AMCIL Limited (AMH) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to the 28th Annual General Meeting of AMCIL Limited. The Company Secretary has advised that a quorum is present, and it gives me pleasure to open the meeting. This being a hybrid meeting. I'd like to begin by acknowledging the traditional owners and custodians of the lands on which we are all gathered today, and I pay my respects to their elders past, present and emerging. My name is Rupert Myer, Chairman of your company. May I introduce the people on stage with me, and I begin with our Managing Director, Mark Freeman.

Good afternoon, everyone.

And my fellow nonexecutive directors, Jodie Auster.

Hi.

Roger Brown.

Good afternoon.

Paula Dwyer.

Good afternoon.

Mike Hirst.

Hi.

And John Webster.

Good afternoon.

We also have our Company Secretary, Matthew Rowe, who is present.

Hello.

Our Chief Financial Officer, Andrew Porter.

Hello.

And our General Manager of Business Development and Investor Relations, Geoff Driver, right next to me.

Good afternoon.

In due course, we will be hearing from Mark Freeman and Jaye Guy, investment analyst for AMCIL. We're also joined by other members of the investment team in the front row of the audience. And I'm sure some of you already know a number of members of our investment team. I also take this opportunity to introduce Kate Logan, a partner of the company's auditors, PricewaterhouseCoopers, who is available to answer questions today on the audit and the preparation and content of the auditor's report at the end of the presentation. Shareholders would, of course, be aware that there has been adversity regarding PwC in recent times. Just prior to questions following our presentation, I will make some comments about the relationship that AMCIL has with PwC, so they are fresh in your minds at the time of questions. As I said, today's meeting is a hybrid meeting. Today's presentation has already been released to the ASX and is available on the company's website. I remind shareholders using the online platform that whilst questions can be submitted at any time, I will 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 a similar theme or topic, they may be amalgamated together. To cast your vote, simply select one of the options. There is no need to hit a 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 towards the end of the meeting. Moving on to the business of the meeting. I will take the notice of meeting as read. With regards to the minutes of the 27th Annual General Meeting last year, they have been signed as a correct record and are available to shareholders for inspection today. The first agenda item is the consideration of the financial statements and reports for the year ended 30th of June 2023. We will do this via a 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. Before passing to Mark and his team for the presentation, I should like to make two comments. The first is that in March of this year, Siobhan McKenna retired from the Board after 7 years of service. Her deep experience of the media and digital sectors and the wide range of subsequent industries she had experience in had been of particular value to the company. We wish her well with her busy workload and we will miss her contributions to the Board meetings. On behalf of the Board, I wish to record our thanks to Siobhan for her valued service to shareholders and wish her well in the future. The second is that while the Board notes that there has been improved underlying performance in the company this year, I want to acknowledge that we are acutely aware that this is yet to be reflected in the share price performance in your AMCIL shares. This in part reflects a shift over the last 18 months from the shares having traded at a premium to NTA to now trade at a discount to NTA. And we note that this has occurred more broadly across a number of listed investment companies and is not unique to AMCIL. Notwithstanding this, we do anticipate that over the long term, NTA performance is a key determinant of share price performance, and there will be further references to this in the presentation. I will now pass you to our Managing Director, Mark Freeman, to start the formal presentation. Would you join me in welcoming Mark. Thank you.

Okay. Thanks, Rupert, and good afternoon, everyone. It's pleasing to see people at the AGM. We always get concerned these days that people don't turn up because you can watch it online, but we like people to come. It's a great opportunity to interact with directors and staff at your company, and I welcome you do discuss or chat anything about the company at the end of the meeting with the investment team or any of the Board of Directors. So just starting with the disclaimer to say we're here to talk about the company. We're not giving any advice as such. Just the agenda, I'll make some opening remarks about AMCIL, then Andrew Porter, our CFO, will talk through the full year results. Then I will be giving most of the presentation on the portfolio, but Jaye will jump in with a few of the slides on some recent acquisitions. So just on to the purpose of AMCIL. It is a focused portfolio of quality companies. We're not trying to have our positions determined by the size of the index of stocks. We feel like it's a strong alignment of interest. There is a low management cost for what is a high conviction fund. There's no performance fees. There's no external fund manager taking money and there's very strong equity ownership by both AF and directors. We want to be tax effective, so we want to be a lower turnover fund, and we will take a long-term investment approach. So in terms of our investment strategy, what are we looking for? We want to be in companies that have an industry leadership position or a developing one. We look for companies that have a unique set of assets that are hard to replicate. We want to be in companies that have conservative balance sheets. We don't like companies that carry too much debt. We're wary of companies that have external influences on the business. We prefer companies with more consistent earnings, and the people who are critical in running the company. So we're looking for leadership teams that are effective, backable. We want the people running the company to be passionate, and we're looking for ownership alignment. So these factors, our experience shows us that it drives sustainable competitive advantage over the long term if you have competitive advantages that can lead to higher return on capital, which allows greater reinvestment opportunities to drive business growth, capture market share, further enhance our position and ultimately deliver long-term shareholder value. So we identify these companies. We use an assessment method to look at businesses and then ultimately, real returns then come from buying those stocks when we see value. With those overarching comments, I'll quickly pass over to Andrew to talk through the results, and then I'll continue on with the presentation.

