Well, good afternoon, ladies and gentlemen, and welcome to the 26th Annual General Meeting of AMCIL Limited. My name is Rupert Myer, chairman of your company. The company secretary has confirmed that a quorum is present online, and I'm pleased to declare the meeting open. I would like to begin by acknowledging the traditional owners and custodians from all the lands we are gathered on today, and I pay my respects to their elders, past, present, and emerging. Due to the ongoing coronavirus pandemic, my fellow non-executive directors, Jodie Auster, Roger Brown, Mike Hirst, Siobhan McKenna, and Jon Webster are joining the annual general meeting today via video. I'm joined here by our managing director, Mark Freeman, our company secretary, Matthew Rowe, our chief financial officer, Andrew Porter, our general manager of business development and investor relations, Geoffrey Driver, and portfolio manager, Kieran Kennedy, and investment analyst, Olga Kosciuczyk.
I will also take this opportunity to introduce Nadia Carlin, partner of the company's auditors, PricewaterhouseCoopers, who is attending via video and is available to answer questions later today on the audit and the preparation and content of the auditor's report at the end of the presentation. Today's meeting is being held online via the Lumi platform and via teleconference. Today's presentation has been released to the ASX and made available on the website. Those of you who have joined the meeting just prior to the start would have seen a short video on how to vote and ask questions via the Lumi site. For those shareholders and proxy holders joining by telephone, you can indicate you would like to ask a question by pressing star one on your telephone keypad and wait for your name to be announced.
I remind shareholders that while questions can be submitted at any time, I will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. Voting today will be conducted by way of a poll on all items of business. I now declare voting open on all items of business. I will give you a warning before I move to close voting. I can confirm that where undirected proxies have been given to me as chairman, I will vote them in line with the board's recommendations on each agenda item. Before we move to the business of the meeting, I'd like to provide some additional comments.
At the outset of my remarks, I would like to acknowledge two of the founders of the company who have retired from the Board since the last AGM. Bruce Teele and Ross Barker were instrumental in establishing the company in 1996, in listing the company in 2000, and in recapitalizing the company in 2004. The company exists today because of them. We continue to wish them well for the future. Pleasingly, with the implementation of the investment strategy alongside the continuing support of shareholders, the portfolio has grown from AUD 41 million at its recapitalization to AUD 415 million at the end of August 2021. In this context and through its governance role, the Board has sought to provide sound support to the CEO and investment team, including very active participation in the Investment Committee.
I always find our meetings constructive and purposeful, and the diverse nature and experience of the board enables a wide breadth of perspectives. Currently, we have members from a range of backgrounds with experience across a number of sectors, some of which include investments, global technology, startups, global manufacturing, banking and finance, global media, and in-depth practical senior legal experience. Some of the topics we have discussed have been across a wide range of subjects, including the potential reemergence of inflation and the impacts on the sectors and companies in the portfolio, environmental, social, and governance frameworks, and deep dives into sectors such as energy, including oil and gas, banking, the outlook for technology companies in Australia, the listed property market, and resources.
There are plenty of topics which we can seek to cover in depth at these meetings and provide input back to the investment team, and it's very much a two-way flow between the investment team and the board through the investment committee. The final point I wanted to address before we move on to the presentation by Mark and the team is the change we made to the dividend policy. This is set out in the annual report. AMCIL's approach to paying dividends has been to pay out all available franking credits at the end of each financial year.
In addition to the fluctuations in dividends, this approach can produce one of the consequences is that the growth of the portfolio is constrained when compared to the reinvestment of an appropriate amount of realized capital gains. This is particularly the case when there is a takeover of a large holding or significant gains are made on the sale of individual holdings, as has been the case in this financial year. The board believes that a more appropriate approach to determining dividends, including any special dividends, will consider the amount of income received, the amount of realized capital gains, the level of franking credits generated, and investment market conditions. This approach may mean we will no longer be distributing all available franking credits at the end of each financial year. The board does, however, recognize the importance of attractive, fully franked dividends to shareholders.
Moving on to the business of the meeting, I will take the notice of meeting as read. The first agenda item is the consideration of the financial statements and reports for the year ended June 30th, 2021. We will do this, as we have in previous years, via a presentation. After which, I will ask shareholders to comment or to raise any questions, either about the presentation or of the auditors if they have any questions about the audit. I'll now pass you to our managing director, Mark Freeman, to start the presentation. Thank you, Mark.
Okay. Thanks, Rupert. Good afternoon to everyone. Once again, disappointing that we're not able to do this face-to-face. We think having an AGM with our shareholders is an important part of our accountability. We like the interaction. Hopefully next year we'll be able to do that in the usual format and also get back to doing shareholder information meetings around the country. Just moving on to the slides. We start with a disclaimer just to say we're here to talk about the company. We're not here to give any advice. Just moving forward. We'll start with our purpose and approach. Just to remind our shareholders, the purpose of AMCIL is to deliver returns from the Australian and New Zealand equity markets. We aim to exceed the market returns over the medium to long term through strong capital growth and the generation of fully franked dividends.
Our approach is to stick with the quality. We focus on the high-quality companies in the market. We want to invest in companies that have above-market growth. We want to invest with conviction, and we do that by having a focused portfolio that is still diversified. We look to have a spread between large, medium, and smaller companies. If we move to slide five. Just touching on some of those points, what does it mean to invest in quality companies? Some of the attributes we look for, we want to have a company that's got a leadership position or is developing one within the industry in which they operate. We look for companies that have a sustainable competitive advantage or a unique set of assets. We want those businesses to reinvest to defend and enhance their position.
We want to invest in companies that have an attractive return on invested capital. We like businesses that have a conservative balance sheet. We don't like companies that carry high levels of debt. In particular, we want companies that are run by passionate management teams who are good stewards of capital, and these are often what we call owner-drivers. They typically have a deep understanding of the industry and the business. We want to invest in companies that can grow. Ideally, what we look for is companies that have a large market opportunity in which to grow and an ability to take market share. We've got a preference for companies that have a more consistent earnings profile. We want to buy these companies we identify when we see value in the market, and sometimes this requires us to be patient.
