Black Knight
Annual Report 2009

Plain-text annual report

Annual Report for year ended 30 June 2009 ABN 23 106 719 868 CORPORATE DIRECTORY Directors Robert Dobson Millner Non-Executive Director and Chairman David Capp Hall Non-Executive Director Alexander James Payne Non-Executive Director Geoffrey Guild Hill Non-Executive Director Ian Thomas Huntley Non-Executive Director (appointed 10 February 2009) Chief Executive Officer Thomas Charles Dobson Millner Secretary Richard James Pillinger Registered Office Level 2, 160 Pitt Street Mall, Sydney NSW 2000 Telephone: (02) 9210 7000 Facsimile: (02) 9210 7099 Postal Address: GPO Box 5015, Sydney 2001 Auditors Ruwald & Evans Level 1, 276 Pitt Street, Sydney NSW 2000 Share Registry Computershare Investor Services Pty Limited 60 Carrington Street, Sydney 2000 Australian Stock Exchange Code Ordinary Shares BKI Website http//:www.brickworksinvestments.com.au 2009 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 List of Securities at 30 June 2009 Group Profile Chairman’s Address Directors’ Report Corporate Governance Consolidated Income Statement Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Auditor’s Independence Declaration ASX Additional Information 2 4 7 8 11 19 26 27 28 30 31 51 52 53 54 2009 Annual Report 1 FINANCIAL HIGHLIGHTS (cid:2) Revenue Performance Dividend/distribution income - Ordinary Dividend/distribution income - Special (cid:2) Profits Operating profit before tax but before special dividend income, realised and unrealised losses on investment portfolio and discount on acquisition Dividend income - Special Up Up Up Up Realised and impairment losses on investment portfolio after tax Down Discount recognised on acquisition of controlled entity Total income tax credit / (expense) Net loss attributable to Minority Interests Up Up Up Net profit for the year attributable to shareholders Down % Change 15.5% 45.2% 13.8% 45.2% 247.7% 100.0% 218.1% 100.0% 2.1% $’000 19,907 1,295 21,753 1,295 (6,833) 3,323 2,428 146 22,112 to to to to to to to to to (cid:2) Portfolio Total Portfolio Value (cid:2) Earnings per share* Up 9.3% to 478,275 Basic earnings per share before special dividend income and realised gains on investment portfolio Down 8.7% Basic earnings per share after special dividend income and realised gains on investment portfolio Down 20.8% to to 5.93 6.34 * Includes increased share capital post the acquisition of Huntley Investment Company Limited (cid:2) Net Tangible Asset (NTA) History: 30/06/04 30/06/05 30/06/06 30/06/07 30/06/08 30/06/09 NTA Before Tax NTA After Tax $1.08 $1.06 $1.28 $1.20 $1.43 $1.32 $1.69 $1.51 $1.52 $1.41 $1.22 $1.19 2 2009 Annual Report B r i c k w o r k s I n v e s t m e n t C o m p a n y L i m i t e d FINANCIAL HIGHLIGHTS (continued) (cid:2) Fully franked final dividend of 3.0 cents per share. This brings the total fully franked dividends for the year to 6.0 cents per share on the increased share capital arising from the takeover of Huntley Investment Company Limited (2008: 6.0 cents per share). (cid:2) Dividend History (cents per share) Interim Final Special Total 30/06/04 30/06/05 30/06/06 30/06/07 30/06/08 30/06/09 -* 2.0 - 2.0 2.1 2.2 - 4.3 2.5 2.5 1.0 6.0 2.6 2.7 - 5.3 3.0 3.0 - 6.0 3.0 3.0 - 6.0 * This Company was listed on ASX 12 December 2003, no interim dividend is applicable. 2009 Annual Report 3 List of securities held and their market value at 30 June 2009 were (combined Investment and Trading Portfolios): Stock Banks Australia and New Zealand Banking Group Limited Bank of Queensland Limited Bendigo Bank Limited Commonwealth Bank National Australia Bank Limited Westpac Banking Corporation Westpac SPS II Institutional Offer Westpac Stapled Preferred Securities Capital Goods GWA International Limited United Group Limited Commercial Services & Supplies Brambles Limited Campbell Brothers Limited Salmat Limited Seek Limited Skilled Group Limited The MAC Services Group Limited Transfield Services Limited Consumer Durables & Apparel Gazal Corporation Limited Consumer Services Crown Limited Invocare Limited Tabcorp Holdings Limited Tattersall's Limited Diversified Financials Australian Securities Exchange Limited Choiseul Investments Limited Macquarie Group Limited Milton Corporation Limited Perpetual Limited 4 Shares Held 320,224 281,273 486,092 820,000 1,764,191 1,135,465 90,165 20,840 1,310,000 100,000 905,952 318,629 786,085 459,246 394,826 750,035 400,000 211,865 90,574 751,000 253,900 951,872 174,000 1,082,985 162,213 106,606 149,510 Market Value ($’000) 5,295 2,537 3,369 31,920 39,590 22,930 9,400 2,038 117,079 3,000 1,032 4,032 5,354 6,487 2,712 1,916 484 881 912 18,746 206 206 657 4,356 1,798 2,418 9,229 6,424 4,689 6,334 1,546 4,256 23,249 Portfolio Weight 1.11% 0.53% 0.70% 6.67% 8.28% 4.79% 1.97% 0.43% 24.48% 0.63% 0.22% 0.84% 1.12% 1.36% 0.57% 0.40% 0.10% 0.18% 0.19% 3.92% 0.04% 0.04% 0.14% 0.91% 0.38% 0.51% 1.93% 1.34% 0.98% 1.32% 0.32% 0.89% 4.86% 2009 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 List of securities (continued): Stock Energy Caltex Australia Limited New Hope Corporation Limited Santos Limited Woodside Petroleum Limited Food, Beverages & Tobacco Coca Cola Amatil Limited Graincorp Limited Lion Nathan Limited Food & Staples Retailing AWB Limited Metcash Limited Wesfarmers Limited Woolworths Limited Health Care Equipment & Services Clover Corporation Limited Sonic Healthcare Limited Insurance AMP Limited AXA Asia Pacific Holdings Limited Insurance Australia Group Limited QBE Insurance Group Limited Suncorp-Metway Limited Suncorp-Metway Limited Convertible Preference Shares Materials Alumina Limited BHP Billiton Limited Bluescope Steel Limited Boral Limited Brickworks Limited Onesteel Limited Orica Limited Step up Preference Securities Rio Tinto Limited 2009 Annual Report Shares Held Fair Value ($’000) Portfolio Weight % 86,950 14,760,452 98,000 360,000 618,000 93,444 227,300 782,000 1,505,833 638,570 609,000 858,000 42,500 973,833 426,000 1,076,446 594,244 390,000 40,000 1,021,912 1,361,000 233,568 81,000 435,000 800,000 10,000 49,562 1,200 67,310 1,428 15,550 85,488 5,296 663 2,627 8,586 919 6,430 14,280 16,050 37,679 176 519 695 4,743 1,653 3,746 11,810 2,597 3,464 28,013 1,472 47,190 591 330 5,903 2,056 890 2,179 60,611 0.25% 14.07% 0.30% 3.25% 17.87% 1.11% 0.14% 0.55% 1.80% 0.19% 1.34% 2.99% 3.36% 7.88% 0.04% 0.11% 0.18% 0.99% 0.35% 0.78% 2.47% 0.54% 0.72% 5.86% 0.31% 9.87% 0.12% 0.07% 1.23% 0.43% 0.19% 0.46% 12.67% 5 List of securities (continued): Stock Media Consolidated Media Holdings Fairfax Media Limited Ten Network Holdings Limited West Australian Newspapers Holdings Limited Real Estate The GPT Group Westfield Group Retailing Shares Held 75,574 2,100,000 747,429 372,458 1,000,000 193,157 ARB Corporation Limited 673,437 Telecommunications Services SP Telemedia Limited Telstra Corporation Limited Transportation Lindsay Australia Limited Macquarie Infrastructure Group Qantas Airways Limited Transurban Group Utilities AGL Energy Limited APA Group Total Investments Bank Deposit 3,322,223 5,228,000 3,120,034 762,892 602,500 134,581 1,056,000 790,000 TOTAL PORTFOLIO Fair Value ($’000) Portfolio Weight % 171 2,552 871 1,609 5,203 485 2,192 2,677 2,390 2,390 1,179 17,670 18,849 546 1,087 1,205 560 3,398 14,170 2,157 16,327 442,457 35,818 478,275 0.04% 0.53% 0.18% 0.34% 1.09% 0.10% 0.46% 0.56% 0.50% 0.50% 0.25% 3.69% 3.94% 0.11% 0.23% 0.25% 0.12% 0.71% 2.96% 0.45% 3.41% 92.51% 7.49% 100.00% The Group is not a substantial shareholder in any of the investee corporations in accordance with the Corporations Act 2001, as each equity investment represents less than 5% of the issued capital of the investee corporation. 6 2009 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 GROUP PROFILE Brickworks Investment Company Limited (the Group) is a Listed Investment Company on the Australian Stock Exchange. The Group invests in a diversified portfolio of Australian shares, trusts and interest bearing securities. Shares were listed on the Australian Stock Exchange Limited commencing 12 December 2003. Corporate Objectives The Group aims to generate an increasing income stream for distribution to its shareholders in the form of fully 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 Group 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 Group will pay the maximum amount of realised profits after tax to its shareholders in the form of fully 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. Management As previously announced, on 1 December 2008 the Group internalised the portfolio management function. Prior to this, Souls Funds Management Limited acted as Portfolio Manager. The Group also engages Corporate and Administrative Services Pty Ltd to provide accounting and group secretarial services. 2009 Annual Report 7 CHAIRMAN’S ADDRESS Dear Shareholders, I am pleased to enclose the 6th Annual Report of Brickworks Investment Company Limited for the year ended 30 June 2009. Income from operating activities before special investment revenue and net gains / (losses) on investment portfolio increased 11% to $23.2m. Whilst Special Investment Revenue increased 45% to $1.3m. BKI has increased net operating profit before special investment revenue and net gains / (losses) on investment portfolio by 13% to $20.7m. Net Profit After Tax was $22.1m, down 2% on the previous corresponding period. Performance BKI’s Net Portfolio Return (after all operating expenses, payment of both income and capital gains tax and the reinvestment of dividends) for the 12 months to 30 June 2009 was negative 15.7% compared to the S&P/ASX 300 Accumulation Index which declined by 20.3%. The chart below shows historical portfolio returns benchmarked to the S&P/ASX 300 Accumulation Index: BKI’s Share Price Performance (including the reinvestment of dividends) for the 12 months to 30 June 2009 was negative 8.9%. This compares favourably to the S&P/ASX 300 Accumulation Index which returned negative 20.3% over the same period, an out performance of 11.4%. The chart below shows historical share price performance benchmarked to the S&P/ASX 300 Accumulation Index: 8 2009 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 CHAIRMAN’S ADDRESS - Continued Portfolio Movements BKI continues to focus on investing for the long term with major investments over the 12 months to 30 June 2009 including BHP Billiton, Telstra Corporation, Coca-Cola Amatil, Metcash Limited, Westpac Banking Corporation SPSII, United Group, ARB Corporation and Woolworths Limited. BKI also participated in numerous capital raisings through Entitlement Offers, Placements and Share Purchase Plans with major investments including Commonwealth Bank, Wesfarmers Limited, Alumina Limited, Bluescope Limited, OneSteel Limited, GPT Group and Seek Limited. The investment portfolio is continually reviewed by the Investment Committee to determine if any stocks held within it are, in the view of the committee, impaired. This review primarily focuses on the ability of the company to pay dividends over the long term. If there is objective evidence found that may impact future cash flows of the company resulting