Milton Corporation Annual Review 2019

THIS DOCUMENT IS NOT A PROSPECTUS AND DOES NOT SEEK TO INVITE APPLICATIONS FOR SHARES IN THE COMPANY.

Annual Review 2019

Highlights aa

Fully franked dividends: Full year dividends of 21.9 cents per share up 15.3% Includes special dividend of 2.5 cents per share

aa

Earnings per share: Up 12.1% to 22.19 cents (including special investment revenue) Up 2.4% to 20.08 cents (excluding special investment revenue)

aa

Profit after tax: Up 13.6% to $147.7 million (including special investment revenue) Up 3.7% to $133.6 million (excluding special investment revenue)

aa

Net tangible asset backing per share (NTA): Up 4.0% to $4.92 (before provision for tax on unrealized capital gains) Up 3.4% to $4.30 (after provision for tax on unrealized capital gains)

aa

Management Expense Ratio (MER): Milton’s annualised MER as at 30 June 2019 was 0.14%

Dividend Reinvestment Plan (DRP) The DRP is in operation for the final dividend. The last day for receipt of an election notice for participation in the plan is 12 August 2019.

You may elect to participate online by visiting https://investorcentre.linkmarketservices.com.au

Notes Comparative figures refer to results for the year ended 30 June 2019.

Our Value Proposition Milton is a long term investor in equities, interest bearing securities and real property aa

Assets are not sold to increase profits for distributions

aa

Portfolio turnover is low

Milton pays fully franked dividends semi annually aa

n ordinary dividend has been paid every year A since listing in 1958

aa

ividends are paid from income received from D Milton’s long term investment portfolio

Milton holds a diverse portfolio of Australian listed companies aa

quity Investment portfolio at 30 June 2019 E was valued at $3.1 billion

aa

otal Investment portfolio at 30 June 2019 T was valued at $3.3 billion

Milton is an efficient and low cost manager of investments aa

Operating costs represent 0.14% of average total assets

aa

ilton is internally managed and no management or M performance fees are charged

Dividend and Investment Growth over 20 years 70,000

25

20

Investment value with dividends re-invested

15

40,000 30,000

10

20,000 5

2019

2017

2018

2015

2016

2013

2014

2011

2012

2010

2009

2007

2008

2005

2006

2003

2004

2001

2002

0

1999

10,000

2000

Investment Value ($)

Special dividend

50,000

If $10,000 invested in MLT in June 1999, and if dividends were re-invested over the 20 years, the value of the investment in June 2019 would be worth $63,718.

0

Dividend (Cents per Share)

Ordinary dividend

60,000

Results for the year to 30 June 2019 2019 $m

2018 $m

Ordinary investment revenue Interest Net trading gains Other revenue Net profits of joint ventures Administration costs(1)

138.1 2.6 0.2 0.5 1.5 (4.2)

132.5 2.7 0.8 0.8 0.4 (4.1)

Operating profit before tax Tax expense

138.7 (5.1)

133.1 (4.3)

Underlying operating profit after tax

133.6

128.8

Special dividends after tax Acquisition costs after tax Net profit after tax

14.1 (0.0) 147.7

1.3 (0.1) 130.0

Balance Sheet at 30 June 2019 Investments Cash & liquids Joint Ventures Other assets Total Assets Liabilities Net assets before provision for tax on unrealised capital gains Provision for tax on unrealised capital gains Net assets Net Tangible Assets per share (NTA) Before provision for tax on unrealised capital gains After provision for tax on unrealised capital gains

2019 $m

2018 $m

3,141

2,932

110 23 20

132 21 31

3,294 (2)

3,116 (2)

3,292

3,114

(417)

(379)

2,875

2,735

$4.92

$4.73

$4.30

$4.16

(1) Administration costs represented 0.14% per annum of average total assets.

Commentary Net profit after tax for the year ended 30 June 2019 increased by 13.6% to a record $147.7m, or 22.19 cents per share.

The result reflected growth in ordinary dividends combined with a sharp increase in special dividends received on Milton’s $3.1Bn equity portfolio.

Underlying profit, which excludes special dividends received, increased by 3.7% to $133.6m with underlying earnings per share increasing by 2.4% to 20.08 cents per share. Ordinary investment income, such as dividends and trust distributions, received in the year amounted to $138.1m or 97.6% of operating revenue.

Milton increased its fully franked final dividend to 10.4 cents per share bringing the full year ordinary dividend to 19.4 cents per share, an increase of 2.1% on 2018. Additionally, in the second half of 2019, Milton paid a special dividend to shareholders of 2.5 cents per share. Total fully franked dividends declared in relation to the 2019 earnings are a record 21.9 cents per share, an increase of 15.3% on 2018.