Thank you, Mark, and good afternoon again, ladies and gentlemen, and thank you for joining us both here in the room and online. Now I've been through some of these figures before, the results briefing that we did back in July, but I'm also conscious that some of you may not have attended that, but I shall, therefore, be relatively brief, but I'm, of course, very happy to take any questions after the main presentation or indeed, for those of you who are here over a cup of coffee afterwards. So the profit for the year was down to $7.6 million from $8.1 million in the previous year. However, last year's figure includes a $2 million noncash dividend as a result of the BHP Petroleum/Woodside merger. Excluding this, the profit for the year was up nearly 25%. There were increases in dividends from companies like Transurban, Macquarie and the banks, but we also saw an increase in the interest received on cash balances and an increased contribution from the trading and options portfolios. Dividends for the year, as you can see here, were $0.05 up from $0.035 in the previous year. That includes both the $0.01 interim dividend and $0.015 special, and I do stress that special dividends are not part of the ordinary dividends. The company, we believe, is adequately reserved for the future. After paying to the final and special dividends, we had just over $0.055 worth of frank dividend in reserves to help maintain those future dividends. The management expense ratio which is the figure on the top right-hand corner, or MER, is a measure of the cost of running the company. It is the actual expenses as a percentage of the average portfolio over the year. And therefore, both elements, the expenses and the average portfolio size, have an impact. Roughly 50% of the increase in the MER comes from the increase in expenses, which were up just over $240,000 for the year. This increase was foreshadowed last year and is largely due to the reallocation of costs between all of the LICs in the stable to better reflect the work effort. I should note that during the current year, and therefore, not in these figures, AMCIL has received a refund from AICS, the company that employs all the staff due to incentives that did not vest because of the underperformance of some of the LICs against some of the hurdles, including AMCIL. This will, therefore, be reflected in this current year's expense figure. The other 50% is a result of the fall in the average portfolio side over the year. Now this looks counterintuitive when you see that the portfolio went up 13.5% in the year, but that figure includes dividends and franking and needs to be set off against the fall of 14.3% in the previous year, also including franking and dividends. The MER figure of 0.66% represents $0.66 for every $100 invested. It is within the range of historical norms, 0.66% in 2020 and 0.72% in 2019, for instance. But I can assure you that it is a figure that the Board watches carefully. Going onto the next figure. This slide shows why is the difference in the amount that the portfolio has changed and the amount that the share price has changed over those 10 years and indeed, over the last year, as the Chairman has outlined. At the end of September 2022, the shares were trading at a premium of 7%. In other words, the share price was more than the underlying value of the assets. At the end of September 2023, they were trading at a discount, so less than the value of the portfolio of 9%, more than a complete reversal. I won't get into any more detail on that because I think the Chairman has provided reasons behind that. But as I said, very happy to take any questions as part of the presentation or afterwards over coffee. So with that, I will finish up and hand back to Mark.

