BRR - Straight from the source

PRESENTATION BY MR. DIRK MORRIS, CHIEF EXECUTIVE OFFICER OF BT INVESTMENT MANAGEMENT LIMITED (BTT)

“BTIM Annual General Meeting 2008”

http://www.brr.com.au/event/54175

 

TUESDAY, DECEMBER 9, 2008, 1:00 PM.

 

            BTT     I have been informed by our Company Secretary that our quorum as required by the company’s constitution is present. Accordingly, I declare the 2008

10                    Annual General Meeting of BT Investment Limited open.

 

                        (Inaudible) introduce my fellow Directors to you. As you know, each of the Non-Executive directors is facing election later in the meeting.

 

15                    At the end of the table to my right is Carolyn Hewson. Carolyn is a Westpac nominated, Non-Executive Director and a member of our Audit and Risk Management Committee. Next to Carolyn and to my immediate right is our Chief Executive Officer, Dirk Morris. Dirk doesn’t need to be elected today. To my immediate left is Chris Millard. Chris is our Company Secretary. To

20                    his left is Gavin Walker. Gavin is an independent Non-Executive Director. He is the Chairman of the Audit and Risk Management Committee and a member of the Remuneration and Nominations Committee and to Gavin’s left is Rob Coombe. Rob is the other Westpac nominated Non-Executive Director and a member of the Remuneration and Nominations Committee.

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                        Before we deal with the first item of business, I’d like to briefly outline how the meeting will progress and discuss some procedural matters. The first item on the agenda is my address as Chairman. After my remarks, our Chief Executive Officer, Dirk Morris, will then address the meeting. After Dirk has

30                    concluded his remarks, we will consider the company’s financial statements and statutory reports. Shareholders will have an opportunity to ask questions at this time. We will then deal with each of the resolution set out in the Notice of Meeting. Shareholders will also have an opportunity to ask questions in relation to each of the individual Resolutions, prior to the vote being put to the

35                    meeting.

 

                        Where appropriate, I may refer questions that are best able to be answered by the Company’s management, to our Chief Executive Officer, Dirk Morris or to our Chief Financial Officer, Earle Macgregor, who’s in the front row here

40                    today. I also note that our Auditor, Anne Loveridge, from PricewaterhouseCoopers is also present today to answer any questions that shareholders may have in relation to this year’s audit.

 

                        A form was sent to all shareholders asking for questions to be submitted prior

45                    to the meeting, and in response to that request, a number of questions have been received and I will, during the course of the meeting, seek to answer as many as possible of those questions. Each shareholder who did submit a question prior to the meeting will receive a written response to their question from the company. You will have each received an admission card upon entering the meeting. Only shareholders of BT Investment Management, their proxy holders and corporate representatives are entitled to speak and vote at the meeting. You must be holding a red or a yellow card if you wish to address the meeting. You must have a yellow card to be eligible to vote on

5                      any resolution put to the meeting.

 

                        If you hold shares jointly with another person and the other person or persons are present at the meeting, you may have a red card. Only the person holding the yellow card has the right to vote in relation to jointly owned

10                    shares. You may also have a red card if you lodged proxy votes prior to the meeting and those proxy votes have not been revoked. If you have been given a blue card, you are a visitor to the meeting and you are most welcome. However, you’re not eligible to participate in the meeting.

 

15                    Should you wish to ask a question as we go through the meeting, please proceed to the microphone located in the centre aisle. The microphone is attended by an employee of BT Investment Management. Please show them your yellow or red card and tell them your name, and they’ll make sure that you have a chance then to ask the question.

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                        In terms of the Annual Reports, one question has been asked by shareholders prior to the meeting relates to the company’s Annual Report. In the last few years, there have been some changes to the legal requirements to send Annual Reports to shareholders. Companies are now required to

25                    only send a copy of their Annual Reports to those shareholders who specifically asked to receive it. If you did not receive a copy of the Annual Report and you’d like to receive future Annual Reports or other correspondence, please speak with one of the Link Market Services representatives located outside the meeting room, who will assist you in

30                    changing the way that BTIM communicates with you in the future.

 

                        In the meantime, copies of the Annual Report are available here today or from our website, the address of which is set out in the Notice of Meeting.

 

35                    A number of shareholders have submitted proxy forms. For proxies to be valid, shareholders must have lodged their proxy forms with our share registry, link market services, at least 48 hours prior to the meeting. Details of the valid proxy votes received will be shown on the screen after any discussion relating to the each resolution has concluded but prior to the

40                    resolution being voted upon. Following any questions and discussion, each resolution will be submitted to the meeting on a show of hands. If there is a reason to submit the resolution to a poll, the procedure for the poll will be advised at that time.

 

45                    So, I now propose to make some remarks about the company’s performance during its first year. I will then ask Dirk, our CEO, to give you more insight into our operations and strategy.

