AFIC 2010 AGM transcript

October 6, 2010

Stephen Mayne: just a clarification at first. Are we still negatively screening the major gaming houses such as Tabcorp, Tattersalls and Crown?

I notice they're not in our major investments. Is that an ongoing conscious decision to avoid?

Chairman Bruce Teele: it is. Yes. We're not bound by that by our constitution, we've chosen to do that. As much as anything it's in harmony with feedback we get from a lot of our shareholders.

I can't say one is comfortably lily pure, because of cause with a Woolworths or a Wesfarmers, you get it whether you like it or not.


Stephen Mayne: I would like to commend you on your position, it's unusual, but I think it's very commendable. I think a majority of your shareholders would support the view, but you have picked up on the point that I wanted to raise - which is Woolworths.

Woolworths' pokies business turns over $1.1 billion, made $185 million last year in EBIT, 6% of the profits, it's growing. When they move to direct ownership of the machines in Victoria, with Tattersalls and Tabcorp exiting, it will grow even further.

You've had the situation where the Tattersalls CEO Dick McIlwain said on the record, he's happy to be getting out of the industry, because it's on the nose all over the world, we are per capita the world's biggest gamblers.

Woolworths has 12,000 machines - they are the largest pokies machine operator in Australia, and I just simply think that it would make a terrific stand for this company to not just say, well we screen some but not others.

But to actually take a stand and dispose of your Woolworths interest, or at the very least, query the managing director when he next comes to brief you about the business, and report back to us next year at the annual meeting, on precisely what Woolworths says about this enormous business they're in, completely out of step with every other major retailer in the world.

Chairman Bruce Teele:
You would think Stephen that you could ask them that. We do raise that sort of question with companies. Personally, if someone is doing more than average in terms of gaming, with me around, knows more - but I don't like it and I'd rather they didn't.

But from our company point of view, we don't want to be out of the retail industry. That's the package at the minute. We certainly keep in touch with them. I'd say next time Michael Luscombe is down here or at the annual meeting, raise it with him. I'm sure some shareholders do.

I used to get a lot of feedback about the TAB and that sort of company, and I think we feel that, that was what the shareholders wanted, they were comfortable with that, and I also we felt that they do have the option of doing something about it themselves if that happens to be the appropriate prevention.
With the unprecedented run of capital raisings - particularly in the last year, we've seen many many millions of dollars transferred from retail investors to professional investors courtesy of selective insider placements.

One way that retail can get exposure to that very biased system, is obviously through a holding with Australia's largest listed investment company, AFIC.

Could you give us a very quick summary of, what were our best examples of getting larger, proportionate, allocations in placements, which has delivered really good excellent returns to us here at AFIC.

The final one is that I would like brief comment on the BHP's over the top, $US38 billion bid for potash, and whether we are making any representations about how massive takeovers, look at Rio Alcan, can often destroy value.

I know some people have said it wouldn't have happened if Don Argus was in the chair, but I would be interested in your comments on that given it is our largest exposure at $500 million plus.

Chairman Bruce Teele: well we're certainly interested. We're watching it. What we really think the first thing to do is to seek to find as much as we can about the investment case. We know the company well, we know the certain criteria that they are looking for, that's where we will start. That information sort of trickles out, I think Mark has been to one recently, we certainly have a library interest.

But just in the last few years, our impression of BHP is that they are very disciplined. A very much looking at an investment case. They want to be in bottom of the cost curve assets, and we would agree with that, so we will be watching that one.

Capital raisings, one of the ones that was on that list was Hastings Diversified. Mark have youÂ…

Mark: we did participate in many of these. The banks did quite a few placements. There was the Rio one, Wesfarmers did one, there were a number of others.

The point that we would make is that we do stress to the companies when they come in to see us, is that our view is that capital raisings should be on a an equal basis to all shareholders, we certainly let management know when they come in to see us.

These days we do see the chairperson of many many companies as well, and we always express that same view, if they are going to do any raisings, equity raisings, it should be to all shareholders. That's our view.

We did express to one company who were doing a placement, that they should have looked for a greater involvement of the retail. Our view is that retail shareholders are fantastic shareholders to have on the company's register and that they should be looking after them.

So certainly from where we sit, we support the view that in any equity raising, it should go to all shareholders on an equal basis so I agree with your thoughts on that.