AMCIL Limited (AMH) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen. My name is Rupert Myer. And as Chairman of your company, it's my great pleasure to welcome you to the 27th Annual General Meeting of Amcil Limited. The Company Secretary has confirmed that a quorum is present, and I now open the meeting. I'd like to begin by acknowledging the traditional owners of the land on which we meet here in Melbourne, the lands of the Kulin Nations and the lands that others online are meeting on, and I pay respects to elders, past, present and emerging. We're really delighted that so many of you have joined today in person and online and welcome your participation and discussion at today's hybrid Annual General Meeting, which is in person and online. It's terrific to be back in 3 dimensions again and really delighted for those of you who've traveled from across Melbourne, from outside of Melbourne, even all the way from the city to join us here today. And for those of you online, thank you for being present, and thank you for making your way through the technology to be part of today's meeting as well. And we will be alternating between online and those in the room when it comes to questions. May I introduce the people on stage with me. We have our Managing Director, Mark Freeman.

Good afternoon.

My fellow nonexecutive directors, Jodie Auster.

Good afternoon.

Roger Brown.

Good afternoon.

Mike Hirst.

Hi.

Siobhan McKenna and Jon Webster. We also have our company Secretary, Matthew Rowe.

Good afternoon.

Our Chief Financial Officer, Andrew Porter.

Good afternoon.

And our General Manager of Business Development and Investor Relations, Geoff Driver.

Good afternoon.

In due course, we'll be hearing from portfolio manager, Kieran Kennedy, we're also -- who's sitting there for the moment. And we are also joined by other members of the investment team this afternoon in the front row of the audience alongside where Kieran is seated. I also take the opportunity to introduce Nadia Carlin, partner of the company's auditors, PricewaterhouseCoopers, who is available to answer questions today and -- both on the audit and the preparation and content of the auditor's report at the end of the presentation that includes that item. Nadia has been our audit engagement partner for 5 years. And as per the legal requirements, this is her last AGM as our engagement partner, and we thank her for her assistance over the years and welcome her successor, Kate Logan, who is also present today. Today's meeting is being held in this hybrid format. This is a relatively new invention. Last year, you will know it was entirely online. And this year, we're going with both formats. So today's presentation has been released to the ASX and has also been made available on the company's website. I remind shareholders using the online platform that whilst questions can be submitted at any time, I'll not address them until the relevant time in the meeting. [Operator Instructions] Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. To cast your vote, simply select one of the options. There's no need to hit or submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. I now declare the online voting open on all items of business. I will give you a warning before I move to close voting. Moving on to the business of the meeting. I will take the notice of meeting as read. With regard to the minutes of the 26th Annual General Meeting, they have been signed as a correct record and are available to all shareholders for inspection today. The first item is the consideration of the financial statements and reports for the year ended 30th of June 2022. We will do this via our presentation, after which I will ask shareholders to comment or to raise any questions either about the presentation or of the auditors if they have any questions about the audit. So I will now pass to our Managing Director, Mark Freeman, to start the presentation. Mark?