 

                        It has indeed been a significant year for us at BT Investment Management, from the separation of the Funds Management activities of Westpac and public listing, to confronting one of the most turbulent periods in the history of global debt and equity markets.

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                        As a Fund Manager, our performance is strongly linked to equity and debt markets and we have inevitably found conditions tough this year. However, I am pleased to report that BT Investment Management or BTIM for short, achieved a cash net profit after tax of $40 million for the year, which was up

10                    to 10% on the prior period. We achieved revenues of $147 million on closing funds under management of $35 billion. We also recorded an improved cost to income ratio of 61%. We have an ungeared balance sheet and strong cash flows. This result has produced good profit growth momentum over the last three years.

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                        More importantly, I’d like to say the result reflects the strength of our management and investment teams and the underlying business. We believe it validates the multi-boutique structure which was the reason for our IPO last year. It also underlines the dual benefits of having a small and agile

20                    operating model and the strength of the Westpac and BT brands.

 

                        In relation to dividends, the Directors declared a final dividend for the year of 5.4 cents per share, taking our total dividend for the year to 8.9 cents per share.

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                        At the time of the prospectus, we expressed a policy of paying out 80% to 90% of cash net profit after tax earned from the date of listing. We set the payout based on cash net profit because this represents our cash profitability. However, our cash profit was some $24 million higher than the statutory profit

30                    this year due to the accounting rules. Because we can only pay dividends out of statutory profits, our only option for a distribution above the 8.9 cents per share dividends was to make a capital return.

 

                        Given due consideration to both the cash position of the company and to

35                    uncertain market conditions, we decided not to recommend a capital return at the time of announcing the results. The Board will keep this matter under close review over the coming months and seek the necessary approval from you, our shareholders and the appropriate tax office ruling, if and when it’s deemed prudent to carry out a capital return.

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                        In terms of the overall long-term payout ratio, the Board maintains the view that 80% to 90% of cash net profit after tax is the right target. The difference between statutory and cash profit will decrease over time, roughly halving next year, and so the requirement to make capital returns will also disappear.

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                        In terms of our share price, I’m aware that many of you would have bought shares in BTIM at the time of the IPO in December 2007 and then consequently seen a decline in the value of your shares. Indeed, we received a number of questions on this topic, including: was the issue overpriced? When will the share price reach $4.80 again? The issue was priced at the level determined by the market at the time of the IPO based on a range established by what the institutions were prepared to pay, but of course, the market now is very different to what it was then and it may be quite a

5                      considerable time until we reach that share price again.

 

                        Although relativities are small comfort to you, we have, in fact, declined broadly in line with the ASX 200 over the period since the IPO, and in this we have faired better than many of the more specialized Fund Managers.

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                        Our philosophy as investors is to have a long-term horizon and we would anticipate, in time, a return to less volatile market conditions which should be reflected n our share price. In the meantime, the Board and the management will continue to focus on and to drive operational performance. We will

15                    continue to communicate with our shareholders to enable them to appraise the underlying value of the company. We will also continually explore ways to maximise shareholder value.

 

                        Turning to the outlook, there is no doubt that in the short term, continuing

20                    adverse market conditions will result in a challenging business environment for us at BTIM. As you are aware, we reported our results for the 12 months to September and the market has suffered further substantial declines in October and November. Inevitably, our funds under management and revenues will be affected. We are and will continue to be responsive and

25                    adaptive to these changing and challenging market conditions.

 

                        We do believe that the collective skills and experience of our team at BTIM over many years and many economic cycles will enable us to optimise fund performance and properly balance risk and returns in managing our client’s

30                    investments during these challenging times. Clients are increasingly looking for security from brand and balance sheet stability that BTIM can offer.

 

                        Over the longer term, we consider that market fundamentals remain positive, underpinned by compulsory superannuation. When the markets do stabilise,

35                    we believe that BTIM will be well positioned for further growth. Our multi-boutique model provides a superior platform to more traditional models, enabling us to attract and retain talent, drive the diversification of our products, and by doing so achieve above average investment returns.

 

40                    We are also in a unique position to take advantage of growth opportunities presented by the dislocation in the markets because of our strong balance sheet. I’ll get Dirk to expand upon this in his speech in a few moments.

 

                        The Remuneration Report will be considered later in the meeting and I’ll

45                    make some comments on it at the appropriate time.

 

                        Before concluding my address and handing over to Dirk, I’d like to thank my fellow Directors for their contribution and commitment this year. Our newly formed Board has, in my view, worked extremely well together to provide the right amount of active support to management during this, our first year. I would also like to thank our CEO, Dirk Morris, and all BTIM employees for their hard work and contribution to our solid performance during our first year as a listed company. In the coming year, the Board is fully committed to

5                      moving the company forward, supporting management, and delivering on our growth strategy.

 

                        I now call on our CEO, Dirk Morris, to make his remarks.

