Announcement PDF 23 October 2023 Company Announcements ASX Limited 20 Bridge Street SYDNEY NSW 2000 Annual General Meeting 2023 Please find attached the Chairman’s Address, Managing Director’s Address and the accompanying presentation slides for today’s Annual General Meeting of Argo Investments Limited (ASX: ARG). Yours faithfully, Tim Binks Company Secretary Argo Investments Limited ACN 007 519 520 invest@argoinvesments.com.au argoinvestments.com.au Head Office Level 25, 91 King William St Adelaide SA 5000 08 8210 9500 Sydney Office Level 37, 259 George St Sydney NSW 2000 02 8274 4700 2023 Annual General Meeting Chairman’s Address Delivered by Mr. Russell Higgins AO at the 77th Annual General Meeting of Argo Investments Limited (Argo or Company) at the Adelaide Convention Centre on Monday 23 October 2023 at 10.00am. Full year profit results Last financial year was characterised by market volatility and challenging macroeconomic conditions. The global economy was impacted as Governments and Central Banks unwound the emergency fiscal and monetary policies adopted during the pandemic and as supply chains began to recover from the severe disruptions. Inflation re-emerged as a challenge for world economies and for policy makers. In this environment Argo Investments again delivered a positive total return for shareholders, including record high annual fully franked dividends. Argo’s 2023 full year profit of $271.7 million represents an increase of +8.2% over the previous year, excluding the one-off, non-cash income received in the prior reporting period. A number of companies in Argo’s investment portfolio increased their dividends which bolstered our income. However, these higher dividends were partially offset by lower dividends received from BHP and Rio Tinto, reflecting weaker commodity prices, particularly for iron ore. Record fully franked dividends In August, the Board was pleased to declare a fully franked final dividend of 18.0 cents per share. Together with Argo’s interim dividend of 16.5 cents per share, annual fully franked dividends totalled 34.5 cents per share – an increase of +4.5%. Significantly, both the interim and the final fully franked dividends for the 2023 financial year marked record highs for the Company. We have now paid dividends every year since Argo was founded in 1946 and it is worth noting that only a handful of Australian listed companies can boast a record of delivering dividends to shareholders for 77 consecutive years. Argo Investments Limited ACN 007 519 520 invest@argoinvestments.com.au argoinvestments.com.au Head Office Level 25, 91 King William St Adelaide SA 5000 08 8210 9500 Sydney Office Level 37, 259 George St Sydney NSW 2000 02 8274 4700 Furthermore, since the introduction of Australia’s imputation system in 1987, every dividend has had franking credits attached and since 1995, all dividends have been fully franked. We are proud of this enviable track record and remain focused on providing our shareholders with sustainable and tax-effective fully franked dividends, together with capital growth. Investment performance Over the 12 months to 30 September 2023, Argo’s investment performance, as measured by net tangible assets (NTA) return after management expenses and adjusted for the corporate tax we pay, was +13.1%. This compares to the S&P/ASX 200 Accumulation Index which gained +13.5%, noting that the Index does not make allowance for any costs. The slight underperformance relative to the Index reflects investor sentiment pivoting back to growth-style investments. Argo’s investment process favours more mature businesses that can maintain and grow their dividends. Taking a longer-term view, over the three financial years since the COVID pandemic, Argo has outperformed the Index return of +11.0% per annum, delivering +11.8% per annum. Directorate I informed shareholders at last year’s AGM that the Board had developed a succession plan to refresh the Board whilst maintaining an appropriate mix of skills, experience and diversity. Retirements and new appointments are being staggered over time to ensure our long-serving Non-executive Directors are not all retiring simultaneously. The first elements of the succession plan were implemented in the period leading up to last year’s AGM and you will recall that Anne Brennan retired at the conclusion of that Meeting. Since then, on 30 September 2023, Roger Davis retired from the Board after 11 years of service, including as Chair of the Remuneration Committee. Roger joined Argo’s Board in 2012, bringing experience as a director of numerous ASXlisted companies and a strong background in financial services, including executive roles in banking and investment banking, and as Chairman of Bank of Queensland. As an active member of the Board and applying his skills and insights, Roger helped guide Argo through various market cycles and events, including the global pandemic. On behalf of the Board, I would like to thank Roger for his diligent contribution to Argo Investments. argoinvestments.com.au | 2 Following these retirements, two new Directors have been appointed. Peter Warne was appointed as an independent, Non-executive Director with effect from 1 November 2022. Peter is an experienced company director and has extensive knowledge of the financial services and investment banking sectors. His executive career included senior positions at Bankers Trust Australia