Just moving to slide six. Just quickly to touch on, since recapitalization back in 2004, we just highlight here, if you'd invested AUD 10,000 in AMCIL, including the value of franking credits, it'd be worth around AUD 85,000 now, compared to just over AUD 60,000 if you're in the index. Moving to slide seven. Just wanted to spend a bit of time talking through ESG. We do get a lot of questions on this these days. Just on our approach to environmental, social, and governance factors. The assessment of ESG risk factors is an important part of our process, as the sustainability of a business model is one of our key inputs when we assess the quality of a company. As a long-term investor, we want to invest in companies that have strong governance and risk management processes, and this does include a consideration of environmental and social risks.
We regularly review companies to ensure ongoing alignment with our investment frameworks. Engagement with companies is a very important part of our process, and voting on resolutions is a key function that a shareholder has to ensure better long-term returns and management of investment risk. We do conduct our own evaluation of the merits of any shareholder resolution. We do take input from a proxy advisor, but we do that more to seek information. At the end of the day, we make up our own mind and make a decision on that. Therefore, we do vote on all company resolutions, and this is part of our regular engagement with companies. This active engagement with companies, in particular, occurs when we have an issue or concern involving a resolution, particularly if they're not aligned with shareholder interests. Just moving on to slide eight.
At the start of the presentation, Rupert introduced the directors. We decided, let's put a photo here of all of them. The directors are very important part of the running of AMCIL. As Rupert touched on, they bring significant business and industry experience. The investment team tap into that regularly. It's an important part of our process, and the diversity across those industries is critical to us. Just moving to the next slide, we have another series of pictures here. This is the investment team. We have Kieran and Olga here today, who will talk through a presentation, but we just wanted to let shareholders see there was a broader team sitting behind this, and they all have input into the AMCIL portfolio. With that, I will now pass to our CFO, Andrew Porter, to talk through the financial results.
Thank you, Mark, and good afternoon, ladies and gentlemen. Looking first at the profit for AMCIL on slide 11. Unlike many other LICs, where the dividends that ASX-listed companies were on the whole down in 2021, AMCIL's profit was actually up by 13.6% in that financial year. However, this can be deceptive, and I use the word advisedly, particularly, when the auditors are here. It is correct in accounting terms, but includes an AUD 2.2 million demerger dividend as a result of the Endeavour Group demerging from Woolworths. This was not paid in cash and carried no franking credits, and therefore would not have been available to pay out as a dividend. Excluding this, the dividends that AMCIL received from the companies that it invested were down by 13%. Sydney Airport, CBA, Oil Search, SEEK, all did not either pay a dividend or cut theirs.
Option activity was less in 2021 than the previous year, combining these two meant that the profit excluding the demerger dividend was actually down 23%. However, as most shareholders will know, there are also realized gains to consider when paying a dividend. As Rupert noted earlier, there is a desire to balance capital growth with paying a dividend, and if all realized gains are paid out, the capital growth will, by necessity, be lessened. However, they will still be available and be used to pay an appropriate dividend. Even though the earnings per share for the year, excluding the demerger dividend, was AUD 0.016 per share, the total dividend paid was AUD 0.045 per share using some of those gains that we've discussed, up from AUD 0.025 in the previous year when the gains were far less.
We'll come on to the portfolio return later on with some more updated figures to the end of August, and I'll turn to the share price return in a moment. The MER or management expense ratio, again, as many of you will know, is the costs of running the company. It is the total amount of costs divided by the portfolio value. That means that for every AUD 100 invested, it costs AUD 0.56 to run AMCIL. There are no outperformance fees paid to an external management company, just the cost of running AMCIL, including audit fees, insurance, shareholder communications, et cetera, as well as salaries. The team will discuss this a bit later on. Rupert has mentioned the portfolio value. I'll just touch on the shareholder return, which is on slide 12.
As you saw on the previous slide, the share price grew more than the portfolio value during the year. This effectively led to reducing the discount at which the shares traded to the portfolio value to about 4% at the end of the year. As those who've seen the NTA announcement will have seen, that has reduced even further to the end of September. Thank you. I'll hand over to Kieran.
Thank you, Andrew. Good afternoon, everyone. Today, my colleague Olga and I will talk about some of the key differentiating attributes of AMCIL, as well as taking a long-term perspective on our portfolio performance. We will share some insights on the current positions in the portfolio before closing with some outlook thoughts. Starting on slide 14. This portfolio performance chart is one that we regularly discuss at these meetings. We have, however, made a change this time in that we've reversed the order. You will now see the 10-year portfolio performance presented first on the left-hand side, as this better aligns with our investment approach. We are pleased with AMCIL's portfolio performance and how it compares to our benchmark across to all time frames. On slide 15, we share some unique benefits of investing in AMCIL as we see them.
First, there is the consistency of our long-term returns. Alignment of interests, which we think is a very important consideration in making any investment. Finally, the tax effectiveness that comes from a long-term, low turnover investment approach. Slide 16 demonstrates our portfolio return consistency. First, to explain the information presented in the chart. As mentioned earlier, AMCIL was recapitalized under its current investment strategy in 2004. From 2014, we have therefore been able to record 10-year historical portfolio performance figures using our monthly reported net asset backing series. There are 92 observations on the chart representing a month-end record of the 10-year portfolio performance to the date on the horizontal x-axis.
The colors on the chart break the return down to the contribution of the S&P/ASX 200 benchmark in gray and our outperformance over the benchmark in blue. The footnote is also important. It highlights that returns are presented on the basis that an investor has reinvested all dividends and attached franking credits back into our portfolio at the net asset backing when they were received. While these assumptions clearly don't hold for all investors, this is the purest method of measuring the performance of the investments that we are making on your behalf. It also allows for comparison to our benchmark and to other fund managers. What does the chart tell us? Over the long term, our quality-focused investment approach, as outlined by Mark earlier, has consistently delivered. Of the 92 observations, there has not been an instance where the 10-year AMCIL portfolio return has underperformed the S&P/ASX 200.
