Black Knight
Annual Report 2005

Plain-text annual report

Annual Report for year ended 30 June 2005 BRICKWORKS INVESTMENT COMPANY LIMITED ABN 23 106 719 868 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d Incorporated in Victoria ABN: 23 106 719 868 CORPORATE DIRECTORY Directors Non-Executive Director and Chairman Robert Dobson Millner David Capp Hall Non-Executive Director Alexander James Payne Non Executive Director Secretary John de Gouveia Registered Office Level 2 160 Pitt Street Mall Sydney 2000 NSW Telephone: Facsimile: Postal Address: GPO Box 5015 Sydney 2001 (02) 9210 7000 (02) 9210 7099 Auditors Travis & Travis 1/114 Longueville Road Lane Cove 2066 Investment Manager Souls Funds Management Limited Level 2 160 Pitt Street Mall Sydney 2000 Share Registry Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney 2000 Australian Stock Exchange Code Ordinary Shares BKI Website http//:www.brickworksinvestments.com.au 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d Contents Page No. Financial Highlights Company Profile Chairman’s Address List of Investments at 30 June 2005 Directors’ Report Corporate Governance Statement of Financial Performance Statement of Financial Position Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Audit Report Auditors’ Independence Declaration ASX Additional Information 2005 Annual Report 2 3 4 5 8 13 21 22 23 24 42 43 44 45 1 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d FINANCIAL HIGHLIGHTS ■ Consolidated profit after tax of $10.5 million for the year to 30 June 2005 (2004: $3.59 million) ■ Earnings per share for the year of 5.69 cents (2004: 2.10 cents) ■ Fully franked final dividend of 2.2 cents per share. This brings total fully franked dividends for the year to 4.3 cents per share (2004: 2 cents per share) ■ Net asset backing per share at 30 June 2005 of $1.281 per share before tax (2004: $1.084 per share before tax) ■ After tax, net asset backing per share at 30 June 2005 of $1.197 (2004: $1.057) ■ Total portfolio value as at 30 June 2005 of $248.3 million (2004: $183.8 million) ■ Successfully acquired PSI, 99.16% held at 30 June 2005 (moving to compulsory acquisition) ■ Composition of assets at 30 June 2005 using the Global Industry Classification Standard (GICS) CLASSIFICATION Automobile & Components Banks Capital Goods Commercial Services and Supplies Consumer Durables & Apparel Diversified Financials Energy Food, Beverage & Tobacco Food & Staples Retailing Health Care Equipment & Services Insurance Materials Media Pharmaceuticals & Biotechnology Retailing Software & Services Telecommunication Services Transportation Utilities Total Investments Bank Deposits Total Assets 2 % OF TOTAL ASSETS 0.3 38.1 4.3 1.8 0.3 7.0 2.5 0.6 3.4 0.1 1.8 18.7 4.0 0.3 0.6 0.3 5.0 2.1 1.8 93.0 7.0 100.0 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d COMPANY PROFILE Brickworks Investment Company Limited is a Listed Investment Company on the Australian Stock Exchange. The Company invests in a diversified portfolio of Australian shares, trusts and interest bearing securities. The Company was formed on 17 October 2003 to take over the investment portfolio of Brickworks Limited. Shares in the Company were listed on the Australian Stock Exchange Limited commencing 12 December 2003. At 30 June 2005, market capitalisation of the Company was $211.9 million. Corporate Objectives The Company aims to generate an increasing income stream for distribution to its shareholders in the form of franked dividends, to the extent of its available imputation tax credits, through long-term investment in a portfolio of assets that are also able to deliver long term capital growth to shareholders. Investment Strategy The Company is a long-term investor in companies, trusts and interest bearing securities with a focus on Australian entities. It primarily seeks to invest in well-managed businesses with a profitable history and with the expectation of sound dividend and distribution growth. Dividend Policy The Company will pay the maximum amount of realised profits after tax to its shareholders in the form of franked dividends to the extent permitted by the Corporations Act, the Income Tax Assessment Act and prudent business practices from profits obtained through interest, dividends and other income it receives from its investments. Dividends will be declared by the Board of Directors out of realised profit after tax, excluding realised capital profit from any disposals of long-term investments. Portfolio Management The Company has appointed Souls Funds Management Limited to act as Portfolio Manager and provide investment advisory services to the Board of Directors and its Investment Committee, including the implementation and execution of investment decisions and the day to day administration of the investment portfolio. The Company also engages Corporate and Administrative Services Pty Ltd to provide accounting and company secretarial services. 2005 Annual Report 3 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CHAIRMAN’S ADDRESS Dear Shareholders, I am pleased to enclose the Annual Report of Brickworks Investment Company Limited for the year ended 30 June 2005. The consolidated profit of the economic entity after providing for income tax and eliminating outside equity interests amounted to $10,473,587 (2004: $3,589,908) The strong performance result achieved by the company was also a feature of the S&P/ASX 200 index, which also reached record levels during the last twelve months. During the year major investment purchases have included BHP Billiton Limited, Qantas Airways Limited, Australian Gas Light Company Limited, Insurance Australia Group Limited, Wesfarmers Limited, Rural Press Limited preferred shares, B Digital Limited, SP Telemedia Limited and Telstra Corporation Limited. Total purchases during the year amounted to $12.87 million against total sales of $8.65 million represented by sales in Alesco Corporation Limited, WMC Resources Limited, PaperlinX Limited and Spotless Group Limited. During the year the company undertook an off-market takeover of Pacific Strategic Investments Limited (“PSI”). The offer closed in November 2004 with the company acquiring 81.42% of PSI. Since November the company has acquired a further 17.74% of PSI and now holds 99.16% of PSI. The company has commenced the compulsory acquisition process to acquire the remaining 0.84% and we expect to complete this process in approximately 3 months. The outlook for calendar 2005 and beyond continues to be encouraging and the directors are confident that the full year reporting season should result in a favourable reporting year with companies at least maintaining their dividends. In addition, Brickworks Investment Company Limited remains in a strong financial position with sufficient cash reserves to enable it to continue to look at opportunities should they arise. Earnings per Share, NTA and Dividends Earnings per share for the year were 5.69 cents (2004: 2.10 cents). The Net Tangible Asset Backing (NTA) of the company at 30 June 2005 was $1.281 per share, before tax (2004: $1.084 per share) and the after tax Net Asset Backing per share was $1.197 (2004: $1.057). I am also pleased to report that based on the profits earned by the company during the year, the directors have declared the payment of a final fully franked dividend of 2.2 cents per share which will be paid on 31st August 2005, this brings the total dividend paid for the year ending 30 June 2005 to 4.3 cents per share. On behalf of my fellow directors I would like to thank shareholders for their support during the year and the Board, along with its Investment Manager look forward to delivering long term sustainable growth and performance to its shareholders. Yours sincerely, Robert Millner Chairman Sydney 3 August 2005 4 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d Stock No. of Shares Held Market Value ($’000) Portfolio Weight % List of securities held and their market value at 30 June 2005 were: Automobile & Components Coventry Group Limited 140,000 812 0.3% Banks Australia and New Zealand Banking Group Limited Bendigo Bank Limited Bank of Queensland Limited Commonwealth Bank of Australia National Australia Bank Limited St George Bank Limited Westpac Banking Corporation 45,457 349,942 95,382 695,674 1,573,690 447,750 123,872 Capital Goods Alesco Corporation Limited GWA International Limited Wesfarmers Limited Commercial Services & Supplies Brambles Industries Limited Coates Hire Limited Consumer Durables & Apparel 158,980 468,128 200,518 399,952 255,303 989 3,454 1,142 26,401 48,407 11,731 2,471 94,595 1,170 1,367 8,023 10,560 3,268 1,220 4,488 0.4% 1.4% 0.5% 10.6% 19.5% 4.7% 1.0% 38.1% 0.5% 0.6% 3.2% 4.3% 1.3% 0.5% 1.8% Gazal Corporation Limited 226,865 669 0.3% Diversified Financials Choiseul Investments Limited Macquarie Bank Limited Milton Corporation Limited Suncorp-Metway Limited Huntley Investment Company Limited 1,081,253 109,693 105,557 153,028 1,160,442 5,136 6,554 1,715 3,077 830 17,312 2005 Annual Report 2.1% 2.6% 0.7% 1.2% 0.3% 7.0% 5 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d Stock List of securities (continued) Energy Santos Limited Woodside Petroleum Limited Food, Beverages & Tobacco Coca-Cola Amatil Limited Graincorp Limited Food & Staples Retailing AWB Limited Foodland Associated Limited Woolworths Limited No. of Shares Held Market Value ($’000) Portfolio Weight % 70,000 184,483 65,000 90,535 240,000 37,000 383,700 792 5,396 6,188 513 1,048 1,561 1,106 1,005 6,335 8,446 0.3% 2.2% 2.5% 0.2% 0.4% 0.6% 0.4% 0.4% 2.6% 3.4% Health Care Equipment & Services Clover Corporation Limited 858,000 146 0.1% Insurance AXA Asia Pacific Holdings Limited Insurance Australia Group Limited Materials Alumina Limited BHP Billiton Limited Bluescope Steel Limited Campbell Bros Limited Illuka Resources Limited New Hope Corporation Limited Onesteel Limited Wattyl Limited Media 341,000 482,200 809,013 833,836 137,568 198,000 340,000 14,060,452 125,281 673,881 Fairfax (John) Holdings Limited Publishing & Broadcasting Limited 215,549 115,000 6 1,494 2,898 4,392 4,506 15,134 1,132 1,861 2,561 19,544 332 1,429 46,499 927 1,708 0.6% 1.2% 1.8% 1.8% 6.1% 0.5% 0.7% 1.0% 7.9% 0.1% 0.6% 18.7% 0.4% 0.7% 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d Stock List of securities (continued) Media (continued) Rural Press Limited Rural Press Limited - Preferred Shares Ten Network Holdings Limited West Australian Newspapers Holdings Limited No. of Shares Held Market Value ($’000) Portfolio Weight % 70,000 321,800 407,429 225,052 733 3,395 1,446 1,807 10,016 0.3% 1.4% 0.6% 0.7% 4.0% Pharmaceuticals & Biotechnology Australian Pharmaceutical Industries Limited 248,738 856 0.3% Retailing Angus & Coote (Holdings) Limited Colorado Group Limited Software & Services HPAL Limited Telecommunications Services SP Telemedia Limited Telstra Corporation Limited B Digital Limited Transportation Lindsay Australia Limited Macquarie Infrastructure Group Qantas Airways Limited Utilities Australian Gas Light Company Alinta Limited Total Investments Bank Deposit 65,000 200,000 520 912 1,432 0.2% 0.4% 0.6% 480,000 814 0.3% 3,322,223 1,187,000 3,000,000 1,868,000 761,038 512,500 224,200 132,860 5,266 6,006 1,185 12,457 308 3,166 1,727 5,201 3,190 1,295 4,485 2.1% 2.4% 0.5% 5.0% 0.1% 1.3% 0.7% 2.1% 1.3% 0.5% 1.8% 230,929 17,401 93.0% 7.0% TOTAL PORTFOLIO 248,330 100.0% The Company is not a substantial shareholder in any of the investee corporation in accordance with the Corporations Act 2001, as each equity investment represents less than 5% of issued capital of the investee corporation. 