and, among his director roles, was the Chairman of Macquarie Group. Melissa Holzberger was appointed as an independent, Non-executive Director with effect from 1 October 2023. She is a commercial, energy and resources lawyer with considerable experience in the international energy and resources sector. Melissa is an experienced director currently serving on various ASXlisted company boards and has previously been a member of numerous other public, government and not-for-profit boards. I am pleased to formally introduce Peter and Melissa to shareholders today. They are standing for election to the Board and you will hear from each of them later in the meeting. Shareholder survey results We recently conducted an online survey of our shareholders. The purpose was to better understand our shareholders and how we can improve our communication and engagement. We would like to share the key findings of the survey with you today: • Almost two thirds of respondents have been Argo shareholders for 10 or more years; • One third have been shareholders for 20 or more years; • Diversified exposure to Australia’s share market is the most important reason shareholders hold Argo shares, followed by fully franked dividends; • 95% of shareholders are happy with the current quantity of information provided; • Emails are by far the most popular form of communication, with 80% of shareholders nominating emails as their preferred method of accessing information about the Company; • 80% of respondents rated our shareholder engagement as ‘excellent’ or ‘very good’; and • 97% of our shareholders would recommend Argo to other investors. argoinvestments.com.au | 3 Thank you to all those who completed the survey. We are pleased with the level of support for Argo among our shareholders. However, we do not see these results as cause for complacency. We remain cognisant that Argo is owned by, and managed for the benefit of, our shareholders and we will continue to work hard to serve your interests. We welcome feedback at any time. If you have suggestions for Argo, including our shareholder engagement, please be in touch. Contact details will be provided at the end of today’s presentation. Outlook Australia’s economy continues to be shaped largely by macroeconomic influences, most notably persistently high inflation. Like many central banks around the world, the Reserve Bank of Australia (RBA) has aggressively raised interest rates in an effort to dampen demand and control price rises. To the surprise of many, Australia’s economy remains remarkably resilient as evidenced by robust employment figures and rising house prices. An economic ‘soft landing’ seems possible as the RBA navigates the narrow path of lowering inflation, while not tipping the economy into recession. However, the positive overall state of the economy belies the growing financial pressures on many people due to sharp interest rate increases and the growing cost of everyday expenses. In turn, this is weighing heavily on consumer confidence and spending. Although investor sentiment is indicating that the Australian and global economy should be able to avoid recession, there are risks to the outlook. Geopolitical tensions and risks are particularly heightened at present. As a result, growth may be subdued in the near to medium term and further share market volatility is likely. Against this backdrop, I want to remind and reassure shareholders that, for more than three quarters of a century, Argo has navigated through varying conditions including different market cycles and disruptive events. We have done this through being disciplined and consistently applying our conservative, long-term investment approach. Argo has no debt, cash on hand and a portfolio of quality stocks, ensuring we are well-positioned in the current investment environment. argoinvestments.com.au | 4 Thank you I would like to conclude my formal remarks today by thanking our Managing Director, Jason Beddow, and the Argo team for their ongoing hard work. I would also like to thank my fellow Board members for their valuable contributions over the last year. Finally, on behalf of the Board, I warmly thank our loyal shareholders. To our new shareholders, welcome to Argo. argoinvestments.com.au | 5 2023 Annual General Meeting Managing Director’s Address Delivered by Mr. Jason Beddow at the 77th Annual General Meeting of Argo Investments Limited (Argo or Company) held at the Adelaide Convention Centre on Monday 23 October 2023 at 10.00am (Adelaide time). Market review Only a short time ago, the prospect of a global recession seemed likely, as central banks aggressively raised interest rates to control rampant inflation. However, indicators are increasingly now pointing to an economic ‘soft landing.’ So far, economies are successfully navigating the narrow path of lowering inflation through tightening monetary policy, without causing a recession. In the US, the Federal Reserve has raised rates more quickly than at any time since the 1980s. Australia has also followed suit, with twelve rate increases in quick succession totalling 4.0%. The official cash rate is now 4.1% and, while further increases are possible, we believe we are near the top for interest rates in the current cycle. Like many other developed economies, Australia’s economic resilience has been largely underpinned by fiscal stimulus and historically low unemployment. In addition, many Australians are benefiting from higher deposit rates, savings levels, and asset prices. Over the financial year to 30 June 2023, Australia’s share market defied most expectations to perform strongly in the face of this persistent inflation, a sombre global economic outlook and the steepest interest rate increases in recent history. All industry sectors generated positive returns, although Technology was the standout performer, surging more than +30%. Companies leveraged to lithium and other battery minerals also generated particularly strong returns. Meanwhile, sectors with more defensive attributes, such as Utilities and Health Care, lagged the broader market. Argo Investments Limited ACN 007 519 520 invest@argoinvestments.com.au argoinvestments.com.au Head Office Level 25, 91 King William St Adelaide SA 5000 08 8210 9500 Sydney Office Level 37, 259 George St Sydney NSW 2000 02 8274 4700 Following this strong performance, Australian investors seem less certain as we entered the new financial year. For the first three months to 30 September 2023, the S&P/ASX 200 Accumulation Index fell -0.8%. Energy was the best performing sector for the quarter, up +11.2% in contrast to Healthcare which continues to be weak, down -8.6% and Consumer Staples down -5.9%. Investment portfolio We have been calling the investment environment “uncertain” for what feels like some time now. Reflecting these conditions, companies provided very little forward guidance during the recent August reporting season. I will elaborate on some of the key points from company profits results a little later. We continue to see this uncertainty playing out in the underperformance of many smaller capitalised companies, as they are more likely to be impacted by higher costs, less scale, and a slowing consumer. We diversify our portfolio to maintain balanced performance over longer time frames and deliver shareholders a relatively smooth dividend profile through market cycles. We have largely been adding to existing holdings and reducing the overall number of holdings in the portfolio, although we have recently added one new stock to the portfolio, Resmed, which I will discuss shortly. We have also exited two takeover targets: Liontown Resources at the Albemarle bid price of $3.00 per share and Estia Health following the final dividend payment which exhausted their franking credit balance. In addition, we have exited our holding in Insurance Australia Group and sold down positions in Brambles, Helia Group and Diversified United Investment. Proceeds from these sales have been redeployed into several stocks including CSL, which we continue to believe is an excellent quality company and now trading at more attractive levels than previously, at a time when it is returning to double digit profit growth. We also increased our holding in Viva Energy following major shareholder Vitol’s selldown of 16% of the company. We think Viva’s prospects remain strong. An ACCC ruling on its proposed purchase of the South Australian-based “On the Run” chain of petrol stations and convenience stores is pending. We recently participated in a $750 million equity raising by APA Group to partly fund its acquisition of Alinta’s Pilbara assets, which included a portfolio of conventional and renewable assets, including a development pipeline of wind, solar and battery generation. argoinvestments.com.au | 2 Resmed (ASX code: RMD) Resmed is the world leader in Continuous Positive Airway Pressure (CPAP) therapy, the recommended treatment for the majority of patients with obstructive sleep apnoea (OSA). OSA is a sleep-related breathing disorder causing complete or partial obstruction of a person’s airflow. The brain senses the impaired breathing, causing the individual to subconsciously rouse from sleep to reopen their airway. Resmed manufactures and distributes CPAP machines. These are ventilators which deliver a continuous stream of pressurised air through a mask while the patient sleeps. Because obesity is a leading cause of sleep apnoea, the recent hype around GLP1 ‘weight loss’ drugs and speculation they are a ‘cure all’ for addressing obesity has led investors to conclude these medications will cannibalise or displace CPAP devices as a first line therapy for OSA. This is reflected in Resmed’s share price which is down more than 30% since 30 June. In our view, the potentially positive impacts of these weight loss drugs are overstated. We have listened to dozens of calls from medical experts, both positive and sceptical. The full impacts will not be known for many years. Factoring in the possible negative impacts on Resmed’s sales if obesity declines globally, we still believe that at these share price levels it represents a good buying opportunity. August reporting season Prior to the Covid-19 disruptions, a large percentage of listed companies provided guidance on forward earnings. Currently very few companies give guidance. More commonly they give trading updates at AGMs and investor days. Considering this, I wanted to give our insights from the most recent reporting season. Overall, profit results defied the gloomy expectations from earlier in the year, given headwinds from the slowing economy and rising costs, especially labour, insurance and interest costs. While revenues showed strength, this often came from price increases rather than volume expansion. Declines in other input costs, such