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AFIC full year profit slumps 75% to $103.5m

Published 10:20 AM, 27 Jul 2009 Last update 7:34 PM, 27 Jul 2009

By a staff reporter and AAP

Australian Foundation Investment Company Ltd (AFIC) has reported a 75 per cent slump in full year profit to $103.5 million and says it remains relatively cautious, with economic conditions in Australia and globally likely to remain subdued in the medium term.

Australia's largest listed investment company said it was well positioned to emerge from the downturn with stronger operations, and as at June 2009 it had almost $250 million of cash available for investment into the market.

"AFIC’s portfolio was not insulated from the severe downturn in markets," the company said in a statement to the Australian Securities Exchange (ASX).

"However the benefit of the investment approach taken by AFIC has been evident through the performance of the portfolio during this period as well as over the long term."

AFIC said the profit slump related to a steep decline in realised gains after tax - to $11.7 million from $211.1 million in the previous year - and a $107.8 million impairment charge.

"Realised gains after tax this year were $11.7 million whereas last year this figure was $211.1 million. Last year's figure included the sale of Rinker Group [to Mexican giant Cemex] to Coles Group [to Wesfarmers] because of takeovers," AFIC said.

"Under the accounting standards, the large fall in share prices below the cost base of some stocks in AFIC's portfolio has also required the company to take an active tax charge of $107.8 million to the profit after tax for 'impairment'.

"This 'impairment' charge reflects the negative changes in the market value of certain stocks below their original cost. It does not change the value of AFIC's portfolio or its net asset backing."

AFIC said it had taken a cautious approach to investing during the year to June 2009, maintaining a relatively high cash balance while participating in a large number of capital raisings, such as those undertaken by the big banks, QBE Insurance, Rio Tinto, Santos and the Australian Infrastructure Fund.

"These issues were typically completed at attractive discounts to the then prevailing market prices and therefore provided good opportunities for long term investors such as AFIC," the company said.

The Melbourne-based company said it would be looking to the upcoming reporting season to make an assessment of how companies were dealing with the economic challenges, and the immediate term outlook for dividends.

"The ability of companies to generate reasonable returns in this environment is likely to be severely tested," AFIC said.

"We remain relatively cautious in the present environment, particularly now the market has made some gains since the very low market levels experienced in March.

"Economic conditions in Australia and globally are likely to remain subdued in the medium term."

AFIC maintained its fully franked final dividend of 13 cents per share.

AFIC said the major sales during the 12 months were driven by corporate activity, such as Westpac Banking Corp taking over St George and BG Group taking over Queensland Gas. as well as the exit from ConnectEast, James Hardie, News Corp, Paperlinx and Suncorp-Metway on gearing and dividend concerns.

AFI increased its holdings in Westpac, partly because of the takeover of St George, Rio Tinto, Santos and National Australia Bank, taking advantage of new share sales.

The fund manager's three biggest holdings were BHP Billiton, Westpac and Commonwealth Bank of Australia.

Net operating profit fell to $199.6 million from $205.1 million in the 2008 fiscal year.

AFIC said income from investments, including franked dividends, and deposit interest were "generally in line" with the previous year, although this was offset by a small negative contribution from the trading portfolio because of declining equity values.

At the market's official 1615 AEST close, shares in AFIC were 1.75 per cent higher at $4.64, having traded as high as $4.64, against a 1.2 per cent rise in the benchmark index.




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