Australian Foundation Investment Company Limited (AFI.XA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the 97th Annual General Meeting of the Australian Foundation Investment Company Limited. My name is is Craig Drummond, Chairman of your company. The Company Secretary has confirmed that we have a quorum, and I'll now open the meeting. We've just got a few more people, a few stragglers coming in. There's plenty of room on the far side. I'd like to begin by acknowledging the traditional owners and custodians from all the lands that we're gathered on today and pay my respects to the elders past, present and emerging. May I introduce the people on stage with me here. We have our Managing Director, Mark Freeman.

Good morning, everyone.

And my fellow nonexecutive directors, Rebecca Dee-Bradbury, Julie Fahey, Katie Hudson, Graeme Liebelt, Richard Murray and David Peever.

Good morning.

Also on stage, we have our Company Secretary, Matthew Rowe.

Good morning.

Our Chief Financial Officer, Andrew Porter.

Good morning.

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

Good morning.

In due course, we'll be hearing from Portfolio Manager, David Grace; and Assistant Portfolio Manager, Winston Chong. We're also joined today by other members of the investment team who are in the front row of the audience. Do you want to just stand and just turn around, just so people know who these faces are. Thank you, team. I'll also take the opportunity to introduce Kate Logan, partner of our 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. Today's meeting is being held as a hybrid meeting. Today's presentation has been released to the ASX and 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] If you have not entered your shareholder number or proxy number, you will be required to provide these details before you proceed. [Operator Instructions] If you require further guidance, please click on the virtual meeting online guide link on your screen. Please also note that your questions may be moderated, or if we receive multiple questions on the same topic, amalgamated together. To cast your vote, click on Get a Voting Card button on your screen. Where prompted, please provide your shareholder or proxy number and follow the prompts. Once verified, a voting card will be issued, and you'll be able to lodge your votes. Click Submit Vote at the bottom of the voting card to lodge your votes. If you have multiple holdings, you will need to obtain a voting card for each holding. Shareholders' authorized representatives and appointed proxies in attendance here in Melbourne would have been issued with a yellow card to vote on each resolution. If you are eligible to vote and you have not received a yellow card, please see a representative of the share registry, MUFG Corporate Markets, in the foyer. If you have any questions about how to complete your voting card, please see a representative from the share registry who, as I said, is just outside. I'll now declare voting open on all items of business, and I'll give you a warning before I move to close voting. Before we move to the business of the meeting, I'd like to provide some additional comments. Ladies and gentlemen, the investment team will talk about the portfolio and performance today, but I did want to assure you that your Board is very focused on performance of the portfolio and shareholder returns. Over the past 12 months, investment returns relative to our benchmark have been below expectations. This has occurred against a backdrop of challenging performance for some quality growth stocks in the market and strong performance for the resources sector, in particular, gold, where we typically do not invest. Reported performance is also impacted by the payment of quite a lot of tax this year with the selling down of large positions in Commonwealth Bank and Wesfarmers. Investors captured the benefit through the payment of a fully franked special dividend rather than through headline performance. As you can see in the reports that we've sent you, the quality of the company names in our portfolio remain outstanding in our view. We have not chased a hot market by purchasing fashionable securities, and we retain conviction in our long-term investment process. Sometimes, however, markets do not price companies equity the way you expect. And even mild disappointments can, in the current environment, be met with dramatic declines in stock prices. All of that said, your Board does believe that the quality and prospects of the broad portfolio remain very good. The AFIC portfolio continues to generate value for investors through multiple levels of capital growth, dividend growth, including a special dividend, franking credits and very low fees. So over the past year, your Board has made decisions to require higher levels of management reporting and scrutiny of the portfolio and securities traded facilitated through the investment committee. We have made the decision to pay out to shareholders a meaningful proportion of the excess realized capital gain through the year in the form of special fully franked dividends. And we've continued to buy back shares at least to the level of neutralizing the DRP stock that has been issued. The price to NTA that AFIC shares trade at remained at a discount through the year. This is not something that your Board can control in the short term, but we are very conscious of this issue. As a result, we have further lifted our communication with brokers and financial planners, which has included the appointment of a full-time business development manager to target this sector of the market. As mentioned, we've also bought back shares in an orderly fashion as and when opportunities arise to take advantage of market pricing. The way that AFIC shares are priced relative to NTA will likely move from premiums to discounts over time. And in fact, over the last 10 years, the stock has traded at a premium around about 6 to 6.5 of the 10 years and a discount for around 3.5 of the 10 years. This discount or premium is impacted by a range of factors, such as the level of interest rates and momentum of the broader stock market. History suggests during more volatile periods, both in terms of market movements and the level of dividends, the discount tends to close as the share price moves less than the portfolio. Reflecting on the COVID-19 period when market dividends were cut substantially, the AFIC share price traded at a significant premium. We do remain very focused on investing in quality companies that outperform the market over an extended period. While we cannot determine, as I said, the discounted premium to NTA, we can ensure that we have instigated significant actions to deliver value back to shareholders on a sustainable basis. We've had a couple of questions about costs submitted during this AGM process. As shareholders would be aware, the management expense ratio, or MER, for the last financial year, which is the key measure against which we benchmark the cost of running the company, was 0.16% last financial year, a slight increase from the previous financial year of 0.15%. If the costs associated with the international initiative and the one-off costs from the new ESG reporting requirements are excluded, the MER would have been 0.13%, which compares favorably with peer group -- the peer group of traditional listed investment companies. We are required, as you are probably aware from other companies that you're invested in under the corporations -- under the government legislation to provide significantly more -- going forward, significantly more financial and accounting-related disclosures on the ESG area. And that has required a significant -- and will require across a range of companies, significant additional work and costs. A lot of that cost, however, will be largely one-off until we get into the rhythm of providing that information. We believe that this is an attractive at 0.16, which, as I said, the underlying number is 0.13. We believe this is an attractive cost for an actively managed fund, including actively -- including the comparison against actively managed ETFs. With the benefits that are listed, investment company structure can provide to shareholders. Nevertheless, we do understand every organization and every individual today is looking at their costs, and that does not exclude AFIC from continuing to look at its cost structure. Andrew Porter, our CFO, will run through, in more detail, in his part of the presentation, the costs associated with running AFIC and the major areas that determined our cost structure over the past year. Mark Freeman will comment later in the presentation about the international initiative. I just wanted to note that we're still considering the most appropriate next steps for this initiative, but in the meantime, shareholders continue to benefit from the good returns generated by this portfolio. We have completed a significant amount of preparatory work for the establishment of a separate low-cost global investment company in the future. However, we also need market conditions to be conducive for a successful launch and a positive outcome for investors. Moving on to the business of the meeting. I'll take the notice of meeting as read. With regards to the minutes of the 96th Annual General Meeting, they have been signed as a [ track ] record and are available for any shareholder wishing to inspect them today. The first agenda item is the consideration of the financial statements and reports for the year ended 30th of June 2025. We will do this via a presentation. After which, I will ask shareholders to comment or to raise any questions either about the presentation itself or of the auditors if they have any questions about the audit. I'll now pass to our Managing Director, Mark Freeman.