 

10                    Thanks. Dirk?

 

            BTT     Thank you, Chairman, and good afternoon, ladies and gentlemen. I’d indeed like to start by echoing Brian’s comments. It’s been a very exciting but challenging year for all us here at BTIM. We’ve been asked, in fact, both of

15                    us over the course of the last year, what’s been the most significant impact of listing our small company on the stock exchange 12 months ago, and for me, the most important impact has been on culture. The challenge here in terms of bringing talented fund managers into a new environment gets the hat off the reason we listed the new company.

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                        The equity investment managers across the Board are now shareholders along with you all. They, therefore, have a business interest in succeeding not just in terms of a narrow performance but in terms of across the business as a whole, and I think we saw that very early on after the listing and you see

25                    it in the financial results that we’ll get to. Expense control is something we all now focus on, on a daily basis, not just our CFO.

 

                        But beyond and I think more importantly in the longer term, this cultural change has resulted in better communication between the investment teams,

30                    fertilising ideas, and creating more entrepreneurial sharing across the investment areas. We’ve also been able to attract and motivate a very talented investment staff. During this year, you could argue what, with markets falling, this will be less important. I would counter in the long run, you have to generate a cultural environment in which you keep staff through

35                    the down periods and the up periods. It’s been one of the challenges our competitors have faced, so far, broadly unsuccessfully, and I think having this new culture in place will be really important for us to deliver for our clients and in the long run, for our shareholders.

 

40                    Let me turn now to the fund performance and at the end of the day, is the bread and butter of our business. The slide up here has a lot of data. I don’t expect you to be able to read all the numbers across the charts. But it does provide you with, I think, some reassurance of the overall performance, the relative performance of our products versus our competitors.

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                        Let me quickly define what were highlighting here, the numbers represent the absolute returns, and of course, it’s been a difficult year particularly for our equity products which have been negative. But in this environment, we excel against our competitors and so we’ve highlighted in colour with gold, silver, bronze representing how we’re performing the Gold Bank being in the top 25% of our peers, the silver the next 25%, and the bronze below 50%. So clearly, our objective is to get as many funds as possible particularly over the medium and longer terms, 3 and 5 years with that gold against it. You can

5                      see, I think, what is really outstanding for our company across a range of products particularly our core leading equity products, but also now, in our 16 common property, a fantastic medium and longer term performance, reinforced also by the consultant’s ratings. We’ve just shown here, on the very far side, the S&P star system. The five stars is the highest and you can

10                    see a number of our products are rated four and five stars.

 

                        The ability of our fund managers to deliver this performance in a severe market downturn and to maintain our funds liquidity, and up until this point, and we’re very confident we have not had to suspend redemptions in any of

15                    our funds. We think that reflects the experience in talent of the teams. We made early strategic decisions to raise liquidity and in particular to eliminate exposure to leverage companies and securities in our portfolios, and that’s really shown through.

 

20                    It is fair to say to be balanced our international funds and some of our fixed income and credit funds have not performed as well during the last year or two. But we have made changes and focus very much on continuous improvement. We’ve made some personnel changes on the credit side and with our partner, AQI, who runs our global equities, we’ve introduced some

25                    substantial improvement in the last three months, which is beginning to show some benefits.

 

                        You’ll notice that in the last 12 months, the first two columns, we don’t have quite as many gold or first quartile, as we call it funds, this if you understand

30                    our philosophy and style is not that surprising, we’re able to deliver solid our performance during the 4 to 5 years of the bull markets. We take a very disciplined approach to not taking excessive risks in both the bull and the bear markets. When you get such dislocation as the last 12 months, some of our competitors take really quite substantial risks versus us in the

35                    benchmarks, that’s not our style and we wouldn’t expect to be always in the first quartile in all market conditions. But what is most pleasing as you’ll see here, we have been able to above average in the down markets so we’ve protected client capital, and that’s really helped us moved up the rankings over the 3-and 5-year period, which is what most investors and consultants

40                    focus on.

 

                        Not surprisingly, given that phenomenal 3-and 5-year performance, we are starting to win accolades and awards. In particular, I’ll stress in the last 12 months, a number of very significant awards, the S&P overall Fund Manager

45                    of the Year along with a number of subcategory awards, and just last week, the more retail focused Money Magazine Fund Manage of the Year as well, again with a number subcategories. So, I think, it’s clear to say the model is gaining recognition in terms of our longer term performance and the consultants supporting.

                        Well, how is that reflect in our FUM inflows in this difficult environment in which the industry clearly is starting to see net outflows. So this table now highlights how we’ve gone over the last 12 months. Starting with the opening balance from a year ago before we floated of about $41.9 billion in Funds

5                      under Management, so quite a significant play in the Australian market.

                       

                        You can see it on the far side, we have now moved at the end of September to 35.3%, a decline of around 16% in funds under management. The middle columns split out the movement into the effect of the market, so how the

10                    market downturn has impacted our funds and how we’ve gone in terms of winning new fund flows with that we abbreviate funds under management as FUM in this table for clarification. So, what you see from that breakdown is that in fact the 16% decline in our FUM is entirely driven by market movements and net flows have been broadly flat.

