Flagship Investments Limited (FSI) is an investment company providing investors with access to an expertly crafted quality portfolio of Australian growth companies managed by EC Pohl & Co Pty Ltd. EC Pohl & Co has a strong funds management investment team renowned for its stability, track record and sound investment process. EC Pohl & Co is paid a management fee based on performance and not a fixed percentage of the funds under management, ensuring the manager is focused on absolute returns to Shareholders.
EC Pohl’s investment strategy centres on the view that investing in high quality business franchises with the ability to grow sales and earnings at rates above GDP will produce superior investment returns over the long-term. The portfolio of investments comprises investments in well managed companies whose operations cover a wide spectrum of business activities and is constructed from the perspective of a business owner and not simply by tracking the index weighting of various index component stocks. The resultant portfolio performance is monitored by FSI’s Board of Directors.
FSI commenced operations in April 1998 and listed in December 2000 on the Australian Securities Exchange as Wilson Investments Taurine Fund Limited (ASX code: WIT). In October 2012 Shareholders decided to change the name of the Company to Flagship Investments Limited after EC Pohl & Co took over the management of the investment portfolio. While FSI is a separate company it is an integral and important part of the overall distribution strategy of EC Pohl & Co and is the retail product offering of the EC Pohl & Co Australian Broad Cap investment strategy.
The EC Pohl & Co group of companies have indicated that they intend to retain at least a 30% interest in FSI at all times thereby ensuring a long-term association with the group.
THE BENEFITS FOR INVESTORS IN FSI INCLUDE:
- Reduced share investment risk through a diversified investment portfolio;
- Professional, disciplined management of an investment portfolio;
- Access to available tax advantages of Listed Investment Company Capital Gains when available;
- Convenient and simple administration of your investment as your single holding in FSI gives you access to a multitude of stocks;
- Anticipated continued growth in fully franked dividend income;
- Access to a Dividend Reinvestment Plan;
- No fixed management fees - the Investment Manager is only remunerated on a performance basis;
- No entry or exit fee charged by FSI; and
- Easy access to information via FSI’s registered office or web site or the Australian Securities Exchange.
THE INVESTMENT OBJECTIVES OF FSI ARE TO:
- Increase Shareholder wealth by achieving growth in capital and income over the medium to long-term without resorting to gearing;
- Preserve and enhance the NTA per share after allowing for inflation;
- Provide Shareholders with a fully franked dividend, which, over time, will grow at a rate in excess of the rate of inflation
IT IS FSI'S CURRENT POLICY TO MANAGE THE PORTFOLIO WITHIN THE FOLLOWING GUIDELINES:
- Exposure to a minimum of 20 different companies to give the portfolio adequate diversification.
- The majority of shareholdings to be invested in companies that have a market value of at least $10 million; and
- FSI will aim to maintain more than 90 per cent of available funds in equity investments at all times. The remaining funds will be held in bank bills, similar cash securities and on deposit in the short term money market.
EC Pohl & Co's investment philosophy is to invest in high quality, capital light, growth companies identified by an investment process which filters out non-compliant companies. The Investment process filters for investment grade companies using the following metrics:
- Historical sales growth;
- Return on equity; and
- Interest cover.
The first requirement ensures that a company is growing. Only those companies with sales that have been growing faster than the Australian economy (as measured by Nominal Gross Domestic Product) are accepted. The principle here is that we don't want to own businesses that are stagnant or shrinking.
The second requirement, return on equity is our litmus test for business model success. Only companies showing an annual return on equity of 15% or greater are considered. To put this another way, if an investor can get a return of 5% on government bonds that are relatively risk free, we believe that 15% is the minimum that an investor in a company should receive for the extra risk of owning equity. This represents an equity premium of 10%.
The third requirement ensures balanace sheet strength and business resilience through economic cycles. Only those companies whose operation cash flow covers their annual interest bill on their borrowings by four times or greater are considered. That is, company cash flows have to drop by more than 75% before they are going to have trouble servicing their debt.
When these three filters are applied together to all the Australian listed companies, we are left with 80 to 100 companies to consider for investment. The common traits these companies share are that they are growth orientated with a strong business franchise, and in particular, those that we believe have a sustainable competitive advantage.
A sustainable competitive advantage is like having a moat around a company’s business. It protects a business from competitors and new entrants to its market. Companies with a sustainable competitive advantage usually have workforces that are incentivised for business success. The company’s suppliers are not usually in a dominant bargaining position, so the company has access to well priced and consistent inputs.
Before we actualy buy a stock, we ask ourselves the question. “Would we buy all of this business if we had the money?” That is, we buy shares in the business as a business owner, not as a trader of shares.
However, we will consider selling at certain times. For example, if there is a major change in
management and we feel that there is insufficient continuity of management to be associated with the track record, we may sell. A major takeover or merger, or if the market valuation of the company exceeds certain thresholds, may prompt the selling of the shares to achieve a lower weighting. If a company's cash flow deteriorates to a point where it no longer is four times the interest paid, we would seek to understand why and if the answer was unacceptable, we would in all likelihood sell the shares.
Using this philosophy, the day to day management of FSI’s investment portfolio is undertaken by the Managing Director.
FSI CAN INVEST IN THE FOLLOWING AUTHORISED INVESTMENTS:
- Any listed securities, including shares, units or notes which are redeemable, preference or deferred, fully or partly paid and any right, title or interest attached (including a right to subscribe for or convert to any such security whether listed on the ASX or not), and any security which EC Pohl & Co expects will be quoted on the ASX within a six month period from the date of investment;
- The taking and/or giving of options to purchase any investment and the taking and/or giving of options to sell any investment which is an Authorised Investment outlined in the first point above;
- The discount or purchase of bills of exchange, promissory notes or other negotiable instruments accepted, drawn or endorsed by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or by any corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia;
- Deposits with any bank or corporation declared to be an authorised dealer in the short term money market;
- Debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of deposit, interest bearing accounts, certificates of indebtedness and any other evidence of indebtedness issued by any bank or by the Commonwealth of Australia, any State or Territory of Australia, or any governmental organisation, body or instrumentality of Australia, or, if authorised by the Directors, a corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia; and
- If authorised by Flagship Investments Limited, contracts to underwrite or sub-underwrite issues or placements of any authorised investment outlined in the first bullet point above.
- Unlisted entities and much smaller companies up to 10% of the portfolio.
FSI will aim to maintain more than 90 per cent of available funds in equity investments at all times. The remaining funds will be held in bank bills, similar cash securities and on deposit in the short term money market.
There is no fixed management fee. EC Pohl & Co receives a fee that is performance based and payable yearly in arrears.
The performance fee is 15% of the amount by which FSI’s net performance before tax (that is, after all costs and outlays but before the calculation of the performance fee) exceeds the interest rate payable on bank bills as represented by the Bloomberg Bank Bill Index for the financial year. If the FSI's net performance in the year is less than the interest rate payable on bank bills as represented by the Bloomberg Bank Bill Index for the year, then no performance fee will be payable.
EC Pohl & Co is also required to provide administrative services to FSI for which it receives no additional remuneration.
FSI pays dividends from the dividend and interest income it receives from its investments. It has always been the Company’s stated aim to ensure that dividends paid to Shareholders increase in value at a rate in excess of the rate of inflation and to be fully franked. To date, FSI has delivered on this aim, paying its dividends at half-yearly and increments.