Superannuation Update and The Share Market - Where to from here?

February 2008

Disclaimer

This presentation (and any private discussions with the presenter) is not personal securities advice and does not take into account any person's investment objectives, financial situation or particular needs. Before making an investment decision you need to consider, whether any investment is appropriate in light of your particular investment needs, objectives and financial circumstances and you should consider obtaining expert financial, legal and taxation advice. This presentation does not constitute taxation advice.

Information and opinions presented in this report have been obtained or derived from sources believed by Wilson HTM Ltd to be reliable, but Wilson HTM Ltd makes no representation as to their accuracy or completeness. Past performance should not be taken as an indication or guarantee of future performance. The price, value of and income from financial products may fluctuate and any product may become worthless.

Wilson HTM Investment Group

Company Name and ASX Ticker Wilson HTM Investment Group – WIG

History 1895 – over 110 years of experience in investment

Philosophy

Aim to achieve out-performance through:

Concentrated portfolios

Specialisation in mid cap stocks and direct investments

Access to quality IPO’s and corporate deals in equities and fixed interest

Overview

Investment management for private clients & institutions

Focus on Self Managed Superannuation

Active corporate finance team

Relationship with Deutsche Bank (19.9% shareholder)

Queensland based business

10 offices and over 300 staff

Market Cap $272m @ $2.85 share price

Share price performance 43% return since listing in June 07

Superannuation:Further Change

Contribution Limits

Removal of Reasonable Benefit Limits (RBL’s)

Limits on concessional contributions Over 50: $100,000 per annum (FY 2012) Under 50: $50,000 per annum

Limits on non-concessional contributions $150,000 per annum $450,000 over three years

Effective penalty tax rate of 46.5% - 93.0%

Government Co-Contribution

Withdrawals

Removal of compulsory cashing rules

Under 60 – same rules apply.

Over 60 Tax free pensions Tax free lump sums

Application of preservation rules

Transition to retirement pension

Pensions

Super Fund

$100,000Employment

Tax Man

Individual

$92,000 $8,000

$42,780 $1,250

Pensions

Super Fund

$100,000Employment

Tax Man

Individual

$0 $100,000

$0 $15,000 ?

$50,000

Borrowing inside super

Section 67 SIS Act Prohibits borrowing (limited exceptions)

Reg 13.14 SIS Act Prohibits super fund giving charge over asset

Section 71 (1) SIS Act Defines related trusts as In-house Assets

Section 273 ITAA 1936 Special Income Provisions

Amendments made to SIS Act, to allow instalment warrants: Section 67 (4a) Allow borrowing (in specific circumstances) Section 71 (8) Exemption to in-house asset rules

The basic structure

5 Basic Conditions

The lender has limited recourse against the super fund

The borrowed funds are used to purchase an asset the super fund could otherwise acquire

The asset is held on trust, so that only the super fund has a beneficial interest

The super fund can acquire the asset by paying one or more instalments

The asset (or replacement asset) must be the only asset held by the trust

Super Fund

Property

Trust

Lender

Limited Recourse

Loan

Acquisition through

instalment(s)

Investment

Borrowing to Invest

Investment strategy must allow for: Borrowing to take place Specific asset to be purchased

Sole purpose test must be considered

In house asset rules should be considered

New legislation is wider than intended / necessary

Clearly not what was intended

Australian Equity Market

Another year of strong returns in 2007

What a Year!

24%+ returns in 2006

Low CPI and strong corporate earnings

Shanghai correction

Earnings growth and strong economic forecasts

US economic fears

AUD hits high – US$0.93

Fed drops interest rates

Sub prime crisis begins

Superannuation inflows - $1m each

Shanghai composite up 50% for 2007

S&P/ASX 200 Accumulation Index - 2007

Fed drops interest rates

Source: IRESS, Wilson HTM

What of the Heavy Weights?

Listed PropertyListed Property

Resources

Energy

Financials ex prop

XKO     ASX 300XKR     300 ResourcesXXK     300 Financials ex Property TrustsXEK     300 EnergyXPK     300 Property Trusts

Source: IRESS, Wilson HTM

Earnings growth may have downside risk

Similar sector performance again in 2007

Mining sector valuations have risen

US Economy and its impact upon

Australia

US Sub Prime Crisis

Causes

Excessive lending to borrowers lacking the capacity to pay over the last 2-3 years

Repackaging debts into Collateralised Debt Obligations (CDO’s)

Selling CDO’s with inflated credit ratings

Effects

Write downs on CDO’s on hedge fund and investment bank balance sheets

Write-downs exceed US$125Bn.