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                        I am very pleased to say, however, within that broadly flat outcome we’ve achieved %1.7 billion of new inflows into our Institutional and high margin Wholesale funds. These are our go-forward products in which we’re marketing aggressively. We had expected going into the IPO that what we

20                    call our Legacy Retail FUM, some of the older products would bring an outflow as they have done, and so we’re very happy in this environment in which the industry is seeing that outflows, particularly in the retail space, to be able to demonstrate to our shareholders that our go-forward products are indeed attracting significant market share.

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                        We have seen some recycling of that Legacy Retail money back into a higher margin Wholesale and Institutional funds and that was the key part of our story going into the IPO. There’s no doubt that’s slowed, given market conditions, but looking forward next year, clearly, when markets turn, we are

30                    well positioned to see a further recycling into our higher margin products.

 

                        Where is our product positioning as we stand? Certainly, it has been a benefit versus some of our smaller competitors. We start, as you could see on this slide, in terms of our assets under management with a relative diverse

35                    set of products spread across Australian Equities, which has been our leading product set, but we also have International Equities, fixed income, and cash. Indeed, if you look over the last 12 months, by having that diverse set of products, we have been able to benefit as clients have tended to move money out of riskier assets into cash, so you’ll see our cash numbers have

40                    gone from 17% to 21%. But despite the market falls, I think this is really powerful point versus some of our competitors, our Australian Equities is holding up at 39%. In other words, even though Australian Equity market is down more than 30%, a lot of our inflows have come into that higher margin product base.

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                        Let me turn just quickly, and I don’t have the slide here, on costs and if you have more questions I’m sure Earle would like to answer them. He’s been really very important in our ability to generate positive earnings in this environment. A lot of that has come from disciplined cost control. As you heard from our Chairman that is reflected in a cost-to-income ratio moving from 65% to 61% that is really quite an extraordinary decline in environment in which our revenues are under pressure.

 

5                      We’ve reduced and delayed cost in a number of areas around consulting, back office, and as I’ve mentioned, the whole cultural shift in entrepreneurial nature of the float has meant that across the board all of our staff are focused on cost control. We did decide, just 3 or 4 months ago, to make a significant reduction in head count of around 10%, very difficult decision in this

10                    environment for a new company, but we did it very selectively in areas where we felt it was not going to damage our ability to grow when the market stabilised. Those cost savings were not reflected in the previous year’s financials as they came towards the end of financial year, so that will help us…those cost savings will help us cope with further market declines as

15                    we’ve seen in the last couple of months.

 

                        Let me turn now to our strategies for the future in this difficult and challenging environment.

 

20                    In the short run, again to reiterate the Chairman’s views, we do not anticipate the broad market conditions dramatically changing. It will remain a challenging environment I think as we move into the early part of the new year. So, for all fund managers such as BTIM, as much as our relative strength is still apparent, it will be a challenging environment.

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                        But in response to these difficult market conditions, we’re continually considering investment products that will enable us to resonate with our clients, both Institutional and Retail. In particular, one of the main areas we’re focused on is retirement products, an area where I think these challenging

30                    conditions have exposed real problems for retirees.

 

                        We’re working on a number of ideas that will ensure that fees reflect performance rather than just benchmarks. We’ll have products where we can look through and the clients can look through and asses the underlying

35                    gearing levels and risk, so much more transparent, and we’ll increasingly use the skills of our team tactically, what we call in our business “Alpha” but really what we’re talking about is allowing the skills of our investment teams in a diversified way to flow through into those products.

 

40                    As one example of some of these new products, we have recently launched a Global Macro Fund. This is an absolute return product, it is not dependent on the ups and downs of equity markets, and we think will resonate with our clients.

 

45                    The success last year of retrieving inflows from a range of distribution channels, as I mentioned both Institutional and Wholesale, will be further focused on this year. We are in fact looking very closely at the higher margin, high network channels.  We do think there are a lot of disaffected investors in those channels who’ll be quite excited by the stability of our model.

 

                        We have achieved successes in expanding our distribution across all the major wrap platforms and particularly across the range of smaller boutique providers. We anticipate that once interest rates continue to fall and flow

5                      through into lower deposit rates and market stabilised that we’ll start to see the real benefits of our model as we access more and more of those channels.

 

                        We also have the distinct advantage of the strength of our balance sheet.

10                    One of the phenomenal and exciting areas that I focused on is that when we floated off from BTFG and Westpac, we were gifted effectively cash on our balance sheet and we inherited no debt. We did not anticipate, and I’m sure Westpac didn’t anticipate the extent of the financial credit crunch but there’s absolutely no doubt having a strong balance sheet in the current environment

15                    and certainly going into next year will be an enormous advantage as we look to grow.

