20 October 2020

The Manager ASX Market Announcements Australian Securities Exchange Exchange Centre Level 4 20 Bridge Street NSW 2000

Electronic Lodgement

Dear Sir/Madam,

Chairman and Managing Directors Addresses at 2020 Annual General Meeting

Attached is a copy of the addresses to be given by the Chairman and the Managing Director at the virtual Annual General Meeting of Milton Corporation Limited to be held today at 3.00pm.

The online platform for the AGM can be accessed via: https://agmlive.link/MLT20 and will be available from 2.30pm onwards.

Nishantha Seneviratne Company Secretary

Milton Corporation Limited ABN 18 000 041 421 Telephone: (02) 8006 5357 Level 4, 50 Pitt Street, Sydney NSW 2000 Facsimile: (02) 9251 7033 Email: [email protected] Share Registry Enquiries: 1800 641 024 Website: www.milton.com.au

1 Good afternoon ladies and gentlemen.

My name is Robert Millner and it is my pleasure to welcome nd Annual General Meeting.

As it is now 3pm, and there is a quorum present, I declare the meeting open.

Today we welcome you to our first virtual AGM. Due to mandated gathering restrictions imposed because of COVID-19 our 2020 meeting has been moved online for the first time.

The meeting is being hosted on a platform supported by our share registrar, Link Market Services.

Should we experience any technical difficulties today a short recess may be required depending on the nature of the issue. If this occurs I will advise you accordingly.

Before we turn to the official business of the meeting, I would like to introduce the directors and senior executives of Milton. 2 With me today we have non-executive directors: Graeme Crampton, Kevin Eley, Justine Jarvinen and Ian Pollard.

Partners Sydney is in attendance.

Finally, we have Nishantha

Director.

3 The notice of annual general meeting has been duly circulated to all shareholders and the meeting has been properly convened.

The holders of over 191 million shares or approximately 28 per proxy or already voted online.

We will turn to resolutions later in the meeting but please note that only shareholders, proxy holders or company representatives may vote. Voting on all resolutions will be electronic and by way of poll.

Those shareholders attending the meeting online that wish to vote can do so using the electronic voting card received when online registration is validated. Please refer to the virtual AGM online portal guide or use the help line specified.

Following my report Brendan will provide an overview of the 2020 results and comment on the investment portfolio.

4 You can ask questions regarding the business of the meeting at anytime after you login and we encourage you to submit questions as early as possible.

For shareholders participating online through the virtual your question and click submit.

Please ensure that you only include one question at a time with each submission.

Any questions received from shareholders prior to the meeting will also be addressed at this time.

We will endeavour to answer all questions but should any questions be missed we will contact the relevant shareholders after the meeting with a response.

Prior to answering your question, your name will be announced to the meeting.

5 Voting on all resolutions is now open. You can vote online by bottom of this webcast. Your voting card will appear with all of the resolutions as set out in the Notice of Meeting.

Press the option corresponding with the way in which you wish

If you change your mind or wish to change your vote after anytime during the meeting.

Voting will close 5 minutes after the close of meeting.

6 2020 was a challenging year for investors, and we trust that you, and your families, remain healthy and are navigating these difficult times well.

The COVID-19 pandemic and associated business lockdowns created extraordinary uncertainty and share market volatility in the second half of the 2020 financial year.

Many major Australian companies cut, deferred, or eliminated dividends altogether to conserve available cash when faced with economies in lockdown and uncertain corporate earnings.

Indeed the fall in Australian dividends was far greater than that seen during the global financial crisis and exceeded the dividend cuts seen in other markets globally.

These major companies, in many cases, form the core of retirement and investment income strategies for many investors. Combined with record low interest rates the environment for conservative income-oriented investors has rarely been more difficult. 7 We note the extraordinary support provided by governments and central banks throughout this time to stabilise markets, provide liquidity and support individuals and organisations affected. The effect of this was a reduction in interest rates globally, and a sharp rebound in certain parts of the equity market after a 40% drop to the lows in March.

first concern during this time was to protect the safety and welfare of all staff. We are pleased that all staff are safe and well and that Milton operated uninterrupted.

portfolio managers undertook detailed reviews to ensure that the companies we are invested in remained viable and solvent. We took the opportunity provided by the volatility to add to the portfolio selectively due to higher than normal cash balances from sales conducted in the first half of the financial year.

