WAM ACTIVE LIMITED — AGM Information 2014

Nov 27, 2014

WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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Delivered by Geoff Wilson at the Annual General Meeting of shareholders held at Wesley Centre at 220 Pitt Street Sydney on Friday 28 November 2014.

Introduction

Good morning and welcome to the seventh Annual General Meeting of WAM Active Limited (‘WAM Active’). My name is Geoff Wilson, I am the Chairman of the Board of Directors and I will be chairing the meeting today. I would like to start by introducing my fellow Board members, Matthew Kidman, John Abernethy, Kate Thorley and Chris Stott. Kate is also our Company Secretary. I would also like to introduce our audit partner from Moore Stephens, Scott Whiddett, who will be available to address questions relating to the Company’s Financial Statements.

The 2014 financial year was a successful year for WAM Active with operating profit before tax up 129.4% to $4.1 million. The Company delivered a fully franked full year dividend of 9.6 cents per share and a total shareholder return of 35.1%. WAM Active’s investment portfolio outperformed the market, increasing 19.4% with an average equity exposure of 65.4%. WAM Active continued to grow over the period through performance and capital management initiatives with gross assets growing 33.0% to $37.8 million and shareholders equity growing 31.6% to $36.4 million. Your Board remains focused on growing the Company’s assets to $100 million while maintaining performance and raising capital equitably.

Strong FY2014 financial results

In August, the Company announced its full year results reporting an operating profit before tax of $4.1 million, an increase of 129.4% on the 2013 financial year and operating profit after tax of $3.2 million, an increase of 111.5% on the 2013 financial year. The increase in the Company’s profit result reflects the change in the value and size of the investment portfolio, which outperformed the market in financial year 2014. The strong result was achieved while maintaining a conservatively structured investment portfolio and demonstrates the success of the investment approach implemented by our experienced investment team.

Dividend growth

The Board is pleased to have delivered shareholders a fully franked full year dividend of 9.6 cents per share, which represents an annualised fully franked dividend yield of 8.0% based on the 25 November 2014 closing price.

The ability to pay fully franked dividends remains an important distinction and significant benefit of WAM Active’s Listed Investment Company (LIC) model. Your Board remains committed to its policy of paying an increasing stream of fully franked dividends to shareholders, providing the Company has sufficient profit reserves and franking credits and it is within prudent business practices. Following the payment of the final dividend for the financial year, the estimated profit reserve was 1.8 cents per share and the franking account had a deficit balance of $406,058.

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WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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WAM Active dividends since inception

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Cents per share
12.0
10.0
8.0
6.0
4.0
2.0
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2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Fully franked dividends
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Positive performance of investment portfolio

Applying the Company’s proven and disciplined investment approach, WAM Active’s investment portfolio increased 19.4% for the 12 months to 30 June 2014 while maintaining an average cash weighting of 34.6%. The invested portion of the portfolio returned 28.6% while our cash returned 3.0%. During the year, the equity component of our investment portfolio turned over 4.1 times.

Since inception, WAM Active’s investment portfolio has returned an average annualised 13.1%. As an absolute return fund, the Company’s investment portfolio is not benchmarked against an index, however, by comparison, over the same period the S&P/ASX All Ordinaries Accumulation Index has increased just 1.6% per annum and the UBS Bank Bill Index (cash) has returned 4.4% per annum.

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WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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Positive performance

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Index re-based
140
120
100
80
60
40
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0
-20
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WAA Investment Portfolio before all expenses, fees & taxes
S&P/ASX All Ordinaries Accumulation Index
UBS Bank Bill Index
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Targeting growth of WAM Active

An objective of the WAM Active Board is to continue to grow the Company’s capital base to $100 million. The Board aims to achieve this while maintaining the Company’s continued performance. Towards achieving this objective, the Company raised a total of $17.3 million through a one-for-one bonus option issue announced in May 2012. These options expired on 12 December 2013 with a total of 16,005,520 options exercised.

The Board believes that increasing WAM Active’s assets would provide investors with a number of benefits including a reduction in the Company’s fixed administration expense ratio and increase the liquidity of WAM Active’s shares. In addition, growing WAM Active’s capital base will increase the Company’s relevance in the market and improve the likelihood of research and broker coverage which attracts more investment, particularly from financial planners and advisers.

This year, WAM Active’s shareholders are being asked to consider a resolution to place an additional 10% of issued capital. This is in addition to the existing 15% capacity permitted by listing rule 7.1. If approved, this resolution will allow the Board the flexibility to take advantage of opportunities to grow the Company, as they present themselves.

Listed Investment Company (LIC) benefits

WAM Active’s LIC model has significant advantages for investors making it a superior investment vehicle to gain exposure to a diversified portfolio of Australian shares. The LIC structure provides a

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WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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permanent and stable closed-end pool of capital allowing the fund manager a total focus on managing money and the ability to make rational investment decisions based on sound investment principles. The LIC structure benefits also include the ability to pay fully franked dividends over time and, as a listed company, a rigorous corporate governance regime providing transparency and accountability for investors.

