For personal use only EXPERIENCE INCOME GROWTH

Transcription

1 For personal use only EXPERIENCE INCOME GROWTH Half-Year Review to 31 December 2013

2 For personal use only The Company aims to provide shareholders with attractive investment returns through access to a steady stream of fully franked dividends and enhancement of capital invested. The Company s primary investment goals are: To pay dividends which, over time, grow faster than the rate of inflation. To provide attractive total returns over the medium to long term. Contents 1 Half-Year in Summary 2 Review of Operations and Activities 10 Top 25 Investments 11 Income Statement 12 Balance Sheet 13 Summarised Statement of Changes in Equity 14 Holdings of Securities 19 Major Transactions in the Investment Portfolio 20 Company Particulars 21 Shareholder Meetings Australian Foundation Investment Company Limited ABN

3 For personal use only HALF-YEAR IN SUMMARY Profit for the half-year $137.0m Up 3.7% from 2012 Total 6 Month Shareholder Return +17.2% Share price plus dividend Net Operating Result $137.0m Up 10.8% from 2012 Management Expense ratio 0.18% 0.20% last year Annualised FULLY FRANKED INTERIM DIVIDEND 8.0 Unchanged Total Portfolio $6.3b Including cash at $5.4 billion in 2012 Total 6 Month Portfolio Return +14.3% S&P/ASX 200 Index +14.0% Australian Foundation Investment Company Limited Half-Year Review to 31 December

4 REVIEW OF OPERATIONS AND ACTIVITIES Investors continued to embrace equity markets as returns from alternative asset classes such as fixed interest remained unattractive and investor confidence improved on the back of positive signs in the global economy, particularly in the US. In the strongly rising market, AFIC s portfolio return was 14.3 per cent over the six months to 31 December 2013 compared with the S&P ASX 200 Index of 14.0 per cent. The 12 month return for AFIC was 22.0 per cent per annum versus the Index return of 20.2 per cent per annum. AFIC s return numbers are after expenses and tax paid. Major bank holdings and other high yielding stocks such as Telstra and Wesfarmers were the key contributors to the portfolio performance over the six month period along with the recovery in BHP Billiton and Rio Tinto share prices over the half. Figure 1 highlights the annual returns across the major sectors of the market over the six months to 31 December The positive view toward the equity market was also reflected in the strong performance of the AFIC share price which was up in excess of the portfolio performance over the six and 12 month periods to 31 December The demand for AFIC shares has also seen the share price move to an 8 per cent premium above net asset backing and an increase in shareholder numbers, which are now over 100,000. Figure 1: Comparative changes in sector returns % change 20% 16% 12% 8% 4% 0% -4% Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 personal use only % ASX 200 Industrials % ASX 200 Resources % ASX 200 Financials 2 For

5 Profit and Dividend Profit for the half-year was $137.0 million up 3.7 per cent from $132.1 million last half-year. Last year s profit figure included $8.3 million of after tax gains in market value of Hastings Diversified Utilities Fund which was taken over. This was more than countered by dividends of $11.0 million received from Amcor and Brambles this year as part of the demerger of Orora and Recall respectively. The net operating result which measures the underlying income generated by the portfolio was $137.0 million, up from the previous year s result of $123.7 million. The interim dividend has been maintained at 8 cents per share fully franked. Figure 2: Portfolio and share price performance to 31 December 2013* 14.3% 17.2% 14.0% 22.0% 20.2% 10.6% 12.9% 8.9% 13.7% 14.5% 12.5% 10.4% 11.1% 9.6% 28.3% For personal use only 6 months 1 year return 3 year return 5 year return 10 year return Net asset per share growth plus dividends Share price growth plus dividends S&P/ASX 200 Accumulation Index Note: AFIC s net asset per share growth plus dividend series is 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. This chart does not include the benefit of franking credits attached to dividends paid by AFIC and any LIC capital gain distributions made. *All figures are annualised other than six month returns. Australian Foundation Investment Company Limited Half-Year Review to 31 December

6 personal use only REVIEW OF OPERATIONS AND ACTIVITIES continued Figure 3: Earnings per share vs dividends per share FY 2011 FY 2012 FY 2013 FY 2014 Earnings per share first half Dividends per share first half Earnings per share second half Dividends per share second half Note: Earnings per share figure is based on net operating result per share. 4 For