As a long-term investor, Milton expects to see periods of volatility and we always aim to remain invested and capitalise where possible.

Milton was founded in 1938 and has been listed on the ASX since 1958. Our goal remains the provision of a growing stream of tax effective dividends and capital growth over the long term. Milton has paid a dividend to shareholders every year since incorporation.

We aim to do so with low costs. With internal management and an expense ratio of 0.14%, Milton remains one of the lowest cost actively managed vehicles available to investors. We have no asset linked management or performance fees that reduce returns to shareholders.

7 In 2020 Milton reported net profit after tax of $116.9 million on operating revenues of $120.1 million, a decrease of 20.8% from 2019.

Earnings per share fell by 21.4% to 17.45 cents per share.

Sharply reduced ordinary dividend income was received on special dividend income also fell materially after an extraordinarily strong 2019 financial year.

Underlying operating profit, which excludes special dividends, was $111.3 million, a fall of 16.7% from 2019.

The net $21 million in reductions in ordinary dividend income bank investments alone.

investment team had taken actions in the first half of the financial year to reduce bank positions and built on those actions in the second half. Brendan will expand on this topic further in his presentation.

Materially increased dividends were received from BHP, , and Coles. In many cases due to bank holdings. Certain resource companies continue to see very favourable trading conditions in an otherwise challenging environment.

7 Board of Directors declared ordinary dividends of 17.5 cents on year.

The Board looks at underlying earnings, which exclude special payments to enhance their reliability.

Milton has significant capacity to maintain dividends in future periods due to a robust profit reserve and franking credit position, however the significant falls in dividends received, and the expectation that 2021 will also be challenging, drove the decision to act now.

All dividends paid were fully franked, and Milton retains 34 cents per share of surplus franking credits.

DRP was available for the final dividend and the Board is pleased to note that participation in the program continues to increase. 8 Milton remains committed to our aim of providing tax effective and sustainable dividends and believe that the decision to reduce the final dividend will deliver a superior long-term outcome as the funds remain invested in the company to generate growing earnings and dividends per share.

8 -9.8%, reflective of difficult overall market conditions and the concentration of sharp share price recovery from March lows in high growth, non-dividend paying technology companies. expenses and tax, and the dividends received by shareholders.

94 market. However, Milton is not an index investor, we invest to grow our income, so actual performance will vary from stock market indices.

20 Year TPR is 8.66% per annum, reflective of a strong long-term history of wealth generation for shareholders.

pre-tax NTA per share at 30 June was $4.26, a decrease of 13.4% year on year.

Milton has since paid its final dividend of 8.5 cents per share. The September NTA, after payment of the final dividend, was $4.25. 9 .

We remain cautious about the market, and dividend outlook for 2021.

Dividends are likely to remain under pressure until companies have more confidence regarding the path of economic recovery from COVID-19 lockdowns. Holding cash on balance sheet is the best insurance against that uncertainty, so payout ratios are expected to remain capped.

It remains unclear how economies will respond as emergency stimulus and support are withdrawn by governments. It is reasonable to expect higher levels of unemployment, suppressed demand and weakening credit conditions.

Interest rates are expected to remain low, which will act as a support for stock prices, notwithstanding the difficult earnings environment.

This contributes to the unusual situation of historically high asset valuations amongst record economic uncertainty. 10 We also note that 2021 brings the US political cycle into focus, which can be a source of volatility for markets and that China remains a source of potential surprises. on the prior year with the August reporting season delivering mixed results.

The supported.

Notwithstanding the challenges of 2020 Milton enters 2021 with a strong balance sheet, no debt, sufficient franking credits and ample financial flexibility.

Thank you.

I would now invite Brendan to provide his report.

10 11 12 Thank you Mr Chairman and good afternoon everyone. efforts this year. Much has been asked of them throughout recent months and they have responded admirably. We have taken the required steps to ensure that employees are safe and our small team of 8 have remained highly productive during this time.

As shareholders, we are fortunate that Milton has a dedicated group of employees, and a hard-working Board of Directors, with deep and relevant business experience that can be brought to bear in times like these.