2005 Annual Report 7 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ REPORT The directors of Brickworks Investment Company Limited (the Company) present the following report for the year ended 30 June 2005. 1. Directors The following persons were directors of the Company since incorporation and up to the date of this report: Robert Dobson Millner – Non-Executive Director and Chairman Mr Millner has over 20 years experience as a Company Director. During the past three years, Mr Millner has also served as a director of the following listed companies: • Milton Corporations Limited* • Choiseul Investments Limited* • New Hope Corporation Limited* • Washington H Soul Pattinson and Company Limited* • SP Telemedia Limited* • Brickworks Limited* • Souls Private Equity Limited* • Pacific Strategic Investments Limited* (delisted March 2005) • Australian Pharmaceutic Industries Limited* • Clover Corporation Limited • KH Foods Limited * denotes current directorship David Capp Hall, FCA, FAICD – Independent Non-Executive Director Mr Hall is a Chartered Accountant with experience in corporate management and finance. He holds directorships in other companies and is the Chairman of the audit committee. During the past three years, Mr Hall also served as a director of the following listed companies: • Ainsworth Game Technology Limited • Undercoverwear Limited* • Pacific Strategic Investments Limited* (delisted March 2005) * denotes current directorship Alexander James Payne, B.Comm, Dip Cm, FCPA, FCIS, FCIM - Non-Executive Director Mr Payne is chief financial officer of Brickworks Limited and has considerable experience in finance and investment and is a member of the audit committee. 2. Company Secretary John Paul de Gouveia, B. Bus, M Com, CA Mr de Gouveia has acted as company secretary of Brickworks Investment Company Limited since incorporation on 17 October 2003. Mr de Gouveia is a Chartered Accountant with extensive experience in public practice. 8 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ REPORT - Continued 3. Operating and Financial Review The Company was incorporated on 17 October 2003 with the objective to acquire and manage the investment portfolio of Brickworks Limited. Acquisition of the investment portfolio was complete at the close of business on 8 December 2003. Shares in the Company were listed on the Australian Stock Exchange Limited commencing 12 December 2003. The Company aims to hold long term investment in companies, trusts and interest bearing securities of well managed Australian businesses that would grow in value over time, while at the same time, generating an increasing income stream through dividends, distributions and interest payments. In August 2004, the Company announced an off-market takeover of the then ASX-listed Pacific Strategic Investments Limited (PSI) on the basis of 2 new BKI shares for every 7 shares of PSI. The merger closed on 16 November 2004 with the issue of 17,943,561 BKI shares. PSI became a subsidiary of the Company and subsequently applied for and was granted delisting from the ASX in March 2005. Since November 2004, the Company acquired further holdings in PSI. The Company now holds 99.16% of PSI and has commenced compulsory acquisition to acquire the remaining PSI shares. Portfolio Performance and Results The directors are pleased to report a profit after tax for the year of $10,473,587 (2004: $3,589,908). The investment portfolio has also performed well and has increased in value by $38,230,424 (2004: $15,405,325). Corporate Structure Brickworks Investment Company Limited (“BKI”) is a company limited by shares that is incorporated and domiciled in Australia. BKI has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in the following illustration of the group’s corporate structure: Brickworks Investment Company Limited (“BKI”) 100% 99.16% Brickworks Securities Pty Ltd (“BSPL”) Pacific Strategic Investments Limited (“PSI”) 100% PSI Securities Limited (“PSL”) Nature of Operations and Principal Activities The principle activities during the year of entities within the consolidated entity was investment. The consolidated entity is a long term equity investor and invests primarily in listed ASX securities. There has been no significant changes in the nature of those activities during the year. Employees The consolidated entity has nil employees as at 30 June 2005 (2004: Nil) 2005 Annual Report 9 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ REPORT - Continued 4. Significant Changes in the State of Affairs Other than as stated above and in the accompanying Financial Report, there were no significant changes in the state of affairs of the Company during the reporting year. 5. Likely Developments and Expected Results The operations of the Company will continue with planned investments in Australian equities and fixed interest securities. No information is included on the expected results of those operations and the strategy for particular investments, as it is the opinion of the directors that this information would prejudice the interests of the Company if included in this report. 6. Significant Events after Balance Date The directors are not aware of any matter or circumstance that has arisen since the end of the year to the date of this report that has significantly affected or may significantly affect: i. ii. the operations of the Company and the entities that it controls the results of those operations; or iii. the state of affairs of the Company in subsequent years 7. Environmental Regulations The Company’s operations are not materially affected by environment regulations. 8. Dividends There were two dividend payments during the year ended 30 June 2005. On 31 August 2004, a final ordinary dividend of $3,424,539 (2 cents per share fully franked) was paid out of retained profits at 30 June 2004. On 28 February 2005, an interim ordinary dividend of $3,972,582 (2.1 cents per share fully franked) was paid out of retained profits at 31 December 2004. In addition, the directors have declared a final ordinary dividend of $4,276,644 (2.2 cents per share fully franked) out of retained profits at 30 June 2005 and payable on 31 August 2005. 9. Meetings of Directors The numbers of meetings of the Company’s Board of Directors and each board committee held during the year to 30 June 2005, and the numbers of meetings attended by each Director were: Board Investment Audit Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend 10 10 10 10 10 10 11 5 11 11 - 11 2 2 2 2 2 2 RD Millner DC Hall AJ Payne 10 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ REPORT - Continued 10. Remuneration Report Payment to non-executive directors is fixed at $150,000 until shareholders, by ordinary resolution, approve some other fixed sum amount. This amount is to be divided amongst the Directors as they may determine. These fees exclude any additional fee for any service based agreement which may be agreed from time to time, and also excludes statutory superannuation and the reimbursement of out of pocket expenses. Details of the nature and amount of each Non – Executive Director’s emoluments from the Company and controlled entities in respect of the year to 30 June 2005 were: Primary Superannuation $ 46,250 36,250 25,000 $ 4,162 3,262 2,250 Equity Compensation $ Other Compensation $ - - - - - - Total $ 50,412 39,512 27,250 RD Millner DC Hall AJ Payne There were no retirement allowances provided for the retirement of non-executive directors. 11. Beneficial and relevant interest of Directors in Shares of the Company As at the date of this report, details of Directors who hold shares in the Company for their own benefit or who have an interest in holdings through a third party and the total number of such shares held are listed as follows: RD Millner DC Hall AJ Payne No of Shares 1,360,760 147,575 55,581 12. Directors and Officers’ Indemnity The Constitution of the Company provides indemnity against liability and legal costs incurred by Director and Officers to the extent permitted by Corporations Act. During the year to 30 June 2005, the Company has paid premiums in respect of an insurance contract to insure each of the officers against all liabilities and expenses arising as a result of work performed in their respective capacities. 13. Non-Audit Services The board of directors is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: • all non-audit services are reviewed and approved by the board of directors prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and 2005 Annual Report 11 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ REPORT - Continued 13. Non-Audit Services (continued) • the nature of the services provided do not compromise the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia’s Professional Statement F1: Professional Independence. The following fees for non-audit services were paid to the external auditor during the year ended 30 June 2005: Due diligence investigations Taxation services $11,000 $ 2,000 $13,000 14. Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2005 has been received and can be found on page 44. This report is made in accordance with a resolution of the directors. Robert D Millner Director Sydney 3 August 2005 12 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE Brickworks Investment Company Limited (the Company) was incorporated on 17 October 2003 and since that date the Board are committed to achieving and demonstrating the highest standards of corporate governance. Unless otherwise stated, the Company has followed best practice recommendations set by the ASX Corporate Governance Council during the reporting year The Board of directors (hereinafter referred to as the Board) is responsible for the corporate governance of the Company and its controlled entities. The directors of the Company and its controlled entities are required to act honestly, transparently, diligently, independently, and in the best interests of all shareholders in order to increase shareholder value. The directors are responsible to the shareholders for the performance of the company in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Company as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Company is properly managed. The Company’s main corporate governance practices in place throughout the year are discussed in this section. The Board of Directors The Board operates in accordance with the broad principles set out in its charter. Role of the Board The responsibilities of the board include: ■ contributing to the development of and approving the corporate strategy ■ reviewing and approving business results, business plans, the annual budget and financial plans ■ authorising and monitoring the investment portfolio ■ ensuring regulatory compliance ■ reviewing internal controls ■ ensuring adequate risk management processes ■ monitoring the Board composition, director selection and Board processes and performance ■ overseeing and monitoring: - organisational performance and the achievement of the Company’s strategic goals and objectives - compliance with the Company’s code of conduct ■ monitoring financial performance including approval of the annual report and half-year financial reports and liaison with the Company’s auditors ■ appointment and contributing to the performance assessment of the portfolio manager and other external service providers ■ enhancing and protecting the reputation of the Company ■ reporting to shareholders. The terms and conditions of appointment and retirement of new directors are set out in a formal letter of appointment that includes: ■ term of the appointment ■ powers and duties ■ determination of remuneration ■ dealings in the Company securities including notification requirements ■ conflicts of interest and disclosure policies ■ indemnity and insurance arrangements ■ access to independent professional advice ■ review of appointment 2005 Annual Report 13 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued Board Composition The key elements of the Board composition include: ■ ensuring, where practicable to do so, that a majority of the Board are independent directors ■ the Board of the Company currently comprises 1 independent non-executive director and 2 non executive directors ■ non-executive directors bring a fresh perspective to the board’s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management ■ the Company is to maintain a mix of directors on the Board from different backgrounds with complementary skills and experience ■ the Board seeks to ensure that: - at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the Company and directors with an external perspective - the size of the Board is conducive to effective discussion and efficient decision making. ■ in recognition of the importance placed on the investment experience of the directors and the Board’s role in supervising the activities of the portfolio manager, the majority of the Board are not independent directors. Refer discussion detailed under “Directors’ Independence” on page 15. Details of the members of the Board, their experience, expertise, qualifications and independent status are set out in the directors’ report under the heading “Directors”. Term of Office The company’s Constitution specifies that all directors must retire from office no later than the third annual general meeting (AGM) following their last election. Where eligible, a director may stand for re-election in accordance with company’s Constitution. Chairman The Chairman is a non-executive director who is responsible for leading the Board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating Board discussions and managing the Board’s relationship with external service providers. Board Meetings Details of directors’ attendance at Board meetings are set out in the Directors’ Report on page 8-12. The Board meets formally at least 6 times a year. In addition, it meets whenever necessary to deal with specific matters needing attention between the scheduled meetings. Meeting agendas are established by the Chairman and Company Secretary to ensure adequate coverage of financial, strategic, compliance and other major areas throughout the year. Copies of Board papers are circulated in advance of meetings. Directors are always encouraged to participate with a robust exchange of views and to bring their independent judgment to bear on the issues and decisions at hand. The Board highly values its relationship with the portfolio manager which is based on openness and trust. 14 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued Performance Assessment The Board undertakes an annual self assessment of its collective performance. The results and any action plans are documented together with specific performance goals which are agreed for the coming year. The self assessment: ■ compares the performance of the Board with the requirements of it’s Charter ■ sets forth the goals and objectives of the Board for the upcoming year ■ effects any improvements to the Board charter deemed necessary or desirable. The performance evaluation is conducted in such manner as the Board deems appropriate. In addition, each Board committee undertakes an annual self assessment on the performance of the committee and achievement of committee objectives. The Chairman annually assesses the performance of individual directors and meets privately with each director to discuss this assessment. The Chairman’s performance is reviewed by the Board. Directors’ Independence Assessing the independence of directors is undertaken in accordance with the best practice recommendations released by the Australian Stock Exchange Corporate Governance Council in March 2003. When assessing the independence of directors and the Chairman under recommendation 2.1 and 2.2 of the best practice recommendations released by the Australian Stock Exchange Corporate Governance Council, both Mr Millner and Mr Payne, although meeting other criteria, and bringing independent judgement to bear on their respective roles, are both not defined as independent directors, primarily due to the fact that both Messrs Millner and Payne are officers of Brickworks Limited, who is a substantial shareholder of the company. The Company has not followed recommendation 2.1 and 2.2 due to the following reasons; ■ The Board are of the opinion that all directors exercise and bring to bear an unfettered and independent judgement towards their duties. Brickworks Investment Company Limited listed on the Australian Stock exchange on 12 December 2003 to take over the investment portfolio of Brickworks Limited and the Board is satisfied that both Messrs Millner and Payne play an important role in the continued success and performance of the portfolio. In relation to director independence, materiality is determined on both quantitative and qualitative bases. An amount of over 5% of annual turnover of the Company is considered material. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it impacts the shareholders’ understanding of the director’s performance. Avoidance of conflicts of interests of Directors In accordance with the Corporations Act 2001 (Cth), any director with a material personal interest in a matter being considered by the Board must not be present when the matter is being considered, and may not vote on the matter. Independent Professional Advice Directors and board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required, but this will not be unreasonably withheld. 2005 Annual Report 15 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued Corporate Reporting The portfolio manager and the administrative and company secretarial service provider, namely Souls Funds Management Ltd and Corporate & Administrative Services Pty Ltd have made the following certifications to the Board: ■ that the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and its consolidated entities in accordance with all mandatory professional reporting requirements ■ that the above statement is founded on a sound system of internal control and risk management which implements the policies adopted by the Board and that the Company’s risk management and internal control is operating effectively and efficiently in all material respects. The Company adopted this reporting structure for the year ended 30 June 2005. Board Committees The Board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the Board are the investment committee, nomination committee and the remuneration and audit committees. The committee’s structure and membership is reviewed on an annual basis. All matters determined by committees are submitted to the full Board as recommendations for Board decisions. Investment Committee The Company has established an Investment Committee effective from 12 December 2003. The investment committee consists of the following members: RD Millner (Chairman) AJ Payne Details of these directors’ qualifications, experience and attendance at investment committee meetings held during the year are set out in the Directors’ Report on page 8-12. The main responsibilities of the committee are to: ■ assess the information and recommendation received by the portfolio manager regarding the present and future investment needs of the Company ■ assess the performance of the portfolio manager ■ evaluating investment performance. Nomination Committee The Company has embraced the best practice recommendations released by the Australian Stock Exchange Corporate Governance Council in March 2003 and established a Nominations Committee effective from 12 December 2003. The nomination committee consists of the following members: RD Millner (Chairman) DC Hall AJ Payne Details of these directors’ qualifications, experience and attendance at nomination committee meetings held during the year are set out in the Directors’ Report on page 8-12. 