AMCIL Limited (AMH) Earnings Call Transcript & Summary

Hello, and welcome to AMCIL Full Year Financial Results Briefing. [Operator Instructions] I would now like to hand the presentation over to Alison Gibson, Managing Director of AMCIL. Thank you. Please go ahead.

Thank you, and good afternoon. Welcome to this full year results briefing. I'm Alison Gibson, the CEO and Managing Director of AMCIL Limited. I've just recently rejoined the team here, having spent the past 5 years at HESTA as Portfolio Manager and establishing the Australian equities team there. I say rejoined as I was portfolio manager with the company from 2011 to 2021. I'm really excited to be back with the team here and look forward to meeting and speaking with shareholders over the coming months. Firstly, I'd like to begin by acknowledging the traditional owners and custodians from all the lands were gathered on today and pay my respects to their elders, both past, present and emerging. I have joining me today on the webinar, Winston Chong, our Portfolio Manager for AMCIL, Brett McNeill and Kieran Kennedy, portfolio managers within the team; Andrew Porter, our CFO; and Matthew Rowe, our Company Secretary; Geoff Driver, GM Business Development and Investor Relations; Claire Aitchison, Head of Business Development and Investor Relations; Suzanne Harding, Business Development Manager. This briefing is based on the material available on the company's website. The presentation slides will change automatically via the webcast. I'll now turn to the first slide, which is the disclaimer, which says we are here to talk about the company and not to provide individuals with any investment advice. Turning to Slide 3, which outlines who'll be speaking this afternoon. I'll cover the key features of AMCIL and then pass on to Andrew to talk about the results. Winston will cover markets, the portfolio and then the outlook. We'll circle back to question and answers after the formal presentation. You can ask a question via the webcast using the tab at the bottom of the screen. Moving on to Slide 5, the key features of AMCIL. We seek to generate attractive returns for shareholders through a combination of capital growth over the medium to long term and fully franked dividends. AMCIL is a high conviction portfolio of 30 to 40 stocks, both large and small, with a focus on quality, which means companies with a sustainable competitive advantage, attractive returns on capital, solid balance sheets and quality management. Our team is aligned with shareholders with a comparatively low management cost and no performance fees. Directors and staff have equity ownership alongside shareholders. Our long-term approach, which results in lower turnover is more tax effective for shareholders. Moving on to Slide 6. This chart shows AMCIL's dividend history, including special dividends over the last 5 years. Given the active management of AMCIL's portfolio, the company can generate a significant amount of realized capital gains and franking credits from year-to-year. These can be used to supplement underlying earnings, to support dividend payments. In addition, realized gains can be used for the payment of special dividends, which is a significant benefit to shareholders. The final slide I'll talk to is Slide 7. This speaks to AMCIL's objective. I'll just wait for the slides to catch up. It speaks to AMCIL's objective of delivering capital growth as well as franked dividends over the medium to long term. These figures include the benefit of franking. Over 25 years, the portfolio performance has been ahead of the index, notwithstanding performance has lagged more recently, which Winston will discuss later in the presentation. Turning to Slide 8, and I'll hand over to our CFO, Andrew Porter, to discuss the financial results. Thanks, Andrew.

