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

Ladies and gentlemen, thank you for standing by, and welcome to the AFIC Shareholder Briefing Call. [Operator Instructions] And just please be advised that today's call is being recorded. Without further ado, I'll hand the conference over to your first speaker for today, Chairman of AFIC, John Paterson. Thank you, and please go ahead.

Thank you. Good morning. I'm John Paterson, Chairman of Australian Foundation Investment Company. I have joining me today on the webinar, Mark Freeman, the CEO and Managing Director; David Grace, a portfolio manager from the investment team; Andrew Porter, our CFO; Matthew Rowe, our Company Secretary; and Geoff Driver, our General Manager of Business Development. Before we start the presentation, a bit of housekeeping on the teleconference. This briefing is based on the material available on the company's website. If you are using your computer to access the presentation via the webcast, the slides will change automatically. If you're accessing by phone only, the PDF of the slides with page numbers is available on the website. Please note, following the presentation, there will be time for questions and answers. You can ask a question either via the webcast or through the operator. I might just make a couple of opening comments before we have the presentation. For the last year, these briefings have been done in an online electronic form. Hopefully, post their inoculations, we may have the opportunity again to meet face-to-face. The experience we've gained will mean that in future, we'll be able to better tailor the form and frequency of communication with our shareholders. A year ago, after a 35% fall in the market, there seems to be a number of things that there was a consensus on. The pandemic would get worse. The hit to economic activity would be deep and prolonged with stubbornly high unemployment. House prices would fall with the optimists at 5% to 10% down; the pessimist, much further. With consequent acceleration of bad debts occurring at the banks as a result, deflation loomed. The year later, we find that the death toll from the pandemic was much worse than early predictions, but almost all of those other certainties were wrong. Inflation is now feared. We have an overheating housing market. 2021-'22 GDP growth expectations are now high, well above the trends of the last decade. Trying to position the portfolio with name benefiting from the consensus wisdom is fraught with risk and uncertainty. So you'll hear lots today about how we pick the best stocks for quality and growth and, where possible, purchasing them at good value. The portfolio is appropriately diversified, so it can weather whatever comes at it. We don't construct it to fit short-term macroeconomic expectations. Finally, the only thing that I think is certain is that the central banks will move after and not ahead of changes in factors such as inflation or overheating asset values. So watching currency or interest rate markets where they are not managed by central banks may give the early signals for a change in trends. I'll now pass it to Mark Freeman, our CEO, and his team.

Thanks, John, and good morning, everyone. So now we'll move to the presentation, and we'll start with Slide 2. This is our disclaimer, just to say we're here to talk about the company. We don't have a license to give advice. So we're simply talking about what's happening in the portfolio. If we move to Slide 3, just the agenda. I'll touch on a few slides talking about long-term markets, then I'll pass over to David Grace, who will talk through the portfolio. I'll return with some outlook comments, and then we'll move to questions. So moving to Slide 4. Just thinking about the marketing perspective over the very long term. We are a long-term investor. We've been around for a very long period of time. And it's very interesting always to reflect on how the market moves over those longer-term periods. There's always a huge amount of noise in the market when we see short-term events like we saw 12 months ago, but it's always useful to put those into perspective from the long-term view. So from this chart, we showed this chart actually at the presentation 12 months ago to highlight how every time there's been a significant fall in markets throughout history, most of the time, all they were, were buying opportunities. At this point, we can see that what occurred in March was the same again. The significant fall in markets provided an opportunity for people to buy good quality companies at very attractive prices. Moving on to Slide 5. Putting this into a greater perspective. What we saw from the previous chart was simply the index price, which is the bottom line of that chart. That line ignores the impacted dividends and reinvesting those dividends has on a total returns. We always like to indicate how important dividends are to long-term investors if you reinvest those, and so this chart highlights that where you can see the top line is what we call the Accumulation Index. So that is the index plus the reinvestment of dividends into the market. And you can see the significant difference that dividends and reinvestment of those has on your overall returns. And that's really what the compounding impact of being in markets is all about. What this chart doesn't show, though, is the additional value that franking credits gives on top of that. If we were to include franking credits over that period of time, that line would be much higher again. What we can see from that chart also, again, the pullback on March, to this point, anyway, what a great buying opportunity it was. Moving on to Slide 6. Repeating that theme again, we did show the same charts 12 months ago, which on the left chart is the index, the middle chart is what we call price to book of the index and the right-hand chart is price to sales. These are very rough indicators of how market is reflecting value and long-term value. And if we look to the middle chart, we can see how that line has rebounded strongly. The dip we saw back in March was highlighting the price to book against a history, we've got 20 years of history. It was indicating there was value there that we had. And subsequently, we've seen the market move back through a long-term fair value and is now looking more fully valued at this point. And likewise, on the chart to the right, price to sales, we can see the dip that occurred on the right-hand side. In fact, that line went lower than that on a daily basis. And you can see how much of the market has rebounded, and we are more, I guess, at the higher end of valuation on both price to book and price to sales. Moving on to the next slide. At this point, I'll pass over to David Grace, our Portfolio Manager, and I'll return at the end of the presentation with some outlook comments.