from significant changes in the technological, market, economic or legal environment in which that company operates BKI will consider it impaired and normally dispose of the stock. In the event that an investment is considered impaired, but has not yet been disposed of, an impairment charge is recognised in the Income Statement. The impairment review undertaken by the Investment Committee identified an unrealised impairment loss of $1.4m. The portfolio is re-valued daily on a mark to market basis and as such the impairment charge does not impact BKI’s NTA. In accordance with BKI’s investment strategy, there is an expectation from companies in which we invest that they continue to pay dividends over the long term. Major divestments from the BKI Investment Portfolio as a result of significantly reduced dividend payments include Babcock & Brown Infrastructure Group, BBI EPS Limited, Alesco Corporation, Wattyl Limited, Vision Group Holdings, Specialty Fashion Group, Bravura Solutions and CBD Energy. These sales resulted in a realised loss of $5.4m. St George Bank Limited was also divested following the successful takeover by Westpac Banking Corporation. List of Top 20 Securities held as at 30 June 2009: Stock New Hope Corporation Limited BHP Billiton Limited National Australia Bank Limited Commonwealth Bank 1 2 3 4 5 Westpac Banking Corporation 6 Telstra Corporation Limited 7 Woolworths Limited 8 Woodside Petroleum Limited 9 Wesfarmers Limited 10 AGL Energy Limited 11 QBE Insurance Group Limited 12 Westpac Banking Corporation SPSII 13 Campbell Brothers Limited 14 Metcash Limited 15 Australian Securities Exchange Limited 16 Macquarie Group Limited 17 Brickworks Limited 18 Brambles Limited 19 Coca Cola Amatil Limited 20 Australia and New Zealand Banking Group Limited 2009 Annual Report Shares Held 14,760,452 1,361,000 1,764,191 820,000 1,135,465 5,228,000 609,000 360,000 638,570 1,056,000 594,244 90,165 318,629 1,505,833 174,000 162,213 435,000 905,952 618,000 320,224 Fair Value ($’000) 67,310 47,190 39,590 31,920 22,930 17,670 16,050 15,550 14,280 14,170 11,810 9,400 6,487 6,430 6,424 6,334 5,903 5,354 5,296 5,295 Portfolio Weight * 14.07% 9.87% 8.28% 6.67% 4.79% 3.69% 3.36% 3.25% 2.99% 2.96% 2.47% 1.97% 1.36% 1.34% 1.34% 1.32% 1.23% 1.12% 1.11% 1.11% 9 CHAIRMAN’S ADDRESS - Continued Huntley Investment Company Limited The Huntley Investment Company acquisition was completed under compulsory acquisition on the 23rd January 2009. Managing Director of Huntley Investment Company, Mr Ian Huntley has since accepted positions on the BKI Board and Investment Committee. Ian brings a wealth of knowledge and experience to BKI. Dividends The Final Dividend has been maintained at 3 cents per share fully franked on the increased share capital resulting from the takeover of Huntley Investment Company Limited during the year. The record date will be 21 August 2009 with a payment date of 4 September 2009. As at 30 June 2009 BKI was trading on a historical fully franked dividend yield of 5.7%. Operating Expenses Operating Expenses were $1.4m as at the 30 June 2009, a reduction of 29% on the corresponding period. BKI’s Management Expense Ratio (MER) has decreased from 0.46% to 0.31% over the financial year. It is important to note that the latest MER figure also contains 5 months of fees from the previous external management arrangement. Based on the present level of net tangible assets, BKI is confident that the MER at financial year end 2010 should be approximately 0.20% - 0.25%. Outlook BKI is expecting a substantial fully franked special dividend payment from New Hope Corporation Limited (to be paid in conjunction with the final 2009 year dividend in November 2009). This additional income places BKI in a very strong position for the upcoming financial year. Despite some negativity surrounding company earnings and reduced dividend income expected in the forthcoming reporting season, there continues to be opportunities for the long term investor. There are many well managed, profitable businesses with strong balance sheets and attractive dividend yields within the Australian market. As at 30 June 2009 BKI held $38.7m in cash and dividends receivable, representing some 8.0% of the total assets. The strong cash position places the company well and we will continue to take advantage of investment opportunities when they arise. Yours sincerely, Robert Millner Chairman Sydney, 11 August 2009 10 2009 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 The directors of Brickworks Investment Company Limited present the following report on the Company and its controlled entities (the Group) for the year ended 30 June 2009. 1. Directors The following persons were directors since the start of the financial year and up to the date of this report unless otherwise stated: Robert Dobson Millner, FAICD – Non-Executive Director and Chairman Mr Millner has 25 years experience as a Company Director. During the past three years, Mr Millner has also served as a Director of the following other listed companies: • Milton Corporation Limited* • Choiseul Investments Limited* • New Hope Corporation Limited* • Washington H Soul Pattinson and Company Limited* • SP Telemedia Limited* • Brickworks Limited* • Souls Private Equity Limited* • Australian Pharmaceutical Industries Limited* * denotes current directorship Special Responsibilities: • Chairman of the Board • Chairman of the Nomination Committee • Chairman of the Investment Committee • Member of the Remuneration Committee 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:s • Undercoverwear Limited Special Responsibilities: • Chairman of the Audit Committee • Member of the Remuneration Committee • Member of the Nomination Committee 2009 Annual Report 11 DIRECTORS’ REPORT 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. Special Responsibilities: • Member of the Audit Committee • Member of the Investment Committee • Chairman of the Remuneration Committee • Member of the Nomination Committee Geoffrey Guild Hill, B.Econ., MBA, FCPA, ASIA FAICD – Independent Non-Executive Director A merchant banker, Mr Hill has identified and implemented mergers and takeovers and has acted for a wide range of corporate clients in Australia and overseas. During the past three years, Mr Hill has served as a Director of the following listed companies: • Heritage Gold NZ Limited* • Hills Industries Limited* • Centrex Metals Limited* • Metals Finance Corporation Limited* • Souls Private Equity Limited (alternate director) • Huntley Investment Company Limited • Enterprise Energy NL • Biron Capital Limited • Undercoverwear Limited * denotes current directorship Special Responsibilities: • Member of the Audit Committee • Member of the Remuneration Committee • Member of the Nomination Committee Ian Thomas Huntley, BA – Independent Non-Executive Director After a career in financial journalism Mr Huntley acquired “Your Money Weekly” newsletter in 1973. Over the following 33 years, Mr Huntley built the Your Money Weekly newsletter into one of Australia’s best known investment advice publications. He and partners sold the business to Morningstar Inc of the USA in mid 2006. Mr. Huntley continues an active role as Publisher, Huntley’s Your Money Weekly. During the past three years, Mr Huntley has served as a Director of the following listed companies: • Huntley Investment Company Limited Special Responsibilities: • Member of the Investment Committee • Member of the Remuneration Committee • Member of the Nomination Committee 12 2009 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 2. Company Secretary Richard Pillinger, BSc, CA Mr. Pillinger is a Chartered Accountant with extensive experience in public practice and commercial financial roles. 3. Principal Activities The principal activities of the Group during the financial year were that of a Listed Investment Company (LIC) primarily focused on long term investment in ASX listed securities. There have been no significant changes in the nature of those activities during the year. 4. Operating Results The consolidated profit of the Group after providing for income tax amounted to $22,112,000 (2008: $22,576,000). 5. Review of Operations The Australian share market endured a difficult period during the year ending 30 June 2009 as a result of credit issues and global financial turmoil. Despite this, the group enjoyed another successful year with total income from operating activities increasing by 11.2% and overall profits after tax but before net gains / (losses) on the investment portfolio increasing by 14.4%. The investment focus during the year again concentrated on managing the existing portfolio by continuing to add on existing holdings as well as adding new companies and investment products to the investment portfolio. Major investments over the 12 months to 30 June 2009 included BHP Billiton, Telstra Corporation, Coca-Cola Amatil, Metcash Limited, Westpac Banking Corporation SPSII, United Group, ARB Corporation and Woolworths Limited. The group also participated in numerous capital raisings through Entitlement Offers, Placements and Share Purchase Plans with major investments including Commonwealth Bank, Wesfarmers Limited, Alumina Limited, Bluescope Limited, OneSteel Limited, GPT Group and Seek Limited. The takeover of Huntley Investment Company Limited added further diversification to the investment portfolio which has strengthened the Group’s position. A discount on acquisition of $3.32 million was recognised in the consolidated results of the Group for the year. An unrealised impairment charge of $1.0 million after tax on the investment portfolio was recognised in net profits during the year. The portfolio is continuously marked to market through the revaluation reserve during the year, so this impairment charge has no impact on the net tangible assets of the group. 6. Financial Position The net assets of the Group increased during the financial year by $59.7 million to $471.1 million. This movement has largely resulted from the following factors; • Net assets acquired on takeover of Huntley Investment Company Limited of $105.8 million; • Market value decrease in the investment portfolio of $39.9 million net of tax. 7. Employees The Group has one employee as at 30 June 2009 (2008: Nil) 2009 Annual Report 13 DIRECTORS’ REPORT - Continued 8. Significant changes in the state of affairs Other than as stated above and in the accompany Financial Report, there were no significant changes in the state of affairs of the Group during the reporting year. 9. Likely Developments and Expected Results The operations of the Group 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 Group if included in this report. 10. 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. the operations of the Company and the entities that it controls; ii. the results of those operations; or iii. the state of affairs of the Company in subsequent years. 