Teleconference/ Webcast Presentation

27 March 2020


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
Teleconference/ Webcast Presentation

Please find attached the presentation to be given at the Shareholder Teleconference/
Webcast being held today, Friday 27 March 2020 at 10.00 a.m. (AEDT).

To join the webcast please use the below link (this is available under the news
section on the Company’s website, afi.com.au).

Webcast Link: https://edge.media-server.com/mmc/p/edawvd29 (This link will open
directly in your internet browser).

Alternatively to join via the teleconference, please use the details below:

Telephone: 1800 148 258 (free call within Australia)
1300 157 230 (mobile, free call within Australia)
+61 2 8038 5271 (outside Australia)
Conference ID: 1064645

On calling the number you will be greeted by an operator. Quote “1064645” and you
will be connected to the briefing. The operator will also outline the process for asking
questions. International Dial-In Numbers will be available via the Company’s website.

The presentation is also available on the Company’s website.

ASX Release authorised by the Company Secretary, Matthew Rowe.

Shareholder Teleconference
March 2020

Shareholder Teleconference March 2020
Disclaimer
Australian Foundation Investment Company Limited and its subsidiary AICS (AFSL 303209), their related
entities and each of their respective directors, officers and agents (together the Disclosers) have prepared
the information contained in these materials in good faith. However, no warranty (express or implied) is made
as to the accuracy, completeness or reliability of any statements, estimates or opinions or other information
contained in these materials (any of which may change without notice) and to the maximum extent permitted
by law, the Disclosers disclaim all liability and responsibility (including, without limitation, any liability arising
from fault or negligence on the part of any or all of the Disclosers) for any direct or indirect loss or damage
which may be suffered by any recipient through relying on anything contained in or omitted from these
materials.
This information has been prepared and provided by AICS. To the extent that it includes any financial product
advice, the advice is of a general nature only and does not take into account any individual’s objectives,
financial situation or particular needs. Before making an investment decision an individual should assess
whether it meets their own needs and consult a financial advisor.
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Shareholder Teleconference March 2020
The Market
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Shareholder Teleconference March 2020
The Market
Oil Price
COVID-19
4
Source FactSet

Shareholder Teleconference March 2020
•
5 months since first case detected.
•
China official data suggests downward trend in new COVID-19 cases.
•
Most businesses have returned to 60%-70% of normal activity.
•
Coal consumption by power plants is back to 78% of the level in the corresponding
period last year.
•
Manufacturing activity PMI likely to rebound in March.
•
China may be the test case for how long this will play out.
•
However, a severe global recession remains the base case as we move into the next
6 months.
Isolation/shut down in China appears to be working
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Shareholder Teleconference March 2020
In perspective... the very long term returns of the Australian
share market – All Ordinaries Price Index since 1940
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Shareholder Teleconference March 2020
Dividends and the attached franking add significantly to long
term returns in the Australian market
7

Shareholder Teleconference March 2020
Volatility in equity markets is back at GFC levels
ASX 50 Implied Volatility
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Shareholder Teleconference March 2020
Long term value in the context of the recent market moves
Price to Book –
S&P/ASX 200 Index
Price to Sales –
S&P/ASX 200 Index
9
timestimes

Shareholder Teleconference March 2020
Our Approach
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Shareholder Teleconference March 2020
Investment
benefits of a
close end fund
Distributions are
after tax paid
Reserves may
help stability of
dividends
Only 66
Companies in
the Portfolio
AFIC is a long standing traditional LIC that is different to an
Index ETF i.e. S&P/ASX 200 ETF
Transparent
Shareholders
own the
Company
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Shareholder Teleconference March 2020
What we look for:
•
Sustainable competitive advantage – unique assets producing strong returns on capital
•
Strong management team and board
•
Recurring, predictable earnings are preferred
•
Financial strength – strong cash flow and balance sheet
•
Businesses that can grow over the long term, producing growing dividends
•
Nursery stocks – developing the above attributes
•
Look to buy when we see long term value
AFIC offers a diversified portfolio of quality stocks
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Shareholder Teleconference March 2020
Relative portfolio performance, including franking – per annum
returns to end February 2020
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Note the S&P/ASX 200 Accumulation Index has fallen by approximately 22% over the month of March to date.

Shareholder Teleconference March 2020
Impact of recent market moves
Estimate of NTA before tax at 13 March 2020 was $5.53 cents per share:
• A fall of 12.8% from the beginning of March to 13 March
• The S&P/ASX 200 Index fell 13.5% over the same period
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Note the S&P/ASX 200 Accumulation Index has fallen by approximately 22% over the month of March to date.