As an example, at the 31st of August 2021, AMCIL's 10-year portfolio return of 13.9% per annum was higher than the ASX 200 at 11.9% per annum. The figures in the box on the right-hand side of the slide convert this into the outcome of a AUD 10,000 investment, where AUD 37,000 invested in AMCIL and AUD 31,000 invested in the ASX 200. On to alignment of interest considerations on slide 17. A key benefit of a subset of LICs on the market, which includes AMCIL, is their internally managed corporate structure. This sees an absence of any portfolio management business looking to profit through the management of your investment. The importance of this is that funds management businesses benefit from increased profit margins as they scale up in size.
Essentially, the costs of running an AUD 100 million investment fund aren't significantly different from running an AUD 500 million fund. In the AMCIL structure, the chart on slide 17 clearly demonstrates the benefit of this scale being enjoyed by all shareholders. The management expense ratio, which again to remind you on Andrew's definition earlier, divides our operating costs by the total value of the portfolio, has fallen by well over half as we have significantly grown the portfolio since recapitalization in 2004. Our latest management expense ratio calculation of AUD 0.56 of cost for every AUD 100 invested remains very competitive against others investing in a similar manner to AMCIL.
The final key differentiator that I'll discuss is the tax effectiveness that comes from being a long-term, low-turnover investor on slide 18. As an LIC, we incur capital gains tax when we make an investment gain in selling an investment.
This helps us to maintain a strong awareness of the returns drag that high portfolio turnover causes through increased crystallization of tax. While we constantly monitor for instances of overvaluation, we consider any selling or trimming of positions in the context of achieving a clearly better alternative return in another investment, having considered these tax implications. On slide 18, we chart the unrealized gains and losses across our investment portfolio, which total AUD 168 million as at the 31st of August. The point that we are illustrating is that these gains remain invested in our portfolio of investments, rather than being whittled down by incurring significant tax as we switch investment ideas chasing maximum short-term returns. I will now hand to Olga to commence our discussion on the current state of the portfolio.
Thank you, Kieran, and good afternoon, everyone. On slide 20, we show that AMCIL's sector exposure is much more diversified than the S&P/ASX 200 index. As you can see on the left side of the slide, our sector exposure is almost evenly spread across technology, industrials, consumer, financial, and healthcare companies. This is in contrast to the S&P/ASX 200 index, which has 60% of capital allocated to the financial and resources sectors. This diversified exposure allows us to maintain long-term focus and become part owners of the best companies with the longest growth runways. We believe that in the long term, this yields much better results. Moving to slide 21. This slide shows that our portfolio is also well diversified in terms of the size of the companies that we invest in. The market capitalization of our companies ranges from AUD 125 million- AUD 175 billion.
However, weightings of our holdings are primarily dictated by our conviction, not by the size of the company. This is evident on the chart on the right side of the slide, which shows that our portfolio is fairly evenly invested across large, mid, and small companies. This means our shareholders get a much better exposure to high-quality smaller companies. An investment in AMCIL sees AUD 230 out of every AUD 1,000 invested in these 10 high-quality companies highlighted here on the slide. While a passive investor in the ASX 200 index has only a AUD 4 exposure. On slide 22, we show contributions to AMCIL's performance from non-index holdings. Currently, just over 15% of the portfolio is invested in companies that are not in the ASX 200 index.
That allocation has historically ranged between 15% and 20% as we bring new ideas to the portfolio and some of our companies become bigger and are included in the index. As evidenced on the chart, these non-index holdings have consistently contributed to our performance in a variety of market conditions. Moving to slide 23. On the next two slides, Kieran and I will talk about the companies we invest in that have or are developing a leadership position in their respective industries. These high-quality businesses represent almost 80% of our portfolio. Starting on slide 23, almost 20% of our portfolio is invested in high-quality leading and emerging consumer brands. Most of these companies would be very familiar to you. Wesfarmers is a diversified business that earns most of its profits from Bunnings, Kmart Group, and Officeworks.
Bunnings is one of the highest returning businesses in the world, with the return on capital of over 80%. For the past 25 years, Bunnings consistently grew their earnings over 18% per year by rolling out new stores and entering new categories. There is no doubt that Bunnings has been a COVID winner, but although sales growth is expected to moderate, the outlook for the business remains very strong as they continue to expand their product offering for both retail and trade customers. Woolworths has reinforced its leadership position through the immense challenge of supporting communities through COVID. From a position of defending unsustainably high margins against the threat of low-cost entrants only a few years ago, Woolworths has responded particularly well under Brad Banducci's leadership. The increased ongoing role of online grocery purchases is the next important competitive frontier, and Woolies look to be leading the pack.
Breville is taking their strong foundation of leading product development in kitchen appliances and successfully rolling it out to significantly larger global markets. Results under Jim Clayton's leadership have been consistently strong, and we are confident that he is a long way from done. Thank you for your attention, and I will now hand back to Kieran.
Thanks, Olga. The characteristics of a select group of infrastructure assets comprising 14% of our portfolio appeal to us. We look for strong market positions that give us confidence in attractive incremental return on capital, given it's a sector that can be quite capital intensive. We also seek exposure to parts of the economy that grow at least in line with GDP growth rates. Transurban fits the bill due to the strong underlying incumbency position they have in the markets they operate in. This brings new expansion opportunities that are inevitable as cities grow. The increased equity stake in WestConnex in recent weeks is the latest example of this. We have been pleased with the discipline that management has shown in investing only where they are the logical partner to do so.
Airports are topical due to the unforeseen impacts of the pandemic and the opportunistic takeover bid for Sydney Airport. Given our focus on owning high-quality assets, we often view takeover interest in our stocks with mixed emotions. The irreplaceable nature of Sydney Airport in our portfolio is the main factor exercising our mind as we watch these events unfold. Data centers are a relatively new industry for equity market infrastructure investors. Growth forecasts are significant as data consumption rapidly expands in so many facets of modern life. We continue to monitor returns on new developments, mindful that customer concentration is narrowing in the hands of global tech giants. Macquarie Telecom does warrant particular mention. They have done an excellent job maximizing the value of their strategic data center land holding in Macquarie Park in Sydney. This has translated to exceptional performance for our portfolio.