Okay. So thanks, Craig, and good morning to you all. It's always great to see a solid turnout for an AFIC presentation. I find these meetings are really important because understanding who we're actually managing the money for. For the whole team, it's really important, and it's an important part of accountability and understanding how important it is that we try and generate good solid returns for the shareholders. So just moving to the presentation. I think we're starting with a disclaimer. Obviously, we're here to talk about what the company is doing. We're not here to give any advice as such. Just on to the agenda. Craig has already touched on this, but just to reiterate, I'll just make some opening remarks. Andrew Porter will talk about the results, then David and Winston will give an overview of the portfolio in markets, and I will come back at the end and make some comments about international. And as per usual, looking forward to your questions at the end, which I'm sure there will be. So just moving on to the overview and objectives. Just to remind everyone, we'd still predominantly invest in Australian and New Zealand companies, but about 1.5% of the portfolio is in the international segment. There's about 40-odd stocks within that. So it's still a very small component of the overall portfolio, but they're great companies, and they've certainly added to performance since we've invested into that. So I'll touch more on that at the end of the presentation. We're still the largest listed investment company on the ASX, around 150,000 shareholders with independent Board of Directors, which is a critical part of oversight. Obviously, we're seeing in the market at the moment, there's been a few issues with some investment products. So having something like AFIC be a listed company, it's transparent. You can meet us, you can see the accounts. The quality of our directors are outstanding. They give you the oversight. It should give you a great deal of comfort in the strength of the investments in the fund. As a part of that, because we are a company, the shareholders own the business. There's no external manager. There's no fees flowing to an external manager. We are just employees of the company, and Craig touched on the low MER. And there's no performance fees, again, going to a third party. And so most of the benefits of the investment returns go to you, the shareholders. We want to be a long-term investor. This challenges us more and more every year because increasingly, the volatility in the market seems to be getting more extreme. I think the amount of money flowing into ETFs and industry funds means there's ever-increasing amounts of money chasing the same amount of stocks when they're going up or getting out when they're going down. I think we're probably seeing some of that play out in our portfolio probably more on the negative for the last calendar year. But ultimately, I think it should be a positive for us because the structure of an LIC means we're closed in, the capital is fixed, we invest when we want to invest, and volatility should be our friend. What's important for us, though, is to keep thinking about our process. And when we've had a tougher year, that is certainly a time when you need to sit back and have a look and reflect on the process. And it just reinforces my view that we need to stick with the quality, but we are value investors around quality businesses, and I think the industry and market structure should mean there's going to be more opportunities for us going forward as long as we're patient and wait for opportunities to come for us. So I think there's going to be plenty out there for us. That's going to be very beneficial with the structure we have. The other part of being low turnover is we do understand that tax is a drain on your returns. Other managed funds don't consider tax. It's a real cost, and we want to be tax effective in the way we manage the portfolio. And we do have a long history of stable dividends that we do want to grow over time. We do keep some franking credits within the company for a rainy day. Over the last 15 years, we've had the GFC and COVID, and they've really tested the model out well in terms of us being draw -- to draw on those franking credits to sustain the dividend through the tough times. Obviously, the team manages 3 other LICs, Djerriwarrh, Mirrabooka and AMCIL. And I think they're important for the overall group because it means we are covering, I guess, most of the market in seeking out opportunities. So if we just move to the next slide. Obviously, this is stating something we stated many times. We do want to have stable and growing dividends, but we also want to provide attractive returns over the medium to longer term. And on to the next slide, just going back to the dividend here. We're showing you the dividend profile of AFIC. The yellow line is the earnings per share. So that's what we've received from the companies we invest in. And you can see the first 3 segments was during COVID. And you can see the yellow line was falling. Because of COVID, companies cut their dividends. The blue bars is what we paid out in dividends. So we sustained the dividend even though the earnings we were receiving were declining. Since then, the earnings of the market has rebounded, but we have sustained the dividend. And more recently, we started to increase them as we paid out the capital gains, some of the capital gains we received. It's interesting to see, though, the yellow line now started to drift off. So the dividends we've received has started to decline slightly over the last few years. So just an interesting slide to reemphasize the stability of the dividends you receive from AFIC. And there's a quick chart over the next page, looking at the long -- this is a very long-term chart of the accumulation return out of AFIC compared to the index. Just reiterating some of the comments Craig made, I also had some questions about LICs, and Andrew will have a chart on it shortly. The discount on LIC is affecting the whole sector. It's just not AFIC. I can only see a couple of LICs that are trading around fair value. Most of them are paying exceptional dividends, often paying out a lot of capital gains, which is producing very high yields. But I would just caution around that paying very high yields out of capital, it can be temporary in nature. But it is something that's affecting the whole sector. But it was only a few years ago, we were trading at a premium, and I think a lot of people forget that. And ETFs have been around for quite some time. And when Andrew shows you the chart, you will see that we have spent much of the time trading at a premium. What it says to me is there is value in the sector. Now I just caught up with my old boss last week, and he was reminding me -- some of you might know Bruce Teal, we caught up with him again. And we're talking about discounts. And he just said, Mark, eventually, the market will see the value in them, and there's plenty of value to be had. So I think it's important for us, going forward, is to keep up investing in quality companies. And every time I do these meetings, I look through the night before and retest myself on the stocks we're holding because I need to be able to come to you and say we are holding good companies. They don't always work in our favor, and we've seen that probably over the last calendar year. But it still pass the test. So I still look through our portfolio and say these are good companies, and they're companies that have leadership positions, generally strong balance sheets, good management and plenty of opportunities to grow profits and therefore, dividends and some of our larger positions, we see considerable value in at this point. And that's really always what we want to be able to say with AFIC. We are holding good companies. But at the same time, when you have periods of underperformances, there are always learnings you can take from it. And there's always ways we can go back and test the process to seek improvements. And that is certainly happening. So with that, I'll pass over to Andrew Porter to talk about the financial results.

Thank you, Mark, and good morning, ladies and gentlemen. As is traditional, I will run through some of the key financial metrics briefly, and then David will go through the portfolio and investment performance together with Winston. So as you can see from the slide here, the profit for the year came in at $285 million, so 4% down on the previous year. We were expecting dividends that we received to be down on aggregate, and this proved to be the case. For instance, BHP's dividend was down nearly 19% and Woodside's down 13.5%. But the fall was perhaps not as steep as we had thought. So overall, our dividend income was down 3%. Costs were also up, and I'll come on to that later. The upshot of all of that was, as per the chart that Mark has shown you, that earnings per share were just under $0.23 whereas last year, they were just under $0.24. So a large proportion of the final dividend was sourced from realized gains as was the special dividend. The ordinary dividend was increased by 0.5% to $0.265. At the current estimated portfolio or NTA, this represents a gross -- so grossing up for franking credits yield of 4.7%, well above the market's 3.9%. The current share price, of course, with the discount the yield is, of course, even better, 5.3%, largely due to the selling of some stocks that we believe have reached very full valuations. AFIC made a lot of realized gains during the year. The Board, therefore, decided to use some of those to pay the special dividend of $0.05 that Craig had mentioned. The yield figures that I mentioned earlier do not include that special. The full final and special dividends, as I said, was sourced from current and past realized gains. This is important to note as it means that shareholders who pay tax as either an individual or a super fund can claim a tax reduction on that dividend. I would recommend checking that your accountant has included this deduction on this year's tax return as it can be very meaningful. And I am somewhat disappointed by the number of tax agents and accountants who are unaware of this important deduction even though details are on the dividend statement. And if anybody needs more details on this, I'm very happy to talk to them after the formal proceedings are finished. We've actually been asked a question in advance on where to details of what is known as the LIC portion of the dividend can be found. It is highlighted in the results announcement each time the dividend is announced and is on the dividend statement, of course. But the question did get us thinking. So we are going to look to include that in the dividend history section of the website shortly. So thank you to the shareholder for raising that. After allowing for the payment of the final dividend, at the end of the financial year, AFIC had sufficient franking credits in reserve to pay just under $0.55 worth of per share of franked dividend. So we believe that we are currently adequately reserved for the immediate future. The portfolio return in the box at the bottom was below the market for the year, as indeed it was for the longer-term periods that we measure, but not to the same extent. And I know that David is going to go through that in more detail shortly. The last box here is the MER, or management expense ratio. This is a measurement of the costs of running the company. This is expressed as a percentage of the costs incurred over the average portfolio for the year and is equivalent, therefore, to $0.16 per year for every $100 invested. This 0.16% is up on last year's 0.15% as the costs grew more than the portfolio. We have been asked about this, so I will now go into a bit more detail than I usually would over this, but please feel free to ask me after the presentation if you need even more detail. The costs that are shown in the annual report include the costs of providing support to all 4 LICs. So it excludes the amounts of the other LICs, i.e., Djerriwarrh, Mirrabooka and AMCIL contribute. After adjusting for this, the costs rose from $13.4 million to $16.7 million. This increase was the result of a number of factors, and I will highlight the more material ones. As Craig noted, we have some new ESG reporting requirements this year, which the government has introduced. Some of this is quite technical and has required some costs to be incurred to ensure that we are in a position to meet these new requirements. There have also been some costs, for instance, legal tax and accounting, associated with exploring the options for launching an international LIC, which Craig has already alluded to. These will be capitalized should a separate vehicle be launched, but at the moment they have to be expensed. We also changed share registry during the year, as I'm sure you've all noticed. This led to some additional costs this year but will also lead to reduced costs in the future. And as Craig has also alluded to, we have increased our marketing activities this year, and we'll continue to do so. But that, of course, comes at a cost. We had some staff leave in '23-'24, which meant that costs were lower that year. These were replaced in the '24-'25 year, which has meant that costs year-on-year naturally increased. Now staffing and salaries are the largest part of our cost base. As part of the remuneration process, the proportion of some people's at-risk pay was increased and some packages were adjusted, largely not for the senior executives and portfolio managers as staff moved to new levels. The Corporations Act encourages and good corporate governance requires that senior staff pay reflect their and the organization's performance and shareholder outcomes. It makes sense, therefore, that if overall pay is being increased, that a greater part of this comes from performance-related pay. If shareholders get a better outcome, that triggers the payment. Now AFIC has a timing issue here, which I will briefly explain. We accrue for the full amount of a performance-related pay during the year. Once the results for the year are known, the amount reserved for this is adjusted downwards, but this occurs in the year after the performance. In good years, this adjustment is smaller than in not so good years, which increases the cost. Performance for the year and years ending 30th of June 2023 was not so good, and therefore, the refund was larger in the year ending 30th of June 2024, which reduced the expenses for that year. Conversely, the performance for the year ending 30th of June 2024, if you can cast your mind back to that, was better. And therefore, the refund that was received during that year, the '24-'25 year, was smaller, increasing the costs. I don't know if anybody here remembers the American comedy soap. It always began with a recap after which the announcer would say, "Confused? You won't be after this week's episode," which, of course, simply further confused everybody. And I suspect that many of you here will be feeling exactly the same way, just to file so. Suffice it to say that '24-'25 was the year of a concatenation of circumstances in this area, which increased costs. We had a lower refund from the year before, plus we have had to accrue for a larger amount of profit-related pay. You have all seen the performance this year just gone. It will, therefore, come as no surprise that the refunds that have been received in the current financial year, i.e. '25-'26, are much larger than those received last year, and that, therefore, this will reduce the cost for the current year regardless of the investment outcomes. The difference between the 2 years was substantial. And at last year's average portfolio value would have decreased the MER from 0.16% to 0.15% by itself. The remuneration report does show the amount foregone by the executives only in respect of the underperformance, but this also includes amounts for instance, paid for by Mirrabooka, where the performance was actually very good. There are also costs associated with maintaining a company structure, which are included in the MER. We continue to believe that this LIC structure is one that has worked and continues to work very well for shareholders, providing transparency, the benefits of corporate governance and most importantly, the ability to create profit and franking reserves to help supplement the dividend when necessary. Unlike an ETF unit, which has to pay out income as it is received, and in a form that now requires additional components to your tax return and costs incurred by your accountant, unlike the simple AFIC dividend. This reserving is useful as we are currently seeing dividends paid by the market increasing, for instance, both BHP and Woodside's most recent dividends, for instance, were down on the same time last year, which were down on the year before. And BHP has been a significant contributor to the market's dividend totals. As Craig has noted, the Board takes the issue of costs very seriously, remains focused on them and is committed to maintaining a competitive MER. The next slide shows the premium discount chart. This is probably the one drawback of an LIC structure, although we think the benefits continue to outweigh the negatives. Both Craig and Mark have addressed the discount issue in their remarks. And therefore, I won't cover it again here. But just to note, this illustrates what Mark has talked about, about moving between a premium and a discount. We are in a discount. At the moment, we have been in an extreme premium. So as ever, though, I will be here to answer questions on that or any other topic either at the end of the presentation or after that over a coffee. So with that, I will hand over with what I'm sure for most of you is a sense of profound relief to David.