Okay. Thanks, Andrew. Just on to the market conditions as we see them at the moment. Clearly, economies have held up better than expected. I think market participants were expecting economies to get a lot tougher with the interest rates having increased globally. I would say it's been pretty resilient because the employment has been put on both here and Australia. However, there are signs that activity is slowing globally. There are signs also that inflation is easing, but CapEx inflation is still pretty strong, but supply chain pressures seem to be abating, although wage inflation is still elevated. But broadly, we think there are signs, particularly out of the U.S. that inflation is starting to come off its high levels. What we have seen during this period, though is companies with strong market positions, so these are typically stocks or companies that fit our frameworks, have demonstrated pricing power and have been able to push up prices to counter against some of the cost inflation they've been having. Interest rates are peaking, we think, but we think that they'll probably remain elevated for some time, but it's very hard to peak in this environment. And this had clear implications for a company that carried a lot of debt, companies that we avoid as we've seen their interest cost increase substantially. What we have seen though, during the recent reporting season that we've just been through, is quality companies did produce better quality results. And that's really the basis of AMCIL and our portfolio positioning. So just on to the overall markets. Just a couple of valuation charts that we look to consider where markets are traveling. From a price to sales perspective, it indicates that markets in Australia are around fair value. And from a price-to-book basis, we get a similar outcome. So the Australian market looks around fair value to us at this point in time. This doesn't mean we can predict where markets go because often, markets will swing quite considerably around what might deem be fair value. Then on to the U.S. market, the valuations there are looking more elevated. And as you can see, price to sales, price to book, are well all above the long-term averages. Although some do argue that the composition of the U.S. index has changed a lot, there are a lot more tech businesses that have -- make high, very high margins, very high returns, and that justifies a higher valuation. But it does make us a bit more cautious on that market. We've had this slide in the past. We just put up there for interest, it's safe to say, in the long run, being in the share market is a good thing, but you do have to ride the ups and downs along the way. And we've got a figure there to that over the long term, the share market does a return of around 9%, but that doesn't include the benefits of franking credits. So just to the portfolio. As Andrew touched on earlier, it's disappointing the share price is trading where it is, but we can't control the share price. And it does create, I guess, movements, if you go from a premium to a discount. That can feel like the share price has gone down a lot, which it does. But ultimately, we think in the long term, the share price will adjust to the performance of the portfolio. So we've seen across all 4 of our LICs, share price is coming down, in fact, across the entire market of listed investment companies and managed funds more broadly. So we have to just stay focused on running the portfolio. So the performance numbers, so how has the actual portfolio gone? So you can see here calendar year-to-date, since the 1st of January, it's been very strong performance. And that performance has been paying out a very attractive $0.05 fully franked dividend. You don't see that in the share price, or NTA, but you certainly see it as part of your income, and it's a big part of total returns when you're investing in the market. It's not just about share price, it's about the dividends and the franking you receive along the way. And that's been substantial over this year. We're pleased that 1 year, we're now back in front. We've made some adjustments to the portfolio that have been quite significant in adding value. We are disappointed that the 5 and 10 years is a little behind the index. We still have some franking credits that we haven't paid out. And so that tends to lower our performance. But still, we are keen to see the 5- and 10-year returns start to exceed the market, but we're pleased about what we're seeing in the shorter term. particularly given in light of some of the adjustments that we've made. So what are some of those adjustments? You can see a few stocks we've exited. You probably remember the last presentation we gave, we actually bought Medibank when they had their cyber event. We thought this was a stock that fitted our frameworks well. We were happy with the people running the business. We think they're good. They've effectively got no debt. They generate a high return on capital, and we think it's a well-run company. But it wasn't in AMCIL before because of the price of the stock, and it's a fairly low growth business. The code event gave a price dislocation event and we went in and bought the stock. That price has now recovered that fall, and so we've now exited the position and moved on. So that was a very good trade. It was very consistent with the AMCIL frameworks. We also exited 3 stocks, PEXA, Nanosonics and Iris, and those frameworks that I showed you earlier, our view was that they no longer fit our frameworks. And we've been very pleased we got out of those stocks because all 3 of them have fallen substantially since we exited the positions. We've added some new stocks, and Jaye will cover those shortly. We've also reduced some positions. Woolworths, we trimmed a bit because we just thought the valuation was getting a little bit high. Likewise, with Transurban and Hardie has had a strong run. We've reduced Fineos as we see that stock has struggled to meet the objectives we look for. So we have been reducing. And Mainfreight, we had a very large position, so we've been reducing some of that. And Westpac, we've also trimmed as we've built up a new position in NAB. Our view in terms of AMCIL is that NAB has got the better quality people at this point. And so we prefer to have more money in the company that has the better people running it. In terms of some of the stocks, we added more to Macquarie Technology Group. We like that business. They're building out data centers. They've already got one in Sydney. They're expanding their business effectively in their car park. So that's going through quite a heavy capital investment stage. It is one of our, what we call, owner-driver companies. The people that run the company are the other people that founded the company, and we think they've been great managers of their business, and we're happy to put some of AMCIL's money alongside those people. In terms of some of the new stocks, I've touched on NAB, we had a bit of an opportunity to buy into that. There was some weakness in the banking sector, particularly as a result of weakness out of the U.S. And again, with the attractive fully franked dividend, we thought that was good buying. And I'll get Jaye now to come up and comment on the others.

Thanks, Mark. Good afternoon, everyone. So moving on to Slide 21, IDP might be a new name to many in the crowd. So they're a provider of high-stakes English language testing and student placement services to tertiary institutions like universities globally. As you can see from the chart on the right side, your left, immigration trends and increasing demand for Western education are structural growth tailwinds for IDP. And despite their current market-leading position, we see a significant opportunity for the business to capture further market share in what is a large addressable market globally. Additionally to this, they've also been investing heavily in the digital platform, which we think bolsters their competitive advantage and also creates potential for improved margins in the future. From a financial strength perspective, as Mark mentioned, IDP fits the bill there. It has very low levels of debt and generates very attractive cash flows. We have followed this business for quite some time and admired the business model and the growth opportunity that we see. But we've been a little bit patient just around valuation. We did see an opportunity to establish a position in IDP during the period where the Canadian government appointed a second English language testing provider to their official panel. And the share price fell quite sharply after that announcement. And while we see that IDP will likely give up some market share, when we had a look at a combination of where the share price is trading, so valuation and also the growth opportunity that we explained earlier, we thought the market reaction was excessive in that context. So we established a position in the company. The next company is Computershare. So Computershare is a global provider of financial administration services. They do shareholder register maintenance, employee share plans, governance services, and their core businesses are very difficult to replicate given the strong market share and positions. To put some context around the business, I'm sure you're familiar with the logo on the dividend statements that you received from AMCIL during the year. And you also would have met some of the very friendly Computershare staff when you registered for the AGM as well, just to put a bit of context around what they do. Our investment in Computershare, we think, is a good example of where AMCIL can be opportunistic in an investment that might potentially be a bit lower growth, but has a stalwart or asset play style profile and where we can observe turning points in the business and buy at an attractive valuation. So we think the management team is backable and recently have had much better clarity on focusing on the core business and where they make acquisitions to be much more aligned with this core business. So business simplification efforts, along with positive leverage to higher interest rates, so they earn a margin on customer deposits that they have on their balance sheet, we thought that would allow Computershare to generate high cash flows than they had historically and to rapidly pay down the debt, which we thought would create latent value within the business. We're actually pleasingly seeing this play out. Computershare did recently announced that they have divested their U.S. mortgage servicing business, which puts a nice amount of cash on the balance sheet. And we've also seen some of those higher earnings coming through on the interest balances as well. And moving on to the next slide. So we're not talking about a single company here, but we have established small positions in 3 technology companies, some of these names may not be familiar. So we have Altium, Xero and WiseTech. As Mark mentioned, these holdings effectively replace the holdings that we had in PEXA, where our investment thesis had changed, or in Nanosonics where we still like the business, but we just didn't see the valuation upside in the business. So I won't go into detail on each individual holding, but there's some common characteristics across these businesses that I will highlight where each company has a leading technology offering in the industries that they operate in. So in the case of Altium, they're involved in designing PCB, which has circuit boards that go into electronic devices. Xero is involved in accounting, and WiseTech is involved in logistics. Due to the nature of these industries, there can often be a lot of legacy paperwork style platforms, our old platforms, and we think those businesses are doing a really good job of replacing those old incumbent methods and taking share in what are large addressable markets. The management teams across all these companies are also backable. They are well aligned with shareholders and they also have very strong track records of delivering in their respective markets. Again, talking about balance sheets, all the balance sheets are in very good shape. They generate good cash, and that means that they can reinvest back into the business to extend their competitive advantages and capture more of that addressable market share. And we can also readily observe their business success through client wins and improvements in their technology platforms. And with that, I'll hand back to Mark to talk through some of the features of the AMCIL portfolio. Thank you.