 

                        I’m spending a lot of my time now talking to potential individuals who are talented, who we could bring on to our platform, and even looking at potential

20                    M&A opportunities where we don’t have the full set of product and resources, what we call particularly the alternatives in unlisted property, private equity, and some of the more absolute return products, we’re finding very interested parties who look at our model and saying that’s maybe a great solution for the distress that we’re in. So over the next 6 to 12 months, we will be looking to

25                    expand via M&A as well as organically.

 

                        I’d like to, in conclusion, reiterate Brian’s comments that the underlying fundamentals in superannuation in the Australian economy and the growth for the whole savings and fund management sector is very strong. That was the

30                    key metric behind our logic for the float in becoming a specialist -focused fund manager, and we believe our model is very well placed to participate in that long-run growth.

 

                        BTIM has demonstrated an ability to perform and win market share through

35                    both the up markets and now the down markets, and we’re focused as a team on continuing that success story.

 

                        Let me now hand back to Brian to continue with the formal part of the agenda. Thank you very much.

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            BTT     Thanks, Dirk. I will now move on to the formal business of the meeting. A copy of the Notice of Meeting has been sent to all shareholders and I’ll take that as red. Details of each Resolution to be considered by the meeting will appear on the screen behind me.

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                        The first item of business concerns the receipt in consideration of the company’s financial report, director’s report, and the auditor’s report. There is no requirement under the Corp’s Act or the company’s constitution for shareholders to vote on or approve or adopt any of those reports, but we do want to provide an opportunity for anybody who has any questions in relation to any of these reports, all the company’s performance and operations generally. If you have or know a number of people have questions that relate specifically to the election of Directors or the Remuneration Report, I’d ask

5                      you to wait until we reach considerations of those Resolutions before asking your question.

 

                        As I indicated earlier if you do have a question, please proceed to the microphone in the centre of the room, show the attendant your yellow or red

10                    card and tell them your name.

 

                        As I indicated earlier, we received some written questions from shareholders, one of those questions related to the Dividend Reinvestment Plan. As stated in the prospectus, the Board has approved a Dividend Reinvestment Plan but

15                    this plan has not been activated. Currently, there is no intention to activate that plan.

 

                        Any other questions about the financial statements and reports?

 

20                    Okay. If there are no further questions on the financial reports…sorry? Yes?

 

            Q         (indiscernible) is my name. I’m a long-term shareholder in Westpac and also in BT over the last 16 years as a margin lender, margin holder. I know (indiscernible) in shares since 1955 and I’m a holder, I’m not a trader. I’ve

25                    greatly accumulated over the years and I’m interested in the long-term view, and because of that I’m in several of the investment companies rather than the fund companies. I’ve never…it’s the first time I’ve invested in the fund company and I did expect to find that in the Annual Report something about the sorts of shares that you’ve bought. Now, when Dr. Morgan started the

30                    setup he…we did have two afternoons where the analyst would speak and give us insight into what we’re doing and now that…and it’s not the correct thing for you, and maybe you’re not doing it in the Annual Meeting, but to continue on having these since so we can get to know the analyst and what you’re doing, because it does come back to us when you’re buying shares

35                    individually, and I’m telling you I was a bit late in coming so I didn’t hear your first remarks but isn’t this your…quite have strong balance sheet, is this a good time now where the shares dropping 50% to buy more of the shares which you think are good for the future? It doesn’t seem to me it’s going to drop any further. I think it’s never going any lower that what it is now. So

40                    that’s one thing, the other thing is what about, do you consider buying, if you got a strong balance sheet, is it worthwhile buying back some of the shares. Then maybe, then you could, if that’s the case, well then you could put on and bring in the investment section.

            BTT     Okay, thanks very much for that. So, quite a few questions there, so just in

45                    relation to the last one about possibly buying back some of the shares, at this stage, the Board has no intention of entering into a share buyback and as we’ve indicated earlier we have deferred consideration of a capital return appending greater clarity around the markets and our cash needs. At the time of our IPO, we indicated that our strategy included a diversification of our business over time. Some of those diversifications we can achieve by attracting new people who have different skills and taking them straight on to the staff. Some of it can be achieved more quickly by buying existing businesses, and that as Dirk said in his remarks, a very considerable part of

5                      the time of the management team, Dirk himself in particular, and increasingly the Board’s time is taking up, we’re thinking about what are the real opportunities for us there to broaden our business base through acquisition of other companies who are investing in markets that we currently aren’t in. I don’t think that that strategy is likely to change in the near term. I think the

10                    Board is still strongly of the view that we must diversify our product range and that therefore we’ll use the available capital that we have where we see good opportunities to do that.

 

                        In terms of the investments, Dirk do you want to make any comment about…

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            BTT     This is, again, in the annual report because of the lags involved in producing it, we don’t think it’s appropriate to put the individual positions in our funds. Certainly, on our website we’re increasing, looking to put more information with some lags so we don’t divulge our positioning, and of course, we are

20                    always open for shareholders to call us directly. So again, we’re very cautious about divulging exact current positions in some of our smaller company holdings that gives away competitive information, but with the lag you can get a lot of information of our websites and we are really looking to increase the amount of information that you can get access to.