Thanks, Rupert, and good afternoon to everyone here. It's great to be able to be here in person for the first time in a couple of years, and this is a very important part of our process is to make ourselves available to shareholders. And as I said, we'd rather do this in person. It's a chance for you to meet us, meet the Board, meet the investment teams, so I'd encourage you to interact with everyone as much as possible after the meeting. This is an important part of us understanding your views, but also accountability is a big part of it as well. So if you move into the presentation, we just start with a disclaimer just to say that we're here to talk about the company, not giving any advice. If we just move to the next slide. So I'll just talk through a few slides talking through what Amcil is about, and then I'll pass over to Kieran to talk in more detail about the portfolio. So some of the key benefits of investment in Amcil, we're looking for consistency of long-term returns. We talk about alignment of interest in that there is a comparatively low management cost with no performance fees. And we are seeking to be tax effective. We do this by being low turnover and having a long-term investment approach. So in considering our investment approach, these are at the core of our process and at the core of the way we consider company. So we're seeking to invest in high-quality companies and the way we define that is that businesses that have an industry leadership position or are developing one that have a unique set of assets that are hard to replicate, -- that have a conservative balance sheet. We always steer away from companies that are too highly geared. You always end up getting into trouble, we are wary of companies that have external risk factors that can impact the business. We prefer companies with more consistent earnings streams. And the one that I was always taught on day one, investing is about the people. So we want to invest in companies that are run by effective, passionate management teams with ownership alignment, and that should always be a nonnegotiable. So why does this matter? Well, the outcomes of those attributes that we're looking for in companies, we think it derives or produce competitive advantages in the business in which we invest. This will lead to higher return on capital. It allows a company to reinvest in opportunities to drive their growth, capture market share, which will further enhance their leadership position, and these will deliver superior long-term shareholder wealth. An important part of the process, though, in what we do is not just about recognizing the attributes of good businesses, but it's also critical that when we buy these companies, we buy when we see long-term value. So just moving to the next slide. We just want to touch on ESG. I guess in a way, we don't see ESG as a really stand-alone element. It's embedded in the way we think about companies. So elements of those are key inputs because we want to be in companies that have sustainability to their business model. And so there are, for example, the environmental factors that we think are going to impact the viability of the business in the long term. That's one of our key inputs, the sustainability of the business. We've always been about investing in companies with strong governance practices and processes, and these would include consideration of environmental and social risks. And we always review companies for alignment with our investment frameworks. We engage heavily with the companies in which we invest, and part of that is voting on resolutions. We evaluate shareholder resolutions. We do take input from a proxy adviser, but that's more to get information. At the end of the day, the investment committee, along with the investment team, we vote and consider all matters and vote on them. If we're uncomfortable with what we're seeing, then we engage heavily with the companies to make sure that the way they're hitting or the way they're taking the business is in line with shareholders' interest. So with those opening comments, I'll pass over to Andrew Porter, yes, I think to talk about the financial year in summary.

No, that's quite right, people. I think far more interested to hear what portfolio manager has to say. So I shall be brief. I promise. Thank you, Mark. Good afternoon, ladies and gentlemen, and I echo the comments of the Chairman and Mark. It is very good to see so many familiar faces again. So the year just passed, the first figure in the top left corner is the profit for the year. Now this profit figure has actually been distorted by the fact that we had to account for the Woodside shares that we received from the BHP Petroleum merger as a dividend. And having said that last year's figure was also distorted by the theoretical dividend received as Endeavour shares from the demerger from Woolworths. So if we exclude all of this noise, the underlying profit was $6.1 million, up 32% from $4.6 million last year. This profit was equivalent to $0.02 per share roughly. So as has been the case with Amcil in the past, the dividend paid for the year was more than the profit for the year, thanks to some realized gains on investments. Shareholders will also recall that Amcil paid an interim dividend. So total dividends for the year were $0.035. And just to remind shareholders of the revised dividend policy. Amcil is seeking to grow shareholders' wealth, as Mark has outlined, through the reinvestment of realized gains made as well as through fully franked dividends. So as a result of this revised policy, not all profits from these sales are being paid out as franked dividends, which was the case in the past. Dividends are, of course, an important part of shareholder return, but the Board is now looking to balance that with portfolio growth. We have been asked in writing about the dividend yield. Now the dividend yield is the dividend as a percentage of the share price. So if the dividend goes up or the share price goes down, the yield will go up. For an LIC such as Amcil, however, the yield should really be looked at as a percentage of the net asset backing, but the theory is still the same. If that net asset backing goes down and dividends stay the same, the yield will go up. We have some updated portfolio return figures later. And I should note that this is just a one-year figure. So I'll move to the shareholder return figure, which is in the top right-hand corner, which is the share price movement plus the dividend. You'll note that this is better than the portfolio return for the year. Hence, Amcil's share price moved from a discount to a premium and more on that in a minute. Sorry, can we go back to the previous slide? Thank you. The MER or management expense ratio is the total cost of running the company as a proportion of the average portfolio value over the year. So 0.52% is equivalent to $0.52 for every $100 invested. Now we regularly review the ratios for similar-sized and similar-themed investment entities. And we think that Amcil's MER continues to be very competitive. Just a reminder that AICS, which is the company that employs all of the staff that work for Amcil is owned by the other LICs in the group, and Amcil receives back from AICS its share of any profit that AICS makes. So the expenses that Amcil are charged and incurs really are simply the costs of running the company. Expenses were actually marginally higher in the year. But interestingly, the market moves last year were so sudden that the average value over the whole year was higher in 2022 than it was in 2021 despite, as you can see, the position at the end of June of $328.3 million being substantially lower than the previous year of just under $383 million. And that explains in large part why that MER has come down for the year. But what this means is that if expenses were to stay the same, but the average portfolio value remains below last year's figure, the MER would increase, but we will, of course, just have to see how the market fares over the rest of the year. If we can move to the next slide, please. You can see that the share price has been trading at a premium to the net asset backing for some time now. This means that a new investor is paying slightly more for the assets of a company than its net assets are worth, but this premium is small. And as shareholders and other LICs will appreciate, this premium discount trading affects all LICs and it's not really something that we can control. So with that, I will now hand over to Kieran. Thank you.

