Chairman`s AGM Address to Shareholders
Document date:
Fri 03 Nov 2000
Published:
Fri 03 Nov 2000 00:00:00
Document No:
169606
Document part:
A
Market Flag:
N
Classification:
AMCIL LIMITED 2000-11-03 ASX-SIGNAL-G
HOMEX - Melbourne
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1. AMCIL PERFORMANCE
OVERVIEW
The fourth year of AMCIL's life was full of interest. Financially and
operationally the Company had a very good year. In the 12 months that
ended on 30 June 2000 profit of $7.1 million was 44% above the
previous year's, dividends paid to shareholders were 8 cents per
share, up 6.7%, and earnings per share were also 8 cents and up 6.7%.
Total return, comprised of the growth in net asset backing per share
and the dividends paid, was 14%.
The year's most significant event as far as AMCIL is concerned
occurred on 10 February when its shares were quoted on the Australian
Stock Exchange for the first time. At the same time AMCIL made its
fourth general issue of shares, this time a 1-for-5 rights issue at
$2 per share. ASX listing and the new issue attracted new
shareholders, the number of whom now exceeds 5,000.
Taken together with the turbulence in AMCIL's target market sectors
of media and telecommunications - to which I will return later - it
was indeed an interesting year.
NET ASSET BACKING
To bring you right up to date, the company advised the Stock Exchange
today that its net asset backing at 31 October 2000 was $2.48. That
figure excludes any tax that might have been incurred if we had
disposed of the whole portfolio at closing prices on 31 October.
Clearly we have no intention of doing that. But we are obliged to
report that in that hypothetical and highly improbable event, the net
asset backing after tax would have been $2.40.
AMCIL FINANCIAL HISTORY
AMCIL's four-year history has parallelled the vigour of the media and
telecommunications sectors of the market over the same period. The
early months of AMCIL were quiet as it took some time to establish
the portfolio. Since then, growth has been rapid. The total return of
4.9% in the first year (generated mainly by the interest on deposits
of cash) soon expanded into returns more characteristic of AMCIL's
sectors. Over AMCIL's life to 30 June 2000 the average annual rate of
total return has been just short of 17%.
AMCIL's PORTFOLIO PERFORMANCE
Since commencement of operations in mid-October 1996, each $2 per
share subscribed by shareholders had generated value in terms of
dividends paid by AMCIL and capital growth in its investments of
$1.53, taking the $2 initial subscription to $3.53 by 30 June 2000.
2. PORTFOLIO
PORTFOLIO COMPOSITION
At 30 September market values AMCIL's net assets were
$m % of total
Media investments 132 48
Telecommunications 90 33
investments
Other investments 8 3
Other assets (minus 36 16
liabilities)
mostly cash
Total 266 100
MEDIA HOLDINGS OVER $5M - 1ST FIVE HOLDINGS
AMCIL's biggest media holding is in The News Corporation, reflecting
that company's sheer size in the sector (84% of the media index on
30th September) and, indeed, its significance in the total Australian
equities market (16% of the ASX 300 index on 30th September).
While mentioning News Corporation I would like to comment on the
Board's approach to investing in it. To invest up to "index weight"
would imply holding of up to 40-45% of our portfolio in this one
stock. The purpose of an investment in AMCIL Limited is to give
exposure to a range of activities and businesses in the media and
communications industries. To hold 40 to 45% in one stock would be an
unduly concentrated exposure and limit our ability to have meaningful
investments in other companies. We would not see having an exposure
in News higher than around 20-25% of the portfolio. At September 30th
taking into account our options positions, about 12% of our portfolio
is invested in News Corporation.
As well as News Corporation we have substantial investments in:
PUBLISHING & BROADCASTING LIMITED -
* Nine Network Australia
* Australian Consolidated Press (incl Women's Weekly and Woman's Day)
* Crown Casino and interests in ecorp, Foxtel and one.Tel
WESTERN AUSTRALIAN NEWSPAPERS
* Publisher of the West Australian - Perth's only locally daily based
newspaper,
* Other interests - 16 regional newspapers and a 49.9%. stake in
Community Newspapers (publisher of 14 suburban newspapers)
TEN NETWORK
* Television broadcaster
* Interests in Television & Media Services, Telecasters Australia,
Southern Cross Broadcasting and Eye Corp (outdoor advertising).
