Milton Corporation Half Year Review 31 December 2019

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

Half Year Review 31 December 2019

Highlights For the half year ended 31 December 2019 a

Fully franked interim ordinary dividend: Fully 9 cents per share, unchanged from previous year

a

Earnings per share: Down 1.6% to 10.49 cents (including special investment revenue) Down 2.9% to 10.11 cents (excluding special investment revenue)

a

Profit after tax: Down 0.6% to $70.2 million (including special investment revenue) Down 1.9% to $67.7 million (excluding special investment revenue)

a

Net tangible asset backing per share (NTA): $4.92 (before provision for tax on unrealised capital gains), the same as at 30 June 2019 $4.30 (after provision for tax on unrealised capital gains), the same as at 30 June 2019

a

Management Expense Ratio (MER): Milton’s annualised MER as at 31 December 2019 was 0.13%

Dividend Reinvestment Plan (DRP) The DRP is in operation for the interim dividend.

The last day for receipt of an election notice for participation in the plan is 14 February 2020.

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

Notes Comparative figures refer to the half year ended 31 December 2018.

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

Assets are not sold to increase profits for distributions

a

Portfolio turnover is low

Milton pays fully franked dividends semi-annually a

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

a

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

Milton holds a diverse portfolio of Australian listed companies a

quity investment portfolio at 31 December 2019 E was valued at $3.1 billion

a

otal assets at 31 December 2019 were valued T at $3.3 billion

Milton is an efficient and low cost manager of investments a

Operating costs represent 0.13% of average total assets

a

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

If $10,000 was invested in MLT in December 1999, and if dividends were re-invested over the 20 years, the value of the investment in December 2019 would be worth $66,037.

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

0

Dividend (Cents per Share)

Ordinary dividend

60,000

Results for the half year to 31 December

2019 $m

2018 $m

Ordinary investment revenue Interest income Net trading gains Other revenue Share of net profits of joint ventures Administration costs

71.1 0.8 0.0 0.4 0.2 (2.1)

70.9 1.3 0.0 0.3 0.8 (1.9)

Operating profit before tax Tax expense

70.4 (2.7)

71.4 (2.4)

Underlying operating profit after tax

67.7

69.0

2.5 0.0

1.7 0.0

70.2

70.7

10.49

10.66

31 Dec 2019 $m

30 Jun 2019 $m

3,106

3,141

158 24 11

110 23 20

Special dividends after tax Acquisition costs after tax Net profit after tax Earnings per share (cents)

Balance Sheet as at

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

3,299 (2)

3,294 (2)

3,297

3,292

(417)

(417)

2,880

2,875

$4.92

$4.92

$4.30

$4.30

Commentary Net Profit after tax for the half year to 31 December 2019 was $70.2 million down 0.6% from the previous comparable period. Earnings per share decreased by 1.6% to 10.49 cents per share.

Special dividends of $2.6 million (before tax) were received from portfolio companies including ASX, Rio Tinto and Telstra.

Underlying profit, which excludes special dividends declined 1.9% to $67.7 million with underlying earnings per share down 2.9% to 10.11 cents per share.

Milton’s board uses underlying profit when determining dividends to enhance their reliability as the amount of special dividends received can be volatile.

Ordinary investment income received on Milton’s diversified portfolio of 79 companies grew by 0.2% to $71.1 million.

Ordinary investment income represented 97% of total income in the period with declines in interest income from cash holdings and property investment income driving the fall in underlying profit.

Milton announced an unchanged fully franked interim dividend of 9 cents per share which is payable to shareholders of record on 13 February 2020 and paid on 5 March 2020.

Milton’s dividend reinvestment plan will operate for the interim dividend.

Milton has no debt on its balance sheet and net tangible assets before the provision for tax on unrealised capital gains were valued at $3.3 billion ($4.92 per share) at 31 December 2019.

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 16.5% 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 %

16.50 20.24

7.27 6.47

7.51 7.88

7.33 7.63

9.57 9.94

Portfolio Milton’s diversified equity portfolio is comprised of 79 companies and trusts valued $3.1 billion.

Milton also holds $158 million of cash available for investment and dividend purposes.

During an active first half Milton added $123.3 million to existing investments, funded by $154.7 million of sales.

Investments included Macquarie Group, Transurban, Sydney Airports, BHP, REA, Altium, Cleanaway and Technology One. Sales were focused on Milton’s bank positions, which were reduced due to concerns over earnings and dividend growth in the medium term. The sales included Bank of Queensland, Bendigo and Adelaide bank, Westpac and ANZ. Milton’s Investment committee and management team will continue to refine the portfolio to focus on companies with strong long-term earnings and dividend growth prospects.

The 20 Largest Investments Market Value $m

Share of Total Assets %

250.9 241.9 197.3 171.2 165.8 142.3 119.9 119.1 106.2 84.2 73.3 70.5 69.6 67.2 60.4 55.8 53.9 50.7 46.2 44.3

7.6 7.3 6.0 5.2 5.0 4.3 3.6 3.6 3.2 2.6 2.2 2.1 2.1 2.0 1.8 1.7 1.6 1.5 1.4 1.3

Total value of Top 20

2,190.7

66.1

Total assets

3,298.5

At 31 December 2019 Commonwealth Bank Westpac Banking Corporation W H Soul Pattinson BHP Group Limited CSL Limited Macquarie Bank Limited National Australia Bank Wesfarmers Limited Woolworths Limited Transurban Group AGL Energy Limited ANZ Banking Group A P Eagers Limited Rio Tinto Limited Brickworks Limited ALS Limited Telstra Corporation Perpetual Limited Insurance Australia Group Ltd Woodside Petroleum Limited

(1) Total return excludes special investment revenue

Total(1) Return % (0.7) (11.3) (0.7) (1.9) 28.9 10.0 (4.7) 16.6 10.5 2.8 5.8 (9.5) 7.7 (1.1) 17.0 26.6 (6.8) 0.3 (4.7) (4.0)

Outlook Milton believes that the market is fully valued, based on historical measures, after 12 months of strong share price appreciation. Much of this growth has been driven by yield hungry investors adding to equity positions.

Earnings growth in the first half of 2020 has been modest at best, with acute weakness in the retail banking sector.

Milton’s earnings and dividend expectations for our portfolio companies have generally been revised lower for the remainder of the financial year.

Elevated market levels combined with subdued earning growth increases the risk of episodes of future market volatility, which may provide opportunity for long-term investors such as Milton. Milton currently holds 4.8% of its assets in cash (30 June 2019: 3.4%).

We currently expect profit in the second half of 2020 to be below the previous comparable period as dividends on Milton’s portfolio decline, reductions in our bank positions impact in the short term and the material special dividends received in the second half of the 2019 financial year do not recur.

Milton retains a strong balance sheet, available profit reserves and sufficient franking credits to have confidence that, in the absence of unforeseen circumstances, our fully franked dividend will be at least maintained.

Key Dates Interim Dividend Dates Ex dividend date

12 February 2020

Record date

13 February 2020

Payment date

5 March 2020

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