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

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The CIPL Team

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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.

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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.

How we manage your portfolio

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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

How we manage your portfolio

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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)

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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.

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• Risk profile

• Request for income

• Weighting in portfolio

• Potential for capital gains

• Special situations

• Capital gains issues

Thinking behind recommendations

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Measuring portfolio performance

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How an IRR works

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Other valuations - AIX

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Other valuations - HDF

Some Thoughts on Investing ProcessesFalling Interest Rates and Retail Stocks

Owen Evans and Michael Peet11 September 2012

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• 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

Falling Interest Rates and Retail

Retail Sales Growth

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Jan-0

4

Jan-0

5

Jan-0

6

Jan-0

7

Jan-0

8

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

16

• 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

Building Products

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

Approvals % on PcP

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jun-

84

Jun-

85

Jun-

86

Jun-

87

Jun-

88

Jun-

89

Jun-

90

Jun-

91

Jun-

92

Jun-

93

Jun-

94

Jun-

95

Jun-

96

Jun-

97

Jun-

98

Jun-

99

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

Jun-

09

Jun-

10

Jun-

11

17

• 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

Long Term Housing Outlook

0

50

100

150

200

250

300

0

50

100

150

200

250

300

2005 2006 2007 2008 2009 2010 2011

Students 457 Other ST Permanent Total

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• 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

What else is there?ANZ relative performance to ASX300

90

95

100

105

110

115

120

125

130

BRG relative performance to ASX300

90

110

130

150

170

190

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• 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

Auto RetailersAHE relative performance to ASX300

90

100

110

120

130

140

150

160

170

APE relative performance to ASX300

90

110

130

150

170

190

5/09

/201

1

19/0

9/20

11

3/10

/201

1

17/1

0/20

11

31/1

0/20

11

14/1

1/20

11

28/1

1/20

11

12/1

2/20

11

26/1

2/20

11

9/01

/201

2

23/0

1/20

12

6/02

/201

2

20/0

2/20

12

5/03

/201

2

19/0

3/20

12

2/04

/201

2

16/0

4/20

12

30/0

4/20

12

14/0

5/20

12

28/0

5/20

12

11/0

6/20

12

25/0

6/20

12

9/07

/201

2

23/0

7/20

12

6/08

/201

2

20/0

8/20

12

3/09

/201

2

20

• 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

Auto SalesAustralian Total Vehicle Sales (ABS)

500000

600000

700000

800000

900000

1000000

1100000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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• 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

The Boneheaded Miss

SUL relative performance to ASX300

80

90

100

110

120

130

140

5/09

/201

1

19/0

9/20

11

3/10

/201

1

17/1

0/20

11

31/1

0/20

11

14/1

1/20

11

28/1

1/20

11

12/1

2/20

11

26/1

2/20

11

9/01

/201

2

23/0

1/20

12

6/02

/201

2

20/0

2/20

12

5/03

/201

2

19/0

3/20

12

2/04

/201

2

16/0

4/20

12

30/0

4/20

12

14/0

5/20

12

28/0

5/20

12

11/0

6/20

12

25/0

6/20

12

9/07

/201

2

23/0

7/20

12

6/08

/201

2

20/0

8/20

12

3/09

/201

2

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Questions