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

Good morning, ladies and gentlemen. Welcome to the 96th Annual General Meeting of Australian Foundation Investment Company Limited. My name is Craig Drummond, Chairman of your company. The Company Secretary has confirmed that a quorum is present, and I'll now open the meeting. I'd like to begin by acknowledging the traditional owners and custodians of the lands on which we meet today and pay my respect to their elders past, present and emerging. May I introduce the people on the stage with me. We have our Managing Director, Mark Freeman.

Good morning, everyone.

My fellow Non-Executive Directors, Rebecca Dee-Bradbury...

Good morning.

Julie Fahey.

Good morning.

Katie Hudson.

Good morning.

Richard Murray and David Peever.

Good morning.

Graeme Liebelt is joining the meeting remotely due to a family bereavement. Also on the 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 are also joined by other members of the investment team in the front row of the audience. I'd like to take this opportunity to introduce Kate Logan, a partner of the company's auditors, PricewaterhouseCoopers, who is available to answer any 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. [Operator Instructions] To cast your vote, simply select one of the options. There is no need to hit a Submit or Enter button as the vote is automatically recorded. You'll receive a vote confirmation notification on your screen. I now declare voting open on all items of business. 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. The 2024 financial year has continued to see very good investment performance, with the AFIC portfolio providing a 15.1% return for shareholders, inclusive of dividends and franking, versus the ASX 200 return on the same basis of 13.5%. Our approach to investing in quality companies that are likely over the long term to sustainably grow their earnings and dividends continues to stand the test of time. Despite this, 2024 has seen the discount to NTA that AFIC shares trade at, move out from a 2% discount to a 10% discount after 3 years of being priced at a premium to NTA. This is not something that your Board in the short term can control, but we are very conscious of this development. As a result, the group has uplifted its communication with brokers and financial planners, moved to weekly disclosure of the portfolio NTA and begun to buy back shares in an orderly fashion as and when opportunities arise. The way that AFIC shares are priced relative to the NTA will likely move from modest premiums to discounts over time, which is impacted by a range of factors, such as the level of interest rates and the broader stock market, but we are very clear on one thing, we remain very focused on investing in quality companies that outperform the market over an extended period of time. This will ultimately drive our share price more than the shorter-term vagaries of the market. 2024 has witnessed ongoing southern performance of AFIC's $147 million global investment portfolio. We are encouraged by the performance of this portfolio, which has exceeded its benchmark index, the MSCI, M-S-C-I, World Index ex Australia, over 1 year and since -- 1-year period and since inception. Given AFIC has been trialing this portfolio for 3.5 years, we are now considering the most appropriate next steps for this initiative, including the establishment of a separate low-cost global investment company in the future. We will have more to say on this front next year. Moving on to the business of the meeting. I'll take the Notice of Meeting as read. With regards to the minutes of the 95th Annual General Meeting, they have been signed as a correct record and are available for shareholders for inspection today. The first agenda item is the consideration of the financial statements and reports for the year ended June 30, 2024. We will do this via a presentation, after which I will ask shareholders to comment and raise any questions either about the presentation or of the auditors if they have questions about the audit. I'll now pass to our Managing Director, Mark Freeman.

Good morning, everyone. So I was just trying to work out how we're going to move the slides across, but Matthew will be in charge of that. So it's great to see everyone here, and we keep encouraging all our shareholders to come to these events. It's a great opportunity to hear how the company is going, but importantly, to interact with staff and directors. It's your company. And we want you to take every opportunity to understand what's happening in the business and importantly, to know the people behind it. So if you move into the first slide. Just to start with the disclaimer to say we're here to talk about the business. We're not giving any advice as such. So just on the agenda, I'll just give you a little bit of an overview of our process and how we go about doing things. I'll pass over to Andrew Porter, our CFO, to talk through the results. David Grace and Winston Chong will then talk through the actual portfolio and transactions. And then at the end, I'll just touch again on the international portfolio. So just to go back to our investment objectives. We primarily invest in Australia and New Zealand companies. But as we've said, we are now moving a little bit into international. We are the largest listed investment company on the ASX with over 160,000 shareholders and importantly, an independent Board of Directors. Just as important, shareholders own the management rights to the company. There is no external fund manager that fees are going to. We are employees of the company. And so there's no leakage as such to any third parties. As a result, the management expense ratio or the cost at the moment is around 0.15%. And once again, there's no performance fees paid. We are a long-term investor, and that's deliberate. We want to be low turnover. We want to get the effect of the compounding benefits of great companies. And by being low turnover, we understand the position of the individual tax can be a real burden on transacting and most fund managers don't consider tax. We do because it ends up getting into your account, so being low turnover suits our investment style, and it suits you for us to be tax effective. We have been producing results that have been less volatile than the market. We like to have steady returns. We're not here to shoot the lights out. And we've got a long history of growing and importantly, stable fully franked dividends over time. And just for those who don't know, we also manage 3 other listed investment companies: Djerriwarrh Investments, which is focused more on income; Mirrabooka, which focuses on small to mid-cap stocks; and AMCIL is more of our high-conviction fund. And so therefore, we get the benefits of the team covering a whole range of stocks in sectors that can feed into AFIC. So our objective, again, is to pay stable to growing dividends over time and to provide attractive total returns over the medium to long term. So just to demonstrate on the next slide, the point about stability in the dividends. What we've shown here is the most recent period where there was a downturn during COVID. You can see the blue bar is the earnings per share and have that move through the market. But the line above that, the green one, is the dividends we paid. And so this is where we've talked about being a company structure. We can build up some reserve of franking credits, usually through the reduction in some of our core holdings, either we trim holdings or we can get out of stocks, if we think we're unsure about their future, or through takeovers. They all build up franking credits. And we've primarily used those in the past to sustain dividends during the tough times. Obviously, the experience before that was during the GFC, where we did the same thing. The situation where we sit at the moment, we once again have built up quite a good bank of franking credits. So we're again ready for any downturn that may occur to seek to sustain our dividends during the tough times. And then just one other slide for me at this point, then the long-term returns just showing how an investment in AFIC has been compared to the 200 Index. So with that, I will pass over to Andrew Porter, our CFO, to give a summary of the results.

Thank you, Mark, and good morning, ladies and gentlemen. So the figures, which are in a format familiar, I'm sure, to many of you are there on the screen, the profit for the year, $296.4 million was down from the previous year. Dividends that we received overall were down 13% -- $13 million or 4%. That was slightly better than the market, which according to Fin Review, had a reduction in the ASX 200 of dividends down over 5%. Many of you will be aware that BHP reduced its dividend. They're paying the dividend this year today. As indeed, Woodside, that was also down by $8 million for us. Macquarie Group's dividend was reduced, as was Rio's. On the upside, had a special dividend from Westpac. The banks were generally up. Santos increased their dividend. Computershare increased their dividend and Auckland International Airport resumed paying dividends. So they helped to offset some of that reduction. The -- Mark has talked about the dividend, $0.26 were paid in respect to the financial year. That was $0.01 in total more than the previous year. The decision was taken by the Board to increase the final dividend by $0.005, and that followed the decision by the Board to increase the interim dividend by $0.005. Mark has mentioned franking credits. We often get asked this question. There were approximately at the end of the year after payment of the final dividend, about $0.425 per share worth of franked dividend that we could pay using those franking credits. But as you saw in that previous graph, they are needed, and one of the benefits of the LIC structure is that those franking credits and dividends can be used to smooth the dividend if you're in a trust or an ETF, as I've explained before, and many of you will have heard me, that can go up and down depending on the income that the underlying stocks pay. So that is a benefit. The total portfolio return of 15.1%, Craig has mentioned. And we'll come on to more updated performance figures later on. In the bottom corner is the management expense ratio. This is the cost of running the company, 0.15% or $0.15 for every $100. That's the total cost for the year over the average portfolio size. So that did increase to 0.15% from 0.14%. And those of you who are awake or paying attention last year will recall that we did say that the MER was likely to increase because in that previous year, we did have an accounting treatment for a change in the remuneration structure, which had quite a big impact on the expenses in reducing them in the previous year. Having said that, all up $0.15 for every $100 we think for an LIC structure represents good value. Just one thing on the MER because we have been asked about it before. For those of you who read the remuneration report, the remuneration table shows the amount that the executives receive. But we should make clear that -- and as Mark has said, those costs are actually split across the 4 LICs. So the remuneration table does state how much AFIC as a company bears of that, but that's important to bear in mind if you're having a look at that remuneration table. The next slide illustrates something that Craig was touching on in terms of the discount to the NTA that the share price is trading. And those of you who will have seen the September figures that were released yesterday will see that dividend -- that discount has been maintained. Craig has also gone through the number of measures that we are taking to draw attention to future investors that, you know what, you can pick up some good stocks per 90% of their market value through the LIC structure and that's something we think that people should take a look at. So with that, I'll hand over to David.

