Davis + Henderson Income Fund 2007 (May 2008) Annual Meeting of Unitholders

Transcription

1 Davis + Henderson Income Fund 2007 (May 2008) Annual Meeting of Unitholders 1. Call to order and introduction of head table and Trustees (Paul Damp) 2. Chairman s Comments (Mr. Damp) 3. CEO s Comments (Bob Cronin) 4. CFO s Remarks (Catherine Martin) 5. Business of the Meeting (Paul Damp) 6. Question Period (All)

2 Davis + Henderson Income Fund Sixth Annual Meeting of Unitholders Monday, May 5, 2008 Design Exchange, 234 Bay Street, Toronto, Ontario Chairman 1./2. Call to Order, Introductions, Chairman s Remarks Good afternoon ladies and gentlemen. My name is Paul Damp, Chairman of Davis + Henderson and a Trustee of the business. I d like to welcome you on behalf of my fellow Trustees and call this meeting to order. On stage with me is Bob Cronin, Chief Executive Officer of Davis + Henderson and Catherine Martin, Vice President and Chief Financial Officer. In the audience, we re joined by my fellow Trustees...and at this point, I d ask that each Trustee please stand as I call your name to be recognized. In alphabetical order, we have Gordon Feeney, Michael Foulkes, Allan Gotlieb, Bradley Nullmeyer, and Helen Sinclair. Our Trustees are successful business executives in their own right with the breadth of experience that makes them ideally positioned to serve our unitholders. I thank each of our Trustees for your contributions and commitment and I look forward to serving with you in the future. I m very pleased to report that all six independent Trustees have agreed to stand for reelection at this meeting. This provides the continuity we believe is important in providing strategic counsel to our capable management team. We have a full agenda today. I ll begin that agenda with a few introductory comments. Then, we will have management presentations, followed by the formal business of the 2

3 meeting and a question and answer session before we break for a reception at the back of this hall. At the outset, I would say that 2007 was a good year for Davis + Henderson. The progress achieved illustrates that our strategies are serving us well. I won t expand on the activities of our board today, except to say that the Trustees continue to actively review and participate in the strategic development of our company. As part of our activities in 2007, we continued to monitor the overall income trust environment as it relates to the implementation of a tax on trusts starting in 2011 and the implications of this on our strategy. We don t have any new information to add on this front. We continue to have the view that it would be premature for Davis + Henderson to make definitive changes in our plans at this time. So while we re active in monitoring the environment, it s business as usual on a day to day basis. With that as an introduction, it s now time to hear from Bob. As Bob comes forward to discuss our progress, it s incumbent upon me to remind you that today s meeting will contain forward-looking statements. Such statements are subject to risks and uncertainties, some of which are found in our filings with securities administrators. You are cautioned not to place undue reliance upon any such forwardlooking statements, which speak only as of the date they are made. You are also advised that Davis + Henderson does not undertake any obligation to update forward-looking statements should assumptions related to these plans, estimates, projections, beliefs and opinions change. It s now my pleasure to introduce Bob Cronin, our Chief Executive Officer. Bob? 3. CEO s Introductory Remarks Bob Good afternoon everyone. Welcome to our annual meeting. I sincerely thank all of you for your interest in Davis + Henderson. When we look back on 2007, three highlights come to mind. First, we had strong financial results in both reporting segments. Second, those strong financial results allowed us to increase distributions twice during the year and pay a special distribution in November. Third, we made solid progress in establishing Filogix services within our overall offerings to the Canadian financial services industry an accomplishment that positions us well for the future. 3

