Australian Foundation Investment : Half Year Review to 31 December 2015

81a4e535-08c5-480f-a08f-73bcff492404.pdf

ABN. 56 004 147 120.

APPENDIX 4D STATEMENT FOR THE HALF-YEAR ENDED 31 DECEMBER 2015

CONTENTS

• Results for announcement to the market

  
  

• Media release

  
  

• Appendix 4D Accounts

  
  

• Independent Auditors' Review Report

  
  

  This half-year report is presented under listing rule 4.2A and should be read in conjunction with the Group's 2015 Annual Report.

  
  

  RESULTS FOR ANNOUNCEMENT TO THE MARKET

  The reporting period is the half-year ended 31 December 2015 with the previous corresponding period being the half-year ended 31 December 2014. The results have been reviewed by the Company's auditors.

  
  

  Results for announcement to the market

  
  

• Revenue from operating activities was $156.6 million, up $10.5 million or 7.2% from the previous corresponding period. This excludes capital gains on investments.

  
  

• Profit after tax attributable to members was $145.5 million (up 10.3% on the previous corresponding period's $131.9 million).

  
  

• The interim dividend is 10 cents per share, fully franked, up from 9 cents last year. It will be paid on 19 February 2016 to ordinary shareholders on the register on 5 February 2016 and the shares are expected to commence trading on an ex-dividend basis on 3 February 2016. There is no conduit foreign income component of the dividend.

  
  

• A Dividend Reinvestment Plan (DRP) and Dividend Substitution Share Plan (DSSP) are available, the price for which will be set at a 2.5% discount to the Volume Weighted Average Price of the Company's shares traded on the ASX and Chi-X automated trading systems over the five trading days from when the shares trade ex-dividend. The last date for the receipt of an election notice for participation in the DRP & DSSP is 5.00 pm (Melbourne time) on 8 February 2016.

  
  

• The final dividend for the 2015 financial year was 14 cents per share (fully franked), and it was paid to shareholders on 28 August 2015.

  
  

• Net tangible assets per share before any provision for deferred tax on the unrealised gains on the long-term investment portfolio as at 31 December 2015 were $5.63, down from $5.80 at the end of the previous corresponding period (both before allowing for interim dividends).

  
  

• The interest payment on the 6.25% Convertible Notes issued in December 2011 will be

  $3.0993 per $100 Note, payable on 29 February 2016 to note holders on the register on 19 February 2016. The notes are expected to commence trading on an ex-interest basis on 17 February 2016. The last date for the receipt of Exit Notices for the next conversion of Notes into ordinary shares is 15 February 2016.

  
  

• Shares issued under the November 2015 Share Purchase Plan ("SPP") are not entitled to the interim dividend and currently trade in Australia under the code "AFINA" and in New Zealand under the code "AFIND". The last day of trading for both AFINA and AFIND shares is 2 February 2016. AFINA shares will merge and trade as AFI shares in Australia with effect from the start of trading on 8 February 2016 and AFIND shares will merge and trade as AFI shares in New Zealand with the start of trading on the NZX on 9 February 2016.

AFIC looking at mid and small cap companies for growth opportunities

RESULT SUMMARY TO 31 DECEMBER 2015

• AFIC is an investor in a diversified portfolio of Australian equities seeking to deliver income and capital growth over the medium to long term.

  
  

• Half Year Profit increased 10.3% to $145.6 million.

  
  

• Interim Dividend increased 1 cent to 10 cents per share fully franked.

  
  

• Six month portfolio return was negative 1.3%, including franking it was negative 0.2%.

  
  

• One year portfolio return was 1.1%, including franking it was 2.8%.

  
  

• Share Purchase Plan recently raised $153.3 million for investment opportunities in current volatile markets.