The online classifieds businesses, CarSales and REA, continue to defy any concerns of maturing growth from their powerful core Australian businesses. They've very effectively adapted their strategies to continue to extract value from the dominant advertising audiences that they enjoy. CarSales has recently announced a new strategy. Car dealers currently paying for a sales lead will be able to complete a full sales transaction online using CarSales's technology. REA continues to benefit from the dominant audience they bring to consumers as they are looking to sell their most valuable asset. Moving on to slide 24. Global healthcare businesses make up 16% of our portfolio. As a nation, and we'll include New Zealand for Fisher & Paykel's benefit, we continue to punch well above our weight with the innovation that we bring to global healthcare.
While COVID has created a different short-term dynamic with elective activity deferred, the long-term outlooks in this sector continue to be bright. This is driven by a combination of high global market shares, significant investment in research and development, and plenty of headroom in unmet need across many of these businesses. Perhaps the best anecdote on the long-term value creation for this sector came from a recent meeting we had with Mick Farrell, Managing Director of ResMed. When talking about the critical importance of investment in innovation, he remarked that his father founded ResMed due to the technology being deemed non-core within his employer at the time, Baxter Healthcare. They take understandable pride in the fact that ResMed has grown in the 32 years since to be relatively equivalent in size against the whole Baxter business.
Our observation on owner-driver businesses like Goodman and Mainfreight is to reflect on how significantly they can grow globally relative to their original home market if they succeed in replicating their unique culture. The ASX and PEXA are both critical infrastructure within the Australian economy. We have been buyers of both stocks recently. Olga earlier mentioned the outperformance that we have captured from identifying emerging companies for the portfolio. We list some interesting emerging software businesses on the slide, Iress, FINEOS, Objective, and Bravura. We are particularly interested in software that gets deeply embedded into the day-to-day practices of a customer or an industry. This allows for dependable recurring revenue streams, and it improves profitability as there is less requirement to market to win new customers to replace those that cease using your product.
We observed this feature across these stocks, which was further confirmed by their resilience through COVID disruptions. Slide 25 provides our long-term thesis for four holdings, which have enjoyed particularly strong recent performance. We felt this would highlight well our long-term approach as we consistently assess valuation on this long-term basis. In the case of Mainfreight, one of our largest investments, recent results have demonstrated significant profit uplift and new freight customer wins in the U.S. and Europe. This is evidence that the unique customer-obsessive culture within Mainfreight is starting to emerge in these very large markets. This provides an outlook for a very long runway of growth with high return on capital. ARB is a similar story. Post-COVID travel restrictions have undoubtedly provided a boost to four-wheel drive touring-related demand in their well-established Australian business.
Of more long-term value significance to us, Ford in the U.S. have sought out ARB to partner on accessorizing a range of Ford vehicles for the very large U.S. market. This provides ARB with a very cost-efficient distribution method to significantly step up their growth aspirations in the U.S. It also grows their brand recognition, a foundation for delivering on their long-term vision for a U.S. network of branded ARB stores. James Hardie has pleasantly surprised us with the extent of enhanced profitability unlocked under the refreshed strategy of incoming CEO Jack Truong. The initial phase of the strategy focused heavily on manufacturing process standardization, which delivered cost savings across the business. The reinvestment of these savings in marketing the appeal of the products to homeowners alongside the functional performance to builders now looks particularly interesting.
Goodman is a key beneficiary of the global industrial property growth required to meet the significant shift we are seeing to e-commerce. Their deep expertise in identifying and developing these sites, along with the long lead times involved, gives great long-term visibility to the growth for this company. It is also refreshing to see a company implement a 10-year management remuneration scheme as they look to preserve an owner-driver culture in the business. On slide 26, we outline our most significant investment portfolio activity of the recent financial year. We exited Brambles as our conviction slipped below other opportunities. Qube was a long-standing investment where our thesis around their strategic land holding they had at Moorebank played out. This saw us exit our position for a healthy gain. SEEK has been an amazing success story since being founded by the Bassat brothers.
There has recently been significantly restructuring of this business, with co-founder Andrew Bassat moving to an early-stage investments offshoot. The core remaining SEEK business is undoubtedly high quality. Their competition is strong and constantly evolving. We view SEEK's future as somewhat more cyclical and with valuation looking full, we have sold. The document management software business Objective continues to be a wonderful investment for us. We've enjoyed more than eightfold share price appreciation on our initial stock purchases many years ago. We trimmed the position as a rapid increase in equity market recognition of the quality of this business was starting to create some growth expectations that we felt the company may struggle to deliver upon.
We did, however, continue to hold a position as we are reluctant to totally discount Tony Walls, who is one of the best value-creating founders that we have encountered in our time investing on the ASX. We also recently reduced our Reece shareholding as we observed the equity market pricing significant profit margin growth from the U.S. expansion that we felt wasn't consistent with the company strategy. We remain comfortable holding the majority of this position, however, as we maintain high regard for the quality of the business and the managing Wilson family's patience in getting the foundations right to sustain long-term success in the U.S. market. The largest portfolio purchases included adding a new position in the recent IPO of PEXA. PEXA is a very high-quality asset with a dominant market position in the digital settlement of residential land titles and mortgages in Australia.
Australia has progressed with this important innovation to a faster timeline than in other similar offshore markets. COVID disruptions and ever-increasing instances of fraud have been important factors highlighting the value of this innovation to these other markets. We see good long-term prospects for PEXA in unlocking such offshore opportunities, starting with the U.K., which is under the early stage of development now. FINEOS is a software provider to the life insurance sector globally. Their opportunity is to take a global market leadership position on the necessary transition of this sector to modern cloud software. The continued commitment showed by Michael Kelly in maintaining majority ownership of the business increases our conviction in this investment further. The ASX presented an opportunity as they were experiencing systems outages, which impacted investor sentiment.