Thank you, Mark. So starting on Slide 7, which outlines our long-held investment objectives being to provide attractive total returns to shareholders over the medium to long term and to pay dividends, which, over time, grow faster than the rate of inflation. Moving on to Slide 8. To meet these investment objectives, we will offer a diversified portfolio of quality companies that ultimately have the ability to generate free cash flow. Following the payment of capital expenditure and dividends, these companies have the ability to reinvest excess cash back into the business to generate higher returns. Our focus is companies offering a sustainable competitive advantage as this advantage will sustain earnings growth over our long-term investment horizon. Companies with unique assets providing a competitive advantage consistently deliver strong returns on invested capital. Higher returns result in higher free cash flow, allowing these companies to continue investing in future growth opportunities. We want our companies to be run by strong management teams and boards, have recurring predictable earnings and to maintain a strong balance sheet. On Slide 9, for early-stage companies where we recognize they are developing our preferred attributes, we aim to make an early-stage investment or nursery stocks as we define them. While initially only small, the growth potential in these businesses is large. Importantly, and consistent with our long-term investment approach, we only look to buy where we perceive the share price represents good long-term value. We're happy to be patient, waiting for the opportunity to emerge in our preferred companies. We believe that investing in companies displaying our preferred attributes will deliver superior returns to shareholders over the long term. Moving on to Slide 10, which outlines our approach to ESG. We have long integrated environmental, social and governance concerns within our investment process. We believe integrating ESG in our long-term investment decisions can lead to better investment outcomes. We recognize that ESG issues can materially impact company earnings and valuations. As stewards of our shareholders' capital, we seek to engage with companies on ESG issues and look to vote as shareholders accordingly. We endeavor to seek outcomes that align with our interest as long-term shareholders. Moving on to Slide 12, which outlines the performance of the market over the last year, and some details around the sectors of the market that have been driving this. The chart on the left-hand side shows market volatility has been extreme over the last 12 months as investments grappled with the risk that COVID-19 posed to company earnings and balance sheets. Following a sharp fall in February and March, investors quickly became comfortable, but the worst of any COVID impact on company balance sheets was adequately reflected in share prices. Extensive global stimulus efforts achieved the desired impact, providing support for consumers and creating visibility for growth in company earnings. More recently, increasingly positive news around the development of the COVID vaccine is providing investors with the confidence to look forward and assess the company's growth prospects from what has been a very challenging last 12 months. As shown on the right-hand side, the majority of market sectors have delivered positive performance over the last year, led by the strong performance in the information technology and resources sectors. Around 8% of the portfolio is currently invested in technology companies. And while we remain comfortable with each company's long-term prospects, we're not expecting the sector to repeat the strong share price performance in the coming 12 months. Our largest resource holdings are BHP and Rio Tinto, both companies having benefited from China's stimulus efforts and the result in demand increase for steel manufacturing and iron ore. We remain encouraged that both companies are allocating a large percentage of their free cash flow to increasing dividend payments to shareholders. At the bottom of the chart, the utility sector remains challenged as lower wholesale gas and electricity prices weigh on company earnings. This sector has materially underperformed the market over this period. On to Slide 13. Despite the challenges of the last 12 months, the volatility of monthly share price performance and the frequently changing COVID situation, we are pleased to deliver a positive performance for shareholders over this period, being a return of 9.7%, in excess of the ASX 200 return of 7.4%. In our mind, the performance reflects the benefit of holding a diversified portfolio of high-quality companies, these companies that have the ability to grow earnings through the full investment cycle and are less reliant on economic conditions to deliver earnings growth. We were active buyers in the market during the February and March sell-off, buying quality companies at discounted prices, not reflective of what we consider to remain excellent long-term prospects. Despite the last 12 months thrown in our 3 or 4 investment cycles in quick succession, we are encouraged to see the portfolio volatility remaining below the volatility of the broader market. This is in line with our expectation and reflects our continued focus on investing in quality companies. On to Slide 14. Slide 14 outlines our observations from the recently completed February reporting season. Overall, reported company results showed significant improvement from August last year. The vast majority of companies delivered results that were either in line or exceeded market expectations. Pleasingly, company dividends have shown growth from 6 months ago, however, still remain below pre-COVID levels. Despite the receipt of less cash from our investments, we are particularly pleased of being able to maintain a stable dividend to you as AFIC shareholders. Banks and resources were the standout sectors of the reporting season. Bank results were brighter than expected with the main driver being lower impairments as earlier expectations of rising loan losses now looking conservative. Underlying trends also delivered some improvement with effective margin management and stronger capital generation. While the competitive intensity of the banking sector remains, the stronger capital positions provide a solid base for future dividend payments. The rise in iron ore price delivered strong cash flow for Rio Tinto and BHP with both companies pleasingly allocating more capital to dividend payments. With many companies having reduced their operating costs at the onset of COVID, they subsequently benefited from a strong rebound in revenue following the successful deployment of government stimulus. This resulted in the reporting of high margins, strong cash generation and reduced debt balances. With balance sheets now improved, many companies are now