So just a few other characteristics of the AMCIL portfolio and what we're striving to do, we're trying to have a mix of small, medium and large companies across a range of sectors. The chart on the left just shows by sector. There's a fairly even spread. If you go into the general index, you obviously get a very big exposure to banks and resource companies, so we're trying to provide a more even spread. And also on the right, that's our exposure by market cap. We are trying to give a more even spread across company sizes. Once again, if you go into the index, you are heavily exposed to the very large companies, and we're trying to give a more even spread around that. So back to the recent reporting season. What we've done here is put most of our holdings are on this page, and these are the ones that we thought produced pretty solid results, and we're very happy with the way they're performing. And I won't go through all those. It's perhaps a slide we can come back to in the end. There were some stocks down below, such as Mainfreight, Gentrack, Fisher & Paykel, et cetera. They have a different reporting period. So we'll hear from them over the next few months. But as I said, it was pleasing that quality companies generally produce better quality results and we had good share price responses from most of those companies. On to the next slide, but we did have some companies that have been experiencing share price weakness, and I'll talk through those. We've seen quite considerable weakness out of CSL and ResMed. Their results were, I guess, a little bit soft, but not to a large extent. The issue with those 2 companies and why they're falling so much is the market is globally very nervous about the impact of weight-loss drugs. And there's 2 in particular, one produced by Novo Nordisk and the other by Eli Lilly. They are doing lots of trials to show the benefits of being on the weight-loss drugs and how it can help you with a range of health conditions. But the response to other healthcare stocks has been substantial. It seems to me like the market is almost saying that weight-loss drugs will cure you from various ailments. We're not sure that's the case. For example, ResMed has lost about 1/3 of its market cap. I think there's nobody out there that losing weight will help with sleep apnea, we're not necessarily sure it will cure sleep apnea. And to get off their products, you would really need to be cured from sleep apnea, even if you have a reduced number of apnea events in any one night, even a few can be quite impactful on your health, and you would still need to use one of their machines. CSL, likewise, they recently made an acquisition called Vifor, one of their products. Again, there's been some results that show that what losing weight could impact them. But again, we're not sure that, that necessarily means you can stop using the drugs that they produce. So there's a frenzy at the moment of fear around what could happen to some of the traditional healthcare stocks. We've seen this before, market often operates on fear and greed. And it feels like fear is impacting those 2 stocks, so we are comfortable to hold. So we would picture those stocks as having some industry headwinds, but we still think they're very sound businesses for the long term. ASX, we've only got a small holding in. They've had some operational headwinds, the share price has fallen a lot. But I think we're starting to see some value up here there. Again, they've got net cash on the balance sheet and some monopoly position. Domino's, recent trading updates have been more positive. We have reduced the holding because financial strength is testing us a little bit. So we felt like we want to have a lower position in that company. And as I touched on earlier, Fineos, we have been reducing that position. They've just won a very interesting contract recently with a very large insurer. We think that's very positive, but we'd like to see more of those wins going forward. So just on to the outlook. So I guess some of the issues we still have around is the impact of higher interest rates, how much will it actually slow the economy and what impact will it have on valuations. Rising geopolitical tensions are a concern. And China's attempts to stabilize their growth will also impact parts of our market. I guess the way we deal that with is as a longer-term investor, we stick with the quality companies. And if we see significant sell-offs, look to how we can add to our positions or, in fact, buy new positions. Stay focused on management teams that we can trust. Ultimately, those share prices will be -- will perform in line with the earnings and profits the companies produce and make sure you stick with companies with strong balance sheets, particularly in these high interest rate environments. So with that, I'm sure there will be questions about lots of stocks, and we can go back to that slide, which has our portfolio on it. I'm so happy to take questions on those in -- at the end of the presentation. Rupert?