Thank you very much, Andrew, and good morning, everybody. So the chart on this slide outlines performance of the portfolio, ASX 200 over various time periods. All portfolio and index returns are grossed up for franking. For the AFIC portfolio, the returns only include the franking that has been distributed to shareholders. As earlier outlined, we maintained a meaningful reserve of franking credits, able to be distributed in future periods as we endeavor to maintain a stable to growing dividend over time. The special dividend announced our FY '25 results of $0.05 per share fully franked is a partial return of the franking credits generated during the period, particularly from our reduced now holding in CBA, which were reduced quite materially over the course of the last 12 months, and we'll show you a chart as to why in a later slide. The portfolio returns are represented by the green or the blue bars, and the ASX 200 return is the purple. The 1-year performance on the left-hand side has been disappointing and well below our own expectations. Over the last 12 months, the portfolio returned 7.4% against the ASX 200 return of 16%. As the chart shows, the drag from the 1-year performance is weighing on returns over longer term -- longer time periods as you move to the right of the chart. I'll discuss the key drivers of the 12-month underperformance on upcoming slides. So portfolio performance ended August is not where we want it to be. We've reviewed the drivers that have led to this outcome and will adopt key learnings into our investment process going forward. On this slide, we outline what worked and more importantly, which stocks didn't. The box on the left-hand side shows the key positive contributors. So that's the portfolio's overweight positions in Netwealth, JB Hi-Fi, Wesfarmers, Coles, Computershare and Telstra, all contributed positively to performance. The box on the right shows those companies that were held within the portfolio that have meaningfully dragged on performance in the period, namely Reece, James Hardie, IDP Education, Amcor, Mainfreight and CSL. On the following slides, I'll provide some additional detail regarding our current thinking on a number of these companies and outline the investment case from here. At a high level, both Reece and James Hardie are exposed to the slowing U.S. residential construction market. IDP saw a material deterioration in student numbers as government policy has severely constrained international student mobility. While both Amcor and Mainfreight faced slowing end markets with business and consumer confidence weaker than expected, while the uncertain funding environment for the U.S. health care system has weighed on CSL in recent times. We consider that all these companies have been impacted by temporary cyclical headwinds. We don't consider that any of these businesses being structurally impaired. Additionally, as highlighted on the bottom right-hand side, having no exposure to gold producers weighed on performance as a sector had a particularly strong year in the last 12 months. So on this slide, we discuss the investment case for 4 of the companies that have been a drag on performance. We continue to hold each of these companies as we believe that at current valuations, we will achieve attractive investment returns. The short-term challenges will fade. Timing is uncertain, but when they do, all of these companies are well positioned to capture attractive long-term prospects while a starting point of trading at attractive valuations. All have very strong position in their core markets; all are generating significant free cash flow. And in the case of the top 3, CSL, Mainfreight and Reece, they have strong balance sheets. We recently reduced our weight into James Hardie as the balance sheet now has too much debt in our view, following the acquisition of [ ASA ] in the U.S. So to recap, CSL develops therapies to treat chronic disease, chronic meaning it's a long lasting condition that generally cannot be cured and requires ongoing treatment. The company guided to a slowing earnings outlook in FY '26. However, industry growth remains mid- to high single digit, and CSL is well positioned to deliver strong earnings growth and is now trading a large discount to the market. Mainfreight is a global provider of transport, warehouse and air and ocean services. The company focuses on more complex value-added services, developing a competitive advantage through the unique service lead culture. Key operating markets are Australia and New Zealand, which contribute to the vast majority of the profit. The recent cyclical slowdown in the New Zealand economy has weighed on earnings. The RBNZ is now currently cutting rates aggressively in an attempt to stimulate economic activity, which no doubt main freight will benefit from. Reece holds a market leadership position in Australia for the distribution of plumbing supplies. In 2018, the company entered the U.S. market via the acquisition of Marsco, a plumbing distribution business with large exposure to the U.S. new housing market. The business performed exceptionally well, almost tripling earnings between 2019 and 2024, and we did trim some of our holding towards the end of this period. More recently, we have seen a material slowing in the U.S. housing market as mortgage rates stay high and consumer confidence softens. While near-term conditions remain challenging, Reece maintains a strategic asset base that has proven it can deliver meaningful earnings growth in better markets. James Hardie has seen a similar cyclical slowdown in the U.S. construction market. Its core products are market-leading, and the company has a large opportunity to continue capturing market share. As earlier mentioned, despite the strength in its products, the balance sheet remains stretched following recent M&A. So to put some of these commentary into charts, the charts on this slide show the historic earnings and share price performance for CBA and CSL. In the last 12 months, as I mentioned, we have meaningfully reduced our CBA holding and added to our position in CSL. Charts go back to 2011, with the bars in each chart showing the company's annual earnings per share while the black lines track the company's share price. History shows that over the long term, share prices typically track a company's earnings profile. With the exception of the COVID period, CBA has delivered consistent incremental earnings growth over many years. What's unusual, however, is the rating the market is currently applying to that earnings profile. CBA remains a well-managed, high-quality business, but at current pricing, we expect investment returns to be more modest. The earnings profile for CSL has been consistently strong as the bars on the right-hand chart show. While the days of 20% earnings growth are behind them, the company remains well positioned to deliver above-average earnings growth and is now trading at a significant discount to the market. The charts on this slide show the same story, the valuation metrics between CBA and CSL. However, this time, we've shown the earnings multiples of each stock and how they have trended over time. We show the price-to-earnings ratio for both companies over the last 5 years. CBA now trades at 26x. That's a multiple of the earnings that the market is ascribing to the share price. This compares to its 5-year average of 20x. While CSL is currently trading on 18x earnings, which compares to its 5-year average of 32x. While we don't expect the CSL multiple to get back to its 5-year average, even a small improvement from here will deliver attractive returns. As long-term investors, we remain cognizant that the price you pay has a significant bearing on future investment outcomes. We first purchased Mainfreight in 2015. Earnings growth has been strong in the ensuing 10 years as the company has continued capturing market share in its core Australian and New Zealand markets. The company had a really strong period during COVID. We heightened freight demand during lockdown. The red line shows the share price outlining that Mainfreight has been a strong performer in the portfolio since first acquisition. We did reduce our holding given the strength they saw during that COVID period doing that to be unsustainable. From here, the company remains well positioned to deliver solid earnings, capitalizing on recent market share gains while end markets are set to improve over the course of the next 2 to 3 years. I spoke earlier about the cyclical slowdown facing James Hardie and Reece in the U.S. construction market. The charts on this slide outline that whilst cyclical, the general trend in the core underlying end markets is positive. The longer-term opportunity for both companies continues to remain significant. James Hardie is the market leader in fiber cement with a long track record of capturing market share from other wood log and brick external cladding products. This reflects the superior performance and look and feel of fiber cement versus alternative materials. While Reece is a market leader in plumbing distribution, as I mentioned in Australia and its patiently establishing a footprint in the U.S. Current valuation for Reece is supported by asset backing with approximately 50% of the Australian stores owned and on balance sheet, while recent transactions of comparable businesses in the U.S. support a higher valuation than what is currently being priced in the [ recent ] share price. The last chart I'll show before I hand over to Winston on recent transaction activity was just on the gold price and the performance that we've seen over the last 12 months. History shows that over the long term, gold producers have been notoriously cyclical with earnings driven by factors that are largely outside the control of the operating companies. In hindsight, given the performance of gold over towards the right-hand side of this chart, we should have purchased a gold producer 12 months ago. It was an unusually strong set of circumstances set up for gold. Uncertain global economic conditions, geopolitical tensions, central bank buying as a store of wealth and rising government debt are all a positive backdrop for the gold price. Having missed the recent rally, we are reluctant to chase gold at current levels. While market conditions remain supportive, the gold price is now trading well above all-time highs, challenging conviction in generating an attractive investment return from current pricing. So at this point, I'll hand over to Winston to talk through transaction activity.