Portfolio

Market conditions have been volatile over the half year as investors grappled with concerns about growth in China and rapidly falling commodity prices, the effect of the increase in the US Federal Reserve interest rate and uncertainty about corporate earnings growth in a patchy domestic economy. In this environment AFIC took the opportunity to broaden its portfolio exposure, including adding some smaller companies in industries such as healthcare, as well as adjusting away from companies in the portfolio facing a more subdued growth outlook.

During the period small and mid-sized companies outperformed larger companies in the index. We believe this is partly due to global fund managers selling large Australian companies as a proxy for their negative views on China. AFIC's portfolio, which is positioned toward some of these larger companies, was down 1.3% for the 6 months to 31 December 2015 against the S&P/ ASX 200 Accumulation Index which was down 0.5%. The stronger performance of mid and small companies over the period was reflected in the AFIC portfolio, with some of the best performing holdings in the investment portfolio by their percentage increase over this period being Treasury Wine Estates, iProperty, Bega Cheese, Freedom Foods, AP Eagers and iCar Asia.

The long term performance of the portfolio, which is more in line with the Company's investment timeframes, was 6.5% per annum for the 10 years to 31 December 2015 versus the Index return of 5.6% per annum. AFIC's performance numbers are after expenses and tax paid whereas the Index does not have expenses or tax.

Largest purchases included CSL, Healthscope, Suncorp, Qube Holdings, James Hardie Industries and Treasury Wine Estates (as a result of the participation in their rights issue). A small number of new companies were also added to the investment portfolio with Mainfreight (a NZ listed company), Challenger and Macquarie Group being the largest of these. AFIC also participated in the IPO of Integral Diagnostics.

Major sales were reflective of some repositioning of the portfolio particularly in banks where AFIC already has a large exposure. As a result positions in Westpac and Commonwealth Bank were reduced. In the supermarket sector, which is facing margin pressure from increased competition, we sold some Woolworths (early in the half) and reduced the overweight position in Wesfarmers.

Outlook

The broad Australian equity index has fallen from close to 5400 at the end of the calendar year to around 4900 as the market reacted negatively to concerns about China. The outlook remains uncertain and market volatility is likely to continue. However, AFIC has taken the opportunity to add to holdings in small and mid-sized companies where we have been looking to invest and long term value has started to emerge through the recent sell off. The long term performance history of AFIC suggests this is a sensible approach despite present uncertainty and the current cash position continues to provide great flexibility in this type of market.

Profit and Dividend

Profit for the half year was $145.6 million, up 10.3% from the corresponding period last year of

$132.0. There was an increase in dividend income from investments as well as an improved performance from the Trading Portfolio and options which benefited from heightened volatility.

As foreshadowed in the announcement in the financial year result to 30 June 2015, the Board has increased the interim dividend by 1 cent a share to 10 cents per share fully franked.

Please direct any enquiries to:

Ross Barker Geoff Driver

Managing Director General Manager

[phone] (03) 9225 2102

20 January 2016

MAJOR TRANSACTIONS IN THE INVESTMENT PORTFOLIO

Acquisitions (above $10 million) Cost ($'000)

CSL 42,790

Healthscope 33,026

Mainfreight (a) 26,874

Challenger 25,512

Suncorp Group 24,409

Qube Holdings 23,871

James Hardie Industries 22,824

Treasury Wine Estates (includes $4.3m participation in 2 for 15 Rights Issue at $5.60 per share) 19,665 Origin Energy (participation in 4 for 7 Rights Issue at $4.00 per share) 15,903

Brambles 11,560

Macquarie Group 11,383

QBE Insurance Group 11,341

Insurance Australia Group 11,265

ResMed 10,486

Fisher & Paykel Healthcare Corporation 10,126

Disposals (above $10 million) Proceeds

($'000)

Westpac Banking Corporation 42,457

Woolworths 26,223

Asciano 21,636

Computershare 21,620

Twenty-First Century Fox Inc. (b) (complete disposal) 20,424

APA Group 17,777

Wesfarmers 13,290

Commonwealth Bank of Australia 13,189

SAI Global (complete disposal) 10,690

1. Listed on the New Zealand Stock Exchange

2. Listed on the NASDAQ Global Select Market

MAJOR TRANSACTIONS IN THE TRADING PORTFOLIO

Acquisitions ($2 million and above) Cost ($'000)