switching their mindset from preserving capital to looking to invest. Capital expenditure budgets are increasing, staff hiring intentions are up and acquisitions appear to be a larger part of the growth strategy than just 12 months ago. The economic backdrop of improving GDP growth and the low cost of debt remains supportive for equity markets. The challenge for many companies is the sustainability of earnings growth as government stimulus measures need completion. As long-term investors, the opportunity for us is to look beyond short-term concerns and be meaningfully invested in those companies we consider to have strong prospects over our investment horizon. Moving on to Slide 15. Slide 15 to Slide 17 outline the top 30 holdings in the portfolio, which collectively represents around 83% of portfolio value. Just a couple of comments on portfolio positioning. We've maintained our holdings in the banks over the last 12 months, recognizing the importance of the fully franked dividend stream. While the performance of bank share prices have significantly outperformed our expectations, the stronger capital positions provide a positive outlook for the banks to potentially increase dividends in the near term. We earlier mentioned ESG is integrated into our investment process. Our largest exposure to ESG concerns is the energy sector, which currently represents 2.4% of the portfolio. As global mobility has been improving, we have reduced our weighting as share prices have responded positively to rising commodity prices. Our exposure to the energy sector is primarily through LNG rather than the more carbon-intensive oil production. Over the long term, we anticipate further reducing our holdings. We remain overweight in the health care sector, continued investment from CSL, ResMed and Fisher & Paykel Healthcare over the last 12 months will likely see these business has emerged from COVID in stronger competitive positions. I wanted to talk through a few core holdings in the portfolio, nearly all of which we've increased our holding over the last 12 months. All have strong and long-term prospects, and all meet our investment criteria of what we look for in defining quality. On Slide 15, CSL remains the third largest holding in the portfolio. The company is the market leader and lowest-cost producer of collecting plasma donations and fractionating to produce life-saving biotherapies. While demand for CSL's therapies remain strong, reduced donor mobility during COVID has led to a growing shortage of plasma supply. We believe the current tight supply issues will prove temporary, and CSL as the market leader with the lowest cost base stands well placed to benefit from any normalization in plasma volumes. Increasing donor automobility as vaccinations are progressively rolled out should result in improved earnings growth for CSL. Transurban remains a core holding in the portfolio. While unfranked, the company is projected to pay a new 4.5% dividend yield in FY '22. The company holds a portfolio of strategic road transport assets along the Eastern Seaboard of Australia and within the U.S. Traffic volumes are showing continual improvement with SeaLink in Melbourne now only 20% below pre-COVID levels. Having recently sold a 50% stake in several U.S. assets, the company's balance sheet remains in good shape. Company peer set for a period of improved cash generation as a number of construction projects are set to begin operation. Acquisitions remain a possibility, and we would not be surprised to see Transurban acquire the remaining stake in Sydney's WestConnex project. While the West Gate Tunnel project has been delayed, we don't anticipate any rectification measures to be material to Transurban's balance sheet. Woolworths is Australia's largest supermarket operator and benefits from a very strong management team and Board while maintaining a very healthy balance sheet. Supermarket sales have been strong during COVID, and as grocery shopping increasingly shifts online, some of these benefits are likely to be sustained. The company has recently completed a supply chain investment program, enabling the faster movement of goods throughout the network. Smaller industry players like scale to invest the necessary capital to offer an efficient online offering. With COVID having accelerated the move to online shopping, we consider Woolworths is likely to capture additional market share. On Slide 16, James Hardie is a leading manufacturer and distributor of high-quality fiber cement siding products for the U.S. housing market, holding 90% market share at the fiber cement segment. Fiber cement offers superior performance than other woodwork alternatives and has consistently increased market share against natural timber and [ vinyl ]. The management team has done an excellent job executing the strategy, fixated on knowing their customer. Market trends aided by labor shortages has seen a push to lightweight materials at the expense of bricks and rendered concrete. To capture this, James Hardie has recently launched a lightweight fiber cement alternative to bricks and concrete, which has the potential to further broaden end-market opportunities over the medium to long term. On Slide 17, ResMed is the market leader in manufacturing devices for the treatment of obstructive sleep apnea. The business is an excellent management team, strong balance sheet and a significant market opportunity of largely undiagnosed sleep apnea patients. Together with market-leading devices, ResMed is investing heavily in technology. These investments are broadening awareness of the condition and allowing patients to be diagnosed at home, reducing the dropout rate of diagnosed patients not attending a sleep clinic. The market opportunity for ResMed remains significant. With strong management team, well-capitalized balance sheet and a commitment to continued investment, we consider ResMed well positioned to maintain industry leadership, further capturing market share. Fisher & Paykel is a leading manufacturer of humidifiers and consumables for respiratory support. Company's oxygen therapy treatment is a disruptor to conventional oxygen therapy. The company has long held a strong position within hospital ICU departments where oxygen treatment is most urgent. The strength of demand around COVID has seen the adoption of Fisher & Paykel's technology accelerate across the broader hospital environment. Studies now show COVID patients treated with Fisher & Paykel's therapy had superior health outcomes. With clinical evidence supporting the disruption of conventional oxygen therapy now available, we believe the opportunity for further market share gains is significant. So in summary, we feel the core of the portfolio is invested in quality companies, holding strong industry positions where long-term prospects remain attractive and strong. I'll now hand over to Mark for some closing remarks.