11. Dividends There were two dividend payments during the year ended 30 June 2009. On 29 August 2008, a final ordinary dividend of $8,728,998 (3.0 cents per share fully franked) was paid out of retained profits at 30 June 2008. On 12 March 2009, an interim ordinary dividend of $11,743,934 (3.0 cents per share fully franked) was paid out of retained profits at 31 December 2008. In addition, the directors have declared a final ordinary dividend of $11,824,290 (3.0 cents per share fully franked) to be paid out of out of retained profits at 30 June 2009 and payable on 4 September 2009. At 30 June 2009 there are $11,916,000 of franking credits available to the Group (2008: $3,069,000) after allowing for payment of the final, fully franked dividend. 12. Environmental Regulations The Group’s operations are not materially affected by environmental regulations. 14 2009 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 13. Meetings of Directors The numbers of meetings of the Board of Directors and each Board Committee held during the year to 30 June 2009, and the numbers of meetings attended by each Director were: Board Investment Audit Remuneration Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended Eligible to attend RD Millner 1 AJ Payne DC Hall GG Hill 2 IT Huntley 3 9 9 9 5 2 9 9 9 7 2 12 12 - - 4 12 12 - - 4 2 2 2 2 - 2 2 2 2 - - 1 1 1 - - 1 1 1 - 1 – Mr R Millner was ineligible to attend the Remuneration Committee meeting to avoid any potential conflict of interest. 2 – Mr G Hill was ineligible to attend two Board meetings where the acquisition of Huntley Investment Company Limited was under discussion in order to avoid any potential conflict of interest. 3 – Mr I Huntley was ineligible to attend any meetings prior to his appointment to the Board on 10 February 2009. 14. Remuneration Report (Audited) This remuneration report outlines the Director and executive remuneration arrangements of the Company in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel of the Company are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly. Remuneration Policy The Board is responsible for determining and reviewing remuneration arrangements for the Directors themselves and the Chief Executive Officer. It is the Group’s objective to provide maximum shareholder benefit from the retention of a high quality Board and Executive Team by remunerating Directors and key executives fairly and appropriately with reference to relevant employment market conditions and their experience and expertise. Elements of director and executive remuneration Remuneration packages may contain the following key elements: (a) Primary benefits – salary/fees, bonuses and non-monetary benefits including the provision of a motor vehicle or the payment of a car allowance where necessary. (b) Post employment benefits including superannuation. (c) Other benefits The following disclosures detail the remuneration of the directors and the highest remunerated executives of the Parent and controlled entities. 2009 Annual Report 15 DIRECTORS’ REPORT - Continued 14. Remuneration Report (Audited) (continued) The names and positions held of group directors and key management personnel in office at any time during the financial year are: Name RD Millner DC Hall AJ Payne GG Hill IT Huntley Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (appointed 10 February 2009) TCD Millner Chief Executive Officer (appointed 1 December 2008) There are no other employees of the Parent and controlled entities. Details of the nature and amount of each Non – Executive Director’s and key management personnel’s emoluments from the Parent and controlled entities in respect of the year to 30 June were: Directors 2009 RD Millner DC Hall AJ Payne GG Hill IT Huntley 1 Total 2008 RD Millner DC Hall AJ Payne GG Hill Total Primary Superannuation $ 40,000 30,000 25,000 25,000 13,625 $ 3,600 2,700 2,250 2,250 - 133,625 10,800 40,000 30,000 25,000 25,000 120,000 3,600 2,700 2,250 2,250 10,800 1 – Appointed 10 February 2009 Equity Compensation $ Other Compensation $ - - - - - - - - - - - - - - - - - - - - - - Total $ 43,600 32,700 27,250 27,250 13,625 144,425 43,600 32,700 27,250 27,250 130,800 Payment to non-executive directors is fixed at $300,000 until shareholders, by ordinary resolution, approve some other fixed sum amount. This amount is to be divided amongst the Directors as they may determine. 16 2009 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 Key Management Primary Personnel 2009 $ TCD Millner 2 Total 133,792 133,792 2008 - $Nil 2 – Appointed 1 December 2008 Superannuation $ 12,041 12,041 Equity Compensation $ Other Compensation $ - - - - Total $ 145,833 145,833 There were no retirement allowances provided for the retirement of non-executive directors. There is no link between remuneration paid to Directors and key management personnel and Company performance. 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. Contract of Employment Mr T Millner is employed by the Company under a contract of employment. This is an open ended contract with a notice period of one month required to terminate employment. Remuneration is fixed at $250,000 per annum inclusive of superannuation. Remuneration is reviewed annually by the Remuneration Committee. 15. Beneficial and relevant interest of Directors and Key Management Personnel in Shares As at the date of this report, details of Directors and Key Management Personnel who hold shares 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 GG Hill IT Huntley TCD Millner Number of Shares 5,621,223 221,749 169,612 841,303 11,004,901 1,500 16. Directors and Officers’ Indemnity The Constitution of the Parent provides indemnity against liability and legal costs incurred by Directors and Officers to the extent permitted by Corporations Act. During the year to 30 June 2009, the Group has paid premiums of $54,841 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. 2009 Annual Report 17 DIRECTORS’ REPORT - Continued 17. Proceedings on Behalf of Group No person has applied for leave of the Court to bring proceedings on behalf of the Group or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year. 18. 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 • 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. No fees for non-audit services were paid to the external auditor, Ruwald & Evans, during the year ended 30 June 2009. 19. Auditor’s Independence Declaration The auditor’s independence declaration for the year ended 30 June 2009 has been received and can be found on page 53. This report is made in accordance with a resolution of the Directors. Robert D Millner Director Sydney, 11 August 2009 18 2009 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 Group) are committed to achieving and demonstrating the highest standards of corporate governance. Unless otherwise stated, the Group has followed the revised best practice recommendations effective from 1 January 2008 set by the ASX Corporate Governance Council during the reporting year. This report summarises the Group’s application of the 8 Corporate Governance Principles and Recommendations. Principle 1 – Lay solid foundations for management and oversight Recommendation 1.1: Companies should establish the functions reserved to the Board and those delegated to Senior Executives and disclose those functions. The Board of Directors (hereinafter referred to as the Board) are responsible for the corporate governance of the Parent and its controlled entities. The Directors of the Parent 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 Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed. Role of the Board The responsibilities of the Board include: (cid:2) contributing to the development of and approving the corporate strategy (cid:2) reviewing and approving business results, business plans, the annual budget and financial plans (cid:2) ensuring regulatory compliance (cid:2) ensuring adequate risk management processes (cid:2) monitoring the Board composition, Director selection and Board processes and performance (cid:2) overseeing and monitoring: - organisational performance and the achievement of the Group’s strategic goals and objectives - compliance with the Group’s code of conduct (cid:2) monitoring financial performance including approval of the Annual Report and Half-Year Financial Reports and liaison with the Group’s auditors (cid:2) appointment and contributing to the performance assessment of the Chief Executive Officer and external service providers (cid:2) enhancing and protecting the reputation of the Group (cid:2) reporting to shareholders. Role of Senior Executives The responsibilities of Senior Executives include: (cid:2) organisation and monitoring of the investment portfolio (cid:2) managing organisational performance and the achievement of the Group’s strategic goals and objectives (cid:2) management of financial performance (cid:2) management of internal controls Recommendation 1.2: Companies should disclose the process for evaluating the performance of Senior 2009 Annual Report 19 CORPORATE GOVERNANCE - Continued Executives. Performance of Senior Executives is measured against relative market indices and financial and strategic goals approved by the Board. Performance is measured on an ongoing basis using management reporting tools. Principle 2 – Structure the Board to add value The key elements of the Board composition include: (cid:2) ensuring, where practicable to do so, that a majority of the Board are Independent Directors (cid:2) 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 (cid:2) the Group is to maintain a mix of Directors on the Board from different backgrounds with complimentary skills and experience (cid:2) 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 Group and Directors with an external perspective - the size of the Board is conducive to effective discussion and efficient decision making. 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”. Recommendation 2.1: A majority of the Board should be Independent Directors The Group has followed recommendation 2.1 as the Board currently comprises 3 independent Non-Executive Directors and 2 Non-Executive Directors. Mr Huntley is defined as independent as his shareholding in the Group at less than 5% of issued capital is not considered substantial. In relation to Directors independence, materiality is determined on both quantitative and qualitative bases. An amount of over 5% of annual turnover of the Group 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. Recommendation 2.2: The Chair should be an Independent Director. When assessing the independence of the Chairman under recommendation 2.1 of the best practice recommendations released by the Australian Stock Exchange Corporate Governance Council, Mr Millner, although meeting other criteria, and bringing independent judgement to bear on his role, is not defined as independent, primarily due to the fact that Mr Millner is an officer of Washington H. Soul Pattinson and Company Limited, which is a substantial shareholder of the Parent. Recommendation 2.1 has not been followed due to the following reasons; (cid:2) 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 Mr Millner plays an important role in the continued success and performance of the portfolio. 