16 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued The main responsibilities of the committee are to: ■ assess the membership of the Board having regard to present and future needs of the Company ■ assess the independence of directors to ensure where practicable to do so, that a majority of the Board are independent directors ■ propose candidates for Board vacancies in consideration of qualifications, experience and domicile ■ oversee board succession ■ evaluating Board performance. New directors are provided with a letter of appointment setting out their responsibilities, rights and the terms and conditions of their employment. The nominations committee charter provides guidance for the selection and appointment of new directors Audit Committee The members of the audit committee at the date of this annual financial report are: DC Hall (Chairman) RD Millner AJ Payne Details of these directors’ qualification, experience and attendance at audit committee meetings are set out in the Directors’ Report on page 8-12. The audit committee operates in accordance with a charter. The Chairman of the audit committee is an independent, non-executive director. The Chairman of the Audit Committee is also required to have accounting or related financial expertise, which includes past employment, professional qualification or other comparable experience. The other members of the audit committee are all financially literate and have a strong understanding of the industry in which the Company operates. The audit committee’s role and responsibilities, composition, structure and membership requirements are documented in an audit committee charter, which has been approved by the Board and is reviewed annually. The main responsibilities of the committee are to: ■ review, assess and approve the annual report, half-year financial report and all other financial information published by the Company or released to the market ■ reviewing the effectiveness of the organisation’s internal control environment covering: - effectiveness and efficiency of operations - reliability of financial reporting - compliance with applicable laws and regulations ■ oversee the effective operation of the risk management framework ■ recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance and consider the independence and competence of the external auditor on an ongoing basis. The Audit Committee receives certified independence assurances from the external auditors ■ review and approve the level of non-audit services provided by the external auditors and ensure it does not adversely impact on auditor independence. The external auditor will not provide services to the Company where the auditor would have a mutual or conflicting interest with the Company; be in a position where they audit their own work; function as management of the Company; or have their independence impaired or perceived to be impaired in any way. ■ review and monitor related party transactions and assess their priority ■ report to the Board on matters relevant to the committee’s role and responsibilities 2005 Annual Report 17 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued In accordance with the audit committee charter, the Company requires that the external audit engagement partner and review partner be rotated very five years. In fulfiling its responsibilities, the audit committee requires the portfolio manager and the administrative and company secretarial service provider, namely Souls Funds Management Ltd and Corporate & Administrative Services Pty Ltd to state in writing to the Board that the Company’s financial reports presents a true and fair view, in all material respects, of the Company’s and its consolidated entities financial condition, operational results and are in accordance with the relevant accounting standards. The external auditors, the portfolio manager and the administrative and company secretarial service provider, namely Souls Funds Management Ltd and Corporate & Administrative Services Pty Ltd are invited to attend meetings at the discretion of the audit committee. Remuneration Committee & Policies The Company has embraced the best practice recommendations released by the Australian Stock Exchange Corporate Governance Council in March 2003 and established a Remuneration Committee effective from 12 December 2003. The remuneration committee consists of the following members: RD Millner (Chairman) DC Hall AJ Payne Details of these directors’ qualifications, experience and attendance at remuneration committee meetings are set out in the Directors’ Report on page 8-12. The Remuneration Committee oversees and review remuneration packages and other terms of employment for executive management. In undertaking their roles the Committee members consider reports from external remuneration experts on recent developments on remuneration and related matters. The Company does not have any employees due to the nature of its business and the use of external service providers. If the use of external service providers was to change in the future, any person engaged in an executive capacity would be required sign a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities, and any entitlements on termination. In such circumstances, executive remuneration and other terms of employment would also be reviewed annually by the committee having regard to personal and corporate performance, contribution to long term growth, relevant comparative information and independent expert advice. As well as a base salary, remuneration in such circumstances could be expected to include superannuation, performance-related bonuses and fringe benefits. Fees for non-executive directors reflect the demands on and responsibilities of our directors. Non-executive directors are remunerated by way of base fees and statutory superannuation contributions and do not participate in schemes designed for the remuneration of executives. Non-executive directors do not receive any options, bonus payments or nor are provided with retirement benefits other than statutory superannuation. Further information on directors’ and executives’ remuneration is set out in the directors’ report and note 17 to the financial statements. The Remuneration Committee’s terms of reference include responsibility for reviewing any transactions between the organisation and the directors, or any interest associated with the directors, to ensure the structure and terms of the transaction are in compliance with the Corporations Act 2001 and are appropriately disclosed. The remuneration committee operates in accordance with a charter. 18 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued Corporate Governance Framework The Board is committed to the highest standards of corporate governance, which it requires as fundamental to all its activities. External service providers are required to provide a Corporate Governance Declaration (the Declaration) to the Board on an annual basis. External service providers are required to confirm in the annual Statements that to the best of their knowledge and belief and having made appropriate inquiries of their own staff and consultants regarding the Company and its controlled entities (the Group) that, in the interests of directors, shareholders and other key stakeholders the service provider has applied corporate governance practices mandated by the Board at all times. The Declaration covers the following: ■ disclosure of the Groups’ operations in the Board meeting papers. ■ satisfaction of all matters arising from prior Board meetings ■ the maintenance of financial records that correctly record and explain the Group’s transactions and financial position and performance to enable true and fair financial statements to be prepared and audited or reviewed in accordance with all applicable Accounting Standards and other mandatory professional reporting requirements ■ compliance with statutory and prudential obligations and details of all lodgments in accordance with these obligations ■ maintenance of ethical conduct by execution of duties with the utmost integrity, objectivity and professionalism at all times ■ notification to the Company Secretary of all purchases and sales of Company securities, directly and indirectly and disclosure in the Board papers. Risk Management The Board is committed to the identification and quantification of risk throughout the Company’s operations. Considerable importance is placed on maintaining a strong control environment. There is an organisational structure with clearly drawn lines of accountability. Adherence to the code of conduct is required at all times and the Board actively promotes a culture of quality and integrity. Management of investment risk is fundamental to the business of the Company being an investor in Australian listed securities. Details of investment risk management policies are held by the portfolio manager. The Board operates to minimise its exposure to investment risk, in part, by the appointment of an external portfolio manager who has proprietary systems, processes and procedures in place to effectively manage investment risk. Code of Conduct The Company has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and applies to all directors and external service providers and their employees. The code is regularly reviewed and updated as necessary to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Company’s integrity. In summary, the Code requires that at all times all company personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies. 2005 Annual Report 19 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d CORPORATE GOVERNANCE - Continued Share Trading Policy The Company has developed a Share Trading Policy which has been fully endorsed by the Board and applies to all directors and employees. Directors, executives and employees may deal in Company securities, however they may not do so if in possession of information which is price sensitive or likely to be price sensitive to the security’s market price. Changes in a Director’s interest is required to be advised to the Company within 3 days for notification to the ASX” Continuous Disclosure and Shareholder Communication The Chairman and Company Secretary have been nominated as being person responsible for communications with the Australian Stock Exchange (ASX). This role includes the responsibility for ensuring compliance with the continuous disclosure requirements in the ASX listing rules and overseeing and co-ordinating information disclosure to ASX. The Chairman is responsible for disclosure to analysts, brokers and shareholders, the media and the public. The company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Company that a reasonable person would expect to have a material effect on the price of the Company’s securities. All information disclosed to the ASX is available on the ASX’s website within 24 hours of the release to the ASX. Procedures have been established for reviewing whether price sensitive information has been inadvertently disclosed, and if so, this