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AFIC profits up - but a different story looms elsewhere

THE Australian Foundation Investment Company has warned of a tough reporting season ahead, with falling profits among major industrials likely to see dividends come under pressure.

THE Australian Foundation Investment Company has warned of a tough reporting season ahead, with falling profits among major industrials likely to see dividends come under pressure.

AFIC, which is Australia's largest listed fund manager, said the balance of risks over the next month would be more towards declining than increasing profits.

The comments by the managing director, Ross Barker, add to the generally cautious view of the reporting season which starts next week. Signs of a slowing economy and waning consumer confidence have led to analysts downgrading their earnings forecasts for companies outside the resources sector.

"We are not very optimistic for the outlook for dividends in the current reporting season, because in the industrial part of the market, many of those companies are finding life reasonably challenging," Mr Barker said.

"We're hopeful we can get more [dividends] from resource-related stocks where conditions are robust. In the industrial part of the market, times are tough," he said.

Mr Barker's comments came as AFIC reported a 27 per cent increase in net profit to $233.2 million for the year to June 30.

The main driver was the lift in dividends across stocks AFIC held, which were up 30 per cent over the past year. This was mostly helped by a rebound in bank stocks. Overall revenue for the company rose 27 per cent to $249 million.

AFIC declared a final dividend of 13? a share, taking total dividends to 21?, the same as last year.

The company prides itself on its deeply conservative investment strategy. The fund's $4.9 billion portfolio reads like a roll call of Australian blue-chip stocks, with a heavy emphasis on banks and big miners, including nearly $600 million of shares in BHP Billiton.

While investment markets remain volatile, Mr Barker said the underlying philosophy of the fund was to buy and hold good companies for the medium to long term, which gave shareholders a chance to benefit from franked dividends and capital growth.

Over the year, AFIC increased its holdings in AMP, mostly as a result of the fund manager's acquisition of Axa Asia Pacific.

Shares in AFIC closed 1.7 per cent lower at $4.46 yesterday.

AT A GLANCE

Revenue $249m 27%

Profit $233m 27%

EPS 23c 23.6%

Dividend 21? steady


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