20 2009 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 Recommendation 2.3: The roles of Chair and Chief Executive Officer should not be exercised by the same individual The role of chair and Chief Executive Officer is not occupied by the same individual. Recommendation 2.4: The Board should establish a Nomination Committee The Group established a Nominations Committee effective from 12 December 2003. The Nomination Committee consists of the following members: RD Millner (Chairman) DC Hall AJ Payne GG Hill IT Huntley (appointed 10 February 2009) The main responsibilities of the Committee are to: (cid:2) assess the membership of the Board having regard to present and future needs of the Group (cid:2) assess the independence of Directors to ensure the majority of the Board are Independent Directors (cid:2) propose candidates for Board vacancies in consideration of qualifications, experience and domicile (cid:2) oversee Board succession (cid:2) evaluating Board performance. Recommendation 2.5: Companies should disclose the process for evaluating the performance of the Board, its Committees and Individual Directors The Board undertakes an annual self assessment of its collective performance. The self assessment: (cid:2) compares the performance of the Board with goals and objectives (cid:2) sets forth the goals and objectives of the Board for the upcoming year 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 each Committee and achievement of Committee objectives. The Chairman annually assesses the performance of individual Directors, where necessary and meets privately with each directors to discuss this assessment. The Chairman’s performance is reviewed by the Board. Principle 3 – Promote ethical and responsible decision-making Recommendation 3.1: Companies should establish a Code of Conduct. The Group has developed a Code of Conduct (the Code) which has been fully endorsed by the Board and applies to all Directors, employees and external service providers. The Code is regularly reviewed to ensure it reflects the highest standards of behaviour and professionalism and the practices necessary to maintain confidence in the Group’s integrity. In summary, the Code requires that at all times all Group personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies. This includes taking into account: (cid:2) their legal obligations and the reasonable expectations of their stakeholders (cid:2) their responsibility and accountability for reporting and investigating reports of unethical practices. 2009 Annual Report 21 CORPORATE GOVERNANCE - Continued Recommendation 3.2: Companies should establish a policy concerning trading in company securities by Directors, Senior Executives and employees, and disclose the policy or a summary of that policy. The Group 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 are required to be advised to the Group within 3 days for notification to the ASX. The Directors are satisfied that the Group has complied with its policies on ethical standards, including trading in securities. Principle 4 – Safeguard integrity in financial reporting Recommendation 4.1: The Board should establish an Audit Committee The members of the Audit Committee at the date of this Annual Financial Report are: DC Hall (Chairman) AJ Payne GG Hill Recommendation 4.2: The Audit Committee should be structured so that it: (cid:2) consists only of Non-Executive Directors (cid:2) consists of a majority of Independent Directors (cid:2) is chaired by an Independent Chair, who is not Chair of the Board (cid:2) has at least three members The Audit Committee consists only of Non-Executive Directors. Two of three members are independent. The Chairman of the Audit Committee is an Independent, Non-Executive Director who is not Chairman of the Board. 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 Group operates. Recommendation 4.3: The Audit Committee should have a formal charter The main responsibilities of the Audit Committee are to: (cid:2) review, assess and approve the Annual Report, Half-Year Financial Report and all other financial information published by the Group or released to the market (cid:2) 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. (cid:2) oversee the effective operation of the risk management framework 22 2009 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 (cid:2) 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 (cid:2) 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 Group where the auditor would have a mutual or conflicting interest with the Group; be in a position where they audit their own work; function as management of the Group; or have their independence impaired or perceived to be impaired in any way. (cid:2) review and monitor related party transactions and assess their priority (cid:2) report to the Board on matters relevant to the Committee’s role and responsibilities The external auditor will attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. Principle 5 – Make timely and balanced disclosure Recommendation 5.1: Companies should establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies The Chairman and Company Secretary have been nominated as being the persons 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 Parent has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the Company’s securities. Principle 6 – Respect the rights of shareholders Recommendation 6.1: Companies should design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy The Board aims to ensure that shareholders are informed of all major developments affecting the Group. Shareholders are updated with the Group’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. In addition, a copy of the annual report is distributed to all shareholders who elect to receive it, and is available on the Group’s website. The Board encourages participation by shareholders at the Annual General Meeting to ensure a high level of accountability and to ensure that shareholders remain informed about the Group’s performance and goals. 2009 Annual Report 23 CORPORATE GOVERNANCE - Continued Principle 7 – Recognise and manage risk Recommendation 7.1: Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies The Board is committed to the identification and quantification of risk throughout the Group’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. Recommendation 7.2: The Board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks. The Board operates to minimise its exposure to investment risk, in part, by implementing stringent processes and procedures to effectively manage investment risk. Management of investment risk is fundamental to the business of the Group being an investor in Australian listed securities. An Investment Committee has been established to perform, among other roles, investment risk mitigation. The Investment Committee consists of the following members: RD Millner (Chairman) AJ Payne IT Huntley (appointed 10 February 2009) TCD Millner (appointed 1 December 2008) The main responsibilities of the Committee are to: (cid:2) assess the information and recommendations received from the Chief Executive Officer in his role as portfolio manager regarding the present and future investment needs of the Group (cid:2) assess the performance of the Chief Executive Officer in his role as portfolio manager (cid:2) evaluate investment performance. Recommendation 7.3: The Board should disclose whether it has received assurance from the Chief Executive Officer (or equivalent) and the Chief Financial Officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Chief Executive Officer and the administrative and company secretarial service provider, namely Mr T Millner and Corporate & Administrative Services Pty Ltd have made the following certifications to the Board in accordance with Section 295A of the Corporations Act: (cid:2) that the Group’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 Parent and its consolidated entities in accordance with all mandatory professional reporting requirements. (cid:2) 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 Group’s risk management and internal control is operating effectively and efficiently in all material respects in relation to financial reporting risks. 24 2009 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 Principle 8 – Remunerate fairly and responsibly Recommendation 8.1: The Board should establish a Remuneration Committee. The Group has established a Remuneration Committee consisting of the following members: AJ Payne (Chairman) DC Hall RD Millner GG Hill IT Huntley (appointed 10 February 2009) The Remuneration Committee oversees and reviews 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. Executive remuneration and other terms of employment are reviewed annually by the Remuneration Committee having regard to personal and corporate performance, contribution to long term growth, relevant comparative information and independent expert advice. Performance is measured against relative market indices. Any person engaged in an executive capacity is required to 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. As well as a base salary, remuneration in such circumstances could be expected to include superannuation, performance-related bonuses and fringe benefits. Recommendation 8.2: Companies should clearly distinguish the structure of Non-Executive Directors’ remuneration from that of Executive Directors and Senior Executives. 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 nor are provided with retirement benefits other than statutory superannuation. 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. 