Thanks, David. And just now moving on to Slide 19. Just some comments about the current market. As you saw in the previous slide, the markets had a very strong rebound from its low point we saw back in March. The left-hand side shows the forward PE being at a quite high historical level, although we expect that perhaps earnings growth will be stronger than what the market currently has as we look forward. So perhaps that PE isn't as extreme as this chart highlights, but we still have a view that it's starting to look more fully made at this point. The slide on the right has been a popular one amongst brokers, just highlighting that the highest PE stocks in the market are at fairly extreme valuations at this point, and we are certainly worried about buying into that part of the market at these levels. This has been part of the rotation theme that we've been hearing about where investors have been looking for more value stocks in the market and are weary of the stocks that have had very strong runs and are trading on very high multiples. Moving on to Slide 20. As David pointed out earlier, the bond market has started to retrace over the last month or so as there are fears that perhaps inflation is creeping into global economies. Again, this has caused an adjustment in pricing where higher valuation companies have come back and some of the more beaten up areas of the market have started to recover. The chart on the right shows how the Australian dollar has moved in line with iron ore prices. Iron ore prices where we see them at the moment, around $160 to $170, are very, very high by historical levels. And most commentators expect at some point, they will decline over the next few years. Moving on to the outlook on Page -- Slide 21. Just a few observations. The Australian economy is emerging from the COVID-19 better than first anticipated, and David touched on it in that -- that in his presentation. The full impact of economic conditions on company earnings and dividends are still to play out despite the recent positive earnings season as government support programs are scaling back. Market valuations, as pointed out, for many companies are still high. Although the recent pressure, particularly around interest rates backing up, despite all that, interest rates are still very low by historical standards and will support money flowing into equities. U.S. fiscal stimulus will continue to be supportive of global growth, and the vaccination programs across the globe will also support strengthening economies. As stated, we continue to monitor the inflationary trends as these will impact markets. These factors, as discussed, have already caused much rotation in market, as we've seen recently, particularly the strength of the banking sector. As a long-term investor, we believe the portfolio remains well positioned, but it is being adjusted as opportunities arise. When we look through the portfolio stocks, we have great comfort that we are in very, very strong businesses, and we are very comfortable that being invested in these companies for the long term will achieve good returns. Moving on to Slide 22. Just finally, we always want to highlight, though, how the stock price is trading in respect to its NTA. The NTA is effectively the market value of all our stocks in a per-share basis. That movement in share price around NTA or fair value, as you can see, there appears where it trades at a discount. They appear to have traded at a premium. But we always like to highlight, currently the share price is trading at around a 7% premium to the NTA. So with that, that's the end of our formal presentation. So I'll pass back to Geoff to moderate with some questions.