as commodity prices and freight costs, also helped to ease margin pressures. Companies generally provided conservative guidance, if at all. This often disappointed the market and saw consensus earnings downgrades for companies. argoinvestments.com.au | 3 For the broader market, consensus earnings expectations were revised down by 2.4% during the month and now sit at -6.6% for the 2024 financial year. Australian equities were soft in August and September, as lacklustre outlooks from companies weighed on investors’ minds. Interestingly, August was one of the most volatile earnings seasons in the past 15 years, with one in eight stocks moving more than 10% up or down on the day of their result. The escalating cost of debt is emerging as an issue, with higher interest payments a growing challenge for companies with stretched balance sheets or large refinancing needs. We believe this issue is being underestimated and could result in further earnings downgrades over the next couple of years as companies need to refinance cheaper debt. August dividends were slightly disappointing, particularly from the large, diversified miners, though not unexpected with lower commodity prices and higher capital expenditure. On average, payout ratios are still well below the prepandemic average. However, we see a risk that payouts edge lower as companies brace against a tougher economy, service higher interest costs and potentially de-leverage their balance sheets. Turning now to commentary from some of the bigger companies during reporting season. The Commonwealth Bank of Australia result was solid, despite Net Interest Margin and cost pressures. Bad debts remain low in the banking sector but have started to creep up in some non-bank lenders. There was evidence that competitive pressures may be easing and, while there was an air of caution, there was certainly no panic in the outlook comments from CBA. Wesfarmers indicated no signs of weakness in their Bunnings or Kmart businesses. Woolworths noted that demand remains solid, although there are signs of customers switching to cheaper items. Fuel retailers Viva Energy and Ampol reported seeing strong commercial demand for fuel and Domino’s noted ‘signs of life’ in demand for pizza. Resource companies disappointed with operating cost pressures and labour remaining a challenge. We are seeing further delays in project execution. We also saw over $5 billion in impairments due to cost overruns across the industry, including Rio’s Australian aluminium assets, South32, Alumina and Fortescue’s iron ore business. argoinvestments.com.au | 4 Global cyclicals benefited from the weak Australian Dollar. This group of stocks was the only category that reported positive profit surprises in the June half. It also had the lowest share of negative revisions for financial year 2024 earnings, due to a combination of the higher quality of global cyclicals and the translation benefit of the lower Australian Dollar. Health Care had a mixed reporting season, as the sector continued to deal with cost pressures, labour absenteeism and weaker utilisation of their services. Some companies in the sector, such as Ramsay Health Care, are relatively highly geared and saw a significant increase in interest costs. REITs had a decent reporting season, although rising interest rates and the expiration of interest hedges meant earnings declined for many Australian REITs. Outlook In comparison to most other countries, Australia’s economy is faring relatively well. However, as we look ahead to next year, interest rate rises will likely have a slowing impact on the economy. It appears the first half of 2024 will be particularly weak, with economists expecting the global economy to eke out GDP growth of just +1.7%. This compares to this year’s predicted growth of +2.3%. Geopolitical risks remain elevated. As we approach the two-year anniversary of Russia’s invasion of Ukraine, there are few signs there will be a resolution to the conflict. More recently, a significant increase in hostilities in the Middle East has added to geopolitical tensions around the world. Current investor sentiment indicates that Australia and the global economies should be able to avoid recession. In our view, further share market volatility is likely and evidence of the economy slowing will likely emerge, leading to pressure on earnings. High population growth, driven by immigration, should be a major economic tailwind for Australia in the coming years. However, on a per capita basis the growth does not look so impressive, which highlights the lack of productivity and the challenges with migration exacerbating the housing shortage issue. Residential housing availability and affordability are now key areas of community concern. With no debt, cash available and a diversified portfolio, Argo is well-positioned to navigate these conditions, applying our conservative, long-term investment approach. argoinvestments.com.au | 5 Thank you I would like to acknowledge the efforts of the whole Argo team this year. Our staff continue to be fully committed to the success of the Company across both our Adelaide and Sydney offices. I also acknowledge the contribution from the Chairman and Non-executive Directors. I welcome the new Directors to Argo, and I look forward to working with them all as we best navigate Argo through this next period for you, our shareholders. I would also like to