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Revenue

Total revenue for the period was $146.6 million, broadly in line with the prior year. It comprises management fees based on a percentage of FUM, together with performance fees, interest and sundry revenue. FUM averaged $38.5 billion during the year and closed at $35.3 billion. The overall decline of $6.6 billion during the year was attributable to the major sell-off in global equity and debt markets. Compared to the All Ordinaries Index which suffered a 30% fall over this period, BT Investment Management outperformed the market with a decline in FUM restricted to 16%, highlighting the diversity of the portfolio. Total revenue equated to an average margin of 38 basis points, up from an average of 36 basis points in 2007. The margin reflects the net effect of the lower fees received from the retail funds, other institutional mandates, and cash and fixed income, together with higher margins for funds managed for advised and private clients.

Expenses

The major expense category is employee expenses, comprising salaries and wages, variable staff incentives and other staff related costs. Other operating expenses are made up of occupancy, professional services, accounting and finance, IT and compliance. During the year, total expenses on a pre-tax cash basis were $89.6 million, an overall saving of 6% on the prior year. Variable costs, primarily in employee expenses and other FUM related costs such as external adviser fees, reduced in line with the lower revenue. Management also reduced or delayed costs, including reduction in overall headcount and an acceleration of the move from Westpac back office support to in–house capabilities. The cost reduction has been undertaken without restricting BT Investment Management’s ability to leverage its operating platform. Overall, the cash cost to income ratio improved to 61% from 65% in the prior period.

Dividend

The directors have declared a final dividend of 5.4 cents per share for holders on record at 8 December 2008 which is to be paid on 17 December 2008. This brings the total dividend for the year to 8.9 cents per share.

In the Prospectus, the Board expressed an intention of paying out 80% to 90% of cash NPAT earned from the date of listing, which would have required a capital return, and maintains that view. However given uncertain market conditions, the Board has decided not to recommend a capital return at this time. It will therefore not put this proposal to the forthcoming Annual General Meeting (AGM), but will keep this matter under review over the coming months and seek the necessary shareholder approval when it is prudent to do so.

Balance sheet

The financial position of BT Investment Management at 30 September 2008 was solid and unleveraged. BT Investment Management has $20 million in free cash plus $13 million set aside for the purchase of shares on market to attract new talent. BT Investment Management is also carrying $233 million of intangible assets relating to goodwill on the original purchase of BT Financial Group and Rothschild Australia Asset Management by Westpac.

Explanation of accounting adjustments

The headline numbers which BT Investment Management has quoted in its results release and in this narrative section of the Annual Report are proforma results and highlight cash NPAT as a more appropriate reflection of the Company’s underlying earnings. Above is a table highlighting the difference between proforma and reported (statutory) results, as well as NPAT and cash NPAT.

Proforma and reported (statutory) results

BT Investment Management acquired its investment management business on 19 October 2007. However, in its Prospectus dated 30 October 2007 it produced a forecast for the full year from 1 October 2007. The financial results from 1 October 2007 to 19 October 2007, during which BT Investment Management was not the beneficial owner of the business, have been aggregated in this narrative with the reported (statutory) results of 20 October 2007 to 30 September 2008 to provide full year proforma results. However, the results set out in the financial statements included in this Annual Report are based on reported (statutory) numbers from 20 October 2007 to 30 September 2008. Comparisons to 2007 refer to results for the business prior to its acquisition by BT Investment Management on 19 October 2007.

Cash NPAT

NPAT includes accounting adjustments required under Australian International Financial Reporting Standards for amortisation of employees’ equity grants. These non-cash charges are not considered part of the underlying earnings and cash NPAT is a more suitable measure of profitability. Cash NPAT comprises NPAT before amortisation of the equity grants less the after-tax cash costs of these grants.