Thank you, Andrew, and good afternoon, everyone. My name is Kieran Kennedy and as portfolio manager of Amcil, I'm going to briefly cover current equity market conditions and how they relate to our investment strategy, portfolio performance and recent portfolio management decisions, before looking at some key features of the Amcil portfolio with a particular focus on market leadership and finishing with some outlook comments. So on Slide 15, the sudden and sharp reemergence of inflation after decades of absence is dominating the equity market and economic landscape. Examples on this slide of significant double-digit increases in everyday items that form a significant share of the consumer wallet, highlight the pervasive impact of this inflation challenge, both in Australia and also occurring more acutely in many regions around the world. For employees and pensioners, these increases reflect a significant real income reduction. Central banks, while slow to respond initially, are now particularly focused on avoiding a perpetuating wage spiral, which is seeing them take sharp steps in increasing interest rates back to more normal levels and long-term averages. These real income pressures are occurring alongside particularly negative news on financial headlines as outlined on Slide 16. War and geopolitical tension, inflation and recession, energy supply in crisis and an ongoing pandemic are closing people, including I'd expect many of you in this room, to question not only the health of their current finances against this inflation challenge, but also the investments they have in their portfolio to secure their longer-term future. Looking at the historical track record of equity markets with the ASX highlighted on Slide 17 highlights the ability of equities to generate attractive long-term returns despite having weathered multiple wars and financial crises before. The volatility caused by such events is an unavoidable reality as is evident in this chart. But the 9% per annum return of the ASX 200 index, including dividends, has returned since inception in 1992. The accumulation index highlights the value of staying long term and staying the course as these events invoke fear in markets. On Slide 19, when we look to medium to long-term figures beyond 3 years, we can see that Amcil and the ASX 200 benchmark have produced figures similar to the 9% discussed on the prior slide, noting that this slide grosses these numbers up for franking credits. In assessing our performance against our benchmark, we are pleased to continue to demonstrate our performance since Amcil recapitalized under its current strategy in 2004. We note that a 1.9% per annum outperformance after fees compounded for 18 years has generated meaningful value for investors from that time. We're also conscious of the questions that the 15% underperformance on a one year till 31st of August invokes. I'll address this specifically on significant -- on subsequent slides. Importantly, despite the inclusion of this challenging year of underperformance, we are still able to show outperformance on both the 3- and 5-year view. So on to Slide 20 and a discussion about our recent underperformance. While we clearly didn't get everything right in terms of investment decisions and the delivery of profit results from the stocks we have chosen for the portfolio over the last 12 months, this is common in any portfolio of 35 stocks in any year and is not the main driver of the underperformance shown. The key drivers relate to portfolio-specific as well as market factors. In terms of the portfolio, a period marked by strong recent performance and higher starting valuations of key holdings, created a significant performance drag as many of these valuations retrace together with interest rates increasing. As long-term tax-aware investors, we generally allow preferred long-term holdings to compound even as they reach a fully valued assessment. We view this as a critical element of capturing the full long-term compound benefit of only a great business, particularly when factoring in tax. We do respond to valuation extremes, however, and in a buoyant market, such as we saw in late 2021, taxable gains were realized across the portfolio, driven more by the size of the gains and a pickup in the portfolio turnover. The franking accumulated, but not yet paid to shareholders as a result of realizing these gains, created a performance drag of approximately 2.8% over the last 12 months. Now this is a calculation factor because as these franking credits are paid out in future periods, the performance is recovered in the portfolio, but it is a drag in this period. Market factors at play where that as attractive long-term growth businesses were being marked down more significantly with other companies, which is what happens when interest rates rise, we concurrently saw resource, energy and utility stocks appreciate very strongly as supply challenges emanating from the war in Ukraine and other restrictions around the world saw commodity prices run higher in these stocks. Our investment approach clearly sees us overweight, long-term growth companies and underweight these cyclical resource companies. On Slide 21 and 22, we attempt to provide context to this performance divergence and our long-term preference among these stocks. Slide 21 highlights 6 core Amcil portfolio holdings with the yellow bars showing significant total return outperformance versus the ASX 200 over the past 5 years. This has occurred despite the blue bars showing the magnitude of underperformance of these companies over the past 12 months. And just to be clear on that, with the index down 3%, these selected stocks were down between 22% and 40% yet still have very strong performance -- outperformance over 5 years. Slide 22, on the other hand, shows a particular strength of 12-month performance of 2 sectors that aren't well represented in the portfolio, energy and utilities. In short, we continue to view these stocks as cyclical with high capital intensity and relatively low return on capital prospects through the cycle. They also have a poor long-term value creation track record. So moving on to how we have managed our investment portfolio during calendar year '22 on Slide 23. Starting with the stocks no longer in the portfolio on the left, Ramsay was sold before recent takeover interest came and then went. Our conviction had reduced as their high-quality Australian business looks increasingly mature, while offshore operations are lower quality and lower returning. Sydney Airport, we reluctantly sold into its takeover. In the next column, reductions were also made in BHP, which we feel lends itself to more active management than many other stocks in the portfolio given its cyclical nature and modest long-term growth prospects. We reduced our position in BHP as the iron ore price strengthened early in the period. In the ASX, we are balancing high regard for the strength of the underlying business with caution around their CHESS Replacement project and meaningful personnel changes recently. We reduced our position somewhat as a result, and we did take the top off some of our mainframe investment after much consideration of the parallels of interrupting the compounding of one of our best investments. In this case, the position size and a degree of caution around the extent to which profits have risen in recent times and the sustainability of that saw us take a modest amount off the top of this holding. This activity funded additional investment in Domino's, which in hindsight would have been done more patiently as concerns around profit declines with COVID reopening, and the European economic outlook have seen the shares continue to fall. In this case, our regret is more about the wrong price to pay rather than the wrong stock to own, and we think as a long-term investor, these are better regrets to have. James Hardie was added too as we think the structural share capture opportunity is broadening in this business. And as we look beyond the near-term clouds in U.S. housing, we think the long-term outlook is looking brighter. Net wealth, which has many years of continued market share growth ahead, and we added to CSL, which provided an opportunity due to short-term concerns in the market around plasma collection during COVID disruptions. ALS was a new purchase for the portfolio in the period. As one of the world's largest laboratory groups, they enjoy operating in an industry with above GDP growth prospects. And we think they are operating about as well as they have in the many decades or multiple decades we've had following this company with improved balance between the cyclical and high-returning commodities testing business and their more consistent life sciences work. So moving on to a discussion about some of the features in the Amcil portfolio before we come to the outlook, starting on Slide 25. And with this, I'll hand to [ Jay ] for a change of pace.

