AFIC (AFI) 2015 AGM Report

Company/ASX Code : Australian Foundation Investment Company (AFI)  ( AFI)
Venue :
10am RACV City Club,
501 Bourke Street
Melbourne, Victoria
Monitor : Mr Dennis Shore
AGM Details / NoM : Wednesday 7th October, 2015
# of Attendees : 320 shareholders and visitors
# Holdings represented by ASA : 632
Value of Proxies : $67 million
# Shares Represented by ASA : 11.5 million
Market Capitalisation : $6.6 billion

Not your average AGM

An AFIC AGM is a different experience from most; well attended with most attendees clearly having been long-term investors in AFIC and generally satisfied with how Australia’s largest listed investment company is managed. AFIC is a long term investor and more interested in the outlook for companies in which it invests in 15 years rather than next week.

This year’s result continued a generally solid trend. NPAT was up 15.5% (8% after allowing for BHP Billiton/South32 demerger benefits). Annual dividend was increased from 22 to 23 cents per share fully franked.

The meeting itself is structured differently; resolutions are dispensed with up front after which results are discussed and shareholders ask their questions. Because resolutions were “not contentious”, the Chairman elected a show of hands rather than a poll. There were no questions and no votes apparent from the floor against any resolutions, although 9.55% of proxies were against the remuneration report. The ASA supported all resolutions.  

In another point of difference to most AGMs, not only Directors who were standing for re-election addressed the meeting, all directors spoke on matters relevant to the business and the bigger picture. The wisdom and knowledge of directors left all attending with confidence that the business was in very safe hands.

The ASA had flagged concerns about auditor independence and we were invited to raise these as the first order of business. Essentially AFIC has engaged the one audit firm (PwC and its antecedents) throughout its 87 years as a business. The Audit Committee Chair and Auditor responded (apparently for the first time in this regard) with a strong defence. The Audit partner is changed every 5 years and selected by AFIC from several candidates. The Auditor is grilled by the Audit Committee to ensure a scrupulous annual audit. Those at the AGM were clearly satisfied with the response.

The company somewhat surprised shareholders by announcing a share purchase plan (maximum of $15,000 per shareholder at 5% discount to prevailing market price), which is expected to raise $150-200 million and enable AFIC to profit from its belief that many companies have been “oversold”. Perhaps courageously, the Chair identified Tuesday 29 September as the probable market low point and a good buying opportunity, of which AFIC took advantage. This fundraising adds to a 16% growth in issued shares over the past 5 years (mainly from dividend reinvestment) so the ASA questioned the sustainability of its future dividend per share. Evidence was presented that long term AFIC consistently outperforms the market so growing shareholder equity funds additional investments, which over time enhance market outperformance. QED!

AFIC has invested in several small and midcap companies as it also reduced banking and resources exposure. Although slightly underweight to the market index AFIC nonetheless holds 27.6% of its portfolio in bank shares.

So it was business as usual for AFIC with those shareholders present reassured that their investments via AFIC were as secure as they could be in a volatile market.