4 Overall, we had a good year. Through the course of our presentations, Cathy and I will speak to these highlights, and additionally, Cathy will review our first quarter 2008 results. Just before we zero in, I would like to step back to talk to you about the evolution of our business. As you know, we are working to evolve towards our vision of being a leading service provider to the Canadian financial services marketplace. This graphic will be familiar to many of you. It depicts our major program areas today and how we ve progressed by building on our foundation to achieve our strategic vision. At a high level, our evolution or strategy, if you will, focuses on the need to broaden the range of services we offer, and then to make those services increasingly valuable to our customers. So to begin, let s have a look at how we ve progressed our vision and what our business has delivered over the past six years since we became an independent public company. In 2002, our annual revenue was $228 million dollars. In 2007, our revenue was $378 million dollars progress that I think speaks directly to the effectiveness of our vision. Our business model and the execution of our plans have allowed us to convert this sizeable revenue expansion into steady net income and cash flow growth over this same period. In turn, this has allowed us to deliver what we know is important to unitholders stable and growing distributions. Clearly, our strategy has delivered solid financial performance. And we are pleased with these results. We do know, however, that beyond growth in the numbers, we must also expand our service offerings and capabilities into new areas that help us diversify and open new opportunities. Back in 2002, nearly all of our revenue and cash flow came from our Cheque Supply program. Additionally, today customers can now look to us to provide: identity protection services for their customers programs for small business switching services for the chequing and credit card account search and lien registration services related to the personal lending account mortgage origination services, and mortgage underwriting. The addition of these programs has allowed us to strategically expand and diversify our business. The pie charts here illustrate this diversification by showing how we ve significantly grown the contribution from lending and other services to some 25% of total revenues from a fairly small percentage six years ago. This increased diversification not 4

5 only makes us a stronger enterprise it creates new opportunities and better positions us for the future. We believe our vision of evolving our services, supported by a solid operating plan and good execution, have allowed us to make meaningful progress over the past six years. With that broader perspective described, let s now zero in on the key accomplishments of 2007 as they relate to our two reporting segments. Starting with the D+H segment, a clear highlight was strong revenue performance. D+H segment revenue grew 7.6% in 2007 compared to The key drivers of this growth were: continued enhancements to our customer offerings that allowed us to increase average order value, and higher than expected cheque order volumes. Now, I would like to focus on the operational elements that advanced our business. For us, one of the key items is the successful addition of service components to our cheque program and the chequing account in general. Let me expand. You ll recall we introduced our IDefence program a year or so ago to add identity theft protection capabilities to our Cheque Supply programs. From a small beginning, IDefence now serves 5.4 million Canadian consumers. We also continued to enhance and expand our eswitch program. Since eswitch s inception, our customers have used this service to switch pre-authorized payments on behalf of 1.6 million Canadians. We further advanced our services when we piloted our eswitch program to serve the credit card account. Now, let s talk about our Filogix performance and progress. One of the key highlights of 2007 was Filogix revenue growth. If we compare 2007 revenue to 2006, including the revenue generated prior to our acquisition, revenue grew 23% yearover-year. This strong performance reflects two drivers: One, the exceptional strength of the mortgage and real estate markets, and Two, increased utilization of our technology. 5

6 Clearly we re very pleased with our financial results in this segment. We also believe we advanced operationally and strategically. One of the important things we did was successfully introduce a new CEO to the very talented team at Filogix. Gerrard Schmid joined our team in August last year, bringing his substantial financial services experience to our company. We also added many other talented new people to complement the existing, highly experienced team. In 2007, we put particular focus on enhancing our service and delivery capabilities which is critical for the future as we look to grow with our customers. As well, we advanced our technology, replacing most of our legacy systems and enhancing our current platform. Filogix is a core and important part of our growth strategy. I d now like to conclude my remarks by talking to you about our forward plan. As has been the case historically, we will look to grow our business in the future both organically and through selective acquisitions. Our growth plans will be consistent with our vision of being a leading service provider to the financial services marketplace. Within the D+H segment, we intend to grow by evolving our programs and increasing average order value through multiple initiatives like: IDefence, where we will add identity restoration and alert services, Biz Assist where we will expand to bring a community portal to small business customers, and eswitch where will look to serve all major credit card issuers. In our Filogix space, we look to benefit from mortgages originated through various channels including mortgage brokers, mobile sales forces and branches as well as increased utilization of our technology by lenders and other third parties. Across our entire business, none of these individual initiatives is large. But in combination, we believe they will support our objective of delivering stable and growing distributions based on 3 to 5% long-term revenue expansion. In addition to organic growth, we will continue to look to acquisitions to expand our service offerings and diversify, in a positive way, our revenue and cash flow streams. Acquisitions could take many forms, from expansions to our existing platforms through to the purchase of additional business platforms. We have successfully completed both kinds of acquisitions over the years and they have added good value to our business. 6