IDP Education 2,000

TOP 25 INVESTMENTS AS AT 31 DECEMBER 2015

Includes investments held in both the Investment and Trading Portfolios

Valued at closing prices at 31 December 2015

Total Value $ million	% of Portfolio
1	Commonwealth Bank of Australia	711.9	11.1%
2	Westpac Banking Corporation	566.3	8.9%
3	* National Australia Bank	304.6	4.8%
4	Wesfarmers	294.9	4.6%
5	Telstra Corporation	294.2	4.6%
6	* BHP Billiton	253.8	4.0%
7	Australia and New Zealand Banking Group	237.1	3.7%
8	Transurban Group	192.0	3.0%
9	* CSL	171.0	2.7%
10	Amcor	165.3	2.6%
11	Rio Tinto	163.3	2.6%
12	* Brambles	141.5	2.2%
13	Woolworths	123.0	1.9%
14	AMP	117.2	1.8%
15	* Oil Search	115.6	1.8%
16	* QBE Insurance Group	115.2	1.8%
17	AGL Energy	110.3	1.7%
18	* Woodside Petroleum	99.0	1.5%
19	* Ramsay Health Care	95.8	1.5%
20	Incitec Pivot	88.2	1.4%
21	APA Group	71.8	1.1%
22	Computershare	69.7	1.1%
23	Milton Corporation	66.0	1.0%
24	Qube Holdings	59.7	0.9%
25	Treasury Wine Estates	54.6	0.9%
4,681.9
As % of Total Portfolio Value (excludes Cash)	73.2%

* Indicates that options were outstanding against part of the holding.

PORTFOLIO PERFORMANCE TO 31 DECEMBER 2015

PERFORMANCE MEASURES TO 31 DECEMBER 2015	6 MONTHS	1 YEAR	5 YEARS %PA	10 YEARS %PA
AFIC PORTFOLIO RETURN - NET ASSET BACKING INCLUDING DIVIDENDS REINVESTED*	-1.3%	1.1%	7.4%	6.5%
S&P/ASX 200 ACCUMULATION INDEX	-0.5%	2.6%	7.0%	5.6%

NET ASSET BACKING GROSS RETURN INCLUDING DIVIDENDS REINVESTED*	-0.2%	2.8%	9.3%	8.4%
S&P/ASX 200 GROSS ACCUMULATION INDEX*	0.3%	4.2%	8.6%	7.2%

*Incorporates the benefit of franking credits for those who can fully utilise them.

Note: AFIC net asset per share growth plus dividend series is calculated after management fees, income tax and capital gains tax on realised sales of investments. It should also be noted that Index returns for the market do not include the impact of management expenses and tax on their performance.

7

AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED

ABN 56 004 147 120

HALF-YEAR REPORT 31 DECEMBER 2015

COMPANY PARTICULARS

Australian Foundation Investment Company Limited ("AFIC")

ABN 56 004 147 120

AFIC is a Listed Investment Company. As such it is an investor in equities and similar securities on the stock market primarily in Australia.

Directors: Terrence A. Campbell AO, Chairman Ross E. Barker, Managing Director Jacqueline C. Hey

Graeme R. Liebelt John Paterson David A. Peever

Catherine M. Walter AM Peter J. Williams

Company Secretaries: Simon M. Pordage

Andrew J.B. Porter

Auditor: PricewaterhouseCoopers, Chartered Accountants

Country of incorporation:

Australia

Registered office: Level 21

101 Collins Street

Melbourne, Victoria 3000

Contact Details: Mail Address: Telephone : Facsimile: Email:

Internet address:

Level 21, 101 Collins St., Melbourne, Victoria 3000

[phone]

