2012 Client Seminar

1. 2012 Client Seminar Australian Financial Services Licence No. 237 435

2. Introduction • Welcome • How we manage your portfolio • Some valuation considerations • Owen Evans & Michael Peet – Presentation • Using the client portal

3. The CIPL Team

4. How we manage your portfolio Recommendations • Request from Advisor or client to review portfolio • Lachlan reviews portfolio and makes suggestions • Advisor provides feedback and requests changes • Lachlan produces Authority To Proceed (ATP) and Advisor prompted to confirm • When confirmed ATP is posted/emailed and then confirmed online.

5. How we manage your portfolio Execution • Client accepts/declines recommendation (sometimes quick, sometimes slow) • Signed/authorised ATP printed, recorded against existing holdings before going to administration for verification/checking against cash balances, shareholdings, other parameters • Administrator advises Bob to execute the trade.

6. How we manage your portfolio Settlement • Contract note issued after trade • Kathy transfers funds to settle trade • Trades matched on CHESS • Kathy allocates trade (recorded in Portfolio Administration System - PAS) • All data/background information is stored electronically

7. Things for clients to note • Each of these steps are in place to protect our clients • The process can take some time • there are a lot of portfolios that have to be reviewed • History shows it is worth taking the time as this reduces errors & improves performance • It takes about a week for a trade to be recommended before it shows up in a client’s portfolio. This is mainly because it takes four days to get the money in from date of sale (T+3)

8. Continued • Sometimes we might recommend a buy or a sell to many clients at once. Telstra was a good recent example • We do this because we want to execute quickly • May not have a corresponding buy or sell recommendation • We will get around to it! (each portfolio must be considered separately) • Using the web based client portal helps speed things up.

9. Thinking behind recommendations • Risk profile • Request for income • Weighting in portfolio • Potential for capital gains • Special situations • Capital gains issues

10. Measuring portfolio performance

11. How an IRR works

12. Other valuations - AIX

13. Other valuations - HDF

14. Some Thoughts on Investing ProcessesFalling Interest Rates and Retail Stocks Owen Evans and Michael Peet 11 September 2012

15. Falling Interest Rates and Retail • Falling rates are usually a signal to buy consumer and housing related equities • This is typically a building products or retail stock • Retail sales growth has been in decline for a decade, diminishing the attraction of apparel and durables retailers • In addition the internet is having an impact on volume growth and margin across many parts of retail, particularly apparel • Conventional retail was not that appealing

16. Building Products • Building products businesses if anything were less attractive • Housing approvals are the best lead indicator and even now are showing no signs of improvement (top graph) • In addition the lagged impact of social building during the GFC was still working its way through the economy (bottom graph) • We saw no reasonable upturn in housing activity until mid 2013

17. Long Term Housing Outlook • We were also somewhat cautious regarding the conventional wisdom that there is a shortage of housing in Australia • Births (rolled forward 25 years) are not suggestive of a coming surge in demand (top graph) • Net migration is also skewed towards students and miners, users of non conventional housing (bottom graph) • We took the view that apparel and building products were simply not overly attractive and we needed to look elsewhere

18. What else is there? • The obvious other places to look were fixed income, auto retailing and high end consumer durables • We prefer banks to hybrids or utilities due to the operational leverage. We chose ANZ for a variety of customer service reasons. All the banks performed extremely well as rates fell • For high end consumer durables the local market is limited. We did not want a furniture retailer (too much exposure to new housing), so chose Breville (BRG) a design/manufacturer of high end kitchen appliances • Both worked well but we sold BRG way too early

19. Auto Retailers • Historically this has been an industry globally dominated by small local entrepreneurs • The two largest domestic players have 5% market share • There are considerable scale economies (marketing, real estate, financing, service) • Lower tariffs/strong A$ supportive of volumes • It is virtually impossible to import and take delivery over the internet • We bought AHE over APE due to valuation. Both have performed well

20. Auto Sales • Volumes have increased by roughly 50% over the past 15 years, driven to a large extent by falling real prices (tariffs, A$) • With the exception of the GFC year they are surprisingly stable • As most consumers finance car purchases they are susceptible to movements in rates and availability of finance

21. The Boneheaded Miss • Supercheap (SUL) sells car parts, camping gear (BCF) and now sporting goods (Rebel) • The stock was hammered due to the Rebel acquisition, creating a great opportunity • The company is well managed, very service focussed and is positioned to compete with internet based retailers • Unfortunately we were overly cautious regarding Rebel and missed this opportunity

22. Questions