Well, look, thank you, Mark, and thanks, Jaye. As you probably since we love talking about stocks and very happy to take questions in relation to any of the stocks that we've been talking about. We will now deal with any questions on the financial statements and reports for the year ended the 30th of June 2023. I mentioned that when I was introducing Kate Logan that I'd make a couple of remarks about PwC. So the discussions in the public arena about PwC focus foremost on the tax advisory practice and the reputation of PwC in its entirety. PWC are our auditors. They are not our tax advisers. We gained some assurance and comfort from the comments in the recent report by Dr. Ziggy Switkowski that stated that PwC's assurance, i.e., their audit business appears to be -- appears to substantially model best practice in Assurance. We last put our audit out to tender in 2017, requesting proposals from all major accounting firms, with PwC being selected at that time. As is mandated, our audit partner at PwC changes every 5 years and alongside that, there are changes in the underlying team that conducts the order. The change in audit partner last occurred in May 2022. We believe our PwC audit team has met our requirements and expectations. However, we will continue to monitor the matters that are presently reported and in the public domain. We have discussed them internally, and we've also discussed them with PwC. We've sought and received assurances about them, how they're dealing with the situation. And at this stage, we are satisfied with the answers that we've received. I'd now like to invite questions from shareholders and comments. For those in the room, we have microphones available, Sue and Catherine, at the back of the room. And if shareholders would please state their name when addressing the meeting and ask all questions through the Chair, that would be appreciated. We also have questions online through the virtual meeting. So I might -- Geoff, turn directly to you. Are there any questions online that I could take while those in the room prepare their questions.

So we have a question here from Steve Van Emmerik from the Australian Shareholders' Association. Congratulations on your well-presented annual report. In this report, we see that AMCIL has underperformed in the relevant benchmarks over 1, 3, 5 and 10 years. I think Mark's answered part of this, why is this? And what if anything does the company plan to do in the future to ensure this performance doesn't continue. So I'll throw this to Mark.

Well, the updated number is now we're sort of back ahead on 1 year, and those longer term we're just a little bit behind. And as I said, we've got some franking credits we haven't paid out. I guess what we're doing about it is really just to stay focused on what AMCIL is about, which is sticking with the quality stocks, making sure we buy when we see value. We're very aware that we're a little bit behind the index, and we're working hard to improve that. We think certainly, over the last 6 to 12 months, we're meeting our objectives, and it's just a matter of continuing that focus and discipline going forward.

Perhaps I might make a comment on that, too, from the Board's perspective. I mean, clearly, the Board has monitored this very closely, and we've watched the performance every month at our Board meetings. We've been very keen to see the portfolio repositioned and have worked closely with Mark and his colleagues in the way in which that has been that has been done. And of course, we continue to do so. So the Board's role is oversight of the investment team. The investment team obviously has authority and that carries responsibility for the investment decisions that are made with the oversight of the Board on a regular basis.

The other thing I'd add to that, Geoff, is just it's just sticking to the process and making sure that when we buy and sell stocks, it's clearly aligned with the process and the frameworks we've outlined at the meeting.

I've got another question here. With CSL at a market low, will AMCIL invest in more CSL shares. Does AMCIL have any portfolio weight limits such as 10% for any single stock?

Mark, do you want to comment on that one?

Yes. Look, I think we don't have an actual rule, but I think if you're getting over 10%, that sounds like a pretty big position. Look, CSL has been a big stock, and we've sort of worn some fair downside. And despite that, we still produced good performance over this calendar year. So we're wearing that performance of CSL being able to produce good numbers over the year. If we didn't have such a large position, yes, it looks pretty interesting to you because if you look at the multiples, the stock trades on against its history, it's actually well below its long-term average. And that's from, I guess, I think about stocks in terms of valuation with two perspectives. There's the arithmetic part, which is what you're seeing from a PE multiple or a price to sales. They all look attractive, and then there's the market feel, what's actually hanging in the market. And the market is concerned about multiple factors. They've done a large acquisition. They've done acquisitions in the past, and it's always taken them a couple of years to improve. So it's still very early days, but we've obviously had a change in CEO that can unsettle the market. And then the fear around these weight-loss drugs has been extraordinary. And the market -- the stock has probably been a little bit slow to get its margins back to what they were pre-COVID, but we think that's on track. And so when you have multiple factors that are all, I guess, negative, it sort of compounds on itself and you get a really bad reaction in terms of share price. But we keep testing the fundamentals of the business, and when you put that together with the multiple, that looks pretty cheap. But we have a good position already. So we won't be adding to it, but we certainly will be holding.

Maybe one more online and then I'll come to the room.

So has the Board issued a formal support for the yes vote in the upcoming referendum?