Thank you very much, Andrew, and good morning, everybody. So we'll talk to you today just about how the portfolio is currently positioned. We'll look at some performance figures over various time periods, and then we'll show you a range of transactions that we've completed in recent times, just how we're navigating, which is a slightly more challenging period for companies to operate in. So before I talk to the graphic here on the slide, just to recap in terms of our investment process. So in managing the portfolio, we're long-term investors in quality companies. We're not short-term traders about the news of the day, and we want to be able to capture the benefit of compounding returns deliver to long-term shareholders. However, we do recognize that over our period of ownership, companies will go through several business cycles, likely several changes in management and even changes in strategies. And ultimately, our investment is in the underlying asset base of each company that we hold within the portfolio. So in this regard, we want to own companies that have a defined competitive advantage, generate free cash flow, maintain strong balance sheets and importantly, are run by highly capable Boards and management teams. As we're not traders, we want to be diversified by company and industry, allowing us to perform in most economic settings. So in terms of the chart here we've shown on the slide, what we want to have within the portfolio is a mix of growth companies, you can see on the top left-hand side. So this is the likes of CSL, Goodman Group or Reece. These are companies that have market-leading positions, have significant growth opportunities in front of them and importantly, generate free cash flow that enables them to reinvest back in their asset base to maintain that competitive advantage. So moving over to the right-hand side, stalwart companies. So these are companies the likes of Wesfarmers, Transurban and Woolworths. They will have some earnings growth, still a significant long-term opportunity but won't deliver the same level of growth that we'll get from the growth companies, but they are an important part of the dividend that we return to you, our shareholders. So down at the bottom right-hand side, we have a mix of income stock. So we recognize that income is a very important part of total shareholder return that you receive. And in this regard, this is where we hold the likes of the banks in Telstra, who continue to pay a growing fully franked dividend profile. And on the bottom left-hand side, we've shown the cyclicals, which accompanies with strong balance sheets, favorably exposed to long-term economic growth. So we classify our holdings in resource companies within the cyclical sector. And just a little bit about our approach to our investment within resource companies. So we're more discerning on the price we're prepared to pay when it comes to the mining companies. And that's really for the reason that they operate finite assets, and they're required to invest in their businesses to replace those assets over time. And if you look at the performance track record of investment within the mining sector, it's been checkered, if not pored in many instances, particularly when they've gone down the path of M&A. However, we do have meaningful holdings within BHP and Rio, both operate long-life Tier 1 assets, both their operations are at a low point on the cost curve. And this is important because it enables them to generate free cash flow even when commodity prices are low to be able to maintain a strong balance sheet and to be able to continue to pay us a dividend through the cycle. So the slide here just shows portfolio performance of our portfolio against the ASX 200 over various time periods. And as you can see on the far left-hand side, equity markets have had a really strong last 12 months. Pleasingly, the portfolio outperformed returning 19.2% versus the ASX 200 return of 16.2%. And all the performance figures on the left include franking for both us and the market. So the largest contributors to performance over that period were portfolio holdings CAR Group, Goodman Group, Wesfarmers, Reece, Netwealth and ARB. We've trimmed a couple of those holdings, but we still own them in the portfolio, and we still feel their long-term prospects remain strong. Additionally, our underweight to the materials and energy sectors aided performance in the last 12 months, given both have had a pretty tough time of it, but it has actually presented the opportunity to add to several of our holdings in those sectors, as we'll show you in a later slide. So we're particularly pleased with the 5-year performance where the portfolio return is up 10.6% versus the market up 9.5%. And in our view, this reflects the benefit of long-term ownership of quality companies, allowing returns to compound over many years. And I'll just call out our performance figures as shown on an after-tax basis versus the index where you can't take tax out of it. So arguably, we're understated versus a benchmark over that longer time period. So the chart on the right-hand side just splits market performance over the last 12 months by sector. So the numbers do not include franking. So you'll see the ASX 200 in the orange bar, they're up 14.9% compared with the left-hand side up 16.2%. The best performing sectors were information technology up the best part of 36% and financials up 34%. Within financials, we saw a particularly strong performance in the banks off a low starting point this time last year, with the banks being up slightly more than 40%. So what's interesting to us is the drivers of the market have been very narrow, with both those 2 sectors at the top materially outperforming the broader market. So while earnings growth for the banks have been subdued, we've seen a large rerating in the earnings multiples the market prepared to ascribe as operating conditions have just proven to be more benign than what the market had originally expected. In our view, valuations for the banks have reached extreme levels, and we've actually significantly reduced our holdings in the last few months. So going forward, we expect the drivers of market performance to broaden from the sectors shown here on the slide, and we'll show you on a later slide where we've been adding to our holdings recently. So in terms of the valuation of the market, this slide sort of encapsulates that where it's the price to book -- or sorry, the price to earnings of the ASX 200 over the last 25 years. You can see that the P/E ratio for the whole market is currently at 17.2x, which is 19% above the 20-year average. So we know the performance of the market has been strong. And as I already mentioned, it's really been concentrated with a handful of sectors. Well, any valuation chart doesn't tell the full story. We still think it's helpful to get a gauge of investor sentiment towards the equity market, and it clearly highlights that the market is towards the top end of a fair value range. So our conclusion with the market valuation at the top of a fair value range and the operating environment set to become more challenging, we need to be more discerning about how we allocate capital during this period. We've shown here on the slide just a collection of data points from all the companies we've been catching up with through the August reporting season in subsequent meetings and a couple of slides in terms of key macroeconomic events that seem to be driving share market sentiment at the moment. So I guess what's occupied in our mind? Our view is that earnings growth is likely to become more challenging for many companies. Price rises are expected to slow and companies becoming more dependent on cost-out to be able to deliver earnings growth. Consumer spending so far has held up relatively well, but we're seeing early signs as that is starting to soften around the cost of living. And employment data will be really key to watch, and we'll show you on the next slide just a couple of charts of the challenges companies are facing in relation to employment and productivity. Pleasingly, China policy initiatives have stabilized. Certainly, the property market are endeavoring to stabilize the property market and provide support for the consumer. And we're seeing developed world central banks collectively -- or sorry, all reducing interest rates. We've seen 20 central banks reduce interest rates over the course of September. So initially, that's in response to slowing economic growth. We're mindful of the fact that will provide stimulatory at some point in time and will be positive for equity markets. So markets are always forward-looking, and we don't know how all those issues ultimately get resolved. However, we remain committed to holding a diversified portfolio of quality companies remains appropriate in this environment. And we do know that periods of uncertainty generally provide the best buying opportunities and we'll show you some of that later on. So just as I earlier referenced in relation to the labor market. So in line with our view around operating environment for many companies becoming more challenging, we've shown a couple of charts here on the slide, which were put together by Goldman Sachs Research, just highlighting the challenges when it comes to labor productivity. So on the left-hand side, we've got the tricky situation where falling end market demand reflected by the blue line at a time of tight labor market. When you typically see employment conditions are tight, companies, at least initially look to hold on to their workforce. And what you see is a spike in hours worked, which is a gray line. And so that divergence has become quite severe over the last 12 months. From here, companies either need productivity to improve or we may see the situation where they right size their labor force to match the operating environment that we're facing. Along the same theme, so the chart on the right-hand side shows the aggregate labor cost for the ASX 200, plotted with their aggregate sales growth. So following a strong period in FY '21 and FY '22, sales growth outpaced labor costs. So that's the gray bars growing faster than the blue, and that was really driven by stimulus measures put in place by the government supporting consumer spending over that period. Since then, however, we have seen a reversal. So labor costs are now growing faster than sales growth. And with the environment we described, we expect that to continue going forward. So just before I hand over to Winston to talk through recent transactions, just in navigating the slower operating environment at a time when the market valuation is full. We're allocating capital based on 2 key themes. So firstly, looking for companies providing strong valuation support following a period of bad news; and secondly, in companies where earnings growth is more driven by self-help drivers as opposed to being reliant on underlying economic conditions. And at this point, I'll hand to Winston.