7 For personal use only Investment Portfolio In a market where many quality companies in the portfolio were priced relatively highly, our activities in such holdings were generally restricted to participation in capital raisings and dividend reinvestment plans. In addition whilst a number of IPOs came to the market toward the latter part of the six months, AFIC did not participate in these, either because we believed the prices were too high or we could not obtain a holding of reasonable size because of strong demand for the float. Major transactions centred on the addition of a number of new companies, including Washington H Soul Pattinson, Twenty-First Century Fox, TPG Telecom, James Hardie Industries and ResMed. Details of these new companies are: Washington H Soul Pattinson is a listed investment company with a diverse portfolio of investments including coal mining, building materials, telecommunications, pharmaceuticals and other listed equities. Twenty-First Century Fox is a diversified global media and entertainment company with operations in Cable Network Programming, Television, Filmed Entertainment and Direct Broadcast Satellite and Television. The activities of Twenty-First Century Fox, Inc. are conducted principally in the United States, the United Kingdom, Continental Europe, Asia and Latin America. TPG Telecom is a provider of a diverse range of communication services to residential users, small and medium enterprises, government and large corporate enterprises. The company owns and operates its own domestic network infrastructure and an international submarine cable connecting Australia and Guam. James Hardie manufactures fibre cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. The company s fibre cement products are used in a number of markets, including new residential construction, manufactured housing, commercial and industrial applications. ResMed designs, manufactures and markets medical equipment for diagnosing, treating and managing sleep-disordered breathing and other respiratory disorders. The takeover of AFIC s holding in Trust Company by Perpetual also resulted in us receiving additional Perpetual shares as part of the consideration. Larger sales included some Telstra shares because of the exercise of call options and the balance of our investment in GUD Holdings. Australian Foundation Investment Company Limited Half-Year Review to 31 December

8 REVIEW OF OPERATIONS AND ACTIVITIES continued Figure 4 highlights the profile of the total portfolio by the various sectors of the market at the end of the calendar year. Outlook The domestic economy is facing a period of transition with declining levels of investment spending in the resources sector, further fiscal tightening, and low levels of business and consumer confidence likely to produce subdued growth. Whilst ongoing low interest rates and a lower Australian dollar may provide some support to economic activity, the key to generating sustained growth will be reforms that lead to a meaningful improvement in productivity and business confidence. Against this backdrop and with a price earnings ratio well above the average (Figure 5) we perceive the Australian equity market to be currently fully valued. We remain on the lookout for attractive long term investment opportunities but are prepared to be patient at this point. Directorship Matters As part of the ongoing process of Board renewal that had been previously outlined to shareholders, Terry Campbell was appointed as Chairman of the Company following the retirement of Bruce Teele at the Annual General Meeting. Figure 4: AFIC investment by sector as at 31 December % 19.0% 9.9% 8.9% 8.4% 7.4% 4.7% 3.2% 2.5% 2.3% 1.9% 1.6% 0.9% Financials Materials Consumer Staples Energy Other Financials Industrials Telecom Services Healthcare Cash Utilities Information Technology Property Trusts Consumer Discretionary personal use only 6 For

9 Two new Non-Executive Directors were also appointed to the Board during the period, Jacqueline Hey on 31 July 2013 and David Peever on 20 November In her executive career Jacqueline spent 23 years in the telecommunications, technology and IT industries in Australia and internationally. From 2004 to 2008 Jacqueline was Managing Director, Ericsson UK and Ireland and from 2008 to 2010 Managing Director, Ericsson Australia and New Zealand. She is currently a Director of Bendigo and Adelaide Bank, Qantas and the Special Broadcasting Service. She is also a Director of Cricket Australia and is the Honorary Consul for Sweden in Victoria. As well as her particular expertise in telecommunications, technology and IT Jacqueline also has a breadth of experience in local and international organisations and in strategic, corporate governance and policy issues For personal use only Figure 5: Market price to earnings ratio Avg 13.4% Source: Factset. Australian Foundation Investment Company Limited Half-Year Review to 31 December