Thanks, Dave, and it's a pleasure to be here with you this morning. In managing the portfolio to achieve our key investment objectives, we're constantly looking for opportunities to add to our existing holdings or initiate new positions in quality companies with good prospects that are underappreciated by the market. Over the last 6 months, we've used share price weakness to add to existing positions as highlighted by the logos on the top left box of this slide. And I'll speak about each of them briefly in turn. As concerns grew earlier in the year about slowing spend on data center infrastructure, we added to positions in both Goodman Group and NEXTDC. Both companies have strategically located properties with well advanced plans to build data centers in areas where capacity is scarce and in strong demand. We also continue to add to ResMed, which remains a market leader in the treatment of obstructive sleep apnea, a prevalent condition that remains widely undiagnosed. The company is highly cash generative and is investing in raising awareness of the condition, broadening the funnel of patients suitable for therapy. We've also added to our position in WiseTech as our conviction in its long-term opportunity has been growing as the company has moved to introduce a new commercial model that removes friction from customers adopting more of its products and aligns us growth more closely with their productivity. This opportunity may take some time and in the short term, delays to product launches and integrating a large acquisition have led to share price weakness, which we viewed as a good opportunity to modestly increase our position. As many of you will know, Woolworths had a challenging year with disruption from industrial action, a change in leadership and execution that lagged competitors. There are 3 factors that are leading us to view Woolworths as attractive at current levels. The first are the underlying assets of the business with a store network of over 1,100 stores. The second being the opportunity to unlock latency in the business from unlocking recent CapEx spend and managing costs more judiciously. And lastly, the stock valuation, which looks attractive to us. As many of you will be aware, Mirrabooka investments is our low-cost, small and mid-cap LIC managed by AICS. Mirrabooka has a strong investment track record, and in May, announced a 1-for-7 entitlement offer for which AFIC participated in. The capital raising was in response to fall in share prices of many companies during April in anticipation that opportunities would arise to selectively out of stocks in their portfolio. We also had one new portfolio addition during the period, which was Telix Pharmaceuticals. Telix is a leading radiopharmaceutical company founded here in Melbourne that operates in a very exciting and growing field of precision medicine. Compared to existing treatments, Telix's technology offers more precise targeting of cancerous cells while also reducing damage to healthy surrounding tissue. Telix is in commercial stage, meaning that it's generating meaningful cash flow from products in market in the area of cancer diagnoses for prostate cancer and has a strong pipeline of late-stage development products across kidney and brain cancers as well. To capture the opportunities we've just spoken about, we've trimmed several holdings using share price strength to reduce positions where we view valuations are stretched. We continue to review all of Commonwealth Bank, Wesfarmers, Netwealth and JB Hi-Fi as high-quality enduring franchises. However, share prices for all 4 have continued to push all-time highs. And their valuations, in context of their listed histories, appear extreme. As Dave discussed, we reduced our holdings in James Hardie, given the balance sheet concerns we had following the acquisition of AZEC, particularly in light of the slowing end markets. The next slide just touches on why we're entering Wesfarmers as we've previously spoken in other presentations as well as treatment to Commonwealth Bank. And the chart on the next slide shows the story of the valuation metrics for Wesfarmers that explains why we've reduced our holding recently. Wesfarmers, as many of you will be aware, is a high-quality business operating the very successful Bunnings and Kmart retail businesses. We rate the management team highly, and they have a strong track record of successfully allocating capital and generating strong returns for shareholders. The chart here on the left shows the price to earnings ratio, which is the multiple that the investors are willing to pay for the stock. Over the last 20 years, the price to earnings ratio for Wesfarmers has been around 20. Today, that metric is 36.3x. Despite it being a high-quality business, we view the current valuation as extreme. The chart on the right shows the dividend yield. Buying Wesfarmers today offers shareholders a dividend yield of 2.7%. This is below the dividend yield of the market and materially below the long-term average Wesfarmers has offered of 3.7%. As Dave highlighted before, the return on any investment is highly dependent on the price you pay. Even as long-term investors, future returns are likely to be poor if the starting point on valuation is extreme. For this reason, we've significantly reduced our holdings in Wesfarmers in recent months. Over the next few slides, I'll go into some of our recent buys in greater detail, explaining our assessment of their long-term opportunities and how temporary weakness has provided an opportunity for us to leverage our competitive advantage in taking a long-term view to add to positions. Firstly, on Goodman Group. Goodman Group is a founded global property specialist, which owns, develops and manages warehouses, logistics centers and data centers in major cities across 15 countries with a blue-chip customer base. Goodman has built a leadership position in key markets by owning high-quality properties that are close to consumers and then seeking the highest and best use of these properties. This approach has positioned the company well with one of the largest high-quality data center pipelines globally. Importantly, these sites are not only strategically located, but also have critical access to power at a point in time where powered sites in strong locations are becoming increasingly scarce. As the chart on the right highlights, Goodman has a strong track record of creating shareholder value. However, earlier this year, the shares sold off heavily as markets grew concerned of potential data center customers slowing their plans on spending. This is the likes of Microsoft, Amazon, Facebook and Google. They paused to consolidate their digital infrastructure plans following a period of rapid deployment. Our assessment at the time suggests that this was a pause rather than a cancellation, and the sell-off provided a good opportunity for us to add to positions. Our confidence in Goodman Group is buoyed by a conservative balance sheet, its ownership of the high-quality property portfolio and its strong relationships with potential customers and capital partners. It has a strong incentivized management team with a long-term mindset that places us well to execute on this substantial opportunity. Next on ARB Group. ARB is a founder-led global business operating in the 4-wheel drive parts and accessories market. It controls all aspects of its business from product design to development, manufacturing, distribution and retail. It enjoys a strong brand position in the aftermarket -- with aftermarket enthusiasts and is known for its high-quality products globally. The company was founded here in Melbourne in 1977 by Tony Brown, and the Brown family remain involved in the business today, having grown it successfully in Australia over many decades. It has a strong product suite that has gained recognition globally, and the company now also has a growing export business. The U.S. represents a significant opportunity for this export business, and ARB has been taking a measured, long-term approach in evolving its strategic foundations in that market. Recently, the company entered an equity partnership with the combined off-road warehouse and 4-wheel parts business in the U.S. which, between them, have a combined 48 stores across 9 states. As such, we see a significant long-term opportunity for ARB to grow its share and penetration of the U.S. market through leveraging destroying network. As you can see on the chart on the right, ARB's share price declined earlier this year as the market grew concerned about cyclical weakness in the Australian vehicles market, while at the same time, the U.S. was imposing tariffs. We see both these factors as temporary and view the weakness as an attractive opportunity when weighed against the long-term opportunity in both Australia and the U.S. We hope these examples give you some color on the types of opportunities we're constantly looking for in managing the portfolio to achieve our key investment objectives. And with that, I'll pass back to David.