Thank you, David, and it's a pleasure to be here with you, our shareholders today. We use share price weakness and market inefficiency to buy quality companies when we see value emerging. On this basis, as can be seen on the slide, on the top left-hand side of the slide, we've recently added to positions in Goodman Group, Telstra, BHP, James Hardie, Woodside, IDP Education and ResMed, and I'll speak briefly about each of these in turn. So we've recently added to our position in industrial property specialist Goodman Group. Goodman is an excellent founder-led business with a high-quality property portfolio in major cities around the world. We've recently gained more confidence in the opportunity for the company to develop data centers, and given the growth in AI in the years ahead, we see strong demand for strategically located centers and see Goodman Group as well placed to meet this growing demand. This should support strong earnings growth over the medium to long term. We added to our position in Telstra as we believe the management team is executing very well on product and pricing as the owner of Australia's best network. We also observed that their management team is being very disciplined on costs and capital, and we think this will translate to a growing dividend yield over the next few years. We added to our position in James Hardie. James Hardie is the dominant player for residential -- for fiber cement cladding for U.S. residential homes. Hardie has a differentiated product, which drives conversions from alternative products and also results in strong pricing and margins. So we took advantage of a soft U.S. repair and remodel market on the expectation of an eventual recovery. We added to our position in IDP Education, a global leader in international student agency and English language testing. Policy settings on international student migrations around the world appear to us to be the most restricted they've been in over a decade. Against this context, IDP continued to make strategic growth investments to grow its competitive advantage and is well placed to take share of a long tail of competitors during a downturn instituted volumes. We also added to our position in ResMed, the market leader in treatment of obstructive sleep apnea. While the market has been concerned about the impact of weight loss drugs on demand for ResMed's products, ongoing product development and a weaker competitor set continue to benefit the company. We've also added to positions in both BHP and Woodside on share price weakness. Both companies are exposed to commodity price movements that have high-quality, low-cost assets by global standards and generate good cash flow through the cycle, translating to a good dividend yield. On the bottom left, we have our new purchases. Firstly, Ampol. Ampol is Australia's leading integrated energy company engaged in refining, marketing and supply of petroleum and possesses a significant convenience retail footprint. The company owns strategic infrastructure assets as one of only 2 refiners left in the country and is also investing to grow its convenience retail business to diversify the overall business. While it does this, management have a clear capital allocation framework as they execute this strategy and the stock offers an attractive dividend, providing a good income stream for the portfolio. And then on Worley. Worley is a leader in engineering and consulting services to the global energy, chemicals and resources industries. The company is well placed to benefit from the investment in both traditional energy and decarbonization efforts as the world navigates the energy transition. This should enable Worley to grow earnings strongly over the medium term and cash flow as well. The companies listed on the right-hand side shows stocks that we have trimmed or exited recently. We have trimmed our position across the banks, and I'll talk to our reasons for this on the next slide. Both Wesfarmers and Ramsay have been trimmed in the portfolio as the valuations are approaching full in the context of their prospective earnings growth. The decision to exit Domino's reflects our view that the long-term prospects of the company are challenged with a significant turnaround required to improve returns. And then just a moment on bank valuations. So as can be seen in this chart, in 2024, bank valuations reached a 30-year high. And while we're mindful that they provide meaningful income for the portfolio, their valuations appear very full to us in the context of limited earnings growth, as you can see in the gray line there. As a result, we think it's been prudent to trim some of our positions in the banks. In the following slides, I will focus on a couple of portfolio companies in more detail, highlighting why we consider them to be great investments for the AFIC portfolio. ARB is a 4-wheel drive parts and accessories company that designs, manufactures and distributes its products globally. AFIC has had a long-term investment in following the company and its founders over many years. The company has a strong position for you in Australia with a good runway for growth, underpinned by store openings and new products. The U.S. represents a significant area of growth for ARB's export business, and the strength of ARB's brand in the U.S. is highlighted by the fact that it has a contract with Toyota to fit and supply ARB-branded parts to new vehicles on delivery in the U.S. We have recently become more confident of the prospects of ARB's U.S. business as we've seen the company move to invest more in retail and distribution to grow that business. The management team is experienced, and the business has a strong balance sheet, having funded all of its growth since listing in 1987 through free cash flow. It's a great example of a founder-led business that's focused on long-term value creation. CAR Group holds leading positions in vehicle classifiers in Australia, the U.S., South Korea and Brazil. It has a strong management team with a long-term track record of delivering excellent returns to shareholders since listing 15 years ago. CAR Group has a dominant position here in Australia, where it's quite advanced by global standards on the depth and sophistication of its products. And the company has been able to apply the intellectual property it has here in Australia through some of its international assets. This has enabled CAR Group to introduce new products to accelerate growth in countries and niches which are less mature. And this is providing significant runway for growth, both in the U.S. and Brazil, where we see multiple years of product development supporting strong earnings growth for the group. The company continues to be stewarded by a very focused management team who have executed very well on the company's global growth strategy to date. And with that, I'll hand to Dave for some outlook comments.

Thanks very much, Winston. So just to recap, the domestic economic growth, we expect to moderate from here. But positively, interest rates are likely to be cut and many forecasting several interest rate cuts over the course of the next few quarters. So while the equity market is towards the top end of a fair value range, hopefully, we've highlighted we are finding opportunities in this environment to add to holdings or new holdings where we see long-term prospects remaining strong. We expect the drivers of the equity market to broaden as we've seen already with China stimulus efforts and when the effect of interest rate cuts come through. And we continue to focus on those companies best positioned to be able to deliver meaningful earnings growth over our long-term investment horizon. So in this regard, the portfolio remains invested in well-managed companies owning strategic assets and importantly, holding strong balance sheets. So at this point, I'll hand over to Mark.

Thanks, Dave. We've been getting a lot of inbound questions around our international investments. So I just thought I'd just do one slide to give you a bit of a flavor of what we're trying to do with the portfolio. And I think the team are doing an outstanding job in managing the portfolio in the AFIC way. So as Dave talked about, we're trying to have that balance between great store type companies. So large established businesses with great market positions. So you think of companies like Microsoft, which essentially have a monopoly in that product area. Companies like Home Depot, which is a company that Bunnings modeled itself off in their growth. HCA, which is the largest hospital operator in the U.S.. Nestle, which has got, obviously, a suite of well-known brand. So these are incredible global businesses, and we want to get exposure to those companies. But we also want to have some great growth companies, businesses such as Amazon and particularly the area of the data centers. Chipotle, which is a food product in the U.S., has had an incredible success rolling out stores, and we understand the impact of rolling out stores. We've seen how successful JB HiFi, Bunnings have been when you get a great business to roll out. Novo Nordisk, they're one of the 2 leading companies that are producing weight loss drugs. But importantly, they've got a market-leading position in their core business as well. So people may have heard of a company called NVIDIA, which produced chips. They used to be big producing chips for gaming, but now people need them to do AI. And then you look at Freeport, which is the -- I think it's probably the largest copper producer in the world, and we hear a lot about how important copper is going to be for the future. And then there's some interesting businesses like NextEra, which is probably the leading U.S. company involved in producing renewable energy, and we don't see those sort of businesses here in Australia. So that gives you a bit of a flavor. We're trying to find the great store to large companies, great -- and great growth companies that we can see. I didn't touch on also the Schneider who are involved with providing componentry for power in buildings, and they will be a strong beneficiary as we move into more renewable energy as well. So a really interesting portfolio. We've got about 43 stocks. We don't want to run a really high concentrated fund. It's not our style. We like diversification. Builders FirstSource gives us exposure into the building industry as well. It's a great business. It's changing the way how homes are being built in the U.S. So I'll probably leave it at that, but happy to take more questions at the end, but it hopefully gives you a bit of a sense of what we're trying to do with the international portfolio. And with that, I'll pass back to Craig.

Thanks, Mark. Thanks, Andrew, Dave and Winston. Appreciate the presentation. I'd now like to move or invite questions from shareholders.

For those in the room, we have microphones available, and we'll be -- please wait until the microphone comes to you and if shareholders could state their name when addressing the meeting. I ask that all questions come through me, and I'll then allocate them accordingly to the relevant individuals. So we'll start in the room first, and then we'll go online and see if there are any questions, Geoff. So please.

My name is [ Steve Vanemick ]. I'm the company monitor for the AFIC group of companies for the Australian Shareholders Association. I've got 501 proxies, about 9.7 million shares. Thanks to everyone who gave me the proxy, much appreciated. ASA is a supporter of low-cost LICs like AFI. They do a good job. They're in the business as well. They run the funds management side of the business well, at least. I'll be voting all those proxies 4. So that suggests that, basically, we're happy with what they're doing. We do have a few issues. I've got 3 questions. These questions probably go to those issues. The first one is -- and I'll just give a little preamble to each question. ETFs are continuing to increasingly dominate the retail funds management space to the detriment of LICs. We see this on a worldwide basis. The discounts to LICs are growing larger in the face of investors move to sell their LICs and buy ETFs. This discount to net asset value that AFIC trades directly impact shareholder returns. So the funds management business has gone great, doing good job. Well done. Shareholders haven't seen those returns over the last few years. It's a big issue. Yes, big issues require big bold actions to, I guess, push against them. So it's a question for the Board, really, rather than the funds management side of things. What does AFIC intend to do about the growing threat to their LIC model?

Well, Steve, let me thank you for your question. Thank you for your support. Let me take the first question. The first thing I'd say is, yes, today, AFIC is trading at a 10% discount to NTA. But what I'd say to you is if we were in this meeting 3 years ago, it was trading at a 10% premium. So I don't think you can particularly pick any one point in time. All of our -- and certainly the way we think about investing is very long term. We don't think about the vagaries of the short-term markets. ETFs are growing rapidly. But there are a range of reasons why you may own an ETF and a range of reasons why you may own a listed investment company. Mark talked about the dividends, for example. So through the COVID period, ETFs -- many ETFs were forced to cut their dividends because they pay out 100% of what they receive. In our case, we kept the dividend level at $0.24 through the COVID period despite the fact that dividends were lower from the companies that we received because the structure that we have as a listed investment company is we have built reserves. We have built, as Andrew said, $0.42 of franking credits. So I think that lower volatility than the market is an important point, both in terms of dividends, but also our beta, our volatility index is significantly lower than that of the market. So it depends -- my point, I suppose, ultimately, is it depends on the time that you take that statistic. If you look at one particular short-term period, I could equally as I said, go back over the last 3, 5, 10, 20 years, and there have been many periods of time where LICs have traded and AFIC has traded at a discount, but there have been many times where it's traded at a premium. So I think we're not ignoring the fact, and that's why we have uplifted our communication to the market. That is why we have moved from monthly NTA publication to weekly NTA publication, and that is why we have begun a buyback. And so about 3 weeks ago, we started to buy back shares, AFIC shares in the market because we think, as you've indicated, that a 10% discount to an NTA. If you can buy something for $0.90 on the dollar, it is too cheap, and we think it's in shareholders' best interest for us to buy back -- sensibly buyback the shares. But -- so my point is their long-term trends, they go up and down depending on the vagaries of the market. And one thing, we are correlated. Historically, our discount or premium to NTA has been correlated with market interest rates. So when market interest rates are a little higher, retail investors probably tend to have a little bit more inclination to buy term deposits rather than buying Australian shares. And equally, as we saw through COVID, when interest rates fall and term deposit rates fall, the fully franked -- grossed up fully franked yield on an investment like AFIC looks considerably more attractive. So I wouldn't give up on the LIC sector, Steve. I think we're going to be here for the next 95 years.