Thank you, Alison, and good afternoon, ladies and gentlemen. So the results summary for the year is on the current slide. It's in a format familiar, I'm sure to many of you. As you can see, profit for the year was slightly up. Dividends received were down mainly from reduced holdings in Wesfarmers and the banks. But the interest that we received was up. We had a larger contribution from the options written portfolio and expenses of roughly 10% or $200,000 down on the prior year. Now expenses are usually discussed by reference to the MER of management expense ratio, which is the box on the bottom left. This was 0.57% for the year or $0.57 for every $100 invested. It's calculated as the ratio of the expense over the average portfolio for the year. So although expenses were down for the year, the MER was slightly up because of the fall in the portfolio value, which we'll go through later on in more detail. So despite the slight increase, the MER is in line with or even below years when the MER has been much higher. We've talked about the portfolio in the bottom right corner, down from $411 million last year to $339 million this year, and Winston will go through some of the main drivers for that shortly. As for dividends, Alison has mentioned realized gains. The realized gains were $6.1 million this year, down from $13.7 million last year. So this reduced the amount of special dividend that could be paid down from $0.03 last year to $0.005 this year. So although down on 2025, the total dividend was the same as 2024. Dividends will continue to be set having regard to earnings and realized gains and also availability of franking credits. On that note, I should say that we have an in-reserve franking credit sufficient for roughly $0.04 worth of dividend after paying the final and special this year. The premium discount of the NTA to the share price is shown on this next slide. Although pretty much unchanged from the same time last year, the Board is very aware of it, and we do show it every month with the NTA. And in fact, we highlighted every week with the estimated NTA that we put out on Monday morning, which is compared to the share price. So investors should be well aware of it, too, and the ability on these figures to buy $100 worth of investments or $84. We have increased marketing activities across all 4 LICs and Claire and Suzanne are testament to that, including highlighting the advantages of an LIC structure. We've also done some buying back of shares when it seemed appropriate. Some $7.6 million worth of shares were bought back during the last financial year. Perhaps though, the most important thing that we can do is to improve the portfolio performance. AMCIL is usually more volatile than the other LICs. And this year, unfortunately, the volatility has been on the downside. With that and more details on what has happened and looking out to the future, I'll hand over to Winston.