Bond Insurers under pressure US $200Bn to restore AAA Credit Rating

Poor housing market and falling property values

Increased occurrence of defaults

Increased credit spreads due to risk aversion in credit markets

Higher cost of borrowing

Reduced corporate/private deal flow

Volatility on US stock market

US New housing starts -38.2% yoy growth following rates of -25.0% for Nov and -13.3% for Oct. Levels back to June 1991.

Source: USA Bureau of Census, WilsonHTM

USA New Housing Starts

seasonally adj

-50%

-30%

-10%

10%

30%

50%

70%

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Gro

wth

yea

r-o

n-y

ear

(%)

-

500

1,000

1,500

2,000

2,500

To

tal

(000

un

its)

yr-on-yr%

000 units

US Industrial Production – slight improvement however is a trailing indicator

Source: USA FRB, Wilson HTM

USA Industrial Production1997=100

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Jan-88

Jan-89

Jan-90

Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

IP Y

r-o

n-Y

r G

row

th

50

60

70

80

90

100

110

120

US

IP

(20

02 =

100

)

IP Y-o-Y%

Industrial Production

US Potential Housing Loan Defaults

Source: CBA

US Mortgage Rate Re-Sets

Source: CBA

US Housing Balance Sheet

Source: CBA

US Employment

Source: CBA

US Consumer Confidence

Source: CBA

What of China?

What of China? – RIO have identified 4 themes

1. Rapid growth

2. Decoupling

3. Commodity intensive growth

4. Increasing domestic resource production costs

Rapid Growth - Chinese growth accelerated in 2007

Source: Global Insight

Growth Forecasts – China forecast to grow 10.5% 2008 and 9% in medium term

GDP Growth - Asian Tiger Economies

Country Time Span Duration GDP Growth p.a.

China 1978 -2003 25 yrs 6.10%

Japan 1950 - 1973 23 yrs 8.20%

Korea 1962 - 1990 38 yrs 7.60%

Taiwan 1958 - 1987 31yrs 7.10%

Source: Financial Times

Increasing FX reserves provide buffer against external shocks

Source: State Administration of Foreign Exchange

Decoupling - Direct trade effects from a US slow down are anticipated to be small

Source: Centre for International Studies

Commodity Intensive Growth - Rapid Industralisation/Urbanisation = China as the world’s largest consumer of commodities

Source: WBMS, Barlow Jonker,IEA, PB

Key targets for China’s economic & social development - The 11th 5 year plan

Source: Chinese government and provincial levels 5 year plans 2006 to 2010

Increasing Domestic Resource Production Costs -Chinese currency likely to strengthen further (increasing long term commodity prices)

Source: Centre for International Economics

Strong demand from economic and demographic development favours major base metals

Sources: Global Insight – for population distribution, RIO Tinto for commodity expenditure profiles

China – Is it really that good?

Ernst and Young conducted a study of the Non Performing Loans in China in 2006

The big 4 banks (which control approx. 70% of financial assets) US$358Bn “Official” figures for China’s NPL’s = US$150Bn for the big 4 banks Total financial system US$911Bn = 40% of GDP In 2005 comparative numbers in the region where:

India’s NPL 5% GDP Indonesia NPL < 5% GDP and Japan NPL < 3% GDP.

S + P and Fitch estimates are US$320 to 330Bn

Source: Financial Times

Where to from here?

World Economic Growth

Market valuation had been above average

Sector PE ratings vary across industrials

Sectors have re-rated others have de-rated

Aust Housing Loan Arrears

Repricing of Default Risk

Source: Bloomberg

The Way Forward - Summary

US Economy

Affects of credit crisis likely to take several months to un-wind

Asset de-valuation likely to be more wide spread than residential real estate

Government cutting rates short term to stimulate the econ

US slowdown expected to continue?

Medium to long term possible export lead recovery

Watch inflation pressures

Chinese industrialisation

Growth likely to remain above 8-9%pa for medium term

US slowdown exp to reduce growth by circa 1%?

Demand and pricing of commodities likely to remain high

Australia

Fundamentals of economy intact

Volatility likely to remain (opportunities?)

Focus on fundamentals CF, Margins, Dividends and strong management

PE compression expected to consolidate

Concern over emerging inflation i.e. wages growth??