Thanks, Kieran, and good afternoon, everyone. On this slide, we demonstrate how our investment approach, which was outlined by Mark earlier and also Kieran in the discussion, translates to portfolio quality and diversification. I note that the quality markers that you see here, the percentages and outcome of our investment approach, it's not driven by a quantitative process to try and maximize these percentages or each individual number. So just a few highlights on the slide. The quality characteristics there give us some comfort or they're a source of comfort, especially leading into these uncertain times that Kieran spoke to earlier. So around 30% of our portfolio is -- or our portfolio companies are run by owner drivers, and these management teams have a really deep understanding of the industry that they operate in and also the companies that they're managing and leading. And we find that these management teams are well aligned with their shareholders, being us and yourselves, through their financial incentives, their shareholdings and also their aspirations for the company. Close to 80% or 78% of Amcil's portfolio companies are expected to grow earnings faster than the index. This means that we're less reliant on valuation multiples for companies expanding to generate a return for our shareholders. And I think an important one to highlight in the current environment, and Mark spoke about this as well, is 35% of our portfolio has a net cash position. Some analysts maybe on the other side of the fence, working for investment banks might characterize this as lazy. But from our perspective, we think it provides further safety against financial risk, and it creates a form of value licensing, especially in this kind of environment where management can potentially be opportunistic. If we can move on to the next slide, please. On this slide, we provide some detail on the portfolio diversification by sector and also market capitalization. So the chart on the left-hand side, I think is probably a fairly unique and interesting feature of Amcil's portfolio, where our sector exposure is relatively evenly split across financials, including property, healthcare, consumer and industrial companies. In our view, in the long run, assembling a portfolio in this manner gives shareholders a broader exposure compared to our benchmark index, where the Australian market is fairly unique in the close to 50% of the index is in financials and resources companies. So in our view, with a weighting like this, it reduces the SKU in the portfolio towards a particular economic outcome or exposure to more cyclical sectors. It does mean, though, however, in the short term, our portfolio performance can vary from the index due to those differing exposures. Our portfolio is also well diversified in terms of the size of the companies, as shown by the chart on the right. Just as a fun fact, the market capitalization of the companies that we've invested in the portfolio range from $51 million market capitalization. It's quite a small holding, and all the way up to around $190 billion being BHP. This spread gives our shareholders -- we skipped ahead one. I think Geoff wants to move on. This spread gives our shareholders exposure to larger companies that have already established leadership positions, but also smaller companies with longer-term growth runways that could be potential leaders of the future. I'll hand you back to Kieran to look at our portfolio holdings. Thank you.