10 personal use only 8 For

11 For personal use only REVIEW OF OPERATIONS AND ACTIVITIES continued David Peever has been Managing Director of Rio Tinto Australia of Rio Tinto Limited since October David has been with Rio Tinto since 1987 working in an extensive range of senior roles including sales and marketing, business analysis, industrial relations, mining operations, continuous improvement and human resources. Before his current role, he was Managing Director of Rio Tinto Marine. Prior to joining Rio Tinto, David was Principal Economist with the Queensland Coal Association. David is Senior Vice Chairman of the Minerals Council of Australia and is a Director of the Business Council of Australia, Melbourne Business School and Cricket Australia. His depth of knowledge across all aspects of business and the resources industry both in Australia and internationally will be of great assistance to the Board. We are delighted to welcome Jacqueline and David to the Board. Australian Foundation Investment Company Limited Half-Year Review to 31 December

12 personal use only TOP 25 INVESTMENTS As at 31 December 2013 Includes investments held in both the investment and trading portfolios. Valued at closing prices at 31 December 2013 Total Value $ Million % 1 Commonwealth Bank of Australia Westpac Banking Corporation BHP Billiton* National Australia Bank* Wesfarmers Teltra Corporation* Australia & New Zealand Banking Group Rio Tinto* Woolworths Oil Search* Amcor Woodside Petroleum Santos* Transurban Group Brambles Origin Energy* Computershare AMP* QBE Insurance Group* AGL Energy APA Group Orica* CSL* Coca-Cola Amatil Ramsay Health Care* Total 5,010.0 As a percentage of total portfolio value (excludes cash) 81.0% * Indicates that options were outstanding against part of the holding. 10 For

13 For personal use only INCOME STATEMENT For the half-year ended 31 December 2013 Half-Year 2013 Half-Year 2012 Dividends and distributions 144, ,042 Revenue from deposits and bank bills 3,331 3,549 Other revenue 4 - Net gains on trading portfolio (including unrealised gains or losses) 5,545 6,544 Total income 153, ,135 Finance costs (10,591) (10,510) Administration expenses (net of recoveries) (5,131) (4,709) Operating result before income tax 138, ,916 Income tax (1,156) (258) Net operating result 136, ,658 Net gains on puttable instruments and non-equity investments* 76 12,095 Tax expense on above (23) (3,628) 53 8,467 Profit for the half-year 137, ,125 Cents Cents Net operating result per share Profit for the half-year per share * Consists of investments in Hastings Diversified Utilities Fund (sold during the year ended 30 June 2013) and Peet convertible notes. Australian Foundation Investment Company Limited Half-Year Review to 31 December

14 personal use only BALANCE SHEET As at 31 December Dec June 2013 Current assets Cash 160, ,440 Receivables 8,254 52,271 Trading portfolio - 50,019 Total current assets 168, ,730 Non-current assets Fixtures and fittings Investment portfolio 6,191,081 5,360,906 Deferred tax assets 1,405 1,332 Total non-current assets 6,192,626 5,362,444 Total assets 6,360,903 5,721,174 Current liabilities Payables 6,553 9,334 Tax payable 3,166 8,487 Borrowings 100, ,000 Provisions 1,655 2,553 Trading portfolio (options) 3,595 - Interest rate hedging contracts 893 1,493 Total current liabilities 115, ,867 Non-current liabilities Provisions 1,372 1,310 Convertible notes 219, ,544 Deferred tax liabilities investment portfolio 939, ,761 Total non-current liabilities 1,160, ,615 Total liabilities 1,276,411 1,094,482 Net assets 5,084,492 4,626,692 Shareholders equity Share capital 2,031,459 2,002,178 Revaluation reserve 2,225,939 1,801,692 Realised capital gains reserve 313, ,243 General reserve 23,637 23,637 Interest rate hedging reserve (893) (1,493) Retained profits 490, ,435 Total shareholders equity (including minority interests) 5,084,492 4,626, For

15 For personal use only SUMMARISED STATEMENT OF CHANGES IN EQUITY For the half-year ended 31 December 2013 Half-Year 2013 Half-Year 2012 Total equity at the beginning of the half-year 4,626,692 3,951,490 Dividends paid (143,800) (133,605) Dividend Reinvestment Plan/convertible notes 29,237 27,844 Other share capital adjustments Total transactions with shareholders (114,519) (105,698) Profit for the half-year 137, ,125 Revaluation of investment portfolio 621, ,299 Provision for tax on revaluation (187,006) (187,341) Revaluation of investment portfolio (after tax) 434, ,958 Net movement in fair value for interest rate swaps 600 (259) Total comprehensive income for the half-year 572, ,824 Realised gains on securities sold 10,083 25,515 Tax (expense)/credit on realised gains on securities sold 407 (16,259) Net realised gains on securities sold 10,490 9,256 Transfer from revaluation reserve to realised gains reserve (10,490) (9,256) Total equity at the end of the half-year 5,084,492 4,404,616 A full set of AFIC s final accounts are available on the Company s website. Australian Foundation Investment Company Limited Half-Year Review to 31 December

