Djerriwarrh Investments : Appendix 4E - Preliminary Final Report for the financial year ended 30 June 2017

DJERRIWARRHINVESTMENTSLIMITED

ABN 38 006 862 693

APPENDIX 4E STATEMENT FOR THE YEAR ENDING 30 JUNE 2017

CONTENTS

• Results for announcement to the market

• Media Release

• Appendix 4E Accounts

• Independent Audit Report

  These documents comprise the preliminary final report given to ASX under listing rule 4.3A

  RESULTS FOR ANNOUNCEMENT TO THE MARKET

  The reporting period is the year ended 30 June 2017 with the previous corresponding period being the year ended 30 June 2016.

  This report is based on audited financial statements. A copy of the audit report can be found on page 36.

  Results for announcement to the market

• The final dividend is 10 cents per share fully franked, 4 cents down from last year. This is in line with the Company's announcement for the year ended 30 June 2016 and reiterated in the announcement for the half-year ended 31 December 2016. The dividend will be paid on 25 August 2017 to ordinary shareholders on the register on 7 August 2017. Shares are expected to trade ex-dividend from 4 August 2017.

• 5 cents of the final dividend is sourced from taxable capital gains, on which the Company has paid or will pay tax. The amount of the pre-tax attributable gain on this portion of the dividend, known as an "LIC capital gain", is therefore 7.14 cents. This enables some shareholders to claim a tax deduction in their tax return. Further details will be on the dividend statements. There is no conduit foreign income component of the dividend.

• The Company's Dividend Reinvestment Plan ("DRP") is in operation for the final dividend. Under the DRP shareholders may elect to have all or part of their dividend payment reinvested in new ordinary shares. Pricing of the new DRP shares is based on a 5% discount to the average selling price of shares traded on the ASX and Chi-X automated trading systems in the five days from the day the shares begin trading on an ex-dividend basis. The last day for the receipt of an election notice for participation in the plan is 8 August 2017.

• Net Operating Result after tax was $33.8 million, 19.8% down from the previous corresponding period.

• Net Operating Result per share was 15.5 cents per share, down from 19.3 cents last year.

• Net Profit attributable to members was $33.7 million, 17.3% down from $40.7 million in the previous corresponding period.

• Revenue from operating activities was $30.9 million, 16.4% down from the previous corresponding period.

• The interim dividend for the 2017 financial year was 10 cents per share (the same as last year), fully franked, and it was paid to shareholders on 21 February 2017.

• Net tangible assets per share before any provision for deferred tax on the unrealised taxable gains on the long-term investment portfolio as at 30 June 2017 were $3.24 (before allowing for the final dividend), up from $3.09 (before allowing for the final dividend) at the end of the previous corresponding period.

• The 2017 AGM will be held at the RACV City Club, Melbourne, at 10.00 AM on Tuesday 10 October 2017.

Portfolio has a strong year, 16.6% return including franking

Key Themes -

• Djerriwarrh seeks to provide an enhanced level of fully franked income by using option strategies as an overlay to investing in dividend generating companies.

• Previously underperforming sectors such as banks and resources produced strong returns over the year.

• In this environment, Djerriwarrh managed the core option portfolio to capture more of the potential capital upside. This assisted Djerriwarrh's portfolio performance.

• The Company has also been seeking to further diversify the portfolio and reduced exposure to selected energy holdings early in the year.

• Twelve month portfolio return was 13.0%; including franking it was 16.6%.

  Result Summary -

• Full Year Profit of $33.7 million, down from $40.7 million in the corresponding period last year. The fall in profit was a result of:

  • A decline in dividends received, particularly in the first half, from resource and energy companies, and

  • Reduced income from options compared with the prior corresponding period as a result of lower volatility and from the buying back of selected option positions over the year.

• Net Operating Result of $33.8 million, down from $42.2 million in the prior corresponding period.

• As foreshadowed last year, the Final Dividend is 10 cents per share fully franked, down from 14 cents per share last year. Dividend Reinvestment Plan is in operation at a 5% discount.

Profit

Profit for the year to 30 June 2017 was $33.7 million, down 17.3% from $40.7 million in the corresponding period last year. Dividend income was down to $30.6 million from $36.8 million last year reflecting the lower contribution from resource and energy holdings. Dividend income was also impacted by reduced holdings in bank shares as call options were exercised late in the financial year before their dividends.

Djerriwarrh's option income fell to $10.9 million from $16.1 million generated last financial year. As the Australian market rose, volatility fell to low levels contributing to reduced income from options. The pace of market increases also meant that a number of call option positions were at risk of being exercised. In this environment, Djerriwarrh looked to buy back a significant number of in-the- money call option positions to capture more of the potential upside of these holdings. This also reduced option income for the year but enhanced the total portfolio return.

The net operating result for the year was $33.8 million, down 19.8% per cent from $42.2 million in the previous corresponding period. In the opinion of Directors, this is a better measure of Djerriwarrh's performance in deriving ongoing investment, trading and options income from the Company's portfolios as it excludes the valuation impact of net unrealised losses on open option positions at year end.

Consistent with Djerriwarrh's announcement in July 2016, the final dividend was 10 cents per share fully franked, down from 14 cents per share last year. Total dividends for the year are 20 cents per share fully franked, down from 24 cents last year. The Dividend Reinvestment Plan is in operation with a 5% discount.

Dividend yield on the share price of $3.83 on 14 July 2017 is 5.2% fully franked, 7.5% grossing up for the benefit of franking credits. The share price was trading at a 14% premium to net asset backing at the end of June.

Portfolio Returns

The Australian equity market for the twelve months to 30 June 2017 was led by the strong rise in banks and resources (up 18.4% and 22.9% respectively). In part this was a result of a rebound in interest in banks given their previous underperformance and the attractive yield on offer for income focused investors. Resource stocks rose because of the better outlook for commodities as a result of improved global growth.

Djerriwarrh's portfolio return including franking for the year to 30 June 2017 was 16.6% whereas the S&P/ASX 200 Accumulation Index return including franking was 15.7% (franking added 3.6% to Djerriwarrh's return and 1.6% to the Index).

Given Djerriwarrh's option activities can limit some of the capital growth of the portfolio in strongly rising markets, this performance is encouraging. It is reflective of the bias toward larger companies (given this is where the most active options markets are) and the decision to buy back selected in-the-money call options to maintain holdings where practical. The reduced exposure to the energy sector early in the year also assisted performance.

The major contributors to portfolio performance were the four major banks, BHP, Rio Tinto and CSL.

Portfolio Adjustments

Given the rise in banking and resource stocks over the year, a number of the larger purchases in the portfolio were to replenish holdings in these sectors as option exercises reduced exposures. Djerriwarrh also looked to add to its holdings in CSL and Macquarie Bank, although again some were sold because of option exercises.