Thanks, Winston. So look to our own quality companies hold them for the long term and benefit from the power of compounding returns. In that regard, we want to own companies with a defined competitive advantage that generate free cash flow, maintain strong balance sheets that are run by capable management teams and Boards. As we're not traders, we want to be diversified by company, industry and more importantly, by the attributes that each investment brings to the portfolio with growth income [ stalwarts ] or cyclicals with strong balance sheets. The logos for the majority of portfolio holdings as shown on the slide. Portfolio continues to be invested in quality companies that own strategic assets well positioned to grow earnings over the medium to long term. We think the current valuation of the market is very full, and we'll show you some charts on upcoming slides as to why. In this regard, while we remain a low turnover over the last 2 years, we've been increasing our allocation to companies with defensive attributes where we see compelling value. Companies like ResMed, Woolworths, Telstra, NAB and Region Group and our larger positions in the portfolio. Additionally, we have selectively been adding cyclicals with strong valuation support during periods of price weakness, particularly BHP and Woodside. Given the continued strength of the market up almost 15% in the last 12 months, we've been proven to be too early in this rotation. However, our conviction remains at allocating capital with strong valuation support will prove correct in an expensive market. So the first chart we'll show is just the valuation of the U.S. market, the S&P 500. The left-hand chart shows the price to earnings with a current multiple near the peak of 2021. While expensive, at least the rally can be partially justified by the growth in earnings per share for the market, as shown on the chart on the right-hand side. In an Australian context, however, the price to earnings has followed a similar trend to the U.S. market. In fact, the valuation of our market is now above the extreme peak we saw in 2021. This is despite the aggregate earnings of the ASX 200 declining over the last few years as shown on the right-hand side. The conclusion the market to us looks expensive. The number of winners is narrow, and these companies are priced at very high levels, which we haven't been chasing over the course of the last 12 months. So in summary, portfolio performance has been disappointing in the last 12 months. A small number of stocks held within the portfolio have significantly underperformed. Following a comprehensive review of all portfolio holdings, we believe the portfolio remains well positioned to deliver our investment objectives. We continue to be invested in quality companies well positioned to deliver earnings growth over the medium to long term. And pleasingly, in FY '25, we're able to increase our dividend to shareholders despite the aggregate dividend from the ASX 200 declining. So in terms of outlook, the operating environment for many companies is increasingly challenged. Revenue growth is getting harder to achieve, while cost out is becoming a larger part of the revenue or the earnings growth story. Portfolio positioning has been increasingly defensive, as I mentioned, as we feel the market remains expensive in the context of that more challenging earnings growth outlook. We are seeking to maintain valuation discipline on all buying activity. And the portfolio continues to be invested in quality companies that are run by very capable Boards and management teams. So with that, I'll hand over to Mark just to give an update on international.

Okay. Thanks, Dave. And just moving to the next slide. So just some comments on what we're doing with the international portfolio, just to remind everyone that we started that in May 2021. And as at the end of the financial year to the end of June, it was valued at around $168 million. And as I stated earlier, around 1.6% of AFIC's portfolio. So small in the context of AFIC's portfolio. We have done a fair bit of work in the background to look at producing a separate vehicle, whether it's another LIC, but as you'd appreciate, a lot of things have to come together for that to occur. Market conditions, discounts, performance, a whole number of things, but we certainly wanted to be prepared if we wanted to launch that product. Another factor would be where the market is sitting at this point. So that's work that's happening in the background. But in the meantime, there's nothing planned in the very short term, but to say we're happy with the way it's contributed to the portfolio. We're happy with the key learnings. We are really taking a 10-year view on where we think the world is heading. And so we've made this comment previously that many of the companies in the AFIC portfolio are global businesses. And so there's really nothing new about the idea of researching global companies. And so we do have some concerns that the Australian market is narrowing a little bit. We've seen some other fund managers start to introduce some international into their portfolios. But we're just taking one step at a time. The team has been allowed time to build up capacity in researching stocks and developing experience. You can see there that last year, the portfolio returned about 14%. So there was a good return for the portfolio in terms of adding value to AFIC. And we've given you the returns to -- for the last financial year. And [indiscernible] there's the 3-year numbers and the since inception, which is around index. So we feel comfortable enough to keep the project going. But again, we'll keep you informed as we go on. And just to have one more slide to give you a sample of the type of stocks we're investing in. So certainly, the idea was a large chunk of these were probably names you've heard of. And then some interesting stocks that perhaps you haven't heard of that can add to performance. So we do hold stocks like you can see JPMorgan and Microsoft and Google, Meta, Amazon. These are pretty incredible companies that have been able to generate great growth. They've still got plenty of growth prospects ahead. A lot of them have an incredibly strong balance sheets; are well run; and they form the backbone of the portfolio, and you can see other companies like Mastercard and Netflix. So these are just a sample of some of the businesses. NVIDIA is in the portfolio for those that have been watching NVIDIA. Don't ask me too much detail about the technology that they're doing. That gets a little bit over my head, but it's absolutely killing it at the moment. And so this is just a sample. But I'm happy to ask any -- answer any questions on that at the end of the presentation. So with that, I think that's time to pass back to the Chair. Craig?

Thank you, Mark. Thank you, Andrew, Dave, and Winston. Now is the time for questions. There will be a roving mic in the room. So we're going to start in the room first. I'd ask you address all your questions to me, and please if you could just tell us your name. And for those folks that are online, we will come to you in a moment. So I will go to the room. So just wait for the mic. Thank you.

Thanks. I'm Tony. Look, Mark just referred to a 10-year program, and I don't know if I missed anything there, but I didn't see anything about renewable energy options that I would have thought out of your 10-year program but the lease worth considering. Is anything there?

Yes. So we've had one stock market and his other ones here. So do you mind if you say something stock we have had a couple of...

You're talking about international?

Within international stocks you mean?

In total.

Sorry. Okay. I could answer that then. Look, in broad sense, our focus is on finding great companies for the portfolio. And I guess the challenge here in Australia, certainly, is finding companies that fit the bill that make -- we've got filters around the return on investment, return on capital, the company can make profitability, long-term prospects. And it's certainly more challenging to find those sort of companies in the Australian market that fit what we want to do. We're not venture capital fund. We're not there seeding startups. We're not looking for low returning infrastructure. And so a lot of companies in that area don't really fit the bill in that regard. But look, there's some interesting companies internationally that we've sort of looked at and follow that do have that. But it's -- at the end of the day, it's still -- our focus is on companies that can make us a good return over the long term. And we're looking for more, I guess, more conservative businesses in that regard.

Yes, Mike?

Good morning, everyone. My name is Mike Muntisov from the Australian Shareholders Association. I'm a last minute fill in today for our regular monitor, Steve who's not well. Today, I hold proxies from 214 shareholders. So thank you to all of those who appointed ASA as their proxy. And by the way, any shareholder can appoint ASA as their proxy, you don't have to be a member, but if you're interested in protecting retail shareholder rights or want to learn more about investing and meet other investors, perhaps joining ASA might be a good idea. So that's my play.

Nice, Nice one, Mike.

Yes. From our point of view, we're very pleased that AFIC has made the time to have a pre-AGM meeting one-on-one with us, and very open to discussing things with us. As far as we can tell, they have a strong Board. One ASA concern that you have addressed this year and that we're pleased about is publishing a director skills matrix, and that helps shareholders determine how director skills and experience add to the Board. We are voting in favor of both resolutions today. That doesn't mean that there isn't room for improvement, and we have a couple of questions. One ASA policy that we like to see is key management personnel and directors holding the equivalent of a year's fee or remuneration in the stock of the company. From what we can see, there are several key management personnel and directors who are not up to that standard. And so our question is, given the large discount, why aren't directors and management investing more now in AFIC themselves?

Thanks for the question, Mike. And as you would appreciate, we have a bunch of new directors on our Board. So we do give directors an appropriate amount of time to purchase securities. And Mark, you might just -- so I think, Mike, there's no question. Obviously, as Chair, I've been on the Board for it now 4 years, and I've met that requirement, but some of our new directors have only been on the Board for a year or so. And so -- but they will meet that requirement. But Mark, it might be worth just -- I think this is a really interesting part of the way we remunerate our key management personnel, the requirement to purchase securities with their in incentives. Mark, do you just want to just give a summary of that? I think it would be helpful for shareholders.