Okay. Thank you. I think you're preaching to the converted here. But I hope I'm not back here in 2, 3, 4, 5 years' time, saying you're a discount and you're saying, well, that's out of our control, and that's just the way the market is. Funds management returns are also, to a large extent, outside the control of the funds manager. You take responsibility for that. The share price is also largely out of your control, but you don't take responsibility for that. So my question is around...

No. Sorry, I have to pick you up on that. Firstly, we do control our investment returns. We are making decisions. Our portfolio managers are making decisions every day. The fact that we don't care, or I'm not sure exactly what the word to use, we don't take responsibility for our share price, we do take responsibility. That's why I've just outlined the 3 things that we have decided to do to try -- and that is -- they are within our control. I think your statement would be correct that we didn't take responsibility if the Board just sat back and did nothing, and that's not what we're doing.

Fair enough. Fair enough. I guess we'd like to see you do more. That's...

What would you suggest -- I'd be interested to know what your suggestion would be.

Well, sure. There's some fund managers that are out there, but those fund managers have no other assets other than the shares in the company. They don't own houses, they don't own anything. That's all their assets. That's how they put all their skin of their game in with shareholders.

Sorry. That doesn't change the premium or discount to NTA.

Well, that shows the market that they're totally committed and they're experiencing the same as shareholders are experiencing our shareholder returns.

Well, to be clear, we expect all of our staff to invest 50% of whatever bonus that they earn every year in shares of the company. They all have substantial shareholdings. You're not seriously suggesting that they don't have any other assets. I think most portfolio managers in all listed investment companies would also own a house. I can't imagine that they're renting.

Well, there's one in particular. That's what they tell me. So I've taken them on board.

Do they own a car?

Yes. Well, they probably own a car.

They may lease it.

I don't know.

Okay. Sorry. I don't know to ridicule your statement. But -- and I understand you're coming from a good place in asking these questions. But I ask for genuinely what additional, if you're not convinced that we're doing enough, what genuinely would you, in good faith, suggest that we additionally do to close the discount?

Well, I've got a long list, so I won't bore everyone with that. But I'm happy to get together outside of this meeting and discuss it a little bit.

We'll always be very, very interested because I think every other listed investment company would like to see a list as well.

Yes, great. Well, I'm a personal investor, and I buy and sell LICs at discounts and sell them when they're not on discount. So this is something I do with every day.

So you're suggesting this is a buying opportunity.

Well, I'm suggesting this is a buying opportunity and I'm suggesting -- I'm talking against my own interest here. But I'm still doing it because I believe in the model, and I believe that shareholders should be looked after and that returns that you good people generate should be passed in the same way to shareholders. I'd love it if there were no discounts and no premiums.

Yes. And what I'd say to you is, again, I think the underlying message is we all -- whenever we're investing in shares, whether it's AFIC shares or a broader-based portfolio of shares, we need to take a long-term view.

Yes, I understand that, yes. And yes. Next question is related, I guess. The ASA, our remuneration guidelines for companies' LTIs, et cetera, are based around total shareholder return because we want Boards and key management personnel to be in the same boat to shareholders. In the case of AFI, I understand the -- that's not one of the measures. And I understand why because you run a fund and your funds management personnel are remunerated based on the returns of that fund, not based on whether it happens to be a discount or a premium to the TSR. I guess my question is if they're not motivated in that way to address the issue, who is motivated in that -- in terms of total shareholder?

I think they are very aligned and very motivated because ultimately, over a long period of time, the performance of the portfolio will be reflected in the share price. It is just logical that it is. I think the logic of why we don't have a total shareholder return metric in our bonus calculations is if we go back a few years ago when the stock was trading at a premium, because the resources sector ran, our portfolio has actually underperformed. Our portfolio manager's portfolio has underperformed. So there's a classic example of in a scenario where the underlying portfolio has underperformed but the stock went to a premium to NTA, we would have paid a bigger bonus to our portfolio managers for underperforming, which would have been completely -- that's not -- they can't control the short-term vagaries of the market. Whereas in this period, if we've chosen a TSR, when 80% of the way we remunerate and the way we consider bonuses at AFIC is did the portfolio manager outperform over the short, medium and long term? One, 3, 5, 10 years. We think that is the ultimate metric. If they underperform, they shouldn't get paid a bonus or a substantially reduced bonus. If they outperform, they should. But the vagaries of whether a stock is at a premium or discount to NTA, I think that is not the right measure. And that's the view of the Board. We're happy to hear from shareholders if they believe we should remunerate people even though the portfolio underperforms that we should remunerate them based on the share price movement. And we think that we've got the measure right. But again, we're happy to take the input. And I can -- I understand where you're coming from. It's completely logical. And many Australian companies, of which I'm the Chair of another Australian company, we do have TSR in our LTI in our bonus calculations, and it's for good reason because the share price will mirror and does mirror. There's no such thing as a sort of premium to NTA in most industrial companies and they're not managing stock portfolio. They're managing industrial businesses or resource businesses that are driven -- their earnings are driven by management decisions that will ultimately drive the share price. So sorry, that's a very long-dated -- long-winded response, but we think we have the measure right.

Yes. I understand the reason for the response, and it's a good response. Yes, I guess, again, we like companies to be aligned with their shareholders. So that's the reason why we have this position. While in some situations, it makes more sense; in other situations, it doesn't. And I'm voting for the remuneration so that probably...

Thank you.

Yes. This last question I asked last year, and I'll ask it again because I sit around with my local ASA group and they told me to ask it. I'll ask their opinion, and it's about the auditor. You've had the PwC as your auditor for 92 years. That's a lot of loyalty. I don't know what you think of PwC's behavior. I know that wasn't related to the audit arm. But as one ASA member told me, allegedly, if you lay down with dogs, you get up with fleas. Continuing to have PwC as your auditor, actually to those ASA members, was the reason not to buy AFI shares. So it is an impact on your reputation. So given the discount, I think you want to be taking away anything that would stop people buying shares in AFI. Given that, will the Board act in shareholders' interest and change the auditor?

So thanks for the question, Steve. What I would say, first of all, is PwC has been the auditor, you're correct, since AFIC was founded. But what I think everyone needs to be very clear of. Every 5 years, the audit partner changes. And to suggest that Kate over here would be 95 years of age or older is not true. We change the partner and the staff involved on a regular basis. Secondly, we did -- when the PwC issues came up, we did a thorough review and investigation of those issues to see whether any of the people associated with that problem in PwC were on our audit or had any intelligence or knowledge, which they did not. My personal view is that PwC's reputation has been damaged, but we are of the view that PwC's reputation remains preeminent still in an Australian and global sense. They provide us very good value. And I'm going to pass to Andrew just to talk about when we last tendered and what our current thinking is on going forward. Andrew?

Thank you, Chairman. So yes, as you say, we change the auditor every 5 years. We last had a full tender in 2017. PwC were invited to tender for that audit. We do not believe in mandatory rotation of audit firms. PwC won that tender with the best offer, and we were happy to accept that. There is always, as many people will understand, quite a significant cost in disruption and time when you change an auditor. So although that was one of the reasons, the offering was the best one. We will probably look to have another full tender in 2027 when Kate finishes her term as a partner. But again, without speaking for the Board, it would be my intention to recommend to the Board, again, that PwC are also invited to tender, but it will be a full and open tender.

Yes. Thank you for your answer. Yes, my question wasn't around whether PwC is doing a good job, et cetera. My point simply is most retail investors don't have the nuanced understanding of different parts of businesses, et cetera. They read what they read in the paper, and they make their judgments accordingly. And in this case, they make their judgments negatively. But thank you for your questions, and I'll get off and let someone else have a go.

Thanks, Steve. Thanks very much. I think we're going straight to -- and then we'll come here. Straight to the back. Good morning. First of all, your name, sir. Please.