Thanks, [ Jay ]. So on Slide 27 and beyond, we focus on market leadership within the portfolio, an element of our investment process that Mark detailed earlier. The reason we think market leadership is important is because we think -- we observed that in a lot of industries, a disproportionate share of the profit pool at a higher return on capital tends to accrue to the leader in the industry. And further, when you have a well-operated reinvestment mindset alongside this, you can get into a cycle of sustaining and prospering with this leadership for longer than many observe and predict. Within Amcil, this leadership now extends to examples in over 25 countries around the world as healthcare companies, in particular, have become global leaders in their fields. We thought it would be interesting to profile a couple of stocks in the portfolio demonstrating elements of this leadership that are a bit less obvious than some of the blue-chip household names that many own. Starting with Goodman Group, slide 28 takes a closer look at its global leadership in the ownership, management and development of industrial property around the world. The focus, deep market expertise and experience through both good and bad cycles of Greg Goodman and his team saw a leadership position established years ago. In recent times, industry tailwinds have strengthened as e-commerce has driven a faster adoption of well-located industrial properties in many cities around the world. Goodman's established leadership position in advance of this trend leaves them in the enviable position of having a long-duration development pipeline, which allows them to grow attractively and to avoid paying higher prices at a hot stage in the cycle as many others need to do to generate their growth. Importantly, for Goodman as well with this portfolio of assets on the balance sheet, they don't need to resort to gearing up the balance sheet to extract returns. The return on assets and the return on capital available for these projects is attractive enough. This sees the potential to enhance their relationship with key tenants and capital partners as cyclical conditions will inevitably change, which should allow them to further entrench their leadership position going forward. On Slide 29, PEXA Group is a more recent portfolio addition as an industry leader as discussed on this slide. In their case, they were formed to change industry practice and now process the vast majority of property transactions, both in transfer of property and also REIT mortgages. With housing the most valuable asset that most people own, incumbency benefits in this industry are very high. The ability to take this know-how and referencebility of PEXA into other commonwealth jurisdictions such as the U.K. gives them the ability to spread their leadership and grow into much larger markets. On Slide 30, we include some of our emerging companies that have been purchased for their longer-term leadership potential, often in a niche market that isn't currently served particularly well. It is clear from this slide that these companies have a far greater task ahead to enjoy true leadership advantages. But taking a long-term view of this potential is a feature of the Amcil portfolio that has served us well over time, albeit with inevitable hits and misses along the way. I'll finish at the market leadership discussion with Breville Group as an example of an emerging leader on Slide 31. Breville have a long history of product quality recognition in kitchen appliances. This reputation often surprises Australians when you discuss it with them in terms of the way it's been able to spread globally. By way of example, following market entry around 2 decades ago, Breville has grown its U.S. sales to around AUD 600 million, still growing at an exceptional 12% per annum rate over the last 10 years. In hiring Jim Clayton as CEO 5 years ago, Breville stepped up their global ambitions significantly. New markets are being entered in Europe each year with Asia now following. The size of the kitchen appliance market that they're directly operate in is a niche compared to much larger appliance markets such as fridges, televisions and washing machines. But the global opportunity is large relative to Breville's current size, and our interactions with management highlight a company that is strategically thinking about developing leadership in this niche category. So finally, on to the outlook. There are always unanswerable questions in markets with many offering a view anyway. It seems at the moment that this list of questions is longer than usual. We've chosen a few key ones for this slide. You probably have others in mind as well. We don't have the answers to these questions, at least not reliable enough to form a part of our investment process. Instead, the gloomy outlook that these questions shape reminds us that the quality attributes and market leadership matter even more in tougher economic times. And while valuation swings markets in the short term, by far, the biggest driver of share prices in the long run is earnings growth. It also occurs to us that companies that we have selected for their long-term potential that have had meaningful retracement in share prices in a number of instances leave the returns from a long-term perspective on offer from current prices and more attractive than they were a year ago. And with that, I'll hand back to the Chair.

