please write them on a separate sheet of paper and
return with this form.
GO ONLINE TO APPOINT YOUR PROXY,
or turn over to complete the form
For your proxy form to be effective it must be received by 10.00am (AEDT) on Sunday 6 October 2019
ABN 56 004 147 120
Appoint your proxy and view the Annual Report online
Go to www.investorvote.com.au or scan the QR Code with your mobile device.
Follow the instructions on the secure website to appoint your proxy.
Your access information that you will need to appoint your proxy online:
Control Number:
SRN/HIN:
PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confi dential. Please
dispose of this form carefully if you appoint your proxy online.
MR JOHN SAMPLE
FLAT 123
123 SAMPLE STREET
THE SAMPLE HILL
SAMPLE ESTATE
SAMPLEVILLE VIC 3030
I9999999999
999999
XX
251237_13_V7
I/We being a shareholder/s of AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED hereby appoint
the Chairman
of the meeting
OR
or failing the individual or body corporate named in relation to the meeting generally or in relation to a poll on a given resolution, or if no individual or
body corporate is named, the Chairman of the meeting, as my/our proxy to act generally at the meeting or in relation to a poll on the given resolution
(as applicable) on my/our behalf, including to vote in accordance with the following directions (or if no directions have been given, and to the extent
permitted by law, as the proxy sees fi t), at the Annual General Meeting of Australian Foundation Investment Company Limited to be held
at ZINC at Federation Square, Corner of Flinders and Swanston Street, Melbourne, Victoria at 10.00am (AEDT) on Tuesday
8 October 2019
and at any adjournment or postponement of that meeting.
Chairman to vote undirected proxies as follows: I/We acknowledge that the Chairman of the meeting intends to vote undirected proxies
in favour of items 2 to 5 and against item 6, to the extent permitted by law.
Chairman authorised to exercise proxies on remuneration related matters: If I/we have appointed the Chairman of the meeting as my/our
proxy (or the Chairman of the meeting becomes my/our proxy by default), I/we expressly authorise the Chairman of the meeting, to the extent
permitted by law, to exercise my/our proxy in respect of items 2 and 3 even though items 2 and 3 are connected directly or indirectly with the
remuneration of a member of key management personnel of Australian Foundation Investment Company Limited and its consolidated group,
which includes the Chairman of the meeting.
Items of Business
STEP 2
PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your
behalf on a show of hands or a poll and your votes will not be counted in computing the required majority
Appoint a proxy to vote on your behalf
Signature of Shareholder(s) This section must be completed.
SIGN
STEP 1
PLEASE NOTE: Leave this box blank if
you have selected the Chairman of the
meeting. Do not insert your own name(s).
Individual or Shareholder 1
Sole Director and Sole Company Secretary
Shareholder 2
Director
Shareholder 3
Director/Company Secretary
Contact
Name
Contact
Daytime
Telephone
Date
/ /
Please mark to indicate your directions
Proxy Form
Change of address. If incorrect,
mark this box and make the correction
in the space to the left. Shareholders
sponsored by a broker (reference
number commences with ’X’) should
advise their broker of any changes.
AFI251237A
Board recommendations and undirected proxies: To fully inform shareholders in exercising their right to vote, the Board recommends that
shareholders vote in the manner set out beside each item of business.
Board
recommendations
ForItem 2Adoption of Remuneration Report
Item 3Non -Executive Directors’ Fee Cap
ForItem 4Election of Director – Ms Rebecca Dee-Bradbury
ForItem 5Re-election of Director – Mr Peter Williams
AgainstItem 6Election of Director – Mr Stephen Mayne
For
Against
Abstain
I 9999999999 I N D
XX
MR JOHN SAMPLE
FLAT 123
123 SAMPLE STREET
THE SAMPLE HILL
SAMPLE ESTATE
SAMPLEVILLE VIC 3030
*I1234567890*
AFI
Questions from Shareholders
Question(s): Please mark X if it is a question directed to the auditor
1 ___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
2 ___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
3 ___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
4 ___________________________________________________________________________________________
___________________________________________________________________________________________
___________________________________________________________________________________________
__________________________________________________________________________________________________
__________________________________________________________________________________________________
All correspondence to:
AFI Share Registrar
Computershare Investor Services Pty Limited
GPO Box 242
Melbourne Victoria 3001
Australia
251237_17_V2
The Annual General Meeting (AGM) of Australian Foundation Investment Company Limited will be held at ZINC at Federation
Square, Corner of Flinders and Swanston Street, Melbourne, Victoria at 10.00am (AEDT) on Tuesday 8 October 2019. Shareholders
who are unable to attend the meeting, or who prefer to register questions in advance, are invited to submit any questions they have
by completing and returning this form.
Please return your completed question form to our Share Registrar, Computershare Investor Services Pty Limited,
GPO Box 242, Melbourne VIC 3001, or by facsimile to 1800 783 447 (outside Australia +61 3 9473 2555) by Tuesday
24 September 2019. The envelope provided for the return of your proxy form may also be used for this purpose.
You may also submit written questions to the auditor if the questions are relevant to the content of the auditor’s report or the conduct
of the audit of the fi nancial statements to be considered at the AGM.
We will endeavour, during the course of the AGM, to address the themes most frequently raised in the submitted question forms.
Please note that individual responses will not be sent to shareholders.
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.