Whilst the COVID-19 pandemic, the associated falls in business and economic conditions, and the volatility of asset markets in and around the world is unusual, Milton has seen, and weathered, many different sets of economic conditions in its 82 years of incorporation.

13 Milton has been able to do this by focusing on the long term, managing the business conservatively and accepting we will encounter periods of volatility such as we have seen recently. We aim to make sensible and consistent long-term decisions, use these periods to challenge our assumptions and, where appropriate, build our portfolio for the future benefit of shareholders. We look to grow earnings and dividends rather than chase fashionable companies to track a stock market index.

The recent crisis brings to the fore several disruption related themes that we have spoken with you about over the last few years.

Disruption has always been a feature of the investing environment. Companies are disrupted faster and more regularly with every passing year. Technology, globalisation and an environment where the cost of capital is incredibly low foster this process.

The COVID-19 pandemic has accelerated disruption bringing forward many, primarily digital, themes.

Some examples are:

Changes in consumer habits due to online shopping. Online banking and the demise of the bank branch. The impact of video chats on corporate travel. Streaming data and the effects on entertainment and other fields.

13 Changes to working habits and the impact on CBD property, and Increased infrastructure investments to support the economy which may advance the development and adoption of low carbon technologies.

The The Chairman and I are very disappointed that we are unable to complete our usual face-to-face meetings in Sydney, Melbourne and Adelaide. We do look forward to resuming them at the first opportunity.

This environment requires Milton to adopt a flexible mindset regarding our investments, and creates a situation where the long term may not be as long as previously thought.

portfolio turnover in 2020 reflects the desire to position the company in a way that considers these factors. We have made transformative changes to our portfolio this year, and whilst Milton will remain a low turnover, long-term holder of companies, our willingness to exit positions and build new, growth investments in response to disruption risks has increased.

Asset markets recovered sharply from their lows of March, having made highs at the end of the first half of 2020. The recovery was due to the combined impact of low interest rates, central bank liquidity and government support for businesses and individuals. This support being broadly necessary to compensate for government mandated lock downs of economies.

13 The market rebound has also been supported by the expectation of a COVID-19 vaccine being available in the short term.

This set of circumstances has created the unusual situation of asset prices trading at record high valuation multiples, at a time of heightened uncertainty. Indeed, many companies in the recent August earnings season, one that was broadly disappointing, are no longer giving guidance regarding their prospects.

The companies that have led the market higher are generally high growth technology companies that have business models that are thought to be immune from COVID-19 impacts.

It is natural for stock markets to rebound sharply after a recession, and growth has returned in many economies notably the US and China. However, we believe that this is a recipe for elevated future volatility, and in an Australian context are concerned about the impact of removal of government support on unemployment, credit quality and overall demand.

It argues for Milton, and indeed all companies, to exercise a degree of caution and conservatism.

2020 results, whilst challenged, were reasonable against this backdrop.

Net profit after tax declined by 20.8% to $116.9 million or 17.45 cents per share on dividend income which fell 19.3% to $122.8 million.

13 Interest and other income fell due to lower interest rates, however trading income was increased on the year due to the opportunities presented by multiple capital raises.

The joint ventures performed well in 2020 with robust sales volumes in our Western Australian JVs and improved sales conditions in the Hunter.

On an underlying basis, which excludes the impact of special dividends, profit fell by 16.7% to $111.3 million or 16.6 cents per share.

Ordinary 2020 earnings decreased by 9.8% to 17.5 cents per share.

full year dividends for 2020 represent a payout ratio of 105% of underlying profit reflecting a desire on the part of the Board to continue to support the fully franked dividend payment.

Expenses represent 0.14% of assets, making Milton one of the lowest cost investment vehicles available.

At 2020 but certainly did not expect the impact of COVID-19. We highlighted a particular concern about the banking sector, in which Milton held substantial investments.

In 2020, banks contributed most of the reductions in dividends as bank management teams shored up balance sheets and regulators mandated dividend deferrals.

I will expand on our view on banks shortly.

13 We expect that dividends will remain under pressure in 2021 however Milton retains a strong profit reserve and franking credit balance allowing us to have confidence that we can support robust tax effective dividends to our 30,000 shareholders in future.

13 The decline in interest rates seen in previous years accelerated in 2020 as central banks cut official interest rates to support the broader economy due to COVID-19.