Milton has no debt on its balance sheet and net tangible assets before provision for tax on unrealised capital gains were valued at $3.3Bn at 30 June 2019.

Milton acquired two private investment companies in 2019 with a combined value of $40.1m. The consideration for these accretive acquisitions is 8.4 million Milton shares. The portfolios held by the companies were highly complementary to Milton’s existing portfolio.

Total Portfolio Return Milton’s equity portfolio is not aligned with any stock market index, rather it reflects Milton’s investment philosophy to invest in quality companies that are expected to grow earnings and dividends over the long term.

Milton’s total portfolio return (TPR) for the last 12 months was 8.81% which is net of all operational expenses and tax.

Milton’s returns do not include the impact of franking credits which may be of benefit to certain shareholders.

TPR TSR

1 year %

5 years %

10 years %

15 years %

20 years %

8.81 7.11

6.99 5.16

9.62 9.71

8.46 8.47

9.49 9.75

Portfolio In 2019, Milton increased investments in infrastructure, resource and technology companies whilst continuing to remain cautious on banks and retail exposed stocks.

Milton’s $3.1Bn Australian listed equity portfolio is currently comprised of 85 companies.

Positions in 24 companies and trusts increased by a total of $96.6m over the year. Investments were increased in Macquarie Group, BHP, AGL and Transurban with new investments in Cleanaway and Altium. Disposals amounted to $43.4m in 2019 and included complete sales of Milton’s holdings in Vicinity Centres, Unibail-Rodamco and Challenger Limited.

Milton invests for the long term in companies with growing dividends and earnings and will continue to add positions to the portfolio that provide the potential for future earnings growth for Milton’s shareholders.

The 20 Largest Investments Market Value $m

Share of Total Assets %

Total(1) Return %

299.1 260.0 201.8 168.7 130.1 129.3 104.0 97.6 97.4 93.4 71.4 69.6 69.4 67.7 66.1 58.7 57.2 52.7 52.0 48.7

9.1 7.9 6.1 5.1 3.9 3.9 3.2 3.0 3.0 2.8 2.2 2.1 2.1 2.1 2.0 1.8 1.7 1.6 1.6 1.5

3.2 19.5 9.0 26.3 4.1 13.0 3.8 12.0 5.5 5.8 (5.3) 0.6 29.9 30.0 13.3 51.6 19.2 7.7 7.9 0.9

Total value of Top 20

2,194.9

66.7

Total assets

3,293.9

At 30 June 2019 Westpac Banking Corporation Commonwealth Bank W H Soul Pattinson BHP Group Limited National Australia Bank CSL Limited Wesfarmers Limited Woolworths Limited ANZ Banking Group Macquarie Group Limited AGL Energy Limited Bank of Queensland Limited Rio Tinto Limited Transurban Group Bendigo and Adelaide Bank Telstra Corporation A P Eagers Limited Brickworks Limited Perpetual Limited Insurance Australia Group Ltd

(1) Total return excludes special investment revenue

Outlook Valuations in the Australian market are elevated, compared to historical averages, as declining interest rates encourage investors to chase equity yield. Company earnings growth has been strong in 2019, particularly in the resources sector, due to high commodity prices. Milton forecasts company earnings growth to slow in 2020, providing a more challenging environment for dividend growth in our portfolio. We are particularly cautious about bank earnings and dividends with pressure on margins due to lower rates and higher compliance costs.

Milton’s investment management team will continue to monitor the companies already held by Milton and search for opportunities to further diversify our portfolio.

Milton’s strong balance sheet with no debt, available profit reserves and franking credit balances provides confidence that the fully franked dividend is well supported.

Key Dates Annual General Meeting Meeting date: Sofitel Sydney Wentworth Level 4, Adelaide Room, 61-101 Phillip Street, Sydney

10 October 2019 at 3.00pm

Shareholder Briefing Melbourne: State Library Victoria 328 Swanson Street, Melbourne

16 October 2019 at 10.30am

Adelaide: Intercontinental Hotel North Terrace, Adelaide

17 October 2019 at 10.30am

Corporate Information Directors R.D. Millner Chairman B.J. O’Dea Managing Director G.L. Crampton K.J. Eley J.E. Jarvinen I.A. Pollard Senior executives B.J. O’Dea CEO and Managing Director D.N. Seneviratne CFO and Company Secretary Share registry Shareholders can manage their holding details by visiting www.linkmarketservices.com.au Alternatively, you can call Link Market Services on (02) 8280 7111 or Toll Free on 1800 641 024

ABN: 18 000 041 421

Level 4, 50 Pitt Street, Sydney NSW 2000 PO Box R1836, Royal Exchange NSW 1225 T: (02) 8006 5357 E: general@milton.com.au www.milton.com.au