We have experienced these situations before, where temporary issues that aren't unexpected in the ordinary course of business overwhelm the long-term fundamentals. This thesis has played out well to date. Temple & Webster is an earlier stage business that we've added to the portfolio for its long-term potential. Run by an excellent founder management team, they are well-placed for market leadership in the shift to online purchasing of homewares and furniture. While again, COVID has undoubtedly provided a tailwind, we also observe the opportunity to reinvest this windfall received in increasing brand recognition and improving customer experience, which will be vital to enhancing their competitive strength. To close my section, moving on to slide 28, I'll make some portfolio outlook comments before handing back to Rupert. To start with some equity market observations, as distinct from the futility of making predictions.
To us, market valuations have looked stretched by historical standards for a number of years. This is a naturally expected result of a prolonged period of very low interest rates. While rates remain low and liquidity continues to be injected into global markets, all asset classes are likely to remain supported as investors continue to seek out the best available returns. In the longer run, elevated valuations seem much more likely to weigh on equity market returns from here. Economic cycles have a tendency to be more consistently mean reverting the longer the perspective that you take. Bond markets and central bank intentions appear to be the best places to monitor for clues that this outlook is shifting. In terms of our portfolio, we are cognizant that the strength of recent returns in a number of our positions has the potential to somewhat cap our short-term portfolio performance.
In the long run, we remain just as confident that a portfolio of high-quality equity investments with attractive growth prospects and high return on capital will compare favorably to most other alternatives. We are also confident in our investment process continuing to identify such opportunities. With that, I'll hand you back to Rupert.
Well, thank you, Kieran, and thank you, Olga, thank you, Andrew, and thank you, Mark. Perhaps I could reiterate Mark's comment. We would much prefer to be with you live in a single venue and to handle these questions and any comments that you'd like to make. We're going to be missing the opportunity to meet you informally after the meeting as well. Hopefully, that will be changed the next time we hold an AGM. We will now deal with any questions on the financial statements and reports for the year ended the June 30th, 2021. I'll ask Geoff Driver if there are any questions, please.
Yes, Rupert, we have a few questions. The first question is from Frank Thompson on behalf of the Australian Shareholders' Association. There's a couple here, so I'll ask these in turn and perhaps make some other comments. "Your annual report states that you invest in companies with strong governance and risk management processes. It also states that where you have concerns with companies you are invested in having ESG issues, you will engage to influence a satisfactory outcome. Two questions: What other metrics you use to measure good ESG performance, and how do you measure them? Secondly, please give a couple of recent examples where you have been able to work with companies to bring these metrics to a satisfactory level." So I'll pass that to Kieran, I believe.
Thank you, Geoff, and thanks for the question. Just to break that down into a few components, and perhaps firstly, just to reinforce comments made by Mark Freeman earlier about the way ESG is integrated into our investment process. We consider sustainability as one of the key factors when assessing quality of businesses that we look to invest in in the portfolio. There's been a couple of recent instances where we've seen some businesses such as Cleanaway, which had a well-documented issue with the behavior of their CEO, which we felt was starting to influence the quality aspects that we were measuring within that business, in that we felt the ability to attract and retain quality management into that business was starting to be compromised.
We engaged in a number of conversations with the chairman and management team in that company and felt it was better for the portfolio to move that position on as a result of those instances. Another recent example was Endeavour Group in spinning out of the Woolworths business, the demerger that occurred recently there. Again, we felt that was a situation where assessing Endeavour in its own right and the growth of that business in investing in their poker machines, we again felt that was something that wasn't going to be something we wanted to hold in the portfolio for the long term. There's a few instances where we have moved on from positions on ESG grounds.
I think to the other question about how we engage with companies that we own in the portfolio to achieve good outcomes, we're in AGM season now, and we're starting to see resolutions come through for our consideration. We have a meeting with a chairman of a remuneration committee tomorrow morning to discuss some of those aspects. I won't name the company, but we did see a recent instance where we had one last year where we voted against the remuneration report and had a recent meeting again with the chairman coming around for this AGM, we were able to see the changes that that created in the way they're approaching these matters moving forward. That's a couple of initial thoughts, and I'll hand back to you, Geoff.
Thanks, Kieran. The second part of this question, and also relates to some other questions we've had on, I guess, the environmental side of the ESG equation. We've had quite a few questions about on ESG related to matters including AMCIL's and individual's director's position on climate strategy. I guess the second part of this is, which is an interesting, I guess, perspective on it also from the Shareholders Association, is that in fact, AMCIL seem to be reducing its exposure to the oil and gas sector. Given that we will need extended time, probably 20+ years, to transition away from fossil fuels, it seems that as a society, we need to support companies that will either responsibly manage current assets through the retirement or take the path of transition to other energy resources. What is AMCIL's position?
Rupert, I might get you to comment on the first part of that question about attitude to climate change and within our ESG approach.
Thank you. Thanks, Geoff, and thank you for the questions. I think there have been a couple of related questions on this topic. Perhaps I could share with shareholders that at our strategy meeting earlier this year, we spent some time talking about ESG considerations and the impact that ESG brings to the investment process and the manner in which we put the portfolio together. I think it was a very constructive discussion that we had. Indeed, the policy that's reflected in the annual report is the position that we reached on this. Kieran has, I think, in the earlier answer to the related question, has given an indication as to how we bring this matter to life in the number of considerations we give before we make investments, the nature of the interaction that we have with companies once we are invested.
Clearly, this is an area of great interest to shareholders and to the wider community, and that's an interest that's shared by all directors around our table. Geoff, I might pass back to you and perhaps Kieran would answer the second part of the question.
Yeah. The second part of the question, which is about really our position in exposure to oil and gas and sort of the longer-term view around that in terms of the portfolio.
Sure, Geoff. Yeah. Again, I guess considering this through that long-term sustainability lens, we do have a position in Oil Search, which really, despite the name of the company, is really more about gas. As we consider that long-term sustainability aspect and how we consider the quality score that we give to that company, we think that gas has a role to play, as the question indicated, in the transition to renewable energy. Therefore, this company and the gas that it produces scores better than, say, an oil producer would or a coal company would. That does give it a position in the portfolio that we maintain today.