16 personal use only HOLDINGS OF SECURITIES At 31 December 2013 Individual investments for the combined investment and trading portfolios as at 31 December 2013 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 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 000 Market Value AGK AGL Energy 5,083 76,400 AHD Amalgamated Holdings 775 6,347 AIO* Asciano 2,315 13,236 ALQ ALS Limited 4,826 42,520 AMC Amcor 12, ,716 AMP* AMP 20,644 90,610 ANN Ansell 1,272 26,282 ANZ Australia & New Zealand Banking Group 8, ,559 APA APA Group 11,643 69,860 APE AP Eagers 325 1,611 ARP ARB Corporation 583 6,830 ASX* ASX Limited ,077 AWC Alumina 14,323 15,970 AZJ* Aurizon Holdings 2,980 14,409 BGA Bega Cheese 2,203 9,957 BHP* BHP Billiton 14, ,884 BKL Blackmores For

17 For personal use only Code Ordinary Shares, Trust Units or Stapled Securities Number Held 000 Market Value BKN Bradken 6,000 36,180 BKW Brickworks 1,478 21,135 BLD Boral 4,008 19,121 BRU Buru Energy 3,365 5,889 BXB Brambles 11, ,238 CBA Commonwealth Bank of Australia 8, ,970 CCL Coca-Cola Amatil 5,160 62,075 CFX CFS Retail Property Trust 19,000 36,955 CPU Computershare 8,156 92,819 CSL* CSL ,177 CSR CSR 2,492 6,604 CTX Caltex Australia ,133 CWP Cedar Woods Properties 3,860 29,492 DJW Djerriwarrh Investments 8,597 41,091 DLX Duluxgroup 2,509 13,449 DUI Diversified United Investment 12,030 42,467 EQT Equity Trustees ,653 FBU Fletcher Building 1,115 8,620 FOX* Twenty-First Century Fox ,811 GWA GWA Group 4,500 13,680 IAG* Insurance Australia Group 4,255 24,726 ICQ icar Asia 1,100 1,001 ILU Iluka Resources 2,367 20,427 IPL Incitec Pivot 21,209 56,841 IPP iproperty Group 4,000 7,760 IRE IRESS Market Technology 2,709 25,577 IVC Invocare 1,279 14,121 JHX James Hardie ,646 Australian Foundation Investment Company Limited Half-Year Review to 31 December

18 personal use only HOLDINGS OF SECURITIES continued At 31 December 2013 Code Ordinary Shares, Trust Units or Stapled Securities Number Held 000 Market Value MIR Mirrabooka Investments 8,728 24,787 MLT Milton Corporation 14,403 60,924 NAB* National Australia Bank 9, ,692 ORA Orora 12,864 14,922 ORG* Origin Energy 7, ,000 ORI* Orica 2,768 66,024 OSH* Oil Search 16, ,604 PPT Perpetual 1,031 49,760 QBE* QBE Insurance Group 7,796 89,578 QUB Qube Holdings 2,600 5,382 REC Recall Holdings 2,235 9,073 RHC* Ramsay Health Care 1,443 62,052 RIO* Rio Tinto 3, ,915 RMD ResMed 2,200 11,660 SEK Seek ,331 SHL* Sonic Healthcare 1,675 27,650 SOL Washington H Soul Pattinson 1,709 24,962 STO* Santos 7, , For