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            Q         I think in shareholder’s meeting (inaudible) that happened in the annuals, we’re thinking that (inaudible)…

            BTT     Something that could …

 

30        Q         I think (inaudible) the Westpac (inaudible)…

            BTT     Yes. Many of the investors we have come to us through Westpac or BTFG products and I know that Westpac and BTFG have a vigorous investor communication programs and that’s continuing, so that we don’t actually have direct contact with those investors who’d come through those products, but

35                    we did provide the best of our thinking to Rob Coombe and his team for them to include in their date, so I guess Rob you’ll take on Board whether we’re doing enough in terms of investor communication…

 

            BTT     I’m not sure Mr. (indiscernible), several (indiscernible) may heard some

40                    Westpac AGMs. Have you…you’re investing directly into the underlying fund? Is that the question or?

 

            Q         Yes, but (inaudible)… but maybe individually.

            BTT     Yes.

           

45        Q         Investment, as I say Westpac has had…with Dr. Morgan’s did begin it and to my knowledge it has been (indiscernible) that I attended and I haven’t heard of any further ones in the last 18 months or so, but I would like to see that happen again (indiscernible) on Thursday.

            BTT     Yes. Okay. Well, I’ll follow you up after this meeting and give you some more information on what’s available there.

 

            BTT     Okay. Thanks very much.

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                        Any other questions? Suggest…

 

            Q         My name is (indiscernible), Mr. Chairman. I notice looking…if I can stand upright…the pie shows a considerable amount of cash. Now, having regard

10                    of the government guarantees, is that cash in deposits where they don’t need to be guaranteed or if they have to be guaranteed over the million dollars, that would be a considerable amount, wouldn’t it, over the fee that have to be paid. I’m just wondering is it safe?

            BTT     Yes, it’s safe.

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            Q         Thank you.

            BTT     The cash products range across a set of unitised funds by further bulk of our cash products are in AAA guaranteed securities, somewhere between 90% to 100% of those, will be major full bank paper. We are considering right now

20                    evaluating whether or not it is sensible to look at paying for the extra security of the government guarantee. At this stage, we don’t think it is. We think the bank paper that we hold in our funds is secured and offers a sensible rate of return based against that the risk of a big full bank filing, which we think is not likely. So at this stage we have not taken up the insurance, which we could

25                    do if we feel it appropriate. We also haven’t had declined demands, so again we may end up, if we get decline at demand, launching a fund that does contain the government guarantee, but at this stage the bulk of our funds are under that AAA umbrella and we feel they’re very safe, and you see that in the inflows that we’ve seen.

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            BTT     Thank you for the question. Any others?

 

                        Okay. So moving on to the election, each of the company’s Non-Executive Directors were appointed by the Board to fill casual vacancies. So we have

35                    the unusual situation where all the Non-Executive Directors are facing election together for the first time.

 

                        Item 2A on the agenda relates to my election as a Director, so I will vacate the chair and will ask Gavin Walker, the Chairman of our Audit and Risk

40                    Management Committee to chair the meeting for the first part of this Resolution.

 

                        Gavin.

 

45        BTT     Good afternoon, ladies and gentlemen. Thank you, Brian. The item of business currently under consideration is the election of Brian Scullin as a Director of your company. Brian was appointed as Director and Chairman on September 2007. Details of Brian’s qualifications and experience are set out on page 5 of the Notice of Meeting. The Non-Executive Directors recently reviewed the performance of each of the Directors of your company including the Chairman, Brian Scullin. Having conducted that review, the Board with the exception of Brian, who did not participate because of his interest, unanimously endorses the election of Brian Scullin as a Director of your

5                      company.

 

                        Are there any questions or comments on the resolution? If there are no questions, I note that the proxy votes representing 71.9% of the company share capital have been received. A summary of the proxy votes available

10                    and the relation to this resolution appear on the screen behind me. As chairman for this resolution, I advise that I would be casting any open or undirected proxies in favour of the resolution.

 

                        I now formally propose the motion that Brian Edwin Scullin, who retires in

15                    accordance with the Company’s Constitution and is eligible for election, be elected as the Director of BT Investment Management Limited. With all those in favour of the motion please raise your yellow voting cards. Thank you. Those against, please raise your yellow voting cards. I declare the motion to be carried on a show of hands and I declare that Brian Edwin Scullin to be

20                    elected as our Director of BT Investment Management Limited.

 

                        Congratulations Brian, and I now hand the role of Chairman back to you. Thank you.

 

25        BTT     Thanks Gavin and thank you all. I’m certainly very much enjoying the challenging role and looking forward to carrying on for the next year or so.