7 In closing, Davis + Henderson s performance has been good and we have a solid plan to meet our commitments to unitholders and customers. We believe good results are a byproduct of solid strategy and great people. Today, we ve focused on strategy and results. But I think it s equally important for you to know that we also have 1200 great people working on your behalf. It s the commitment of our employees to the customer, to you our owners and to the broader community that makes Davis + Henderson the successful business that it is today. I see many of our employees here today. To you and to the others not present, I thank you for all of your hard work. It is always appreciated. Now, it s my pleasure to turn the meeting over to Cathy Martin, our Chief Financial Officer. 4. CFO s Remarks Cathy Good afternoon ladies and gentlemen. It s a pleasure to be here today was a good year for Davis + Henderson and I d like to summarize our financial results for the period before moving to a review of our first quarter 2008 performance. While Bob covered several drivers of 2007 revenue, I d like to fill in the details. On a consolidated basis, revenue was 378 million dollars, 55 million or 17% higher than As Bob said, we experienced good organic growth performance in This was supported by specific items, such as the industry-wide change in imaging standards for cheques in Canada, and the strong real estate and mortgage market. While these specific items drove our results above our expectations, we also had solid contributions from program initiatives such as IDefence and BizAssist, and to a lesser extent the expansion of personal property search and lien registration programs. Importantly, not only did we grow our top line but also our bottom line. Compared to 2006, net income increased 16.4% to $1.87 per unit. Net income performance reflected growth in the business, and a continued focus on cost effectiveness and cost management. Now, let s move from net income to our cash flows, where we also experienced good yearover-year growth. The growth rate of 15.8% in adjusted cash flows after capital expenditures and contract payments was similar to the growth rate in net income. 7

8 Growth in cash flow in turn supported growth in distributions. On a per unit basis, 2007 distributions amounted to $1.80 compared to $1.50 in 2006, a 19.9% increase inclusive of a special distribution paid in November. This was the first time a special distribution was declared by Davis + Henderson. It was paid in recognition of the strong performance of the business and financial position of the company as well as the level of taxable income generated. In simple terms, by paying it, we ensured that no tax was paid at the trust level, since distributions are tax deductible. Prior to 2011, we expect to pay out a greater proportion of cash flow than in previous periods. That s because of the diminishing availability of deductions for tax purposes and the expectation of growing cash flow. I ll just remind everyone that as a result of income trust tax legislation, the business will begin paying taxes starting in Having said that, over the years, Davis + Henderson has generated more cash flow than we have paid out to unitholders. With this excess cash flow, we ve repaid a cumulative total of 50 million dollars in debt, including 15 million dollars in At current levels of debt to cash flows, Davis + Henderson remains conservatively financed and well positioned to execute on our growth strategies. Now, let s move to the first quarter of It unfolded as we expected. Cash flow continued to be strong, we made good operating progress with our strategies, and, as anticipated, we saw an impact on our revenue related to cheque reordering patterns. We also announced a 7.2% increase in our monthly distributions, bringing distributions to an annualized rate of $1.84 per unit. We re pleased with this increase as it is supported by the performance of our business and recognizes our intention not to have tax within the Fund. Let s delve into these points. Consolidated revenue in the first quarter decreased slightly compared to the first quarter of To understand this, let s look at the business segments. Starting with the D+H segment, revenue was 74.7 million dollars, which, excluding the impact of a revenue reclassification was 3.6% lower. 8

9 While there were several factors at work, the notable ones were: 2 fewer business days than in the first quarter a year ago, and Changes in imaging standards, which affected cheque order volume in the comparative period. On the positive side, we received the benefit of program enhancements in many areas, all of which are expected to continue to contribute in Within our Filogix segment, revenues were up year over year by 13.5% to 14.4 million dollars. Excluding the revenue reclassification, our Filogix revenue was up 6.2%. This growth reflected higher professional services related to project implementation and customization initiatives. Also in the quarter, we experienced a reduction in origination services revenue, which we believe was in line with the softer real estate and mortgage market observed in the first quarter. We continue to benefit from overall utilization of our Filogix networks by mortgage professionals and lending institutions. Beyond revenue, let me note some key bottom line metrics from the first quarter. Net income per unit decreased by 5.4 cents compared to the first quarter of However, when we exclude non-cash charges in the quarter related to unrealized fair value changes in interest rate swaps, net income per unit was up 1.6%. Cash flow growth in the first quarter was solid, up 7.2% over the first quarter of 2007 on a per unit basis. Declared distributions for the first quarter of 2008 were up 10.6% year over year. So in spite of the fact that revenue was down compared with last year: cash flows were up, and we announced our 11 th increase in distributions. Now, let s shift our focus to the rest of Looking forward, we expect that for all of 2008, revenue growth may be lower than our traditional long-term objective of 3 to 5% due to: First the cyclical nature of the real estate and mortgage markets, and Second the year-over-year change in cheque re-order patterns related to imaging standards. When we look beyond these items, our long-term objective of growing our cash flows remains the same, supported by our strong market positions, ability to deliver program enhancements and our participation in the lending space. 9