So for the 4 executives of the company, if we are fortunate enough to get a bonus in a year, we have to use 50% of our after-tax bonus buying stock across the 4 LICs, and we do allow some flexibility around that because there are times in the market where -- if you're seeing the price to NTAs can move. And so yes, so the 4 execs had to spend half of their cash bonus buying stock. And we have to pay on market. So we're not gifted shares. We're going to go into the market and buy it. I'm pretty confident my holding across all 4 LICs comfortably meet your test, and I would have thought...

You're right on that.

Thank you. And I'm still participating in the DRP and is still. From time to time, buy stock because I think there's great value there. But we do want to see all team members, including the investment team, and I check on this once a year that they're building up holdings across the full LICs are in this table. And I want to see those holdings increase, and they're here today. They're listening to my comments, and we check it. And I know the executives have substantial holdings as well. So I'm really commenting on the staff and what we're doing with the staff.

Thank you. And there is....

The other thing I'd point out, too, is that I can't -- my memory is fading as I get older a little bit. I can't actually remember anyone actually ever selling any stock. And I have been involved for over 30 years now. Now I'm sure there'll be 1 or 2 instances, but I can't actually recollect any of that. And so there's a very strong commitment for being a long-term investor in these products.

Okay. There's 1 or 2 directors who have been there for a while that perhaps could have a look and they would know who they are, could have a look at their holding. The other question I had was in relation to the management expense ratio, which you've spoken to at some length, which has increased to 0.16 this year. In a year where the value of the portfolio has increased, so you would think that there'd be pressure that would go down. We also note that Argo who's your closest peer, its management expense ratio didn't go up, and it's at 0.15.

Just on that, Mike, it will also depend on how well prepared, and this is not a comment about Argo, but how well prepared all the individual LICs are on things like ESG. So there is a little bit of time still, but that expenditure is real, and it's meaningful. And I think the other component was probably international.

Just on the international then, if AFIC is funding the preparation, the research to launch a new international fund, what benefit do AFIC shareholders get for paying for that?

Yes. Do you want to answer that? So there's a couple of things. And I think that the important one at the end of the day is, are those investments adding to the shareholder returns. And when you look at how much money the dollar value of money we've made out of international, it is substantial. And that alone covers everything. And so even though that clearly there are costs, but if you look at the returns we've made, it's been a great addition to the AFIC portfolio. I think the other things we think about is we're increasingly in a globalized market, although some countries are trying to go the other way at this point. But -- and just understanding what's happening with global businesses, I think, will increasingly be important. So we're kind of like we're making investment into the research of the future in terms of what we're doing because you do like to build up experience within the team. And there is -- there are reasons why we potentially would want to have another LIC with international is that the companies we invest in within that portfolio are very large companies. So you could have a very large portfolio covering those stocks. And the simple math is, if you had another large LIC, you can dissipate the cost across a bigger group. And that would lower the MER for all of the LICs within the table. So you could theoretically have a lower LIC in this group. So lowering -- sorry. Lowering the MER, not the LIC, lowering the MER across the group, having skill bases within the team and just the fact that the investments alone more than cover everything is enough for us to say, well, if you're pursuing something, you've got to make an investment somewhere if you want to pursue something. Now there is no guarantee that we're going to end up where we want to be. But if you don't give it a shot, then there's only one outcome, which is nothing. But I keep repeating and I'm repeating myself for you, but what we've done is added to the portfolio.

Thanks, Mike. Yes, sir?

John Lancel, another ASA member, Australian Shareholders Association member. Well done in this performance. And I'm glad you're now including the questions I asked in the past about franking credits, especially the $0.57 compounded. That's well done. Anyway.

Sorry. That's the surplus franking credit $0.55 that we -- yes, yes.

[ $0.50 ] available for distribution in future years, if we ever going to be.

Well, I think as we found out through COVID when dividends were cut substantially, we were -- that sort of buffer, the reserve buffer and the franking buffer that we have does enable us to make sure that we can spread the -- any downside risk.

But the problem I have today is your share registry offers again. Other shareholders even past years have complained about -- who's the boardroom your last one?

Computershare.

Computershare.

Computershare. And how unfriendly they were to shareholders. They might be friendly to you guys, but they're not to every shareholders. An example of that is that a meeting of ASA members of about 20 of us, 8 of them complained, but they've given up with the share registry office in general, and the mod we've got now isn't any better. And the in -- they don't help you at all. A matter of fact, I'll go say they go out of their way to ignore you.

I think one of the challenges you know is that it's a relatively -- there's a relatively small number of service providers in that space. But we'll take your feedback on board. And Matthew, perhaps if you could have a chat post the meeting with this person then.

John.

John. Thank you, John -- with John, and we can take some specific feedback and take it back to MUFG link. Thank you. Thanks, John.

My name is Jeff Fuller. Thank you for the presentation today. What is -- in relation to the international portfolio, what is AFICs Edge? Why does it think it has an edge in international building an international portfolio because unless it's got one, I'm a little concerned.

Okay. So Mark, I might ask you to comment, and then we're going to get Andrew , one of the portfolio managers to also cover off on that question.

Yes. So I'll just start. I think we -- our initial position is being -- taking that long-term view. There is so much money in the market that I would call hot money at short term. Most investors are just traders. And we want to take that longer-term investment horizon and utilize much more a company sustainable competitive advantage in what they -- sorry, do they have a leadership position, the quality of the management and take that longer-term view because I think others too many people in the market make a gain and then want to get out. So it's that being a long-term investor, I think it's important in that equation. I think the way information flows at the moment now, you can operate an international fund from places like Australia and not get caught up in the daily noise, be more considerate with your decisions and apply our frameworks to see how we perform. So I would say, at this point, we're comfortable with what we're seeing. We've seen many of our peers in the Australian market really struggle. But that's what we're sort of testing at this point is that idea of taking that longer-term view.

And can I -- before we go to Andrew, can I just add one additional comment. While the international piece is inside the AFIC portfolio, it also gives us exposure to organizations that are simply we don't get exposure to in Australia, whether it be Microsoft, whether it be Netflix. These type of global leaders -- and they're trading at remarkably sensible valuations. You're looking at for Microsoft, Andrew P.?

High 20s.

High 20s. Wesfarmers, as an example, a great company, but mid-30s. These are companies with global leadership positions, and in many cases, net cash positions, no leverage, operating in the biggest and best markets of the world. So I think it does -- at the moment, it does bring significant diversification benefit to the AFIC portfolio. But Andrew?

Thanks, Craig. I think that, as Mark said, one of the key advantages is just that ability to take a long-term view on stocks. And I think that just really -- as we've been doing this project for the last 4 or 5 years, it's really the AFIC way of investing, the AFIC characteristics that we look for in companies, it's incredibly suited to global markets. Part of the reason for that is you just don't get that level of scarcity premium on quality companies. So if you think about the Australian market, it's a relatively short list of quality companies that we can invest in, in this market. In global, well, we have -- our biggest challenge is actually narrowing it down to a small enough portfolio. But there's probably 400 to 500 companies that really fit the characteristics that we're looking for. And part of the advantage we have or we feel is that we just don't necessarily have to pay that scarcity premium for quality in global markets.

I'd just add to that, when we're starting out, Andrew, and actually, Andrew and I did a trip to the U.S. and saw a whole lot of companies just to see what it would be like. And it was quite extraordinary, the number of companies, not quite a few that we walked in -- met -- had good access to management, I talked about the business. And we walked out straight away and said that's an AFIC stock. It was the way they talked about the business. There was a sense of -- that they had a strong culture of ownership, looking after shareholders, very focused on return on capital. We always like companies have a leadership position in a fragmented market. They seem to be winning, passionate about what they do. And I think that was the thing that really kept it going was the fact that there was so many of these companies in the U.S. that lined up with the way we would view companies. And I mean a great example of one, which done so well, we've had to keep trimming it back with [indiscernible]. I still remember that meeting and it just was so aligned with the way we look at companies that you sort of felt like we could add something to the process. And then when you look -- come back to Australia and you look to say, well, if you want to be an actively managed international portfolio, they've generally been high fee paying with performance fees. And if we were to do something, there would be no performance fees and simply cost recover like we run the other LICs. So most of the benefits go to shareholders.

But it's still work in progress though?

Yes, sir.

Chairman, thanks for the meeting. Chris Hunting, a small investor in AFIC for the last couple of decades. A question for Mark. Mark, on the international portfolio, there were 43 companies as listed. Most of those companies, of course, are based in the Americas. Does the investment team see that in the next couple of years that there will be more emphasis in international stocks coming from European countries?

You might ask Andrew to comment. Andrew?

Yes, Andrew might. Andrew can comment too, I can say something at the end, but...