information is also immediately released to the market. All shareholders receive a copy of the Company’s full annual report. Shareholders also are updated with the Company’s operations via monthly ASX announcements of the net tangible asset (NTA) backing of the portfolio and other disclosure information. All recent ASX announcements and annual reports are available on the ASX website, or alternatively, by request via email, facsimile or post. 20 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR TO 30 JUNE 2005 Consolidated Company Revenue from ordinary activities Expenses from ordinary activities Profit from ordinary activities before sales of capital investment Revenue from capital investments Cost of sales Profit from ordinary activities before income tax expense Note 2 2 1 (b) 1 (b) Income tax expense relating to ordinary activities 3 Profit from ordinary activities after income tax expense Profit attributable to outside equity interest Operating profit after income tax attributable to members of Brickworks Investment Company Limited Increase in capital profits reserve Increase in asset revaluation reserve Total changes in equity other than those resulting from transactions with owners as owners 13 12 12 Note (a) - refers to the period 9 December 2003 to 30 June 2004 2005 $’000 14,893 (4,184) 10,709 8,651 (8,651) 10,709 (105) 10,604 (130) 10,474 1,444 23,104 35,022 The accompanying notes form part of these financial statements 2005 Annual Report 2004(a) $’000 2005 $’000 2004(a) $’000 4,320 (710) 3,610 6,656 (6,656) 3,610 (20) 3,590 12.965 (1,249) 11,716 3,621 (3,621) 11,716 216 11,932 - - 3,590 11,932 - 10,784 14,374 1,444 32,244 45,620 479 (649) (170) - - (170) 51 (119) - (119) - - (119) 21 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005 CURRENT ASSETS Cash assets Receivables Prepayments TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other financial assets Receivables Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Payables Current tax liabilities TOTAL CURRENT LIABILITIES NON CURRENT LIABILITIES Payables Deferred tax liabilities TOTAL NON CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS SHAREHOLDERS’ EQUITY Contributed equity Reserves Retained profits Parent entity interest Outside equity interest TOTAL EQUITY Consolidated Company Note 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 5 6(a) 7 6(b) 8 9 9 10 11 12 13 17,401 2,163 21 12,792 1,989 23 5,539 2,036 21 5,835 4,926 23 19,585 14,804 7,596 10,784 230,929 170,974 300,662 - 844 231,773 251,358 - 1,355 172,329 187,133 - 831 301,493 309,089 73,501 87,000 1,355 161,856 172,640 1,117 173 1,290 - 16,227 16,227 92 - 92 - 4,630 4,630 1,066 53 1,119 64,319 13,933 78,252 92 - 92 - 4,630 4,630 17,517 4,722 79,371 4,722 233,841 182,411 229,718 167,918 191,614 35,332 6,667 233,613 228 168,037 191,614 168,037 10,784 3,590 33,688 4,416 - (119) 182,411 229,718 167,918 - - - 233,841 182,411 229,718 167,918 Note (a) - refers to the period 9 December 2003 to 30 June 2004 The accompanying notes form part of these financial statements 22 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d STATEMENT OF CASH FLOWS FOR THE YEAR TO 30 JUNE 2005 Consolidated Company Note 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 Cash flows from operating activities Payments to suppliers and employees (1,575) (615) (1,275) (612) Income tax paid Other receipts in the course of operations Proceeds on sale of current investments Payment for current investments Dividends received Interest received Net Cash Inflow/(Outflow) from operating activities Cash flows from investing activities (306) 40 2,879 (16) 9,513 640 14 11,175 (12) 20 - - 3,612 597 3,602 - 34 - - 4 - 19 - - - 167 (1,070) 479 (114) Controlled entities acquired, net of cash acquired 14 (590) (34,888) (4,005) (35,000) Payment for non current investments Proceeds on sale of non current investments Net Cash Inflow/(Outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Repayment of borrowings Dividends paid Repayment from subsidiary entities Loan to subsidiary entities Net Cash Inflow/(Outflow) from financing activities (12,865) 8,650 (5,746) 6,656 (1,878) 3,621 - - (4,805) (33,978) (2,262) (35,000) 4,960 128,168 4,960 128,168 - (85,000) (6,721) - - - - - - (6,721) 4,797 - - - - (87,219) (1,761) 43,168 3,036 40,949 Net increase / (decrease) in cash held 4,609 12,792 (296) 5,835 Cash at the beginning of the year Cash at the end of the year 5 12,792 17,401 - 12,792 5,835 5,539 - 5,835 Note (a) - refers to the period 9 December 2003 to 30 June 2004 The accompanying notes form part of these financial statements 2005 Annual Report 23 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This general purpose financial report has been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. Accounting policies are selected and applied in a manner which ensures that the resultant financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions and other events is reported. Except for equity investments, which are at market value, the financial report has been prepared in accordance with the historical cost convention. Where a choice exists between two or more acceptable accounting methods, the notes fully explain the method adopted. The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other assets are acquired. Cost is determined as the fair value of the purchase consideration at the date of acquisition plus costs incidental to the acquisition. The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. (a) Principles of consolidation The consolidated financial statements include the financial statements of Brickworks Investment Company Limited ("the Company"), being the parent entity, and its controlled entities. All inter-company balances and transactions between entities in the consolidated financial statements have been eliminated. Where controlled entities are acquired during the year, their results are included only from the date control was obtained. (b) Investments Listed Shares Held for Investment Investments are initially recorded at cost and are re-valued to their fair value at the reporting date. Fair value is determined by reference to the last quoted sale price on the Australian Stock Exchange at the close of the business on the reporting date. Costs in acquiring investments, such as brokerage are capitalised in the initial cost of the investment. Revaluation increments and decrements are taken to the Asset Revaluation Reserve after deducting a provision for potential deferred capital gains tax to the extent that they are able to be offset by credits in the Asset Revaluation Reserve, otherwise they are included in the Profit from ordinary activities. Investments are valued continuously. For this reason, cost of sales equals sales revenue when investments are sold. On the disposal of investments, the balance in the Asset Revaluation Reserve relating to the disposed asset is transferred to the Capital Profit Reserve. 24 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) (c) Taxes Income Tax Current tax for the year is calculated on profit from ordinary activities adjusted for non-assessable and non-deductible items and is based on tax rates and tax laws that have been enacted or substantively enacted, at the reporting date. Deferred tax is accounted for using the comprehensive balance sheet liability method whereby deferred tax assets and liabilities are recognised on all temporary differences arising from differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax base. Deferred tax relates to the movement in the net deferred tax asset/liability for the year and is recognised as an expense or revenue in profit from ordinary activities, unless the deferred tax relates to an amount that is credited or debited directly to equity, in which case the deferred tax is also recognised in equity. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset or liability is recovered or settled. Deferred tax liabilities have not been recognised on assessable temporary differences arising from investments in controlled entity where the parent entity can control the timing of distributions and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets are recognised for deductible temporary differences, unused tax losses and unused tax credits only if it is probable that future taxable amounts will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: i) ii) where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. 2005 Annual Report 25 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) Tax Consolidation The Company has formed an income tax consolidated group under the Tax Consolidation Regime with its wholly owned subsidiary for the financial year ending 30 June 2005. Members of the group have entered into a tax sharing agreement in order to allocate income tax expense between the Company and its subsidiary on a pro-rata basis. In addition, the agreement also provides for the allocation of income tax liabilities should the head entity default on its tax payment obligation. Brickworks Investment Company Limited is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. (d) Cash For purposes of the statement of cash flows, cash includes deposits at call which are readily convertible to cash on hand and which are used in the cash management function on a day-to-day basis, net of outstanding bank overdrafts. (e) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of Investments Control of the right to equity has passed to the buyer Interest Control of the right to receive the interest proceeds. Interest from cash on deposit is recognised in accordance with the terms and conditions that apply to the deposit. Dividend Control of the right to receive the dividend proceeds. Dividends from listed entities is recognised as income on the date the shares are traded “ex-dividend”. De-merger dividends arising from company de-consolidations are treated as a return of capital and not as a dividend. Cost of Investment Cost of investment is solely related to the costs incurred in acquiring the equities, including incidental costs. (f) Receivables Receivables are recognised as amounts to be received in the future for goods and services rendered, whether or not billed by the consolidated entity. Assets are commonly settled within 30 days for other debtors. Related party receivables are payable at call. (g) Trade creditors and accruals Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the consolidated entity. Liabilities are commonly settled: Within 3 days ( transaction date + 3 days) for equity purchases ; and Within 30 days for other creditors and accruals. (i) (ii) 26 