Thank you, Mark, and thank you, Kieran, and thank you, [ Jay ]. I hope that you found that to be a useful presentation. We've attempted to build in feedback that we've received and responses and comments from shareholders from earlier meetings and incorporate that shareholder feedback into the presentation itself. And obviously, we welcome feedback today from the presentation that's been received. We'll now deal with any questions on the financial statements and reports for the year ended the 30th of June 2022. And that, of course, includes any elements of the presentation. I'd like to invite questions from shareholders. For those in the room, we have microphones available. Could shareholders please state their name when addressing the meeting and ask all questions through the Chair? And I will pass to Geoff from time to time to ask if there are any questions via the online portal and by your nodding, it suggests that there are some there. So maybe I might go to the room first. A microphone please?

Good afternoon, chair. Stephen Mayne, shareholder. A couple of questions. In the last year's AGM, it was commented that we divested from Endeavour because we had a view against 0 weighting with gambling stocks. Just to explain a bit more about that. Is that still the policy? Is that a written down policy? Or is that just a sort of a long-standing, Bruce Teele, oral policy that we've continued? And could you also just tease out why we don't apply that -- while we've never applied that to Woolworths, given that they were Australia's biggest poker machine operator and now still own 15% in Endeavour Group, which is Australia's biggest poker machine operator with 12,000 machines that drain about $1.5 billion a year from Australian gamblers.

Thanks, Mr. Mayne. Is that just one question?

I'll ask another couple.

Okay. Could we come to you then? Would you mind handing the mic back and we'll let as many people ask questions as possible. Look, I'll make a couple of comments, and then I might call upon Mark to make a couple of comments, but it is correct that at the last AGM, we did advise shareholders of the position that we took as a Board to sell down the Endeavour holding. We thought that was the right decision for a range of reasons, including the ESG policies that we have in place around gambling, and we felt it was an appropriate course of action. We're continually reviewing policies around ESG, and it's an important part of what we, as a Board, do and an important part of our investment process. I think you heard in the presentation, the commentary around sustainable investment, and that's at a number of levels. But Mark, I might ask you to comment on that...

Just additional comment, we wish to say we don't invest in pure-play gambling stocks.

Thank you. Are there any other questions? Perhaps I might go online now.

Thank you, Rupert. So a question perhaps for you, Andrew. Impact of the proposed treasury amendment regarding franked distributions funded by capital raisings. Thoughts and are you submitting a response to propose changes?