2009 Annual Report 25 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2009 Revenue from investment portfolio Revenue from bank deposits Other income Other gains Income from operating activities before special investment revenue and net gains / (losses) on investment portfolio Operating expenses Operating profit before income tax expense, special investment revenue and net gains / (losses) on investment portfolio Income tax expense Net operating profit before special investment revenue and net gains / (losses) on investment portfolio Note 2 (a) 2 (c) 2 (d) 2 (e) 3 4 Consolidated Parent 2009 $’000 19,907 2,382 19 871 2008 $’000 17,385 3,731 5 - 2009 $’000 17,875 2,129 13 720 2008 $’000 17,385 3,731 5 - 23,179 21,121 20,737 21,121 1,426 2,006 1,359 2,005 21,753 (1,093) 19,115 19,378 19,116 (819) (871) (819) 20,660 18,296 18,507 18,297 Special investment revenue 2 (b) 1,295 892 1,295 892 Net operating profit before net gains / (losses) on investment portfolio 21,955 19,188 19,802 19,189 Realised (losses) / gains on investment portfolio (5,396) 4,625 (4,340) 4,625 Tax credit / (expense) relating to net realised (losses) / gains on investment portfolio Net realised (losses) / gains on investment portfolio Unrealised impairment loss on investment portfolio Tax credit relating to unrealised impairment loss on investment portfolio Net unrealised impairment loss on investment portfolio Discount on acquisition of controlled entity Profit for the year after net (losses)/gains on investment portfolio, discount on acquisition and unrealised impairment loss 4 4 3,090 (2,306) (1,437) 431 (1,006) 3,323 (1,237) 3,388 - - - - 1,302 (1,237) (3,038) (1,437) 431 (1,006) - 3,388 - - - - 21,966 22,576 15,758 22,577 Net loss attributable to Minority Interest 146 - - - Profit for the year attributable to members of the Company 22,112 22,576 15,758 22,577 Basic earnings per share Diluted earnings per share 20 20 Cents 6.34 6.34 Cents 8.01 8.01 This Income Statement should be read in conjunction with the accompanying notes 26 2009 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 CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2009 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Note CURRENT ASSETS Cash and cash equivalents Trade and other receivables Held for trading financial assets Prepayments Total Current Assets NON-CURRENT ASSETS Available for sale financial assets Property, Plant & Equipment Deferred tax assets Total Non-Current Assets Total Assets CURRENT LIABILITIES Trade and other payables Current tax liabilities Employee Benefits Total Current Liabilities NON-CURRENT LIABILITIES Trade and other payables Deferred tax liabilities Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Share capital Revaluation reserve Realised capital gains reserve Retained profits Total Equity 6 7 8 8 9 10 11 12 13 11 14 15 16 17 18 35,818 2,919 247 39 43,645 4,413 - 15 35,000 2,682 43,642 4,413 24 17 - 15 39,023 48,073 37,723 48,070 442,210 394,001 639,515 489,387 11 3,300 - 498 10 3,087 - 497 445,521 394,499 642,612 489,884 484,544 442,572 680,335 537,954 84 2,043 3 2,130 166 172 - 338 74 2,043 3 2,120 - - 203,679 166 172 - 338 96,460 30,811 11,275 11,275 13,405 30,811 30,811 31,149 12,165 215,844 127,271 217,964 127,609 471,139 411,423 462,371 410,345 420,925 322,915 420,925 322,915 27,448 3,742 19,024 67,381 6,048 15,079 28,064 3,010 10,372 69,333 6,048 12,049 471,139 411,423 462,371 410,345 This Balance Sheet should be read in conjunction with the accompanying notes 2009 Annual Report 27 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009 CONSOLIDATED ENTITY Share Capital $’000 Revaluation Reserve $’000 Realised Capital Gains Reserve $’000 Retained Profits $’000 Total Equity $’000 Total equity at 1 July 2007 268,834 100,128 2,660 11,317 382,939 Issue of shares, net of cost 54,081 Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised losses Profit for the year - - - - - - (46,567) 13,820 - - - - - 54,081 (15,426) (15,426) - - (46,567) 13,820 - 3,388 19,188 22,576 Total equity at 30 June 2008 322,915 67,381 6,048 15,079 411,423 Total equity at 1 July 2008 322,915 67,381 6,048 15,079 411,423 Issue of shares, net of cost 98,010 Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised losses Net unrealised impairment loss on investment portfolio Profit / (Loss) for the year - - - - - - - (58,484) 17,545 1,006 - - - - - - 98,010 (20,473) (20,473) - - - (58,484) 17,545 1,006 - (2,306) 24,418 22,112 Total equity at 30 June 2009 420,925 27,448 3,742 19,024 471,139 This Statement of Changes in Equity should be read in conjunction with the accompanying notes 28 2009 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 PARENT STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009 PARENT Share Capital $’000 Revaluation Reserve $’000 Realised Capital Gains Reserve $’000 Retained Profits $’000 Total Equity $’000 Total equity at 1 July 2007 268,834 102,080 2,660 8,286 381,860 Issue of shares, net of cost 54,081 Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised losses Profit for the year - - - - - - (46,567) 13,820 - - - - - 54,081 (15,426) (15,426) - - (46,567) 13,820 - 3,388 19,189 22,577 Total equity at 30 June 2008 322,915 69,333 6,048 12,049 410,345 Total equity at 1 July 2008 322,915 69,333 6,048 12,049 410,345 Issue of shares, net of cost 98,010 Dividends paid or provided for Revaluation of investment portfolio Provision for tax on unrealised losses Net unrealised impairment loss on investment portfolio Profit / (Loss) for the year - - - - - - - (60,393) 18,118 1,006 - - - - - - 98,010 (20,473) (20,473) - - - (60,393) 18,118 1,006 - (3,038) 18,796 15,758 Total equity at 30 June 2009 420,925 28,064 3,010 10,372 462,371 This Statement of Changes in Equity should be read in conjunction with the accompanying notes 2009 Annual Report 29 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2009 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Note Cash flows from operating activities Payments to suppliers and employees (2,143) (2,257) (1,448) (2,256) Other receipts in the course of operations Dividends and distributions received Payments for held for trading financial assets Proceeds from sale of held for trading financial assets Interest received Income tax refund/(paid) 31 22,141 (2,046) 2,965 2,621 (204) 269 17,461 - - 3,736 - 30 269 19,753 (1,472) 2,168 2,398 (254) 17,461 - - 3,736 - Net cash inflows from operating activities 19(a) 23,365 19,209 21,175 19,210 Cash flows from investing activities Cash acquired on acquisition of controlled entity Purchase costs for acquisition of controlled entity 16,636 (1,412) - - - (1,412) - - Payment for available for sale investments (34,779) (75,606) (34,484) (75,606) Proceeds from sale of available for sale investments 5,365 10,321 2,423 10,321 Payments for plant and equipment Loans from controlled entities (13) - - - (12) 20,657 - - Net cash (outflow) from investing activities (14,203) (65,285) (12,828) (65,285) Cash flows from financing activities Proceeds from issues of ordinary shares less issue costs (78) 50,957 (78) 50,957 Dividends paid 5(a) (16,911) (12,783) (16,911) (12,783) Net cash (outflow) / inflow from financing activities Net (decrease) in cash held Cash at the beginning of the year Cash at the end of the year (16,989) (7,827) 43,645 35,818 38,174 (7,902) 51,547 43,645 (16,989) 38,174 (8,642) 43,642 35,000 (7,901) 51,543 43,642 This Cash Flow Statement should be read in conjunction with the accompanying notes 30 2009 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 ENDED 30 JUNE 2009 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers the parent entity of Brickworks Investment Company Limited and controlled entities, and Brickworks Investment Company Limited as an individual parent entity. Brickworks Investment Company Limited is a listed public company, incorporated and domiciled in Australia. The financial report of Brickworks Investment Company Limited and controlled entities, and Brickworks Investment Company Limited as an individual parent entity comply with all International Financial Reporting Standards (IFRS) in their entirety. The following is a summary of the material accounting policies adopted by the group in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Basis of Preparation The accounting policies set out below have been consistently applied to all years presented. Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied. Accounting Policies a. Principles of Consolidation A controlled entity is any entity Brickworks Investment Company Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. A list of controlled entities is contained in Note 24 to the financial statements. All controlled entities have a June financial year-end. All inter-company balances and transactions between entities in the group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity. Where controlled entities have entered or left the group during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased. Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report. b. Income Tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. 2009 Annual Report 31 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b. Income Tax (continued) Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Brickworks Investment Company Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax balances resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 12 December 2003. The tax consolidated group has entered a tax sharing agreement whereby each group in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group. c. Financial Instruments Recognition Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below. Financial assets at fair value through income A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated as hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period in which they arise. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method. Held-to-maturity investments These investments have fixed maturities, and it is the group’s intention to hold these investments to maturity. Any held-to-maturity investments held by the group are stated at amortised cost using the effective interest rate method. Available-for-sale financial assets Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Fair value Fair value is determined based on current bid prices for all quoted investments. 32 2009 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 ENDED 30 JUNE 2009 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) d. Impairment of Assets At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. e. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 12 months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet. f. Revenue Sale of investments occur when the control of the right to equity has passed to the buyer. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue is recognised when the right to receive a dividend has been established. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST). g. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. h. Comparative Figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. Rounding of Amounts The parent has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000. Critical Accounting Estimates and Judgments Deferred Tax Balances i. j. The preparation of this financial report requires the use of certain critical estimates based on historical knowledge and best available current information. This requires the directors and management to exercise their judgement in the process of applying the Group’s accounting policies. The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. In accordance with AASB 112: Income Taxes deferred tax liabilities have been recognised for Capital Gains Tax on unrealised gains in the investment portfolio at the current tax rate of 30%. As the Group does not intend to dispose of the portfolio, this tax liability may not be crystallised at the amount disclosed in Note 14. In addition, the tax liability that arises on disposal of those securities may 2009 Annual Report 33 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) j. Critical Accounting Estimates and Judgments (continued) be impacted by changes in tax legislation relating to treatment of capital gains and the rate of taxation applicable to such gains at the time of disposal. Apart from this, there are no other key assumptions or sources of estimation uncertainty that have a risk of causing a material adjustment to the carrying amount of certain assets and liabilities within the next reporting period. Impairment The investment portfolio is continually reviewed by the Investment Committee to determine if any stocks held within it are, in the view of the committee, impaired. This review primarily focuses on the ability of the company to pay dividends over the long term and whether any long term fall in the valuation of the company has arisen from changes to the environment in which it operates. The group will normally dispose of any stock which the Investment Committee considers is impaired and any loss is recognised in Realised Gains or Losses in the Income Statement. Where an investment is considered impaired, but has not been disposed of, an impairment charge is recognised in the Income Statement. k. Australian Accounting Standards not yet effective The Group has not yet applied any Australian Accounting Standards or Australian Accounting Interpretations that have been issued as at balance date but are not yet mandatory for the year ended 30 June 2009. The impact of these new standards and interpretations has been assessed and is set out below: 1. Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If an entity has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Group intends to apply the revised standard from 1 July 2009. No other non-mandatory standards are considered applicable to the Group. 2. REVENUES (a) Revenue from investment portfolio Rebateable dividends: - other corporations Non-rebateable dividends: - other corporations Distributions: - other corporations Interest received - notes (b) Special investment revenue Rebateable dividends - special: - other corporations 34 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 18,121 16,410 16,491 16,410 1,216 537 825 537 570 - 19,907 289 149 17,385 559 - 17,875 289 149 17,385 1,295 892 1,295 892 2009 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 ENDED 30 JUNE 2009 (continued) 2. REVENUES (continued) (c) Revenue from bank deposits Interest received (d) Other income Other revenue (e) Other gains / losses Net gain on sale of investments held for trading Unrealised net gain on investments held for trading Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 2,382 3,731 2,129 3,731 19 778 93 871 5 - - - 13 711 9 720 5 - - - Total Income 24,474 22,013 22,032 22,013 3. OPERATING EXPENSES Administration expenses Occupancy costs Employment expense Professional fees Depreciation Management fees Total Expenditure 4. TAX EXPENSE 428 5 295 166 2 530 1,426 314 - 131 143 - 1,418 2,006 382 4 295 146 2 530 1,359 313 - 131 143 - 1,418 2,005 The aggregated amount of income tax expense attributable to the year differs from the amounts prima facie payable on profits from ordinary activities. The difference is reconciled as follows: (a) Operating profit before income tax expense and net gains on investment portfolio 23,048 20,007 20,673 20,008 Tax calculated at 30% (2008:30%) 6,914 6,002 6,202 6,002 Tax effect of amounts which are not deductible (taxable) in calculating taxable income: - Franked dividends and distributions received - (Over)/Under provision in prior year Net tax expense on operating profit before net gains on investments (5,822) - (5,190) 7 (5,331) - (5,190) 7 1,093 819 871 819 2009 Annual Report 35 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 4. TAX EXPENSE (continued) Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 (a) Operating profit before income tax expense and net gains on investment portfolio (continued) Net gains on investments Tax calculated at 30% (2008: 30%) (5,396) (1,619) 4,625 1,388 (4,340) (1,302) 4,625 1,388 Tax effect of: - difference between accounting and tax cost bases for capital gains purposes Tax expense on net gains on investments Unrealised impairment loss on investment portfolio Tax calculated at 30% (2008: 30%) Total Tax (credit) / expense (b) The components of tax expense comprise Current tax Deferred tax (Over)/Under provision in prior year 5. DIVIDENDS (a) Dividends paid during the year Final dividend for the year ended 30 June 2008 of 3.0 cents per share (2007: 2.7 cents per share) fully franked at the tax rate of 30%, paid on 29 August 2008 Interim dividend for the year ended 30 June 2008 of 3.0 cents per share (2007: 2.6 cents per share) fully franked at the tax rate 30%, paid on 12 March 2009 Total Dividends paid in cash or invested in shares under the dividend reinvestment plan ("DRP") Paid in cash Reinvested in shares via DRP Total Franking Account Balance Balance of the franking account after allowing for tax payable in respect of the current year's profits and the receipt of dividends recognised as receivables Impact on the franking account of dividends declared but not recognised as a liability at the end of the financial year (b) below Net available 36 (1,471) (3,090) (1,437) (431) (2,428) 2,043 (4,471) - (2,428) (151) 1,237 - - 2,056 172 1,877 7 2,056 - (1,302) (1,437) (431) (862) 829 (1,691) - (862) (151) 1,237 - - 2,056 172 1,877 7 2,056 8,729 6,811 8,729 6,811 11,744 20,473 8,615 15,426 11,744 20,473 8,615 15,426 16,911 3,562 20,473 12,783 2,643 15,426 16,911 3,562 20,473 12,783 2,646 15,429 16,984 6,810 16,984 6,810 (5,068) 11,916 (3,741) 3,069 (5,068) 11,916 (3,741) 3,069 2009 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 ENDED 30 JUNE 2009 (continued) 5. DIVIDENDS (continued) (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 2009 3.0 of cents per share (2008: final 3.0 cents per share) fully franked at the tax rate of 30%, payable on 4 September 2009, but not recognised as a liability at the end of the financial year. 6. CURRENT ASSETS - CASH AND CASH EQUIVALENTS Cash at bank Short term bank deposits Consolidated Parent 2009 $’000 27,012 8,806 35,818 2008 $’000 2,623 41,022 43,645 2009 $’000 27,012 7,988 35,000 2008 $’000 2,623 41,019 43,642 7. CURRENT ASSETS - TRADE AND OTHER RECEIVABLES Dividends receivable Distributions receivable Interest receivable Amounts receivable from controlled entities Outstanding settlements Other receivable 2,723 - 167 - - 29 2,919 2,948 197 406 - 833 29 4,413 2,533 - 137 - - 12 2,682 2,948 197 406 - 833 29 4,413 8. FINANCIAL ASSETS - INVESTMENT PORTFOLIO Current Investment Portfolio Listed securities at fair value held for trading: - Shares in other corporations Non-Current Investment Portfolio Listed securities at fair value available for sale: - Shares in other corporations 247 - 24 - 442,210 394,001 442,180 394,001 Shares in controlled entities at cost - - 197,335 95,386 442,210 394,001 639,515 489,387 Total Investment Portfolio 442,457 394,001 639,539 489,387 2009 Annual Report 37 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 9. PROPERTY, PLANT AND EQUIPMENT Office equipment, furniture & fittings at cost Accumulated depreciation Total Reconciliation of the carrying amounts of each class of asset at the beginning and end of the financial year: Office equipment, furniture & fittings at cost Carrying value at 1/7 Additions Disposals Depreciation expense Carrying value at 30/6 Consolidated Parent 2009 $’000 19 (8) 11 2008 $’000 6 (6) - 2009 $’000 12 (2) 10 2008 $’000 - - - - 13 - (2) 11 - - - - - - 12 - (2) 10 10. NON CURRENT ASSETS - DEFERRED TAX ASSETS The deferred tax asset balance comprises the following timing differences and unused tax losses: Transaction costs on equity issues Accrued expenses Tax losses 553 19 2,728 3,300 489 9 - 498 355 16 2,716 3,087 - - - - - 488 9 - 497 38 2009 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 ENDED 30 JUNE 2009 (continued) 10. NON CURRENT ASSETS - DEFERRED TAX ASSETS (continued) Credited/ (Charged) Credited/ Balances Tax Tax Balance Opening to Income (Charged) Transferred Balance Statement Closing to Equity On Takeover Transferred Provision Balance Over $'000 $'000 $'000 $'000 $'000 $'000 $'000 Parent Transaction costs on equity issues Accrued expenses Tax losses 416 9 649 (407) - (617) 479 - - Balance as at 30 June 2008 1,074 (1,024) 479 Transaction costs on equity issues 488 (133) Accrued expenses Tax losses 9 - Balance as at 30 June 2009 497 Consolidated Transaction costs on equity issues Accrued expenses Tax losses 417 9 624 7 1,302 1,176 (407) - (617) - - - - 479 - - Balance as at 30 June 2008 1,050 (1,024) 479 - - - - - - - - - - - - Transaction costs on equity issues Accrued expenses Tax losses 489 9 - Balance as at 30 June 2009 498 (133) (17) 3,090 2,940 - - - - 197 27 - 224 11. TRADE AND OTHER PAYABLES - - (25) (25) - - 1,414 1,414 - - - - - - (362) (362) - - (7) (7) - - - - - - (7) (7) - - - - 488 9 - 497 355 16 2,716 3,087 489 9 - 498 553 19 2,728 3,300 Current liabilities Creditors and accruals Non current liabilities Amount due to controlled entities 2009 Annual Report Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 84 - 166 74 166 - 203,679 96,460 39 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 12. CURRENT TAX LIABILITIES Provision for income tax 13. EMPLOYEE BENEFITS Aggregate employee benefits Analysis of provisions: Current Non current Consolidated Parent 2009 $’000 2,043 2008 $’000 172 2009 $’000 2,043 2008 $’000 172 3 3 - 3 - - - - 3 3 - 3 - - - - 14. NON CURRENT LIABILITIES - DEFERRED TAX LIABILITIES The deferred tax liability balance comprises the following timing differences: Revaluation of investments held Non rebateable dividend receivable and interest receivable Movements in deferred tax liabilities Parent Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2008 Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2009 Consolidated Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2008 Revaluation of investment portfolio Non rebateable dividends receivable and interest receivable Balance as at 30 June 2009 40 11,241 30,603 12,124 30,603 34 11,275 208 30,811 41 12,165 208 30,811 (Credited)/ Charged to Income Statement $'000 (Credited)/ Charged to Equity $'000 Tax Balances Transferred Closing Balance $'000 In $'000 Opening Balance $'000 (348) (17,769) (362) 12,124 43,617 806 (13,820) 160 43,777 30,603 208 30,811 48 854 - (13,820) (167) (515) - (17,769) 43,617 806 (13,820) 160 43,777 48 854 - (13,820) - - - 30,603 208 30,811 - - - - - 41 12,165 30,603 208 30,811 30,603 (1,356) (17,644) (362) 11,241 208 30,811 (174) (1,530) - (17,644) - - 34 11,275 2009 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 ENDED 30 JUNE 2009 (continued) 15. SHARE CAPITAL a) Issued and paid-up capital 394,143,000 ordinary shares fully paid (2008: 290,966,594) (b) Movement in ordinary shares Beginning of the financial year Issued during the year: - share placement - dividend reinvestment plan - share purchase plan - issued as consideration on takeover - less net transaction costs End of the financial year Consolidated 2009 $’000 2008 $’000 Parent 2009 $’000 2008 $’000 420,925 322,915 420,925 322,915 2009 $’000 Number of Shares 2008 $’000 Number of Shares 290,966,594 322,915 252,247,770 268,834 - 3,813,744 - 99,362,662 394,143,000 - 3,562 - 94,526 (78) 420,925 34,000,000 2,007,442 2,711,382 - 290,966,594 49,300 2,644 3,254 - (1,117) 322,915 The Parent does not have an authorised share capital and the ordinary shares on issue have no par value. Between December 2008 and January 2009, the Parent issued 99,362,662 fully paid ordinary shares at as consideration for the takeover of Huntley Investment Company Limited. Holders of ordinary shares participate in dividends and the proceeds on a 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. (c) Capital Management The Group’s objective in managing capital is to continue to provide shareholders with attractive investment returns through access to a steady stream of fully-franked dividends and enhancement of capital invested, with goals of paying an enhanced level of dividends and providing attractive total returns over the medium to long term. The Group recognises that its capital will fluctuate in accordance with market conditions and in order to maintain or adjust the capital structure, may adjust the amount of dividends paid, issue new shares from time-to-time or return capital to shareholders. The Group’s capital consists of shareholders equity plus net debt. The movement in equity is shown in the Consolidated Statement of Changes in Equity. At 30 June 2009 net debt was $ Nil (2008: $Nil). 