The introduction last year of the Future of Financial Advice (‘FOFA’) Reforms has helped raise the awareness of the benefits of LICs. This has been evidenced by the numerous LIC Initial Public Offerings and capital raisings over the last 12 to 18 months. At a company level, WAM Active has seen a marked increase in interest from investors including SMSFs which now account for around 40% of our shareholder base.

WAM Active trading at a significant premium to its NTA

Over time, WAM Active and other Listed Investment Companies trade at premiums and discounts to their assets. Recently, some LICs have been trading at significant premiums, while the overall discount for the sector has narrowed. Since early 2013, WAM Active’s shares have traded at a premium to its underlying assets with the shares currently trading at a 18.8% premium. We believe this has been driven by several factors, including the recent increase in popularity of LICs as an investment vehicle and a greater focus by investors on consistent fully franked dividends – an important advantage of LICs not offered by ETFs and unlisted managed funds.

For existing shareholders who bought shares when they were trading at a discount or at NTA, they would generally welcome an increase in the value of the shares relative to their assets as it increases the value of their investment. Trading at a premium can enhance an LIC’s ability to raise capital. When an LIC trades at premium, this means new investors are buying shares in excess of the value of the underlying portfolio of assets. In our view, premiums are often short-lived with history showing that LICs normally return to trade at or around their NTA.

Making a difference

WAM Active’s investment manager, Wilson Asset Management is dedicated to making a positive difference to our shareholders and the broader community in a number of ways.

We believe that all shareholders, retail and institutional alike, should have the opportunity to participate in primary equity capital raisings, such as placements, equally. Wilson Asset Management has sought to advocate for the rights of retail investors, such as SMSFs making two separate submissions to the Financial System Inquiry (‘FSI’). We have argued that retail investors should be on a ‘level playing field’ with institutional investors by being allowed to participate in equity raisings, such as placements, without the requirement of a prospectus. David Murray, FSI Chair, is expected to provide an update on the FSI on 8 December.

Also this year Wilson Asset Management played an important role in launching the Future Generation Investment Fund Limited (FGX) which will donate one per cent of its assets each year to children’s charities, particularly those supporting children at risk. The Wilson Asset Management team has supported this unique company through the recent successful $200 million capital raising

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WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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and providing ongoing communication with shareholders, company secretarial, funds management, administrative and support functions.

Wilson Asset Management also continues to support a range of not for profit organisations at a community level, supporting various valuable causes through financial and in-kind support. All donations are made on behalf of the investment manager.

Market outlook

In the last six years, a significant factor that has driven global equity markets has been the excessive liquidity injected in the system by world monetary authorities. Even though America has halted its Quantitative Easing policy, excess liquidity is still being pumped into the system notably in Japan and Europe. My main concern is what will happen to equity markets when the easy money policy finishes. Given the high valuations that have resulted from the excessive global liquidity, I believe world equity markets are vulnerable.

During 2014, we have seen an increasing number of Initial Public Offering (‘IPO’) candidates looking to float on the Australian sharemarket. In our view, the quality of the businesses looking at IPOs has deteriorated as the year has progressed. We continue to look for opportunities in this space, but we remain mindful that the IPO window may close sooner than market participants expect. We are extremely well positioned with $20.5 million (54.6% of assets) in cash to take advantage of the right opportunities as and when they present themselves.

WAM Active outlook

With a flexible investment mandate, a proven investment approach and no debt, WAM Active remains well positioned to capitalise on opportunities in the market as they arise. With a cash weighting of 54.6 %, the investment portfolio is conservatively structured and our disciplined investment process maintains our focus on mitigating risk.

We are confident that we can continue to find opportunities irrespective of market conditions. For the 2015 financial year to date, WAM Active’s investment portfolio has risen 0.3% while being on average 57.4% invested.

Appreciation

I would like to thank the team at Wilson Asset Management for their considerable efforts. I would like to thank the management team led by Kate Thorley, CEO, and Chris Stott, CIO, who have been ably supported by the investment team – Senior Equity Analysts Matt Haupt and Martin Hickson and Equity Analyst, Tobias Yao – the accounting and operational team – Linda Vo, Lillie Johnson and Mary-Ann Baldock – and the Corporate Affairs Team, Meredith Hemsley and Melanie Shaw.

I would also like to thank my fellow Board members for their valued contributions during a continued year of growth for the Company. I am greatly appreciative of the Board’s efforts and guidance throughout the year.

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WAM Active Limited (WAA) Chairman’s Address – Annual General Meeting 28 November 2014

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Finally, on behalf of the Board and Wilson Asset Management, I extend my thanks to our loyal shareholders for their continuing support. I would also like to welcome those of you who are new WAM Active shareholders this year and have joined the WAM Club.

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