personally thank Roger Davis for his contribution to the Company. I wish all our shareholders well for the remainder of the year. We thank you for your continued support and I look forward to continuing the conversation with you in 2024. argoinvestments.com.au | 6 Annual General Meeting 2023 Disclaimer This presentation has been prepared by Argo Service Company Pty Ltd (ASCO) (ACN 603 367 479) (Australian Financial Services Licence 470477), on behalf of Argo Investments Limited (ACN 007 519 520). ASCO’s Financial Services Guide is available on request or at argoinvestments.com.au. This presentation contains unsolicited general information only, which does not take into account the particular objectives, financial situation or needs of any individual investor. It is not intended to be passed on or relied upon as a recommendation by any person. Before making any decision about the information provided, an investor should consult their independent adviser and consider the appropriateness of the information, having regard to their objectives, financial situation and needs. Past performance may not be indicative of future performance and no guarantee of future returns is implied or given. While all reasonable care has been taken when preparing this presentation, no responsibility is accepted for any loss, damage, cost or expense resulting directly or indirectly from any error, omission or misrepresentation in the information presented. 3 Board of Directors Russell Higgins AO Non-executive Chairman Jason Beddow Managing Director Melissa Holzberger Non-executive Director Lianne Buck Non-executive Director Chris Cuffe AO Non-executive Director Peter Warne Non-executive Director Liz Lewin Non-executive Director Our objective To maximise long-term shareholder returns through reliable fully franked dividend income and capital growth. Actively managing a diversified portfolio of Australian shares with a low-cost, internally managed business model, we apply a conservative, long-term investment approach which has proven resilient since 1946. 5 2023 overview Profit Earnings per share Full year dividends $271.7m $36.1c 34.5c $251.2m in 2022 (Excl. one-off, non-cash income) 34.3c per share in 2022 (Excl. one-off, non-cash income) Fully franked per share 33.0c per share in 2022 Total assets MER Argo Shareholders $6.9b 0.155% 95,600 $6.4b in 2022 (Management Expense Ratio) 0.141% in 2022 96,100 in 2022 Annual dividends cents per share 35 30 28 29.5 30.5 31 2015 2016 2017 31.5 33 33 30 34.5 28 25 20 15 10 5 0 2014 2018 Interim dividend 2019 2020 2021 2022 2023 Final dividend 7 Total returns 13.1% 13.5% 11.8% 11.0% 9.1% 5.6% 6.1% 6.7% 6.2% 6.8% 7.4% 2.2% 1 year Total Shareholder Return (TSR) 3 years (pa) 5 years (pa) NTA after management expenses 10 years (pa) S&P/ASX 200 Accum. Index Figures above are to 30 September 2023. 8 Shareholder returns $10,000 invested $54,044 $38,865 $18,026 Share price Plus dividends Plus franking Figures above are to 30 September 2023. 9 Roger Davis BEc (Hons), MPhil (Oxon), FCPA Retired Non-executive Director 10 Peter Warne BA (Actuarial Studies), FAICD Non-executive Director 11 Melissa Holzberger BA, LLB, LLM (Resources Law), Dip International Nuclear Law, GDLP, FGIA, GAICD Non-executive Director 12 Shareholder survey Key survey findings 97% 20+ yrs 10+ yrs Would recommend Argo to other investors One third have been shareholders for 20+ years Almost two thirds have been shareholders for 10+ years ‘Excellent’ or ‘Very good’ Diversified 95% 80% rated our engagement as ‘excellent’ or ‘very good’ Top reason for owning Argo shares: ‘diversified exposure to ASX’ Happy with the amount of information provided Key findings Looking ahead 15 Shareholder benefits Low-cost, internally managed Experienced board and management team Long-term, proven investment approach Fully-franked, sustainable dividends Strong balance sheet, no debt Diversified and administratively simple 16 Share market performance 140 130 S&P/ASX 200 & Accumulation Index Before, during and post-pandemic 120 110 100 90 80 70 60 First vaccine released US Fed starts rate RBA starts rises rate rises RBA pauses rate rises Figures above are to 30 September 2023. 18 Australian equities by industry Australian share market performance by industry 3 months to 30 September 2023 15% Energy Consumer Discretionary 10% Financials Communication Services 5% Utilities Materials 0% Industrials Real Estate -5% Information Technology Consumer Staples Health Care -10% Source: Factset 19 Investment portfolio Sector diversification Top 10 holdings Materials 15.7% Other Financials 12.8% Banks 12.4% Health Care 10.9% Consumer Staples 8.5% Telcos & I.T. 8.2% Energy 8.0% Industrials 7.5% Consumer Discret. 6.9% Property 2.9% LICs 2.5% Utilities 1.9% Macquarie Group 6.5% BHP 6.1% CSL 5.0% CBA 4.1% Wesfarmers 4.0% Rio Tinto 3.7% ANZ 3.2% Santos 3.0% Telstra 2.8% Westpac 2.6% Cash 1.8% Figures are as at 30 September 2023. 20 Recent portfolio movements Purchases Sales Since the end of the 2023 financial year. 21 Resmed (ASX code: RMD) 40 12-month share price performance Cents 35 30 25 20 15 Source: Factset 22 Reporting season Consensus earnings Source: RIMES, IBES, Morgan Stanley Research. As at 31 August 2023. 24 Key takeouts Cost of debt escalating Dividends slightly disappointing Consumer demand solid Bad debts remain low Global cyclicals benefit from weak A$ Cost pressures increasing Looking ahead