What I would say is, in addition to that, from a broader perspective in assessing the quality of this business and others in its sector, over the long term, they've really struggled to deliver high return on capital in a consistent manner. There's a number of other aspects of our quality scoring of these businesses that do bring them back down quite a bit. In the total context, Oil Search represents less than 2% of the portfolio, but really that's more to do with quality across a broader framework rather than these particular sustainability issues.
Thank you, Kieran.
I'd also add that we invest in companies that are outside of the oil and gas sector that will both contribute but also benefit from the energy transition. These are such high-quality companies like Macquarie Group for their investment in renewable energy, Wesfarmers for their recent commitment to Mount Holland Lithium project, and also BHP for their exposure to future-facing commodities like potash and copper. These are very high-quality companies contributed to AMCIL capital growth and dividends.
Thank you, Olga.
Geoff, I might comment that Olga actually presented a really excellent paper to us for that strategy meeting and guided some of the discussions that we had. In the space where there is an investment in a company that would normally attract attention on the environmental side of ESG, clearly safety remains a really important issue. Competitiveness, price structure, and a number of other considerations around being the most efficient producer. They're all considerations that would come through the discussions which we have. Geoff.
Thank you, Rupert. Just on a related question, I think we've answered this, but Steven Main asked a question in terms of our position in Endeavour Group, really more since the demerger on are we going to follow AFIC's approach of our unwritten policy, I guess, of not owning gambling stocks?
Just to, I guess, reiterate, we really saw that as an opportunity provided by Woolworths for people to make a choice on their ongoing ownership in those assets. We felt for this portfolio, it wasn't something we were going to continue with. We have already sold out of that position.
Thank you, Kieran. I have a question from Sheila Reid, which was pre-submitted. The use of the trading portfolio sales incur capital gains tax, and this destroys the long-term value of AMCIL. The call option also amplifies the impact when shares are called away. Do you want to comment on how we use both the trading portfolio and options within the portfolio, Kieran?
Yes, sure. Thanks, Geoff. Just first for a little bit of clarity, the capital gains tax comes from positions in the investment portfolio, but as an LIC, it's important that we preserve the long-term nature of our investing in terms of the ATO's eyes, I mean, the way they assess our tax affairs. Our use of the trading portfolio is really reserved for situations where we see something that we're buying with a perspective that is shorter term. In a portfolio like this, which is high conviction, that means we'll rarely see a holding that's only owned in the trading portfolio.
From time to time, we may have a position which is already quite a solid position in the investment portfolio, where we see a value opportunity emerge and feel that we can add to that with some trading portfolio position as well, on the basis that if it does run up, we may then be inclined to sell it. When we see situations like that, we're very careful to use the trading portfolio to keep reinforcing that we are long-term investors and low turnover and not really considering the price or the return we're going to make when we're making those investments. It is quite limited, I'd say, too, in the trading portfolio. Generally runs well less than 5% of our total investments.
As it relates to options positions, again, very minor in terms of what we're doing with the portfolio, but just to remind shareholders, we do the same team that runs Djerriwarrh through AICS and has deep options capability. That's available to us. There are some instances where you see a position where we see some attractive options strategies we can wrap around a position. Normally, it's something where we think it's towards the top of its trading range and we can get a bit of extra income, essentially make it work a little bit harder for the portfolio, given where the prices have gotten to. Therefore, we do avail ourselves of that, but it is quite minor. One recent example I'd give is when BHP ran up into the 50s recently, volatility was high.
We still felt the stock has a really good role to play in terms of the income it gives us through the cycle. At those prices, we felt you could write some options and add some additional income to that, which we did do.
Thank you, Kieran. Another question from Steven Main. After 20 years, what is the point of AMCIL given our market cap is still below AUD 400 million? Would it be more efficient to merge with AFIC, Mirrabooka, or Djerriwarrh? Please comment on why you think the Soul Patts took over Milton.
Look, I might pass to Mark to answer that question, but I would make the comment that the investment strategy of AMCIL is materially different from the other companies, and I hope the presentation has gone some way to give stark evidence of that. Mark, perhaps you might add something.
Thanks, Rupert. You've touched on the key point there. Obviously, for those that don't know, each of the four funds do have a different investment approach, so it gives shareholders choice. AFIC's obviously a very large, diversified fund, a much broader range of stocks. There is a bit of an eye for reasonable income and low volatile earnings and stability with that investment company. Djerriwarrh has a bit more focus on income. AMCIL, we've heard about today, is more of our high conviction fund. Mirrabooka focuses on small and mid caps. For each of those four funds, they have a different risk profile and therefore a different reward profile. We see that in the returns that each of the four companies generates over time. We think it works pretty well.
We don't see any issues with the way it's being run. Certainly the feedback we get from shareholders that they enjoy having that choice across different investment approaches.
I might add with regard to the second part of the question, it is probably not our place to comment on other market moves. It perhaps just gives some visibility to what listed investment companies are as an attractive asset class.
We have a question from the Kearns Family Super Fund. How do you rate the risk to the portfolio of a property meltdown in China?
Well, I think if such an event were to occur, and I'm certainly not predicting it is very difficult to obviously understand at a deep level what happens in the Chinese economy. Certainly, look, the Australian economy still at the end of the day, is very tied to what happens in China. We can't avoid that. There is still a significant amount of trade between the two countries. A large property meltdown there, yeah, there would be impacts for our market here, certainly in the shorter term. I think when we relate that back to our portfolio, we are trying to make sure we're in companies that, to the extent you can, are growing profits, I guess, independent of those types of events. Many of the companies the team have talked about are operating in niches, where they get away from that exposure.
In many cases, they're large global companies like some of the healthcare stocks we're in. Kieran touched on ResMed. They're not a big exposure to those types of markets. It's something we're conscious on. We think our portfolio is fairly diversified away from that particular market.
I'd probably just add to that, Geoff, just reinforcing what Mark's saying there. You go back to the slide that Olga talked about earlier with the diversity of the portfolio across sectors, I think, you go through a period like COVID, which was a shock that no one could've seen coming, and it does reinforce having diversity across a number of industries, across a lot of global markets, which we now have in AMCIL. Leaves you in much better position to deal with those external shocks if they do come to the portfolio.