This is important for several reasons.

Low rates present a major challenge for conservative income- oriented investors who now receive meagre returns on their term deposits or cash. This has the effect of forcing those investors to either take more risk, reduce their cost of living or consume capital, which reduces the likelihood of future returns.

Self-sufficient investors have been ignored by governments largely focussed on supporting workers.

Term deposit rates have been trending lower for several years, with the tax advantaged dividend yield available to equity relatively steady.

14 This supports equity markets as investors search for income amongst dividend paying shares, driving valuations and the market itself higher.

Lower interest rates feed into equity valuations directly as the risk-free rate falls. This reduces the discounting impact on future cash flows for high growth companies making them considerably more appealing, driving their valuations higher. You will have noted that much of the recent market strength has been due to a small cohort of high growth technology companies.

Accordingly, interest rates and the broader market environment have caused a flood of money into the equities markets globally, much of which is in passive format via exchange traded funds.

This sets the scene for higher future volatility and higher cross- asset correlations. It also leaves markets reliant on the future provision of cheap money. Rates will be lower for longer, and any efforts to sharply increase rates, for example due to an uptick in inflation, will likely be very negative for all asset prices, but particularly growth equities.

In terms of how Milton invests against this backdrop, we remain focused on companies that are profitable, paying dividends, and have resilient business models. We are holding cash on balance sheet to allow us to respond to future episodes of volatility. Where we have invested in higher growth companies, we have ensured that they have sustainable business models that are not simply built on cheap money and ambitious prospects.

14 Whilst an equity investment such as Milton is fundamentally

6.1% continues to present favourably compared to term deposit rates of 0.8%.

14 positions in Australian banks, which have been strong long-term contributors to our income and capital growth. In recent years, however, the total returns from banks has been poor. in Australian retail banks.

Many

We have been flagging a list of concerns related to the banks for several years and in 2020 these concerns became more acute.

Milton undertook a detailed review of our retail bank positions in the and Board and focused on several themes that may impact bank earnings negatively, such as:

15 Increased regulation and associated costs Capital retention to comply with higher prudential requirements Slowing credit growth, and, more recently credit quality concerns The movement of customers to digital banking and the decline of the branch Compression of margins due to lower interest rates Legacy technology systems that need capital investment The encroachment of fintech companies on high margin activities such as credit cards and foreign exchange

Whilst the Australian banking sector is well capitalised, indeed amongst the best capitalised globally, returns on that capital continue to fall and earnings growth has slowed.

The result of this detailed review was that Milton concluded to make major reductions to our bank positions, commencing in the first half of the financial year. The changes were focused on the regional and smaller banks.

In the 2020 financial year Milton sold $180 million of our retail bank investments including the complete sale of our holdings in ANZ, Bank of and Bendigo and Adelaide Bank. These sales represent one of the most material portfolio shifts that Milton has made in many years, and was done in the knowledge that it would have a short term negative impact on

Largely because of these actions, the retail bank weighting course of the 2020 financial year.

15 COVID-19, which occurred in the second half of the year, only reinforced these concerns.

COVID-19 has accelerated the transformation of the banking system in Australia with a rapid shift to online banking the first and most evident change. Home loan processing has been further digitized, and borrowers are increasingly likely to change banks for a lower rate, compressing the spread between front and back books and unwinding the so called

Interest rates, as previously discussed, were cut even further by the Reserve Bank.

These changes increase costs, decrease margins, and reduce returns giving the larger banks real scale benefits due to their lower cost of capital and available funding sources.

The largest of the banks are also better placed to absorb the costs associated with borrowers unable to service their loans once repayment deferrals and government assistance end.

Milton remains invested in CBA, and NAB. In retaining these investments, we believe that the larger banks have the resources and capabilities to continue to invest in their platform to compete in this new environment. Whilst we are encouraged by recent regulatory changes, the larger banks have the capacity to reduce costs to restore earnings growth in an environment where top line growth is likely to be challenging.

15 We will continue to analyse our bank investments to ensure that we remain confident regarding earnings growth over the longer term but expect that in the short-term bank earnings and dividend growth will remain subdued.

15 The major changes to our bank shareholdings has resulted in materially increased portfolio turnover in the 2020 financial year.