10 To conclude our management presentations today, we believe the important takeaways are as follows: First, we had good business performance in 2007 and we achieved our objective of delivering stable and growing distributions for the sixth straight year. Second, the opening quarter of 2008 was solid and it unfolded as expected. Third, our evolution is working as intended to deliver long-term value and strengthen our business through diversification. And fourth, we are positioned to deliver on our commitments in the future. Before Paul conducts the business of the meeting, I d now like to draw your attention to the screen for a brief presentation on our employees and their good work. Thanks for listening. 5. Chairman s Business of the Meeting Script It is now time for the business of the meeting. These business items are described in the Management Information Circular, which was mailed to you in April. Voting with respect to most matters will be conducted by a show of hands, unless a ballot is requested. Please note that each unitholder or proxyholder present in person has the right to demand that a ballot be conducted on any resolution, either before the show of hands vote or following that vote. Where a ballot is conducted at this Meeting, Bob Cronin or Catherine Martin will vote all proxies submitted to them as proxyholders. Only unitholders of record on April 1, 2008, or their proxies, are entitled to take part in, and vote. After the formal portion of this meeting, we will be happy to answer your questions about Davis + Henderson or any other matter related to this meeting. 1. APPOINTMENT OF SECRETARY AND SCRUTINEERS: "With your approval, I now ask Catherine Martin to act as Secretary of the meeting. I will ask Anoosheh Farzanegan of CIBC Mellon Trust Company to act as scrutineer. She will report on the number of unitholders present in person and the number of units represented in person or by proxy and they will report on the votes cast in connection with the business of this meeting." If there are any unitholders present who did not register when they came in, please identify yourselves to the scrutineers now. 10

11 2. NOTICE OF MEETING: "The next item of business relates to the notice of this meeting. Notice of this meeting was sent to all unitholders of record as of the close of business on April 1, Proof of service of the Notice calling this meeting, the Management Information Circular and form of Proxy have been provided by the Fund s transfer agent and filed with the Secretary. I direct that a copy of each of these, with proof of service, be retained by the Secretary with the records of this meeting." "Additional copies of these materials are also available from the Secretary or at the desk at the entrance to this room. Accordingly, I will entertain a motion to dispense with the reading of the Notice calling this meeting, the proof of service of the Notice, the Management Information Circular and the form of Proxy." Steve Rotz Chairman Thang Trinh Chairman "Mr. Chairman, I so move." "Thank-you. Do I have a seconder? I second the motion Thank you. "All those in favour, please raise your hands. All those against, if any? I declare the motion carried." 3. QUORUM: Quorum for this meeting consists of two or more individuals, present, in person, holding personally or representing as proxies, not less than 10% in the aggregate of the votes attached to all outstanding units of the Fund. Prior to this meeting, the Scrutineers reported on the unitholders present and the number of proxies received. I will ask the Secretary to read the report. Cathy Martin: I have read the Scrutineers Report on Attendance which states that there are a total of 46 unitholders present in person or represented in proxy holding 20,683,217 units. This meets the quorum requirements of the Fund s Declaration of Trust. 11