Thank you, Andrew, and good afternoon. For those I haven't had the pleasure of meeting, I've been with the group for 2 years as Assistant Portfolio Manager of AFIC, and I'm delighted to be serving shareholders in this new role following my recent appointment as Portfolio Manager of AMCIL. I consider it a great privilege and I'm taking on the role with a strong sense of responsibility and stewardship of shareholder capital and the delivery of long-term value for shareholders in the years ahead. I have over 15 years' experience in markets as an analyst and investor and as an AMCIL shareholder myself, I'm energized by the opportunity to work with our team to drive the improved investment performance, and I look forward to meeting with our fellow shareholders in the coming weeks and months ahead. Turning to Slide 12 on performance. It has been a disappointing year of performance for AMCIL shareholders. The portfolio returned negative 10%, and which is AMCIL's total return, including franking and all costs and taxes paid. This was behind the market's return of a positive 7.2%, including franking. These returns to FY '26 have also weighed on AMCIL's 3-, 5- and 10-year returns, which are all behind benchmark as well. As Alison highlighted earlier, the longer-term returns are still strong, but clearly, recent performance has been below expectations. Over the next couple of slides, we'll touch on some of the drivers of this performance in the last year. On to Slide 13. Here, we give an overview of total returns for the ASX 200 and the various sectors that make up the market. Sector returns diverged sharply in financial year '26. Materials was a standout at 52% up driven by the major miners BHP and Rio, which were both up 68% during the year. Gold, lithium and smaller resource companies were also strong. On the other end of the spectrum, health care and IT were the worst performers down 36% and 37%, respectively. With stocks like CSL, ResMed, Cochlear, WiseTech and Xero all down materially. AMCIL was precisioned unfavorably against these moves with a large underweight materials and a significant overweight in both health care and IT. As such, sector positioning was a significant headwind to AMCIL's relative performance in financial year '26. Moving on to Slide 14. We provide some additional detail on the key stocks that drove the portfolio's relative underperformance. On the left-hand side, the negative contributors or detractors, overweight positions in CSL ARB, Gentrack and WiseTech as well as our underweight position in BHP all contributed meaningfully to relative underperformance. Combined, these 5 detractors accounted for a bit under half of the underperformance. And I'll speak about each in turn. CSL was particularly disappointing with multiple earnings downgrades driven by competitive pressures, weaker vaccination rates and underperformance in Vifor. The company also announced CEO and CFO transitions during the year, and together, these factors resulted in a significant derating in the stock. ARB was also impacted by earnings downgrades, reflecting a softer domestic market and margin pressures, which similarly led to a sharp derating in its multiple. We retained holdings in both companies as we continue to regard them as quality businesses with attractive long-term prospects. However, we have reduced portfolio weightings in both companies over the last 6 months to reflect the uncertain near-term outlooks for both. BHP has benefited from resilience in the iron ore price and strength in the copper price, and the portfolio's underweight positioning contributed to relative underperformance in a year, the share price is up 68%. Both Gentrack and WiseTech have been caught up in the broader artificial intelligence-led sell-off in software stocks since the start of this calendar year. However, individually, they have both experienced some stock-specific issues with Gentrack downgrading earnings in May due to a slowdown in high-margin project work and delayed project wins. WiseTech has also had a slower year of growth, but the market has also derated the stock heavily on concerns over customers transitioning onto a new commercial model and lingering governance risks. On the positive contributors, you may recall that in prior -- in the prior year, AMCIL exited its position in CBA. While CBA's underlying business has remained sound, the stock derated from an elevated valuation at the start of the year and as such, contributed positively to AMCIL's relative performance. Woolworths, which the portfolio has been overweight was a strong contributor as the company recovered from issues in the prior year and demonstrated improved sales trends and a sharper focus on costs. ALS, which provides testing services to the life sciences and mining industries contributed positively to portfolio returns owing to strength in its commodities testing business. Redox, while a smaller position in the portfolio had a strong year of performance as the market started pricing it as a beneficiary of stronger oil prices due to the flow-on effects to chemical prices. And AUB contributed positively to portfolio performance as the stock rerated off a low multiple following some M&A in the insurance broking sector. Unfortunately, the portfolio's positive contributors were more than offset by its detractors, and this, combined with the sector positioning discussed on the previous slide, drove AMCIL's relative underperformance for the year. Moving on to Slide 15, we discussed some of our portfolio activity to position the portfolio for improved performance. Over the past 6 months, our portfolio activity has sought to use market dislocations to buy quality companies at attractive prices, while also concentrating the portfolio in stocks in which we have the highest conviction. On our additions to existing holdings, we've used a broad AI-related sell-off to add to high-quality software and technology stocks in the portfolio, including Seek, Carsales, Net Wealth, TechnologyOne and Temple & Webster. While we are monitoring the potential disruption risks stemming from the impact of artificial intelligence, there has been very little impact of note to date. And we believe there's risks are pricing to the multiples the stocks were trading on. We've also recently been adding to Sigma Healthcare on share price weakness. Sigma is the owner of the Chemist Warehouse franchise and is delivering exceptionally strong sales and earnings growth. Volatility around the conflict in the Middle East has given us opportunities to add to Auckland Airport at a time the market has been worried about the impact of higher oil prices on airline capacity. History suggests these types of events for airports tend to be temporary and can provide good buying opportunities. Conversely, as oil prices started declining when a resolution to the war was looking more likely Woodside shares retreated, and we took the opportunity to add to our position. We're attracted to Woodside for its meaningful cash flow growth over the next few years, and even at lower oil prices, we believe this to be true as this project starts to come online. Lastly, we added to our existing position in Block as our thesis on product innovation and market share, driving strong earnings growth and cash generation continues to be affirmed. The company is still trading on very reasonable -- on a very reasonable multiple, has a net cash balance sheet and is undertaking capital management. Three new companies were also added to the portfolio in the last 6 months. We've taken initial positions in Ramsay Healthcare and ASX, both companies have suffered from missteps in execution and strategy over a number of years. We see scope for a turnaround following the appointment of new management at both businesses, supported by their unique assets and competitive positioning. Insurance broker AUB Group was also added to the portfolio. The company has experienced a significant share price decline from sentiment around artificial intelligence and also cyclical weakness in the premium rate cycle. AUB has a strong track record of growth, and we believe an eventual recovery in premium rates will see this growth resume. To fund this buying activity, we've trimmed holdings across a number of stocks that have performed well and we're approaching full valuations, including Macquarie Technology, Woolworths, Reece, ALS and Macquarie Group. The reduction in BHP was a result of option exercises during the period, while the trimming in CSL was done as a result of reduced conviction following the former CEO's departure. We also had 6 complete disposals in the period as part of an effort to concentrate the portfolio in fewer high conviction stocks. Exits in Redox, Pexa WiseTech, IDP and The Environmental Group were all as a result of reduced conviction in the quality characteristics of these stocks. On REA, we still regard it as a high-quality company However, we have exited on relative grounds with the proceeds partially funding our buying in Seek and Carsales. Moving on to Slide 16. Here, we give a snapshot of the portfolio as of the 30th of June 2026. The portfolio's total value was $340 million across 41 Australian and New Zealand listed stocks. And this amounted to a net tangible asset value of $1.08 per share. We also show here the top 20 holdings in the portfolio. As you can see on the slide, we've got a mix of stocks owned primarily for growth like Goodman Group, Resmed and Sigma as well as stocks owned for income like Transurban, Telstra and Region. Across industries, we've got a mix represented in the portfolio from financials like Macquarie, industrials like Mainfreight, retailers, Woolworths and Wesfarmers, Syntech in Car Group and Block, resources and energy in BHP and Woodside and real assets such as Auckland Airport. We believe having a diversified portfolio of high-quality companies is a key enabler to AMCIL delivering on its investment objectives through the cycle and continue to look for opportunities to refine the portfolio's composition to support these objectives. Turning now to our outlook on Slide 18. On markets, it's interesting to reflect that FY '26 was actually the fourth year in a row of positive returns for the Australian share market. This is a quite remarkable outcome given the shocks that have occurred to economies and markets over recent times from events, including the Trump tariffs last year, volatility interest rates and, of course, the current Middle East conflicts. On the market valuation, as the chart on the left here shows the Australian share market is currently valued at just over 17x forward earnings. While this is below recent peaks of 20x, it's still above the long-term average of 15.1x. In terms of dividend yield and other measure of valuation, we show on the right-hand side that the market currently offers only a forecast dividend yield of 3.7%, which is below the long-term average yield of 4.5%. As such, both these valuation metrics indicate to us that the overall market is what we consider moderately expensive at current levels. Turning to Slide 19. Against this valuation backdrop, our focus remains on ensuring that the portfolio has strong long-term prospects based on the quality of our companies and where their valuation sit. Despite last year's performance being below expectations, when we look through the portfolio companies, we note that many of them have strong balance sheets and are well positioned to deliver continued earnings growth, which we now experience, drives share prices over the long term. We continue to actively assess the portfolio and test our conviction in our holdings, particularly monitoring for changes in quality and ensuring valuation discipline. We think a focus on both of these factors is key in achieving better long-term returns for AMCIL shareholders going forward. Going into the upcoming reporting season, the portfolio has a healthy level of cash and we'll be monitoring carefully for opportunities to take advantage of short-term dislocation in quality companies. In closing, I'd like to thank you for your interest and attention. And with that, I'll hand it back to Geoff for questions.