Yes. Thanks for the question. I think it's very much true that the majority of companies that we've invested in are domiciled in the U.S. I think you'll find that in the vast majority of these companies, they're actually global businesses. So they do have global operations, and they happen to be domiciled in the U.S. When we look at it from a revenue perspective, the portfolio is around 5% to 6% overweight North America. It's still -- despite what's going on, it's still actually the best place to do business. From a corporate culture and entrepreneurialism point of view, it's remarkable how often we find the best companies we can invest in are actually based in the U.S. But clearly, one of the things we're trying to do is find alternatives outside of the U.S. We have added a few companies more lately that are based in Europe, but it's as I said, it's remarkable how often we come back to the best companies that we can invest in at the best prices being based in the U.S.

But if your question was around Europe investing into the U.S. companies, I don't think we've seen a big wave of selling hitting U.S. stocks because Europeans are getting out. And I think if you're a fund manager in Europe, we just want the best returns. But if something like that did happen, to me, there would be opportunity. Every time you get a temporary -- I'll call it temporary dislocation in a price or temporary weakness because if Europeans wanted to dump U.S. stocks, I think that would be a great buying opportunity for U.S. stocks.

Next question. Yes, sir, in the back.

Thanks for being here. I was just wondering with CSL being about 6.2% of your holdings, if you're worried about the recent volatility with their share price and them going to split the company and them sacking 3,000 people.

It's a good question. We obviously did cover CSL a bit, but Dave, do you want to answer that specific question?

Yes, sure. So just in relation to CSL, it's had a rough couple of years really just in relation to what's happened starting with COVID, where there was the inability for patients to be able to get to collection centers. And then following that, they had the Vifor acquisition that hasn't delivered to their expectations. And more recently, you're starting to see some headwinds just around U.S. pharma funding and what that will actually mean for the earnings outlook for CSL. So understandably, the shares have fallen. We step back from that and just have a look at the industry structure and see where things are positioned, and it is still growing at that mid- to high single digits. CSL still a large player in that industry; operates more efficiently than their competitors. And so we still expect to be able to deliver meaningful earnings growth from this company from here. I think this is the first time we've seen CSL in many, many years, actually address their cost base. And a lot of that headcount has come within their R&D functions. So R&D has traditionally been a pretty good growth driver for this business. Over the last 5 years, they just haven't been getting the return from that investment that we're used to. And they're now looking to address the spend that they've got within an R&D function, and that's where the majority of that headcount reduction is coming from. In terms of splitting the business, we struggle to see the strategic merit as to why they are actually splitting the Seqirus business. It's far more volatile. So this handles flu vaccines primarily, and that will bounce around depending on the particular flu season that we see. For that, volatility is one of the main reasons why the company is looking to carve that out. But we don't see shareholders why we stand to benefit from that, and that's an area we're following up with the company.

So I'm now going to move to the online questions. Geoff?

Yes. Thanks, Craig. So I got a question here about you, in fact. I asked about Chair Craig Drummond's workload at the 2022 AGM. And since then, he's taken over the Chair -- the import of foundation, joined the Ramsay Board and applied to replace Richard Goyder as the next AFL Chair. When you add this to his chairmanship of Transurban, this is all too much. Could Craig comment on what he has offered the AFL in terms of workload management if he's successful? Could this be his last AFIC AGM? Or he's committed to his role for the long term, no matter what else happens in the Board in his broad portfolio?

Well, can I say thank you for the question. And workload is something that both the ASA, proxy advisers and me, as an individual, take very seriously. I'm used to strong work ethic. I'm still -- touch wood -- healthy and fit. And I wouldn't be making commitments unless I thought I could very diligently meet those commitments. And most certainly, this will not be my last AFIC AGM, unless I'm by the tram leaving the RACV building. Thank you, Geoff.

Thanks. Another question. On a strategic note, nothing has happened strategically within the AFIC table since the 2000 AMCIL IPO. Meanwhile, Argo has created infrastructure funds, Soul Patt's has snapped up Will Milton. And Jeff Wilson stable have taken over 14 smaller LICs with Platinum, Capital and Pengana both currently in its sites. As Australia's biggest LIC, why are we strategically sterile when we would be better getting bigger by snapping up smaller rivals and delivering scale benefits for investors. Do you even speak to smaller LICs interested, I should say, in joining our stable?

I'm going to make a very brief comment and just then pass to Mark as the CEO. In my corporate experience, getting bigger, it does not necessarily mean getting better. I think staying focused on what you do and delivering for your existing shareholder base is what we're focused on, not sort of participating in all the corporate flava at the top of the market. But Mark, I might pass to you?

Yes. So there is some incentive for other players in the market to get bigger because they operate as an external manager and they charge a fee based on funds under management. So the more companies they buy, more funds that they manage and more fees they get. But we don't have that structure. We're internally managed, and we're just employees. So there is no incentive for us to get bigger for getting bigger's sake. Now what I touched on earlier with international size can reduce your MER, and that's good. But generating returns for shareholders is our focus, and taking over companies can be quite complex. You can't necessarily buy them at the discounts they might be trading at the time. And there's always issues around franking credit, rollover relief, et cetera. So I can see why others are doing it because they charge a fee on it. But we don't have that structure. The other thing with -- if you look at Soul Milton, that was really one group. You had Brickworks, Soul Patts and Milton. And really they just consolidate now into one entity. So they've kind of simplified the structure. They haven't sort of added things on. And with Argo in the infrastructure product, they don't actually manage the investments. They operate really -- what would you call it, Geoff.

Yes, they have an external manager -- manager. They basically the front of it.

Front office for us. So they don't actually manage the investments. But that's the model they have gone down. So maybe that explains the way we think about it.

I suppose the other thing, Mark, is the international portfolio is a strategic initiative. So I wouldn't call it strategically in that context.

Yes.

Not that we're defensive. Geoff, the next question.

Okay. There was an article on the Intelligent Investor on July 2, which suggests that we deployed -- I assume AFIC -- deployed sharp tactics to secure $20 million worth of discounted shares as Mirrabooka through its 1-for-7 announcement rights issue at $3.06. Particularly, the majority of Mirrabooka shareholders did not participate, but then AFIC swooped, lifting its 4.5% stake in Mirrabooka to 6.86% after spending $20 million buying 6.534 million shares. How is it appropriate for related party like AFIC to be allocated 23.5% of the shares offered in the capital raising by an associate? And I'd sort of preface, this is probably more a question for Mirrabooka, but...

It's definitely a question for the Mirrabooka Board. But Mark, I'm going to pass.

So that is a question from Mirrabooka. Just so you're aware, so Mirrabooka is one of the LICs in the stable. And they focus on mid- to small cap stocks. Track record has been fantastic. And they decided to raise capital. And it was an offer put to all shareholders. So shareholders chose to either go in it or not. And they allowed the ability to oversubscribe. So they set a cap around 82 million, I think 85 million. And so shareholders either chose to go in or they didn't. And you could -- if you wanted to go with it, you could pick a number. So you could put your hand up for -- oversubscribe as much as you wanted, but they had a cap. And so we -- AFIC's a shareholder of Mirrabooka. And I guess, given their long-term track record performance and they -- you get a lot of the returns from your broker coming back to you as frank dividends, and they deal in that small end of the market, very difficult for to do that. We just thought it was -- I think the Board felt it was a Board decision, but the feedback I got from the Board is they thought it was a good investment. So they put their hand up for a substantial amount of stock. Again, you'd have to speak to Mirrabooka on the details, but the feedback that the AFIC Board got from Mirrabooka in terms of how they allocated it out was there was bidding that was slightly above what they're looking for, that when they're looking for -- to allocate the oversubscription, one they took advice, the principle of it was pro rata based on the size of the shareholding. But even that, despite that, the feedback we had was that most shareholders got 100% of what they bid for. And the final piece of information was those that didn't had smaller holdings that they just bid for a huge amount of stock. So clearly, you get some scaling back. But most shareholders, most got 100% of what they bid for. And so in that regard, to me, it sounds like a very clean process, but any more details beyond that, I think.

So to be clear, we did not use -- the AFIC Board or the AFIC management did not use its related party relationship with Mirrabooka to strong arm them into allocating our small stock. We -- that was an independent decision taken by the Mirrabooka Board. And none of us ran...

With advice from them.

Yes. With advice from the Mirrabooka Board had advice from...

External party.

External party -- on the allocation. We did not, in any way, shape or form strong arm, the Mirrabooka Board to allocate our stock.

And AFIC simply got its allocation based on pro rata. Yes, it's absolutely right.

Yes. But to sum up, but when most shareholders get 100%, clearly, everyone's been satisfied anyway. So.

Geoff, the next question.

Question on [indiscernible]. I think we've covered that so I won't cover that again. I noticed an increase of investment in WiseTech. Can you outline how you evaluate leadership risk associated with the increase in this investment?

David?