Okay. Thanks, Mark. So what we'll do is we'll take a few questions from the webcast first and look to answer some questions from the phone. I'll hand over to operator for those, and then we'll see what questions we have left, if any, in terms of the webinar again.

So I'll start off with some -- a couple of questions perhaps for David. Just to get an indication where the outperformance of the portfolio versus the index came from over the last 12-month period.

Yes. Thanks, Geoff. So there hasn't been any one particular stock or sector that's driven that outperformance. I think it's very much a function of our quality focus and companies that have been able to generate cash flow and maintain strong balance sheets through what has been a very volatile period. So really, the quality focus that we have long been investing into, the ability for that to stand out during a volatile 12 months on earnings occurred over the last 12 months.

Okay. Thanks, Dave. A view of Telstra. It has stopped at -- it's been in the portfolio for a long time.

Yes. Well, we feel encouraged with where Telstra is at the moment. They've long been suffering from headwinds from selling fixed broadband to the NBN. The headwinds on that front are now close to being within the earnings base. The company has a strong cost-out program that they're on target to remove significant costs out of the business by the end of FY '22. So we really feel, with that backdrop, the company is positioned to be able to utilize their strong market position, strong balance sheet and expecting to see some revenue growth coming through over the next 12 to 24 months. I guess the other option for Telstra shareholders or for Telstra to create value is just the split of the infrastructure assets. So there hasn't been a firm commitment from the company at this stage, but we certainly believe there's latent value in the balance sheet as they journey down that path.

Okay. Thanks, David. We made an announcement, I guess, at the last AGM about overseas investments. There's a couple of questions here about -- asking about the progress of that. So I guess I'll pass over to Mark to answer that one.

Yes. Thanks, Geoff. Well, it's still a work in progress. We have a lot of work in progress, I should say. But we think we're getting close to making our first investment. We've put a lot of work into the setting up of the administry piece to support those investments. There's more resourcing being put into the team. And we want to make sure that when we do invest, we're comfortable with the stocks that we're going to be allocating money to. So we're getting close, Geoff. And hopefully, perhaps when we talk at our next presentation, we'll be able to mention what we've invested in and rather than just talking about that it's going to happen. So...

Okay. Thanks, Mark. So a few questions here on ESG. So really more about our holdings in BHP and Rio, given some investors would have concerns around those particular companies from an ESG perspective. And I'll take on another question around that, it's about in terms of a native title concerns or issues in response -- in terms of BHP and Rio in terms of their operations and, clearly, what happened with Juukan Gorge some time ago.