Okay. Thanks, Vincent. So just a reminder, to ask a question, you ask a question at the bottom of the page in the ask a question box. We've got a couple here on performance, and they're both quite lengthy, so I'll go through them individually. The performance of AMCIL was very long way short of the benchmarking index. It seems that mathematically, the only way that this shortfall could be made up in the near term would be if there's a huge decline in the ASX 200, of, say, 40% but the quality and conservative AMCIL portfolio only fell by 20%. Then AMCIL will move close to matching the performance of the benchmark index. Do the investment team see any other ways that the performance could be closed the gap on the target index performance? Winston?

Yes. Yes. So as the charts we showed in the numbers that we've showed, we acknowledge that the recent performance has been disappointing, and that has impacted the 1, 3, 5 and 10-year numbers, as we showed earlier. Longer term, obviously, the performance that Alison showed on that chart at the start is still positive. I think we look at the portfolio here and now and look forward and what we can do to impact future returns. And for us, that is both a risk and return equation. So in kind of looking at the portfolio's volatility, AMCIL will always be a higher volatility portfolio and the returns will be more volatile than other funds in the AFIC Stable. However, we are still looking to manage a risk and to maximize the return for that risk. So going forward from this point, we are taking measures, and we can provide a more detailed update later this year at the AGM on what exactly we're doing, but that is the intention that we're unhappy and dissatisfied with this year's performance and its impact on the longer-term numbers and are looking at measures to turn it around. I would say our focus remains on quality. So we're not changing our investment philosophy. We're looking for iterations where we can improve.

