Profits: AFIC’s Steady Year Ahead

Melbourne-based listed investment company, Australian Foundation Investment Company Ltd,  says it will take a patient approach to investing in 2010-11 after its 2009-10 annual profit fell 12%.

AFIC reported an after-tax profit of $183.75 million for the year to June 30, down from $208.4 million the previous year.

The shares rose 5c to $4.84 yesterday.

AFIC said the 2008-09 net profit was re-stated from $103.5 million following the adoption of new accounting standards which changed the treatment of unrealised gains and losses on investments.

(All listed investment companies, such as AFIC stablemates, Mirrabooka, Amcil and Djerriwarrh, have reported restated 2009 earnings figures.)

The listed investment company will pay shareholders a steady final dividend of 13c per share, fully franked, which takes the full payout for the year to an unchanged 21c a share.

AFIC said the market’s future performance would be supported by expectations of strong growth in China, but political uncertainty and other factors mean the market was likely to trade in a range.

"We will be taking a patient approach as our expectations are that the market is likely to trade broadly in a range around current levels for a period of time with higher volatility in the short to medium term,” AFIC said in a statement to the ASX.

"The recent share purchase plan raised $83 million of cash which means we have some resources to consider specific stock opportunities when they arise. However, we will be taking a patient approach as our expectations are that the market is likely to trade broadly in a range around current levels for a period of time with higher volatility in the short to medium term," directors of the company, Australia’s largest LIC, said in the statement to the ASX. 

"Over the year to 30 June 2010 the total portfolio return (change in net asset backing per share plus dividends reinvested) was positive 15.6% whereas the S&P/ASX 200 Accumulation Index increased 13.1% over the same period," directors said. 

"Revenue from operating activities was $194.9 million, 15.5% down from the prior year. 

"The equity market experienced very strong gains in the first half of the financial year.

"However concerns about the economic outlook in developed economies, including sovereign debt levels in Europe meant there was some retracement of the gains in the second half of the year.

"Throughout this period AFIC was able to take advantage of various opportunities, including participation in selected capital raisings and purchases in companies that in our opinion offered value to long term investors during periods of market weakness.

"Of the purchases made during the year the major ones were in Australian Infrastructure Fund, Amcor, ANZ Banking Group, Hastings Diversified Utilities Fund, Oil Search, Perpetual Trustees, Transurban, Westpac and Woodside Petroleum. Eastern Star Gas was the only new company added to the investment portfolio during the year.

"Only a small number of sales were made during the year. The Santos Fuels securities, which were redeemed by the Company, and 20 per cent of AFIC’s holding in Nufarm was sold through participation in the tender offer by Sumitomo Chemical Company. AFIC subsequently took up its entitlement in the capital raising by Nufarm which followed this tender.

"The Net Operating Profit was $179.5 million, down from the corresponding figure last year of $199.6 million. Income from investments, which includes franked dividends, fell 13.2 percent as companies substantially reduced their dividend payments during the year.

"The decline in dividend income was offset by the contribution of the Trading Portfolio which contributed $8.0 million to total income in contrast to last year where there was a loss of $12.5 million."

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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