No, the Board hasn't given any advice on the forthcoming referendum. To the extent that we ever enter the public domain, it really relates to matters of franking credits or other financial matters that directly impact on the shareholders of the company. I acknowledge that it's obviously within the hands of individual shareholders to make determinations on a whole range of other matters in the public domain. So questions in the room, please. Here comes a microphone.

My name is Phil Canon. Just briefly by way of background, I've been a Director of 2 industry super funds for nearly 30 years. So I've got some experience in these matters. Now my question is, are the following comments fair comment, they're hopefully seen as constructive because all the people here mainly retirees, it's a very important matter that we're dealing with retiree savings. I've been a shareholder for 20 years or thereabouts, just about as long as AMCIL has been in existence. My buy-in price, and I've got this on the record, my buy-in price is $0.98 overall. Today, share price is $0.96. The proof of the pudding is in the eating. The performance of this fund has been -- look, you can't really exaggerate. It's been abysmal. Now when you -- we hear that the ASX is down 9% or 8.9%, I've got the dividend, so I suppose this share price, the overall performance might have been more like 4%, about half the index, over that period. Now who is responsible for this? Who is responsible? Ultimately, it's the Board who is responsible for this. The Board is responsible for the performance of a company, and in particular, the Chairman. The Board and the Chairman have got to be asking the right questions. You've got to have a Chairman who's continually asking about what's going on with the underlying investment team. You've got to really on it all the time. And I don't think that's happened. The inference is, the irresistible inference is, they have not done that. So when the underlying investment team are buying shares like Temple & Webster during COVID at $10, $11, too many and too high a price for a number of stocks, including Fineos. And I think the last year, the shareholder got up and named all these shares that caused this problem. What was the Board doing? Where are they asking the questions? This is a Board which is paid nearly $0.5 million a year. You got the Chairman on $135,000. You got directors on $65,000. What questions are they asking? Now as I said I've been doing this for 30 years. I was on the investment committee for these 2 funds for 30 years. Now what was I doing? I was mainly Chair for most of that period of time, asking the hard questions, and that's what has been missing unfortunately. The other thing that has been a failure is to ensure that there's been sufficient resources in -- from the investment side given to AMCIL. Now you've got -- as I understand it, you had the people looking after Mirrabooka, trying to handle Mirrabooka and AMCIL the same time. Now I know that Mark -- and I've spoken to Mark about this and Geoff. I've spoken to Roger this morning, so none of these questions have come as a surprise really, but there was a failure to ensure that the resources weren't spread too thin between Mirrabooka and AMCIL. So thereby -- so my question is, are these fair comments?

Thank you, Mr. Canon.

I heard what you said before, Rupert. I thank you for your remarks. I appreciate the presentation. I don't want to be seen as negative. We're all in this together. We're all shareholders, we want to see the performance lift and the share price in particular.

Well, we agree with you. I mean we all want that for the company. We're all shareholders at this table. So it's a -- we are motivated to -- for the company's shares to rise. Maybe if I could sort of make a couple of remarks. Firstly, shareholders will recall that we changed the dividend policy only quite recently in 2 ways. Previously, we paid out the entirety of our franking account. And so as we make profits, we created franking credits, We, of course, received some franking credits from dividends, from franked dividends that we received, but the consequence of that is that shareholders received some of the upside in the company through annual dividend payments. We determined that, that wasn't leaving a sufficient amount of money in the company. And therefore, the results that you see in terms of some of the share price performance and arising from the NTA performance reflected the fact that the money was actually passing out to shareholders. So one change that we made, that we advised shareholders of, what, 18 months ago was that we would regularize the dividend and have a more predictable dividend, but that we would not be paying out 100% of the franking credits each year as we had done. The second thing that we did was we introduced an interim dividend which we did for the first time this year. So we paid a $0.01 interim and a $0.04 final dividend. So that's, I think, addressed the issue as far as the leakage from the company via franked dividends, which is what had been happening previously. The second comment that I'd make is that the Board has been sort of acutely aware of a number of the matters that you've raised. And indeed, the performance that Mark has spoken to in this calendar year reflects a number of the key decisions that have been taken as a consequence of the work of the Board and the investment committee in realigning the portfolio in the way that we have. In terms of the Board asking sort of the tough questions at each of our Board and investment meetings, I think I could say that this Board has a reputation for asking some pretty tough questions at those meetings. And I suppose the actions arising as a consequence of some of those questions can now be seen by some of the more recent performance. Are we happy yet? Well, no, we're not. We want to see those longer-term numbers well exceeding in due course, the relevant indices. So I mean I do want to give assurance that these are matters that the Board takes extremely seriously. But perhaps, Mark, do you want to comment?

Perhaps afterwards, I'd like to just perhaps come back to you about your performance calculations because I sort of got numbers here going back when you look at 15 years, you've been a long-term investor. I've got -- when you include dividends and franking, AMCIL is 10.35%. The index is 8.95%. So that's what the portfolio has had. So I just want to check when you bought -- because often if you buy at a premium or a discount, it can have a quite significant impact on your return. So our numbers on the portfolio return would suggest that if you've been an investor for that sort of period, you would have had quite a very good return because, as Rupert pointed out, a lot of the return that's come back to you is actually through the dividends and franking. So the share price may not move much, but if you add in the dividends and franking, you get a very different number than just simply looking at the share price. So perhaps I'd like to -- we can work through that over the next few days or whatever, to understand why my numbers would show us that over that longer term, it's been fantastic, but your experience is not that. So there seems to be a disconnect. So I'd like to understand why.