SOUTHERN CROSS BROADCASTING
* Commercial television - Ten Capital (Canberra & southern NSW), Ten
Victoria (broadcasting to regional VIC), Channel Nine (Adelaide), and
SCT Tasmania (carrying both Ten and Seven programming).
* Radio - Melbourne (3AW, Magic 693), Perth (6PR, 96FM)
MEDIA HOLDINGS - NEXT FOUR HOLDINGS
FAIRFAX
* Newspapers - The Age, Sydney Morning Herald, Australian Financial
Review
* Magazines-Business Review Weekly, Shares Magazine
* F2 - interactive network subsidiary (Fairfax Online, CitySearch
Australia, SOLD.com.au and Big Colour Pages).
SKY NETWORK TV
* Provides a multi-channel subscription television service in New
Zealand.
APN NEWS & MEDIA
* regional newspapers
* radio
* outdoor advertising (Cody)
* interests in specialist publishing, pay television and digital
media.
SEVEN NETWORK
* Commercial TV
* Rights to sports events (AFL, Ashes series cricket in 2001, Olympic
Games until 2008).
* 17 - new technology and media business (C7 pay-tv channel &
Ticketmaster 7).
* SEV and Granada jointly own Australia's largest independent
production house.
MAJOR TELECOMMUNICATIONS HOLDINGS
Again reflecting market weighting, AMCIL's largest telecommunications
holding is in Telstra. Telstra has a similar position in the
Telecommunications index as News Corporation has in the media sector
(Telstra is over 62% of the Telecommunications index). For similar
reasons as explained above for News Corporation we would plan to have
no greater than 20 to 25% of the portfolio in Telstra. At September
30th taking the options positions into account our exposure to
Telstra was about 13 1/2%.
The next largest holding at 30 September was in AAPT but we have
decided to accept Telecom NZ's offer for our holding because of a
realisation that the takeover would be achieved and we would have
been subject to compulsory acquisition rather than any lack of faith
in AAPT's future.
Other major telecommunications investments are:
TELECOM NZ
* principal supplier of telecommunications services in NZ
* Telecom NZ recently moved to compulsorily acquire 100% of AAPT and
has a 50% interest in the Southern Cross Cable project.
CABLE AND WIRELESS OPTUS
* the second largest provider of telecommunications in Australia.
* There are 4 divisions: The Mobile Division, Data & Business
Services, Consumer & Multimedia & CWO subsidiary XYZed.
MOBILE COMMUNICATIONS
* Holds a 4.5% interest in Vodafone Pacific (subsidiary of Vodafone
Group, one of the world's largest cellular network operators).
MAJOR ACQUISITIONS
Major outlays during the year were $8 million in News Corp, $13
million in Telstra, $5 million in Sky Network and $4 million in
Telecom NZ.
3. THE MARKETS
TELCO, MEDIA INDEXES, TLS & NCP 1998-2000
What we've seen over the last year in telecommunications stocks is
the type of speculative market often seen in newly developing
industries. For example, the mining booms of the 60's and 70's. New
investment surges in, often from investors attracted by unrealistic
extrapolations of revenue and profit in the new sector and more often
simply the prospect of quick returns from selling out to others.
Doubt eventually sets in, confidence weakens, and traders and
speculators bail out. The intrepid pioneers in the new industries
persevere, some succeed. Some become extremely wealthy and reward
their supporter-investors handsomely.
In the end markets reflect reality and fundamentals but history shows
that bull and bear markets last longer and move further than analysis
would suggest. We operate in momentum driven markets.
One of the key features of the markets in telecommunications stocks
over the past year has been the very high volatility. The market in
these telecommunications stocks have been no different to other
markets - they overshoot on the upside and on the downside.
The highest of the highs in the telecommunications sector was reached
in March which was 20% above where the index for the sector began in
July 1999. By the end of June the index had fallen 23% from the high
point and has since gone down further.
Sometimes, of course, market falls of specific companies are of their
own making. Telstra. seems to illustrate the point. However, your
directors believe that the fundamental strengths of Telstra, and the
prospects for its markets, justify its status as the largest single
investment in AMCIL's telecommunication holdings.