Sure. So look, we're encouraged -- both companies are committed to being carbon neutral by 2050, and that's becoming the industry standard. Both BHP and, more recently, Rio, the February result, have now committed to reducing emissions across scope 1, 2 and 3 emissions. And scope 3 is not only the emissions that the company is generating themselves but also the emissions of their customers. So we feel encouraged with the investment that both companies are making in alternate technologies, alternate fuel sources to be able to reduce their emissions, but it's something that we're absolutely watching as that progresses. Native title. So we were quite active in communicating with the Rio Board and management team around the situation at Juukan Gorge. We had a number of conversations with both Chairman and the CEO. The outcome of that is still to be determined in the sense the WA Heritage Act is due to be released or an update of that due to be released this year. The implications for both companies will be determined by what is contained within the update of the act. So that's something that we are watching.

I'll just add to that, Geoff. I mean we've talked about our philosophy behind this at a few of the most recent briefings we've given, but just to remind investors that we view -- we are the shareholders in these companies. So we are part owner of these businesses. They're our assets, and we expect them to be managed appropriately. If we see something going on in the company that we don't like, we don't take the view that we should move on as a shareholder. We should -- our view is that the management should move on from the running of that company because these are outstanding assets. The Pilbara, iron ore, mines, and we want to stay a part of those for the long term. And I guess our view is that we've seen an appropriate adjustment there where much of the management and our Board have moved on. And we're hoping, and we're confident we'll see some better management outcomes from that, and we retain our part ownership in those great companies.

Thanks, Mark. So you mentioned nursery stocks. Dave has question here about what potentially is in a nursery stock. I think I had this question last time. It's a very hard line to draw sometimes because some of these stocks actually do very well to become more than nursery stocks. But have you got sort of any comments around that in terms of the current portfolio?

Yes. So the current -- in the current portfolio, the exposure in nursery stocks is approximately 3%. So there's 6 nursery holdings. And as we said, they're really early-stage businesses that are meeting the -- or on the pathway to meeting the criteria that we look for as we define quality. So early stage, they're developing a market leadership position. They're well capitalized and run by strong management teams and Boards that we are attracted to. So we recognize that they're very early on in the journey, but we want to be invested into those companies early on and be able to grow our investment as the business is growing.

Operator, I'd like to see if there's any questions on the phone at this point of time.

[Operator Instructions] I'll just go to [ Mr. McNichol ] from the phone.

Yes. My query is not so much to the panel. I just wonder what the opportunity is to get a copy of the slides that I haven't got the technology to view those slides. And I wonder whether it's possible to send those slides out to where people need them.

Yes. Just if you want to, perhaps give me a call, my numbers on the website there. I'll be able to organize something and send something out.

Yes. I haven't got a website. So...

Okay. All right. Give me a call on my number, 9225-2102.

Right.

No problem.

Yes. And congratulations on the presentation. I think it was very, very good.

Thank you. Okay. Well, any other questions there?

Yes. We do have one more question, sorry. Just I'll go to [ Michael McRae ] from EPAL.

I'd like to know if there's a preference in the bank sector. Any banks you actually prefer or, on the other hand, ones that you think are higher risk?

Just -- so just on the banks, I mean our preference has always been around sticking with the 4 majors. We think they've got an advantage over the smaller banks in the sector. So our exposures continue to be around CBA, Westpac, NAB and ANZ. We've got quite a large exposure particularly in CBA, as we still see them as the leading bank. They've got the strongest market position. So we've got most money in that. And we're sort of hopeful that they can get their return on equity back certainly above 10% going forward. So that's where our exposure is concentrated. But just to throw an extra one, which is not really a bank, but some people call it a bank. We do have quite a significant exposure to Macquarie Group. The share price in the short term can behave somewhat like a larger bank, but in fact, it really isn't a bank. It's a global financials business that has exposure to -- there's a whole lot of financial products, and one of those is actually their growth in actually the area of green energy and how they're supporting businesses to grow into that area around the world. So that's our key exposures.

Okay. A question here about dividend growth outlook in terms of as the economy rebounds. Have you got any views in terms of particularly what came out of the reporting season and going forward for the companies that we invest in, in terms of dividend outlook?

Yes. Sure. So really hard to put a number on that, Geoff. We're fairly encouraged the company balance sheets are in much better shape than what they were, say, 6 months ago. And spoke about a number of companies that reduced their costs and that have seen a pickup in revenue over the course of the last 12 months. So I think conditions materialize better than what many were expecting. And we feel in that position that a lot of companies, while they are looking at M&A, they are also looking to invest in the business. They equally are cognizant of having reduced their dividend earlier on, and they're looking to increase that over the next 12 months. And one area where we feel most encouraged is just the capital position of the banks, as Mark mentioned, being well capitalized. We see them as having the opportunity to increase dividends in the near term.