Shareholder Teleconference March 2020
Top 15 Overweight Positions in AFIC
Emerging leader in logistics solutions globally. Unique owner/
driver culture which enables long term view of investment.
Portfolio
ASX 200
Index
4.50%
NZX
listed
1.73%
4.06%
2.79%
2.54%
0.96%
3.01%
2.08%
15
2.34%
Competitive advantage in growing green energy opportunities
with a strong Return on Equity and balance sheet. Strong owner
culture.
Bunnings (60% of Wesfarmers) is a leading DIY retailer
generating very attractive growth and returns. Lowest cost and
scale provide competitive advantage. Management very focused
on growing returns on capital. Strong balance sheet.
Very unique toll road assets which benefit from population growth
and have set inflation linked pricing. Further opportunities to add
new growth projects which support long term cash flow growth.
Global Leader in consumer packaging with a strong balance
sheet and highly rated management team.

Shareholder Teleconference March 2020
1.64%
1.63%
0.65%
0.89%
1.95%
Very strong market position with broadening distribution network
and sustainable competitive advantage. Strong balance sheet.
0.60%
Not
included
0.91%
Top 15 Overweight Positions in AFIC
continued
Portfolio
ASX 200
Index
Attractive monopolistic assets which generate attractive
returns. Opportunities to invest to generate further growth.
Strong management team.
Founder led management team who have built a successful
Australian business which generates attractive returns. Seeking
to replicate this in the United States.
1.97%
0.75%
Leading manufacturer of respiratory and humidification medical
products, with a near monopoly position in humidified high flow
oxygen therapy. High quality management who have been in
the business for many years.
High quality portfolio of difficult to replicate hospital assets, with
growth driven by an ageing population. Solid financial metrics
and quality management.
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Shareholder Teleconference March 2020
1.12%
1.51%
0.99%
0.24%
0.33%
Top 15 Overweight Positions in AFIC
continued
Portfolio
ASX 200
Index
Dominant market position in Australia auto classifieds with
a growing presence in South Korea and South America.
Technology investment provides competitive advantage.
Strong management team.
1.03%
0.21%
1.55%
0.78%
0.26%
Dominant market position in the provision of online employment
classifieds in Australia and New Zealand. Emerging market
opportunities in China, South East Asia and South America.
Leading manufacturer of obstructive sleep apnea and home
respiratory products globally, with a focus on ‘connected care’.
Growth is underpinned by the large unmet need in the treatment
of sleep apnea and respiratory diseases.
Quality portfolio of difficult to replicate assets seeking to reduce
freight costs and benefit from the modal shift from road to rail.
Focused management who take a long term view.
High quality portfolio of pathology assets globally. Opportunities
to increase scale via industry consolidation. Medical leadership
culture.
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Shareholder Teleconference March 2020
Top 20 holdings as at 24 March 2020
Rank Company% of Portfolio
1
CSL 10.5%
2
Commonwealth Bank of Australia7.8%
3
BHP Group* 6.8%
4
Transurban Group 4.5%
5
Wesfarmers 4.1%
6
Westpac Banking Corporation4.0%
7
Woolworths Group 3.6%
8
National Australia Bank 3.0%
9
Macquarie Group 3.0%
10
Telstra Corporation* 2.7%
* Options were outstanding against part of the holding.
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Shareholder Teleconference March 2020
Top 20 holdings as at 24 March 2020
continued
Rank Company% of Portfolio
11
Rio Tinto 2.7%
12
Amcor2.5%
13
Australia and New Zealand Banking Group 2.4%
14
Brambles 2.1%
15
Coles Group 2.0%
16
Fisher and Paykel Healthcare2.0%
17
Sydney Airport1.9%
18
Mainfreight 1.7%
19
James Hardie Industries1.6%
20
Ramsay Health Care 1.6%
* Options were outstanding against part of the holding.
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Shareholder Teleconference March 2020
AFIC Sector Weights vs the S&P/ASX 200 Index
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Shareholder Teleconference March 2020
Major additions for the financial year to date – Investment Portfolio
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Shareholder Teleconference March 2020
Sydney Airport has seen a significant reduction in its share price
The long run passenger trajectory is very positive despite any short term setbacks
Millions of passengers
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Shareholder Teleconference March 2020
Closing Remarks
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Shareholder Teleconference March 2020
Going forward
• Duration of this health crisis is the key – severe government action will help.
• Strong likelihood of a global recession – u shaped or a v shaped recovery?
• In a world of already low interest rates, large fiscal response has been
necessary.
• Stocks are relatively cheap in comparison to bond markets – usually a good
time to buy but need to be very selective and patient.
• AFIC has a quality long term portfolio with a focus on quality balance sheets in
a period of expected economic stress.
• We have a portfolio of very strong companies that will come through this
period – history shows us economies and markets will recover.
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