Look, we appreciate the question. But very happy to keep a conversation going off-line.

You have been very good in communicating with the shareholders. So I congratulate you for that.

So my summary is, I've been a long-term shareholder. And my view is that it's been really good. But we've had some issues over the last couple of years, but we feel like we've dealt with that, and we're moving forward. And so that's the sort of context that I sort of think about it.

Thanks, Chair, Stephen Mayne. So I'd just like to pick up on the PwC issue. So at the AFIC AGM, it was mentioned that PwC had been the auditor for 95 years. And that when you had last looked at the audit, you interviewed 3 different PwC partners to decide which one you would appoint. So it was almost like competition within PwC as opposed to competition with the wider market. So I haven't heard of that practice before of you can pick your partner, I thought the firm just sort of presented. But sort of like AFIC was going we have this partner or not that partner. So I guess what I'm interested in hearing from you and perhaps from Kate as well as the signing partner here is, is there some scale benefit with having PwC across multiple entities? Like, I haven't looked at it, but do we have PwC across all 4? Do the audit partners talk to each other? Or are we running 4 entirely separate arrangements? And could Kate comment as to whether her remuneration is affected by the fact that she is the audit signing partner here. So when those 3 audit partners were effectively competing for the AFIC job, was their remuneration at play there? Or is it all just institutionalized in to the wider audit practice? And I will also say that I know that the former CEO of PwC has been giving evidence in Canberra today, Mr. Sayers. And my personal view is it's been a bit of a lynch mob attitude and a few rogue tax partners does not mean you sack every audit partner around. So I'm not saying we sack it...

I wonder if I could just get -- I wasn't particularly thrilled by an insinuation there. But look, let me just repeat what I said earlier, the audit was put out to tender in 2017. I think, Andrew, there were 4 -- we sought submissions from...

The 4 major firms.

From the 4 major firms. And from that process, PwC was accepted. Every 5 years, there's a requirement for the audit partner to retire within the firm that's been selected. The audit partner retired, and Kate was appointed in 2022. Yes, there is a discussion as to which audit part that might take on that role, but that's part of the way in which that rotation occurs. So I think that's a substantive answer to your question.

So it's been a long issue with the AFIC stable where I've asked that you disclose how you vote on our behalf and the stable has always resisted that even though it's standard now for industry funds. And so I guess I just wanted to probe a couple of specific issues in terms of how active you are being as stewards of our capital in improving the governance transparency and leadership of the companies you invest in. So my specific question is there was a 25% or 24% and 23% protest votes against the 2 CSL remuneration resolutions yesterday. Were we part of that concern? Or were we supporting the pay? And at IDP, so it's been a great stock, but the governance has been interesting because it's been controlled by the university sector effectively. And we've had a Chairman there since 2007. And my view, Peter Paulson has just been there too long. It's a standard sort of governance transition thing. So as an active and enthusiastic shareholder in IDP across the stable, do you take a position with the Chair and say, "Mate, it's time to go," or do you sit back and vote for him every 3 years and say, "16 years is fine, keep going, mate." I mean how do you play those two specific situations looking after our money as an active steward on the governance and voting front?

So look, perhaps I should give an overview so that all shareholders are familiar with the way in which we conduct ourselves in this space. We consider it a very important part of the ESG framework under which we operate. So AMCIL, in line with other companies within the group, votes on every resolution for every meeting that our investee companies have. There are two parts of the process that we observe. We subscribe to proxy advisers and see what they are saying. And then our investment team reviews all of those recommendations and then makes a recommendation to the Board of AMCIL, in our case, about every single resolution. We've not adopted the practice, although we acknowledge that others have, of reporting widely on how those proxies are made because our experience has been that if there are matters that need to be raised on related -- on the issues that are covered by the proxy, that it's best to do that directly with the company. And in those discussions that we have with the companies, our experience has been that we get a more engaged hearing if they know that we're not immediately going to spill what our position is into the public domain. In other words, you get a conversation happening rather than a situation occurring where there's sort of a sense of everything being reported back publicly, which isn't always the best outcome around some of the issues. So we've tended not to speak publicly about this. Mark, I don't know whether you'd like to add anything?