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) (h) Earnings per share Basic EPS is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted EPS is calculated as net profit attributable to members, adjusted for: i) ii) iii) Costs of servicing equity (other than dividends); The after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and Other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive ordinary shares, adjusted for any bonus element. (i) Contributed Equity Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising from the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received. (j) Rounding The amounts contained in this report and in the half-year financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the Class Order applies. (k) Adoption of International Financial Reporting Standards Refer note 23 and 23.1 2005 Annual Report 27 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 2. PROFIT FROM ORDINARY ACTIVITIES Profit from ordinary activities before income tax expense includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the entity: (i) Operating activities Proceeds from sale of investments Rebateable dividends: - other corporations - wholly-owned subsidiary Rebateable dividends – special: - other corporations Non – rebateable dividends: - other corporations - wholly-owned subsidiary Trust distributions Interest received - notes Interest received – bank deposits Non-operating activities Other income Discount on acquisition of subsidiary Total Revenue (ii) Expenses Carrying costs of investments disposed Loss on sale of non current investments Directors fees and related expenses Management expenses Professional costs General expenses Total Expenses Note (a) - refers to the period 9 December 2003 to 30 June 2004 Consolidated Company 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 2,879 8,406 - - - 3,499 - 1,492 10,782 276 43 - 873 - 105 7 641 13,187 25 1,681 1,706 14,893 2,623 - 188 801 220 352 4,184 181 - - 55 542 4,320 - - - 4,320 - 61 52 360 87 150 710 261 158 105 - 167 12,965 - - - 12,965 - - 104 736 119 290 1,249 - - - - - - - - 479 479 - - - 479 - - 52 360 87 150 649 28 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 3.INCOME TAX The aggregate amount of income tax expense attributable to the year differs from the amount prima facie payable on profits from ordinary activities. The difference is reconciled as follows: Consolidated Company Income tax calculated at 30% Tax effect of permanent differences which (reduce)/increase tax payable: - Discount on acquisition of subsidiary - Dividends from wholly-owned subsidiary 2005 $’000 3,213 (504) - - Franked dividends received Income tax expense (2,604) (1,063) 105 20 2004(a) $’000 1,083 2005 $’000 3,515 2004(a) $’000 (51) - - - (3,283) (448) (216) - - - (51) 4. DIVIDENDS (a) Dividends paid during the year Final dividend for the year ended 30 June 2004 of 2.00 cents fully franked at the tax rate of 30%, paid on 31 August 2004. Interim dividend for the year ended 30 June 2005 of 2.10 cents fully franked at the tax rate of 30%, paid on 28 February 2005. Total Dividends paid in cash or reinvested in shares under the dividend reinvestment plan (“DRP”) Paid in cash Reinvested in shares via DRP Total Franking Account Balance Balance of franking account after allowing for payment of income tax provided for in the financial statements and receipt of dividends recognised as receivables and deducting franking credits used in the payment of dividends recognised as a liability at the reporting date. 30% Class C franking credits 3,425 3,973 7,397 6,723 674 7,397 - - - - - - 3,425 3,973 7,397 6,723 674 7,397 - - - - - 2,646 2,305 2,646 2,305 (b) Dividends declared after balance date Since the end of the financial year the directors have declared a final dividend for the year ended 30 June 2005 of 2.20 cents fully franked at the tax rate of 30% payable on 31 August 2005, but not recognised as a liability at the end of the financial year. 2005 Annual Report 29 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 5. CASH ASSETS Cash at bank 6. RECEIVABLES (a) Current Dividends receivable Distributions receivable Interest receivable Receivable from related entities Sundry debtors (b) Non-current Loans to related entity – unsecured 7. OTHER FINANCIAL ASSETS Listed securities at fair value: - Shares in other corporations - Converting and convertible notes and other interest bearing securities Shares in subsidiary entities at cost Consolidated Company 2005 $’000 2004(a) $’000 17,401 12,792 2,011 105 11 - 36 2,163 1,973 - - - 16 1,989 2005 $’000 5,539 1,907 105 - - 24 2,036 2004(a) $’000 5,835 - - - 4,912 14 4,926 - - - 87,000 230,929 169,754 205,528 - - 230,929 1,220 - 170,974 - 95,134 300,662 - - 73,501 73,501 Acquisition of controlled entities: The Company acquired voting shares in the following entities during the year with the consideration made up of the issue of shares and cash. Controlled entities at 30 June 2005 Brickworks Securities Pty Limited Australia Pacific Strategic Investments Limited Australia Country of Incorporation Date of acquisition 2005 Percentage Owned 2004 8 December 2003 100% 100% - 1 November 2004 99.16% The operating results of all controlled entities from the date of acquisition have been included in the consolidated statements of financial performance. Assets and liabilities of all controlled entities have been included in the consolidated statements of financial position. The main activity of Brickworks Securities Pty Limited and Pacific Strategic Investments Limited is the same as the Company, being a long-term investor in companies, trusts and interest bearing securities with a focus on Australian entities. Note (a) - refers to the period 9 December 2003 to 30 June 2004 30 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 8. DEFERRED TAX ASSETS The deferred tax asset balance comprises the following timing differences and unused tax losses: Share issuing costs Formation expenses Accrued expenses Current year capital losses Current year income losses Deferred tax asset recognised directly in equity 9. PAYABLES Current liabilities: Creditors and accruals Non current liabilities: Consolidated Company 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 824 1,094 824 1,094 1 19 - - 844 4 2 - 18 241 1,355 1,367 1 6 - - 831 4 1,117 92 1,066 2 - 18 241 1,355 1,367 92 - Amount due to controlled entities - - 64,319 10.DEFERRED TAX LIABILITIES The deferred tax liability balance comprises the following timing differences: Revaluation of investments held 16,110 4,622 13,819 4,622 Non rebateable dividend receivable Interest receivable Deferred tax liability recognised directly in equity 11.CONTRIBUTED EQUITY (a) Issued and Paid-Up Capital 114 3 16,227 11,488 8 - 4,630 4,622 114 - 13,933 9,197 8 - 4,630 4,622 194,392,926 Ordinary shares fully paid 191,614 168,037 191,614 168,037 (2004: 171,226,981) Note (a) - refers to the period 9 December 2003 to 30 June 2004 2005 Annual Report 31 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 11.CONTRIBUTED EQUITY (continued) (b) Movement in Ordinary Shares Beginning of the financial year 171,226,981 168,037 - 2005 2004 Number of Shares $’000 Number of Shares $’000 - Issued during the year: - public equity raising - less net transaction costs - - - - 132,725,502 132,726 - (3,190) - purchase of controlled equity 17,943,561 17,939 38,501,479 38,501 - dividend reinvestment plan - share purchase plan - less net transaction costs End of the financial year 596,479 4,625,905 - 674 4,973 (9) - - - - - - 194,392,926 191,614 171,226,981 168,037 Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of shares held. At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. 12.RESERVES Consolidated Company 2004(a) $’000 2005 $’000 2004(a) $’000 Asset revaluation: Balance at the beginning of the year Revaluation of investments Transfer to capital profits reserve on sale of investments Balance at the end of the year Capital profits: Balance at the beginning of the year Capital profits distribution from subsidiary Transfer from asset revaluation reserve on sale of investments Balance at the end of the year Total reserves Note (a) - refers to the period 9 December 2003 to 30 June 2004 32 2005 $’000 10,784 24,548 (1,444) 33,888 - - 1,444 - 10,784 - 10,784 - - - - 33,108 (864) 32,244 - 580 864 1,444 35,332 - 10,784 1,444 33,688 - - - - - - - - - 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 13.RETAINED PROFITS Consolidated Company Retained profits at the beginning of the year Net profit attributable to members of the Company Dividends provided for or paid Retained profits at the end of the year 14.CASH FLOW RECONCILIATION (a) Reconciliation of cash flow from operations with profits from ordinary activities after income tax Net profit / (loss) after income tax (Profit) / loss on disposal of non current investment Dividends from subsidiary entities Non cash item - discount on acquisition Change in assets and liabilities, net of the effects of purchase of subsidiaries (Increase) / Decrease in current investments (Increase) / Decrease in receivables and prepayments Increase / (Decrease) in creditors and accruals Increase / (Decrease) in deferred tax liabilities Increase / (Decrease) in provision for current investments revaluation Increase / (Decrease) in provision for tax (Increase) / Decrease in future tax benefit Net cash (outflow) / inflow from operating activities 2005 $’000 3,590 10,474 (7,397) 6,667 10,604 - - (1,681) 2,974 (110) (32) (213) (537) (120) 290 11,175 Note (a) - refers to the period 9 December 2003 to 30 June 2004 2005 Annual Report 2004(a) $’000 - 3,590 - 3,590 2005 $’000 (119) 11,932 (7,397) 4,416 2004(a) $’000 - (119) - (119) 3,590 61 - - - (150) 92 9 - (12) 12 3,602 11,932 - (10,940) - - (2,020) 14 110 - 53 (219) (1,070) (119) - - - - (36) 92 - - - (51) (114) 33 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 14.CASH FLOW RECONCILIATION (continued) (b) Acquisition of subsidiary entities During the year to 30 June 2005, the Company acquired 99.16% of the controlled entity, Pacific Strategic Investments Limited (“PSI”) (2004: 100% of Brickworks Securities Pty Limited (“BSPL”)) Details of the transaction are: Consolidated Company 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 Purchase consideration: Acquisition % holdings Shares issued 19,943,561 (2004: 38,501,479) Share issuing costs Cash consideration Total consideration Fair value of identifiable net assets of controlled entities acquired: Cash Receivables Repayments Deferred tax assets Fixed assets Listed securities Creditors Current tax liabilities Deferred tax liabilities Discount