2009 Annual Report 41 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 16. REVALUATION RESERVE The Revaluation reserve is used to record increments and decrements on the revaluation of the investment portfolio. Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Balance at the beginning of the year 67,381 100,128 69,333 102,080 Revaluation of investment portfolio (40,939) (32,747) (42,275) (32,747) Net unrealised impairment loss on investment portfolio transferred to retained profits Balance at the end of the year 1,006 27,448 - 1,006 - 67,381 28,064 69,333 17. REALISED CAPITAL GAINS RESERVE The Realised capital gains reserve records gains or losses after applicable taxation arising from the disposal of securities in the investment portfolio. Balance at the beginning of the year 6,048 2,660 6,048 2,660 Net (losses) / gains on investment portfolio transferred from retained profits Balance at the end of the year (2,306) 3,742 3,388 6,048 (3,038) 3,010 3,388 6,048 18. RETAINED PROFITS Retained profits at the beginning of the year Net profit attributable to members of the company 15,079 22,112 11,317 22,576 12,049 15,758 8,286 22,577 Net losses / (gains) on investment portfolio transferred to realised capital gains reserve 2,306 (3,388) 3,038 (3,388) Dividends provided for or paid (20,473) (15,426) (20,473) (15,426) Retained profits at the end of the year 19,024 15,079 10,372 12,049 42 2009 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 ENDED 30 JUNE 2009 (continued) 19. RECONCILIATION OF CASH FLOW Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 21,966 22,576 15,758 22,577 2,306 (3,323) 1,006 2 48 1,178 512 (710) 3 (493) 870 23,365 (4,625) - - - - (797) 1,031 (2) - 854 172 19,209 3,038 - 1,006 2 (24) 867 488 (92) 3 (528) 657 21,175 (4,625) - - - - (797) 1,031 (2) - 854 172 19,210 (a) Reconcilation of cash flow from operating activities to operating profit Net Profit from ordinary activities Non cash item : - net losses / (gains) on investment portfolio - discount on acquisition of controlled entity - unrealised impairment loss on available for sale financial assets - depreciation expense Change in assets and liabilities, net of the effects of purchase of subsidiaries (Increase) / Decrease in available for sale financial assets (Increase) / Decrease in receivables and prepayments (Increase) / Decrease in deferred tax assets Increase / (Decrease) in payables Increase / (Decrease) in employee entitlements Increase / (Decrease) in deferred tax liabilities Increase / (Decrease) in current tax liabilities Net cash (outflow) / inflow from operating activities (b) Non-cash financing and investing activities i) Dividend reinvestment plan Under the terms of the Dividend Reinvestment Plan, $3,561,656 (2008: $2,644,000) of dividends were paid via the issue of 3,813,744 shares (2008: 2,007,442). ii) Transfer of investment portfolio to parent entity During 2009, the Company transferred $86,000,030 of listed investments from its wholly owned subsidiary, Huntley investment Company Limited at carrying value into the Company investment portfolio. The transfer consideration was $86,000,030 and was settled via inter-company loan. There was no share transfer in 2008. 2009 Annual Report 43 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 19. RECONCILIATION OF CASH FLOW (continued) (c) Acquisition of controlled entities During 2009, the Group completed the takeover of Huntley Investment Company Limited and at balance date owns 100% of the share capital of the company. Purchase consideration was the issue of 99,362,662 ordinary shares of Brickworks Investment Company Limited. Payment for investment: Issue of shares Transaction costs Shares transferred from available for sale investments Total cost of acquisition Fair value of assets acquired: Cash and cash equivalents Trade and other receivables Held for trading financial assets Prepayments Available for sale financial assets Deferred tax assets Trade and other payables Current tax liabilities Minority interests during acquisition phase: Recognised in income statement Recognised in reserves Discount on acquisition No controlled entities were acquired in 2008. 20. EARNINGS PER SHARE Profit for the year Earnings used in calculating basic and diluted earnings per share Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share Basic earnings per share (cents) Diluted earnings per share (cents) 44 $’000 94,526 1,412 6,012 101,950 16,636 585 295 7 89,707 224 (628) (1,001) 105,825 146 406 552 3,323 Consolidated 2009 $’000 2008 $’000 22,112 22,576 22,112 22,576 2009 2008 No. ('000) No. ('000) 348,548 281,950 6.34 6.34 8.01 8.01 2009 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 ENDED 30 JUNE 2009 (continued) 21. AUDITOR’S REMUNERATION Remuneration of the auditor of the parent entity for: (a) Auditing the financial report of the Parent and the controlled entities (b) Taxation services Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 22 - 22 29 2 31 22 - 22 29 2 31 22. KEY MANAGEMENT PERSONNEL REMUNERATION (a) The names and positions held of group directors and key management personnel in office at any time during the financial year are: Name RD Millner DC Hall AJ Payne GG Hill IT Huntley TCD Millner Position Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director (appointed 10 February 2009) Chief Executive Officer (appointed 1 December 2008) There are no other employees of the Parent and controlled entities. Details of the nature and amount of each Non – Executive Director’s and key management personnel’s emoluments from the Parent and controlled entities in respect of the year to 30 June have been included in the Remuneration Report section of the Directors’ Report. Payment to Non-Executive Directors is fixed at $300,000 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. 23. SUPERANNUATION COMMITMENTS The Group contributes superannuation payments on behalf of Directors and employees in accordance with relevant legislation. Superannuation funds are nominated by the individual Directors and employees and are independent of the Group. 2009 Annual Report 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 24. RELATED PARTY TRANSACTIONS Related parties of the Group fall into the following categories: (i) Controlled Entities (a) Acquisition of controlled entities During 2009, the Group completed the takeover of Huntley Investment Company Limited and at balance date owns 100% of the share capital of the company. Purchase consideration was the issue of 99,362,662 ordinary shares of Brickworks Investment Company Limited. A discount on acquisition of $3,323,000 was recognised in the income statement of the Group in the current year resulting from this acquisition. The effective date that control was gained was 1 December 2008. The contribution to the consolidated profit of the group by Huntley Investment Company Limited from that date to 30 June 2009 was $2,146,000. No controlled entities were acquired in 2008. At 30 June 2009, subsidiaries of the Parent were: Country of Incorporation Percentage Owned (%) Brickworks Securities Pty Limited Pacific Strategic Investments Pty Limited Huntley Investment Company Limited Australia Australia Australia 2009 100 100 100 2008 100 100 4 Transactions between the Parent and its controlled entities consist of loan balance due from the Parent to its controlled entities. No interest is charged on the loan balance by the controlled entities and no repayment period is fixed for the loan. (b) Disposal of controlled entities There was no disposal of controlled entities in 2009 (2008: Nil). (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 2009 were: Directors: RD Millner DC Hall AJ Payne GG Hill IT Huntley Chief Executive Officer: TCD Millner Company Secretary: RJ Pillinger Pitt Capital Partners Limited The Company appointed Pitt Capital Partners Limited, an entity in which Mr RD Millner has an indirect interest to act as the Company’s corporate advisor during the takeover of Huntley Investment Company Limited. Fees paid to Pitt Capital Partners Limited were $1,115,720 inclusive of GST (2008: $Nil). No fees remain payable at 30 June 2009 (2008: $Nil). 46 2009 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 ENDED 30 JUNE 2009 (continued) (ii) Directors/Officers Related Entities (contiuned) Souls Funds Management Limited From the period 1 July 2008 to 30 November 2008, the Group utilised the services of Souls Funds Management Limited, an entity in which Messrs. RD Millner and GG Hill have an indirect interest, to act as investment manager. Under the agreement between the two parties, the Group agrees to pay Souls Funds Management Limited a monthly management fee equal to one-twelfth of 0.35% of the assets of the Group in the preceding month under their management. Management fees paid or payable for the period ending 30 November 2008 were $529,802 (2008: $1,417,805); and the management fee owed by the Group to Souls Funds Management Limited at 30 June 2009 was $Nil (2008: $126,413). Corporate and Administrative Services Pty Limited The Group has appointed Corporate & Administrative Services Pty Limited, an entity in which Mr. RD Millner has an indirect interest to provide the Group with administration, company secretarial services and preparation of all financial accounts. Administration and secretarial fees paid for services provided to the Parent and its controlled entities for the year ending 30 June 2009 were $111,540 (2008: $111,540), including GST and are at standard market rates. No administration fees were owed by the Group to Corporate & Administrative Services Pty Limited as at 30 June 2009. (iii) Transactions in securities Aggregate number of securities acquired or disposed of by Directors or their Director-related entities: Acquisition - Shares Disposal - Shares 2009 No. of Shares 11,846,886 - 2008 No. of Shares 2,039,795 - During the year ended 30 June 2009, entities related to Directors acquired, under normal commercial terms, shares in the Parent as follows: (i) Entities related to Mr RD Millner: 716,023 shares (2008: 1,989,907 shares) (ii) Entities related to Mr DC Hall: Nil shares (2008: 11,916 shares) (iii) Entities related to Mr AJ Payne: 49,026 shares (2008: 33,806 shares) (iv) Entities related to Mr. GG Hill: 76,936 shares (2008: 4,166 shares) (v) Entities related to Mr. IT Huntley* 11,004,901 shares (2008: Nil shares) * Mr. IT Huntley was issued these shares as consideration for his holding in Huntley Investment Company Limited under the terms of the takeover. Directors acquired shares through Dividend Reinvestment Plan or on-market purchase. There has been no other change to Directors’ shareholdings during the year ended 30 June 2009. Messrs RD Millner, DC Hall, AJ Payne GG Hill and IT Huntley, or their associated entities, being shareholders are entitled to receive dividends. 