Thank you. Shareholders just put this in perspective or to give a brief refresh to any shareholders that haven't seen it. There was -- been in the press, treasury have released some legislation that would deny a company when it does a capital raising that is for the purpose of enabling it to pay a dividend, not allowing them to frank that dividend. This follows on from a tax alert that the ATO issued back in 2015 and was initially legislated or supposed to be legislated in 2016. So there are a number of things I would say on that. First of all, this is very -- this is supposed to be very targeted legislation. The explanatory memorandum clearly states that if you issue capital in the usual course of business or pay dividends in the usual course of business, this won't apply to you. The figures treasury quoted, they think they'll get $10 million out of it, it's really designed where smaller companies, in particular, are doing this to release trapped franking credits. Having said that, the legislation is somewhat loosely worded. So some people have concerns over that. Secondly, the legislation is designed to be retrospective back to when the announcement was originally made in 2016. Retrospectivity and taxation legislation is very rarely if ever a good idea and that has been part of the issue with this. And thirdly, given the concern about franking credits that has arisen, shall we say, diplomatically in the past, I think people are keen to ensure that public opinion is heard with regard to any potential changes in the franking credit regime. So specific answer to the question, no. Amcil has not made a specific response to this. However, we are members of a wider industry association, which has, and it focuses on those 2 key areas that I've talked about, the looseness of the language in the legislation and the retrospectivity.

But as per usual, we are very diligent on this. We clearly understand the importance of franking credits to investors. And obviously, there were some issues going into the last election around this and an inquiry which we presented to, and we are watching this space very, very closely. And if we think there is anything that's going to move this proposed legislation or anything else that might disrupt the value of franking credits to our shareholders, we'll certainly stand up.

Thanks, Mark. Thanks, Andrew. Just on franking credit, in the past, a number of shareholders have shared perspectives with us. And if you think there are any perspectives that may not have been shared, please feel free to do so. We're very interested in your perspectives on this issue. Are there any further questions? Yes, Mr. Mayne?

Thanks again, chair. Just to commend the board for the level of skin in the game that they have Mr. Webster has got 2.1 million shares. Mr. Brown has got 1.54 million. Mr. Chair, got 1.9 million. Siobhan's got 724,000. So this is above average levels of skin in the game from nonexecutive directors, and we need to see more of this. And so you're walking the talk in terms of investing in companies that are own driven and having serious alignment yourself. I'm interested in your views on what John Wiley is proposing, who's a fund manager who's really suggesting that we have some policies to substantially crank up skin in the game for Neds including through the issue of options, potentially like getting rid of this cash only, they've got to be independent thing and really pushing hard for a share of the upside, whether we share that view. And also, I'm just curious, we've got a very high-powered board, yet our market cap is only $330 million. So we are just a tiddler in the scheme of LICs. I mean AFIC's $9 billion and we're $326 million. We're 3%. I would have thought that heavy hitting directors, particularly Roger, a successful founder, Mike, former CEO of Bendigo and Adelaide Bank; and Siobhan, Senior Murdoch Executive in Australia, would want to be serving on the AFIC board, would want to be managing $9 billion, not this little tiddler. So what is the point of Amcil? Why don't we just do a scrip merger with AFIC, roll out lucky with them, put our best directors on the AFIC Board and scale up rather than have the cost and admin of this one of 4 separate companies, this being the smallest, which doesn't seem to have any specialized purpose. You're just investing the same stocks as AFIC does.

Thanks, Mr. Mayne. There are a couple of questions there. So let me try and sort of tackle the last one first. Aren't we lucky? We do have a high-powered Board, and thank you for those comments. We are very fortunate, and I think we act on behalf of all shareholders' interest in that, and it's a pleasure to serve. We think there is point and purpose in Amcil as a different investment strategy to others in the market, not just in terms of what AFIC does, but it is a different investment proposition. And we think for what it does, it is around about the right size. I mean, obviously, by performance, we want it to grow significantly over time. So I think that is said with some conviction. Mark, did you want to comment on the first part of the question?

Several parts of that, so I've got to remember everything you said. But just a couple of things then, Amcil's investment approach. And the investment team run 4 funds, but they each have a different profile and different characteristics and therefore, a different risk reward. And so in the case of Amcil, when you're running a high conviction fund, smaller number of stocks, you are focusing on, I guess, a group of companies that we have, I guess, the highest conviction that they'll perform in the long-term. But when you're running less stocks, it can be more volatile and not everyone who invests in an AFIC-type entity wants to live with a lot of volatility, but that's a natural outcome of this. The yield, I expect is lower than AFIC. A lot of AFIC shareholders want high yield and franking credits. But if -- with that volatility in lower yield, I guess our expectation in the long-term that we perhaps still be better than AFIC, but you have to wear the ups and downs. So that's just normal risk-reward analysis, and that's -- and I can go into the other funds, but they all have a different characteristics. For example, [ Jerry ] is more focused on income. And [indiscernible] will be focused on mid to small caps. So they will have a different risk profile and therefore, a different return profile over the long-term. The other factor is that we have talked about the size of Amcil, and I think we've sort of -- our view is that it can be bigger. We've done some share purchase plans. That's something we'd have to consider in the future, but that's a potential to grow it to help reduce the MER, which would benefit shareholders, so.