on consideration Total consideration Net cash effect: Cash paid Share issuing costs Cash balance acquired Total cash outflows on acquisition of controlled entities Note (a) - refers to the period 9 December 2003 to 30 June 2004 34 PSI 99.16% 17,939 285 4,680 22,904 3,482 47 25 42 1 23,026 (87) (260) (1,691) (1,681) 22,904 (3,720) (285) 3,415 (590) PSI 99.16% 17,939 285 4,680 22,904 BSPL 100% 38,501 - 35,000 73,501 BSPL 100% 38,501 - 35,000 73,501 112 1,862 - - - 156,539 (85,012) - - - 73,501 (35,000) - 112 (34,888) (3,720) (285) - (4,005) (35,000) - - (35,000) 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 14.CASH FLOW RECONCILIATION (continued) (c) Non-cash financing and investing activities (i) Share issue on acquiring controlled entities 17,943,561 ordinary shares were issued on acquiring 81.42% of the issued share capital of PSI. (ii) Dividend reinvestment plan Under the terms of the dividend reinvestment plan, $674,021 (2004: nil) of dividends were paid via the issue of 596,479 shares (2004: nil). (iii) Dividend payment During the year ended 30 June 2005, the Company received dividends of $12,210,432 (2004: nil) and a capital profit distribution of $580,011 (2004: nil) from its wholly owned subsidiary entity, Brickworks Securities Pty Limited (“BSPL”). $1,271,276 of dividends received from BSPL relates to profits of the subsidiary prior to acquisition in December 2003 and accordingly the cost of the investment in BSPL has been reduced by the same amount. The dividend was settled against the balance due via an inter-company loan. (iv) Transfer of investment portfolio to parent entity During the year, the Company transferred all of the investment portfolio previously held by its wholly owned subsidiary entity, Brickworks Securities Pty Limited, at cost. The transfer consideration was $159,974,678 and was settled against the balance due via an inter-company loan. 15.EARNINGS PER SHARE The following reflects the income and share data used in the calculation of basic and diluted earnings per share: Net Profit / (Loss) Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in the calculation of basic & diluted earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) Note (a) - refers to the period 9 December 2003 to 30 June 2004 Consolidated 2005 $’000 2004(a) $’000 10,474 3,590 10,474 3,590 No. (‘000) No. (‘000) 184,063 171,227 5.69 5.69 2.10 2.10 2005 Annual Report 35 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 16.AUDITORS’ REMUNERATION Remuneration of the auditor of the parent entity for: (a) Auditing the financial report of the Company and the controlled entity (b) Other services Remuneration of other auditors of subsidiary for: Auditing the financial report of a controlled entity (Pacific Strategic Investments Ltd) 17.DIRECTORS REMUNERATION Income paid or payable, or otherwise made available to Non-Executive Directors of the consolidated entity in connection with managing the affairs of the Company and controlled entities Fees Superannuation Guarantee amounts Consolidated Company 2005 $’000 2004(a) $’000 2005 $’000 2004(a) $’000 29 13 42 28 26 - 26 - 29 13 42 - 26 - 26 - 2005 2004(a) $ 107,500 9,675 117,175 $ 47,500 4,275 51,775 The number of Directors whose total remuneration from the Company and its controlled entities was within the following bands: $10,000 - $19,999 $20,000 - $29,999 $30,000 - $39,999 $40,000 - $49,999 $50,000 - $59,999 Number of Directors 2 1 - - - - 1 1 - 1 The Company had no employees during the period to 30 June 2004. 18.SUPERANNUATION COMMITMENTS The Company contributes superannuation payments on behalf of directors of the consolidated entity in accordance with relevant legislation. Superannuation funds are nominated by the individual directors and are independent of the Company. Note (a) - refers to the period 9 December 2003 to 30 June 2004 36 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 19.RELATED PARTY TRANSACTIONS Related parties of the Company fall into the following categories: (i) Controlled Entities Brickworks Securities Pty Limited is 100% owned by the Company and is incorporated in Australia. Pacific Strategic Investments Limited is 99.16% owned by the Company and is incorporated in Australia. Transactions between the Company and its controlled entity consist of loan balance from the Company to its controlled entities. No interest is charged on the loan balance to the controlled entities and no repayment period is fixed for the loan. (a) Dividend payment During the year ended 30 June 2005, the Company received dividends of $12,210,432 (2004: nil) and a capital profits distribution of $580,011 (2004: nil) from its wholly owned subsidiary entity, Brickworks Securities Pty Limited (BSPL). $1,271,276 of dividends received relates to profits of the subsidiary prior to acquisition in December 2003 and accordingly the cost of the investment in BSPL has been reduced by the same amount. The dividend was settled against the balance due via an inter-company loan. (b) Transfer of investment portfolio to parent entity During the year, the Company transferred all of the investment portfolio previously held by its wholly owned subsidiary entity, Brickworks Securities Pty Limited, at cost. The transfer consideration was $159,974,678 and was settled against the balance due via an inter-company loan. (ii) Directors/Officers Related Entities Persons who were Directors/Officers of Brickworks Investment Company Limited for part or all of the year ended 30 June 2005 were: Directors: RD Millner DC Hall AJ Payne Company Secretary: JP de Gouveia Pitt Capital Partners Limited The Company has appointed Pitt Capital Partners Limited, an entity in which Mr. RD Millner has an indirect interest, to act as financial adviser in respect of the merger of the Company’s shares with that of Pacific Strategic Investments Limited. Total fees paid to Pitt Capital Partners Limited were $165,000 (2004: $788,811) including GST. Souls Funds Management Limited The Company has appointed Souls Funds Management Limited, an entity in which Mr. RD Millner has an indirect interest, to act as investment manager for a period of 5 years from 24 October 2003. Under the agreement between the two parties, the Company agrees to pay Souls Funds Management Limited a monthly management fee equal to one-twelfth of 0.35% of the total assets of the Company in the preceding month. 2005 Annual Report 37 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 19.RELATED PARTY TRANSACTIONS (continued) Souls Funds Management Limited also acts as investment manager for the controlled entity Pacific Strategic Investments Limited on a quarterly management fee equal to one-quarter of 0.35% of the net asset of PSI at each quarter. The management fee paid for the year to 30 June 2005 was $801,411 (2004: $359,549); and the management fee owed by the Company to Souls Funds Management Limited at 30 June 2005 was $78,810 (2004: $59,950). Corporate and Administrative Services Pty Limited The Company has appointed Corporate & Administrative Services Pty Limited, an entity in which Mr RD Millner has an indirect interest and Mr JP de Gouveia has a direct interest, to provide the Company with administration, company secretarial services and preparation of all financial accounts. Administration fees paid for services provided to the company and its controlled entities for the year to 30 June 2005 were $176,880 (2004: $60,866) including GST and are at standard market rates. No administration fees were owed by the Company to Corporate & Administrative Services Pty Limited at 30 June 2005. (iii) Transactions in securities of the Company Aggregate number of securities of the Company acquired or disposed of by Directors or their Director-related entities: Acquisition - Shares Disposal - Shares 2005 2004 No. of Shares No. of Shares 549,914 - 1,014,002 - During the year ended 30 June 2005, entities related to Directors acquired, under normal commercial terms, shares in the Company as follows: (i) Entities related to Mr RD Millner: 446,760 shares (2004: 914,000) (ii) Entities related to Mr DC Hall: 97,574 shares (2004: 50,001) (iii) Entities related to Mr AJ Payne: 5,580 shares (2004: 50,001) Directors acquired shares through the initial public offering, dividend reinvestment plan, share purchase plan or on-market purchase. There has been no other change to Directors’ shareholdings in the Company during the year ended 30 June 2005. Messrs RD Millner, DC Hall and AJ Payne, or their associated entities, being shareholders of the Company are entitled to receive dividends from the Company. 20.FINANCIAL REPORTING BY SEGMENTS The Company operates predominately in the securities industry in Australia. 38 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 21.FINANCIAL INSTRUMENTS a) Interest Rate Risk The Company’s exposure to interest rate risk as at the reporting date is as follows: Weighted Average Interest Rate % Variable Interest Rate $’000 Non-Interest Bearing $’000 Total $’000 2005 2004(a) 2005 2004(a) 2005 2004(a) 2005 2004(a) Financial Assets Cash Converting preference shares Notes Listed securities Receivables and prepayments Financial Liabilities Payables 4.05 3.95 17,401 12,792 - - 17,401 12,792 - - - - - 7.27 6.75 - - - - - - 797 423 - - - 230,929 - - - - 169,754 230,929 797 423 169,754 - 17,401 - 14,012 2,184 233,113 2,012 2,184 171,766 250,514 2,012 185,778 - - 1,117 92 1,117 92 Note (a) - refers to the period 9 December 2003 to 30 June 2004 b) Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted the policy of only dealing with credit-worthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group measures credit risk on a fair value basis. The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the Group’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. c) Concentration of investment risk The Company minimises concentration of risk in relation to investments by spreading across different sectors. Spread of investments in the following sectors: Percentage of total investment Amount Sector Banks Capital goods Diversified financials Materials Media Telecommunication services Other non concentrated Bank deposits 2005 Annual Report 2005 % 38.1 4.3 7.0 18.7 4.0 5.0 15.9 7.0 100.0 2004 % 46.7 3.2 6.2 20.5 2.3 3.4 10.7 7.0 100.0 2005 ($’000) 94,595 10,560 17,312 46,499 10,016 12,457 39,490 17,401 248,330 2004 ($’000) 85,809 5,811 11,428 37,578 4,260 6,308 19,780 12,792 183,766 39 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 21.FINANCIAL INSTRUMENTS (continued) The Company traded all investment transactions through a number of major broking firms with trades evenly placed amongst those firms. d) Net Fair Value The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in note 1 to the accounts. 