[phone]

[e-mail] www.afi.com.au

For enquiries regarding net asset backing (as advised each month to the Australian Securities Exchange):

Telephone: [phone] (toll free)

Share Registrar: Computershare Investor Services Limited

Mail Address:

AFIC Shareholder enquiry lines :

Facsimile: Internet:

GPO Box 2975, Melbourne, Victoria 3001

Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067

1300 662 270 (Aus)

0800 333 501 (NZ)

[phone] (from overseas)

[phone]

www.investorcentre.com/contact

Securities Exchange Codes:

For all enquiries relating to shareholdings, dividends and related matters, please contact the share registrar.

AFI Ordinary shares (ASX and NZX) AFINA Ordinary shares (ASX)

AFIND Ordinary shares (NZX)

AFIG 6.25% 2017 Convertible Notes (ASX)

DIRECTORS' REPORT

The Directors present their report in relation to the half-year to 31 December 2015 on the consolidated entity ("the Group") consisting of Australian Foundation Investment Company Limited ("the Company" and "AFIC") and its subsidiary, Australian Investment Company Services Limited ("AICS").

Directors

The following persons were Directors of the Company during the half-year and up to the date of this report:

T.A. Campbell AO (appointed September 1984)

R.E. Barker (appointed September 2001)

J.C. Hey (appointed July 2013)

G.R. Liebelt (appointed June 2012)

J. Paterson (appointed June 2005)

D.A. Peever (appointed November 2013)

F.D. Ryan AO (appointed August 2001, retired October 2015)

C.M. Walter AM (appointed August 2002)

P.J. Williams (appointed February 2010)

Review of the Group's operations and results

Overview

The Company maintains a diversified portfolio of equity and similar securities, predominantly in entities listed on the Australian Securities Exchange. There has been no change in the nature of the Company's activities during the period. Its primary objectives are to pay dividends which, over time, will grow at a faster rate than inflation, and to generate attractive total returns in terms of growth in net asset backing plus dividends.

Profit Performance and Dividend

Profit for the half-year was $145.6 million, up 10.3% from the previous corresponding period.

The net profit per share for the six months to 31 December 2015 was 13.2 cents per share with an interim dividend declared of 10 cents per share fully-franked, up from 9 cents the year before. As noted in the 2015 Annual Report, this increase is to adjust the disparity between the interim and final dividends.

The portfolio return for the 6 months (measured by change in net asset backing per share plus dividends reinvested) was -1.3% compared to the return of the S&P/ASX 200 Accumulation Index for the same period which was -0.5%. AFIC's portfolio return is calculated after management fees, income tax and capital gains tax on realised sales of investments and does not reflect the value of franking credits or LIC credits attached to the dividends. Index returns for the market do not include the impact of management expenses and tax on their performance.

During the half-year 35.3 million shares were issued under the DRP, DSSP, the conversion of Convertible Notes and a Share Purchase Plan, resulting in an additional $194.1 million of capital (after costs).

Auditors' independence declaration

A copy of the auditors' independence declaration as required under section 307C of the

Corporations Act 2001 is set out on page 12.

Rounding of amounts to nearest thousand dollars

The Group is of a kind referred to in Class Order 98/100 issued by the Australian Securities & Investments Commission , relating to the "rounding off' of amounts in the Directors' report and financial report. Unless specifically stated . otherwise , amounts in the Directors' report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order.

This report is made in accordance with a resolution of the Directors.

T.A. Campbell AO Chairman Melbourne

20 January 2016

pwc

Auditor's Independence Declaration

As lead auditor for the review of Australian Foundation Investment Company Limited for the half year ended 31 December 2015, I declare that to the best of my knowledge and belief, there have been:

1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and

   
   

2. no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Australian Foundation Investment Company Limited and the entities it controlled during the period .

Charles Christie Partner

PricewaterhouseCoopers

Melbourne

20 January 2016

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