The other thing too is we've been through enough shocks in our time investing, is that we see shocks, external shocks to markets as real opportunities. You have the businesses lined up that you want to buy, that perhaps you want to add to in the portfolio, either new stocks or make existing holdings bigger. Every time we get a significant downdraft, and history's shown this, they inevitably end up being great buying opportunities. If something like that were to occur, we'd be ready to buy.
Thanks, Mark. I have a comment, I guess, and question from Steven Main. Congratulating the directors on their level of holdings within the AMCIL shares, but just noting that Jodie Auster has not yet had a chance to purchase any shares given the time she's been with us. He's asking the question in terms of what Jodie's intentions are in terms of acquiring shares.
Thanks, Steven, both for the observation and for the question. We don't apply a stopwatch to directors when they join. We certainly encourage them to hold shares, and indeed, I know it's been the case that all directors of the company have held shares. From Jodie's point of view, she's conscious, and I think appropriately so, that she's up for election at this AGM for the first time. I'm sure that assuming that goes ahead, as she would hope, and we hope it would, then that's a matter that will be on her agenda.
Another question from the Kearns Family Super Fund. Would you outline the competitive advantages of NAB and what share price growth has it had over the last 10 years?
That's a very interesting question, quite astute question. I don't think I'm revealing anything that's market sensitive here to say that we don't own NAB in the portfolio anymore. It was there at the 30th of June, and I think we've had some recent thoughts about the pecking order of our positions across the four banks. I guess some of those observations about the long-term track record of NAB fed into that. I think more broadly, I guess, while the growth potential of the big four banks in Australia is obviously very constrained, I think we'd still have a view that they're very strong competitively positioned. They do produce good return on capital through the cycle relative to interest rates. They're a great source of income. We're certainly not hugely pessimistic on the four banks together.
In terms of that pecking order, NAB has slipped down and is no longer in the portfolio.
Thank you, Kieran. A question from Steven Main. Just noting that Siobhan McKenna has a number of directorships and is obviously a very busy director. I guess the question becomes, Rupert, in terms of how Siobhan is managing those time commitments, particularly relating to her input into AMCIL.
Thanks, Geoff, and thanks, Steven. I note that Siobhan is not up for re-election today, and I would make the observation that she makes an outstanding contribution to our company. I'm very, very pleased that she is a director.
Thank you, Rupert. A question from Mr. and Mrs. Tan. AFIC has begun to allocate some funds to a diversified global equities portfolio. Does AMCIL have any plan or intention to do the same thing?
AFIC have taken that initial step. What we want to do is start to build out a track record first. We have talked about it. I think there might be a point in time in the future where an international stock could make it into this portfolio. I think if we found the right opportunity, when we think it adds value to shareholders, it's certainly something we should consider. It's very much something we're looking at, and we'll have to see how we go with that over time.
Thank you, Mark. A question from Steven Main. Are you active stewards of your company by diligently voting your holdings on all resolutions? Who provides our proxy advice? Would you consider making the voting record public to shareholders as industry funds are now required to do? Can you cite any examples of board recommendations that you have or will be opposing at the current AGM season? I guess when it comes to corporate voting, please outline how AMCIL is not just rubber-stamping company resolutions.
Perhaps before asking Mark to make a couple of comments. In the earlier discussion around ESG, I think we made it very clear that corporate governance is one of the key matters. We do vote on all AGM resolutions, I'll get Mark to make some more specific remarks.
Yes. Thanks, Rupert. That's absolutely right. We do vote on all the resolutions. We do take advice from CGI Glass Lewis. As I said, we use that for information, and we make up our own mind at the end of the day. In terms of making our views public, to this point, we haven't felt the need. We talk about our strong interaction with companies and with boards. It's a very important part of our process. I think the companies we invest in absolutely respect our views and opinions, and we are very happy to give those, particularly if we are uncomfortable with what we're seeing in a business. That seems to work pretty well for us. We seem to get good response from companies with those conversations, some pretty good outcomes. We think that approach is working for our shareholders at the moment.
If we think it's not working for our shareholders, we'll change that approach, particularly around then disclosure. At the moment, we think it's a very effective outcome in terms of the way we're doing it. We'll take that message on notice. It's something we do talk about a lot, and we consider it, and we'll keep having those discussions going forward.
Thanks, Mark. I have a few other questions from Steven Main. One's about having AGM webcasts on the website and questioning about us having ours on the website. In fact, we do actually have the past AGM on the actual website. It wasn't a webcast, it was a webinar, but we'll certainly be having this one on the website as well. We'll also be publishing a transcript as well, just like other companies are doing. In terms of the other questions that Steven Main has asked, Steven has asked about congratulating Rupert on winning support to become an AMCIL director. I'd just note that Rupert is no longer associated with DUI, so there's no conflict there, Steven. The final question that Steven Main has is: how are we interacting with the former chairman and largest shareholder, Bruce Teele?
Now that he's retired, doesn't he receive any special treatment of access? Have we offered him an opportunity to nominate a director that now that he owns more than 50 million shares? I'll pass that to Rupert, if you like.
Thank you, Steven. At the start of the meeting, I particularly acknowledged Bruce and Ross as the founders of the company. We're very pleased to have their continuing support. There are no special arrangements. I enjoy speaking with Bruce when the opportunity arises, and I know Mark and some of his colleagues do also. There are no special arrangements either in communication nor in a board representative.
Thank you, Rupert. There are no further questions relating to this particular part of the meeting.
Well, look, that being the case, I'd initially just like to thank shareholders for their lively interaction with the board today. I think that was probably one of the best interactions I've seen in this format. Thank you for taking the time to be involved with asking questions. We now move to the formal resolutions of the meeting. Your directors' recommendations are set out in the notice of meeting. The second agenda item is the resolution to adopt the remuneration report. This is required by the Corporations Act to be considered by shareholders annually and is an advisory resolution only. The remuneration report can be found in the company's 2021 annual report. Administration, management, and investment services are provided by Australian Investment Company Services Limited, and the details of this relationship can be found in the annual report, the remuneration report is only concerned with non-executive directors' fees.