2009 Annual Report 47 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 25. FINANCIAL REPORTING BY SEGMENTS The Group operates predominately in the securities industry in Australia. 26. MANAGEMENT OF FINANCIAL RISK The risks associated with the holding of financial instruments such as investments, cash, bank bills and borrowings include market risk, credit risk and liquidity risk. The Audit Committee has approved the policies and procedures that have been established to manage these risks. The effectiveness of these policies and procedures is reviewed by the Audit Committee. a) Financial instruments’ terms, conditions and accounting policies The Group’s accounting policies are included in note 1, while the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are included under the appropriate note for that instrument. b) Net fair values The carrying amounts of financial instruments in the balance sheets approximate their net fair value determined in accordance with the accounting policies disclosed in note 1 to the accounts. c) Credit risk The risk that a financial loss will occur because counterparty to a financial instrument fails to discharge an obligation is known as credit risk. The credit risk on the Group’s financial assets, excluding investments, is the carrying amount of those assets. The Group’s principal credit risk exposures arise from the investment in liquid assets, such as cash and bank bills, and income receivable. The spread of cash and bank bills between banks is reviewed monthly by the board to determine if it is within agreed limits. Income receivable is comprised of accrued interest and dividends and distributions which were brought to account on the date the shares or units traded ex-dividend. There are no financial instruments overdue or considered to be impaired. d) Market risk Market risk is the risk that changes in market prices will affect the fair value of the financial instrument. The Group is a long term investor in companies and trusts and is therefore exposed to market risk through the movement of the share prices of the companies and trusts in which it is invested. As the market value of individual companies fluctuates throughout the day, the market value of the portfolio changes continuously. The change in the market value of the portfolio is recognised through the Revaluation Reserve. Listed Investments represent 92% (2008: 89%) of total assets. A 5% movement in the market value of each of the companies and trusts within the portfolio would result in a 5% (2008: 4%) movement in the net assets before provision for tax on unrealised capital gains at 30 June 2009. The net asset backing before provision for tax on unrealised capital gains would move by 5.6 cents per share at 30 June 2009 (2008: 6.8 cents). The performance of the companies within the portfolio is monitored by the Investment Committee and the Board as a whole. 48 2009 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 ENDED 30 JUNE 2009 (continued) 26. MANAGEMENT OF FINANCIAL RISK (continued) d) Market risk (continued) The Group seeks to reduce market risk at the investment portfolio level by ensuring that it is not, in the opinion of the Investment Committee, overly exposed to one Group or one particular sector of the market. At 30 June, the spread of investments is in the following sectors: Percentage of total investment Amount Sector Banks Energy Materials Food & Staples Retailing Bank deposits Insurance Diversified Financials Telecommunications Services Commercial Services & Supplies Utilities Consumer Services Food, Beverages & Tobacco Media Capital Goods Transportation Real Estate Retailing Health Care Equipment & Services Consumer Durables & Apparel 2009 % 24.48 17.87 12.67 7.88 7.49 5.86 4.86 3.94 3.92 3.41 1.93 1.80 1.09 0.84 0.71 0.56 0.50 0.15 0.04 100.0 2008 % 23.21 20.85 13.19 7.22 9.97 4.49 5.15 2.50 3.68 1.73 1.16 1.31 2.20 1.03 1.07 0.72 0.42 0.03 0.09 100.0 2009 $’000 117,079 85,488 60,611 37,679 35,818 28,013 23,249 18,849 18,746 16,327 9,229 8,586 5,203 4,032 3,398 2,677 2,390 695 206 478,275 2008 $’000 101,596 91,252 57,719 31,588 43,645 19,629 22,526 10,927 16,105 7,565 5,061 5,730 9,610 4,494 4,669 3,141 1,854 133 402 437,646 Securities representing over 5% of the investment portfolio at 30 June were: Percentage of total investment Amount Company New Hope Corporation Limited BHP Billiton Limited National Australia Bank Limited Commonwealth Bank Westpac Banking Corporation 2009 % 14.1% 9.9% 9.0% 7.2% 5.2% 45.4% 2008 % 16.9% 9.2% 9.6% 6.7% 0.9% 43.3% 2009 Annual Report 2009 $’000 67,310 47,190 39,590 31,920 22,930 208,940 2008 $’000 74,099 40,361 41,920 29,307 4,063 189,750 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 (continued) 26. MANAGEMENT OF FINANCIAL RISK (continued) d) Market risk (continued) The relative weightings of the individual securities and relevant market sectors are reviewed at each meeting of the investment Committee and the Board, and risk can be managed by reducing exposure where necessary. There are no set parameters as to a minimum or maximum amount of the portfolio that can be invested in a single company or sector. The Group is not exposed to foreign currency risk as all its investments are quoted in Australian dollars. The fair value of the Group’s other financial instruments is unlikely to be materially affected by a movement in interest rates as they generally have short dated maturities and fixed interest rates. e) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. The Group has a zero level of gearing, and sufficient cash reserves to meet operating cash requirements at current levels for well in excess of 5 years. The Group’s other major cash outflows are the purchase of securities and dividends paid to shareholders and the level of both of these is fully controllable by the Board. Furthermore, the majority of the assets of the Group in the form of readily tradable securities which can be sold on-market if necessary. f) Capital risk management The Group invests its equity in a diversified portfolio of assets that aim to generate a growing income stream for distribution to shareholders in the form of fully franked dividends. The capital base is managed to ensure there are funds available for investment as opportunities arise. Capital is increased annually through the issue of shares under the Dividend Reinvestment Plan. Other means of increasing capital include Rights Issues, Share Placements and Share Purchase Plans. 27. CONTINGENT LIABILITIES The Group has no contingent liabilities at 30 June 2009. 28. AUTHORISATION The financial report was authorised for issue on 11 August 2009 by the Board of Directors. 50 2009 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’ DECLARATION The Directors of Brickworks Investment Company Limited declare that: 1. The financial statements and notes, as set out on pages 11 to 50, are in accordance with the Corporations Act 2001 and: a. b. comply with Accounting Standards and the Corporations Regulations; and give a true and fair view of the financial position as at 30 June 2009 and of the performance for the year ended on that date of the consolidated and parent entities; 2. 3. 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; 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 2009. This declaration is made in accordance with a resolution of the Board of Directors. Robert D Millner Director Sydney 11 August 2009 2009 Annual Report 51 AUDITOR’S REPORT 52 2009 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 AUDITOR’S INDEPENDENCE DECLARATION 2009 Annual Report 53 ASX Additional Information 1) Equity Holders At 31 July 2009, there were 8,466 holders of ordinary shares in the capital of the Parent. These holders were distributed as follows: No. of Shares held 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Holding less than a marketable parcel of 417 shares Votes of Members Article 5.12 of the Company’s Constitution provides: No. of Shareholders 501 2,002 1,934 6,066 512 11,015 234 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). 54 2009 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 (continued) The 20 largest holdings of the Parent’s shares as at 31 July 2009 are listed below: Name Washington H Soul Pattinson & Company Ltd Argo Investments Limited Huntley Group Investments Pty Ltd Bougainville Copper Limited J S Millner Holdings Pty Limited Huntley Investment Company Limited Huntley Family Holdings Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Chiatta Pty Ltd Mr David McKee + Mrs Pamela Forbes McKee T G Millner Holdings Pty Limited D E C Investments Pty Limited Mr Galfrid Leslie Melville Farjoy Pty Ltd Aust Executor Trustees Ltd Mrs Patricia Roberta Huntley Trephant Pty Ltd Libraries Board of South Australia Mr Philip Kidman Reid + Mrs Jean Phillips Reid Belanna Pty Limited Total top 20 security holders Total number of shares on issue 2) Substantial Shareholders Shares Held 53,561,922 8,311,237 8,206,475 7,297,357 2,971,846 1,866,429 1,820,737 1,591,649 1,464,328 1,257,079 1,140,731 1,028,408 957,043 917,655 895,927 890,052 840,000 833,161 820,887 792,070 % 13.59% 2.11% 2.08% 1.85% 0.75% 0.47% 0.46% 0.40% 0.37% 0.32% 0.29% 0.26% 0.24% 0.23% 0.23% 0.23% 0.21% 0.21% 0.21% 0.20% 97,464,993 394,143,000 24.71% As at 31 July 2009 the name and holding of substantial shareholder as disclosed in a notice received by the Parent is: Substantial Shareholders No. of Shares % of Total Washington H Soul Pattinson & Company Ltd 53,561,922 13.59% 2009 Annual Report 55 ASX Additional Information (continued) 3) Other Information: • There is no current on-market buy-back in place. • There were 171 (2008: 417) transactions in securities undertaken by the Parent and the total brokerage paid or accrued during the year was $81,124 (2008: $292,959) 4) Management Fees Management fees paid and accrued during the year ended 30 June 2009 to Souls Funds Management Limited were $529,802 (2008: $1,417,805). 5) Management Expense Ratio: The Management Expense Ratio (“MER”) is the total expenses of the Group for the financial year, as shown in the income statement, expressed as a percentage of the average total assets of the Group for the financial year. 30/06/04 30/06/05 30/06/06 30/06/07 30/06/08 30/06/09 0.69% 0.71% 0.56% 0.46% 0.46% 0.31% 56 2009 Annual Report 

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