[ Geoff Thomas ]. First of all, I think you're doing a great job. The other thing is this trading at a discount, to me, it's a great opportunity. I want to thank the Board that it's going that way. And I'm disappointed to see you have a buyback because that makes it harder for me to buy [ in favor ]. But all jokes aside, I think it's great. What you're doing with a buyback, you're doing a great job. There's only one question I have. There's one glaring example to me of a company that doesn't seem to be on your list. It's sometimes like in the Berkshire Hathaway. It's a $13 billion company in the last 10 years. The shares have gone from $15 to $35. It's the only company in Australia that next year with 25 years of increased dividends. I think you probably know what I'm talking about: Washington H. Soul Pattinson. And I can't understand why we don't have it in our portfolio, why we haven't had it for a decade in the portfolio. Because to me, it's up there with Wesfarmers and a lot of other great Australian companies.

Geoff, very good question, and I'm going to be, in true Chairman prerogative, flick-pass this one to David Grace.

Thanks for the question, Geoff. So we did use to own Soul Pattinson, and we actually sold it when the share price got to a 40% premium. So you are basically similar to LIC, paying $1.40 for a dollar worth of assets. And our view at the time was really hard to see us getting a good return from that even over a medium- to long-term view. So we continue to monitor the company. We're absolutely aware the growing dividend profile. We think that Millner is doing an outstanding job in terms of allocating capital as well as rewarding shareholders along the way. But it was really that premium to the asset base. We struggled to see how we're going to get a good return from it the point where we sold it.

Okay. Well, I'll just say that there's 2 companies I wouldn't sell. One of them is AFIC and the other one is [indiscernible]

Thank you, Geoff.

[ John Lancel ], another ASA member. I think I asked this question last year to Mark. He won't answer it, I think. Warren always mentioned and talks about his 5 dots, have we had any this year?

There's always dots. But I'm going to reflect and also pass this to Dave. I think -- do you want to talk about Domino's?

Yes, I'll talk about Domino's. So the biggest dud for us has been Domino's. And we paid too high a price for that, and then we subsequently have since sold it at a loss from where we purchased it. And the thing that we got wrong was really around the growth opportunity in the store network. We felt there was a significant opportunity in every geography for Domino's to have more stores on the ground and the unit economics to be maintained. So the profitability per store was going to be maintained as they rolled out more stores. What we saw, and it was a misstep from management and one that we missed at the time was during the COVID period when everyone was locked up in doors, there was a rush to eating pizza or ordering from home. And at the time, there weren't that many foods that actually could be delivered in terms of takeaway. So this was sort of before the onset of Uber Eats, et cetera. Management at the time then accelerated the store rollout. So they went from rolling out about 200 stores per annum globally to about 350 to 400. And pardon the pun, the company then suffered... [Technical Difficulty] Are you still there?

Yes.

There we go. So yes, they had too many stores and then the unit economics suffered as a result of that. And the unique thing about a franchisee model is that you need to be on enough profitability for both the franchisor and the franchisee to maintain their business. This then come at the expense of the franchisee was less appetite for stores. And accordingly, the company was left with too many. And so we've seen them have to work through that period now and that sort of led us to exiting that position.

John, it's a very good question, and it's something that the team does take a lot of learnings from. We don't just say, "Oh, we got that one wrong and we move on." We do actually reflect why did we get it wrong, how do we get it wrong to use those learnings going forward to improve what we do. But we do make mistakes, clearly. We just hope to make less than 50% get more right than wrong and beat the index. That's clearly what the objective is. But thank you for your question.

[indiscernible]

Well, we have more. Dave will give you more if you want to.

I mean the other one for us which typically comes up is -- so I mean, resources. So just a history on that. So in 2022, we saw the lithium price rally pretty aggressively from $1,000 a ton to $8,000. And this is the nature of immature industries where you get demand exceeding supply for a short period. You get this huge spike within the commodity price at the time. Now we saw the share price rally aggressively in that period from around $20 to $100. We didn't actually buy it. But when it started to fall in 2023 when supply started to catch up, we initially made an investment at around $70. Now in hindsight, that was too early. Subsequent to that, the supply started to exceed demand and the commodity price fell quite materially, where the stock price got to $30 only last month. And the market's view is they're going to need to raise equity, and at $30, they're waiting for the equity raising to come through before people are interested. We did a lot of analysis around it at the time, looked at the balance sheet, felt comfortable that supply/demand is becoming more balanced and that they're unlikely to need equity. And so we subsequently added to our holding at $35. And since then, the markets come around to that way of thinking. I think it's traded around $52 today, but really too early and just didn't appreciate the immature nature of the industry and the impact that could have on the commodity price.

John, we could go on, but I do want to give everyone an opportunity of -- and if someone else wants to pursue that, we're happy to. But we have another question over here. Sir?

Yes. [ Marion Natal ]. I'm a 40-year investor in AFIC. Look, we're all here because we like AFIC and we've got money in and whatnot. And you talk about an overseas investment portfolio. Well, why can't we find a similar company like AFIC listed investment company in America or in Europe or whatever who are doing as well as we are and then invest in them rather than set up your own overseas portfolio when you've had banks that have come a cropper investing overseas and other companies investing overseas trying to work out what's best over there when -- and people are trying to invest in Australia, probably have the same problem because I don't know the local thing. Why have we looked at that as an option?

Mark?

Yes, look, not in particular. It's not really -- I mean that's something you can do as an individual, trying to find, I guess, other LICs globally that might be trading at a discount. You still have to do your research to understand their style and the way they operate. And we've -- we want to do things in-house. We want to do it our way where we've got control over the process and what we do. And part of what we're trying to do is that when you look through even the AFIC portfolios it is and increasingly a proportion of those companies are international businesses. And you can research and track now companies from anywhere in the world. And there's not many companies that are really just local anymore. So if you look through our portfolio, as it stands at the moment, stocks like CSL, Fisher & Paykel Healthcare, James Hardie, Brambles, Amcor, ResMed, the list goes on and on. They are truly international businesses, and you have to get out on the road and see those companies globally. So when we start looking at the other global businesses we're investing, there's really not a difference. They're all just companies that are trying to grow their businesses globally, but we'd rather do it our way rather than sort of allocating capital to someone else. And there's always the issue is that we also want to make a difference, and we've got $150 million. We don't really want to put $150 million with another LIC to discount. One, you'd probably never get that much to buy and you'd never get out if you wanted to get out as well. So there are a number of factors that says if we're going to do this, we want to do it in-house. We want the skill set that we get from international to permeate across the team, and we want to be able to grow it to a scale, ultimately, if we go down this path, where it benefits all the companies. So there's a number of reasons why we're doing it this way. But we have thought about this from many different angles, and this is where we've landed on.

I think that's an increasing -- that's a very, very important issue that Mark raised is about spreading the intelligence across the group because if you fast-forward 10, 15, 20 years, I think the Australian market, many of our larger companies today are going to be substantially more global. And I suspect many of them, like we've seen in New Zealand over the last 20, 30 years, many of them will seek alternative listings or primary listings in other markets globally. So I think you do need to have the intelligence in-house, both from an AFIC portfolio but also international portfolio.

Yes. We want to control where the money goes rather than give it to someone else.

Other questions? Sir. Just there's a microphone coming.

My name is [ Jerry Dolby ], long-time AFIC investor. Following on from that previous question, can you make a comment on how you see geopolitical uncertainty generally and then how it might impact on AFIC investments?

Let me make a brief comment, and then I'll pass to Dave, Mark, whoever would like to. We actually -- we have to consider geopolitics. We have to consider macro factors, but we -- we're basically looking at a bottom up. We're looking to pick to invest in great companies. So over the period of my time in financial markets for 40 years, I've seen economists, strategists, a whole bunch of people trying to predict where geopolitics, where interest rates, where markets are going to go. And 9 times out of 10, they're wrong. That's sort of just the reality. Trying to pick that stuff is extremely difficult, and people are really rarely right. So the thing we're focused on is investing in great companies. And over the long term, geopolitics probably, may regret saying this, but probably the impacts will be of a shorter-term nature, are likely to be of a shorter-term nature, as I said, I may regret saying that. But investing in great companies, we're taking 10, 20, 30-year views not sort of what might happen in the next 3 to 6 months. But Dave?

Yes. I think -- absolutely. So we're not trying to predict these events. And there's a few at the moment that are sort of causing us concern. But I guess where it plays into our thinking is that it generally throws up opportunities whether things get overpriced or they get oversold. And even though we are long-term investors, very much every dollar of capital we invest, we're trying to find really strong valuation support as to why we believe we'll get a good return over the long term. And if there's geopolitical events cause an oversold situation, we want to use those opportunities to add to our holdings that may get sold off for reasons that are beyond what the company can control and what beyond will deliver a really good return for us as long-term shareholders.

I can't see any more question -- sir? We've got one at the back first and then we'll come to you.

I've got the microphone. [ Kevin Mayne ], long term with AFIC. I see that we've lost 6,000 shareholders in the last year. What are your thoughts on that? Do we know why they've gone and do we know where they've gone?

I think I'm going to pass to Geoff in a moment. But what I would say, again, is have a look at -- you need to take a -- and I understand the nature of the question, we will answer the question. But if you take a slightly longer-term view, the number of shareholders have grown very significantly over a period of the last 5 to 10 years. But you're absolutely spot on. The number has gone backwards by 5,000 or 6,000 in the past 12 months. But, Geoff?

