My name is Geoffrey Driver, General Manager, Business Development and Investor Relations for AMCIL Limited. I have with me Mark Freeman, the CEO and Managing Director, and Kieran Kennedy, the Portfolio Manager responsible within the team for AMCIL. Mark, we've just announced our full year results for the financial year 2022. What did you see as the key highlights to that result?
Yeah. Thanks, Geoff. It was a strong year for profit growth. The full year profit was up 19.8% from last year to AUD 8.1 million. This increase in profit was driven by higher fully franked dividends received from the companies we invest in. The ordinary dividend was maintained at AUD 0.025 per share. Noting we also paid a AUD 0.01 ordinary interim dividend for the first time. I should note, last year we paid a AUD 0.02 special dividend, which was not reported this year, as we felt it was best to keep some funds for investment given where the market currently sits. The MER was down to 0.52% with no performance fees, which is very low for a high conviction fund like AMCIL.
Kieran, the portfolio performance for AMCIL was behind for the year after being well ahead for the first six months of the period, given the volatility that we experienced in the second half of the year. What did you see as the main factors driving that performance for the financial year?
Thanks, Geoff. The significant catalyst for change in conditions in the market was really around the building inflation that we really saw break out in early calendar 2022. The conditions for this really go back to COVID. The post-COVID period saw very significant stimulus put in place across global economies, which was very supportive for demand. On the supply side, supply chains were constrained, and labor absenteeism was making it really hard for products to be delivered to meet that demand, which saw inflation really pick up quite quickly. Adding to that, obviously the invasion of the Ukraine by Russia, you know, added to those pressures again. We saw central banks wake up to this, really. I think they'd been a bit slow to respond initially.
They needed to sharply raise interest rates to set them at a more appropriate level for the conditions that were prevailing. In response to that, equity markets looked at valuations and had to factor in a higher interest rate in valuing companies. How that impacts AMCIL is we're a long-term investor, so we're really in the long term, our belief is that the key driver of share price performance is earnings growth. In our portfolio, we have a natural skew to companies that are going to deliver superior long-term earnings growth. Those companies were hit somewhat because of these valuation recalibrations in the market. At the same time, we saw cyclical companies like energy and commodity stocks, where commodity prices were quite buoyant. They did well in the market, and we're underrepresented there.
Importantly, while that's caused some pain, as you said, in the six-month period, over the three-year period, which better picks up the sort of to and fro of some of these conditions, you know, the portfolio is still outperforming the index.
Thanks, Kieran. How do you look to manage the portfolio in that sort of environment that we had?
Yeah. It's always a balance, Geoff. At our core, we're long-term investors, so our assessments are always looking at the best alternatives for our capital on a long-term view. We were aware of some of the building valuation risks in the market. We did take the opportunity to exit a few positions like Xero, NEXTDC and Seek. They're good companies, but in those instances we felt valuations were just building to a point where the risks were too high in those companies. We also trimmed some of our favorite stocks that have done very well, you know, things like Objective, ARB, Reece, just again, to reflect some of that risk. Redeploying that capital, we moved into some new companies, like Nanosonics, Domino's Pizza.
Again, in following valuation environment, it's a little bit hard to pick the bottom of these things, but we did buy them on the way down and feel they'll be good stocks for the portfolio in the long term. The other thing that's worth noting is we did switch one of our major banking exposures, moving on from the NAB in favor of Westpac. Really there that was a relative valuation call for the medium to long term.
Thanks, Kieran. Mark, we are facing the new financial year with a lot of uncertainty. What do you sort of see sort of the next 12 months, which I know is very difficult to predict, but what is your sort of feeling about?
Yeah. Well, as a long-term investor trying to pick short-term movements.
Yeah, that's right.
In markets is very difficult. As Kieran pointed out, we did see quite a pullback in the second half of the financial year. From the peak, we saw the Australian market fall about 14%. The U.S. market was down over 20%. When markets fall, and there's probably good reason for that given the overvaluation, but it just means we're seeing probably pricing on the stocks, particularly the stocks we look at more sensible levels. I wouldn't say they were cheap, but they were more sensible. Going forward, we feel there's more comfort that we're holding great stocks at fairer prices. That's a good position to be in. Really hard to predict where things will go from here when you're seeing fair valuations. The U.S. probably still looks a little, you know, bit expensive.
If there's gonna be more increases in interest rates by central banks globally, that could cause more concern. I think in the short term, profit results from companies will be okay. If we do see big jumps in interest rates, the impact on the consumer could be quite significant, which again could impact profits, margins and therefore share prices. We're sort of in that environment. We're really comfortable with what we've got, but we're not sort of jumping in and buying even though we've had this pullback. We're certainly ready if we saw more weakness. When there's more concern, you get the best buying opportunities, and we wanna be ready for that.
Kieran, now Mark mentioned a little bit earlier on, he was talking about the results, we held back a little bit of capital for reinvesting back in the market. What do you see sort of the opportunities over the next 12 months?
Yeah. Again, reiterating what Mark was just saying, Geoff, we're taking quite a patient approach at the moment. Really we have a pretty clear view of the sorts of companies that we think fit this portfolio, and we wanna make sure we're buying them where there's good value. Sort of rather than trying to chase the next trading opportunity where something might look relatively cheap for a shorter period of time, we're trying to look through things and say, you know, where's the best place to allocate capital for the next five years? We've got a little bit of cash ready for that, but as I said, we're just being patient at the moment just to see, you know, some of this volatility play out.
Okay. Thank you. Thanks Mark, and thanks Kieran for your time.
Yeah. Thanks, Geoff.
Thanks, Geoff.