 

                        I will now turn to the election of Rob Coombe as a Director. Rob was appointed Director in July 2007. Details of his qualifications and experience

30                    are set out on page 5 of the Notice of Meeting. We recently reviewed the performance of each of our Directors as Gavin indicated and having conducted that review, the Board, with the exception of Rob who didn’t participate in the Board’s deliberations because of his interest, unanimously endorses the election of Rob as a Director. So are there any questions or

35                    comments on this resolution? I note the proxy votes representing 71.9% of the company share capital have been received. A summary of the proxy votes in relation to this resolution appear on the screen. I advise, that as Chairman, I’ll be casting any open or undirected proxies in favour of the resolution.

40

                        I now formally propose the motion that Robert Neil Coombe, who retires in accordance with the Company’s Constitution and is eligible for election, be elected as a Director of BT Investment Management Limited. All those in favour of the motion please raise your yellow voting cards. Thank you. All

45                    those against please raise the yellow voting card. Okay, the motion is carried on the show of hands and I declare Robert Neil Coombe to be elected as the Director of the BT Investment Management Limited. Congratulations, Rob.

 

            BTT     Thank you.

 

            BTT     Next item is the election of Carolyn Hewson as a Director. Carolyn was the appointed Director in September 2007. Details of her qualifications and experience are set out on page 6 of the Notice of Meeting. We recently

5                      reviewed the performance of each of the Directors including Carolyn and the result of that review, the Board with the exception of Carolyn, who didn’t participate because of her interest, unanimously endorsed her election as a Director. Are there any comments or questions on this resolution? I note that proxy votes representing 71.9% of the Company share capital have been

10                    received. A summary of the proxy votes available in relation to this resolution appear on the screen. I advise, that as Chairman, I’ll be casting open or undirected proxies in favour.

 

                        I now formally propose the motion that Carolyn Judith Hewson, who retires in

15                    accordance with the Company’s Constitution and is eligible for election, be elected as a Director of BT Investment Management Limited. All those in favour of the motion please raise your yellow voting cards. Thank you. Those against, please raise the yellow voting card. The motion is carried on the show of hands and I declare Carolyn Judith Hewson to be elected as the

20                    Director of the BT Investment Management Limited. Congratulations, Carolyn.

 

                        Next item is the election of Gavin Walker as a Director. Gavin was appointed Director in July 2007. Details of his qualifications and experience are also set

25                    out on page 6 of the Notice of Meeting. We recently reviewed the performance of each of the Directors including Gavin. As a result, the Board with the exception Gavin who didn’t participate because of his interest unanimously endorsed his election as a Director. Any comments or questions? So, I note that proxy votes representing 71.9% of the Company

30                    share capital have been received. A summary of the available proxy votes in relation to this resolution appear on the screen, and I advise, that as Chairman, I’ll be casting any undirected proxies who is in favour of the resolution.

 

35                    So I now formally propose that Gavin Ronald Walker, who retires in accordance with the Company’s Constitution and is eligible for election, be elected as the Director of BT Investment Management Limited. Those in favour please raise the yellow card. Those against, please raise your yellow card. I declare Gavin Ronald Walker to be elected as the Director of the BT

40                    Investment Management Limited. Congratulations, Gavin.

 

            BTT     Thank you.

 

            BTT     Other item of business for today’s meeting is item 3, the adoption of the

45                    Company’s Annual Remuneration Report. In accordance with the Corporation’s Act, this is a non-binding resolution. Whilst, legally the resolution is not binding, please be assured the Board will take seriously the way shareholder’s vote on this resolution and also consider any comments that are made by shareholders in the course of considering this resolution.

 

                        Executive remuneration is an important issue, a one that always generates a great deal of debate, this is particularly so in the current economic and financial climate. It was certainly the subject of a number of questions we

5                      received from shareholders. Most of the questions we received on remuneration suggested in different language, they were paying our Executives too much. Whilst, the Board can understand that some shareholders may hold this view, it doesn’t agree the BTIM Executives are overpaid. Indeed, the Board believes their remuneration packages are

10                    entirely appropriate.

 

                        The attraction and retention of high calibre Executives is critical to the success of any business and particularly essential in the funds management industry. The ability to create sustainable, superior products and to generate

15                    superior returns is largely premised upon the skills we can attract to BTIM. The prime rationale for the IPO, as set out on the prospectus was just this, “to enhance the growth of the business by aligning the interest of the shareholders, clients, and employees to performance-linked profit share and direct equity participation”. The Board will be failing its duty to shareholders if

20                    it didn’t ensure that the company was able to attract the best talent by having appropriate remuneration policies. It is of course critical that the remuneration packages of Senior Executives are appropriately structured so that the interests of Senior Executives are properly aligned to good risk management practices, fund investor, and shareholder interests.