And try to sort of perhaps anticipate further questions, we certainly can't make comments about what we're seeing at the moment because, in particular, 3 of the major banks are yet to report. They report in May of this year. So -- and obviously, we have some infrastructure stocks that we -- will normally go ex dividend in June as well. So there's still a fair bit of income to come through. So it's really difficult for us to make any comments about how we're seeing the full year pan out.

So I'll continue on the theme of dividends. We've got a couple of questions from a shareholder who's been a long-term shareholder. About Qube, will we likely get a special dividend from that given the sale of the Moorebank and in what financial year?

Yes. Well, the company hasn't committed to exactly what the capital allocation will be used for. So they did achieve a very strong pricing, been able to sell down the Moorebank assets. We expect proceeds will be used for a mix of M&A, some investment in capital expenditure, a buyback and potentially a dividend. But too early to say exactly what number that looks like.

And on the similar theme, same shareholder. ARB, any thoughts there in terms of any special dividends actually coming out of ARB?

Yes. Look, not sure about special dividends. I think in the past, they've paid a special -- a couple of times when they've built up some franking credits. So -- but that can also depend on how they're seeing the opportunities going forward, and we're very comfortable with that business. It's exceptionally well run, strong balance sheet. But they're certainly having some pretty good success on the global stage now, and we're very positive that the global part of that business will have many years of growth in front of it. So the company might have requirements for capital to fund that within the business, and we'd be very supportive if that was the case.

So Dave, you didn't answer the question enough on nursery stocks. People would like to know what, in fact, you classify as nursery stocks within the portfolio.

Sure. So a couple of examples. LTN, Netwealth, Temple & Webster and Xero would be the largest of the nursery stocks we currently hold in the portfolio. Xero is certainly the largest. That was an earlier-stage investment that has been in the portfolio for a number of years. The business has grown substantially over that time. We haven't sold a share. We've maintained our position that's growing along with the growth in the business.

Okay. So there's a question here about Seek. Have we reduced the holding or is it just a reduction due to the pullback in the share price?

Sure. So the largest part of that would be a reduction in the share price post the result, and that was on the back of them selling down their ownership of Zhaopin in China from 60% down to 20%. However, we did a small component that was selling down our holding on the back of that announcement. So look, we still feel the business has very strong growth prospects within the Australian market. They have a strong leadership position. It's very much early days in terms of the cycle. Seeing an improvement in employment intentions across a number of companies, Seek has a strong strategy to be able to increase prices. I guess the challenge for the company is -- the other growth driver is in Southeast Asian markets. They're very competitive. We felt for the strong run in the share price that we wanted to reduce our holding, recognizing the competition they're up against as they seek to grow in those markets.

A question around utility or energy. Are there any utility companies well positioned to take advantage of the renewable energy transition? And will we expect to see utility sector improve over this sort of transition?

Very early stage on that, and it's something that we're doing a lot of work on. Fair to say that it's not obvious as to how the utilities companies benefit from that. Origin is the only company in that space that we still hold within the portfolio. They are short generation. They're most favorably exposed if they are able to pick up more renewable generation, but very early days. What the capital required to be able to achieve that, what the return profile looks like is highly uncertain at this stage.

Okay. Operator, any further questions on the phone at all? Or...

No further telephone questions at this stage. [Operator Instructions]

Okay. So I might just go back to the last set of webinar or web questions. So Fortescue Metals, sort of why haven't we sort of invested over that company really for...

Yes. Our preference has been in diversified miners. So recognizing the tier 1 nature of the asset base, the level of diversity that we do get from copper in BHP's case petroleum and aluminum for Rio Tinto. So really, that's been the way that we played the sector. We have had some concerns just about the competitive environment within iron ore with the Guinea Simandou project coming within the foreseeable future, Fortescue being a single-commodity company. We said that poses some risk for them within the foreseeable future. So our preference has been for BHP and Rio.