This has provided us with the opportunity to build on existing positions and continue to add new positions to the portfolio for future growth. We were able to take advantage of the market sell off due to COVID-19 to buy at reduced prices as we had completed much of the bank sales in the first half of 2020.

We remain committed to keeping portfolio turnover low, in contrast to the trading mentality of many other asset managers, and we expect that 2020 was an exception to our low turnover approach.

Long-term investing does not mean that we will not act decisively to reduce or exit positions should our thesis be compromised, and our actions in 2020 are an example of our resolve. We continue to be mindful of rapid shifts in the fortunes of companies or industries due to technology led disruption.

In 2020 Milton added $269.8 million of long-term investments, funded by $276.2 million of sales. 16 This represents approximately 3 times our normal turnover.

Additions to existing positions included Macquarie Group, , BHP, and .

In 2020 Milton added $100 million to our existing Macquarie Group investment. Macquarie has displayed the resilience of its business model over the last few years, driven by ongoing strength in Infrastructure investing globally. Milton is attracted renewable energy finance and development. Retail banking have profitably grown in this space due to investments in technology. Macquarie paid a reduced dividend in 2020 but was not materially impacted by government mandated dividend deferrals.

Transurban has had a challenging year with road traffic affected by COVID-19 mandated shutdowns and delays on the commissioning of certain projects. They, however, have a strong pipeline of future projects, many of which will come online over the next few years, and are expected to generate strong cash flow and dividend growth over the medium term. We believe that infrastructure investment will remain a focus for governments and that Transurban is well positioned to benefit.

BHP has been one of our largest additions over the last few years as we take comfort from the fact that reduced debt levels and capital discipline make it increasingly investible for an income-oriented company such as Milton. BHP has a diverse range of exposures reducing risk to any one commodity and has recently taken steps to reduce exposure to thermal coal.

16 BHPs mineral exposures are poised to benefit from the electrification of economies.

Cleanaway was a new stock for Milton in 2019 and we have added materially to our shareholding in 2020. The operating environment has continued to improve for Cleanaway as governments globally move to consistently address waste management issues. Cleanaway has bought well-positioned assets as the industry consolidates due to the imposition of controls and standards. Notwithstanding recent management concerns, we are confident that Cleanaway is a quality exposure to the growing recycling economy and will display steady earnings and dividend growth.

Milton added to our existing Sonic Healthcare position during the COVID-19 related selloff in March 2020. Sonic was an investment that we had desired to grow previously but we had been held back by concerns over valuation. The market volatility provided us with the opportunity to add to a company that is a long-term beneficiary of increased testing volumes and was sold off illogically with the broader market.

New positions in Magellan, Johns Lyng Group and Pro Medicus were added to the portfolio in 2020.

Magellan was added to the portfolio during the selloff in March and it is our intention to build on the position over time. Milton has analysed Magellan for several years waiting for a suitable entry point and the selloff provided that opportunity. Magellan is an innovative and fast-growing asset manager best known for their exposures to global markets. They have a strong marketing capability and benefit from the growth in superannuation assets in Australia and the need for investors to move offshore for diversification. They have a long history

16 of strong performance against their benchmarks and have paid growing dividends over time.

Johns Lyng Group (JLG) provides Milton with an investment in the large and steadily growing insurance repair market. Earnings for JLG have been growing steadily as insurers look to professionalise the repair process forcing the industry to consolidate. JLG have invested in technology, which creates a competitive advantage over smaller firms. An increasing number of weather related events have provided JLG with a strong operating environment as insurers look to deal efficiently with catastrophes involving high repair volumes. They have a capital light model and use a partnership structure for their building contractors.

Pro Medicus is a small but growing medical technology company focused on the provision of software to allow for the streaming of medical images to radiologists. As medical images grow in terms of volume and complexity, existing technology does not allow for the efficient rendering of images. Pro Medicus provide streaming technology allowing for images to be viewed quickly and by doctors who may not be in the office at the time. They have achieved a number of high profile contract wins amongst US research hospitals and have a strong pipeline of potential future customers. Whilst low yielding they have the capacity for strong future earnings and dividend growth.

largest sales in 2020 were the previously discussed sales of certain of our bank shareholdings.