Yes. I think I probably know where they've gone. They're probably gone to term deposits. But -- so we had a lot of -- we had significant growth in shareholder numbers, probably over the last 10 years, particularly through the COVID period and just prior to that where interest rates were low. So what you saw was a lot of smaller parcels of shareholders come on board with -- sorry, a smaller number of shares. So I think what we've seen in a lot of those have left to go elsewhere in terms of other asset classes, which is think typically, what's happened across all of the listed investment companies have all seen their numbers go down in terms of the number of shareholders. We're not complacent about that. In fact, last month, they went back up again, fortunately. But it's really about just continuing to try and market as best we can. But in an environment where other asset classes have become, I guess, attractive and a lot of people left on that basis. Also, I wouldn't -- a lot of those shareholders would have saved or would have gone into equities because not just of income, but also as a way of accumulating capital value, particularly things to savings like houses and those sorts of things. And cost of living pressures are clearly have come on board in the last couple of years as well. So I think that plays into that reduction also. But having said that though, as Craig said, the number of shareholders has gone up substantially over the last 10 years.

I think I'd just finish by saying we don't think there's anything systemic behind that. It's -- to Geoff's point, we're not taking anything for granted. But we do think it's probably more correlated with interest rates. And interestingly, as Geoff said, in the last couple of months, numbers have started to go back up again as interest rates -- market-based interest rates have started to -- and the expectation is that they will continue to fall. Sorry?

Cost cutting.

Sorry?

[indiscernible]

Yes. Look, none of those shareholders with smaller share -- number of shares, and it is costly. But having said that though, we do want that stream of shareholders coming through for the next generation is what we're getting.

Next question. Thank you.

Thank you, Chairman. My name is [ Colin ]. I have a couple of questions just in relation to the buyback. You announced the buyback in February of this year, 123 million shares.

We've actually formally -- the buyback has been able to be activated over -- we've had a...

Number -- quite a number of years.

Revision for a number of years. But we actually announced an activation of the buyback 2 weeks ago, so 2 or 3 weeks ago.

So we've had it in place for many, many years just for the just-in-case. So we've just rolled, it's always been there. It's just that we haven't utilized it. So really in the last couple of weeks, it's the first time we've actually utilized it. But it's actually been in place for a long period of time.

And the dollar amount is the maximum that you can have in an on-market buyback. That's what the -- it's not the intention to buy back that number. That's simply the maximum according to the rules that you can buy.

Okay. That sort of leads a little bit into my next question. There was a missed opportunity earlier this year when the share price was sitting down around the 7.15 line, and you're now buying back at around the 7.40 line. So that's an opportunity missed there, I would believe.

Well, it's -- you've got to -- we're looking at probably a bit more relative to NTA. So the discount to NTA has moved out from sort of 2% or 3% to closer to 10%. So we're actually buying the shares that we've been -- we have bought, which is, I think, about 227,000 or so, so far, have been bought at a 10% plus discount to NTA. So we're buying $1 worth of value at $0.90. Whereas even though the share price was slightly lower, you're correct, the discount to NTA was significantly less than the 10% it is today. So what we're trying to do is trying to buy value rather than relative to our share portfolio, the value of our share portfolio.

By buying more money for it.

Well, the portfolio has gone up significantly...

Yes, I understand that. But you've laid out more cash for it. Anyway, let's not...

Yes. I'll just add to that, that we're never going to pick the precise bottom. That's very difficult to do. And in fact, in any stock you buy whether it's buying back AFIC shares or buying more shares in BHP. We never set out to get the precise low point in any stock. That's very difficult to do. But you got to have a good sense that we are around about pretty good value. And as Craig said, when it hit that, the market was much lower, and we didn't see the discount has been that being point in time. But we still think when we stand back and look at the big picture, this is still an attractive price to be buying back stock.

Okay. In your annual report, you made the comment and I just quoted here, there appear to be -- have been less demand for listed investment companies across the industry and interest rate products have become more attractive. While interest rates stay where they are, will the -- do you really believe the buyback will be successful in addressing the discount? And maybe that's going to happen on medical or not automatically, but will likely to happen as interest rates come down, hopefully, sometime from '25 onwards?

Look, I don't want to get into what may or may not happen. All I would say is we think it's in shareholders' best interest that we are buying stock back at a 10% or greater discount to NTA. That's the decision the Board has made because we do think that the market is not fully appreciating the value that sits in the portfolio. And that's why -- whether it -- in the long term, whether it makes a difference or not. Would you -- I think that the Board has discussed should we just not do that? And we said, well, what would our shareholder base in aggregate want us to do? And our shareholder base would say the stock is too cheap relative to the net tangible asset backing of the company. And therefore, it's when we think about value in terms of other shares, if we buy other shares in the market here, we can buy our own shares for $0.90 in the dollar. So why wouldn't we do that?

There might be a group of shareholders who appreciate a special dividend using the funds that you would use for the buyback. It will also push up the yield on the share, which might make the thing more attractive as well.

Well, I think the point is we have increased the dividends. We didn't cut like many ETFs and listed investment companies that cut their dividend through COVID. We didn't. And people say, well, your dividend has only gone up from $0.24 to $0.26 over the last 2 years. And others have gone up more year, but others were coming from a significantly lower base. We did not cut the dividend through that period. The other thing I would say is we're not -- the materiality, we're not talking about what we're sort of aiming to do, we had a DRP where we issued stock at NTA. Now we're looking at buying stock back at a discount to NTA because we think that's the right thing to do. That's where the value is. The quantum that we're talking about is not the quantum that could be contemplated in doing, for example, as you suggest, a one-off special dividend. I'm not sure one-off special dividends, not that we have an open mind on all of this, but my own personal view is I think one-off special dividends don't tend to make an impact on the stock price. They do in the short term. But as soon as the stock goes ex dividend, the stock typically goes back to where it was trading.

Last question. You've got to buy back under way at the same time you don't got a dividend reinvestment scheme. They seem to be counterintuitive to be and if shareholders that would normally take the opportunity with the reinvestment scheme, where to get the cash and then buy the shares back on the market, it would increase demand. And I would imagine have at least maybe in the short term, some impact on the share price. It just seems to me to be something which is counterintuitive to each other.

I think it depends on the timing. And that's why we also move our discounts and premiums or discounts on the DRP that we don't think it's appropriate that we have a discount on DRP when the stock is trading at a discount. It's also convenient for many shareholders who simply don't require the income. A lot of shareholders do. But the number of shareholders don't require the income and are happy to reinvest without incurring any market-based costs, are happy to reinvest. And a lot of our shareholders do say that we really do want to participate in the DRP because it's convenient for us. So I think for us to shut down the DRP would get quite a bit of shareholder backlash. But Mark, is there anything else?

Yes. I think what we've really found is that there's quite a steady participation in the DRP, myself being one. And then if you roll back a few years ago, you're in the DRP and you're getting stock at quite a premium. Now I'm getting stock at a discount, and it all comes out in a wash over time. And it tends to be this generally quite a consistent pool of people. So people are either in it or they're out of it. And so people are often getting stock too high, too low, but it all balances out. So we think that's a fair way of doing it rather than sort of we don't want to be switching it off and on otherwise people will suddenly realize, well, if you only do it when the stock is higher, I'll just never go in it. So I don't think that's the right outcome. So -- but where you sit right now, we've just issued some stock at a discount. So we sort of say, well, look, if we can buy some of that back at that same price, it neutralizes that dilution that's occurred, and we think that's a reasonable thing to be doing. But broadly, we keep looking at all these things. We are constantly talking about, should we increase the dividend, what do we do with excess franking credits? We've had a lot of people saying why aren't you buying back stock? We always knew that as soon as we started buying some stock back, we're going to get a lot of questions of saying, well, why are you buying back stock? And so all we've had a lot of shareholders inquire. So there's always this balance we are talking about as to how we try and manage this position and we're trying to land on what we think is a fair outcome for all shareholders.

Thank you very much for that. Just one other question not related to the buyback. I just noticed on the yellow form in this last time here was the renewal of the proportional takeover provisions in the constitution. Could you just perhaps comment around what that -- what we're asking -- being asked to vote on in relation to that one?

Matthew?

Yes. Yes, certainly. Thank you for the question. So this is simply a renewal of the parts of the constitution that's already in there that's required by the Corps Act. So effectively, if there was ever a partial takeover offer, the Board will be required to convene an EGM, and so shareholders have an opportunity to discuss and vote on the partial takeover offer. I hope that answered your question.

Thank you very much.

Any other questions in the room? One online?

I've got -- well, I've also got some pre-submitted questions, Craig, that we now need to address. So the question online and one of the pre-submitted question was, has the Board considered retain the international portfolio within AFIC rather than having a separate listed investment company?