Yes, thanks for the question. So first of all, WiseTech remains the logistics provider to -- or sorry, the software provider to the global logistics industry. They have a dominant market position, and they've been able to capture significant market share largely through M&A over many years, and they've really established quite a strong foothold in what remains still a long opportunity in front of them. In terms of the leadership. So clearly, we've been meeting with people below the CEO to understand the people below him in terms of their capability and what this business looks like under their leadership. It's been disappointing in terms of the news that's been coming back. In terms of Richard's performance for the people below that, we have a lot of confidence in, in terms of their ability to be able to drive the returns for shareholders from here. So it's something that we watch quite closely. We have a small position in the portfolio at the moment. And I guess what constrains our appetite for the stock is just trying to understand exactly how that transition will play out from here. But certainly, the core business is really well positioned. The balance sheet is in really strong shape. And the company does have a really long opportunity in front of it.

Thanks, Dave. Geoff.

Got a question here. What is the benefit of your active management strategy when you reported investment performance over the 1-, 3-, 5- and 10-year periods are consistently below the index, including franking.

Yes. So I mean, obviously, we talked about the fact that what's happened in the last calendar is really dragged down all the numbers and certainly, the strategy and the way we are assessed is to actually outperform. But I said there's clearly areas that we can improve on. There's clearly been areas in the market that we don't participate and have run hard. But I'll just reconfirm our intent is to outperform over the long term. That's the objective. And we constantly go back and review our process, the way we do things to try and improve those returns, but we have taken a bit of a hit from this last calendar year returns.

Thanks, Mark. I've got a question pre submitted, but also one online, which covers the same issue. I believe there will need to be an ongoing buybacks to prevent the share price being heavily discounted. The current buyback seem to be holding at discounted 12% to 13%. Is this what we can expect in the future? Is AFIC intent to drive the discount down to 10% for example? Or will it tolerate discounts of 15% or more? So yes.

I think it would be naive to think that through buyback, we would buy back a loan, we would be moving necessarily or sustaining a particular premium or discount. That will be largely the market action that we'll do that across a range of other factors, the level of interest rates, as I discussed, performance of the portfolio, et cetera. But it is also incumbent upon us when we have a discount of 12% plus. We think there -- it is potentially -- no advice. We're not giving advice. But potentially it does look like decent value for us to be neutralizing at a minimum -- at a minimum, neutralizing the DRP by buying back additional securities. So that process, the intention subject to Board -- ongoing Board approval, that intention will remain that we will continue to buy back our securities. But in terms of what it may mean for the discount or premium, I wouldn't begin to buy into that.

Okay. A question here. Given the popularity of ETF, do you believe AFIC will decline in size shareholders over time.

Mark, do you want to...

Sorry, I just heard a question on...

So given the popularity ETFs, clearly, ETF is a market that's growing. Do you believe AFIC will decline in size and shareholders over time?

Well, obviously, in terms of the size of AFIC, being an LIC, that's a fixed structure. And so we don't have flows coming in and out. And so if the market rises over the time, the value of the portfolio will rise over time. ETFs are an alternative. But I always think about AFIC as an alternative to an ETF because the cost structures are not that much different and both don't have performance fees. And I look at them where is value presenting at the time. If you go into an ETF on the Australian market right now, 25% of your money is going straight into the 4 largest banks, and we showed you the chart about how they're valued at the moment. So LICs gives you an alternative. And I think we have to keep reminding ourselves that it's only the last 2 or 3 years that this big discount has presented. And that was after it had 2 or 3 years of extreme premiums in the market. And then before that, you had basically 25 years of trading around. So I think there's a lot of -- I'm getting a strong sense that what we're seeing at the moment is going to be there for some reason going to be there forever. It might be, but history says it won't be. And I think ultimately, the market will find where there's value in the market. There's a lot of money chasing gold and other things at this point, and we get left behind a bit. But if value is presenting, I always think the prices will eventually go back to where value is. So I guess I'm still a bit more confident that the gap will close more naturally over time.

Thanks, Mark. Is there any other?

So there's no questions online, Craig, and there's no phone questions, my understanding. So back to you.

Okay. Thanks, Geoff. I do want to come back to the room just to make sure there are no other questions in the room that people wanted to raise before we get on to the business of the meeting.

I can't see any. So let me now move to the formal resolutions of the meeting. Your directors' recommendations are set out in the notice of meeting. I can confirm that where undirected proxies have been given to me as Chairman, I'll vote them in line with the Board's recommendation on each agenda item. Voting today will be conducted by way of a poll on all items of business. Representatives from MUFG corporate markets will oversee the conduct of the poll. For those in the room, on the reverse side of your yellow admission card is your voting paper and instructions. I'll now go through the procedures for filling in the voting papers. In respect of any open votes, a proxy holder may be entitled to cast, you need to mark a box beside each resolution to indicate how you wish to cast your open votes. Shareholders also need to mark a box beside each resolution to indicate how they wish to cast their vote. When you have finished filling in your voting paper, please lodge it in the ballot boxes that will be available at the end of the meeting. Where are the ballot boxes, by the way? Outside. Just outside. Thanks, Catherine. The second agenda item is the resolution to adopt the remuneration report. This is required by the Corporations Act to be considered by shareholders annually and is an advisory resolution only. The remuneration report can be found in the company's 2025 annual report. It's a very detailed report covering the remuneration of directors, the executives and the investment team. If you have any questions on this item, please submit them now if you have not already done so. Any questions on the rem report? I'll now show the proxies received in respect to this resolution, which is shown on the screen. So given that I intend to vote the open in -- for the resolution, we -- those proxies are showing 94.5% approval. Any online questions, Geoff, in relation to rem report?

No questions.

The third agenda item is the resolution to elect Rebecca Dee-Bradbury. Rebecca was elected at the 2022 AGM and is standing for reelection by shareholders today. In accordance with Rule 46 of the company's constitution, she retires from the Board of Directors, and being eligible, offers herself for election. Rebecca, would you like to say a few words?

Thank you, Craig. Good morning, ladies and gentlemen. Well, it's hard to believe it was 3 years ago that I stood before you asking that you consider supporting my reelection to the Board of AFIC. Your support was greatly appreciated, and it has been an honor to serve you and our company as we have yet again navigated unprecedented change in complexity. I've had the privilege of working alongside a highly committed and motivated Board and management team. And I want to assure you that we take very seriously the role we play as stewards on behalf of shareholders, remaining true to our investment philosophies, our values and importantly, our commitment to deliver. The unpredictable and, at times, erratic nature of the current era and the resultant impact it has on markets, on policy and our felt sense of security makes the role we play at AFIC even more critical. As it is also critical to understand global trends and impacts and actually being involved in the international portfolio enables us to get great insight here, too. Having spent both my executive career and nonexecutive career, working with global organizations, undergoing transformation and sectorial change, I've learned the power of being calm and steadfast in your approach as you navigate choppy waters and big challenges. Being calm whilst being clear about our purpose has been valuable to AFIC over the last 3 years, and will continue to be so as we move forward. That said, we must also remain open to learning and new opportunities in this ever-changing world. I commit that I will endeavor to be a voice of accountability balanced with calm pragmatism in support of your objectives. My roles at BlueScope and Energy Australia give me additional insights and perspectives from a governance, strategic and performance viewpoint, helping me remain current and game fit in my role as an NED across my entire portfolio, including AFIC. With your support, it would be an honor to serve alongside our Board and management team as we can navigate a path to the best possible outcome for your objectives. Thank you again for your consideration.

Thank you, Rebecca. I'll now show the proxies received in respect to this resolution, which are now shown on the screen. And again, the open -- with the open proxies being voted for that makes a 98.1% for and 1.9% against. Are there any questions in relation to this resolution in Rebecca's reelection? Okay. Thank you. Geoff, any online questions? No. Thank you. So ladies and gentlemen, that concludes our discussion of the items of business today. In a couple of minutes, I will close the meeting. And for those participating online, please ensure that you have cast your vote on all resolutions and clicked on Submit Votes at the bottom of your voting card. You'll have 5 minutes from the close of the meeting to finalize and submit your voting card. For those in the room, may I now ask that you complete your voting card, and the staff from the share registry will collect your voting card at the end of the meeting. I'd like to thank all shareholders for their continued support and interest you have shown in the affairs of the company by your attendance, both here personally today and virtually. Shareholders are reminded that the team will be holding a webinar following the release of half year results in January and also holding shareholder meetings in Melbourne, Adelaide, Perth, Canberra, Brisbane and Sydney during March 2026. The results of the votes will be released to the ASX later today, and I now declare the meeting closed. And for those of you who are in the room, we would encourage you to join us outside for tea and coffee. Cheers.