Public

AFIC (AFI) 2015 AGM Voting Intention

Company/ASX Code : Australian Foundation Investment Company (AFI)  ( AFI)
Registry : Computershare Services
Poll/Show of Hands : Proposed poll on all items
Webcast : No
Venue :
10am RACV City Club,
501 Bourke Street
Melbourne, Victoria
Monitor : Mr Dennis Shore
AGM Details / NoM : Wednesday 7th October, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reoprts

This year’s result was a continuation of a trend of generally solid performance. There was a significant increase in profit. NPAT was up 15.5% to $293.6 million, although after allowing for a non-cash benefit from the BHP Billiton/South32 demerger there was an underlying improvement of 8% from investments. The dividend per share was increased from 22 cents per share to 23 cents per share (cps), for the year fully franked. It is expected that the first half dividend in the current financial year will increase by an additional 1 cent per share. Total shareholder return equated to an improvement of 2.8% on a total portfolio of $6.6 billion, up slightly from $6.4 billion in the previous year.

EPS based on the net operating result was 27.2cps (up from 24.4 cps last year). These results are built on a continuing growth in the number of shareholders over the past five years; nearly 16% over that period, mainly as a result of dividend reinvestment. 

AFIC's objectives and strategy are simple; to provide shareholders with attractive investment returns through access to a steady stream of fully franked dividends and enhancement of capital invested. Investment goals are to pay dividends (which grow at a rate faster than inflation) and to provide attractive total returns over the medium to long term. This objective has been realized over a 10 year period with total returns (share price growth plus franked dividends) significantly outstripping the S&P/ASX 200 accumulation index.

The results are achieved on the backing of a low fee structure, with the management expense ratio in 2015 falling to 0.16 percent of assets from 0.17 the previous year.


ASA Position
For
Item 2: Adoption of Remuneration Report

The remuneration policy complies substantially with the spirit of the ASA policy. Overall executive salaries are reasonable and incentives are based on measured results. The structure of the AFIC remuneration policy reflects the nature of the business and the report is clearly presented. In this regard actual remuneration outcomes are shown as well as statutory outcomes. Most executives received a little less in 2015 than in 2014 despite a modest increase in fixed annual remuneration, due to lower incentive payments. Actual remuneration was less than statutory remuneration.

Executives participate in the Executive Annual Incentive Plan and Executive Long Term Incentive Plan (ELTIP). Members of the Investment Team have a different criteria but with a similar structure. The Annual Plan comprises an award in cash, subject to the achievement of performance hurdles over a four year period. However, executives (other than the CIO) agree to invest 50% of the annual incentive (after tax) received in AFIC shares and shares of the other related investment companies, and hold these shares for a minimum of two years. The performance hurdles under the ELTIP are company performance – 43% (relative total shareholder return over different periods) and investment performance criteria – 37% (relative investment return, gross return and risk/reward return) as well as some personal objectives -20%. 

The ELTIP plan vests after 4 years and has no retesting. It is based on total gross shareholder return and total portfolio return. There are differences in emphasis for the Investment Team.

Consistent with ASA policy, all directors are required to secure a shareholding in the company of at least one year’s director’s fees within 4 years of joining the Board. 


ASA Position
For
Item 3: Re-election of Mr Graeme Liebelt as a Director

Mr. Liebelt is appropriately qualified and experienced and has a manageable workload. He is Chairman of Amcor, a leading Australian based international company and a Director of ANZ Banking Group and so complies with ASA policy in this regard. He has been a director of AFIC for 3 years and brings with him considerable executive experience as well as non-executive capability.


ASA Position
For
Item 4: Re-election of Mr Terrance Campbell AO as a Director

Mr Campbell has been a director of AFIC for 30 years and Chairman for 2 years. His background as Chair and CEO of Goldman Sachs JBWere qualifies him well for his current role as does his position as Senior Chairman of Goldman Sachs Australia and New Zealand. 

In our view Mr Campbell cannot be considered an independent director but the ASA is mindful of the origins of this company and its business model. In this context we are not opposed to Mr. Campbell’s re-election. 


ASA Position
For
Item 5: Renewal of Partial Takeover approval Rules

The company seeks to renew for a further 3 years rules 79 and 80 in the company’s constitution that were approved at the company’s AGM in 2012.

The effect of these rules is that in the event of a partial takeover bid being made for AFIC this resolution requires the offer to be put to a meeting of shareholders so that they can vote on approving or not approving the offer before it can proceed.

ASA believes that this is a sensible precaution to have in the company’s constitution. We have supported this resolution in the past.



 



The individual (or their associates) involved in the preparation of this voting intention has a shareholding in this company. 


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