The Board has not made any predetermined decisions about what we do with the international portfolio whether we do an international LIC, whether we retain it within AFIC. But one of the challenges, of course, if we retain it and AFIC will build it over time is international shares have lower yields, lower dividends. And so it would be quite challenging, I think, for many of our shareholders if we increased our substantially, I don't think there's a problem at the margin increasing. But if we increased very substantially, there would be a challenge in growing our dividends because most of those companies are more growth-orientated and are less dividend-orientated. So Geoff, I think the response is we have not made a decision yet. And -- as soon as we do get to land on a decision, which, as I said, we'll have more to say on this next year.

Thanks, Chair. This is another question. We received actually a number of questions about how we deal with environmental, social and governance issues. We're looking at companies in the portfolio. And in particular, how do we assess investment in fossil fuel companies and also climate sustainable companies?

Okay. So we've talked about this many times at these type of briefings for shareholders that essentially, the ESG components, they've been embedded in our process. Certainly, I may not be involved with the companies for 30 years. And if you go through the various components, I mean social issues have always been front and center when we're looking at companies. We want our companies to be socially responsible. We don't invest in pure-play gambling stocks. It's always been a focus for us. Governance was the first thing I got taught when I joined. You've got to look at who's on the Board the way the business is being governed. So it's embedded in the way we look at businesses. And in terms of environmental considerations, we want to be in businesses that can sustain and grow their business over the long term. So any factor that's going to disrupt a company and their ability to develop and grow, which includes a social license to operate, which encompasses all those factors, is a critical part of the way we assess companies. So it is strongly embedded. We don't -- we're not an ESG fund manager. We don't put ourselves out one, but the various components are critical when you're assessing businesses because we want to be in good companies that are well run, that do the right thing. And we have discussions with our companies we invest in, discussion with Directors and Boards. And certainly, when we see something we don't like, the companies are aware of that, and we look for change.

Just as a follow-on, Mark. To what extent is the assessment of quality assurance systems part of the investment process when considering a company?

Well, that's really getting into the nitty-gritty of business, I'd probably reiterate the same point. I mean our expectation is the companies we invest in go through all the required processes that they're supposed to as a listed company. And if the companies are not doing that, generally, it will affect the company in the long run anyway. So again, all these elements feed into a responsible company being well run. A well-run company will give us good investment outcomes. So again, that's just another component that feeds into our overall process.

Another question here. Is there any reason we don't invest in Fortescue Metals? I'll pass that to...

Yes. So there's a number of reasons why we don't. So first of all, BHP and Rio offer longer-life, lower-cost assets. Secondly, Fortescue is largely a pure play iron ore player, and we're a little bit concerned over the medium term about the iron ore outlook. So we're close to peak steel demand in China, and there's new supply coming on board within iron ore. So if you think the last 5 years, the iron ore price has averaged $120. We think the next 5 years will average something less than that. And so Fortescue is trying to diversify away from that into these future-facing investments. And the quantum of capital they're going to spend and the likely return that they get from those investments remains highly uncertain. So third point is the quality of the iron ore for Fortescue is slightly less than BHP and Rio. And then the last one would be the diversified nature of BHP and Rio. So particularly BHP with the large copper assets that they own, Rio also copper but in aluminum as well. We actually prefer those as investments through the cycle, and that lower cost enables that cash generation even at low points of commodity prices.

Thanks, Dave. So I've got a question here about dividends, I guess in some ways. Do we have some concern at the ability of the company to pay dividends to an increasing number of shares from a relatively static trading portfolio of recent years? With some of AFIC's holding near the top of their price range, perhaps some profit realized and buyback would be under consideration.

I think we're not going to -- I'm not going to talk about what forecast dividends may be going forward. But all I would say is that your Board considers what is an appropriate payout at a particular point in time, but we would not have increased the dividend in the year just gone, unless we had confidence in our ability in the future to pay at least that level of dividend. We have a strong balance sheet, significant franking and capital reserves on our balance sheet, and we have confidence in our portfolio we will continue to see a robust level of income through dividends being paid into the AFIC portfolio. So that's probably all I'd say, Geoff.

Okay. Thanks, Chair. Got a question here about why are we holding shares in Djerriwarrh Investments. It appears to have underperformed over a number of years.

So Djerriwarrh Investments has been a long-term historical shareholding in AFIC. It represents 0.2% of our portfolio, but it does pay a grossed up fully franked dividend of just under 7%. And so in a marketplace where income has become more difficult to identify, Djerriwarrh is helpful in us meeting our dividend requirements and income requirements for shareholders. What I would say is Djerriwarrh has underperformed because in a rising market because it writes call options typically against many of its stock positions, it tends to lose stock. In a declining market, my suspicion is that Djerriwarrh would do much better. Or in a flat market, Djerriwarrh would do much better than it does in a very significant uplift in markets. So at 0.2% of the portfolio, it's relatively immaterial as a position and one, as I said, that is helpful for our income.

Thanks. And the final comment I've got here is a presubmitted question was -- and I think we've answered this, can we comment on the share price performance relative to portfolio performance and the actions undertaken to close the...

I think we've done that.

Okay. Thank you. I have no questions online relevant to this particular part of the meeting, Craig.

Thanks, Geoff. Okay. We might have a few more, but I will now move on -- and thank you, Dave. I'll now move on 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 will vote them in line with the Board's recommendations on each agenda item. Voting today will be conducted by way of a poll on all items of business. Representatives of Computershare will oversee the conduct of the poll. Firstly, if there's any person present in the room who believes they are entitled to vote but has not yet registered to vote, would you please seek assistance from our share registry, Computershare, and we have Computershare people in the room. For those in the room, on the reverse 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 votes. Please ensure you print your name where indicated and sign the voting paper. When you are finished filling in your voting paper, please lodge it in the ballot boxes that are available at the end of the meeting. The second agenda item is the resolution to adopt the Remuneration Report. This is required by the Corporation Act to be considered by shareholders annually and is an advisory resolution only. The Remuneration Report can be found in the company's 2024 Annual Report. It is 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. I will show the proxies received in respect to this resolution, which are now shown on the screen. I remind shareholders and proxies who have yet to lodge their votes via the app to do so now as voting is open. If you have any questions on this item, please submit them now via the online portal or raise your hand if you're in the room. Geoff, I might go to you first. Are there any questions on rem?

I've got a couple of presubmitted questions.

Okay...

Are you going to reduce management costs? Are you going to link bonuses paid to management to the benefits that shareholders receive? This is probably exact questions, I guess.

So I think Andrew Porter ran through that our costs are 0.15% of the portfolio, and they've been relatively stable over an extended period as a percentage of our portfolio. We do think -- and look, one of the things that your board and management are very focused on, particularly relative to the competition from things like ETFs is that we remain true to our objective of continuing to run a low-cost investment company and one that does not have any performance fees, and we are committed to that. That said, we do need to make sure that we pay our talent market rates of remuneration. So we are very focused on that as well. And in an environment where costs, including remuneration, have gone up, we have been vigilant on making sure that we retain our best talent. So I think it is in the DNA of the company, Geoff, that we focus and stay focused on costs. But probably that's all I'd make on that point.

As a follow-on -- a quick one, a follow-on question, but a question about what is the best percentage differential between the Managing Director/Chief Financial Officer and the average staff wage?

So -- because I needed a number, I was given this number beforehand. So this is not off the top of my head, but our Managing Director earns a multiple of about 2.5x the total remuneration of our average staff member. Now I can tell you from what I have seen in surveys, a remuneration surveys in the Australian marketplace that, that multiple, the multiple of the CEO to the average staff member in an ASX 100 company is something in excess of 20x. So within AFIC, your Managing Director, the multiple compared to the average employee is about 2.5x.

I don't have any questions from online, so that completes my questions.

Thank you. Are there any questions on the remuneration or the Remuneration Report in the room? Okay. Thank you. The third agenda item is the resolution to elect Katie Hudson. Katie was appointed to the Board in January 2024 and is standing for election by shareholders today. In accordance with Rule 45 of the company's constitution, Katie retires from the Board of Directors and, being eligible, offers herself for election. Katie, would you like to say a few words on your reelection before I put the motion?

Thank you, Chairman, and good morning, ladies and gentlemen. As the Chairman said, I was fortunate to be appointed to the AFIC Board on the 1st of January this year. And it is my honor to offer myself for election today. I do so on the basis that I believe I have the time and industry experience to work diligently for shareholders, and I intend to do that in a proactive, thoughtful and constructive manner. I do believe my skill set and experience is highly relevant for AFIC. I've worked in investment markets for over 25 years, working very closely with public company Boards, initially as an equities analyst and partner at JBWere; subsequent to that, as a Managing Director of Goldman Sachs Asset Management; and more recently as a Co-Founder of Yarra Capital Management, which is a $20 billion multi-asset fund manager. My association with AFIC actually goes back many years to when I was a young equities analyst at JBWere and presented to the AFIC Board. So over that time, I've observed and admired the culture, the integrity and the values of AFIC. And I've been very pleased to see that those values and integrity and culture has endured in the organization over time. Should I be fortunate to be elected today, I think I bring relevant subject matter expertise in our core business of equities investment, financial markets and importantly, the governance and stewardship of those investments. So thank you for considering my appointment to the AFIC Board, and I look forward to your support.