Thanks, Mark. In terms of the first question that you asked about shareholdings. And I've got a huge regard for John Wiley, and I really respect the way in which he enters into the public domain in a whole range of strategic policy matters. For nonexecutive directors, it has been traditional that remuneration is dollars and not options. And I think that's not a bad distinction. I should say that as a Board, we haven't discussed this matter, but there is a reason why nonexecutive directors are nonexecutive and have a remuneration structure which is different to the remuneration structures that normally attract executives into the business. With respect to Quantum, there are circumstances where you want to have directors on the Board serving and bringing expertise and they may not have the capacity to make the forms of investment that Jon might have in mind with that comment. We would still want those directors on the board. It's great to have all of our directors with some investment in the company.

I mean there's also lots of other. I mean you can debate this from all different angles. But if you're an option holder, there can be arguments made that if markets go down, you don't actually wear the pain, you just miss out on an opportunity, options something that could create value in the future. It may not share prices move around up and down. But if you're an equity holder, you're a shareholder, you're aligned with the movements that the investors have. If the market goes down, you go down with the shareholders. So -- but look, there's multiple arguments you can put around these proposals. But fundamentally, we like the idea of management groups or Boards having some sort of interest in the company. My personal bias is through shareholdings.

Thanks, Mark. Geoff, do we have any other questions?

Rupert, I'll throw this one to Kieran, if I can. So what holding is in the portfolio causing the most concern at the moment?

Thanks, Geoff. Interesting question. So I guess I'd probably group them in 2 buckets. I mean, as mentioned throughout the presentation, we are a long-term investor by our nature, but not blind to the volatility in markets at the moment in the short term. So I guess 2 particular buckets of stocks in the portfolio. One, those that are very much consumer facing. Obviously, the cost of living pressures that we outlined do put a lot of strain on the wallet of consumers, and that's likely to see pressure. The market is anticipating that. But if that pressure really builds and interest rates don't come down anytime soon, then we could have a really quite a significant fall in sales across that sector of the market. For us, we're thinking about companies in this portfolio like ARB and Breville and Reece, very, very strong companies that we think long-term have very strong prospects. Therefore, we're prepared to wear that volatility but not blind to the fact that, that could cause some pressure on those sorts of companies in the short term. The other bucket of stocks are, I guess, those emerging companies that we also think is part of this portfolio for a good reason. They, by nature, are more volatile, but we've had some really good winners in that small company growing their leadership over time through this portfolio. We have a number of stocks in that bucket at the moment that have fallen pretty significantly with the market correction we've seen in that area in the market over the last 12 months. We still have good faith in those companies, but it is an environment where if one of them is to falter and our conviction changes, and we've decided we don't have the same view of their long-term prospects, then selling those and the prices you'll achieve is different in this market. So I guess it's probably more just how these companies navigate pretty treacherous equity markets in the short-term. But stepping back, the long-term positions are in the portfolio for a reason.

Thanks, Kieran. Geoff, any other?

Just one final one. Amcil is trading at a premium at this point of time, albeit a small one. Given a trade at a discount for some time, what do you put this down to?

I'll throw that one to Mark. He can answer that one.

Look, premium discounts, I mean, I've been watching these for decades now, and you scratch your head sometimes. Sometimes, you think you can work it out but other times, you can't. I think probably we've been -- the longer-term performance numbers have been sound. I think we've been talking about a lot more to our shareholders. And when we speak to I mean potential investors and brokers and financial planners, we sort of want to make sure we talk about all 4 investment companies. So I think there might be something.

Yes. I think potential introduction of the interim dividend probably puts more in the other LICs in the market.