Yes. Just another factor on that, too, BHP and Rio have always produced a higher quality iron ore. With our focus on sticking with the quality, we've sort of tended to stay with them because of that quality difference. Although I absolutely acknowledge that it's been a miss for us because the way the company is being run, particularly the cost base that they've developed in the business, has just been exceptional. And obviously, with the iron ore price front, they're very leveraged to that. So if we had our way again, we'd probably have some in the portfolio. But from here in these iron ore prices, I think we probably just need to keep watching it.

Okay. Thanks, Mark. There's a couple of questions here that I'll just address. One is about the volatility of the share price versus the NTA over February. It tends -- the share price tends to be a little bit more volatile ex dividend period as people sort of may have bought in for the dividend and decided to reduce some of their holdings through that period. I mean obviously, the NTA is a monthly calculation that we do. And people will approximate that to what the move has been in the ASX 200 through those particular daily moves and try and sort of match that up, but we are trading at a premium. So people need to be well aware. And I guess really, over the long term, what we have seen the share price and the portfolio return to equate to each other over a 10-year period. So we're very much -- would hope that our shareholders focus on the long term as we do in terms of the management of the portfolio. In terms of purchase and sales, we do release those every -- so questions come about how to get information on the purchase and sales that AFIC has done over the last financial year. We do, do that every 6 months in terms of the shareholder reviews that we put out in the annual report. So they are available within that, and they're obviously available online. We don't give a running update on our purchase and sales of the portfolio. We have -- as we mentioned, we're very much a long-term investor. So that would be -- it's small relative to the portfolio itself in terms of those changes anyway. And the other question we have here is will we continue on with the online presentations? Yes, I think one of the -- what we already had, in some ways, started this process. But I think one of the -- obviously, one of the things that have come out of the environment we've been in over the last 12 months is the greater use of technology in terms of our presentations through webinars and what have you. And given that a lot of people have been coming in on these and the response that we have been getting, we will continue to do these. But we're also conscious that we'd like to get back to doing our shareholder meetings as well on a physical basis when we can to see those shareholders who actually do like to see us in person every so often also. So we would certainly look to do that. A couple of other questions just coming while I've been speaking. What's management's view of CSL given its recent reporting? I think David addressed some of this, but certainly about plasma collections affecting the 2022 financial year.

Yes. Sure. So there is a 9-month lag. So collections from today will impact the business sort of early into calendar year '22. So with the reduced mobility around COVID, there has been a decline in terms of the outlook for CSL. We still feel really comfortable that it's a short-term issue. Demand remains really strong. There's plenty of industry data outlining the strength of demand. CSL remains the largest player in the industry. They're the cheapest cost. They will be less impacted by all their competitors. And with the continued investment in collection centers that the company has been making, we feel really encouraged that they'll be able to emerge from the COVID situation in a stronger space. So there will be earnings pressure in FY '22. We feel that's pretty well understood by the market. And beyond that, given the better competitive position they'll find themselves in, a strong balance sheet, we feel that the business is set for a period of reasonable earnings growth from there.

Thanks, David. Question about the EV space, electronic vehicle space. I mean I guess that's very much an emerging sector of the market. But...

Yes. I guess for our focus, we are focused on quality companies and then businesses that have been able to establish a market position. It's very difficult to invest within that space. I mean Rio Tinto is probably the only company where we do have some exposure, but in the context of their business, it's only very, very small. Most of the pure players in that sector are just too small for our portfolio.

Okay. I haven't really got any other questions that we haven't addressed on the web. Are there any further questions on the phone line, operator? Ooops, are you there?

Sorry. No further telephone questions at this stage.

I was worried the line dropped. They were there for a second, I got really concerned. Okay, I'll hand back to John Paterson, our Chair, to wrap up the meeting. Thanks, John.

Thanks, Geoff. Look, I'd just like to say we're very appreciative of the large number of shareholders who found the time to attend this presentation. We always like to be able to tell you what we're doing with the portfolio, what it looks like. But equally, we're very appreciative of finding out what are the concerns that shareholders have in regard to the market or your company at any time. So thank you very much for that contribution as well. We look forward to meeting up with you again later in the year. So thank you very much.

Ladies and gentlemen, that does conclude today's conference call. Once again, thank you all for participating today. You may now all disconnect.