12 I declare that the requisite quorum of unitholders is present and that the meeting is properly constituted for the transaction of business. I direct that the Scrutineers Report on Attendance be attached to the minutes of the meeting. 4. PRESENTATION OF 2007 ANNUAL REPORT: The next item of business is the presentation of the 2007 Annual Report, including the financial statements for the year ended December 31, 2007 and the Auditors Report. I do not propose to have the Auditors Report read at this meeting, since the Annual Report has been sent to the unitholders and extra copies are available here today. 5. NOMINATION OF TRUSTEES: It is now in order to proceed with the nomination of trustees by the unitholders. As indicated in the Management Information Circular, the number of trustees to be elected at this meeting is six.particulars of the nominees for Trustee, and the directors of Davis + Henderson G.P. Inc. to be elected by those nominees, were also set out in the Management Information Circular sent to all unitholders. As indicated in the Management Information Circular, early in 2006 the Trustees adopted a policy to permit unitholders to vote on individual trustees at general meetings such as this meeting. The policy requires a Trustee to resign as a Trustee and as a member of the board when the Trustee receives more withheld votes than for votes in an uncontested election of Trustees. In this situation, the Human Resources and Corporate Governance Committee will be expected to recommend that the Board accept the resignation, except in extenuating circumstances. The other Trustees will be expected to take into account the decision of the Board and either accept or reject the resignation. The Board and the Trustees will make their respective decisions within 90 days after the date of the vote by the unitholders and will issue a news release announcing the final decision. 12

13 Prior to this meeting, the Scrutineers advised me that more votes were marked for than were marked withheld with respect to: - Paul Damp; - Gordon Feeney; - Michael Foulkes; - Allan Gotlieb; - Bradley Nullmeyer; and - Helen Sinclair. Therefore, may I have a formal nomination for the six trustees. Susan Alleyne: John Herald: "Mr. Chairman, I nominate each of Paul Damp, Gordon Feeney, Michael Foulkes, Allan Gotlieb, Bradley Nullmeyer and Helen Sinclair as trustees of Davis + Henderson Income Fund. "Thank-you. Do I have a seconder? "I second the nominations. Thank you. Are there any further nominations?" "As there are no other nominations, may I have a motion that nominations close and a single ordinary resolution be proposed in respect of all the candidates for Trustees? Suzanne Mandrozos: Jenny Chih: 6. ELECTION OF TRUSTEES: "Mr. Chairman, I so move." "Thank-you. Do I have a seconder? I second the motion. Thank you. All those in favour, please raise your hands. All those against, if any? I declare the motion carried." May I have a motion to elect the persons so nominated as Trustees to hold office for the ensuing year, or until their successors are elected or appointed, subject to the provisions of the Fund's declaration of trust." 13

14 Joanne Sisco: Susan Alleyne: "Mr. Chairman, I so move." "Thank-you. Do I have a seconder? I second the motion "Thank you. All those in favour, please raise your hands. All those against, if any? I declare the motion carried." 7. APPOINTMENT OF AUDITORS & FIXING OF REMUNERATION: "The next item of business is the appointment of auditors. I will now entertain a motion that KPMG LLP, chartered accountants, be re-appointed auditors of the Fund until the next Annual Meeting of Unitholders or until their successor is appointed, and that the Trustees be authorized to fix the remuneration to be paid to the Fund s auditors." Steve Rotz: John Herald: "Mr. Chairman, I so move." Thank-you. Do I have a seconder? I second the motion. Thank you. All those in favour of the motion, please raise your hands. All those against, if any? I declare the motion carried" 8. FURTHER BUSINESS AND TERMINATION: Is there any further business to be addressed as part of the formal portion of this meeting? As there is no further business, I will now entertain a motion that the formal portion of the meeting be terminated. Thang Trinh: Chairman Suzanne Mandrozos: "Mr. Chairman, I move that the formal portion of the meeting be terminated." Thank-you. Do I have a seconder? I second the motion. 14

15 Chairman Thank you. All those in favour of the motion, please raise your hands. QUESTION PERIOD All those against, if any? I declare that the motion is carried and that the formal portion of the meeting is terminated. Since this is the official end of the meeting, we would be pleased to take any questions you might have with respect to the business of Davis + Henderson. If you wish to ask a question, please make your way to the microphone provided, so that you can be easily heard. Please also state your name and whether or not you are a unitholder or proxy holder. {Question period} {Question period ends} Since there are no other questions, I would like to sincerely thank you for attending and invite you to stay behind for a short reception at the back of this hall. Have a good evening. 15