Milton in the year also completely exited , Flight Centre, , Regis Healthcare, , , , Adelaide Brighton and New Hope Corporation.

16 Blackmores was a highly successful long term holding for Milton. The catalyst for our sale was the elimination of their dividend in 2020 due to challenges in their business in China and issues with their newly acquired production facilities in Australia. We believe that new entrants, who in some cases have better connections to the fast growing markets in Asia, have disrupted the supplements market, fundamentally

Regis Healthcare was sold due to concerns related to the financial challenges facing the Australian aged care system. Government funding remains critical for the sector and has increasingly been diverted to support ageing in home. Regis has seen growing expenses in response to changes in care standards and patients with generally higher needs. Revenues have not grown in line with expenses, resulting in reduced margins.

Orica and Incitec were sold due to disruption risks from Asian based competitors.

Flight Centre was sold due to concerns regarding the impact on its business from world-wide COVID-19 lockdowns. Our assertion was that travel, particularly business travel, may be affected for an extended period and that video calls may become the new normal.

Boral was sold due to concerns over management and the performance of their US based businesses risking future earnings and dividends. In the same sector Adelaide Brighton was sold when their dividend was cut to zero and there was evidence of margin declines, notwithstanding the fact that they have well positioned assets.

16 New Hope Corporation was sold in the year due to concerns that thermal coal assets may become stranded, with issues around funding and insurance becoming increasingly prevalent. Whilst demand, particularly in Asia, continues to grow coal is expected to generate a lower percentage of electricity over time as countries look to limit emissions. Thermal coal is also increasingly competing with well supplied and lower priced gas substitutes with gas a likely medium-term winner as power production transitions to a lower carbon world.

Milton continues to have a well-diversified portfolio of 71 companies and in 2021 will look for opportunities to add new companies to provide future earnings and dividend growth for shareholders.

16 I would like to close with some comments on the outlook.

Forecasting earnings in the current environment is exceedingly challenging, with many companies no longer providing guidance.

It 2021 financial year as companies conserve cash, and business conditions remain challenging. Dividends received during the August earnings season, whilst broadly in line with our expectations, were lower than the previous comparable period.

There is reason to believe that once economies re-open economic activity should sharply rebound due to ample government support and low interest rates.

We caution however that risks will remain around unemployment and underemployment as assistance programs taper off.

17 Unemployment represents a key risk to the lending books at banks, and forms the core of stress tests supporting the capital held against mortgage books.

The elevated level of the equity markets, fuelled by cheap money and a lack of investment alternatives, will be a source of volatility in 2021, particularly if inflation expectations increase. This could cause a rise in longer dated interest rates which will impact the share prices of high growth companies, companies that have led the rebound in markets since the March COVID- 19 selloff.

The consensus EPS forecast for the ASX200 for the 2021 financial year is for growth of 4.1%. Dividends are forecast to fall by 2.1%, after a fall of 29.5% in 2020.

Milton will continue to take a long-term approach, focusing calmly and clearly on earnings and the dividends that follow and take advantage of volatility should markets become turbulent. We will look to remain as fully invested in the equity market as possible, whilst keeping sufficient cash for flexibility.

balance sheet is strong. We have total assets of $2.9 billion, cash at 30 June of $114 million and no debt. Milton also has $98 million of franking credits available to support future dividend payments.

We have confidence, in the absence of unforeseen circumstances, that the dividend for 2021 is well supported. Milton has paid a dividend every year since 1938.

17 I will finish with some interesting data from the last 20 years to results delivered.

In the last 20 years Milton has grown total assets from $500 million to $2.9 billion and shareholder numbers have grown from 0.4% to 0.14% in that time.

Board and Investment Committee have met 732 times, with an average of 36 meetings annually.

Milton has paid $1.65 billion of dividends in the last 20 years to our shareholders.

The Milton Foundation has made $2.48 million of donations to various charities since its inception in November 1988. We note with sadness the passing this year of Justice Trevor Morling, a long serving Federal Court Judge and an original trustee of the Foundation.

I would like to thank the Board and staff for their efforts and all shareholders for their vote of confidence and supportive comments throughout the year. I will now hand proceedings back to the Chairman for the formal part of the meeting prior to which we will take questions.

Thank you and good afternoon.

17 18