Yes. I'd just add there is clearly in our strong interest that the companies we invest in perform well. And if we think there are issues that are impacting that, absolutely, our engagement with companies is very strong, engaging with companies is a very important part of our process. As Rupert said, we take advice but we form our own opinion and our own view. And if there are issues that we are very uncomfortable, we certainly deal with those with the Board. And if it means voting against, we vote against. And as Rupert said, we don't disclose that. But I think we've got the respect of the companies we invest in. And because of that, they listen, and we feel we get better outcomes by taking the approach. But once again, we want our companies to perform well. If we think there's something happening with the Board or the quality of the people or the way they're behaving or the issues, absolutely, we raise it with them. And if we don't like it, we vote against, but we give clear communication back to the company as to why or what we're looking to see improve to change the vote. And that's a very important part of our process as being an investor in the company, particularly being a long-term investor and not wanting to be a trader and being forced out of our business due to bad practice. And we openly use the example of, say, this is one we used before, but Rio had their issues, blowing up things that they shouldn't be blowing up. Of course, we confronted the company about it. Now we weren't public about it, but they respected our views, and we expected change. We didn't want to sell the stock, so this is more from an AFIC perspective, and move on because we're the shareholders. They're our assets. And rather than us changing as shareholders, we wanted to see a change at the company. And our message was clear, and you ultimately saw that coming through. And so we were able to sustain our investment in what is very good quality assets. So that's just an example of what we do.

So the stable has been incredibly stable for 20 years since AFIC -- since AMCIL floated. And whilst I spent quite a lot of dynamism elsewhere in the sector with Jeff Wilson launching all sorts of things and Soul Patts taking out Milton, nothing seems to change within the 4 here. We are the smallest. My question is Bruce Teele, sort of the Founding Chair, has got about 16%. So effectively he's a blocking shareholder were there to be a change of control proposal, i.e., a merger with Mirrabooka or something like that. So can I just ask who handles at the Board level, the relationship with our largest shareholder? Is it a correct assumption that he is opposed to any merger or scaled approach to our stable, reflecting the fact that nothing has happened for 20 years? And given that we are now at a discount to NTA, why don't we explore as the smallest member of the stable, a value-creating and cost-saving merger with perhaps Jerry or Mirrabooka, which might mean a few directors lose their gig, but it would be a lower cost and MER for the shareholders who arguably, as Mr. Canon has said, haven't been enjoying magnificent outperformance in the last year or 2 as the NTA premium in most of them has come down closer to NTA, and in some case, has gone to a discount. So I guess the question is, is it Mr. Teele's influence? And what are you doing on the merger sort of restructuring approach to create value and save cost?

Thank you, Mr. Mayne. And I acknowledge that it's a question that you have returned to over several AGMs. Look, it's not a matter that we've explored any further. It is, as you observe our stable is stable. I think that was your expression. And sometimes that's not such a bad thing. We acknowledge that the 4 companies have quite separate mandates, and that's how they've been established. They do different things in the market. And of course, they are of different market size. There is no specific agreement or any agreement whatsoever with any of our shareholders actually around the sort of matters that you raised. I mean the Board is focused on improving the investment performance of this company, which we fully anticipate will be reflected in share price improvements over time. So it's not a matter on our agenda. Any other? Yes, there's a question.

Thank you. My family have been investors in all 4 companies, and we're investors in AMCIL, particularly because of its unique investment strategy and objectives. And I just wonder whether there's an opportunity -- I think, Mark, you mentioned earlier that you're effectively passionate about companies as a team and understanding how they work. Given in the light of questions asked recently, how do you, as an investment team, inform yourselves to make good decisions? It's not just reading the papers. Could you talk a little more about that, please?

Over to you, Mark.

Yes. Well, look, there's a lot that goes on to following a company. I try to avoid reading the papers these days. I actually can't remember the last time I read the Fin Review, and I think I've been better for it. But hopefully, there's no journalist here from the Fin Review. But it's not about -- that gives you sort of the news of the day. That's really my point around the newspapers. But what we're trying to do is sort of get behind the company. And certainly, there's -- the team interact with all the major brokers. They've all got teams of analysts, and we pretty much deal with them all. There might be 1 or 2 we don't. And I know that the team is really focusing on those analysts that they feel are the most effective, that understand the companies the most. So there's a lot of interaction on that front. Obviously, we have a lot of direct interaction with the companies themselves. We tend to find the companies we invest in will come in to see us, or we'll have to go see them, but generally twice a year around the results, but then there's often opportunities in between to meet the CEOs. There's increasing more interaction with directors. And then a lot of companies do strategy days. There's a number of conferences throughout the year. There's a UBS conference coming up; Macquarie, a big one. The team go to a range of others where they get a chance to see companies present, either a large meeting room or to get a one-on-one presentation. We also use, I guess, what we call sort of independent research houses. There's one in particular we subscribe to that do -- it's not a broker. They just do their own form of research where they tend to look at the company's financials. We subscribe to them. We've also got another service, a company that will organize for you to meet sort of industry people who can give you insight into what's happening into companies or industries as such. So -- and look, we get great input from our directors. This is one of the value adds of being a listed company. We have directors across all 4 companies. We put that together and the pool of knowledge there and the team tap into that as much as possible. That's invaluable. So there's a range of sources, and we try and stay in contact with people that have moved on perhaps from business and industry to give us other insights. There's a whole range of sources that we look to. We've also subscribed to a financial product now they're just quite significant in terms of the information that gives you. So there's a lot. And in fact, it's becoming larger and more significant as more and more of the companies we invest in, they're essentially global companies. And so you do often have to travel a bit more overseas to see the company's operations as well. So there's a lot going on. It's more complex than what it used to be when you're mainly investing in Australian companies. There's not many companies these days that are just pure Australian. Most of the companies that have got growth are actually global businesses now.