EXAMPLES OF OTHER TELCO STOCKS PRICE HISTORIES
Most of AMCIL's telco holdings were affected by the mood swings
during the year, but few as dramatically as eisa and Davnet. This
graph shows the enormous price swings which occurred, an example of
what has been happening in some parts of the markets. There would be
many other examples.
TELCO & MEDIA INDEX, TLS & NCP
During the year to June 30th the media sector behaved generally
better than the telecommunications sector, particularly with the
dominance of News Corporation. But where media operators were seen to
be vehicles for delivery of the benefits of telecommunications
developments like the internet, or the providers of content they
suffered some of the fate of the telecommunications stocks.
It is also worth highlighting that during October the price of News
Corporation has fallen over 20% with the media index down 18.5%
The Board remains optimistic that the areas of the media and
telecommunications will retain their energy and vitality in the
future as the new technologies of the computer, the internet and
digitalisation of media bring about large scale change in our
lifestyles and modes of doing business.
The market volatility brings forth opportunities both to buy and to
sell investments. We have taken the opportunity during the year of
high prices to sell and trim some of our holdings where we felt
prices were beyond sensible valuation levels.
We are still confident of the medium to long term prospects of
investments in both the media and communications sectors and with the
cash available to us we are awaiting market opportunities to invest
at desirable prices.
4. OPTION DEALING
In his address as chairman at the last AGM, Bruce Teele described to
shareholders some changes to the way AMCIL's portfolio would be shown
in its accounts and reports. The goal was to bring accounting and
reporting into line with operating practice.
The only securities presently held by AMCIL as current assets or
trading portfolio holdings are floating-rate income securities. These
are held for the purpose of generating attractive short-term returns
until the funds are required for investment in equities. If we see
opportunities for short term gains in particular equities the
securities acquired to take advantage of them would also be accounted
for as current assets.
The rest of the portfolio is treated as non-current. It supports
AMCIL's option dealing operations that are aimed at enhancing returns
and augmenting income from investments from which most of the return
is expected to accrue as capital growth rather than dividends. The
operation consists primarily of writing call options against the
existing portfolio which are then classified in the accounts as
current liabilities.
Income realised from option trading increased from $1.8 million last
year to $2.1 million in 1999/2000.
5. ISSUES ARISING FROM THE ANNUAL REPORT
Let me return to some issues raised in the annual report because I
know that some of those issues are of interest to many shareholders.
Firstly, the dividend reinvestment plan. DRPs are attractive to many
shareholders as a low-cost and convenient way of allowing their
investment to grow. The discount to market at which the shares were
issued added gilt to the gingerbread. AMCIL's DRP was suspended
before the rights issue early this year and remains suspended while
the company has adequate cash resources. It can be reinstated when
directors deem it to be in the interest of the company and its
shareholders, but directors will also review the appropriateness of
the discount.
Secondly, tax issues. I mentioned the change that effectively taxes
unfranked dividends received by AMCIL but leaves franked dividends
untaxed. The only variable here is the relative level of franked and
unfranked dividends. A clear pattern has still not emerged. It needs
to be stressed, however, that the Government's purpose was to change
the taxing point - it now collects tax from AMCIL that it would
hitherto have collected from shareholders.
In the annual report I also mentioned the capital gains tax changes.
These changes are not as significant to AMCIL at this time because
more of AMCIL's activities will be subject to ordinary income tax
than to CGT but this would change over time. Nevertheless, we regard
it as grossly unfair that AMCIL's shareholders should suffer any
disadvantage whatever compared with other forms of collective
investment. We have therefore continued to make this point very clear
to the Government, Unfortunately, more recent announcements by the
Government do not appear to acknowledge this unfairness and your
directors are keeping the matter under review.
As with other listed investment companies, the uncertainty created by
the Government's tax changes along with the less optimistic
environment for media and telecommunications stocks seems to have had
a depressive effect on our share price. For a company in the sound
cash position in which AMCIL finds itself some capital management
options are available including the possibility of a limited buy-back
of shares. However the Board is still reviewing the position and has
not made a decision.
Finally, the composition of the AMCIL board of directors. We
farewelled founding chairman, Bruce Teele, at the last AGM when he
announced his intention to retire. His position was filled when the
board appointed Rupert Myer as a director. Rupert was quickly into
stride after his appointment in January and his contribution since
has been most valuable. Business later in the meeting includes a
resolution for shareholders' to confirm Rupert's appointment.