19 For personal use only Code Ordinary Shares, Trust Units or Stapled Securities Number Held 000 Market Value SUN* Suncorp Group 2,042 26,596 SXY Senex Energy 46,717 34,571 SYD Sydney Airport 6,575 24,985 TCL Transurban Group 16, ,613 TGG Templeton Global Growth Fund 8,070 11,460 TLS* Telstra Corporation 53, ,330 TOL Toll Holdings 8,133 46,193 TOX Tox Free Solutions 10,661 37,208 TPM TPG Telecom 3,110 16,545 TWE Treasury Wine Estates 3,206 15,451 WBC Westpac Banking Corporation 18, ,489 WDC Westfield Group 4,243 42,808 WES Wesfarmers 7, ,645 WOR Worleyparsons 310 5,146 WOW Woolworths 6, ,335 WPL Woodside Petroleum 3, ,704 WRT Westfield Retail 6,700 19,899 Total 6,172,652 * Indicates that options were outstanding against part of the holding. Australian Foundation Investment Company Limited Half-Year Review to 31 December

20 personal use only HOLDINGS OF SECURITIES continued At 31 December 2013 Code Convertible Notes, Preference Shares and Other Interest Bearing Securities Number Held 000 Market Value PPCG Peet 9.5% convertible notes 26 2,701 RHCPA Ramsay Health Care Convertible Adjustable Rate Equity Securities ,133 Total 14, For

21 For personal use only MAJOR TRANSACTIONS IN THE INVESTMENT PORTFOLIO Cost Acquisitions (Above $5 Million) Wesfarmers (a) 57,675 Washington H Soul Pattinson 23,317 Perpetual (b) 18,383 Twenty-First Century Fox 16,005 TPG Telecom 13,719 James Hardie Industries 13,466 ResMed 12,072 CSL 7,562 Telstra Corporation 7,021 Rio Tinto 6,536 Caltex Australia 5,781 iproperty Group 5,675 Qube Holdings 5,186 Insurance Australia Group 5,158 Treasury Wine Estates 5,058 Cost New Holdings as a Result of Demergers Orora 15,697 Recall Holdings 9,701 Proceeds Disposals (Above $5 Million) Wesfarmers PPS (a) 57,675 Trust Company (c) 18,383 GUD Holdings 7,854 Telstra Corporation 7,737 (a) Conversion of WES partially protected securities (WESN) to WES ordinary shares. (b) Received as consideration in the takeover of Trust Company. (c) Takeover by Perpetual Limited. Australian Foundation Investment Company Limited Half-Year Review to 31 December

22 personal use only COMPANY PARTICULARS Australian Foundation Investment Company Limited ( AFIC ) ABN AFIC is a listed investment company. As such it is an investor in equities and similar securities on the stock market primarily in Australia. Directors Terrence A Campbell AO, Chairman Ross E Barker, Managing Director Jacqueline C Hey Graeme R Liebelt John Paterson David A Peever Fergus D Ryan AO Catherine M Walter AM Peter J Williams Company Secretaries Simon M Pordage Andrew JB Porter Auditor PricewaterhouseCoopers Chartered Accountants Country of Incorporation Australia Registered Office Level 21, 101 Collins Street Melbourne Victoria 3000 Mail Address Mail Box Collins Street Melbourne Victoria 3000 Contact Details Telephone (03) Facsimile (03) invest@afi.com.au Website For enquiries regarding net asset backing (as advised each month to the Australian Securities Exchange): Telephone (toll free) Securities Registrar Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street Abbotsford Victoria 3067 Shareholder Enquiry Lines (Australia) (from New Zealand) (from overseas) Facsimile (03) Website Share Registrar For all enquiries relating to shareholdings, dividends and related matters, please contact the share registrar in your country. Australian and New Zealand Securities Exchange Codes AFI Ordinary shares (ASX and NZX) AFIG Unsecured convertible notes (ASX) 20 For

23 For personal use only Shareholder Meetings Melbourne Meeting Time 10.00am Date Tuesday 11 March 2014 Venue RACV City Club Location 501 Bourke Street Melbourne Canberra Meeting Time 10.00am Date Monday 17 March 2014 Venue Hyatt Hotel Canberra Location 120 Commonwealth Avenue Yarralumla Sydney Meeting Time 10.00am Date Tuesday 18 March 2014 Venue Sheraton on the Park Location 161 Elizabeth Street Sydney Adelaide Meeting Time 10.00am Date Monday 24 March 2014 Venue Adelaide Festival Centre Location King William Road Adelaide Perth Meeting Time 10.00am Date Monday 31 March 2014 Venue Pan Pacific Perth Location 207 Adelaide Terrace Perth Australian Foundation Investment Company Limited Half-Year Review to 31 December

24 For personal use only Designed and produced by MDM Design. Printed on environmentally friendly paper.