Thanks, Winston. This question is also, I guess, covering I'll say, the inputs of ETFs in the market. I have been a shareholder since AMCIL began. I am a long-term shareholder in all the LICs in the stable. I've been satisfied with AMCIL's more active approach in the past, but the current financial results has shown it's active management style has not quite worked. In the area of massive ETF flows, inflows, I should say, and the computer-driven styles are managing many of the passive funds, maybe it's time to have be a little bit quicker and more active in response to share price changes, many being driven by these new investment styles. Even if we pay more tax -- even if it means pay more tax, that will create increased franking credits and may help to reduce extensive capital losses in the large portfolio positions. The whole market is being affected by massive index-based computer-driven investment from super funds and ETFs. And I think AMCIL's management style may need updating as it is classed as an actively managed fund.

I might jump in there, if that's okay, Geoff. Obviously, it's early days for me as a new CEO, we're sort of 2 weeks in and taking the time to work with the team to look at all things. But I think in relation to the performance -- so clearly, Winston said that it is disappointing, and we are disappointed and we are working very hard to try and improve things going forward. I think importantly, Winston touched on, too, that the mandate, the investment philosophy around focusing on quality companies will not change. And whilst we'll be reviewing processes and things like risk management, how we're integrating AI, those things. I think the fundamentals of investing in quality will not change. And I've been in markets for 25 years now and seen a number of cycles where sectors and certain stocks can become overhyped for a period of time. And that may mean we underperform and index for shorter periods. But we do believe as a team that quality will perform over the long term. Now we clearly need to have a look and assess what's happened and take some of the learnings going forward. And we are absolutely doing that as a team. And it's pleasing to have someone like Winston now focusing on the portfolio going forward, and he's already implemented a number of changes in the way we're looking at it. So I'm really pleased to see what's happening in these early days, as I said, and we will be coming back to shareholders at the AGM in October this year to talk more broadly about some of the changes that we're implementing. And hopefully, we will see the improvement performance come through over the long term.

Thanks, Alison. A question here about Redox, just the reason for exiting the position the company appears to have strong fundamentals, a sound long-term track record and high management shareholder alignment.

Yes, It's Kieran Kennedy here, obviously, the portfolio manager looks at smaller companies like Redox within the group. Look, so I think in the question, I agree with a lot of what's said there, and that's why it was in the portfolio and is one we continue to monitor and one we do still own Mirrabooka. I guess one of the things we think about with the stock like Redox is its revenue is influenced quite significantly by the prices of the product it's selling, which it doesn't control. So it's a price taker in terms of the chemicals that's distributing. That's what the business does. That creates a degree of volatility in the earnings. And obviously, with some of the inflationary things we've seen around the world recently, that has been to their benefit. And we've seen in recent years, it was actually a lower point in the cycle. So going back to some of the earlier questions, we're mindful of earnings volatility and the extra share price volatility you can get on the back of that, particularly in smaller companies. So when we're at a point in the cycle where we think it's quite full, we think it's prudent to move the position on. But it is one we'll continue to keep an eye on if there's opportunities in future cycles.

Thanks, Kieran. Question here, Andrew, about what the percentage of cash is in the portfolio at the end of June. .

At the end of June, it was 5%. The total portfolio was in cash.

So a reasonable cash position in the context of financial.

And just cognizant, we are paying the dividend. Also reserving some cash to deploy opportunities this reporting season.

Thanks, Winston. Another question on performance. Given the large underperformance, I question whether AMCIL is responding quickly enough to react to the losses -- loses within the portfolio.

Yes, it's a great question. And this is something we've reflected on as a team, particularly with changes to market structure and the volatility we're observing in the share market I think particularly for AMCIL, we think about what is its competitive advantages. So one is that we are a fixed capital base, we can take a long-term view. But we're also smaller than the other funds and can be more nimble and active. And I think there certainly is that opportunity Hopefully, when we give you an update later this year, we can share with you some examples of how we have been more active around changes in our conviction either based on valuation or quality factors for our process. But that is certainly something that one of the changes we are looking to make to be slightly more active but also to act on changes in conviction.