22.COMPARATIVE INFORMATION The Company was incorporated on 17 October 2003 and the comparative information for 2004 refers to the period from October 2003 to 30 June 2004. 23. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO IFRS Brickworks Investment Company Limited is in the process of transitioning its accounting policies and financial reporting from current Australian Accounting Standards (AGAAP) to Australian equivalents of International Financial Reporting Standards (AIFRS) which will be applicable for the financial year ended 30 June 2006. The company has prepared an opening balance sheet in accordance with AIFRS as at 1 July 2004, being the company’s transition date to AIFRS. This will form the basis of accounting for AIFRS in the future, and is required when the company prepares its first fully AIFRS compliant financial report for the year ended 30 June 2006. Set out below is the key area where the accounting policies are expected to change on adoption of AIFRS and our best estimate of the quantitative impact of the changes on total equity as at the date of transition and 30 June 2005 and on net profit for the year ended 30 June 2005. The figures disclosed are best estimates of the quantitative impact of the changes as at the date of preparing the 30 June 2005 financial report. The actual effects of transition to AIFRS may differ from the estimates disclosed due to (a) ongoing work being undertaken by the AIFRS project team; (b) potential amendments to AIFRSs and Interpretations thereof being issued by the standard-setters and IFRIC; and (c) emerging accepted practice in the interpretation and application of AIFRS and UIG Interpretations. (a) Reconciliation of equity as presented under AGAAP to that under AIFRS Consolidated Company 30 June 2005** $’000 1 July 2004* $’000 30 June 2005** $’000 1 July 2004* $’000 Total equity under AGAAP 233,841 182,411 229,718 167,918 Adjustments to retained earning (net of tax) - - - Adjustments to other reserves (net of tax) Asset revaluation reserve (refer note 23.1) (321) (1,014) (282) - - Total equity under AIFRS 233,520 181,397 229,436 167,918 * This column represents the adjustment as at the date of transition to AIFRS. ** This column represents the cumulative adjustments as at the date of transition to AIFRS and those for the year ended 30 June 2005. 40 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR TO 30 JUNE 2005 (continued) 23. IMPACT OF ADOPTING AUSTRALIAN EQUIVALENTS TO IFRS (continued) (b) Reconciliation of net profit under AGAAP to that under AIFRS Year Ended 30 June 2005 Net profit as reported under AGAAP Capital profit on disposal of investment Net profit under AIFRS Consolidated $’000 10,474 1,444 11,918 Company $’000 3,590 1,444 5,034 23.1 VALUATION OF INVESTMENT PORTFOLIO The securities held in the investment portfolio are initially brought to account at cost. Subsequent to acquisition, securities are revalued to fair market value with increments and decrements taken to the Asset Revaluation Reserve. When disposal of securities takes place, the cumulative gain or loss relating to them is transferred from Asset Revaluation Reserve directly to Capital Profits Reserve. Under AIFRS, the cumulative gain or loss on disposal of securities will be taken to profit and loss account and then transferred to the Capital Profits Reserve. Determination of Fair Value Under AGAAP, fair value for the purpose of valuing holdings of securities that are listed or traded on an exchange are based on the last quoted sale prices for securities prevailing at balance date. Under AIFRS, fair vale is based on the “bid” price for securities prevailing at balance date. Under AIFRS, the change in the method of calculating fair value from “last quoted sales price” to the “bid price” results in a consolidated reduction in the carrying value of the investment portfolio of $321,000. 2005 Annual Report 41 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d DIRECTORS’ DECLARATION The directors of Brickworks Investment Company Limited declare that: 1. the financial statements and notes of the Company and consolidated entity as set out on pages 21 to 41, are in accordance with the Corporations Act 2001: (a) give a true and fair view of the financial position as at 30 June 2005 and the performance for the year ended on that date of the Company and consolidated entity; and (b) comply with Accounting Standards and the Corporations Regulations 2001; 2. in the directors’ opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 3. this declaration has been made after receiving the declaration required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ending 30 June 2005. This declaration is made in accordance with a resolution of the Board of Directors. Robert D Millner Director Sydney 3 August 2005 42 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d TRAVIS & TRAVIS CHARTERED ACCOUNTANTS P.O. BOX 429 LANE COVE, AUSTRALIA TELEPHONE: +61 2 9427 6555 FACSIMILE:+61 2 9427 5127 EMAIL: info@travisntravis.com.au SCOPE INDEPENDENT AUDIT REPORT TO THE MEMBERS OF BRICKWORKS INVESTMENT COMPANY LIMITED The financial report and director’s responsibility The Financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for Brickworks Investment Company Limited (The Company) and the consolidated entity for the year ended 30 June 2005 The consolidated entity comprises both the company and the entities it controlled during that year. The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report. Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgment, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations and cash flows. We formed our audit opinion on the basis of these procedures, which included: - examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report; and - assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. INDEPENDENCE In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001. In accordance with ASIC Class Order 05/83, we declare to the best of our knowledge and belief that the auditor’s independence declaration set out on page 44 of the financial report has not changed as at the date of providing our audit opinion. AUDIT OPINION In our opinion, the financial report of Brickworks Investment Company Limited is in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2005 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. TRAVIS & TRAVIS A.J. FAIRALL Partner Dated: 3 August 2005 Liability is limited by the Accountant’s Scheme under the Professional Standards act 1994 (NSW) 2005 Annual Report 1/114 Longueville Road LANE COVE NSW 2066 43 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d TRAVIS & TRAVIS CHARTERED ACCOUNTANTS P.O. BOX 429 LANE COVE, AUSTRALIA TELEPHONE: +61 2 9427 6555 FACSIMILE:+61 2 9427 5127 EMAIL: info@travisntravis.com.au Auditors’ Independence Declaration to the Directors of Brickworks Investment Company Limited I declare that, to the best of my knowledge and belief, during the year ended 30 June 2005 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. TRAVIS & TRAVIS A.J. FAIRALL Partner Dated: 3 August 2005 1/114 Longueville Road, Lane Cove NSW Liability is limited by the Accountant’s Scheme under the Professional Standards act 1994 (NSW) 44 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d ASX Additional Information 1) Equity Holders At 29 July 2005, there were 7,773 holders of ordinary shares in the capital of the Company. These holders were distributed as follow: No. of Shares held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holding less than a marketable parcel of 428 shares Votes of Members Article 5.12 of the Company’s Constitution provides No. of Shareholders 179 2,476 2,032 2,893 143 46 a) Subject to this Constitution and any rights or restrictions attached to a class of Shares, on a show of hands at a meeting of Members, every Eligible Member present has one vote. b) Subject to this Constitution and any rights or restrictions attached to a class of Shares, on a poll at a meeting of Members, every Eligible Member present has : (i) one vote for each fully paid up Share (whether the issue price of the Share was paid up or credited or both) that the Eligible Member holds; and (ii) a fraction of one vote for each partly paid up Share that the Eligible Member holds. The fraction is equal to the proportion which the amount paid up on that Share (excluding amounts credited) is to the total amounts paid up and payable (excluding amounts credited on that Share). 2005 Annual Report 45 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d ASX Additional Information (continued) The 20 largest holdings of the Company’s share as at 29 July 2005 are listed below: Name Shares Held Brickworks Limited Washington H Soul Pattinson & Co Ltd Bougainville Copper Limited Argo Investments Limited UBS Private Clients Australia Nominees Pty Ltd Bougainville Copper Limited Australia Republic Investment Pty Ltd Tothemill Pty Ltd Trephant Pty Ltd HFT Nominees Pty Ltd Mr Richard Hamilton Bartlett Mr David McKee & Mrs Pamela McKee Mr James Sinclair Millner Australian Executor Trustees Limited Mr Peter Edward Goodeve Dr Russell Kay Hancock H F T Nominees Pty Ltd J S Millner Holdings Pty Limited RBC Global Services Australia Nominees Pty Ltd Janivan Investments Pty Ltd Total top 20 security holders Total number of shares on Issue 2) Substantial Shareholders 43,101,479 5,894,102 5,000,000 3,253,893 2,304,367 2,100,000 1,142,858 771,429 700,000 637,625 560,000 547,433 545,318 540,579 500,000 500,000 482,572 478,651 461,749 450,000 69,972,055 194,392,926 % 22.17 3.03 2.57 1.67 1.19 1.08 0.59 0.40 0.36 0.33 0.29 0.28 0.28 0.28 0.26 0.26 0.25 0.25 0.24 0.23 36.01 As at 29 July 2005 the name and holding of substantial shareholder as disclosed in a notice received by the company is: Substantial Shareholders Brickworks Limited 3) Other Information: No. of Shares 43,101,479 % of Total 22.17 ■ There is no current on-market buy-back in place. ■ There were 100 (2004: 41) transactions in securities undertaken by the Company and the total brokerage paid or accrued during the year was $73,450 (2004: $46,335). 4) Management Fees Management fees paid and accrued during the year ended 30 June 2005 was $801,411 (2004: $359,549). 46 2005 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d This page has been left blank intentionally 2005 Annual Report 47 B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d This page has been left blank intentionally 48 2005 Annual Report 

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