25

                        The Board has carefully considered the remuneration practices of BTIM this year and is satisfied that they are so aligned. The principles guiding the saving of remuneration within BTIM include the following: 1) paying for performance with rewards linked to financial and non-financial targets;

30                    2) selection of performance measures based on drivers of long-term value to BTIM shareholders and fund investors; 3) remuneration outcomes reflecting BTIM’s comparative success against companies with which we compete for clients’ funds and Executive talent; and 4) applying the appropriate target reward mixes for each executive level. With that risk, rewards increasing with

35                    the level of responsibility and the criticality of the positions. So, the further up the chain you are, the less you base income where your grand paid income is.

 

                        Individual investment team managers aren’t viewed as key management

40                    personnel within that meaning in the law, accordingly their remuneration hasn’t been disclosed in the Remuneration Report, but we have set out broadly how their remuneration is determined in that report.

 

                        The variable reward payments for the equities strategies boutique were

45                    based on actual profits achieved by that boutique in the year and not upon relative performance of the fund, unlike many of our peers. Whilst the other teams are not yet on profit share, they were paid with reference to the profitability of their teams. At an appropriate we expect these other teams to also move on to the full profit share structures.

 

                        Now, it should be noted that Senior Managers and I include here our CEO, Dirk Morris, who were working for Westpac last year, have seen their pay full. It has actually been reduced this year, compared to last year despite the fact

5                      that our profit, it was actually up.

 

                        So, I know this is difficult with contentious issue, it certainly something that the Board thinks about, a lot. Are there any other questions in relation to the Remuneration Report?

10

                        Yes.

 

            Q         Mr. Chairman, I’d like to look at the accounts and I see that the amortization of employee equity grants is 27 million as opposed to the amount available

15                    for member, 14 million and I suspect that because of the size of the income tax that part of that 27 million, or perhaps all of it is not deductible with tax balances. So, I’d like you to give some further information about that please.

            BTT     Okay, so I’ll call on our Chief Financial Officer, Earle McGregor, to talk on that question about the amortization of equity grants and the tax treatment of that.

20       

            BTT     From a tax point of view, just to answer that, it’s non-deductible so accordingly our tax is higher when you look at it against the reported profit. When you look at it against the cash profit, it does come to 30% so that would answer that.

25

                        On the quantum of the amortization itself, that’s referenced against the $60 odd million that was given on IPO and that was part of the dilution that occurred when Westpac listed the company. The way the accounting rules work is that in the first year, approximately 45% of that cost is actually

30                    recorded in the P&L and then it falls away in the triangulation to the 5th year, so in other words, over the time that those shares were placed to be a much smaller amount. So you get an anomaly or disconnect in the first year, now hopefully that explains it. If there are any further questions, I’m happy to talk afterwards. Does that explain the question?

35

            Q         Yes. (inaudible).

            BTT     Thank you.

 

            BTT     It is a an unfortunate complication that although Westpac provided an initial

40                    bulk of equity grants to key employees and that wasn’t the cost to the shareholders, it nonetheless it has to amortized through our accounts. That’s why we focus on the cash impact as to what the core underlying earnings of the business are. We try and wash out that accounting effect.

 

45                    Other questions on the Remuneration Report? Okay, if there are no further questions, I note that available proxies in relation to this resolution appear on the screen and I again advise that as Chairman I would be casting any undirected proxies in favour of the resolution. As I said, it’s not binding but it’s very important.

 

                        I now formally propose the motion that the Company’s Remuneration Report for the year ended 30 September, 2008 be adopted. All those in favour please raise your yellow voting cards. Thank you. Those against, please

5                      raise your yellow voting cards. Thank you. The motion is carried on a show of hands and I declare the Company’s Remuneration Report for the year ended 30 September, 2008 to be adopted.

 

                        That concludes the formal meeting of the business of the meeting. There is

10                    just one last opportunity for any shareholder to ask any questions. So as there are no further questions, I thank you all for your attendance in today’s meeting and I declare the meeting closed. Please join myself and the other Directors and our staff -- we all have the name tags -- in the foyer for afternoon tea and feel free to ask us individually any questions that you didn’t

15                    want to raise in the entire meeting.

 

                        Thanks very much for your attendance and support.

 

MEETING CONCLUDED

 

 

 

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INTERVIEW CONCLUDED

 

 

 

 

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DISCLAIMER: Transcripts made available by Boardroomradio.com is a free service whereby the transcripts are created by one or more third party contractors without any involvement or oversight by Boardroomradio.com or the respective company, firm, partnership or individual that is being transcribed. Boardroomradio.com and its contractors, client companies, firms, partnerships and guest speakers (paid or otherwise) do not invite reliance upon, nor accept responsibility for, the information they provide. Boardroomradio.com makes every effort to provide a high quality service. However, neither Boardroomradio.com, its transcript providers, nor the providers of any other written or oral data made available on the Boardoomradio.com site (and its partner sites) give any guarantees, undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided. Users should confirm information from another source if it is of sufficient importance for them to do so. Boardroomradio.com, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this site, or for any negligent misstatements, errors or omissions.