There were no questions asked prior to the meeting concerning this resolution. If you have any questions on this item, please submit them now if you have not already done so. We will now deal with any questions. Any questions, Geoffrey?
No. That's correct. No questions at this point in time, Rupert.
Well, look, as there are no questions, I will now show the proxies received in respect of this resolution, which are now shown on the screen. I remind shareholders and proxies who have yet to lodge their votes via the app to do so now as the voting is still open. The third agenda item is the resolution to elect Dr. Jodie Auster. Dr. Auster was appointed to the board on the February 1st, 2021, and so is standing for election by shareholders today. In accordance with Rule 45 of the company's constitution, she retires from the board of directors and being eligible, offers herself for election. Before asking Jodie to say a few words, I just wanted to indicate to all shareholders what a terrific contribution Jodie has made since she joined the board.
She's brought so many fresh perspectives, particularly from the world that she inhabits, close to IT and new businesses and startups. It's been very energizing to have Jodie with us, and I know I speak on behalf of her board colleagues as well as management. Jodie, I wonder, would you care to say a few words at this point?
Thanks so much, Rupert. Thanks to everyone for listening. I've spent 10 years working as a doctor in the Victorian Public Health System and then made a big career switch. 10 years in consumer tech companies working in Australia, Asia, and the U.S. For the last five years, I've been at Uber, where for most of that time I've been leading the Uber Eats business, both in Australia and New Zealand, and then subsequently across Asia. More recently, I have moved into a global projects role. I've been working directly with the CEO and his leadership team on their highest priority projects. As a result of these experiences, I have expertise in the health and consumer technology sectors, particularly online marketplace models. My deepest functional expertise is in rapid scaling of high-growth businesses, customer experience, and building high-performing teams.
Outside my day job, I'm an active angel investor. I do spend a fair amount of time thinking about emerging technologies and business models and assessing early-stage teams for their ability to succeed. In this very rapidly changing world, I love to challenge the status quo. I have a mindset of continuous learning. I appreciate the opportunity to present myself for election today.
Well, thank you very much, Jodie. Again, appreciate the contributions that you're making. If you have any questions on this item, please submit them now if you have not already done so. There were no questions asked previously. Jeff, are there any questions?
Yes. Yes, there is, Chair. I have a question from Steven Main. "I just wanted to get the background of how Jodie was appointed, offered a board seat. What process did we go through? Was it through public, professional, independent, transparent process? Was it a case of association with the board? Also, could the Chair and candidate address this question?
Well, look, thank you for the question. I can comment from the board's point of view that I think it's correct to say that none of us had a prior association with Jodie. We do have a very well-connected and broadly or very engaged board of directors, and we talk amongst ourselves. There was no professional firm involved with Jodie's recruitment. Yes, it was a process where we considered a number of potential candidates. Jodie, would you like to add something to those remarks?
What I would say is that I had to go through a series of quite formal interviews with several members of the board and then had to meet the entire board before confirmation of my appointment.
I might say, unsurprisingly, we were all very pleased when Jodie said yes. Are there any more questions, Geoff?
I have no other questions relating to this resolution.
Well, look, thank you. I will now show the proxies received in respect of this resolution, which are now shown on the screen. The final formal resolution is the proposal to review the proportional takeover approval rules in the constitution. Rules 79 and 80 of the company's constitution allow a majority of the company shareholders the opportunity to consider and either accept or reject a proposed proportional takeover offer for the company. The Corporations Act requires that shareholders renew these provisions every three years by special resolution, which requires the approval of 75% of votes cast. These provisions were last approved by shareholders at the 2018 annual general meeting. They therefore need to be renewed today for a further three years. The directors consider that it is in the interest of shareholders to have the proportional takeover approval provisions in the company's constitution.
We note, of course, that the provisions do not apply to full takeover bids. I move that the Constitution be amended by adopting Rules 79 and 80 as set out in the notice of meeting. There is no change to the existing wording in the company's constitution. We will now deal with any questions. Jeff, are there any questions?
We have a question from Steven Main, Chair. Are we really worried about receiving a proportional takeover? Are we being active in looking out for a merger or takeover opportunities so that our company can achieve greater scale? We are still only 5% the size of AFIC.
Look, thanks for the question, Steven. The phones haven't rung. Notwithstanding that, we think it's a very important provision to have within our constitution, as is common with most companies.
Just then on the second part about are we looking to takeover any companies given our size, the short answer to that is no. We struggle to see how that adds value to our shareholders. We are aware that there are other LICs trading at discounts, obviously you can't takeover a company at a discount. You'd have to pay some sort of premium. We'd have to hire lawyers and accountants to help us do that, you'd have to get the portfolio that's given. If we want to make changes to that portfolio, there might be tax consequences. Plus the time and resources, the distraction to the team. We struggle to see how that would add value to what we're doing. The team's focus is really best looking for great companies in the market that we can invest in.
We have a slide clearly showing how the scale of the company has continued to increase over time and how that's improved the MER. We believe that trend can continue going forward, and we're comfortable with the steady approach we're taking to that.
Thank you, Mark.
Thanks, Mark. Geoff, any other questions?
No, I have no other questions relating to this particular resolution, Chair.
Look, thank you. There being no other questions, I will now show the proxies on the screen. Ladies and gentlemen, that concludes our discussion on the items of business. In a couple of moments, I will close the voting system. Please ensure that you have cast your vote on all resolutions. My final comment before closing today's meeting is to thank all our staff for such a good result achieved in a very difficult work environment due to the COVID lockdowns, which of course continue. The manner in which they have conducted themselves and looked after the affairs of the company through this period and more recently reflects their professionalism and commitment to AMCIL's shareholders' interest, and it's a great pleasure for the board to work so closely with them. I now close the formal voting on all of the resolutions.
The results of these votes will be released to the ASX later today. Thank you shareholders. Thank you all guests and others on the call today. Thank you, shareholders, particularly for your continued support, and for the interest that you've shown in the affairs of the company by your attendance virtually. Let's hope that this time next year, we will all be able to be in a room, a large room, I hope, that might be full. Thank you very much. I close the meeting.