Thank you, Katie. I now show the proxies received in respect to this resolution, which are now shown on the screen. Any questions in the room on Katie's election? Thank you. Geoff?

There are no questions.

Okay. Thank you, everyone. The fourth agenda item is the resolution to elect Richard Murray. Richard was appointed to the Board in January 2024, and so is standing for election by shareholders today. In accordance with Rule 45 of the company's constitution, he retires from the Board of Directors and, being eligible, offers himself for election. Richard, will you care to say a few words before I put the motion.

Good morning, ladies and gentlemen. So I joined the AFIC Board in January, as Craig just mentioned, and it's a real honor to be here today. Obviously, I've had an executive career, so this is my first nonexecutive appointment. And AFIC is a company I've long admired, and Craig is going to get tired to me saying this, but I used to drive to school sport on Saturday morning with my father, listening to Bruce Bond, and he talked so much about AFIC. So like Katie, I feel like I've been part of the AFIC family for a long time. And so when I wanted to encourage my children to invest, the first stock we bought was AFIC and turned on the DRP. So like Mark, I'm a massive fan of the DRP through thick and thin. So I really feel financial education in Australia that companies like AFIC actually nearly have a more noble purpose than maybe just an average typical public company in Australia. And I think many of the directors are -- feel that their involvement in AFIC is probably something just a little bit greater than an average public company. So certainly, that's the lens I bring today. In my professional career, I started out as a young auditor at Deloitte and did some time in corporate finance. I spent 20 years at JB Hi-Fi, 13 years as CFO and 7 years as CEO. In August '21, I decided after 20 years, it was time to have a change. So I went over to Premier retail, which some of you would know the brands, Peter Alexander, Smiggle, Just Jeans, just to name a few. And so that was an interesting 2 years and I certainly learned a lot there. And at the start of this year, around the same time as this appointment, I joined Metcash Group, and I am currently leading the Total Tools professional tools business, which has about 120 stores and turns over about $1.2 billion. So I'd like to think my experience that with the consumer and retail and obviously digital and omnichannel and leading large teams because I can certainly tell you the multiple of some of our team at Total Tools is different to an AFIC, so obviously and indeed great value. And working with landlords and rolling out new stores, logistics, et cetera, both in Australia and overseas, I'd like to think those experiences are really relevant to the AFIC Board and the AFIC investment team getting some different perspectives. So as I said earlier, I've been a big fan of AFIC over a long period. It's a real honor to be here today, and I'd appreciate your support with my nomination.

Thank you, Richard. I'll now show the proxies received in respect to this resolution, which are now shown on the screen. Any questions in the room about Richard Murray's election to the Board of AFIC? Anything on the line? Thank you, Geoff. Thank you, Richard. The fifth item of business is my own reelection, and so I've asked Director David Peever to chair the meeting for this item of business. David?

Thank you, Craig. I'll stay here. I'm sure everyone can see me. As Craig said, the fifth agenda item is a resolution to reelect Craig Drummond. Craig was elected by shareholders at the 2021 AGM and so is standing for reelection by shareholders today. In accordance with Rule 46 of the company's constitution, he retires from the Board of Directors and, being eligible, offers himself for reelection. Craig, would you care to say a few words before I put the motion?

Thanks, David, and good morning, again, ladies and gentlemen. I was fortunate to have been appointed to the Board of AFIC on July 1, 2021, and to the position of Chairman on October 3, 2023, following the retirement of John Paterson. In offering myself for reelection, I do so on the basis that I have the time available to work diligently for shareholders in a thoughtful and collaborative way. I believe that my experience and skill set is highly relevant to AFIC. In particular, my 30 years' experience working in financial markets, 8 years as a public company executive and recent experience as a public company Chairman are most relevant. This experience culminated in me being Chief Executive of the Australasian businesses of 2 large global investment banks, the Chief Financial Officer of a bank, the Chief Executive of an ASX 50 company, and finally Chairman of an ASX 20 company. The later 3 roles give me considerable insight into large company -- large public company management and governance. Should I be fortunate to be reelected today to the Board of AFIC, the specific areas of expertise that I will bring to the company will include financial governance, customer and risk management insight along with extensive regulatory and capital markets knowledge and connectivity. Thank you for considering my appointment to the AFIC Board and I look forward to your support.

Thank you, Craig, and we'll now show proxies on the screen. Thank you. And are there any questions from shareholders in relation to Craig's nomination? Thank you. I'll hand back to Craig now.

Thanks very much, David. The sixth agenda item is the election -- the resolution to reelect Julie Fahey. Julie was elected by shareholders at the 2021 AGM, and so 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 reelection. Julie, would you care to say a few words?

Thank you, Craig. Good morning. I very much appreciate the opportunity to address shareholders and to stand for reelection to the AFIC Board. I've been a member of the Board for 3 years, and I have also served as a member of the Investment and Audit & Risk Committees over that time. I took over as the Chair of the AFIC Audit & Risk Committee in January 2023. I'm an experienced Nonexecutive Director of 10 years and currently hold a directorship at one other publicly-listed company. My portfolio also includes Australian Red Cross Lifeblood and Datacom. I have over 40 years' experience in technology across many industries through an executive career spanning IT consulting and operational delivery. I continue to consult to Board directors and executives on technology. This provides me with knowledge of current and emerging trends in technology services, particularly as they relate to cybersecurity, data privacy and artificial intelligence. This is knowledge and experience I bring to the AFIC Board. I look forward to your ongoing support. Thank you.

Thank you, Julie. I'll now show the proxies on screen. Are there any questions in the room or online in relation to Julie's reappointment? Thank you. The seventh agenda item is the resolution to reelect Graeme Liebelt. As I said earlier, Graeme is online and he's been online and would otherwise have been here but he has a family bereavement to attend to, unfortunately. Graeme was reelected by shareholders at the 2021 AGM and so is standing for a reelection for share by shareholders today. In accordance with Rule 46 of the company's constitution, he retires from the Board of Directors and being eligible offers himself for reelection. Graeme, hopefully, you are on the line. Would you care to say a few words?

Thanks, Craig. Yes, I'm here, and good morning, everybody, and thanks for the opportunity to say a few words as I stand for reelection this year. And first of all, my apologies for not being able to be in Melbourne in person, but I'm back in my once hometown of Adelaide for a family funeral today. Look, I'm proud to be on the AFIC Board since 2012. I joined very soon after stepping down as CEO of Orica, having been with that group of companies for about 23 years. And then working with the ICI Orica Group, it gave me experience in a wide range of sectors including mining, agriculture, chemicals, plastics, pharmaceuticals and coatings. And prior to that, I worked in high-volume consumer goods in consulting, corporate planning and even in academia. In my Board career, which has been continuous on Australian-listed Boards since 1997, I've had additional experience in the finance sector, in consumer goods and on the Chair of Amcor Steel, the world's leading flexible packaging company. Along the way, of course, there have been plenty of M&A transactions, capital and debt market deals and have operated in probably 60 countries. I try to bring this breadth of experience to the team at AFIC. As we contemplate investment in a diverse range of companies operating in different environments and different sectors, each with their own challenges, I hope to be able to contribute to and complement the excellent capability that we have around the Board table and in the management team. Just one comment about AFIC and that is the one thing that I admire the most that it is shareholders' long-term interests. Your interests that are absolutely the most important consideration in every decision. And it's been my privilege to serve on your Board, and I'll be grateful for your support to serve another term. Thank you very much.

Thank you, Graeme. I'll now show the proxies on the screen. Are there any questions on Graeme's reelection in the room? Now anything online, Geoff? Thanks very much. The final formal resolution is the proposal to renew the proportional takeover approval rules in the constitution. Rule 79 and 80 of the company's constitution allow a majority of the company's shareholders the opportunity to consider and either accept or reject a proposed proportional takeover offer for the company. The Corporation Act requires that shareholders renew those provisions every 3 years by a special resolution, which requires the approval of 75% of votes cast. These provisions were last approved by shareholders at the '21 AGM. They, therefore, need to be renewed today for a further 3 years. The directors consider that it is in the interest of shareholders to have the proportional takeover approval provisions in the company's constitution. The provisions do not apply to full takeover bids. I move that the constitution be amended by adopting Rules 79 and 80 as set out in the notice of meeting. There is no change to the existing wording in the company's constitution. I'll now show the proxies on screen. And are there any questions on this resolution? Anything online, Geoff? No? Thank you. Any other questions, Geoff, that we haven't covered online? No? Are there any -- before I move to close the meeting, ladies and gentlemen, are there any other questions on any particular matters of business? Okay. So that concludes our discussion on the items of business. In a couple of minutes, I will close the voting system. So please ensure that you have cast your vote on all resolutions. For those in the room, may I now ask that you complete your voting card. Computershare staff will collect your voting card at the end of the meeting. I'd like to thank shareholders for your continued support and for the interest you've shown in the affairs of the company by your attendance in person or 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 Adelaide, Perth, Canberra, Brisbane and Sydney during March 2025. I'll now close the voting system. The results of these votes will be released as soon as practical to the ASX later today, and I would invite all of you in the room to enjoy tea and coffee, some biscuits and other food with directors and with management. Thanks very much.